SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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[X] Preliminary Proxy Statement
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(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required
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previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
225 HIGH RIDGE ROAD
STAMFORD, CT 06905
[ ], 2007
Dear Member:
On behalf of the Board of Managers (the "Board") of Excelsior
Directional Hedge Fund of Funds, LLC (the "Fund"), it is my pleasure to invite
you to attend a Special Meeting (the "Meeting") of Members of the Fund
("Members"). The Meeting will be held at 11:00 a.m. (Eastern Standard time) on
March 15, 2007, at the offices of United States Trust Company, National
Association, 225 High Ridge Road, Stamford, Connecticut 06905. The formal notice
of the Meeting and related materials are enclosed.
As you may know, The Charles Schwab Corporation ("Schwab") has
entered into an agreement to sell its subsidiary, U.S. Trust Corporation ("U.S.
Trust"), to the Bank of America Corporation ("Bank of America"), along with all
of U.S. Trust's subsidiaries, including U.S. Trust Hedge Fund Management, Inc.,
the investment adviser of the Fund (the "Adviser") (the "Sale").
The change in control of the Adviser resulting from the Sale will
cause the automatic termination of the Fund's current investment advisory
agreement with the Adviser (the "Current Agreement"), in accordance with its
terms. Thus, for the Adviser to continue to provide investment advisory services
to the Fund after the Sale, the Fund must enter into a new investment advisory
agreement with the Adviser. On January 11, 2007, the Board unanimously approved
a new investment advisory agreement with the Adviser to become effective upon,
and subject to, the Sale (the "New Agreement"). The New Agreement, which is
identical in all material respects to the Current Agreement except for the term
and date of its effectiveness, also is subject to approval by Members before it
can become effective.
In approving the New Agreement, the Board received representations
from the Adviser and Bank of America that no material adverse impact on the
daily operations of the Fund or the nature or quality of the investment advisory
activities provided to the Fund by the Adviser is expected to arise as a result
of being affiliated with Bank of America. Although the ownership of the Adviser
will change upon compeltion of the Sale, the Board was advised that the Adviser
and Bank of America did not anticipate any changes to the investment personnel
responsible for managing the Fund's portfolio. The Fund's investment objective
and investment program will not be affected by the Sale, and your interest in
the Fund, your capital account and fees payable by the Fund will not be affected
by the transaction.
At the Meeting, Members will vote on a proposal to approve the New
Agreement. Members also will vote on proposals to elect four nominees proposed
by the Board to serve as Managers of the Fund and to reorganize the Fund to
implement a "master/feeder" investment structure, in which Members will own
interests in a new fund that will pursue its investment objective by investing
its assets in the Fund. The new fund will have the same investment objective and
substantially the same investment policies as the Fund, and will have the same
features as are currently offered by the Fund. The fees payable to the Adviser
will not be increased under this new investment structure.
The enclosed Proxy Statement describes in detail the proposals
that will be considered at the Meeting and solicits your proxy to be voted on
those proposals. We urge you to review carefully the enclosed Proxy Statement.
The Board unanimously recommends that you vote "FOR" approval of
the New Agreement, and that you also vote "FOR" each of the nominees for Manager
listed on the enclosed proxy card to serve as Managers of the Fund and "FOR"
approval of the reorganization of the Fund.
You may vote at the Meeting if you were a Member of record of the
Fund as of the close of business on January 12, 2007. If you attend the Meeting,
you may vote in person. Whether or not you intend to attend the Meeting, you can
vote in one of three ways: (i) by signing and returning the enclosed proxy card
in the enclosed prepaid envelope; (ii) by using the Internet if you want to vote
electronically; or (iii) by using your touch-tone telephone. (Please see the
questions and answers below, as well as your proxy card, for additional
instructions on how to vote.) If you do vote electronically or by telephone, you
do not need to mail your proxy card. However, if you want to later change your
vote, you may do so by attending the Meeting, by submitting a new proxy card, or
submitting a new vote by touch-tone telephone or the Internet.
To help you understand the matters upon which Members are being
asked to vote, we have attached the following questions and answers regarding
the proposals. They are designed to help answer questions you may have and to
help you cast your votes, and are being provided as a supplement to, not as a
substitute for, the Proxy Statement, which we urge you to review carefully.
Please feel free to call us at (203) 352-4400 if you have any
questions regarding voting procedures.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, IT IS IMPORTANT
THAT YOUR VOTES BE REPRESENTED. TO ENSURE THAT HAPPENS, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED BY MAIL OR
VOTE OVER THE INTERNET OR BY TOUCH-TONE TELEPHONE.
Thank you for your confidence and support.
Very truly yours,
EXCELSIOR DIRECTIONAL
HEDGE FUND OF FUNDS, LLC
/s/ David R. Bailin
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Name: David R. Bailin
--------------------------
Title: Manager
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QUESTIONS AND ANSWERS
AT THE SPECIAL MEETING OF MEMBERS ("MEMBERS") OF EXCELSIOR
DIRECTIONAL HEDGE FUND OF FUNDS, LLC (THE "FUND") TO BE HELD ON MARCH 15, 2007,
MEMBERS WILL HAVE THE OPPORTUNITY TO VOTE ON THREE PROPOSALS RELATING TO THE
FUND. WE RECOMMEND THAT YOU CAREFULLY READ THE ENCLOSED PROXY STATEMENT, WHICH
DESCRIBES THE PROPOSALS IN DETAIL. THE FOLLOWING "QUESTIONS AND ANSWERS" ARE
PROVIDED AS A SUPPLEMENT TO THE PROXY STATEMENT AND TO ANSWER QUESTIONS YOU MAY
HAVE.
WHY IS THE FUND HOLDING A SPECIAL MEETING OF MEMBERS?
On November 20, 2006, the Charles Schwab Corporation ("Schwab")
announced an agreement to sell its subsidiary, U.S. Trust Corporation ("U.S.
Trust"), to the Bank of America Corporation ("Bank of America"), along with all
of U.S. Trust's subsidiaries, including U.S. Trust Hedge Fund Management, Inc.,
the investment adviser of the Fund (the "Adviser") (the "Sale").
The change in control of U.S. Trust resulting from the Sale will
result in the automatic termination of the Fund's current investment advisory
agreement with the Adviser (the "Current Agreement"), in accordance with its
terms. Thus, for the Adviser to continue provide investment advisory services to
the Fund after the Sale, the Fund must enter into a new investment advisory
agreement with the Adviser.
On January 11, 2007, the Board of Managers of the Fund (the
"Board") unanimously approved a new investment advisory agreement with the
Adviser to become effective upon, and subject to, the Sale (the "New
Agreement"). The New Agreement is identical in all material respects to the
Current Agreement except for the term and date of its effectiveness. The New
Agreement is also subject to approval by Members before it can become effective.
Accordingly, the Board has called a Special Meeting of Members to be held on
March 15, 2007 (the "Meeting") to seek Member approval for the New Agreement.
Members also will vote on proposals to elect four nominees
proposed by the Board to serve as Managers of the Fund and to reorganize the
Fund to implement a "master/feeder" investment structure, in which Members will
own interests in a new fund that will pursue its investment objective by
investing its assets in the Fund. The new fund, including its features, fees and
investment program, will be the same as the current features, fees and
investment program of the Fund, except that the new fund will pursue its
investment objective by investing in the Fund.
HOW WILL THE SALE AND THE NEW AGREEMENT AFFECT ME AS A MEMBER OF THE FUND?
The Sale will result in a change in ownership of U.S. Trust, the
parent of the Adviser. In approving the New Agreement, the Board received
representations from the Adviser and Bank of America that no material adverse
impact on the daily operations of the Fund or the nature or quality of the
investment advisory activities provided to the Fund by the Adviser is expected
to arise as a result of being affiliated with Bank of America. Although the
ownership of the Adviser will change upon completion of the Sale, the Board was
advised that the Adviser and Bank of America did not anticipate any changes to
the investment personnel responsible for managing the Fund's portfolio. The
Fund's investment objective and investment
program will not be affected by the Sale, and your interest in the Fund, your
capital account and fees payable by the Fund will not be affected by the
transaction.
WHY ARE MEMBERS VOTING TO ELECT MANAGERS OF THE FUND?
The Board, which is comprised of four Managers, is responsible
for supervising the business and affairs of the Fund. The four nominees proposed
by the Board currently are Managers of the Fund. One person now serving as a
Manager was elected to that position by action of the Board to fill a vacancy
created by the resignation of another Manager. Under the requirements of the
Investment Company Act of 1940, as amended (the "1940 Act"), if one of the
previously-elected Managers were to resign (or become unable to serve), it would
be necessary to call a special meeting of Members to elect a person to fill the
vacancy. Thus, the election of the nominee Managers at the Meeting may help
avoid the need to call a special meeting of Members in the future, and the
related costs of such a meeting.
WHY IS IT PROPOSED THAT THE FUND BE REORGANIZED TO IMPLEMENT A "MASTER/FEEDER"
STRUCTURE?
In a master/feeder investment structure, two or more investment
funds having the same investment program ("feeder funds") pursue their
investment objectives by investing their assets in a common "master fund" that
has the same investment objective and substantially the same investment policies
as the feeder funds. The master fund, in turn, invests its assets in securities
and other investments consistent with the investment policies of the feeder
funds. A master/feeder structure provides a way for feeder funds that are
designed for different types of investors to invest through a common master
fund. This structure allows for efficiencies in investing and efficiencies in
operating costs to the extent that the assets of multiple funds are pooled for
investing and are able to share certain related costs.
This pooling of the investments of the Fund with the investments
of other investment funds will create certain efficiencies in investment. In
addition, the master/feeder structure will facilitate the ability of the Adviser
to make available a new investment fund similar to the Fund for U.S. tax-exempt
investors. Members who have or participate in retirement accounts or employee
benefit plans and wish to invest a portion of the assets of those accounts or
plans in accordance with the Fund's investment program may have the opportunity
to do so through the new fund (assuming they meet applicable eligibility
requirements). Consequently, the master/feeder structure is expected to result
in certain cost economies to the extent that certain fixed (or relatively fixed)
expenses of the master fund would be shared by each of the feeder funds, which
would allow for lower expense ratios of the feeder funds. A lower expense ratio
would benefit Members.
HOW WILL THE REORGANIZATION OF THE FUND AFFECT ME?
The Fund currently pursues its investment objective of capital
appreciation by investing in a diverse group of private investment funds
("Investment Funds") that primarily invest or trade in a wide range of equity
and debt securities. It is proposed that the Fund be reorganized so that Members
holding interests in the Fund will instead own interests in a newly organized
fund (the "New Fund") that would have the same investment objective and the same
investment policies as the Fund (except the New Fund would pursue its investment
objective by investing in the Fund) (the "Reorganization").
In the Reorganization, the Fund will merge with a subsidiary of
the New Fund, and Members will receive interests in the New Fund in exchange for
their interests in the Fund. The result will be that Members will become members
of the New Fund, which will initially own all of the interests in the Fund.
After the Reorganization, the Fund will operate as a "master fund" and will hold
all of the interests in the Investment Funds owned by the Fund immediately prior
to the reorganization. Like the Fund, the New Fund will be registered as an
investment company under the 1940 Act.
The investment objective and investment program of the Fund will
not change as a result of the Reorganization. The only change will be that
Members will own interests in the New Fund (rather than interests in the Fund),
and that the New Fund will indirectly invest in Investment Funds by investing in
the Fund (rather than invest directly in Investment Funds as is now the case).
The Reorganization will not affect the value of your investment
(I.E., the value of your capital account will not change as a result of the
Reorganization). In addition, there will be no increase in fees payable to the
Adviser (I.E., the aggregate fees payable by the New Fund and by the Fund to the
Adviser will be the same as the fees currently payable to the Adviser by the
Fund). Moreover, the New Fund will have the same features as are currently
offered by the Fund.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
THE BOARD HAS CAREFULLY CONSIDERED EACH OF THE PROPOSALS THAT WILL
BE VOTED ON AT THE MEETING AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE NEW AGREEMENT, "FOR" EACH OF THE NOMINEES FOR MANAGER LISTED ON
THE ENCLOSED PROXY CARD TO SERVE AS MANAGERS OF FUND AND "FOR" APPROVAL OF THE
REORGANIZATION.
HOW CAN I VOTE?
