UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21666
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Hatteras Master Fund, L.P.
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(Exact name of registrant as specified in charter)
8816 Six Forks Road, Suite 107
Raleigh, North Carolina 27615
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(Address of principal executive offices) (Zip code)
David B. Perkins
8816 Six Forks Road, Suite 107
Raleigh, North Carolina 27615
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(Name and address of agent for service)
registrant's telephone number, including area code: (919) 846-2324
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Date of fiscal year end: March 31
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Date of reporting period: March 31, 2005
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
HATTERAS MASTER FUND, L.P.
FINANCIAL STATEMENTS
For the period January 1, 2005
(commencement of operations) through March 31, 2005
HATTERAS MASTER FUND, L.P.
FOR THE PERIOD JANUARY 1, 2005
(COMMENCEMENT OF OPERATIONS) THROUGH MARCH 31, 2005
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm ................. 1
Schedule of Investments ................................................. 2-3
Statement of Financial Condition ........................................ 4
Statement of Operations ................................................. 5
Statement of Changes in Partners' Capital ............................... 6
Statement of Cash Flows ................................................. 7
Notes to Financial Statements ........................................... 8-13
Board of Directors (unaudited) .......................................... 14
Fund Management (unaudited) ............................................. 15
Other Information (unaudited) ........................................... 16
Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103-3984
USA
Tel: +1 215 246 2300
[GRAPHIC OMITTED] Fax: +1 215 569 2441
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Partners of
Hatteras Master Fund, L.P.
We have audited the accompanying statement of financial condition of Hatteras
Master Fund, L.P. (the "Master Fund"), including the schedule of investments, as
of March 31, 2005, and the related statements of operations, changes in
partners' capital and cash flows for the period from January 1, 2005
(commencement of operations) through March 31, 2005. These financial statements
are the responsibility of the Master Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Master Fund is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. An audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Master Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of investments owned as of March 31, 2005, by correspondence with the Underlying
Fund managers. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Master Fund as of March 31,
2005, and the results of its operations, the changes in its partners' capital,
and its cash flows for the period from January 1, 2005 (commencement of
operations) through March 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2, the Master Fund's investments in Underlying Funds
(approximately 99.18% of net assets), are stated at fair value based on
estimates received from the Underlying Funds. The respective managements of the
Underlying Funds have estimated the fair values relating to certain of the
underlying investments of these Underlying Funds in the absence of readily
ascertainable market values. These values may differ from the values that would
have been used had a ready market for these investments existed, and the
differences could be material.
/s/ Deloitte & Touche LLP
May 24, 2005
HATTERAS MASTER FUND, L.P.
SCHEDULE OF INVESTMENTS - MARCH 31, 2005
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COST FAIR VALUE
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INVESTMENTS IN UNDERLYING FUNDS (99.18%)
ABSOLUTE RETURN (a),(b) (21.87%)
AQR Global Asset Institutional Fund, L.P. $4,289,864 $ 4,348,320
Courage Special Situations Fund, L.P. 4,827,675 4,919,607
M&M Arbitrage, LLC 4,646,299 4,302,151
Silverback Partners, L.P. 4,397,274 4,178,312
Smith Breeden Mortgage Partners L.P. 4,413,258 4,473,245
Titan Global Return Fund LLC 2,393,908 2,286,101
Wellington Partners, LLC 1,035,759 1,044,552
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25,552,288
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ENHANCED FIXED INCOME (a),(b) (17.35%)
Contrarian Capital Fund I, L.P. 6,880,064 7,072,320
GMO Global Bond Fund, L.P. 5,018,453 4,898,285
Greylock Global Opportunity Fund, L.P. 4,922,405 4,996,012
Ore Hill Partners, LLC 3,221,928 3,304,691
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20,271,308
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ENERGY AND NATURAL RESOURCES (a),(b) (8.13%)
Cambridge Energy, L.P. 4,066,534 4,418,223
Southport Energy Plus Partners, L.P. 4,583,819 5,081,209
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9,499,432
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OPPORTUNISTIC EQUITY (a),(b) (33.49%)
CCM International Small Cap Value Fund, L.P. 2,029,762 2,028,504
CCM Small Cap Qualified Fund, L.P. 2,500,000 2,647,499
CRM Windridge Partners, L.P. 3,022,017 3,063,480
GMO Mean Reversion Fund A 5,770,065 5,925,936
GMO US Aggressive Long/Short Fund 4,247,757 4,513,183
Sci-Tech Investment Partners, L.P. 2,295,782 2,118,450
SCP Domestic Fund, L.P. 4,002,947 4,104,039
SR Global Fund LP (Class C) International 3,457,674 3,495,210
SR Global Fund LP (Class G) Emerging 4,281,970 4,413,603
SR Global Fund LP (Class H) Japan 2,365,240 2,293,085
The Platinum Fund Ltd. 2,535,461 2,519,406
Witches Rock Fund, L.P. 2,003,000 2,006,063
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39,128,458
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PRIVATE EQUITY COMPOSITE (a),(b) (7.53%)
Crosslink Crossover Fund IV, L.P. 4,883,399 4,816,043
Pipe Equity Partners LLC 1,574,693 1,620,518
Protege Partners, L.P. 2,031,000 2,049,097
VCFA Private Equity Partners IV, L.P. 305,750 305,750
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8,791,408
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See Notes to Financial Statements
2
HATTERAS MASTER FUND, L.P.
SCHEDULE OF INVESTMENTS - MARCH 31, 2005 (CONTINUED)
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COST FAIR VALUE
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INVESTMENTS IN UNDERLYING FUNDS (99.18%)
REAL ESTATE COMPOSITE (10.81%)
ING Clarion CRA Hedge Fund, L.P. (a),(b) $5,356,915 $ 5,139,324
Security Capital Preferred Growth, Inc. (b) 964,042 938,383
Transwestern Mezzanine Realty Partner II, LLC (b) 376,780 376,780
Wells Street Partners, LLC (a),(b) 6,386,675 6,175,433
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12,629,920
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TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $115,088,169) 115,872,814
OTHER ASSETS IN EXCESS OF LIABILITIES (0.82)% 953,832
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PARTNERS' CAPITAL - 100.00% $116,826,646
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(a) - Non-income producing securities
(b) - Securities are issued in private placement transactions and as such are
restricted as to resale. Total cost and value of restricted securities as of
March 31, 2005 was $115,088,169 and $115,872,814, respectively.
