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, 8TH FLOOR, HOUSTON, TX 77027
(Address of principal executive offices) (Zip code)
| With a copy to: | ||
| John A. Blaisdell | George J. Zornada | |
| The Endowment Master Fund, L.P. | K & L Gates LLP | |
| 4265 San Felipe, 8th Floor | 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: 12/31/14
Date of reporting period: 06/30/14
Item 1. Reports to Stockholders.
the
ENDOWMENT FUND
The Endowment Master Fund, L.P.
Shareholder Report
June 30, 2014
(Unaudited)
The Endowment Master Fund, L.P. | ||||
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THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Statement of Assets, Liabilities and Partners’ Capital
June 30, 2014
(Unaudited)
Assets | ||||
Investments in Investment Funds, at fair value (cost $225,714,901) | $ | 269,895,079 | ||
Investments in affiliated Investment Funds, at fair value (cost $43,276,988) | 33,866,084 | |||
Investments in securities, at fair value (cost $1,646,862) | 1,771,617 | |||
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| |||
Total investments | 305,532,780 | |||
Cash and cash equivalents | 16,088,454 | |||
Foreign currency, at value (cost $211,191) | 212,235 | |||
Advanced contributions to Investment Funds | 15,000,000 | |||
Receivable from investments sold | 5,732,880 | |||
Offshore withholding tax receivable | 876,504 | |||
Prepaids and other assets | 39,818 | |||
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| |||
Total assets | 343,482,671 | |||
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Liabilities and Partners’ Capital | ||||
Investment Management Fees payable | 786,971 | |||
Payable to affiliate | 25,167,156 | |||
Administration fees payable | 33,876 | |||
Payable to Adviser | 126,042 | |||
Payable to Directors | 147,510 | |||
Accounts payable and accrued expenses | 1,156,149 | |||
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Total liabilities | 27,417,704 | |||
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Partners’ capital | 316,064,967 | |||
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Total liabilities and partners’ capital | $ | 343,482,671 | ||
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See accompanying notes to financial statements.
1
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||||
Investments in Investment Funds | ||||||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies | ||||||||||
Cayman Islands | ||||||||||
Energy (1.53% of Partners’ Capital) | ||||||||||
Sentient Global Resources Fund III, L.P. | $ | 3,493,863 | ||||||||
Sentient Global Resources Fund IV, L.P. | 1,327,994 | |||||||||
Private Equity (14.70% of Partners’ Capital) | ||||||||||
ABRY Advanced Securities Fund, L.P. | 279,035 | |||||||||
CX Partners Fund Ltd.(1) | 3,386,717 | |||||||||
Gavea Investment Fund II A, L.P. | 278,648 | |||||||||
Gavea Investment Fund III A, L.P. | 5,401,708 | |||||||||
Hillcrest Fund, L.P. | 1,771,826 | |||||||||
India Asset Recovery Fund, L.P. | 36,249 | |||||||||
J.C. Flowers III, L.P.(1) | 2,029,761 | |||||||||
LC Fund IV, L.P.(1) | 3,723,180 | |||||||||
New Horizon Capital III, L.P.(1) | 5,270,250 | |||||||||
Northstar Equity Partners III Ltd. | 1,098,508 | |||||||||
Orchid Asia IV, L.P.(1) | 1,594,868 | |||||||||
Reservoir Capital Partners (Cayman), L.P. | 2,176,037 | |||||||||
Tiger Global Private Investment Partners IV, L.P.(1) | 1,620,402 | |||||||||
Tiger Global Private Investment Partners V, L.P.(1) | 4,560,329 | |||||||||
Tiger Global Private Investment Partners VI, L.P.(1) | 1,559,441 | |||||||||
Trustbridge Partners II, L.P.(1) | 3,050,000 | |||||||||
Trustbridge Partners III, L.P.(1) | 6,370,000 | |||||||||
Trustbridge Partners IV, L.P.(1) | 2,260,000 | |||||||||
Real Estate (1.51% of Partners’ Capital) | ||||||||||
Forum European Realty Income III, L.P. | 2,519,768 | |||||||||
Phoenix Asia Real Estate Investments II, L.P.(1) | 1,650,807 | |||||||||
Phoenix Real Estate Fund (T), L.P. | 590,755 | |||||||||
Relative Value (0.03% of Partners’ Capital) | ||||||||||
Montrica Global Opportunities Fund, L.P. | 3,943 | 79,254 | ||||||||
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Total Cayman Islands | 56,129,400 | |||||||||
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Guernsey | ||||||||||
Private Equity (0.36% of Partners’ Capital) | ||||||||||
Mid Europa Fund III, L.P.(1) | 1,142,475 | |||||||||
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| |||||||||
Total Guernsey | 1,142,475 | |||||||||
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| |||||||||
See accompanying notes to financial statements.
2
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Schedule of Investments, continued
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | ||||||||
Republic of Mauritius | ||||||||
Real Estate (0.74% of Partners’ Capital) | ||||||||
Orbis Real Estate Fund I(2) | $ | 2,336,019 | ||||||
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| |||||||
Total Republic of Mauritius | 2,336,019 | |||||||
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United Kingdom | ||||||||
Private Equity (1.33% of Partners’ Capital) | ||||||||
Darwin Private Equity I, L.P.(1) | 1,152,978 | |||||||
Sovereign Capital Limited Partnership III | 3,053,910 | |||||||
Real Estate (0.42% of Partners’ Capital) | ||||||||
Benson Elliott Real Estate Partners II, L.P. | 322,494 | |||||||
Patron Capital, L.P. II | 75,682 | |||||||
Patron Capital, L.P. III | 923,512 | |||||||
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Total United Kingdom | 5,528,576 | |||||||
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| |||||||
United States | ||||||||
Energy (10.88% of Partners’ Capital) | ||||||||
ArcLight Energy Partners Fund IV, L.P.(1) | 725,306 | |||||||
ArcLight Energy Partners Fund V, L.P.(1) | 1,172,852 | |||||||
CamCap Resources, L.P. | 34,345 | |||||||
EnCap Energy Capital Fund VII-B, L.P.(1) | 726,956 | |||||||
EnCap Energy Infrastructure TE Feeder, L.P.(1) | 1,113,554 | |||||||
Intervale Capital Fund, L.P.(1) | 2,678,290 | |||||||
Merit Energy Partners G, L.P.(1) | 3,309,259 | |||||||
Midstream & Resources Follow-On Fund, L.P. | 4,858,564 | |||||||
NGP Energy Technology Partners II, L.P.(1) | 892,266 | |||||||
NGP IX Offshore Fund, L.P.(1) | 4,482,022 | |||||||
NGP Midstream & Resources, L.P.(1) | 3,041,922 | |||||||
Quantum Parallel Partners V, L.P. | 5,944,000 | |||||||
Tenaska Power Fund II-A, L.P.(1) | 2,820,364 | |||||||
The Energy & Minerals Group Fund II(1) | 2,572,175 | |||||||
Tocqueville Gold Partners, L.P. | 24,345 | |||||||
Event-Driven (6.14% of Partners’ Capital) | ||||||||
BDCM Partners I, L.P. | 4,580,726 | |||||||
Credit Distressed Blue Line Fund, L.P.(2) | 1,797,614 | |||||||
Fortelus Special Situations Fund, L.P. | 792,869 | |||||||
Halcyon European Structured Opportunities Fund, L.P.(2) | 10,357 | |||||||
Harbinger Capital Partners Fund I, L.P.(2) | 3,564,883 | |||||||
Harbinger Capital Partners Fund II, L.P. | 259,320 | |||||||
Harbinger Capital Partners Special Situations Fund, L.P. | 228,121 | |||||||
Harbinger Class L Holdings (U.S.), LLC | 16,375 | |||||||
See accompanying notes to financial statements.
