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 811-21665
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Hatteras Multi-Strategy TEI 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, 2006
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EXPLANATORY NOTE
The Registrant is filing this Amendment to its Certified Shareholder Report on
Form N-CSR/A filed with the Securities and Exchange Commission on June 20, 2006
(Accession Number 0000935069-06-001741) for the period ended March 31, 2006 in
response to comments received from the Securities and Exchange Commission's
disclosure review. Other than responding to the aforementioned comments, this
Form N-CSR/A does not reflect events occurring after the filing of the Form
N-CSR/A filed on June 20, 2006.
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, 100 F Street, NE,
Washington, DC 20549. 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 MULTI-STRATEGY TEI FUND, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2006
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
FOR THE YEAR ENDED MARCH 31, 2006
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm.......................1
Consolidated Statement of Financial Condition.................................2
Consolidated Statement of Operations..........................................3
Consolidated Statement of Changes in Partners' Capital........................4
Consolidated Statement of Cash Flows..........................................5
Consolidated Notes to Financial Statements.................................6-12
Board of Directors (unaudited)...............................................13
Fund Management (unaudited)..................................................14
Other Information (unaudited) ...............................................15
Financial Statements of Hatteras Master Fund, L.P. ...........................I
[GRAPHIC OMITTED]
Deloitte DELOITTE & TOUCHE LLP
1700 Market Street
Philadelphia, PA 19103-3984
USA
Tel: +1 215 246 2300
Fax: +1 215 569 2441
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Partners of
Hatteras Multi-Strategy TEI Fund, L.P.:
We have audited the accompanying statement of financial condition of Hatteras
Multi-Strategy TEI Fund, L.P. (the "Fund") as of March 31, 2006, and the related
statements of operations, changes in partners' capital, and cash flows for the
year then ended. These financial statements are the responsibility of the 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 audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our 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 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. We believe that our audits provide 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 Fund as of March 31, 2006,
and the results of its operations, changes in partners' capital, and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
May 26, 2006
Member of
DELOITTE TOUCHE TOHMATSU
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 2006
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ASSETS
Investment in Hatteras Master Fund, L.P., at fair value (cost $30,258,816) $32,397,349
Cash and cash equivalents 335,000
Investment in Hatteras Master Fund, L.P., paid in advance 9,196,712
Due from Investment Manager 13,017
Interest receivable 437
Prepaid registration fees 9,638
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TOTAL ASSETS 41,952,153
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LIABILITIES AND PARTNERS' CAPITAL
Contributions received in advance 9,400,360
Withdrawals payable 223,508
Due to affiliates 1,285
Servicing fees payable 20,387
Professional fees payable 20,317
Investor servicing fees payable 4,142
Accounting and administration fees payable 3,600
Custodian fees payable 1,488
Other accrued expenses 7,062
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TOTAL LIABILITIES 9,682,149
PARTNERS' CAPITAL $32,270,004
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $41,952,153
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See Consolidated Notes to Financial Statements
2
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2006
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NET INVESTMENT LOSS ALLOCATED FROM HATTERAS MASTER FUND, L.P.
Dividends $ 31,025
Interest 7,722
Expenses (202,333)
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NET INVESTMENT LOSS ALLOCATED FROM HATTERAS MASTER FUND, L.P. (163,586)
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FUND INVESTMENT INCOME
Interest 6,958
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OPERATING EXPENSES
Organization expense 143,645
Servicing fees 102,301
Professional fees 44,649
Registration fees 43,000
Accounting and administration fees 21,600
Investor servicing fees 13,162
Custodian fees 9,044
Other expenses 30,943
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TOTAL OPERATING EXPENSES 408,344
Reimbursement from investment manager (112,982)
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NET OPERATING EXPENSES 295,362
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NET INVESTMENT LOSS (451,990)
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM
HATTERAS MASTER FUND, L.P.
Net realized loss on investments (19,460)
Net unrealized appreciation on investments 2,321,579
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM
HATTERAS MASTER FUND, L.P. 2,302,119
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NET INCREASE IN PARTNERS' CAPITAL RESULTING FROM OPERATIONS $1,850,129
==========
See Consolidated Notes to Financial Statements
3
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED MARCH 31, 2006
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GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
CAPITAL CAPITAL CAPITAL
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PARTNERS' CAPITAL, BEGINNING OF YEAR $ -- $ -- $ --
Capital contributions -- 30,697,938 30,697,938
Capital withdrawals (61,385) (216,678) (278,063)
Net investment loss -- (451,990) (451,990)
Net realized loss on investments -- (19,460) (19,460)
Net unrealized appreciation on investments -- 2,321,579 2,321,579
Actual performance allocation from April 1, 2005
to December 31, 2005 60,617 (60,617) --
Actual performance allocation from January 1, 2006
to March 31, 2006 768 (768) --
Accrued performance allocation from January 1, 2006
to March 31, 2006 94,627 (94,627) --
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PARTNERS' CAPITAL, END OF YEAR $ 94,627 $32,175,377 $32,270,004
=======================================================
See Consolidated Notes to Financial Statements
4
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 2006
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in partners' capital resulting from operations $ 1,850,129
Adjustments to reconcile net increase in partners' capital from
investment operations to net cash used for operating activities:
Purchases of interests in Hatteras Master Fund, L.P. (39,475,528)
Proceeds from withdrawals from Hatteras Master Fund, L.P. 20,000
Net investment gain allocated from Hatteras Master Fund, L.P. (2,138,533)
Due from Investment Manager (13,017)
Interest receivable (437)
Prepaid registration fees (9,638)
Due to affiliates 1,285
Servicing fees payable 20,387
Professional fees payable 20,317
Investor servicing fees payable 4,142
Accounting and administration fees payable 3,600
Custodian fees payable 1,488
Other accrued expenses 7,062
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NET CASH USED IN OPERATING ACTIVITIES (39,708,743)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions (including contributions received in advance) 40,098,298
Capital withdrawals (including withdrawals payable) (54,555)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 40,043,743
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Net change in cash and cash equivalents 335,000
Cash and cash equivalents at beginning of year --
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Cash and cash equivalents at end of year $ 335,000
============
See Consolidated Notes to Financial Statements
5
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -MARCH 31, 2006
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1. ORGANIZATION
Hatteras Multi-Strategy TEI Fund, L.P (the "Fund") was organized as a
limited partnership under the laws of the State of Delaware on October 29,
2004 and commenced operations on April 1, 2005. The Fund is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
closed-end, non-diversified, management investment company. The Fund is
designed for investment primarily by tax-exempt and tax-deferred investors.
The Fund's investment objective is to generate consistent long-term
appreciation and returns across all market cycles. Investors who acquire
interests in the Fund ("Interests") are the limited partners (each, a
"Limited Partner" and together, the "Limited Partners") of the Fund. To
achieve its objective, the Fund will provide its limited 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 through an
investment of substantially all of its assets in the Hatteras
Multi-Strategy Offshore Fund, LDC, a Cayman Islands limited duration
company with the same investment objective as the Fund (the "Offshore
Fund").
