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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-22352
GROSVENOR REGISTERED MULTI-STRATEGY FUND (TI 1), LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
900 NORTH MICHIGAN AVENUE, SUITE 1100
CHICAGO, ILLINOIS 60611
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Scott J. Lederman George J. Zornada, Esq.
Grosvenor Registered Multi-Strategy Funds K&L Gates LLP
900 North Michigan Avenue State Street Financial Center
Suite 1100 One Lincoln Street
Chicago, Illinois 60611 Boston, Massachusetts 02111-2950
(NAME AND ADDRESS OF AGENT FOR SERVICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 506-6500
Date of fiscal year end: March 31
Date of reporting period: March 31, 2011
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ITEM 1 - REPORTS TO STOCKHOLDERS
The Report to Shareholders is attached hereto.
GROSVENOR REGISTERED MULTI-STRATEGY FUND (TI 1), LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2011
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Financial Statements
For the Year Ended March 31, 2011
CONTENTS
Report of Independent Registered Public Accounting Firm 1
Statement of Assets, Liabilities and Members' Capital 2
Statement of Operations 3
Statements of Changes in Members' Capital 4
Statement of Cash Flows 5
Financial Highlights 6
Notes to Financial Statement 7
The Registrant files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Registrant's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Information on Form N-Q is available without charge,
upon request, by calling (866) 921-7951.
A description of the policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling (866) 921-7951 and on the Commission's
website at http://www.sec.gov.
Information regarding how the Registrant voted proxies relating to
portfolio securities during the most recent 12-month period ended
December 31 is available without charge, upon request, by calling (866)
921-7951, and on the Commission's website at http://www.sec.gov.
(PWC LOGO)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC:
In our opinion, the accompanying statement of assets, liabilities and members'
capital and the related statements of operations, of changes in members'
capital and of cash flows and the financial highlights present fairly, in all
material respects, the financial position of Grosvenor Registered
Multi-Strategy Fund (TI 1),LLC (the "Fund") at March 31, 2011, the results of
its operations and its cash flows for the year then ended and the changes in its
members' capital and the financial highlights for the year then ended and for
the period January 1, 2010 (commencement of operations) through March 31, 2010,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statements
presentation. We believe that our audits provide a reasonable basis for our
opinion.
(Pricewaterhousecoopers LLP)
May 27, 2011
PRICEWATERHOUSECOOPERS LLP, ONE NORTH WACKER, CHICAGO, IL 60606
T: (312) 298 2000, F: (312) 298 2001, www.pwc.com/us
1
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Statement of Assets, Liabilities and Members' Capital
March 31, 2011
ASSETS
Investment in Grosvenor Registered Multi-Strategy Master Fund, LLC, at fair value $489,022,780
Cash and cash equivalents (See Note 2d) 1,851,122
Redemption receivable from investment in Grosvenor Registered Multi-Strategy
Master Fund, LLC 10,464,326
Investment in Grosvenor Registered Multi-Strategy Master Fund, LLC paid in
advance 4,500,000
Prepaid insurance 148,591
Due from Adviser Entities (See Note 2b) 19,496
Other assets 70
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TOTAL ASSETS 506,006,385
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LIABILITIES
Repurchase of Members' interests payable 11,793,838
Members' subscriptions received in advance 4,900,000
Professional fees payable 140,182
Management fee payable 135,041
Administration fee payable 1,500
Other liabilities 14,488
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TOTAL LIABILITIES 16,985,049
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NET ASSETS $489,021,336
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MEMBERS' CAPITAL* $489,021,336
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* Members' Capital includes net subscriptions, cumulative net investment
income/(loss), cumulative net realized gain/(loss), and accumulated
unrealized appreciation from investments in Grosvenor Registered
Multi-Strategy Master Fund, LLC.
The accompanying notes and attached audited financial statements of
Grosvenor Registered Multi-Strategy Master Fund, LLC are an integral part
of these financial statements.
2
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Statement of Operations
Year Ended March 31, 2011
NET INVESTMENT LOSS ALLOCATED FROM GROSVENOR
REGISTERED MULTI-STRATEGY MASTER FUND, LLC
Interest $ 32,176
Other income 52,235
Expenses (5,828,012)
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NET INVESTMENT LOSS ALLOCATED FROM GROSVENOR REGISTERED MULTI-STRATEGY
MASTER FUND, LLC (5,743,601)
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FUND INCOME
Interest 893
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FUND EXPENSES
Management fee 609,155
Professional fees 158,196
Communications fees 103,751
Insurance fees 84,909
Registration fees 71,786
Administration fee 9,000
Directors' fees 2,500
Other expenses 39,656
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TOTAL FUND EXPENSES 1,078,953
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NET INVESTMENT LOSS BEFORE EXPENSE LIMITATION REIMBURSEMENT (6,821,661)
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Expense limitation reimbursement 862
NET INVESTMENT LOSS (6,820,799)
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REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
ALLOCATED FROM GROSVENOR REGISTERED MULTI-STRATEGY MASTER FUND, LLC
Net realized gain on investments 15,796,696
Net change in accumulated unrealized appreciation on investments 25,306,876
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM GROSVENOR
REGISTERED MULTI-STRATEGY MASTER FUND, LLC 41,103,572
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NET INCREASE IN MEMBERS' CAPITAL RESULTING FROM
OPERATIONS $34,282,773
============
The accompanying notes and attached audited financial statements of Grosvenor
Registered Multi-Strategy Master Fund, LLC are an integral part of these
financial statements.
3
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Statements of Changes in Members' Capital
MEMBERS' CAPITAL, JANUARY 1, 2010 (COMMENCEMENT OF
OPERATIONS) $ -
Members' subscriptions 6,075,000
Transfer of Members' interests* 469,717,343
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Net increase in Members' Capital resulting from capital transactions 475,792,343
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Net investment loss (1,597,694)
Net realized loss from investments (844,002)
Net change in accumulated unrealized appreciation on investments 14,431,218
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Net increase in Members' Capital resulting from operations 11,989,522
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MEMBERS' CAPITAL, MARCH 31, 2010 487,781,865
Members' subscriptions 36,492,379
Members' interests repurchased (69,535,681)
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Net decrease in Members' Capital resulting from capital transactions (33,043,302)
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Net investment loss (6,820,799)
Net realized gain from investments 15,796,696
Net change in accumulated unrealized appreciation on investments 25,306,876
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Net increase in Members' Capital resulting from operations 34,282,773
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MEMBERS' CAPITAL, MARCH 31, 2011 $489,021,336
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* On January 1, 2010, Members of Grosvenor Registered Multi-Strategy Master
Fund, LLC contributed their interests in Grosvenor Registered
Multi-Strategy Master Fund, LLC to Grosvenor Registered Multi-Strategy Fund
(TI 1), LLC (the "TI 1 Fund") in exchange for interests in the TI 1 Fund.
The accompanying notes and attached audited financial statements of Grosvenor
Registered Multi-Strategy Master Fund, LLC are an integral part of these
financial statements.
4
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Statement of Cash Flows
Year Ended March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' Capital resulting from operations $ 34,282,773
Adjustments to reconcile net increase in Members' Capital resulting from operations to net
cash provided by operating activities:
Net change in accumulated unrealized appreciation allocated from Grosvenor Registered
Multi-Strategy Master Fund, LLC (25,306,876)
Net investment loss allocated from Grosvenor Registered Multi-Strategy Master Fund, LLC 5,743,601
Net realized gain allocated from Grosvenor Registered Multi-Strategy Master Fund, LLC (15,796,696)
Purchases of investment in Grosvenor Registered Multi-Strategy Master Fund, LLC (40,191,000)
Proceeds from investment in Grosvenor Registered Multi-Strategy Master Fund, LLC 59,071,355
(Increase)/Decrease in operating assets:
Prepaid insurance (148,591)
Due from Adviser Entities 160,421
Other assets 90
Increase/(Decrease) in operating liabilities:
Management fee payable 110,333
Professional fees payable (258)
Other liabilities (12,859)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 17,912,293
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 39,642,379
Payments for Members' interests repurchased (60,824,813)
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NET CASH USED IN FINANCING ACTIVITIES (21,182,434)
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Net decrease in cash and cash equivalents (3,270,141)
Cash and cash equivalents at beginning of year 5,121,263
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CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,851,122
=============
The accompanying notes and attached audited financial statements of Grosvenor
Registered Multi-Strategy Master Fund, LLC are an integral part of these
financial statements.
5
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Financial Highlights
The following represents certain ratios to average Members' Capital, total
return, and other supplemental information for the period indicated:
JANUARY 1, 2010
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED PERIOD ENDED MARCH
MARCH 31, 2011 31, 2010*
Ratios to average Members' Capital: (a)
Net investment loss - net of expense reimbursement (b) (1.40%) (1.33%)
=============== ===================
Expenses - gross of expense limitation reimbursement (c) 1.42% 1.49%
Expenses - net of expense limitation reimbursement (c) 1.42% 1.34%
=============== ===================
Total return (d) 7.35% 2.52%
=============== ===================
MEMBERS' CAPITAL, END OF YEAR ($000) $ 489,021 $ 487,782
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* The ratios for this period have been annualized. Organizational expenses
included in these ratios have not been annualized. For the periods prior to
the formation of the TI 1 Fund, refer to the financial highlights of
Grosvenor Registered Multi-Strategy Master Fund, LLC in the attached
audited financial statements.
(a) Average Members' Capital is determined by using the net assets at the
beginning of each month during the period.
(b) The ratio reflects the income and expenses including the TI 1 Fund's
proportionate share of income and expenses of Grosvenor Registered
Multi-Strategy Master Fund, LLC.
(c) The ratio reflects the expenses including the TI 1 Fund's proportionate
share of the expenses of Grosvenor Registered Multi-Strategy Master Fund,
LLC.
(d) The total return is not annualized. Total return assumes a purchase of an
Interest in the TI 1 Fund on the first day and the sale of an Interest on
the last day of the period and is calculated by using geometrically linked
monthly returns. An individual Member's return may vary from these returns
based on the timing of Member subscriptions and repurchases and management
fee terms (see Note 4 "Management Fee").
The accompanying notes and attached audited financial statements of Grosvenor
Registered Multi-Strategy Master Fund, LLC are an integral part of these
financial statements.
6
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements
March 31, 2011
1. ORGANIZATION
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC (the "TI 1 Fund") is a
Delaware limited liability company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a closed-end management
investment company and is operating as a diversified investment company.
The TI 1 Fund was formed as of October 26, 2009 and commenced operations on
January 1, 2010. The TI 1 Fund has many of the features of a private
investment fund. The TI 1 Fund's interests ("Interests") are offered only
in private placements to persons (i) who are both "accredited investors"
under the Securities Act of 1933, as amended, and "qualified clients" under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
(ii) who meet other investor eligibility criteria established by the TI 1
Fund. The primary investment objectives of the TI 1 Fund are to provide
investors (i) an attractive, long-term rate of return, on an absolute as
well as a risk-adjusted basis, (ii) low performance volatility and (iii)
minimal correlation with the equity and fixed income markets. The TI 1 Fund
seeks to achieve these objectives by investing substantially all of its
assets in Grosvenor Registered Multi-Strategy Master Fund, LLC (the
"Company"), also a Delaware limited liability company registered under the
1940 Act as a closed-end, diversified management investment company. The
Company employs a multi-strategy, multi-manager investment strategy as
detailed in its financial statements, which are attached herein. There can
be no assurance that the investment objectives of the TI 1 Fund or the
Company will be achieved. The investment managers of the private investment
funds in which the Company invests generally conduct their investment
programs through these private investment funds (collectively, the
"Portfolio Funds"). The Company invests in the Portfolio Funds as a limited
partner, member or shareholder, along with other investors.
The financial statements of the Company, including the Schedule of
Investments, are attached to this report and should be read in conjunction
with the TI 1 Fund's financial statements. As of March 31, 2011, the TI 1
Fund's beneficial ownership of the Company's Members' Capital was 91.49%.
The TI 1 Fund was formed as part of a reorganization of the Company into a
"master/feeder" investment structure (the "Reorganization"). As part of the
Reorganization, members of the Company became members ("Members") of the TI
1 Fund. The TI 1 Fund had no assets, liabilities, or operations prior to
the Reorganization.
Bank of America Capital Advisors LLC ("BACA") served as the investment
adviser (the "Adviser") of the Company and the management services provider
of the TI 1 Fund. The Adviser is registered as an investment adviser under
the Advisers Act. The Adviser is an indirect wholly-owned subsidiary of
Bank of America Corporation ("BAC"). BAC is a financial holding company,
which has its principal executive offices at 101 North Tryon Street,
Charlotte, North Carolina. The Adviser provided various management and
administrative services to the Company and the TI 1 Fund.
7
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements (continued)
March 31, 2011
The Adviser retained Grosvenor Capital Management, L.P. ("Grosvenor" or the
"Subadviser") as the subadviser to the Company, which is also registered as
an investment adviser under the Advisers Act. The Subadviser is responsible
for implementing the Company's investment strategy and managing the
Company's investment portfolio on a day-to-day basis, in accordance with
the investment objective, philosophy and strategy described in the
Company's registration statement and is subject to oversight by the Adviser
and the Board of Directors of the Company, whose members also comprise the
TI 1 Fund's Board of Directors (the "Board").
The Board has overall responsibility to manage and supervise the operations
of the TI 1 Fund, including the exclusive authority to oversee and to
establish policies regarding the management, conduct and operation of the
TI 1 Fund's business. The Board exercises the same powers, authority and
responsibilities on behalf of the TI 1 Fund as customarily exercised by
directors of a typical investment company registered under the 1940 Act and
organized as a corporation. The Board has engaged the Adviser to manage the
day-to-day operations of the TI 1 Fund.
Subscriptions for Interests in the TI 1 Fund by eligible investors may be
accepted as of the first day of each month, or at such times as the Board
may determine. Investors who purchase limited liability company Interests
in the TI 1 Fund in the offering, and other persons who acquire Interests
and are admitted to the TI 1 Fund by its Board, will become members of the
TI 1 Fund (the "Members"). The TI 1 Fund may, from time to time, offer to
repurchase Interests from its Members pursuant to written tenders by
Members. These repurchase offers will be made at such times and on such
terms as may be determined by the Board, in its sole discretion, subject to
the liquidity of the TI 1 Fund's assets and other factors considered by the
Board. The Adviser expects that it will recommend to the Board that the TI
1 Fund offer to repurchase Interests from Members four times each year,
effective as of the last day of each calendar quarter. Members can only
transfer or assign Interests under certain limited circumstances. Member
repurchases are recognized as liabilities when the amount becomes fixed.
This generally will occur on the last day of a fiscal period.
As of the last day of each calendar month, the TI 1 Fund allocates net
profits or losses for that month to the capital accounts of all Members, in
proportion to their respective opening capital account balances for such
period (after taking into account any Member subscriptions deemed to be
made as of the first day of such period).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Management
believes that the estimates utilized in preparing the TI 1 Fund's financial
8
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements (continued)
March 31, 2011
statements are reasonable and prudent; however, the actual results could
differ from these estimates.
B. EXPENSES
The TI 1 Fund bears its own expenses and, indirectly, bears a pro rata
portion of the Company's expenses incurred in its business, including, but
not limited to, the following: fees paid directly or indirectly to the
investment managers and the general operating expenses of the Portfolio
Funds; all costs and expenses directly related to the portfolio
transactions and positions for the Company's account; legal fees;
accounting and auditing fees; custodial and escrow fees; fees paid to the
TI 1 Fund's and the Company's administrator; costs of insurance; management
fees and advisory fees; the fees and travel expenses and other expenses of
the TI 1 Fund's and the Company's Boards; all costs with respect to
communications regarding the TI 1 Fund's and the Company's transactions
between the Adviser and any custodian or other agent engaged by the TI 1
Fund; and other types of expenses approved by the TI 1 Fund's or the
Company's Board of Directors. The expenses of the Portfolio Funds are not
included in expenses in the TI 1 Fund's Statement of Operations or the
Financial Highlights, as the effect of these expenses is recognized in
realized and unrealized gains and losses allocated from the Company.
The Adviser, the Subadviser and the TI 1 Fund have entered into an expense
limitation and reimbursement agreement (the "Expense Limitation Agreement"
or "ELA") under which the Adviser and Subadviser (the "Adviser Entities")
will, subject to possible reimbursement by the TI 1 Fund as described
below, waive fees or pay or absorb operating expenses of the TI 1 Fund
(including the TI 1 Fund's share of the ordinary operating expenses of the
Company) to the extent necessary to limit the ordinary operating expenses
of the TI 1 Fund (including the TI 1 Fund's share of the ordinary operating
expenses of the Company, but excluding (i) all fees, expenses and incentive
allocations of the Portfolio Funds in which the Company invests; (ii) the
Management Fee of the TI 1 Fund and the TI 1 Fund's pro rata share of the
Advisory Fee payable to the Adviser by the Company; and (iii) taxes,
interest and related costs of borrowing, brokerage commissions and any
extraordinary expenses of the TI 1 Fund or the Company) to 0.28% per annum
of the greater of the TI 1 Fund's average monthly net assets or the net
assets at December 31, 2009 (the "Expense Limitation"). In consideration of
the Adviser Entities' agreement to limit the TI 1 Fund's expenses, the TI 1
Fund will carry forward the amount of fees waived and expenses paid or
absorbed by the Adviser Entities in excess of the Expense Limitation, for a
period not to exceed three years from the end of the fiscal year in which
the fee was waived or the expense was paid or absorbed, and will reimburse
the Adviser Entities such amounts. Reimbursement will be made as promptly
as possible, but only to the extent it does not cause the TI 1 Fund's
annualized ordinary operating expenses to exceed the Expense Limitation in
effect at the time that the reimbursement is made. The Expense Limitation
Agreement will remain in effect until March 31, 2012, and will
automatically continue in effect from year to year thereafter unless
terminated by the Adviser, Subadviser or the TI 1 Fund.
9
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements (continued)
March 31, 2011
At March 31, 2010, the cumulative expenses over the Expense Limitation that
had not yet been paid by the Adviser Entities equaled $179,917, which was
recorded as a receivable on the Statement of Assets, Liabilities and
Members' Capital. For the year ended March 31, 2011, the TI 1 Fund incurred
$6,906,965 of total expenses (including $5,828,012 of expenses allocated
from the Company), $1,364,502 of which was subject to the Expense
Limitation Agreement. The TI 1 Fund was responsible for bearing $1,363,640
of the total expenses based upon the provisions of the ELA, resulting in
$862 of expenses over the Expense Limitation. The Adviser Entities paid the
TI 1 Fund a net amount equal to $161,283 during the year, resulting in an
amount due from the Adviser Entities equal to $19,496 at March 31, 2011,
which has been recorded as a receivable in the Statement of Assets,
Liabilities and Members' Capital. Cumulative expenses over the Expense
Limitation that have been paid by the Adviser Entities to the TI 1 Fund,
but that have not yet been reimbursed (and have not yet expired under the
provisions of the ELA) amounted to $180,779 at March 31, 2011. The T1 1
Fund will continue to carry forward the reimbursable expenses until they
are reimbursed to the Adviser Entities or expire. Of the cumulative
reimbursable expense amount in effect at March 31, 2011, $179,917 will
expire March 31, 2013 and $862 will expire March 31, 2014. Reimbursement of
expenses carried forward is dependent on future levels of Members' Capital
and expenses of the TI 1 Fund and the Company.
C. INCOME TAXES
As a limited liability company that is treated as a partnership, no
provision for the payment of federal, state or local income taxes has been
provided by the TI 1 Fund. Each Member is individually required to report
on its own tax return its share of the TI 1 Fund's taxable income or loss.
The TI 1 Fund has a tax year end of December 31.
Net investment income or loss and net realized and unrealized gain or loss
from investments of the TI 1 Fund for each fiscal period are allocated
among, and credited to or debited against, the capital accounts of all
Members as of the last day of each fiscal period in accordance with each
Member's respective investment percentage for the fiscal period, as defined
in the TI 1 Fund's Operating Agreement.
The cost of the TI 1 Fund's investment in the Company for federal income
tax purposes is based on amounts reported to the TI 1 Fund by the Company
on a Schedule K-1. As of March 31, 2011, the Company has not yet received
information to determine the current tax cost of the Portfolio Funds. Based
on the amounts reported to the TI 1 Fund by the Company on Schedule K-1 as
of December 31, 2010, and after adjustment for purchases and redemptions
between December 31, 2010 and March 31, 2011, the TI 1 Fund's proportionate
share of the estimated cost of the Company's investments at March 31, 2011
for federal tax purposes is $440,316,379. The resulting estimated net
unrealized appreciation for tax purposes on the investments at March 31,
2011 is $27,923,114.