3
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Schedule of Investments, continued
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | ||||||||||
United States (continued) | ||||||||||
Event-Driven (6.14% of Partners’ Capital) (continued) | ||||||||||
Harbinger Class LS Holdings (U.S.) Trust | 592 | $ | 8,551 | |||||||
Harbinger Class PE Holdings (U.S.) Trust | 1 | 181,675 | ||||||||
Prospect Harbor Credit Partners, L.P. | 258,817 | |||||||||
Providence MBS Fund, L.P. | 7,708,608 | |||||||||
Global Macro and Trading (15.41% of Partners’ Capital) | ||||||||||
Blueshift Energy Fund, L.P.(3) | 20,206,448 | |||||||||
Hayman Capital Partners, L.P.(1) | 9,587,257 | |||||||||
Kepos Alpha Fund, L.P. | 12,256,141 | |||||||||
Passport Global Strategies III Ltd. | 348 | 72,124 | ||||||||
Velite Energy, L.P. | 6,582,599 | |||||||||
Private Equity (24.27% of Partners’ Capital) | ||||||||||
Accel-KKR Capital Partners III, L.P. | 1,574,680 | |||||||||
Advent Latin American Private Equity Fund IV-F, L.P. | 687,194 | |||||||||
Advent Latin American Private Equity Fund V-F, L.P. | 1,564,671 | |||||||||
Audax Mezzanine Fund II, L.P.(1) | 976,042 | |||||||||
Audax Mezzanine Fund III, L.P.(1) | 9,071,880 | |||||||||
BDCM Opportunity Fund II, L.P.(1) | 1,853,290 | |||||||||
Black River Commodity Multi-Strategy Fund, LLC | 95,965 | |||||||||
Capital Royalty Partners, L.P.(1) | 140,669 | |||||||||
Catterton Growth Partners, L.P. | 2,951,668 | |||||||||
CCM Small Cap Value Qualified Fund, L.P.(2) | 464,041 | |||||||||
Chrysalis Ventures III, L.P. | 365,222 | |||||||||
Crosslink Crossover Fund IV, L.P. | 159,794 | |||||||||
Crosslink Crossover Fund V, L.P. | 996,475 | |||||||||
Crosslink Crossover Fund VI, L.P. | 2,719,862 | |||||||||
Dace Ventures I, L.P. | 241,148 | |||||||||
Fairhaven Capital Partners, L.P. | 1,226,160 | |||||||||
Garrison Opportunity Fund II A, LLC | 2,176,742 | |||||||||
Garrison Opportunity Fund, LLC | 2,768,084 | |||||||||
HealthCor Partners Fund, L.P. | 1,300,222 | |||||||||
Highland Credit Strategies Liquidation Vehicle Onshore | 338,960 | |||||||||
Integral Capital Partners VIII, L.P. | 564,220 | |||||||||
Ithan Creek Partners, L.P. | 2,528,611 | |||||||||
Kior Shares Liquidating Capital Account | 0 | |||||||||
L-R Global Partners, L.P. | 62,759 | |||||||||
MatlinPatterson Global Opportunities Partners III, L.P.(1) | 1,674,652 | |||||||||
Middle East North Africa Opportunities Fund, L.P.(2) | 789 | 240,768 | ||||||||
See accompanying notes to financial statements.
4
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Schedule of Investments, continued
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | ||||||||||
United States (continued) | ||||||||||
Private Equity (24.27% of Partners’ Capital) (continued) | ||||||||||
Monomoy Capital Partners II, L.P. | $ | 683,937 | ||||||||
Monomoy Capital Partners, L.P. | 262,361 | |||||||||
Monsoon India Inflection Fund 2, L.P. | 46,502 | |||||||||
Monsoon India Inflection Fund, L.P. | 26,060 | |||||||||
Penta Asia Domestic Partners, L.P. | 378,378 | |||||||||
Pine Brook Capital Partners, L.P.(1) | 3,488,525 | |||||||||
Pinto America Growth Fund, L.P.(1) | 292,743 | |||||||||
Private Equity Investment Fund V, L.P.(1) | 6,795,509 | |||||||||
Saints Capital VI, L.P.(1) | 2,432,923 | |||||||||
Samlyn Onshore Fund, L.P. | 166,643 | |||||||||
Sanderling Venture Partners VI Co-Investment Fund, L.P. | 299,218 | |||||||||
Sanderling Venture Partners VI, L.P. | 195,781 | |||||||||
Steel Partners Japan Strategic Fund, L.P. | 384,440 | |||||||||
Sterling Capital Partners II, L.P.(1) | 218,571 | |||||||||
Sterling Group Partners II, L.P. | 151,840 | |||||||||
Sterling Group Partners III, L.P. | 1,540,790 | |||||||||
Strategic Value Global Opportunities Fund I-A, L.P. | 332,485 | |||||||||
TAEF Fund, LLC | 657,671 | |||||||||
Tenaya Capital V, L.P. | 1,204,462 | |||||||||
Tenaya Capital VI, L.P. | 1,003,638 | |||||||||
The Column Group, L.P. | 1,309,576 | |||||||||
The Founders Fund III, L.P. | 3,286,896 | |||||||||
The Founders Fund IV, L.P. | 2,889,637 | |||||||||
The Raptor Private Holdings, L.P. | 284 | 145,527 | ||||||||
Trivest Fund IV, L.P.(1) | 2,743,683 | |||||||||
Tuckerbrook SB Global Distressed Fund I, L.P. | 796,766 | |||||||||
Tybourne Equity (U.S.) Fund | 645,072 | |||||||||
Valiant Capital Partners, L.P. | 895,029 | |||||||||
VCFA Private Equity Partners IV, L.P.(1) | 183,245 | |||||||||
VCFA Venture Partners V, L.P. | 833,208 | |||||||||
Voyager Capital Fund III, L.P. | 661,674 | |||||||||
WestView Capital Partners II, L.P.(1) | 5,002,338 | |||||||||
Real Estate (6.76% of Partners’ Capital) | ||||||||||
Aslan Realty Partners III, LLC(1) | 75,015 | |||||||||
Cypress Realty VI, L.P. | 855,544 | |||||||||
Florida Real Estate Value Fund, L.P. | 1,201,740 | |||||||||
GTIS Brazil Real Estate Fund (Brazilian Real), L.P.(1) | 3,680,243 | |||||||||
See accompanying notes to financial statements.
5
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Schedule of Investments, continued
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||||
Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued) | ||||||||||
United States (continued) | ||||||||||
Real Estate (6.76% of Partners’ Capital) (continued) | ||||||||||
Lone Star Real Estate Fund II (U.S.), L.P. | $ | 913,056 | ||||||||
Monsoon Infrastructure & Realty Co-Invest, L.P. | 2,644,805 | |||||||||
Northwood Real Estate Co-Investors, L.P.(1) | 1,292,159 | |||||||||
Northwood Real Estate Partners, L.P.(1) | 2,338,812 | |||||||||
Parmenter Realty Fund III, L.P. | 771,302 | |||||||||
Parmenter Realty Fund IV, L.P.(1) | 1,302,076 | |||||||||
Pearlmark Mezzanine Realty Partners III, LLC(1) | 1,693,344 | |||||||||
Pennybacker II, L.P.(1) | 1,289,303 | |||||||||
SBC Latin America Housing US Fund, L.P. | 1,477,668 | |||||||||
Square Mile Partners III, L.P.(1) | 1,824,861 | |||||||||
Relative Value (10.35% of Partners’ Capital) | ||||||||||
Blue Mountain Credit Alternatives Fund, L.P. | 9,526,836 | |||||||||
Citadel Wellington, LLC | 11,271,782 | |||||||||
Eton Park Fund, L.P. | 88,432 | |||||||||
Kenmont Onshore Fund, L.P.(2) | 2,897 | |||||||||
King Street Capital, L.P. | 164,782 | |||||||||
Magnetar Capital Fund, L.P. | 881,470 | |||||||||
Magnetar SPV, LLC (Series L) | 307,210 | |||||||||
Millennium USA, L.P. | 4,728,956 | |||||||||
OZ Asia Domestic Partners, L.P.(1) | 301,334 | |||||||||
PIPE Equity Partners, LLC(2) | 1,392,688 | |||||||||
PIPE Select Fund, LLC(2) | 3,850,369 | |||||||||
Stark Investments, L.P.(1) | 17,521 | |||||||||
Stark Select Asset Fund, LLC | 185,148 | |||||||||
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Total United States | 233,286,965 | |||||||||
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Total Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies | 298,423,435 | 94.42 | % | |||||||
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See accompanying notes to financial statements.
6
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Schedule of Investments, continued
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||||||
Passive Foreign Investment Companies | ||||||||||||
Cayman Companies Limited by Shares, Exempted Companies and Limited Liability Companies | ||||||||||||
Energy (0.09% of Partners’ Capital) | ||||||||||||
Ospraie Special Opportunities (Offshore) Ltd. | $ | 293,500 | ||||||||||
Private Equity (0.15% of Partners’ Capital) | ||||||||||||
Q China Holdings Ltd. | 1,052 | 111,119 | ||||||||||
Q India Holdings Ltd. | 2,429 | 257,199 | ||||||||||
Quorum Fund Ltd. | 1,608 | 94,381 | ||||||||||
Relative Value (0.88% of Partners’ Capital) | ||||||||||||
CRC Credit Fund Ltd. | 10,071 | 2,671,780 | ||||||||||
Overseas CAP Partners, Inc. | 14 | 117,140 | ||||||||||
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Total Cayman Companies Limited by Shares, Exempted Companies and Limited Liability Companies | 3,545,119 | |||||||||||
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Total Passive Foreign Investment Companies | 3,545,119 | 1.12 | % | |||||||||
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Private Corporations | ||||||||||||
United States | ||||||||||||
Real Estate (0.57% of Partners’ Capital) | ||||||||||||
Legacy Partners Realty Fund II, Inc. | 293,231 | |||||||||||
Legacy Partners Realty Fund III, Inc. | 1,172,544 | |||||||||||
Net Lease Private REIT V, Inc.(1) | 3,131 | |||||||||||
Net Lease Private REIT VI, Inc. | 107,377 | |||||||||||
Net Lease Private REIT VII, Inc. | 108,163 | |||||||||||
Net Lease Private REIT VII-A, Inc. | 108,163 | |||||||||||
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Total Private Corporations | 1,792,609 | 0.57 | % | |||||||||
|
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Total Investments in Investment Funds Cost ($268,991,889) | 303,761,163 | 96.11 | % | |||||||||
|
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Investments in Securities | ||||||||||||
Common Stock | ||||||||||||
United States | ||||||||||||
Private Equity (0.30% of Partners’ Capital) | ||||||||||||
Houghton Mifflin Harcourt Co. | 48,860 | 936,158 | ||||||||||
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Total Common Stock | 936,158 | 0.30 | % | |||||||||
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See accompanying notes to financial statements.