Whether or not you attend the Meeting, you may vote by using one
of the following options:
o BY MAIL: Mark, sign and date the enclosed proxy card
and return it in the enclosed envelope.
o BY TELEPHONE: Call toll-free at 1-888-221-0697 to vote
by phone. Have the enclosed proxy card available for
reference. Follow the recorded instructions. Do not
mail the paper proxy card.
o BY INTERNET: Log on to www.proxyweb.com. Have the
enclosed proxy card available for reference. Follow the
on-screen instructions. Do not mail the paper proxy
card.
If you attend the Meeting, you may vote in person.
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
225 HIGH RIDGE ROAD
STAMFORD, CT 06905
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON MARCH 15, 2007
To Members:
A Special Meeting of Members ("Members") of Excelsior Directional
Hedge Fund of Funds, LLC (the "Fund") will be held on March 15, 2007, at 11:00
a.m. (Eastern Standard time) at the offices of United States Trust Company,
National Association, 225 High Ridge Road, Stamford, Connecticut 06905 (the
"Meeting").
The Meeting is called for the following purposes:
1. to approve a new Investment Advisory Agreement between the
Fund and U.S. Trust Hedge Fund Management, Inc. (the
"Adviser") to become effective upon completion of the sale
of U.S. Trust Corporation ("U.S. Trust") to the Bank of
America Corporation (the "New Agreement");
2. to elect four persons to serve as members of the Board of
Managers of the Fund (the "Board");
3. to approve a Plan and Agreement of Reorganization and Merger
to implement a master/feeder investment structure (the
"Reorganization"); and
4. to transact such other business as may properly come before
the Meeting.
These proposals are discussed in greater detail in the
accompanying Proxy Statement.
You may vote at the Meeting if you were a Member of record of the
Fund as of the close of business on January 12, 2007. If you attend the Meeting,
you may vote in person. Members who do not expect to attend the Meeting are
urged to vote in one of three ways: (i) by signing and returning the enclosed
proxy card in the enclosed prepaid envelope; (ii) by using the Internet if you
want to vote electronically; or (iii) by using your touch-tone telephone. Signed
but unmarked proxy cards will be counted in determining whether a quorum is
present at the Meeting and will be voted "FOR" approval of the New Agreement,
"FOR" each of the persons nominated to serve as members of the Board, and "FOR"
approval of the Reorganization.
The Fund will furnish, without charge, copies of its most recent
annual report and subsequent semi-annual report to Members upon request. Please
call (203) 352-4400 or write to Excelsior Directional Hedge Fund of Funds, LLC,
225 High Ridge Road, Stamford, Connecticut 06905, Attn: Peggy Lynn, to request
copies of these reports. You may also view or obtain these documents from the
SEC (i) in person: at the SEC's Public Reference Room in Washington, D.C., (ii)
by phone: 1-800-SEC-0330, (iii) by mail: Public Reference Section, Securities
and
Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549,(duplicating fee
required), (iv) by e-mail: publicinfo@sec.gov, or (v) by Internet: www.sec.gov.
If you have any questions, please call the Fund at (203) 352-4400.
By Order of the
Board of Managers
EACH MEMBER'S VOTE IS IMPORTANT. THE MEETING MAY BE ADJOURNED WITHOUT CONDUCTING
ANY BUSINESS IF A QUORUM IS NOT PRESENT. IN THAT EVENT, THE FUND WILL CONTINUE
TO SOLICIT PROXIES IN AN ATTEMPT TO OBTAIN A QUORUM.
YOUR VOTE COULD BE CRITICAL TO ENABLE THE FUND TO HOLD THE MEETING AS SCHEDULED,
SO PLEASE VOTE IN ONE OF THREE WAYS: (I) BY SIGNING AND RETURNING THE ENCLOSED
PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE; (II) BY USING THE INTERNET IF YOU
WANT TO VOTE ELECTRONICALLY; OR (III) BY USING YOUR TOUCH-TONE TELEPHONE. PLEASE
SEE YOUR PROXY CARD, FOR ADDITIONAL INSTRUCTIONS ON HOW TO VOTE.
EXCELSIOR DIRECTIONAL HEDGE FUND
OF FUNDS, LLC
225 HIGH RIDGE ROAD
STAMFORD, CT 06905
SPECIAL MEETING OF MEMBERS
TO BE HELD ON MARCH 15, 2007
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PROXY STATEMENT
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This Proxy Statement is being furnished to members ("Members") of
Excelsior Directional Hedge Fund of Funds, LLC (the "Fund") by the Board of
Managers of the Fund (the "Board"). The Board is requesting your proxy for use
at a Special Meeting of Members (the "Meeting") to be held at the offices of
United States Trust Company, National Association ("USTC, NA"), 225 High Ridge
Road, Stamford, Connecticut 06905 on March 15, 2007, at 11:00 a.m. (Eastern
Standard time). Your proxy may also be voted at any adjournment of the Meeting.
In addition to soliciting proxies by mail, officers of U.S. Trust
Hedge Fund Management, Inc., the Fund's investment adviser (the "Adviser") and
personnel of UST Advisers, Inc. and USTC, NA, may solicit proxies by telephone
or in person, without special compensation. The Adviser has retained ADP, a
third party solicitor, to solicit proxies from Members. ADP may solicit proxies
in person, by Internet or by telephone. The Adviser expects to pay approximately
$3,979 to ADP in connection with the solicitation. The fee and expenses of the
proxy solicitor, as well as all other costs associated with the solicitation of
proxies and of the Meeting, are being paid by the Adviser.
At the Meeting, Members will vote on a proposal to approve a new
Investment Advisory Agreement between the Adviser and the Fund (the "New
Agreement"), to become effective upon the sale of U.S. Trust Corporation ("U.S.
Trust"), the parent company of the Adviser, to the Bank of America Corporation
("Bank of America") (PROPOSAL 1). Members also will be voting to elect four
persons to serve as members of the Board (PROPOSAL 2). Each of the nominees for
election currently serves as a member of the Board (a "Manager"). In addition,
Members will be voting on a proposal to reorganize the Fund to implement a
master/feeder structure, in which Members will own interests in a new fund that
will pursue its investment objective by investing its assets in the Fund. The
new fund will have the same investment objective and substantially the same
investment policies as the Fund, and will have the same features as are
currently offered by the Fund. The Adviser will continue to provide investment
advisory services to both the Fund and the new fund (PROPOSAL 3 and
collectively, the "Proposals").
All properly-executed proxies received before the Meeting will be
voted at the Meeting and any adjournment thereof in accordance with the
instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, such executed proxies will be voted
"FOR" each of the Proposals. Members who execute proxies retain the right to
revoke them in person at the Meeting or by written notice received by the Fund
at any time
i
before they are voted. Proxies voted by telephone or over the Internet may be
revoked at any time before they are voted, in the same manner that proxies voted
by mail may be revoked. In addition, any Member who attends the Meeting in
person may vote by ballot at the meeting, thereby canceling any proxy previously
given. See " Voting Information - Revocation of Proxies and Abstentions."
If a quorum is not present at the Meeting or if sufficient votes
have not been obtained to approve the Proposals, the persons named as proxies
may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. See "Voting Information - Adjournments."
The close of business on January 12, 2007 has been fixed as the
record date (the "Record Date") for the determination of Members entitled to
notice of and to vote at the Meeting and any adjournment.
Each Member is entitled to cast a number of votes equivalent to
such Member's investment percentage(1) as of the Record Date. As of the close
of business on the Record Date, the total value of the capital accounts of all
Members was $297,393,180.
This Proxy Statement is first being mailed to Members on or about
February 8, 2007.
Copies of the Fund's most recent annual report and subsequent
semi-annual report to Members are available upon request, without charge, by
calling (203) 352-4400 or writing to Excelsior Directional Hedge Fund of Funds,
LLC, 225 High Ridge Road, Stamford, Connecticut 06905, Attn: Peggy Lynn. You may
also view or obtain these documents from the SEC (i) in person: at the SEC's
Public Reference Room in Washington, D.C., (ii) by phone: 1-800-SEC-0330, (iii)
by mail: Public Reference Section, Securities and Exchange Commission, 100 F
Street, N.E., Washington, D.C. 20549,(duplicating fee required), (iv) by e-mail:
publicinfo@sec.gov, or (v) by Internet: www.sec.gov.
As of the Record Date, there were no Members owning of record or
known by the Fund to own beneficially 5% or more of the outstanding limited
liability company interests in the Fund ("Interests"). Two of the Managers hold
outstanding Interests of the Fund. As of the Record Date, the Adviser and its
affiliates (together, the "Adviser Affiliates") beneficially owned less than 1%
of the outstanding Interests.
------------------------
(1) An investment percentage is established for each Member on the Fund's books
as of the first day of each fiscal period. The investment percentage of each
Member was most recently established on December 31, 2006, and was determined by
dividing the balance of each Member's capital account as of such date, which was
the commencement of the most recent fiscal period, by the sum of the balances of
capital accounts of all Members as of that date. The sum of the investment
percentages of all Members for each fiscal period equals 100%. This means that,
if a Member's investment percentage is 1.1%, such Member will have the right to
vote the equivalent of 1.1 votes out of a total of 100 votes entitled to be
voted by all Members.
- ii -
TABLE OF CONTENTS
PAGE
I. Proposals for Member Approval............................................1
Proposal 1 -Approval of the New Investment Advisory Agreement............1
Proposal 2 - Election of Managers........................................9
Proposal 3 -Reorganization of the Fund..................................16
II. Voting Information........................................................20
III. Other Matters and Additional Information................................21
- iii -
I. PROPOSALS FOR MEMBER APPROVAL
PROPOSAL 1
APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT
INTRODUCTION.
On November 20, 2006, the Charles Schwab Corporation ("Schwab")
announced an agreement to sell U.S. Trust, a wholly-owned subsidiary of Schwab,
to Bank of America. The transaction (the "Sale") is subject to Federal Reserve
Board and other regulatory approvals, as well as, in the case of Bank of
America's obligation to complete the Sale, the approval of a new investment
advisory agreement for the Fund with the Adviser. If approved, the Sale will
result in Bank of America owning U.S. Trust and all of its subsidiaries,
including the Adviser.
As required by the Investment Company Act of 1940, as amended (the
"1940 Act"), the change in control of the Adviser resulting from the Sale will
cause the automatic termination of the Fund's current investment advisory
agreement with the Adviser (the "Current Agreement"), in accordance with its
terms. Thus, the Fund must enter into a new investment advisory agreement with
the Adviser, for the Adviser to continue to serve as investment adviser of the
Fund after the Sale.
On January 11, 2007, the Board and the Managers who are not
"interested persons," as defined by the 1940 Act (the "Independent Managers"),
of the Fund or the Adviser approved a new investment advisory agreement with the
Adviser to become effective upon the Sale (the "New Agreement"). To become
effective, the New Agreement also must be approved by Members.
The New Agreement is identical in all material respects to the
Current Agreement except for the term and date of its effectiveness. A copy of
the New Agreement is contained in Exhibit 1 to this Proxy Statement.
1940 ACT REQUIREMENTS.
As required by the 1940 Act, the Current Agreement provides for
its automatic termination in the event of its assignment (to the extent required
by the 1940 Act and the rules thereunder), unless such automatic termination
shall be prevented by an exemptive order or rule of the Securities and Exchange
Commission (the "SEC"). An "assignment," as defined by the 1940 Act, is deemed
to include any change of control of the Adviser. Section 15(a) of the 1940 Act
prohibits any person from serving as an investment adviser of a registered
investment company, such as the Fund, except pursuant to a written contract that
has been approved by the vote of a majority of the outstanding voting securities
of the investment company.
The Sale will result in a change in control of the Adviser because
Bank of America will become the owner of U.S. Trust, the parent of the Adviser.
Therefore, the Sale will result in a termination of the Current Agreement, and
the approval of the New Agreement by Members is required for the Adviser to
continue to provide investment advice to the Fund after the Sale. If the New
Agreement is approved by Members but the Sale is not consummated, the
1
Adviser will serve as investment adviser under the New Agreement, which would
become effective upon the later of Member approval or termination of the stock
purchase agreement between Schwab and Bank of America. In the event the New
Agreement is not approved and the Sale is consummated, the Board will promptly
consider what appropriate action to take that is in the best interests of the
Fund and Members. Such action may include, but is not limited to, seeking a new
investment adviser, other than the Adviser, subject to any required approval by
Members or liquidating the Fund. If the New Agreement is not approved and the
Sale is not consummated, the Adviser will continue to serve as investment
adviser to the Fund under the current investment advisory agreement.
