April 27, 2009
Joshua B. Deringer, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
Re: Hatteras Ramius 1099 Fund
Registration Numbers 333-158258; 811-22285
Hatteras Ramius 1099 Institutional Fund
Registration Numbers 333-158261; 811-22284
Dear Mr. Deringer:
We have reviewed the registration statements on Form N-2 for
the Hatteras Ramius 1099 Fund ("Feeder Fund") and the Hatteras
Ramius
1099 Institutional Fund ("Master Fund") (each a "Fund,"
collectively
the "Funds") filed with the Commission on March 27, 2009. We have
the following comments.
Registration Statement
Prospectus
General
Please explain in your response letter why the Sub-
Adviser
funds in which the Master Fund invests should not be considered to
be
integrated with the Fund for the purpose of calculating the number
of
beneficial owners of the Sub-Adviser Funds under Section 3(c) (1)
of
the Investment Company Act of 1940 (the "Act") or, if applicable,
disqualifying the Sub-Adviser funds` exception from the definition
of
investment company under Section 3(c) (7) of the Act.
If it is possible for the voting securities of companies
excepted from the definition of investment company under Section
3(c)(1) of the Act to constitute more than 10% of the Master
Fund`s
holdings, explain how the Fund will be managed to deal with the
resultant regulatory issues. If companies excepted from the
definition of investment company under Section 3(c) (7) of the Act
will be acquired, explain why in your view Section 48(a) of the
Act
should not preclude such investments. If the Master Fund may
invest
a material amount of its assets in any one underlying fund,
reconcile
such investments with the prohibitions of Sections 17(a), (d) &
(e)
of the Act.
Disclose at the bottom of the facing page of the Feeder
Fund`s registration
statement that the Trustees of the Master Fund have executed the
registration statement.
Please state in your response letter whether FINRA will or
has
reviewed and raised no objections to the proposed terms and
arrangements of the offerings.
Prospectus Cover Page
Consistent with plain English principles, we suggest that
you
clarify whether the "Sub-Manager Funds" are actually hedge funds.
Clarify that the Sub-Adviser Funds are not registered with the
SEC.
Please disclose that an investment in a Fund presents a
heightened risk of total loss of investment and make prominent the
disclosure that the Sub-Manager Funds are subject to special
risks.
See Item 1.1.j. of Form N-2.
The pricing table does not contain maximum and minimum total
offering amounts. Please revise accordingly.
Please revise the pricing table currently appearing on the
cover of the prospectus consistent with the requirements in
Instructions 5 and 6 of Item 1.1.g. of Form N-2. Disclose the
amount
of initial offering expenses referenced in note 3 to the pricing
table. Revise the paragraph following note 3 to conform to the
requirements of Rule 481 under the Securities Act of 1933.
With respect to footnote 1 to the pricing table, please
disclose how much the Investment Manager and/or its affiliates
will
pay from their own resources as additional compensation to brokers
or
dealers in connection with the sale and distribution of Fund
shares
or servicing of investors.
Please confirm that the three paragraphs of text preceded by
the pricing table and footnotes will appear on the outside front
cover of the prospectus.
May the Funds terminate the offerings at any time? If so,
expand the discussion to indicate the circumstances under which
the
Funds may terminate the offerings and identify any material risks
to
either the then existing Shareholders or to potential investors.
Please confirm that "Eligible Investors" is defined on the
cover page.
If these offerings will be made in reliance on Rule 415
under
the Securities Act of 1933, please furnish the undertakings
required
by Item 512(a) of Regulation S-K.
Fund Fees and Expenses
Is the expense reimbursement agreement referenced in
footnote 8
to the Feeder Fund fee table terminable at any time by the
Investment
Manager and/or Sub-Adviser? If so, please disclose this in the
footnote. If the agreement is contractual, please attach the
contract as an exhibit to the registration statement.
Why does the fee table contain the line item "Interest
Expenses"? Why is the cost zero?
Why are the expenses listed in the second sentence of
footnote 6
to Feeder Fund fee table not considered to be Acquired Fund Fees
and
Expenses?
Please conform disclosure of the aggregate expenses of the
Master Fund and the Feeder Fund to the requirements of Instruction
10
h. to Item 3 of Form N-2.
What are the "other services" referenced in the second
sentence
of the paragraph following the Example, titled "Management Fee"?
