BASSETT INDUSTRIES ALTERNATIVE ASSET FUND, L.P.
Financial Statements
Years ended December 31, 2002 and 2001 with Report of Independent Auditors
Bassett Industries Alternative Asset Fund, L.P. has an exemption, pursuant to
CFTC Regulation 4.7, from certain provisions of Part 4 of the CFTC Regulations.
Bassett Industries Alternative Asset Fund, L.P.
Oath
December 31, 2002 and 2001
To the best of the undersigned's knowledge and belief, the information contained
in these financial statements is accurate and complete.
/s/ Louis W. Moelchert, Jr.
- -----------------------------------------
Louis W. Moelchert, Jr., Managing Member
Private Advisors, L.L.C.
General Partner for
Bassett Industries Alternative Asset Fund, L.P.
Bassett Industries Alternative Asset Fund, L.P.
Financial Statements
Years ended December 31, 2002 and 2001
Contents
Report of Independent Auditors................................................1
Financial Statements
Statements of Financial Condition.............................................2
Schedule of Investments - December 31, 2002...................................3
Schedule of Investments - December 31, 2001...................................4
Statements of Operations......................................................5
Statements of Changes in Partners' Capital....................................6
Statements of Cash Flows......................................................7
Notes to Financial Statements.................................................8
Report of Independent Auditors
To the Partners of
Bassett Industries Alternative Asset Fund, L.P.
We have audited the accompanying statement of financial condition, including the
schedule of investments, of the Bassett Industries Alternative Asset Fund, L.P.
(a Delaware limited partnership) as of December 31, 2002, and the related
statements of operations, changes in partners' capital and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Bassett
Alternative Asset Fund, L.P. for the year ended December 31, 2002 were audited
by other auditors who have ceased operations and whose report dated February 8,
2002, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Bassett Industries
Alternative Asset Fund, L.P. as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Richmond, Virginia
February 14, 2003
1
Bassett Industries Alternative Asset Fund, L.P.
Statements of Financial Condition
December 31
2002 2001
-------------------------------------
Assets
Fund investments, at fair value (Note 4) $ 57,836,371 $ 59,044,501
Cash and cash equivalents 117,268 87,955
-------------------------------------
Total assets $ 57,953,639 $ 59,132,456
=====================================
Liabilities and partners' capital
Liabilities:
Redemptions payable (Note 7) $ 17,000,000 $ -
Accrued management fee payable to General Partner 140,468 -
Accrued expenses 14,427 15,259
-------------------------------------
Total liabilities 17,154,895 15,259
Partners' capital:
Limited partner 40,783,068 59,101,970
General partner 15,676 15,227
-------------------------------------
Total partners' capital 40,798,744 59,117,197
-------------------------------------
Total liabilities and partners' capital $ 57,953,639 $ 59,132,456
=====================================
See accompanying notes.
2
Bassett Industries Alternative Asset Fund, L.P.
Schedule of Investments
December 31, 2002
Fund Investment Percent Ownership of Fair
Fund Investment Value
- -----------------------------------------------------------------------------------------------------
HBK Fund, L.P. 0.9% $12,816,000
Oz Domestic Partners, L.P. 0.8 11,948,504
Styx Partners, L.P. 3.1 10,499,056
Double Black Diamond, L.P. 1.4 9,721,897
Farallon Capital Offshore Investors, Inc. 0.4 7,832,403
Contrarian Capital Trade Claims, L.P. 3.4 2,570,755
BBT Partners, L.P. 0.3 2,447,756
------------
Total (141.8% of net assets) -
cost $36,696,743 $57,836,371
============
See accompanying notes.
3
Bassett Industries Alternative Asset Fund, L.P.
Schedule of Investments
December 31, 2001
Fund Investment Number of Shares or Percent Fair
Ownership of Fund Investment Value
- -----------------------------------------------------------------------------------------------------
Styx Partners, L.P. 6.3% $14,571,935
Oz Domestic Partners, L.P. 1.0 14,024,502
HBK Fund, L.P. 0.9 13,490,433
Double Black Diamond, L.P. 1.7 9,496,869
Farallon Capital Offshore 1,225,753 Class A -
Investors, Inc. Series A shares 7,460,762
------------
Total (99.9% of net assets) - $59,044,501
cost $37,133,967
============
See accompanying notes.
4
Bassett Industries Alternative Asset Fund, L.P.