The Offshore Fund is designed solely for investment by certain tax-deferred
and tax-exempt Limited Partners ("Tax-Exempt Partners") and commenced
operations on April 1, 2005. The Offshore Fund enables Tax-Exempt Partners
to invest without receiving certain income in a form that would otherwise
be taxable to such Tax-Exempt Partners regardless of their tax-exempt
status. The Offshore Fund will in turn invest substantially all of its
assets in the Hatteras Master Fund, L.P., a Delaware limited partnership
(the "Master Fund"), which is also registered under the 1940 Act.
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 Offshore Fund will serve solely as an intermediate entity
through which the Fund will invest in the Master Fund. The Offshore Fund
will make no independent investment decisions and has no investment or
other discretion over the investable assets.
At March 31, 2006, the Fund owns 100% of the beneficial interests of the
Offshore Fund, and the Offshore Fund owns 15.17% of the beneficial
interests in the Master Fund. These financials statements are the
consolidation of the Fund and the Offshore Fund (together "the Funds").
Intercompany balances have been eliminated through consolidation.
Hatteras Investment Management, LLC, a Delaware limited liability company,
serves as the General Partner of the Fund (the "General Partner"). The
General Partner has appointed a Board of Directors (the "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 Fund, including the complete and exclusive authority to
oversee and establish policies regarding the management, conduct and
operation of the Fund's business.
6
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
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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
consolidated financial statements.
A. INVESTMENT VALUATION
Valuation of the Offshore Fund's interest in the Master Fund is based on
investment in Underlying Funds (as defined in attached Master Fund
financial statements) held by the Master Fund. The Master Fund will value
interests in 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. The accounting policies of the
Master Fund, including the valuation of securities held by the Master Fund,
will directly affect the Funds and are discussed in the Notes to Financial
Statements of the Master Fund which are included elsewhere in this report.
B. ALLOCATIONS FROM MASTER FUND
As required by accounting principles generally accepted in the United
States of America, the Fund records its allocated portion of income,
expense, realized gains and losses and unrealized gains and losses from the
Master Fund.
C. FUND LEVEL INCOME AND EXPENSES
Interest income on any cash or cash equivalents held by the Funds will be
recognized on an accrual basis. Expenses that are specifically attributed
to the Funds are charged to each Fund. The Funds will also bear, as an
investor in the Master Fund, its allocable portion of the fees and expenses
of the Master Fund. Because the Funds bear their proportionate share of the
management fees of the Master Fund, the Funds do not pay any additional
compensation directly to the Investment Manager.
D. TAX BASIS REPORTING
Because the Master Fund invests primarily in investment funds that are
treated as partnerships for U.S. Federal tax purposes, the tax character of
the Fund's allocated earnings is established dependent upon the tax filings
of the investor partnerships. Accordingly, the tax basis of these allocated
earnings and the related balances are not available as of the reporting
date.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes amounts held in interest bearing
overnight accounts. At March 31, 2006, the Funds held $335,000 in an
interest bearing cash account at PNC Bank.
7
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MARCH 31, 2006 (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
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of income and expenses during the reported period. Actual results
could differ from those estimates.
3. ALLOCATION OF LIMITED PARTNERS' CAPITAL
Net profits or net losses of the Funds for each allocation period
("Allocation Period") will be allocated among and credited to or debited
against the capital accounts of the Limited Partners. Net profits or net
losses will be measured as the net change in the value of the net assets of
the Fund, including any net change in unrealized appreciation or
depreciation of investments and realized income and gains or losses and
expenses during an allocation period, adjusted to exclude any items to be
allocated among the capital accounts of the Limited Partners other than in
accordance with the Limited Partners' respective investment percentages.
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 Limited Partner other than an
amount to be credited to or debited from the capital accounts of all
limited partners in accordance with their respective investment percentages
in the Master Fund.
The Fund will maintain a separate capital account ("Capital Account") on
its books for each Limited Partner. Each Limited Partner's capital account
will have an opening balance equal to the Limited Partner's initial
contribution to the capital of the Fund (i.e., the amount of the investment
less any applicable sales load), and thereafter, will be (i) increased by
the amount of any additional capital contributions by such Limited Partner;
(ii) decreased for any payments upon repurchase or in redemption of such
Limited Partner's Interest or any distributions in respect of such Limited
Partner; and (iii) increased or decreased as of the close of each
Allocation Period by such Limited Partner's allocable share of the net
profits or net losses of the Fund.
4. RELATED PARTY TRANSACTIONS AND OTHER
In consideration for investor services, the Fund will pay Hatteras
Investment Partners, LLC (in such capacity, the "Servicing Agent") an
investor servicing fee at the annual rate of 0.75% of the net asset value
of the interests beneficially owned by customers of the Servicing Agent or
any service provider who has entered into a service provider agreement with
the Servicing Agent. The investor servicing fees payable to the Servicing
Agent will be borne by all Limited Partners of the Fund on a pro-rata
basis. The Servicing Agent may waive (to all investors on a pro-rata basis)
or pay to third parties all or a portion of any such fees in its sole
discretion.
8
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
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4. RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
The Fund paid a servicing fee for the period April 1, 2005 through June 30,
2005, based on the net asset value of all Partners' Capital Accounts as of
the first business day of each fiscal quarter. Effective July 1, 2005, the
servicing fee computation has been changed to the aggregate value of
outstanding interests held by Limited Partners of the Fund on the last day
of the month (before repurchase of interests or performance allocation).
The Investment Manager has contractually agreed to reimburse certain
expenses for the period November 1, 2005 through April 1, 2007, so that the
total annual expenses for this period will not exceed 2.35% for the Fund
(the "Expense Limitation"). The Fund will carry forward, for a period not
to exceed (3) three years from the date on which a reimbursement is made by
the Investment Manager, any expenses in excess of the expense limitation
and repay the Investment Manager such amounts, provided the Fund is able to
effect such reimbursement and remain in compliance with the expense
limitation disclosed in the effective confidential memorandum. As of March
31, 2006, the Fund has carried forward expenses of $112,982 which will
begin to expire on March 31, 2009.
The General Partner generally receives an annual performance-based
allocation (the "Performance Allocation") with respect to the Capital
Account of each Limited Partner. The Performance Allocation is calculated
generally as of the end of each calendar year. The Performance Allocation
with respect to a Limited Partner's Capital Account is equal to 10% of the
amount by which the excess, if any, of net profit over net loss allocated
to such Limited Partner for the calendar year exceeds (a) any Loss
Carryforward Amount (as defined below) for such Limited Partner plus (b)
the non-cumulative "hurdle amount" (an annualized return on the Capital
Account balance of such Limited Partner as of the last day of the preceding
calendar year at a rate equal to the yield to maturity of the 90-day United
States Treasury Bill as reported by the Wall Street Journal on the last day
of the preceding calendar year). The Performance Allocation with respect to
each applicable Limited Partner's Capital Account shall be deducted from
such Capital Account and allocated to the Capital Account of the General
Partner. If at the end of any calendar year, the Net Losses allocated to a
Limited Partner's Capital Account exceed the Net Profits so allocated, then
a Loss Carryforward Amount shall be established for that Limited Partner.