If the New Agreement is approved by Members, the New Agreement
will become effective upon consummation of the Sale and will have an initial
term expiring not more than two years from the date of execution of the New
Agreement. The New Agreement may continue in effect from year to year after its
initial term, provided that such continuance is approved annually by: (i) the
Board; or (ii) the vote of a majority (as defined by the 1940 Act) of the
outstanding voting securities of the Fund; and, that, in either event, such
continuance also is approved by a majority of the Independent Managers of the
Fund, by vote cast in person at a meeting called for the purpose of voting on
such approval.
In anticipation of the Sale and to help assure continuity in
investment advisory services provided to the Fund should the Sale be
consummated, the Board held an in-person meeting on January 11, 2007 to consider
the potential implications of the Sale to the Fund and to consider the New
Agreement pursuant to which the Adviser would continue to provide investment
advisory and other services to the Fund after the Sale. After careful
consideration of these matters, and evaluation of the factors described below
under "Board Consideration," the Board and all of the Independent Managers
approved the New Agreement and directed that the New Agreement be submitted to
Members for approval at the Meeting. THE TERMS OF THE NEW AGREEMENT ARE
IDENTICAL IN ALL MATERIAL REPSECTS TO THE TERMS OF THE CURRENT AGREEMENT EXCEPT
FOR THE TERM AND DATE OF ITS EFFECTIVENESS.
In connection with the Sale, Schwab and Bank of America intend to
use reasonable best efforts to ensure that they comply with the "safe harbor"
provisions afforded by Section 15(f) of the 1940 Act. Section 15(f) provides, in
substance, that when a sale of a controlling interest in an investment adviser
of an investment company occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection therewith as long as two
conditions are satisfied. First, an "unfair burden" must not be imposed on the
investment company as a result of the transaction relating to the sale of such
interest, or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined to include any
arrangement during the two-year period after the transaction whereby the
investment adviser (or predecessor or successor adviser), or any "interested
person," as defined by the 1940 Act, of any such adviser, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or the holders of its securities (other than fees for bona
fide investment advisory or other services) or, with certain exceptions, from
any person in connection with the purchase or sale of securities or other
property to, from or on behalf of the investment company. The Board is not aware
of any circumstances relating to the Sale that might result in an unfair burden
being imposed on the Fund.
2
The second condition of Section 15(f) is that, during the
three-year period following consummation of a transaction, at least 75% of the
investment company's board must not be "interested persons," as defined by the
1940 Act, of the investment adviser or predecessor adviser of the investment
company. With respect to this second condition, three of the four Managers are
not "interested persons" of the Adviser or Bank of America. Thus, the Board
currently satisfies the 75% requirement.
Bank of America has agreed with Schwab to use reasonable best
efforts, to the extent within its control or that of its affiliates, to comply
with Section 15(f) of the 1940 Act. Specifically, Bank of America has agreed
with Schwab to use reasonable best efforts to assure that (1) no more than 25%
of the Board are "interested persons" of Bank of America or the Adviser for a
period of not less than three years after the closing of the Sale and (2) for a
period of not less than two years after the closing of the Sale not to impose an
"unfair burden" (within the meaning of Section (15) of the 1940 Act) on the Fund
as a result of the transaction contemplated by the Sale.
THE ADVISER.
The Adviser is a wholly-owned subsidiary of U.S. Trust and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. Through its subsidiaries, U.S. Trust provides investment management,
fiduciary, financial planning and private banking services to affluent
individuals, families and institutions nationwide. Headquartered in New York
City, U.S. Trust and its subsidiaries have thirty-nine offices throughout the
United States.
U.S. Trust (114 W. 47th Street, New York, New York 10036) is a
subsidiary of Schwab (101 Montgomery Street, San Francisco, CA 94104) and is a
financial holding company registered under Federal law and incorporated in New
York. Charles R. Schwab is the founder, Chairman and a Director and significant
shareholder of Schwab. As a result of his postions and share ownership, Mr.
Schwab may be deemed to be a controlling person of Schwab and its subsidiaries.
Schwab, through its principal brokerage subsidiary, Charles Schwab & Co., Inc.,
is one of the nation's largest financial services firms, serving investors
through the Internet, investor centers, regional customer telephone service
centers and automated telephonic channels.
The following chart sets forth the name, address and principal
occupation of the principal executive officers and directors of the Adviser and
of each employee of the Adviser who is also an officer or Manager of the Fund:
-----------------------------------------------------------------------------------------------------
NAME ADDRESS PRINCIPAL OCCUPATION
-----------------------------------------------------------------------------------------------------
Robert F. Aufenanger 225 High Ridge Road Chief Financial Officer and
Stamford, CT 06905 Treasurer
-----------------------------------------------------------------------------------------------------
Spencer Boggess 225 High Ridge Road President and Chief Executive
Stamford, CT 06905 Officer
-----------------------------------------------------------------------------------------------------
David R. Bailin 225 High Ridge Road Chairman and Director
Stamford, CT 06905
-----------------------------------------------------------------------------------------------------
Leo A. Gardella 225 High Ridge Road Senior Vice President and Director
Stamford, CT 06905
-----------------------------------------------------------------------------------------------------
Nicola Knight 114 W. 47th Street Chief Legal Officer
New York, New York 10036
-----------------------------------------------------------------------------------------------------
Mohan Badgujar 225 High Ridge Road Vice President
Stamford, CT 06905
-----------------------------------------------------------------------------------------------------
3
As of October 31, 2006, the Adviser had approximately $548 million
in aggregate assets under management.
INFORMATION CONCERNING BANK OF AMERICA.
Bank of America is a financial services holding company organized
as a Delaware corporation. Bank of America provides a diverse range of financial
services and products. Bank of America, headquartered in Charlotte, North
Carolina, operates in 29 states and the District of Columbia and has offices
located in 150 foreign countries. Bank of America provides a diversified range
of banking and certain nonbanking financial services and products both
domestically and internationally through five business segments, one of which is
Global Wealth & Investment Management ("GWIM)". The GWIM division provides
investment, fiduciary and comprehensive banking and credit expertise to
individual and institutional clients located across the United States and
throughout the world. As of December 31, 2006 GWIM's assets under management
were approximately $542.9 billion.
INFORMATION ABOUT THE SALE.
The Sale is expected to be consummated in the third quarter of
2007, but could occur later depending upon regulatory approvals and satisfaction
of other conditions and is subject to continued negotiation by Bank of America
and Schwab. The closing of the Sale is subject to: (i) the approval of new
investment advisory agreements by the boards and shareholders of each of the
mutual funds advised by USTC, NA or UST Advisers, Inc.; (ii) certain regulatory
approvals; and (iii) other customary closing conditions. The Sale will result in
Bank of America controlling U.S. Trust and each of its subsidiaries, including
the Adviser.
DESCRIPTION OF THE NEW AGREEMENT AND CURRENT AGREEMENT.
The Adviser has served as investment adviser of the Fund since its
inception pursuant to the Current Agreement, which is dated October 1, 2000. The
Current Agreement was approved by the Board at a meeting held on August 23,
2000, and a written consent was executed by the organizational member of the
Fund (who was then the sole securityholder of the Fund) approving the Current
Agreement on August 23, 2000. After its initial term, the Current Agreement has
been continued in effect annually by action of the Board. Such continuance was
last approved at a meeting held on June 7, 2006.
The terms of the Current Agreement and the New Agreement are
described generally below.
ADVISORY SERVICES. Under the Current Agreement, the Adviser is
responsible for managing the investment activities of the Fund, subject to the
supervision of the Board, in a manner consistent with the Fund's investment
objective, policies and restrictions, and for determining the investments to be
purchased and sold by the Fund. The Current Agreement also requires the Adviser
to provide various other services, including, among others: to supervise the
entities retained to provide accounting, custody and other services to the Fund;
to respond to inquiries of Members regarding their investment and capital
account balances; to assist in the preparation and mailing of subscription
materials to prospective investors and of reports and other information to
Members; to assist in the preparation of regulatory filings; to monitor
compliance with regulatory filings; to review the accounting records of the Fund
and to assist in the preparation of and review financial reports of the Fund; to
review and arrange for the payment of Fund expenses; to coordinate and organize
meetings of the Board and meetings of Members, and to prepare materials and
reports for use at meetings of the Board; to assist the Fund in conducting
repurchase offers; and to review subscription documents and to assist in the
4
processing of subscriptions for Interests. The New Agreement requires that the
Adviser provide the same services. Under both the Current Agreement and the New
Agreement, the Adviser is responsible for bearing all costs and expenses
associated with its provision of services (including, but not limited to:
expenses relating to the selection and monitoring of investments; fees of
consultants retained by the Adviser; and expenses relating to qualifying
potential investors and reviewing subscription documents), and is required, at
its own expense, to maintain such staff and to employ or retain such personnel
and consult with such other persons as may be necessary to render the services
required to be provided by the Adviser.
ADVISORY FEE. In consideration of services provided by the Adviser
under the Current Agreement, the Fund pays the Adviser a quarterly management
fee computed at the annual rate of 1.50% of the Fund's net assets determined as
of start of business on the first business day of each calendar quarter, after
adjustment for any subscriptions effective on such date. The management fee is
payable in arrears and is pro rated in the event capital contributions or
withdrawals of capital are made other than at the beginning or end of the
quarter. The same fee is payable to the Adviser under the New Agreement. For the
fiscal year ended March 31, 2006, the Adviser received $3,997,622 in advisory
fees from the Fund. Under the Current Agreement, the Adviser may charge a
one-time administrative fee in an amount (which is subject to approval by the
Board) not to exceed $10,000 to each person who becomes a Member as compensation
for the services of the Adviser and costs incurred by the Adviser in reviewing
subscription documents submitted by and establishing an account for the Member.
Although the Adviser will be entitled to impose a similar fee under the terms of
the New Agreement, it has no current intention to impose such a fee.
LIABILITY AND INDEMNIFICATION. The Current Agreement requires that
Adviser use its best efforts in the supervision and management of the investment
activities of the Fund and in providing services, but provides that, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations, the Adviser (and its directors, officers and
employees and its affiliates, successors or other legal representatives) shall
not be liable to the Fund for any error of judgment, for any mistake of law, for
any act or omission by the Adviser or any of its affiliates or for any loss
suffered by the Fund. In addition, the Current Agreement requires that the Fund
indemnify the Adviser and its directors, officers or employees and their
respective affiliates, executors, heirs, assigns, successors or other legal
representatives against any and all costs, losses, claims, damages or
liabilities, joint or several, including, without limitation, reasonable
attorneys' fees and disbursements, resulting in any way from the performance or
non-performance of any their duties with respect to the Fund, except those
resulting from their willful malfeasance, bad faith or gross negligence or their
reckless disregard of such duties, and in the case of criminal proceedings,
unless they had reasonable cause to believe their actions unlawful. The
provisions of the New Agreement relating to the liability of the Adviser and the
Fund's obligation to indemnify the Adviser are the same as those of the Current
Agreement.
EFFECTIVE DATE AND TERM. The Current Agreement had an initial term
expiring September 30, 2002, and provides for its continuance from year to year
thereafter; provided that such continuance is approved at least annually by the
vote of a majority of the outstanding voting securities of the Fund, as defined
by the 1940 Act and the rules thereunder, or by the Board; and provided that
such continuance is also approved by a majority of the Managers who are not
5
parties to the agreement or "interested persons" (as defined by the 1940 Act and
the rules thereunder) of any such party, by vote cast in person at a meeting
called for the purpose of voting on such approval. The provisions of the New
Agreement relating to the term of effectiveness of the New Agreement are the
same as those of the Current Agreement, except that the New Agreement will
become effective upon the Sale and will have an initial term expiring not more
than two years from the date of execution of the New Agreement.
TERMINATION. The Fund has the right, at any time and without
payment of any penalty, to terminate the Current Agreement upon sixty days'
prior written notice to the Adviser, either by majority vote of the Board or by
the vote of a majority of the outstanding voting securities of the Fund (as
defined by the 1940 Act and the rules thereunder). The Adviser has a similar
right to terminate the Current Agreement upon sixty days' prior written notice
to the Fund. In addition, the Current Agreement provides for its automatic
termination in the event of its assignment (to the extent required by the 1940
Act and the rules thereunder) unless such automatic termination is prevented by
an exemptive order or rule of the SEC. The New Agreement has the same
termination provisions.
BOARD CONSIDERATION.