7
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Schedule of Investments, continued
June 30, 2014
(Unaudited)
| Shares | Fair Value | % of Partners’ Capital | ||||||||||
Registered Investment Companies | ||||||||||||
United States | ||||||||||||
Money Market Funds (0.26% of Partners’ Capital) | ||||||||||||
JPMorgan 100% U.S. Treasury Securities Money Market Fund(1) | 835,459 | $ | 835,459 | |||||||||
|
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Total Registered Investment Companies | 835,459 | 0.26 | % | |||||||||
|
| |||||||||||
Total Investments in Securities (Cost $1,646,862) | 1,771,617 | 0.56 | % | |||||||||
|
| |||||||||||
Derivative Contracts—Assets | ||||||||||||
Warrants Purchased | ||||||||||||
United States | ||||||||||||
Global Macro and Trading (0.00% of Partners’ Capital) | ||||||||||||
Bally Total Fitness Holdings Corp. Warrants Exp. Sep. 2014, Strike Price $20.00 USD | 4 | — | ||||||||||
|
| |||||||||||
Total Warrants Purchased | — | 0.00 | % | |||||||||
|
| |||||||||||
Total Derivative Contracts—Assets (Cost $—) | — | 0.00 | % | |||||||||
|
| |||||||||||
Total Investments (Cost $270,638,751) | $ | 305,532,780 | 96.67 | % | ||||||||
|
| |||||||||||
The Master Fund’s total outstanding capital commitments to Investment Funds as of June 30, 2014 were $48,137,064. 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 Investment Funds and securities are non-income producing unless noted otherwise.
| (1) | Income producing investment |
| (2) | Affiliated investments (See Note 5c) |
| (3) | Affiliated investments for which ownership exceeds 25% of Partners’ Capital |
See accompanying notes to financial statements.
8
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Six Months Ended June 30, 2014
(Unaudited)
Investment income: | ||||
Dividend income | $ | 2,520,102 | ||
Interest income | 762,862 | |||
|
| |||
Total investment income | 3,282,964 | |||
|
| |||
Expenses: | ||||
Investment Management Fees | 5,948,531 | |||
Administration fees | 361,549 | |||
Professional fees | 4,117,928 | |||
Consulting fees | 1,600,000 | |||
Custodian fees | 138,707 | |||
Directors fees | 153,012 | |||
Interest expense | 3,149 | |||
Offshore withholding tax expense | 1,059,131 | |||
Other expenses | 900,219 | |||
|
| |||
Total expenses | 14,282,226 | |||
|
| |||
Net investment loss | (10,999,262 | ) | ||
|
| |||
Net realized and unrealized gain (loss): | ||||
Net realized gain from investments and foreign currency translations | 25,960,609 | |||
Net realized gain from futures contracts | 7,029,230 | |||
Net realized loss from purchased options | (9,921,550 | ) | ||
Net realized gain from swap agreements | 795,643 | |||
Net realized gain from redemptions in-kind | 251,936 | |||
Net realized loss from affiliated Investment Funds | (3,923,447 | ) | ||
Change in unrealized appreciation/depreciation | (21,391,633 | ) | ||
|
| |||
Net realized and unrealized loss | (1,199,212 | ) | ||
|
| |||
Net decrease in partners’ capital resulting from operations | $ | (12,198,474 | ) | |
|
|
See accompanying notes to financial statements.
9
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Statements of Changes in Partners’ Capital
Year Ended December 31, 2013 and
Six Months Ended June 30, 2014 (Unaudited)
Partners’ capital at December 31, 2012 | $ | 3,071,734,183 | ||
Contributions | 468,913 | |||
Withdrawals | (1,130,957,698 | ) | ||
Net increase in partners’ capital resulting from operations: | ||||
Net investment loss | (20,454,781 | ) | ||
Net realized gain from investments and foreign currency translations | 199,189,193 | |||
Net realized loss from futures contracts | (30,196,456 | ) | ||
Net realized loss from swap agreements | (59,469,633 | ) | ||
Net realized loss from forward foreign currency exchange contracts | (8,860,029 | ) | ||
Net realized loss from redemptions in-kind | 170,632 | |||
Net realized gain from affiliated Investment Funds | 19,603,727 | |||
Change in unrealized appreciation/depreciation | 22,813,375 | |||
|
| |||
Net increase in partners’ capital resulting from operations | 122,796,028 | |||
|
| |||
Partners’ capital at December 31, 2013 | 2,064,041,426 | |||
|
| |||
Contributions | 210,078 | |||
Withdrawals | (12,715,834 | ) | ||
Transfer of Interests to The Endowment PMF Master Fund, L.P. | (1,723,272,229 | ) | ||
Net decrease in partners’ capital resulting from operations: | ||||
Net investment loss | (10,999,262 | ) | ||
Net realized gain from investments and foreign currency translations | 25,960,609 | |||
Net realized gain from futures contracts | 7,029,230 | |||
Net realized loss from purchased options | (9,921,550 | ) | ||
Net realized gain from swap agreements | 795,643 | |||
Net realized gain from redemptions in-kind | 251,936 | |||
Net realized gain from affiliated Investment Funds | (3,923,447 | ) | ||
Change in unrealized appreciation/depreciation | (21,391,633 | ) | ||
|
| |||
Net decrease in partners’ capital resulting from operations | (12,198,474 | ) | ||
|
| |||
Partners’ capital at June 30, 2014 | $ | 316,064,967 | ||
|
|
See accompanying notes to financial statements.
10
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Six Months Ended June 30, 2014
(Unaudited)
Cash flows from operating activities: | ||||
Net decrease in partners’ capital resulting from operations | $ | (12,198,474 | ) | |
Adjustments to reconcile net decrease in partners’ capital resulting from operations to net cash provided by operating activities: | ||||
Purchases of investments | (216,511,005 | ) | ||
Proceeds from disposition of investments | 512,366,694 | |||
Premiums paid on credit default swap agreements | 2,907,059 | |||
Net realized gain from investments | (15,635,576 | ) | ||
Net realized gain from redemptions in-kind | (251,936 | ) | ||
Net realized loss from affiliated Investment Funds | 3,923,447 | |||
Change in unrealized appreciation/depreciation from investments | 11,888,001 | |||
Change in unrealized appreciation/depreciation from swap agreements | 1,608,926 | |||
Change in operating assets and liabilities: | ||||
Deposits with brokers for futures contracts | 21,305,867 | |||
Deposits with brokers for swap agreements | 15,534,304 | |||
Foreign currency, at value | (212,235 | ) | ||
Advanced Contributions to Investment Funds | (15,000,000 | ) | ||
Receivable from investments sold | 36,246,571 | |||
Receivable from affiliated investments sold | 35,242,278 | |||
Offshore withholding tax receivable | (876,504 | ) | ||
Prepaids and other assets | 383,022 | |||
Investment Management Fees payable | (5,844,361 | ) | ||
Payable to affiliate | (163,867,391 | ) | ||
Offshore withholding tax payable | (910,683 | ) | ||
Administration fees payable | (221,908 | ) | ||
Payable to Adviser | 26,042 | |||
Payable to Directors | 5,760 | |||
Accounts payable and accrued expenses | 125,628 | |||
|
| |||
Net cash provided by operating activities | 210,033,526 | |||
|
| |||
Cash flows from financing activities: | ||||
Contributions | 210,078 | |||
Withdrawals | (663,586,511 | ) | ||
|
| |||
Net cash used in financing activities | (663,376,433 | ) | ||
|
| |||
Net change in cash and cash equivalents | (453,342,907 | ) | ||
Cash and cash equivalents at beginning of period | 469,431,361 | |||
|
| |||
Cash and cash equivalents at end of period | $ | 16,088,454 | ||
|
| |||
Supplemental schedule of cash activity: | ||||
Cash paid for offshore withholding taxes | $ | 2,846,318 | ||
Cash paid for interest | 3,895 | |||
Supplemental schedule of noncash activity: | ||||
Redemptions in-kind (Cost $812,672) | $ | 1,064,608 | ||
Transfer of Interests to The Endowment PMF Master Fund, L.P. | (1,723,272,229 | ) | ||
See accompanying notes to financial statements.
11
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
June 30, 2014
(Unaudited)
(1) ORGANIZATION
The Endowment Master Fund, L.P. (the “Master Fund”) a Delaware limited partnership, commenced operations on April 1, 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 nine feeder funds.