No Performance Allocation shall be deducted from the Capital Account of any
Limited Partner unless the excess of Net Profits over Net Losses
subsequently allocated exceeds any Loss Carryforward Amount for that
Limited Partner. If a Limited Partner withdraws completely from the Fund
other than at the end of a calendar year, a Performance Allocation shall be
made with respect to such Limited Partner's Capital Account as of the date
of complete withdrawal as if such date were the end of a calendar year and
the hurdle amount will be pro-rated.
For financial statement purposes, the Master Fund accelerated the
amortization of organization expense at March 31, 2005 in conformity of
accounting principles generally accepted in the United States of America.
The organization expense was allocated to affiliated feeder funds at that
time which the feeder funds absorbed the Fund's proportional allocation of
the Master Fund's organization expense. As of March 31, 2006, the Fund owes
the affiliate feeder funds $1,285 for reimbursement of organization expense
allocated from the Master Fund.
9
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
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4. RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
PFPC Inc. serves as administrator, accounting and investor servicing agent
to the Fund and provides certain accounting, recordkeeping and investor
related services. PFPC Trust Company provides custodial services to the
Funds.
5. FEDERAL INCOME TAXES
For Federal income tax purposes, the Fund is treated as a partnership, and
each partner in the Fund is treated as the owner of its proportionate share
of the net assets, income, expenses, and the realized and unrealized gains
(losses) of the Fund. Accordingly, no federal, state or local income taxes
have been provided on profits of the Fund since the partners are
individually liable for the taxes on their share of the Fund's income.
Under current Cayman Islands legislation, there are no taxes payable by the
Offshore Fund. The Offshore Fund has been advised by its United States
counsel that it generally should not be subject to United States income
tax, except as further detailed in the Fund's confidential offering
memorandum. United States withholding taxes as described in the Fund's
confidential offering memorandum have been recorded on the statement of
operations.
6. RISK FACTORS
An investment in the Fund involves significant risks that should be
carefully considered prior to investment 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.
7. REPURCHASE OF INTERESTS
The Funds intend to conduct quarterly repurchase offers for the redemption
of the interests at their net asset value determined as of approximately
March 31, June 30, September 30 and December 31 of each year beginning on
March 31, 2006 (each such date, a "Valuation Date"). A Limited Partner may
participate in a repurchase offer only after 12 consecutive months as
Limited Partner in the Funds. However, the General Partner retains the
discretion to approve such redemption offers and, therefore, there are no
assurances that the General Partner will, in fact, decide to undertake any
repurchase offer. The General Partner may also permit repurchases at other
times, in its sole discretion. The Funds' assets consist primarily of its
interest in the Master Fund (held through its investment in the Offshore
Fund). Accordingly, the Funds will be required to liquidate a portion of
its interest in the Master Fund in order to fund repurchases. In order to
liquidate its interest in the Master Fund the Funds must accept repurchase
offers made by the Master Fund and distribute the proceeds of such
repurchases to the Funds.
The Funds do not intend to distribute to the Limited Partners any of the
Funds' income, but intends to reinvest substantially all income and gains
allocable to the Limited Partners. A Limited Partner may therefore be
allocated taxable income and gains and not receive any cash distribution.
10
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
8. INDEMNIFICATION
In the normal course of business, the Funds enter into contracts that
provide general indemnifications. The Funds' maximum exposure under these
agreements is dependent on future claims that may be made against the
Funds, and therefore cannot be established; however, based on experience,
the risk of loss from such claims is considered remote.
9. CONSOLIDATED FINANCIAL HIGHLIGHTS
The financial highlights are intended to help you understand the Funds'
financial performance for the past period. The total returns in the table
represent the rate that a Limited Partner would be expected to have earned
or lost on an investment in the 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 ratios or returns
may vary from the table below based on incentive arrangements and 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's capital.
The ratios include the Funds' proportionate share of the Master Fund's
income and expenses.
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.
FOR THE YEAR ENDED
MARCH 31, 2006
Total return amortizing organization expenses
and before Performance Allocation* 11.50%
Organization expense (0.35)
Performance Allocation (1.15)
-------
Total net return after expensing organization expense and Performance Allocation 10.00%
=======
Partners' capital, end of year (000) $32,270
Portfolio Turnover 0.00%
Net investment loss before Performance Allocation (3.49)%
Operating expenses, excluding expense reimbursement and Performance Allocation
4.72%
Performance Allocation 1.21
-------
Total expenses and Performance Allocation before expense reimbursement 5.93
Expense reimbursement (0.87)
-------
Net expenses 5.06%
=======
<FN>
* RETURN IS INDICATIVE OF AMORTIZING ORGANIZATIONAL EXPENSES OVER 60 MONTHS FOR TAX PURPOSES.
</FN>
11
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONCLUDED)
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENTS
During the period from April 1, 2006 through May 1, 2006, there were
additional capital contributions of $17,672,360.
12
HATTERAS MULTI-STRATEGY TEI 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.
- ---------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex'
Position(s) Term of Office; Overseen by
Held with Length of Time Principal Occupation(s) During Past 5 years Director or
Name, Address & Age the Fund Served and Other Directorships Held by Director Officer
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
David B. Perkins, 43 Chief 3 year term; Mr. Perkins has been Chairman and CEO 3
1000 Watermeet Lane Executive Since Inception since inception of the Funds. Mr.Perkins
Raleigh, NC 27614 Officer and became the President and Managing
Chairman of Principal of the Investment Manager in
the Board of September 2003 and became the co-founder
Directors and 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.
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
Steve E. Moss, 52 Director: 3 year term; Mr. Moss has been a member of HMKCT 3
918 Meadow Lane Chairman of Since December Properties, LLC since January 1996
Henderson, NC 27536 the Audit 2004
Committee
- --------------------------------------------------------------------------------------------------------------------------
H. Alexander Holmes, 63 Director: 3 year term; Mr. Holmes founded Holmes Advisory Services, 3
3408 Landor Road Audit Since December LLC, a financial consultation firm, in 1993
Raleigh, NC 27609 Committee 2004
Member
- --------------------------------------------------------------------------------------------------------------------------
George Y. Ragsdale II*, 40 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
- --------------------------------------------------------------------------------------------------------------------------
Gregory S. Sellers, 46 Director: 3 year term; Mr. Sellers became the Chief Financial 3
2643 Steeplechase Road Audit Since December Officer and a director of Kings Plush, Inc., a
Gastonia, NC 28056 Committee 2004 fabric manufacturer, in April 2003. Prior to
Member 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.
- --------------------------------------------------------------------------------------------------------------------------
<FN>
*Mr. Ragsdale resigned his position as a Director of the Fund effective April 12, 2006.
