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- Certified annual shareholder report for management investment companies (N-CSR)

Date : 03/08/2010 @ 5:10PM
Source : Edgar (US Regulatory)

- Certified annual shareholder report for management investment companies (N-CSR)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21528

 

 

The Endowment Registered Fund, L.P.

(Exact name of registrant as specified in charter)

 

 

4265 SAN FELIPE, SUITE 800, HOUSTON, TX 77027

(Address of principal executive offices) (Zip code)

 

 

  With a copy to:
A. Haag Sherman   George J. Zornada
The Endowment Registered Fund, L.P.   K & L Gates LLP
4265 San Felipe, Suite 800   State Street Financial Center
Houston, TX 77027   One Lincoln St.
(Name and address of agent for service)   Boston, MA 02111-2950
  (617) 261-3231

Registrant’s telephone number, including area code: 800-725-9456

Date of fiscal year end: 12/31/09

Date of reporting period: 12/31/09

 

 

 


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Item 1. Reports to Stockholders.

 


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the

E NDOWMENT F UND

The Endowment Registered Fund, L.P.

Shareholders’ Report

December 31, 2009


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The Endowment Registered Fund, L.P.

  

Report of Independent Registered Public Accounting Firm

   1

Statement of Assets, Liabilities and Partners’ Capital

   2

Statement of Operations

   3

Statement of Changes in Partners’ Capital

   4

Statement of Cash Flows

   5

Notes to Financial Statements

   6

Supplemental Information

   14

The Endowment Master Fund, L.P.

  

Report of Independent Registered Public Accounting Firm

   21

Statement of Assets, Liabilities and Partners’ Capital

   22

Schedule of Investments

   23

Statement of Operations

   33

Statement of Changes in Partners’ Capital

   34

Statement of Cash Flows

   35

Notes to Financial Statements

   36

Supplemental Information

   54


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LOGO

Dear TEF Partners:

As we enter a new decade and near our 7 th anniversary, we thought this would be an opportune time to (a) review the goals and objectives of The Endowment Fund (the “Fund” or “TEF”) and (b) discuss the Fund’s performance in 2009.

The Goals of The Endowment Fund

Since inception of the Fund in 2003 1 , our long-term goals have been to preserve the purchasing power of invested capital to support the future spending needs of our clients and to generate consistent, long-term, returns across market cycles. We endeavor to deliver real returns (returns above inflation) of 7% 2 , similar to the long-term return on equities, but to produce those returns with approximately half of the annualized volatility of equities, as measured by standard deviation of returns.

By lowering the standard deviation of returns through a diversified portfolio management approach, similar to the model employed by the most successful Endowment management programs, cumulative wealth is increased through more consistent compounding. The mathematics of loss are very debilitating to long-term investment returns, and the ability to “lose less” in down markets allows for greater wealth accumulation, even if the returns in good markets modestly lag traditional indices. Harry Markowitz won his Nobel Prize for demonstrating the power of diversification and the impact on long-term investment returns and some of the most successful investment programs have embraced this model effectively over the past few decades. The Fund is managed in accordance with these principles and we have constructed a highly diversified portfolio that we believe is designed to capitalize on the benefits of the Markowitz approach.

The Endowment Model is focused on long-term wealth preservation and growth, as opposed to seeking to maximize returns in any one particular short-term period. By reducing the volatility of returns over time, the portfolio should achieve higher long-term returns. However, there will be periods of time where the portfolio trails more concentrated investment strategies that exhibit much higher volatility. Those strategies will typically have “higher highs” and “lower lows” and when that is true they are more likely to ultimately generate inferior returns to the Endowment Model portfolio approach in the long term.

The Diversified Portfolio in 2009

By definition, a diversified portfolio will almost always lag a concentrated portfolio in an “up market” (conversely it will almost always lead in a “down market”). As we entered 2009, we believed that a high level of diversification and “hedging” in the portfolio was the prudent portfolio posture given the high level of uncertainty in the markets in the wake of the financial crisis. Our conservative posture was very successful in reducing volatility, and preserving capital, during a very tumultuous first quarter. However, that posture also limited upside participation during the subsequent market rally over the final two-thirds of the year.

 

 

 

1 The performance quoted for The Endowment Fund from April 2003 – March 2004 is that of an unregistered predecessor fund and is related performance only and does not reflect the performance of the feeder funds and/or The Endowment Fund. The Master Fund and the Feeder Funds’ performance may differ from that shown due to factors such as differences in cash flows, fees, expenses, performance calculation methods, portfolio size, number of underlying pooled investments, investment limitations, diversification requirements and other restrictions imposed on registered funds by the Investment Company Act of 1940, as amended (the “1940 Act”). Investors should not consider this related performance as indication of future performance, or as a substitute for the performance of the feeder funds and/or The Endowment Fund. Performance reflected is net of fees.

2 However, we cannot guarantee we will achieve this objective and past performance is no guarantee of future results.


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LOGO

As shown in the graph above, the Fund 3 produced a relatively stable stream of returns in 2009 and our high allocation to low volatility strategies and portfolio hedges generated a return profile with approximately 25% of the volatility 4 of the S&P 500 Index. The “cost” of that reduced volatility was that the portfolio lagged the equity market over the entire year, capturing just over half of the index return. Given our goal is to generate consistent, long-term, returns we have never focused on single year returns and have not constructed the portfolio to be compared to the equity indices over short-term periods like quarters, or years. We are much more concerned with outperforming over longer periods of time by lowering the volatility of returns in the Fund. We achieved that goal very effectively as the Fund had less than 25% of the volatility of the S&P 500 during the year 5 . Lower volatility has been consistent since inception and the impact of the reduced volatility is shown in the table below. The Fund has significantly outperformed the equity market over rolling three and five year periods and has achieved those superior returns with dramatically less risk, as measured by the standard deviation of its returns.

LOGO

Another measure of superior risk adjusted returns is the ability of the Fund to limit the maximum drawdown of the portfolio to less than half of the drawdown of the S&P 500. From the maximum drawdown, the Fund needs to

 

 

 

3 The Endowment Fund has a variety of feeders, which all feed into a single “master” fund called The Endowment Master Fund, L.P. Each “feeder” fund has different expense ratios, which provide for slightly different returns from one “feeder” fund to the next. Accordingly, unless otherwise specified, the performance and standard volatility outlined herein are those of The Endowment Registered Fund, L.P., which is the largest “feeder” fund in The Endowment Fund complex. Your returns may vary, based on the feeder in which you invest and the timing of your investment. Please consult your capital account statement for the exact returns of your investment.

4 Please refer to the 1, 3 and 5 year TEF vs. S&P 500 performance comparisons in the Performance Table for more complete performance information.

5 Past performance is not a guarantee of future results.


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recover approximately 33% to break even, while the equity index would have to rise just over 100% to recover the losses. We believe this is a critical distinction, one that means that the recovery rate for the Fund does not have to be as rapid or dramatic as the equity market to get an investor back to “even.”

Performance During the Financial Crisis and Market Rebound (October 2007 – December 2009)

Despite this fact, some investors have expressed concern that the Fund only captured 52% of the equity recovery in 2009 (TEF: 13.9% vs. the S&P 500: 26.5%). Lower volatility of returns means less downside in the bad periods (TEF lost significantly less than the S&P 500 in 2008, -24% vs. -37%) and less upside in the good periods, like the last half of 2009. However, the mathematics of loss is incontrovertible, as shown below.

LOGO

As of January 1, 2010, the S&P 500 still must generate a 30% return to recover the level it reached at the October 2007 peak. In contrast, The Endowment Fund needs to generate a 12% return in order to recover the losses it sustained during the financial crisis. Our diversified approach limited losses during the worst of the crisis in September and October of 2008, and again in January and February of 2009, and while our hedged posture also limited upside participation during the recent rally, we finished the two year period well ahead of the equity markets. A dollar invested in a strategy which performed similarly to the S&P 500 on January 1, 2008 is now only worth 80 cents, while that same dollar invested in the Fund is worth 87 cents. 6 Diversification is a proven way to limit losses in a portfolio and the Fund embraces the elegantly simple math of long-term wealth generation, which focuses on producing a lower volatility stream of returns.

2009 in Review

2009 proved a year of two distinct investing climates. The first ten weeks of 2009 saw a continuation of the dramatic drawdown of the fourth quarter of 2008. The remainder of 2009 saw a dramatic rebound in the US and global equity markets. We wanted to provide a recap of 2009 and how our Fund performed in the first ten weeks, and then thereafter.

January – February 2009 in Review

The last few months of 2008 were very challenging for all investors and we learned many valuable lessons about the limits of hedging and the risks of the “unknown unknowns” like government intervention and accounting rule

 

6 The S&P 500 return from January 2008 – December 2009 was -20.32%, while the return for The Endowment Registered Fund was -13.5%.


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changes. We entered 2009 with large positions in credit (rather than equity) and significant hedges in the portfolio as we were concerned about continued fallout from the financial crisis. We believed that we could generate consistent returns in most market conditions by owning assets senior in the capital structure and wanted to limit equity exposure given the high degree of uncertainty in the market. Since TEF suffered a significant drawdown along with the rest of the industry in 2008, we are often asked the question “How will TEF perform if the market drops 20% again?” While past performance is no guarantee of future results , the chart below illustrates how The Endowment Fund performed during the 18% drawdown from January to February of 2009. Our hedged profile paid handsomely as we avoided most of the losses and dramatically reduced volatility in the portfolio.

LOGO

The Great Equity Rally of 2009 – March to December

After the release of the Bank Stress Test Results in March, investors “got their nerve back”, animal spirits returned and equity markets surged in the following months. Our portfolio was positioned defensively and did not participate fully in the rally. While the Fund posted more consistent, linear returns of 12% over the balance of the year, stocks surged 55% from the nadir to finish 2009 up 26.5%. 5

Our portfolio performance can be separated into three distinct blocks, Credit, Equity and Hedges. Our Credit portfolio (Enhanced Fixed Income (15%) and Arbitrage (18%)) performed quite well during the rally, rising nearly 24% and finished the year in line with equities, but with significantly lower volatility and risk. Our Equity portfolio (Domestic Equity (10%), International Equity (10%), Private Equity (12%), Energy (10%)) had mixed results with Domestic Equity and Private Equity rising around 10%, International Equity rising 22% and Energy surging 36%. The most challenging part of the portfolio were the hedges (which performed the best during the first part of the year) as Opportunistic Equity (13%), hedged Real Estate (5%) and Fixed Income (7%) struggled during the “melt-up.” Opportunistic Equity was flat, Real Estate was up modestly and Fixed Income (deflation hedge) lost 4%. 5

Conclusion

The Fund (again, as evidenced by the performance of The Endowment Registered Fund, L.P.) has shown the ability to preserve capital during turbulent markets (yes, we learned a great deal during 2008) and also capture significant upside in bull markets. We believe TEF is an attractive solution for investors looking to


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diversify a portion of their traditional equity exposure without giving up the potential ability to generate consistent real returns similar to long-term equity returns. On the heels of last year’s historic rally in the equity markets, valuations today are quite high by historic standards and expected returns over the next decade are low relative to history (GMO LLC now projects U.S. Equities to generate only 1.3% real returns over the next 7 years 7 ). We believe there is a tremendous opportunity to “sell into strength” and reduce long equity exposure in client portfolios and replace that exposure with a portfolio that can generate similar returns with much lower volatility and more consistency.

LOGO

As the chart above illustrates quite nicely, since the Fund’s inception in 2003, the Fund has outperformed the S&P 500 by almost 1% per year on an annualized basis (7.1% net of fees vs. 6.2%) with approximately half the risk (8.0% vs. 14.8%) as measured by standard deviation. While no one can accurately predict the future, we are confident that the process inherent in the Endowment Model of investing is likely to generate consistent, long-term returns with low volatility for many decades to come. Past performance is no guarantee of future results.

The Endowment Fund Fees and Expenses

The Endowment Fund performance information presented in this document is net of fees and expenses. TEF fees are as follows: Management Fee: 1%, Servicing Fee: 1%. Fund Expenses vary by feeder and are listed below:

 

   

Registered Fund:  0.23%

   

TEI Fund 8 :  1.18%

   

Domestic Fund & Domestic QP Fund:   0.18%

   

Exempt Fund II 8 :  1.43%

   

Exempt QP Fund II 8 :  1.22%

 

 

7 GMO LLC. 7-Year Asset Class Return Forecast. As of 12/31/09. GMO is a privately held global investment management firm.

8 The Fund expenses shown are the expenses contained in the Private Placement Memorandum for the Fund. The actual expenses for the TEI Fund, Exempt Fund II and Exempt QP Fund II were lower than stated above (0.53%, 0.52% and 0.49%) after accounting for offshore withholding tax credit subsequently received.


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We are grateful for your continued support and partnership. If you have any questions, please do not hesitate to call our Sales Desk at 1-800-725-9456.

Best regards,

 

LOGO

  

LOGO

Mark W. Yusko

  

John A. Blaisdell

Chief Investment Officer

Endowment Advisers, L.P.

  

Co-Chief Executive Officer

LOGO

  

LOGO

Andrew B. Linbeck   

A. Haag Sherman

Co-Chief Executive Officer

  

Co-Chief Executive Officer

 

The views expressed throughout this report are those of the Adviser and are current only through the end of the period of the report as stated on the cover. These views are subject to change at any time based upon market or other conditions, and the investment adviser disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund are based on many factors, may not be relied on as an indication of trading intent on behalf of the Fund. Portfolio information provided in the report may not be representative of the Fund’s current or future investments and may change due to active management.


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Report of Independent Registered Public Accounting Firm

The Board of Directors and Partners

The Endowment Registered Fund, L.P.:

We have audited the accompanying statement of assets, liabilities, and partners’ capital of The Endowment Registered Fund, L.P. (the “Registered Fund”), as of December 31, 2009, and the related statement of operations for the year then ended, the statement of changes in partners’ capital for each of the years in the two-year period then ended, the statement of cash flows for the year then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Registered Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 and financial highlights referred to above present fairly, in all material respects, the financial position of The Endowment Registered Fund, L.P. as of December 31, 2009, the results of its operations and its cash flows for the year then ended, the changes in its partners’ capital for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Columbus, Ohio

February 26, 2010

 


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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Statement of Assets, Liabilities and Partners’ Capital

December 31, 2009

 

Assets   

Investments in the Master Fund, at estimated fair value

   $ 2,424,858,828

Receivable from the Master Fund

     130,587,726

Prepaid contributions to the Master Fund

     24,219,365

Prepaids and other assets

     10,903
      

Total assets

     2,579,676,822
      
Liabilities and Partners’ Capital   

Contributions received in advance

     24,219,365

Withdrawals payable

     130,587,726

Servicing Fees payable

     6,220,721

Accounts payable and accrued expenses

     652,335
      

Total liabilities

     161,680,147
      

Partners’ capital

     2,417,996,675
      

Total liabilities and partners’ capital

   $ 2,579,676,822
      

 

See accompanying notes to financial statements.

