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.

(Exact name of registrant as specified in charter)

 

 

1270 Avenue of the Americas, Suite 400

New York, New York 10020

(Address of principle executive offices)

 

 

Alexandre de Takacsy

Hottinger et Cie

3 Place des Bergues

C.P. 395

CH-1201 Geneva

Switzerland

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 1-888-SWISS-00

Date of fiscal year end: December 31

Date of reporting period: September 30, 2011

 

 

 

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Item 1. Schedule of Investments.

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THE SWISS HELVETIA FUND, INC.

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Schedule of Investments (Unaudited)		September 30, 2011

 

 

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See Notes to Schedule of Investments.

 

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THE SWISS HELVETIA FUND, INC.

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Schedule of Investments (Unaudited) (continued)		September 30, 2011

 

 

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See Notes to Schedule of Investments.

 

2

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THE SWISS HELVETIA FUND, INC.

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Schedule of Investments (Unaudited) (continued)		September 30, 2011

 

 

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See Notes to Schedule of Investments.

 

3

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THE SWISS HELVETIA FUND, INC.

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Schedule of Investments (Unaudited) (continued)		September 30, 2011

 

 

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See Notes to Schedule of Investments.

 

4

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THE SWISS HELVETIA FUND, INC.

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Schedule of Investments (Unaudited) (continued)		September 30, 2011

 

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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 Held as of 12/31/2010				Value as of 12/31/2010				Gross Additions				Gross Reductions				Income				Shares Held as of 9/30/2011				Value as of 9/30/2011
Addex Pharmaceuticals, Ltd.			352,155			$	3,706,298			$	—			$	—			$	—				352,155			$	2,911,686

 

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See Notes to Schedule of Investments.

 

5

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THE SWISS HELVETIA FUND, INC.

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Schedule of Investments (Unaudited) (concluded)		September 30, 2011

 

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 $29,264,918 or 7.80% of the Fund’s net assets. Additional information on these securities is as follows:

 

Security		Acquisition Date		Acquisition Cost
Aravis Biotech II, LP		July 31, 2007 – June 3, 2011		$	2,070,060
Biotie Therapies OYJ		October 17, 2008 – December 13, 2010†			2,118,548
EyeSense AG – Preferred Shares C		July 22, 2010			2,390,510
Ixodes AG, Preferred Shares B		April 7, 2011			1,634,699
Kuros Biosurgery AG		August 10, 2009 – August 28, 2009			2,516,639
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 – June 14, 2011			10,606,992
				$	27,574,193

 

†

Effective February 2, 2011, the Fund acquired shares of Biotie Therapies OYJ in exchange for shares of Synosia Therapeutics Holding AG which were acquired during the period noted.

5

The Fund has a fundamental investment policy that prohibits it from investing 25% or more of its total assets in a particular industry. As of September 30, 2011, the Fund had more than 25% of its total assets invested in the pharmaceutical sector as a result of the appreciation of the value of its existing investments against the value of its overall portfolio. The Fund will not invest in any additional companies in this sector until such time as the percentage of the Fund’s total assets invested in this sector is below 25%.

* Cost for Federal income tax purposes is $283,887,738 and net unrealized appreciation (depreciation) consists of:

 

Gross Unrealized Appreciation		$	93,929,967
Gross Unrealized Depreciation			(43,319,113	)
Net Unrealized Appreciation (Depreciation)		$	50,610,854

 

PORTFOLIO HOLDINGS
% of Net Assets
Common Stocks
Pharmaceuticals			25.93	%
Food & Beverages			22.45	%
Industrial Goods & Services			9.25	%
Banks			5.85	%
Personal & Household Goods			3.95	%
Chemicals			3.18	%
Financial Services			2.96	%
Insurance			2.82	%
Biotechnology			2.37	%
Medical Technology			1.53	%
Retailers			1.22	%
Construction & Materials			1.06	%
Private Equity Limited Partnerships			3.14	%
Convertible Corporate Bond			1.46	%
Preferred Stocks			1.97	%
Other Assets and Liabilities			10.86	%
			100.00	%

 

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See Notes to Schedule of Investments.

