N-CSR/A 1 g31572hatteras_multistrat1.txt HATTERAS MULTI-STRATEGY I 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 811-21685 ---------- Hatteras Multi-Strategy Fund I, L.P. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 8816 Six Forks Road, Suite 107 Raleigh, North Carolina 27615 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) David B. Perkins 8816 Six Forks Road, Suite 107 Raleigh, North Carolina 27615 -------------------------------------------------------------------------------- (Name and address of agent for service) registrant's telephone number, including area code: (919) 846-2324 --------------- Date of fiscal year end: March 31 --------- Date of reporting period: March 31, 2006 --------------- 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 0000935069-06-001739) 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 FUND I, L.P. FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2006 HATTERAS MULTI-STRATEGY FUND I, L.P. FOR THE YEAR ENDED MARCH 31, 2006 TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm..................... 1 Statement of Financial Condition............................................ 2 Statement of Operations..................................................... 3 Statement of Changes in Partners' Capital................................... 4 Statement of Cash Flows..................................................... 5 Notes to Financial Statements............................................... 6 Board of Directors' (unaudited)............................................. 12 Fund Management (unaudited)................................................. 13 Other Information (unaudited) .............................................. 14 Financial Statements of Hatteras Master Fund, L.P. ......................... I [GRAPHIC OMITTED] DELOITTE(C) 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 Fund I, L.P.: We have audited the accompanying statement of financial condition of Hatteras Multi-Strategy Fund I, 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 FUND I, L.P.
STATEMENT OF FINANCIAL CONDITION - MARCH 31, 2006 ---------------------------------------------------------------------------------------- ASSETS Investment in Hatteras Master Fund, L.P., at fair value (cost $39,516,519) $42,203,491 Cash and cash equivalents 100,000 Investment in Hatteras Master Fund, L.P. paid in advance 12,619,865 Interest receivable 342 Due from Investment Manager 10,207 Prepaid registration fees 6,081 ----------- TOTAL ASSETS $54,939,986 =========== LIABILITIES AND PARTNERS' CAPITAL Contributions received in advance 12,621,000 Withdrawals payable 8,087 Professional fees payable 31,500 Servicing fees payable 26,433 Accounting and administration fees payable 1,800 Custodian fees payable 1,276 Investor servicing fees payable 4,017 Due to affiliates 1,625 Other accrued expenses 5,600 ----------- TOTAL LIABILITIES 12,701,338 ----------- PARTNERS' CAPITAL $42,238,648 ----------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $54,939,986 ===========
See Notes to Financial Statements 2 HATTERAS MULTI-STRATEGY FUND I, L.P.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2006 ----------------------------------------------------------------------------------- NET INVESTMENT LOSS ALLOCATED FROM HATTERAS MASTER FUND, L.P. Dividends $ 39,792 Interest 9,206 Interest expense (6,785) Other expenses (248,887) ---------- NET INVESTMENT LOSS ALLOCATED FROM HATTERAS MASTER FUND, L.P. (206,674) ---------- FUND INVESTMENT INCOME Interest 5,383 ---------- OPERATING EXPENSES Servicing fees 127,505 Professional fees 51,665 Organization expense 47,704 Registration fees 43,000 Investor servicing fees 11,650 Accounting and administration fees 10,800 Custodian fees 7,762 Other expenses 12,660 ---------- TOTAL OPERATING EXPENSES 312,746 Reimbursement from investment manager (70,914) ---------- NET OPERATING EXPENSES 241,832 ---------- NET INVESTMENT LOSS (443,123) ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM HATTERAS MASTER FUND, L.P. Net realized loss on investments (22,066) Net unrealized appreciation on investments 2,915,712 ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM HATTERAS MASTER FUND, L.P. 2,893,646 ---------- NET INCREASE IN PARTNERS' CAPITAL RESULTING FROM OPERATIONS $2,450,523 ==========
See Notes to Financial Statements 3 HATTERAS MULTI-STRATEGY FUND I, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEAR ENDED MARCH 31, 2006 ---------------------------------------------------------------------------------------------------------------- GENERAL LIMITED TOTAL PARTNER'S PARTNERS' PARTNERS' CAPITAL CAPITAL CAPITAL ------------------------------------------------- PARTNERS' CAPITAL, BEGINNING OF YEAR $ -- $ -- $ -- Capital contributions -- 39,869,000 39,869,000 Capital withdrawals (80,875) -- (80,875) Net investment loss -- (443,123) (443,123) Net realized loss on investments -- (22,066) (22,066) Net unrealized appreciation on investments -- 2,915,712 2,915,712 Actual performance allocation from April 1, 2005 to December 31, 2005 80,875 (80,875) -- Accrued performance allocation from January 1, 2006 to March 31, 2006 116,833 (116,833) -- ------------------------------------------------- PARTNERS' CAPITAL, END OF YEAR $116,833 $42,121,815 $42,238,648 =================================================
See Notes to Financial Statements 4 HATTERAS MULTI-STRATEGY FUND I, 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 $ 2,450,523 Adjustments to reconcile net increase in partners' capital from investment operations to net cash used for operating activites: Purchases of interests in Hatteras Master Fund, L.P. (52,136,384) Net investment gain allocated from Hatteras Master Fund, L.P. (2,686,972) Interest receivable (342) Due from Investment Manager (10,207) Prepaid registration fees (6,081) Professional fees payable 31,500 Servicing fees payable 26,433 Accounting and administration fees payable 1,800 Custodian fees payable 1,276 Investor servicing fees payable 4,017 Due to affiliates 1,625 Other accrued expenses 5,600 ------------ NET CASH USED IN OPERATING ACTIVITIES (52,317,212) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions (including contributions received in advance) 52,490,000 Capital withdrawals (including withdrawals payable) (72,788) ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 52,417,212 ------------ Net change in cash and cash equivalents 100,000 Cash and cash equivalents at beginning of year -- ------------ Cash and cash equivalents at end of year $ 100,000 ============