 

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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Statement of Operations

Year Ended December 31, 2009

 

Net investment loss allocated from the Master Fund:

  

Dividend income (net of foreign tax withholding of $37,950)

   $ 4,944,678   

Interest income

     399,949   

Dividend income from affiliated investments

     426,009   

Interest income from affiliated investments

     115,533   

Expenses

     27,091,842   
        

Net investment loss allocated from the Master Fund

     (21,205,673
        

Expenses of the Registered Fund:

  

Servicing Fees

     23,758,213   

Amortization of offering costs

     295,121   

Professional fees

     515,190   

Legal fees

     4,494   

Other expenses

     563,833   
        

Total expenses of the Registered Fund

     25,136,851   
        

Net investment loss of the Registered Fund

     (46,342,524
        

Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind allocated from the Master Fund:

  

Net realized loss from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind

     (22,627,577

Change in unrealized appreciation/depreciation from investments allocated from the Master Fund

     377,581,541   
        

Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind allocated from the Master Fund

     354,953,964   
        

Net increase in partners’ capital resulting from operations

   $ 308,611,440   
        

 

See accompanying notes to financial statements.

 

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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Statement of Changes in Partners’ Capital

Years Ended December 31, 2008 and December 31, 2009

 

Partners’ capital at December 31, 2007

   $ 1,482,763,043   

Contributions

     1,568,168,657   

Withdrawals

     (190,897,704

Early repurchase fees

     884,663   

Net decrease in partners’ capital resulting from operations:

  

Net investment loss

     (41,229,351

Net realized loss from investments

     (168,973,218

Change in unrealized appreciation/depreciation from investments

     (447,527,369
        

Net decrease in partners’ capital resulting from operations

     (657,729,938
        

Partners’ capital at December 31, 2008

     2,203,188,721   
        

Contributions

     326,997,379   

Withdrawals

     (421,320,636

Early repurchase fees

     519,771   

Net increase in partners’ capital resulting from operations:

  

Net investment loss

     (46,342,524

Net realized loss from investments

     (22,627,577

Change in unrealized appreciation/depreciation from investments

     377,581,541   
        

Net increase in partners’ capital resulting from operations

     308,611,440   
        

Partners’ capital at December 31, 2009

   $ 2,417,996,675   
        

 

See accompanying notes to financial statements.

 

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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Statement of Cash Flows

Year Ended December 31, 2009

 

Cash flows from operating activities:

  

Net increase in partners’ capital resulting from operations

   $ 308,611,440   

Adjustments to reconcile net increase in partners’ capital resulting from operations to net cash provided by operating activities:

  

Net realized and unrealized (gain) loss from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind allocated from the Master Fund

     (354,953,964

Net investment loss allocated from the Master Fund

     21,205,673   

Early repurchase fees

     519,771   

Contributions to the Master Fund

     (327,518,656

Withdrawals from the Master Fund

     445,902,708   

Decrease in receivable from the Master Fund

     2,964,982   

Decrease in prepaid contributions to the Master Fund

     4,230,035   

Decrease in prepaids and other assets

     229,705   

Increase in Servicing Fees payable

     419,963   

Decrease in accounts payable and accrued expenses

     (99,672
        

Net cash provided by operating activities

     101,511,985   
        

Cash flows from financing activities:

  

Contributions

     322,517,344   

Withdrawals

     (424,279,329
        

Net cash used in financing activities

     (101,761,985
        

Net decrease in cash and cash equivalents

     (250,000

Cash and cash equivalents at beginning of year

     250,000   
        

Cash and cash equivalents at end of year

   $ —     
        

 

See accompanying notes to financial statements.

 

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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements

December 31, 2009

 

(1) ORGANIZATION

The Endowment Registered Fund, L.P. (the “Registered Fund”), is a limited partnership organized under the laws of the state of Delaware. The Registered Fund was registered and began operations on March 10, 2004 (“Inception”) as a nondiversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Registered Fund was created to serve as a feeder fund for The Endowment Master Fund, L.P. (the “Master Fund”). For convenience, reference to the Registered Fund may include the Master Fund, as the context requires.

The Registered Fund’s investment objective is to preserve capital and to generate consistent long-term appreciation and returns across a market cycle (which is estimated to be five to seven years). The Registered Fund pursues its investment objective by investing substantially all of its assets in the Master Fund, which invests its assets in a variety of investment vehicles including but not limited to limited partnerships, limited liability companies, offshore corporations and other foreign investment vehicles (collectively, the “Investment Funds”), registered investment companies (including exchange traded funds) and direct investments in marketable securities and derivative instruments. The Master Fund’s financial statements, footnotes and Schedule of Investments, included elsewhere in this report, are an integral part of the Registered Fund’s financial statements that should be read in conjunction with this report. The percentage of the Master Fund’s partnership interests owned by the Registered Fund on December 31, 2009 was 46.52%.

The Endowment Fund GP, L.P., a Delaware limited partnership, serves as the general partner of the Registered Fund (the “General Partner”). To the fullest extent permitted by applicable law, the General Partner has irrevocably delegated to a board of directors (the “Board” and each member a “Director”) its rights and powers to monitor and oversee the business affairs of the Registered Fund, including the complete and exclusive authority to oversee and establish policies regarding the management, conduct and operation of the Registered Fund’s business. A majority of the members of the Board are independent of the General Partner and its management. To the extent permitted by applicable law, the Board may delegate any of its rights, powers and authority to, among others, the officers of the Registered Fund, the Adviser, or any committee of the Board.

The Board is authorized to engage an investment adviser and it has selected Endowment Advisers, L.P. (the “Adviser”), to manage the Registered Fund’s portfolio and operations, pursuant to an investment management agreement (the “Investment Management Agreement”). The Adviser is a Delaware limited partnership that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Management Agreement, the Adviser is responsible for the establishment of an investment committee (the “Investment Committee”), which is responsible for developing, implementing, and supervising the Registered Fund’s investment program subject to the ultimate supervision of the Board. In addition to investment advisory services, the Adviser also functions as the servicing agent of the Registered Fund (the “Servicing Agent”) and as such provides or procures investor services and administrative assistance for the Registered Fund. The Adviser can delegate all or a portion of its duties as Servicing Agent to other parties, who would in turn act as sub-servicing agents.

Under the Registered Fund’s organizational documents, the Registered Fund’s officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Registered Fund. In the normal course of business, the Registered Fund enters into contracts with service providers, which also provide for indemnifications by the Registered Fund. The Registered Fund’s maximum exposure under these arrangements is unknown, as this would involve any future potential claims that may be made against the Registered Fund. However, based on experience, the Registered Fund expects that risk of loss to be remote.

 

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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) BASIS OF ACCOUNTING

The accounting and reporting policies of the Registered Fund conform with U.S. generally accepted accounting principles (“GAAP”).

(b) CASH EQUIVALENTS

The Registered Fund considers all unpledged temporary cash investments with a maturity date at the time of purchase of three months or less to be cash equivalents.

(c) INVESTMENT SECURITIES TRANSACTIONS

The Registered Fund records monthly, its pro-rata share of income, expenses, changes in unrealized appreciation and depreciation, and realized gains and losses derived from the Master Fund.

The Registered Fund records security transactions on a trade-date basis.

Investments that are held by the Registered Fund are marked to estimated fair value at the date of the financial statements, and the corresponding change in unrealized appreciation/depreciation is included in the statement of operations.

In general, distributions received from Investment Funds are accounted for as a reduction to cost and any proceeds received above the allocated cost basis results in a realized gain. Realized gains or losses on the disposition of investments are accounted for based on the first in first out (“FIFO”) method.

(d) VALUATION OF INVESTMENTS

The valuation of the Registered Fund’s investments will be determined as of the close of business at the end of any fiscal period, generally monthly. The valuation of the Registered Fund’s investments is calculated by Citi Fund Services Ohio, Inc., the Registered Fund’s independent administrator (the “Independent Administrator”). The valuation procedures of the Registered Fund’s underlying investments are reviewed by a committee approved by the Board that was established to oversee the valuation of the Registered Fund’s investments (the “Valuation Committee”), in consultation with the Adviser and the Independent Administrator. The partners’ capital of the Registered Fund will equal the total assets of the Registered Fund, less all of its liabilities, including accrued fees and expenses.

The Registered Fund invests substantially all of its assets in the Master Fund. Investments in the Master Fund are recorded at estimated fair value based on its proportional share of the Master Fund’s net assets. Valuation of the investments held by the Master Fund is discussed in the notes to the Master Fund financial statements included elsewhere in this report.

(e) FAIR VALUE MEASUREMENTS

The Registered Fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

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THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

The inputs used to determine the fair value of the Registered Fund’s investments are summarized in the three broad levels listed below:

 

   

Level 1—quoted prices in active markets for identical assets.

 

   

Level 2—other significant inputs (including quoted prices of similar securities, interest

rates, prepayment speeds, credit risk, etc.).

 

   

Level 3—significant unobservable inputs (which may include the Registered Fund’s

own assumptions in determining the fair value of investments).

The inputs or methodology used to value investments are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary categorization, as of December 31, 2009, of the Registered Fund’s investments based on the inputs utilized in determining the value of such investments:

 

     LEVEL 1    LEVEL 2    LEVEL 3
     Quoted Prices    Other Significant
Observable Inputs
   Significant
Unobservable Inputs

Investment

   $ —      $ —      $ 2,424,858,828
                    

The categorization of the Registered Fund’s investment in the Master Fund as a Level 3 investment does not reflect the fact that many of the underlying investments held by the Investment Funds in which the Master Fund invests, if owned directly by the Registered Fund, would be classified as Level 1 investments.

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

     Investment  

Balance as of December 31, 2008

   $ 2,209,494,589   

Allocated From the Master Fund:

  

Net Investment Loss

     (21,205,673

Net Realized Loss

     (22,627,577

Change in Unrealized Appreciation/ Depreciation

     377,581,541   

Net Contributions (Withdrawals)

     (118,384,052
        

Balance as of December 31, 2009

   $ 2,424,858,828   
        

The net investment loss, net realized loss and change in unrealized appreciation/ depreciation in the table above are reflected in the accompanying Statement of Operations.

(f) INVESTMENT INCOME

For investments in securities, dividend income is recorded on the ex-dividend date, net of withholding taxes. Interest income is recorded as earned on the accrual basis and includes amortization of premiums or accretion of discounts.

 

8


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(g) FUND EXPENSES

Unless otherwise voluntarily or contractually assumed by the Adviser or another party, the Registered Fund bears all expenses incurred in its business, directly or indirectly through its investment in the Master Fund, including but not limited to, the following: all costs and expenses related to investment transactions and positions for the Registered Fund’s account; legal fees; accounting, auditing and tax preparation fees; recordkeeping and custodial fees; costs of computing the Registered Fund’s net asset value; fees for data and software providers; research expenses; costs of insurance; registration expenses; offering costs; expenses of meetings of the partners; directors fees; all costs with respect to communications to partners; and other types of expenses as may be approved from time to time by the Board. Offering costs are amortized over a twelve-month period or less from the date they are incurred.

(h) INCOME TAXES

The Registered Fund is organized and operated as a limited partnership and is not subject to income taxes as a separate entity. Such taxes are the responsibility of the individual partners. Accordingly, no provision for income taxes has been made in the Registered Fund’s financial statements. Investments in foreign securities may result in foreign taxes being withheld by the issuer of such securities.

The Registered Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Registered Fund’s tax returns to determine whether the tax positions will “more-likely-than-not” be sustained by the Registered Fund upon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit or expense to the Registered Fund would be recorded as a tax benefit or expense in the current period. For the year ended December 31, 2009, the Registered Fund did not recognize any amounts for unrecognized tax benefit/expense. A reconciliation of unrecognized tax benefit/expense is not provided herein, as the beginning and ending amounts of unrecognized tax benefit/expense are zero, with no interim additions, reductions or settlements. Tax positions taken in tax years which remain open under the statute of limitations (generally three years for federal income tax purposes) are subject to examination by tax authorities.

(i) USE OF ESTIMATES

The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be significant.

(j) ORGANIZATIONAL EXPENSES

The Registered Fund’s organizational expenses (the “Organizational Expenses”) were initially borne by the Adviser or an affiliate thereof and for capital account allocation purposes assumed to be reimbursed, over not more than a 60 month period of time, notwithstanding that such Organizational Expenses were expensed in accordance with GAAP for Registered Fund financial reporting purposes upon commencement of operations.

 

9


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(3) PARTNERS’ CAPITAL ACCOUNTS

(a) ISSUANCE OF INTERESTS

Upon receipt from an eligible investor of an initial or additional application for interests (the “Interests”), which will generally be accepted as of the first day of each month, the Registered Fund will issue new Interests. The Interests have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state. The Registered Fund issues Interests only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act. No public market exists for the Interests, and none is expected to develop. The Registered Fund is not required, and does not intend, to hold annual meetings of its partners. The Interests are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted under the Registered Fund’s limited partnership agreement.

The Registered Fund reserves the right to reject any applications for Interests. The $24,219,365 in contributions received in advance as of December 31, 2009 represents subscriptions for Registered Fund Interests received prior to the January 2010 closing.

(b) ALLOCATION OF PROFITS AND LOSSES

For each fiscal period, generally monthly, net profits or net losses of the Registered Fund, including allocations from the Master Fund, are allocated among and credited to or debited against the capital accounts of all partners as of the last day of each fiscal period in accordance with the partners’ respective capital account ownership percentage for the fiscal period. Net profits or net losses are measured as the net change in the value of the partners’ capital of the Registered Fund, including any net change in unrealized appreciation or depreciation of investments and income, net of expenses, and realized gains or losses during a fiscal period. Net profits or losses are allocated after giving effect for any initial or additional applications for Interests, which generally occur at the beginning of the month, or any repurchases of Interests.

(c) REPURCHASE OF INTERESTS

A partner will not be eligible to have the Registered Fund repurchase all or any portion of an Interest at any time prior to the business day immediately preceding the one-year anniversary of the partner’s purchase of such Interest (or portion thereof) without incurring additional costs including an early repurchase fee. The Adviser, which also serves as the investment adviser of the Master Fund, expects that it will recommend to the Board that the Registered Fund offer to repurchase such Interests each calendar quarter, pursuant to written tenders by partners. However, the Board retains the sole discretion to accept or reject the recommendation of the Adviser and to determine the amount of Interests, if any, that will be purchased in any tender offer that it does approve. Since the Registered Fund’s assets are invested in the Master Fund, the ability of the Registered Fund to have its Interests in the Master Fund be repurchased would be subject to the Master Fund’s repurchase policy. In addition, the Registered Fund may determine not to conduct a repurchase offer each time the Master Fund conducts a repurchase offer. In the event Interests are repurchased, there will be a substantial period of time between the date as of which partners must tender their Interests for repurchase and the date they can expect to receive payment for their Interests from the Registered Fund.