The New Agreement was unanimously approved by the Board and by the
Independent Managers at a meeting held on January 11, 2007. In making its
determination to approve the New Agreement and to recommend its approval by
Members, the Board considered all information it deemed reasonably necessary to
evaluate the terms of the New Agreement and the ability of the Adviser to
continue after the Sale to provide services to the Fund of the same scope and
quality as are now provided. The Independent Managers reviewed materials
furnished by the Adviser, including information regarding the Adviser, its
affiliates and personnel, operations and financial condition, and information
regarding Bank of America. At the meeting, the Board also met with
representatives of the Adviser and with representatives of Bank of America and
discussed various matters relating to: the operations of the Fund and the
Adviser; the commitment of Bank of America to support the Adviser's business and
operations; and Bank America's plans with respect to the management and offering
of alternative investment products, including the Fund. Representatives of Bank
of America assured the Board that Bank of America does not anticipate that there
will be any reduction or significant adverse change in the scope, nature or
quality of the investment advisory or other services provided to the Fund by the
Adviser under the New Agreement. These representatives noted that a plan would
be put into place designed to provide for the continuity of the investment
advisory services under the New Agreement. They stated that no departures of
personnel of the Adviser material to the Fund's operations are anticipated and
that Bank of America's intention is to utilize the strengths and personnel of
both organizations to develop a cohesive team. The Board was also advised that
the Adviser will continue to provide investment advice with no material changes
in operating conditions and, in particular, that the Sale will not adversely
affect the ability of the Adviser to fulfill its obligations to the Fund. The
representatives of Bank of America also noted that after the Sale, the Fund will
be sold through new distribution channels, and that the Sale is being viewed by
Bank of America as an opportunity to enhance Bank of America's offerings of
alternative investment funds. Additionally, the Board was assured that Schwab
and Bank of America intend to comply with the "safe harbor" provisions afforded
by Section 15(f) of the 1940 Act.
Based on its review, and after careful consideration of the
factors discussed below, the Board (including each of the Independent Managers)
unanimously determined that continuity and efficiency of advisory services after
the Sale can best be assured by approving the
6
New Agreement. In connection with the Board's review, the Independent Managers
met in an executive session, during which they were advised by and had the
opportunity to discuss with independent legal counsel various matters relating
to the Sale and the New Agreement. The Board believes that the New Agreement
will enable the Fund to obtain high quality investment advisory services at a
cost that is reasonable and appropriate and that approval of the New Agreement
is in the best interests of the Fund and Members. No single factor was
considered in isolation, nor was any single factor considered to be
determinative to the decision to approve the New Agreement.
In connection with its deliberations, the Independent Managers,
with the assistance of independent legal counsel, requested, received and
reviewed information regarding the New Agreement and relevant materials
furnished by the Adviser, U.S. Trust and Bank of America. These materials
included information regarding Bank of America and its management, history,
qualifications, personnel, operations and financial condition and other
pertinent information. In addition, the representations made by representatives
of Bank of America were considered.
In considering the New Agreement, the Board considered the
nature, extent and quality of operations and services to date provided by the
Adviser to the Fund, which are expected to continue to be provided after the
Sale. It also considered the fact that the Current Agreement and the New
Agreement, including the terms relating to the services to be performed by the
Adviser, and the fees payable by the Fund, are identical except for the term and
date of its effectiveness. With respect to the fees payable under the New
Agreement, the Board compared the fees and overall expense levels of the Fund to
those of competitive funds and other funds with similar investment objectives
(including other funds advised by the Adviser and its affiliates). In evaluating
the advisory fee, the Board also took into account the complexity and quality of
the investment management services required by the Fund. The Board also
considered the investment performance of the Fund, including comparisons of the
Fund's performance to that of similar funds, and the costs of services provided
and the profits realized by the Adviser from its relationship with the Fund. The
Board considered the extent to which economies of scale in costs of providing
services would be realized as the Fund grows and whether the fees payable to the
Adviser pursuant to the New Agreement properly reflects these economies of scale
for the benefit of investors. The benefits to the Adviser of its relationship
with the Fund were also considered. The Board viewed as significant the fact
that the key personnel of the Adviser who provide investment advisory services
to the Fund will continue to provide services to the Fund after the Sale, and
the commitment of Bank of America to maintain the continuity of management
functions and the services provided to the Fund. In addition to the foregoing,
the Board considered the expected financial condition and resources of the
Adviser following the Sale in light of the business reputation and financial
condition of Bank of America, and considered whether there are any aspects of
the Sale likely to affect adversely the ability of the Adviser to retain and
attract qualified personnel following the Sale and to otherwise provide services
to the Fund.
Possible alternatives to approval of the New Agreement were also
considered by the Board. During its review and deliberations, the Board
evaluated the potential benefits, detriments and costs to the Fund and Members
of the Sale. The Board determined that Members will likely benefit from the
expected retention and the continued availability of the management
7
expertise of the key personnel of the Adviser who now provide investment advice
to the Fund. In addition, the Board deemed it beneficial to the Fund to be
affiliated with Bank of America for several reasons, including the expanded
distribution capabilities that can be offered by Bank of America and the
extensive investment, compliance and operations infrastructure that will be
available as a result of the Sale.
After consideration, the Managers noted their overall satisfaction
with the nature, quality and extent of services provided by the Adviser and
concluded that the Fund was receiving, and would continue to receive under the
New Agreement, all services required from the Adviser and that these services
were of high quality. The Managers also concluded that the Fund's performance
compared favorably with the performance of similar registered funds, and
determined that the fees and expense ratios of the Fund are within the range of
the fees and expense ratios of similar funds. They also concluded that the
profitability to the Adviser from its relationship with the Fund was not
disproportionately large so that it bore no reasonable relationship to the
services rendered and determined that, given the overall performance of the Fund
and superior service levels, the current profitability was not excessive.
One of the Managers has an interest in the approval of the New
Agreement as a result of his financial interest in and position with the Adviser
or its affiliates, as described above under the heading "The Adviser."
REQUIRED VOTE.
Approval of the New Agreement by Members requires the affirmative
vote of a "majority of the outstanding voting securities" of the Fund, which,
for this purpose, means the affirmative vote of the lesser of (1) Members
representing more than 50% in interest of the outstanding Interests or (2)
Members representing 67% or more in interest of the outstanding Interests
present at a meeting called for the purpose of voting on such approval, if
Members holding more than 50% in interest of the outstanding Interests are
represented at such meeting in person or by proxy. If the New Agreement is not
approved, the Managers will take such further action as they deem to be in the
best interests of the Fund and Members.
ADDITIONAL INFORMATION.
UST Securities Corp. ("UST Securities") serves as the Fund's
placement agent and, in such capacity, offers Interests to investors in a
private placement. Like the Current Agreement, and consistent with the
requirements of the 1940 Act, the Fund's agreement with UST Securities also will
terminate upon the Sale. At its meeting on January 11, 2007, the Board and all
of the Independent Managers approved a new placement agent agreement between the
Fund and UST Securities, which is the same as the currently effective placement
agent agreement except for the term and date of its effectiveness. This new
agreement is not subject to approval by Members and will become effective upon
the consummation of the Sale if the New Agreement is approved by Members. UST
Securities is not compensated by the Fund or the Adviser for its services as
placement agent.
J.D. Clark & Co., located at 2425 Lincoln Avenue, Ogden, Utah
84401, provides various administrative services to the Fund pursuant to an
administrative, accounting and investor services agreement.
8
THE BOARD, INCLUDING ALL OF THE INDEPENDENT MANAGERS,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
THE NEW AGREEMENT
--------------------------------------------------------------------------------
PROPOSAL 2
ELECTION OF MANAGERS
At the Meeting, Members will vote on a proposal to elect four
persons nominated by the Board to serve as Managers, all of whom currently serve
as Managers. The nominees are: David R. Bailin, Gene M. Bernstein, Stephen V.
Murphy and Victor F. Imbimbo, Jr. Messrs. Bernstein, Murphy and Imbimbo, who are
Independent Managers, have served as Managers since the Fund's inception and
were elected to their positions by the organizational member of the Fund. The
other nominee, Mr. Bailin, has served as a Manager since September 7, 2006 and
was appointed by the Board to fill a vacancy created by the resignation of
another Manager.
The Board has determined to have each of the present Managers
stand for election by Members at the Meeting to help assure continued compliance
with 1940 Act provisions regarding the election of Managers. These provisions
require that a majority of the Managers be elected by Members and allow the
appointment of a new Manager by the Board to fill a vacancy on the Board only
if, after such appointment, at least two-thirds of the Managers have been
elected by Members. Because Mr. Bailin has not been elected by Members, if one
of the other Managers now serving were to resign (or become unable to serve as a
Manager), it would be necessary to call a special meeting of Members if the
Board determined to elect a person to fill the vacancy (since under those
circumstances only two of four Managers would have been elected by Members,
which is less than the required two-thirds specified by the 1940 Act). The
election of Managers at the Meeting will thus help avoid the need to call a
special meeting of Members in the future and the related costs of such a
meeting.
The persons named as proxies on the accompanying proxy card
intend, in the absence of contrary instructions, to vote all proxies they are
entitled to vote in favor of the election of the four nominees named above. The
nominees each have consented to stand for election and to serve if elected. If
elected, a nominee will serve for a term of indefinite duration until his
successor is elected and qualified, or his earlier death, resignation or
removal, or until declared bankrupt or incompetent by a court of appropriate
jurisdiction. If any nominee should be unable to serve, an event that is not now
anticipated, the persons named as proxies will vote for such replacement nominee
as may be designated by the Board.
Information regarding the nominees, including brief biographical
information, is set forth below.
9
INDEPENDENT MANAGER NOMINEES
-----------------------------------------------------------------------------------------------------------------------
(2)
POSITION(S) (3) (4) (5)
HELD TERM OF OFFICE/ PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS
(1) WITH THE LENGTH OF DURING PAST 5 YEARS AND OTHER IN FUND COMPLEX*
NAME, ADDRESS AND AGE FUND TIME SERVED DIRECTORSHIPS HELD OVERSEEN
--------------------- ------------ -------------- ------------------------------ --------------------
Gene M. Bernstein Manager Term Mr. Bernstein is Director of NIC 4
c/o Excelsior Directional Indefinite/ Holding Corp. He was Dean of the
Hedge Fund of Funds, LLC Length- since Skodneck Business Development
225 High Ridge Road October 2000 Center at Hofstra University from
Stamford, CT 06905 2000-2001. Prior to that, Mr.
Bernstein was President and Vice
Age 59 Chairman at Northville Industries,
a petroleum marketing,
distribution, trading and storage
company and wholly-owned subsidiary
of NIC Holding Corp.
Victor F. Imbimbo, Jr. Manager Term-Indefinite/ Mr. Imbimbo is the President and 4
c/o Excelsior Directional Length- since CEO of Caring Today, LLC., the
Hedge Fund of Funds, LLC October 2000 publisher of Caring Today Magazine,
225 High Ridge Road the leading information resource
Stamford, CT 06905 within the family caregivers
market. Prior to this, Mr. Imbimbo,
Age 54 was Executive Vice President of
TBWA\New York and President for
North America with
TBWA/WorldHealth, a division of
TBWA Worldwide where he directed
consumer marketing program
development for healthcare
companies primarily within the
pharmaceutical industry.
Stephen V. Murphy Manager Term-Indefinite/ Mr. Murphy is President of S.V. 4
c/o Excelsior Directional Length- since Murphy & Co., an investment banking
Hedge Fund of Funds, LLC October 2000 firm. Mr. Murphy serves as a
225 High Ridge Road director or manager of Excelsior
Stamford, CT 06905 Private Equity Fund II, Inc.,
Excelsior Venture Partners III,
Age 61 LLC, Excelsior Venture Investors
III, LLC and Excelsior Directional
Hedge Fund of Funds, LLC. He also
serves on the board of directors of
The First of Long Island
Corporation, The First National
Bank of Long Island and Bowne &
Co., Inc.
INTERESTED MANAGER NOMINEE
-----------------------------------------------------------------------------------------------------------------------
(2) (3)
POSITION(S) TERM OF (4) (5)
HELD OFFICE/ PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS
(1) WITH THE LENGTH OF DURING PAST 5 YEARS AND OTHER IN FUND COMPLEX*
NAME, ADDRESS AND AGE FUND TIME SERVED DIRECTORSHIPS HELD OVERSEEN
--------------------- ------------ -------------- ------------------------------ --------------------
David R. Bailin** Manager Since Managing Director of U.S. Trust's 2
United States Trust Company, September 2006 Alternative Investment Division
National Association (since 9/06); co-founder of
114 W. 47th Street Martello Investment Management, a
New York, NY 10036 hedge fund-of-funds specializing in
trading strategies (2/02 to 9/06);
Age 47 Chief Operating Officer and Partner
of Violy, Byorum and Partners, LLC,
an investment banking firm focusing
on Latin America (1/00 to 1/02).
