UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-05128
THE SWISS HELVETIA FUND, INC.
1270 Avenue of the Americas, Suite 400
New York, New York 10020
1-888-SWISS-00
Alexandre de Takacsy
Hottinger et Cie
3 Place des Bergues
C.P. 395
CH-1201 Geneva
Switzerland
Date of fiscal year end: December 31
Date of reporting period: March 31, 2011
| Item 1. | Schedule of Investments. |
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) | March 31, 2011 | |
See Notes to Schedule of Investments.
1
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (continued) | March 31, 2011 | |
See Notes to Schedule of Investments.
2
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (continued) | March 31, 2011 | |
See Notes to Schedule of Investments.
3
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (continued) | March 31, 2011 | |
See Notes to Schedule of Investments.
4
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (continued) | March 31, 2011 | |
See Notes to Schedule of Investments.
5
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (continued) | March 31, 2011 | |
See Notes to Schedule of Investments.
6
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (continued) | March 31, 2011 | |
| 1 | One of the ten largest portfolio holdings. |
| 2 | Non-income producing security. |
| 3 | Affiliated Company. An affiliated company is a company in which the Fund has ownership of at least 5% of the company’s outstanding voting securities. Transactions during the year with companies which were affiliates are as follows: |
| Name of Issuer |
Shares |
Value as of |
Gross |
Gross |
Income |
Shares |
Value as of |
|||||||||||||||||||||
| Addex Pharmaceuticals, Ltd. |
352,155 | $ | 3,706,298 | $ | — | $ | — | $ | — | 352,155 | $ | 4,080,279 | ||||||||||||||||
| 4 | Illiquid. There is no public market for these securities. Securities priced at Fair Value as determined by the Board’s Pricing Committee. Restricted Securities are not registered under the Securities Act of 1933, as amended, other than Rule 144A securities. At the end of the period, the aggregate value of these securities amounted to $24,821,505 or 5.25% of the Fund’s net assets. Additional information on these securities is as follows: |
| Security |
Acquisition Date |
Acquisition |
||||
| Aravis Biotech II, LP |
July 31, 2007 — December 8, 2010 | $ | 1,759,036 | |||
| Biotie Therapies OYJ |
October 17, 2008 — December 13, 2010 | 2,118,548 | ||||
| Kuros Biosurgery Holding AG |
August 10, 2009 — August 28, 2009 | 2,516,639 | ||||
| EyeSense AG — Preferred Shares C |
July 22, 2010 | 2,149,305 | ||||
| NovImmune SA — Common Shares |
October 7, 2009 — December 11, 2009 | 1,551,109 | ||||
| NovImmune SA — Preferred Shares B |
October 7, 2009 — December 11, 2009 | 2,062,307 | ||||
| Spineart SA |
December 22, 2010 | 2,623,329 | ||||
| Zurmont Madison Private Equity, LP |
September 13, 2007 — January 13, 2011 | 8,641,962 | ||||
| $ | 23,422,235 | |||||
See Notes to Schedule of Investments.
7
THE SWISS HELVETIA FUND, INC.
| Schedule of Investments (Unaudited) (concluded) | March 31, 2011 | |
| * | Cost for Federal income tax purposes is $330,666,640 and net unrealized appreciation (depreciation) consists of: |
| Gross Unrealized Appreciation |
$ | 148,855,108 | ||
| Gross Unrealized Depreciation |
(21,803,243 | ) | ||
| Net Unrealized Appreciation (Depreciation) |
$ | 127,051,865 | ||
| PORTFOLIO HOLDINGS |
||||
| % of Net Assets |
||||
| Common Stocks |
||||
| Industrial Goods & Services |
16.09 | % | ||
| Pharmaceuticals |
15.94 | % | ||
| Food & Beverages |
15.92 | % | ||
| Banks |
7.01 | % | ||
| Energy |
5.89 | % | ||
| Insurance |
5.44 | % | ||
| Chemicals |
4.55 | % | ||
| Personal & Household Goods |
4.17 | % | ||
| Retailers |
3.91 | % | ||
| Biotechnology |
2.63 | % | ||
| Technology |
2.40 | % | ||
| Construction & Materials |
2.21 | % | ||
| Financial Services |
1.99 | % | ||
| Medical Technology |
1.98 | % | ||
| Travel & Leisure |
1.91 | % | ||
| Private Equity Limited Partnerships |
2.01 | % | ||
| Convertible Corporate Bond |
1.74 | % | ||
| Preferred Stocks |
1.01 | % | ||
| Other Assets and Liabilities |
3.20 | % | ||
| 100.00 | % | |||
See Notes to Schedule of Investments.