The authoritative guidance on accounting for and disclosure of uncertainty
in tax positions requires management to determine whether a tax position of
the TI 1 Fund is more likely than not to be sustained upon examination,
including resolution of any related appeals or litigation
10
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements (continued)
March 31, 2011
processes, based on the technical merits of the position. For tax positions
meeting the "more likely than not" threshold, the tax amount recognized in
the financial statements is reduced by the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
settlement with the relevant taxing authority. The TI 1 Fund has determined
that there are no unrecognized tax benefits or liabilities relating to
uncertain income tax positions expected to be taken on the tax return for
the year ended December 31, 2010. The TI 1 Fund recognizes interest and
penalties, if any, related to unrecognized tax benefits as income tax
expense in the Statement of Operations. During the year ended March 31,
2011, the TI 1 Fund did not incur any interest or penalties.
D. OTHER
Cash and cash equivalents consist of amounts maintained in a PFPC Trust
Company interest-bearing account. Interest income is recorded on the
accrual basis. In circumstances when insured limits are exceeded, the risk
of default depends on the creditworthiness of the counterparties to each of
these transactions. The TI 1 Fund has not experienced and does not expect
to experience any losses in such accounts.
The TI 1 Fund records its proportionate share of the Company's investment
income, expenses and realized and unrealized gains and losses as allocated
by the Company. In addition, the TI 1 Fund records its own income and
expenses on the accrual basis.
3. PORTFOLIO VALUATION
The TI 1 Fund records its investment in the Company at fair value, which
represents the TI 1 Fund's proportionate interest in the Company's Members'
Capital. The performance of the TI 1 Fund is directly affected by the
performance of the Company. The valuation of investments held by the
Company is discussed in the notes to the Company's financial statements
attached to this report.
4. MANAGEMENT FEE
Pursuant to a management agreement between the TI 1 Fund and the Adviser,
the Adviser is entitled to a management fee (the "Management Fee"), paid
monthly in arrears, equal to an annual rate of 0.50% of the Members' ending
monthly capital of the TI 1 Fund before taking into consideration the
Management Fee, prior to any repurchases or distribution of capital during
the month. However, with respect to the capital accounts of any Members who
became Members in connection with the Reorganization of the Company and
who, at the time of the Reorganization, had positive loss carryforwards in
the Company (a "Loss Carryforward Amount"), the Management Fee payable by
the TI 1 Fund with respect to the capital account of such a Member shall,
until such time as the Member's Loss Carryforward Amount is first reduced
to zero, be reduced so that the aggregate of the portion of the Management
Fee attributable to such capital account plus the capital account's pro
rata share of the advisory fee of the Company borne by the TI 1 Fund as an
investor in the Company does not exceed the management fee of the Company
that the Member would have borne as
11
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements (continued)
March 31, 2011
an investor in the Company prior to the Reorganization. The portion of the
Management Fee attributable to a Member's capital account is specially
allocated to such Member.
5. RELATED PARTY TRANSACTIONS AND OTHER
Affiliates of the Adviser may have banking, underwriting, lending,
brokerage, or other business relationships with the Portfolio Funds in
which the Company invests and with the companies in which the Portfolio
Funds invest.
Effective November 19, 2009, the Board was made up of five Board members
who are not "interested persons", as defined by the 1940 Act, of the TI 1
Fund (the "Disinterested Directors"). Until July 1, 2010, each
Disinterested Director received per-meeting fees of: $500 for attendance at
quarterly meetings of the Board; and $500 for telephonic participation at a
quarterly Board meeting or for participation at a telephonic special
meeting of the Board. Effective July 1, 2010, compensation to the Board is
paid and expensed by the Company. All Disinterested Directors may be
reimbursed for out-of-pocket expenses of attendance at each regular or
special meeting of the Board or of any committee thereof and for their
expenses, if any, in connection with any other service or activity they
perform or engage in as Disinterested Directors.
PFPC Trust Company, which will be renamed BNY Mellon Investment Servicing
Trust Company effective July 1, 2011, serves as custodian of the TI 1
Fund's assets and provides custodial services for the TI 1 Fund. On July 1,
2010, The PNC Financial Services Group, Inc. sold the outstanding stock of
PNC Global Investment Servicing Inc. to The Bank of New York Mellon
Corporation. At the closing of the sale, PNC Global Investment Servicing
(U.S.) Inc. changed its name to BNY Mellon Investment Servicing (U.S.) Inc.
BNY Mellon Investment Servicing (U.S.) Inc. serves as administrator and
accounting agent to the TI 1 Fund and in that capacity provides certain
accounting, record keeping, investor related services, and regulatory
administrative services. The TI 1 Fund pays a monthly fee to the custodian
and the administrator based primarily upon month-end Members' Capital.
Merrill Lynch, Pierce, Fenner & Smith Incorporated serves as the placement
agent of the TI 1 Fund (the "Placement Agent"). Investors are charged a
placement fee (the "Placement Fee") on Interests placed by the Placement
Agent of 1.25% of the investment amount. The Placement Fee is paid by
investors directly to the Placement Agent and is not borne by the Fund. The
Placement Fee is waived for certain investors.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF CREDIT
RISK OR LIQUIDITY RISKS
In the normal course of business, the Portfolio Funds in which the Company
invests trade various financial instruments and enter into various
investment activities with off-balance sheet risk. These may include, but
are not limited to, short selling activities, writing option contracts,
contracts for differences and equity swaps.However, as a result of the
investments by the Company as a limited partner, member or shareholder, the
Company's liability with
12
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
Notes to Financial Statements (continued)
March 31, 2011
respect to its investments in the Portfolio Funds is generally limited to
the net asset value of its interest in each Portfolio Fund.
Liquidity risk is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. Among other
things liquidity could be impaired by an inability to access secured and/or
unsecured sources of financing, an inability to sell assets or to withdraw
capital from the Portfolio Funds, or unforeseen outflows of cash. This
situation may arise due to circumstances outside of the Company's control,
such as a general market disruption or an operational problem affecting the
Company or third parties, including the Portfolio Funds. Also, the ability
to sell assets may be impaired if other market participants are seeking to
sell similar assets at the same time.
The Company's capital investment in the Portfolio Funds can be withdrawn on
a limited basis. This may limit the ability of the Company to provide
liquidity to the TI 1 Fund, and the TI 1 Fund may not be able to liquidate
quickly some of its investment in the Company in order to meet liquidity
requirements.
7. GUARANTEES
Under the TI 1 Fund's organizational documents, its Directors and officers
are indemnified against certain liabilities arising out of the performance
of their duties to the TI 1 Fund. In addition, in the normal course of
business, the TI 1 Fund enters into contracts that contain a variety of
representations and warranties and which provide general indemnities. The
TI 1 Fund's maximum exposure under these arrangements is unknown, as this
would involve future claims against the TI 1 Fund that have not yet
occurred. However, based on experience, the TI 1 Fund expects the risk of
loss due to these warranties and indemnities to be remote.
8. SUBSEQUENT EVENTS
The TI 1 Fund has evaluated all subsequent events through the date that the
audited financial statements were available to be issued and noted the
following:
Effective April 1, 2011, Grosvenor became the TI 1 Fund's Adviser. Refer to
the Subsequent Events footnote within the Company's audited financial
statements for additional information regarding the change in Adviser and
Board responsibilities.
On March 30, 2011, the TI 1 Fund announced a tender offer to purchase up to
$48,000,000 of outstanding Interests from Members. The net asset value of
Interests will be calculated for this purpose on June 30, 2011. The tender
offer expired on April 26, 2011.
Subsequent to March 31, 2011, the TI 1 Fund received subscriptions from
Members for Interests in the amount of $1,425,000 which became effective as
of May 1, 2011.
13
Grosvenor Registered Multi-Strategy Fund (TI 1), LLC
RESULTS OF PROXY VOTING AT SPECIAL MEETING OF MEMBERS (UNAUDITED):
At a special meeting of the Members held on March 21, 2011, the Members approved
the Company's new investment advisory agreement (see specific voting results for
the Company within the Company's audited financial statements). See the specific
TI 1 Fund voting results of the special meeting of Members provided below.
DOLLARS VOTED % OF VOTED % OF TOTAL
--------------- ---------- ----------
FOR $473,023,041.53 99.862% 98.262%
AGAINST $ 655,920.65 0.138% 0.136%
ABSTAIN $ 0.00 0.000% 0.000%
In addition, Members approved a proposal to elect the following five nominees to
serve as directors ("Directors") of the TI 1 Fund:
PERCENTAGE
DIRECTOR FOR WITHHELD FOR
------------------- --------------- -------- ----------
HENRY S. BIENEN $473,678,962.18 $0.00 98.398%
ALAN BROTT $473,678,962.18 $0.00 98.398%
BRIAN P. GALLAGHER $473,678,962.18 $0.00 98.398%
VICTOR J. RASKIN $473,678,962.18 $0.00 98.398%
THOMAS G. YELLIN $473,678,962.18 $0.00 98.398%
As a result of this special meeting, all Directors currently serving on the
Board of Directors have been elected by Members.
ITEM 1 - REPORTS TO STOCKHOLDERS
The Report to Shareholders is attached hereto.
GROSVENOR REGISTERED MULTI-STRATEGY MASTER FUND, LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2011
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grosvenor Registered Multi-Strategy Master Fund, LLC
Financial Statements
Year Ended March 31, 2011
CONTENTS
Report of Independent Registered Public Accounting Firm 1
Statement of Assets, Liabilities and Members' Capital 2
Schedule of Investments 3
Statement of Operations 7
Statements of Changes in Members' Capital 8
Statement of Cash Flows 9
Financial Highlights 10
Notes to Financial Statements 11
The Registrant files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Registrant's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Information on Form N-Q is available without charge,
upon request, by calling (866) 921-7951.
A description of the policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling (866) 921-7951 and on the Commission's
website at http://www.sec.gov.
Information regarding how the Registrant voted proxies relating to
portfolio securities during the most recent 12-month period ended December 31 is
available without charge, upon request, by calling (866) 921-7951, and on the
Commission's website at http://www.sec.gov.
(PWC LOGO)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of
Grosvenor Registered Multi-Strategy Master Fund, LLC:
In our opinion, the accompanying statement of assets, liabilities and members'
capital, including the schedule of investments, and the related statements of
operations, of changes in members' capital and of cash flows and the financial
highlights present fairly, in all material respects, the financial position of
Grosvenor Registered Multi-Strategy Master Fund, LLC (the "Company") at March
31, 2011, the results of its operations and its cash flows for the year then
ended, the changes in its members' capital for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at March 31, 2011 by correspondence with the
custodian and underlying portfolio funds, provide a reasonable basis for our
opinion.
(PRICEWATERHOUSECOOPERS LLP LOGO)
May 27, 2011
PricewaterhouseCoopers LLP, One North Wacker, Chicago, IL 60606
T: (312) 298 2000, F: (312) 298 2001, www.pwc.com/us
1
Grosvenor Registered Multi-Strategy Master Fund, LLC
Statement of Assets, Liabilities and Members' Capital
March 31, 2011
ASSETS
Investments in Portfolio Funds, at fair value (cost $410,377,057) $480,744,130
Cash and cash equivalents 6,601,046
Redemptions receivable from investments in Portfolio Funds 41,901,605
Investments in Portfolio Funds paid in advance 30,550,000
Other assets 1,393
------------
TOTAL ASSETS 559,798,174
------------
LIABILITIES
Members' subscriptions received in advance 13,300,000
Repurchase of Members' interests payable 11,313,558
Advisory fee payable 455,216
Professional fees payable 181,863
Administration fee payable 35,883
Subadviser out-of-pocket expenses payable 4,167
Other liabilities 16,587
------------
TOTAL LIABILITIES 25,307,274
------------
NET ASSETS $534,490,900
============
Net Capital* $464,123,827
Net accumulated unrealized appreciation on investments in Portfolio Funds 70,367,073
------------
MEMBERS' CAPITAL $534,490,900
============
-------------------
* Net capital includes net subscriptions, cumulative net investment
income/(loss) and cumulative net realized gain/(loss) from investments in
Portfolio Funds.
The accompanying notes are an integral part of these financial statements.
2
Grosvenor Registered Multi-Strategy Master Fund, LLC
Schedule of Investments
March 31, 2011
FIRST
FIRST % OF % OWNERSHIP AVAILABLE
ACQUISITION FAIR MEMBERS' OF PORTFOLIO REDEMPTION
PORTFOLIO FUNDS* DATE COST VALUE** CAPITAL FUND*** DATE **** LIQUIDITY*****
------------------------------------------------------------------------------------------------------------------------------------
DISTRESSED
Anchorage Capital
Partners, L.P. (a) 8/1/2006 $15,615,000 $ 21,902,100 4.10% 0.67% N/A Annually
Anchorage Short
Credit Fund, L.P. 7/1/2007 2,768,079 1,383,326 0.26% 1.02% N/A Daily
Blue Mountain Credit
Alternatives Fund, L.P. 8/1/2007 10,021,359 13,661,141 2.56% 6.25% N/A Quarterly
Fortress Value
Recovery Fund, L.P. (b) 1/1/2006 4,300,000 994,929 0.19% 0.34% N/A (1)
Greywolf Capital
Partners II, L.P. (a) 9/1/2007 117,573 120,319 0.02% 0.04% N/A (2)
GSO Liquidity Partners, L.P. 3/1/2008 1,098,787 1,139,432 0.21% 1.21% N/A (3)
Harbinger Capital
Partners Special
Situations Fund, L.P. (a) 7/1/2007 7,297,256 4,657,563 0.87% 0.86% N/A (1)
Highland Crusader Fund, L.P. 8/1/2005 3,465,641 3,678,456 0.69% 1.43% N/A (1)
King Street Capital, L.P. (a) 1/1/2003 11,190,100 15,246,270 2.85% 0.25% N/A Quarterly
Marathon Distressed
Subprime Fund, L.P. 1/1/2008 605,281 977,034 0.18% 0.28% N/A Every 18 months
Redwood Domestic Annually -
Fund, L.P. (a) 1/1/2003 9,648,599 17,562,273 3.29% 1.27% N/A Bi - Annually
Silver Point Capital
Fund, L.P. (a) 1/1/2003 11,874,731 17,057,937 3.19% 0.79% N/A Annually
TCW Special Mortgage
Credit Fund II, L.P. 10/1/2008 6,249,948 9,900,358 1.85% 1.99% N/A (3)
---------- ---------- -----
TOTAL DISTRESSED 84,252,354 108,281,138 20.26%
---------- ---------- -----
EVENT DRIVEN
Elliott Associates, L.P. 1/1/2003 13,900,000 21,952,083 4.11% 0.34% N/A Semi-annually
Magnetar Capital II Fund, L.P. 1/1/2010 14,679,990 14,966,820 2.80% 4.86% N/A Quarterly
Magnetar Capital, L.P. (a) 7/1/2007 1,245,010 1,140,661 0.21% 0.64% N/A (2)
Owl Creek II, L.P. 4/1/2010 14,700,000 14,384,769 2.69% 0.98% N/A Quarterly
Perry Partners, L.P. (a) 1/1/2003 18,429,091 23,830,863 4.46% 1.10% N/A Quarterly
Seneca Capital, L.P. (a) 1/1/2003 13,384,682 15,934,749 2.98% 3.26% N/A Quarterly(4)
---------- ---------- -----
TOTAL EVENT DRIVEN 76,338,773 92,209,945 17.25%
---------- ---------- -----
LONG AND/OR SHORT EQUITY
AKO Partners L.P. 1/1/2011 12,000,000 11,347,186 2.12% 1.27% 12/31/2011 Quarterly
Black Bear Fund I, L.P. 1/1/2003 67,788 143,488 0.03% 0.89% N/A (5)
Broad Peak Fund, L.P. (a) 7/1/2007 9,490,256 8,781,271 1.64% 5.75% N/A Quarterly
Brookside Capital
Partners Fund, L.P. 10/1/2009 6,300,000 6,714,675 1.26% 0.11% 10/31/2011 Quarterly
Citadel Wellington, LLC 7/1/2008 312,670 277,941 0.05% 0.01% N/A Quarterly(6)
Conatus Capital Partners, L.P. 1/1/2008 12,900,000 14,415,354 2.70% 1.21% N/A Quarterly
Egerton Capital Partners, L.P. 7/1/2008 9,659,763 11,177,427 2.09% 2.42% N/A Quarterly
The accompanying notes are an integral part of these financial statements.
3
Grosvenor Registered Multi-Strategy Master Fund, LLC
Schedule of Investments(continued)
March 31, 2011
FIRST % OF % OWNERSHIP FIRST AVAILABLE
PORTFOLIO FUNDS* ACQUISITION FAIR MEMBERS' OF PORTFOLIO REDEMPTION
(CONTINUED) DATE COST VALUE** CAPITAL FUND*** DATE **** LIQUIDITY*****
------------------------------------------------------------------------------------------------------------------------------------
LONG AND/OR SHORT
EQUITY (CONTINUED)
Elm Ridge Capital
Partners, L.P. 4/1/2003 $ 9,940,474 $ 12,149,435 2.27% 1.47% N/A Quarterly
Eminence Partners, L.P. 7/1/2010 9,800,000 10,736,318 2.01% 0.66% N/A Quarterly
Galante Partners, L.P. 10/1/2006 6,574,720 3,684,462 0.69% 11.51% N/A Quarterly
Greenlight Capital
Qualified, L.P. 1/1/2003 5,060,000 6,494,031 1.21% 0.30% 2/1/2013 Annually
Impala Fund, L.P. 1/1/2007 4,765,392 6,668,105 1.25% 1.32% N/A Quarterly
Impala Transportation
Fund, L.P. 1/1/2008 2,475,000 3,031,960 0.57% 2.74% N/A Quarterly
Kingsford Capital
Partners, L.P. 1/1/2003 5,055,626 3,730,267 0.70% 6.12% N/A Quarterly
Montrica Global Opportunities
Fund, L.P. (a) 8/1/2007 249,495 205,896 0.04% 0.17% N/A (2)
Passport Global
Strategies III, Ltd. 1/1/2010 497,352 370,239 0.07% 0.31% N/A (7)
Passport II, L.P. 7/1/2008 12,835,240 10,436,798 1.95% 1.07% N/A Quarterly
Scout Capital
Partners II L.P. 9/1/2004 8,887,705 14,065,607 2.63% 2.38% N/A Quarterly
Spring Point Contra
Partners, L.P. 1/1/2004 4,224,533 2,995,329 0.56% 5.99% N/A Quarterly
Quarterly -
Tremblant Partners, L.P. 1/1/2003 8,861,908 10,783,269 2.02% 4.54% N/A Bi- Annually
Trian Partners, L.P. 4/1/2006 14,529,005 16,754,449 3.13% 3.03% N/A Quarterly
Viking Global Equities, L.P. 12/1/2007 3,600,000 4,806,268 0.90% 0.11% N/A Monthly
------------ ------------ -------
TOTAL LONG AND/OR
SHORT EQUITY 148,086,927 159,769,775 29.89%
------------ ------------ -------
MULTI-ARBITRAGE
Canyon Value Realization Quarterly -
Fund, L.P. (a) 1/1/2003 15,176,650 21,158,504 3.96% 0.82% N/A Annually
Element Capital US
Feeder Fund LLC 2/1/2011 5,500,000 5,481,448 1.03% 2.54% N/A Monthly
Quarterly
Fir Tree Value Fund L.P. 9/1/2010 11,700,000 13,264,488 2.48% 1.06% 9/1/2011 - Annually
HBK II Fund, L.P. (a) 11/1/2009 15,310,072 17,396,633 3.25% 2.51% N/A Quarterly
MKP Opportunity
Partners, L.P. 4/1/2010 9,600,000 9,838,184 1.84% 4.22% N/A Monthly
Nisswa Fund L.P. 10/1/2010 18,000,000 19,897,514 3.72% 9.79% N/A Quarterly
OZ Domestic
Partners, L.P. (a) 1/1/2003 16,244,820 22,454,835 4.20% 1.46% N/A Annually
Stark Investments, L.P. (a) 1/1/2003 9,879,541 10,695,658 2.00% 1.48% N/A Annually
The accompanying notes are an integral part of these financial statements.
4
Grosvenor Registered Multi-Strategy Master Fund, LLC
Schedule of Investments (continued)
March 31, 2011
FIRST
FIRST % OF % OWNERSHIP AVAILABLE
PORTFOLIO FUNDS* ACQUISITION FAIR MEMBERS' OF PORTFOLIO REDEMPTION
(CONTINUED) DATE COST VALUE** CAPITAL FUND*** DATE **** LIQUIDITY*****
--------------------------------------------------------------------------------------------------------------------------
MULTI-ARBITRAGE
(CONTINUED)
Stark Select Asset
Fund LLC 1/1/2010 $ 287,920 $ 296,008 0.06% 0.18% N/A (8)
------------ ------------ ----
TOTAL MULTI-ARBITRAGE 101,699,003 120,483,272 22.54%
------------ ------------ ----
TOTAL INVESTMENTS
IN PORTFOLIO FUNDS $410,377,057 $480,744,130 89.94%
------------ ------------ ----
Other Assets,
Less Liabilities $ 53,746,770 10.06%
------------ ------
MEMBERS' CAPITAL $534,490,900 100.00%
============ ======
The Company's (as defined in the Organization note) investments in the Portfolio
Funds shown above, representing 89.94% of Members' Capital have been fair valued
in accordance with procedures established by the Board of Directors of the
Company.
