Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21527
The Endowment Master Fund, L.P.
(Exact name of registrant as specified in charter)
4265 SAN FELIPE, SUITE 800, HOUSTON, TX 77027
(Address of principal executive offices) (Zip code)
With a copy to: | ||
A. Haag Sherman | George J. Zornada | |
The Endowment Master Fund, L.P. | K & L Gates LLP | |
4265 San Felipe, Suite 800 | State Street Financial Center | |
Houston, TX 77027 | One Lincoln St. | |
(Name and address of agent for service) | Boston, MA 02111-2950 | |
(617) 261-3231 |
Registrant’s telephone number, including area code: 800-725-9456
Date of fiscal year end: 12/31/10
Date of reporting period: 06/30/10
Table of Contents
Item 1. | Reports to Stockholders. |
Table of Contents
the
ENDOWMENTFUND
The Endowment Master Fund, L.P.
Shareholders’ Report
June 30, 2010
(Unaudited)
Table of Contents
The Endowment Master Fund, L.P. | ||
Consolidated Statement of Assets, Liabilities and Partners’ Capital | 1 | |
2 | ||
11 | ||
12 | ||
13 | ||
14 | ||
32 |
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Statement of Assets, Liabilities and Partners’ Capital
June 30, 2010
(Unaudited)
Assets | |||
Investments in Investment Funds, at estimated fair value (cost $1,335,726,053) | $ | 1,279,219,178 | |
Investments in affiliated Investment Funds, at estimated fair value (cost $3,128,275,369) | 3,481,732,341 | ||
Investments in securities, at fair value (cost $567,007,610) | 619,107,564 | ||
Total investments | 5,380,059,083 | ||
Cash and cash equivalents | 23,944,556 | ||
Advanced contributions to Investment Funds | 30,387,410 | ||
Dividends receivable | 165,842 | ||
Dividends receivable from affiliated investments | 274,247 | ||
Receivable from investments sold | 78,467,671 | ||
Unrealized gain from foreign currency exchange contracts | 1,439,652 | ||
Prepaids and other assets | 408,217 | ||
Total assets | 5,515,146,678 | ||
Liabilities and Partners’ Capital | |||
Contributions received in advance | 46,227,420 | ||
Withdrawals payable | 233,137,249 | ||
Investments purchased payable | 1,439,652 | ||
Investment Management Fees payable | 13,659,903 | ||
Offshore withholding tax payable | 3,570,733 | ||
Unrealized loss from foreign currency exchange contracts | 1,609,659 | ||
Administration fees payable | 465,948 | ||
Payables to related parties | 144,522 | ||
Accounts payable and accrued expenses | 1,652,875 | ||
Total liabilities | 301,907,961 | ||
Partners’ capital | 5,213,238,717 | ||
Total liabilities and partners’ capital | $ | 5,515,146,678 | |
See accompanying notes to consolidated financial statements.
1
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | |||||
Investments in Investment Funds | |||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies | |||||||
Cayman Islands | |||||||
Arbitrage Strategies (0.62% of Partners’ Capital) | |||||||
Montrica Global Opportunities Fund, L.P.(1)(2) | 374,045 | $ | 32,533,080 | ||||
Domestic Equity (0.59% of Partners’ Capital) | |||||||
Tiedemann/Falconer Partners, L.P.(3) | 30,880,547 | ||||||
Energy (1.05% of Partners’ Capital) | |||||||
BlueGold Global Fund, L.P.(2) | 54,985,239 | ||||||
Enhanced Fixed Income (0.26% of Partners’ Capital) | |||||||
Anchorage Capital Partners Offshore, Ltd. (Class D) | 12,986 | 13,435,658 | |||||
International Equity (3.63% of Partners’ Capital) | |||||||
Algebris Global Financials Fund, L.P.(2) | 58,923,201 | ||||||
Boyer Allan Greater China Fund, L.P.(2) | 30,373,860 | ||||||
EEA Europe Long Short Fund(2) | 234,522 | 23,642,120 | |||||
S.R. Global Fund—Emerging Markets Portfolio (Class G, L.P.) | 34,414,764 | ||||||
S.R. Global Fund—International Portfolio (Class C, L.P.) | 41,628,614 | ||||||
Natural Resources (0.31% of Partners’ Capital) | |||||||
Sentient Global Resources Fund III, L.P. | 16,288,995 | ||||||
Private Equity (3.06% of Partners’ Capital) | |||||||
Carlyle Japan International Partners II, L.P. | 696,656 | ||||||
CX Partners Fund, Ltd.(1)(2) | 2,382,289 | ||||||
Gavea Investment Fund II A, L.P. | 7,846,698 | ||||||
Gavea Investment Fund III, L.P. | 56,491,803 | ||||||
Hillcrest Fund, L.P.(3) | 6,187,608 | ||||||
Hony Capital Fund 2008, L.P. | 4,140,316 | ||||||
India Asset Recovery Fund, L.P.(1) | 1,452,131 | ||||||
J.C. Flowers Fund, L.P.(1) | 1,662,867 | ||||||
LC Fund IV, L.P.(2) | 8,487,085 | ||||||
New Horizon Capital III, L.P.(2) | 7,134,895 | ||||||
Orchid Asia IV, L.P.(1) | 9,216,395 | ||||||
Reservoir Capital Partners, L.P. | 3,280,101 | ||||||
Tiger Global Private Investment Partners IV, L.P.(1) | 8,552,766 | ||||||
Tiger Global Private Investment Partners V, L.P.(1) | 9,836,989 | ||||||
Trustbridge Partners II, L.P.(2) | 16,786,078 | ||||||
Trustbridge Partners III, L.P.(2) | 15,111,709 | ||||||
Real Estate (0.71% of Partners’ Capital) | |||||||
Forum European Realty Income III, L.P.(2) | 4,861,953 | ||||||
Phoenix Asia Real Estate Investments II, L.P.(1)(2) | 12,855,687 | ||||||
Phoenix Real Estate Fund (T) L.P. | 19,173,773 | ||||||
Total Cayman Islands | 533,263,877 | ||||||
Guernsey | |||||||
Private Equity (0.09% of Partners’ Capital) | |||||||
Mid Europa Fund III LP | 4,542,866 | ||||||
Total Guernsey | 4,542,866 | ||||||
See accompanying notes to consolidated financial statements.
2
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | ||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | ||||||||
Republic of Mauritius | ||||||||
Real Estate (0.06% of Partners’ Capital) | ||||||||
Orbis Real Estate Fund I(1)(2) | $ | 3,303,482 | ||||||
Total Republic of Mauritius | 3,303,482 | |||||||
Scotland | ||||||||
Private Equity (0.04% of Partners’ Capital) | ||||||||
Actis Umbrella Fund, L.P.(1) | 2,054,000 | |||||||
Total Scotland | 2,054,000 | |||||||
United Kingdom | ||||||||
Private Equity (0.17% of Partners’ Capital) | ||||||||
Darwin Private Equity I, L.P. | 3,533,933 | |||||||
Exponent Private Equity Partners II, L.P. | 4,255,792 | |||||||
Sovereign Capital III(2) | 846,063 | |||||||
Real Estate (0.10% of Partners’ Capital) | ||||||||
Benson Elliot Real Estate Partners II, L.P. | 1,377,680 | |||||||
Benson Elliot Real Estate Partners III, L.P.(2) | (35,369 | ) | ||||||
Patron Capital L.P. II | 867,992 | |||||||
Patron Capital L.P. III | 2,930,307 | |||||||
Total United Kingdom | 13,776,398 | |||||||
United States | ||||||||
Arbitrage Strategies (14.60% of Partners’ Capital) | ||||||||
Black River Commodity Multi-Strategy Fund, LLC | 1,491,080 | |||||||
Citadel Wellington LLC | 48,567,314 | |||||||
Eton Park Fund, L.P. | 71,837,590 | |||||||
Investcorp Silverback Arbitrage Fund, LLC(3) | 15,154,317 | |||||||
Kenmont Onshore Fund, L.P.(2) | 3,691,697 | |||||||
King Street Capital, L.P. | 26,117,608 | |||||||
Magnetar Capital Fund, L.P. | 6,450,905 | |||||||
Magnetar SPV, LLC (Series L)(3) | 37,657,555 | |||||||
OZ Asia Domestic Partners, L.P.(1) | 3,734,927 | |||||||
Paulson Advantage Plus, L.P.(2) | 114,946,728 | |||||||
Paulson Partners Enhanced, L.P.(2) | 60,580,590 | |||||||
PIPE Equity Partners, L.L.C.(3) | 45,916,271 | |||||||
PIPE Select Fund, L.L.C.(3) | 61,926,432 | |||||||
PSAM WorldArb Partners, L.P.(2) | 42,969,744 | |||||||
Stark Investments Limited Partnership | 9,257,493 | |||||||
Stark Select Asset Fund, LLC | 4,748,958 | |||||||
Waterstone Market Neutral Fund, L.P.(3) | 103,133,999 | |||||||
Whitebox Multi-Strategy Fund, L.P.(2) | 100,080 | 102,996,735 | ||||||
Domestic Equity (6.84% of Partners’ Capital) | ||||||||
Artis 2X (Institutional) Partners, L.P.(2) | 23,491,932 | |||||||
Bonanza Partners, L.P.(2) | 1,763 | 747,602 | ||||||
Contrarian Equity Fund, L.P. | 1,146,963 | |||||||
Empire Capital Partners Enhanced, L.P.(3) | 28,512,381 | |||||||
HealthCor, L.P.(2) | 61,212,540 |
See accompanying notes to consolidated financial statements.
3
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | |||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | |||||||
United States (continued) | |||||||
Domestic Equity (6.84% of Partners’ Capital) (continued) | |||||||
Ithan Creek Partners, L.P.(2) | $ | 62,532,866 | |||||
Longhorn Onshore Investors, L.P.(2) | 39,248,570 | ||||||
Samlyn Onshore Fund, L.P.(2) | 97,412,429 | ||||||
Tiger Consumer Partners, L.P.(2) | 42,330,242 | ||||||
Energy (7.17% of Partners’ Capital) | |||||||
AL Gulf Coast Terminals, LLC | 10,042,857 | ||||||
ArcLight Energy Partners Fund IV, L.P.(1) | 9,652,857 | ||||||
CamCap Resources, L.P.(1) | 232,797 | ||||||
Chilton Global Natural Resources Partners, L.P. | 60,142,143 | ||||||
EnCap Energy Capital Fund VII-B, L.P.(1) | 5,465,975 | ||||||
Encap Energy Infrastructure Fund(2) | 1,415,353 | ||||||
Goldfinch Capital Management, L.P.(2) | 30,659,665 | ||||||
Intervale Capital Fund, L.P. (2) | 13,075,240 | ||||||
Merit Energy Partners G, L.P.(1) | 5,072,079 | ||||||
Midstream & Resources Follow-On Fund | 7,787,708 | ||||||
NGP Energy Technology Partners II, L.P. | 1,005,246 | ||||||
NGP IX Offshore Fund, L.P. | 15,175,764 | ||||||
NGP Midstream & Resources, L.P.(1) | 10,855,778 | ||||||
Quantum Parallel Partners V, L.P.(1) | 1,435,690 | ||||||
Southport Energy Plus Partners, L.P.(2) | 79,084,208 | ||||||
TPF II-A, L.P.(1) | 15,969,414 | ||||||
The Ospraie Fund, L.P. | 31,614 | 2,609,438 | |||||
Velite Energy, L.P.(2) | 104,141,530 | ||||||
Enhanced Fixed Income (12.99% of Partners’ Capital) | |||||||
Alden Global Distressed Opportunities Fund, L.P.(2) | 61,306,748 | ||||||
Anchorage Crossover Credit Fund II, L.P.(2) | 49,173,371 | ||||||
Anchorage Short Credit Fund, L.P.(1)(2) | 10,000 | 10,198,935 | |||||
Ares Enhanced Credit Opportunities Fund, L.P. | 14,964,324 | ||||||
BDCM Partners I, L.P.(3) | 60,664,014 | ||||||
Contrarian Capital Fund I, L.P.(2) | 96,742,015 | ||||||
Credit Distressed Blue Line Fund, L.P.(2) | 30,291,008 | ||||||
Courage Special Situations Fund, L.P. (Class C)(2) | 15,770,317 | ||||||
Fortelus Special Situations Fund, L.P.(2) | 58,847,012 | ||||||
Halcyon European Structured Opportunities | 1,741,336 | ||||||
Harbinger Capital Partners Fund I, L.P.(2) | 100,797,299 | ||||||
Investcorp Silverback Opportunistic Convertible | 29,500,375 | ||||||
Morgan Rio Capital Fund, L.P.(3) | 19,375,853 | ||||||
Ore Hill Fund II, L.P.(3) | 1,685,477 | ||||||
Owl Creek II, L.P. | 23,664,287 | ||||||
Prospect Harbor Credit Partners, L.P. | 25,993,901 | ||||||
Sorin Fund, L.P.(2) | 3,114,017 | ||||||
The Rohatyn Group Local Currency Opportunity | 73,325,483 |
See accompanying notes to consolidated financial statements.
