DW Catalyst Fund Ltd - Annual Financial Report

DW Catalyst Fund Limited
Annual Report and Audited Financial Statements 2016

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS

31 December 2016

The Directors of DW Catalyst Fund Limited announce the results for the year ended 31 December 2016. The Annual Report and Audited Financial Statements will shortly be available via the Company's website www.dwcatalystltd.com and will shortly be available for inspection online at www.morningstar.co.uk/uk/NSM.

For the year ended 31 December 2016, DW Partners, LP, was the commodity pool operator of DW Catalyst Fund Limited (the “Company”) and filed a claim of exemption with the Commodity Futures Trading Commission (the “CFTC”) in respect of the Company pursuant to Section 4.7 of the CFTC regulations.

CHAIR’S STATEMENT

During 2016, I am pleased to say, performance turned around and the Company again delivered positive returns to its shareholders. The NAV per share of the Company appreciated 4.2% (net of fees) in 2016.

All strategies were positive for the year, with gains led by Corporate Credit & Special Situations and Structured Finance. Returns in Corporate Credit & Special Situations accelerated into year-end as specific events and catalysts unlocked value in a range of long and short positions. Structured Finance profited throughout the year as the legacy RMBS portfolio was traded and harvested. Commercial Real Estate struggled through the first three quarters amid weakness in the CMBS market but recovered in Q4 to end the year in positive territory. 

The Company's strong performance, particularly in 2016, was gratifying to see. Consistent with DW Partners, LP’s (the “Manager”) mission, returns were driven by idiosyncratic events: company earnings and announcements, bankruptcy processes and negotiations, commercial mortgage loan payoffs and foreclosure outcomes and residential MBS sales at lower yields. While credit markets experienced large beta moves in 2016, the Manager continued to focus on situations and securities with identifiable catalysts and attractive risk-reward opportunities.

As we enter 2017, the investing world may now face meaningful inflection points with respect to fiscal, tax, trade, central bank and regulatory policy. As we engage this transforming landscape, DW will continue with the same approach to managing the Catalyst Fund portfolio, with an aim, as always, to create a bottom-up built portfolio with:

•           asymmetric investments, some that other investors would deem “complex”, based on deep fundamental research;

•           substantial portfolio diversification with modest idiosyncratic risks;

•           a conservative level of fund leverage; and

•           ample liquidity.

Against this backdrop, however, shares in the Company have continued to trade at an average discount of 11.29% to NAV throughout the year, ending December at 8.67%. This persistent discount led to a Discount Trigger meeting being held on the 9 March 2017.

The Company subsequently announced the results of the Discount Trigger Meeting at which the Discount Trigger Resolution contained in the circular to shareholders dated 17 February 2017 (the “Circular”) was passed on a poll. Accordingly, the Company will redeem all shares which were voted in favour of the Discount Trigger Resolution in accordance with the expected timetable set out in notes to financial statements of this report.

The votes cast in respect of the Discount Trigger Resolution (which was passed as an ordinary resolution) were as follows:

Votes for:                     5,389,739 (91.73%)

Votes against:              486,219 (8.27%)

Votes withheld:                        0 (0.00%)

Redeeming Shares will be redeemed by the Company beginning on 1 August 2017 and paid out over four quarters according to the payment schedule outlined in the Circular.

Following the share redemption on 1 August 2017, there will be 3,959,578 Sterling shares in issue.

Following the meeting the Board will now consider all options available to the Company and make decisions on the strategic direction of the Company in the coming months. The Company will revert to Shareholders in due course.

The performance of the Catalyst Fund in 2016 was achieved on the back of a year with significant market and political turbulence. The Board continues to have full confidence in DW and future return prospects for the Company.

Charlotte Valeur
Chair
31 March 2017

BOARD MEMBERS

The Directors of the Company, all of whom are non-executive, are listed below:

Charlotte Valeur (Chair), age 53
Charlotte Valeur is the Managing Director of GFG Ltd, a Governance consultancy, which she founded in 2011. Ms Valeur has in excess of 30 years’ experience in the financial markets. Prior to GFG, Ms Valeur was the Managing Partner at Brook Street Partners Ltd from January 2003. Prior to Brook Street Partners, she worked in the City of London as a director in Capital Markets with various international banks. She began her career in Copenhagen in 1982 with Nordea A/S. In 1991, she moved to the London office of Nordea A/S. Ms Valeur currently serves as a non-executive director on boards and committees of listed and unlisted companies including NED of JPMorgan Global Convertibles Income Fund Limited and NTR Plc. She is the Chair of Kennedy Wilson Europe Real Estate Plc and of Blackstone/GSO Loan Financing Limited. Ms Valeur is a member of the Institute of Directors and is regulated by the Jersey Financial Services Commission in the conduct of Trust Company business. She is a resident of Jersey. Ms Valeur is the Chair of the Company’s Board of Directors. Ms Valeur was appointed to the Board in 2010.

Keith Dorrian (Senior Independent Director), age 70
Keith Dorrian has over 40 years’ experience in the offshore finance industry. Joining Manufacturers Hanover in 1973, he moved to First National Bank of Chicago in 1984. In 1989, he joined ANZ Bank (Guernsey) where as a director of the Bank and Fund Management company he was closely involved in the banking and fund management services of the ANZ group. He took up the position of “Investment Manager - Corporate Clients” at the Bank of Bermuda Guernsey in 1999 and was appointed local Head of Global Fund Services, CEO and managing director of their fund administration company in 2001, retiring on 31 December 2003. He is currently a Director of a number of fund and fund management companies. He is a Director of the following listed companies: AB Alternative Strategies PCC Limited, AB International Fund PCC Limited, IIAB PCC Limited, Master Capital Fund Limited and Third Point Offshore Investors Limited. Mr Dorrian holds the Institute of Directors Diploma in Company Direction. Mr Dorrian has been elected a Fellow of the Institute of Directors. He is a resident of Guernsey. Mr Dorrian was appointed to the Board in 2010 and has indicated his intention not to put himself forward for re-election at the 2017 Annual General Meeting.

Patrick Firth, age 55
Patrick Firth qualified as a Chartered Accountant with KPMG in 1991 where he gained experience of the audit of a variety of financial services companies and investment funds. He joined Rothschild Asset Management (C.I.) Limited in 1992, where he assumed responsibility for the fund administration team. On the acquisition of the company by BISYS Fund Services in February 1999, Mr Firth became Head of Operations and subsequently Managing Director before moving to become Managing Director of Butterfield Fund Services (Guernsey) Limited (subsequently Butterfield Fulcrum Group (Guernsey) Limited), a company providing third party fund administration services, where he worked from April 2002 until June 2009. He is a member of the Institute of Chartered Accountants in England and Wales and the Chartered Institute for Securities and Investment. He is also a Director of a number of offshore funds and management companies, including JZ Capital Partners Limited, ICG-Longbow Senior Secured UK Property Debt Investments Limited, Riverstone Energy Limited and NextEnergy Solar Fund Limited. He is Chairman of GLI Finance Limited. He is a resident of Guernsey. Mr Firth was appointed to the Board in 2010.

Christopher Waldron, age 52
Christopher Waldron has extensive experience in international asset management and is a Director of a number of listed and unlisted companies, including GBD Limited, Multi Investment Manager Investment Programmes PCC Limited, JZ Capital Partners Limited and Crystal Amber Fund Limited. He is also Chairman of UK Mortgages Limited and Ranger Direct Lending Fund Plc and a member of the States of Guernsey’s Investment and Bond Management Sub-Committee. He began his career with James Capel as a graduate in 1986, working initially as an institutional equity broker and later specialising in equity derivatives. He subsequently held investment management positions with Bank of Bermuda, the Jardine Matheson Group and Fortis before joining the Edmond de Rothschild Group in Guernsey as Investment Director in 1999, overseeing a team of Investment Managers specialising in fixed income and alternative investment strategies. He was appointed Managing Director of the Edmond de Rothschild companies in Guernsey in 2008, a position he held until 2013, when he stepped down to devote more time to non-executive work and investment consultancy. He is a graduate of London and Cranfield Universities and a Fellow of the Chartered Institute for Securities and Investment. He is a Guernsey resident. Mr Waldron was appointed to the Board in 2010.

Andrew Rosenthal, age 58

Andrew Rosenthal was the Chief Operating Officer of DW Partners, LP from January 2010 until May 2016. He currently serves on the Board of the DW Catalyst Master Fund Limited. Before joining DW, Andrew spent 13 years at Morgan Stanley where most recently he was an Executive Director in the Securitised Products Group in charge of principal investments in distressed consumer credit (2005-2007). Prior, he served as the Securitised Products Group’s Operations Officer and was a member of the Global Large Loan Committee. From 1994 to 1999, Mr Rosenthal was co-head of Morgan Stanley’s mortgage-backed derivatives trading effort. Prior to joining Morgan Stanley, Mr Rosenthal spent six years at Credit Suisse First Boston as head of mortgage-backed derivatives trading (1988-1994) and four years at Bear Stearns trading collateralised mortgage obligation residuals. He began his career as an Analyst in Morgan Stanley’s Mergers and Acquisitions Department (1980-1982). Mr Rosenthal has a BS in Economics, cum laude, from the Wharton School of the University of Pennsylvania and an MBA from Harvard University. He is a resident of the United States of America. Mr Rosenthal was appointed to the Board in 2015.

STRATEGIC REPORT

The Company

DW Catalyst Fund Limited (the “Company”) is a registered closed-ended collective investment scheme incorporated with limited liability in Guernsey on 19 October 2010, with registration number 52520.

The Company was admitted to a Premium Listing on the Official List of the London Stock Exchange (“LSE”) on 14 December 2010.

At the Extraordinary General Meeting held on 19 December 2014, shareholders approved the Company’s new investment policy, new management agreement, name change of the Company and amendments to the Company’s Articles of Incorporation with effect from 1 January 2015.

The Company changed its name to DW Catalyst Fund Limited from BH Credit Catalysts Limited and changed its Manager to DW Partners, LP (“DW” or “Manager”) from Brevan Howard Capital Management LP (“BHCM”).

Full details were set out in the Circular dated 28 November 2014 which is available on the Company’s website, www.dwcatalystltd.com.

The Company initially issued Sterling and US Dollar share classes. On 29 March 2016, the Company announced that as at 29 February 2016, the net asset value of its US Dollar share class had fallen below US$25 million. Below this level, the Articles of Incorporation allow the Directors to convert all of the shares of the affected class into shares of another class. Thus, the Company decided to convert the outstanding US Dollar shares into Sterling shares by reference to the respective net asset values of each class of shares as at 31 March 2016. The compulsory conversion of the US Dollar shares into Sterling shares took place on 26 April 2016, following which the US Dollar share class was closed. The Company now has only Sterling shares in issue and the Company’s share class conversion facility was withdrawn.

The Board

The Board is responsible for the overall stewardship of the Company, including general management, structure, finance, corporate governance, marketing, risk management, compliance, asset allocation and performance. Biographical details of the Directors, all of whom are non-executive, are listed on the Board Members section and on the Company Information. Andrew Rosenthal is not independent of the Manager for the purposes of LR 15.2.12-A as he serves as a director of DW Catalyst Master Fund, Ltd, which is also managed by the Manager. The Company has no executive directors or employees.

The Board has contractually delegated to external parties various functions as disclosed in the Corporate Governance Statement.

Investment Policy

The Company’s investment objective is to seek to generate high absolute returns through exposure to financial assets predominantly in the real estate, energy assets, private equity, corporate credit, mortgage-backed securities and asset-backed securities markets.

Previously, the Company’s investment policy was to invest all of its assets in Brevan Howard Credit Catalysts Master Fund Limited (“BHCC”, now known as DW Catalyst Master Fund, Ltd. (the “Master Fund”)), an open-ended investment company with limited liability formed under the laws of the Cayman Islands.

The Company’s current investment policy is to invest its assets in the DW Catalyst Offshore Fund, Ltd. (the “Feeder Fund,” together with the DW Catalyst Master Fund, Ltd. (the “Master Fund”) the “Catalyst Fund”). The Feeder Fund holds its investment in the Master Fund via an intermediate entity, DW Catalyst Investments Ltd (the “Cayman Corporation”), a Cayman corporation, which is wholly owned by the Feeder Fund. The Cayman Corporation acts as a corporate blocker for US federal income tax purposes and its only asset is its shareholding in the Master Fund.

The Cayman Corporation is consolidated in the Financial Statements of the Feeder Fund.

The Financial Statements of the Company should be read in conjunction with the Consolidated Financial Statements of the Master Fund and the Consolidated Financial Statements of the Feeder Fund, which can be found on the Company’s website, www.dwcatalystltd.com.

The Master Fund seeks to employ a multi-strategy approach to investing in order to generate attractive risk- adjusted returns via careful investment selection, portfolio construction, and risk management. The Master Fund makes fundamental research-based investments, opportunistically deploying capital across a broad range of asset types and strategies including, but not limited to the following: distressed; long/short credit and equity; event driven and special situations; securitised and structured product strategies involving a wide range of collateral including, but not limited to residential mortgages, commercial mortgages, student loans, corporate loans and derivatives, consumer loans, equipment leases and other collateral types as well as direct investments in real estate, energy assets and private equity. The Master Fund invests globally, taking positions in both developed and emerging markets. Positions may be in the form of securities, derivatives, claims, real assets or other asset types.