See Notes to Financial Statements
3
HATTERAS MASTER FUND, L.P.
STATEMENT OF FINANCIAL CONDITION - MARCH 31, 2005
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ASSETS
Investments in Underlying Funds, at fair value (cost $115,088,169) $115,872,814
Cash and cash equivalents 1,031,774
Prepaid insurance 94,500
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TOTAL ASSETS $116,999,088
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LIABILITIES AND PARTNERS' CAPITAL
Organizational fees payable $ 79,639
Accounting and administration fee payable 44,662
Professional fees payable 40,250
Board of directors' fees payable 2,500
Custody fee payable 1,785
Investor servicing fees payable 75
Other accrued expenses 3,531
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TOTAL LIABILITIES 172,442
PARTNERS' CAPITAL 116,826,646
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $116,999,088
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See Notes to Financial Statements
4
HATTERAS MASTER FUND, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 2005 (COMMENCEMENT OF OPERATIONS) THROUGH MARCH 31,
2005
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INVESTMENT INCOME:
Dividends $ 18,779
Interest 327
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TOTAL INVESTMENT INCOME 19,106
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OPERATING EXPENSES:
Management fees 302,936
Accounting and administration fees 44,662
Professional fees 40,250
Insurance 31,500
Risk management expense 27,187
Board of directors' fees 10,000
Organization expense 82,639
Custody fees 1,785
Investor servicing fees 75
Other expenses 6,500
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TOTAL OPERATING EXPENSES 547,534
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NET INVESTMENT LOSS (528,428)
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS IN UNDERLYING FUNDS
Net realized loss on investments (132,580)
Net unrealized appreciation on investments 784,645
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS IN UNDERLYING FUNDS 652,065
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NET INCREASE IN PARTNERS' CAPITAL RESULTING FROM OPERATIONS $ 123,637
=========
See Notes to Financial Statements
5
HATTERAS MASTER FUND, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD JANUARY 1, 2005 (COMMENCEMENT OF OPERATIONS) THROUGH MARCH 31,
2005
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GENERAL LIMITED
PARTNER'S PARTNERS' TOTAL PARTNERS'
CAPITAL CAPITAL CAPITAL
---------------------------------------------
PARTNERS' CAPITAL AT BEGINNING OF PERIOD -- $ 100,000 $ 100,000
Capital contributions -- 35,596,058 35,596,058
Transfer in-kind subscriptions (Note 1) -- 89,006,951 89,006,951
Capital withdrawals -- (8,000,000) (8,000,000)
Net investment loss -- (528,428) (528,428)
Net realized loss on investments in
Underlying Funds -- (132,580) (132,580)
Net increase in unrealized appreciation on
investments in Underlying Funds -- 784,645 784,645
---------------------------------------------
PARTNERS' CAPITAL AT END OF PERIOD -- $ 116,826,646 $ 116,826,646
=============================================
See Notes to Financial Statements
6
HATTERAS MASTER FUND, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 2005 (COMMENCEMENT OF OPERATIONS) THROUGH MARCH 31,
2005
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in partners' capital resulting from operations $ 123,637
Adjustments to reconcile net increase in partners' capital from
investment operations to net cash used for operating activities:
Purchases of Underlying Funds (30,622,961)
Proceeds from redemption in Underlying Funds 4,409,163
Net realized loss on investments in Underlying Funds 132,580
Net appreciation on investments in Underlying Funds (784,645)
Prepaid insurance (94,500)
Organization fees payable 79,639
Accounting and administration fee payable 44,662
Professional fees payable 40,250
Board of directors' fees payable 2,500
Custody fee payable 1,785
Investor servicing fee payable 75
Other accrued expenses 3,531
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Net cash used in operating activities (26,664,284)
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CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 35,596,058
Capital withdrawals (8,000,000)
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Net cash provided by financing activities 27,596,058
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Net increase in cash and cash equivalents 931,774
Cash and cash equivalents at beginning of period 100,000
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Cash and cash equivalents at end of period $ 1,031,774
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SUPPLEMENTARY CASH FLOW INFORMATION
Non-Cash financing activities
Transfer-in-kind subscriptions $ 89,006,951
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See Notes to Financial Statements
7
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
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1. ORGANIZATION
Hatteras Master Fund, L.P. (the "Master Fund") was organized as a limited
partnership under the laws of the State of Delaware on October 29, 2004.
The Master Fund is registered under the 1940 Act as a closed-end,
non-diversified management investment company. The Master Fund is managed
by Hatteras Investment Partners LLC (the "Investment Manager"), a Delaware
limited liability company registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The objective of the Master
Fund is to generate consistent long-term appreciation and returns across
all market cycles. To achieve its objective, the Master Fund will provide
its limited partners (each, a "Partner" and together, the "Partners") with
access to a broad range of investment strategies and asset categories,
trading advisors ("Advisors") and overall asset allocation services
typically available on a collective basis to larger institutions.
Generally, the Investment Manager intends to select Advisors that
collectively employ widely diversified investment strategies and engage in
such techniques as Opportunistic Equity, Enhanced Fixed Income, Absolute
Return, Private Equity, Real Estate and Energy/Natural Resources. However,
the Investment Manager may also retain Advisors who utilize other
strategies. The Master Fund commenced operations on January 3, 2005. Prior
to January 3, 2005, the Master Fund has not had any transactions other
than those related to organizational matters and the sale of a $100,000
interest to Hatteras Diversified Strategies Fund, LP.
Hatteras Investment Management LLC, a Delaware limited liability company,
serves as the General Partner of the Master Fund ("General Partner"). The
General Partner has initially appointed a Board of Directors ("Board")
and, to the fullest extent permitted by applicable law, has irrevocably
delegated to the Board 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.
On January 1, 2005, the Fund received capital contributions totaling
$116,269,458, including contributions in the form of transfer-in-kind from
Hatteras Diversified Strategies Fund, LP and Hatteras Diversified
Strategies Offshore Fund, Ltd for $72,386,769 and $16,620,182,
respectively. In addition, the Hatteras Diversified Strategies Offshore
Fund Ltd transferred receivables in the amount of $17,242,388 and
liquidated $10,020,119 of the Fund's securities at December 31, 2004 and
reinvested the proceeds in the Master Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
and are expressed in United States dollars. The following is a summary of
significant accounting and reporting policies used in preparing the
financial statements.