4
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | |||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | |||||||
United States (continued) | |||||||
International Equity (4.39% of Partners’ Capital) | |||||||
Dabroes Investment Fund L.P.(3) | $ | 37,239,274 | |||||
L-R Global Partners, L.P. | 424,495 | ||||||
Middle East North Africa Opportunities Fund, L.P.(3) | 5,089 | 3,173,724 | |||||
Monsoon India Inflection Fund, L.P. | 531,629 | ||||||
Monsoon India Inflection Fund 2, L.P. | 997,790 | ||||||
Penta Asia Domestic Partners, L.P.(2) | 74,684 | 36,205,367 | |||||
Skopos HG Fund, LLC(2) | 262,504 | 38,650,287 | |||||
Steel Partners Japan Strategic Fund, L.P. | 5,242,844 | ||||||
Taiyo Fund, L.P. | 16,727,316 | ||||||
Tarpon All Equities Fund, LLC | 40,995,866 | ||||||
Tiger Asia Fund, L.P. | 48,747,924 | ||||||
Natural Resources (0.01% of Partners’ Capital) | |||||||
Tocqueville Gold Partners, L.P. | 393,877 | ||||||
Opportunistic Equity (16.63% of Partners’ Capital) | |||||||
Atlas Global LLC | 21,885,926 | ||||||
Blue Trend L.P. | 30,600,621 | ||||||
Corriente Partners, L.P.(2) | 67,487,962 | ||||||
Corriente China Opportunity Partners, L.P.(2) | 11,344,048 | ||||||
Corriente China Opportunity Partners II, L.P.(3) | 19,224,000 | ||||||
Covepoint Emerging Markets Macro Fund, L.P.(2) | 57,139,062 | ||||||
EDF-MI Onshore, L.P.(3) | 87,251,313 | ||||||
European Divergence Fund, L.P.(3) | 26,594,148 | ||||||
Global GT, L.P. | 1,380,137 | ||||||
Global Undervalued Securities Fund (QP), L.P.(2) | 43,968,869 | ||||||
Hayman Capital Partners, L.P.(2) | 39,113,285 | ||||||
Miura Global Partners II, L.P.(2) | 60,416,839 | ||||||
Pardus European Special Opportunities Fund, L.P. | 5,184,786 | ||||||
Passport II, L.P.(2) | 72,449,348 | ||||||
R.G. Neiderhoffer Global Fund, L.P.(2) | 26,835,583 | ||||||
Salem Global Opportunity Fund, L.P.(2) | 22,839,223 | ||||||
SCP Sakonnet Fund, L.P.(2) | 53,199,267 | ||||||
Senator Global Opportunity Fund L.P. | 19,361,156 | ||||||
Tiger Global, L.P. | 43,134,844 | ||||||
Valiant Capital Partners, L.P.(2) | 105,393,166 | ||||||
Viking Global Equities, L.P. | 52,227,619 | ||||||
Private Equity (9.42% of Partners’ Capital) | |||||||
ABRY Advanced Securities Fund, L.P. | 19,349,958 | ||||||
Accel-KKR Capital Partners III, L.P.(2) | 9,936,182 | ||||||
Advent Latin American Private Equity | 6,291,994 | ||||||
Advent Latin American Private Equity V-F, L.P. | 325,000 | ||||||
Audax Mezzanine Fund II, L.P.(1) | 4,584,345 | ||||||
BDCM Opportunity Fund II, L.P. | 5,824,762 | ||||||
Brazos Equity Fund II, L.P.(1) | 2,027,492 | ||||||
Brazos Equity Fund III, L.P.(1) | 3,255,518 |
See accompanying notes to consolidated financial statements.
5
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | |||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | |||||||
United States (continued) | |||||||
Private Equity (9.42% of Partners’ Capital) (continued) | |||||||
Capital Royalty Partners, L.P.(1) | $ | 1,415,795 | |||||
Carlyle Partners V, L.P.(1) | 4,219,477 | ||||||
Catterton Growth Partners, L.P.(2) | 8,142,138 | ||||||
CCM Small Cap Value Qualified Fund, L.P.(3) | 29,111,762 | ||||||
Chrysalis Ventures III, L.P. | 1,258,765 | ||||||
Crosslink Crossover Fund IV, L.P. | 1,925,879 | ||||||
Crosslink Crossover Fund V, L.P. | 21,126,604 | ||||||
Dace Ventures I, L.P.(2) | 1,457,596 | ||||||
Encore Consumer Capital Fund, L.P. | 2,853,202 | ||||||
Fairhaven Capital Partners, L.P. | 3,567,562 | ||||||
Founders Fund III, L.P. | 766,203 | ||||||
Garrison Opportunity Fund, LLC | 9,546,460 | ||||||
GMO Emerging Illiquid Fund, L.P.(1) | 8,292,561 | ||||||
Harbinger Capital Partners Special Situations | 18,106,269 | ||||||
HealthCor Partners Fund, L.P.(2) | 2,484,038 | ||||||
Integral Capital Partners VIII, L.P.(2) | 15,929,719 | ||||||
MatlinPatterson Global Opportunities | 9,097,866 | ||||||
Monomoy Capital Partners, L.P.(1) | 4,756,388 | ||||||
Paulson Credit Opportunities, L.P.(2) | 135,422,408 | ||||||
Pine Brook Capital Partners, LP(1) | 7,419,150 | ||||||
Pinto America Growth Fund, L.P.(1) | 1,607,871 | ||||||
Private Equity Investment Fund IV, L.P.(1)(2) | 6,918,626 | ||||||
Private Equity Investment Fund V, L.P.(1)(2) | 6,466,686 | ||||||
Q Funding III, L.P.(2) | 15,062,045 | ||||||
Q4 Funding, L.P.(2) | 42,530,789 | ||||||
Saints Capital VI, L.P.(2) | 8,119,253 | ||||||
Sanderling Venture Partners VI Co-Investment | 1,599,238 | ||||||
Sanderling Venture Partners VI, L.P. | 1,117,950 | ||||||
Silver Lake Partners III, L.P. | 4,035,644 | ||||||
Sterling Capital Partners II, L.P. | 1,925,150 | ||||||
Sterling Capital Partners III, L.P. | 5,282,782 | ||||||
Sterling Group Partners II, L.P. | 1,652,853 | ||||||
Sterling Group Partners III, L.P. | 80,568 | ||||||
Strategic Value Global Opportunities Fund I-A, L.P. | 7,298,578 | ||||||
Tenaya Capital V, LP | 2,711,633 | ||||||
The Column Group, L.P. | 5,309,684 | ||||||
The Raptor Private Holdings, L.P. | 11,217 | 5,706,670 | |||||
The Resolute Fund II, L.P.(1) | 2,918,083 | ||||||
Trivest Fund IV, L.P.(2) | 11,079,634 | ||||||
Tuckerbrook SB Global Distressed Fund I, L.P.(2) | 7,195,420 | ||||||
VCFA Private Equity Partners IV, L.P.(1) | 2,549,288 |
See accompanying notes to consolidated financial statements.
6
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | |||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | |||||||
United States (continued) | |||||||
Private Equity (9.93% of Partners’ Capital) (continued) | |||||||
VCFA Venture Partners V, L.P.(1) | $ | 5,327,715 | |||||
Voyager Capital Fund III, L.P. | 1,268,710 | ||||||
WestView Capital Partners II, L.P.(2) | 4,792,585 | ||||||
Real Estate (3.88% of Partners’ Capital) | |||||||
Aslan Realty Partners III, L.L.C. | 666,278 | ||||||
CRM Windridge Partners, L.P.(2) | 24,282,290 | ||||||
Cypress Realty VI, L.P. | 5,274,858 | ||||||
DaVinci Corporate Opportunity Partners, L.P.(1) | 368,621 | ||||||
GTIS Brazil Real Estate Fund (Brazilian Real), LP(2) | 9,487,769 | ||||||
ING Clarion Global, L.P.(2) | 33,938,725 | ||||||
Monsoon Infrastructure & Realty Co-Invest, L.P.(2) | 10,189,233 | ||||||
MONY/Transwestern Mezzanine Realty | 565,350 | ||||||
Northwood Real Estate Co-Investors L.P. | 1,773,883 | ||||||
Northwood Real Estate Partners L.P. | 2,619,263 | ||||||
Oak Hill REIT Plus Fund, L.P.(2) | 20,567,808 | ||||||
Parmenter Realty Fund III, L.P.(1) | 7,586,917 | ||||||
Square Mile Partners III L.P. | 8,673,236 | ||||||
TCW Special Mortgage Credits Fund II, L.P.(1) | 71,718,986 | ||||||
Transwestern Mezzanine Realty | 4,190,528 | ||||||
Woodbourne Daybreak Global Fund L.P. | 476,110 | ||||||
Total United States | 3,958,588,980 | ||||||
Total Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies | 4,515,529,603 | 86.62% | |||||
Passive Foreign Investment Companies | |||||||
Bermuda Limited Liability Company | |||||||
Private Equity (0.25% of Partners’ Capital) | |||||||
El Tejar Limited | 12,860,000 | ||||||
Total Bermuda Limited Liability Company | 12,860,000 | ||||||
Cayman Companies Limited by Shares | |||||||
Arbitrage Strategies (2.47% of Partners’ Capital) | |||||||
CRC Global Structured Credit Fund Ltd.(2) | 29,280 | 40,616,324 | |||||
Overseas CAP Partners, Inc.(3) | 60,183 | 88,217,664 | |||||
International Equity (0.87% of Partners’ Capital) | |||||||
Quorum Fund Limited | 125,582 | 5,771,699 | |||||
The Russian Prosperity Fund | 1,056,068 | 39,412,442 | |||||
Natural Resources (0.17% of Partners’ Capital) | |||||||
Ospraie Special Opportunities (Offshore) Ltd. | 9,068,270 | ||||||
Total Cayman Companies Limited by Shares | 183,086,399 | ||||||
See accompanying notes to consolidated financial statements.
7
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares | Fair Value | % of Partners’ Capital | ||||||
Passive Foreign Investment Companies (continued) | ||||||||
Republic of Mauritius | ||||||||
International Equity (0.62% of Partners’ Capital) | ||||||||
India Capital Fund Ltd.(2) | 637,832 | $ | 32,076,572 | |||||
Total Republic of Mauritius | 32,076,572 | |||||||
Total Passive Foreign Investment Companies | 228,022,971 | 4.37% | ||||||
Private Corporations | ||||||||
United States | ||||||||
Real Estate (0.33% of Partners’ Capital) | ||||||||
Legacy Partners Realty Fund II, Inc | 1,935,310 | |||||||
Legacy Partners Realty Fund III, Inc | (29,828 | ) | ||||||
Net Lease Private REIT V, Inc(1) | 1,543,669 | |||||||
Net Lease Private REIT VI, Inc(1) | 3,949,794 | |||||||
Net Lease Private REIT VII, Inc(1)(2) | 5,000,000 | |||||||
Net Lease Private REIT VII-A, Inc(1)(2) | 5,000,000 | |||||||
Total United States | 17,398,945 | |||||||
Total Private Corporations | 17,398,945 | 0.33% | ||||||
Total Investments in Investment Funds | 4,760,951,519 | 91.32% | ||||||
Investments in Securities | ||||||||
Investments in Registered Investment Companies | ||||||||
Exchange Traded Funds | ||||||||
United States | ||||||||
Agencies (2.71% of Partners’ Capital) | ||||||||
iShares Lehman 20+ Year Treasury Bond Fund(1) | 1,388,996 | 141,330,344 | ||||||
Domestic Equity (0.28% of Partners’ Capital) | ||||||||
iShares Russell 1000 Growth Index Fund(1) | 317,145 | 14,537,927 | ||||||
Natural Resources (2.75% of Partners’ Capital) | ||||||||
Market Vectors Gold Miners ETF(1) | 1,204,162 | 62,568,257 | ||||||
SPDR Gold Trust | 663,956 | 80,790,166 | ||||||
Total United States | 299,226,694 | |||||||
Total Exchange Traded Funds | 299,226,694 | 5.74% | ||||||
Open End Funds | ||||||||
United States | ||||||||
Arbitrage Strategies (0.67% of Partners’ Capital) | ||||||||
Absolute Strategies Fund(1) | 2,380,277 | 24,992,912 | ||||||
The Merger Fund | 632,111 | 9,848,293 | ||||||
Domestic Equity (0.67% of Partners’ Capital) | ||||||||
Hussman Strategic Growth Fund(1) | 2,598,947 | 34,955,835 | ||||||
Enhanced Fixed Income (0.20% of Partners’ Capital) | ||||||||
Fidelity Floating Rate High Income Fund | 1,115,519 | 10,474,728 | ||||||
Fixed Income (0.11% of Partners’ Capital) | ||||||||
Wasatch Hoisington US Treasury Fund(1) | 344,707 | 5,639,402 |
See accompanying notes to consolidated financial statements.