The Master Fund and Feeder Fund are permitted to acquire holdings in illiquid investments for which there may be no immediate readily assessable market value.

In instances in which the Investment Manager of the Feeder Fund determines, in its sole and absolute discretion, that it would be appropriate to do so for tax, regulatory, operational or other reasons, the Feeder Fund may invest a portion of its assets in investments that are held through specifically formed holding entities (“Specific Investments”), rather than through the Master Fund. Specific Investments are required to be consistent with the Master Fund’s investment objective, strategy and approach. As at 31 December 2016, 5.45% of the Feeder Fund’s NAV was held in Specific Investments. For additional information, refer to the Feeder Fund’s audited financial statements.

The Feeder Fund, the Master Fund and the Cayman Corporation, through their investment manager, DW, have agreed with the Company that for so long as the Company is invested in the Feeder Fund, (a) the Master Fund will hold at least 20 different investments and, at the time of investment, no investment will represent more than 20% of its gross assets and (b) at the time of investment, no more than 30% of the gross assets of the Feeder Fund will be invested in Specific Investments with no one Specific Investment (or, where a Specific Investment consists of a number of underlying investments, no one such underlying investment) representing more than 20% of the gross assets of the Feeder Fund. Neither the Master Fund nor the Feeder Fund will be required to liquidate any portion of its portfolio to remain within these diversification requirements. In addition, in determining whether an investment in an index complies with these diversification requirements, compliance will be determined by reference to the index constituents (by number and by weighting of the constituents) and not by treating the index as a single investment or security.

The Company may not incur borrowings other than for the purpose of financing share repurchases or redemptions or satisfying working capital requirements, and subject to outstanding borrowings being in compliance with the borrowing limit in its articles of incorporation of 20% of the net asset value of the Company, calculated as at the time of borrowing. The Master Fund and the Feeder Fund are not subject to any limitations on their ability to incur leverage.

The Manager

With effect from 1 January 2015, the Company entered into a new management agreement with DW (the “DW Management Agreement”) regarding the management of the Company and terminated the existing management agreement between the Company and BHCM (the “BH Management Agreement”).

Following the implementation of the DW Management Agreement, the Company appointed DW as manager. Prior to 1 January 2015, DW served as investment manager for BHCC, responsible for the underlying investment of the Company’s funds since its inception. Since 1 January 2015, DW assumed management responsibilities for the Company, the Feeder Fund, the Master Fund and the Cayman Corporation.

DW is registered with the US Securities Exchange Commission as an investment adviser under the United States Investment Advisers Act of 1940, as amended. DW is also registered with the US Commodities and Futures Trading Commission (“CFTC”) as a commodity pool operator and is a member of the US National Futures Authority. DW is exempt from registration with the CFTC as a commodity trading advisor.

The general partner of DW is DW Investment Partners, LLC. For the purposes of the third country marketing provisions of the Alternative Investment Fund Managers Directive, DW is the Alternative Investment Fund Manager (“AIFM”) of the Company for the purposes of the European Union Alternative Investment Fund Manager Directive (“AIFMD”).

Performance

An outline of performance and market reviews of the year under consideration, as well as outlook is provided in the Chair’s Statement and the Manager’s Report.

Key Performance Indicators (“KPI’s”)

At each quarterly Board meeting, the Board considers a number of performance measures to assess the Company’s success in achieving its objectives. Below are the main KPI’s for Sterling Shares which have been identified by the Board for determining the progress of the Company:

						31.12.16		31.12.15
Net asset value per share						£12.99		£12.47
Market price per share						11.86p		11.17p
Ongoing charges						3.06%		2.83%

The Board evaluates these KPI’s on both their absolute values and on a relative basis compared with the Company’s peers.

Shareholder Value

The Board reviews on an ongoing basis the performance of the Manager and considers whether the investment strategy utilised is likely to achieve the Company’s investment objective. The Board has agreed that the interests of the shareholders as a whole are best served by the continuing appointment of the Manager on the terms agreed.

Principal Risks and Uncertainties

The Board is responsible for the Company’s system of internal control and for reviewing its effectiveness. As stated within the Corporate Governance Statement, the Board is satisfied that by using the Company’s risk matrix, the Board has carried out a robust assessment of the principal risks and uncertainties facing the Company.

The principal risks which have been identified and the steps which are taken by the Board to mitigate them are as follows:

·     Investment Risks: The Company is exposed to the risk that its portfolio fails to perform in line with the Company’s objectives if it is inappropriately invested or markets move adversely. The consequence of this may be a widening discount to the Net Asset Value (“NAV”). The Board reviews reports from the Manager at each quarterly Board meeting, paying particular attention to the diversification of the portfolio and to the performance and volatility of underlying investments. Further details on Investment Risks are disclosed in the Manager’s Report;

·     Market Risks: The Company and the Feeder Fund expect to be exposed to a number of market risks as a result of the types of investments that the Feeder Fund makes and the investment entities in which it invests. The Board believes that this exposure to market risks will relate primarily to changes in the values of publicly traded and over-the-counter securities, and a variety of direct investments that are held for investment, the credit risk of counterparties, movements in prevailing interest rates, changes in foreign currency exchange rates, risks arising from hedging arrangements and the risk of insolvency of any of its prime brokers and custodians. The Feeder Fund may seek to mitigate such risks through the use of hedging arrangements and derivative instruments, which could subject it to additional risks and which may not be completely effective. The Board reviews reports provided by the Manager on the controls in place to mitigate these risks at each quarterly Board meeting;

·     Operational Risks: The Company is exposed to the risks arising from any failure of systems and controls in the operations of the Manager, the Master Fund’s Administrator (IFS) or Prime Brokers, or Northern Trust International Fund Administration Services (Guernsey) Limited (the “Administrator”). The Board receives reports annually from the Manager and Administrator on their internal controls and reviews pricing reports covering the valuations of underlying investments at each quarterly Board meeting;

·     Accounting, Legal and Regulatory Risks: The Company is exposed to risk if it fails to comply with the regulations of the UK Listing Authority, Guernsey Financial Services Commission, or if it fails to maintain accurate accounting records. The Administrator as well as the Company’s auditors and external legal counsel all provide the Board with regular reports on changes in regulations and accounting requirements; and

·     Financial Risks: The financial risks faced by the Company, include market, credit and liquidity risk. These risks and the controls in place to mitigate them are reviewed at each quarterly Board meeting. For additional information in relation to the Master Fund’s financial risks, refer to note 9 of the Master Fund’s audited financial statements.

The Board reviews and updates the risk matrix at each quarterly Board Meeting to reflect any changes in the control environment.

Viability Statement

In accordance with the AIC Code of Corporate Governance (the “AIC Code”), the Board has assessed the prospect of the Company over a longer period than the 12 months minimum required by the ‘Going Concern’ provision. Following the reduction of the size of the Company resulting from the Discount Trigger EGM and the possibility of a further continuation vote after December 2017, the Board considers that two years is an appropriate period to assess the viability of the Company (the “Viability Period”). This determination was based on a review of the Company’s investment horizon, anticipated cash flows, management arrangements as well as the liquidity of the Company’s investment in the Feeder Fund.

The Board’s assessment of the Company over the Viability Period has been made with reference to the Company’s current position and prospects, the Company’s strategy, and the Board’s risk appetite having considered each of the Company’s principal risks and uncertainties summarised above. Additionally, the Board has reviewed the Company’s investment in the Feeder Fund and considered the consequences of the Discount Trigger EGM held on 9 March 2017, which will result in a significant reduction in the size of the Company.

The investment objective of the Company is to invest nearly all of its assets in the Feeder Fund. The Feeder Fund holds its investment in the Master Fund via the Cayman Corporation (together with the Feeder Fund, the Master Fund and Specific Investments, the “Catalyst Funds”). The Company’s performance and operations therefore depend upon the performance of the Catalyst Funds and the Manager. In assessing the viability of the Company, the Board pays particular attention to the risks facing the Catalyst Funds. As part of this review, the Board considered the performance, projected capital activity, results of stress tests, and recent trading activity of the Catalyst Funds. This information is provided to the Board for review by the Manager on a regular basis. Additionally, the Board engages the Manager in on-going discussions around the risk management processes governing the Catalyst Funds’ investments.

The continuation of the Company in its present form is dependent on the DW Management Agreement remaining in place during the Viability Period. The Board acknowledges the twenty four month notice period required of the Company’s Manager when serving notice under the DW Management Agreement. To mitigate this risk, the Board meets regularly with the Manager to review the Company’s performance, and through the Management Engagement Committee they monitor the relationship with the Manager.

The Board is considering all strategic options available to the Company following the recent Discount Trigger EGM, and will liaise with the Manager and shareholders to formulate the most appropriate structure to preserve and enhance future value for shareholders.

Shares trading at a discount to NAV for an extended period may impact the viability of the Company. The potential for the Company’s shares to trade at a significant discount to NAV, and the potential inability of the Board to manage such a share price discount to NAV may cause shareholder dissatisfaction. The Company’s discount management programme is described within note 7 including details as to conditions that are required to meet the Discount Trigger Extraordinary Meeting. The Board monitors the share price in relation to NAV on a regular basis and utilises its ability to repurchase shares.

Based on the Company’s processes for monitoring operating costs, share price discount, the Manager’s compliance with the investment objective and robust assessment of the principal risks and uncertainties facing the Company, the Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the 24 Month Viability Period.

Future Developments

The future performance of the Company depends upon the success of the Company’s investment strategy in the light of economic factors, costs and expenses and regional market developments. Further comments from the Manager on the outlook for the Investment Strategy of the Master Fund for the next for the next 12 months are set out in both the Chair’s Statement and the Manager’s Report.

DIRECTORS’ REPORT

The Directors submit their Annual Report together with the Company’s Audited Statement of Assets and Liabilities, Audited Statement of Operations and Performance Allocation, Audited Statement of Changes in Net Assets, Audited Statement of Cash Flows, and the related notes for the year ended 31 December 2016 (collectively, the “Audited Financial Statements”). The Directors’ Report together with the Audited Financial Statements (the “Financial Statements”) and their related notes give a true and fair view of the financial position of the Company. They have been prepared properly, in conformity with United States Generally Accepted Accounting Principles (“US GAAP”) and are in accordance with any relevant enactment for the time being in force and are in agreement with the accounting records.

The Company

Details of the Company and its organisation are set out in the Strategic Report.

Investment Policy

The Company’s investment policy is set out in the Strategic Report.

Results and Dividends

The results for the year are set out in the Audited Statement of Operations and Performance Allocation. The Directors do not recommend the payment of a dividend.

Share Capital

The number of shares in issue at the year end is disclosed in note 4 to the Financial Statements.

Going Concern

After making enquiries and given the nature of the Company and its investment, the Board is satisfied that it is appropriate to continue to adopt the going concern basis in preparing these Financial Statements and, after due consideration, the Board considers that the Company is able to continue for the foreseeable future. In reaching this conclusion the Board is mindful of the nature of the assets that underlie its investment in the Feeder Fund via the Master Fund, the Cayman Corporation and Specific Investments, including the Feeder Fund’s liquidity and has concluded that adverse investment performance will not have a material impact on the Company’s ability to meet its liabilities as they fall due on account of the liquidity of the investments in the Master Fund.

In accordance with the Articles of Incorporation of the Company, a Discount Trigger Meeting is held if the average discount to NAV over a calendar year exceeds 5%.  During 2016, the Company recorded an average discount to NAV of 11.14% and as such the relevant Discount Trigger EGM conditions were met.

Following the passing of the Discount Trigger Resolution at the EGM on 9 March 2017, 5,389,739 shares will be redeemed. This will reduce the size of the Company and consequently the Board has considered the ongoing cost of running the Company and whether an increased Total Expense Ratio (“TER”) would adversely affect the Company’s ability to cover future liabilities. The Board noted that the Company could, under the terms of the Management Agreement, redeem sufficient shares in the Feeder Fund to cover ongoing expenses, therefore guaranteeing the future viability of the Company. The Board recognises the need to manage the TER to ensure it doesn’t become excessive. With this expense management in mind, the Board have made the decision not to replace Mr Dorrian who is not offering himself forward for re-election at the 2017 AGM.

The Board has considered the Company’s reduced size, its ability to redeem from the Feeder Fund and the confirmation it has received from the Investment Manager indicating their willingness to continue in their current capacity, and therefore the Board has concluded that the Company is able to continue as a going concern.

International Tax Reporting

For purposes of the US Foreign Account Tax Compliance Act (“FATCA”), the Company registered with the US Internal Revenue Services (“IRS”) as a Guernsey reporting Foreign Financial Institution (“FFI”), received a Global Intermediary Identification Number (KT2S8Y.9999.SL.831), and can be found on the IRS FFI list.

The Common Reporting Standard (“CRS”) is a global standard for the automatic exchange of financial account information developed by the Organisation for Economic Co-operation and Development (“OECD”), which has been adopted by Guernsey and which came into effect on 1 January 2016. The CRS replaced the intergovernmental agreement between the UK and Guernsey to improve international tax compliance that had previously applied in respect of 2014 and 2015.

The Board will take necessary actions to ensure that the Company is compliant with Guernsey regulations and guidance in this regard.

Discount Management Programme

The Directors review the share price in relation to NAV on a regular basis and utilise their ability to make market purchases of the Company’s shares. For additional information, refer to note 7 of the notes to the Financial Statements.