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 is primarily a “fund of funds” which 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 Investment Funds are managed by a carefully selected group of investment managers, identified by the Adviser, as hereinafter defined. The various styles and strategies employed by the Investment Funds and supplemented by the Master Fund’s direct investments, serve to achieve a portfolio that is broadly allocated.
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, as hereinafter defined, or any committee of the Board.
The Board is authorized to engage an investment adviser, and pursuant to an investment management agreement, (the “Investment Management Agreement”), it has selected Endowment Advisers, L.P. (the “Adviser”), to manage the Master Fund’s portfolio and operations. 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 (the “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 Directors and officers 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 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.
On March 31, 2014 the Master Fund transferred in-kind a portfolio of Investment Funds to The Endowment PMF Master Fund, L.P. (the “PMF Master Fund”), in exchange for limited partnership interests (the “Interests”) of the PMF Master Fund totaling $1,723,272,229. The transfer was accounted for as a tax-free transaction resulting in Investment Funds transferring to the PMF Master Fund with a total market value of $1,490,836,309, consisting of total cost and accumulated appreciation of $1,317,376,887 and $173,459,422, respectively.
12
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
(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 (“U.S. GAAP”). The accompanying financial statements reflect the financial position of the Master Fund and the results of its operations.
(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 investment transactions on a trade-date basis.
Investments that are held by the Master Fund, including those that have been sold short, are marked to fair value at the date of the financial statements, and the corresponding change in unrealized appreciation/depreciation is included in the Statement of Operations.
Dividend income is recorded on the ex-dividend date. Other investment fund distributions are recorded based on the detail provided with the distribution notice, as applicable. Realized gains or losses on the disposition of investments are accounted for based on the first in first out method.
(d) INVESTMENT VALUATION
The valuation of the Master Fund’s investments is determined as of the close of business at the end of each reporting 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 “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 of such valuation policies.
The Board has authorized the Adviser to establish a valuation committee of the Adviser (the “Adviser Valuation Committee”). The function of the Adviser Valuation Committee, subject to the oversight of the Board Valuation Committee and the Board, is generally to review valuation methodologies, valuation determinations, and any information provided to the Adviser Valuation Committee by the Adviser or the Administrator.
The Master Fund is not able to obtain complete underlying investment holding details on each of the Investment Funds in order to determine if the Master Fund’s proportional, aggregated, indirect share of any investments held by the Investment Funds exceeds 5% of net assets of the Master Fund as of June 30, 2014.
13
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
Investments currently held by the Master Fund are valued as follows:
| • | INVESTMENT FUNDS—Investments in Investment Funds are carried at fair value, using the net asset value (the “NAV”) as a practical expedient, as provided to the 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. All of the Master Fund’s valuations utilize 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 shares at NAV as reported by an Investment Fund for valuation purposes, or whether to adjust such reported value to reflect an adjusted fair value. Because of the inherent uncertainty of valuation, fair value may differ significantly from the value that would have been used had readily available markets for the investments in Investment Funds existed. 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. Investment Funds are typically categorized as Level 2 or Level 3 in the fair value hierarchy based upon liquidity. |
| • | SECURITIES LISTED ON A SECURITIES EXCHANGE OR OVER-THE-COUNTER EXCHANGES— In general, the Master Fund values these securities at their last sales price on the exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Master Fund uses the price from the exchange that it considers to be the principal exchange on which the security is traded. If there have been no sales for that day on the exchange where the security is principally traded, then the price of the security will be valued at the mean between the closing bid and ask prices on the valuation date. In these situations, valuations are typically categorized as Level 1 in the fair value hierarchy. 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 occurred between the close of the foreign exchange and the valuation date of the Master Fund’s NAV that would materially affect the value of the security and the NAV of the Master Fund, the value of such security and the NAV of the Master Fund will be adjusted to reflect the change in the estimated value of the security. Such fair valued securities are typically categorized as Level 2 in the fair value hierarchy, based upon the inputs used to value the securities. |
| • | DERIVATIVES—Exchange traded futures contracts are valued using quoted final settlement prices from the national exchange on which they are principally traded and are typically categorized as Level 1 in the fair value hierarchy. If no such price is reported by such exchange on the valuation date, the Adviser Valuation Committee will determine the fair value in good faith using information that is available at such time. Such fair valued investments are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based upon the inputs used to value the investments. |
Options that are listed on a securities exchange are generally valued at the closing “bid” and “ask” prices for options held long and short, respectively on the valuation date and are typically categorized as Level 1 in the fair value hierarchy. If no such bid or ask price is reported, the positions are valued at
14
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
the last sales price on the valuation date. If no such sales price is reported by such exchange on the valuation date, the Adviser Valuation Committee in conjunction with the Administrator will determine the fair value of such investments in good faith using information that is available at such time. Such fair valued options are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based upon the inputs used to value the investments.
Non exchange-traded derivatives, such as swap agreements, are valued based on procedures approved by the Board and are typically categorized as Level 2 in the fair value hierarchy. Credit default swaps and total return swaps are generally fair valued using evaluated quotes provided by an independent pricing service. If a quotation is not available from the independent pricing service, the price is obtained from a broker (typically the counterparty to the swap agreement) on the valuation date.
Forward foreign currency exchange contracts are valued at the current day’s interpolated foreign exchange rate, which is calculated using the current day’s spot rate and the 30 day forward rate, or the 30 to 720 day forward rates converted to U.S. dollars at the exchange rate of such currencies on the valuation date. Such valuations are provided by a pricing service approved by the Board, and are typically categorized as Level 2 in the fair value hierarchy.
| • | OTHER—Investments in open-end registered investment companies (“RICs”) that do not trade on an exchange are valued at the end of day NAV per share and are categorized as Level 1 in the fair value hierarchy. Where no value is readily available from a RIC or other security, or where a value supplied by a RIC is deemed not to be indicative of the RIC’s value, the Adviser Valuation Committee and/or the Board Valuation Committee, in consultation with the Administrator or the Adviser, will determine, in good faith, the fair value of the RIC or other security. Such fair valued investments are typically categorized as Level 1 or Level 2 in the fair value hierarchy, based upon the inputs used to value the investments. |
Fixed-income securities are valued according to prices as furnished by an independent pricing service or broker/dealer quotes and are typically categorized as Level 2 in the fair value hierarchy. Fixed-income securities maturing within a relatively short time frame may be valued at amortized cost, which approximates market value, and are typically categorized as Level 2 in the fair value hierarchy.
| • | 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 pursuant to the fair valuation procedures approved by the Board. In each of these situations, valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based upon the inputs used to value the investments. |
(e) FOREIGN CURRENCY
The accounting records of the Master Fund are maintained in U.S. dollars. Foreign currency amounts and investments denominated in a foreign currency, if any, are translated into U.S. dollar amounts at current exchange rates on the valuation date. Purchases and sales of investments denominated in foreign currencies are translated into U.S. dollar amounts at the exchange rate on the respective dates of such transactions.
(f) DERIVATIVE INSTRUMENTS
All open derivative positions at period-end are presented in the Master Fund’s Schedules of Investments. In addition to the derivatives held by the Master Fund, the Investment Funds may have directly engaged in
15
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
derivative transactions during the period. The following is a description of the derivative instruments the Master Fund utilizes as part of its investment strategy, including the primary underlying risk exposures related to each instrument type.
OPTIONS CONTRACTS—The Master Fund invests in options contracts to speculate on the price movements of a financial instrument or for use as an economic hedge against certain positions held in the Master Fund’s portfolio. Options contracts purchased give the Master Fund the right, but not the obligation, to buy or sell the underlying instrument for a specified price upon exercise at any time during the option period. Options contracts written obligate the Master Fund to buy or sell the underlying instrument for a specified price upon exercise at any time during the option period. When the Master Fund writes an options contract, an amount equal to the premium received by the Master Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option contract written.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS—The Master Fund may enter into forward foreign currency exchange contracts in connection with its investment objective in order to gain more or less exposure to foreign currencies. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. The Master Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The Master Fund remains subject to credit risk with respect to the amount it expects to receive from counterparties. However, the Master Fund has sought to mitigate these risks by generally requiring the posting of collateral at prearranged exposure levels to cover its exposure to the counterparty.
FUTURES CONTRACTS—The Master Fund may invest in futures contracts as part of its strategy to manage exposure to interest rate, equity and market price movements, and commodity prices. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Upon entering into a futures contract, the Master Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount (initial margin deposit). Subsequent payments, known as “variation margin,” are made or received by the Master Fund, depending on fluctuations in the value of the underlying asset.
The underlying assets are not physically delivered. The Master Fund recognizes a gain or loss equal to the variation margin. Should market conditions move unexpectedly, the Master Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. The use of futures transactions involves, to varying degrees, elements of market risk (generally equity price risk related to stock index or equity futures contracts, interest rate risk related to bond futures contracts, and commodity price risk related to commodity futures contracts) and exposure to loss. The face or contract amount reflects the extent of the total exposure the Master Fund has in the particular classes of instruments. Among other risks, the use of futures contracts may cause the Master Fund to have imperfect correlation due to differences between movements in the price of the futures contracts and the market value of the underlying securities and the possibility of an illiquid market for a futures contract. With futures contracts, there is minimal counterparty risk to the Master Fund since the futures contracts are exchange-traded and the exchange’s clearinghouse, as the counterparty to all exchange-traded futures, guarantees the futures against default.