8
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares/ Par Value* | Fair Value | % of Partners’ Capital | ||||||
Investments in Registered Investment Companies (continued) | ||||||||
Open End Funds (continued) | ||||||||
United States (continued) | ||||||||
Natural Resources (0.85% of Partners’ Capital) | ||||||||
The Tocqueville Gold Fund | 678,657 | $ | 44,547,051 | |||||
Real Estate (0.16% of Partners’ Capital) | ||||||||
Cohen & Steers International Realty Fund, Inc.(1) | 914,500 | 8,395,115 | ||||||
Total United States | 138,853,336 | |||||||
Total Open End Funds | 138,853,336 | 2.66% | ||||||
Money Market Fund (2.86% of Partners’ Capital) | ||||||||
United States | ||||||||
JPMorgan Prime Money Market Fund(1) | 149,086,643 | 149,086,643 | ||||||
Total United States | 149,086,643 | |||||||
Total Money Market Fund | 149,086,643 | 2.86% | ||||||
Total Investments in Registered Investment Companies | 587,166,673 | 11.26% | ||||||
Investments in Common Stocks | ||||||||
France | ||||||||
Opportunistic Equity (0.05% of Partners’ Capital) | ||||||||
Atos Origin SA | 28,640 | 1,161,554 | ||||||
Valeo SA | 52,678 | 1,449,537 | ||||||
Total France | 2,611,091 | |||||||
Total Common Stocks | 2,611,091 | 0.05% | ||||||
Investments in Corporate Bonds | ||||||||
United States | ||||||||
Opportunistic Equity (0.00% of Partners’ Capital) | ||||||||
Bally Total Fitness Holding Corp, 14.00%, 10/01/13(4) | $ | 12,000 | — | |||||
Delphi Holding Corp, 6.55%, 06/15/06(4) | 153,000 | — | ||||||
Delphi Holding Corp, 6.50%, 05/01/09(4) | 756,000 | — | ||||||
Delphi Holding Corp, 7.125%, 05/01/29(4) | 572,000 | — | ||||||
Delphi Holding Corp, 6.50%, 11/15/33(4) | 409,000 | — | ||||||
Total United States | — | |||||||
Total Corporate Bonds | — | 0.00% | ||||||
Call Options Purchased | ||||||||
United States (0.56% of Partners’ Capital) | ||||||||
CMS Capital—10 Year One Look Cap (OTC) | $ | 1,079,000,000 | 8,974,841 | |||||
CMS Capital—10 Year One Look Cap (OTC) | $ | 714,285,714 | 6,025,665 |
See accompanying notes to consolidated financial statements.
9
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Schedule of Investments, continued
June 30, 2010
(Unaudited)
Shares/ Par Value* | Fair Value | % of Partners’ Capital | ||||||
Call Options Purchased (continued) | ||||||||
United States (0.56% of Partners’ Capital) (continued) | ||||||||
CMS Capital—10 Year One Look Cap (OTC) | $ | 1,350,000,000 | $ | 8,531,929 | ||||
CMS Capital—10 Year One Look Cap (OTC) | $ | 877,192,983 | 5,797,365 | |||||
Total United States | 29,329,800 | |||||||
Total Call Options Purchased | 29,329,800 | 0.56% | ||||||
Investment in Warrants | ||||||||
United States | ||||||||
Opportunistic Equity (0.00% of Partners’ Capital) | ||||||||
Bally Total Fitness Holding Corp Warrants, | 2 | — | ||||||
Total United States | — | |||||||
Total Warrants | — | 0.00% | ||||||
Total Investments in Securities | 619,107,564 | 11.87% | ||||||
Total Investments (Cost $5,031,009,032) | $ | 5,380,059,083 | 103.20% | |||||
The Master Fund’s total outstanding capital commitments to Investment Funds as of June 30, 2010, were $880,691,083. For certain Investment Funds for which the Master Fund has a capital commitment, the Master Fund may be allocated its pro-rata share of expenses prior to having to fund a capital call for such expenses.
All securities are non-income producing unless noted with a (1).
Refer to Note 5, Investments in Portfolio Securities, for information regarding the liquidity of the Master Fund’s investments.
* | Shares, par value or notional amounts is listed for each investment if it is applicable for that investment type. |
(1) | Income producing security. |
(2) | Affiliated investments. |
(3) | Affiliated investments for which ownership exceeds 25%. |
(4) | Security has been deemed worthless by the Valuation Committee. |
See accompanying notes to consolidated financial statements.
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Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Statement of Operations
Six Months Ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividend income | $ | 3,497,412 | ||
Interest income | 479,669 | |||
Dividend income from affiliated investments | 759,473 | |||
Interest income from affiliated investments | 29,786 | |||
Other income | 9,609,964 | |||
Total investment income | 14,376,304 | |||
Expenses: | ||||
Investment Management Fees | 27,139,735 | |||
Administration fees | 1,409,135 | |||
Legal fees | 225,724 | |||
Professional fees | 540,602 | |||
Custodian fees | 268,618 | |||
Directors fees | 249,875 | |||
Offshore withholding tax expense | 5,305,546 | |||
Other expenses | 1,845,357 | |||
Total expenses | 36,984,592 | |||
Net investment loss | (22,608,288 | ) | ||
Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind: | ||||
Net realized loss from investments, foreign currency transactions and options | (63,812,852 | ) | ||
Net realized gain from redemptions in-kind | 17,636,286 | |||
Net realized gain from affiliated investments | 62,730,969 | |||
Change in unrealized appreciation (depreciation) from investments and foreign currency translations | 52,621,444 | |||
Net realized and unrealized gain from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind | 69,175,847 | |||
Net increase in partners’ capital resulting from operations | $ | 46,567,559 | ||
See accompanying notes to consolidated financial statements.
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Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Statement of Changes in Partners’ Capital
Year Ended December 31, 2009 and Six Months Ended June 30, 2010
(Unaudited)
Partners’ capital at December 31, 2008 | $ | 4,663,185,240 | ||
Contributions | 714,436,768 | |||
Withdrawals | (870,632,191 | ) | ||
Net increase in partners’ capital resulting from operations: | ||||
Net investment loss | (47,413,366 | ) | ||
Net realized loss from investments, foreign currency transactions and options | (15,724,902 | ) | ||
Net realized loss from redemptions in-kind | (2,297,799 | ) | ||
Net realized loss from affiliated investments and foreign currency transactions | (28,864,561 | ) | ||
Change in unrealized appreciation (depreciation) from investments and foreign currency translations | 799,921,746 | |||
Net increase in partners’ capital resulting from operations | 705,621,118 | |||
Partners’ capital at December 31, 2009 | 5,212,610,935 | |||
Contributions | 375,020,038 | |||
Withdrawals | (420,959,815 | ) | ||
Net increase in partners’ capital resulting from operations: | ||||
Net investment loss | (22,608,288 | ) | ||
Net realized loss from investments, foreign currency transactions and options | (63,812,852 | ) | ||
Net realized gain from redemptions in-kind | 17,636,286 | |||
Net realized gain from affiliated investments | 62,730,969 | |||
Change in unrealized appreciation (depreciation) from investments and foreign currency translations | 52,621,444 | |||
Net increase in partners’ capital resulting from operations | 46,567,559 | |||
Partners’ capital at June 30, 2010 | $ | 5,213,238,717 | ||
See accompanying notes to consolidated financial statements.
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Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2010
(Unaudited)
Cash flows from operating activities: | ||||
Net increase in partners’ capital resulting from operations | $ | 46,567,559 | ||
Adjustments to reconcile net increase in partners’ capital resulting from operations to net cash provided by operating activities: | ||||
Purchases of investments | (1,825,216,461 | ) | ||
Proceeds from disposition of investments | 1,526,642,127 | |||
Net realized loss from investments, foreign currency transactions, and options | 63,812,852 | |||
Net realized gain from redemptions in-kind | (17,636,286 | ) | ||
Net realized gain from affiliated investments | (62,730,969 | ) | ||
Change in unrealized appreciation (depreciation) from investments and foreign currency translations | (52,621,444 | ) | ||
Decrease in advanced contributions to Investment Funds | 72,004,349 | |||
Decrease in dividends receivable | 463,798 | |||
Decrease in dividends receivable from affiliated investments | 3,013 | |||
Decrease in receivable from investments sold | 173,540,018 | |||
Increase in currency contracts receivable | (1,439,652 | ) | ||
Increase in prepaids and other assets | (228,322 | ) | ||
Increase in investments purchased payable | 1,439,652 | |||
Increase in Investment Management Fees payable | 321,420 | |||
Decrease in offshore withholding tax payable | (6,416,117 | ) | ||
Increase in currency contracts payable | 1,609,659 | |||
Increase in administration fees payable | 270,626 | |||
Increase in payable to related parties | 41,237 | |||
Decrease in accounts payable and accrued expenses | (95,469 | ) | ||
Net cash used in operating activities | (79,668,410 | ) | ||
Cash flows from financing activities: | ||||
Contributions | 362,759,139 | |||
Withdrawals | (445,294,480 | ) | ||
Net cash used in financing activities | (82,535,341 | ) | ||
Net decrease in cash and cash equivalents | (162,203,751 | ) | ||
Cash and cash equivalents at beginning of period | 186,148,307 | |||
Cash and cash equivalents at end of period | $ | 23,944,556 | ||
Supplemental schedule of cash activity: | ||||
Cash paid for offshore withholding taxes | $ | 2,111,700 | ||
Supplemental schedule of noncash activity: | ||||
Redemptions in-kind (Cost $12,531,663) | $ | 30,167,949 |
See accompanying notes to consolidated financial statements.
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Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 2010
(Unaudited)
(1) ORGANIZATION
The Endowment Master Fund, L.P. (the “Master Fund”) is a limited partnership organized under the laws of the state of Delaware. The Master Fund began operations in April 2003. The Master Fund operated as an unregistered investment vehicle until March 10, 2004, at which time it registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Master Fund is the master fund in a master-feeder structure in which there are currently eight feeder funds.
In June, 2010, the Master Fund formed The Endowment Master Fund Holdings GP, LLC (the “Company”), a wholly-owned limited liability company. The Company functions as a special purpose entity, which subsequently purchased a minority interest in an operating company. The financial statements of the Master Fund and the Company are consolidated as the Master Fund holds a controlling interest in the Company and the consolidated financial statements fairly present the combined investments of the Master Fund and the Company.
The Master Fund’s investment objective is to preserve capital and to generate consistent long-term appreciation and returns across a market cycle (which is estimated to be five to seven years). The Master Fund pursues its investment objective by investing its assets in a variety of investment vehicles including but not limited to limited partnerships, limited liability companies, offshore corporations and other foreign investment vehicles (collectively, the “Investment Funds”), registered investment companies (including exchange traded funds) and direct investments in marketable securities and derivative instruments. The Master Fund is primarily a “fund of funds” and is intended to afford investors the ability to invest in a multi-manager portfolio, exhibiting a variety of investment styles and philosophies, in an attempt to achieve positive risk-adjusted returns over an extended period of time. The Master Fund’s investments are managed by a select group of investment managers identified by the Adviser, as hereinafter defined, to have investments that when grouped with other investments of the Master Fund result in a portfolio that is allocated more broadly across markets, asset classes, and risk profiles.
The Endowment Fund GP, L.P., a Delaware limited partnership, serves as the general partner of the Master Fund (the “General Partner”). To the fullest extent permitted by applicable law, the General Partner has irrevocably delegated to a board of directors (the “Board” and each member a “Director”) its rights and powers to monitor and oversee the business affairs of the Master Fund, including the complete and exclusive authority to oversee and establish policies regarding the management, conduct, and operation of the Master Fund’s business. A majority of the members of the Board are independent of the General Partner and its management. To the extent permitted by applicable law, the Board may delegate any of its rights, powers and authority to, among others, the officers of the Master Fund, the Adviser, or any committee of the Board.
The Board is authorized to engage an investment adviser and it has selected Endowment Advisers, L.P. (the “Adviser”), to manage the Master Fund’s portfolio and operations, pursuant to an investment management agreement (the “Investment Management Agreement”). The Adviser is a Delaware limited partnership that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Management Agreement, the Adviser is responsible for the establishment of an investment committee, which is responsible for developing, implementing, and supervising the Master Fund’s investment program subject to the ultimate supervision of the Board.
Under the Master Fund’s organizational documents, the Master Fund’s officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Master Fund. In the normal course of business, the Master Fund enters into contracts with service providers, which also provide for
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
indemnifications by the Master Fund. The Master Fund’s maximum exposure under these arrangements is unknown, as this would involve any future potential claims that may be made against the Master Fund. However, based on experience, the General Partner expects that risk of loss to be remote.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) BASIS OF ACCOUNTING
The accounting and reporting policies of the Master Fund conform with U.S. generally accepted accounting principles (“GAAP”).
The consolidated financial statements include the accounts of the Master Fund and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
(b) CASH EQUIVALENTS
The Master Fund considers all unpledged temporary cash investments with a maturity date at the time of purchase of three months or less to be cash equivalents.
(c) INVESTMENT SECURITIES TRANSACTIONS
The Master Fund records security transactions on a trade-date basis.
Investments that are held by the Master Fund, including those that have been sold but not yet purchased, are marked to estimated fair value at the date of the financial statements, and the corresponding change in unrealized appreciation/depreciation is included in the Consolidated Statement of Operations.
In general, distributions received from Investment Funds are accounted for as a reduction to cost and any proceeds received above the allocated cost basis results in a realized gain. Realized gains or losses on the disposition of investments are accounted for based on the first in first out (“FIFO”) method.