 

10


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(4) INVESTMENTS IN PORTFOLIO SECURITIES

As of December 31, 2009, all of the investments made by the Registered Fund were in the Master Fund.

(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business, the Investment Funds in which the Registered Fund may invest either directly or through the Master Fund will trade various derivative securities and other financial instruments, and enter into various investment activities with off-balance sheet risk both as an investor and as a principal. The Registered Fund’s risk of loss in these Investment Funds is limited to the Registered Fund’s pro rata share of the value of the investment in or commitment to such Investment Funds as held directly or through the Master Fund. In addition, the Master Fund may from time to time invest directly in derivative securities or other financial instruments to gain greater or lesser exposure to a particular asset class.

(6) ADMINISTRATION AGREEMENT

In consideration for administrative, accounting, and recordkeeping services, the Master Fund will pay the Independent Administrator a monthly administration fee based on the month end partners’ capital of the Master Fund. The Independent Administrator will also provide the Registered Fund and the Master Fund with legal, compliance, transfer agency, and other investor related services at an additional cost.

The fees for Registered Fund administration will be paid out of the Master Fund’s assets, which will decrease the net profits or increase the net losses of the partners in the Registered Fund.

(7) RELATED PARTY TRANSACTIONS

(a) INVESTMENT MANAGEMENT FEE

In consideration of the advisory and other services provided by the Adviser to the Master Fund and the Registered Fund, the Master Fund will pay the Adviser an investment management fee equal to 1.00% based on the Master Fund’s partners’ capital at the end of each month. So long as the Registered Fund invests all of its investable assets in the Master Fund, the Registered Fund will not pay the Adviser directly any Investment Management Fee; however, should the Registered Fund not have all of its investments in the Master Fund, it may be charged the 1.00% investment management fee directly. The Registered Fund’s partners bear an indirect portion of the Investment Management Fee paid by the Master Fund. The Investment Management Fee will decrease the net profits or increase the net losses of the Master Fund and indirectly the Registered Fund as the fees reduce the capital accounts of the Master Fund’s partners.

(b) SERVICING FEE

In consideration for providing or procuring investor services and administrative assistance to the Registered Fund, the Adviser will receive a servicing fee (the “Servicing Fee”) equal to 1.00% (on an annualized basis) of each partner’s capital account balance, calculated at the end of each month, payable quarterly in arrears.

The Adviser may engage one or more sub-servicing agents to provide some or all of the services. Compensation to any sub-servicing agent is paid by the Adviser. The Adviser or its affiliates also may pay a fee out of their own resources to sub-servicing agents.

 

11


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

For the year ended December 31, 2009, $23,758,213 was incurred for Servicing Fees.

(c) PLACEMENT AGENTS

The Registered Fund may engage one or more placement agents (each, a “Placement Agent”) to solicit investments in the Registered Fund. Salient Capital, L.P., an affiliate of the Adviser, is a broker-dealer who has been engaged by the Registered Fund to serve as a Placement Agent. A Placement Agent may engage one or more sub-placement agents. The Adviser or its affiliates may pay a fee out of their own resources to Placement Agents and sub-placement agents.

(8) FINANCIAL HIGHLIGHTS

 

     Year ended
December 31,
2009
   Year ended
December 31,
2008
   Year ended
December 31,
2007
   Year ended
December 31,
2006
   Year ended
December 31,
2005
 

Net investment loss to average partners’ capital 1

     (1.98)%      (1.87)%      (1.55)%      (1.65)%      (1.30)% 2  

Expenses to average partners’ capital 1

     2.23%      2.23%      2.29%      2.36%      2.15% 2   

Portfolio Turnover 3

     27.40%      29.19%      4.19%      15.31%      12.65%   

Total Return 4,5

     13.86%      (24.01)%      16.32%      11.09%      9.53%   

Partners’ capital, end of year (in 000’s)

   $ 2,417,997    $ 2,203,189    $ 1,482,763    $ 366,320    $ 60,282   

The above calculations reflect the waiver of the Servicing Fees since Inception of the Registered Fund through June 30, 2005. An investor’s return (and operating ratios) may vary from those reflected based on the timing of capital transactions.

 

1

Ratios are calculated by dividing the indicated amount by average partners’ capital measured at the end of each month during the year. Ratios include allocations of net investment loss and expenses from the Master Fund.

2

Had the Servicing Fee waiver not been in effect, the ratio for net investment loss to average partners’ capital would have been (1.73)% for 2005. Without the Servicing Fee waiver, the ratio for expenses to average partners’ capital would have been 2.59% for 2005.

3

The Registered Fund is invested exclusively in the Master Fund, therefore this ratio reflects the portfolio turnover of the Master Fund.

4

Calculated as geometrically linked monthly returns for each month in the year.

5

Calculated including benefit of early repurchase fees in each applicable month. Had these early repurchase fees not been included as income for the purposes of the total return calculation, the total return would have been 13.83% for 2009 and (24.04)% for 2008.

(9) SUBSEQUENT EVENTS

The Registered Fund accepts initial or additional applications for Interests generally as of the first day of the month. Investor subscriptions for interests totaled approximately $24,315,057 and $26,641,952 for January and February 2010, respectively.

 

12


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

Based on the partners’ capital of the Registered Fund, the Adviser recommended to the Board that a tender offer in an amount of up to $241,000,000 be made for the quarter ending March 31, 2010 to those partners who elect to tender their Interests prior to the expiration of the tender offer period. The Board approved such recommendation and a tender offer notice with a February 19, 2010 expiration date was mailed to the investors in the Registered Fund.

 

13


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Supplemental Information

December 31, 2009

(Unaudited)

 

Directors and Officers

The Registered Fund’s operations are managed under the direction and oversight of the Board. Each Director serves for an indefinite term or until he or she reaches mandatory retirement, if any, as established by the Board. The Board appoints the officers of the Registered Fund who are responsible for the Registered Fund’s day-to-day business decisions based on policies set by the Board. The officers serve at the pleasure of the Board.

The Directors and officers of the Registered Fund may also be directors or officers of some or all of the other registered investment companies managed by the Adviser or its affiliates (the “Fund Complex”). The tables below show, for each Director and officer, his or her full name, address and age (as of December 31, 2009), the position held with the Registered Fund, the length of time served in that position, his or her principal occupations during the last five years, the number of portfolios in the Fund Complex overseen by the Director, and other directorships held by such Director.

Interested Directors

 

Name, Address and Age   Position(s)
Held with
the
Registered
Fund
  Length of
Time
Served
  Principal
Occupation(s) During
the Past 5 Years
  Number of
Portfolios
in Fund
Complex (2)
Overseen
by Director
  Other
Directorships
Held by
Director

John A. Blaisdell (1)

 

Age: 49

 

Address: c/o The Endowment

Master Fund L.P.

4265 San Felipe, Suite 800,

Houston, TX 77027

  Director, Co-Principal Executive Officer   Since January 2004   Member, Investment Committee of the Adviser, since 2002; Managing Director of Salient, since 2002   3   None

Andrew B. Linbeck (1)

 

Age: 45

 

Address: c/o The Endowment Master Fund L.P.

4265 San Felipe, Suite 800,

Houston, TX 77027

  Director, Co-Principal Executive Officer   Since January 2004   Member, Investment Committee of the Adviser, since 2002; Managing Director of Salient, since 2002   3   None

A. Haag Sherman (1)

 

Age: 44

 

Address: c/o The Endowment

Master Fund L.P.

4265 San Felipe, Suite 800,

Houston, TX 77027

  Director, Co-Principal Executive Officer   Since January 2004   Member, Investment Committee of the Adviser, since 2002; Managing Director of Salient, since 2002   3   PlainsCapital Corporation, since 2009

 

(1)

This person’s status as an “interested” director arises from his affiliation with Salient Partners, L.P. (“Salient”), which itself is an affiliate of the Registered Fund, the Master Fund, The Endowment TEI Fund, L.P. (the “TEI Fund”), and the Adviser.

(2)

The Fund Complex includes the Registered Fund, the Master Fund and the TEI Fund.

 

14


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Supplemental Information, continued

December 31, 2009

(Unaudited)

 

Independent Directors

 

Name, Address and Age   Position(s)
Held with
the
Registered
Fund
  Length
of Time
Served
  Principal
Occupation(s) During
the Past 5 Years
  Number of
Portfolios
in Fund
Complex (1)
Overseen
by Director
  Other
Directorships
Held by
Director

Jonathan P. Carroll

 

Age: 48

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800,
Houston, TX 77027

  Director  

Since

January 2004

  President of Lazarus Financial LLC (holding company) since 2006; private investor for the prior five years   3   Lazarus Financial LLC, Lazarus Energy Holdings LLC and affiliates, since 2006

Richard C. Johnson

 

Age: 72

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800, Houston, TX 77027

  Director  

Since

January 2004

  Senior Counsel (retired) for Baker Botts LLP (law firm) since 2002; Managing Partner, Baker Botts, 1998 to 2002; practiced law at Baker Botts, 1966 to 2002 (1972 to 2002 as a partner)   3   None

G. Edward Powell

 

Age: 73

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800, Houston, TX 77027

  Director  

Since

January 2004

  Principal of Mills & Stowell (private equity) since 2002. Principal, Innovation Growth Partners (consulting), since 2002; consultant to emerging and middle market businesses, 1994-2002; Managing Partner, PriceWaterhouse & Co. (Houston Office, 1982 to 1994)   3   Energy Services International, Inc., since 2004; Therapy Track, LLC, since 2009

Scott E. Schwinger

 

Age: 44

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800, Houston, TX 77027

  Director  

Since

January 2004

  President, The McNair Group (management), since 2006; Senior Vice President and Chief Financial Officer, the Houston Texans (professional football team), 1999   3   The Make-A-Wish Foundation, since 2008; YES Prep Public Schools, since 2001

 

15


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Supplemental Information, continued

December 31, 2009

(Unaudited)

 

Name, Address and Age   Position(s)
Held with
Master
Fund
  Length
of Time
Served
  Principal
Occupation(s) During
the Past 5 Years
  Number of
Portfolios
in Fund
Complex (1)
Overseen
by Director
  Other
Directorships
Held by
Director

Dr. Bernard Harris

 

Age: 52

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800, Houston, TX 77027

  Director  

Since

June

2009

  Chief Executive Officer and Managing Partner, Vesalius Ventures, Inc (venture investing), since 2002; President of The Space Agency (marketing), since 1999; President of The Harris Foundation (non-profit), since 1998; Clinical scientist, flight surgeon and astronaut for NASA, 1986 to 1996   3   U.S. Physical Therapy, Inc., since 2005; Sterling Bancshares, Inc., since 2007; RMD Networks, Inc., since 2006; Monebo Technologies Inc., since 2009; AG Technologies, since 2009; The Harris Foundation, Inc., since 1998; Houston Technology Center, since 2004; Greater Houston Community Foundation, 2004-2009; Communities in Schools, since 2007; ZOO SCORE “Counselors to America’s Small Business”, since 2009; American Telemedicine Association, since 2007; Houston Angel Network, since 2004; BioHouston, since 2006; The National Math and Science Initiative, and Space Agency, since 2008

 

(1)

The Fund Complex includes the Registered Fund, the Master Fund and the TEI Fund.

 

16


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Supplemental Information, continued

December 31, 2009

(Unaudited)

 

Officers of the Fund Who Are Not Directors

 

Name, Address and Age    Position(s) Held with the
Registered Fund
   Principal Occupation(s) During the
Past 5 Years

Roy Washington

 

Age: 58

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800, Houston, TX 77027

   Chief Compliance Officer    Chief Counsel, Salient, since 2009, CCO, Salient, since 2007; Managing Director (2006-2007) of and Consultant (2003-2007) with Capital Forensics Consulting, Inc; President of RVW Consulting Group, Inc., 2002-2006

John E. Price

 

Age: 42

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800,
Houston, TX 77027

   Treasurer; Principal Financial Officer    Director and Chief Financial Officer, Adviser, since 2003; Partner and Director, Salient, since 2003

Adam L. Thomas

 

Age: 35

 

Address: c/o The Endowment Master Fund L.P.
4265 San Felipe, Suite 800,
Houston, TX 77027

   Secretary    Director of Adviser, since 2004; Partner and Director, Salient, since 2002

Compensation for Directors

The Registered Fund, the Master Fund, and the TEI Fund together pay each of the Directors who is not an “interested person” of the Adviser, as defined in the 1940 Act (the “Independent Directors”) an annual retainer of $25,000, which is paid quarterly, a fee of $5,000 per Board meeting, a fee of $1,250 per interim meeting, a fee of $1,250 per audit committee meeting to each audit committee member, a fee of $1,250 per Board Valuation Committee meeting to each Board Valuation Committee member and an annual fee of $10,000 for the audit committee chairman, which is paid quarterly. In the interest of retaining Independent Directors of high quality, the Board intends to periodically review such compensation and may modify it as the Board deems appropriate.

Allocation of Investments

The following chart indicates the allocation of investments among the asset classes in the Master Fund as of December 31, 2009.

 

Asset Class 1

   Fair Value    %

Arbitrage Strategies

   $ 937,345,030    18.70

Domestic Equity

     525,107,783    10.48

Energy

        399,136,823    7.96

 

17


Table of Contents

THE ENDOWMENT REGISTERED FUND, L.P.

(A Limited Partnership)

Supplemental Information, continued

December 31, 2009

(Unaudited)

 

Asset Class 1

   Fair Value    %

Enhanced Fixed Income

   $ 637,838,355    12.72

International Equity

     575,378,776    11.48

Natural Resources

     171,215,778    3.42

Opportunistic Equity

     696,964,621    13.91

Private Equity

     663,839,483    13.24

Real Estate

     236,895,695    4.73

Agencies

     124,829,071    2.49

Fixed Income

     4,790,592    0.10

Call Options Purchased

     38,316,894    0.76

Put Options Purchased

     650,000    0.01
           

Total Investments

   $ 5,012,308,901    100.00
           

 

1

The complete list of investments is included in the Schedule of Investments of the Master Fund, which is included elsewhere in this report.

Form N-Q Filings

The Registered Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Registered Fund’s Form N-Q is available on the Securities and Exchange Commission website at http://www.sec.gov. The Registered Fund’s Form N-Q may be reviewed and copied at the Securities and Exchange Commission Public Reference Room in Washington, DC and information regarding operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Proxy Voting Policies

A description of the policies and procedures that the Registered Fund uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1-800-725-9456; and (ii) on the Securities and Exchange Commission website at http://www.sec.gov.

Information regarding how the Registered Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) without charge, upon request, by calling 1-800-725-9456; and (ii) on the Securities and Exchange Commission website at http://www.sec.gov.

Additional Information

The Registered Fund’s private placement memorandum (the “PPM”) includes additional information about directors of the Registered Fund. The PPM is available, without charge, upon request by calling 1-800-725-9456.