* The "Fund Complex" consists of the Fund, Excelsior Private Equity Fund II,
Inc., Excelsior Venture Partners III, LLC and Excelsior Venture Investors III,
LLC.
**An "interested person," as defined by the 1940 Act, of the Fund because
of his affiliation with the Adviser and its affiliates.
In addition to Mr. Bailin, set forth below is the name and certain
biographical information for each of the Fund's other executive officers, as
reported by them to the Fund.
10
OFFICERS OF THE FUND
--------------------------------------------------------------------------------------------------------------------------------
(2) (3)
POSITION(S) TERM OF (4) (5)
HELD OFFICE/ PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS
(1) WITH THE LENGTH OF DURING PAST 5 YEARS AND OTHER IN FUND COMPLEX*
NAME, ADDRESS AND AGE FUND TIME SERVED DIRECTORSHIPS HELD OVERSEEN
--------------------- ------------ -------------- ------------------------------ --------------------
Spencer Boggess Chief Term - President and Chief Executive N/A
United States Trust Company, Executive Indefinite Officer of U.S. Trust Hedge Fund
National Association Officer Length - Management, Inc. and Portfolio
114 W. 47th Street Since March Manager of the Company (7/03 to
New York, NY 10036 2006 present); Senior V.P. and Director
of Research, CTC Consulting, Inc.
Age 39 (10/00 to 6/03).
Mohan Badgujar Chief Term - Vice President of USTCNA (10/05 to N/A
United States Trust Company, Operating Indefinite present); Managing Partner of Blue
National Association Officer Length - Hill Capital Partners LLC (10/03 to
114 W. 47th Street Since March 10/05) (Registered Investment
New York, NY 10036 2006 Adviser); Financial Advisor at UBS
Financial Services, Inc. (1/02 to
Age: 47 9/03); Principal of Columbia
Software Consultants, Inc. (2001 to
2002).
Robert F. Aufenanger Chief Term - President and Director, UST N/A
United States Trust Company, Financial Indefinite Advisers, Inc. (12/05 to present);
National Association Officer and Length - Senior Vice President, Alternative
114 W. 47th Street Treasurer Since July Investments Division, USTCNA (4/06
New York, NY 10036 2003 to present); Senior Vice President,
Chief Financial Officer and
Age: 52 Treasurer, Alternative Investments
Division, USTCNA (4/03 to 3/06);
Chief Financial Officer, Treasurer
and Director, U.S. Trust Hedge Fund
Management, Inc. (7/03 to present);
Consultant to private equity funds
(1/02 to 3/03); Chief Financial
Officer, Icon Holding Corp. (12/99
to 12/01).
Hiam Arfa Chief Since Mr. Arfa is a Senior Vice N/A
United States Trust Company, Compliance October President of United Stated Trust
National Association Officer 2006 Company, National Association and
114 W. 47th Street Chief Compliance Officer of the
New York, NY 10036 Excelsior Investment Funds.
Prior to that, Mr. Arfa served as
Age: 47 associate director of compliance
for Bear Stearns Asset
Management. From August 1998 to
November 2004, Mr. Arfa served as
vice president of regulatory
compliance for JP Morgan
11
Asset Management.
BOARD MEETINGS AND COMMITTEES.
The only standing committee of the Board is the Audit Committee.
The members of the Audit Committee are: Gene M. Bernstein, Victor F. Imbimbo,
Jr., and Stephen V. Murphy, constituting all of the Independent Managers. Mr.
Bernstein has been designated as the chair of the Audit Committee. The Board has
adopted a written charter for the Audit Committee, a copy of which is attached
to this Proxy Statement as Exhibit 2.
The function of the Audit Committee, pursuant to its adopted
written charter, most recently revised and approved by the Board on September 8,
2005, is to provide oversight responsibility with respect to: (a) the adequacy
of the Fund's accounting and financial reporting processes, policies and
practices; (b) the integrity of the Fund's financial statements and the
independent audit thereof; (c) the adequacy of the Fund's overall system of
internal controls and, as appropriate, the internal controls of certain service
providers; (d) the Fund's compliance with certain legal and regulatory
requirements; (e) determining the qualification and independence of the Fund's
independent auditors; and (f) the Fund's internal audit function.
During the most recent fiscal year of the Fund, which ended on
March 31, 2006, the Board held four regular meetings and two special meetings
and the Audit Committee held five meetings. Each Manager attended at least 75%
of the total number of meetings of the Board and, if a member of the Audit
Committee, of the Audit Committee, held during the fiscal year (or during the
Manager's period of service if not a Manager for the full fiscal year).
AUDIT COMMITTEE REPORT
In discharging its duties, during the 2006 fiscal year the Audit
Committee has met with and held discussions with Fund management and with the
Fund's then-serving independent registered public accounting firm, Deloitte &
Touche LLP ("D&T"). D&T has represented that the Fund's financial statements
were prepared in accordance with generally accepted accounting principles. The
Audit Committee also discussed with D&T the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communications with Audit Committees).
D&T provided to the Audit Committee the written disclosure required by
Independent Standards Board Standard No. 1 (Independent Discussions with Audit
Committees), and the Audit Committee discussed with representatives of D&T their
firm's independence with respect to the Fund.
Members are reminded, however, that the members of the Audit
Committee are not professionally engaged in the practice of auditing or
accounting. Members of the Audit Committee rely without independent verification
on the information provided to them and on the representations made by
management and D&T. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Fund's financial statements has been carried out in accordance
with generally accepted auditing standards, that the financial statements are
presented in accordance
12
with generally accepted accounting principles or that the Fund's auditors are,
in fact, "independent."
Based on the Audit Committee's review and discussions of the
audited financial statements of the Fund for the fiscal year ended March 31,
2006 with Fund management and D&T, the Audit Committee approved the inclusion of
the audited financial statements of the Fund for the fiscal year ended March 31,
2006 in the Fund's Annual Report.
The Board does not have a standing nominating committee or a
nominating committee charter, because the Board does not generally consider
nominations for Independent Managers, except in special circumstances, such as
the nomination of a candidate by a Member (as described below), or in the event
of a vacancy or other inability to serve by an existing Independent Manager. In
such circumstances, all of the Independent Managers will serve as the nominating
committee and will identify potential nominees through their network of contacts
and may also engage, if they deem appropriate, a professional search firm. The
Independent Managers will meet to discuss and consider such candidates'
qualifications and then choose a candidate by majority vote. The Independent
Managers will consider, among other factors: whether or not the person is an
"interested person," as defined in the 1940 Act, of the Fund, and whether the
person is otherwise qualified under applicable laws and regulations to serve as
a Manager; whether or not the person has any relationships that might impair his
or her independence, such as any business, financial or family relationships
with Fund management, the Adviser, service providers or their affiliates; the
contribution which the person can make to the Board, with consideration being
given to the person's business and professional experience, education and such
other factors as the Independent Managers may consider relevant; and the
character and integrity of the person.
As noted above, the nominating committee (when assembled) may
consider nominees recommended by Members. Members who wish to recommend a
nominee should send such recommendations to the Fund's Secretary that include
all information relating to such person that is required to be disclosed in
solicitations of proxies for the election of Managers. A recommendation must be
accompanied by a written consent of the individual to stand for election if
nominated by the Board and to serve if elected by Members.
MANAGER COMPENSATION.
The following table sets forth certain information regarding the
compensation received by the Independent Managers for the fiscal year ended
March 31, 2006 from the Fund and from all investment companies for which the
Adviser or an affiliated person of the Adviser serves as investment adviser (the
"Fund Complex"). No compensation is paid by the Fund to Managers who are
"interested persons," as defined by the 1940 Act, of the Fund.
13
COMPENSATION TABLE
(3) (5)
(2) PENSION OR (4) TOTAL COMPENSATION
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM FUND AND FUND
NAME OF PERSON, COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPLEX PAID TO
POSITION FUND FUND EXPENSES RETIREMENT MANAGERS*
----------------------- ----------------- -------------------- ---------------- -----------------
Gene M. Bernstein, $17,750 0 0 $80,750 (4)
Manager
Victor F. Imbimbo, Jr., $17,750 0 0 $79,750 (4)
Manager
Stephen V. Murphy, $17,750 0 0 $81,750 (4)
Manager
* The total compensation paid to such persons by the Fund and Fund Complex for
the calendar year ended December 31, 2006. The parenthetical number represents
the number of investment companies (including the Fund) from which such person
receives compensation.
Currently, the Independent Managers are each paid an annual
retainer of $10,000 ($11,000 for the Chairman of the Audit Committee) and
per-meeting fees of: $2,000 for in-person attendance at quarterly meetings of
the Board; $1,000 for telephone participation at a quarterly Board meeting or
for participation at a telephonic special meeting of the Board; and $1,000 for
each Audit Committee meeting (whether held in-person or by telephone). The
Independent Managers are also reimbursed for travel-related expenses. The Board
does not have a compensation committee.
NOMINEE EQUITY OWNERSHIP.
The following table sets forth, as of December 31, 2006, with
respect to each nominee, certain information regarding the beneficial ownership
of equity securities of the Fund and of all registered investment companies
overseen by the nominee within the same family of investment companies as the
Fund.
(3)
(2) AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES OF ALL FUNDS OVERSEEN OR TO
(1) EQUITY SECURITIES BE OVERSEEN BY NOMINEE IN FAMILY OF
NAME OF NOMINEE OF THE FUND INVESTMENT COMPANIES
--------------- ----------- --------------------
Gene M. Bernstein Over $100,000 Over $100,000
Victor F. Imbimbo, Jr. None $10,001 - 50,000
Stephen V. Murphy Over $100,000 Over $100,000
David R. Bailin None None
As of December 31, 2006, none of the Independent Managers, nor the
immediate family members of the Independent Managers, beneficially owned or
owned of record securities of the Adviser or of any persons directly or
indirectly controlling, controlled by or under common control with the Adviser.
14
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 Act (the
"1934 Act") and Section 30(h) of the 1940 Act, taken together, require the
Managers, beneficial owners of more than 10% of the equity securities of the
Fund, the Adviser and officers of the Fund ("Reporting Persons") to file with
the Securities and Exchange Commission ("SEC") reports of their ownership and
changes in their ownership of the Fund's securities. The Fund believes that each
of the Reporting Persons who was a Reporting Person during the fiscal year ended
March 31, 2006 has complied with applicable filing requirements, except that
reports filed by Spencer Boggess and the Adviser were not timely filed.
INDEPENDENT PUBLIC ACCOUNTANTS.
The engagement of D&T as the independent registered public
accounting firm ("Independent Auditors") of the Fund for the fiscal year ending
March 31, 2007, was approved by the Audit Committee, and the selection of D&T
was unanimously approved by the Board, including the separate vote of all of the
Independent Managers, at meetings of the Audit Committee and the Board held on
June 7, 2006. D&T, with offices at Two World Financial Center, New York, New
York, 10281, has served in such capacity since October 28, 2004.
The Fund was advised by D&T in a letter received December 11, 2006
that, effective upon the closing date of the Sale, D&T will no longer be able to
serve as the Fund's Independent Auditors or provide any attest services to the
Fund. In view of this, the Fund requested, and received, a presentation from
PricewaterhouseCoopers ("PwC") on January 11, 2007. The Board and the Audit
Committee requested that the officers of the Fund continue to work and negotiate
with PwC, pending the outcome of the Sale.
D&T's reports on the financial statements of the Fund for either
of the past two years did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements between the Fund and D&T on
any matter of accounting principle or practice, financial statement disclosure,
or auditing, or auditing scope or procedure.
The Fund did not consult with PwC during its fiscal years ended
March 31, 2006, 2005 and 2004 on the application of accounting principles to a
specific transaction, the type of opinion that might be rendered on the Fund's
financial statement, any accounting, auditing or financial reporting issue, or
any item that was either the subject of disagreement or a reportable event as
defined in Item 304 or Regulation S-K.
Since the Fund complies with the provisions of Rule 32a-4 of the
1940 Act, it is not required to submit the selection of independent auditors to
shareholders for ratification. Representatives of D&T are not expected to be
present at the Meeting, but have been given an opportunity to make a statement
if they so desire and will be available should any matter arise requiring their
presence.
AUDIT FEES.
For the fiscal years ended March 31, 2005 and March 31, 2006, the
aggregate fees billed by D&T for professional services rendered for the annual
audit of the Fund's financial statements were $56,000 and $80,862, respectively.