(d) VALUATION OF INVESTMENTS
The valuation of the Master Fund’s investments will be determined as of the close of business at the end of any fiscal period, generally monthly. The valuation of the Master Fund’s investments is calculated by Citi Fund Services Ohio, Inc., the Master Fund’s independent administrator (the “Independent Administrator”).
The Board has formed a valuation committee (the “Board Valuation Committee”) that is responsible for overseeing the Master Fund’s valuation policies, making recommendations to the Board on valuation-related matters, and overseeing implementation by the Adviser Valuation Committee (as defined below) of the Master Fund’s valuation policies that the Board of the Master Fund has approved for purposes of determining the value of securities held by the Master Fund, including the fair value of the Master Fund’s investments in Investment Funds.
The Board has also authorized the establishment of a valuation committee of the Adviser (the “Adviser Valuation Committee”). The Adviser Valuation Committee’s function, subject to the oversight of the Board Valuation Committee and the Board, is generally to review the Investment Funds’ valuation methodologies,
15
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
valuation determinations, and any information provided to the Adviser Valuation Committee by the Adviser or the Independent Administrator.
Investments held by the Master Fund are valued as follows:
• | INVESTMENT FUNDS—Investments in Investment Funds are ordinarily carried at estimated fair value based on the valuations provided to the Independent Administrator by the investment managers of such Investment Funds or the administrators of such Investment Funds. These Investment Funds value their underlying investments in accordance with policies established by such Investment Funds. Prior to investing in any Investment Fund, the Adviser Valuation Committee, as part of the due diligence process, conducts a review of the valuation methodologies employed by the Investment Fund to determine whether such methods are appropriate for the asset types. The Master Fund’s valuations utilize the available financial information supplied by each Investment Fund and are net of management and estimated performance incentive fees or allocations payable to the Investment Funds’ managers pursuant to the Investment Funds’ agreements. Generally, Investment Funds in which the Master Fund invests will use market value when available, and otherwise will use principles of fair value applied in good faith. The Adviser Valuation Committee will consider whether it is appropriate, in light of the relevant circumstances, to value interests at net asset value as reported by an Investment Fund for valuation purposes, or whether to adjust such reported value to reflect estimated fair value. Because of the inherent uncertainty of valuation, this estimated fair value may differ from the value that would have been used had readily available markets for the investments in Investment Funds existed and such differences may be significant. The Master Fund’s investments in Investment Funds are subject to the terms and conditions of the respective operating agreements and offering memoranda of such Investment Funds. |
• | SECURITIES LISTED ON A SECURITIES EXCHANGE—Securities listed 1) on one or more of the national securities exchanges or the OTC Bulletin Board are valued at the last reported sales price on the date of determination; and 2) on the Nasdaq Stock Market are valued at the Nasdaq Official Closing Price (“NOCP”), at the close of trading on the primary exchanges or markets where such securities are traded for the business day as of which such value is being determined. If the last reported sales price or the NOCP is not available, the securities are valued at the mean between the “bid” and “ask” prices at the close of trading on that date. Securities traded on a foreign securities exchange will generally be valued at their closing prices on the exchange where such securities are primarily traded and translated into U.S. dollars at the current exchange rate. If an event occurs between the close of the foreign exchange and the valuation date of the Master Fund’s net asset value that would materially affect the value of the security and the net asset value of the Master Fund, the value of such security and the net asset value of the Master Fund will be adjusted to reflect the change in the estimated value of the security. |
• | OPTIONS—Options that are listed on a securities exchange or traded over-the-counter are valued at the mean between the closing “bid” and “ask” prices for such options on the date of determination. |
• | SECURITIES NOT ACTIVELY TRADED—The value of securities, derivatives or synthetic securities that are not actively traded on an exchange shall be determined by obtaining quotes from brokers that normally deal in such securities or by an unaffiliated pricing service that may use actual trade data or procedures using market indices, matrices, yield curves, specific trading characteristics of certain groups of securities, pricing models or a combination of these procedures. |
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
• | OTHER—Where no value is readily available from an Investment Fund or other security or where a value supplied by an Investment Fund is deemed not to be indicative of the Investment Fund’s value, the Adviser Valuation Committee and/or the Board Valuation Committee, in consultation with the Independent Administrator or the Adviser will determine, in good faith, the estimated fair value of the Investment Fund or security. |
• | FOREIGN CURRENCY TRANSACTIONS—The accounting records of the Master Fund are maintained in U.S. dollars. Investments of the Master Fund denominated in a foreign currency, if any, are translated into U.S. dollar amounts at current exchange rates on the date of valuation. Purchases and sales of investments and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts at the exchange rate on the respective dates of such transactions. The Master Fund does not isolate the realized or unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the value of investments. |
(e) INVESTMENT INCOME
For investments in securities, dividend income is recorded on the ex-dividend date, net of withholding taxes. Interest income is recorded as earned on the accrual basis and includes amortization of premiums or accretion of discounts.
(f) FUND EXPENSES
Unless otherwise voluntarily or contractually assumed by the Adviser or another party, the Master Fund bears all expenses incurred in its business, including, but not limited to, the following: all costs and expenses related to investment transactions and positions for the Master Fund’s account; legal fees; accounting, auditing and tax preparation fees; recordkeeping and custodial fees; costs of computing the Master Fund’s net asset value; fees for data and software providers; research expenses; costs of insurance; registration expenses; offering costs; expenses of meetings of the partners; directors fees; all costs with respect to communications to partners; transfer taxes, offshore withholding taxes and taxes withheld on non-U.S. dividends; interest and commitment fees on loans and debit balances; and other types of expenses as may be approved from time to time by the Board. Offering costs are amortized over a twelve-month period or less from the date they are incurred.
(g) INCOME TAXES
The Master Fund is organized and operated as a limited partnership and is not subject to income taxes as a separate entity. Such taxes are the responsibility of the individual partners. Accordingly, no provision for income taxes has been made in the Master Fund’s financial statements. Investments in foreign securities may result in foreign taxes being withheld by the issuer of such securities. For U.S. offshore withholding tax, the Master Fund may serve as withholding agent for its offshore feeder funds.
The Master Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Master Fund’s tax returns to determine whether the tax positions will “more-likely-than-not” be sustained by the Master Fund upon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit or expense to the Master Fund would be recorded as a tax benefit or expense in the current period. For the six months ended June 30, 2010, the Master Fund did not recognize any amounts for unrecognized tax benefit/expense. A reconciliation of unrecognized tax benefit/expense is not provided herein, as the beginning and ending amounts of unrecognized tax benefit/expense are zero, with no interim additions, reductions or settlements. Tax positions taken in tax years which remain open under the statute of limitations (generally three years for federal income tax purposes) are subject to examination by tax authorities.
17
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
Other income represents refunds of withholding tax. A majority of this is allocable to The Endowment TEI Fund, L.P.
(h) USE OF ESTIMATES
The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences may be significant.
(i) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Master Fund may purchase or sell options as part of an asset overlay strategy to create investment exposure consistent with the Master Fund’s investment objectives. During the period, the Master Fund has invested in call and put option contracts to better manage risk related to certain strategies in the Master Fund’s portfolio. During the six months ended June 30, 2010, the Master Fund’s direct investments in derivatives consisted of the expiration of purchased put options and the purchase and sale of call options. Investment Funds in which the Master Fund invests may purchase and sell derivative securities and other financial instruments.
The following is a summary of the fair value of derivative instruments held directly by the Master Fund as of June 30, 2010, and where such derivatives are recorded:
Asset Derivatives | ||||
Primary Risk Exposure | Consolidated Statement of | Total Fair Value | ||
Options Contracts | ||||
Interest Rate Exposure: | Investments in securities, at fair value | $29,329,800 |
The following is a summary of the effect of derivative instruments on the Consolidated Statement of Operations for the six months ended June 30, 2010:
Primary Risk Exposure | Location of Gain (Loss) | Realized Gain (Loss) from Derivatives Recognized in Income | Change in Unrealized Appreciation (Depreciation) from Derivatives Recognized in Income | |||||||
Options Contracts | ||||||||||
Equity Exposure: | Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind | $ | (24,222,908 | ) | $ | 20,587,945 | ||||
Interest Rate Exposure: | Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind | — | (5,612,094 | ) |
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Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
Volume of Derivative Activity
The monthly average fair value of options purchased was $15,783,421 for the six months ended June 30, 2010.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On January 21, 2010, the Financial Accounting Standards Board issued Accounting Standards Update “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which provides additional guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, ASU 2010-06 requires reporting entities to disclose the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and Level 3 investments. ASU 2010-06 also requires that significant transfers between all levels (including Level 1 and Level 2) be disclosed on a gross basis (i.e., transfers out must be disclosed separately from transfers in), and the reasons for such transfers. Additionally purchases, sales, issuances and settlements shall be disclosed on a gross basis in the Level 3 rollforward. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide the Level 3 roll forward activity for purchases, sales, issuances and settlements on a gross basis, which will be effective for interim and annual periods beginning after December 15, 2010. There were no significant transfers between Level 1 and Level 2 during the six months ended June 30, 2010.
(3) FAIR VALUE MEASUREMENTS
The Master Fund defines fair value as 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.
The inputs used to determine the fair value of the Master Fund’s investments are summarized in the three broad levels listed below:
• | Level 1—quoted prices in active markets for identical assets. |
• | Level 2—other significant inputs (including quoted prices of similar securities, interest rates, prepayment speeds, credit risk, etc.). |
• | Level 3—significant unobservable inputs (which may include the Master Fund’s own assumptions in determining the fair value of investments). |
The inputs or methodology used to value investments are not necessarily an indication of the risk associated with investing in those securities.
When determining the estimated fair value of the Master Fund’s investments, additional consideration is given to those assets or liabilities that have experienced a decrease in volume or level of activity in the primary market in which such investments normally trade (if any) or for which circumstances have been identified that indicate that transactions in such markets may not be orderly.
19
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
The following is a summary categorization, as of June 30, 2010, of the Master Fund’s investments based on the level of inputs utilized in determining the value of such investments:
LEVEL 1 Quoted Prices | LEVEL 2 Other Significant Observable Inputs | LEVEL 3 Significant Unobservable Inputs | Total | |||||||||
Investment Securities | Investment Securities | Investment Funds | Investments | |||||||||
Investments | ||||||||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies | ||||||||||||
Arbitrage Strategies | — | — | $ | 793,713,023 | $ | 793,713,023 | ||||||
Domestic Equity | — | — | 387,516,072 | 387,516,072 | ||||||||
Energy | — | — | 428,808,981 | 428,808,981 | ||||||||
Enhanced Fixed Income | — | — | 690,591,430 | 690,591,430 | ||||||||
International Equity | — | — | 417,919,075 | 417,919,075 | ||||||||
Natural Resources | — | — | 16,682,872 | 16,682,872 | ||||||||
Opportunistic Equity | — | — | 867,031,202 | 867,031,202 | ||||||||
Private Equity | — | — | 665,551,588 | 665,551,588 | ||||||||
Real Estate | — | — | 247,715,360 | 247,715,360 | ||||||||
Passive Foreign Investment Companies | ||||||||||||
Arbitrage Strategies | — | — | 128,833,988 | 128,833,988 | ||||||||
International Equity | — | — | 77,260,713 | 77,260,713 | ||||||||
Natural Resources | — | — | 9,068,270 | 9,068,270 | ||||||||
Private Equity | — | — | 12,860,000 | 12,860,000 | ||||||||
Private Corporations | ||||||||||||
Real Estate | — | — | 17,398,945 | 17,398,945 | ||||||||
Investments in Registered Investment Companies | ||||||||||||
Arbitrage Strategies | $ | 34,841,205 | — | — | 34,841,205 | |||||||
Agencies | 141,330,344 | — | — | 141,330,344 | ||||||||
Domestic Equity | 49,493,762 | — | — | 49,493,762 | ||||||||
Enhanced Fixed Income | 10,474,728 | — | — | 10,474,728 | ||||||||
Fixed Income | 5,639,402 | — | — | 5,639,402 | ||||||||
Money Market | 149,086,643 | — | — | 149,086,643 | ||||||||
Natural Resources | 187,905,474 | — | — | 187,905,474 | ||||||||
Real Estate | 8,395,115 | — | — | 8,395,115 | ||||||||
Investments in Common Stocks | ||||||||||||
Opportunistic Equity | 2,611,091 | — | — | 2,611,091 | ||||||||
Investments in Corporate Bonds | ||||||||||||
Opportunistic Equity | — | — | — | — | ||||||||
Call Options Purchased | — | $ | 29,329,800 | — | 29,329,800 | |||||||
Investments in Warrants | ||||||||||||
Opportunistic Equity | — | — | — | — | ||||||||
Total Investments | $ | 589,777,764 | $ | 29,329,800 | $ | 4,760,951,519 | $ | 5,380,059,083 | ||||
The categorization of investments amongst Levels 1 through 3 does not reflect the fact that many of the underlying investments held by the Investment Funds included in Level 3, if owned directly by the Master Fund, would be classified as Level 1 investments.