Statements of Operations
Year ended December 31
2002 2001
--------------------------------------
Gain (loss) on fund investments:
Net realized gains $ 3,037,776 $ 1,232,404
Net change in unrealized (depreciation) appreciation (770,906) 4,479,675
--------------------------------------
Net gain from fund investments 2,266,870 5,712,079
Investment income:
Interest 2,229 9,830
Expenses:
Management fees 569,562 577,148
Other 17,990 15,727
--------------------------------------
Total expenses 587,552 592,875
--------------------------------------
Net investment loss (585,323) (583,045)
--------------------------------------
Net increase in partners' capital resulting from operations $ 1,681,547 $ 5,129,034
======================================
See accompanying notes.
5
Bassett Industries Alternative Asset Fund, L.P.
Statements of Changes in Partners' Capital
Years ended December 31, 2002 and 2001
Limited Partner General Partner Total
---------------------------------------------------------
Balance, December 31, 2000 $ 57,474,217 $ 13,946 $ 57,488,163
Redemptions (3,500,000) - (3,500,000)
Net increase in partners' capital resulting
from operations 5,127,753 1,281 5,129,034
---------------------------------------------------------
Balance, December 31, 2001 59,101,970 15,227 59,117,197
Redemptions (20,000,000) - (20,000,000)
Net increase in partners' capital resulting
from operations 1,681,098 449 1,681,547
---------------------------------------------------------
Balance, December 31, 2002 $ 40,783,068 $ 15,676 $ 40,798,744
=========================================================
See accompanying notes.
6
Bassett Industries Alternative Asset Fund, L.P.
Statements of Cash Flows
Year ended December 31
2002 2001
--------------------------------------
Cash flows from operating activities:
Net increase in partners' capital resulting from operations $ 1,681,547 $ 5,129,034
Adjustment to reconcile net income to net cash provided by
operating activities:
Realized gains on fund investments (3,037,776) (1,232,404)
Change in net unrealized depreciation (appreciation) on fund
investments 770,906 (4,479,675)
Purchases of fund investments (5,000,000) -
Sales of fund investments 8,475,000 3,925,000
(Decrease) increase in accrued expenses (832) 4,933
Increase in accrued management fee payable to General Partner 140,468 -
--------------------------------------
Net cash provided by operating activities 3,029,313 3,346,888
--------------------------------------
Cash flows from financing activities:
Capital distributions (3,000,000) (3,500,000)
--------------------------------------
Net increase (decrease) in cash and cash equivalents 29,313 (153,112)
Cash and cash equivalents, beginning of year 87,955 241,067
--------------------------------------
Cash and cash equivalents, end of year $ 117,268 $ 87,955
======================================
See accompanying notes.
7
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements
December 31, 2002 and 2001
1. Organization
The Bassett Industries Alternative Asset Fund, L.P. (the Partnership) was
organized under the Delaware Revised Uniform Limited Partnership Act and
commenced operations on July 1, 1998. Private Advisors, L.L.C. is the general
partner (the General Partner) of the Partnership. Bassett Furniture Industries,
Inc. (the Limited Partner) and the General Partner are currently the only
partners.
The objective of the Partnership is to achieve consistent, positive returns,
while attempting to reduce risk and volatility, by placing its capital with a
variety of hedge funds and experienced portfolio managers. Such hedge funds and
portfolio managers will employ a variety of trading styles or strategies,
including, but not limited to, convertible arbitrage, merger or risk arbitrage,
distressed debt, long/short equity, multi-strategy and other market-neutral
strategies. The General Partner has discretion to make all investment and
trading decisions, including the selection of investment managers. The General
Partner will select portfolio managers on the basis of various criteria,
including, among other things, the manager's investment performance during
various time periods and market cycles, the fund's infrastructure, and the
manager's reputation, experience, training and investment philosophy. In
addition, the General Partner will require that each portfolio manager have a
substantial personal investment in the investment program.
2. Partnership Agreement
The Partnership is governed by the terms of the limited partnership agreement
(the Agreement). A general summary of salient points of the Agreement is
provided below. Reference should be made to the Agreement to obtain a complete
understanding of all pertinent information.
Management of Partnership Affairs
Responsibility for managing the Partnership is vested solely with the General
Partner. The General Partner's duties include the selection of investment
managers, monitoring of the Partnership's investments, which includes the
allocation of the Partnership's assets among the selected investment managers on
an ongoing basis, and various administrative functions necessary to support the
Partnership.