A. INVESTMENT VALUATION - INVESTMENTS IN UNDERLYING FUNDS
The Master Fund will value interests in the Underlying Funds at fair
value, which ordinarily will be the value determined by their respective
investment managers, in accordance with procedures established by the
Board. Investments in Underlying Funds are subject to the terms of the
8
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. INVESTMENT VALUATION - INVESTMENTS IN UNDERLYING FUNDS (CONTINUED)
Underlying Funds' offering documents. Valuations of the Underlying Funds
may be subject to estimates and are net of management and performance
incentive fees or allocations payable to the Underlying Funds' managers as
required by the Underlying Funds' offering documents. If the Investment
Manager determines that the most recent value reported by the Underlying
Fund does not represent fair value or if the Underlying Fund fails to
report a value to the Master Fund, a fair value determination is made
under procedures established by and under the general supervision of the
Board. Because of the inherent uncertainty in valuation, the estimated
values may differ from the values that would have been used had a ready
market for the securities existed, and the differences could be material.
B. INVESTMENT INCOME
Interest income is recorded on the accrual basis. The Underlying Funds
generally do not make regular cash distributions of income and gains and
so are generally considered non-income producing securities, however the
Master Fund owns two securities that are income producing and disburse
regular cash distributions.
C. FUND EXPENSES
The Master Fund will bear all expenses incurred in the business of the
Master Fund, including, but not limited to, the following: all costs and
expenses related to portfolio transactions and positions for the Master
Fund's account; legal fees; accounting and auditing fees; costs of
insurance; registration expenses; certain offering and organization costs;
and expenses of meetings of the Board.
In accordance with the Private Placement Memorandum, the Master Fund is
amortizing organizational expenses over a sixty-month period. For
financial statement purposes, in order to comply with accounting
principles generally accepted in the United States of America, the Fund
expensed the unamortized amount of organizational expenses during the
current period.
D. INCOME TAXES
The Master Fund is treated as a partnership for Federal income tax
purposes and therefore not subject to Federal income tax. For income tax
purposes, the individual partners will be taxed upon their distributive
share of each item of the Master Fund's income, gain, loss, deductions and
credits.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes amounts held in interest bearing
overnight accounts. At March 31, 2005, the Master Fund held $1,031,774 in
an interest bearing cash account at PNC Bank.
9
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Master Fund to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of income and expense during the reporting
period. Actual results could differ from these estimates.
3. ALLOCATION OF PARTNERS' CAPITAL ACCOUNT
Allocation Periods begin on the day after the last day of the preceding
Allocation Period and end at the close of business on (1) the last day of
each month, (2) the last day of each taxable year; (3) the day preceding
each day on which interests are purchased, (4) the day on which interests
are repurchased, or (5) the day on which any amount is credited to or
debited from the capital account of any Partner other than an amount to be
credited to or debited from the capital accounts of all Partners in
accordance with their respective investment percentages. Net Profits or
net losses of the Master Fund for each Allocation Period will be allocated
among and credited to or debited against the capital accounts of the
Partners.
4. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER
The Investment Manager is responsible for providing day-to-day investment
management services to the Fund, subject to the ultimate supervision of
and subject to any policies established by the Board, pursuant to the
terms of an investment management agreement with the Fund (the "Investment
Management Agreement"). Under the Investment Management Agreement, the
Investment Manager is responsible for developing, implementing and
supervising the Fund's investment program.
In consideration for such services, the Master Fund pays the Investment
Manager a management fee, due and payable in advance within five business
days after the beginning of each fiscal quarter, at an annual rate equal
to 1.00% of the aggregate value of its net assets determined as of the
first business day of each fiscal quarter.
Each member of the Board who is not an "interested person" of the Master
Fund, as defined by the 1940 Act, receives an annual retainer of $10,000.
All Board members are reimbursed by the Master Fund for all reasonable
out-of-pocket expenses incurred by them in performing their duties.
PFPC Trust Company serves as custodian of the Master Fund's assets and
provides custodial services for the Master Fund. PFPC Inc. serves as
administrator and accounting agent to the Master Fund and provides certain
accounting, record keeping, tax and investor related services. The Master
Fund pays a monthly fee to the administrator based upon average partners'
capital, subject to certain minimums.
10
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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5. INVESTMENT TRANSACTIONS
Total purchases of Underlying Funds for the period ended March 31, 2005,
amounted to $30,622,961. Total proceeds from sales of Underlying Funds for
the period ended March 31, 2005, amounted to $4,409,163. The cost of
investments in Underlying Funds for Federal income tax purposes is
adjusted for items of taxable income allocated to the Master Fund from the
Underlying Funds. The Master Fund has not received information from the
Underlying Funds as to the amounts of taxable income allocated to the
Master Fund as of March 31, 2005.
6. UNDERLYING FUNDS
The following is a summary of the investment objective and liquidity
provisions of the Underlying Funds that exceeded 5% of the Company's net
assets at March 31, 2005.
Contrarian Capital Fund I, L.P. seeks to maximize total return through
investment in a broad based distressed securities portfolio of
predominantly U.S. corporate obligations and, to a lesser extent, real
estate and non-U.S. restructurings. The underlying Fund may also invest up
to 20% of its assets in securities for which there is no ready market. The
Underlying fund allows for redemptions as of the last business day of any
fiscal year on a 90 day written notice, after one fiscal year has elapsed.
GMO Mean Reversion Fund A seeks to generate positive returns substantially
in excess of the risk free rate by taking advantage of the tendency of
assets around the world to revert to fair pricing over time. The
Underlying Fund allows for quarterly redemptions with a 12-month lock-up
period given a 14-day written notice.
Wells Street Partners, LLC invests in the publicly-traded real estate
securities market to deliver an attractive total return. The Underlying
Fund allows for redemptions with a 12-month lock-up period, on the last
business day of each calendar month upon 30 days prior notice.
7. RISK FACTORS
An investment in Master Fund involves significant risks that should be
carefully considered prior to investing and should only be considered by
persons financially able to maintain their investment and who can afford a
loss of a substantial part or all of such investment. The Master Fund
intends to invest substantially all of its available capital in securities
of private investment companies. These investments will generally be
restricted securities that are subject to substantial holding periods or
are not traded in public markets at all, so that the Master Fund may not
be able to resell some of its securities holdings for extended periods,
which may be several years. No guarantee or representation is made that
the investment objective will be met.