20
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
Investments | |||||||||||||||||||||
Balance as of December 31, 2009 | Gross Purchases | Gross (Sales)* | Net Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Balance as of June 30, 2010 | ||||||||||||||||
Investments | |||||||||||||||||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies | |||||||||||||||||||||
Arbitrage Strategies | $ | 780,427,546 | $ | 109,885,658 | $ | (103,335,943 | ) | $ | (4,195,497 | ) | $ | 10,931,259 | $ | 793,713,023 | |||||||
Domestic Equity | 393,002,964 | 35,000,000 | (33,467,267 | ) | 6,533,654 | (13,553,279 | ) | 387,516,072 | |||||||||||||
Energy | 399,136,823 | 82,718,370 | (12,005,063 | ) | 4,547,697 | (45,588,846 | ) | 428,808,981 | |||||||||||||
Enhanced Fixed Income | 627,493,975 | 230,986,067 | (161,306,989 | ) | 23,081,491 | (29,663,114 | ) | 690,591,430 | |||||||||||||
International Equity | 493,733,501 | 45,000,000 | (94,056,501 | ) | (9,743,665 | ) | (17,014,260 | ) | 417,919,075 | ||||||||||||
Natural Resources | 14,526,615 | 1,808,213 | (641,704 | ) | 154,273 | 835,475 | 16,682,872 | ||||||||||||||
Opportunistic Equity | 696,964,621 | 252,826,507 | (158,629,222 | ) | 41,482,471 | 34,386,825 | 867,031,202 | ||||||||||||||
Private Equity | 650,979,483 | 8,705,494 | (30,626,579 | ) | 8,588,036 | 27,905,154 | 665,551,588 | ||||||||||||||
Real Estate | 217,857,437 | 36,370,998 | (12,749,006 | ) | (1,747,617 | ) | 7,983,548 | 247,715,360 | |||||||||||||
Passive Foreign Investment Companies | |||||||||||||||||||||
Arbitrage Strategies | 146,263,616 | — | (16,824,923 | ) | (1,165,972 | ) | 561,267 | 128,833,988 | |||||||||||||
International Equity | 81,645,275 | 2,000,000 | (13,002,994 | ) | (12,310,920 | ) | 18,929,352 | 77,260,713 | |||||||||||||
Natural Resources | 9,579,616 | — | (565,308 | ) | 2,240 | 51,722 | 9,068,270 | ||||||||||||||
Private Equity | 12,860,000 | — | — | — | — | 12,860,000 | |||||||||||||||
Private Corporations | |||||||||||||||||||||
Real Estate | 17,359,749 | — | (35,314 | ) | — | 74,510 | 17,398,945 | ||||||||||||||
Corporate Bonds | |||||||||||||||||||||
Opportunistic Equity | — | 52,116 | — | — | (52,116 | ) | — | ||||||||||||||
Total Investments | $ | 4,541,831,221 | $ | 805,353,423 | $ | (637,246,813 | ) | $ | 55,226,191 | $ | (4,212,503 | ) | $ | 4,760,951,519 | |||||||
* | Includes Return of Capital and Capital Gain Distributions |
The net realized gain (loss) and change in unrealized appreciation (depreciation) in the table above are reflected in the accompanying Consolidated Statement of Operations. The change in unrealized appreciation (depreciation) from Level 3 investments held at June 30, 2010, for the six month period ended, is $24,964,726.
The Master Fund is permitted to invest in alternative investments that do not have a readily determinable fair value, and as such, has elected to use the net asset value per share (the “NAV”) as calculated on the reporting entity’s measurement date as the fair value of the investment. The Master Fund measures the fair value of an investment that does not have a readily determinable fair value, based on the NAV of the investment as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV is adjusted to reflect any significant events that would materially affect the value of the security and the NAV of the Master Fund as of the valuation date. In using the NAV as a practical expedient, certain attributes of the investment, that may impact the fair value of the investment, may not be 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
21
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
investments at the measurement date at NAV as well as any unfunded commitments. A listing of the investments held by the Master Fund and their attributes as of June 30, 2010, that may qualify for these valuations are shown in the table below.
Investment Category | Investment Strategy | Fair Value (in 000’s) | Unfunded Commitments (in 000’s) | Remaining | Redemption Frequency* | Notice | Redemption | |||||||||
Arbitrage Strategiesa | Investments in a variety of securities with the intent of profiting from relative changes in the price of a set of securities, currencies or commodities. | $ | 922,547 | | N/A | N/A | Daily— Annually | 0-92 | 0-2 years; up to 5% redemption fee | |||||||
Domestic Equityb | Investments in equity securities issued by U.S. companies. | 387,516 | | N/A | N/A | Monthly— Annually | 7-90 | 0-3 years; up to 7% redemption fee | ||||||||
Energyc | Investments in securities issued by companies in the energy sector. | 428,809 | $ | 146,056 | up to 15 years | Monthly— Quarterly | 30-90 | 0-15 years; up to 5% redemption fee | ||||||||
Enhanced Fixed Incomed | Investments in non-traditional fixed income securities. | 690,592 | | N/A | N/A | Monthly— Rolling 3 years | 0-185 | 0-3 years; up to 5% redemption fee | ||||||||
International Equitye | Investments in equity securities issued by foreign companies. | 495,180 | | N/A | N/A | Monthly— Rolling 3 years | 7-90 | 0-3 years; up to 7.5% redemption fee | ||||||||
Natural Resourcesf | Investments with exposure to non-energy natural resources. | 25,751 | 11,412 | up to 10 years | Quarterly | 90-180 | 0-10 years; up to 3% redemption fee | |||||||||
Opportunistic Equityg | Investments in a variety of global markets across all security types. | 867,031 | N/A | N/A | Monthly— Bi-Annually | 5-180 | 0-4 years; up to 5% redemption fee | |||||||||
Private Equityh | Investments in nonpublic companies. | 665,552 | 516,818 | up to 10 years | Quarterly— Annually | 45-180 | 0-10 years; up to 3% redemption fee | |||||||||
Real Estatei | Investments in REIT’s, private partnerships, and various real estate related mortgage securities. | 265,114 | 206,405 | up to 10 years | Monthly— Quarterly | 45-60 | 0-10 years; up to 3% redemption fee | |||||||||
$ | 4,760,952 | $ | 880,691 | |||||||||||||
* | The information summarized in the table above represents the general terms for the specified asset class. Individual Investment Funds may have terms that are more or less restrictive than those terms indicated for the asset class as a whole. In addition, most Investment Funds have the flexibility, as provided for in their constituent documents, to modify and waive such terms. The Fund'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 Investment Funds, would generally be the net asset value as provided by the fund or its administrator. |
a | This category includes Investment Funds that invest using two primary Styles (Event-Driven and Relative Value). Event-Driven strategies typically will include investments in common and preferred equities and various types of debt (often based on the probability that a particular event will occur). These may include distressed or Special Situations investments (securities of companies that are experiencing difficult business situations). Relative Value strategies may include long and short positions in common and preferred equity, convertible securities, and various forms of senior and junior (typically unsecured) debt. Investments under this style may also include index options, options on futures contracts, and other derivatives. |
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
b | This category includes Investment Funds that invest primarily in publicly-traded equity securities issued by U.S. companies. These securities will typically trade on one of the major U.S. stock exchanges. Investment Funds in this category may include long/ short funds, mutual funds and exchange-traded funds. |
c | This category includes Investment Funds that invest primarily in publicly-traded securities issued by companies in the energy sector, private investments in energy-related assets or companies, and futures in energy commodity markets. The Investment Funds include private funds which may hold long/ short equities, commodity trading advisors ("CTAs") trading contracts on energy related commodities, mutual funds or exchange-traded funds, and private partnerships with private investments in their portfolios. The estimated remaining life of the private investments in this asset class is greater than six years. |
d | This category includes Investment Funds that invest primarily in the following sectors: secured leveraged loans, high yield bonds, distressed debt, structured credit, and global debt (typically less efficient areas of the global fixed income markets than traditional fixed income strategies). Generally these sectors may be heavily weighted to certain industries such as telecom and technology with lower credit rating ranges (including leveraged buyouts), may include distressed debt strategies and may include restricted securities and securities that may not be registered for which a market may not be readily available. |
e | This category includes Investment Funds that invest primarily in publicly-traded equity securities issued by foreign companies or securities issued on U.S. stock exchanges that represent ownership of a foreign corporation. Investment Funds in this category may include long/ short funds, mutual funds, and exchange-traded funds. |
f | This category includes Investment Funds that invest primarily in assets with exposure to non-energy natural resources, including gold and other precious metals, industrial metals, and agricultural commodities. The Investment Funds may include private funds invested in long/ short equities; CTA’s trading contracts on agricultural commodities, mutual funds and exchange-traded funds, and private partnerships with private investments in their portfolios. The estimated remaining life of the private investments in this asset class is greater than six years. |
g | This category includes Investment Funds that invest in global markets and across all security types including equities, fixed income, derivatives, commodities, currencies, futures, and exchange-traded funds. Investment Funds in this category are typically private funds and may include global long/ short equity funds, global macro funds, and CTA’s. |
h | This category includes private equity funds that invest primarily in non-publicly traded companies in need of capital. These Investment Funds may vary widely as to sector, size, stage, duration, and liquidity. Certain of these Investment Funds may also focus on the secondary market, buying interests in existing private equity funds, often at a discount. The majority of the investments in this asset class have an estimated remaining life of greater than six years. |
i | This category includes Investment Funds that invest in registered investment companies or managers that invest in real estate trusts (commonly known as “REITs”) and private partnerships that make investments in income producing properties, raw land held for development or appreciation, and various types of mortgage loans and common or preferred stock whose operations involve real estate. The private investments in this asset class have an estimated remaining life of greater than six years. |
23
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
(4) PARTNERS’ CAPITAL ACCOUNTS
(a) ISSUANCE OF INTERESTS
Upon receipt from an eligible investor of an initial or additional application for interests (the “Interests”), which will generally be accepted as of the first day of each month, the Master Fund will issue new Interests. The Interests have not been registered under the Securities Act, or the securities laws of any state. The Master Fund issues Interests only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act. No public market exists for the Interests, and none is expected to develop. The Master Fund is not required, and does not intend, to hold annual meetings of its partners. The Interests are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted under the Master Fund’s limited partnership agreement.
The Master Fund reserves the right to reject any applications for subscription of Interests. The $46,227,420 in contributions received in advance as of June 30, 2010, represents subscriptions for Master Fund Interests received prior to the July 2010 closing.
(b) ALLOCATION OF PROFITS AND LOSSES
For each fiscal period, generally monthly, net profits or net losses of the Master Fund are allocated among and credited to or debited against the capital accounts of all partners as of the last day of each fiscal period in accordance with the partners’ respective capital account ownership percentage for the fiscal period. Net profits or net losses are measured as the net change in the value of the partners’ capital of the Master Fund, including any change in unrealized appreciation or depreciation of investments and income, net of expenses, and realized gains or losses during a fiscal period. Net profits or net losses are allocated after giving effect for any initial or additional applications for Interests, which generally occur at the beginning of the month, or any repurchases of Interests.
(c) REPURCHASE OF INTERESTS
A partner will not be eligible to have the Master Fund repurchase all or any portion of an Interest at the partner’s discretion at any time. However, the Adviser expects that it will recommend to the Board that the Master Fund offer to repurchase Interests each calendar quarter, pursuant to written tenders by partners.
However, the Board retains the sole discretion to accept or reject the recommendation of the Adviser and to determine the amount of Interests, if any, that will be purchased in any tender offer that it does approve. In the event Interests are repurchased, there will be a substantial period of time between the date as of which partners must accept the Master Fund’s offer to repurchase their Interests and the date they can expect to receive payment for their Interests from the Master Fund.
(5) INVESTMENTS IN PORTFOLIO SECURITIES
(a) INVESTMENT ACTIVITY
As of June 30, 2010, the Master Fund held investments in Investment Funds and securities. The $30,387,410 in advanced contributions to Investment Funds as of June 30, 2010, represents funding of a portion of the July 2010 investments in such funds. The agreements related to investments in Investment Funds provide for
24
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
compensation to the Investment Funds’ managers/general partners or advisers in the form of management fees of up to 2.5% annually of monthly average net assets. In addition, many Investment Funds also provide for performance incentive fees/allocations of up to 25% of an Investment Fund’s net profits, although it is possible that such ranges may be exceeded for certain investment managers. These management fees and incentive fees are in addition to the management fees charged by the Master Fund.
For the six months ended June 30, 2010, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were $858,996,947 and $709,312,173, respectively.
The cost of the Master Fund’s underlying investments for Federal income tax purposes is adjusted for items of taxable income allocated to the Master Fund from such investments. The allocated taxable income is generally reported to the Master Fund by its underlying investments on Schedules K-1, Forms 1099 or PFIC statements.
The underlying investments generally do not provide the Master Fund with tax reporting information until well after year end and as a result, the Master Fund is unable to calculate the year end tax cost of its investments until well after year end. The Master Fund’s book cost as of June 30, 2010, was $5,031,009,032 resulting in accumulated net unrealized appreciation of $349,050,051 consisting of $691,202,898 in gross unrealized appreciation and $342,152,847 in gross unrealized depreciation.