The Company's investments on March 31, 2011 are summarized below based on the
investment strategy of each specific Portfolio Fund.
% OF TOTAL INVESTMENTS IN
INVESTMENT STRATEGY PORTFOLIO FUNDS
-------------------------
Long and/or Short Equity 33.24%
Multi-Arbitrage 25.06
Distressed 22.52
Event Driven 19.18
-------------------------
TOTAL 100.00%
=========================
-----------
* Non-income producing investments. The Company's investments in Portfolio
Funds are considered to be illiquid and may be subject to limitations on
redemptions, including the assessment of early redemption fees.
** See definition in the Portfolio Valuation note.
*** Based on the most recently available information provided by each
Portfolio Fund.
**** From original investment date (excludes side pockets).
*****Available frequency of redemptions after initial lock-up period.
The accompanying notes are an integral part of these financial statements.
5
Grosvenor Registered Multi-Strategy Master Fund, LLC
Schedule of Investments (continued)
March 31, 2011
N/A Initial lock-up period that has expired prior to March 31, 2011, has a
lock-up that expires prior to the next liquidity date, or the Portfolio Fund did
not have an initial lock-up period. However, specific redemption restrictions
may apply.
(a) A portion or all of the Company's interest in the Portfolio Fund is held in
side pockets which have restricted liquidity.
(b) Formerly known as D.B. Zwirn Special Opportunities Fund, L.P.
(1) The Portfolio Fund is liquidating its assets and is in the process of
returning capital to its limited partners in a reasonable manner. The full
liquidation is expected to take two to four years or longer.
(2) All of the Company's remaining interest in the Portfolio Fund is held in
side pockets.
(3) Finite lived Portfolio Funds in which redemptions are not permitted during
the investment period of the Portfolio Fund. Cash proceeds are distributed to
limited partners as the Portfolio Fund's investments are realized after the
investment period.
(4) Approximately 14% of the fair value of the Company's interest in the
Portfolio Fund is held in a special liquidating vehicle ("SLV") which is not
available for redemption. The full liquidation is expected to take two to four
years or longer.
(5) The balance represents the invested capital in a liquidating vehicle created
with the intention of liquidating assets in a reasonable manner.
(6) The Portfolio Fund employs 1/16th investor-level gate as required by the
governing documents. Under the "1/16th" gate provision, limited partners can
only redeem up to 1/16th of their capital account balances in each redemption
period in the event that the Portfolio Fund receives redemption requests
exceeding 3% of firm-wide capital.
(7) The balance represents the invested capital in a liquidating vehicle
created with the intention of liquidating assets in a reasonable manner. The
full liquidation is expected to take from two to four years or longer.
(8) The balance represents the invested capital in a liquidating vehicle
created with the intention of liquidating assets in a reasonable manner. The
full liquidation is expected to take six months or longer.
The accompanying notes are an integral part of these financial statements.
6
Grosvenor Registered Multi-Strategy Master Fund, LLC
Statement of Operations
Year Ended March 31, 2011
INVESTMENT INCOME
Interest $ 33,567
Other income 52,904
------------
TOTAL INVESTMENT INCOME 86,471
------------
EXPENSES
Advisory fee 5,139,787
Professional fees 284,101
Administration fee 213,071
Directors' fees 204,500
Insurance fees 115,997
Custodian fees 24,262
Subadviser out-of-pocket expenses 22,917
Other expenses 106,221
-----------
TOTAL EXPENSES 6,110,856
------------
NET INVESTMENT LOSS (6,024,385)
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain from investments in Portfolio Funds 17,184,636
Net change in accumulated unrealized appreciation on investments in Portfolio
Funds 26,908,611
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 44,093,247
------------
NET INCREASE IN MEMBERS' CAPITAL RESULTING FROM OPERATIONS $38,068,862
============
The accompanying notes are an integral part of these financial statements.
7
Grosvenor Registered Multi-Strategy Master Fund, LLC
Statements of Changes in Members' Capital
SPECIAL
MEMBERS MEMBERS TOTAL
---------- -------------- --------------
MEMBERS' CAPITAL, MARCH 31, 2009 $ - $ 451,394,835 $ 451,394,835
Members' subscriptions - 18,555,000 18,555,000
Members' interests repurchased (372,677) (59,300,150) (59,672,827)
---------- -------------- --------------
Net decrease in Members' Capital resulting from capital
transactions (372,677) (40,745,150) (41,117,827)
---------- -------------- --------------
Net investment loss - (5,848,521) (5,848,521)
Net realized loss from investments - (8,688,921) (8,688,921)
Net change in accumulated unrealized appreciation on
investments - 91,778,180 91,778,180
---------- -------------- --------------
Net increase in Members' Capital resulting from operations - 77,240,738 77,240,738
---------- -------------- --------------
Reallocation of incentive allocation 372,677 (372,677) -
MEMBERS' CAPITAL, MARCH 31, 2010 - 487,517,746 487,517,746
Members' subscriptions - 79,300,000 79,300,000
Members' interests repurchased - (70,395,708) (70,395,708)
---------- -------------- --------------
Net increase in Members' Capital resulting from capital
transactions - 8,904,292 8,904,292
---------- -------------- --------------
Net investment loss - (6,024,385) (6,024,385)
Net realized gain from investments - 17,184,636 17,184,636
Net change in accumulated unrealized appreciation on
investments - 26,908,611 26,908,611
---------- -------------- --------------
Net increase in Members' Capital resulting from operations - 38,068,862 38,068,862
---------- -------------- --------------
MEMBERS' CAPITAL, MARCH 31, 2011 $ - $ 534,490,900 $ 534,490,900
========== ============== ==============
The accompanying notes are an integral part of these financial statements.
8
Grosvenor Registered Multi-Strategy Master Fund, LLC
Statement of Cash Flows
Year Ended March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' Capital resulting from operations $ 38,068,862
Adjustments to reconcile net increase in Members' Capital resulting from operations to net
cash used in operating activities:
Net change in accumulated unrealized appreciation on investments (26,908,611)
Net realized gain from Portfolio Fund redemptions (17,184,636)
Purchases of Portfolio Funds (153,548,800)
Proceeds from Portfolio Funds 127,979,666
(Increase)/Decrease in operating assets:
Prepaid insurance 107,476
Other assets 4,439
Increase/(Decrease) in operating liabilities:
Advisory fee payable 48,612
Professional fees payable 31,710
Administration fee payable 3,065
Sub-Adviser out-of-pocket expenses payable (2,083)
Other liabilities (5,084)
---------------
NET CASH USED IN OPERATING ACTIVITIES (31,405,384)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 92,600,000
Payments for Members' interests repurchased (59,082,150)
---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,517,850
---------------
Net increase in cash and cash equivalents 2,112,466
Cash and cash equivalents at beginning of year 4,488,580
---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,601,046
===============
The accompanying notes are an integral part of these financial statements.
9
Grosvenor Registered Multi-Strategy Master Fund, LLC
Financial Highlights
The following represents certain ratios to average Members' Capital, total
return, and other supplemental information for the periods indicated:
YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------
2011 2010(*) 2009 2008 2007
-------------- -------------- -------------- -------------- ----------
Ratios to average Members' Capital: (a)
Net investment loss - prior to incentive
allocation, net of waivers: (b) (1.18%) (1.23%) (1.11%) (1.09%) (1.21%)
Incentive Allocation: 0.00% (d) (0.08%) (c) 0.00% (c) (0.37%) (c) (0.47%) (c)
----------- ---------- ---------- ---------- ---------
Net investment loss - net of incentive
allocation, net of waivers: (b) (1.18%) ( 1.31%) (1.11%) (1.46%) (1.68%)
=========== ========== ========== ========== =========
Expenses: (b) 1.20% 1.24% 1.28% 1.36% 1.42%
Incentive allocation: 0.00% (d) 0.08% (c) 0.00% (c) 0.37% (c) 0.47% (c)
----------- ---------- ---------- ---------- ---------
Total expenses and incentive
allocation: 1.20% 1.32% 1.28% 1.73% 1.89%
=========== ========== ========== ========== =========
Total return - prior to incentive
allocation: (e) 7.59% 17.71% (18.64%) 2.43% 10.22%
Incentive allocation: 0.00% (d) (0.08%) (c) 0.00% (c) (0.22%) (c) (0.49%) (c)
----------- ---------- ---------- ---------- ---------
Total return - net of incentive
allocation: (e) 7.59% 17.63% (18.64%) 2.21% 9.73%
=========== ========== ========== ========== =========
Portfolio turnover rate: (f) 27.82% 20.41% 16.36% 14.01% 17.15%
=========== ========== ========== ========== ==========
MEMBERS CAPITAL, END OF YEAR ($000) $ 534,491 $ 487,518 $ 451,395 $ 289,451 $ 177,476
----------
* The Company reorganized into a "master/feeder" structure during this
period.
(a) Average Members' Capital is determined using the net assets at the
beginning of each month during the period.
(b) Ratio does not reflect the Company's proportionate share of the net income
(loss) and expenses, including incentive fees or allocations, of the
Portfolio Funds. The Portfolio Funds' expense ratios, excluding incentive
fees or allocations, range from 0.51% to 11.22% (unaudited). The Portfolio
Funds' incentive fees or allocations can be up to 20% of profits earned
(unaudited).
(c) Calculated based on the amount reallocable to the Special Members for the
period indicated, had the measurement period for incentive allocation
closed on the dates indicated (not annualized). Calculation period for 2010
period displayed began April 1, 2009 and ended December 31, 2009.
(d) As of January 1, 2010, the Incentive Allocation was eliminated (see Note
6).
(e) Total return assumes a purchase of an interest in the Company on the first
day and a sale of an interest on the last day of the period and is
calculated using geometrically linked monthly returns. An individual
Member's return may vary from these returns based on the timing of Member
subscriptions and redemptions.
(f) The ratio excludes in-kind transactions.
The accompanying notes are an integral part of these financial statements.
10
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements
March 31, 2011
1. ORGANIZATION
Grosvenor Registered Multi-Strategy Master Fund, LLC (the "Company") is a
Delaware limited liability company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a closed-end management
investment company and is operating as a diversified investment company.
The primary investment objectives of the Company are to provide investors:
(i) an attractive, long-term rate of return, on an absolute basis as well
as a risk-adjusted basis; (ii) low performance volatility; and (iii)
minimal correlation with the equity and fixed income markets. The Company
employs a multi-strategy, multi-manager investment strategy premised on the
risk control benefits of diversification and the value of a hedged
investment approach. The Company seeks diversification by investing in
partnerships and other private investment vehicles (the "Portfolio Funds")
that (i) pursue non-traditional investment strategies and (ii) are expected
to exhibit a low degree of performance correlation, not only with broad
market indices but also with each other. These Portfolio Funds are managed
by selected investment managers ("Investment Managers") who specialize in
the chosen strategies. There can be no assurance that the investment
objective of the Company will be achieved.
On January 1, 2010, pursuant to member approval, the Company was
reorganized into a "master/feeder" investment structure (the
"Reorganization"). Effective as of the close of business on that date, the
Company became a master fund, and members of the Company contributed their
interests to a new entity, Grosvenor Registered Multi-Strategy Fund (TI 1),
LLC (the "TI 1 Fund"), in exchange for interests in the TI 1 Fund. The TI 1
Fund in turn invested substantially all of its assets into the Company. The
TI 1 Fund had no assets, liabilities, or operations prior to the
Reorganization.
The TI 1 Fund and Grosvenor Registered Multi-Strategy Fund (TI 2), LLC (the
"TI 2 Fund") are each a Delaware limited liability company that is
registered under the 1940 Act as a closed-end, diversified, management
investment company. The TI 1 Fund, the TI 2 Fund and Grosvenor
Multi-Strategy Offshore Fund, Ltd., a Cayman Islands exempted company (the
"Offshore Fund" and together with the TI 1 Fund and TI 2 Fund, the "Feeder
Funds" and the Company's "Members"), pursue their investment objectives by
investing substantially all of their assets in the Company. The Feeder
Funds have the same investment objectives and substantially the same
investment policies as the Company (except that the Feeder Funds pursue
their investment objectives by investing in the Company).
Effective April 1, 2010, Bank of America Capital Advisors LLC ("BACA")
served as the investment adviser (the "Adviser") of the Company. The
Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). The Adviser is an
indirect wholly-owned subsidiary of Bank of America Corporation ("BAC").
BAC is a financial holding company which has its principal executive
offices at 101 North Tryon Street, Charlotte, North Carolina. The Adviser
provided various management and administrative services to the Company.
11
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
The Adviser has retained Grosvenor Capital Management, L.P. ("Grosvenor" or
the "Subadviser") as the subadviser to the Company, which is also
registered as an investment adviser under the Advisers Act. The Subadviser
is responsible for implementing the Company's investment strategy and
managing the Company's investment portfolio on a day-to-day basis, in
accordance with the investment objective, philosophy and strategy described
in the Company's registration statement and is subject to oversight by the
Adviser and the Board of Directors (the "Board") of the Company.
The Board has overall responsibility to manage and supervise the operations
of the Company, including the exclusive authority to oversee and to
establish policies regarding the management, conduct and operation of the
Company's business. The Board exercises the same powers, authority and
responsibilities on behalf of the Company as customarily exercised by
directors of a typical investment company registered under the 1940 Act
organized as a corporation. The Board has engaged the Adviser to manage the
day-to-day operations of the Company.
As of March 31, 2011, the TI 1 Fund's ownership of the Company's Members'
Capital was 91.49%, the TI 2 Fund's ownership of the Company's Members'
Capital was 1.84%, and the Offshore Fund's ownership of the Company's
Members' Capital was 6.67%.
Interests in the Company ("Interests") are generally offered only to the
Feeder Funds, and subscriptions for Interests may be accepted as of the
first day of each month or at such times as the Board may determine. The
Company may, from time to time, offer to repurchase Interests from its
Members pursuant to written tenders by Members. These repurchase offers
will be made at such times and on such terms as may be determined by the
Board, in its sole discretion, subject to the liquidity of the Company's
assets and other factors considered by the Board. The Adviser expects that
it will recommend to the Board that the Company offer to repurchase
Interests from Members four times each year, effective as of the last day
of each calendar quarter. Members can only transfer or assign Interests
under certain limited circumstances.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Management
believes that the estimates utilized in preparing the Company's financial
statements are reasonable and prudent; however, the actual results could
differ from these estimates.
B. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Acounting Standards Update No. 2010-06 ("ASU 2010-06" or "ASU"), Fair Value
Measurements and Disclosures - Improving Disclosures about Fair Value
Measurements. ASU 2010-06 is intended to improve disclosures about fair
value measurements and thereby improve transparency of financial reporting.
12
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after December
15, 2009, except for certain disclosures about purchases, sales, issuances
and settlements in the roll-forward of activity in Level 3 fair value
measurements, which are effective for fiscal years beginning after December
15, 2010. The Company has implemented the new requirement to disclose gross
significant transfers in and/or out of Level 2 and Level 3 and the reasons
for those transfers in the March 31, 2011 financial statements.
Management amended the Company's policy with respect to classification
within the fair value hierarchy of investments in other investment funds.
This policy amendment resulted in reclassification of certain investments
from Level 3 to Level 2.
C. COMPANY EXPENSES
The Company bears certain expenses incurred in its business, including, but
not limited to, the following: fees paid directly or indirectly to the
investment managers and general operating expenses of the Portfolio Funds;
all costs and expenses directly related to portfolio transactions and
positions for the Company's account; legal fees; accounting and auditing
fees; custodial fees; fees paid to the Company's administrator; costs of
insurance; advisory fees; subadvisory out-of-pocket fees; the fees and
travel expenses and other expenses of the Board; all costs with respect to
communications regarding the Company's transactions between the Adviser and
any custodian or other agent engaged by the Company; and other types of
expenses approved by the Board. Expenses, including incentive fees or
allocations, of the underlying Portfolio Funds are not included in expenses
reported on the Statement of Operations as the effect of these expenses is
recognized in realized and unrealized gains and losses.
D. INCOME TAXES
As a limited liability company that is treated as a partnership, no
provision for the payment of federal, state or local income taxes has been
provided by the Company. Each Member is individually required to report on
its own tax return its share of the Company's taxable income or loss. The
Company has a tax year end of December 31.
The cost of the Company's investments in the Portfolio Funds for federal
income tax purposes is based on amounts reported to the Company by the
Portfolio Funds on a Schedule K-1. As of March 31, 2011, the Company has
not yet received information to determine the current tax cost of the
Portfolio Funds as of March 31, 2011. Based on the amounts reported to the
Company on Schedule K-1 as of December 31, 2010, and after adjustment for
purchases and sales between December 31, 2010 and March 31, 2011, the
estimated cost of the Portfolio Funds at March 31, 2011 for federal tax
purposes is $452,075,310. The resulting estimated net unrealized
appreciation for tax purposes on the Portfolio Funds at March 31, 2011 is
$28,668,820.
The authoritative guidance on accounting for and disclosure of uncertainty
in tax positions requires management to determine whether a tax position of
the Company is "more likely than not" to be sustained upon examination,
including resolution of any related appeals or litigation processes, based
on the technical merits of the position. For tax positions meeting the more
likely than not threshold, the tax amount recognized in the financial
statements is reduced by the largest benefit that has a
13
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
greater than fifty percent likelihood of being realized upon ultimate
settlement with the relevant taxing authority. The Company has determined
that there are no unrecognized tax benefits or liabilities relating to
uncertain income tax positions taken on prior years' returns or expected to
be taken on the tax return for the year ended December 31, 2010. The
Company recognizes interest and penalties, if any, related to unrecognized
tax benefits as income tax expense in the Statement of Operations. During
the year ended March 31, 2011, the Company did not incur any interest or
penalties.
E. SECURITY TRANSACTIONS
Purchases of investments in the Portfolio Funds are recorded as of the
first day of legal ownership of a Portfolio Fund and withdrawals from the
Portfolio Funds are recorded as of the last day of legal ownership.
Realized gains or losses on investments in the Portfolio Funds are recorded
at the time of the disposition of the respective investment on an average
cost basis.
F. OTHER
Net investment income or loss and net realized and unrealized gain or loss
from investments of the Company for each fiscal period are allocated
between, and credited to or debited against, the capital accounts of
Members as of the last day of the fiscal period in accordance with each
Member's respective investment percentage for the fiscal period, as defined
in the Company's Limited Liability Company Agreement (the "Operating
Agreement").
Cash and cash equivalents consist of amounts maintained in a PFPC Trust
Company interest-bearing account and include overnight deposits in
BlackRock Liquidity Funds - Temp Fund, an affiliate of BAC. Interest income
is recorded on the accrual basis. In circumstances when insured limits are
exceeded, the risk of default depends on the creditworthiness of the
counterparties to each of these transactions. The Fund has not experienced
and does not expect to experience any losses in such accounts.
3. PORTFOLIO VALUATION
The net asset value (the "NAV") of the Company is determined by, or at the
direction of, the Adviser as of the close of business at the end of each
fiscal period (as defined in the Company's Operating Agreement), in
accordance with the valuation principles set forth below, or as may be
determined from time to time, pursuant to valuation procedures established
by the Board. Pursuant to the valuation procedures, the Board has delegated
to the Adviser the general responsibility for valuation of the investments
in the Portfolio Funds subject to the oversight by the Board.
The investments in the Portfolio Funds are recorded at fair value,
generally at an amount equal to the NAV of the Company's investment in the
Portfolio Funds as determined by the Portfolio Fund's general partner or
investment manager. If no such information is available or if such
information is deemed to be not reflective of fair value, an estimated fair
value is determined in good faith by the Adviser pursuant to the Company's
valuation procedures. Generally, the NAVs of investments in the Portfolio
Funds are determined whereby the Company records the investment and
subsequent subscriptions at its acquisition
14
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
cost which represents its fair value. The investment is adjusted to reflect
the Company's share of net investment income or loss and unrealized and
realized gain or loss that reflects the changes in the fair value of the
investment for the period.