8
THE SWISS HELVETIA FUND, INC.
Notes to Schedule of Investments (Unaudited)
Note 1—Organization and Significant Accounting Policies
A. Organization
The Swiss Helvetia Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified, closed-end management investment company. The Fund is organized as a corporation under the laws of the State of Delaware.
The investment objective of the Fund is to seek long-term growth of capital through investment in equity and equity-linked securities of Swiss companies. The Fund may also acquire and hold equity and equity-linked securities of non-Swiss companies in limited instances.
B. Securities Valuation
The Fund values its investments at fair value.
When valuing listed equity securities, the Fund uses the last sale price prior to the calculation of the Fund’s net asset value (“NAV”). When valuing equity securities that are not listed or that are listed but have not traded, the Fund uses the mean between the bid and asked prices for that day.
When valuing fixed income securities, the Fund uses the last bid price prior to the calculation of the Fund’s NAV. If a current bid price is not available, the Fund uses the mean between the last quoted bid and asked prices. When valuing fixed income securities that mature within sixty days, the Fund uses amortized cost, which approximates fair value.
It is the responsibility of the Fund’s Board of Directors (the “Board”) to establish fair valuation procedures. When valuing securities for which market quotations are not readily available, or for which the market quotations that are available are considered unreliable, the Fund determines a fair value in good faith in accordance with these procedures. The Fund may use these procedures to establish the fair value of securities when, for example, a significant event occurs between the time the market closes and the time the Fund values its investments. After consideration of various factors, the Fund may value the securities at their last reported price or at some other value. Additional consideration is given to securities that have experienced a decrease in the volume or level of activity or to circumstances that indicate that a transaction is not orderly.
Swiss exchange-listed options or options that are not listed at the request of a counterparty are valued using implied volatilities as input into widely accepted models (e.g., Black-Scholes). Eurex-listed options are valued at their most recent sale price (latest bid for long options and the latest ask for short options), or if there are no such sales, at the average of the most recent bid and asked quotations, or if such quotations are not available, at the last bid quotation (in the case of purchased options) or the last asked quotation (in the case of written options); however, if there are no such quotations, such contracts will be valued using the implied volatilities observed for similar options as an input to a model. Options traded in the over-the-counter market are valued at the price communicated by the counterparty to the option, which typically is the price at which the counterparty would close out the transaction.
The Fund is permitted to invest in alternative investments that do not have a readily determinable fair value, and, as such, has elected to use the NAV of these investments, as a practical expedient, as calculated on the fund’s measurement date as the fair value of the investment.
Various inputs are used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical assets and liabilities
Level 2—other significant observable inputs (including quoted prices of similar securities, interest rates, prepayment speeds, credit risk, etc.)
9
THE SWISS HELVETIA FUND, INC.
Notes to Schedule of Investments (Unaudited) (continued)
Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of March 31, 2011:
| Level
1 |
Level
2 |
Level
3 |
Total |
|||||||||||||
| Investments in Securities |
||||||||||||||||
| Common Stock* |
$ | 424,655,212 | $ | — | $ | 10,538,824 | $ | 435,194,036 | ||||||||
| Preferred Stock |
— | — | 4,791,869 | 4,791,869 | ||||||||||||
| Convertible Corporate Bond |
— | 8,241,788 | — | 8,241,788 | ||||||||||||
| Private Equity Limited Partnerships |
— | — | 9,490,812 | 9,490,812 | ||||||||||||
| Total Investments in Securities |
$ | 424,655,212 | $ | 8,241,788 | $ | 24,821,505 | $ | 457,718,505 | ||||||||
| * | Please see the Schedule of Investments for Industry classifications. |
The inputs and valuation techniques used to value Level 2 securities, which consist of an exchange-listed corporate convertible bond, are based on a pricing service model, which may include consideration of dealer quotes, trade execution data, conversion prices compared to the current market quotation of the underlying stock and, when available, the last sale price on the exchange on which it trades.
Level 3 securities consist of the Fund’s investments in privately-held companies and the Fund’s investments in limited partnerships (“private equity partnerships”) that invest in privately-held companies. The Fund values all of its investments in accordance with accounting principles generally accepted in the United States (“GAAP”).