 

18


Table of Contents

 

 

This Page Intentionally Left Blank

 

 

19


Table of Contents

 

the

E NDOWMENT F UND

The Endowment Master Fund, L.P.

Shareholders’ Report

December 31, 2009

 

20


Table of Contents

 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Partners

The Endowment Master Fund, L.P.:

We have audited the accompanying statement of assets, liabilities, and partners’ capital of The Endowment Master Fund, L.P. (the “Master Fund”), including the schedule of investments, as of December 31, 2009, and the related statement of operations for the year then ended, the statement of changes in partners’ capital for each of the years in the two-year period then ended, the statement of cash flows for the year then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Master Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with custodians and investees; or other appropriate auditing procedures. An audit also includes 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 and financial highlights referred to above present fairly, in all material respects, the financial position of The Endowment Master Fund, L.P. as of December 31, 2009, the results of its operations and its cash flows for the year then ended, the changes in its partners’ capital for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Columbus, Ohio

February 26, 2010

 

21


Table of Contents

 

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Statement of Assets, Liabilities and Partners’ Capital

December 31, 2009

 

Assets   

Investments in Investment Funds, at estimated fair value (cost $1,140,528,748)

   $  1,148,503,109

Investments in affiliated Investment Funds, at estimated fair value (cost $3,100,169,081)

     3,393,328,112

Investments in securities, at fair value (cost $475,178,323)

     470,477,680
      

Total investments

     5,012,308,901

Cash and cash equivalents

     186,148,307

Prepaid contributions to Investment Funds

     102,391,759

Interest and dividends receivable

     629,640

Interest and dividends receivable from affiliated investments

     277,260

Receivable from investments sold

     252,007,689

Prepaids and other assets

     179,895
      

Total assets

     5,553,943,451
      
Liabilities and Partners’ Capital   

Contributions received in advance

     58,488,319

Withdrawals payable

     257,471,914

Investment Management Fees payable

     13,338,483

Offshore withholding tax payable

     9,986,850

Administration fees payable

     195,322

Payables to related parties

     103,285

Accounts payable and accrued expenses

     1,748,344
      

Total liabilities

     341,332,516
      

Partners’ capital

     5,212,610,935
      

Total liabilities and partners’ capital

   $ 5,553,943,451
      

 

See accompanying notes to financial statements.

 

22


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Investments in Investment Funds

        

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies

        

Cayman Islands

        

Arbitrage Strategies (0.67% of Partners’ Capital)

        

Montrica Global Opportunities Fund, L.P. (1)(2)

   412,880    $ 34,747,006   

Domestic Equity (0.88% of Partners’ Capital)

        

Tiedemann/Falconer Partners, L.P. (3)

        45,831,080   

Energy (0.78% of Partners’ Capital)

        

BlueGold Global Fund, L.P. (2)

        40,398,940   

International Equity (4.04% of Partners’ Capital)

        

Algebris Global Finacials Fund, L.P. (2)

        65,902,226   

Boyer Allan Greater China Fund, L.P. (3)

        33,145,460   

S.R. Global Fund—Emerging Markets Portfolio (Class G, L.P.)

        37,758,192   

S.R. Global Fund—International Portfolio (Class C, L.P.)

        73,800,951   

Natural Resources (0.27% of Partners’ Capital)

        

Sentient Global Resources Fund III, L.P.

        14,000,000   

Private Equity (2.29% of Partners’ Capital)

        

Carlyle Japan International Partners II, L.P.

        518,728   

CJIP II Co-Invest, L.P.

        63,440   

CX Partners Fund, Ltd. (2)

        3,526,463   

Gavea Investment Fund II A, L.P.

        11,106,227   

Gavea Investment Fund III, L.P.

        41,275,914   

Hillcrest Fund, L.P. (3)

        1,128,542   

Hony Capital Fund 2008, L.P.

        1,848,410   

India Asset Recovery Fund, L.P. (1)

        1,230,253   

J.C. Flowers III, L.P. (1)

        1,290,790   

LC Fund IV, L.P. (2)

        3,538,836   

New Horizon Capital III, L.P. (2)

        4,100,286   

Orchid Asia IV, L.P. (1)

        7,716,545   

Reservoir Capital Partners, L.P.

        3,157,838   

Tiger Global Private Investment Partners IV, L.P. (1)

        7,371,726   

Tiger Global Private Investment Partners V, L.P.

        7,627,216   

Trustbridge Partners II, L.P. (2)

        17,645,511   

Trustbridge Partners III, L.P. (2)

        6,418,556   

Real Estate (0.65% of Partners’ Capital)

        

Forum European Realty Income III, L.P. (2)

        3,389,181   

Phoenix Asia Real Estate Investments II, L.P. (1)(2)

        12,134,290   

 

See accompanying notes to financial statements.

 

23


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued)

        

Cayman Islands (continued)

        

Real Estate (0.65% of Partners’ Capital) (continued)

        

Pheonix Real Estate Fund (T) L.P.

      $ 18,552,438   
            

Total Cayman Islands

        499,225,045   
            

Guernsey

        

Private Equity (0.10% of Partners’ Capital)

        

Mid Europa Fund III LP

        5,460,688   
            

Total Guernsey

        5,460,688   
            

Republic of Mauritius

        

Real Estate (0.06% of Partners’ Capital)

        

Orbis Real Estate Fund I (1)(2)

        3,193,918   
            

Total Republic of Mauritius

        3,193,918   
            

Scotland

        

Private Equity (0.03% of Partners’ Capital)

        

Actis Umbrella Fund, L.P. (1)

        1,614,000   
            

Total Scotland

        1,614,000   
            

United Kingdom

        

Private Equity (0.13% of Partners’ Capital)

        

Darwin Private Equity I, L.P.

        2,626,172   

Exponent Private Equity Partners II, L.P.

        3,935,062   

Real Estate (0.10% of Partners’ Capital)

        

Benson Elliott Real Estate Partners II, L.P.

        1,702,943   

Patron Capital L.P. II

        929,902   

Patron Capital L.P. III

        2,364,465   
            

Total United Kingdom

        11,558,544   
            

United States

        

Arbitrage Strategies (14.31% of Partners’ Capital)

        

Black River Commodity Multi-Strategy Fund, LLC

        1,647,200   

Eton Park Fund, L.P.

        69,105,373   

Investcorp Silverback Arbitrage Fund, LLC (3)

        14,633,092   

Kenmont Onshore Fund, L.P. (2)

        6,838,268   

King Street Capital, L.P.

        25,772,946   

Magnetar Capital Fund, L.P. (2)

        52,835,341   

OZ Asia Domestic Partners, L.P. (2)

        21,215,327   

Paulson Advantage Plus, L.P.

        125,991,843   

Paulson Partners Enhanced, L.P. (2)

        62,076,060   

 

See accompanying notes to financial statements.

 

24


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued)

        

United States (continued)

        

Arbitrage Strategies (14.31% of Partners’ Capital) (continued)

        

PIPE Equity Partners, L.L.C. (3)

      $ 49,160,976   

PIPE Select Fund, L.L.C. (3)

        54,096,983   

PSAM WorldArb Partners, L.P. (2)

        40,726,688   

Redbrick Capital, L.P. (2)

        44,433   

Stark Investments Limited Partnership

        16,000,193   

Stark Select Asset Fund, LLC

        5,452,027   

Waterstone Market Neutral Fund, L.P. (3)

        99,885,299   

Whitebox Multi-Strategy Fund, L.P. (2)

   82,008      100,198,491   

Domestic Equity (6.66% of Partners’ Capital)

        

Bonanza Partners, L.P. (2)

        1,041,811   

Contrarian Equity Fund, L.P. (2)

        1,165,073   

Empire Capital Partners Enchanced, L.P. (3)

        26,607,742   

HealthCor, L.P. (2)

        78,511,767   

Ithan Creek Partners, L.P. (2)

        62,308,137   

Longhorn Onshore Investors, L.P. (2)

        40,537,561   

Samlyn Onshore Fund, L.P. (2)

        94,955,663   

Tiger Consumer Partners, L.P. (2)

        42,044,130   

Energy (6.88% of Partners’ Capital)

        

ArcLight Energy Partners Fund IV, L.P. (1)

        9,500,000   

CamCap Resources, L.P.

        235,784   

Chilton Global Natural Resources Partners, L.P. (2)

        65,699,032   

EnCap Energy Capital Fund VII-B, L.P.

        4,353,593   

Encap Energy Infrastructure Fund

        945,000   

Intervale Capital Fund, L.P. (2)

        11,200,495   

Merit Energy Partners G, L.P.

        4,957,738   

NGP Energy Technology Partners II, L.P.

        1,025,000   

NGP IX Offshore Fund, L.P.

        7,973,575   

NGP Midstream & Resources, L.P. (1)

        9,894,372   

Quantum Parallel Partners V, L.P. (1)

        1,934,417   

Southport Energy Plus Partners, L.P. (2)

        108,765,888   

TPF II-A, L.P. (1)

        13,281,584   

The Ospraie Fund, L.P.

   31,614      3,775,055   

Velite Energy, L.P. (2)

        115,196,350   

Enhanced Fixed Income (12.04% of Partners’ Capital)

        

Anchorage Crossover Credit Fund II, L.P. (2)

        47,334,946   

Ares Enhanced Credit Opportunities Fund, L.P.

        13,826,405   

 

See accompanying notes to financial statements.

 

25


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

    Shares/
Par Value*
  Fair
Value
  % of
Partners’
Capital
     

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued)

     

United States (continued)

     

Enhanced Fixed Income (12.04% of Partners’ Capital) (continued)

     

BDCM Partners I, L.P. (3)

    $ 56,104,546  

Contrarian Capital Fund I, L.P. (2)

      114,556,167  

Halcyon European Structured Opportunities Fund, L.P. (3)

      2,122,848  

Harbinger Capital Partners Fund I, L.P. (2)

      113,202,487  

Investcorp Silverback Opportunistic Convertible Fund, LLC (3)

      28,645,035  

Morgan Rio Capital Fund, L.P. (3)

      10,805,037  

Ore Hill Fund II, L.P. (3)

      4,631,988  

Prospect Harbor Credit Partners, L.P.

      43,122,235  

Sorin Fund, L.P. (2)

      17,775,364  

Standard Pacific Credit Opportunities Fund, L.P. (2)

      102,139,757  

The Rohatyn Group Local Currency Opportunity Partners, L.P. (3)

      73,227,160  

International Equity (5.43% of Partners’ Capital)

     

Dabroes Investment Fund L.P. (3)

      33,175,396  

L-R Global Partners, L.P.

      428,445  

Middle East North Africa Opportunities Fund, L.P. (3)

  5,089     3,679,629  

Monsoon India Inflection Fund, L.P.

      735,667  

Monsoon India Inflection Fund 2, L.P.

      1,358,542  

Penta Asia Domestic Partners, L.P.

      30,095,063  

Skopos HG Fund, LLC (2)

  262,504     37,290,645  

Steel Partners Japan Strategic Fund, L.P. (2)

      27,426,237  

Taiyo Fund, L.P.

      16,559,654  

Tarpon All Equities Fund, LLC

      36,803,232  

Tiger Asia Fund, L.P.

      46,053,832  

Torrey Pines Fund, LLC (3)

      49,520,330  

Natural Resources (0.01% of Partners’ Capital)

     

Tocqueville Gold Partners, L.P.

      526,615  

Opportunistic Equity (13.37% of Partners’ Capital)

     

Atlas Institutional Fund, LLC (3)

      21,244,645  

Corriente Partners, L.P. (2)

      42,867,486  

Covepoint Emerging Markets Macro Fund, L.P. (2)

      63,761,021  

Global GT, L.P.

      500,010  

Global Undervalued Securities Fund (QP), L.P. (2)

      38,900,205  

GMO Mean Reversion Fund (Onshore), L.P.

      35,541,851  

Hayman Capital Partners, L.P. (2)

      35,978,288  

 

See accompanying notes to financial statements.

 

26


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued)

        

United States (continued)

        

Opportunistic Equity (13.37% of Partners’ Capital) (continued)

        

Horseman Global Fund 2 L.P. (2)

      $ 22,969,662   

Miura Global Partners II, L.P. (2)

        58,773,242   

NWI Explorer Global Macro Fund, L.P. (2)

        4,310,311   

Pardus European Special Opportunities Fund, L.P. (2)

        9,952,831   

Passport II, L.P. (2)

        58,662,250   

R.G. Niederhoffer Global Fund, L.P. (3)

        26,594,262   

Salem Global Opportunity Fund, L.P. (2)

        24,879,678   

SCP Sakonnet Fund, L.P. (2)

        58,705,338   

Tiger Global, L.P.

        44,513,459   

Valiant Capital Partners, L.P. (2)

        94,003,401   

Viking Global Equities, L.P.

        54,806,681   

Private Equity (9.93% of Partners’ Capital)

        

ABRY Advanced Securities Fund, L.P.

        14,989,680   

Accel-KKR Capital Partners III, L.P. (2)

        6,778,000   

Advent Latin American Private Equity Fund IV-F, L.P.

        5,441,204   

Audax Mezzanine Fund II, L.P. (1)

        4,759,407   

BDCM Opportunity Fund II, L.P.

        4,834,445   

Brazos Equity Fund II, L.P. (1)

        1,916,885   

Brazos Equity Fund III, L.P.

        20,476   

Capital Royalty Partners, L.P. (1)

        1,437,127   

Carlyle Partners V, L.P. (1)

        3,806,876   

Catterton Growth Partners, L.P. (2)

        6,442,971   

CCM Small Cap Value Qualified Fund, L.P. (3)

        26,157,599   

Chrysalis Ventures III, L.P.

        1,158,746   

Crosslink Crossover Fund IV, L.P.

        1,793,711   

Crosslink Crossover Fund V, L.P.

        23,022,260   

Dace Ventures I, L.P. (2)

        1,016,195   

Encore Consumer Capital Fund, L.P.

        2,217,381   

European Divergence Fund, L.P. (3)

        89,262,288   

Fairhaven Capital Partners, L.P.

        2,744,958   

GMO Emerging Illiquid Fund, L.P. (1)

        8,271,849   

Harbinger Capital Partners Special Situations Fund, L.P.

        19,291,789   

HealthCor Partners Fund, L.P. (2)

        3,280,240   

Integral Capital Partners VIII, L.P. (2)

        16,152,023   

 

See accompanying notes to financial statements.

 

27


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued)

        

United States (continued)

        

Private Equity (9.93% of Partners’ Capital) (continued)

        

MatlinPatterson Global Opportunities Partners III, L.P.