AUDIT-RELATED FEES.
For the fiscal years ended March 31, 2005 and March 31, 2006,
there were no fees billed by D&T for assurance and related services reasonably
related to the performance of the annual audit of the Fund's financial
statements.
During its regularly-scheduled periodic meetings, the Audit
Committee of the Fund pre-approves all audit, audit-related, tax and other
services to be provided by the Independent Auditor to the Fund. The Audit
Committee has delegated pre-approval authority to its chairman for any
subsequent new engagements that arise between regularly scheduled
15
meeting dates, provided that any such pre-approved fees are presented to the
Audit Committee at its next regularly scheduled meeting.
TAX FEES.
For the fiscal years ended March 31, 2005 and March 31, 2006,
there were no fees billed by D&T for tax return preparation and other
tax-related services with respect to the Fund.
ALL OTHER FEES.
For the fiscal years ended March 31, 2005 and March 31, 2006,
there were no fees billed by D&T for services provided to the Fund other than
those described above.
AGGREGATE NON-AUDIT FEES.
For the fiscal years ended March 31, 2005 and March 31, 2006, the
non-audit fees billed by D&T for services rendered to: the Fund and the Adviser
and any control person of the Adviser that provides ongoing services to the Fund
were $618,675 and $754,000, respectively. All such services provided to the
Adviser and any such control person were pre-approved by the Audit Committee.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" EACH OF THE NOMINEES
-----------------------------------------------------------------------------
PROPOSAL 3
REORGANIZATION OF THE FUND
At the Meeting, Members will vote on a proposal to approve a Plan
and Agreement of Reorganization and Merger (the "Merger Agreement") under which
the Fund will be reorganized to implement a "master/feeder" investment
structure, in which Members will own interests in a new fund that will pursue
its investment objective by investing its assets in the Fund (the
"Reorganization"). The new fund will have the same investment objective and
substantially the same investment policies as the Fund. In a master/feeder
investment structure, two or more investment funds having the same investment
program ("feeder funds") invest their assets in a common "master fund" that has
the same investment objective and substantially the same investment policies as
the feeder funds. The master fund, in turn, invests its assets in securities and
other investments consistent with the investment policies of the feeder funds.
The Board, including all of the Independent Managers, approved the
Merger Agreement at its meeting on January 11, 2007, and recommends that Members
vote to approve the Merger Agreement. The Board believes that the Fund and
Members will benefit if the Fund is reorganized in the manner proposed. A copy
of the Merger Agreement is contained in Exhibit 3 to this Proxy Statement.
16
The Reorganization will not affect the value of your investment,
will not involve any change in the investment program in which you currently
participate through the Fund, and there will be no increase in fees payable to
the Adviser. In addition, the Reorganization will not result in the recognition
of any gain or loss to Members for tax purposes.
BENEFITS OF A MASTER/FEEDER STRUCTURE.
A master/feeder structure provides a way for feeder funds that are
designed for different types of investors to invest through a common master
fund. This structure allows for efficiencies in investing and efficiencies in
operating costs to the extent that the assets of multiple funds are pooled for
investing and are able to share certain related costs.
The Fund is designed for investment primarily by U.S. taxable
investors (such as individuals and entities subject to federal income tax). If
the Reorganization is approved and implemented, the Adviser contemplates that it
will organize one or more new investment funds designed for investment by U.S.
tax-exempt investors (such as individual retirement accounts, employee benefit
plans or charitable organizations) and for investment by foreign investors,
which would have the same investment program as the Fund. In a master/feeder
structure these investment funds and the new fund in which Fund investors will
invest would each pursue its investment objective by investing in a single
master fund. This pooling of the investments of the Fund with the investments of
other investment funds will create certain efficiencies in investment and is
expected to result in certain cost economies to the extent that certain fixed
(or relatively fixed) expenses of the master fund would be shared by each of the
feeder funds (including the Fund), which would allow for lower expense ratios.
A lower Fund expense ratio would benefit Members. In addition, the
master/feeder structure will facilitate the ability of the Adviser to make
available a new investment fund similar to the Fund for U.S. tax-exempt
investors. Members who have or participate in retirement accounts or employee
benefit plans and wish to invest a portion of the assets of those accounts or
plans in accordance with the Fund's investment program may have the opportunity
to do so through the new fund (assuming they meet applicable eligibility
requirements).
DESCRIPTION OF THE REORGANIZATION.
The Fund currently pursues its investment objective of capital
appreciation by investing in a diverse group of private investment funds
("Investment Funds") that primarily invest or trade in a wide range of equity
and debt securities. If the Reorganization is approved by Members and
consummated, Members who now hold Interests in the Fund will instead own
interests in a newly organized fund (the "New Fund") that would have the same
investment objective and the same investment policies as the Fund (except the
New Fund would pursue its investment objective by investing in the Fund).
The Reorganization will be effected pursuant to the Merger
Agreement. As set forth in the Merger Agreement, the Reorganization will involve
the merger of the Fund with a wholly-owned subsidiary of the New Fund. The Fund
will be the surviving company of the merger. At the effective time of the
Reorganization, the Fund will merge with the subsidiary and the New Fund will
issue limited liability company interests in the New Fund to Members in
17
exchange for the interests of Members in the Fund. The interest in the New Fund
received by each Member will have a value equal to the value of such Member's
interest in the Fund as of the effective time of the Reorganization.
The result of the transactions contemplated by the Reorganization
will be that: (i) Members will become members of the New Fund, which will
initially own all of the interests in the Fund; and (ii) the Fund will become a
"master fund" and hold all of the interests in the Investment Funds owned by the
Fund immediately prior to the reorganization. Like the Fund, the New Fund will
be registered as an investment company under the 1940 Act. The Adviser
anticipates that, subsequent to the Reorganization, one or more additional
investment funds will be formed that will pursue their investment objectives by
investing in the Fund.
The New Fund, like the Fund, is organized as a Delaware limited
liability company. It will have the same investment objective and substantially
the same investment policies as the Fund and operate pursuant to the terms of a
limited liability company agreement that is that same in all material respects
as the limited liability company agreement of the Fund.
EFFECT OF THE REORGANIZATION.
There will be no material change in your investment as a result of
the Reorganization. The investment objective of the New Fund and its investment
policies and restrictions will be identical to those of the Fund, except that
the New Fund will pursue its investment object by investing in the Fund. In
addition, the features and operations of the New Fund will be the same as those
of the Fund, and the rights of members of the New Fund will be the same as those
of Members of the Fund, in all material respects. The only substantive change
will be that Members will own interests in the New Fund (rather than Interests
in the Fund), and that the New Fund will indirectly invest in Investment Funds
by investing in the Fund (rather than by investing directly in Investment Funds,
as is now the case). Like the Fund, the New Fund will from time to time make
offers to repurchase interests from its members so that members have the
opportunity to withdraw capital from the New Fund.
The Reorganization will not affect the value of your investment
(I.E., the value of your capital account will not change as a result of the
Reorganization). The initial value of your capital account as a member of the
New Fund will be identical to the value of your capital in the Fund as of the
date of the Reorganization. There also will be no increase in fees payable to
the Adviser (I.E., the aggregate fees payable by the New Fund and by the Master
Fund to the Adviser will be the same as the fees currently payable to the
Adviser by the Fund). In this regard, the Adviser expects that it will request
that the New Fund enter into a management with the Adviser pursuant to which the
Adviser will provide the New Fund various non-investment related management and
administrative services necessary for the operations of the New Fund. However,
the Adviser has agreed to an amendment of its advisory agreement so as to reduce
the fees payable under that agreement to offset the full amount of any
management fees charged to the New Fund. The management agreement for the New
Fund is subject to approval by the board of managers of the New Fund and by the
managers of the New Fund who are not "interested persons," as defined by the
1940 Act, of the New Fund or the Adviser.
In connection with the Reorganization, and to help assure that
implementation of a master/feeder structure does not result in higher expenses
to Members, the Adviser will enter
18
into an expense limitation and reimbursement agreement (the "Expense Limitation
Agreement") with the New Fund. Pursuant to the Expense Limitation Agreement, the
Adviser will waive its fees, or pay or absorb ordinary operating expenses of the
New Fund (including expenses associated with the organization and offering of
interests in the New Fund, and the New Fund's pro rata share of expenses of the
Master Fund) to the extent necessary to limit the ordinary operating expenses of
the New Fund to [ ]% per annum of the New Fund's average monthly net assets (the
"Expense Limitation"). In consideration of the Adviser's agreement to limit the
New Fund's expenses, the New Fund will carry forward the amount of expenses
waived, paid or absorbed by the Adviser in excess of the Expense Limitation for
a period not to exceed three years from the end of the fiscal year in which they
were incurred and will reimburse the Adviser such amounts. Reimbursement will be
made as promptly as possible, but only to the extent it does not cause the New
Fund's ordinary operating expenses for any fiscal year to exceed the Expense
Limitation. The Expense Limitation Agreement will remain in effect until
terminated by the Adviser or the New Fund.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION.
As a condition to the consummation of the Reorganization, Fund
counsel will render an opinion to the Fund that consummation of the transactions
contemplated by the Merger Agreement should not be a taxable event to the Fund,
the New Fund or members of the Fund.
REQUIRED VOTE AND MANAGERS' RECOMMENDATION.
Approval of the Merger Agreement requires the affirmative vote of
Members holding a majority of the total number of votes eligible to be cast by
those Members who are present in person or by proxy at the Meeting.
THE BOARD RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE REORGANIZATION AND MERGER PLAN AND AGREEMENT
-----------------------------------------------------------------------------
19
II. VOTING INFORMATION.
REVOCATION OF PROXIES AND ABSTENTIONS.
A Member giving a proxy may revoke it at any time before it is
exercised by: (i) submitting to the Fund a written notice of revocation; (ii)
submitting to the Fund a subsequently executed proxy; (iii) attending the
Meeting and voting in person; or (iv) notifying the Fund of revocation via
Internet or by touch-tone telephone.
If a proxy (i) is properly executed and returned marked with an
abstention (with respect to Proposal 1 or Proposal 3) or is accompanied by
instructions to withhold authority to vote (with respect to Proposal 2), or (ii)
represents a nominee "non-vote" (that is, a proxy from a broker or nominee
indicating that such person has not received instructions from the beneficial
owner or other person entitled to vote on a particular matter with respect to
which the broker or nominee does not have discretionary power to vote)
(collectively, "abstentions"), the Interest represented thereby will be
considered to be present at the Meeting for purposes of determining the
existence of a quorum for the transaction of business. If a proxy is properly
executed and returned and is marked with an abstention, the proxy will not be
voted on any matter as to which the abstention applies. Abstentions will have
the effect of a vote "AGAINST" approval of Proposal 1 and Proposal 3, but will
have no effect on the outcome of voting on Proposal 2.
QUORUM REQUIREMENTS.
A quorum of Members is necessary to hold the valid Meeting. If
Members holding Interests representing a majority of the total number of votes
eligible to be cast by all Members as of the Record Date are present in person
or by proxy at the Meeting, a quorum will exist.
ADJOURNMENTS.
If a quorum is not present at the Meeting, or if a quorum is
present but sufficient votes to approve the Proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to propose an
adjournment in such event, the following factors may be considered: the nature
of the Proposals, the percentage of votes actually cast, the percentage of
negative votes actually cast, the nature of any further solicitation and the
information to be provided to Members with respect to the reasons for the
solicitation. Any adjournment will require the affirmative vote of a majority of
Members present in person or by proxy at the Meeting. If a quorum is present and
an adjournment is proposed, the persons named as proxies will vote those proxies
which they are entitled to vote "FOR" the Proposals in favor of such
adjournment, and will vote those proxies required to be voted "AGAINST" the
Proposals against such adjournment. At any adjourned Meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the Meeting originally called. An abstention will be treated as a vote for
adjournment.
20
III. OTHER MATTERS AND ADDITIONAL INFORMATION
OTHER BUSINESS AT THE MEETING.
The Board does not intend to bring any matters before the Meeting
other than as stated in this Proxy Statement and is not aware that any other
matters will be presented for action at the Meeting. If any other matters
properly come before the Meeting, it is the intention of the persons named as
proxies to vote on such matters in accordance with their best judgment, unless
specific restrictions have been given.
FUTURE MEMBER PROPOSALS.