Shareholders with any queries in relation to the above should contact the Administrator in the first instance, whose contact details can be found on the Company’s website, www.dwcatalystltd.com/contacts.

Statement of Directors’ Responsibility in respect of the Annual Report and Audited Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable laws and regulations.

Guernsey company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in conformity with US GAAP.

The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year.

In preparing these Financial Statements the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the Financial Statements; and

·      prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies (Guernsey) Law, 2008, as amended. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

We confirm to the best of our knowledge that:

·      so far as each of the Directors is aware, there is no relevant audit information of which the Company’s Independent Auditor is unaware, and each has taken all the steps they ought to have taken as a Director to make themselves aware of any relevant information and to establish that the Company’s Independent Auditor is aware of that information;

·      the Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholders to assess the Company’s performance, business model and strategy;

·      these Financial Statements have been prepared in conformity with US GAAP and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

·      the Annual Report and Financial Statements include information detailed in the Chair’s Statement, the Directors’ Report, the Audit and Risk Committee Report, Strategic Report and the Manager’s Report, which provides a fair view of the information required by:

     a)    DTR 4.1.8 of the Disclosure and Transparency Rules, being a fair review of the Company’s business and a description of the principal risks and uncertainties facing the Company;

     b)    DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of important events that have occurred since the end of the financial year and the likely future development of the Company; and

     c)    DTR 4.1.12 of the Disclosure and Transparency Rules, being that the Financial Statements are prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and that the Annual Report and Audited Financial Statements includes a fair review of the development and performance of the business and position of the Company together with a description of the principal risks and uncertainties that it faces.

Signed on behalf of the Board by:

Charlotte Valeur
Chair

Patrick Firth
Director

31 March 2017

CORPORATE GOVERNANCE STATEMENT

In accordance with the UK Listing Regime, the Company must comply with the requirements of the UK Corporate Governance Code (“UK Code”). The Company is also required to comply with the Code of Corporate Governance issued by the Guernsey Financial Services Commission.

The Company is a member of the Association of Investment Companies (the “AIC”) and by complying with the AIC Code of Corporate Governance (previously defined as the “AIC Code”) is deemed to comply with both the UK and Guernsey Codes of Corporate Governance.

The AIC Code and the AIC Guide are available on the AIC’s website, www.theaic.co.uk. The UK Code is available on the Financial Reporting Council’s website, www.frc.org.uk.

The Board has considered the principles and recommendations of the AIC Code, by reference to the guidance notes provided by the AIC (“AIC Guide”), and consider that reporting against these will provide appropriate information to shareholders. To ensure ongoing compliance with these principles, the Board receives and reviews a report from the Corporate Secretary, at each quarterly meeting, identifying how the Company is in compliance and identifying any changes that might be necessary.

Throughout the accounting year, the Company has complied with the recommendations of the AIC Code and thus the relevant provisions of the UK Code, except as set out below.

The UK Code includes provisions relating to:

·     the role of the chief executive;

·     executive directors’ remuneration (see Directors’ Remuneration Report);

·     Remuneration Committee;

·     the need for an internal audit function (see Audit and Risk Committee Report); and

·     the whistle-blowing policy

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers these provisions are not relevant to the position of the Company as it is an externally managed investment company. The Company has therefore not reported further in respect of these provisions. The Directors are non-executive and the Company does not have employees, hence no whistle-blowing policy is required. However, the Directors have satisfied themselves that the Company’s service providers have appropriate whistle-blowing policies and procedures and have received confirmation from the service providers that nothing has arisen under those policies and procedures which should be brought to the attention of the Board.

The Company has adopted a policy that the composition of the Board of Directors, which is required by the Company’s Articles to comprise at least two persons, is at all times such that a majority of the Directors are independent of the Manager and any company in the same group as the Manager; the Chair of the Board of Directors is free from any conflicts of interest and is independent of the Manager and of any company in the same group as the Manager; and that no more than one director, partner, employee or professional adviser to the Manager or any company in the same group as the Manager may be a Director of the Company at any one time. Andrew Rosenthal is not independent of the Manager as he serves as a director of the Master Fund, which is also managed by the Manager.

The Company’s risk exposure and the effectiveness of its risk management and internal control systems are reviewed by the Audit and Risk Committee at its meetings and annually by the Board. As at 31 December 2016 and at the date of this Report, the Board believes that the Company has adequate and effective systems in place to identify, mitigate and manage the risks to which it is exposed and that the Company complies with the FRC’s guidance on risk management, internal control and related financial and business reporting. The Company’s principal risks and uncertainties are outlined in the Strategic Report.

The Board

The Board is the Company’s governing body and has overall responsibility for maximising the Company’s success by directing and supervising the affairs of the business, for safeguarding the Company’s assets, for the determination of the investment policy of the Company, for reviewing the performance of the Manager, and the other service providers, meeting the appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring protection of investors. A summary of the Board responsibilities is as follows:

·     statutory obligations and public disclosure;

·     strategic matters and financial reporting;

·     risk assessment and management including reporting compliance, governance, monitoring and control; and

·     other matters having a material effect on the Company.

The Board responsibilities for the Annual Report and Audited Financial Statements are set out in the Statement of Directors’ Responsibility.

The Board consists solely of non-executive Directors. Keith Dorrian is the Senior Independent Director of the Board. The Board meets at least four times a year and between these formal meetings there is regular contact with the Manager and the Corporate Secretary. The Directors are kept fully informed of investment and financial controls, and other matters that are relevant to the business of the Company and should be brought to the attention of the Directors. The Directors also have access to the Administrator, and where necessary, in the furtherance of their duties, to independent professional advice at the expense of the Company. In addition to these scheduled meetings, 10 ad hoc meetings of committee of the Board were held to deal with matters such as the conversions between share classes as well as the meetings related to the USD share class closure. These ad hoc meetings were attended by those Directors available at the time.

On 22 June 2016, at the Annual General Meeting (“AGM”) of the Company, shareholders re-elected all Directors of the Company. Section 21.3 of the Company’s Articles requires any Directors who held office at the time of the two preceding AGMs and who did not retire at either of them, shall retire from office and may offer themselves for re-election. However in order to ensure continuity of experience, at least one Independent Director will retire each year and may offer themselves for re-election.

Chair

The Chair is Charlotte Valeur. The Chair of the Board must be independent for the purposes of Chapter 15 of the Listing Rules. Charlotte Valeur is considered independent because she:

·     has no current or historical employment with the Manager; and

·     has no current directorships in any other investment funds managed by the Manager.

The Directors are listed on the Board Members section and on the inside back cover. Andrew Rosenthal is not independent of the Manager for the purposes of LR15.2.12-A and otherwise.

Board Diversity

The Board continues to give careful consideration to the recommendations of the Davies Report on women on boards and as recommended in that report has reviewed its composition and believes that it has available an appropriate range of skills and experience. In order to extend its diversity, the Board is committed to implementing the recommendations of the Davies Report, if possible within the timescales proposed in the Davies Report, and to that end will ensure that women candidates are considered when appointments to the Board are under consideration – as indeed has always been its practice.

Board Evaluation and Succession Planning

The Board and its Committees undertake an evaluation of their own performance every year, and every third year the Board intends to commission an external evaluation of its performance. The Board undertook its first externally facilitated evaluation in early September 2013 by Trust Associates. The report of the evaluation confirmed that the Company observes a high standard of Corporate Governance and, accordingly, the Board has conducted self-appraisals in 2014, 2015 and in 2016. The Board will consider commissioning a further independent study after the Extraordinary General Meeting of the Company (a “Discount Trigger EGM”) in 2017.

The Board and Committees of the Board undertake an evaluation of their own performance and that of individual Directors on an annual basis. In order to review their effectiveness, the Board and its Committees carry out a process of formal self-appraisal.

The Board and Committees of the Board consider how they function as a whole and also review the individual performance of its members. This process is conducted by the respective Chair reviewing each member’s performance, contribution and commitment to the Company. Keith Dorrian as Senior Independent Director, takes the lead in reviewing the performance of the Chair. Keith Dorrian has indicated his intention not to offer himself forward for re?election at the 2017 AGM.

The Board considers it has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board composition can be managed without undue disruption. An induction programme will be available for any future Director appointments.

Training is an ongoing matter for the Board as is discussion on the overall strategy of the Company and the Board has visited DW at their offices and elsewhere during the year to discuss these matters. Such meetings will be an ongoing occurrence. The Directors regularly review their requirements for continuous professional development and take actions as necessary to ensure they are up to date and current with their professional development requirements, where appropriate.

Committees of the Board

The Board has established Audit and Risk, Management Engagement and Nomination Committees and approved their terms of reference, copies of which can be obtained from the Administrator.

Audit and Risk Committee

The Audit and Risk Committee comprises Patrick Firth (Chairman), Keith Dorrian and Christopher Waldron. The Audit and Risk Committee meets formally at least twice a year and each meeting is attended by the external auditor and the Administrator.

Appointment to the Audit and Risk Committee is for a period up to three years which may be extended for two further three year periods provided that the majority of the Audit and Risk Committee remain independent of the Manager. Patrick Firth and Christopher Waldron are currently serving their second term of three years. On 27 January 2016, the Audit Committee Terms of Reference was amended to allow for staggered re-appointments. As a result, Christopher Waldron and Patrick Firth were re-appointed for a term of 1 year, 2 years and 3 years, respectively. Keith Dorrian was appointed for a term of 1 year from 27 January 2016, which has been extended until the 2017 AGM where he has indicated his intention not to put himself forward for re-election.

A report of the Audit and Risk Committee detailing responsibilities and activities is presented on the Audit and Risk Committee Report.

Management Engagement Committee

The Management Engagement Committee comprises all independent Directors of the Board. Charlotte Valeur is Chair of the Management Engagement Committee. The Management Engagement Committee meets formally at least once a year.

The Management Engagement Committee has formal duties and responsibilities. The function of the Management Engagement Committee is to ensure that the Company’s management agreement is competitive and reasonable for the shareholders, along with the Company’s agreements with all other third party service providers (other than the external auditors). The Committee also reviews annually, the performance of the Manager with a view to determining whether to recommend to the Board that the Manager’s mandate be renewed, subject to the specific notice period requirement of the agreement. The other third party service providers are also reviewed on an annual basis.

The principal contents of the Manager’s contract and notice period are contained in note 3 to the Financial Statements.

At its meeting on 26 September 2016, the Management Engagement Committee concluded that the continued appointment of the Manager on the terms agreed would be in the best interests of the Company’s shareholders as a whole. Subsequent to 31 December 2016, the Company announced the creation of a new share class (“Class B”) with a reduced management fee of 1.5% per annum payable to DW Partners, LP. See note 10 for further details.

At the date of this report the Board continued to be of the same opinion.

Nomination Committee

The Nomination Committee comprises all independent Directors of the Board, with the Chair of the Company being appointed as Chair of the Nomination Committee. For new appointments to the Board, nominations are sought from the Directors and from other relevant parties and candidates are then interviewed by the Nomination Committee. In the event that a replacement for the Chair is being sought it would normally be expected that the Senior Independent Director would chair the Committee.

The Nomination Committee held its most recent meeting on 26 September 2016.

Remuneration Committee

In view of its non-executive and independent nature, the Board considers that it is not appropriate for there to be a separate Remuneration Committee as anticipated by the AIC Code. The Audit and Risk Committee make all representations to the Board regarding Directors remuneration. The Board as a whole fulfils the functions of the Remuneration Committee, although the Board has included a separate Directors’ Remuneration Report of this Annual Report.

Board and Committee Meetings

The next table sets out the number of Board, Audit and Risk, Management Engagement and Nomination Committee meetings held during the year ended 31 December 2016 and, where appropriate, the number of such meetings attended by each Director.

Attendance at scheduled Board and Committee meetings:

		Board		Audit and Risk		Management Engagement		Nominations
No of meetings		5		4		1		1
Attendance
Charlotte Valeur		5		4*		1		1
Keith Dorrian		5		4		1		1
Patrick Firth		5		4		1		1
Christopher Waldron		5		4		1		1
Andrew Rosenthal		5		4*		1		1

* as invitee

Directors’ Interests

Directors’ interests in other companies are disclosed in the Board Members section.

The Directors had the following interests in the Company, held either directly or beneficially at 31 December 2016:

			US Dollar shares				Sterling shares
			31.12.16		31.12.15		31.12.16		31.12.15
Charlotte Valeur			Nil		Nil		4,236		4,236
Keith Dorrian			Nil		Nil		Nil		Nil
Partick Firth			Nil		Nil		500		500
Christopher Waldron			Nil		Nil		500		500
Andrew Rosenthal			Nil		Nil		Nil		Nil

The Company has adopted a Code of Directors’ dealings in shares, which is based on the Model Code for Directors’ dealings contained in the London Stock Exchange’s Listing Rules.

Directors’ Indemnity

Directors’ and officers’ liability insurance cover is in place in respect of the Directors. The Directors entered into indemnity agreements with the Company which provide for, subject to the provisions of the Companies (Guernsey) Law, 2008, as amended, an indemnity for Directors in respect of costs which they may incur relating to the defence of proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court. The agreement does not provide for any indemnification for liability which attaches to the Directors in connection with any negligence, unfavourable judgements, breach of duty or trust in relation to the Company.

