PSH-Annual-Report

Annual Report December 31, 2014Notes to Financial Statements (continued)11. SHARE CAPITAL (continued)Capital ManagementThe Company’s objectives for managing capitalare: To continue as a going concern; To maximize its total return primarily throughthe capital appreciation of its investments; and To minimize the risk of an overall permanentloss of capital.Refer to the corporate information section (Note 1)along with the Company’s Prospectus for theCompany’s investment objectives.12. INTEREST INCOME AND EXPENSEThe following is a breakdown of the Company’sinterest income and expense as stated in thestatement of comprehensive income.Interest Income 2014 2013Cash and cashequivalents $ 334 $ 1,406Due from brokers oncollateral posted 45,114 33,169$ 45,448 $ 34,575Interest Expense 2014 2013Short market rebatefees $5,796,858 $10,888,321Due to brokers oncollateral received 46,754 12,085Cash and cashequivalents 2,217 -$5,845,829 $10,900,40613. FINANCIAL RISK AND MANAGEMENTOBJECTIVES AND POLICIESRisk MitigationThe Investment Manager does not use formulaicapproaches to risk management. Instead, riskmanagement is integrated into the portfoliomanagement process. The primary riskmanagement tool is extensive research completedby the Investment Manager prior to an initialinvestment. The Investment Manager definesinvestment risk as the probability of a permanentloss of capital rather than price volatility. Factorsconsidered by the Investment Manager inassessing long investment opportunities include,but are not limited to: The volatility/predictability of the business; Its correlation with macroeconomic factors; The company’s financial leverage; The defensibility of the company’s marketposition; and Its discount to intrinsic value.The Investment Manager believes that theacquisition of a portfolio of investments, whenacquired at a large discount to intrinsic value,provides a margin of safety that can mitigate thelikelihood of an overall permanent loss of theCompany’s capital. The primary risks in theCompany’s portfolio are company specific riskswhich are managed through investment selectionand due diligence.The Investment Manager does not have aformulaic approach in evaluating correlationsbetween investments, but is mindful of sector andindustry exposures and other fundamentalcorrelations between the businesses in which theCompany invests.Market RiskMarket risk is the risk that the fair value or futurecash flows of financial instruments will fluctuatedue to changes in market variables such asinterest rates, foreign exchange rates and equityprices.Securities sold, not yet purchased, representobligations of the Company to deliver the specifiedsecurities and, thereby, create a liability topurchase the security in the open market atprevailing prices. Accordingly, these transactionsmay result in additional risk as the Company’ssatisfaction of the obligations may exceed theamount recognized in the statement of financialposition.The Company’s derivative trading activities arediscussed in Note 8 in detail.PERSHING SQUARE HOLDINGS, LTD. 61