SWAP AGREEMENTS—The Master Fund may invest in swap agreements, primarily credit default and total return swap agreements, as a part of its hedging strategy to manage credit and market risks.
16
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
A credit default swap agreement gives one party (the buyer) the right to recoup the economic value of a decline in the value of debt securities of the reference issuer if a credit event (a downgrade, bankruptcy or default) occurs. This value is obtained by delivering a debt security of the reference issuer to the party in return for a previously agreed upon payment from the other party (frequently, the par value of the debt security) or receipt of a net amount equal to the par value of the defaulted reference entity less its recovery value. The Master Fund is usually a net seller of credit default swap agreements.
The Master Fund as a seller of a credit default swap agreement would have the right to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default or other credit event by the reference issuer with respect to its debt obligations. In return, the Master Fund would receive from the counterparty a periodic stream of payments over the term of the agreement provided that no event of default or other credit event has occurred. If no default or other credit event occurs, the Master Fund would keep the stream of payments and would have no further obligations to the counterparty. As a seller, the Master Fund is subject to investment exposure on the notional amount of the swap agreement.
A total return swap agreement is a bilateral financial contract agreement where one party (the payer) agrees to pay the other (the receiver) the total return on a specified asset or index in exchange for a fixed or floating rate of return. A total return swap agreement allows the receiver or payer to derive the economic benefit of owning or having short exposure to an asset without owning or shorting the underlying asset directly. The receiver is entitled to the amount, if any, by which the notional amount of the total return swap agreement would have increased in value had it been invested in the particular instruments, plus an amount equal to any dividends or interest that would have been received on those instruments. In return, the payer is entitled to an amount equal to a fixed or floating rate of interest (e.g., a LIBOR based rate) on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such instruments, less any dividends or interest. The amounts to which each party is entitled are normally netted against each other, at periodic settlement dates, resulting in a single amount that is either due to or from each party.
Swap agreements do not involve the physical delivery of assets, thereby limiting the risk of loss to the Master Fund to the net amount of payments it is contractually obligated to make. The use of swap agreements involves, to varying degrees, elements of market risk, equity risk and counterparty risk. The Master Fund remains subject to credit risk with respect to the net amount expected to be received from the other party. The Master Fund considers the creditworthiness of each counterparty to a swap agreement in evaluating potential credit risk, and will not enter into any swap agreement unless the Adviser believes the counterparty to the transaction is creditworthy, or unless the swap agreement is centrally cleared. With uncleared swap agreements, the Master Fund bears the risk of loss of the amount expected to be received under the swap agreement if the counterparty fails to perform. The counterparty risk for cleared swap agreements is generally lower than for uncleared over-the-counter swap agreements as the clearing organization becomes substituted for each counterparty and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to a clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members, will satisfy its obligations to the Master Fund. However, the Master Fund seeks to minimize this risk by generally requiring collateral, in the form of cash, to be held in a broker segregated account for swap agreements. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary securities transactions.
During the six months ended June 30, 2014, the Master Fund’s direct investments in derivatives consisted of the purchase and sale of call options contracts, the purchase and sale of futures contracts, and the purchase and
17
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
sale of total return and credit default swap agreements. Investment Funds in which the Master Fund invests may also purchase and sell derivative instruments and other financial instruments.
As of June 30, 2014, the Master Fund held no direct investments in derivative instruments, other than warrants purchased with a fair value of $0.
The following is a summary of the effect of derivative instruments on the Statements of Operations for the six months ended June 30, 2014:
| Realized Gain (Loss) from Derivative Instruments | Change in Unrealized Appreciation/Depreciation from Derivative Instruments | |||||||
Equity Risk Exposure: | ||||||||
Futures Contracts | $ | 8,523,419 | $ | (9,206,091 | ) | |||
Total Return Swap Agreements | 320,224 | (268,006 | ) | |||||
Interest Rate Risk Exposure: | ||||||||
Futures Contracts | (1,494,189 | ) | 1,212,498 | |||||
Call Options Purchased | (9,921,550 | ) | 4,241,080 | |||||
Credit Risk Exposure: | ||||||||
Credit Default Swap Agreements | 475,419 | (1,340,920 | ) | |||||
As described above, the Master Fund utilized derivative instruments to achieve its investment objective during the six months ended June 30, 2014. The Master Fund may enter into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar agreements with its derivative contract counterparties whereby the Master Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. Under the ISDA Master Agreements in place at June 30, 2014, the Master Fund is subject to master netting agreements that allow for amounts owed between the Master Fund and its counterparty to be netted. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements do not apply to amounts owed to or from different counterparties. At June 30, 2014, the Master Fund had one ISDA Master Agreement in place with Goldman Sachs for which master netting agreements (“MNA”) apply only to amounts owed in the same currency and in respect of the same transaction.
As of June 30, 2014, the Master Fund held no investments subject to a MNA.
(g) CFTC REGULATION
On August 13, 2013, the Commodity Futures Trading Commission (“CFTC”) adopted rules to harmonize conflicting Securities and Exchange Commission (the “SEC”) and CFTC disclosure, reporting and recordkeeping requirements for RICs that do not meet an exemption from the definition of commodity pool. The harmonization rules provide that the CFTC will accept the SEC’s disclosure, reporting, and recordkeeping regime as substituted compliance for substantially all of the otherwise applicable CFTC regulations as long as such investment companies meet the applicable SEC requirements.
18
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
Previously, in November 2012, the CFTC issued relief for fund of fund operators, including advisers to RICs, that may otherwise be required to register with the CFTC as commodity pool operators but do not have access to information from the investment funds in which they are invested in order to determine whether such registration is required. This relief delayed the registration date for such operators until the later of June 30, 2013 or six months from the date the CFTC issues revised guidance on the application of certain thresholds with respect to investments in commodities held by funds of funds. In December 2012, the Master Fund filed as required with the CFTC in order to claim this no-action relief, which was effective upon receipt of the filing. Although the CFTC now has adopted harmonization rules applicable to investment companies that are deemed to be commodity pools, the CFTC has not yet issued guidance on how funds of funds are to determine whether they are deemed to be commodity pools. As of June 30, 2014, the Master Fund is not considered a commodity pool and continues to rely on the fund of fund no-action relief.
(h) 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.
(i) 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 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.
(j) INCOME TAXES
The Master Fund is organized and operates 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.
For the current open tax year and for all major jurisdictions, management of 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, 2014, 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
19
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
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 federal and state tax jurisdictions.
(k) USE OF ESTIMATES
The preparation of the financial statements in accordance with U.S. 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.
(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 under current market conditions.
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—unadjusted quoted prices in active markets for identical investments |
| • | Level 2—investments with other significant observable inputs or investments that can be fully redeemed at the NAV in the “near term” |
| • | Level 3—investments with significant unobservable inputs (which may include the Master Fund’s own assumptions in determining the fair value of investments) or investments that cannot be fully redeemed at the NAV in the “near term”; these are investments that generally have one or more of the following characteristics: early repurchase fees, gated redemptions, suspended redemptions, or lock-up periods greater than quarterly |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.
The Master Fund establishes valuation processes and procedures to ensure that the valuation techniques for investments categorized within Level 3 of the fair value hierarchy are fair, consistent, and appropriate. The Adviser is responsible for developing the Master Fund’s written valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies. The Board Valuation Committee has authorized the Adviser to oversee the implementation of the Board approved valuation procedures by the Administrator. The Adviser Valuation Committee is comprised of various Master Fund personnel, which include members from the Master Fund’s portfolio management and operations groups. The Adviser Valuation Committee meets monthly or as needed, to determine the valuations of the Master Fund’s Level 3 investments. The valuations are supported by methodologies employed by the Investment Funds’ market data, industry accepted third party valuation models, or other methods the Adviser Valuation Committee deems to be appropriate, including the use of internal proprietary valuation models.