Pursuant to rules adopted by the SEC under the 1934 Act, Members
may request inclusion in the Fund's proxy statement for a meeting of Members
certain proposals for action which they intend to introduce at such meeting. Any
Member proposals must be presented a reasonable time before the proxy materials
for the next meeting are sent to Members. The submission of a proposal does not
guarantee its inclusion in the proxy statement and is subject to limitations
under the 1934 Act. Because the Fund does not hold regular meetings of Members,
no anticipated date for the next meeting can be provided. Any Member wishing to
present a proposal for inclusion in the proxy materials for the next meeting of
Members should submit such proposal to the Fund at c/o the Adviser, 225 High
Ridge Road, Stamford, Connecticut 06905.
COMMUNICATION WITH THE BOARD.
Members wishing to submit written communications to the Board
should send their communications to the Secretary of the Fund at its principal
office. Any such communications received will be reviewed by the Board at its
next regularly scheduled meeting.
APPRAISAL RIGHTS.
Members do not have any appraisal rights in connection with the
Proposals.
RESULTS OF VOTING.
Members will be informed of the results of voting at the Meeting
in the Fund's next annual report, which will be sent to Members on or before May
30, 2007.
EXPENSES.
All of the expenses of the Meeting, including the costs of
solicitation and the expenses of preparing, printing and mailing this Proxy
Statement and its enclosures, and the fee and expenses of the proxy solicitor,
are being paid by the Adviser.
21
MEMBERS ARE REQUESTED TO MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED
STATES. ADDITIONAL PROCEDURES YOU MAY USE TO VOTE ARE DESCRIBED ON THE ENCLOSED
PROXY CARD.
By Order of the Board of Managers
/s/ David R. Bailin
-----------------------------------
Name: David R. Bailin
-----------------------------
Title: Manager
-----------------------------
Dated: [_______________]
22
EXHIBIT 1
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made and executed the __ day
of _________, 2007, by and between Excelsior Directional Hedge Fund of Funds,
LLC, a Delaware limited liability company (the "Fund"), and U.S. Trust Hedge
Fund Management, Inc., a North Carolina corporation (the "Adviser").
WHEREAS, the Fund intends to engage in business as a closed-end,
non-diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment adviser; and
WHEREAS, the Fund desires to retain the Adviser to render
investment advisory services and to provide certain administrative services to
the Fund in the manner and on the terms and conditions hereinafter set forth;
and
WHEREAS, the Adviser desires to be retained to perform such
services on said terms and conditions;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby retains the Adviser to:
(a) act as its investment adviser and, subject to the
supervision and control of the Board of Managers of the Fund (the "Board"),
manage the investment activities of the Fund as hereinafter set forth. Without
limiting the generality of the foregoing, the Adviser shall: obtain and evaluate
such information and advice relating to the economy, securities markets, and
securities as it deems necessary or useful to discharge its duties hereunder;
continuously manage the assets of the Fund in a manner consistent with the
investment objective, policies and restrictions of the Fund, as set forth in the
Confidential Memorandum of the Fund and as may be adopted from time to time by
the Board, and applicable laws and regulations; determine the securities to be
purchased, sold or otherwise disposed of by the Fund and the timing of such
purchases, sales and dispositions; invest discrete portions of the Fund's assets
(which may constitute, in the aggregate, all of the Fund's assets) in
unregistered investment funds or other investment vehicles and registered
investment companies ("Investment Funds"), which are managed by investment
managers ("Investment Managers"), including Investment Managers for which
separate investment vehicles have been created in which the Investment Managers
serve as general partners or managing members and the Fund is the sole investor
("Sub-Funds") and Investment Managers who are retained to manage the Fund's
assets directly through separate managed accounts (Investment Managers of
Sub-Funds and of managed accounts are collectively referred to as
"Subadvisors"), and take such further action, including the placing of
Exhibit 1 - 1
purchase and sale orders and the voting of securities on behalf of the Fund, as
the Adviser shall deem necessary or appropriate. The Adviser shall furnish to or
place at the disposal of the Fund such of the information, evaluations, analyses
and opinions formulated or obtained by the Adviser in the discharge of its
duties as the Fund may, from time to time, reasonably request; and
(b) provide, and the Adviser hereby agrees to provide, certain
management, administrative and other services to the Fund. Notwithstanding the
appointment of the Adviser to provide such services hereunder, the Board shall
remain responsible for supervising and controlling the management, business and
affairs of the Fund. The management, administrative and other services to be
provided by the Adviser shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial,
clerical and other personnel as necessary to provide
the services required to be provided under this
Agreement;
(iii) the general supervision of the entities which are
retained by the Fund to provide administration, custody
and other services to the Fund;
(iv) the handling of investor inquiries regarding the Fund
and providing them with information concerning their
investments in the Fund and capital account balances;
(v) monitoring relations and communications between
investors and the Fund;
(vi) assisting in the drafting and updating of disclosure
documents relating to the Fund and assisting in the
preparation of offering materials;
(vii) maintaining and updating investor information, such as
change of address and employment;
(viii) assisting in the preparation and mailing of investor
subscription documents and confirming the receipt of
such documents and funds;
(ix) assisting in the preparation of regulatory filings with
the Securities and Exchange Commission and state
securities regulators and other Federal and state
regulatory authorities;
(x) preparing reports to and other informational materials
for members and assisting in the preparation of proxy
statements and other member communications;
Exhibit 1 - 2
(xi) monitoring compliance with regulatory requirements and
with the Fund's investment objective, policies and
restrictions as established by the Board;
(xii) reviewing accounting records and financial reports of
the Fund, assisting with the preparation of the
financial reports of the Fund and acting as liaison
with the Fund's accounting agent and independent
auditors;
(xiii) assisting in preparation and filing of tax returns;
(xiv) coordinating and organizing meetings of the Board and
meetings of the members of the Fund, in each case when
called by such persons;
(xv) preparing materials and reports for use in connection
with meetings of the Board;
(xvi) maintaining and preserving those books and records of
the Fund not maintained by any subadvisers of the Fund
or the Fund's administrator, accounting agent or
custodian;
(xvii) reviewing and arranging for payment of the expenses of
the Fund;
(xviii) assisting the Fund in conducting offers to members of
the Fund to repurchase member interests;
(xix) reviewing and approving all regulatory filings of the
Fund required under applicable law; and
(xx) reviewing investor qualifications and subscription
documentation and otherwise assisting in administrative
matters relating to the processing of subscriptions for
interests in the Fund.
2. Without limiting the generality of paragraph 1 hereof, the
Adviser shall be authorized to open, maintain and close accounts in the name and
on behalf of the Fund with brokers and dealers as it determines are appropriate;
to select and place orders with brokers, dealers or other financial
intermediaries for the execution, clearance or settlement of any transactions on
behalf of the Fund on such terms as the Adviser considers appropriate and that
are consistent with the policies of the Fund; and, subject to any policies
adopted by the Board and to the provisions of applicable law, to agree to such
commissions, fees and other charges on behalf of the Fund as it shall deem
reasonable in the circumstances taking into account all such factors as it deems
relevant (including the quality of research and other services made available to
it even if such services are not for the exclusive benefit of the Fund and the
cost of such services does not represent the lowest cost available) and shall be
under no obligation to combine or arrange orders so as to obtain reduced charges
unless otherwise required under the federal securities laws; to pursue and
implement the investment policies and strategies of the Fund using a
multi-manager strategy whereby some or all of the Fund's assets may be committed
from time
Exhibit 1 - 3
to time by the Adviser to the discretionary management of one or more
Subadvisors, the selection of which shall be subject to the approval of the
Board of Managers in accordance with requirements of the 1940 Act and the
approval of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities, unless the Fund receives an exemption from the provisions of
the 1940 Act requiring such approval by security holders; and to identify
appropriate Subadvisors, assess the most appropriate investment vehicles
(general or limited partnerships, separate managed accounts or other investment
vehicles (pooled or otherwise), and determine the assets to be committed to each
Subadvisor. The Adviser may, subject to such procedures as may be adopted by the
Board, use affiliates of the Adviser as brokers to effect the Fund's securities
transactions and the Fund may pay such commissions to such brokers in such
amounts as are permissible under applicable law.
3. MANAGEMENT FEE; EXPENSES; ADMINISTRATIVE FEE
(a) In consideration for the provision by the Adviser of its
services hereunder and the Adviser's bearing of certain expenses, the Fund will
pay the Adviser a quarterly fee of 0.375% (1.50% on an annualized basis) of the
Fund's "net assets" (the "Management Fee"). "Net assets" shall equal the total
value of all assets of the Fund, less an amount equal to all accrued debts,
liabilities and obligations of the Fund calculated before giving effect to any
repurchases of interests.
(b) The Management Fee will be computed based on the net assets
of the Fund as of the start of business on the first business day of each
calendar quarter, after adjustment for any subscriptions effective on such date,
and will be due and payable in arrears within five business days after the end
of such calendar quarter. In the event that the Management Fee is payable in
respect of a partial quarter, or in the event of contributions or withdrawals of
capital to the Fund other than at the beginning or end of a quarter, such fee
will be appropriately PRO-RATED.
(c) The Adviser is responsible for all costs and expenses
associated with the provision of its services hereunder including, but not
limited to: expenses relating to the selection and monitoring of Investment
Managers; fees of consultants retained by the Adviser; and expenses relating to
qualifying potential investors and reviewing subscription documents. The Adviser
shall, at its own expense, maintain such staff and employ or retain such
personnel and consult with such other persons as may be necessary to render the
services required to be provided by the Adviser or furnished to the Fund under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of the Adviser shall be deemed to include persons employed or
otherwise retained by the Adviser or made available to the Adviser.
(d) The Adviser shall be entitled to charge a one-time
administrative fee in an amount, as may be approved by the Board, not to exceed
$10,000 to each person who becomes a member as compensation for the services of
the Adviser and costs incurred by the Adviser in reviewing subscription
documents submitted by and establishing an account for such member; provided
that such fee may be waived, in whole or in part, in the sole discretion of the
Adviser, with respect to a member who has established multiple related accounts.
Exhibit 1 - 4
4. The Fund will, from time to time, furnish or otherwise make
available to the Adviser such financial reports, proxy statements, policies and
procedures and other information relating to the business and affairs of the
Fund as the Adviser may reasonably require in order to discharge its duties and
obligations hereunder.
5. Except as provided herein or in another agreement between the
Fund and the Adviser, the Fund shall bear all of its own expenses, including:
all investment related expenses (including, but not limited to, fees paid
directly or indirectly to Investment Managers, all costs and expenses directly
related to portfolio transactions and positions for the Fund's account such as
direct and indirect expenses associated with the Fund's investments, including
its investments in Investment Funds, transfer taxes and premiums, taxes withheld
on foreign dividends and, if applicable in the event the Fund utilizes a
Subadvisor, brokerage commissions, interest and commitment fees on loans and
debit balances, borrowing charges on securities sold short, dividends on
securities sold but not yet purchased and margin fees); all costs and expenses
associated with the establishment of Investment Funds managed by Subadvisors;
any non-investment related interest expense; attorneys' fees and disbursements
associated with updating the Fund's Confidential Memorandum and subscription
documents; fees and disbursements of any attorneys and accountants engaged by
the Fund; expenses related to the annual audit of the Fund; fees paid to the
Fund's administrator; custody and escrow expenses; the costs of an errors and
omissions/directors and officers liability insurance policy and a fidelity bond;
the fee payable to the Adviser; fees and travel expenses of Managers; all costs
and charges for equipment or services used in communicating information
regarding the Fund's transactions among the Adviser and any custodian or other
agent engaged by the Fund; and any extraordinary expenses.
6. The compensation provided to the Adviser pursuant to paragraph
3(a) hereof shall be full compensation for the services provided to the Fund and
the expenses assumed by the Adviser under this Agreement.
7. The Adviser will use its best efforts in the supervision and
management of the investment activities of the Fund and in providing services
hereunder, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations hereunder, the Adviser, its
directors, officers or employees and its affiliates, successors or other legal
representatives (collectively, the "Affiliates") shall not be liable to the Fund
for any error of judgment, for any mistake of law, for any act or omission by
the Adviser or any of the Affiliates or for any loss suffered by the Fund.
8. (a) The Fund shall indemnify the Adviser and its directors,
officers or employees and their respective affiliates, executors, heirs,
assigns, successors or other legal representatives (each an "Indemnified
Person") against any and all costs, losses, claims, damages or liabilities,
joint or several, including, without limitation, reasonable attorneys' fees and
disbursements, resulting in any way from the performance or non-performance of
any Indemnified Person's duties with respect to the Fund, except those resulting
from the willful malfeasance, bad faith or gross negligence of an Indemnified
Person or the Indemnified Person's reckless disregard of such duties, and in the
case of criminal proceedings, unless such Indemnified Person had reasonable
cause to believe its actions unlawful (collectively, "disabling conduct").