</FN>
13
HATTERAS MULTI-STRATEGY TEI 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 Length of Time Principal Occupation(s) During Past 5 years Director or
Name, Address & Age the Fund Served and Other Directorships Held by Director Officer
- ----------------------------------------------------------------------------------------------------------------------------
OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------
J. Michael Fields, 32 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
Raleigh, NC 27615 2003. 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, 43 Chief Since Ms. Buchanan has been the CCO since N/A
8816 Six Forks Rd. Compliance Inception inception of the Funds. Ms. Buchanan
Suite 107 Officer became the Compliance Officer with
Raleigh, NC 27615 CapFinancial Partners, LLC ("CapTrust") in
November 2003. 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, 39 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
Raleigh, NC 27615 Manager in September 2004. Prior to joining
Investment Manager, she was employed with
McKinely Capital Management from 1994 to
2004.
- ----------------------------------------------------------------------------------------------------------------------------
14
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
OTHER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
PROXY VOTING
For free information regarding how the Fund voted proxies during the period
ended June 30, 2005, or to obtain a free copy of the Fund's complete proxy
voting policies and procedures, call 1-800-348-1824 or visit the SEC's website
at http://www.sec.gov.
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 1-800-SEC-0330.
15
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
HATTERAS MASTER FUND, L.P.
FINANCIAL STATEMENTS
For the year ended March 31, 2006
HATTERAS MASTER FUND, L.P.
FOR THE YEAR ENDED MARCH 31, 2006
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm................... 1
Schedule of Investments .................................................. 2-4
Statement of Financial Condition.......................................... 5
Statement of Operations................................................... 6
Statements of Changes in Partners' Capital................................ 7
Statement of Cash Flows................................................... 8
Notes to Financial Statements............................................. 9-14
Board of Directors (unaudited)............................................ 15
Fund Management (unaudited)............................................... 16
Other Information (unaudited) ............................................ 17
[GRAPHIC OMITTED]
Deloitte Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103-3984
USA
Tel: +1 215 246 2300
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, 2006, and the related statements of operations and cash flows for
the year then ended, and changes in partners' capital for the year then ended
and the period from January 1, 2005 (commencement of operations) to 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights 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. Our 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, 2006, by
correspondence with the Underlying Fund managers. We believe that our audits
provide 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,
2006, and the results of its operations and its cash flows for the year then
ended, and the changes in its partners' capital for the year then ended and the
period from January 1, 2005 (commencement of operations) to 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 99.69% of partners' capital), 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 26, 2006
Member of
Deloitte Touche Tohmatsu
HATTERAS MASTER FUND, L.P.
SCHEDULE OF INVESTMENTS - MARCH 31, 2006
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AS A PERCENTAGE OF TOTAL PARTNERS' CAPITAL
PERCENTAGES ARE AS FOLLOWS:
GRAPHIC OMITTED
EDGAR REPRESENTATION OF DATA AS FOLLOWS:
Other assets in excess of liabilities (0.31%)
Absolute Return (17.51%)
Energy and Natural Resources (14.03%)
Enhanced Fixed Income (20.63%)
Opportunistic Equity (29.42%)
Private Equity Composite (9.35%)
Real Estate Composite (8.75%)
COST FAIR VALUE
--------- ------------
INVESTMENTS IN UNDERLYING FUNDS (99.69%)
ABSOLUTE RETURN (17.51%)c
AQR Global Asset Institutional Fund II, L.P. a, b $4,471,305 $ 4,573,206
Black River Global Multi-Strategy Leveraged Fund, LLC a, b 4,000,000 4,090,275
CCM Small Cap Value Qualified Fund, L.P. a, b 2,500,000 2,750,814
Citadel Wellington Partners LLC a, b 3,785,759 4,224,403
Courage Special Situations Fund, L.P. a, b 4,827,675 5,268,877
GMO US Aggressive Long/Short Fund a, b 4,247,757 4,361,851
OZ Asia Domestic Partners, L.P. a, b 3,000,000 3,093,548
Silverback Partners, L.P. a, b * 945,105 170,648
Smith Breeden Mortgage Partners, L.P. a, b 4,413,258 4,672,329
Stark Investments, L.P. a, b 4,000,000 4,176,678
-----------
37,382,629
-----------
ENERGY AND NATURAL RESOURCES (14.03%)c
BlackRock All-Cap Global Resources Fund a 3,000,000 4,043,069
Cambridge Energy, L.P. a, b 2,566,534 4,017,233
Centennial Energy Partners, L.P. a, b 2,000,000 2,068,252
EnerVest Energy Institutional Fund X-A, L.P. a, b 1,841,986 1,850,220
Merit Energy Partners F-II, L.P. a, b 104,755 104,755
NGP Energy Technology Partners, L.P. a, b 83,500 73,375
Natural Gas Partners VIII, L.P. a, b 810,287 776,592
Southport Energy Plus Partners, L.P. a, b 5,083,819 7,338,963
Touradji Deeprock Partners, L.P. a, b 4,000,000 4,292,000
Treaty Oak Partners, L.P. a, b 5,000,000 5,400,822
-----------
$29,965,281
-----------
See Notes to Financial Statements
2
HATTERAS MASTER FUND, L.P.
SCHEDULE OF INVESTMENTS - MARCH 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
COST FAIR VALUE
--------- ------------
ENHANCED FIXED INCOME (20.63%)c
ARX Global High Yield Securities Fund I, L.P. a, b $4,000,000 $ 4,085,334
BDCM Partners I, L.P. a, b 7,000,000 8,008,684
Contrarian Capital Fund I, L.P. a, b 6,880,064 8,107,229
D.B. Zwirn Special Opportunities Fund, L.P. a, b 4,500,000 4,776,767
GMO Global Bond Fund III 3,119,587 2,730,143
Greylock Global Opportunity Fund, L.P. a, b 4,922,405 5,142,674
Lazard Emerging Income, L.P. a, b 3,000,000 3,163,079
Melody Fund, L.P. a, b 3,000,000 3,067,685
Ore Hill Fund, L.P. a, b 4,221,928 4,974,922
-----------
44,056,517
-----------
OPPORTUNISTIC EQUITY (29.42%)c
CRM Windridge Partners, L.P. a, b 3,022,017 3,215,583
GMO Mean Reversion Fund A a, b 5,770,065 6,206,713
Gradient Europe Fund, L.P. a, b 3,500,000 5,794,244
Healthcor, L.P. a, b 3,000,000 3,400,574
Liberty Square Strategic Partners IV (Asia), L.P. a, b 3,000,000 3,178,855
Sci-Tech Investment Partners, L.P. a, b 2,295,782 2,484,876
SCP Domestic Fund, L.P. a, b 4,002,947 4,501,290
SR Global Fund LP (Class C) International a, b 3,457,674 4,981,380
SR Global Fund LP (Class G) Emerging a, b 4,281,970 6,253,566
SR Global Fund LP (Class H) Japan a, b 3,665,240 5,028,501
Standard Pacific Japan Fund, L.P. a, b 4,000,000 4,152,960
Steeple Capital Fund I, L.P. a, b 1,000,000 1,056,432
The Platinum Fund Ltd. a, b 2,535,461 2,973,499
The Raptor Global Fund, L.P. a, b 2,500,000 2,815,262
Visium Balanced Fund, L.P. a, b 4,300,000 4,464,983
Witches Rock Fund, L.P. a, b 2,003,000 2,305,916
-----------
62,814,634
-----------
PRIVATE EQUITY COMPOSITE (9.35%)c
BDCM Opportunity Fund II, L.P. a, b 90,381 77,712
Brazos Equity Fund II, L.P. a, b 680,639 625,844
Claremont Creek Ventures, L.P. a, b 140,000 101,000
Crosslink Crossover Fund IV, L.P. a, b 4,883,399 5,869,498
Hancock Park Capital III, L.P. a, b 600,000 600,000
See Notes to Financial Statements
3
HATTERAS MASTER FUND, L.P.