20
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
The following is a summary categorization as of June 30, 2014, of the Master Fund’s investments based on the level of inputs utilized in determining the value of such investments:
| LEVEL 1 | LEVEL 2 | LEVEL 3 | Total | |||||||||||||||||||||
| Investments | Other Financial Instruments^ | Investments | Investments | Investments | Other Financial Instruments^ | |||||||||||||||||||
Investment Funds | ||||||||||||||||||||||||
Limited Partnerships, Exempted Limited | ||||||||||||||||||||||||
Partnerships and Limited Liability Companies | ||||||||||||||||||||||||
Energy | $ | — | $ | — | $ | — | $ | 39,218,077 | $ | 39,218,077 | $ | — | ||||||||||||
Event-Driven | — | — | 7,708,608 | 11,699,308 | 19,407,916 | — | ||||||||||||||||||
Global Macro and Trading | — | — | 28,498,121 | 20,206,448 | 48,704,569 | — | ||||||||||||||||||
Private Equity | — | — | — | 128,515,229 | 128,515,229 | — | ||||||||||||||||||
Real Estate | — | — | — | 29,778,965 | 29,778,965 | — | ||||||||||||||||||
Relative Value | — | — | — | 32,798,679 | 32,798,679 | — | ||||||||||||||||||
Passive Foreign Investment Companies | ||||||||||||||||||||||||
Energy | — | — | — | 293,500 | 293,500 | — | ||||||||||||||||||
Private Equity | — | — | — | 462,699 | 462,699 | — | ||||||||||||||||||
Relative Value | — | — | — | 2,788,920 | 2,788,920 | — | ||||||||||||||||||
Private Corporations | ||||||||||||||||||||||||
Real Estate | — | — | — | 1,792,609 | 1,792,609 | — | ||||||||||||||||||
Investment Securities | ||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||
Private Equity | 936,158 | — | — | — | 936,158 | — | ||||||||||||||||||
Registered Investment Companies | ||||||||||||||||||||||||
Money Market Funds | 835,459 | — | — | — | 835,459 | — | ||||||||||||||||||
Derivative Instruments | ||||||||||||||||||||||||
Warrants Purchased | ||||||||||||||||||||||||
Global Macro and Trading | — | — | — | — | — | — | ||||||||||||||||||
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Total | $ | 1,771,617 | $ | — | $ | 36,206,729 | $ | 267,554,434 | $ | 305,532,780 | $ | — | ||||||||||||
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| ^ | Other financial instruments include any derivative instruments not reflected in the Schedule of Investments as Investments in Securities, such as warrants purchased. These financial instruments are generally recorded in the financial statements at the unrealized gain or loss on the financial instrument. As of June 30, 2014, the fair value of warrants purchased was $0. |
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, may be classified as Level 1 or Level 2 investments.
21
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
The following table is a summary of quantitative information about significant unobservable valuation inputs approved by the Adviser Valuation Committee for Level 3 fair value measurements for investments held as of June 30, 2014:
| Fair Value as of June 30, 2014 | Valuation Technique | Liquidity of | Adjustments To NAV** | |||||||||
Investments | ||||||||||||
Limited Partnerships, Exempted Limited | ||||||||||||
Partnerships and Limited Liability Companies | ||||||||||||
Energy | $ | 39,218,077 | NAV as Practical Expedient* | Non-redeemable | None | |||||||
Event-Driven | 11,699,308 | NAV as Practical Expedient* | Quarterly or Greater | None | ||||||||
Global Macro and Trading | 20,206,448 | NAV as Practical Expedient* | Monthly or Greater | None | ||||||||
Private Equity | 128,515,229 | NAV as Practical Expedient* | Non-redeemable | None | ||||||||
Real Estate | 29,778,965 | NAV as Practical Expedient* | Non-redeemable | None | ||||||||
Relative Value | 32,798,679 | NAV as Practical Expedient* | Quarterly or Greater | None | ||||||||
Passive Foreign Investment Companies | ||||||||||||
Energy | 293,500 | NAV as Practical Expedient* | Non-redeemable | None | ||||||||
Private Equity | 462,699 | NAV as Practical Expedient* | Non-redeemable | None | ||||||||
Relative Value | 2,788,920 | NAV as Practical Expedient* | Non-redeemable | None | ||||||||
Private Corporations | ||||||||||||
Real Estate | 1,792,609 | NAV as Practical Expedient* | Non-redeemable | None | ||||||||
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Total Investments | $ | 267,554,434 | ||||||||||
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| * | Unobservable valuation input. |
| ** | Amounts represent adjustments, if any, made to NAV provided by the investment manager or administrator of the Investment Funds. Adjustments to the practical expedient NAV may be made under certain circumstances including, but not limited to, the following: the practical expedient NAV received is not as of the Master Fund’s measurement date; it is probable that the Investment Fund will be sold at a value significantly different than the reported expedient NAV; it is determined by the Board Valuation Committee that the Investment Fund is not being valued at fair value by the Investment Fund manager. |
22
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
The Master Fund discloses transfers between levels based on valuations at the end of the reporting period. Transfers that occurred between Levels 2 and 3 during the six months ended June 30, 2014, based on levels assigned to Investments on December 31, 2013, are included in the table below. The following is a reconciliation of Level 3 investments based on the inputs used to determine fair value:
| Investments | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2013 | Redemptions In-Kind | Transfers In1 | Transfers Out2 | Transfers In-Kind3 | Gross Purchases | Gross Sales4 | Net Realized Gain (Loss) | Change in Unrealized Appreciation/ Depreciation | Balance as of June 30, 2014 | |||||||||||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||||||||||
Limited Partnerships, Exempted Limited | ||||||||||||||||||||||||||||||||||||||||
Partnerships and Limited Liability Companies | ||||||||||||||||||||||||||||||||||||||||
Energy | $ | 227,684,804 | $ | — | $ | — | $ | — | $ | (192,104,381 | ) | $ | 7,288,556 | $ | (6,065,494 | ) | $ | 3,167,290 | $ | (752,698 | ) | $ | 39,218,077 | |||||||||||||||||
Event-Driven | 92,523,536 | — | — | — | (69,150,029 | ) | — | (7,821,100 | ) | 364,927 | (4,218,026 | ) | 11,699,308 | |||||||||||||||||||||||||||
Global Macro and Trading | 140,888,664 | — | — | (12,256,141 | ) | (90,538,577 | ) | 14,000,000 | (28,748,001 | ) | 7,058,217 | (10,197,714 | ) | 20,206,448 | ||||||||||||||||||||||||||
Private Equity | 804,709,299 | — | — | — | (626,822,061 | ) | 17,445,648 | (70,091,585 | ) | 11,835,494 | (8,561,566 | ) | 128,515,229 | |||||||||||||||||||||||||||
Real Estate | 182,601,579 | — | — | — | (149,145,780 | ) | 2,927,083 | (6,248,929 | ) | 813,427 | (1,168,415 | ) | 29,778,965 | |||||||||||||||||||||||||||
Relative Value | 163,547,560 | — | 11,360,214 | — | (134,027,638 | ) | 7,375 | (9,568,925 | ) | (1,586,448 | ) | 3,066,541 | 32,798,679 | |||||||||||||||||||||||||||
Passive Foreign Investment Companies | ||||||||||||||||||||||||||||||||||||||||
Energy | 4,000,974 | — | — | — | (1,455,515 | ) | — | (2,269,271 | ) | 517,979 | (500,667 | ) | 293,500 | |||||||||||||||||||||||||||
Private Equity | 615,629 | 364,940 | (517,238 | ) | — | — | — | (632 | ) | 462,699 | ||||||||||||||||||||||||||||||
Relative Value | 22,127,566 | — | — | — | (18,379,864 | ) | 14,371,133 | (16,164,451 | ) | 202,697 | 631,839 | 2,788,920 | ||||||||||||||||||||||||||||
Private Corporations | ||||||||||||||||||||||||||||||||||||||||
Real Estate | 13,216,244 | — | — | — | (10,202,859 | ) | — | (999,626 | ) | — | (221,150 | ) | 1,792,609 | |||||||||||||||||||||||||||
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Total Investments | $ | 1,651,915,855 | $ | 364,940 | $ | 11,360,214 | $ | (12,256,141 | ) | $ | (1,292,343,942 | ) | $ | 56,039,795 | $ | (147,977,382 | ) | $ | 22,373,583 | $ | (21,922,488 | ) | $ | 267,554,434 | ||||||||||||||||
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| 1 | Transfers from Level 2 to Level 3 in the fair value hierarchy generally relate to changes in liquidity provisions of the Investment Funds. |
| 2 | Transfers from Level 3 to Level 2 in the fair value hierarchy generally relate to changes in liquidity provisions of the Investment Funds. |
| 3 | Transfers In-Kind were a tax free transfer that resulted from the March 31, 2014 tender offer of the Master Fund. Investment Funds were received by the PMF Master Fund at original cost and accumulated unrealized appreciation/depreciation. |
| 4 | 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 Statement of Operations. The change in unrealized appreciation/depreciation from Level 3 investments held at June 30, 2014 is $(6,596,684).
The Master Fund is permitted to invest in alternative investments that may not have a readily determinable fair value. For an investment that does not have a readily determinable fair value, the Master Fund uses the NAV reported by the Investment Fund as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the reported 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 investment and the NAV of the Master Fund as of the valuation date.