Internal Controls

The Board is ultimately responsible for establishing and maintaining the Company’s system of internal control and for maintaining and reviewing its effectiveness and to achieve this, a risk management process has been established which seeks to:

·     Review the risks faced by the Company and the controls in place to address those risks;

·     Identify and report changes in the risk environment;

·     Identify and report changes in the operational controls;

·     Identify and report on the effectiveness of controls and errors arising; and

·     Ensure no override of controls by its service providers, the Manager or Administrator.

The Company’s risk matrix continues to be used as the basis for analysing the Company’s system of internal control. The risk matrix is prepared and maintained by the Audit and Risk Committee which initially identifies the risks facing the Company and then collectively assesses the likelihood of each risk, the impact of those risks and the strength of the controls operating over each risk. The Company’s system of internal control is designed to manage rather than to eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

These controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained and the financial information for publication is reliable. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company.

The AIC Code requires the Board to conduct at least annually a review of the Company’s system of internal control, covering all controls, including financial, operational, compliance and risk management. The Board has evaluated the systems of internal controls of the Company. In particular, it has prepared a process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed. The Board considers the Company’s risk management framework and the risk profile that is acceptable in order to achieve the Company’s strategic objectives. As a result, it is considered that the Board has fulfilled its obligations under the AIC Code and that the Board concluded that the Company’s internal controls are effective.

The Company’s risk matrix is tabled and discussed at the Board meeting quarterly setting out the risks identified, their potential impact, the controls in place to mitigate them, the residual risk assessment and any exceptions identified during the period under review.

Further reports are received and reviewed from the Administrator in respect of compliance, London Stock Exchange continuing obligations and other matters. The Board also receives confirmation from the Administrator of its accreditation under its Service Organisation Controls 1 report.

Anti-Bribery and Corruption Policy

The Board has adopted a formal Anti-bribery and Corruption Policy. The policy applies to the Company and to each of its Directors. Furthermore, the policy is shared with each of the Company’s service providers.

Shareholder Engagement

The Board welcomes shareholders’ views and places great importance on communication with its shareholders. Shareholders wishing to meet with the Chair and other Board members should contact the Company’s Administrator.

The Board receives regular reports on the views of its shareholders from its brokers, JP Morgan Cazenove and Fidante Capital, marketing consultants, Kepler Partners LLP and Peregrine Communications and from DW. In addition, the Chair has conducted and continues to conduct meetings with a number of major shareholders in order to receive their views on the Company.

The Company’s AGM provides a forum for shareholders to meet and discuss issues of the Company and shareholders with the opportunity to vote on the resolutions as specified in the Notice of AGM.

The Company provides weekly unaudited estimates of the NAVs and month-end unaudited NAVs. The Company provides a quarterly newsletter. These are published via regulatory announcements and are also available on the Company’s website, www.dwcatalystltd.com. Risk reports are also available on the Company’s website.

The Manager maintains regular dialogue with institutional shareholders, the feedback from which is reported to the Board.

Significant Shareholders

Shareholders with holdings of more than 3.0% of the Shares of the Company at 31 December 2016 and 29 March 2017 were as follows:

		As at 31 December 2016				As at 29 March 2017
		Total shares		% holdings		Total shares		% holdings
Significant Shareholders		held		in class		held		in class
Nortrust Nominees Limited		1,655,748		17.67%		1,633,448		15.72%
Vidacos Nominees Limited		1,649,250		17.60%		1,669,831		16.07%
Roy Nominees Limited		676,825		7.22%		676,824		6.51%
HSBC Global Custody Nominee (UK) Limited		577,632		6.16%		577,965		5.56%
BBHISL Nominees Limited		529,611		5.65%		529,611		5.10%
Credit Suisse Client Nominees (UK) Limited		523,700		5.59%		476,909		4.59%
The Bank Of New York (Nominees) Limited		358,864		3.83%		648,253		6.24%
Harewood Nominees Limited		349,600		3.73%		349,600		3.36%
CGWL Nominees Limited		328,223		3.50%		194,966		1.88%

Ongoing Charges

Ongoing charges for the years ended 31 December 2016 and 31 December 2015 have been calculated in accordance with the AIC’s recommended methodology.

The following table presents the Ongoing Charges of the Company:

			shares		shares		Sterling shares
			31.12.16		31.12.15		31.12.16		31.12.15
Company - Ongoing Charges			0.42%		0.48%		0.61%		0.47%
Feeder Fund - Ongoing Charges			2.29%		2.33%		2.45%		2.36%
Ongoing Charges			2.71%		2.81%		3.06%		2.83%

Effective from 1 January 2015, the Feeder Fund Ongoing Charges represent the portion of the Feeder Fund’s operating expenses which have been allocated to the Company. The Company invests substantially all of its investible assets in the A Class Shares issued by the Feeder Fund. These shares were not subject to management fees and performance fees allocation within the Feeder Fund; however they are subject to a management and performance fee allocation at the level of the Master Fund and at the level of Specific Investments (see note 3).

Effective 1 January 2017, the Feeder Fund has announced the creation of a new share class (“Class B”) with a reduced management fee. See note 10 for further details.

AUDIT AND RISK COMMITTEE REPORT

31 December 2016

Dear Shareholder,

Below, we present the Audit and Risk Committee’s Report for 2016, setting out the responsibilities of the Audit and Risk Committee and its key activities in 2016. As in previous years, the Committee has reviewed the Company’s financial reporting, the independence and effectiveness of the external auditor and the internal control and risk management systems of the Company’s service providers. The Audit and Risk Committee considered whether the Annual Report and Audited Financial Statements are fair, balanced and understandable and whether they provided the necessary information for shareholders to access the Company’s performance, business model and strategy before recommending them to the Board for approval. In order to assist the Audit and Risk Committee in discharging these responsibilities, regular reports are received and reviewed from the Manager, Administrator and external auditor.

A member of the Audit and Risk Committee will continue to be available at each Annual General Meeting to respond to any shareholder questions on the activities of the Audit and Risk Committee.

Patrick Firth
Chairman, Audit and Risk Committee

Responsibilities

The Audit and Risk Committee reviews and recommends to the Board the Financial Statements of the Company and is the forum through which the external auditor reports to the Board of Directors. The external auditor and the Audit and Risk Committee will meet together without representatives of either the Administrator or Manager being present if either party considers this to be necessary.

Members of the Audit and Risk Committee meet with the Manager at least annually to discuss the valuation process in relation to compliance and risk management.

The role of the Audit and Risk Committee is to:

·     monitor the integrity of the published Financial Statements of the Company;

·     review and report to the Board on the significant issues and judgements made in the preparation of the Company’s published Financial Statements, (having regard to matters communicated by the external auditors) and other financial information;

·     monitor and review the quality and effectiveness of the external auditors and their independence;

·     consider and make recommendations to the Board on the appointment, reappointment, replacement and remuneration to the Company’s external auditor;

·     review the Company’s procedures for prevention, detection and reporting of fraud, bribery and corruption;

·     monitor and review the internal control and risk management systems of the service providers; and

·     consider and make representations to the Board regarding Director’s remuneration.

The Audit and Risk Committee’s full terms of reference can be obtained by contacting the Administrator.

Key Activities of the Audit and Risk Committee - 2016

The following sections discuss the assessments made by the Audit and Risk Committee during the year:

Financial reporting:

The Audit and Risk Committee’s review of the annual financial statements focused on the following significant areas:

The Company’s investment in the Feeder Fund was valued at US$147.17 million as at 31 December 2016 which represented the majority of the net assets of the Company and as such is the single biggest factor in relation to the accuracy of the Financial Statements. The valuation of the investment is determined in accordance with the accounting policy in note 2 to the Financial Statements. For additional information in relation to the Master Fund’s and Feeder Fund’s valuation policy, refer to note 2 of the Master Fund’s audited financial statements.

The consolidated financial statements of both the Master Fund and Feeder Fund for the year ended 31 December 2016 were audited by Ernst & Young LLP who issued an unqualified audit opinion dated 30 March 2017. The Audit and Risk Committee considered the financial statements of the Master Fund and its accounting policy in determining that the stated value of the Company’s investment in the Feeder Fund is reasonable.

The external auditor reported to the Audit and Risk Committee that no material misstatements were found in the course of their work. Furthermore, the Manager and Administrator confirmed to the Audit and Risk Committee that they were not aware of any material misstatements including matters relating to the Financial Statement presentation. The Audit and Risk Committee confirms that it is satisfied that the external auditor has fulfilled its responsibilities with diligence and professional scepticism.

Following a review of the presentations and reports from the Administrator and consulting where necessary with the external auditor, the Audit and Risk Committee is satisfied that the Financial Statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Audit and Risk Committee is also satisfied that any significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.

Risk management:

The Audit and Risk Committee continued to consider the process for managing the risk of the Company and its service providers. Risk management procedures for the Company, as detailed in the Company’s risk assessment matrix, were reviewed and approved by the Audit and Risk Committee. During the year there were no issues noted.

Fraud, bribery and corruption:

The Audit and Risk Committee continues to monitor the anti-fraud, bribery and corruption policies of the Company. The Board receives a confirmation from all service providers that they are not aware of any instances of fraud, bribery or corruption.

The External Auditor

Ernst & Young LLP has been the Company’s independent external auditor since 31 December 2015, replacing KPMG Channel Islands Limited, who was the Company’s independent external auditor since the date of the initial listing on the London Stock Exchange.

Independence, objectivity and fees:

The independence and objectivity of the external auditor is reviewed by the Audit and Risk Committee which also reviews the terms under which the external auditor is appointed to perform non-audit services. The Audit and Risk Committee has established pre-approval policies and procedures for the engagement of the auditor to provide audit, assurance and tax services. These are that the external auditors may not provide a service which:

·     places them in a position to audit their own work;

·     creates a mutuality of interest;

·     results in the external auditor developing close relationships with service providers of the Company;

·     results in the external auditor functioning as a manager or employee of the Company; and

·     puts the external auditor in the role of advocate of the Company.

The Company does not utilise external auditors for internal audit purposes, secondments or valuation advice. Services which are not in the nature of audit, such as tax compliance, tax structuring, private letter rulings, accounting advice, quarterly reviews and disclosure advice are normally permitted but are subject to prior approval by the Audit and Risk Committee.

The Audit and Risk Committee has examined the scope and results of the audit and the independence and objectivity of the external auditor, with particular regard to non-audit fees, and considers Ernst & Young LLP as external auditor, to be independent of the Company.

The following table summarises the remuneration payable to Ernst & Young LLP and KPMG Channel Islands Limited for audit and non-audit services provided to the Company during the years ended 31 December 2016 and 31 December 2015.

					01.01.16 to		01.01.15 to
					31.12.16		31.12.15
					£		£
Ernst & Young LLP
Annual Audit					35,000		35,000
Auditor's interim review					47,000		-
KPMG Channel Islands Limited
Auditor's interim review					-		8,750

In line with the policies and procedures above, the Audit and Risk Committee did not consider the provision of non-audit services by Ernst & Young LLP, which comprised only the auditor’s interim review, to have been a threat to their objectivity and independence whilst in office. The Audit and Risk Committee has also considered the overall level of services provided by Ernst & Young LLP member firms to the wider DW organisation and does not consider these to pose a threat to the external auditor’s independence.

The recent revisions to the UK Corporate Governance Code introduced a recommendation that the external audit be put out to tender every ten years. The Audit and Risk Committee has noted this and will develop a plan for tendering at the appropriate time.

Performance and effectiveness:

During the year, when considering the effectiveness of the external auditors, the Audit and Risk Committee has taken into account the following factors:

·     The audit plan presented to them before each audit;

·     The post audit report including variations from the original plan;

·     Changes in audit personnel;

·     The external auditors own internal procedures to identify threats to independence; and

·     Feedback received from both the Manager and Administrator.

The Audit and Risk Committee reviewed and discussed the audit plan and the audit findings report of the independent auditor and concluded that the audit plan sufficiently identified audit risks and that the audit findings report indicated that the audit risks were sufficiently addressed and that there were no variations from the audit plan. The Audit and Risk Committee considered reports from the external auditors on their procedures to identify threats to independence and concluded that the procedures were sufficient to identify potential threats to independence.

Reappointment of external auditors:

Consequent to this review process, the Audit and Risk Committee has recommended to the Board that a resolution be put to the 2017 AGM for the re-appointment of Ernst & Young LLP as external auditor. The Board has accepted this recommendation.

Internal Control and Risk Management Systems

Additional work performed by the Audit and Risk Committee in the areas of internal control and risk management are disclosed on the Corporate Governance Statement.

The Audit and Risk Committee has also reviewed the need for an internal audit function. The Audit and Risk Committee has decided that the systems and procedures employed by the Manager and the Administrator, which included an on-site visit by the Manager, including their internal control functions, provide sufficient assurance that a sound system of internal control, which safeguards the Company’s assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

Therefore, in finalising the Audited Financial Statements for recommendation to the Board for approval, the Audit and Risk Committee is satisfied that, taken as a whole, the Annual Report and Audited Financial Statements are fair, balanced and understandable.

Patrick Firth

Chairman of the Audit and Risk Committee

31 March 2017

DIRECTORS’ REMUNERATION REPORT

As at 31 December 2016

Introduction

An ordinary resolution for the approval of the Directors’ Remuneration Report will be put to the shareholders at the AGM to be held in 2017.