11
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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8. REPURCHASE OF PARTNERS' INTERESTS
The Board may, from time to time and in their sole discretion, cause the
Master Fund to repurchase interests from Partners pursuant to written
tenders by Partners at such times and on such terms and conditions as
established by the Board. In determining whether the Master Fund should
offer to repurchase interests, the Board will consider the recommendation
of the Investment Manager. The Investment Manager expects that it will
generally recommend to the Board that the Master Fund offer to repurchase
interests from Partners quarterly as of approximately March 31, June 30,
September 30 and December 31 of each year beginning on March 31, 2006.
The Master Fund does not intend to distribute to the Partners any of the
Master Fund's income, but intends to reinvest substantially all income and
gains allocable to the Partners. A Partner may therefore be allocated
taxable income and gains and not receive any cash distribution.
9. GUARANTEES
In the normal course of business, the Master Fund enters into contracts
that provide general indemnifications. The Master Fund's maximum exposure
under these agreements is dependent on future claims that may be made
against the Master Fund, and therefore cannot be established; however,
based on experience, the risk of loss from such claims is considered
remote.
10. FINANCIAL HIGHLIGHT INFORMATION
The financial highlights are intended to help you understand the Master
Fund's financial performance for the past period. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Master Fund.
The ratios and total return amounts are calculated based on the limited
partner group taken as a whole. The General Partner interest is excluded
from the calculations. An individual limited partner's results may vary
from those shown below due to the timing of capital transactions.
The ratios are calculated by dividing total dollars of income or expenses
as applicable by the average of total monthly limited partner capital. The
ratios do not reflect the Master Fund's proportionate share of income and
expenses from Underlying Funds.
Total return amounts are calculated by geometrically linking returns based
on the change in value during each accounting period. The total return
amounts have not been annualized.
12
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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10. FINANCIAL HIGHLIGHT INFORMATION (CONTINUED)
PERIOD FROM
JANUARY 1, 2005
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 2005:
----------------
Total return amortizing organizational expenses* 0.23%
Total return after expensing organizational expenses 0.17%
Portfolio Turnover 3.72%
ANNUALIZED RATIOS:
Total Expenses 1.50%
Net investment loss (1.43)%
- ----------
* Return is indicative of amortizing organizational expenses over 60 months.
13
HATTERAS MASTER FUND, L.P.
BOARD OF DIRECTORS (UNAUDITED)
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The identity of the Board Members and brief biographical information is set
forth below.
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Number of
Portfolios in
Fund Complex'
Position(s) Term of Office; Overseen by
Held with the Length of Time Principal Occupation(s) During Past 5 years Director or
Name, Address & Age Fund Served and Other Directorships Held by Director Officer
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INTERESTED DIRECTORS
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David B. Perkins, 42 Chief 3 year term; Mr. Perkins has been Chairman and CEO since 3
1000 Watermeet Lane Executive Since Inception inception of the Funds. Mr. Perkins became
Raleigh, NC 27614 Officer and the President and Managing
Chairman of Principal of the Investment Manager in
the Board of September 2003 and became the co-founder and
Directors Managing Partner of CapFinancial Partners,
LLC in April 2003. Prior to that, he was
Managing Partner at Wachovia Securities
Financial Network, Inc. from June 2002 to
September 2003 and Managing Principal of
CapTrust Financial Advisors, LLC from October
1997 to June 2002.
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INDEPENDENT DIRECTORS
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H. Alexander Holmes, 62 Director: 3 year term; Mr. Holmes founded Holmes Advisor Services, 3
3408 Landor Road Audit Since LLC, a financial consultation firm, in 1993
Raleigh, NC 27609 Committee December 2004
Member
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Steve E. Moss, 51 Director: 3 year term; Mr. Moss has been a member of HMKCT 3
918 Meadow Lane Chairman of Since Properties, LLC since January 1996
Henderson, NC 27536 the Audit December 2004
Committee
- ------------------------------------------------------------------------------------------------------------------------
George Y. Ragsdale II, 39 Director: 3 year term; Mr. Ragsdale has been Investment Research 3
111 Radio Circle Audit Since February Director at Kisco Management Co. since
Mount Kisco, NY 10546 Committee 2005 November 1999.
Member
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Gregory S. Sellers, 45 Director: 3 year term; Mr. Sellers became the Chief Financial 3
2643 Steeplechase Road Audit Since Officer and a director of Kings Plush, Inc.,
Gastonia, NC 28056 Committee December 2004 a fabric manufacturer, in April 2003. Prior
Member to that, he was the Vice President of Finance
at Parksdale Mills, Inc., a cotton and cotton
blend yarns producer, from January 1991 to
April 2003.
- ------------------------------------------------------------------------------------------------------------------------
14
HATTERAS MASTER FUND, L.P.
FUND MANAGEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
Set forth below is the name, age, position with the Fund, length of term of
office, and the principal occupation for the last five years of each of the
persons currently serving as Executive Officers of the Fund. Unless otherwise
noted, the business address of each officer is 8816 Six Forks Road. Suite 107
Raleigh, NC 27615
- ------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex'
Position(s) Term of Office; Overseen by
Held with the Length of Time Principal Occupation(s) During Past 5 years Director or
Name, Address & Age Fund Served and Other Directorships Held by Director Officer
- ------------------------------------------------------------------------------------------------------------------------
OFFICERS
- ------------------------------------------------------------------------------------------------------------------------
J. Michael Fields, 31 Chief Since Mr. Fields has been the CFO since inception N/A
8816 Six Forks Rd. Financial Inception of the Funds. Mr. Fields became a Director
Suite 107 Officer of the Investment Manager in September 2003.
Raleigh, NC 27615 Prior to joining the Investment Manager, Mr.
Fields was employed by CapTrust Financial
Advisors from August 2002 to September 2003.
Prior to joining CapTrust, Mr. Fields was
employed by Morgan Stanley in Atlanta,
Georgia from January 2000 to August 2002.