Certain Investment Funds in which the Master Fund invests have limitations on liquidity which may result in limitations on redemptions including, but not limited to, early redemption fees. Other than Investment Funds that are self-liquidating, such as Private Equity and some Energy, Natural Resources and Real Estate Funds, the Investment Funds in which the Master Fund invests have withdrawal rights ranging from monthly to annually, after a notice period, usually for a period of up to two years from the date of the initial investment or an
23
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
additional investment. A listing of the investments held by the Master Fund and their attributes as of June 30, 2014, that qualify for this valuation approach is shown in the table below.
| Investment Category | Investment Strategy | Fair (in 000s) | Unfunded Commitments (in 000s) | Remaining Life* | Redemption Frequency* | Notice Period (in Days)* | Redemption and Terms* | |||||||||||
Energy(a) | Private investments in securities issued by companies in the energy and natural resources sectors. | $ | 39,512 | $ | 8,080 | up to 15 years | N/A | N/A | 0-15 years | |||||||||
Event-Driven(b) | Strategies designed to profit from changes in the prices of securities of companies facing a major corporate | 19,408 | N/A | N/A | Quarterly | 45-90 | 0-5 years; up to 2.5% early withdrawal fee; possible 25% investor level gate; illiquid side pocket capital | |||||||||||
Global Macro and Trading(c) | Investments across global markets and security types seeking to profit from macroeconomic opportunities. Strategies can be discretionary or systematic. Includes CTAs. | 48,705 | N/A | N/A | Quarterly | 30-90 | 0-5 years; up to 6% early redemption fee; possible hard lock within first 12 months; illiquid side pocket capital | |||||||||||
Private Equity(d) | Investments in nonpublic companies. | 128,976 | 32,863 | up to 10 years | N/A | N/A | 0-10 years | |||||||||||
Real Estate(e) | Investments in REITs, private partnerships, and various real estate related mortgage securities. | 31,572 | 7,195 | up to 10 years | N/A | N/A | 0-10 years | |||||||||||
Relative Value(f) | Strategies seeking to profit from inefficiencies existing within capital structures, within markets, and across markets. | 35,588 | N/A | N/A | Quarterly | 30-120 | 0-5 years; up to 7% early redemption fee; possible 5% fund level gate; illiquid side pocket capital | |||||||||||
| $ | 303,761 | $ | 48,138 | |||||||||||||||
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| * | 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. |
24
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
| (a) | This category includes Investment Funds that invest primarily in privately issued securities issued by companies in the energy and natural resources sectors and private investments in energy-related assets or companies. The Investment Funds include private funds and private partnerships with private investments in their portfolios. |
| (b) | This category includes Investment Funds that invest primarily in the following securities: common stock, preferred stock, and many types of debt. Events include mergers, acquisitions, restructurings, spin-offs, and litigation. |
| (c) | 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 macro funds, and CTA’s. |
| (d) | 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. |
| (e) | 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. |
| (f) | This category includes Investment Funds with low net exposure to most financial markets. Underlying strategies include Equity Market Neutral or Statistical Arbitrage, Capital Structure Arbitrage, Convertible Arbitrage, Volatility Arbitrage, and Credit Arbitrage. |
The following is a summary of the fair value as percentage of partners’ capital, and liquidity provisions for Investment Funds constituting greater than 5% of the Master Fund’s partners’ capital as of June 30, 2014:
Passive Foreign Investment Companies | Fair Value as % of Partners’ Capital | Redemption Frequency | Redemption Restrictions and Terms | |||||||||
Blueshift Energy Fund, L.P. | 6.39 | % | Monthly | 0-3 months; 2% early repurchase fee | ||||||||
(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.
(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.
25
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
(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. The Adviser generally recommends to the Board that the Master Fund offer to repurchase Interests pursuant to written tenders by partners. The Adviser does not anticipate considering any future repurchase offers until the fourth quarter of 2014 at the earliest. Future tender offers may be as frequent as quarterly or as infrequent as annually.
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, 2014 the Master Fund held investments in Investment Funds and securities. The agreements related to investments in Investment Funds provide for compensation to the Investment Funds’ managers/general partners or advisers in the form of management fees of up to 2.0% annually of monthly average net assets. In addition, many Investment Funds also provide for performance incentive fees/ allocations of up to 20% 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, 2014, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) was $42,210,538 and $89,931,262, 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, or a combination thereof.
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 such time. The Master Fund’s book cost as of June 30, 2014, was $270,638,751, resulting in accumulated net unrealized appreciation of $34,894,029 consisting of $65,502,486 in gross unrealized appreciation and $30,608,457 in gross unrealized depreciation.
During the six months ended June 30, 2014, certain investments were received through a transfer in-kind in connection with the redemption of certain investments. The fair value of these investments transferred-in-kind, related cost and realized gain (loss) were as follows:
Investments Redeemed | Fair Value | Cost | Realized Gain (Loss) on Transfers In-Kind | Investments Received | ||||||||||
Q Funding III, L.P. | $ | 531,086 | $ | 393,670 | $ | 137,416 | Houghton Mifflin Harcourt Co. | |||||||
Q Funding III, L.P. | 86,682 | 64,253 | 22,429 | Q China Holdings, Ltd. | ||||||||||
Q Funding III, L.P. | 190,338 | 141,089 | 49,249 | Q India Holdings, Ltd. | ||||||||||
Q4 Funding, L.P. | 168,582 | 140,425 | 28,157 | Houghton Mifflin Harcourt Co. | ||||||||||
Q4 Funding, L.P. | 27,510 | 22,915 | 4,595 | Q China Holdings, Ltd. | ||||||||||
Q4 Funding, L.P. | 60,410 | 50,320 | 10,090 | Q India Holdings, Ltd. | ||||||||||
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| $ | 1,064,608 | $ | 812,672 | $ | 251,936 | |||||||||
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26
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
(b) AFFILIATED INVESTMENT FUNDS
At June 30, 2014, 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 5% or more of the Investment Funds’ total net assets. The activity resulting from investments in these Investment Funds, including interest and dividend income as well as realized gains and losses, is identified in the Statement of Operations as transactions with affiliated investments. A listing of these affiliated Investment Funds (including activity during the six months ended June 30, 2014) is shown below:
Investment Funds | Shares 12/31/2013 | Shares 6/30/2014 | Fair Value 12/31/2013 | Redemptions In-Kind | Transfers In- Kind | Cost of Purchases | Cost of Sales* | Realized Gain (Loss) on Investments | Change in Unrealized Appreciation/ Depreciation | Fair Value 6/30/2014 | Interest/ Dividend Income | |||||||||||||||||||||||||||||||||
Blueshift Energy Fund, L.P. | $ | 33,372,298 | $ | — | $ | (29,055,673 | ) | $ | 14,000,000 | $ | — | $ | — | $ | 1,889,823 | $ | 20,206,448 | $ | — | |||||||||||||||||||||||||
CCM Small Cap Value Qualified Fund, L.P. | 5,210,242 | — | (3,364,576 | ) | — | (1,137,078 | ) | (1,342,063 | ) | 1,097,516 | 464,041 | — | ||||||||||||||||||||||||||||||||
Credit Distressed Blue Line Fund, L.P. | 13,190,943 | — | (10,477,931 | ) | — | — | — | (915,398 | ) | 1,797,614 | — | |||||||||||||||||||||||||||||||||
Halcyon European Structured Opportunities Fund, L.P. | 89,380 | — | (56,154 | ) | — | — | — | (22,869 | ) | 10,357 | — | |||||||||||||||||||||||||||||||||
Harbinger Capital Partners Fund I, L.P. | 25,240,685 | — | (20,191,722 | ) | — | — | — | (1,484,080 | ) | 3,564,883 | — | |||||||||||||||||||||||||||||||||
Kenmont Onshore Fund, L.P. | 18,684 | — | (15,787 | ) | — | — | — | — | 2,897 | — | ||||||||||||||||||||||||||||||||||
Middle East North Africa Opportunities Fund, L.P. | 5,089 | 789 | 1,315,734 | — | (1,323,478 | ) | — | — | — | 248,512 | 240,768 | — | ||||||||||||||||||||||||||||||||
Orbis Real Estate Fund I | 2,180,645 | — | — | 21,266 | (21,266 | ) | — | 155,374 | 2,336,019 | — | ||||||||||||||||||||||||||||||||||
PIPE Equity Partners, L.L.C. | 12,411,446 | — | (8,854,351 | ) | — | (1,909,663 | ) | (2,620,951 | ) | 2,366,207 | 1,392,688 | — | ||||||||||||||||||||||||||||||||
PIPE Select Fund, L.L.C. | 27,883,086 | — | (21,397,958 | ) | — | (2,907,707 | ) | 39,567 | 233,381 | 3,850,369 | — | |||||||||||||||||||||||||||||||||
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| $ | 120,913,143 | $ | — | $ | (94,737,630 | ) | $ | 14,021,266 | $ | (5,975,714 | ) | $ | (3,923,447 | ) | $ | 3,568,466 | $ | 33,866,084 | $ | — | ||||||||||||||||||||||||
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| * | Sales include return of capital. |
(6) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Investment Funds in which the Master Fund invests may trade various derivative securities and other financial instruments, and may 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 its investment in such Investment Funds. In addition, by investing directly in derivative instruments, the Master Fund is subject to credit risk with respect to the net amount expected to be received from the other party. The Master Fund may be negatively impacted if the other party defaults or fails to perform its obligations under such agreement.
(7) ADMINISTRATION AGREEMENT
In consideration for administrative, accounting, and recordkeeping services, the Master Fund pays the 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 Administrator also provides the Master Fund with legal, compliance, transfer agency, and other investor related services at an additional cost.