Inputs and valuation techniques used by the Fund to value its Level 3 investments in privately-held companies may include the following: acquisition cost; fundamental analytical data; nature and duration of restrictions on disposition of the investment; public trading of similar securities of similar issuers; economic outlook and condition of the industry in which the issuer participates; financial condition of the issuer; and the issuer’s prospects, including any recent or potential management or capital structure changes.
The Fund values its Level 3 investments in private equity partnerships in accordance with Accounting Standards Codification 820-10-35, “Investments in Certain Entities that Calculate Net Asset Value Per Share (Or its Equivalent)” (“ASC 820-10-35”). ASC 820-10-35 permits a reporting entity to measure the fair value of an investment that does not have a readily determinable fair value, based on the NAV of the investment 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 NAV of the investment is not as of the Fund’s measurement date, then the NAV should be adjusted to reflect any significant events that may change the valuation. Inputs and valuation techniques for these adjustments may include fair valuations of the partnerships and their portfolio holdings provided by the partnerships’ general partners or managers, other available information about the partnerships’ portfolio holdings, values obtained on redemption from other limited partners, discussions with the partnerships’ general partners or managers and/or other limited partners and comparisons of previously-obtained estimates against the partnerships’ audited financial statements. 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 the investment strategies of the privately held companies and may also include, but are not limited to, restrictions on the investor’s ability to redeem its investments at the measurement date and any unfunded commitments.
10
THE SWISS HELVETIA FUND, INC.
Notes to Schedule of Investments (Unaudited) (continued)
When valuing Level 3 investments, management also may consider potential events that could have a material impact on the operations of a privately-held company or private equity partnership. Not all of these factors may be considered or available, and other relevant factors may be considered on an investment-by-investment basis.
The Fund has adopted a policy of recognizing significant transfers between all Levels based on their market prices at the reporting period end. For the three-month period ended March 31, 2011, there were no significant transfers between Level 1, Level 2, and Level 3.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
| Common Stock |
Preferred Stock |
Private Equity |
Total |
|||||||||||||
| Balance as of December 31, 2010 |
$ | 7,804,991 | $ | 5,650,685 | $ | 8,845,515 | $ | 22,301,191 | ||||||||
| Change in Unrealized Appreciation/Depreciation |
615,285 | (352,247 | ) | 483,385 | 746,423 | |||||||||||
| Net Realized Gain (Loss) |
— | (241,205 | ) | — | (241,205 | ) | ||||||||||
| Gross Purchases |
2,118,548 | 1,853,184 | 161,912 | 4,133,644 | ||||||||||||
| Gross Sales |
— | (2,118,548 | ) | — | (2,118,548 | ) | ||||||||||
| Balance as of March 31, 2011 |
$ | 10,538,824 | $ | 4,791,869 | $ | 9,490,812 | $ | 24,821,505 | ||||||||
C. When-Issued and Delayed-Delivery Transactions
The Fund may purchase or sell securities on a when-issued or delayed-delivery basis. The Fund records when-issued or delayed-delivery securities as of trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked-to-market daily and begin earning interest on the settlement date. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, which may result in a capital gain or loss. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
D. Options
The Fund may buy call options and put options, and may sell (write) covered call options. Options may be entered into on securities in which the Fund may invest and on Swiss stock indices. Option contracts are utilized to manage the Fund’s exposure to changing security prices and to generate income. Purchasing call options tends to increase the Fund’s exposure to the underlying instrument. Purchasing put options tends to decrease the Fund’s exposure to the underlying instrument. The Fund pays a premium as an investment that is subsequently marked-to-market to reflect the current value of the option purchased. Premiums paid for purchasing options which expire are treated as realized losses. The risk associated with purchasing put and call options is limited to the premium paid and the exposure to the risk that the counterparty would be unable to meet the terms of the contract. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying instrument to determine the realized gain or loss.
Writing call options tends to decrease the Fund’s exposure to the underlying instrument. When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a call option, an amount equal to the premium received is recorded as a liability and subsequently marked-to-market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying instrument to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the option will be exercised and, as a result, bears the market risk of an unfavorable change in the price of the
11
THE SWISS HELVETIA FUND, INC.
Notes to Schedule of Investments (Unaudited) (continued)
instrument underlying the written option. There is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid market.
The Fund did not have any written call option transactions during the three-month period ended March 31, 2011.