Remuneration Policy

In view of its non-executive and independent nature, the Board considers that it is not appropriate for there to be a separate Remuneration Committee as anticipated by the AIC Code. The Audit and Risk Committee makes all representations to the Board regarding Directors remuneration. The Board as a whole fulfils the functions of the Remuneration Committee. No advice or services were provided by any external person in respect of its consideration of the Directors’ remuneration.

The Company’s policy is that the fees payable to the Directors should reflect the time spent by the Directors on the Company’s affairs and the responsibilities borne by the Directors and be sufficient to attract, retain and motivate Directors of a quality required to run the Company successfully. The Chair of the Board is paid a higher fee in recognition of her additional responsibilities, as is the Chairman of the Audit and Risk Committee. The policy is to review fee rates periodically, although such a review will not necessarily result in any changes to the rates, and account is taken of fees paid to directors of comparable companies.

There are no long term incentive schemes provided by the Company and no performance fees are paid to Directors.

No Director has a service contract with the Company but each of the Directors is appointed by a letter of appointment which sets out the main terms of their appointment. The Directors were appointed to the Board for an initial term of three years. Section 21.3 of the Company’s Articles requires any Directors who held office at the time of the two preceding AGM’s and who did not retire at either of them, shall retire from office and may offer themselves for re-election. In addition, any Director who is considered not independent of the Manager for the purpose of UK Listing Rules is subject to annual re-election. Director appointments can also be terminated in accordance with the Company’s Articles. Should shareholders vote against a Director standing for re-election, the Director affected will not be entitled to any compensation. There are no set notice periods and a Director may resign by notice in writing to the Board at any time.

Directors are remunerated in the form of fees, payable quarterly in arrears, to the Director personally. No other remuneration or compensation was paid or payable by the Company during the year ended 31 December 2016 to any of the Directors apart from the reimbursement of allowable expenses.

Directors’ Fees

The Company’s Articles limit the fees payable to Directors in aggregate to £500,000 per annum. The fees are £66,000 per annum for the Chair, £40,000 per annum for the Chair of the Audit and Risk Committee and £33,000 per annum for Keith Dorrian and Christopher Waldron. Effective 1 October 2016, Andrew Rosenthal is entitled to a fee of £30,000 per annum as a result of resigning from DW Partners, LP as Chief Operating Officer.

The fees payable by the Company in respect of each of the Directors who served during the year ended 31 December 2016 and 31 December 2015, were as follows:

						01.01.16 to		01.01.15 to
						31.12.16		31.12.15
						£		£
Charlotte Valeur						66,000		66,000
Keith Dorrian						33,000		33,000
Patrick Firth						40,000		40,000
Christopher Waldron						33,000		33,000
Andrew Rosenthal*						7,500		-
						179,500		172,000

* Effective 1 October 2016, Andrew Rosenthal is entitled to a Director fee of £30,000 per annum which had previously been waived.

Signed on behalf of the Board by:

Charlotte Valeur
Chair

Patrick Firth
Director

31 March 2017

MANAGER’S REPORT

DW (hereinafter “we” or “us”) is the Manager of the Company and of the DW Catalyst Offshore Fund (as previously defined).

DW has been responsible for the underlying investment decisions of the Company’s funds since its inception, and following a vote of shareholders on 19 December 2014, DW assumed the corresponding management responsibilities for the Company, the Master Fund, the Cayman Corporation and the Feeder Fund effective from 1 January 2015.

Net Asset Value Summary

The NAV per share of the Company’s GBP currency class appreciated by approximately 4.19% in 2016. The USD currency class was closed and converted to GBP as of 31 March 2016. The month-by-month performance of each currency class is stated below:

GBP	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	YTD
2011*	1.74	1.54	0.95	2.08	0.05	(2.16)	0.51	(0.33)	(0.93)	(0.50)	(1.49)	(0.47)	0.89
2012	0.64	1.15	2.40	1.5	1.22	(0.06)	1.40	1.36	1.62	0.81	0.75	1.26	14.95
2013	1.76	0.27	1.20	1.05	1.81	(0.52)	0.18	1.06	1.13	1.71	1.68	1.54	13.62
2014	1.08	1.43	0.53	1.51	0.88	1.48	0.63	(1.01)	(0.77)	(0.71)	0.03	0.38	5.55
2015	(0.02)	0.48	0.34	1.23	(0.11)	(0.74)	(2.58)	(0.96)	(1.41)	(2.05)	(2.94)	(1.08)	(9.48)
2016	(2.23)	(0.89)	(1.40)	1.73	0.33	0.28	0.37	1.37	0.36	1.43	0.68	2.17	4.19
2017	0.34	0.14	-	-	-	-	-	-	-	-	-	-	0.48

   

USD	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	YTD
2011*	1.78	1.55	0.91	2.14	(0.03)	(2.16)	0.50	(0.37)	(0.96)	(0.50)	(1.49)	(0.50)	0.81
2012	0.64	1.15	2.36	1.51	1.17	(0.10)	1.38	1.39	1.65	0.8	0.73	1.26	14.83
2013	1.73	0.24	1.19	1.07	1.74	(0.52)	0.16	1.07	1.18	1.68	1.7	1.52	13.5
2014	1.07	1.43	0.49	1.51	0.85	1.47	0.58	(1.00)	(0.76)	(0.72)	0.04	0.35	5.39
2015	(0.04)	0.48	0.31	1.23	(0.10)	(0.76)	(2.60)	(0.97)	(1.42)	(2.08)	(2.92)	(1.00)	(9.52)
2016	(2.07)	(0.89)	(1.45)	-	-	-	-	-	-	-	-	-	(4.34)

Source: The Company’s NAV data is provided by the Administrator. Monthly NAV data is unaudited and net of all fees and expenses payable by the Company. Shares in the Company do not necessarily trade at a price equal to the prevailing NAV per Share.

Past performance is not indicative of future results.

* December 2011 is 1% lower than these figures due to the deduction of the expenses of the initial public offering borne by the Company in December 2010. See financial highlights.

Investment Profile

The evolution of the strategy profile* of the Master Fund, as measured as a percentage of total Market Value**, is summarised below:

Strategy	31 December 2016		31 December 2015
	Long (%)	Short (%)	Long (%)	Short (%)
Commercial Real Estate	29%	(69%)	34%	(107%)
Corporate Credit & Special Sits.	56%	(98%)	85%	(101%)
Structured Finance	21%	(6%)	47%	(14%)
Domain Real Estate	4%	-	2%	-
Middle Markets Distressed	2%	-	2%	-
Energy Direct Investments	2%	(2%)	-	-
Total	114%	(175%)	170%	(222%)

* Investment profile is subject to change.

** Market Values are shown as a percentage of Fund NAV, excluding positions in US Treasuries. Market Value for derivatives is calculated in bond-equivalent terms, as underlying notional less current replacement cost. For example, a $100mm notional credit default swap trading at 5 points upfront creates $95mm of Market Value..

Performance Review

The NAV of the Company increased by 4.19% (in the GBP share class) over 2016. The Company recorded a net loss in USD terms but a gain in GBP per share due to share class hedging.

Portfolio Overview

The Catalyst Fund’s performance for the first half of 2016 was marked by a difficult first quarter, where idiosyncratic bonds traded off as more “beta-oriented” assets rallied, followed by a more typical quarter for the fund where Corporate strategies outperformed. Over the remainder of the year, beginning in April, fund performance rebounded as the fund generated solid risk-adjusted “alpha”-oriented returns from idiosyncratic positions in Corporate Credit & Special Situations, Commercial Real Estate and Structured Finance strategies. Hedges were the biggest detractor for Q4 and the whole of 2016. With high yield bond spreads trading at their tightest levels since June 2014 and many bonds trading above par and close to their call prices, the cost to maintain shorts has continued to fall. Our Corporate Credit & Special Situations team is increasing its focus on idiosyncratic short positions and paired long/short trades that can generate alpha this year while also providing protection or convexity in market selloffs.

In corporate credit, the high yield market had a stellar recovery in 2016. While the level of dispersion in credit spreads remains elevated compared to mid-2014, absolute yields for many stressed high yield bonds have recovered to more normal levels and we have reduced our exposure in these situations. Looking ahead, we see some of the best opportunities in companies that did not survive the downturn and have been, or are being, reorganised into less leveraged capital structures. The Fund’s Q4 gains in Seventy-Seven and Energy XXI are representative of the types of idiosyncratic, catalyst-driven gains that we expect from these positions. Moreover, the broad rally has created opportunities for shorting leveraged corporates where we think the market is mispricing the likelihood that a company will be able to refinance or repay its debt. As High Yield corporate spreads approach tightness not seen since 2014, our corporate team is sifting through potential short ideas either as low-cost alternatives to traditional hedges or outright alpha shorts. Andrew Beckman’s transition to Corporate Credit & Special Situations strategy head has afforded us the opportunity to re-underwrite positions in this portfolio. We have continued to reduce the number of line-items and exit positions as prices change or events are realised. We’re extremely pleased with how Andrew has taken on the leadership of this portfolio.

Legacy CMBS securities remain a large exposure at ~25% of Fund capital. Continued uncertainty around the outcome of overleveraged underlying loans, concerns around recoveries on other properties that will default, and the complexity of CMBS structures have kept risk premium both high and difficult for many market participants to analyse. In contrast, investors have embraced longer-dated, newly issued subordinated CMBS that are pricing at mid-single digit spreads, reflecting investor expectations that newer vintages of commercial real estate loans will experience minimal issues in the next recession. We have continued to avoid these lower spread longer-dated CMBS while focusing on idiosyncratic legacy CMBS about to mature.

Given strong housing markets, and as we get further away from the housing crisis, the fundamental and technical outlook for the RMBS market continues to improve. As has been the case for at least the past couple of years, the market increasingly accepts many of these securities as “safer,” and we are selling to the ongoing buyers or holders who like these securities at low-to-mid-single digit yields. We continue to hold RMBS with wider yields where we believe catalysts will play out over the next year or two, including select securities backed by second lien or option-ARM mortgages. We have strong performance expectations for these positions in 2017, albeit at a smaller percentage of the Fund’s portfolio. Apart from RMBS, we are back to more ‘normal’ securitisation markets and so there are fewer fresh opportunities in secondary ABS. But select opportunities persist for market participants willing to embrace complexity, and Amit Senapaty and Brian Zola are analysing a number of situations, particularly in the student loan sector. While we have harvested gains on most of our legacy private student loan mezzanine positions as spreads tightened, we see exciting asymmetric potential in select residual positions as well as whole loans with an eye towards securitisation.

Opportunity Set

I have never felt more confident and optimistic about the firm and our ability to identify excellent return opportunities for our shareholders. My view is that the current investing period is for the domain expert, the investor who has spent his or her career developing deeper and deeper understanding of a sector or product. And now is the time we need to capitalise on all of that collective experience to find the asymmetric investments that will do the best and have the near-term catalysts to win for you. The nine strategy leaders at DW who are our domain experts have both years and depth of market experience in their domains. Along with Bob Clark and me, we have a deep and experienced investment team here at DW, a team aligned and focused on maximising performance for you. We are confident that we can find a wide array of public securities (and a small sprinkling of privates) to invest, long and short, and produce strong absolute returns reasonably uncorrelated to market returns.

David Warren
Chief Investment Officer
DW Partners, LP

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DW CATALYST FUND LIMITED

Opinion on financial statements

In our opinion the financial statements:

·     give a true and fair view of the state of the Company’s affairs as at 31 December 2016 and of its net decrease in net assets resulting from operations for the year then ended;

·     have been properly prepared in accordance with United States Generally Accepted Accounting Principles; and

·     have been prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

What we have audited

DW Catalyst Fund Limited (the “Company”) financial statements comprise:

·     statement of assets and liabilities;

·     statement of operations and performance allocation;

·     statement of changes in net assets;

·     statement of cash flows; and

·     related notes 1 to 10.

The financial reporting framework that has been applied in their preparation is applicable law and United States Generally Accepted Accounting Principles.

Overview of our audit approach

Risk of material misstatement        

·     Incorrect valuation of investment in the Feeder Fund.

·     Incorrect calculation and recording of foreign currency gains and losses arising on translation of allocations from the Feeder Fund and translation differences between functional and presentation currency.

Audit scope  

We performed an audit of the Company for the year ended 31 December 2016. The audit was led from Guernsey and included team members from Ernst & Young LLP in the USA. We operated as an integrated team across both jurisdictions.

Materiality

$3m which represents 2% of net assets.

Our assessment of risk of material misstatement

We identified the risks described below as those which would have the greatest effect on our overall audit strategy, the allocation of resources and directing the efforts of the audit team. In addressing these risks, we have performed the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on this individual area.

Risk	Our response to the risk	What we concluded to the Audit Committee
Investment valuation Incorrect valuation of the investment in the Feeder Fund. See also Audit and Risk Committee report.	We confirmed the valuations of the Feeder Fund and the Master Fund with their independent administrators and we agreed the valuation to the audited financial statements of the Feeder fund.	We confirmed that there were no material matters identified during our audit work on investment valuation that we wanted to bring to the attention of the Audit Committee.
Foreign currency gains and losses Incorrect calculation and recording of foreign currency gains and losses arising on translation of allocations from the Feeder Fund and translation differences between functional and presentation currency.	We reviewed the allocation schedules provided by the independent administrator of the Feeder Fund. We reperformed the foreign currency translations. We reviewed the financial statement disclosures related to foreign currency gains and losses to ensure the amounts have been properly classified.	We confirmed that there were no material matters identified during our audit work on investment valuation that we wanted to bring to the attention of the Audit Committee.