How
do they differ from the services covered by the Fund Servicing
Fee?
Are all expenses described in the paragraph titled
"Administration Services" contained in the fee table? How are the
administrative services described in this paragraph different from
the ones described in the preceding paragraph? What is the
"regulatory administration fee"?
Pursuant to what authority may the Funds treat offering
costs
as described in the second paragraph of the section titled "Fund
Expenses"?
Fund Summary
Please disclose that the Funds will provide Shareholders
with
60 days advance notice of any change in a Fund`s name, investment
objective or principal strategies.
Please clarify whether the Funds are "funds of hedge funds."
Please define the terms "Opportunistic Equity," "Enhanced
Fixed
Income," and "Absolute Return."
Considering the strategies disclosed elsewhere in the
prospectus, why does this section not identify the following
risks:
manager risk, derivatives-related risks, default, foreign and
emerging markets risks and small cap stock risk? Also, please
insert
"High Portfolio" before "Turnover," and consider separating
"Counter-
Party Credit Risk" into "Counterparty Risk" and "Credit Risk."
Please summarize in this section all of the Funds investment
strategies listed in the section titled "Investment Objectives and
Strategies," and summarize their principal risks.
Management of the Fund
Please provide for each member of the Funds` joint
investment
committee the disclosure required by Item 9. 1. c. of Form N-2.
Investment Objective and Strategies
The disclosure indicates that the Sub-Adviser may reduce or
terminate the Master Fund`s investments in the Sub-Manager Funds.
Disclose how easily the Sub-Adviser will be able to reduce or
terminate a Sub-Manager Fund holding at net asset value. In this
regard, will the Master Fund be required to pay any additional
amounts to terminate a position in a Sub-Manager Fund?
Please define and explain all of the Funds investment
strategies listed in this section of the disclosure, and disclose
their principal risks in the section of the prospectus dedicated
to
risk disclosure.
The discussion indicates what the Sub-Adviser will consider
when deciding whether to invest in a particular Sub-Manager Fund.
In
your response letter explain the source of the information upon
which
the Sub-Adviser will rely with respect to both the Sub-Manager
Funds
and their investment managers and whether the information is
available to the public.
Clarify whether or not, when deciding to invest in a
particular
Sub-Manager Fund, the Sub-Adviser will also consider any of the
following: (1) the amount or type of performance fee charged by
the
investment manager; (2) purchase fees or sales charges imposed by
the
Sub-Manager Fund; or (3) Sub-Manager Fund liquidity or repurchase
programs.
What will the Funds` rights and status be in relation to all
other Sub-Manager Fund investors?
Please clarify that high-yield debt securities are also
known
as "junk."
To what extent will the Funds invest in emerging market and
other foreign securities? Please disclose in this section of the
prospectus.
Disclose the extent to which the Funds expect to borrow for
all
purposes. If the Funds are authorized and intend to borrow money
for
investment purposes, the fee table must show the amount of
interest
payments on borrowed funds. Please add appropriate disclosure
accordingly.
Disclose the maximum extent to which the Board may modify
the
Funds` borrowing policies, including percentage limitations and
purposes of borrowings.
Clarify whether any of the Sub-Manager Funds are subject to
any
maximum amounts of leverage that can be employed. If there is
none,
so state.
Indicate where appropriate in the prospectus whether the
Funds
could invest in Sub-Manager Funds that leverage beyond 300%. Will
the Funds establish any quantitative guidelines or policies
concerning Sub-Manager Funds that leverage? What is the maximum
amount the Funds may leverage when aggregating the borrowings of
the
Funds and that of the Sub-Manager Funds?
Disclose whether or not there are any percentage thresholds
or
other parameters that the Investment Manager will use as
guidelines
when determining whether a Sub-Manager Fund is using an
inappropriate
degree of leverage. Will the Investment Manager be given access
to
all of the information that its needs, on a timely basis, to
enable
it to perform the monitoring activities described in the third
sentence?
To the extent applicable, highlight the Funds` ability to
(1)
effect service of process within the U.S. on foreign Sub-Manager
Funds; (2) enforce judgments obtained in U.S. courts against
foreign
Sub-Manager Funds based upon the civil liability provisions of the
U.S. federal securities laws; (3) enforce, in an appropriate
foreign
court, judgments of U.S. courts based upon the civil liability
provisions of the U.S. federal securities laws; and (4) bring an
original action in an appropriate foreign court to enforce
liabilities against a Sub-Manager Fund or other person based upon
the
U.S. federal securities laws. Also, clarify whether Shareholders
would ever be able to bring claims directly against the Sub-
Manager
Funds, domestic or foreign, or whether all such claims must be
brought by the Board on behalf of Shareholders.