SCHEDULE OF INVESTMENTS - MARCH 31, 2006 (CONCLUDED)
- --------------------------------------------------------------------------------
COST FAIR VALUE
--------- ------------
PRIVATE EQUITY COMPOSITE (9.35%)c (CONTINUED)
Integral Capital Partners VII, L.P. a, b $6,000,000 $ 6,584,277
OCM Mezzanine Fund II, L.P. a, b 1,450,000 1,450,000
Pipe Equity Partners, LLC a, b 2,324,693 2,778,561
Private Equity Investment Fund IV, L.P. a, b 301,056 301,056
Roundtable Healthcare Partners II, L.P. a, b 517,885 468,742
Sanderling Venture Partners VI Co-Investment Fund, L.P. a, b 150,000 122,697
Sanderling Venture Partners VI, L.P. a, b 250,000 211,264
Sterling Capital Partners II, L.P. a, b 434,022 391,932
VCFA Private Equity Partners IV, L.P. a, b 437,838 373,524
------------
19,956,107
------------
REAL ESTATE COMPOSITE (8.75%)c
Colony Edge, L.P.a, b 2,000,000 2,034,917
Colony Investors VII, L.P. a, b 1,025,094 1,025,094
ING Clarion CRA Hedge Fund, L.P. a, b 3,356,915 4,250,461
ING Clarion Global, L.P. a, b 2,000,000 2,182,233
Mercury Special Situtitional Fund, L.P. a, b 3,000,000 3,093,635
Security Capital Preferred Growth, Inc. b 1,714,042 1,949,186
Transwestern Mezzanine Realty Partner II, LLC b 662,097 666,045
Wells Street Partners, LLC a, b 2,886,675 3,472,122
------------
18,673,693
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $188,564,616) 212,848,861
OTHER ASSETS IN EXCESS OF LIABILITIES (0.31)% 672,127
------------
PARTNERS' CAPITAL -- 100.00% $213,520,988
<FN>
*- Underlying Fund in liquidation.
a- Non-income producing securities
b- Securities are issued in private placement transactions and as such are restricted as to resale.
c- Sectors are unaudited by Deloitte & Touche LLP.
Total cost and value of restricted securities as of March 31, 2006 was $182,445,029 and $206,075,649,
respectively.
</FN>
See Notes to Financial Statements
4
HATTERAS MASTER FUND, L.P.
STATEMENT OF FINANCIAL CONDITION - MARCH 31, 2006
- --------------------------------------------------------------------------------
ASSETS
Investments in Underlying Funds, at fair value (cost $188,564,616) $212,848,861
Cash and cash equivalents 3,525,927
Investments in Underlying Funds paid in advance 19,500,000
Receivables from redemption of Underlying Funds 407,539
Dividends and interest receivables 24,321
Prepaid assets 120,144
------------
TOTAL ASSETS $236,426,792
============
LIABILITIES AND PARTNERS' CAPITAL
Contributions received in advance $ 22,574,944
Management fees payable 178,055
Professional fees payable 74,625
Accounting and administration fees payable 34,318
Organizational fees payable 25,393
Risk management expense payable 15,810
Custodian fees payable 2,559
Investor servicing fees payable 100
------------
TOTAL LIABILITIES 22,905,804
------------
PARTNERS' CAPITAL 213,520,988
------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $236,426,792
============
See Notes to Financial Statements
5
HATTERAS MASTER FUND, L.P.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED MARCH 31, 2006
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 366,726
Interest 86,019
-----------
TOTAL INVESTMENT INCOME 452,745
-----------
OPERATING EXPENSES
Management fees 1,568,382
Risk management expense 208,358
Accounting and administration fees 171,251
Professional fees 135,214
Insurance expense 120,750
Board of directors' fees 40,000
Interest expense 34,370
Custodian fees 13,325
Investor servicing fees 600
Other expenses 55,072
-----------
TOTAL OPERATING EXPENSES 2,347,322
-----------
NET INVESTMENT LOSS (1,894,577)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS IN UNDERLYING FUNDS
Net realized loss on investments in Underlying Funds (89,064)
Net change in unrealized appreciation on investments in Underlying Funds 23,499,600
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS IN UNDERLYING FUNDS 23,410,536
-----------
NET INCREASE IN PARTNERS' CAPITAL RESULTING FROM OPERATIONS $21,515,959
===========
See Notes to Financial Statements
6
HATTERAS MASTER FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
- --------------------------------------------------------------------------------
LIMITED
PARTNERS'
CAPITAL*
-------------
PARTNERS' CAPITAL, AT JANUARY 1, 2005
(COMMENCEMENT OF OPERATIONS) $ 100,000
Capital contributions 35,596,058
Transfer in-kind subscriptions (Note 1) 89,006,951
Capital withdrawals (8,000,000)
Net investment loss (528,428)
Net realized loss on investments in Underlying Funds (132,580)
Net increase in unrealized appreciation on investments
in Underlying Funds 784,645
-------------
PARTNERS' CAPITAL, AT MARCH 31, 2005 $ 116,826,646
Capital contributions 77,428,383
Capital withdrawals (2,250,000)
Net investment loss (1,894,577)
Net realized loss on investments in Underlying Funds (89,064)
Net increase in unrealized appreciation on investments
in Underlying Funds 23,499,600
-------------
PARTNERS' CAPITAL, AT MARCH 31, 2006 $ 213,520,988
=============
* As the General Partner does not own an interest in the Master Fund, the
Limited Partners' Capital represents total capital of the Master Fund.
See Notes to Financial Statements
7
HATTERAS MASTER FUND, L.P.