See Notes to Financial Statements 5 HATTERAS MULTI-STRATEGY FUND I, L.P. NOTES TO FINANCIAL STATEMENTS -MARCH 31, 2006 -------------------------------------------------------------------------------- 1. ORGANIZATION Hatteras Multi-Strategy Fund I, L.P. (the "Fund") was organized as a limited partnership under the laws of the State of Delaware on November 23, 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's investment objective is to generate consistent long-term appreciation and returns across all market cycles. To achieve its objective, the Fund provides its investors 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 into 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. Investors who acquire interests in the Fund ("Interests") are the Limited Partners (each, a "Limited Partner" and together, the "Limited Partners") of the Fund. Hatteras Investment Management, LLC, a Delaware limited liability company, serves as the General Partner of the Fund ("General Partner"). The General Partner has appointed a Board of Directors ("Board") and, to the fullest extent permitted by applicable law, has irrevocably delegated to the Board its rights and powers to monitor and oversee the business affairs of the Fund, including the complete and exclusive authority to oversee and establish policies regarding the management, conduct and operation of the Fund's business. The percentage of the Master Fund's beneficial interests owned by the Fund at March 31, 2006, was 19.77%. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in United States dollars. The following is a summary of significant accounting and reporting policies used in preparing the financial statements. A. VALUATION Valuation of the Fund's interest in the Master Fund is based on the investment in underlying securities held by the Master Fund. The Master Fund will value interests in the Underlying Funds (as defined in attached Master Fund financial statements) 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 Fund and are discussed in the Notes to Financial Statements of the Master Fund which are included elsewhere in this report. 6 HATTERAS MULTI-STRATEGY FUND I, L.P. NOTES TO FINANCIAL STATEMENTS -MARCH 31, 2006 (CONTINUED) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. ALLOCATIONS FROM THE 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 a Fund and not invested into the Master Fund will be recognized on an accrual basis. Expenses that are specifically attributed to the Fund are charged to the Fund. In addition, the Fund also bears its proportionate share of the expenses of the Master Fund. Because the Fund bears its proportionate share of the management fees of the Master Fund, the Fund does 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 Fund held $100,000 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 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 Fund 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. 7 HATTERAS MULTI-STRATEGY FUND I, L.P. NOTES TO FINANCIAL STATEMENTS -MARCH 31, 2006 (CONTINUED) -------------------------------------------------------------------------------- 3. ALLOCATION OF LIMITED PARTNERS' CAPITAL (CONTINUED) 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. The Fund paid a Servicing Fee for the period April 1, 2005 through June 30, 2005, based on the net asset value of each Partners' Capital Accounts as of the last 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 $70,914 which will begin to expire on March 31, 2009. 8 HATTERAS MULTI-STRATEGY FUND I, L.P. NOTES TO FINANCIAL STATEMENTS -MARCH 31, 2006 (CONTINUED) -------------------------------------------------------------------------------- 4. RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED) 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 $1,625 for reimbursement of organization expense allocated from the Master Fund. 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 Fund. 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. 9 HATTERAS MULTI-STRATEGY FUND I, L.P. NOTES TO FINANCIAL STATEMENTS -MARCH 31, 2006 (CONTINUED) -------------------------------------------------------------------------------- 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 PARTNERS' INTERESTS The Fund intends 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 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 Fund. However, the General Partner retains the discretion to approve such repurchase offers and, therefore, there are no assurances that the General Partner will, in fact, decide to undertake any redemption offer. The General Partner may also permit redemptions at other times, in its sole discretion. The Fund does not intend to distribute to the Limited Partners any of the Fund's 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. 8. INDEMNIFICATION In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund's maximum exposure under these agreements is dependent on future claims that may be made against the Fund, and therefore cannot be established; however, based on experience, the risk of loss from such claims is considered remote. 9. FINANCIAL HIGHLIGHTS The financial highlights are intended to help you understand the Fund's 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's interest is excluded from the calculations. An individual Limited Partner's ratios or returns may vary from the table below based on performance 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 Partners' capital. The ratios include the Fund's proportionate share of the Master Fund's income and expenses. 10 HATTERAS MULTI-STRATEGY FUND I, L.P. NOTES TO FINANCIAL STATEMENTS -MARCH 31, 2006 (CONCLUDED) -------------------------------------------------------------------------------- 9. FINANCIAL HIGHLIGHTS (CONTINUED) Total return amounts are calculated by geometrically linking returns based on the change in value during each accounting period.