During the six months ended June 30, 2010, certain investments were transferred in-kind in connection with the sale of investments. The fair value of these investments transferred-in-kind and related cost and realized gain (loss) are as follows:
Investments | Fair Value | Cost | Realized Gain (Loss) on Transfers In-Kind | |||||||
European Divergence Fund, L.P. | $ | 23,256,339 | $ | — | $ | 23,256,339 | ||||
Stark Investments Limited Partnership | 757,938 | 867,239 | (109,301 | ) | ||||||
Pardus Special Opportunities Fund, L.P. | 4,165,380 | 9,656,317 | (5,490,937 | ) | ||||||
PIPE Equity Partners, L.L.C. | 1,988,292 | 2,008,107 | (19,815 | ) | ||||||
$ | 30,167,949 | $ | 12,531,663 | $ | 17,636,286 |
In general, most of the Investment Funds in which the Master Fund invests, other than Investment Funds investing primarily in private equity, energy and real estate transactions, provide for periodic redemptions ranging from monthly to annually, after a notice period, with lock-up provisions usually for a period of up to four years. Investment Funds may, depending on the Investment Fund’s governing documents, have the ability to deny or delay a redemption request.
25
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
(b) INVESTMENT FUND LIQUIDITY
Certain Investment Funds in which the Master Fund invests have limitations on liquidity which may result in limitations or restrictions on redemptions including, but not limited to, lock-ups, notice periods and early redemption fees. The Master Fund’s investments are categorized in three levels of liquidity, as determined by the Master Fund. To better manage the Master Fund’s liquidity, the Adviser has also structured the portfolio’s capital into the liquidity categories listed below. The categories and percent of investments in each are as follows at June 30, 2010:
Liquidity Categories | Total Percentage of Capital Invested Allowed, per Category | Percentage of Investments, per Category | Category Definition | |||||
Category 1 Funds | 65.00 | % | 68.66 | % | Securities or Investment Funds that have at least quarterly withdrawal rights after a maximum two-year lock-up period. | |||
Category 2 Funds | 10.00 | % | 10.00 | % | Investment Funds that have at least annual withdrawal rights after a maximum three-year lock-up period. | |||
Category 3 Funds | 25.00 | % | 21.34 | % | Investment Funds that do not meet the definition of Category 1 or 2 Funds. This may include investments for which redemptions can only occur as the Investment Funds’ assets or investments are liquidated. | |||
100.00 | % | 100.00 | % | |||||
The expiration or implementation of lock-up periods on Master Fund investments in an Investment Fund could result in such investments moving from one liquidity category to another.
(c) AFFILIATED INVESTMENT FUNDS
At June 30, 2010, the Master Fund’s investments in certain Investment Funds were deemed to be investments in affiliated issuers under the 1940 Act, primarily because the Master Fund owns more than 5% of the Investment Funds’ total net assets. The activity resulting from investments in these funds, including interest and dividend income as well as realized gains and losses, is identified in the Consolidated Statement of Operations as transactions with affiliated investments. A listing of these affiliated Investment Funds (including 2010 activity) is shown below:
For the Period 1/1/2010 through 6/30/2010 | For the Period 1/1/2010 through 6/30/2010 | |||||||||||||||||||||||||
Investment Funds | Shares 12/31/2009 | Shares 6/30/2010 | Fair Value 12/31/2009 | Cost of Purchases | Cost of Sales* | Change in Appreciation (Depreciation) | Fair Value 6/30/2010 | Interest/ Dividend Income | Realized Gain (Loss) on Investments | |||||||||||||||||
Accel-KKR Capital Partners III, L.P. | $ | 6,778,000 | $ | 3,221,333 | $ | — | $ | (63,151 | ) | $ | 9,936,182 | $ | $ | |||||||||||||
Advent Latin American Private Equity V-F, L.P. | — | 375,000 | — | (50,000 | ) | 325,000 |
26
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
For the Period 1/1/2010 through 6/30/2010 | For the Period 1/1/2010 through 6/30/2010 | ||||||||||||||||||||||||||
Investment Funds | Shares 12/31/2009 | Shares 6/30/2010 | Fair Value 12/31/2009 | Cost of Purchases | Cost of Sales* | Change in Appreciation (Depreciation) | Fair Value 6/30/2010 | Interest/ Dividend Income | Realized Gain (Loss) on Investments | ||||||||||||||||||
Alden Global Distressed Opportunities Fund, L.P. | $ | — | $ | 70,000,000 | $ | — | $ | (8,693,252 | ) | $ | 61,306,748 | $ | $ | ||||||||||||||
Algebris Global Financials Fund, L.P. | 65,902,226 | — | — | (6,979,025 | ) | 58,923,201 | |||||||||||||||||||||
Anchorage Crossover Credit Fund II, L.P. | 47,334,946 | — | — | 1,838,425 | 49,173,371 | ||||||||||||||||||||||
Anchorage Short Credit Fund, L.P. | — | 10,000 | — | 10,000,000 | — | 198,935 | 10,198,935 | 140 | |||||||||||||||||||
Artis 2X (Institutional) Partners, L.P. | — | 25,000,000 | — | (1,508,068 | ) | 23,491,932 | |||||||||||||||||||||
BDCM Partners I, L.P. | 56,104,546 | — | — | 4,559,468 | 60,664,014 | ||||||||||||||||||||||
Benson Elliot Real Estate Partners III, L.P.*** | — | — | — | — | — | ||||||||||||||||||||||
BlueGold Global Fund, L.P. | 40,398,940 | 20,000,000 | — | (5,413,701 | ) | 54,985,239 | |||||||||||||||||||||
Bonanza Partners, L.P. | 1,763 | 1,763 | 1,041,811 | — | — | (294,209 | ) | 747,602 | |||||||||||||||||||
Boyer Allan Greater China Fund, L.P. | 33,145,460 | — | — | (2,771,600 | ) | 30,373,860 | |||||||||||||||||||||
Catterton Growth Partners, L.P. | 6,442,971 | 882,281 | — | 816,886 | 8,142,138 | ||||||||||||||||||||||
CCM Small Cap Value Qualified Fund, L.P. | 26,157,599 | — | — | 2,954,163 | 29,111,762 | ||||||||||||||||||||||
Contrarian Capital Fund I, L.P. | 114,556,167 | — | 20,000,000 | 2,185,848 | 96,742,015 | 5,042,273 | |||||||||||||||||||||
Corriente Partners, L.P. | 42,867,486 | — | — | 24,620,476 | 67,487,962 | ||||||||||||||||||||||
Corriente China Opportunity Partners, L.P. | — | 10,000,000 | — | 1,344,048 | 11,344,048 | ||||||||||||||||||||||
Corriente China Opportunity Partners II, L.P. | — | 20,000,000 | — | (776,000 | ) | 19,224,000 | |||||||||||||||||||||
Courage Special Situations Fund, L.P. (Class C) | — | 15,000,000 | — | 770,317 | 15,770,317 | ||||||||||||||||||||||
Covepoint Emerging Markets Macro Fund, L.P. | 63,761,021 | — | — | (6,621,959 | ) | 57,139,062 | |||||||||||||||||||||
CRC Global Structured Credit Fund Ltd. | 41,819 | 29,280 | 56,051,925 | — | 16,824,923 | 1,389,322 | 40,616,324 | (1,165,972 | ) | ||||||||||||||||||
Credit Distressed Blue Line Fund, L.P. | — | 30,000,000 | — | 291,008 | 30,291,008 | ||||||||||||||||||||||
CRM Windridge Partners, L.P. | 15,288,746 | 10,000,000 | — | (1,006,456 | ) | 24,282,290 | |||||||||||||||||||||
CX Partners Fund, Ltd. | 3,526,463 | 692,996 | 1,695,305 | (141,865 | ) | 2,382,289 | 131,406 | ||||||||||||||||||||
Dabroes Investment Fund L.P. | 33,175,396 | — | — | 4,063,878 | 37,239,274 | ||||||||||||||||||||||
Dace Ventures I, L.P. | 1,016,195 | 466,730 | — | (25,329 | ) | 1,457,596 | |||||||||||||||||||||
EDF-MI Onshore, L.P. | — | 68,256,339 | — | 18,994,974 | 87,251,313 | ||||||||||||||||||||||
EEA Europe Long Short Fund | — | 234,522 | — | 25,000,000 | — | (1,357,880 | ) | 23,642,120 | |||||||||||||||||||
Empire Capital Partners Enhanced, L.P. | 26,607,742 | — | — | 1,904,639 | 28,512,381 | ||||||||||||||||||||||
EnCap Energy Infrastructure Fund | 945,000 | 746,983 | — | (276,630 | ) | 1,415,353 | |||||||||||||||||||||
European Divergence Fund, L.P. | 89,262,288 | — | 92,432,073 | 29,763,933 | 26,594,148 | 56,717,383 | |||||||||||||||||||||
Fortelus Special Situations Fund, L.P. | — | 60,000,000 | — | (1,152,988 | ) | 58,847,012 | |||||||||||||||||||||
Forum European Realty Income III, L.P. | 3,389,181 | 2,114,567 | — | (641,795 | ) | 4,861,953 | |||||||||||||||||||||
Global Undervalued Securities Fund (QP), L.P. | 38,900,205 | — | — | 5,068,664 | 43,968,869 | ||||||||||||||||||||||
Goldfinch Capital Management, L.P. | — | 30,000,000 | — | 659,665 | 30,659,665 | ||||||||||||||||||||||
GTIS Brazil Real Estate Fund (Brazilian Real), LP | 6,902,006 | 1,464,826 | — | 1,120,937 | 9,487,769 | ||||||||||||||||||||||
Halcyon European Structured Opportunities Fund, L.P. | 2,122,848 | — | 619,556 | 238,044 | 1,741,336 | (1,069,407 | ) | ||||||||||||||||||||
Harbinger Capital Partners Fund I, L.P. | 113,202,487 | — | — | (12,405,188 | ) | 100,797,299 | |||||||||||||||||||||
Hayman Capital Partners, L.P. | 35,978,288 | — | — | 3,134,997 | 39,113,285 | ||||||||||||||||||||||
HealthCor, L.P.** | 78,511,767 | — | 18,467,267 | 1,168,040 | 61,212,540 | 5,764,236 | |||||||||||||||||||||
HealthCor Partners Fund, L.P. | 3,280,240 | 522,791 | 1,672,113 | 353,120 | 2,484,038 | 886,210 | |||||||||||||||||||||
Hillcrest Fund, L.P. | 1,128,542 | 5,057,170 | — | 1,896 | 6,187,608 | ||||||||||||||||||||||
India Capital Fund Ltd. | 597,747 | 637,832 | 29,823,743 | 2,000,000 | — | 252,829 | 32,076,572 |
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
For the Period 1/1/2010 through 6/30/2010 | For the Period 1/1/2010 through 6/30/2010 | ||||||||||||||||||||||||||
Investment Funds | Shares 12/31/2009 | Shares 6/30/2010 | Fair Value 12/31/2009 | Cost of Purchases | Cost of Sales* | Change in Appreciation (Depreciation) | Fair Value 6/30/2010 | Interest/ Dividend Income | Realized Gain (Loss) on Investments | ||||||||||||||||||
ING Clarion Global, L.P. | $ | 36,189,695 | $ | — | $ | — | $ | (2,250,970 | ) | $ | 33,938,725 | $ | $ | ||||||||||||||
Integral Capital Partners VIII, L.P. | 16,152,023 | — | — | (222,304 | ) | 15,929,719 | |||||||||||||||||||||
Intervale Capital Fund, L.P. | 11,200,495 | 1,356,456 | — | 518,289 | 13,075,240 | ||||||||||||||||||||||
Investcorp Silverback Arbitrage Fund, LLC | 14,633,092 | — | — | 521,225 | 15,154,317 | ||||||||||||||||||||||
Investcorp Silverback Opportunistic Convertible Fund, LLC | 28,645,035 | — | — | 855,340 | 29,500,375 | ||||||||||||||||||||||
Ithan Creek Partners, L.P. | 62,308,137 | — | — | 224,729 | 62,532,866 | ||||||||||||||||||||||
Kenmont Onshore Fund, L.P. | 6,838,268 | — | 2,802,317 | (344,254 | ) | 3,691,697 | (1,081,495 | ) | |||||||||||||||||||
LC Fund IV, L.P. | 3,538,836 | 3,869,482 | — | 1,078,767 | 8,487,085 | ||||||||||||||||||||||
Longhorn Onshore Investors, L.P. | 40,537,561 | — | — | (1,288,991 | ) | 39,248,570 | |||||||||||||||||||||
Magnetar SPV, LLC ( Series L) | — | 55,900,943 | 10,913,000 | (7,330,388 | ) | 37,657,555 | (2,378,667 | ) | |||||||||||||||||||
Middle East North Africa Opportunities Fund, L.P. | 5,089 | 5,089 | 3,679,629 | — | — | (505,905 | ) | 3,173,724 | |||||||||||||||||||
Miura Global Partners II, L.P. | 58,773,242 | — | — | 1,643,597 | 60,416,839 | ||||||||||||||||||||||
Monsoon Infrastructure & Realty Co-Invest, L.P. | 10,601,602 | — | — | (412,369 | ) | 10,189,233 | |||||||||||||||||||||
Montrica Global Opportunities Fund, L.P. | 412,880 | 374,045 | 34,747,006 | — | 2,750,876 | 536,950 | 32,533,080 | (391,752 | ) | ||||||||||||||||||
Morgan Rio Capital Fund, L.P. | 10,805,037 | 8,000,000 | — | 570,816 | 19,375,853 | ||||||||||||||||||||||
Net Lease Private REIT VII, Inc | 5,000,000 | — | — | — | 5,000,000 | 272,740 | |||||||||||||||||||||
Net Lease Private REIT VII-A, Inc | 5,000,000 | — | — | — | 5,000,000 | 272,740 | |||||||||||||||||||||
New Horizon Capital III, L.P. | 4,100,286 | 6,438,210 | 2,768,533 | (635,068 | ) | 7,134,895 | |||||||||||||||||||||
Oak Hill REIT Plus Fund, L.P. | 12,704,167 | 10,000,000 | — | (2,136,359 | ) | 20,567,808 | |||||||||||||||||||||
