The Hatteras Alpha Hedged Strategies Fund (ALPHX) generated a net gain of 0.9% for the month of July. For comparison, the HFRI Fund of Funds Composite ("HFRI FoF") and the S&P 500 Total Return ("S&P 500") Indices were up 0.74% and 7.0% for the month, respectively. All strategies posted net gains for the month, with Event Driven accounting for the bulk of the Fund's gains, followed in descending order by Relative Value, Market Neutral Equity, and Long/Short Equity.

Long/Short Equity managers generated net gains for the month of July. Gains from long exposures in energy, telecommunication services, information technology, and consumer and related sectors were able to more than offset losses from short positions in materials, industrials, and healthcare and related sectors. Portfolio hedges detracted from performance for the month.

Market Neutral Equity managers finished the month with an aggregated net gain. International, fundamental, and quantitative factor sub-strategies generated net gains in excess of the losses sustained by quantitative momentum and earnings revision sub-strategies. In a month characterized by broad equity market advances and positive results in all sectors, the performance of Market Neutral Equity sub-strategies was also limited due to losses from short exposures in portfolios to maintain substantially neutral positioning relative to the equity markets.

Relative Value managers contributed net gains to the Fund's performance for July. Convertible arbitrage sub-strategies performed best due to decreased credit spreads and default rates, and increased market volatility and dispersion between securities. Fixed income arbitrage sub-strategies were positive while short duration alternative yield strategies detracted from the month's performance. In the former, improved prices for corporate bonds and increasing flows into high yield and leveraged loan markets supported performance. In the latter, increased portfolio hedging activities hurt performance.

Event Driven managers generated net gains for the month. All sub-strategies contributed net positive performance. Closing activities associated with specific portfolio positions, mark-to-market gains on credit and distressed positions, and increased investor interest were able to more than compensate for losses from portfolio hedges.

Disclaimer

The opinions expressed in this report are subject to change without notice. This material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. The opinions discussed in the letter are solely those of the Investment Manager and may contain certain forward-looking statements about the factors that may affect the performance of the Hatteras Funds in the future. These statements are based on the Investment Manager's predictions and expectations concerning certain future events and their expected impact on the Hatteras Funds, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the funds. Management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed. It is intended solely for the use of the person to whom it is given and may not be reproduced or distributed to any other person. This should be read in conjunction with or preceded by a current prospectus. This material is not meant for general distribution. The information and statistics in this report are from sources believed to be reliable, but are not warranted by Hatteras to be accurate or complete.