E. Foreign Currency Translation
The Fund maintains its accounting records in U.S. dollars. The Fund’s assets are invested primarily in Swiss equities and equity-linked securities. In addition, the Fund makes its temporary investments in Swiss franc-denominated bank deposits, short-term debt securities and money market instruments. Substantially all income received by the Fund is in Swiss francs. The Fund’s NAV, however, is reported, and distributions from the Fund are made, in U.S. dollars resulting in gain or loss from currency conversions in the ordinary course of business. Historically, the Fund has not entered into transactions designed to reduce currency risk and does not intend to do so in the future. The cost basis of foreign denominated assets and liabilities is determined on the date that they are first recorded within the Fund and translated to U.S. dollars. These assets and liabilities are subsequently valued each day at prevailing exchange rates. The difference between the original cost and current value denominated in U.S. dollars is recorded as unrealized foreign currency gain/loss. In valuing securities transactions, the receipt of income and the payment of expenses, the Fund uses the prevailing exchange rate on the transaction date.
F. Estimates
The preparation of financial statements in conformity with 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 the Schedule of Investments. Actual results could differ from those estimates.
G. Concentration of Market Risk
The Fund primarily invests in securities of Swiss issuers. Such investments may carry certain risks not ordinarily associated with investments in securities of U.S. issuers. These risks include future political and economic developments, unfavorable movements in the U.S. dollar relative to the Swiss franc, and the possible imposition of exchange controls and changes in governmental law and restrictions. In addition, concentrations of investments in securities of issuers located in a specific region exposes the Fund to the economic and government policies of that region and may increase risk compared to a fund whose investments are more diversified.
Note 2—Capital Commitments
As of March 31, 2011, the Fund invested in private equity partnerships and preferred stocks. The Fund’s investments are summarized in the Schedule of Investments. The Fund’s capital commitments and the amounts disbursed to the private equity partnerships and preferred stocks are shown in the table below:
| Investments |
Original Capital |
Unfunded |
Fair Value as of |
|||||||||
| Private Equity Limited Partnerships—International (a) |
||||||||||||
| Aravis Biotech II LP |
$ | 3,552,495 | $ | 1,440,181 | $ | 1,952,344 | ||||||
| Zurmont Madison Private Equity LP |
15,303,055 | 5,401,393 | 7,538,468 | |||||||||
| Preferred Stock—International |
||||||||||||
| EyeSense AG, Series C (b) |
3,060,618 | 612,123 | 2,448,495 | |||||||||
| * | The original capital commitment represents 3,250,000, 14,000,000 and 2,800,006 Swiss francs for Aravis Biotech II LP, Zurmont Madison Private Equity LP and EyeSense AG, Series C respectively. The exchange rate as of March 31, 2011 was used for conversion and equals 0.9149. |
12
THE SWISS HELVETIA FUND, INC.
Notes to Schedule of Investments (Unaudited) (concluded)
| (a) | This category includes two private equity limited partnerships that invest primarily in ventures, biotechnology and in management buyout of industrial and consumer goods companies. There is no redemption right for the interests in these two funds. Instead, the nature of the investments in this category is that distributions are received through the realization of the underlying assets of a fund. If these investments were held, it is estimated that the underlying assets of each fund would be realized over 4 to 6 years. |
| (b) | The unfunded commitment for this security represents future payments contingent upon contractual milestones achieved by EyeSense. |
THE SCHEDULE OF INVESTMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE FUND’S SEMIANNUAL REPORT OR AUDITED ANNUAL REPORT. THESE REPORTS INCLUDE ADDITIONAL INFORMATION ABOUT CERTAIN SECURITY TYPES IN WHICH THE FUND INVESTS.
13
| Item 2. | Controls and Procedures. |
| (a) | The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-Q is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| Item 3. | Exhibits. |
Certifications pursuant to Rule 30a-2(a) are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) |
The Swiss Helvetia Fund, Inc. | |
| By (Signature and Title)* |
/s/ Rudolf Millisits | |
| Rudolf Millisits, Chief Executive Officer |
| Date May 25, 2011 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* |
/s/ Rudolf Millisits | |
| Rudolf Millisits, Chief Executive Officer |
| Date May 25, 2011 | ||
| By (Signature and Title)* |
/s/ Rudolf Millisits | |
| Rudolf Millisits, Chief Financial Officer |
| Date May 25, 2011 | ||