- ------------------------------------------------------------------------------------------------------------------------
Denise Buchanan, 42 Chief Legal Since Ms. Buchanan has been the CCO and CLO since N/A
8816 Six Forks Rd. Officer and Inception inception of the Funds. Ms. Buchanan became
Suite 107 Chief the Compliance Officer with CapTrust
Raleigh, NC 27615 Compliance Financial Partners, LLC in November 2003.
Officer Prior to joining CapTrust, Ms. Buchanan was
President of Broker/Dealer Sales &
Consulting, Inc. from 2001 to November 2003.
Previously, Ms. Buchanan was the Director of
Compliance for Atlantic Capital Management,
LLC from 1996 to 2001.
- ------------------------------------------------------------------------------------------------------------------------
Vickey Collins, 38 Secretary Since Ms. Collins has been the Secretary of the N/A
8816 Six Forks Rd. Inception Funds since inception. She became the
Suite 107 Operations Manager for the Investment Manager
Raleigh, NC 27615 in September 2004. Prior to working at
Hatteras she was employed with McKinely
Capital Management from 1994 to 2004.
- ------------------------------------------------------------------------------------------------------------------------
15
HATTERAS MASTER FUND, L.P.
OTHER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
PROXY VOTING
- ------------
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities and shareholders record of
actual proxy votes cast is available at www.sec.gov and may be obtained at no
additional charge by calling collect 302-791-2595.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
- ---------------------------------------------
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is
available, without charge and upon request, on the SEC's website at
http://www.sec.gov or may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the Public Reference Room may be obtained
by calling (800) SEC-0330.
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS BY THE BOARD
- ---------------------------------------------------------
On December 27, 2004, the Board (including a majority of the Independent
Directors) approved the Investment Management Agreement between the Master Fund
and the Investment Manager. On March 10, 2005, the Board considered additional
information with respect to the Investment Management Agreement and approved a
new Investment Management Agreement between the Master Fund and the Investment
Manager (the "New Investment Management Agreement" and, together with the
Investment Management Agreement, the "Management Agreements"). The New
Investment Management Agreement, if approved by Partners, would revise the
calculation methodology by which the management fee is determined to make the
calculation methodology consistent with common practice in the investment
company industry, but would not result in any change in the management fee rate
payable to the Investment Manager. Under the Investment Management Agreement,
the Master Fund pays to the Investment Manager a management fee equal to 1.00%
(annualized) of the aggregate value of the Master Fund's net assets determined
on the first business day of each fiscal quarter. The management fee is then
payable in advance within five business days after the beginning of each fiscal
quarter. Under the New Investment Management Agreement, the Master Fund would
pay to the Investment Manager a monthly management fee equal to 1/12th of 1.00%
(1.00% on an annualized basis) of the aggregate value of its net assets
determined as of each month end. Under the New Investment Management Agreement,
the management fee would be computed on the net assets of the Master Fund as of
the last day of each month and payable in arrears within five business days
after the end of each month. Since the change in calculation methodology could
result, under certain circumstances, in an increase in the actual dollar amount
of management fees received by the Investment Manager, the Board authorized the
officers to call a special meeting of Partners of the Master Fund (the "Partner
Meeting") to seek Partner approval of the New Investment Management Agreement.
The Partner Meeting is scheduled to be held on May 27, 2005.
As part of their deliberations with respect to the Management Agreements, the
Board requested and reviewed, with the assistance of counsel to the Master Fund,
various materials relating to the Investment Manager, including materials
furnished by the Investment Manager. These materials included information about
the Investment Manager's personnel, organizational structure, operations and
financial condition.
16
HATTERAS MASTER FUND, L.P.
OTHER INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS BY THE BOARD (CONTINUED)
- ---------------------------------------------------------------------
The Board gave particular consideration to matters relating to the
organizational capabilities of the Investment Manager, including: (1) the nature
and stability of the ownership of the Investment Manager; (2) the nature of the
Investment Manager's portfolio management experience and resources, including
the experience of relevant personnel; and (3) the Investment Manager's
resources, practices and procedures to address regulatory compliance matters.
The Board concluded that the Investment Manager has sufficient resources to
fulfill effectively the Investment Manager's duties under the Management
Agreements and that the Investment Manager appeared able to fulfill the
Investment Manager's fiduciary duties as investment adviser to the Master Fund.
The Board also considered other information of the type regularly reviewed when
evaluating whether to continue or approve an investment advisory agreement,
including: (1) the terms of the Management Agreements; (2) the standard of care
applicable to the Investment Manager under the Management Agreements; (3)
information regarding the performance of and fees paid by certain similar
private funds managed by the Investment Manager; (4) information compiled by the
Investment Manager intended to gauge the behavior of the Investment Manager's
portfolio management strategy during periods of historical or hypothetical
market stress; (5) the Master Fund's estimated investment performance and
expense ratio and the investment performance and expense ratio of other
investment companies with similar investment styles to the Master Fund; and (6)
the structure of, and the method used to determine, the compensation of
portfolio managers.
The Board concluded that the scope and quality of services to be provided to the
Master Fund under the Management Agreements were consistent with the Master
Fund's operational requirements.
The Board then gave substantial consideration to the fees payable under the
Management Agreements, including: (1) the fees to be paid to the Investment
Manager and the Investment Manager's anticipated expenses in providing its
services, and the fact that certain affiliates of the Investment Manager provide
other services to the Master Fund and its Partners and receive payment for these
services; and (2) a comparison of the fees payable under the Management
Agreements to fees paid under investment advisory agreements to investment
advisers serving other investment companies with similar investment programs to
the Master Fund, which assisted the Board in evaluating the reasonableness of
the fees to be paid to the Investment Manager.
The Board also considered the effective fees under the Management Agreements, as
a percentage of assets at different Master Fund asset levels, and possible
economies of scale to the Investment Manager. In this regard the Board
considered the amount of assets in the Master Fund; the information provided by
the Investment Manager relating to its estimated costs; and information
comparing the fee rate to be charged by the Investment Manager (which does not
include fee breakpoints) with fee rates charged by other unaffiliated investment
managers to their clients.
After deliberation, the Board concluded that the fees to be paid to the
Investment Manager under the Management Agreements were reasonable in light of
the services provided by the Investment Manager, its costs and the reasonably
foreseeable Master Fund asset levels.