Provide examples of the circumstances where the Board could
determine that continued investment of a Shareholder in a Fund is
not
in the best interests of the Fund. In this regard, clarify
whether
the right of a Fund to require a Shareholder to tender all of his
or
her Units could only arise in the context of a voluntary tender by
a
Shareholder. Also, in your response letter discuss the legal
basis
that gives the Board, in its sole discretion, the authority to
require a Shareholder to tender all of his or her shares.
Risk of Investing in the Funds
The disclosure pertaining to the Funds` valuation procedures
indicates the Funds will defer to the Sub-Manager Funds` valuation
methodologies. Please explain supplementally why this is
consistent
with the duties of the Funds` trustees to determine fair valuation
procedures. Also disclose the conflict of interest resulting from
the Sub-Manager Funds` advisers` compensation scheme, i.e., that
asset-based compensation gives the advisers a reason to overvalue
assets under management.
Describe any possible impediments to monitoring the
performance
of the Sub-Manager Funds on a regular basis.
Disclose how regularly the Adviser will monitor Sub-Manager
Fund returns, contact Sub-Manager Fund managers to discuss
performance, evaluate Sub-Manager Funds and reallocate Fund
assets.
Also disclose how much time the reallocation process is expected
to
take.
Please disclose under what circumstances Sub-Manager Funds
would likely make an in-kind payment to the Funds. Do the Funds
negotiate the terms of redemption and sale with Sub-Manager Funds,
or
are the terms of investment established by the Sub-Manager Funds?
Disclose the approximate amount of time that is likely to
lapse
(1) between the time a Shareholder submits a repurchase request
and
the effective date of repurchase and (2) between the effective
date
of the repurchase and the receipt of cash for shares tendered.
Indicate how the Board will be able to discharge its duty to
determine the fair value of the Funds` assets in light of the
disclosure in this section regarding the lack of transparency of
Sub-
Manager Fund operations; and the Funds` inability to obtain
information about the securities in which the Sub-Manager Funds
invest, or their valuation.
Indicate that the Funds` strategy may be negated where one
Sub-
Manager Fund purchases securities of an issuer whose securities
are
being sold by another Sub-Manager Fund.
Clarify whether there are any limits on the amount of the
Funds` potential liability resulting from an agreement to
indemnify a
Sub-Manager Fund and its investment managers. In this regard, in
your response letter provide us with your views as to whether the
Funds` agreement to indemnify a Sub-Manager Fund and/or its
investment managers implicates Section 18 of the 1940 Act.
The information contained in the last sentence of the
section
titled "Turnover" should be accorded separate risk factor
treatment.
In this regard, provide, in a footnote to the Funds` fee tables,
the
approximate range of the expenses that the Master Fund may incur
when
it liquidates a position in a Sub-Manager Fund. Also, please
quantify the level of turnover anticipated within Sub-Manager
Funds.
Please include in this section detailed descriptions of the
material risks of each hedge fund investment strategy and asset
class
described in the prospectus. Include prospectus disclosure of the
risks of the securities activities of the Sub-Managers.
The paragraphs titled "Credit Facility," "Absence of
Liability," "Anti-Money Laundering," "Borrowing, Use of Leverage"
and
the second paragraph under the heading "Conflicts of Interest" do
not
contain risk disclosure. Please move them to an appropriate part
of
the prospectus, and provide risk disclosure in their place.
Include disclosure of default risk in the discussion of
Enhanced Fixed Income Risks.
Consider eliminating the repeated use of the phrase "more
volatility and risk" and replacing it with issue-specific risk
disclosure.
The disclosure pertaining to Opportunistic Equity risk is
incomplete and contains non-risk disclosure. Please remove the
second sentence of the paragraph and provide complete disclosure
of
all material risks of the strategy.
The last paragraph of the Enhanced Fixed Income section does
not contain risk disclosure. Please revise accordingly.
Disclose whether, and the extent to which, there is any
limit on the amount the Fund may invest (directly or indirectly)
in
foreign assets.