      $ 8,668,782   

Monomoy Capital Partners, L.P. (1)

        2,841,107   

Paulson Credit Opportunities, L.P. (2)

        129,216,188   

Pine Brook Capital Partners, LP (1)

        7,124,710   

Pinto America Growth Fund, L.P. (1)

        868,916   

Private Equity Investment Fund IV, L.P. (1)(2)

        6,971,683   

Private Equity Investors Fund V, L.P. (2)

        5,980,053   

Q Funding III, L.P. (2)

        12,921,502   

Q4 Funding, L.P. (2)

        36,403,334   

Saints Capital VI, L.P. (2)

        8,114,436   

Sanderling Venture Partners VI Co-Investment Fund, L.P.

        1,393,121   

Sanderling Venture Partners VI, L.P.

        1,123,635   

Silver Lake Partners III, L.P.

        3,038,484   

Sterling Capital Partners II, L.P.

        1,694,002   

Sterling Capital Partners III, L.P.

        3,224,594   

Sterling Group Partners II, L.P. (1)

        1,421,986   

Strategic Value Global Opportunities Fund I-A, L.P

        6,940,279   

Tenaya Capital V, L.P.

        2,474,633   

The Column Group, L.P.

        2,789,605   

The Raptor Private Holdings, L.P.

   12,072      5,937,266   

The Resolute Fund II, L.P. (1)

        2,015,801   

Trivest Fund IV, L.P. (2)

        5,773,050   

Tuckerbrook SB Global Distressed Fund I, L.P. (2)

        6,667,136   

VCFA Private Equity Partners IV, L.P. (1)

        2,363,539   

VCFA Venture Partners V, L.P. (1)

        4,622,350   

Voyager Capital Fund III, L.P.

        1,119,778   

WestView Capital Partners II, L.P. (2)

        1,272,200   

Real Estate (3.37% of Partners’ Capital)

        

Aslan Realty Partners III, L.L.C.

        518,930   

CRM Windridge Partners, L.P. (2)

        15,288,746   

Cypress Realty VI, L.P.

        5,110,848   

DaVinci Corporate Opportunity Partners, L.P. (1)

        373,432   

GTIS Brazil Real Estate Fund (Brazilian Real), LP (2)

        6,902,006   

ING Clarion Global, L.P. (2)

        36,189,695   

 

See accompanying notes to financial statements.

 

28


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

    Shares/
Par Value*
  Fair
Value
  % of
Partners’
Capital
     

Limited Partnerships, Exempted Limited Partnerships and Limited Liability Companies (continued)

     

United States (continued)

     

Real Estate (3.37% of Partners’ Capital) (continued)

     

Monsoon Infrastructure & Realty Co-Invest, L.P. (2)

    $ 10,601,602  

MONY/Transwestern Mezzanine Realty Partners II, L.L.C.

      521,600  

Northwood Real Estate Co-Investors L.P.

      268,844  

Northwood Real Estate Partners L.P.

      765,049  

Oak Hill REIT Plus Fund, L.P. (2)

      12,704,167  

Parmenter Realty Fund III, L.P. (1)

      6,589,553  

Square Mile Partners III L.P.

      5,059,497  

TCW Special Mortgage Credits Fund II, L.P. (1)

      71,457,318  

Transwestern Mezzanine Realty Partners III, L.L.C. (2)

      739,500  

Woodbourne Daybreak Global Fund L.P. (2)

      2,499,513  
         

Total United States

      3,753,070,770  
         

Total Limited Partnerships, Exempted Limited
Partnerships and Limited Liability Companies

      4,274,122,965   82.00%
         

Passive Foreign Investment Companies

     

Bermuda Limited Liability Company

     

Private Equity (0.25% of Partners’ Capital)

     

El Tejar Limited

      12,860,000  
         

Total Bermuda Limited Liability Company

      12,860,000  
         

Cayman Companies Limited by Shares

     

Arbitrage Strategies (2.81% of Partners’ Capital)

     

CRC Global Structured Credit Fund Ltd. (2)

  41,819     56,051,925  

Overseas CAP Partners, Inc. (3)

  60,228     90,211,691  

International Equity (0.99% of Partners’ Capital)

     

Quorum Fund Limited (2)

  349,876     17,140,272  

The Russian Prosperity Fund (2)

  1,056,068     34,681,260  

Natural Resources (0.18% of Partners’ Capital)

     

Ospraie Special Opportunities (Offshore) Ltd.

      9,579,616  
         

Total Cayman Companies Limited by Shares

      207,664,764  
         

Republic of Mauritius

     

International Equity (0.57% of Partners’ Capital)

     

India Capital Fund Ltd. (2)

  597,747     29,823,743  
         

Total Republic of Mauritius

      29,823,743  
         

Total Passive Foreign Investment Companies

      250,348,507   4.80%
         

 

See accompanying notes to financial statements.

 

29


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Private Corporations

        

United States

        

Real Estate (0.33% of Partners’ Capital)

        

Legacy Partners Realty Fund II, Inc

      $ 1,518,885   

Legacy Partners Realty Fund III, Inc

        312,086   

Net Lease Private REIT V, Inc (1)

        1,543,669   

Net Lease Private REIT VI, Inc (1)

        3,985,109   

Net Lease Private REIT VII, Inc (1)(2)

        5,000,000   

Net Lease Private REIT VII-A, Inc (1)(2)

        5,000,000   
            

Total United States

        17,359,749   
            

Total Private Corporations

        17,359,749    0.33%
            

Total Investments in Investment Funds
(Cost $4,240,697,829)

        4,541,831,221    87.13%
            

Investments in Securities

        

Investments in Registered Investment Companies

        

Exchange Traded Funds

        

United States

        

Agencies (2.39% of Partners’ Capital)

        

iShares Barclays 20+ Year Treasury Bond Fund (1)

   1,338,996      124,829,071   

Domestic Equity (1.32% of Partners’ Capital)

        

iShares Russell 1000 Growth Index Fund (1)

   931,290      46,424,806   

Ultrashort Russell 2000 ProShares (1)

   878,650      22,133,194   

Natural Resources (2.07% of Partners’ Capital)

        

Market Vectors Gold Miners ETF (1)

   797,662      36,859,961   

SPDR Gold Trust

   663,956      71,249,118   
            

Total United States

        301,496,150   
            

Total Exchange Traded Funds

        301,496,150    5.78%
            

Open End Funds

        

United States

        

Arbitrage Strategies (0.21% of Partners’ Capital)

        

Fidelity Convertible Securities Fund (1)

   488,710      10,653,868   

Domestic Equity (1.22% of Partners’ Capital)

        

Hussman Strategic Growth Fund (1)

   4,972,365      63,546,819   

Enhanced Fixed Income (0.20% of Partners’ Capital)

        

Fidelity Floating Rate High Income Fund (1)

   1,099,296      10,344,380   

Fixed Income (0.09% of Partners’ Capital)

        

Wasatch Hoisington US Treasury Fund (1)

   337,603      4,790,592   

Natural Resources (0.75% of Partners’ Capital)

        

The Tocqueville Gold Fund

   678,623      39,000,468   

 

See accompanying notes to financial statements.

 

30


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Investments in Registered Investment Companies (continued)

        

Open End Funds (continued)

        

United States (continued)

        

Real Estate (0.03% of Partners’ Capital)

        

Ultrashort Real Estate ProShares

     224,100    $ 1,678,509   
            

Total United States

        130,014,636   
            

Total Open End Funds

        130,014,636    2.50%
            

Total Investments in Registered Investment Companies

        431,510,786    8.28%
            

Call Options Purchased

        

United States (0.74% of Partners’ Capital)

        

CMS Capital- 10 Year One Look Cap (OTC)

        

10 Year USD Swap Rate

        

(Strike Rate 5.50%, Expiration 05/01/19)

   $ 1,079,000,000      11,145,086   

CMS Capital- 10 Year One Look Cap (OTC)

        

10 Year USD Swap Rate

        

(Strike Rate 5.62%, Expiration 05/02/19)

   $ 714,285,714      7,074,512   

CMS Capital- 10 Year One Look Cap (OTC)

        

10 Year USD Swap Rate

        

(Strike Rate 6.50%, Expiration 05/01/19)

   $ 1,350,000,000      10,284,130   

CMS Capital- 10 Year One Look Cap (OTC)

        

10 Year USD Swap Rate

        

(Strike Rate 6.62%, Expiration 05/02/19)

   $ 877,192,983      6,438,166   

PowerShares DB US Dollar Index Bullish Fund

        

(Strike Price $24.00, Expiration 03/20/10)

     135,000      3,375,000   
            

Total United States

        38,316,894   
            

Total Call Options Purchased

        38,316,894    0.74%
            

Put Options Purchased

        

United States (0.01% of Partners’ Capital)

        

Domestic Equity

        

iShares Russell 2000 Index Fund

        

(Strike Price $54.00, Expiration 01/16/10)

     27,000      270,000   

International Equity

        

iShares MSCI Emerging Markets Index Fund

        

(Strike Price $35.00, Expiration 01/16/10)

     38,000      190,000   

Natural Resources

        

Market Vectors Gold Miners ETF

        

(Strike Price $38.00, Expiration 01/16/10)

     15,000      90,000   

 

See accompanying notes to financial statements.

 

31


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Schedule of Investments, continued

December 31, 2009

 

     Shares/
Par Value*
   Fair
Value
   % of
Partners’
Capital
        

Put Options Purchased (continued)

        

United States (0.01% of Partners’ Capital) (continued)

        

Natural Resources (continued)

        

SPDR Gold Trust

        

(Strike Price $95.00, Expiration 01/16/10)

   20,000    $ 100,000   
            

Total United States

        650,000   
            

Total Put Options Purchased

        650,000    0.01%
            

Total Investments in Securities (Cost $475,178,323)

        470,477,680    9.03%
            

Total Investments (Cost $4,715,876,152)

      $ 5,012,308,901    96.16%
            

 

The Master Fund’s total outstanding capital commitments to Investment Funds as of December 31, 2009 were $951,813,066. For certain Investment Funds for which the Master Fund has a capital commitment, the Master Fund may be allocated its pro-rata share of expenses prior to having to fund a capital call for such expenses.

All securities are non-income producing unless noted with a (1).

Refer to Note 4, Investments in Portfolio Securities, for information regarding the liquidity of the Master Fund’s investments.

 

*

Shares, par value, notional amounts or contracts is listed for each investment if it is applicable for that investment type.

(1)

Income producing security.

(2)

Affiliated investments.

(3)

Affiliated investments for which ownership exceeds 25%.

 

See accompanying notes to financial statements.

 

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THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Statement of Operations

Year Ended December 31, 2009

 

Investment income:

  

Dividend income (net of foreign withholding tax of $80,196)

   $ 10,486,042   

Interest income

     848,756   

Dividend income from affiliated investments

     904,260   

Interest income from affiliated investments

     245,291   
        

Total investment income

     12,484,349   
        

Expenses:

  

Investment Management Fees

     50,501,255   

Administration fees

     2,329,428   

Legal fees

     740,497   

Professional fees

     1,083,443   

Custodian fees

     534,398   

Directors fees

     345,500   

Offshore withholding tax expense

     2,430,958   

Other expenses

     1,932,236   
        

Total expenses

     59,897,715   
        

Net investment loss

     (47,413,366
        

Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind:

  

Net realized loss from investments, foreign currency transactions and options

     (15,724,902

Net realized loss from redemptions in-kind

     (2,297,799

Net realized loss from affiliated investments and foreign currency transactions

     (28,864,561

Change in unrealized appreciation/depreciation from investments

     799,921,746   
        

Net realized and unrealized gain from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind

     753,034,484   
        

Net increase in partners’ capital resulting from operations

   $ 705,621,118   
        

 

See accompanying notes to financial statements.

 

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Table of Contents

 

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Statement of Changes in Partners’ Capital

Years Ended December 31, 2008 and December 31, 2009

 

Partners’ capital at December 31, 2007

   $ 3,269,968,680   

Contributions

     3,111,597,819   

Withdrawals

     (366,685,155

Net decrease in partners’ capital resulting from operations:

  

Net investment loss

     (55,604,043

Net realized loss from investments, options sold, not yet purchased and foreign currency transactions

     (331,392,248

Net realized loss from affiliated investments

     (19,691,837

Change in unrealized appreciation/depreciation from investments

     (945,007,976
        

Net decrease in partners’ capital resulting from operations

     (1,351,696,104
        

Partners’ capital at December 31, 2008

     4,663,185,240   
        

Contributions

     714,436,768   

Withdrawals

     (870,632,191

Net increase in partners’ capital resulting from operations:

  

Net investment loss

     (47,413,366

Net realized loss from investments, foreign currency transactions and options

     (15,724,902

Net realized loss from redemptions in-kind

     (2,297,799

Net realized loss from affiliated investments and foreign currency transactions

     (28,864,561

Change in unrealized appreciation/depreciation from investments

     799,921,746   
        

Net increase in partners’ capital resulting from operations

     705,621,118   
        

Partners’ capital at December 31, 2009

   $ 5,212,610,935   
        

 

See accompanying notes to financial statements.

 

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Table of Contents

 

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Statement of Cash Flows

Year Ended December 31, 2009

 

Cash flows from operating activities:

  

Net increase in partners’ capital resulting from operations

   $ 705,621,118   

Adjustments to reconcile net increase in partners’ capital resulting from operations to net cash provided by operating activities:

  

Purchases of investments

     (1,375,338,564

Proceeds from disposition of investments

     1,493,223,429   

Net realized loss from investments, foreign currency transactions and options

     15,724,902   

Net realized loss from redemptions in-kind

     2,297,799   

Net realized loss from affiliated investments and foreign currency transactions

     28,864,561   

Change in unrealized appreciation/depreciation from investments

     (799,921,746

Decrease in prepaid contributions to Investment Funds

     62,608,241   

Increase in interest and dividends receivable

     (108,673

Decrease in interest and dividends receivable from affiliated investments

     139,604   

Decrease in receivable from investments sold

     93,111,921   

Increase in prepaids and other assets

     (45,394

Increase in Investment Management Fees payable

     1,210,436   

Decrease in offshore withholding tax payable

     (3,216,474

Decrease in administration fees payable

     (293,623

Increase in payable to related parties

     61,309   

Increase in accounts payable and accrued expenses

     572,803   
        

Net cash provided by operating activities

     224,511,649   
        

Cash flows from financing activities:

  

Contributions

     712,740,444   

Withdrawals

     (832,977,951
        

Net cash used in financing activities

     (120,237,507
        

Net increase in cash and cash equivalents

     104,274,142   

Cash and cash equivalents at beginning of year

     81,874,165   
        

Cash and cash equivalents at end of year

   $ 186,148,307   
        

Supplemental schedule of cash activity:

  

Cash paid for interest

   $ 12,479   

Cash paid for offshore withholding taxes

     16,221,914   

Supplemental schedule of noncash activity:

  

Redemptions in-kind (Cost $16,601,081)

   $ 14,303,282   

 

See accompanying notes to financial statements.