STATEMENT OF CASH FLOWS - FOR THE YEAR ENDED MARCH 31, 2006
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in partners' capital resulting from operations $ 21,515,959
Adjustments to reconcile net increase in partners' capital from
investment operations to net cash used for operating activities:
Purchases of Underlying Funds (122,355,482)
Proceeds from redemptions of Underlying Funds 29,289,971
Net realized loss on investments in Underlying Funds 89,064
Net change in unrealized appreciation on investments in Underlying Funds (23,499,600)
Increase in receivables from redemption of Underlying Funds (407,539)
Increase in dividends and interest receivables (24,321)
Increase in prepaid assets (25,644)
Increase in management fees payable 178,055
Increase in professional fees payable 34,375
Decrease in accounting and administration fees payable (10,344)
Decrease in organizational fees payable (54,246)
Increase in risk management expense payable 15,810
Increase in custodian fees payable 774
Decrease in board of directors' fees payable (2,500)
Increase in investor servicing fees payable 25
Decrease in other accrued expenses (3,531)
-------------
Net cash used in operating activities (95,259,174)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions (including contributions received in advance) 100,003,327
Capital withdrawals (2,250,000)
-------------
Net cash provided by financing activities 97,753,327
-------------
Net change in cash and cash equivalents 2,494,153
Cash and cash equivalents at beginning of year 1,031,774
-------------
Cash and cash equivalents at end of year $ 3,525,927
=============
See Notes to Financial Statements
8
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 2006
- --------------------------------------------------------------------------------
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 Investment Company Act of 1940, as
amended (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 "Limited Partner" and together, the "Limited 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 invests with each Advisor either by becoming a
participant in an investment vehicle operated by the Advisor (an
"Underlying Fund") or by placing assets in an account directly managed by
the Advisor. The Master Fund commenced operations on January 1, 2005. Prior
to January 1, 2005, the Master Fund engaged in no 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 (the "General Partner").
The General Partner has initially appointed a Board of Directors (the
"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 3, 2005, the Master Fund received capital contributions totaling
$116,269,458, including contributions in the form of transfers-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. The
following is a summary of significant accounting and reporting policies
used in preparing the financial statements.
9
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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' 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 an accrual basis. Dividend income is
recorded on the ex-dividend date, except that certain dividends from
private equity investments are recorded as soon as the information is
available to the Master Fund. 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
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.
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.
10
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes amounts held in interest bearing
overnight accounts. At March 31, 2006, the Master Fund held $3,525,927 in
an interest bearing cash account at PNC Bank.
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
Net profits or net losses of the Master Fund for each Allocation Period (as
defined below) will be allocated among and credited to or debited against
the capital accounts of the Limited Partners. 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 Limited Partner other than an amount to be credited to or debited from
the capital accounts of all Limited Partners in accordance with their
respective investment percentages.
4. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER
The Investment Manager is responsible for providing day-to-day investment
management services to the Master 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 Master Fund (the
"Investment Management Agreement"). Under the Investment Management
Agreement, the Investment Manager is responsible for developing,
implementing and supervising the Master Fund's investment program.
In consideration for such services, the Master Fund pays 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 partners' capital
determined as of the last day of the month (before repurchase of
interests). Prior to July 1, 2005, the Master Fund paid a management fee
based on the net asset value 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 (the "Independent Board"), 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.
11
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
4. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
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 and investor related services. The Master Fund
pays a monthly fee to the administrator based upon average partners'
capital, subject to certain minimums.
5. INVESTMENT TRANSACTIONS
Total purchases of Underlying Funds for the year ended March 31, 2006,
amounted to $102,855,482. Total proceeds from redemptions of Underlying
Funds for the year ended March 31, 2006, amounted to $29,289,971. 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, 2006.
6. RISK FACTORS
An investment in the 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. Investments in the Underlying Funds may be restricted
from early redemptions or subject to fees for early redemptions as part of
contractual obligations agreed to by the Advisor on behalf of the Master
Fund. Underlying Funds generally require the Advisor to provide advanced
notice of its intent to redeem the Master Fund's total or partial interest
and may delay or deny a redemption request depending on the Underlying
Funds' governing agreements. No guarantee or representation is made that
the investment objective will be met.
7. REPURCHASE OF PARTNERS' INTERESTS
The Board may, from time to time and in its sole discretion, cause the
Master Fund to repurchase interests from Limited Partners pursuant to
written tenders by Limited 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. Beginning on March 31, 2006, the
Investment Manager expects that it will generally recommend to the Board
that the Master Fund offer to repurchase interests from Limited Partners on
a quarterly basis as of March 31, June 30, September 30 and December 31 of
each year.
12
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
7. REPURCHASE OF PARTNERS' INTERESTS (CONTINUED)
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.
8. INDEMNIFICATION
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.
9. COMMITMENTS
As of March 31, 2006, the Master Fund had outstanding investment
commitments to Underlying Funds totaling $35,670,517.
10. FINANCIAL HIGHLIGHTS
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 a typical Limited Partner would be expected
to 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. 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 net investment
income or expenses, as applicable, by the average of total monthly limited
partners' capital. The ratios do not reflect the Master Fund's
proportionate share of income and expenses from Underlying Funds.
13
HATTERAS MASTER FUND, L.P.
NOTES TO FINANCIAL STATEMENTS -- MARCH 31, 2006 (CONCLUDED)
- --------------------------------------------------------------------------------
10. FINANCIAL HIGHLIGHTS (CONCLUDED)
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 for the periods less than one year.
FOR THE PERIOD FROM
JANUARY 1, 2005
FOR THE YEAR (COMMENCEMENT OF
ENDED MARCH, OPERATIONS) THROUGH
31, 2006 MARCH 31, 2005
---------------- -------------------
Total return amortizing --** 0.23%
organizational expenses*
Total return 13.79% 0.17%
Partners' capital, end of
period (000) $213,521 $116,827
Portfolio turnover 19.35% 3.72%
ANNUALIZED RATIOS:
Net investment loss (1.23)% (1.43)%
Total expenses 1.52% 1.50%
11. SUBSEQUENT EVENTS
During the period from April 1, 2006 through May 1, 2006, there were
additional capital contributions of $37,922,597.
- -------------------------------
* Return is indicative of amortizing organizational expenses over 60 months
for tax purposes.
** Organizational costs were fully expensed as of 3/31/05.
14
HATTERAS MASTER FUND, L.P.
BOARD OF DIRECTORS (UNAUDITED)
- --------------------------------------------------------------------------------
The identity of the Board Members and brief biographical information is set
forth below.
- --------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex'
Position(s) Term of Office; Overseen by
Held with Length of Time Principal Occupation(s) During Past 5 years Director or
Name, Address & Age the Fund Served and Other Directorships Held by Director Officer
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
David B. Perkins, 43 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
Raleigh, NC 27614 Officer and became the President and Managing
Chairman Principal of the Investment Manager in
of the September 2003 and became the co-founder
Board of and Managing Partner of CapFinancial
Directors 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.