8
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements (continued)
2. Partnership Agreement (continued)
General Partner Fee
The General Partner is responsible for making investment management decisions on
behalf of the Partnership. For its services, the General Partner is entitled to
a management fee equal to 0.25% (1% per annum) of the limited partner's capital
account balance as of the beginning of each quarter. For the year ended December
31, 2002, the management fee was $569,562, of which $140,468 was payable at
December 31, 2002.
Contribution of Limited Partner
The Limited Partner is required to make and maintain an investment in the
Partnership of not less than $1,000,000. The General Partner may, at its
discretion, waive these minimum requirements. Additional investments are
permitted at the discretion of the General Partner.
Redemptions
The Limited Partner may redeem part or all of its capital account as of the end
of any calendar year upon 90 days written notice to the General Partner (or such
lesser notice as may be acceptable to the General Partner). Partial redemptions,
up to $15 million, are permissible on a quarterly basis upon 60 days written
notice. The General Partner may redeem part or all of its capital account as of
any calendar year-end, as defined, upon 45 days notice to the Limited Partner.
Redemptions shall be at net asset value, as defined.
Allocations
Each partner has a capital account with an initial balance equal to the amount
each individual partner contributed to the Partnership. At the end of each month
and at the time of any event causing the capital account of any partner to
change, profits and losses are allocated to the accounts of the partners in the
ratio that each partner's capital account bears to the balance of all partners'
accounts. A separate allocation is performed for Federal income tax purposes.
9
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements (continued)
2. Partnership Agreement (continued)
Termination of Partnership
The Partnership shall terminate and be dissolved upon the occurrence of any of
the following events:
o December 31, 2025;
o the withdrawal, dissolution, insolvency, or removal of the General
Partner;
o the written consent of the General Partner and a majority-in-interest
of the Limited Partners; or
o the election of a majority-in-interest of the Limited Partners, if the
Limited Partners determine that the General Partner has materially
breached any provision of the Agreement.
3. Summary of Significant Accounting Policies
Fund Investments
In accordance with the Agreement, the General Partner values the Partnership's
investments in investee funds at fair value, which is an amount equal to the sum
of the capital accounts in the funds determined from financial data supplied by
the investee funds and audited financial statements prepared in accordance with
accounting principles generally accepted in the United States. Because of the
inherent uncertainty of valuation, the values determined by the General Partner
may differ significantly from values that would have been used had a ready
market for these investments existed, and the differences could be material.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Interest Income
The Partnership receives interest monthly based on prevailing short-term money
market rates applied to 100 percent of the Partnership's average daily cash
balance above a specified reserve, as defined. Interest income is accrued when
earned.
10
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Income Taxes
A provision for income tax has not been provided, as partners are individually
liable for taxes, if any, on their share of the Partnership's net income.
Reclassifications
Certain prior year balances have been reclassified to conform to current year
presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. Fund Investments
The funds in which the Partnership invests engage primarily in speculative
trading of security interests and have the discretion to invest in any type of
security interest. Risks to these funds arise from the possible adverse changes
in the market value of such interests and the potential inability of
counterparties to perform under the terms of the contracts. However, the risk to
the Partnership is limited to the amount of the Partnership's investment in each
of these funds.
The valuation of the investments in investee funds represents the amount the
Partnership would receive if it were to liquidate its investments in the
investee funds. The Partnership may redeem part or all of its investments as of
the end of each quarter or calendar year, with no less than 45 days prior
written notice, as specified in the respective investee fund agreements.
Fund investments are valued on the basis of fair value, with the resultant
difference from the prior valuation included in the accompanying statements of
operations.
11
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements (continued)
4. Fund Investments (continued)
The following table summarizes the Partnership's fund investments as of December
31, 2002 and 2001, and for the years then ended. The management agreements of
the investee funds provide for compensation to their managers in the form of
management fees ranging from 1 percent to 1.5 percent annually of net assets,
and performance incentive fees equal to 20 percent of net trading profits
earned. These fees have been included as a component of the change in net
unrealized appreciation (depreciation) on fund investments in the accompanying
statements of operations.