The Portfolio Funds record their investments at fair value in accordance
with GAAP or International Financial Reporting Standards. The Portfolio
Funds generally hold positions in readily marketable securities and
derivatives that are valued at quoted market values and/or less liquid
non-marketable securities and derivatives that are valued at estimated fair
value. Accordingly, valuations do not necessarily represent the amounts
that might be realized from the sale or other dispositions of investments,
nor do they reflect other expenses or fees that might be incurred upon
disposition. The mix and concentration of more readily marketable
securities and less liquid non-marketable securities varies across the
Portfolio Funds based on various factors, including the nature of their
investment strategy and market forces.
Because of the inherent uncertainty of valuations of the investments in the
Portfolio Funds, their estimated values may differ significantly from the
values that would have been used had a ready market for the Portfolio Funds
existed, and the differences could be material. Net change in accumulated
unrealized appreciation on investments in the Statement of Operations is
net of fees and performance-based compensation payable to the investment
managers of the Portfolio Funds.
Some of the Portfolio Funds may invest all or a portion of their assets in
illiquid securities and may hold a portion or all of these investments
independently from the main portfolio. These separate baskets of illiquid
securities ("side pockets") may be subject to additional restrictions of
liquidity that are stricter than the liquidity restrictions applicable to
general interests in the Portfolio Fund. If the Company withdraws its
interest from such a Portfolio Fund, it may be required to maintain its
holding in the side pocket investments for an extended period of time and
retain this remaining interest in the Portfolio Fund. In instances, where
such a Portfolio Fund closes its operations, the Company may receive an
"in-kind" distribution of a side pocket's holdings in liquidation of its
entire interest in the Portfolio Fund. The value of side pockets may
fluctuate significantly. As of March 31, 2011, the Company's investments in
side pockets and special liquidating vehicles represented 2.82% of the
Company's net assets. Additionally, the governing documents of the
Portfolio Funds generally provide that the Portfolio Funds may suspend,
limit or delay the right of their investors, such as the Company, to
withdraw capital. The primary restrictions applicable to individual
Portfolio Funds as of March 31, 2011 are described in detail on the
Company's Schedule of Investments.
The Company uses a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The objective of a fair
value measurement is to determine the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (an exit price). Accordingly,
the fair value hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy are as follows:
15
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
- Level 1-Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Company has the ability to
access at the measurement date;
- Level 2-Quoted prices which are not considered to be active, or inputs
that are observable (either directly or indirectly) for substantially
the full term of the asset or liability; and
- Level 3-Prices, inputs or modeling techniques which are both
significant to the fair value measurement and unobservable (supported
by little or no market activity).
The preparation of the Schedule of Investments in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the Schedule of Investments and accompanying notes.
Management believes that the estimates utilized in preparing the Company's
Schedule of Investments are reasonable and prudent; however, the actual
results could differ from these estimates. The Company relies upon the
authoritative guidance under GAAP for estimating the fair value of
investments in the Portfolio Funds that have calculated their NAVs in
accordance with the specialized accounting guidance for investment
companies. Accordingly, the Company estimates the fair value of an
investment in a Portfolio Fund using the NAV of the investment (or its
equivalent) without further adjustment unless the Adviser determines that
the NAV is deemed to be not reflective of the fair value.
Investments may be classified as Level 2 when market information
(observable NAVs) is available, yet the investment is not traded in an
active market and/or the investment is subject to transfer restrictions, or
the valuation is adjusted to reflect illiquidity and/or
non-transferability. Market information, including observable NAVs,
subscription and redemption activity at the underlying Portfolio Fund, and
the length of time until the investment will become redeemable is
considered when determining the proper categorization of the investment's
fair value measurement within the fair valuation hierarchy. Portfolio Fund
investment lots that have observable market inputs (published NAVs) and
that the Company has the ability to redeem from within twelve months of the
balance sheet date are classified in the fair value hierarchy as Level 2.
The Company's investments in the Portfolio Funds that have unobservable
inputs and/or from which the Company does not have the ability to redeem
within twelve months are classified in the fair value hierarchy as Level 3.
When observable prices are not available for these securities, the Company
uses the market approach, as defined in the authoritative guidance on fair
value measurements, to evaluate the fair value of such Level 3 instruments.
Although the Company does not have the ability to redeem from the Portfolio
Funds classified in Level 3 of the fair value hierarchy within twelve
months of the measurement date, these Portfolio Funds may transact with
other investors at the net asset value of the investment (or its
equivalent). In certain circumstances, the Adviser may make adjustments to
the reported NAV of a Portfolio Fund when it believes that the reported NAV
is not representative of fair value. Specifically, for certain Portfolio
Funds in liquidation, the reported NAV is adjusted based on the Adviser's
estimate of the net realizable value of the Portfolio Fund in liquidation.
As of March 31, 2011, approximately 8.6% of investments in Portfolio Funds
classified in Level 3 of the fair value hierarchy were fair valued using
such approach.
16
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
The following table sets forth information about the level within the fair
value hierarchy at which the Portfolio Fund investments are measured at
March 31, 2011:
Level 2 Level 3
Level 1 Significant Significant Total Fair Value at
Description Quoted Prices Observable Inputs Unobservable Inputs 03/31/2011
----------------------------------------------------------------------------------------------------------------
Portfolio Funds
Distressed $ - $ 77,281,047 $ 31,000,091 $ 108,281,138
Event Driven - 90,615,284 1,594,661 92,209,945
Long and/or Short Equity - 154,827,152 4,942,623 159,769,775
Multi-Arbitrage - 115,042,263 5,441,009 120,483,272
----------------------------------------------------------------------------------------------------------------
Total Portfolio Funds $ - $ 437,765,746 $ 42,978,384 $ 480,744,130
----------------------------------------------------------------------------------------------------------------
The level classifications in the table above may not be indicative of the
risk associated with the investment in each Portfolio Fund.
The Company recognizes transfers into and out of the levels indicated on
the actual date of the event or change in circumstances that caused the
transfer. All transfers into and out of Level 2 and Level 3 can be found in
the Level 3 reconciliation table shown below. There were no transfers
between Level 1 and Level 2 for the year ended March 31, 2011.
The following table includes a roll-forward of the amounts for the year
ended March 31, 2011 for the investments classified within Level 3. The
classification of an investment within Level 3 is based on the significance
of the unobservable inputs to the overall fair value measurement.
LONG AND/OR MULTI-
DISTRESSED EVENT DRIVEN SHORT EQUITY ARBITRAGE TOTAL
-------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2010 $94,345,126 $ 46,193,420 $ 59,059,525 $ 52,812,056 $ 252,410,127
Transfer from Level 2 * 518,897 74,398 - 3,554 596,849
Net realized gain / (loss) 1,690,323 - (534,257) (203,760) 952,306
Net change in unrealized
appreciation / depreciation 3,561,178 302,572 358,171 (524,560) 3,697,361
Net purchases / (sales) (17,334,965) - 527,208 (545,667) (17,353,424)
Transfer into Level 2 ** (51,780,468) (44,975,729) (54,468,024) (46,100,614) (197,324,835)
-------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2011 $31,000,091 $ 1,594,661 $ 4,942,623 $ 5,441,009 $ 42,978,384
-------------------------------------------------------------------------------------------------------------------
------------
* Transfers include investments in Portfolio Funds that were previously
categorized as Level 2 investments for the year ended March 31, 2010, with
a fair value of $596,849, which have been re-classified as Level 3
effective April 1, 2010. Such transfers were primarily the result of
changes in redemption terms and the Company's inability to redeem from
these investments within twelve months of the balance sheet date.
** Transfers include investments in Portfolio Funds that were previously
categorized as Level 3 investments for the year ended March 31, 2010, with
a fair value of $197,324,835, which have been re-classified as Level 2
effective April 1, 2010. Such transfers were primarily the result of the
changes in the Company's policy described in Note 2.b.
17
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements(continued)
March 31, 2011
The net realized and unrealized gains (losses) in the table above are
reflected in the accompanying Statement of Operations. Net unrealized
appreciation for the year ended March 31, 2011 for Level 3 investments held
by the Company as of March 31, 2011 was an increase of $3,964,367 as shown
in the table below:
Investments in Net change in
Portfolio Funds unrealized appreciation
------------------------- -----------------------
Distressed $ 4,023,250
Event Driven 302,572
Long and/or Short Equity 358,171
Multi-Arbitrage (719,626)
-----------------------
Total $ 3,964,367
=======================
The Company follows authoritative guidance that permits a reporting entity
to measure the fair value of an investment that does not have a readily
determinable fair value, based on the NAV for the investment. In using the
NAV, certain attributes of the investment that may impact the fair value of
the investment are not considered in measuring fair value. Attributes of
those investments include the investment strategies of the investees and
may also include, but are not limited to, restrictions on the investor's
ability to redeem its investments at the measurement date and any unfunded
commitments. The Company is permitted to invest in alternative investments
that do not have a readily determinable fair value, and as such, has
determined that the NAV, as calculated by the reporting entity, generally
represents the fair value of the investments. A listing of the investments
held by the Company and their attributes as of March 31, 2011, that may
qualify for these valuations are shown in the table below.
18
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2011
INVESTMENT REDEMPTION REDEMPTION RESTRICTIONS
CATEGORY FAIR VALUE FREQUENCY NOTICE PERIOD AND TERMS*
---------------------------------------------------------------------------------------------------
Distressed (a) $108,281,138 Daily - 30 - 180 Days 0-4 years.
Bi-Annually Side pocket & liquidating
vehicle arrangements exist for
5%** of the Portfolio Funds.
Event Driven (b) $ 92,209,945 Quarterly - 60 - 90 Days 0-1 years.
Semi-Annually Side pocket & liquidating
vehicle arrangements exist for
4%** of the Portfolio Funds.
Long and/or Short $159,769,775 Monthly - 30 - 90 Days 0-2 years.
Equity (c ) Bi-Annually Side pocket & liquidating
vehicle arrangements exist for
1%** of the Portfolio Funds.
Multi-Arbitrage (d) $120,483,272 Monthly - Annually 30 - 90 Days 0-1 years.
Side pocket & liquidating
vehicle arrangements exist for
5%** of the Portfolio Funds.
----------
* The information summarized in the table above represents the general
terms of the specific asset class. Individual Portfolio Funds may have
terms that are more or less restrictive than those terms indicated for
the asset class as a whole. In addition, most Portfolio Funds have the
flexibility, as provided for in constituent documents, to modify and
waive such terms.
** Reflects fair value of investments in each respective investment
category.
The Company's investments reflect their estimated fair value, which for
marketable securities would generally be the last sales price on the
primary exchange for such security, and for the Portfolio Funds, would
generally be the NAV as provided by the Portfolio Fund or its
administrator. For each of the classes below, the fair value of the
Portfolio Funds has been estimated based upon the NAV of the Portfolio
Funds, subject to adjustments by the Adviser if deemed necessary.
(A) DISTRESSED SECURITIES This class includes the Portfolio Funds that
invest in debt and equity securities of companies in financial difficulty,
reorganization or bankruptcy, nonperforming and subperforming bank loans,
and emerging market debt. As of March 31, 2011, the Company had no unfunded
capital commitments to the Portfolio Funds within this strategy.
(B) EVENT DRIVEN This class includes the Portfolio Funds that take
significant positions in companies with special situations, including
distressed stocks, mergers and takeovers. As of March 31, 2011, the Company
had no unfunded capital commitments to the Portfolio Funds within this
strategy.
19
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2011
(C) LONG AND/OR SHORT EQUITIES This class includes the Portfolio Funds that
make long and short investments in equity securities that are deemed by the
Investment Managers to be under or overvalued. The Investment Managers
typically do not attempt to neutralize the amount of long and short
positions. As of March 31, 2011, the Company had no unfunded capital
commitments to the Portfolio Funds within this strategy.
(D) MULTI-ARBITRAGE This class includes the Portfolio Funds that seek to
exploit price differences of identical or similar financial instruments, on
different markets or in different forms by simultaneously purchasing and
selling an asset in order to profit from the difference. As of March 31,
2011, the Company had no unfunded capital commitments to the Portfolio
Funds within this strategy.
As of March 31, 2011, the Company had investments in 50 Portfolio Funds.
The Company, as an investor in these Portfolio Funds is charged management
fees of up to 3% (per annum) of the NAV of its ownership interests in the
Portfolio Funds, as well as incentive fees or allocations of up to 20% of
net profits earned that are attributable to the Company's ownership
interests in such Portfolio Funds. The Company also generally bears a pro
rata share of the other expenses of each Portfolio Fund in which it
invests. Total expenses, including incentive fees or allocations, for the
year ended March 31, 2011, ranged from approximately 0.51% to 12.38% of the
Company's average invested capital in each Portfolio Fund. Incentive fees
or allocations ranged from approximately 0.00% to 8.27% of the Company's
average invested capital in each Portfolio Fund. These ratios may vary over
time depending on the allocation of the Company's assets among the
Portfolio Funds and the actual expenses and investment performance of the
Portfolio Funds. Although the preceding ranges of Portfolio Fund expense
ratios are based on audited financial data received from the Portfolio
Funds, the ranges were not audited by the Company's independent registered
public accounting firm.
For the year ended March 31, 2011, aggregate purchases and sales of the
Portfolio Funds amounted to $133,998,800 and $137,850,084, respectively.
4. CAPITAL COMMITMENTS OF THE COMPANY TO THE PORTFOLIO FUNDS
As of March 31, 2011, the Company had no unfunded capital commitments to
the Portfolio Funds.
5. ADVISORY FEE
Pursuant to the terms of the advisory agreement between the Company and the
Adviser, the Company pays the Adviser a monthly fee at an annual rate of
1.00% (the "Advisory Fee") based on the Company's net assets determined as
of the last business day of each month before taking into consideration the
Advisory Fee. For the year ended March 31, 2011, the Advisory Fee was
$5,139,787. Pursuant to the terms of a subadvisory agreement between the
Adviser and the Subadviser, the Adviser pays 75% of the Advisory Fee it
receives from the Company to the Subadviser. The Subadviser is also
reimbursed by the Company for out-of-pocket expenses incurred by the
Subadviser related to the Company, up to an annual limit of $25,000.
20
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2011
6. INCENTIVE ALLOCATION
As part of the Reorganization, the incentive allocation was eliminated as
of January 1, 2010. Prior to the Reorganization, an incentive allocation
was calculated with respect to each Member on the last business day of a
calendar year and upon repurchase of all or any portion of such Investor's
Interest (an "Incentive Period"). An Incentive Period for each Member's
Interest started immediately following the preceding Incentive Period and
ended on the first to occur of: (i) the next occurring last business day of
a calendar year; (ii) the next repurchase of all or any portion of such
Member's Interest; (iii) the withdrawal of the Adviser or Subadviser
(collectively the "Special Members") in connection with such party ceasing
to serve as Adviser or Subadviser to the Company; or (iv) the dissolution
of the Company. The aggregate incentive allocation (to the Special Members)
for an Incentive Period equaled 10% of the amount, if any, in excess of (a)
profit net of losses (after taking into account expenses, including the
advisory fee paid by the Company) allocated to each Member's capital
account for such Incentive Period over (b) the greater of (i) the Member's
Hurdle Rate Amount for that Incentive Period and (ii) the balance in the
Member's Loss Carryforward as of the end of the prior Incentive Period.
A Member's "Loss Carryforward" for the initial Incentive Period was zero
and for each Incentive Period thereafter was equal to the Member's Loss
Carryforward as of the end of the immediately preceding Incentive Period,
increased or decreased, but not below zero, by the positive or negative
difference between the net losses over net profits allocated to the Member
for the current Incentive Period.
The "Hurdle Rate Amount" is the return a Member would receive if its
Interest as of the beginning of that Incentive Period (adjusted
appropriately for any additional subscriptions) earned a rate of return
equal to the one-year U.S. Treasury note, as determined on the first day of
each calendar quarter and reset on the first day of each calendar quarter.
The Hurdle Rate Amount is not cumulative from Incentive Period to Incentive
Period.
In the case of a repurchase of only a portion of an Interest other than on
the last business day of the calendar year, the Member was treated as
having two independent Interests in the Company, one of which was being
repurchased in its entirety. Allocations to the Member and subscriptions
made by the Member during the Incentive Period prior to such repurchase,
and the Member's opening capital account balance and Loss Carryforward as
of the beginning of such Incentive Period, were allocated between the two
Interests in proportion to the portion of the Member's Interest that was
repurchased.
7. RELATED PARTY TRANSACTIONS
Affiliates of the Adviser may have banking, underwriting, lending,
brokerage, or other business relationships with the Portfolio Funds in
which the Company invests and with companies in which the Portfolio Funds
invest.
The Board is made up of five Directors who are not "interested persons," as
defined by Section 2(a)(19) of the 1940 Act, of the Company (the
"Disinterested Directors"). Until July 1, 2010, the Disinterested Directors
received an annual retainer of $10,000 and per-meeting fees of: $2,000 for
in-person attendance at quarterly meetings of the Board; $1,000 for
telephone participation at a
21
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2011
quarterly Board meeting or for participation at a telephonic special
meeting of the Board; and $1,000 for each audit committee meeting (whether
held in-person or by telephone). In addition to Board-related fees incurred
by the Company, such fees were also incurred directly by the Feeder Funds.
Effective July 1, 2010, the Board compensation structure was modified, such
that the Disinterested Directors now receive an annual retainer of $40,000
for their services to both the Company and the Feeder Funds, and no longer
receive any per meeting fees. The retainer is paid by the Company and
allocated pro-rata to the Feeder Funds, which no longer incur any direct
Board-related expenses. All Disinterested Directors may be reimbursed for
expenses of attendance at each regular or special meeting of the Board or
of any committee thereof and for their expenses, if any, in connection with
any other service or activity they perform or engage in as Directors. The
Company incurred $204,500 of retainer and Board-related fees for the year
ended March 31, 2011, none of which was payable as of March 31, 2011.
PFPC Trust Company, which will be renamed BNY Mellon Investment Servicing
Trust Company effective July 1, 2011, serves as custodian of the Company's
assets and provides custodial services for the Company. On July 1, 2010,
The PNC Financial Services Group, Inc. sold the outstanding stock of PNC
Global Investment Servicing Inc. to The Bank of New York Mellon
Corporation. At the closing of the sale, PNC Global Investment Servicing
(U.S.) Inc changed its name to BNY Mellon Investment Servicing (US) Inc.
BNY Mellon Investment Servicing (US) Inc. serves as administrator and
accounting agent to the Company and in that capacity provides certain
accounting, record keeping, investor related services, and regulatory
administrative services. The Company pays a monthly fee to the custodian
and the administrator based primarily upon month-end Members' Capital.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF CREDIT
RISK OR LIQUIDITY RISKS
In the normal course of business, the Portfolio Funds in which the Company
invests trade various financial instruments and may enter into various
investment activities with off-balance sheet risk. These include, but are
not limited to, short selling, writing option contracts, and equity swaps.
However, as a result of the investments by the Company as a limited partner
or member, the Company's liability with respect to its investments in the
Portfolio Funds is generally limited to the NAV of its interest in each
Portfolio Fund.
Because the Company is a closed-end investment company, Interests are not
redeemable at the option of Members and are not exchangeable for interests
of any other fund. Although the Board in its discretion may cause the
Company to offer from time to time to repurchase Interests at the Members'
capital account value, Interests are considerably less liquid than shares
of funds that trade on a stock exchange or shares of open-end investment
companies. With respect to any offer to repurchase Interests by the
Company, the aggregate repurchase amount will be determined by the Board in
its discretion and such repurchase amount may represent only a small
portion of outstanding Interests. Because the Company's investments in
Portfolio Funds themselves have limited liquidity, the Company may not be
able to fund significant repurchases. Members whose Interests are accepted
for repurchase also bear the risk that the Company's members' capital
account value may fluctuate significantly between the time that they submit
their request for repurchase and the date as of which Interests are valued
for the purpose of repurchase.
22
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2011
As described in the footnotes of the Company's Schedule of Investments and
in Note 3, some Portfolio Funds have suspended or restricted withdrawals of
capital, which increases the liquidity risk for the Company. Liquidity risk
is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities. Liquidity could be
impaired by an inability to access secured and/or unsecured sources of
financing, an inability to sell assets or to withdraw capital from the
Portfolio Funds, or unforeseen outflows of cash to meet tender demands.
This situation may arise due to circumstances outside of the Company's
control, such as a general market disruption or an operational issue
affecting the Company or third parties, including the Portfolio Funds.
Also, the ability to sell assets may be impaired if other market
participants are seeking to sell similar assets at the same time.
The Company's capital invested in the Portfolio Funds can be withdrawn on a
limited basis. As a result, the Company may not be able to liquidate
quickly some of its investments in the Portfolio Funds in order to meet
liquidity requirements or respond to market events.
There are a number of other risks to the Company. Three principal types of
risk that can adversely affect the Company's investment approach are market
risk, strategy risk, and manager risk. The Company also is subject to
multiple manager risks, possible limitations in investment opportunities,
allocation risks, lack of diversification, and other risks for the Company
and potentially for each Portfolio Fund.