 

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THE SWISS HELVETIA FUND, INC.

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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 in accordance with accounting principles generally accepted in the United States (“GAAP”).

 

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 (a “Fair Value”). 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 which do not have readily available market quotations. For such investments, the Act requires the Board to determine their Fair Value. The Fund’s investments of this type have been Fair Valued at $29,264,918, or 7.80% of the Fund’s net assets at September 30, 2011, and are listed in Note 4 to the Schedule of Investments. These investments also are considered Level 3 investments under GAAP as described below.

 

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THE SWISS HELVETIA FUND, INC.

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Notes to Schedule of Investments (Unaudited) (continued)

 

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.)

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 September 30, 2011:

 

		Level 1 Quoted Prices				Level 2 Other Significant Observable Inputs				Level 3 Significant Unobservable Inputs				Total
Investments in Securities
Common Stock*		$	299,755,582			$	—			$	10,100,584			$	309,856,167
Preferred Stock			—				—				7,402,912				7,402,912
Convertible Corporate Bond			—				5,478,091				—				5,478,091
Private Equity Limited Partnerships			—				—				11,761,422				11,761,422
Total Investments in Securities		$	299,755,582			$	5,478,091			$	29,264,918			$	334,498,592

*	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, which are listed in Note 4 to the Schedule of Investments.

 

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 expe-

 

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THE SWISS HELVETIA FUND, INC.

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Notes to Schedule of Investments (Unaudited) (continued)

 

dient, 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.

 

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 nine-month period ended September 30, 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 Limited Partnerships				Total
Balance as of December 31, 2011		$	7,804,991			$	5,650,685			$	8,845,515			$	22,301,191
Change in Unrealized Appreciation/Depreciation			177,045				382,892				12,084				572,021
Net Realized Gain (Loss)			—				—				—				—
Gross Purchases			2,118,548				3,487,883				2,903,823				8,510,254
Gross Sales			—				(2,118,548	)			—				(2,118,548	)
Balance as of September 30, 2011		$	10,100,584			$	7,402,912			$	11,761,422			$	29,264,918

 

C. New Accounting Pronouncement

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”), which includes common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose quantitative information about the unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Levels 1 and 2 of the fair value hierarchy. The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. Management is currently evaluating the implications of ASU 2011-04 and its impact on the financial statements and related disclosures has not yet been determined.

 

D. 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, in the case of fixed-income securities, 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.

 

E. 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.

 

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THE SWISS HELVETIA FUND, INC.

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Notes to Schedule of Investments (Unaudited) (continued)

 

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 instrument underlying the written option. There is the risk 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 nine-month period ended September 30, 2011, and the Fund held no contracts at September 30, 2011.

 

F. 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.

 

G. 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.

 

H. 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.

 

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THE SWISS HELVETIA FUND, INC.

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Notes to Schedule of Investments (Unaudited) (concluded)

 

Note 2—Capital Commitments

As of September 30, 2011, the Fund invested in private equity partnerships and preferred stock. 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 the issuer of preferred stock are shown in the table below:

 

Investments		Original Capital Commitment*				Unfunded Commitments				Fair Value as of September 30, 2011
Private Equity Limited Partnerships—International (a)
Aravis Biotech II LP		$	3,578,113			$	1,164,318			$	2,128,066
Zurmont Madison Private Equity LP			15,413,410				3,117,569				9,633,356
Preferred Stock—International
EyeSense AG, Series C (b)			3,082,689				616,537				3,391,202

 

*	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, respectively. The exchange rate as of September 30, 2011 was used for conversion and equals 0.9083.

 

(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 SEMI-ANNUAL REPORT OR AUDITED ANNUAL REPORT. THESE REPORTS INCLUDE ADDITIONAL INFORMATION ABOUT CERTAIN SECURITY TYPES INVESTED IN BY THE FUND.

 

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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.

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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: November 22, 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: November 22, 2011

 

By (Signature and Title)*:		/s/    RUDOLF MILLISITS
		Rudolf Millisits, Chief Financial Officer

Date: November 22, 2011