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
Steve E. Moss, 52 Director: 3 year term; Mr. Moss has been a member of HMKCT 3
918 Meadow Lane Chairman of Since December Properties, LLC since January 1996
Henderson, NC 27536 the Audit 2004
Committee
- --------------------------------------------------------------------------------------------------------------------------
H. Alexander Holmes, 63 Director: 3 year term; Mr. Holmes founded Holmes Advisory 3
3408 Landor Road Audit Since December Services, LLC, a financial consultation firm,
Raleigh, NC 27609 Committee 2004 in 1993
Member
- --------------------------------------------------------------------------------------------------------------------------
George Y. Ragsdale II*, 40 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
- --------------------------------------------------------------------------------------------------------------------------
Gregory S. Sellers, 46 Director: 3 year term; Mr. Sellers became the Chief Financial 3
2643 Steeplechase Road Audit Since December Officer and a director of Kings Plush, Inc.,
Gastonia, NC 28056 Committee 2004 a fabric manufacturer, in April 2003. Prior to
Member 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.
- --------------------------------------------------------------------------------------------------------------------------
<FN>
*Mr. Ragsdale resigned his position as a Director of the Fund effective April
12, 2006.
</FN>
15
HATTERAS MASTER FUND, L.P.
FUND MANAGEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
Set forth below is the name, age, position with the Master 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 Master 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 Length of Time Principal Occupation(s) During Past 5 years Director or
Name, Address & Age the Fund Served and Other Directorships Held by Director Officer
- --------------------------------------------------------------------------------------------------------------------------
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
J. Michael Fields, 32 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
Raleigh, NC 27615 2003. 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, 43 Chief Since Ms. Buchanan has been the CCO since N/A
8816 Six Forks Rd. Compliance Inception inception of the Funds. Ms. Buchanan
Suite 107 Officer became the Compliance Officer with
Raleigh, NC 27615 CapFinancial Partners, LLC ("CapTrust") in
November 2003. 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, 39 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
Raleigh, NC 27615 Manager in September 2004. Prior to joining
the Investment Manager, she was employed
with McKinely Capital Management from
1994 to 2004.
- --------------------------------------------------------------------------------------------------------------------------
16
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.
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 Registrant commenced operations on April 1, 2005. The aggregate
fees billed for the last fiscal year 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 the fiscal year are $8,500.
Audit-Related Fees
- ------------------
(b) The Registrant commenced operations on April 1, 2005. The aggregate
fees billed in the last fiscal year 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 $900. The fees listed on item 4
(b) are related to out-of-pocket expense in relations to the annual
audit of the registrant.
Tax Fees
- --------
(c) The Registrant commenced operations on April 1, 2005. The aggregate
fees billed in the last fiscal year for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax
planning are $0.
All Other Fees
- --------------
(d) The Registrant commenced operations on April 1, 2005. The aggregate
fees billed in the last fiscal year for products and services provided
by the principal accountant, other than the services reported in
paragraphs (a) through (c) of this Item are $0.
(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 Registrant's Audit Committee must pre-approve the audit and
non-audit services of the Auditors prior to the Auditor's 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) 0%
(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 POLICY IS ATTACHED HEREWITH.
HATTERAS INVESTMENT PARTNERS LLC
HATTERAS MASTER FUND, L.P.
HATTERAS MULTI-STRATEGY FUND I, L.P.
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
PROXY VOTING POLICY
This statement sets forth the policy of Hatteras Investment Partners, LLC
("Hatteras") with respect to the exercise of corporate actions and proxy voting
authority of client accounts.
The Funds and other advisory clients of Hatteras invest, directly or indirectly,
substantially all of their assets in securities of pooled investment vehicles or
separate accounts, which are private partnerships, limited liability companies
or similar entities managed by third-party investment managers (collectively,
"Advisor Funds"). These securities do not typically convey traditional voting
rights to the holder and the occurrence of corporate governance or other notices
for this type of investment is substantially less than that encountered in
connection with registered equity securities. To the extent that the we or our
clients receive notices or proxies from Advisor Funds (or receive proxy
statements or similar notices in connection with any other portfolio
securities), Hatteras has proxy voting responsibilities.
With respect to proxies issued by Hatteras Master Fund, L.P. (the "Master
Fund"), the feeder funds which invest in the Master Fund have delegated proxy
voting authority to Hatteras. Hatteras will vote proxies in a manner that it
deems to be in the best interests of the Funds. In general, the Investment
Manager believes that voting proxies in accordance with the policies described
below will be in the best interests of its clients. If an analyst, trader or
partner of the Hatteras believes that voting in accordance with stated
proxy-voting guidelines would not be in the best interests of a client, the
proxy will be referred to Hatteras' Chief Compliance Officer for a determination
of how such proxy should be voted.
Hatteras will generally vote to support management recommendations relating to
routine matters such as the election of directors (where no corporate governance
issues are implicated), the selection of independent auditors, an increase in or
reclassification of common stock, the addition or amendment of indemnification
provisions in the company's charter or by-laws, changes in the board of
directors and compensation of outside directors. Hatteras will generally vote in
favor of management or shareholder proposals that Hatteras believes will
maintain or strengthen the shared interests of shareholders and management,
increase shareholder value, maintain or
increase shareholder influence over the company's board of directors and
management and maintain or increase the rights of shareholders.
On non-routine matters, Hatteras will generally vote in favor of management
proposals for mergers or reorganizations, reincorporation plans, fair-price
proposals and shareholder rights plans so long as such proposals are in the
best economic interests of Hatteras' clients.
If a proxy includes a matter to which none of the specific policies described
above or in Hatteras' stated proxy-voting guidelines is applicable or a
matter involving an actual or potential conflict of interest as described
below, the proxy will be referred to Hatteras' Chief Compliance Officer for a
determination of how such proxy should be voted.
In exercising its voting discretion, Hatteras and its employees will seek to
avoid any direct or indirect conflict of interest presented by the voting
decision. If any substantive aspect or foreseeable result of the matter to be
voted on by Hatteras Master Fund, L.P., Hatteras Multi-Strategy Fund I, L.P.
or Hatteras Multi-Strategy TEI Fund, L.P. (the "Registered Funds") presents
an actual or potential conflict of interest involving Hatteras (or an
affiliate of Hatteras), any issuer of a security for which Hatteras (or an
affiliate of Hatteras) acts as sponsor, advisor, manager, custodian,
distributor, underwriter, broker or other similar capacity or any person with
whom Hatteras (or an affiliate of Hatteras) has an existing material contract
or business relationship not entered into in the ordinary course of business
(Hatteras and such other persons having an interest in the matter being
called "Interested Persons"), Hatteras will make written disclosure of the
conflict to the Independent Directors of the applicable Fund(s) indicating
how Hatteras proposes to vote on the matter and its reasons for doing so. If
the Investment Manager does not receive timely written instructions as to
voting or non-voting on the matter from the applicable Registered Fund's
Independent Directors, Hatteras may take any of the following actions which
it deems to be in the best interests of the Fund: (1) engage an independent
third party to determine whether and how the proxy should be voted and vote
or refrain from voting on the matter as determined by the third party; (2)
vote on the matter in the manner proposed to the Independent Directors if the
vote is against the interests of all Interested Persons; or (3) refrain from
voting on the matter.