9. GUARANTEES
Under the Company's organizational documents, its Directors and officers
are indemnified against certain liabilities arising out of the performance
of their duties to the Company. In addition, in the normal course of
business, the Company enters into contracts that contain a variety of
representations and warranties and which provide general indemnities. The
Company's maximum exposure under these arrangements is unknown, as this
would involve future claims against the Company that have not yet occurred.
However, based on experience, the Company expects the risk of loss due to
these warranties and indemnities to be remote.
10. SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the date these
financial statements were issued and noted the following:
At a meeting held on December 16, 2010, the Board of Directors of the
Company approved the assumption by Grosvenor of the role of investment
adviser of the Company and of management services provider to the Feeder
Funds (the "Adviser Transition"), subject to investor approval of a new
investment advisory agreement with Grosvenor and certain other conditions.
Grosvenor had been the Subadviser of the Company since its inception in
2003. The Adviser Transition was proposed because the Adviser no longer
planned to focus on advising funds with third-party subadvisers and
Grosvenor was willing to assume advisory and management responsibilities
for the Company and the Feeder Funds, respectively.
23
Grosvenor Registered Multi-Strategy Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2011
On March 30, 2011, the Company announced a tender offer to repurchase up to
$53,554,000 of outstanding Interests from its Members. The net asset value
of Interests will be calculated for this purpose on June 30, 2011. The
tender offer expired on April 26, 2011.
Subsequent to March 31, 2011, the Company received additional capital
subscriptions from the Feeder Funds in the amount of $3,202,528.
24
Grosvenor Registered Multi-Strategy Master Fund, LLC
RESULTS OF PROXY VOTING AT SPECIAL MEETING OF MEMBERS (UNAUDITED):
At a special meeting of the Members held on March 21, 2011, the Members approved
the Company's new investment advisory agreement (see specific voting results for
the Company provided below). As a result, the Adviser Transition took place and
Grosvenor became the adviser to the Company effective April 1, 2011.
DOLLARS VOTED % OF VOTED % OF TOTAL
--------------- ----------- -----------
FOR $473,023,041.53 99.862% 99.862%
AGAINST $ 655,920.65 0.138% 0.138%
ABSTAIN $ 0.00 0.000% 0.000%
In addition, Members approved a proposal to elect the following five nominees to
serve as directors ("Directors") of the Company:
PERCENTAGE
DIRECTOR FOR WITHHELD FOR
------------------ --------------- --------- -----------
HENRY S. BIENEN $473,678,962.18 $ 0.00 100%
ALAN BROTT $473,678,962.18 $ 0.00 100%
BRIAN P. GALLAGHER $473,678,962.18 $ 0.00 100%
VICTOR J. RASKIN $473,678,962.18 $ 0.00 100%
THOMAS G. YELLIN $473,678,962.18 $ 0.00 100%
As a result of this special meeting, all Directors currently serving on the
Board of Directors have been elected by Members.
Grosvenor Registered Multi-Strategy Master Fund, LLC
COMPANY MANAGEMENT (UNAUDITED) (CONTINUED)
APRIL 1, 2011
Information regarding each of the Directors and Officers of the Fund, including
their principal occupations during the past five years, is set forth below. The
business address of each Director and Officer is 900 North Michigan Avenue,
Suite 1100, Chicago, IL 60611. The Fund Complex consists of Grosvenor Registered
Multi-Strategy Master Fund, LLC, Grosvenor Registered Multi-Strategy Fund (TI),
LLC, Grosvenor Registered Multi-Strategy Fund (TI 2), LLC, and Grosvenor
Registered Multi-Strategy Fund (TE), LLC.
NUMBER OF
TERM OF PORTFOLIOS IN
POSITION(S) OFFICE AND FUND COMPLEX
HELD WITH THE LENGTH OF PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OVERSEEN BY
NAME , ADDRESS AND AGE COMPANY TIME SERVED AND OTHER DIRECTORSHIPS HELD MANAGER
--------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
Alan Brott Director Term Consultant, since October 1991; Associate 4
c/o Grosvenor Registered Indefinite; Professor, Columbia University Graduate
Multi-Strategy Master Length- since School of Business, since 2000; Various
Fund,LLC November positions with Ernst & Young for over 20
(Born 1942) 2009 years. Member of the Board of Directors
of Stone Harbor Investment Partners
registered investment funds and Excelsior
registered investment funds.
Henry S. Bienen Director Term President Emeritus, Northwestern University; 4
c/o Grosvenor Registered Indefinite; President of Northwestern University from
Multi-Strategy Master Length- since January 1995 through August 2009. Mr. Bienen
Fund,LLC April 2011 Serves on the boards of directors of
(Born 1939) Rasmussen Inc. (where he is also Vice
Chairman); Onconova Therapeutics, Inc.;
Gleacher and Company; Ithaka Harbors
(Chairman); Chicago Council Global
Affairs (Executive Committee); New York
Council on Foreign Relations (Chair,
Nominating and Governance Committee);
Knight Commission on Intercollegiate
Athletics; Steppenwolf Theatre
(Executive Committee); and Shedd
Aquarium (Honorary Trustee). He is
also a consultant and advisor to
Hindustan Times and senior advisor to
Qatar Foundation. During the last five years
he has also served on the boards of United
Football League (Chairman); Bear Stearns
Companies Inc. (Audit Committee);
SPSS Inc.: JSTOR and Grosvenor
Master Fund Ltd.
Brian P. Gallagher Director Term-- Partner, Twin Bridge Capital Partners. 4
c/o Grosvenor Registered Indefinite; During the last five years he has also
Multi-Strategy Master April 2011 held the following positions: Principal, UIB
Fund,LLC Capital, Inc. (Investment Bank), 2005;
(Born 1967) Partner, PPM America Capital Partners, LLC
(Private Equity), 1997 to 2005. Member of
the Board of Directors of Twin Bridge
Capital Partners, Renew Life, Inc. and
HFS Chicago Scholars.
Victor J. Raskin Director Term-- Chief Investment Officer, YMCA Retirement 4
c/o Grosvenor Registered Indefinite; Fund, from 2000 through December 31, 2010.
Multi-Strategy Master Length- April
Fund,LLC 2011
(Born 1944)
Thomas G. Yellin Director Term President, The Documentary Group since 4
c/o Grosvenor Registered Indefinite; December 2002; Executive
Multi-Strategy Master Length- since Producer, ABC News from August
Fund,LLC 2004 1989 to December 2002.
(Born 1954)
Grosvenor Registered Multi-Strategy Master Fund, LLC
COMPANY MANAGEMENT (UNAUDITED) (CONTINUED)
NUMBER OF
TERM OF PORTFOLIOS IN
POSITION(S) OFFICE AND FUND COMPLEX
HELD WITH THE LENGTH OF PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OVERSEEN BY
NAME , ADDRESS AND AGE COMPANY TIME SERVED AND OTHER DIRECTORSHIPS HELD MANAGER
--------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT DISINTERESTED DIRECTORS
Scott J. Lederman Chief Executive Term -- Managing Director (2000 - Present), N/A
(Born 1956) Officer and Indefinite; Grosvenor Capital Management, L.P.
President Length -- since
April 2011
Zachary D. Weber Chief Financial Term -- Vice President, Finance (2001 -- Present), N/A
(Born 1974) Officer and Indefinite; Grosvenor Capital Management, L.P
Treasurer Length -- since
April 2011
Girish S. Kashyap Chief Legal Term -- Vice President, Legal (2010 -- Present) N/A
(Born 1981) Officer, Vice Indefinite; and Associate, Legal (2008 -- 2010),
President and Length -- Grosvenor Capital Management, L.P.;
Secretary since April and Associate, Investment Management
2011 Group of K&L Gates LLP (2005 -- 2008).
Jodie L. Crotteau Chief Term -- Vice President, Legal (2010 -- Present), N/A
(Born 1972) Compliance Indefinite; Grosvenor Capital Management, L.P.;
Officer and Vice Length -- Vice President, Secretary and Compliance
President since April Director (2007 -- 2010), Assistant
2011 Secretary (2005 -- 2007), and Compliance
Manager (2005 -- 2006), Harbor
Capital Advisors, Inc.; Assistance Secretary
(2005 -- 2010) and AML
Compliance Officer (2007 -- 2010), Harbor Funds;
Assistant Secretary (2005-2010),
Harbor Services Group, Inc.; and
Assistant Secretary (2007 -- 2010),
Harbor Funds Distributors, Inc.
Timothy A. Knight Assistant Term -- Vice President, Finance (2006 -- Present), N/A
(Born 1973) Treasurer Indefinite; Associate, Finance (2003 -- 2006),
Length -- Grosvenor Capital Management, L.P.
since April
2011
All officers of the Company are employees and/or officers of Grosvenor Capital
Management, L.P.
Grosvenor Registered Multi-Strategy Master Fund, LLC
March 31, 2011
BOARD CONSIDERATION OF NEW ADVISORY AGREEMENT (UNAUDITED)
The Investment Company Act of 1940, as amended, (the "1940 Act") requires
that the Investment Advisory Agreement of the Company be approved initially, and
following an initial two-year term, at least annually, by the Company's Board of
Directors (the "Company Board").
At an in-person meeting of the Company Board held on December 16, 2010, and
in connection with the Adviser Transition the Company Board considered and
approved an investment advisory agreement (the "New Advisory Agreement") with
Grosvenor, as adviser to the Company effective April 1, 2011.
In making its determination to approve the New Advisory Agreement and to
recommend its approval by Members of the Company, the Company Board considered
all information it deemed reasonably necessary to evaluate the terms of the New
Advisory Agreement and the ability of Grosvenor to provide services to the
Company of the same scope and quality as were provided by BACA. The
"independent" members of the Company Board (the "Independent Directors")
reviewed materials furnished by Grosvenor, including information regarding
Grosvenor, its affiliates and personnel, operations and financial condition. At
the meetings, the Company Board also met with representatives of Grosvenor and
discussed various matters relating to the operations of the Company and
Grosvenor and Grosvenor's plans with respect to the management and offering of
alternative investment products, including the Company and the Feeder Funds
(together with the Company, the "Funds"). Representatives of Grosvenor addressed
questions regarding the experience and qualifications of Grosvenor and its
ability to provide the full range of services required for the operations of the
Company and the Feeder Funds, and the Grosvenor representatives assured the
Company Board that Grosvenor did not anticipate that there would be any
reduction or adverse change in the scope, nature or quality of the investment
advisory or other services provided to the Funds. These representatives noted
that a plan would be put into place designed to provide for the continuity of
the investment advisory services under the New Advisory Agreement. They stated
that no departures of personnel of Grosvenor material to the operations of the
Funds are anticipated. Grosvenor representatives also advised the Company Board
that Grosvenor would continue to provide investment advice with no material
changes in operating conditions.
Based on its review, and after careful consideration of the factors
discussed below, the Company Board (including each of the Independent Directors
of the Company) unanimously approved the New Advisory Agreement. In connection
with the Company Board's review, the Independent Directors of the Company met in
an executive session, during which they were advised by and had the opportunity
to discuss with independent legal counsel various matters relating to the New
Advisory Agreement. The Company Board determined in approving the New Advisory
Agreement that the New Advisory Agreement would enable the Company to obtain
high quality investment advisory services at a cost that is reasonable and
appropriate. No single factor was considered in isolation, nor was any single
factor considered to be determinative to the decision to approve the New
Advisory Agreement.
In connection with their deliberations, the Independent Directors of the
Company, with the assistance of independent legal counsel, requested, received
and reviewed information regarding the New Advisory Agreement and relevant
materials furnished by Grosvenor and BACA. These materials included information
regarding Grosvenor and its management, history, qualifications, personnel,
operations and financial condition and other pertinent information. In addition,
the representations made by representatives of Grosvenor were considered.
In considering the New Advisory Agreement, the Company Board considered the
nature, extent and quality of operations and services provided by Grosvenor to
the Company under a subadvisory agreement. It also considered the fact that the
advisory agreement with BACA and the New Advisory Agreement with Grosvenor,
including the terms relating to the services to be performed by Grosvenor, and
the fees payable by the Company, are substantially the same except for the
replacement of the investment adviser, the date of its effectiveness and certain
indemnification and revised notice provisions. The Company Board considered
that, because Grosvenor served as Subadviser of the Company, the retention of
Grosvenor as investment adviser of the Company would have minimal impact on the
day-to-day management of the Company. The Company Board also considered
Grosvenor's capability to manage a fund registered under the 1940 Act, including
the adequacy of Grosvenor's compliance program and resources.
Grosvenor Registered Multi-Strategy Master Fund, LLC
March 31, 2011
BOARD CONSIDERATION OF NEW ADVISORY AGREEMENT (UNAUDITED)(CONTINUED)
With respect to the fees payable under the New Advisory Agreement, the
Company Board compared the fees and overall expense levels of the Company to
those of similar funds and other funds with similar investment objectives,
including other funds advised by Grosvenor and its affiliates. In evaluating the
Advisory Fee, the Company Board also took into account the complexity and
quality of the investment management services required by the Company. The
Company Board also considered the investment performance of the Company,
including comparisons of the Company's performance to that of other similar
funds, and the anticipated costs of services to be provided and an estimate of
the profits likely to be realized by Grosvenor from its relationship with the
Company. The Company Board considered the extent to which economies of scale in
costs of providing services would be realized as the Company grows and whether
the fees payable to Grosvenor pursuant to the New Advisory Agreement properly
reflects these economies of scale for the benefit of Members. The potential
benefits to Grosvenor of its relationship with the Company were also considered.
The Company Board viewed as significant the fact that the key personnel of
Grosvenor who currently provide investment advisory services to the Company
would continue to provide services to the Company, and the commitment of
Grosvenor to provide the personnel and utilize such resources as may be needed
to provide services to the Company. In addition to the foregoing, the Company
Board considered the current financial condition and resources of Grosvenor.
Possible alternatives to approval of the New Advisory Agreement were also
considered by the Company Board. During its review and deliberations, the
Company Board evaluated the potential benefits, detriments and costs to the
Company and Members of the replacement of BACA as the investment adviser. The
Company Board determined that Grosvenor has the requisite expertise, personnel
and resources to enable it to provide high quality services to the Company.
After consideration, the Company Board noted its overall satisfaction with
the nature, quality and extent of services currently provided by Grosvenor as
Subadviser and concluded that the Company would receive satisfactory services
under the New Advisory Agreement from Grosvenor. The Company Board also
concluded that the Company's performance compared favorably with the performance
of similar funds, and determined that the fees and expense ratio of the Funds
are within the range of the fees and expense ratios of similar funds. It also
concluded that the profitability to Grosvenor from its relationship with the
Funds would not be so disproportionately large that it would bear no reasonable
relationship to the services rendered.
ITEM 2 - CODE OF ETHICS
The Registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
applicable to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of this code of ethics is filed as an exhibit to this Form
N-CSR. No substantive amendments were approved or waivers were granted to this
code of ethics during the period covered by this report.
ITEM 3 - AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's Board has determined that each of Alan Brott and Brian P.
Gallagher, both of whom are members of the Audit Committee of the Board, is an
audit committee financial expert as defined by the Securities and Exchange
Commission (the "SEC"). Messrs. Brott and Gallagher are each deemed
"independent" as defined by the SEC for purposes of audit committee financial
expert determinations.
ITEM 4 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
(A) AUDIT FEES
The aggregate fees billed for the fiscal years ended March 31, 2010 and
March 31, 2011 for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years are
$32,000 and $30,000, respectively.
(B) AUDIT-RELATED FEES
The aggregate fees billed for the fiscal years ended March 31, 2010 and
March 31, 2011 for assurance and related services by the principal
accountant that are reasonably related to the performance of the
audit of the Registrant's financial statements and are not reported under
paragraph (a) of this Item are $0 and $0, respectively. Audit-related fees
include certain agreed-upon procedures performed for semi-annual
shareholder reports and technical research on accounting and disclosure
matters.
(C) TAX FEES
The aggregate fees billed for the fiscal years ended March 31, 2010 and
March 31, 2011 for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning are $24,503 and
$18,000, respectively.
2
(D) ALL OTHER FEES
The aggregate fees billed for the fiscal years ended March
31, 2010 and March 31, 2011 for products and services provided by the
principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item are $0 and $0, respectively.
(E)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The policy of the Registrant's Audit Committee is to consider and, if
appropriate, approve before the principal accountant is engaged for such
services, all specific audit and non-audit services (other than certain de
minimis non-audit services) provided to the Registrant. In making a
determination, the Audit Committee considers whether the services are
consistent with maintaining the principal accountant's independence.
In the event of a contingency situation in which the principal accountant
is needed to provide services in between scheduled Audit Committee
meetings, the Audit Committee has delegated to its Chairman the
responsibility for considering and, if appropriate, pre-approving audit or
permitted non-audit services in an amount sufficient to complete services
and to determine if such services would be consistent with maintaining the
accountant's independence. The Audit Committee Chairman is required to
report to the full Audit Committee as to the nature and amount of such
services and fees pre-approved at the next scheduled Audit Committee
meeting. The Audit Committee would again consider whether such services and
fees are consistent with maintaining the principal accountant's
independence.
The Registrant's Audit Committee is informed at least annually of all audit
and non-audit services provided by the principal accountant to the
Registrant .
(E)(2)The percentage of services described in paragraphs (b) through (d) of this
Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during the fiscal years ended
March 31, 2010 and March 31, 2011 was zero.
(F) The percentage of hours expended on the principal accountant's engagement
to audit the Registrant's financial statements for the most recent fiscal
year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(G) The amount of non-audit fees that were billed by the Registrant's
principal accountant for services rendered to : (i) the Registrant, and
(ii) the Registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser that
provides ongoing services to the Registrant for the fiscal year ended March
31, 2011, were $18,000 and $35,000, respectively.
The amount of non-audit fees that were billed by the Registrant's principal
accountant for services rendered to : (i) the Registrant, and (ii) the
Registrant's investment adviser and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the Registrant for the fiscal year ended March 31, 2010, were
$24,503 and $0, respectively.
(H) The Registrant's audit committee of the Board has considered whether the
provision of non-audit services that were rendered to the Registrant's
investment adviser, and any
3
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the Registrant that
were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5 - AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6 - INVESTMENTS
(A) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(B) Not applicable.
ITEM 7 - DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Substantially all of the assets of the Registrant are invested in Grosvenor
Registered Multi-Strategy Master Fund, LLC (the "MASTER FUND"). Each the
Registrant and the Master Fund has delegated to Grosvenor Capital Management,
L.P. ("GROSVENOR" or the "FIRM"), the responsibility to vote proxies related to
portfolio securities.
BACKGROUND
Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended, requires an
SEC-registered investment adviser like Grosvenor to implement proxy voting
policies and procedures that are reasonably designed to ensure that the adviser
votes proxies in the best interests of its clients.
Pursuant to Rule 206(4)-6, Grosvenor has adopted Proxy Voting Policies and
Procedures ("PROXY POLICIES") that have been designed to ensure that Grosvenor
votes proxies in the best interests of its clients.
WHEN GROSVENOR IS REQUESTED TO RESPOND TO PROXY REQUESTS
The most common scenarios in which Grosvenor is requested to respond to proxy
requests relating to securities held by one or more client accounts, including
the Registrant and/or the Master Fund, are as follows:
- Grosvenor has investment discretion over such client accounts and is
requested by the investment manager ("INVESTMENT MANAGER") of an underlying
investment fund in which such client accounts invest ("PORTFOLIO FUND") to
vote limited partnership interests, limited liability company interests,
shares or similar equity interests in such Portfolio Fund.
- A client who invests in an account over which Grosvenor does not have
investment discretion is requested by the Investment Manager of an
underlying Portfolio Fund in which such account invests to vote limited
partnership interests, limited liability company interests, shares or
similar equity interests in such Portfolio Fund, and such client in turn
requests Grosvenor to make a recommendation as to how such client should
respond to such request.
4
In rare cases, Grosvenor may be requested to vote on (or make recommendations to
clients as to how to vote on) matters relating to fee sharing agreements and
ancillary investments.
For purposes of convenience, a request by an Investment Manager or other party
(other than a client) to vote a security held by a client account, or to vote on
any matter (or consent to any action) relating to a fee sharing agreement, is
referred to below as a "PROXY REQUEST."
MATERIAL PROPOSALS AND IMMATERIAL PROPOSALS
Grosvenor divides Proxy Requests into two general categories, those relating to
"Immaterial Proposals" and those relating to "Material Proposals."