Orbis Real Estate Fund I | 3,193,918 | 54,529 | — | 55,035 | 3,303,482 | ||||||||||||||||||||||
Ore Hill Fund II, L.P. | 4,631,988 | — | 3,702,741 | 756,230 | 1,685,477 | (279,574 | ) | ||||||||||||||||||||
Overseas CAP Partners, Inc. | 60,183 | 60,183 | 90,211,691 | — | — | (1,994,027 | ) | 88,217,664 | |||||||||||||||||||
Passport II, L.P. | 58,662,250 | 10,000,000 | — | 3,787,098 | 72,449,348 | ||||||||||||||||||||||
Paulson Advantage Plus, L.P. | 125,991,843 | (11,045,115 | ) | 114,946,728 | |||||||||||||||||||||||
Paulson Credit Opportunities, L.P. | 129,216,188 | — | — | 6,206,220 | 135,422,408 | ||||||||||||||||||||||
Paulson Partners Enhanced, L.P. | 62,076,060 | — | — | (1,495,470 | ) | 60,580,590 | |||||||||||||||||||||
Penta Asia Domestic Partners, L.P. | 30,095,063 | 20,000,000 | — | (13,889,696 | ) | 36,205,367 | |||||||||||||||||||||
Phoenix Asia Real Estate Investments II, L.P. | 12,134,290 | — | 186,275 | 907,672 | 12,855,687 | 112,139 | 19,925 | ||||||||||||||||||||
PIPE Equity Partners, L.L.C. | 49,160,976 | — | 1,988,292 | (1,256,413 | ) | 45,916,271 | (19,815 | ) | |||||||||||||||||||
PIPE Select Fund, L.L.C. | 54,096,983 | 1,988,292 | — | 5,841,157 | 61,926,432 | ||||||||||||||||||||||
Private Equity Investment Fund IV, L.P. | 6,971,683 | 97,464 | 312,735 | 162,214 | 6,918,626 | 94 | 208,563 | ||||||||||||||||||||
Private Equity Investment Fund V, L.P. | 5,980,053 | 2,079,595 | 3,209,870 | 1,616,908 | 6,466,686 | 2,825,605 | |||||||||||||||||||||
PSAM WorldArb Partners, L.P. | 40,726,688 | — | — | 2,243,056 | 42,969,744 | ||||||||||||||||||||||
Q Funding III, L.P. | 12,921,502 | — | — | 2,140,543 | 15,062,045 | ||||||||||||||||||||||
Q4 Funding, L.P. | 36,403,334 | — | — | 6,127,455 | 42,530,789 | ||||||||||||||||||||||
R.G. Niederhoffer Global Fund, L.P. | 26,594,262 | — | — | 241,321 | 26,835,583 | ||||||||||||||||||||||
Saints Capital VI, L.P. | 8,114,436 | 202,075 | 76,343 | (120,915 | ) | 8,119,253 | 39,927 | ||||||||||||||||||||
Salem Global Opportunity Fund, L.P. | 24,879,678 | — | — | (2,040,455 | ) | 22,839,223 | |||||||||||||||||||||
Samlyn Onshore Fund, L.P. | 94,955,663 | 10,000,000 | — | (7,543,234 | ) | 97,412,429 | |||||||||||||||||||||
SCP Sakonnet Fund, L.P. | 58,705,338 | — | — | (5,506,071 | ) | 53,199,267 | |||||||||||||||||||||
Skopos HG Fund, LLC | 262,504 | 262,504 | 37,290,645 | — | — | 1,359,642 | 38,650,287 | ||||||||||||||||||||
Sorin Fund, L.P. | 17,775,364 | — | 15,971,114 | 1,309,767 | 3,114,017 | (7,793,673 | ) | ||||||||||||||||||||
Southport Energy Plus Partners, L.P. | 108,765,888 | — | 10,000,000 | (19,681,680 | ) | 79,084,208 | 3,870,745 | ||||||||||||||||||||
Sovereign Capital III | — | 1,024,078 | — | (178,015 | ) | 846,063 | |||||||||||||||||||||
The Rohatyn Group Local Currency Opportunity Partners, L.P. | 73,227,160 | — | — | 98,323 | 73,325,483 | ||||||||||||||||||||||
Tiedemann/Falconer Partners, L.P. | 45,831,080 | — | 15,000,000 | 49,467 | 30,880,547 | 769,418 | |||||||||||||||||||||
Tiger Consumer Partners, L.P. | 42,044,130 | — | — | 286,112 | 42,330,242 | ||||||||||||||||||||||
Transwestern Mezzanine Realty Partners III, L.L.C. | 739,500 | 3,396,978 | — | 54,050 | 4,190,528 | ||||||||||||||||||||||
Trivest Fund IV, L.P. | 5,773,050 | 2,655,854 | 70,774 | 2,721,504 | 11,079,634 |
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
For the Period 1/1/2010 through 6/30/2010 | For the Period 1/1/2010 through 6/30/2010 | |||||||||||||||||||||||||
Investment Funds | Shares 12/31/2009 | Shares 6/30/2010 | Fair Value 12/31/2009 | Cost of Purchases | Cost of Sales* | Change in Appreciation (Depreciation) | Fair Value 6/30/2010 | Interest/ Dividend Income | Realized Gain (Loss) on Investments | |||||||||||||||||
Trustbridge Partners II, L.P. | $ | 17,645,511 | $ | 3,948,393 | $ | 5,344,119 | $ | 536,293 | $ | 16,786,078 | $ | 625,803 | ||||||||||||||
Trustbridge Partners III, L.P. | 6,418,556 | 3,397,234 | — | 5,295,919 | 15,111,709 | |||||||||||||||||||||
Tuckerbrook SB Global Distressed Fund I, L.P. | 6,667,136 | — | — | 528,284 | 7,195,420 | |||||||||||||||||||||
Valiant Capital Partners, L.P. | 94,003,401 | 4,837,880 | — | 6,551,885 | 105,393,166 | |||||||||||||||||||||
Velite Energy, L.P. | 115,196,350 | — | — | (11,054,820 | ) | 104,141,530 | ||||||||||||||||||||
Waterstone Market Neutral Fund, L.P. | 99,885,299 | — | — | 3,248,700 | 103,133,999 | |||||||||||||||||||||
WestView Capital Partners II, L.P. | 1,272,200 | 4,057,427 | — | (537,042 | ) | 4,792,585 | ||||||||||||||||||||
Whitebox Multi-Strategy Fund, L.P. | 100,080 | 100,080 | 100,198,491 | — | 460,154 | 3,258,398 | 102,996,735 | 141,236 | ||||||||||||||||||
$ | 3,117,515,994 | $ | 564,105,906 | $ | 227,268,380 | $ | 27,378,821 | $ | 3,481,732,341 | $ | 789,259 | $ | 62,730,969 | |||||||||||||
* | Sales include return of capital. |
** | Voting rights have been waived for these investments. |
*** | Affiliated investment based on capital commitment. No contributions have been made as of June 30, 2010. |
(6) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Investment Funds in which the Master Fund invests trade various derivative securities and other financial instruments, and enter into various investment activities with off-balance sheet risk both as an investor and as a principal. The Master Fund’s risk of loss in these Investment Funds is limited to the value of the investment in, or commitment to, such Investment Funds. In addition, the Master Fund may from time to time invest directly in derivative securities or other financial instruments to gain greater or lesser exposure to a particular asset class.
(7) DUE FROM BROKERS
The Master Fund conducts business with brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The Master Fund is subject to credit risk to the extent any broker with whom the Master Fund conducts business is unable to deliver cash balances or securities, or clear security transactions on the Master Fund’s behalf. The Master Fund monitors the financial condition of the brokers with which the Master Fund conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.
(8) ADMINISTRATION AGREEMENT
In consideration for administrative, accounting, and recordkeeping services, the Master Fund will pay the Independent Administrator a monthly administration fee based on the month end partners’ capital of the Master Fund. The Master Fund is charged, on an annual basis, 6 basis points on partners’ capital of up to $2 billion, 5 basis points on partners’ capital between the amounts of $2 billion and $5 billion, 2 basis points on partners’ capital between the amounts of $5 billion and $15 billion, and 1.25 basis points for amounts over $15 billion. The administration fee is payable monthly in arrears. The Independent Administrator will also provide the Master Fund with legal, compliance, transfer agency, and other investor related services at an additional cost.
29
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
The administration fees will be paid out of the Master Fund’s assets, which will decrease the net profits or increase the net losses of the partners in the Master Fund. As of June 30, 2010, the Master Fund had $5,213,238,717 in partners’ capital. The total administration fee incurred for the six months ended June 30, 2010, was $1,409,135.
(9) RELATED PARTY TRANSACTIONS
(a) INVESTMENT MANAGEMENT FEE
In consideration of the advisory and other services provided by the Adviser to the Master Fund pursuant to the Investment Management Agreement, the Master Fund will pay the Adviser an investment management fee (the “Investment Management Fee”), equal to 1.00% on an annualized basis of the Master Fund’s partners’ capital calculated based on the Master Fund’s partners’ capital at the end of each month, payable quarterly in arrears. The Investment Management Fee will decrease the net profits or increase the net losses of the Master Fund that are credited to or debited against the capital accounts of its partners. For the six months ended June 30, 2010, $27,139,735 was incurred for Investment Management Fees.
(b) PLACEMENT AGENTS
The Master Fund may engage one or more placement agents (each, a “Placement Agent”) to solicit investments in the Master Fund. Salient Capital, L.P., an affiliate of the Adviser, is a broker-dealer who has been engaged by the Master Fund to serve as a Placement Agent. A Placement Agent may engage one or more sub-placement agents. The Adviser or its affiliates may pay a fee out of their own resources to Placement Agents and sub-placement agents. As of June 30, 2010, two nonaffiliated sub-placement agents service approximately 86% of the feeder funds assets which are invested in the Master Fund. To the extent that substantial numbers of investors have a relationship with a particular sub-placement agent, such sub-placement agent may have the ability to influence investor behavior, which may affect the Master Fund.
(10) INDEBTEDNESS OF THE FUND
As a fundamental policy, the Master Fund may borrow up to, but not more than, 25% of the partners’ capital of the Master Fund (at the time such borrowings were made and after taking into account the investment and/or deployment of such proceeds) for the purpose of making investments, funding redemptions and for other working capital and general Master Fund purposes. For purposes of the Master Fund’s investment restrictions and certain investment limitations under the 1940 Act, including for example, the Master Fund’s leverage limitations, the Master Fund will not “look through” Investment Funds in which the Master Fund invests. Investment Funds may also use leverage, whether through borrowings, futures, or other derivative products and are not subject to the Master Fund’s investment restrictions. However, such borrowings by Investment Funds are without recourse to the Master Fund and the Master Fund’s risk of loss is limited to its investment in such Investment Funds, other than for some Investment Funds in which the Master Fund has made a capital commitment, for which the risk of loss is limited to the Master Fund’s total capital commitment. For some Investment Funds in which the Master Fund has made a capital commitment that will be funded over a period of time, such as private equity, private energy and real estate funds, the Master Fund, in certain instances, may commit to fund more than its initial capital commitment. The rights of any lenders to the Master Fund to receive payments of interest or repayments of principal will be senior to those of the partners, and the terms of any borrowings may contain provisions that limit certain activities of the Master Fund.
30
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements, continued
June 30, 2010
(Unaudited)
The Master Fund maintains a line of credit agreement (the “Agreement”) with Deutsche Bank Aktiengesellschaft which provides a $250,000,000 credit facility, with available borrowing capacity subject to collateral allocation ratios as defined in the Agreement. Borrowings under the Agreement are secured by the Master Fund’s investments. The Agreement provides for a commitment fee plus interest accruing on any borrowed amounts at the three-month London Interbank Offered Rate (LIBOR) plus a spread of 1.25% per annum, payable quarterly in arrears. As of June 30, 2010, there were no borrowings outstanding, and there were no borrowings under the agreement during the six months ended June 30, 2010. The credit facility expired on June 30, 2010, and was subsequently renewed with an expiration date of June 30, 2011.