The Registered Fund each will be required to file Form N-PX, with its
complete proxy voting record for the twelve months ended June 30, no later
than August 31 of each year. The first such filing is due no later than
August 31, 2005, for the twelve months ended June 30, 2005. Once filed, each
of the Registered Fund's Form N-PX filing will be available: (1) without
charge, upon request, by calling 1-800-390-1560; or (2) by visiting the SEC's
website at www.sec.gov.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and
Description of Role of Portfolio Manager(s) or Management Team Members
The following table provides biographical information about
the members of the Investment Committee of Hatteras Investment Partners
LLC (the "Investment Manager"), who are primarily responsible for the
day-to-day portfolio management of the Hatteras Master Fund, L.P. (the
"Fund") as of March 31, 2006:
- ---------------------- ------------------- ----------------- ----------------------------------------- ---------------------------
Length of Time
Name of Investment of Service to Role of Investment
Committee Member Title the Fund Business Experience During Past 5 Years Committee Member
---------------- ----- -------- --------------------------------------- ----------------
- ---------------------- ------------------- ----------------- ----------------------------------------- ---------------------------
Mark W. Yusko Principal and Since January Mr. Yusko became a Principal and Asset allocation;
co-founder of the 2004 (inception) co-founder of the Investment Manager in underlying manager
Investment Manager September 2003 and President and Chief selection; and
Executive Officer of Morgan Creek portfolio construction
Capital Management, LLC in July, 2004.
Previously, Mr. Yusko served as
President and Chief Executive Officer
for UNC Management Co., LLC from
January 1998 through July 2004, where
he was responsible for all areas of
investment management for the UNC
Endowment and Affiliated Foundation
Funds.
- ---------------------- ------------------- ----------------- ----------------------------------------- ---------------------------
David B. Perkins President and Since January Mr. Perkins became the President and Systems analyst; and
Managing 2004 (inception) Managing Principal of the Investment strategic recommendations;
Principal of the Manager in September 2003 and and portfolio oversight
Investment Manager co-founder and Managing Partner of
CapFinancial Partners, LLC in April
2003. Previously, Mr. Perkins 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.
- ---------------------- ------------------- ----------------- ----------------------------------------- ---------------------------
Joshua E. Parrott Director of Risk Since January Mr. Parrott joined the Investment Risk manager;
Management of the 2004 (inception) Manager as an Analyst in March 2004 and underlying manager due
Investment Manager became a Director in January 2005. diligence; operational
Previously, Mr. Parrott was employed as due diligence; and
an Analyst by Dialectic Capital in 2003 performance analysis
and as a Financial Advisor at Morgan
Stanley from February 1999 to March
2003.
- ---------------------- ------------------- ----------------- ----------------------------------------- ------------------------
<FN>
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member
and Potential Conflicts of Interest
The following table provides information about portfolios and
accounts, other than the Fund, for which the members of the Investment
Committee of the Investment Manager are primarily responsible for the
day-to-day portfolio management as of March 31, 2006:
</FN>
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
# of
Accounts
Managed for Total Assets
which for which
Total # of Advisory Fee Advisory Fee is
Name of Investment Accounts is Based on Based on
Committee Member Type of Accounts Managed Total Assets Performance Performance
---------------- ---------------- ------- ------------ ----------- -----------
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Mark W. Yusko Registered 2 $550,000,000 1 $100,000,000
Investment
Companies
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Other Pooled 6 $331,000,000 6 $331,000,000
Investment Vehicles
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Other Accounts 8 $673,000,000 8 $673,000,000
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
David B. Perkins Registered 0 $0 0 $0
Investment
Companies
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Other Pooled 0 $0 0 $0
Investment Vehicles
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Other Accounts 0 $0 0 $0
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Joshua E. Parrott Registered 0 $0 0 $0
Investment
Companies
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Other Pooled 0 $0 0 $0
Investment Vehicles
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Other Accounts 0 $0 0 $0
- ------------------------------- ------------------------- -------------- ---------------- ---------------- --------------------
Potential Conflicts of Interests
Mr. Yusko is responsible for managing other accounts, including
proprietary accounts, separate accounts and other pooled investment
vehicles, including unregistered hedge funds and funds of hedge funds.
He may manage separate accounts or other pooled investment vehicles
which may have materially higher or different fee arrangements than
the registrant and may also be subject to performance-based fees. The
side-by-side management of these separate accounts and pooled
investment vehicles may raise potential conflicts of interest relating
to cross trading and the allocation of investment opportunities. The
Investment Manager has a fiduciary responsibility to manage all client
accounts in a fair and equitable manner. It seeks to provide best
execution of all securities transactions and to allocate investments
to client accounts in a fair and timely manner. To this end, the
Investment Manager has developed policies
and procedures designed to mitigate and manage the potential conflicts
of interest that may arise from side-by-side management.
Messrs. Perkins and Parrott do not manage any other accounts and
therefore no material conflicts of interest arise out of their
management of the registrant.
(a)(3) Compensation Structure of Portfolio Manager(s) or Management Team
Members
The compensation of the members of the Investment Committee of
the Investment Manager includes a combination of the following: (i)
fixed annual salary; (ii) a variable portion of the management fee
paid by the registrant to the Investment Manager; and (iii) a variable
portion of any incentive compensation paid by the registrant, or any
other feeder fund, to the Investment Manager or its affiliates. The
portions of the management fee and incentive fee paid to a member of
the Investment Committee are based on the pre-tax performance of the
Fund as compared to a benchmark. The Investment Manager uses the
yield-to-maturity of the 90-day U.S. Treasury Bill as reported by the
Wall Street Journal for the last business day of the preceding
calendar year as a benchmark for the Fund's pre-tax performance when
determining the variable components of the compensation of members of
the Investment Committee.
(a)(4) Disclosure of Securities Ownership
The following table sets forth the dollar range of equity
securities beneficially owned by each member of the Investment
Committee of the Investment Manager in the Fund as of March 31, 2006:
---------------------------- -------------------------------
Dollar Range of
Name of Investment Fund Shares
Committee Member Beneficially Owned
---------------- ------------------
---------------------------- -------------------------------
Mark Yusko $100,001 to $500,000
---------------------------- -------------------------------
David B. Perkins $100,001 to $500,000
---------------------------- -------------------------------
Josh Parrott $10,001 to $50,000
---------------------------- -------------------------------
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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
quarter 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 Multi-Strategy TEI Fund, L.P.
--------------------------------------------------------------------
By (Signature and Title)* /s/ David B. Perkins
-------------------------------------------------------
David B. Perkins, President & Chief Executive Officer
(principal executive officer)
Date October 19, 2006
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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
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David B. Perkins, President & Chief Executive Officer
(principal executive officer)
Date October 19, 2006
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By (Signature and Title)* /s/ J. Michael Fields
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J. Michael Fields, Chief Financial Officer
(principal financial officer)
Date October 19, 2006
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* Print the name and title of each signing officer under his or her signature.