FOR THE YEAR ENDED MARCH 31, 2006 -------------- Total return amortizing organizational expenses and before Performance Allocation* 11.72% Organization expense (1.17)% Performance Allocation (0.09)% ----- Total return after expensing organizational expenses and Performance Allocation 10.46% ===== Partners' capital, end of year (000) $42,239 Portfolio Turnover 0.00% Net investment loss before Performance Allocation (2.79)% Operating expenses, excluding expense reimbursement and Performance Allocation 3.58% Performance Allocation 1.24% ----- Total expense and Performance Allocation before expense reimbursement 4.82% Expense reimbursement (0.45)% ----- Net expenses 4.37% ===== *RETURN IS INDICATIVE OF AMORTIZING ORGANIZATIONAL EXPENSES OVER 60 MONTHS FOR TAX PURPOSES.
10. SUBSEQUENT EVENTS During the period from April 1, 2006 through May 1, 2006, the Fund received $19,427,200 of capital contributions. 11 HATTERAS MULTI-STRATEGY FUND I, 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 Executive 3 year term; Mr. Perkins has been Chairman and CEO since 3 1000 Watermeet Lane Officer and Since Inception inception of the Funds. Mr. Perkins became the Raleigh, NC 27614 Chairman of the President and Managing Principal of the Investment Board of Manager in 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 Properties, LLC 3 918 Meadow Lane Chairman of the Since December since January 1996 Henderson, NC 27536 Audit Committee 2004 ---------------------------------------------------------------------------------------------------------------------------------- H. Alexander Holmes, 63 Director: 3 year term; Mr. Holmes founded Holmes Advisory Services, LLC, a 3 3408 Landor Road Audit Since December financial consultation firm, in 1993 Raleigh, NC 27609 Committee Member 2004 ---------------------------------------------------------------------------------------------------------------------------------- George Y. Ragsdale II*, 40 Director: 3 year term; Mr. Ragsdale has been Investment Research Director 3 111 Radio Circle Audit Committee Since February at Kisco Management Co. since November 1999. Mount Kisco, NY 10546 Member 2005 ---------------------------------------------------------------------------------------------------------------------------------- Gregory S. Sellers, 46 Director: Audit 3 year term; Mr. Sellers became the Chief Financial Officer and a 3 2643 Steeplechase Road Committee Member Since December director of Kings Plush, Inc., a fabric Gastonia, NC 28056 2004 manufacturer, in April 2003. Prior to that, he was the Vice President of Finance at Parksdale Mills, Inc., a cotton and cotton blend yarns producer, from January 1991 to April 2003. ---------------------------------------------------------------------------------------------------------------------------------- *Mr. Ragsdale resigned his position as a Director of the Fund effective April 12, 2006.
12 HATTERAS MULTI-STRATEGY FUND I, 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 Financial Since Mr. Fields has been the CFO since inception of the N/A 8816 Six Forks Rd. Officer Inception Funds. Mr. Fields became a Director of the Investment Suite 107 Manager in September 2003. Prior to joining the Raleigh, NC 27615 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 inception of the N/A 8816 Six Forks Rd. Compliance Inception Funds. Ms. Buchanan became the Compliance Officer Suite 107 Officer with CapFinancial Partners, LLC ("CapTrust") in Raleigh, NC 27615 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 Funds since N/A 8816 Six Forks Rd. Inception inception. She became the Operations Manager for the Suite 107 Investment Manager in September 2004. Prior to Raleigh, NC 27615 joining the Investment Manager, she was employed with McKinely Capital Management from 1994 to 2004. ----------------------------------------------------------------------------------------------------------------------------------
13 HATTERAS MULTI-STRATEGY FUND I, 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. 14 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 *- 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.
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. -------------------------------------------------------------------------------------------------------------------------- *Mr. Ragsdale resigned his position as a Director of the Fund effective April 12, 2006.
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 POLICIES ARE 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. ---------------------- ------------------- ----------------- ----------------------------------------- ------------------------ (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:
------------------------------- ------------------------- -------------- ---------------- ---------------- -------------------- # 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 Fund I, L.P. -------------------------------------------------------------------- By (Signature and Title)* /s/ David B. Perkins ------------------------------------------------------- David B. Perkins, President & Chief Executive Officer (principal executive officer) Date October 19, 2006 ---------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ David B. Perkins ------------------------------------------------------- David B. Perkins, President & Chief Executive Officer (principal executive officer) Date October 19, 2006 ---------------------------------------------------------------------------- By (Signature and Title)* /s/ J. Michael Fields ------------------------------------------------------- J. Michael Fields, Chief Financial Officer (principal financial officer) Date October 19, 2006 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.