Grosvenor defines an "IMMATERIAL PROPOSAL" as a proposal that, if adopted, WOULD
NOT, in its reasonable judgment, either: (a) be reasonably likely to have a
material adverse effect on the relevant client account(s) (e.g., a proposal to
approve a change in the name of a Portfolio Fund, to approve a Portfolio Fund's
previous year's audited financial statements, to approve a Portfolio Fund's
appointment of independent auditors, to elect new directors of a Portfolio Fund,
etc.); or (b) materially adversely change the terms on which future investments
may be made by one or more of Grosvenor's client accounts. In other words, a
proposal that, if adopted, would change any one or more terms in a manner that
is favorable, or not materially adverse, to existing or future client accounts,
is an Immaterial Proposal.
Grosvenor defines a "MATERIAL PROPOSAL" as a proposal that is not an Immaterial
Proposal (i.e., a Material Proposal is a proposal that, if adopted, WOULD, in
Grosvenor's reasonable judgment, either: (a) be reasonably likely to have a
material adverse effect on the relevant client account(s); or (b) materially
adversely change the terms on which future investments may be made by one or
more client accounts).
DETERMINING WHAT ACTION SHOULD BE TAKEN IN RESPONSE TO A PROXY REQUEST
It is Grosvenor's policy to ACT (or recommend action, as the case may be) on
each Immaterial Proposal, unless Grosvenor's Operations Committee determines
otherwise.
It is Grosvenor's policy to CONSENT (or recommend consent, as the case may be)
to each Immaterial Proposal, unless:
- the Primary Investment Principal (discussed below) or a member of
Grosvenor's Operations Committee objects to such Immaterial Proposal; or
- Grosvenor's Operations Committee determines, based on information provided
to it by certain persons within the Firm, that consent to such Immaterial
Proposal would not be consistent with the investment objective(s), policies
and restrictions of the relevant client account(s). Grosvenor's Operations
Committee, however, after due consideration, may authorize Grosvenor to act
favorably (or make a favorable recommendation, as the case may be) on an
Immaterial Proposal in this situation, upon such terms and subject to such
conditions as the Operations Committee may determine to be appropriate
under the circumstances.
Except as discussed below under "MANAGING CONFLICTS OF INTEREST," it is
Grosvenor's general policy to ACT (or recommend action, as the case may be) on
each Proxy Request relating to a Material Proposal in accordance with the
recommendation of the employee whom Grosvenor has designated
5
as the primary investment principal with respect to the Investment Manager or
securities in question ("PRIMARY INVESTMENT PRINCIPAL"), subject to the
following considerations:
- Any member of Grosvenor's Investment Committee may object to the
recommendation of a Primary Investment Principal in response to a Proxy
Request. In the case of any such objection, the matter is referred to
Grosvenor's Investment Committee, whose decision is final and conclusive,
except that Grosvenor's Chief Executive Officer or Grosvenor's Operations
Committee may veto any action proposed to be taken by a Primary Investment
Principal or by Grosvenor's Investment Committee in response to a Proxy
Request.
- Grosvenor's Operations Committee may object to the recommendation of a
Primary Investment Principal in response to a Proxy Request if it
determines, based on information provided to it by certain persons within
the Firm, that consent to such Proxy Request would not be consistent with
the investment objective(s), policies and restrictions of the relevant
client account(s). Grosvenor's Operations Committee, however, after due
consideration, may authorize Grosvenor to act favorably (or make a
favorable recommendation, as the case may be) on a Proxy Request relating
to a Material Proposal in this situation, upon such terms and subject to
such conditions as the Operations Committee may determine to be appropriate
under the circumstances.
In the case of accounts that Grosvenor manages on a discretionary basis,
Grosvenor ordinarily does not consult with clients prior to taking action on
Proxy Requests that affect such accounts.
FACTORS CONSIDERED IN DETERMINING WHAT ACTION SHOULD BE TAKEN IN RESPONSE TO A
PROXY REQUEST
Grosvenor expects that Proxy Requests frequently will request approval of
"ADVERSE MEASURES," namely, measures that reduce the rights, powers and
authority, and/or increase the duties and obligations, associated with the
security in question. For example, it is anticipated that Proxy Requests
frequently will request approval of increased fees and/or less favorable
liquidity provisions relating to Portfolio Funds in which one or more of
Grosvenor's client accounts invest.
Nevertheless, it is expected that a Primary Investment Principal ordinarily will
recommend favorable action on Proxy Requests that propose Adverse Measures as
long as such Primary Investment Principal reasonably believes, based on the
totality of the facts and circumstances, that continuing to hold the relevant
security has a reasonable probability of conferring benefits on the relevant
client account(s) (e.g., continued access to a high-quality investment manager)
that outweigh the adverse affect(s) of such Adverse Measure, considered over the
anticipated holding period of such security in the portfolio(s) of the relevant
client account(s).
MANAGING CONFLICTS OF INTEREST
In furtherance of Grosvenor's goal to take action on all Proxy Requests in a
manner that best serves the interests of the affected client accounts, Grosvenor
will not implement any decision to respond to (or make a recommendation as to
how to respond to) a Proxy Request in a particular manner unless and until a
Compliance Officer has implemented certain procedures designed to:
- identify whether Grosvenor is subject to a conflict of interest in taking
action in response to such Proxy Request;
- assess the materiality of such a conflict; and
6
- address a material conflict in a manner designed to serve the best
interests of the affected client accounts(s).
A conflict of interest ordinarily will be considered material if it can
reasonably be argued that Grosvenor (or certain of its related persons) have a
meaningful incentive to respond to the Proxy Request in a manner designed to
benefit Grosvenor (or any such related person) rather than the affected client
accounts - even if there is no ostensible detriment to the affected client
account(s) from responding to such request in that manner.
In addition, a conflict of interest may be considered material if it can
reasonably be argued that Grosvenor has a meaningful incentive to respond to a
Proxy Request in a manner designed to favor one or more of Grosvenor's clients
over one or more of Grosvenor's other clients.
All materiality determinations are based on an assessment of the particular
facts and circumstances.
If the Compliance Officer determines that Grosvenor (or one or more of its
related persons) is subject to a conflict of interest in taking action in
response to a Proxy Request but that such conflict is not material, he or she
shall issue an instruction to take action in response to such Proxy Request as
provided above under "DETERMINING WHAT ACTION SHOULD BE TAKEN IN RESPONSE TO A
PROXY REQUEST."
If the Compliance Officer determines that Grosvenor (or one or more of its
related persons) is subject to a material conflict of interest in taking action
in response to a Proxy Request, he or she shall, in consultation with such other
of its personnel as he or she determines to be appropriate under the
circumstances, determine how to address such conflict.
In determining how to address a material conflict of interest, the Compliance
Officer may consider the following potential solutions, as well as any other
solutions he or she wishes to consider:
- in the case of a non-discretionary account, disclosing the conflict of
interest to the appropriate parties;
- in the case of a discretionary account, disclosing the conflict of
interest to the appropriate parties and obtaining their consent (in
accordance with the governing documents of such account) to act on the
Proxy Request in accordance with the decision reached by Grosvenor with
respect to such Proxy Request; and
- in the case of any account, engaging an independent third party to
recommend a response to the Proxy Request.
In cases where the Compliance Officer determines that Grosvenor (or one or more
of its related persons) is subject to a conflict of interest in responding to a
Proxy Request and that such conflict is material, he or she shall not issue an
instruction to take or recommend action in response to such Proxy Request in
accordance with the decision reached by Grosvenor without first determining that
such action is in the best interests of the affected client account(s).
In certain cases, depending on the interests of particular clients, a Primary
Investment Principal may recommend that certain client accounts vote against a
Material Proposal and that other client accounts vote in favor of such Material
Proposal.
7
ITEM 8 - PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Substantially all of the assets of the Registrant are invested in the Master
Fund. The portfolio management team of the Master Fund is described below.
The Master Fund's assets are managed by Grosvenor. Grosvenor maintains an
Investment Committee that is responsible for, among other things:
- overseeing the identification and evaluation of investment strategies that
may be appropriate for an account managed or advised by Grosvenor (a
"GROSVENOR-MANAGED ACCOUNT"), including the Master Fund, and approving (or
disapproving) such investment strategies;
- determining from time to time guidelines specifying the target percentages
of assets (usually determined as a range) that the Portfolio Management
Teams (as defined below) generally follow in allocating the assets of
Grosvenor-Managed Accounts assigned to them to particular investment
strategies and underlying exposure categories ("FIRMWIDE INVESTMENT
GOALS");
- overseeing the identification and evaluation of, and approving (or
disapproving), Investment Managers (and the Portfolio Funds managed by such
Investment Managers) that employ investment strategies that have been
approved by the Investment Committee;
- establishing the particular investment objectives and investment
restrictions ("INVESTMENT OBJECTIVES AND CONSTRAINTS") that will apply to
Grosvenor's management of each Grosvenor-Managed Account, including the
Master Fund (in the case of the Master Fund, these Investment Objectives
and Constraints are subject to approval by the Master Fund's Board of
Directors); and overseeing the monitoring of investment strategies,
Investment Managers and Portfolio Funds.
The Investment Committee must approve a particular Investment Manager and
particular Portfolio Fund(s) managed by such Investment Manager from an
"investment" perspective before Grosvenor invests the assets of the Master Fund
in such Portfolio Fund(s). The Investment Committee currently has four members:
Mr. David S. Richter (Chair), Mr. David B. Small, Mr. Brian A. Wolf and Mr.
Bradley H. Meyers. The Investment Committee makes decisions by majority vote;
however, Mr. Michael J. Sacks, Grosvenor's Chief Executive Officer, has a veto
right over all decisions made by the Investment Committee, and is entitled to
cast a deciding vote in the event of a 2-2 tie vote by the members of the
Investment Committee.
Each Grosvenor-Managed Account, including the Master Fund, is assigned to a
particular portfolio management team ("PORTFOLIO MANAGEMENT TEAM") consisting of
a portfolio manager, a senior portfolio analyst and a junior portfolio analyst.
Mr. David S. Richter and Mr. Bradley H. Meyers, who are members of the
Investment Committee, are responsible for designating the members of each
Portfolio Management Team. Mr. Meyers has general oversight over the functions
of each Portfolio Management Team. Dianna Di Iorio is the portfolio manager of
the designated Portfolio Management Team for the Master Fund. Messrs. Richter
and Meyers review and sign off on each allocation decision for each
Grosvenor-Managed Account, including the Master Fund. Furthermore, Mr. Michael
J. Sacks oversees all portfolio management activity for the Grosvenor-Managed
Accounts, including the Master Fund. Accordingly, Messrs. Richter, Meyers and
Sacks may also be deemed to be portfolio managers of the Master Fund.
8
A brief biography of each of Messrs. Sacks, Richter, Meyers and Ms. Di Iorio
appears below.
The Master Fund's Portfolio Management Team is responsible for constructing the
portfolio of the Master Fund, and for managing such portfolio on a day-to-day
basis, by employing a combination of "top-down" and "bottom-up" inputs. The
"top-down" inputs consist of:
- the Master Fund's Investment Objectives and Constraints;
- the requirement to use investment strategies, Investment Managers and
Portfolio Funds that have been approved by the Investment Committee;
- the Firmwide Investment Goals applicable to the Master Fund; and
- the position size target ranges established by the Investment Committee
relating to the allocation of Master Fund's assets to particular classes of
Portfolio Funds (and, in some cases, particular Portfolio Funds).
The "bottom-up" inputs consist of the Master Fund's Portfolio Management Team's
judgment in selecting and allocating capital to approved Investment Managers in
a manner that the Portfolio Management Team determines to be appropriate in
light of the Master Fund's Investment Objectives and Constraints and other
investment restrictions. The Portfolio Management Team bases its allocation
decisions upon both qualitative and quantitative factors, supplementing
experienced investment judgment with quantitative analyses.
MICHAEL J. SACKS, MANAGING DIRECTOR, CHIEF EXECUTIVE OFFICER
- Joined Grosvenor, 1990
- Previous Experience
o Harris Associates, L.P., 1988-1990
- Education and Accreditations
o Northwestern University School of Law; J.D., 1988
o Kellogg School of Management; M.B.A., 1988
o Tulane University; B.A., Economics, 1984
o Member of Illinois Bar
DAVID S. RICHTER, MANAGING DIRECTOR, INVESTMENTS
- Associated with Grosvenor since 1994; joined Grosvenor, 2003
- Previous Experience
o Waveland Capital Management, L.P., 1994-2002 (Long/Short Equity Hedge
Fund)
o JMB Realty Corporation, 1988-1994
o KPMG Peat Marwick, 1983-1988
- Education and Accreditations
o University of Illinois; B.S. (summa cum laude), Accountancy, 1983
o Certified Public Accountant
o AICPA Elijah Watt Sells Award, CPA Exam Scores
BRADLEY H. MEYERS, SENIOR VICE PRESIDENT, INVESTMENTS
- Joined Grosvenor, 2003
- Previous Experience
9
o Merrill Lynch, 1999-2001
o PricewaterhouseCoopers L.L.P., 1997-1999
- Education and Accreditations
o University of Chicago Booth School of Business; M.B.A., 2003
o University of Illinois; B.S., Accounting, 1997
o Certified Public Accountant
DIANNA DI IORIO, CFA, VICE PRESIDENT, INVESTMENTS
- Joined Grosvenor, 2007
- Previous Experience
o Goldman Sachs, Senior Financial Analyst, 2005-2007
o JPMorgan Private Bank, 2003-2005
- Education and Accreditations
o Northwestern University; B.A. (cum laude), Economics and Mathematical
Methods in the Social Sciences, 2003
o Chartered Financial Analyst
OTHER ACCOUNTS. The table below provides information regarding the other
accounts managed by the individuals with primary responsibility for the
day-to-day management of the portfolio as of March 31, 2011:
# OF ACCOUNTS
MANAGED FOR ASSETS MANAGED
WHICH ADVISORY FOR WHICH
FEE IS ADVISORY FEE IS
# OF ACCOUNTS TOTAL ASSETS PERFORMANCE PERFORMANCE
MANAGED(1) MANAGED* BASED(2) BASED(3)*
------------- -------------- --------------- ---------------
MICHAEL J. SACKS
Registered investment companies 1 $548.5 million 0 N/A
Other pooled investment vehicles 55 $ 23.4 billion 28 $5.2 billion
Other accounts 1 $463.2 million 0 N/A
DAVID S. RICHTER
Registered investment companies 1 $548.5 million 0 N/A
Other pooled investment vehicles 55 $ 23.4 billion 28 $5.2 billion
Other accounts 1 $463.2 million 0 N/A
BRADLEY H. MEYERS
Registered investment companies 1 $548.5 million 0 N/A
Other pooled investment vehicles 55 $ 23.4 billion 28 $5.2 billion
Other accounts 1 $463.2 million 0 N/A
DIANNA DI IORIO
Registered investment companies 1 $548.5 million 0 N/A
Other pooled investment vehicles 9 $ 2.7 billion 6 $1.6 billion
Other accounts 1 $463.2 million 0 N/A
-----------------
(1) For purposes of this column, "master-feeder" structures, which may include
multiple "feeder" funds, are counted as one account.
(2) For purposes of this column, "feeders" into a "master fund" are counted as
individual accounts where they have performance-based fees.
(3) Total AUM for each account is included. Note, however, that in some
accounts, some investors may not be subject to performance-based fees.
* ASSETS UNDER MANAGEMENT AS OF THE END OF A PARTICULAR PERIOD INCLUDE ALL
SUBSCRIPTIONS TO, AND ARE REDUCED BY ALL WITHDRAWALS FROM, GROSVENOR FUNDS
EFFECTED IN CONJUNCTION WITH THE CLOSE OF BUSINESS THE LAST DAY OF SUCH
PERIOD. DATA FOR 2010 AND 2011 ARE ESTIMATED AND UNAUDITED.
10
NOTE: FOR PURPOSES OF THIS BREAKDOWN, LEVERAGE AND INVESTMENTS IN GROSVENOR
SUB-FUNDS ARE NOT INCLUDED.
COMPENSATION STRUCTURE. Messrs. Sacks, Richter, Meyers and Ms. Di Iorio each
receive a fixed base salary as well as an annual bonus based upon the success of
the Firm. In addition, each of Messrs. Sacks and Richter holds an equity
participation, which entitles him to distributions. Compensation is not directly
based upon or tied to the performance or net asset value of the Master Fund or
any other accounts managed by the Firm.
OWNERSHIP BY PORTFOLIO MANAGERS. As of the date of this Form, none of the
individuals at Grosvenor responsible for the day-to-day investment management of
the Master Fund owns any interests in the Master Fund.
CONFLICTS OF INTEREST
GENERAL
Grosvenor is subject to significant conflicts of interest in managing the
business and affairs of the Master Fund and in making investment decisions for
the Master Fund. Such conflicts could affect Grosvenor's objectivity and the
performance of the Master Fund.
Grosvenor has fiduciary duties to the Master Fund to act in good faith and with
fairness in all its dealings with the Master Fund, and will take such duties
into account in dealing with all actual and potential conflicts of interest. If
an investor in a Grosvenor-Managed Account, including the Master Fund, believes
that Grosvenor has violated its fiduciary duties, such investor may seek legal
relief under applicable law. However, it may be difficult for investors to
obtain relief because of the changing nature of the law in this area, the
vagueness of standards defining the required conduct, the broad discretion given
Grosvenor under such Grosvenor-Managed Account's constituent documents, and the
broad exculpatory and indemnification provisions of such constituent documents.
OTHER BUSINESS ACTIVITIES
Nothing in the constitution documents of a Grosvenor-Managed Account:
- requires Grosvenor or any of its related persons (which, for purposes of
the discussion that follows, include persons who either currently are or
formerly were related to Grosvenor) to devote their full business time to
the business and affairs of the Master Fund or to the business and affairs
of the Grosvenor-Managed Accounts in general; or
- limits or restricts Grosvenor or its related persons from engaging in and
devoting time and attention to other businesses or ventures or from
rendering services of whatever kind or nature.
Without limiting the generality of the foregoing, Grosvenor and its related
persons may act as investment adviser to or investment manager of
Grosvenor-Managed Accounts that are not in existence as of the date of this
report - whether or not having investment objectives similar to those of the
Master Fund or other then-existing Grosvenor-Managed Accounts - on terms
(including
11
terms relating to fees, liquidity and transparency) that are the same as or
different from those available to the Master Fund.
Further, Grosvenor and its related persons may engage in any other businesses or
ventures, including, without limitation, those described below under
"INVESTMENTS IN OTHER INVESTMENT MANAGEMENT FIRMS." Grosvenor has no obligation
to make investment opportunities in any such businesses or ventures available to
the Master Fund or any other Grosvenor-Managed Account (or to the
investors/participants in the Master Fund or any other Grosvenor-Managed
Account) and (except to the extent Grosvenor determines otherwise) the Master
Fund and the other Grosvenor-Managed Accounts will not participate in the risks
or rewards of such businesses or ventures. Further, such businesses and
ventures will:
- compete with the Master Fund and the other Grosvenor-Managed Accounts for
the time and attention of Grosvenor and its related persons; and
- potentially create additional conflicts of interest or raise other special
considerations, as discussed more fully below.
In addition, Grosvenor and its related persons, in investing and trading for
their proprietary accounts, may (to the extent lawful) make use of information
obtained by them in the course of investing for the Master Fund and other
Grosvenor-Managed Accounts. Grosvenor and its related persons will have no
obligation to compensate the Master Fund or any other Grosvenor-Managed Account
(or any investor/participant therein) in any respect for their receipt of such
information or to account to the Master Fund or any other Grosvenor-Managed
Account (or any investor/participant therein) for any profits earned from their
use of such information.
INVESTMENTS IN OTHER INVESTMENT MANAGEMENT FIRMS
Grosvenor and its related persons may, for their own accounts:
- invest in other investment management or advisory firms (and investment
vehicles or accounts managed or advised by such firms);
- enter into fee-, revenue- and/or profit-sharing agreements with other
investment management or advisory firms ("FEE SHARING AGREEMENTS"); and/or
- operate and/or manage other investment management or advisory firms.
Investments in other investment management or advisory firms often (though not
always) are made in exchange for "seeding" or otherwise funding the firms'
operation
Grosvenor has no obligation to make investment opportunities in other investment
management or advisory firms available to the Master Fund or any other
Grosvenor-Managed Account or any investor or participant in any
Grosvenor-Managed Account, and does not currently intend to make investment
opportunities in other investment management or advisory firms available to the
Master Fund. In any event, because of restrictions imposed by the Investment
Company Act of 1940 (the "ICA"), Grosvenor may in certain cases be prohibited
from causing the Master Fund to enter into Fee Sharing Agreements with, or
otherwise invest in, investment management or advisory firms with which
Grosvenor, one or more of its related persons and/or one or more other
12
Grosvenor-Managed Accounts have Fee Sharing Agreements or in which Grosvenor,
one or more of its related persons and/or one or more other Grosvenor-Managed
Accounts invest.