The administration fees are paid out of the Master Fund’s assets, which decreases the net profits or increases the net losses of the partners in the Master Fund. As of June 30, 2014, the Master Fund had $316,064,967 in partners’ capital. The total administration fee incurred for the six months ended June 30, 2014, was $361,549.
27
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
(8) 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 pays 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 decreases the net profits or increases 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, 2014, $5,948,531 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, 2014, the two largest non-affiliated sub-placement agents service approximately 56.09% 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.
(9) FUND BORROWING
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. The Master Fund does not currently maintain a credit facility.
28
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Notes to Financial Statements, continued
June 30, 2014
(Unaudited)
(10) FINANCIAL HIGHLIGHTS
| Six Months Ended June 30, 2014 (Unaudited) | Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | Year ended December 31, 2010 | Year ended December 31, 2009 | |||||||||||||||||||
Net investment loss to average partners’ capital1 | (2.46 | )% | (0.74 | )% | (0.81 | )% | (0.75 | )% | (0.84 | )% | (0.95 | )% | ||||||||||||
Expenses to average partners’ capital1,2 | 3.19 | % | 1.37 | % | 1.49 | % | 1.27 | % | 1.19 | % | 1.20 | % | ||||||||||||
Portfolio turnover3 | 4.38 | % | 16.95 | % | 20.88 | % | 26.72 | % | 26.71 | % | 27.40 | % | ||||||||||||
Total return4 | 1.63 | % | 4.67 | % | 2.50 | % | (3.18 | )% | 9.52 | % | 14.96 | % | ||||||||||||
Partners’ capital, end of period (000s) | $ | 316,065 | $ | 2,064,041 | $ | 3,071,734 | $ | 4,301,279 | $ | 5,355,785 | $ | 5,212,611 | ||||||||||||
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 year. 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 its ownership in the underlying funds. Expenses include U.S. offshore withholding tax, which is only allocable to investors investing through the offshore feeder funds. |
| 3 | Not annualized for periods less than twelve months. |
| 4 | Calculated as geometrically linked monthly returns for each month in the period. Total returns are not annualized for periods less than twelve months. |
(11) SUBSEQUENT EVENTS
Management of the Master Fund has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no adjustments were required to the financial statements as of June 30, 2014.
29
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
June 30, 2014
(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 Registered Fund, L.P., The Endowment Institutional Fund, L.P, The Endowment TEI Fund, L.P. and The Endowment Institutional TEI Fund W, 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 $15,000 paid quarterly, an annual Board meeting fee of $3,000, a fee of $1,000 for each informal Board meeting or telephonic Board meeting, annual fees of $625, $625 and $833 for membership on the Audit, Valuation and Compliance Committees, respectively paid quarterly, annual fees of $3,000, $5,000 and $3,000 for the Audit, Valuation and Compliance Committee chair positions, respectively paid quarterly, and an annual fee of $5,000 to the Lead Independent Director, paid quarterly. There are currently six Independent Directors. In the interest of retaining Independent Directors of the highest 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, 2014.
Asset Class1 | Fair Value | % | ||||||
Energy | $ | 39,511,577 | 12.93 | |||||
Event-Driven | 19,407,916 | 6.35 | ||||||
Global Macro and Trading | 48,704,569 | 15.94 | ||||||
Private Equity | 129,914,086 | 42.53 | ||||||
Real Estate | 31,571,574 | 10.33 | ||||||
Relative Value | 35,587,599 | 11.65 | ||||||
Money Market Funds | 835,459 | 0.27 | ||||||
|
|
|
| |||||
Total Investments | $ | 305,532,780 | 100.00 | |||||
|
|
|
| |||||
| 1 | The complete list of investments included in the following asset class categories is included in the 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 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.
30
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Supplemental Information, continued
June 30, 2014
(Unaudited)
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 21, 2014, the Board, including the Independent Directors, considered and approved the continuation of the Investment Management Agreement between the Master Fund and the Adviser (the “Advisory Agreement”). In preparation for review of the Advisory Agreement, the Board requested the Adviser to provide detailed information which the Board determined to be reasonably necessary to evaluate the agreement. The Independent Directors also met in-person among themselves prior to the January 21 meeting and on January 20, 2014 to review and discuss aspects of these materials, initially with, and later without, representatives of the Adviser being present. At the request of the Independent Directors, the Adviser made presentations regarding the materials and responded to questions from the Independent Directors relating to, among other things, portfolio management, the Master Fund’s investment programs, Master Fund’s and Adviser’s compliance programs, Adviser staffing and management changes, Master Fund performance including benchmarks and comparisons to other funds, Master Fund fee levels, other portfolios (including fees) managed by the Adviser and its affiliates and the Adviser’s profitability (including revenue of the Adviser across all of its funds). The Board, including the Independent Directors, also took into consideration information furnished for the Board’s review and consideration throughout the year at regular Board meetings. The Independent Directors were assisted at all times by independent counsel.
Following the Board’s review, the Independent Directors concluded that the Advisory Agreement continues to enable the Master Fund to obtain high quality services at a cost that is appropriate, reasonable, and in the interests of investors. They stated that prudent exercise of judgment warranted renewal of the advisory fees. It also was noted that the Board’s decision to renew the Advisory Agreement was not based on any single factor, but rather was based on a comprehensive consideration of all the information provided to the Board at its meetings throughout the year. Upon consideration of these and other factors, the Board also determined:
The nature, extent and quality of the advisory services provided. With respect to the Advisory Agreement, the Board considered: management changes at the Adviser designed to increase Master Fund performance, along with changes to the Master Fund’s focus, the background and experience of key investment personnel; 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 in and commitment to
31
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Supplemental Information, continued
June 30, 2014
(Unaudited)
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 Advisory Agreement. The Board also concluded, with reference to certain changes, that the Adviser would be able to provide during the coming year quality of investment management and related services, and 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 Funds. The Board evaluated the comparative information provided by the Adviser regarding the Master Fund’s investment performance, and 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 Adviser was taking significant steps, including strategy changes, to address the Master Fund’s investment performance. On the basis of the Independent Directors’ assessment, the Independent 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.
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 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 management fees will not decrease as the level of Master Fund assets increase, the Board concluded that the 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, changes in investment decision-making being implemented, the competitive nature of the investment company market as relevant to the Master Fund, and the planned decrease in size of the Master Fund following the investor choice plan that is likely to divide the Master Fund’s portfolio. The Board noted that it would have the opportunity to periodically re-examine whether the Master Fund has achieved economies of scale, as well as the appropriateness of 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 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.
32
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
Supplemental Information, continued
June 30, 2014
(Unaudited)
Other considerations. The Board determined that the Adviser has made a continuing and substantial commitment both to the recruitment 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 Independent Directors also concluded that the Adviser continues to make a significant entrepreneurial commitment to the management and success of the Master Fund.
33
THE ENDOWMENT MASTER FUND, L.P.
(A Limited Partnership)
The Master Fund recognizes the importance of securing personal financial information. It is our policy to safeguard any personal and financial information that may be entrusted to us. The following is a description of the Master Fund’s policy regarding disclosure of nonpublic personal information.
We collect nonpublic personal information as follows:
We collect information about our investors, including, but not limited to, the investor’s name, address, telephone number, e-mail address, social security number and date of birth. We collect that information from subscription agreements, other forms of correspondence that we receive from investors, from personal conversations and from affiliated entities as permitted by law.
We receive information about investor transactions with us, including, but not limited to, account number, account balance, investment amounts, withdrawal amounts and other financial information.
We are permitted by law to disclose nonpublic information we collect, as described above, to the Master Fund’s service providers, including the Master Fund’s investment adviser, sub-advisers, servicing agent, independent administrator, custodian, legal counsel, accountant and auditor. We do not disclose any nonpublic information about our current or former investors to nonaffiliated third parties, except as required or permitted by law. We restrict access to investor nonpublic personal information to those persons who require such information to provide products or services to investors. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard investors’ nonpublic personal information.
If an investor’s investment relationship with the Master Fund involves a financial intermediary, including, but not limited to, a broker-dealer, bank or trust company, the privacy policy of such investor’s financial intermediary would govern how any nonpublic personal information would be shared by them with nonaffiliated third parties.
34
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.
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.
Not applicable.
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 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.
(a)(4) Not applicable
(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith
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.
| (Registrant) | The Endowment Master Fund, L.P. | |
| By (Signature and Title) | /s/ John A. Blaisdell | |
| John A. Blaisdell | ||
| Co-Principal Executive Officer | ||
Date: August 26, 2014 | ||
| By (Signature and Title) | /s/ Andrew B. Linbeck | |
| Andrew B. Linbeck | ||
| Co-Principal Executive Officer | ||
Date: August 26, 2014 | ||
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, 2014 | ||
| By (Signature and Title) | /s/ Andrew B. Linbeck | |
| Andrew B. Linbeck | ||
| Co-Principal Executive Officer | ||
Date: August 26, 2014 | ||
| By (Signature and Title) | /s/ John E. Price | |
| John E. Price | ||
| Principal Financial Officer | ||
Date: August 26, 2014 | ||