 

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Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements

December 31, 2009

 

(1) ORGANIZATION

The Endowment Master Fund, L.P. (the “Master Fund”) is a limited partnership organized under the laws of the state of Delaware. The Master Fund began operations in April 2003 (“Inception”). The Master Fund operated as an unregistered investment vehicle until March 10, 2004, at which time it registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Master Fund is the master fund in a master-feeder structure in which there are currently seven feeder funds.

The Master Fund’s investment objective is to preserve capital and to generate consistent long-term appreciation and returns across a market cycle (which is estimated to be five to seven years). The Master Fund pursues its investment objective by investing its assets in a variety of investment vehicles including but not limited to limited partnerships, limited liability companies, offshore corporations and other foreign investment vehicles (collectively, the “Investment Funds”), registered investment companies (including exchange traded funds) and direct investments in marketable securities and derivative instruments. The Master Fund is primarily a “fund of funds” and is intended to afford investors the ability to invest in a multi-manager portfolio, exhibiting a variety of investment styles and philosophies, in an attempt to achieve positive risk-adjusted returns over an extended period of time. The Master Fund’s investments are managed by a select group of investment managers identified by the Adviser, as hereinafter defined, to have investments that when grouped with other investments of the Master Fund result in a portfolio that is allocated more broadly across markets, asset classes, and risk profiles.

The Endowment Fund GP, L.P., a Delaware limited partnership, serves as the general partner of the Master Fund (the “General Partner”). To the fullest extent permitted by applicable law, the General Partner has irrevocably delegated to a board of directors (the “Board” and each member a “Director”) its rights and powers to monitor and oversee the business affairs of the Master Fund, including the complete and exclusive authority to oversee and establish policies regarding the management, conduct, and operation of the Master Fund’s business. A majority of the members of the Board are independent of the General Partner and its management. To the extent permitted by applicable law, the Board may delegate any of its rights, powers and authority to, among others, the officers of the Master Fund, the Adviser, or any committee of the Board.

The Board is authorized to engage an investment adviser and it has selected Endowment Advisers, L.P. (the “Adviser”), to manage the Master Fund’s portfolio and operations, pursuant to an investment management agreement (the “Investment Management Agreement”). The Adviser is a Delaware limited partnership that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Management Agreement, the Adviser is responsible for the establishment of an investment committee (the “Investment Committee”), which is responsible for developing, implementing, and supervising the Master Fund’s investment program subject to the ultimate supervision of the Board.

Under the Master Fund’s organizational documents, the Master Fund’s officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Master Fund. In the normal course of business, the Master Fund enters into contracts with service providers, which also provide for indemnifications by the Master Fund. The Master Fund’s maximum exposure under these arrangements is unknown, as this would involve any future potential claims that may be made against the Master Fund. However, based on experience, the General Partner expects that risk of loss to be remote.

 

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Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) BASIS OF ACCOUNTING

The accounting and reporting policies of the Master Fund conform with U.S. generally accepted accounting principles (“GAAP”).

(b) CASH EQUIVALENTS

The Master Fund considers all unpledged temporary cash investments with a maturity date at the time of purchase of three months or less to be cash equivalents.

(c) INVESTMENT SECURITIES TRANSACTIONS

The Master Fund records security transactions on a trade-date basis.

Investments that are held by the Master Fund, including those that have been sold but not yet purchased, are marked to estimated fair value at the date of the financial statements, and the corresponding change in unrealized appreciation/depreciation is included in the Statement of Operations.

In general, distributions received from Investment Funds are accounted for as a reduction to cost and any proceeds received above the allocated cost basis results in a realized gain. Realized gains or losses on the disposition of investments are accounted for based on the first in first out (“FIFO”) method.

(d) VALUATION OF INVESTMENTS

The valuation of the Master Fund’s investments will be determined as of the close of business at the end of any fiscal period, generally monthly. The valuation of the Master Fund’s investments is calculated by Citi Fund Services Ohio, Inc., the Master Fund’s independent administrator (the “Independent Administrator”).

The Board has formed a valuation committee (the “Board Valuation Committee”) that is responsible for overseeing the Master Fund’s valuation policies, making recommendations to the Board on valuation-related matters, and overseeing implementation by the Adviser’s Valuation Committee (as defined below) of the Master Fund’s valuation policies that the Board of the Master Fund has approved for purposes of determining the value of securities held by the Master Fund, including the fair value of the Master Fund’s investments in Investment Funds.

The Board has also authorized the establishment of a valuation committee of the Adviser (the “Adviser Valuation Committee”). The Adviser’s Valuation Committee’s function, subject to the oversight of the Board Valuation Committee and the Board, is generally to review the Investment Funds’ valuation methodologies, valuation determinations, and any information provided to the Adviser’s Valuation Committee by the Adviser or the Independent Administrator.

Investments held by the Master Fund are valued as follows:

 

   

INVESTMENT FUNDS—Investments in Investment Funds are ordinarily carried at estimated fair value based on the valuations provided to the Independent Administrator by the investment managers of such Investment Funds or the administrators of such Investment Funds. These Investment Funds

 

37


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

 

value their underlying investments in accordance with policies established by such Investment Funds. Prior to investing in any Investment Fund, the Adviser’s Valuation Committee, as part of the due diligence process, conducts a review of the valuation methodologies employed by the Investment Fund to determine whether such methods are appropriate for the asset types. The Master Fund’s valuations utilize the available financial information supplied by each Investment Fund and are net of management and estimated performance incentive fees or allocations payable to the Investment Funds’ managers pursuant to the Investment Funds’ agreements. Generally, Investment Funds in which the Master Fund invests will use market value when available, and otherwise will use principles of fair value applied in good faith. The Adviser’s Valuation Committee will consider whether it is appropriate, in light of the relevant circumstances, to value interests at net asset value as reported by an Investment Fund for valuation purposes, or whether to adjust such reported value to reflect estimated fair value. Because of the inherent uncertainty of valuation, this estimated fair value may significantly differ from the value that would have been used had a ready market for the investments in Investment Funds existed and such differences may be significant. The Master Fund’s investments in Investment Funds are subject to the terms and conditions of the respective operating agreements and offering memoranda of such Investment Funds.

 

   

SECURITIES LISTED ON A SECURITIES EXCHANGE—Securities listed 1) on one or more of the national securities exchanges or the OTC Bulletin Board are valued at the last reported sales price on the date of determination; and 2) on the Nasdaq Stock Market are valued at the Nasdaq Official Closing Price (“NOCP”), at the close of trading on the primary exchanges or markets where such securities are traded for the business day as of which such value is being determined. If the last reported sales price or the NOCP is not available, the securities are valued at the mean between the “bid” and “ask” prices at the close of trading on that date. Securities traded on a foreign securities exchange will generally be valued at their closing prices on the exchange where such securities are primarily traded and translated into U.S. dollars at the current exchange rate. If an event occurs between the close of the foreign exchange and the valuation date of the Master Fund’s net asset value that would materially affect the value of the security and the net asset value of the Master Fund, the value of such security and the net asset value of the Master Fund will be adjusted to reflect the change in the estimated value of the security.

 

   

OPTIONS—Options that are listed on a securities exchange or traded over-the-counter are valued at the mean between the closing “bid” and “ask” prices for such options on the date of determination.

 

   

SECURITIES NOT ACTIVELY TRADED—The value of securities, derivatives or synthetic securities that are not actively traded on an exchange shall be determined by obtaining quotes from brokers that normally deal in such securities or by an unaffiliated pricing service that may use actual trade data or procedures using market indices, matrices, yield curves, specific trading characteristics of certain groups of securities, pricing models or a combination of these procedures.

 

   

OTHER—Where no value is readily available from an Investment Fund or other security or where a value supplied by an Investment Fund is deemed not to be indicative of the Investment Fund’s value, the Adviser’s Valuation Committee and/or the Board Valuation Committee, in consultation with the Independent Administrator or the Adviser will determine, in good faith, the estimated fair value of the Investment Fund or security.

 

   

FOREIGN CURRENCY TRANSACTIONS—The accounting records of the Master Fund are maintained in U.S. dollars. Investments of the Master Fund denominated in a foreign currency, if any, are translated into U.S. dollar amounts at current exchange rates on the date of valuation. Purchases and

 

38


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

 

sales of investments and income and expense items denominated in foreign securities are translated into U.S. dollar amounts at the exchange rate on the respective dates of such transactions. The Master Fund does not isolate the realized or unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the value of investments.

(e) FAIR VALUE MEASUREMENTS

The Master Fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The inputs used to determine the fair value of the Master Fund’s investments are summarized in the three broad levels listed below:

 

   

Level 1—quoted prices in active markets for identical assets.

 

   

Level 2—other significant inputs (including quoted prices of similar securities, interest

rates, prepayment speeds, credit risk, etc.).

 

   

Level 3—significant unobservable inputs (which may include the Master Fund’s own

assumptions in determining the fair value of investments).

The inputs or methodology used to value investments are not necessarily an indication of the risk associated with investing in those securities.

When determining the fair value of the Master Fund’s investments, additional consideration is given to those assets or liabilities that have experienced a decrease in volume or level of activity in the primary market in which such investments normally trade (if any) for which circumstances have been identified that indicate that transactions in such markets may not be orderly.

 

39


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

The following is a summary categorization, as of December 31, 2009, of the Master Fund’s investments based on the level of inputs utilized in determining the value of such investments:

 

    LEVEL 1
Quoted Prices
  LEVEL 2
Other Significant
Observable Inputs
  LEVEL 3
Significant
Unobservable Inputs
  Total
      Investment
Securities
  Investment
Securities
  Investment
Funds
  Investments

Assets

       

Limited Partnerships, Exempted Limited

       

Partnerships and Limited Liability Companies

       

Arbitrage Strategies

    —     —     $ 780,427,546   $ 780,427,546

Domestic Equity

    —     —       393,002,964     393,002,964

Energy

    —     —       399,136,823     399,136,823

Enhanced Fixed Income

    —     —       627,493,975     627,493,975

International Equity

    —     —       493,733,501     493,733,501

Natural Resources

    —     —       14,526,615     14,526,615

Opportunistic Equity

    —     —       696,964,621     696,964,621

Private Equity

    —     —       650,979,483     650,979,483

Real Estate

    —     —       217,857,437     217,857,437

Passive Foreign Investment Companies

       

Arbitrage Strategies

    —     —       146,263,616     146,263,616

International Equity

    —     —       81,645,275     81,645,275

Natural Resources

    —     —       9,579,616     9,579,616

Private Equity

    —     —       12,860,000     12,860,000

Private Corporations

       

Real Estate

    —     —       17,359,749     17,359,749

Investments in Registered Investment Companies

       

Arbitrage Strategies

  $ 10,653,868   —       —       10,653,868

Agencies

    124,829,071   —       —       124,829,071

Domestic Equity

    132,104,819   —       —       132,104,819

Enhanced Fixed Income

    10,344,380   —       —       10,344,380

Fixed Income

    4,790,592   —       —       4,790,592

Natural Resources

    147,109,547   —       —       147,109,547

Real Estate

    1,678,509   —       —       1,678,509

Call Options Purchased

    —     38,316,894     —       38,316,894

Put Options Purchased

    650,000   —       —       650,000
                     

Total Assets

  $ 432,160,786   38,316,894   $ 4,541,831,221   $ 5,012,308,901
                     

The categorization of investments amongst Levels 1 through 3 does not reflect the fact that many of the underlying investments held by the Investment Funds included in Level 3, if owned directly by the Master Fund, would be classified as Level 1 investments.

 

40


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

    Investments
    Balance as of
December 31,
2008
  Net Realized
Gain (Loss)
    Change in
Unrealized
Appreciation/
Depreciation
    Gross
Purchases
  Gross
(Sales)
    Balance as of
December 31,
2009

Investments

           

Limited Partnerships, Exempted Limited

           

Partnerships and Limited Liability Companies

           

Arbitrage Strategies

  $ 778,186,928   $ 34,843,147      $ 140,322,997      $ 133,723,463   $ (306,648,989   $ 780,427,546

Domestic Equity

    366,450,287     (16,511,223     59,124,888        78,774,765     (94,835,753     393,002,964

Energy

    297,835,081     4,846,248        95,338,869        67,864,194     (66,747,569     399,136,823

Enhanced Fixed Income

    712,823,535     28,542,419        146,565,079        130,238,588     (390,675,646     627,493,975

International Equity

    417,914,507     (50,487,834     122,625,461        80,000,000     (76,318,633     493,733,501

Natural Resources

    6,900,383     —          2,775,326        4,850,906     —          14,526,615

Opportunistic Equity

    450,958,373     313,173        22,032,573        273,546,549     (49,886,047     696,964,621

Private Equity

    494,486,978     2,854,020        69,551,886        157,384,895     (73,298,296     650,979,483

Real Estate

    236,660,636     (12,372,752     22,663,618        48,375,666     (77,469,731     217,857,437

Passive Foreign Investment Companies

           

Arbitrage Strategies

    114,277,935     —          16,985,681        15,000,000     —          146,263,616

International Equity

    40,163,837     (13,111,120     61,481,438        10,000,000     (16,888,880     81,645,275

Natural Resources

    9,438,103     —          141,513        —       —          9,579,616

Private Equity

    9,700,000     —          3,160,000        —       —          12,860,000

Real Estate

    7,019,400     (3,710,112     2,980,600        —       (6,289,888     —  

Private Corporations

           

Real Estate

    22,091,745     —          (8,768,056     4,036,060     —          17,359,749
                                         

Total Investments

  $ 3,964,907,728   $ (24,794,034   $ 756,981,873      $ 1,003,795,086   $ (1,159,059,432   $ 4,541,831,221
                                         

The net realized gain (loss) and change in unrealized appreciation/depreciation in the table above are reflected in the accompanying Statement of Operations. The change in unrealized appreciation/ depreciation from Level 3 investments held at December 31, 2009 is $723,282,372.

(f) INVESTMENT INCOME

For investments in securities, dividend income is recorded on the ex-dividend date, net of withholding taxes. Interest income is recorded as earned on the accrual basis and includes amortization of premiums or accretion of discounts.

 

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Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(g) FUND EXPENSES

Unless otherwise voluntarily or contractually assumed by the Adviser or another party, the Master Fund bears all expenses incurred in its business, including, but not limited to, the following: all costs and expenses related to investment transactions and positions for the Master Fund’s account; legal fees; accounting, auditing and tax preparation fees; recordkeeping and custodial fees; costs of computing the Master Fund’s net asset value; fees for data and software providers; research expenses; costs of insurance; registration expenses; offering costs; expenses of meetings of the partners; directors fees; all costs with respect to communications to partners; transfer taxes, offshore withholding taxes and taxes withheld on non-U.S. dividends; interest and commitment fees on loans and debit balances; and other types of expenses as may be approved from time to time by the Board. Offering costs are amortized over a twelve-month period or less from the date they are incurred.