PLACING ASSETS UNDER THE MANAGEMENT OF OTHER INVESTMENT MANAGEMENT FIRMS IN
WHICH GROSVENOR AND/OR ITS RELATED PERSONS HAVE AN INTEREST
Grosvenor and its related persons may place their proprietary assets, as well as
assets of Grosvenor-Managed Accounts, under the management of investment
management or advisory firms with which Grosvenor (and/or its related persons)
has entered into Fee Sharing Agreements, or in which Grosvenor (and/or its
related persons) has otherwise invested. Because of restrictions imposed by the
ICA, Grosvenor may in certain cases be prohibited from causing the Master Fund
to place any of the Master Fund's assets under the management of investment
management or advisory firms with which Grosvenor, one or more of its related
persons and/or one or more other Grosvenor-Managed Accounts have entered into
Fee Sharing Agreements, or in which Grosvenor, one or more of its related
persons and/or one or more other Grosvenor-Managed Accounts have otherwise
invested.
DIFFERENCES IN GROSVENOR-MANAGED ACCOUNTS
Grosvenor and its related persons currently manage or advise numerous
Grosvenor-Managed Accounts in addition to the Master Fund, and expect to manage
or advise additional Grosvenor-Managed Accounts in the future. Certain
Grosvenor-Managed Accounts have or will have investment objectives that are
identical or substantially similar to the investment objectives of the Master
Fund. It is not anticipated, however, that the Master Fund and other
Grosvenor-Managed Accounts having identical or substantially similar investment
objectives will have identical or substantially similar investment portfolios.
Differing investment portfolios can be expected to result from several factors,
including, without limitation, the following:
- different investment decisions made by the different Portfolio Management
Teams assigned to the different Grosvenor-Managed Accounts, as discussed
below;
- regulatory and/or tax restrictions that apply to certain Grosvenor-Managed
Accounts but not to others, as discussed below;
- investment constraints imposed by Investment Managers on certain
Grosvenor-Managed Accounts but not on others, as discussed below;
- the availability of particular Portfolio Funds for investment by
Grosvenor-Managed Accounts at certain times but not at others;
- different risk/return characteristics (notwithstanding that such
Grosvenor-Managed Accounts generally have similar investment objectives);
- client-imposed portfolio management restrictions and/or other client
instructions; and
- the amount of cash available for investment by different Grosvenor-Managed
Accounts at certain times.
The Master Fund and other Grosvenor-Managed Accounts may be managed by different
Portfolio Management Teams even though the Master Fund and such other
Grosvenor-Managed Accounts may have identical or substantially similar
investment objectives. Grosvenor's Portfoli
13
Management Teams are authorized to invest the assets of the Grosvenor-Managed
Accounts for which they have investment responsibility in a wide range of
Portfolio Funds. As a result, it is expected that the Master Fund and other
Grosvenor-Managed Accounts will have different investment portfolios resulting
from different investment decisions made by their respective Portfolio
Management Teams, even if the Master Fund and such other Grosvenor-Managed
Accounts have identical or substantially similar investment objectives.
Further, the factors discussed above are likely to result in different
portfolios for Grosvenor-Managed Accounts that are managed by the same Portfolio
Management Team, even though such Grosvenor-Managed Accounts have identical or
substantially similar investment objectives.
Regulatory and/or tax restrictions may prohibit the Master Fund from
participating in investment opportunities that are available to one or more
other Grosvenor-Managed Accounts. Similarly, the Investment Managers of the
Portfolio Funds in which the Master Fund may wish to invest may impose
investment restrictions on the Master Fund but not on other Grosvenor-Managed
Accounts. Such restrictions could render the Master Fund ineligible to invest,
in whole or in part, in a Portfolio Fund in which one or more other
Grosvenor-Managed Accounts are free to invest, to the possible detriment of the
Master Fund.
As a result of certain restrictions imposed by the ICA on investments by the
Master Fund in "affiliated persons" (as that term is defined in the ICA) of the
Master Fund, the Master Fund has determined to forego some or all of its voting
rights associated with investments in certain Portfolio Funds. In addition, in
situations where the Master Fund and other Grosvenor-Managed Accounts own, in
the aggregate, 25% or more of the interests in a particular Portfolio Fund, the
Master Fund and the other Grosvenor-Managed Accounts may be precluded from
making additional investments in such Portfolio Fund, even though the relevant
Portfolio Management Teams may determine that it would be appropriate for the
Grosvenor-Managed Accounts (including the Master Fund) to make additional
investments in such Portfolio Fund.
As a result of these and other factors:
- the Master Fund may have a different investment portfolio (and, as a
result, different performance results) from other Grosvenor-Managed
Accounts even though the Master Fund and such other Grosvenor-Managed
Accounts may have identical or substantially similar investment objectives;
and
- no assurance can be given that:
o the Master Fund will participate in all investment opportunities in
which one or more other Grosvenor-Managed Accounts, Grosvenor's
proprietary accounts and/or the proprietary accounts of Grosvenor's
related persons participate;
o particular investment opportunities allocated to one or more
Grosvenor-Managed Accounts, Grosvenor's proprietary accounts and/or
the proprietary accounts of Grosvenor's related persons will not
outperform investment opportunities allocated to the Master Fund; or
o the Master Fund, on the one hand, and one or more other
Grosvenor-Managed Accounts, Grosvenor's proprietary accounts and/or
the proprietary accounts of Grosvenor's related persons, on the other
hand, will receive equal or similar treatment.
14
POSSIBLE INCENTIVE TO FAVOR ONE OR MORE GROSVENOR-MANAGED ACCOUNTS OVER ONE OR
MORE OTHER GROSVENOR-MANAGED ACCOUNTS
Grosvenor's Portfolio Management Teams might have an incentive to favor one or
more Grosvenor-Managed Accounts over the Master Fund (for example, with regard
to the selection of Portfolio Funds for those Grosvenor-Managed Accounts or the
allocation of investment opportunities in Portfolio Funds that have limited
investment capacity), because the "favored" Grosvenor-Managed Account(s) might
pay Grosvenor more for its services than the Master Fund. For example, a
Portfolio Management Team may have an incentive to allocate what it considers to
be the best investment opportunities to Grosvenor-Managed Accounts from which
Grosvenor receives performance-based compensation - in preference to
Grosvenor-Managed Accounts (including the Master Fund) from which Grosvenor does
not receive performance-based compensation - because Grosvenor may stand to gain
greater compensation from the former types of accounts if the best investment
opportunities are allocated to them.
Similarly, a member of one of Grosvenor's Portfolio Management Teams may have an
incentive to favor one or more Grosvenor-Managed Accounts over the Master Fund
if such person has personal investments in such "favored" Grosvenor-Managed
Accounts.
As discussed below under "GROSVENOR'S ABILITY TO INVEST IN THE SAME SECURITIES
IN WHICH THE MASTER FUND INVESTS," Grosvenor has adopted portfolio opportunity
allocation policies and procedures that are designed to ensure that investment
opportunities are fairly allocated to all Grosvenor-Managed Accounts (as well as
the proprietary accounts of Grosvenor and its related persons) for which such
opportunities are appropriate and that have the funds available to take
advantage of such opportunities.
GROSVENOR'S ABILITY TO INVEST IN THE SAME SECURITIES IN WHICH THE MASTER FUND
INVESTS
Grosvenor and/or its related persons may invest in Grosvenor-Managed Accounts
(including the Master Fund) for their own accounts alongside investors who are
not related to them. When they do so, Grosvenor and/or its related persons
participate in the investment opportunities in which such Grosvenor-Managed
Accounts participate, alongside the other investors in such Grosvenor-Managed
Accounts.
In addition, Grosvenor and/or its related persons may place assets under the
management of (or otherwise procure investment advisory or investment management
services from) any Investment Manager directly or indirectly used by one or more
of Grosvenor-Managed Accounts (including the Master Fund). For example,
Grosvenor and/or its related persons may invest in a Portfolio Fund in which one
or more Grosvenor-Managed Accounts (including the Master Fund) invest. Further,
Grosvenor and/or its related persons may invest in a Portfolio Fund at or about
the same time one or more Grosvenor-Managed Accounts (including the Master Fund)
invest in such Portfolio Fund.
Grosvenor, its related persons and one or more Grosvenor-Managed Accounts that
place assets under the management of, or otherwise procure investment advisory
or investment management services from, any Investment Manager directly or
indirectly used by the Master Fund and/or one or more other Grosvenor-Managed
Accounts may do so on terms (including terms relating to fees, liquidity and
transparency) that are more advantageous than those applicable to the
investments that may be made by the Master Fund and/or such other
Grosvenor-Managed Account(s) with such Investment Manager. To the extent that
Grosvenor and/or its related persons invest with a give Investment Manager on
terms that are more advantageous than those on which the Master Fund
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and/or one or more other Grosvenor-Managed Accounts may invest with such
Investment Manager, Grosvenor and/or its related persons may have an incentive
to maintain or increase the investment by the Master Fund and such other
Grosvenor-Managed Accounts with such Investment Manager in order to obtain
and/or maintain such advantageous terms for the benefit of Grosvenor and/or its
related persons.
In certain cases, a Portfolio Fund may have what Grosvenor refers to as "limited
capacity." A Portfolio Fund has "limited capacity" when it is not willing to
accept all capital that Grosvenor-Managed Accounts, Grosvenor and/or Grosvenor's
related persons wish to invest in such Portfolio Fund. If Grosvenor and/or its
related persons wish to invest in such a Portfolio Fund at a time when an
investment in such Portfolio Fund is appropriate for the Master Fund, Grosvenor
has a conflict of interest because it has a financial incentive to allocate the
opportunity to the greatest extent possible to Grosvenor and/or its related
persons. In order to avoid this conflict, Grosvenor may determine in certain
cases that it and/or its related persons will not directly participate in a
Portfolio Fund that has "limited capacity" unless and until all
Grosvenor-Managed Accounts (including the Master Fund) that wish to invest in
such Portfolio Fund (including, for this purpose, Grosvenor-Managed Accounts in
which Grosvenor and/or its related persons participate) have invested the full
amount of capital they wish to invest in such Portfolio Fund.
In other cases, Grosvenor employs policies and procedures for allocating limited
investment opportunities in a manner that it believes to be equitable to the
Grosvenor-Managed Accounts, Grosvenor and Grosvenor's related persons. Under
these policies and procedures, to the extent that one or more Grosvenor-Managed
Accounts (including the Master Fund), Grosvenor and/or Grosvenor's related
persons (each of the foregoing, a "PARTICIPATING ACCOUNT") wish to invest in a
particular Portfolio Fund (and have funds available to make such investment) but
such Portfolio Fund has "limited capacity" and is willing to accept only a
portion of the aggregate investment that the Participating Accounts wish to
make, the aggregate capacity made available by such Portfolio Fund to the
Participating Accounts generally is allocated to each Participating Account in
the proportion that the amount such Participating Account wishes to invest in
such Portfolio Fund bears to the aggregate amount that all Participating
Accounts wish to invest in such Portfolio Fund, subject the investment
guidelines and constraints applicable to such Participating Account and to
certain limited exceptions set forth in such policies and procedures.
(Similarly, if interests in a Portfolio Fund are available in the "secondary
market" but such interests are not available in an amount sufficient to satisfy
the aggregate amount that Participating Accounts wish to invest in such
interests, such interests generally are allocated to each Participating Account
that has funds available to make such investment in the proportion that the
amount such Participating Account wishes to invest in such interests bears to
the aggregate amount that all Participating Accounts wish to invest in such
interests, subject the investment guidelines and constraints applicable to such
Participating Account and to certain limited exceptions set forth in such
policies and procedures).
GROSVENOR'S ABILITY TO WITHDRAW/REDEEM FROM INVESTMENTS IN WHICH GROSVENOR-
MANAGED ACCOUNTS INVEST
Certain Grosvenor-Managed Accounts (including the Master Fund) may wish to
withdraw/redeem from an underlying Portfolio Fund at the same time that other
Grosvenor-Managed Accounts (and/or Grosvenor and its related persons) wish to
withdraw/redeem from such Portfolio Fund. The ability to withdraw/redeem from
any underlying Portfolio Fund may differ materially from
16
investor to investor due to the timing of their respective investments in such
Portfolio Fund, the different classes of interests in such Portfolio Fund in
which they invest, special arrangements negotiated with the Investment Manager
of such Portfolio Fund and/or other factors. The reasons why certain
Grosvenor-Managed Accounts may wish (or be compelled to) withdraw/redeem from a
particular Portfolio Fund as of a particular date also may differ materially
from the reasons why other Grosvenor-Managed Accounts (and/or Grosvenor and its
related persons) may wish (or be compelled to) withdraw/redeem from such
Portfolio Fund as of such date. Withdrawals/redemptions or subscriptions by
Grosvenor-Managed Accounts, Grosvenor and/or Grosvenor's related persons from or
to a particular Portfolio Fund could in certain cases adversely affect other
Grosvenor-Managed Accounts that are invested in such Portfolio Fund.
Significant withdrawals/redemptions or subscriptions could, for example, cause
portfolio damage, portfolio dilution, depletion of liquidity, costly portfolio
rebalancings, imposition of withdrawal "gates" and under-allocation to certain
positions. It could also cause a Portfolio Fund to make "in-kind" (as opposed
to cash) distributions. In cases such as these, Grosvenor has a conflict of
interest in making withdrawals/redemptions or subscriptions for
Grosvenor-Managed Accounts. This conflict of interest could be exacerbated in
situations where one or more Grosvenor-Managed Accounts (and/or Grosvenor and
its related persons) may withdraw/redeem from a particular Portfolio Fund on a
date as of which one or more other Grosvenor-Managed Accounts (including the
Master Fund) are not able to do so. For example, certain Grosvenor-Managed
Accounts (and/or Grosvenor and its related persons) may have invested in a
particular Portfolio Fund pursuant to a "lock-up" that has expired, whereas one
or more other Grosvenor-Managed Accounts (including the Master Fund) may still
be subject to "lock-ups" in connection with their investments in such Portfolio
Fund because they either (i) purchased their interests in such Portfolio Fund
subsequent to the time that other Grosvenor-Managed Accounts, Grosvenor and
Grosvenor's related persons purchased their interests in such Portfolio Fund or
(ii) opted for liquidity classes in such Portfolio Fund that are different from
the liquidity classes owned by such other Grosvenor-Managed Accounts, Grosvenor
and Grosvenor's related persons.
In addition, certain withdrawal/redemption "gates" are, for example, calculated
based on withdrawals/redemptions during an entire quarter or other period, so
that if certain Grosvenor-Managed Accounts (and/or Grosvenor and its related
persons) withdraw/redeem during a quarter, this could prevent one or more other
Grosvenor-Managed Accounts (including the Master Fund) from
withdrawing/redeeming at quarter-end, whereas the earlier
withdrawals/redemptions are unaffected.
In sum, because the ability to withdraw/redeem from any underlying Portfolio
Fund may differ materially from investor to investor due to the timing of their
respective investments in such Portfolio Fund, the different classes of
interests in such Portfolio Fund in which they invest, special arrangements
negotiated with the Investment Manager of such Portfolio Fund and/or other
factors, certain Grosvenor-Managed Accounts (and/or Grosvenor and its related
persons) may have withdrawal/redemption rights that differ from those of the
Master Fund, and that the exercise of such rights could have a materially
adverse effect on the Master Fund.
TREATMENT AS AN INVESTMENT GROUP FOR CERTAIN TRANSACTIONS BY GROSVENOR-MANAGED
ACCOUNTS
In certain cases, although each investment in a Portfolio Fund by a
Grosvenor-Managed Account is a distinct transaction, Portfolio Funds may agree
to treat all investments made by Grosvenor-Managed Accounts as if they had been
made by the same investor for purposes of applying business terms such as
"gates." Grosvenor enters into these types of arrangements because it believes
that in
17
most cases they can be expected to benefit all participating Grosvenor-Managed
Accounts. However, under arrangements such as these, certain Grosvenor-Managed
Accounts could make complete withdrawals/redemptions provided that other
Grosvenor-Managed Accounts do not withdraw/redeem, as the former
Grosvenor-Managed Accounts could make use of the withdrawal/redemption capacity
allocable to the entire "group." For example, if a Grosvenor-Managed Account
that is treated as part of such a "group" were to withdraw/redeem from a
Portfolio Fund because such Grosvenor-Managed Account itself has received
significant withdrawal/redemption requests, wishes to rebalance its portfolio or
otherwise requires liquidity, its withdrawal/redemption could reduce
withdrawal/redemption capacity for other members of the "group." In this
example, depending on the actual terms of the applicable "gate," a particular
Grosvenor-Managed Account that participates in a " group" may be entitled to
receive less withdrawal/redemption proceeds in respect of a particular
withdrawal/redemption than would be the case had such Grosvenor-Managed Account
not participated in such "group."
In certain cases, Grosvenor is able to negotiate favorable investment terms with
the Investment Managers of Portfolio Funds, but often on the condition that the
Grosvenor-Managed Accounts (which, in certain cases, could include proprietary
accounts of Grosvenor and its related persons) collectively maintain an
aggregate minimum level of invested capital in a given Portfolio Fund or group
of Portfolio Funds managed by the same Investment Manager. The need to maintain
an aggregate minimum investment by Grosvenor-Managed Accounts in a particular
Portfolio Fund or group of Portfolio Funds managed by the same Investment
Manager in order to retain favorable investment terms for all Grosvenor-Managed
Accounts that invest in such Portfolio Fund(s) creates a conflict of interest in
that it creates an incentive for Grosvenor to cause a Grosvenor-Managed Account
to invest in or not to withdraw/redeem from a given Portfolio Fund in order to
maintain the minimum threshold investment. Proprietary capital of Grosvenor and
its related persons - whether invested directly in a Portfolio Fund or through a
Grosvenor-Managed Account in which Grosvenor and/or its related persons invest -
may be among the capital that benefits from the minimum investment threshold
being maintained, creating an additional conflict of interest.
Although Grosvenor enters into the types of arrangements discussed above because
it believes that they generally can be expected to benefit all Grosvenor-Managed
Accounts, there may be particular facts and circumstances under which particular
Grosvenor-Managed Accounts (including the Master Fund) would receive more
favorable treatment had they not participated in such arrangements.
INVESTMENTS IN "EARLY STAGE" PORTFOLIO FUNDS
Grosvenor and its related persons may from time to time invest, for their
respective proprietary accounts, in early-stage Portfolio Funds (including
Grosvenor-Administered Funds, discussed below) at times when investments in such
Portfolio Funds would not be appropriate for the Master Fund or other
Grosvenor-Managed Accounts. If Grosvenor should subsequently determine, in
accordance with its then-current criteria applicable to the selection of
Portfolio Funds for the Grosvenor-Managed Accounts, that such a Portfolio Fund
is an appropriate investment for the Grosvenor-Managed Accounts, Grosvenor and
its related persons will not be required to restructure the terms on which they
invest in such Portfolio Fund in order to make investments in such Portfolio
Fund available to the Master Fund if, for regulatory or other reasons, the
Master Fund would be (or, in Grosvenor's reasonable determination, may be)
precluded from investing in such Portfolio Fund in the absence of such
restructuring.
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INVESTMENTS IN GROSVENOR-ADMINISTERED FUNDS
Grosvenor and its related persons may from time to time invest, for their
respective proprietary accounts, in Portfolio Funds that Grosvenor administers
(but does not manage) and from which Grosvenor receives administrative or
similar fees ("GROSVENOR-ADMINISTERED FUNDS"). Because of restrictions imposed
by the ICA, it is not likely that Grosvenor will ever cause the Master Fund to
invest in a Grosvenor-Administered Fund.
INVESTMENTS BY PORTFOLIO FUNDS IN SECURITIES ISSUED BY GROSVENOR
Certain of the Portfolio Funds in which the Master Fund invests may hold notes
or other securities issued from time to time by Grosvenor or its parent company,
and Grosvenor may be aware that such Portfolio Funds do so. The fact that
certain Portfolio Funds may hold notes or other securities issued by Grosvenor
or its parent company could, under certain facts and circumstances, potentially
alter Grosvenor's objectivity in determining whether or not to invest in such
Portfolio Funds and/or whether or not to withdraw/redeem from such Portfolio
Funds. Grosvenor does not expect, however, that it would ever make portfolio
management decisions for the Master Fund that would be different from the
decisions it would make for the Master Fund if such potential conflict did not
exist.
INVESTMENTS IN PORTFOLIO FUNDS MANAGED BY CLIENTS
Certain of the Portfolio Funds in which the Master Fund invests may be managed
by investment management firms owned in whole or in part by Grosvenor's clients,
or may hold notes or other securities issued by Grosvenor's clients, and
Grosvenor may be aware of such investments. The fact that certain of the
Portfolio Funds may be managed by investment management firms owned in whole or
in part by Grosvenor's clients, or may hold notes or other securities issued by
Grosvenor's clients, could, under certain facts and circumstances, potentially
alter Grosvenor's objectivity in determining whether or not to invest in such
Portfolio Funds and/or whether or not to withdraw/redeem from such Portfolio
Funds. Grosvenor does not expect, however, that it would ever make portfolio
management decisions for the Master Fund that would be different from the
decisions it would make for the Master Fund if such potential conflict did not
exist.