(11) FINANCIAL HIGHLIGHTS
Six months ended June 30, 2010 (Unaudited) | Year ended December 31, 2009 | Year ended, December 31, 2008 | Year ended December 31, 2007 | Year ended December 31, 2006 | Year ended December 31, 2005 | |||||||||||||
Net investment loss to average partners’ capital1 | (0.85)% | (0.95)% | (1.19)% | (0.63)% | (0.61)% | (0.44)% | ||||||||||||
Expenses to average partners’ capital1,2 | 1.39% | 1.20% | 1.54% | 1.37% | 1.24% | 1.28% | ||||||||||||
Portfolio turnover | 13.81% | 27.40% | 29.19% | 4.19% | 15.31% | 12.65% | ||||||||||||
Total return3 | 0.88% | 14.96% | (23.46)% | 17.41% | 12.37% | 10.40% | ||||||||||||
Partners’ capital, end of period (in 000’s) | $ | 5,213,239 | $ | 5,212,611 | $ | 4,663,185 | $ | 3,269,969 | $ | 1,011,295 | $ | 376,169 |
An investor’s return (and operating ratios) may vary from those reflected based on the timing of capital transactions.
1 | Ratios are calculated by dividing the indicated amount by average partners’ capital measured at the end of each month during the period. These ratios have been annualized for periods less than twelve months. |
2 | Expense ratios do not include expenses of acquired funds that are paid indirectly by the Master Fund as a result of ownership of the underlying funds. Expenses include offshore withholding tax, which is only allocable to investors investing through the offshore feeder funds. |
3 | Calculated as geometrically linked monthly returns for each month in the year. Total returns are not annualized for periods less than twelve months. |
(12) SUBSEQUENT EVENTS
The Master Fund accepts initial or additional applications for Interests generally as of the first day of the month. Investor subscriptions for Interests totaled approximately $46,639,970 and $38,705,248 for July and August 2010, respectively.
Based on the partners’ capital of the Master Fund, the Adviser recommended to the Board that a tender offer in an amount of up to $542,000,000 be made for the quarter ending September 30, 2010 to those partners who elect to tender their Interests prior to the expiration of the tender offer period. The Board approved such recommendation and partners in the Master Fund were notified of a tender offer with an August 23, 2010 expiration date and approximately $185 million was tendered.
31
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
June 30, 2010
(Unaudited)
Directors and Officers
The Master Fund’s operations are managed under the direction and oversight of the Board. Each Director serves for an indefinite term or until he or she reaches mandatory retirement, if any, as established by the Board. The Board appoints the officers of the Master Fund who are responsible for the Master Fund’s day-to-day business decisions based on policies set by the Board. The officers serve at the pleasure of the Board.
Compensation for Directors
The Master Fund, The Endowment Institutional Fund, L.P, The Endowment Registered Fund, L.P. and The Endowment TEI Fund, L.P. together pay each of the Directors who is not an “interested person” of the Adviser, as defined in the 1940 Act (the “Independent Directors”) an annual retainer of $42,000, which is paid quarterly, a fee of $5,000 per Board meeting, a fee of $2,500 for any special Board meeting, a fee of $1,250 per interim Board meeting, a fee of $1,250 per each committee meeting to each committee member, and an annual fee of $10,000 for the audit committee chairman, and $7,500 for each other committee chair, each of which is paid quarterly, and an annual fee of $10,000, paid quarterly, to the lead Independent Director. There are currently five Independent Directors. In the interest of retaining Independent Directors of high quality, the Board intends to periodically review such compensation and may modify it as the Board deems appropriate.
Allocation of Investments
The following chart indicates the allocation of investments among the asset classes in the Master Fund as of June 30, 2010.
Asset Class1 | Fair Value | % | |||
Arbitrage Strategies | $ | 957,388,216 | 17.80 | ||
Domestic Equity | 437,009,834 | 8.12 | |||
Energy | 428,808,981 | 7.97 | |||
Enhanced Fixed Income | 701,066,158 | 13.03 | |||
International Equity | 495,179,788 | 9.20 | |||
Natural Resources | 213,656,616 | 3.97 | |||
Opportunistic Equity | 869,642,293 | 16.16 | |||
Private Equity | 678,411,588 | 12.61 | |||
Real Estate | 273,509,420 | 5.08 | |||
Agencies | 141,330,344 | 2.63 | |||
Fixed Income | 5,639,402 | 0.11 | |||
Call Options Purchased | 29,329,800 | 0.55 | |||
Money Market | 149,086,643 | 2.77 | |||
Total Investments | $ | 5,380,059,083 | 100.00 | ||
1 | The complete list of investments included in the following asset class categories is included in the Consolidated Schedule of Investments of the Master Fund. |
Form N-Q Filings
The Master Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Master Fund’s Form N-Q is
32
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Supplemental Information, continued
June 30, 2010
(Unaudited)
available on the Securities and Exchange Commission website at http://www.sec.gov. The Master Fund’s Form N-Q may be reviewed and copied at the Securities and Exchange Commission Public Reference Room in Washington, DC and information regarding operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Proxy Voting Policies
A description of the policies and procedures that the Master Fund uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1-800-725-9456; and (ii) on the Securities and Exchange Commission website at http://www.sec.gov.
Information regarding how the Master Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) without charge, upon request, by calling 1-800-725-9456; and (ii) on the Securities and Exchange Commission website at http://www.sec.gov.
Additional Information
The Master Fund’s private placement memorandum (the “PPM”) includes additional information about Directors of the Master Fund. The PPM is available, without charge, upon request by calling 1-800-725-9456.
Board Consideration of the Investment Management Agreement
At an in-person meeting of the Board held on January 12, 2010, the Board considered and approved the continuation of the Investment Management Agreement between the Master Fund and the Adviser. In preparation for review of this agreement, the Board requested the Adviser to provide detailed information which the Board determined to be reasonably necessary to evaluate the agreement. On January 5, 2010, the Independent Directors met in-person among themselves to review and discuss aspects of the materials, initially with, and later without, representatives of the Adviser being present. At the request of the Independent Directors, on January 5, 2010 and again during the January 12, 2010 meeting, representatives of the Adviser made extensive presentations regarding the materials and responded to questions from the Independent Directors relating to, among other things, portfolio management, the Adviser’s staffing and training program, Master Fund and Adviser compliance programs, Master Fund performance including benchmarks and comparisons to other funds, Master Fund fee levels, and the Adviser’s profitability and any economies of scale. Further, the Board, including the Independent Directors, took into consideration information furnished for the Board’s review and consideration throughout the year at regular Board meetings, as well as the information specifically prepared in connection with the renewal process. The Independent Directors were assisted at all times by independent counsel.
Following the Board’s review, the Board concluded that the Investment Management Agreement continues to enable the Master Funds’ partners to obtain high quality services at a cost that is appropriate, reasonable, and in the interests of investors based upon the following determinations, among others:
The nature, extent and quality of the advisory services provided. With respect to the Investment Management Agreement, the Board considered: the background and experience of key investment personnel and the Adviser’s ability to retain them; the Adviser’s focus on analysis of complex asset categories; the Adviser’s disciplined investment approach and commitment to investment principles; the Adviser’s significant investment
33
Table of Contents
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Supplemental Information, continued
June 30, 2010
(Unaudited)
in and commitment to personnel, including additional hiring and extensive training; the Adviser’s significant compliance and tax reporting efforts, and oversight of sales; and, the Adviser’s oversight of and interaction with service providers.
The Board concluded that the nature, extent and quality of the management and advisory service provided were appropriate and thus supported a decision to renew the Investment Management Agreement. The Board also concluded that the Adviser would be able to provide during the coming year the same quality of investment management and related services as provided in the past, that these services are appropriate in scope and extent in light of the Master Fund’s operations, the competitive landscape and investor needs.
The investment performance of the Master Fund. The Board evaluated the comparative information provided by the Adviser regarding the Master Fund’s investment performance, information on the performance of other investment funds and various indices, including the relevance of various indices. The Board also considered the various performance reports received throughout the year. The Board concluded that the Master Fund’s investment performance for the period met conveyed expectations regarding performance in a context of steeply rising equity markets and was in keeping with long-term investment expectations. On the basis of the Directors’ assessment, the Directors concluded that the Adviser was capable of generating a level of long-term investment performance that is appropriate in light of the Master Fund’s investment objective, policies and strategies and fully competitive with comparable funds.
The cost of advisory service provided and the level of profitability. In analyzing the cost of services and profitability of the Adviser, the Board considered the revenues earned and expenses incurred by the Adviser. The Board took into account the significant investment by and cost to the Adviser in additional personnel and service infrastructure to support the Master Fund and its investors. On the basis of the Board’s review of the fees to be charged by the Adviser for investment advisory and related services, the unique nature of the Master Fund’s investment program, the Adviser’s financial information, and the costs associated with managing the Master Fund, the Board concluded that the level of Investment Management Fees and the profitability is appropriate in light of the services provided, the management fees and overall expense ratios of comparable investment companies, and the anticipated profitability of the relationship between the Master Fund and the Adviser.
The extent to which economies of scale would be realized as the Master Fund grows and whether fee levels reflect these economies of scale for the benefit of Master Fund investors. While noting that the Investment Management Fees will not decrease as the level of Master Fund assets increase, the Board concluded that the Investment Management Fees reflect the Master Fund’s complex operations, the current economic environment for the Adviser, including its continued investment relating to support and monitoring of the Master Fund, investment decision-making, and the competitive nature of the investment company market as relevant to the Master Fund. The Board noted that as the Master Fund grew the need for investor support and in particular infrastructure and tax reporting grew. The Board noted cost reductions in certain service provider agreements. The Board noted that it will have the opportunity to periodically re-examine whether the Master Fund has achieved economies of scale, as well as the appropriateness of Investment Management Fees payable to the Adviser, in the future.
Benefits (such as soft dollars) to the Adviser from its relationship with the Master Fund. The Board concluded that other benefits derived by the Adviser from its relationship with the Master Fund, to the extent such benefits are identifiable or determinable, are reasonable and fair, result from the provision of appropriate
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Supplemental Information, continued
June 30, 2010
(Unaudited)
services to the Master Fund and investors therein, and are consistent with industry practice and the best interests of the Master Fund and its partners. In this regard, the Board noted that the Adviser does not realize “soft dollar” benefits from its relationship with the Master Fund.
Other considerations. The Board determined that the Adviser has made a continuing and substantial commitment both to the recruitment and retention of high quality personnel, monitoring and investment decision-making and provision of investor service, and maintained and expanded the financial, compliance and operational resources reasonably necessary to manage the Master Fund in a professional manner that is consistent with the best interests of the Master Fund and its partners. The Directors also concluded that the Adviser continues to make a significant entrepreneurial commitment to the management and success of the Master Fund.
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Item 2. | Code of Ethics. |
Not applicable.
Item 3. | Audit Committee Financial Expert. |
Not applicable.
Item 4. | Principal Accountant Fees and Services. |
Not applicable.
Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
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Item 6. | Investments. |
(a) Schedule of Investments as of the close of the reporting period is included in the report to the 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. |
Not applicable.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Period | (a) Total Number of Shares (or Unites) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchases as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||
January 1, 2010 through January 31, 2010 | $ | — | N/A | N/A | N/A | ||||
February 1, 2010 through February 28, 2010 | $ | — | N/A | N/A | N/A | ||||
March 1, 2010 through March 31, 2010 | $ | 168,459,886 | N/A | N/A | N/A | ||||
April 1, 2010 through April 30, 2010 | $ | — | N/A | N/A | N/A | ||||
May 1, 2010 through May 31, 2010 | $ | — | N/A | N/A | N/A | ||||
June 1, 2010 through June 30, 2010 | $ | 225,828,927 | N/A | N/A | N/A | ||||
Total | $ | 394,288,813 | |||||||
Item 10. | Submission of Matters to a Vote of Security Holders. |
Not applicable.
Item 11. | Controls and Procedures. |
The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is (i) accumulated and communicated to the investment company’s management, including its certifying officers, to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this
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report that have materially affected or are reasonably likely to materially affect the registrant’s internal control over financial reporting.
Item 12. | Exhibits. |
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith.
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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.
THE ENDOWMENT MASTER FUND, L.P. (Registrant) | ||
By (Signature and Title): | /S/ JOHN A. BLAISDELL | |
John A. Blaisdell Co-Principal Executive Officer |
Date: August 26, 2010
By (Signature and Title): | /S/ ANDREW B. LINBECK | |
Andrew B. Linbeck Co-Principal Executive Officer |
Date: August 26, 2010
By (Signature and Title): | /S/ A. HAAG SHERMAN | |
A. Haag Sherman Co-Principal Executive Officer |
Date: August 26, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title): | /S/ JOHN A. BLAISDELL | |
John A. Blaisdell Co-Principal Executive Officer |
Date: August 26, 2010
By (Signature and Title): | /S/ ANDREW B. LINBECK | |
Andrew B. Linbeck Co-Principal Executive Officer |
Date: August 26, 2010
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By (Signature and Title): | /S/ A. HAAG SHERMAN | |
A. Haag Sherman Co-Principal Executive Officer |
Date: August 26, 2010
By (Signature and Title): | /S/ JOHN E. PRICE | |
John E. Price Principal Financial Officer |
Date: August 26, 2010