Disclose how the Master Fund intends to monitor the turnover
rates of the Sub-Manager Funds.
Please describe how conflicts of interest will be resolved.
Tender Offers/Offers to Repurchase
Disclosure in this section indicates the Funds` repurchase
offers will "generally range from 5%-20% of the Fund`s shares."
Is
this accurate? Is a figure materially greater than 5% consistent
with recent repurchase offers of other Hatteras Funds? Do the
Funds
differ from other Hatteras Funds in any material respect? What
factors influence the size of a repurchase offer?
Calculation of Net Asset Value
With respect to the Net Asset Valuation discussion see,
generally, the net asset valuation discussion contained in DB
Hedge
Fund Strategies Fund LLC, filed August 27, 2002 (Securities Act
Registration Number 333-72104). In this regard, confirm, add to
or
revise, as appropriate, all applicable sections of the prospectus
(not merely the discussion appearing under the heading "Net Asset
Valuation") consistent with, but not limited to, the DB Hedge Fund
Strategies Fund LLC net asset valuation discussion.
Add a statement indicating generally the period of time that
is
expected to elapse between the occurrence of an event
necessitating
the pricing of Fund assets and the receipt of valuation
information
from the investment managers of the Advisor Funds.
Clarify whether a Shareholder may have a cause of action if
he
or she purchases under valuations that are not appropriate.
What permits a Fund to suspend calculation of net asset
value, considering that it is only done once a month?
Repurchase of Shares
The prospectus indicates that repurchases are expected to
occur
quarterly. It therefore appears that the Funds can repurchase
shares
prior to completion of the annual audits of the Sub-Manager Funds.
Describe the potential risks to Shareholders of a repurchase
without
the information of an audit.
May payment in connection with any repurchase offer be
made
partly in cash and partly in-kind? If so, will all Shareholders be
treated the same? If not, please explain how these distributions
might be handled and why, in your view, the contemplated approach
complies with Section 18 of the Act. Additionally, please
disclose
that interests in Sub-Manager Funds and/or securities received in-
kind may be subject to restrictions on resale, and describe the
consequences and risks to Shareholders of acquiring and holding
these
assets. Moreover, disclose if true, that certain Shareholders
would
be prohibited from even holding such securities. Expand the
discussion to indicate that Shareholders will also incur brokerage
and/or placement fees and bear market risk until such time as they
convert securities that they have received as a result of an in-
kind
distribution into cash.
We suggest that you consider including a hypothetical
example
of a repurchase offer that gives effect to the repurchase
procedures.
Provide examples of the circumstances where a Fund would
require a Shareholder to tender all shares held.
State whether or not the Funds could ever agree to indemnify
a
Sub-Manager Fund and/or its investment manager(s).
Clarify whether Shareholders will receive the estimated
monthly
NAV free of charge.
Statement of Additional Information
Fundamental Policies
Please revise each Fund`s concentration policy to conform to
the requirements of the Act. Please clarify that each Fund will
not
invest 25% or more of its assets in a single industry or group of
industries.
Independent Trustees and Officers
Please provide the required disclosure for the Funds`
Independent Trustees.
Closing
We note that portions of the filing are incomplete. We may
have
additional comments on such portions when you complete them in a
pre-
effective amendment, on disclosures made in response to this
letter,
on information supplied supplementally, or on exhibits added in
any
pre-effective amendments. Please note that comments we give in
one
section apply to other sections in the filing that contain the
same
or similar disclosure.
Please advise us if you have submitted or expect to submit
an
exemptive application or no-action request in connection with the
registration statements.
Response to this letter should be in the form of a pre-
effective amendment filed pursuant to Rule 472 under the
Securities
Act. Where no change will be made in the filing in response to a
comment, please indicate this fact in a supplemental letter and
briefly state the basis for your position.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the Funds and their management are in
possession of all facts relating to the Fund`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the Funds request
acceleration of the effective date of the pending registration
statements, they should furnish a letter, at the time of such
request, acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the Fund from its full responsibility for the adequacy and
accuracy of the disclosure in the filing; and
* the Fund may not assert this action as defense in any proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Investment Management in connection with our review of
your filing or in response to our comments on your filing.
Should you have any questions regarding this letter, please
contact me at (202) 551-6965.
Sincerely,
Vincent J. Di Stefano
Senior Counsel
Joshua B. Deringer, Esq.
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