(h) INCOME TAXES

The Master Fund is organized and operated as a limited partnership and is not subject to income taxes as a separate entity. Such taxes are the responsibility of the individual partners. Accordingly, no provision for income taxes has been made in the Master Fund’s financial statements. Investments in foreign securities may result in foreign taxes being withheld by the issuer of such securities. For U.S. offshore withholding tax, the Master Fund may serve as withholding agent for its offshore feeder funds.

The Master Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Master Fund’s tax returns to determine whether the tax positions will “more-likely-than-not” be sustained by the Master Fund upon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit or expense to the Master Fund would be recorded as a tax benefit or expense in the current period. For the year ended December 31, 2009, the Master Fund did not recognize any amounts for unrecognized tax benefit/expense. A reconciliation of unrecognized tax benefit/expense is not provided herein, as the beginning and ending amounts of unrecognized tax benefit/expense are zero, with no interim additions, reductions or settlements. Tax positions taken in tax years which remain open under the statute of limitations (generally three years for federal income tax purposes) are subject to examination by tax authorities.

(i) USE OF ESTIMATES

The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences may be significant.

(j) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Master Fund may purchase or sell options as part of an asset overlay strategy to create investment exposure consistent with the Master Fund’s investment objectives. The Master Fund has invested in call and put option contracts during the year to adjust its exposure to potential changes in interest rates and to better manage risk related to certain strategies in the Master Fund’s Portfolio. The Master Fund’s direct investments in derivatives during the year ended December 31, 2009, consisted of the purchase, sale, execution and expiration of call and put options.

 

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Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

Investment Funds in which the Master Fund invests will purchase and sell derivative securities and other financial instruments. The following is a summary of the fair value of derivative instruments held directly by the Master Fund as of December 31, 2009 and where such derivatives are recorded:

 

    Asset Derivatives

Primary Risk Exposure

  Statements of Assets and Liabilities    Total Fair Value

Options Contracts

    

Equity and Commodity Exposure:

  Investments in Securities, at fair value    $ 650,000

Interest Rate Exposure:

  Investments in Securities, at fair value      38,316,894

The following is a summary of the effect of the Master Fund’s direct investments in derivative instruments on the Statement of Operations for the year ended December 31, 2009:

 

Primary Risk Exposure

  

Location of Gain (Loss)
from Derivatives
Recognized in Income

   Realized Gain
from Derivatives
Recognized in Income
   Change in Unrealized
Appreciation/Depreciation
from Derivatives
Recognized in Income
 

Options Contracts

        

Equity and Commodity Exposure:

   Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind    $ 2,990,490    $ (20,587,945

Interest Rate Exposure:

   Net realized and unrealized gain (loss) from investments, affiliated investments, foreign currency transactions, options and redemptions in-kind      —        7,032,449   

Volume of Derivative Activity

The monthly average fair value for the call and put options was $35,151,391 for the year ended December 31, 2009.

(k) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2009, the Financial Accounting Standards Board issued Accounting Standards Update 2009-12 to ASC 820-10-35, “Investments in Certain Entities that Calculate Net Asset Value Per Share (Or its Equivalent)” (“ASU 2009-12”), which became effective for interim and annual periods ending after December 15, 2009. ASU 2009-12 permits a reporting entity to measure the fair value of an investment that does not have a readily determinable fair value, based on the net asset value per share (the “NAV”) of the investment as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV should be adjusted to reflect any significant events that may change the valuation. In using the NAV as a practical expedient, certain attributes of the investment, that may impact the fair value of the investment, are not considered in measuring fair value. Attributes of those investments include the investment strategies of the investees and may also include, but are not limited to, restrictions on the investor’s ability to redeem its investments at the measurement date and any unfunded commitments. The Master Fund

 

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THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

is permitted to invest in alternative investments that do not have a readily determinable fair value, and as such, has elected to use the NAV as calculated on the reporting entity’s measurement date as the fair value of the investment. A listing of the investments held by the Master Fund and their attributes as of December 31, 2009, that may qualify for these valuations are shown in the table below.

 

Investment Category   Investment Strategy   Fair Value
(in 000’s)
  Unfunded
Commitments
(in 000’s)
  Remaining
Life *
  Redemption
Frequency*
  Notice
Period
(in Days)*
  Redemption Restrictions
and Terms*

Arbitrage Strategies (a)

  Investments in a variety of securities with the intent of profiting from relative changes in the price of a set of securities, currencies or commodities.   $926,691     N/A   N/A   Daily - Annually   0-92   0-2 years; up to 5% redemption fee

Domestic Equity (b)

  Investments in equity securities issued by U.S. companies.   393,003     N/A   N/A   Monthly - Annually   7-90  

0-3 years;

up to 7% redemption fee

Energy (c)

  Investments in securities issued by companies in the energy sector.   399,137   $ 151,600   up to 15 years   Monthly - Quarterly   30-90  

0-15 years;

up to 5% redemption fee

Enhanced Fixed Income (d)

  Investments in non-traditional fixed income securities.   627,494     N/A   N/A   Monthly - Rolling 3 years   0-185  

0-3 years;

up to 5% redemption fee

International Equity (e)

  Investments in equity securities issued by foreign companies.   575,379     N/A   N/A   Monthly - Rolling 3 years   7-90  

0-3 years;

up to 7.5% redemption fee

Natural Resources (f)

  Investments with exposure to non-energy natural resources.   24,106     13,200   up to 10 years   Quarterly   90-180  

0-10 years;

up to 3% redemption fee

Opportunistic Equity (g)

  Investments in a variety of global markets across all security types.   696,965     N/A   N/A   Monthly - Bi-Annually   5-180  

0-4 years;

up to 5 % redemption fee

Private Equity (h)

  Investments in nonpublic companies.   663,839     554,400   up to 10 years   Quarterly - Annually   45-180  

0-10 years;

up to 3% redemption fee

Real Estate (i)

  Investments in REIT’s, private partnerships, and various real estate related mortgage securities.   235,217     232,600   up to 10 years   Monthly - Quarterly   45-60  

0-10 years;

up to 3% redemption fee

        $4,541,831   $ 951,800                

 

*

The information summarized in the table above represents the general terms for the specified asset class. Individual Investment Funds may have terms that are more or less restrictive than those terms indicated for the asset class as a whole. In addition, most Investment Funds have the flexibility, as provided for in their constituent documents, to modify and waive such terms.

The Fund’s investments reflect their estimated fair value, which for marketable securities would generally be the last sales price on the primary exchange for such security and for Investment Funds, would generally be the net asset value as provided by the fund or its administrator. For each of the categories below, the fair value of the Investment Funds has been estimated using the net asset value of the Investment Funds.

(a)

This category includes Investment Funds that invest using two primary Styles (Event-Driven and Relative Value). Event-Driven strategies typically will include investments in common and preferred equities and various types of debt (often based on the probability that a particular event will occur). These may include distressed or Special Situations investments (securities of companies that are experiencing difficult business situations). Relative Value strategies may include long and short positions in common and preferred equity,

 

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Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

 

convertible securities, and various forms of senior and junior (typically unsecured) debt. Investments under this style may also include index options, options on futures contracts, and other derivatives.

(b)

This category includes Investment Funds that invest primarily in publicly-traded equity securities issued by U.S. companies. These securities will typically trade on one of the major U.S. stock exchanges.

(c)

This category includes Investment Funds that invest primarily in publicly-traded securities issued by companies in the energy sector, private investments in energy-related assets or companies, and futures in energy commodity markets. The Investment Funds include private funds which may hold long/ short equities, commodity trading advisors (“CTAs”) trading contracts on energy related commodities, mutual funds or exchange-traded funds, and private partnerships with private investments in their portfolios. The estimated remaining life of the investments in this asset class is greater than six years.

(d)

This category includes Investment Funds that invest primarily in the following sectors: secured leveraged loans, high yield bonds, distressed debt, structured credit, and global debt (typically less efficient areas of the global fixed income markets than traditional fixed income strategies). Generally these sectors may be heavily weighted to certain industries such as telecom and technology with lower credit rating ranges (including leveraged buyouts), may include distressed debt strategies and may include restricted securities and securities that may not be registered for which a market may not be readily available.

(e)

This category includes Investment Funds that invest primarily in publicly-traded equity securities issued by foreign companies or securities issued on U.S. stock exchanges that represent ownership of a foreign corporation.

(f)

This category includes Investment Funds that invest in assets with exposure to non-energy natural resources, including gold and other precious metals, industrial metals, and agricultural commodities. The Investment Funds may include private funds invested in long/ short equities; CTA’s trading contracts on agricultural commodities and private partnerships with private investments in their portfolios. The estimated remaining life of the investments in this asset class is greater than six years.

(g)

This category includes Investment Funds that invest in all global markets and across all security types including equities, fixed income, commodities, currencies, futures, and exchange-traded funds. Investment Funds in this category are typically private funds and may include global long/ short equity funds, global macro funds, and CTA’s.

(h)

This category includes private equity funds that invest primarily in companies in need of capital. These Investment Funds may vary widely as to sector, size, stage, duration, and liquidity. Certain of these Investment Funds may also focus on the secondary market, buying interests in existing private equity funds, often at a discount. Less than a quarter of the investments in this asset class have an estimated remaining life of less than three years; the majority of the remaining investments in this asset class have an estimated remaining life of greater than six years.

(i)

This category includes Investment Funds that invest in a) registered investment companies or managers that invest in real estate trusts (commonly known as “REITs”) and private partnerships that make investments in income producing properties, raw land held for development or appreciation, and various types of mortgage loans and common or preferred stock whose operations involve real estate. Less than a fifth of the investments in this asset class have an estimated remaining life of between three and six years; the remaining investments in this asset class have an estimated remaining life of greater than six years.

 

45


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(3) PARTNERS’ CAPITAL ACCOUNTS

(a) ISSUANCE OF INTERESTS

Upon receipt from an eligible investor of an initial or additional application for interests (the “Interests”), which will generally be accepted as of the first day of each month, the Master Fund will issue new Interests. The Interests have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state. The Master Fund issues Interests only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act. No public market exists for the Interests, and none is expected to develop. The Master Fund is not required, and does not intend, to hold annual meetings of its partners. The Interests are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted under the Master Fund’s limited partnership agreement. The Master Fund reserves the right to reject any applications for subscription of Interests.

(b) ALLOCATION OF PROFITS AND LOSSES

For each fiscal period, generally monthly, net profits or net losses of the Master Fund are allocated among and credited to or debited against the capital accounts of all partners as of the last day of each fiscal period in accordance with the partners’ respective capital account ownership percentage for the fiscal period. Net profits or net losses are measured as the net change in the value of the partners’ capital of the Master Fund, including any change in unrealized appreciation or depreciation of investments and income, net of expenses, and realized gains or losses during a fiscal period. Net profits or net losses are allocated after giving effect for any initial or additional applications for Interests, which generally occur at the beginning of the month, or any repurchases of Interests.

(c) REPURCHASE OF INTERESTS

A partner will not be eligible to have the Master Fund repurchase all or any portion of an Interest at the partner’s discretion at any time. However, the Adviser expects that it will recommend to the Board that the Master Fund offer to repurchase Interests each calendar quarter, pursuant to written tenders by partners. However, the Board retains the sole discretion to accept or reject the recommendation of the Adviser and to determine the amount of Interests, if any, that will be purchased in any tender offer that it does approve. In the event Interests are repurchased, there will be a substantial period of time between the date as of which partners must accept the Master Fund’s offer to repurchase their Interests and the date they can expect to receive payment for their Interests from the Master Fund.

(4) INVESTMENTS IN PORTFOLIO SECURITIES

(a) INVESTMENT ACTIVITY

As of December 31, 2009, the Master Fund held investments in Investment Funds and securities. The $102,391,759 in prepaid contributions to Investment Funds as of December 31, 2009 represents funding of a portion of the January 2010 investments in such funds. The agreements related to investments in Investment Funds provide for compensation to the Investment Funds’ managers/general partners or advisers in the form of management fees of up to 2.5% annually of monthly average net assets. In addition, many Investment Funds also provide for performance incentive fees/allocations of up to 25% of an Investment Fund’s net profits, although it is possible that such ranges may be exceeded for certain investment managers. These management fees and incentive fees are in addition to the management fees charged by the Master Fund.

 

46


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

For the year ended December 31, 2009, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were $1,317,646,094 and $1,449,826,268, respectively.

The cost of the Master Fund’s underlying investments for Federal income tax purposes is adjusted for items of taxable income allocated to the Master Fund from such investments. The allocated taxable income is generally reported to the Master Fund by its underlying investments on Schedules K-1, Forms 1099 or PFIC statements.

The underlying investments generally do not provide the Master Fund with tax reporting information until well after year end and as a result, the Master Fund is unable to calculate the year end tax cost of its investments until well after year end. The book cost and tax cost of the Master Fund’s investments as of December 31, 2008 was $4,880,651,489 and $5,262,384,153, respectively. The Master Fund’s book cost as of December 31, 2009 was $4,715,876,152 resulting in accumulated net unrealized appreciation of $296,432,749 consisting of $747,967,205 in gross unrealized appreciation and $451,534,456 in gross unrealized depreciation.

During the year ended December 31, 2009, certain investments were transferred in-kind in connection with the sale of investments. The fair value of these investments transferred-in-kind and related cost and realized gain (loss) are as follows:

 

Investments Transferred In-Kind

   Shares
Received
   Fair
Value
   Cost    Realized
Gain (Loss) on
Transfers In-Kind
 

Cardionet, Inc.

   1,372    $ 36,193    $ 21,609    $ 14,584   

Stark Select Asset Fund, LLC

   —        10,394,759      13,405,335      (3,010,576

PIPE Select Fund, L.L.C.

   —        3,872,330      3,174,137      698,193   
                         
      $ 14,303,282    $ 16,601,081    $ (2,297,799
                         

In general, most of the Investment Funds in which the Master Fund invests, other than Investment Funds investing primarily in private equity, energy and real estate transactions, provide for periodic redemptions ranging from monthly to annually, after a notice period, with lock-up provisions usually for a period of up to four years. Investment Funds may, depending on the Investment Fund’s governing documents, have the ability to deny or delay a redemption request.

 

47


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

(b) INVESTMENT FUND LIQUIDITY

Certain Investment Funds in which the Master Fund invests have limitations on liquidity which may result in limitations on redemptions including, but not limited to, lock-ups, notice periods and early redemption fees. The Master Fund’s investments are categorized in three levels of liquidity, as determined by the Master Fund. The categories and percent of investments in each are as follows at December 31, 2009:

 

Liquidity Categories

     Percentage of
Investments
    

Category Definition

Category 1 Funds

     65.20   

Securities or Investment Funds that have at least quarterly withdrawal rights after a maximum two-year lock up period.

Category 2 Funds

     10.00   

Investment Funds that have at least annual withdrawal rights after a maximum three-year lock up period.

Category 3 Funds

     24.80   

Investment Funds that do not meet the definition of Category 1 or 2 Funds. This may include investments for which redemptions can only occur as the underlying portfolio’s assets or investments are liquidated.