The scope of our audit

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope and this enables us to form an opinion on the financial statements.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our opinion.

Materiality

“Materiality” is the magnitude of an omission or misstatement that, individually or in aggregate, could reasonably be expected to influence the economic decisions of the users of financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Company to be $3m which is approximately 2% of net assets. This provided a basis for determining the nature timing and extent of risk assessment procedures. We used net assets as a basis for determining planning materiality because the Company’s primary performance measures for internal and external reporting are based on net assets.

During the course of our audit we reassessed initial materiality and noted no factors leading us to amend materiality levels from those originally determined at the audit planning stage.

Performance materiality

“Performance materiality” is the application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Company’s overall control environment our judgement was that overall performance materiality (i.e. our tolerance for misstatement in an individual account balance) for the Company should be 50% of materiality, namely $1.5m.

Our objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in the Financial Statements did not exceed our materiality level.

Reporting threshold

“Reporting threshold” is an amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee at audit planning stage that we would report to them all audit differences in excess of $150,000 which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluated any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Scope of the Audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors’ Responsibility set out on the Directors’ Report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and in accordance with International Standards on Auditing (UK & Ireland).

This report is made solely to the Company’s members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Matters on which we are required to report by exception

ISAs (UK and Ireland)

We are required to report to you, if in our opinion, financial and non-financial information in the Annual Report is:

·     materially inconsistent with the information in the financial statements

·     apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or

·     otherwise misleading

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

We have no exceptions to report.

Listing Rules review requirements

We are required to review:

·     the Directors’ statement in relation to going concern, set out in the Directors’ Report, and longer term viability, set out in the Strategic Report; and

·     the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.

We have no exceptions to report.

Companies (Guernsey) Law, 2008 requirements

We are required to report to you, if, in our opinion:

• proper accounting records have not been kept; or
• the financial statements are not in agreement with the accounting records; or
• we have not received all the information and explanations required for the audit.

We have no exceptions to report.

Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity

ISAs (UK and Ireland) reporting

We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:

·     the Directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

·     the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated;

·     the Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and

·     the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the entity over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing material to add or to draw attention to.

Michael Bane
For and on behalf of Ernst & Young LLP
Guernsey

31 March 2017

INDEPENDENT AUDITOR’S REPORT TO THE DIRECTORS OF DW CATALYST FUND LIMITED

We have audited the accompanying financial statements of DW Catalyst Fund Limited (the “Company”), which comprise the Statement of Assets and Liabilities as of 31 December 2016, and the related Statement of Operations and Performance Allocation, Statement of Changes in Net Assets and Statement of Cash Flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with United States generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the statement of assets and liabilities of DW Catalyst Fund Limited at 31 December 2016 and 2015, and the results of its operations and performance allocation, changes in net assets and its cash flows for the year then ended, in conformity with United States generally accepted accounting principles.

Ernst & Young LLP
Guernsey
31 March 2017

AUDITED STATEMENT OF ASSETS AND LIABILITIES
As at 31 December 2016
(Expressed in ‘000 US Dollars)

						31.12.16		31.12.15
Assets
Investment in the Feeder Fund						147,169		190,317
Prepaid expenses						43		19
Cash and bank balances denominated in Sterling						3,500		164
Cash and bank balances denominated in US Dollars						-		43
Total assets						150,712		190,543
Liabilities
Redemptions in respect of buybacks payable						133		-
Directors' fees and expenses payable						62		65
Accrued expenses and other liabilities						74		42
Administration fees payable (note 3)						33		33
Registrar fees payable (note 3)						-		5
Total liabilities						302		145
Net assets						150,410		190,398
Number of shares in issue (note 4)
US Dollar shares						-		2,211,203
Sterling shares						9,371,817		8,856,566
Net asset value per share (notes 6 and 8)
US Dollar shares						-		US$12.40
Sterling shares						£12.99		£12.47

The financial statements were approved by the Board of Directors on 31 March 2017 and signed on its behalf by:

Charlotte Valeur
Chair

Patrick Firth
Director

See accompanying notes and attached Audited Annual Financial Statements of DW Catalyst Offshore Fund Ltd. and DW Catalyst Master Fund Ltd.

AUDITED STATEMENT OF OPERATIONS AND PERFORMANCE ALLOCATION
For the year ended 31 December 2016
(Expressed in ‘000 US Dollars)

				01.01.16		01.01.15
				to 31.12.16		to 31.12.15
Investment gain allocated from the Feeder Fund
Interest				41,621		35,041
Dividend income (net of withholding tax of: US$360,016)				1,281		100
Other income				204		-
Expenses				(5,320)		(4,576)
Management fees (note 3)				(3,226)		(4,254)
Investment gain allocated from the Feeder Fund				34,560		26,311
Company income
Foreign exchange gains (note 2)				-		2
Total Company income				-		2
Company expenses
Other expenses				523		663
Directors' fees and expenses				240		264
Administration fees (note 3)				201		200
Registrar fees (note 3)				30		32
Foreign exchange losses (note 2)				18		-
Total Company expenses				1,012		1,159
Net investment gain				33,548		25,154
Net realised loss and change in unrealised depreciation on investments allocated from the Feeder Fund
Net realised loss on investments				(19,246)		(10,909)
Net unrealised depreciation on investments				(8,749)		(35,117)
Net loss on foreign currency hedges (note 2)				(30,181)		(8,746)
Net realised loss and unrealised depreciation
on investments allocated from the Feeder Fund				(58,176)		(54,772)
Net decrease in net assets resulting from operations after performance allocation				(24,628)		(29,618)

See accompanying notes and attached Audited Annual Financial Statements of DW Catalyst Offshore Fund Ltd. and DW Catalyst Master Fund Ltd.

AUDITED STATEMENT OF CHANGES IN NET ASSETS
For the year ended 31 December 2016
(Expressed in ‘000 US Dollars)

						01.01.16		01.01.15
						to 31.12.16		to 31.12.15
Net decrease in net assets resulting from operations
Net investment gain						33,548		25,154
Net realised loss on investments allocated from
the Feeder Fund						(19,246)		(10,909)
Net change in unrealised depreciation on investments
allocated from the Feeder Fund						(8,749)		(35,117)
Net loss on foreign currency hedges allocated from
the Feeder Fund						(30,181)		(8,746)
						(24,628)		(29,618)
Share capital transactions
Purchase of own shares into treasury (note 4)						(15,360)		-
						(15,360)		-
Net decrease in net assets						(39,988)		(29,618)
Net assets at the beginning of the year						190,398		220,016
Net assets at the end of the year						150,410		190,398

See accompanying notes and attached Audited Annual Financial Statements of DW Catalyst Offshore Fund Ltd. and DW Catalyst Master Fund Ltd

AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December 2016
(Expressed in ‘000 US Dollars)

				01.01.16		01.01.15
				to 31.12.16		to 31.12.15
Cash flows from operating activities
Net decrease in net assets resulting from operations				(24,628)		(29,618)
Adjustments to reconcile net decrease in net assets
resulting from operations to net cash generated from operating activities
Net investment gain allocated from the Feeder Fund				(34,560)		(26,311)
Net realised loss on investments allocated from the Feeder Fund				19,246		10,909
Net change in unrealised depreciation on investments
allocated from the Feeder Fund				8,749		35,117
Net loss on foreign currency hedges allocated from the Feeder Fund				30,181		8,746
Net proceeds from sale of investment in the Feeder Fund				19,532		4,545
Increase in prepaid expenses				(24)		(19)
Decrease in performance fees payable				-		(2,856)
Decrease in management fees payable				-		(379)
Decrease in Directors' fees and expenses payable				(3)		(2)
Increase in accrued expenses and other liabilities				32		11
Decrease in registrar fees payable				(5)		(6)
Net cash generated from operating activities				18,520		137
Cash flows from financing activities
Purchase of own shares				(15,227)		-
Net cash used in financing activities				(15,227)		-
Change in cash				3,293		137
Cash, beginning of the year				207		70
Cash, end of the year				3,500		207
Cash, end of the year
Cash and bank balances denominated in Sterling				3,500		164
Cash and bank balances denominated in US Dollars				-		43
				3,500		207
Supplemental disclosure of non-cash financing activities:
In specie divestment from the Master Fund (note 9)				-		220,828
In specie investment in the Feeder Fund (note 9)				-		(220,828)

See accompanying notes and attached Audited Annual Financial Statements of DW Catalyst Offshore Fund Ltd. and DW Catalyst Master Fund Ltd.

NOTES TO THE ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
For the year ended 31 December 2016

1. The Company

Details of the Company and its organisation are set out in the Strategic Report.

2. Significant accounting Policies

Basis of presentation

The Annual Report and Audited Financial Statements, which give a true and fair view, are prepared in conformity with United States Generally Accepted Accounting Principles and comply with the Companies (Guernsey) Law, 2008. Prior to the US Dollar share class closure on 26 April 2016, the functional and reporting currency of the Company was US Dollars. With effect from 26 April 2016, the Company’s functional currency changed to Sterling. The presentation currency of the Company is United States Dollars.

The Company is an Investment Entity which has applied the provisions of ASC 946. U.S. GAAP requires investments of an investment company to be recorded at their estimated fair value. The unrealised gains and/or losses in the investment’s fair value need to be recognised on a current basis in the Statement of Operations and Performance Allocation. US GAAP requires investments of an investment company to be recorded at their estimated fair value and are not to be consolidated. Under the investment company rules and regulations pursuant to the AICPA Audit and Accounting Guide for Investment Companies, the Company is precluded from consolidating any entity other than another investment company or an operating company that provides services to the Company. Investments in other investment companies or funds are recorded at fair value in the accompanying financial statements. The carrying value of all other assets and liabilities approximates fair value.

Going concern

Having reassessed the principal risks; the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Annual Report and Audited Financial Statements.

In accordance with the Articles of Incorporation of the Company, a Discount Trigger Meeting is held if the average discount to NAV over a calendar year exceeds 5%.  During 2016, the Company recorded an average discount to NAV of 11.14% and as such the relevant Discount Trigger EGM conditions were met.

Following the passing of the Discount Trigger Resolution at the EGM on 9 March 2017, 5,389,739 shares will be redeemed. This will reduce the size of the Company and consequently the Board has considered the ongoing cost of running the Company and whether an increased Total Expense Ratio (“TER”) would adversely affect the Company’s ability to cover future liabilities. The Board noted that the Company could, under the terms of the Management Agreement, redeem sufficient shares in the Feeder Fund to cover ongoing expenses, therefore guaranteeing the future viability of the Company. The Board recognises the need to manage the TER to ensure it doesn’t become excessive. With this expense management in mind, the Board have made the decision not to replace Mr Dorrian who is not offering himself forward for re?election at the 2017 AGM.

The Board has considered the Company’s reduced size, its ability to redeem from the Feeder Fund and the confirmation it has received from the Investment Manager indicating their willingness to continue in their current capacity, and therefore the Board has concluded that the Company is able to continue as a going concern.

The following are significant accounting policies adopted by the Company:

Valuation of investments

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurement”, fair value is defined as the price the Company would receive upon selling a security in a timely transaction to an independent buyer in the principal or most advantageous market of the security. The Company records its investment in Class A shares of the Feeder Fund at fair value. Fair value is determined as the Company’s proportionate share of the Feeder Fund’s net assets. At 31 December 2016, the Company’s Sterling capital account represented 11.18% (31 December 2015: 7.69% and 1.29% of Sterling and US Dollar shares respectively) of the Feeder Fund’s capital. For further information refer to the Audited Consolidated Financial Statements of the Feeder Fund.

The Company’s investment in the Master Fund via the Feeder Fund and the Cayman Corporation is determined as the Company’s proportionate share of the Master Fund’s net assets. At 31 December 2016 the Company’s Sterling capital account represented 8.01% (31 December 2015: 4.85% and 0.82% of Sterling and US Dollar shares respectively) of the Master Fund’s capital. For further information refer to the Master Fund’s Audited Consolidated Financial Statements.

The Company’s investment in the Class A shares of Feeder Fund is subject to an 85 day notice period on redemptions. These redemptions are paid on a quarterly basis. 

The valuation and classification of securities held by the Master Fund, Feeder Fund and Cayman Corporation are discussed in the notes to the Audited Consolidated Financial Statements of the Master Fund and the Audited Consolidated Financial Statements of the Feeder Fund which are available on the Company’s website, www.dwcatalystltd.com.

ASC 820 establishes a three-level hierarchy to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.

As a result of the changes in ASC 820 “Fair Value Measurements”, the Company is using the practical expedient and therefore is not using fair value hierarchy.

Income and expenses

The Company records monthly its proportionate share of the Feeder Fund’s income, expenses and realised and unrealised gains and losses, which in turn records its proportionate share of the Master Fund’s income, expenses and realised and unrealised gains and losses. In addition, the Company accrues its own income and expenses, which until the US Dollar share class closure, were allocated proportionately to the US Dollar and Sterling share classes based on their respective NAVs.