17
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, and that relates to any
element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, that relates to one or
more of the items set forth in paragraph (b) of this item's
instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that Steven E. Moss is qualified to serve as an audit
committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
- ----------
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$38,000 for 2005 and $0 for 2004.
Audit-Related Fees
- ------------------
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph
(a) of this Item are $0 for 2005 and $0 for 2004.
Tax Fees
- --------
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $10,500 for 2005 and $0
for 2004. The tax fee for the fiscal year 2005 pertains to tax review
service on Form 1065 Schedule K1.
All Other Fees
- --------------
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$0 for 2005 and $0 for 2004.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X.
The Registrants Audit Committee must pre-approve the audit and
non-audit services of the Auditors prior to the accountants'
engagement.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X
are as follows:
(b) 0%
(c) 100%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of
the registrant was $0.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
HATTERAS INVESTMENT PARTNERS LLC
HATTERAS MASTER FUND, L.P.
HATTERAS MULTI-STRATEGY FUND I, L.P.
HATTERAS MULTI-STRATEGY FUND II, L.P.
PROXY VOTING AND CORPORATE GOVERNANCE POLICY
NOTE: Hatteras Investment Partners LLC, in its capacity as investment
manager of Hatteras Master Fund, L.P., Hatteras Multi-Strategy
Fund I, L.P. and Hatteras Multi-Strategy Fund II, L.P.
(collectively, the "Funds"), expects that the Funds would invest
primarily in non-voting securities, and thus these proxy policies
would generally not apply to the Funds.
A. GENERAL CORPORATE GOVERNANCE BENCHMARKS Hatteras Investment Partners LLC
("Hatteras") will evaluate issues that may have an impact on the economic
value of client investments during the time period it expects to hold the
investment. While there is no absolute set of rules that determine
appropriate governance under all circumstances and no set of rules will
guarantee ethical behavior, there are certain benchmarks, which, if
substantial progress is made toward, give evidence of good corporate
governance. Therefore, we will generally exercise voting rights on behalf
of clients in accordance with this policy.
PRINCIPLE 1: INDEPENDENCE OF BOARD FROM COMPANY MANAGEMENT
GUIDELINES:
o Board exercises judgment independently of management.
o Separate Chairman and Chief Executive.
o Board has access to senior management members.
o Board is comprised of a significant number of independent
outsiders.
o Outside directors meet independently.
o CEO performance standards are in place.
o CEO performance is reviewed annually by the full board.
o CEO succession plan is in place.
o Board involvement in ratifying major strategic initiatives.
1 February 2004
o Compensation, audit and nominating committees are led by a
majority of outside directors.
PRINCIPLE 2: QUALITY OF BOARD MEMBERSHIP
GUIDELINES:
o Board determines necessary board member skills, knowledge and
experience.
o Board conducts the screening and selection process for new
directors.
o Shareholders should have the ability to nominate directors.
o Directors whose present job responsibilities change are reviewed
as to the appropriateness of continued directorship.
o Directors are reviewed every 3-5 years to determine
appropriateness of continued directorship.
o Board meets regularly (at least four times annually).
PRINCIPLE 3: APPROPRIATE MANAGEMENT OF CHANGE IN CONTROL
GUIDELINES:
o Protocols should ensure that all bid approaches and material
proposals by management are brought forward for board
consideration.
o Any contracts or structures, which impose financial constraints
on changes in control, should require prior shareholder approval.
o Employment contracts should not entrench management.
o Management should not receive substantial rewards when employment
contracts are terminated for performance reasons.
PRINCIPLE 4: REMUNERATION POLICIES ARE ALIGNED WITH SHAREHOLDER INTERESTS
GUIDELINES:
o Executive remuneration should be commensurate with
responsibilities and performance.
o Incentive schemes should align management with shareholder
objectives.
o Employment policies should encourage significant shareholding by
management and board members.
2
o Incentive rewards should be proportionate to the successful
achievement of pre-determined financial targets.
o Long-term incentives should be linked to transparent long-term
performance criteria.
o Dilution of shareholders' interests by share issuance arising
from egregious employee share schemes and management incentives
should be limited by shareholder resolution.
PRINCIPLE 5: AUDITORS ARE INDEPENDENT
GUIDELINES:
o Auditors are approved by shareholders at the annual meeting.
o Audit, consulting and other fees to the auditor are explicitly
disclosed.
o The Audit Committee should affirm the integrity of the audit has
not been compromised by other services provided by the auditor
firm.
o Periodic (every 5 years) tender of the audit firm or audit
partner.
B. PROXY VOTING GUIDELINES - MACRO RATIONALES Macro Rationales are used to
explain why we vote on each proxy issue. The Macro Rationales reflect our
guidelines enabling voting consistency between offices yet allowing for
flexibility so the local office can reflect specific knowledge of the
company as it relates to a proposal.
1. GENERAL GUIDELINES
a. When our view of the issuer's management is favorable, we
generally support current management initiatives. When our view
is that changes to the management structure would probably
increase shareholder value, we may not support existing
management proposals.
b. If management's performance has been questionable we may abstain
or vote against specific proxy proposals.
c. Where there is a clear conflict between management and
shareholder interests, even in those cases where management has
been doing a good job, we may elect to vote against management.
d. In general, we oppose proposals, which in our view, act to
entrench management.
e. In some instances, even though we strongly support management,
there are some corporate governance issues that, in spite of
management objections, we believe should be subject to
shareholder approval.
3
f. We will vote in favor of shareholder resolutions for confidential
voting.
2. BOARD OF DIRECTORS AND AUDITORS
a. Unless our objection to management's recommendation is strenuous,
if we believe auditors to be competent and professional, we
support continuity in the appointed auditing firm subject to
regular review.
b. We generally vote for proposals that seek to fix the size of the
board and/or require shareholder approval to alter the size of
the board and that allow shareholders to remove directors with or
without cause.
c. We generally vote for proposals that permit shareholders to act
by written consent and/or give the right to shareholders to call
a special meeting.
d. We generally oppose proposals to limit or restrict shareholder
ability to call special meetings.
e. We will vote for separation of Chairman and CEO if we believe it
will lead to better company management, otherwise, we will
support an outside lead director board structure.