2002
- -----------------------------------------------------------------------------------------------------------
Percentage of Net Gain Annual Fee Percentages*
Partnership's (Loss) on Fund ---------------------------- Redemptions
Investment Net Assets Investments Management Incentive Permitted
- -----------------------------------------------------------------------------------------------------------
HBK Fund, L.P. 31.4% $ 725,567 1.5% 20% Quarterly
Oz Domestic Partners, L.P. 29.3 (175,998) 1.5 20 Annually
Styx Partners, L.P. 25.8 1,102,121 1.0 20 Annually
Double Back Diamond, L.P. 23.8 225,028 1.0 20 Quarterly
Farallon Capital Offshore
Investors, Inc. 19.2 371,641 1.0 20 Quarterly
Contrarian Capital Trade
Claims, L.P. 6.3 70,755 1.5 20 Annually
BBT Partners, L.P. 6.0 (52,244) 1.5 20 Quarterly
---------------------------------
Total 141.8% $ 2,266,870
=================================
* For the year ended December 31, 2002, the management and incentive fees
allocated to Double Black Diamond, L.P. were $95,918 and $56,240,
respectively, and the management and incentive fees allocated to Styx
Partners, L.P. were $123,945 and $275,530, respectively. The incentive fees
allocated to Contrarian Capital Trade Claims, L.P. were $17,689. The
specific fee amounts for other fund investments are not available.
12
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements (continued)
4. Fund Investments (continued)
2001
- -----------------------------------------------------------------------------------------------------------
Percentage of Net Gain Annual Fee Percentages*
Partnership's on Fund ---------------------------- Redemptions
Investment Net Assets Investments Management Incentive Permitted
- -----------------------------------------------------------------------------------------------------------
Styx Partners, L.P. 24.7% $ 1,568,520 1.0% 20% Annually
Oz Domestic Partners, L.P. 23.7 777,617 1.5 20 Annually
HBK Fund, L.P. 22.8 1,220,553 1.5 20 Quarterly
Double Black Diamond, L.P. 16.1 1,061,533 1.0 20 Quarterly
Farallon Capital Offshore
Investors, Inc. 12.6 1,083,856 1.0 20 Quarterly
---------------------------------
Total 99.9% $ 5,712,079
=================================
* For the year ended December 31, 2001, the management and incentive fees
allocated to Double Black Diamond, L.P. were $89,620 and $265,383,
respectively, and the management and incentive fees allocated to Styx
Partners, L.P. were $137,047 and $392,130, respectively. The specific fee
amounts for other fund investments are not available.
5. Operating Expenses
The Partnership pays its routine legal, accounting, audit, computer and other
operating costs. The net assets of the Partnership reflect an accrual for such
expenses incurred but not yet paid.
6. Financial Instruments with Market and Credit Risks and Concentrations of
Credit Risk
In the normal course of operations, the Partnership may enter into various
contractual commitments with elements of market risk in excess of the amounts
recognized in the statements of financial condition. Contractual commitments
that involve future settlement give rise to both market and credit risk. Market
risk represents the potential loss that can be caused by a change in the market
value of a particular financial instrument. The Partnership's exposure to market
risk is determined by a number of factors, including the size, composition and
diversification of positions held, volatility of interest, market currency rates
and liquidity. With reference to the Partnership's credit and concentration of
credit risks for investments in other security funds, the risk to the
Partnership is limited to the Partnership's investment.
13
Bassett Industries Alternative Asset Fund, L.P.
Notes to Financial Statements (continued)
7. Redemption Payable
Effective December 31, 2002, the Limited Partner requested a capital withdrawal
of $17,000,000. The capital withdrawal was paid in January 2003. Investments
within Double Black Diamond, L.P., HBK Fund, L.P., and Oz Domestic Partners,
L.P., totaling $24,791,187, were liquidated to provide cash for the requested
capital withdrawal and to rebalance the Partnership's investment portfolio.
8. Financial Highlights
The following financial highlights for the years ended December 31, 2002 and
2001, have been calculated in accordance with the guidance set forth by the
American Institute of Certified Public Accountants Audit and Accounting Guide,
Audits of Investment Companies.
2002 2001
-------------------------------------
Total return 2.95% 9.18%
Ratio to average net assets:
Net investment loss (1.03)% (1.00)%
Expenses (1.03)% (1.02)%
Returns and ratios for individual investors may differ from these returns and
ratios based on participation in hot issues, different fee arrangements, and
timing of capital transactions.
14