Use of estimates

The preparation of Financial Statements in conformity with US GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of those Financial Statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

Change in functional currency

As a consequence of the closure of the US Dollar share class, a decision was made by the Directors to change the functional currency from US Dollars to Sterling. It is acknowledged that the Company’s price quotation on the LSE is now only Sterling and performance is reported in Sterling. The Company invests in a single investment through a Sterling Share class, and substantially all of the Company’s cash flows are now in Sterling. The presentation currency remains unchanged as US Dollars.

Foreign exchange

Purchases and sales of investments and income and expense items denominated in foreign currencies are translated into Sterling, the Company's functional currency, at the date of such transactions. Exchange differences arising on translation are included in the Statement of Operations and Performance Allocation.

Investment securities and other assets and liabilities are translated into US Dollars, the Company's reporting currency, using exchange rates at the reporting date. Transactions reported in the Statement of Operations and Performance Allocation are translated into US Dollar amounts at the average exchange rate for the period. The share capital and other capital reserve accounts are translated at the historic rate ruling at the date of the transaction. Exchange differences arising on translation into the reporting currency are offset against exchange differences arising on translation into the functional currency. Certain comparative figures have been reclassified in the Statement of Operations and Performance Allocation to conform with the current year presentation.

Cash and bank balances

Cash and cash equivalents comprise cash in bank and demand deposits with original maturities of less than 90 days.

Treasury shares

Where the Company may purchase its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from equity shareholders’ funds through the share capital account. When such shares are subsequently sold or reissued to the market, any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity shareholders’ funds through the share capital account. Where the Company cancels treasury shares, no further adjustment is required to the share capital account of the Company at the time of cancellation. Shares held in treasury are excluded from calculations when determining NAV per share as detailed in note 6 or in the Financial Highlights in note 8.

Allocation of results of the Feeder and Master Funds

Net realised and unrealised gains/losses of the Feeder Fund and Master Fund are allocated to the Company’s share classes based upon the percentage ownership of the equivalent Feeder Fund and Master Fund class.

Leverage

The Company, subject to Board approval, may not incur leverage other than for the purpose of financing share repurchases or satisfying working capital requirements, and subject to outstanding borrowings being in compliance with the borrowing limit in the Articles of 20% of the NAV of the Company, calculated as at the time of borrowing.

Recent standards and pronouncements

In August 2014, the FASB issued ASU 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40)(“ASU 2014-15”). The pronouncement defined management’s responsibility regarding the assessment of the Company’s ability to continue as a going concern, even if the Company’s liquidation is not imminent. Under this guidance, during each period on which financial statements are prepared, management needs to evaluate whether there are conditions or events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Substantial doubt exists if these conditions or events indicate that the Company will be unable to meet its obligations as they become due. If such conditions or events exist, management should develop a plan to mitigate or alleviate these conditions or events. Regardless of management’s plan to mitigate, certain disclosures must be made in the financial statements. ASU 2014-15 is effective for annual periods ending on or after 15 December 2016. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Audited Financial Statements.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its equivalent) (“ASU 2015-07”), in which certain investments measured at fair value using the net asset value per share method (or its equivalent) as a practical expedient are not required to be categorised in the fair value hierarchy. The Company has adopted this standard in the year ended 31 December 2015.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01) “Financial Instruments-Overall (Subtopic 825-10): Recognition and measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after 15 December 2017. The Directors have not yet assessed the impact of this standard on the financial statements.

3. Management, Performance, Administration and Registrar fees

Management and performance fees

Per the DW Management Agreement, the Manager is entitled to a management fee and performance allocation at the level of the Master Fund and the holding entities of Specific Investments but not payment of management and performance fees by the Company. Instead, the Company will indirectly bear a portion of the management fee and performance allocation charged by the Manager to the Master Fund and to any holding entity of a Specific Investment.

The DW Management Agreement may be terminated by either party giving the other party not less than 24 months written notice. In certain circumstances the Company will be obliged to pay compensation to the Investment Manager of the aggregate management fees which would otherwise have been payable on the Company’s indirect interests in the Master Fund and the Specified Investments during the 24 months following the date of such notice and the Company will be obliged to pay any other related costs. Compensation is not payable if more than 24 months’ notice of termination is given. In certain circumstances, the management agreement may be terminated by the Company giving the Investment Manager not less than 30 days’ or 90 days’ notice.

Administration fee

The Company has appointed Northern Trust International Fund Administration Services (Guernsey) Limited as Administrator and Corporate Secretary. The Administrator is paid fees based on the NAV of the Company, payable quarterly in arrears. The fee is at a rate of 0.025% per annum of the first US$750 million of net assets of the Company and then 0.015% per annum thereafter, subject to a minimum fee of US$200,000 per annum.

The Administrator is entitled to be reimbursed out-of-pocket expenses incurred in the course of carrying out its duties. The fee will be reviewed on an annual basis.

During the year ended 31 December 2016, US$201,000 (31 December 2015: US$200,000) was earned by the Administrator as administration fees. At 31 December 2016, US$33,228 (31 December 2015: $33,155) of the fee remained outstanding.

Registrar fee

The Company appointed Computershare Investor Services (Guernsey) Limited as Registrar, with effect from 19 November 2010. The Registrar is paid fees according to the agreement, subject to a minimum fee of £6,000 per annum, payable quarterly in arrears. During the year ended 31 December 2016, US$29,821 (31 December 2015: US$32,344) were charged by the Registrar. At 31 December 2016: US$nil (31 December 2015: US$5,184) of the fee remained outstanding.

4. Share Capital

Issued and authorised share capital

The Company was incorporated with the authority to issue up to one billion shares of no par value in each class, which authority expired on 19 October 2015. As approved by the shareholders at the AGM held on 22 June 2016, the Directors have the power to issue 3,464,332 Sterling shares. Such power expires fifteen months after the passing of the resolution or on the conclusion of the next AGM of the Company, whichever is earlier. The Articles require any further issues of shares for cash to be made on a pre-emptive basis to holders of shares of the same class, except to the extent that such pre-emption rights have been disapplied by shareholders in general meeting. The shares may be issued in differing currency classes of ordinary redeemable shares including C shares (described in the Company’s Prospectus) at the discretion of the Board. At 31 December 2016 and 31 December 2015, no C shares were in issue.

For the year ended 31 December 2016

					US Dollar shares		Sterling shares
Number of ordinary shares
In issue at 1 January 2016					2,211,203		8,856,566
Share conversions from US Dollar shares to Sterling shares					(2,211,203)		1,537,466
Purchase of own shares into treasury					-		(1,022,215)
In issue at 31 December 2016					-		9,371,817
Number of treasury shares
In issue at 1 January 2016					-		-
Shares purchased and held in treasury during the year:
- On market purchases					-		1,022,215
In issue at 31 December 2016					-		1,022,215
Percentage of class					-		9.83%
							Company Total
			US$'000		£'000		US$'000
Share capital account
At 1 January 2016			12,346		93,762		157,615
Share conversions from US Dollar shares to Sterling shares			(12,346)		18,345	*	-
Purchase of own shares into treasury			-		(11,389)		(15,360)
At 31 December 2016			-		100,718		142,255

*Including cumulative gains on US Dollar shares converted to Sterling shares.

For the year ended 31 December 2015

					US Dollar shares		Sterling shares
Number of ordinary shares
In issue at 1 January 2015					3,024,729		8,332,877
Share conversions from US Dollar shares to Sterling shares					(910,568)		586,303
Share conversions from Sterling shares to US Dollar shares					97,042		(62,614)
In issue at 31 December 2015					2,211,203		8,856,566
							Company Total
			US$'000		£'000		US$'000
Share capital account
At 1 January 2015			23,360		86,635		157,615
Share conversions from US Dollar shares to Sterling shares			(12,335)		7,984		-
Share conversions from Sterling shares to US Dollar shares			1,321		(857)		-
At 31 December 2015			12,346		93,762		157,615

Share classes

On 26 April 2016, all of the Company’s US Dollar shares were converted into Sterling shares, based on 31 March 2016 NAV, following which the US Dollar share class was closed. The Company now has only Sterling shares in issue. Any increase or decrease in the NAV of the Feeder Fund is allocated in full to the Sterling Share class.

Prior to the compulsory US Dollar share conversion, a separate class account was established in the books of the Company in respect of each class of shares. An amount equal to the aggregate proceeds of issue of each share class was credited to the relevant class account. Any increase or decrease in the NAV of the Feeder Fund’s US Dollars shares and the Feeder Fund’s Sterling shares as calculated by the Feeder Fund was allocated to the relevant class account in the Company.

Share issue expenses

Share issue expenses of US$1,592,065 were borne by the Company and were charged against the share capital account at launch (the “Offer”). In accordance with the Placing Agreement dated 19 November 2010, BHCM paid the costs and expenses of, and incidental to, the Offer (including all costs related to the establishment of the Company) (the “Offer Costs”) which were in excess of 1% of the gross proceeds of the Offer. The Offer Costs paid by BHCM amounted to US$3,261,054. Shares which were voted in favour of the Discount Trigger Resolution will have their proportion of the Offer Costs deducted from the first instalment of their redemption proceeds. The DW Management Agreement replicates the provisions in the BH Management Agreement regarding repayment of BHCM’s outstanding costs incurred in connection with the Company’s IPO.

Pursuant to the terms of the DW Management Agreement, the Company must repay to DW a fraction of these Offer Costs for every US Dollar by which repurchases, redemptions or cancellations of the Company’s shares reduce the current US Dollar NAV of the Company below its NAV at the time of the Company’s listing, being US$157,614,394. The current US Dollar NAV is calculated using the exchange rates ruling at the time of the Company’s listing and at 31 December 2016 stood at US$192,001,132.

The amount of these Offer Costs to be repaid for every US Dollar by which the Company’s NAV is reduced will be up to 2.07 cents (or such lower amount as may result from any reduction in the Offer Costs actually paid by the Manager), being the figure obtained by dividing the Offer Costs by the NAV of the Company at the time of its listing.

In addition, if the DW Management Agreement were to be terminated for certain reasons before the seventh anniversary of admission to the London Stock Exchange, being 14 December 2017, the Company will be required to reimburse the Manager in respect of the offer costs borne by the Manager. The Directors consider the likelihood of the DW Management Agreement terminating and as a consequence the contingent liability described above arising as remote and therefore no provision has been made within these Financial Statements.

The Directors confirm that there are no other contingent liabilities that require disclosure or provision.

Voting rights

Ordinary redeemable shares carry the right to vote at general meetings of the Company and to receive any dividends, attributable to the ordinary shares as a class, declared by the Company and, in a winding-up will be entitled to receive, by way of capital, any surplus assets of the Company attributable to the ordinary shares as a class in proportion to their holdings after settlement of any outstanding liabilities of the Company.

Each shareholder shall have one vote for each share denominated in the base class held by them. As prescribed in the Company’s Articles, the different classes of ordinary shares have different values attributable to their votes. The attributed values have been calculated on the basis of the Weighted Voting Calculation (as described in the Articles) which takes into account the prevailing exchange rates on the date of initial issue of ordinary shares. Currently, a single Sterling ordinary share has 1 vote. Prior to the closure of the US Dollar share class, a single US Dollar share had 1 vote and a single Sterling ordinary share had 1.5774 votes.

Treasury shares do not have any voting rights.

Repurchase of shares

The Directors have been granted authority to purchase in the market up to 1,558,066 of Sterling shares and they intend to seek annual renewal of this authority from shareholders which was last granted on 22 June 2016. The Directors may, at their discretion, utilise this share repurchase authority to address any imbalance between the supply of and demand for shares.

Distributions

The Directors may from time to time authorise dividends and distributions to be paid to shareholders on a class by class basis.

The amount of such dividends or distributions paid in respect of one class may be different from that of another class.

The Feeder Fund does not expect to pay dividends to its investors. Therefore, the Directors of the Company do not expect to declare any dividends. This does not prevent the Directors of the Company from declaring a dividend at any time in the future if the Directors consider payment of a dividend to be appropriate in the circumstances.

As announced on 15 January 2014, the Company intends to be operated in such a manner to ensure that its shares are not categorised as non-mainstream pooled investments. This may mean that the Company may pay dividends in support of any income that it receives or is deemed to receive for UK tax purposes so that it would qualify as an investment trust if it were UK tax-resident.

Treasury shares are not entitled to distributions.

Deferred share

The Company has issued one, non-participating, non voting, non redeemable deferred share having the right to the payment of £1 on liquidation of the Company. The deferred share was issued on 19 October 2010 and has a right to vote only if there are no other classes of voting share in issue.

Annual partial capital return offer

Commencing on or after 1 January 2012, for each calendar year the Directors may, in their absolute discretion, determine that the Company should make an offer to redeem such number or value of shares as they may determine provided that the minimum amount distributed shall not be less than 33% and not more than 100% of the increase in the NAV of the Company in the prior calendar year.

The Directors shall, in their absolute discretion, determine the particular class or classes of shares in respect of which an Annual Partial Capital Return Offer will be made, the timetable for that Annual Partial Capital Return Offer and the price at which the shares of each relevant class will be redeemed.

Whether a return of capital is made in any particular year and, if so, the amount of the return, may depend, among other things, on prevailing market conditions, the ability of the Company to liquidate its investment to fund the capital return, the success of prior capital returns and applicable legal, regulatory and tax considerations.

Notwithstanding the Discount Trigger vote, the Directors determined that the Company will not offer an annual partial capital return during 2017.