3. COMPENSATION
a. We will not try to micro-manage compensation schemes, however, we
believe remuneration should not be excessive, and we will not
support compensation plans that are poorly structured or
otherwise egregious.
b. Senior management compensation should be set by independent
directors according to industry standards, taking advice from
benefits consultants where appropriate.
c. All senior management and board compensation should be disclosed
within annual financial statements, including the value of fringe
benefits, company pension contributions, deferred compensation
and any company loans.
d. We may vote against a compensation or incentive program if it is
not adequately tied to a company's fundamental financial
performance;, is vague;, is not in line with market practices;,
allows for option re-pricing;, does not have adequate performance
hurdles; or is highly dilutive.
e. Where company and management's performance has been poor, we may
object to the issuance of additional shares for option purposes
such that management is rewarded for poor performance or further
entrenches its position.
f. Given the increased level of responsibility and oversight
required of
4
directors, it is reasonable to expect that compensation should
increase commensurably. We consider that there should be an
appropriate balance between fixed and variable elements of
compensation and between short and long term incentives.
4. GOVERNANCE PROVISIONS
a. We believe that votes at company meetings should be determined on
the basis of one share one vote. We will vote against cumulative
voting proposals.
b. We believe that "poison pill" proposals, which dilute an issuer's
stock when triggered by particular events, such as take over bids
or buy-outs, should be voted on by the shareholders and will
support attempts to bring them before the shareholders.
c. Any substantial new share issuance should require prior
shareholder approval.
d. We believe proposals that authorize the issuance of new stock
without defined terms or conditions and are intended to thwart a
take-over or restrict effective control by shareholders should be
discouraged.
e. We will support directives to increase the independence of the
board of directors when we believe that the measures will improve
shareholder value.
f. We generally do not oppose management's recommendation to
implement a staggered board and generally support the regular
re-election of directors on a rotational basis as it may provide
some continuity of oversight.
g. We will support proposals that enable shareholders to directly
nominate directors.
5. CAPITAL STRUCTURE AND CORPORATE RESTRUCTURING
a. It is difficult to direct where a company should incorporate,
however, in instances where a move is motivated solely to
entrench management or restrict effective corporate governance,
we will vote accordingly.
b. In general we will oppose management initiatives to create dual
classes of stock, which serves to insulate company management
from shareholder opinion and action. We support shareholder
proposals to eliminate dual class schemes.
5
6. MERGERS, TENDER OFFERS AND PROXY CONTESTS
a. Based on our analysis and research we will support proposals that
increase shareholder value and vote against proposals that do
not.
7. SOCIAL, ENVIRONMENTAL, POLITICAL AND CULTURAL
a. Depending on the situation, we do not typically vote to prohibit
a company from doing business anywhere in the world.
b. There are occasional issues, we support, that encourage
management to make changes or adopt more constructive policies
with respect to social, environmental, political and other
special interest issues, but in many cases we believe that the
shareholder proposal may be too binding or restrict management's
ability to find an optimal solution. While we wish to remain
sensitive to these issues, we believe there are better ways to
resolve them than through a proxy proposal. We prefer to address
these issues through engagement.
c. Unless directed by clients to vote in favor of social,
environmental, political and other special interest proposals, we
are generally opposed to special interest proposals that involve
an economic cost to the company or that restrict the freedom of
management to operate in the best interest of the company and its
shareholders.
8. ADMINISTRATIVE AND OPERATIONS
a. Occasionally, stockholder proposals, such as asking for reports
and donations to the poor, are presented in a way that appear to
be honest attempts at bringing up a worthwhile issue.
Nevertheless, judgment must be exercised with care, as we do not
expect our shareholder companies to be charitable institutions.
b. We are sympathetic to shareholders who are long-term holders of a
company's stock, who desire to make concise statements about the
long-term operations of the company in the proxy statement.
However, because regulatory agencies do not require such actions,
we may abstain unless we believe there are compelling reasons to
vote for or against.
9. MISCELLANEOUS
a. Where a client has given specific direction as to how to exercise
voting rights on its behalf, we will vote in accordance with a
client's direction.
b. Where we have determined that the voting of a particular proxy is
of limited benefit to clients or where the costs of voting a
proxy outweigh the benefit to clients, we may abstain or choose
not to vote. Among others, such costs may include the cost of
translating a proxy, a
6
requirement to vote in person at a shareholders meeting or if the
process of voting restricts our ability to sell for a period of
time (an opportunity cost).
c. For holdings managed pursuant to quantitative, index or
index-like strategies, we may delegate the authority to exercise
voting rights for such strategies to an independent proxy voting
and research service with the direction that the votes be
exercised in accordance with this Policy. If such holdings are
also held in an actively managed strategy, we will exercise the
voting rights for the passive holdings according to the active
strategy.
d. In certain instances when we do not have enough information we
may choose to abstain or vote against a particular Proposal.
C. PROXY VOTING DISCLOSURE GUIDELINES
o Hatteras will disclose to clients, as required by the Investment
Advisers Act of 1940, how they may obtain information about how we
voted with respect to their securities. This disclosure may be made
on Form ADV.
o Hatteras will disclose to clients, as required by the Investment
Advisers Act of 1940, these procedures and will furnish a copy of
these procedures to any client upon request. This disclosure may be
made on Form ADV.
o Upon request or as required by law or regulation, Hatteras will
disclose to a client or a client's fiduciaries, the manner in which
we exercised voting rights on behalf of the client.
o Upon request, we will inform a client of our intended vote. Note,
however, in some cases, because of the controversial nature of a
particular proxy, our intended vote may not be available until just
prior to the deadline. If the request involves a conflict due to
the client's relationship with the company that has issued the
proxy, the Chief Compliance Officer should be contacted immediately
to ensure adherence to Hatteras Corporate Governance Principles.
(See Proxy Voting Conflict Guidelines below.)
o Other than as described herein, we will not disclose our voting
intentions or make public statements to any third party (except
electronically to our proxy vote processor or regulatory agencies)
including but not limited to proxy solicitors, non-clients, the
media, or other Hatteras entities, but we may inform such parties
of the provisions of our Policy. We may communicate with other
shareholders regarding a specific proposal but will not disclose
our voting intentions or agree to vote in concert with another
shareholder without approval from the Chief Compliance Officer.