           
     100.00   
           

The expiration or implementation of lock-up periods on Master Fund investments in an Investment Fund could result in such investments moving from one liquidity category to another.

(c) AFFILIATED INVESTMENT FUNDS

At December 31, 2009, the Master Fund’s investments in certain Investment Funds were deemed to be investments in affiliated issuers under the 1940 Act, primarily because the Master Fund owns more than 5% of the Investment Funds’ total net assets. The activity resulting from investments in these funds, including interest and dividend payments as well as realized gains and losses, is identified in the Statement of Operations as transactions with affiliated investments. A listing of these affiliated Investment Funds (including 2009 activity) is shown below:

 

                2009 Activity         2009 Activity  

Investment Funds

  Shares
12/31/2008
  Shares
12/31/2009
  Fair Value
12/31/2008
  Cost of
Purchases
  Cost of
Sales*
  Change in
Appreciation/
Depreciation
    Fair Value
12/31/2009
  Interest/
Dividend
Income
  Realized
Gain/(Loss)
on Investments
and Foreign
Currency
Transactions
 

Accel-KKR Capital Partners III, L.P.

      $ 4,792,904   $ 2,137,228     —     $ (152,132   $ 6,778,000    

Ajeej MENA Fund

  213,420   —       14,126,141     —     $ 16,751,043     2,624,902        —       $ (13,248,957

Algebris Global Financials Fund, L.P.

        43,250,833     10,000,000     —       12,651,393        65,902,226    

Anchorage Crossover Credit Fund II, L.P.

        36,252,650     84,580,948     100,000,000     26,501,348        47,334,946       15,419,053   

Anchorage Short Credit Fund, L.P.

        95,709,165     —       49,733,448     (45,975,717     —         (9,383,142

Atlas Institutional Fund, LLC

        —       20,000,000     —       1,244,645        21,244,645    

 

48


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

                2009 Activity         2009 Activity  

Investment Funds

  Shares
12/31/2008
  Shares
12/31/2009
  Fair Value
12/31/2008
  Cost of
Purchases
  Cost of
Sales*
  Change in
Appreciation/
Depreciation
    Fair Value
12/31/2009
  Interest/
Dividend
Income
  Realized
Gain/(Loss)
on Investments
and Foreign
Currency
Transactions
 

BDCM Partners I, L.P.

      $ 54,263,547     —       —     $ 1,840,999      $ 56,104,546    

Benson Elliot Real Estate Partners III, L.P.***

        —       —       —       —          —      

BlueGold Global Fund, L.P.

        —     $ 40,000,000     —       398,940        40,398,940    

Bonanza Partners, L.P.

        4,263,370     —     $ 2,978,533     (243,026     1,041,811     $ (3,021,763

Boyer Allan Greater China Fund, L.P.

        27,852,646     —       —       5,292,814        33,145,460    

Catterton Growth Partners, L.P.

        3,665,483     3,152,764     334,513     (40,763     6,442,971    

CCM Small Cap Value Qualified Fund, L.P.

        4,506,912     10,142,631     —       11,508,056        26,157,599    

Chilton Global Natural Resources Partners, L.P.

        48,909,483     —       —       16,789,549        65,699,032    

Contrarian Capital Fund I, L.P.

        73,830,500     5,791,422     —       34,934,245        114,556,167    

Contrarian Equity Fund, L.P.

        2,482,038     —       159,437     (1,157,528     1,165,073       827,147   

Corriente Partners, L.P.

        80,242,542     —       —       (37,375,056     42,867,486    

Covepoint Emerging Markets Macro Fund, L.P.

        32,714,019     10,000,000     —       21,047,002        63,761,021    

CRC Global Structured Credit Fund, Ltd.

  41,819   41,819     58,849,774     —       —       (2,797,849     56,051,925    

CRM Windridge Partners, L.P.

        —       15,000,000     —       288,746        15,288,746    

Criterion Institutional Partners, L.P.

        12,405,432     9,774,765     24,724,523     2,544,326        —         3,749,758   

CX Partners Fund, Ltd.

        —       4,114,614     —       (588,151     3,526,463    

Dabroes Investment Fund LP

        9,481,494     25,000,000     —       (1,306,098     33,175,396    

Dace Ventures I, L.P.

        1,038,927     337,807     —       (360,539     1,016,195    

Diamond Hill Investment Partners II, L.P.

        30,247,231     —       29,094,459     (1,152,772     —         (11,945,166

Empire Capital Partners Enhanced, L.P.

        18,864,453     —       —       7,743,289        26,607,742    

European Divergence Fund, L.P.

        183,548,935     —       59,285,310     (35,001,337     89,262,288    

Ferox Japan Fund Limited

        8,702,389     —       7,833,650     (868,739     —         (2,166,350

Forum European Realty Income III L.P.

        2,075,822     1,718,692     —       (405,333     3,389,181    

FrontPoint Onshore Healthcare Fund 2X, L.P.

        8,430,585     —       10,545,530     2,114,945        —         545,530   

Global Undervalued Securities Fund (QP), L.P.

        50,052,796     —       20,000,000     8,847,409        38,900,205       5,690,848   

Gradient Europe Fund, L.P.

        8,595,584     —       8,304,768     (290,816     —         (23,695,232

GTIS Brazil Real Estate Fund (Brazilian Real) LP

        1,441,597     3,794,122     —       1,666,287        6,902,006    

Halcyon European Structured Opportunities Fund, L.P.

        17,556,591     —       11,409,574     (4,024,169     2,122,848       (22,454,276

Harbinger Capital Partners Fund I, L.P.

        78,080,706     —       —       35,121,781        113,202,487    

Hayman Capital Partners, L.P.

        41,851,331     —       —       (5,873,043     35,978,288    

HealthCor, L.P. **

        46,459,496     25,000,000     —       7,052,271        78,511,767    

HealthCor Partners Fund, L.P.

        2,436,471     706,087     4,926     142,608        3,280,240    

Hillcrest Fund, L.P.

        96,794     1,778,269     —       (746,521     1,128,542    

HomeField Partners, L.P.

        16,357,040     —       16,036,882     (320,158     —         (963,118

Horseman Global Fund 2, L.P.

        —       30,000,000     —       (7,030,338     22,969,662    

India Capital Fund, Ltd.

  187,107   597,747     4,744,728     10,000,000     137,837     15,216,852        29,823,743    

ING Clarion Global, L.P.

        39,908,540     —       10,000,000     6,281,155        36,189,695       1,073,326   

ING Clarion U.S., L.P.

        41,613,957     —       46,971,946     5,357,989        —         4,552,000   

Integral Capital Partners VIII, L.P.

        11,799,122     —       —       4,352,901        16,152,023    

Intervale Capital Fund, L.P.

        6,122,675     5,914,480     —       (836,660     11,200,495    

Investcorp Silverback Arbitrage Fund, LLC

        —       14,283,002     —       350,090        14,633,092    

Investcorp Silverback Opportunistic Convertible Fund, LLC

        —       25,000,000     14,283,002     17,928,037        28,645,035       7,265,216   

Ithan Creek Partners, L.P.

        50,395,785     —       —       11,912,352        62,308,137    

Kenmont Onshore Fund, L.P.

        12,570,773     —       5,295,399     (437,106     6,838,268       (1,634,861

LC Fund IV, L.P.

        677,387     2,428,207     —       433,242        3,538,836    

Longhorn Onshore Investors, L.P.

        46,131,502     —       —       (5,593,941     40,537,561    

Magnetar Capital Fund, L.P.

        51,060,520     —       6,000,000     7,774,821        52,835,341       (1,246,574

 

49


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

                2009 Activity         2009 Activity  

Investment Funds

  Shares
12/31/2008
  Shares
12/31/2009
  Fair Value
12/31/2008
  Cost of
Purchases
  Cost of
Sales*
  Change in
Appreciation/
Depreciation
    Fair Value
12/31/2009
  Interest/
Dividend
Income
  Realized
Gain/(Loss)
on Investments
and Foreign
Currency
Transactions
 

Middle East North Africa Opportunities Fund, L.P.

  54,686   5,089   $ 39,818,048     —     $ 33,062,177   $ (3,076,242   $ 3,679,629     $ (16,848,852

Miura Global Partners II, L.P.

        62,106,527     —       —       (3,333,285     58,773,242    

Monsoon Infrastructure & Realty Co-Invest, L.P.

        5,375,000   $ 1,050,000     —       4,176,602        10,601,602    

Montrica Global Opportunities Fund, L.P.

  495,632   412,880     38,513,902     —       7,264,682     3,497,786        34,747,006   $ 146,189     (1,462,504

Morgan Rio Capital Fund, L.P.

        —       11,000,000     —       (194,963     10,805,037    

Net Lease Private REIT VII, Inc

        3,000,000     2,000,000     —       —          5,000,000     452,130  

Net Lease Private REIT VII-A, Inc

        3,000,000     2,000,000     —       —          5,000,000     452,130  

New Horizon Capital III, L.P.

        —       7,376,725     1,620,858     (1,655,581     4,100,286    

NWI Explorer Global Macro Fund, L.P.

        13,221,628     —       10,930,370     2,019,053        4,310,311       (3,572,169

Oak Hill REIT Plus Fund, L.P.

        12,368,041     —       —       336,126        12,704,167    

Orbis Real Estate Fund I

        3,449,164     76,828     74,718     (257,356     3,193,918     37,358  

Ore Hill Fund II, L.P.

        34,439,642     —       35,863,174     6,055,520        4,631,988       (13,165,716

Overseas CAP Partners, Inc.

  45,229   60,228     55,428,160     15,000,000     —       19,783,531        90,211,691    

OZ Asia Domestic Partners, L.P.

        33,844,287     3,770,674     26,876,747     10,477,113        21,215,327       (382,941

Pantera Global Macro Fund, L.P.

        2,273,284     641,183     2,918,795     4,328        —         (842,388

Pardus European Special Opportunities Fund, L.P.

        5,620,882     —       —       4,331,950        9,952,831    

Passport II, L.P.

        23,383,695     30,000,000     —       5,278,555        58,662,250    

Paulson Credit Opportunities, L.P.

        56,547,795     40,000,000     —       32,668,393        129,216,188    

Paulson Partners Enhanced, L.P.

        55,070,388     —       —       7,005,672        62,076,060    

Phoenix Asia Real Estate Investments II, L.P.

        16,875,000     747,024     165,957     (5,321,777     12,134,290     33,536     108,457   

PIPE Equity Partners, L.L.C.

        96,281,525     10,000,000     61,872,330     4,751,781        49,160,976       698,193   

PIPE Select Fund L.L.C.

        —       61,872,330     8,502,539     727,192        54,096,983       1,263,892   

Private Equity Investment Fund IV, L.P.

        7,216,226     1,175,691     304,114     (1,116,120     6,971,683     28,208     156,906   

Private Equity Investment Fund V, L.P.

        —       6,115,535     —       (135,482     5,980,053    

PSAM WorldArb Partners, L.P.

        40,331,215     —       10,000,000     10,395,473        40,726,688       (639,805

Q Funding III, L.P.

        9,098,681     —       —       3,822,821        12,921,502    

Q4 Funding, L.P.

        25,692,138     —       —       10,711,196        36,403,334    

Quorum Fund Limited

  349,876   349,876     9,602,300     —       —       7,537,972        17,140,272    

R.G. Niederhoffer Global Fund, L.P.

        —       30,000,000     —       (3,405,738     26,594,262    

Redbrick Capital, L.P.

        9,368,126     —       7,413,248     (1,910,445     44,433       (11,765,820

Saints Capital VI, L.P.

        6,064,246     2,640,449     797,376     207,117        8,114,436       502,537   

Salem Global Opportunity Fund L.P.

        —       25,000,000     —       (120,322     24,879,678    

Samlyn Onshore Fund, L.P.

        35,114,053     44,000,000     —       15,841,610        94,955,663    

SCP Sakonnet Fund, LP

        41,358,574     —       —       17,346,764        58,705,338    

Skopos HG Fund, LLC

  262,504   262,504     14,476,137     —       —       22,814,508        37,290,645    

Sorin Fund, L.P.

        34,795,950     3,866,217     21,287,444     400,641        17,775,364       (9,286,699

Southport Energy Plus Partners, L.P.

        86,958,671     —       —       21,807,217        108,765,888    

Standard Pacific Credit Opportunities Fund, L.P.

        129,867,044     —       56,521,287     28,794,000        102,139,757       16,648,458   

Steel Partners Japan Strategic Fund, L.P.

        30,269,895     —       —       (2,843,658     27,426,237    

The Rohatyn Group Local Currency Opportunity Partners, L.P.

        73,350,704     —       10,000,000     9,876,456        73,227,160       1,921,808   

The Russian Prosperity Fund

  1,056,068   1,056,068     11,690,668     —       —       22,990,592        34,681,260    

Tiedemann/Falconer Partners, L.P.

        49,754,374     —       —       (3,923,294     45,831,080    

Tiger Consumer Partners, L.P.

        33,301,757     —       —       8,742,373        42,044,130    

Torrey Pines Fund, LLC

        56,882,204     —       5,000,000     (2,361,874     49,520,330       2,077,856   

Transwestern Mezzanine Realty Partners III, L.L.C.

        2,894,714     1,378,529     —       (3,533,743     739,500    

Trivest Fund IV, L.P.

        6,032,460     584,194     —       (843,604     5,773,050    

Trustbridge Partners II, L.P.

        13,933,507     211,306     —       3,500,698        17,645,511    

Trustbridge Partners III, L.P.

        —       6,986,968     —       (568,412     6,418,556    

Tuckerbrook SB Global Distressed Fund I, L.P.

        6,174,263     400,000     —       92,873        6,667,136    

 

50


Table of Contents

THE ENDOWMENT MASTER FUND, L.P.

(A Limited Partnership)

Notes to Financial Statements, continued

December 31, 2009

 

                2009 Activity         2009 Activity  

Investment Funds

  Shares
12/31/2008
  Shares
12/31/2009
  Fair Value
12/31/2008
  Cost of
Purchases
  Cost of
Sales*
  Change in
Appreciation/
Depreciation
    Fair Value
12/31/2009
  Interest/
Dividend
Income
  Realized
Gain/(Loss)
on Investments
and Foreign
Currency
Transactions
 

Valiant Capital Partners, L.P.

      $ 65,789,601   $ 7,395,366     —     $ 20,818,434      $ 94,003,401    

Velite Energy L.P.

        91,762,431     —     $ 37,000,000     60,433,919        115,196,350     $ 20,900,171   

Waterstone Market Neutral Fund, L.P.

        94,899,028     —       40,000,000     44,986,271        99,885,299       14,334,934   

Wells Street Global Partners, L.P.

        18,627,471     —       13,192,586     (5,434,885     —         (12,557,414

Wells Street Offshore, Ltd

  32,000   —       7,019,400     —       6,289,888     (729,512     —