Share conversion scheme

Previously, the Company implemented a Share Conversion Scheme. The scheme provided shareholders with the ability to convert some or all of their shares in the Company of one class into shares of another class. Shareholders, at the discretion of the Board, were able to convert ordinary shares on the last business day of every month. Each conversion was based on NAV (note 6) of the share classes converted. Following the closure of the US Dollar share class on 26 April 2016, the share conversion scheme was withdrawn.

5. Taxation

Overview

The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and pays an annual fee of £1,200 (2015: £1,200). Accordingly, no provision for Guernsey income tax is included in these Audited Financial Statements.

Uncertain tax positions

The Company recognises the tax benefits of uncertain tax positions only where the position is more likely than not (i.e. the likelihood is greater than 50 per cent) to be sustained assuming examination by a tax authority based on the technical merits of the position. In evaluating whether a tax position has met the recognition threshold, the Company must presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognise in the Company’s Audited Financial Statements. Income tax and related interest and penalties would be recognised by the Company as tax expense in the Consolidated Statement of Operations and Performance Allocation if the tax positions were deemed not to meet the 50% likelihood threshold.

The Company analyses all open tax years for all major taxing jurisdictions. Open tax years are those that are open for examination by taxing authorities, as defined by the Statute of Limitations in each jurisdiction. The Company identifies its major tax jurisdictions as the Cayman Islands and foreign jurisdictions where the Company makes significant investments. The Company has no examinations by tax authorities in progress.

The Directors have analysed the Company’s tax positions, and have concluded that no liability for unrecognised tax benefits should be recorded related to uncertain tax positions. Further, the Directors are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognised tax benefits will significantly change in the next twelve months.

6. Publication and Calculation of Net Asset Value

The NAV of the Company is equal to the value of its total assets less its total liabilities. The NAV per share of each class is calculated by dividing the NAV of the relevant share class by the number of shares of the relevant class in issue on that day.

The Company publishes the NAV per share for each class of shares as calculated by the Administrator based in part on information provided by the Feeder Fund, monthly in arrears, as at each month end.

The Company also publishes an estimate of the NAV per share for each class of shares as calculated by the Administrator based in part on information provided by the Feeder Fund, weekly in arrears.

Shares held in treasury are excluded from calculations when determining NAV per share.

7. Discount Management Programme

The Company’s discount management programme includes the ability to make market purchases of shares and the obligation to convene a Discount Trigger EGM if, in any calendar year, the average daily closing market price of the relevant class of shares is less than 95% of the average NAV per share of the relevant class taken over the 12 monthly NAVs in that year. This is described more fully in the Company’s Articles.

The discount management measures will be funded by and subject to the Company’s ability to make partial redemptions of the Company’s investment in the Feeder Fund.

During 2016, the Company recorded an average discount to NAV of 11.14% and consequently the relevant Discount Trigger EGM conditions described above were met.

The Board convened a Discount Trigger EGM on 9 March 2017 and proposed an ordinary resolution, which, if passed, would require the Company to compulsorily redeem the shares which were voted in favour of the resolution.

The price at which the shares will be redeemed will be based on the NAV per share of the relevant class, less:

i.    any costs and expenses (including redemption fees) incurred in relation to the Discount Trigger EGM; and

ii.    a fractional share of any Offer Costs paid by the Manager (note 4).

As the resolution was passed, the Company will redeem all shares which were voted in favour of the Discount Trigger Resolution (the “Redeeming Shares”). All Redeeming Shares will be redeemed by the Company on 1 August 2017.

Redeeming shareholders will receive the redemption proceeds in four quarterly instalments following each of 1 August and 1 November 2017 and 1 February and 1 May 2018, subject to the retention of a Hold-back Amount in certain circumstances, as more fully described in the Circular dated 17 February 2017 available on the Company’s website: www.dwcatalystltd.com.

The Annual Partial Capital Return Offer described in note 4 which enables a partial return of capital also forms part of the discount management programme.

Also, during the year, the Company utilised its ability to buy back shares, repurchasing 1,022,215 Sterling shares at a cost of £11,389,130 at an average discount to NAV of 9.98%.

8. Financial Highlights

The following tables include selected data for a single ordinary share of each of the ordinary share classes in issue at the year end and other performance information derived from the Audited Financial Statements.

The per share amounts and ratios which are shown reflect the income and expenses of the Company for each class of ordinary share.

			01.01.16 to		01.01.16 to		01.01.15 to		01.01.15 to
			31.12.16		31.12.16		31.12.15		31.12.15
			US Dollar shares	^	Sterling shares		US Dollar shares		Sterling shares
			US$		£		US$		£
Per share operating performance
Net asset value at beginning of the year			12.40		12.47		13.71		13.77
Income from investment operations
Net investment gain 1			0.93		2.34		1.47		1.63
Net realised loss and unrealised depreciation on investment*			(1.47)		(1.88)		(2.83)		(2.92)
Other capital items 2			-		0.06		0.05		(0.01)
Total (loss)/gain			(0.54)		0.52		(1.31)		(1.30)
Conversion of US Dollar shares to Sterling shares			(11.86)		-		-		-
Net asset value, end of the year			-		12.99		12.40		12.47
Total (loss)/gain			(4.34%)		4.19%		(9.52%)		(9.48%)

^ Returns of the US Dollar share class have been calculated up to 31 March 2016.

*Foreign exchange hedge loss allocated from the Feeder Fund and currency translation gain arising due to translation of USD allocations to GBP functional currency each amounted to £2.35 per share (31 December 2015: £0.67 per share).

Total return reflects the net return for an investment made at the beginning of the year and is calculated as the change in the NAV per ordinary share during the year to 31 December 2016 and 31 December 2015. An individual shareholder’s return may vary from these returns based on the timing and entry price of their purchase or sale of shares.

			01.01.16 to		01.01.16 to		01.01.15 to		01.01.15 to
			31.12.16		31.12.16		31.12.15		31.12.15
			US Dollar shares	^^	Sterling shares		US Dollar shares		Sterling shares
			US$		£		US$		£
Supplemental data
Net asset value, beginning of the year			27,425		110,397		41,462		114,748
Net asset value, prior to final share conversion			23,238		107,621		-		-
Net asset value, end of the year			-		121,720		27,425		110,397
Average net asset value for the year			25,884		117,688		36,688		115,109

^^  The US Dollar share class NAV at the end of the year is the NAV as at the 31 March 2016.The average US Dollar share class NAV for the year is calculated based on published NAVs from the start of the year to 31 March 2016.

			01.01.16 to		01.01.16 to		01.01.15 to		01.01.15 to
			31.12.16		31.12.16		31.12.15		31.12.15
			US Dollar shares		Sterling shares		US Dollar shares		Sterling shares
			US$		£		US$		£
Ratio to average net assets
Operating expense
Company expenses 3			0.10%		0.61%		0.55%		0.54%
Feeder Fund expenses 4			0.57%		2.45%		2.33%		2.36%
Feeder Fund interest expenses 5			0.64%		2.76%		1.75%		1.82%
			1.31%		5.82%		4.63%		4.72%
Net investment gain 1
			7.67%		18.92%		10.91%		12.05%

^1.     The net investment gain figures disclosed above do not include net realised and unrealised gains/losses on investments allocated from the Feeder Fund and Master Fund.

^2.     Included in other capital items are share issue costs and the discounts and premiums on conversions between share classes during the year as compared to the NAV per share at the beginning of the year.

^3.     Company expenses are as disclosed in the Statement of Operations.

^4.     The Feeder’s expenses are the operating expenses of the Feeder and its allocation of the Master Fund expenses.

^5.     Feeder and Master Fund interest expense includes interest and dividend expenses on investments sold short.

9. Related Party Transactions

Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operational decisions.

On 1 January 2015, the Company redeemed, in specie, $41,646,556 of the US Dollar shares and £115,151,649 of the Sterling shares it held in BHCC, amounting to an equivalent amount of US$220,828,279, and in return received Class A Shares of the Feeder Fund (a company managed by the Manager) in US Dollar and Sterling classes in proportions matching the relative number of US Dollar and Sterling Shares of the Company in issue at the time.

Management fees are disclosed in note 3.

Directors’ fees are disclosed in the Directors’ Remuneration Report.

Directors’ interests are disclosed in the Corporate Governance Statement with further disclosures in the Board Members section.

At 31 December 2016, David Warren - the Chief Investment Officer of DW – held 173,257 Sterling shares (31 December 2015: 52,270 US Dollar shares and 135,512 Sterling shares) in the Company.

10. Subsequent Events

The Financial Statements were approved for issuance by the Directors on 31 March 2017. Subsequent events have been evaluated up to this date.

The Company announced on 11 January 2017 that effective 1 January 2017, DW Catalyst Offshore Fund, Ltd. (the “Feeder Fund”) has announced the creation of a new share class (“Class B”) with a reduced management fee of 1.5% per annum payable to DW Partners, LP and an extended redemption notice period from 85 to 90 days. The Company invests substantially all of its assets in the Feeder Fund and, effective 1 January 2017, has transferred into Class B to receive the benefit of the reduced fee (previously the Company invested in Class A shares with a 2.0% per annum management fee and an 85 day redemption notice period). The new share class is not subject to performance fee allocation.

The Company announced on 9 February 2017 that the Discount Trigger Resolution procedure contained in the Company’s Articles of Incorporation had been triggered in respect of the year ended 31 December 2016. This is because the average daily closing market price of the Company’s shares during 2016 was less than 95% of the average NAV per share, based on the average of the NAV per share over the twelve month-end NAV calculation dates occurring in 2016.

A publication of Discount Trigger Meeting Circular (the “Circular”) was circulated to shareholders on 17 February 2017. The Circular sets out an explanation of the business to be considered at the Discount Trigger Meeting, and the consequences of the Discount Trigger Resolution being approved or rejected by shareholders.

The earliest that another Discount Trigger Resolution may be required to be proposed under the Articles would be in respect of the year ending 31 December 2017, depending on the share price performance of the Shares compared to the Company’s NAV.

As the Discount Trigger Resolution (the “Resolution”) was passed, the Company will redeem all shares which were voted in favour of the Resolution (the “Redeeming Shares”). Shares which were voted against the Resolution, or where no election was made, will not be redeemed pursuant to the Resolution. The Redeeming Shares represent approximately 57.6% of the 9,349,317 shares currently in issue (excluding shares held in treasury).

All Redeeming Shares will be redeemed by the Company on 1 August 2017.

Redeeming Shareholders will receive the Redeeming Share Redemption Proceeds (the “Proceeds”) in four quarterly instalments following the calculation of each of the quarterly redemption NAVs, the dates of which are 1 August and 1 November 2017 and 1 February and 1 May 2018. Although the Redemption proceeds are calculated on the aforementioned NAVs, payment will be received sometime later. Proceeds are subject to the retention of a hold-back amount in certain circumstances, as more fully described in the Circular.

Subsequent to the year end and up to the date of this report, the Company purchased the following shares of the Company to be held as treasury shares:

	Number of shares				Cost		Cost
Treasury shares			purchased		£		US$
Sterling shares			22,500		270,299		332,041

In addition to the buyback of the above shares, 22,500 ordinary shares were also cancelled.

Following the purchase and cancellation of shares, the Company has 9,349,317 ordinary shares in issue.

No further subsequent events have occurred.

HISTORIC PERFORMANCE SUMMARY

As at 31 December 2016

(Expressed in ‘000 US Dollars)

					31.12.16		31.12.15
Net decrease in net assets resulting from operations					(24,628)		(29,618)
Total assets					150,712		190,543
Total liabilities					(302)		(145)
Net assets					150,410		190,398
Number of shares in issue
US Dollar shares					-		2,211,203
Sterling shares					9,371,817		8,856,566
Net asset value per share
US Dollar shares					-		US$12.40
Sterling shares					£12.99		£12.47

AFFIRMATION OF THE COMMODITY POOL OPERATOR

31 December 2016

To the best of my knowledge and belief, the information detailed in this Annual Report and these Audited Financial Statements is accurate and complete:

By:

Name: Shawn R. Singh, Esq.
Title: General Counsel

DW Partners, LP, acting by its general partner DW Investment Partners, LLC, the manager and commodity pool
operator of DW Catalyst Fund Limited.

31 March 2017

COMPANY INFORMATION

Directors
Charlotte Valeur* (Chair)
(appointed 31 October 2010)

Keith Dorrian* (Senior Independent Director)
(appointed 31 October 2010)

Patrick Firth* (Chair of Audit and Risk Committee)
(appointed 31 October 2010)

Christopher Waldron*
(appointed 31 October 2010)

Andrew Rosenthal
(appointed 8 April 2015)

(All Directors are non-executive)
* These Directors are independent for the purpose of LR15.2.12-A.

Registered Office
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL

Manager
DW Partners, LP
590 Madison Avenue
13^th Floor
New York
NY 10022

Administrator and Corporate Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL

Independent Auditor
Ernst & Young LLP
PO Box 9, Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
GY1 4AF

Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1^st Floor, Tudor House
Le Bordage
St. Peter Port
Guernsey
GY1 1DB

Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St. Peter Port
Guernsey
GY1 4BZ

Legal Advisors (UK Law)
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London
EC4Y 1HS

Corporate Brokers
JPMorgan Cazenove
25 Bank Street
London
E14 5JP

Fidante Capital
1 Tudor Street
London
EC4Y 0AH

For the latest information www.dwcatalystltd.com
 

Copyright h 31 PR Newswire