7
o Any employee, officer or director of Hatteras receiving an inquiry
directly from a company will notify the appropriate industry
analyst and persons responsible for voting the company's proxies.
o Proxy solicitors and company agents will not be provided with
either our votes or the number of shares we own in a particular
company.
o In response to a proxy solicitor or company agent, we will
acknowledge receipt of the proxy materials, inform them of our
intent to vote or that we have voted, but not the result of the
vote itself.
o We may inform the company (not their agent) where we have decided
to vote against any material resolution at their company.
o The Chairman of the Global Corporate Governance Committee and the
applicable Chair of the Local Corporate Governance Committee must
approve exceptions to this disclosure policy.
Nothing in this policy should be interpreted as to prevent dialogue
with the company and its advisers by the industry analyst, proxy voting delegate
or other appropriate senior investment personnel when a company approaches us to
discuss governance issues or resolutions they wish to include in their proxy
statement.
D. PROXY VOTING CONFLICT GUIDELINES In addition to the Proxy Voting Disclosure
Guidelines above, Hatteras has implemented the following guidelines to
address conflicts of interests that arise in connection with our exercise
of voting rights on behalf of clients:
o Under no circumstances will general business, sales or marketing
issues influence our proxy votes.
o Hatteras and its affiliates engaged in banking, broker-dealer and
investment banking activities ("Affiliates") have policies in
place prohibiting the sharing of certain sensitive information.
These policies prohibit our personnel from disclosing information
regarding our voting intentions to any Affiliate. Any of our
personnel involved in the proxy voting process who are contacted
by an Affiliate regarding the manner in which we intend to vote
on a specific issue, must terminate the contact and notify the
Chief Compliance Officer immediately.
E. SPECIAL DISCLOSURE GUIDELINES FOR REGISTERED INVESTMENT COMPANY CLIENTS
(INCLUDING THE FUNDS, WHICH ARE CLOSED-END FUNDS)
1. REGISTRATION STATEMENT (OPEN-END AND CLOSED-END FUNDS) MANAGEMENT IS
RESPONSIBLE FOR ENSURING THE FOLLOWING:
o That these procedures, which are the procedures used by the
investment adviser on the Funds' behalf, are described in the
Statement of Additional
8
Information (SAI). The procedures may be described in the SAI or
attached as an exhibit to the registration statement.
o That the SAI disclosure includes the procedures that are used
when a vote presents a conflict between the interests of Fund
shareholders, on the one hand; and those of the Funds investment
adviser, principal underwriter or any affiliated person of the
Fund, its investment adviser or principal underwriter, on the
other.
o That the SAI disclosure states that information regarding how the
Fund voted proxies during the most recent 12-month period ended
June 30 is available (i) without charge, upon request, by calling
a specified toll-free (or collect) telephone number; or on or
through the Fund's website, or both; and (ii) on the Commission's
website. If a request for the proxy voting record is received,
the Fund must comply within three business days by first class
mail. If website disclosure is elected, Form N-PX must be posted
as soon as reasonably practicable after filing the report with
the Commission, and must remain available on the website as long
as the Fund discloses that it its available on the website.
2. SHAREHOLDER ANNUAL AND SEMI-ANNUAL REPORT (OPEN-END AND CLOSED-END
FUNDS) Management is responsible for ensuring the following:
o That each Fund's shareholder report contain a statement that a
description of these procedures is available (i) without charge,
upon request, by calling a toll-free or collect telephone number;
(ii) on the Fund's website, if applicable; and (iii) on the
Commission's website. If a request for the proxy voting record is
received, the Fund must comply within three business days by first
class mail.
o That the report contain a statement that information regarding how
the Fund voted proxies during the most recent 12-month period ended
June 30 is available (i) without charge, upon request, by calling
a specified toll-free (or collect) telephone number; or on or
through the Fund's website, or both; and (ii) on the Commission's
website. If a request for the proxy voting record is received, the
Fund must comply within three business days by first class mail.
If website disclosure is elected, Form N-PX must be posted as soon
as reasonably practicable after filing the report with the
Commission, and must remain available on the website as long as the
Fund discloses that it its available on the website.
3. FORM N-CSR (CLOSED-END FUND ANNUAL REPORTS ONLY) Management is
responsible for ensuring the following:
o That these procedures are described in Form N-CSR. In lieu of
describing the procedures, a copy of these procedures may simply
be included with the
9
filing, however, The SEC's preference is that the procedures be
included directly in Form N-CSR and not attached as an exhibit to
the N-CSR filing.
o That the N-CSR disclosure includes the procedures that are used
when a vote presents a conflict between the interests of Fund
shareholders, on the one hand; and those of the Funds' investment
adviser, principal underwriter or any affiliated person of the
Fund, its investment adviser or principal underwriter, on the
other.
4. FORM N-PX (OPEN-END AND CLOSED-END FUNDS) Management is responsible
for ensuring the following:
o That each Fund files its complete proxy voting record on Form
N-PX for the 12 month period ended June 30 by no later than
August 31 of each year.
o Fund management is responsible for reporting to the Funds' Chief
Compliance Officer any material issues that arise in connection
with the voting of Fund proxies or the preparation, review and
filing of the Funds' Form N-PX.
5. OVERSIGHT OF DISCLOSURE The Funds' Chief Compliance Officer shall be
responsible for ensuring that the required disclosures listed in these
procedures are implemented and complied with. The Funds' Chief
Compliance Officer shall recommend to each Fund's Board any changes to
these policies and procedures that he or she deems necessary or
appropriate to ensure the Funds' compliance with relevant federal
securities laws.
10
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not yet 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.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the
report that includes the disclosure required by this paragraph, based
on their evaluation of these controls and procedures required by Rule
30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b)
or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17
CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal half-year of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are
attached hereto.
(a)(3) Not applicable.
(b) Not applicable.
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) Hatteras Master Fund, L.P.
--------------------------------------------------------------
By (Signature and Title)* /s/ David B. Perkins
-------------------------------------------------
David B. Perkins, Chief Executive Officer
(principal executive officer)
Date June 3, 2005
----------------------------------------------------------------------
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/ David B. Perkins
-------------------------------------------------
David B. Perkins, Chief Executive Officer
(principal executive officer)
Date June 3, 2005
----------------------------------------------------------------------
By (Signature and Title)* /s/ J. Michael Fields
-------------------------------------------------
J. Michael Fields, Chief Financial Officer
(principal financial officer)
Date June 3, 2005
----------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.