DIFFERENT REPORTING PACKAGES
Different investors/participants in Grosvenor-Managed Accounts, as well as
certain other persons (including persons who currently have, or who previously
have had, a direct or indirect interest in Grosvenor or who otherwise currently
are, or who previously have been, associated with Grosvenor), receive oral
and/or written reports from Grosvenor that differ in form, substance, level of
detail, timing and/or frequency, based on factors such as:
- the size of their investments with Grosvenor;
- requests for specific types of information made by such
investors/participants or persons acting on their behalf;
- negotiations between Grosvenor and such investors/participants or other
persons acting on their behalf; and/or
19
- Grosvenor's internal assessment of the likely reporting needs of such
investors/participants or of persons acting on their behalf.
In particular, certain reports may include information relating to Portfolio
Funds in which the Grosvenor-Managed Accounts, including the Master Fund, invest
(or in which they are contemplating an investment).
While Grosvenor provides information to investors/recipients in the
Grosvenor-Managed Accounts to enable them to monitor their investments in those
accounts, Grosvenor cannot effectively prevent an investor/recipient who has
received information that has not been provided to other recipients to use such
information to determine whether to:
- withdraw/redeem from a Grosvenor-Managed Account, or increase its
investment in a Grosvenor-Managed Account;
- invest directly in Portfolio Funds in which Grosvenor-Managed Accounts are
invested (or in which they are contemplating investments), potentially in
competition with the Grosvenor-Managed Accounts; or
- withdraw/redeem from Portfolio Funds in which Grosvenor-Managed Accounts
are invested (or from which they are contemplating withdrawing/redeeming
their investments), potentially to the detriment of the Grosvenor-Managed
Accounts.
Any of these actions could have a material adverse effect on
investors/participants who do not receive the same information provided to other
investors/participants.
Notwithstanding the foregoing, recipients of Grosvenor's oral and written
reports should be aware that:
- Grosvenor does not permit such recipients to copy, transmit or distribute
such reports, or any data or other information contained therein, in whole
or in part, or authorize such actions by others, without Grosvenor's
express prior written consent; any such action taken without Grosvenor's
express prior written consent may constitute a breach of contract and
applicable copyright laws, and
- by their receipt of such reports, such recipients will be deemed to have
acknowledged that: (i) the data and/or other information contained therein
may include data and/or information that, under applicable law, may be
deemed to be material, nonpublic information regarding particular
securities and/or the issuers thereof; (ii) under certain circumstances,
United States securities laws prohibit the purchase and sale of securities
by persons or entities who are in possession of material, nonpublic
information relating to such securities and/or the issuers thereof; (iii)
securities laws of other jurisdictions may contain a similar prohibition;
and (iv) as a result, it is possible that trading in securities that are
the subject of data and/or information contained in such reports may be
prohibited by law.
Grosvenor strongly encourages all recipients of its oral or written reports to
review their own policies and procedures relating to the possible receipt of
material, non-public information to ensure that any information that they
receive from Grosvenor relating to particular securities and/or the issuers
thereof will not be used in any manner that conflicts with applicable law.
20
TRANSFERS OF INTERESTS IN PORTFOLIO FUNDS
The Portfolio Management Team assigned to one or more Grosvenor-Managed Accounts
(each, a "DIVESTING ACCOUNT") may determine that it is appropriate for such
Divesting Accounts to dispose of (or decrease) their investments in a
particular Portfolio Fund as of a particular date, while the Portfolio
Management Team assigned to one or more other Grosvenor-Managed Accounts (each,
an "INVESTING ACCOUNT") - which may be the same Portfolio Management Team
responsible for the management of the Divesting Accounts - may determine that
it is appropriate for such Investing Accounts to invest (or increase their
investments) in such Portfolio Fund as of the same date.
In certain cases, Grosvenor will implement decisions such as these by causing a
Divesting Account to withdraw/redeem its interest from a Portfolio Fund at the
net asset value thereof (as calculated and reported by the Investment Manager of
such Portfolio Fund), and simultaneously causing an Investing Account to invest
in an interest in such Portfolio Fund at the net asset value thereof.
In other cases, Grosvenor will implement such decisions by causing a Divesting
Account to assign its interest in a Portfolio Fund to an Investing Account in
exchange for a cash payment from the Investing Account equal to the net asset
value of the interest being assigned to the Investing Account (as calculated and
reported by the Investment Manager of such Portfolio Fund).
For purposes of convenience:
- Grosvenor refers to transactions of the types discussed above as
"transfers" (even though the first types of transactions discussed above do
not involve any transfer between the affected Grosvenor-Managed Accounts,
but only a divestment from a Portfolio Fund by one or more
Grosvenor-Managed Accounts and a substantially simultaneous investment in
such Portfolio Fund by one or more other Grosvenor-Managed Accounts);
- Grosvenor refers to a transaction in which a Divesting Account
withdraws/redeems its interest from a Portfolio Fund (in whole or in part)
at the net asset value thereof, while an Investing Account substantially
simultaneously invests (or increases its investment) in such Portfolio
Fund, as a "cash transfer;" and
- Grosvenor refers to a transaction in which a Divesting Account assigns its
interest in a Portfolio Fund (in whole or in part) at the net asset value
thereof to an Investing Account, as a "book entry transfer."
In certain cases, Grosvenor is able to negotiate arrangements with Investment
Managers-either at the inception of Grosvenor's relationship with an Investment
Manager or on a case-by-case basis after Grosvenor has established such a
relationship-that permit a Grosvenor-Managed Account that is the "cash
transferee" or "book entry transferee" of an interest in such Investment
Manager's Portfolio Fund to "stand in the shoes" of the transferor
Grosvenor-Managed Account for purposes of determining such business terms as the
duration of any "lock-up period," the continuation of any performance/incentive
fee or other performance/incentive compensation "loss carryforwards," the
applicability of withdrawal charges, etc. Grosvenor generally intends to take
advantage, to the fullest extent permitted by law, of the ability of transferee
Grosvenor-Managed Accounts to receive "carryover" business terms. In certain
cases, however, regulatory considerations may prohibit Grosvenor from effecting
transactions in which business terms are carried over from the transferor
Grosvenor-Managed Account to the transferee Grosvenor-Managed Account. For
example, ERISA does not permit any such "carryover" business terms to apply in
the case of transfers of interests in
21
Portfolio Funds by Grosvenor-Managed Accounts that are subject to ERISA to any
other Grosvenor-Managed Accounts, regardless of whether the transferee
Grosvenor-Managed Accounts are subject to ERISA. ERISA, however, does not
appear to prohibit "carryover" business terms applying in the case of transfers
from Grosvenor-Managed Accounts that are not subject to ERISA to
Grosvenor-Managed Accounts that are subject to ERISA. Accordingly,
Grosvenor-Managed Accounts that are not subject to ERISA, including the Master
Fund, may not be able to take advantage of arrangements of the type discussed
above even though Grosvenor-Managed Accounts that are subject to ERISA may.
The Master Fund will not participate in "book entry transfers" because of
restrictions imposed by the ICA. To the extent the Master Fund participates in
"cash transfers," in no instance will any party, including Grosvenor or the
Investment Manager of any affected Portfolio Fund, receive any additional
compensation specifically as a result of any such cash transfer.
TRADE AND CLERICAL ERRORS
Subject to the considerations set forth below, Grosvenor is under no obligation
to reimburse the Master Fund for any errors or mistakes made by Grosvenor, its
employees or its agents with respect to placing or executing trades for the
Master Fund or for any other administrative or clerical errors or mistakes made
by the foregoing (collectively, "TRADE OR CLERICAL ERRORS"), as Grosvenor
considers such errors and mistakes to be a cost of doing business. However,
pursuant to the standard of care provisions of the Master Fund's operating
agreement, Grosvenor will be obligated to reimburse the Master Fund for losses
sustained by the Master Fund as a result of any Trade or Clerical Error that is
caused by Grosvenor's failure to adhere to the standard of care set forth in
such provisions. Subject to its fiduciary obligations, Grosvenor will
determine: (i) whether or not any Trade or Clerical Error is required to be
reimbursed in accordance with such standard of care provisions; and (ii) if so,
the extent of the loss that has been incurred by the Master Fund. Grosvenor has
an inherent conflict of interest with respect to determining whether or not a
Trade or Clerical Error is required to be reimbursed in accordance with the
applicable standard of care provisions and with respect to determining the
extent of the loss that has been incurred by the Master Fund.
If a Trade or Clerical Error occurs other than as a result of Grosvenor's
failure to adhere to the applicable standard of care, Grosvenor, in its sole
discretion, reserves the right to reimburse the Master Fund for any losses
sustained by the Master Fund as a result of such Trade or Clerical Error.
Grosvenor's reimbursement of the Master Fund for a Trade or Clerical Error in
such a situation will not constitute a waiver of Grosvenor's general policy to
cause the Master Fund to bear the losses associated with other Trade or Clerical
Errors that occur other than as a result of Grosvenor's failure to adhere to the
applicable standard of care. Any net gain resulting from Trade or Clerical
Errors will be for the benefit of the Master Fund and will not be retained by
Grosvenor.
RECEIPT OF SENSITIVE INFORMATION
Grosvenor may from time to time receive, from Investment Managers of the
Portfolio Funds in which the Grosvenor-Managed Accounts invest, information that
is not generally known to other investors in such Portfolio Funds. In these
cases, legal or regulatory constraints could prevent Grosvenor from acting in
the manner in which it otherwise would act on behalf of one or more
Grosvenor-Managed Accounts, including the Master Fund.
22
PROXY VOTING
Grosvenor has developed certain policies and procedures to manage the conflicts
of interest that may arise in connection with voting proxies on behalf of the
Master Fund and the other Grosvenor-Managed Accounts. These policies and
procedures are summarized in Item 17 of Part 2A of Grosvenor's SEC Form ADV and
in Item 7 of this Form N-CSR.
BROKERAGE EXPENSES
Except in the very limited case of any potential "secondary market" transactions
in interests in Portfolio Funds, the Master Fund invests in Portfolio Funds
without the involvement of any financial intermediary such as a broker-dealer,
and commissions are not payable in connection with such investments. To the
extent that the Master Fund engages in "secondary market" transaction in
interests in Portfolio Funds or purchases or sells investments other than
investments in Portfolio Funds, Grosvenor has the authority to determine the
financial intermediaries to be used in connection with such
transactions/investments and to negotiate the amount of commissions or other
transactional compensation to be paid to such intermediaries in connection with
such transactions/investments - which commissions or other compensation are
borne by the Master Fund.
In determining which intermediaries to use, Grosvenor focuses on the quality of
the execution-related services provided by the intermediaries (including factors
such as the ability of the intermediaries to execute transactions efficiently,
their responsiveness to instructions, their facilities, their reliability and
their financial stability), and does not necessarily select those that charge
the lowest commissions or other transactional costs.
Grosvenor does not separately compensate financial intermediaries for the
provision of non-execution related services and does not believe that it "pay
ups" for such services. However, Grosvenor may from time to time use financial
intermediaries that provide research-related products or services to most or all
of their customers, and - although Grosvenor does not request research-related
products or services from such financial intermediaries - Grosvenor may on
occasion receive and use research provided by such intermediaries. In this
situation, Grosvenor receives a benefit because it does not have to produce or
pay for the research. Accordingly, Grosvenor may have an incentive to select
financial intermediaries based on its interest in receiving the research or
other products or services rather than on its clients' interest in receiving the
most favorable execution. However, since the research provided is not material
in nature and quantity and is provided without Grosvenor's request, Grosvenor
believes that its receipt of such research does not have a material effect on
its selection of financial intermediaries.
RELATIONSHIPS WITH CONSULTING FIRMS
Persons employed by or otherwise associated with Grosvenor may be related by
blood or marriage to, or otherwise have personal relationships with, persons
employed by or otherwise associated with consulting firms. In certain cases,
such persons employed by or otherwise associated with consulting firms may be
responsible for:
- analyzing and/or monitoring "fund of funds" investment managers on behalf
of such consulting firms;
- recommending "fund of funds" investment managers to the investment
committees or similar governing committees of such consulting firms;
23
- selecting the "funds of funds" investment managers that such consulting
firms will present to their clients as potential managers of such clients'
assets;
- recommending particular "fund of funds" investment managers to clients of
such consulting firms;
- recommending that clients of such consulting firms continue to retain the
services of, or discharge, "fund of funds" investment managers; and/or
- otherwise playing an instrumental role in the process whereby clients of
such consulting firms select, and/or retain or discharge, "fund of funds"
investment managers.
In cases where persons employed by or otherwise associated with consulting firms
have one or more responsibilities of the types discussed above and are related
by blood or marriage to, or otherwise have personal relationships with, persons
employed by or otherwise associated with Grosvenor, such persons may have an
incentive to select Grosvenor as a potential manager of the assets of clients of
such consulting firms, to recommend Grosvenor to clients of such consulting
firms and/or to recommend that clients of such consulting firms continue to
utilize Grosvenor's services.
Grosvenor believes that is the responsibility of consulting firms to recuse
interested individuals or take other appropriate steps to protect the integrity
of their decision-making processes, and to make appropriate disclosures of
potential conflicts of interest to their clients. Grosvenor urges prospective
investors who utilize the services of consulting firms to inquire of such
consulting firms whether they are subject to such a conflict of interest.
Grosvenor may from time to time enter into arrangements with consulting firms
that represent existing and prospective clients, pursuant to which such
consulting firms provide Grosvenor certain performance or other data on the
"fund of funds" industry. Grosvenor may compensate such a consulting firm for
such services on an annual flat-fee or other basis. In no event will Grosvenor
enter into any such arrangement unless it first determines to its reasonable
satisfaction that the firm that provides services to Grosvenor for compensation
from Grosvenor discloses that fact to all clients to whom it recommends
Grosvenor.
RELATIONSHIPS WITH INVESTMENT MANAGERS AND OTHER SERVICE PROVIDERS
Persons employed by or otherwise associated with Grosvenor may be related by
blood or marriage to, or otherwise have personal relationships with, persons
employed by or otherwise associated with the Investment Managers of existing or
prospective Portfolio Funds or with other third-parties that provide or
contemplate providing services to Grosvenor and/or one or more Grosvenor-Managed
Accounts. In certain cases, such persons employed by or otherwise associated
with Grosvenor may be responsible for:
- analyzing and/or monitoring existing or prospective Portfolio Funds
managed by such Investment Managers, or analyzing and/or monitoring other
third-parties that provide or contemplate providing services to Grosvenor
and/or one or more Grosvenor-Managed Accounts;
24
- recommending that Grosvenor approve Portfolio Funds managed by such
Investment Managers as eligible investments for Grosvenor-Managed Accounts;
- recommending that one or more Grosvenor-Managed Accounts add capital to,
or withdraw their capital (in whole or in part) from, Portfolio Funds
managed by such Investment Managers;
- making the final decision to approve Portfolio Funds managed by such
Investment Managers as eligible investments for Grosvenor-Managed Accounts;
- making the final decision to cause one or more Grosvenor-Managed Accounts
to add capital to, or withdraw their capital (in whole or in part) from,
Portfolio Funds managed by such Investment Managers;
- recommending that Grosvenor retain other third-parties that wish to
provide services to Grosvenor and/or one or more Grosvenor-Managed
Accounts; and/or
- recommending that Grosvenor discharge third-parties that provide services
to one or more Grosvenor-Managed Accounts.
In cases where persons employed by or otherwise associated with Grosvenor have
one or more responsibilities of the types discussed above and are related by
blood or marriage to, or otherwise have personal relationships with, persons
employed by or otherwise associated with Investment Managers of existing or
prospective Portfolio Funds or other third-parties that provide or contemplate
providing services to Grosvenor and/or one or more Grosvenor-Managed Accounts,
such persons may have an incentive to base their decisions on personal
considerations rather than on the best interests of the affected
Grosvenor-Managed Accounts. Grosvenor, however, monitors relationships of these
types with a view to determining whether there is a reasonable likelihood that
such persons will base their decisions on personal considerations rather than on
the best interests of the affected Grosvenor-Managed Accounts, and will take
appropriate action if it determines that such a reasonable likelihood exists.
GIFTS, MEALS AND ENTERTAINMENT
Grosvenor personnel may receive gifts, meals and/or entertainment from service
providers doing business with Grosvenor and/or one or more Grosvenor-Managed
Accounts, or from prospective service providers, including existing and
prospective Investment Managers. Grosvenor maintains policies and procedures
that it believes are reasonably designed to preserve Grosvenor's objectivity
with respect to the selection, retention and termination of service providers,
notwithstanding the receipt of gifts, meals and/or entertainment by Grosvenor
personnel from such service providers. However, notwithstanding these policies
and procedures, to the extent that Grosvenor's employees receive gifts, meals
and/or entertainment from a service provider or prospective service provider,
such employees may have an incentive to seek to cause Grosvenor and/or one or
more Grosvenor-Managed Accounts to enter into a business relationship with, or
to sustain or expand an existing business relationship with, such service
provider even if doing so is not in the best interests of such Grosvenor-Managed
Account(s).
Grosvenor from time to time provides meals and entertainment to persons employed
by or otherwise associated with consultants, financial advisors, clients and
prospective clients (which
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may include investors and prospective investors in the Feeder Funds). In
certain cases, Grosvenor may provide such meals and entertainment to clients or
prospective clients at the request of consultants, financial planners or other
third-parties. It is possible that providing meals and entertainment to such
persons could affect their decision-making responsibilities.
CHARITABLE AND PHILANTHROPIC ACTIVITIES
Grosvenor and its principals, and Investment Managers of the Portfolio Funds in
which the Master Fund invests and their principals, may engage in philanthropic
activities through contributions of their time and/or financial resources to
charitable organizations. Grosvenor and its principals, on the one hand, and
such Investment Managers and their principals, on the other hand, may from time
to time ask each other to participate in their respective philanthropic
activities. Grosvenor and its principals, and such Investment Managers and
their principals, are free to participate in philanthropic opportunities brought
to their attention by one another. Under no circumstances will such
participation or lack thereof be a factor in Grosvenor's investment management
process.
Similarly, Grosvenor and its principals, and investors/participants in
Grosvenor-Managed Accounts and their principals, may engage in philanthropic
activities through contributions of their time and/or financial resources to
charitable organizations. Grosvenor and its principals, on the one hand, and
investors/participants in Grosvenor-Managed Accounts and their principals, on
the other hand, may from time to time ask each other to participate in their
respective philanthropic activities. Grosvenor and its principals, and
investors/participants in Grosvenor-Managed Accounts and their principals, are
free to participate in philanthropic opportunities brought to their attention by
one another. Under no circumstances will such participation or lack thereof be
a factor in Grosvenor's investment management process.
Grosvenor has frequent interaction with consultants and financial advisors who
represent prospective and existing investors/participants in Grosvenor-Managed
Accounts, including investors/participants that are subject to ERISA.
Grosvenor does not pay these consultants or financial advisors to recommend
Grosvenor or any Grosvenor-Managed Account to their clients. However,
consultants and financial advisors have from time to time invited Grosvenor and
its principals to participate in particular philanthropic activities, and can be
expected to continue to do so in the future. Grosvenor has participated in such
philanthropic activities in the past and can be expected to continue to do so in
the future. Under no circumstances will such participation or lack thereof be a
factor in Grosvenor's investment management process.
ITEM 9 - PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no material changes to the procedures by which members may
recommend nominees to the Registrant's board of directors, where those changes
were implemented after the Registrant last provided disclosure in response to
the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as
required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
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ITEM 11 - CONTROLS AND PROCEDURES
(A) The Registrant's principal executive officer and principal financial
officer, based on their evaluation of the Registrant's disclosure controls
and procedures as of a date within 90 days of the filing of this report,
have concluded that such controls and procedures are adequately designed to
ensure that information required to be disclosed by the Registrant in Form
N-CSR is accumulated and communicated to the Registrant's management,
including the principal executive officer and principal financial officer,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
(B) There was no change in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the Registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12 - EXHIBITS
(A)(1) Code of ethics referred to in Item 2 is attached hereto.
(A)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(A)(3) Not applicable.
(B) Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GROSVENOR REGISTERED MULTI-STRATEGY
FUND (TI 1), LLC
By: /s/ Scott J. Lederman
-------------------------------------
Scott J. Lederman
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Scott J. Lederman Chief Executive Officer and
------------------------------ President June 7, 2011
Scott J. Lederman
By: /s/ Zachary D. Weber Chief Financial Officer and
------------------------------ Treasurer June 7, 2011
Zachary D. Weber
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