Indemnification shall be made following: (i) a final decision on the merits by a
court or other body before which the proceeding was brought that the Indemnified
Person was not
Exhibit 1 - 5
liable by reason of disabling conduct or (ii) a reasonable determination, based
upon a review of the facts and reached by (A) the vote of a majority of the
members of the Board (the "Managers") who are not parties to the proceeding or
(B) legal counsel selected by a vote of a majority of the Board in a written
advice, that the Indemnified Person is entitled to indemnification hereunder.
The Fund shall advance to an Indemnified Person (to the extent that it has
available assets and need not borrow to do so) reasonable attorneys' fees and
other costs and expenses incurred in connection with defense of any action or
proceeding arising out of such performance or non-performance. The Adviser
agrees, and each other Indemnified Person will agree as a condition to any such
advance, that in the event the Indemnified Person receives any such advance, the
Indemnified Person shall reimburse the Fund for such fees, costs and expenses to
the extent that it shall be determined that the Indemnified Person was not
entitled to indemnification under this paragraph 9.
(b) Notwithstanding any of the foregoing to the contrary, the
provisions of this paragraph 9 shall not be construed so as to relieve the
Indemnified Person of, or provide indemnification with respect to, any liability
(including liability under Federal Securities laws, which, under certain
circumstances, impose liability even on persons who act in good faith) to the
extent (but only to the extent) that such liability may not be waived, limited
or modified under applicable law or that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
provisions of this paragraph 9 to the fullest extent permitted by law.
9. Nothing contained in this Agreement shall prevent the Adviser
or any affiliated person of the Adviser from acting as investment adviser or
manager for any other person, firm or corporation and, except as required by
applicable law (including Rule 17j-1 under the 1940 Act), shall not in any way
bind or restrict the Adviser or any such affiliated person from buying, selling
or trading any securities or commodities for their own accounts or for the
account of others for whom they may be acting. Nothing in this Agreement shall
limit or restrict the right of any member, officer or employee of the Adviser to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business whether of a similar or
dissimilar nature.
10. This Agreement shall become effective as of the date first
noted above, shall remain in effect for an initial term expiring two years
thereafter, and shall continue in effect from year to year thereafter provided
such continuance is approved at least annually by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act and the
rules thereunder, or by the Board; and provided that in either event such
continuance is also approved by a majority of the Managers who are not parties
to this Agreement or "interested persons" (as defined by the 1940 Act and the
rules thereunder) of any such party (the "Independent Managers"), by vote cast
in person at a meeting called for the purpose of voting on such approval. The
Fund may at any time, without payment of any penalty, terminate this Agreement
upon sixty days' prior written notice to the Adviser, either by majority vote of
the Board or by the vote of a majority of the outstanding voting securities of
the Fund (as defined by the 1940 Act and the rules thereunder). The Adviser may
at any time, without payment of penalty, terminate this Agreement upon sixty
days' prior written notice to the Fund. This Agreement shall automatically
terminate in the event of its assignment (to the extent required by
Exhibit 1 - 6
the 1940 Act and the rules thereunder) unless such automatic termination shall
be prevented by an exemptive order or rule of the Securities and Exchange
Commission.
11. Any notice under this Agreement shall be given in writing and
shall be deemed to have been duly given when delivered by hand or facsimile or
five days after mailed by certified mail, post-paid, by return receipt requested
to the other party at the principal office of such party.
12. This Agreement may be amended only by the written agreement of
the parties. Any amendment shall be required to be approved by the Board and by
a majority of the Independent Managers in accordance with the provisions of
Section 15(c) of the 1940 Act and the rules thereunder. If required by the 1940
Act, any amendment shall also be required to be approved by such vote of members
of the Fund as is required by the 1940 Act and the rules thereunder.
13. This Agreement shall be construed in accordance with the
laws of the State of North Carolina and the applicable provisions of the 1940
Act. To the extent the applicable law of the State of North Carolina, or any of
the provisions herein, conflict with the applicable provisions of the 1940 Act,
the latter shall control.
14. The Fund represents that this Agreement has been duly approved
by the Board, including a majority of the Independent Managers, and by the sole
initial member of the Fund, in accordance with the requirements of the 1940 Act
and the rules thereunder.
15. The parties to this Agreement agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Managers,
members of the Fund or any officers, employees or agents, whether past, present
or future, of the Fund, individually, but are binding only upon the assets and
property of the Fund.
16. This Agreement embodies the entire understanding of the
parties.
{THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK}
Exhibit 1 - 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
EXCELSIOR DIRECTIONAL HEDGE FUND OF
FUNDS, LLC
By:
------------------------------
Attest: Name:
Title:
----------------------------
U.S. TRUST HEDGE FUND MANAGEMENT,
INC.
By:
------------------------------
Attest: Name:
Title:
Exhibit 1 - 8
EXHIBIT 2
AUDIT COMMITTEE CHARTER
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
June 3, 2003, as amended September 8, 2005
This charter sets forth the purpose, authority and
responsibilities of the Audit Committee of the Board of Managers (the "Board")
of Excelsior Directional Hedge Fund of Funds, LLC (the "Company"), a Delaware
limited liability company.
PURPOSES
The Audit Committee of the Board (the "Committee") has, as its
primary purpose, oversight responsibility with respect to: (a) the adequacy of
the Company's accounting and financial reporting processes, policies and
practices; (b) the integrity of the Company's financial statements and the
independent audit thereof; (c) the adequacy of the Company's overall system of
internal controls and, as appropriate, the internal controls of certain service
providers; (d) the Company's compliance with certain legal and regulatory
requirements; (e) determining the qualification and independence of the
Company's independent auditors; and (f) the Company's internal audit function.
AUTHORITY
The Committee has been duly established by the Board and shall
have the resources and authority appropriate to discharge its responsibilities,
including the authority to retain counsel and other experts or consultants at
the expense of the Company. The Committee has the authority and responsibility
to retain and terminate the Company's independent auditors. In connection
therewith, the Committee must evaluate the independence of the Company's
independent auditors and receive the auditors' specific representations as to
their independence.
COMPOSITION AND TERM OF COMMITTEE MEMBERS
The Committee shall be comprised of the Managers who are
"Independent Managers," which term shall mean each Manager (i) who is not an
"interested person," as defined in the Investment Company Act of 1940, as
amended, of the Company; and (ii) who has not accepted directly or indirectly
any consulting, advisory, or other compensatory fee from the Company (other than
fees for serving as a Manager or member of a Company's Audit Committee). The
members of the Committee shall designate one member to serve as Chairman of the
Committee, with Mr. Gene M. Bernstein serving as the initial Chairman of the
Committee.
Each member of the Committee shall serve until a successor is
appointed.
The Board shall determine whether the Committee has at least one
member who is an "audit committee financial expert," ("ACFE") as such term is
defined in the rules adopted under Section 407 of the Sarbanes-Oxley Act of
2002. The designation of a person as an ACFE is not intended to impose any
greater responsibility or liability on that person than the
Exhibit 2 - 1
responsibility and liability imposed on such person as a member of the
Committee, nor does it decrease the duties and obligations of other Committee
members or the Board.
MEETINGS
The Committee shall meet on a regular basis and no less frequently
than semi-annually. Periodically, the Committee shall meet to discuss with
management the annual audited financial statements and semi-annual financial
statements. Periodically, the Committee should meet separately with management,
the Company's administrator and independent auditors to discuss any matters that
the Committee or any of these persons or firms believe should be discussed
privately. The Committee may request any officer or employee of the Company's
investment adviser or the Company's legal counsel (or counsel to the Independent
Managers of the Board) or independent auditors to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
Minutes of each meeting will be taken and circulated to all
members of the Committee in a timely manner.
Any action of the Committee requires the vote of a majority of the
Committee members present, whether in person or otherwise, at the meeting at
which such action is considered. At any meeting of the Committee, two members of
the Committee shall constitute a quorum for the purpose of taking any action.
DUTIES AND POWERS AND OF THE COMMITTEE
The duties and powers of the Committee include, but are not
limited to, the following:
o bear direct responsibility for the appointment, compensation, retention and
oversight of the work of the Company's independent auditors (including
resolution of disagreements between management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the
Company, and the independent auditors must report directly to the
Committee;
o set the compensation of the independent auditors, such amount to be paid by
the Company;
o evaluate the independence of the Company's independent auditors and receive
the auditors' specific representations as to their independence;
o to the extent required by applicable law, pre-approve: (i) all audit and
non-audit services that the Company's independent auditors provide to the
Company, and (ii) all non-audit services that the Company's independent
auditors provide to the Company's investment adviser and any entity
controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the Company, if the engagement
relates directly to the operations and financial reporting of the Company;
o meet with the Company's independent auditors, including private meetings,
as necessary to (i) review the arrangements for and scope of the annual
audit and any special audits;
Exhibit 2 - 2
(ii) discuss any matters of concern relating to the Company's financial
statements, including any adjustments to such statements recommended by the
auditors, or other results of the audit; (iii) consider the auditor's
comments with respect to the Company's financial policies, procedures and
internal accounting controls and management's responses thereto; and (iv)
review the form of opinion the auditors propose to render to the Managers
and the members of the Company;
o review reports prepared by the Company's independent auditors detailing the
fees paid to the Company's independent auditors for: (i) audit services
(includes all services necessary to perform an audit, services provided in
connection with statutory and regulatory filings or engagements and other
services generally provided by independent auditors, such as comfort
letters, statutory audits, attest services, consents and assistance with,
and review of, documents filed with the Securities and Exchange Commission
"SEC"); (ii) audit-related services (covers assurance and due diligence
services, including, employee benefit plan audits, due diligence related to
mergers and acquisitions, consultations and audits in connection with
acquisitions, internal control reviews and consultations concerning
financial accounting and reporting standards); (iii) tax services (services
performed by a professional staff in the accounting firm's tax division,
except those services related to the audit, including tax compliance, tax
planning and tax advice); and (iv) other services (includes financial
information systems implementation and design);
o ensure that the Company's independent auditors prepare and deliver annually
to the Committee a written statement (the "Auditors' Statement")
describing: (i) the auditors' internal quality control procedures; (ii) any
material issues raised by the most recent internal quality control review
or peer review of the auditors, or by any inquiry or investigation by
governmental or professional authorities within the preceding five years
respecting one or more independent audits carried our by the auditors, and
any steps taken to deal with any such issues; and (iii) all relationships
between the independent auditors and the Company, including each non-audit
service provided to the Company and the matters set forth in Independence
Standards Board No. 1;
o receive and review a written report (or update, with respect to a
semi-annual filing), as of a date 90 days or less prior to the filing of
the Company's annual (or semi-annual) report with the SEC, to the Committee
from the Company's independent auditors regarding any: (i) critical
accounting policies to be used; (ii) alternative accounting treatments that
have been discussed with the Company's management along with a description
of the ramifications of the use of such alternative treatments and the
treatment preferred by the independent auditors; (iii) material written
communications between the auditor and management of the Company; and (iv)
all non-audit services provided to any entity in the Company's investment
company complex that were not pre-approved by the Committee;
o oversee the Company's internal controls and annual and semi-annual
financial reporting process, including results of the annual audit. Oversee
internal accounting controls relating to the activities of the Company's
custodian, investment adviser and administrator through the periodic review
of reports, discussions with appropriate officers and consideration of
reviews provided by internal audit staff;
Exhibit 2 - 3
o meet with the Fund's internal auditors (or other personnel responsible for
the internal audit function) following an internal audit of the Company to
discuss significant risks and exposures, if any, to the Fund's risk
management processes and system of internal controls, and the steps taken
to monitor and minimize such risks;
o review of any issues brought to the Committee's attention by independent
auditors or the Company's management, including those relating to any
deficiencies in the design or operation of internal controls which could
adversely affect the Company's ability to record, process, summarize and
report financial data, any material weaknesses in internal controls and any
fraud, whether or not material, that involves management or other employees
who have a significant role in the Company's internal controls;
o review and evaluate the qualifications, performance and independence of the
lead partner of the Company's independent auditors;
o require the Company's independent auditors to report any instance of an
audit partner of those auditors earning or receiving compensation based on
that partner procuring engagements with the Company to provide any services
other than audit, review or attest services;
o resolve any disagreements between the Company's management and independent
auditors concerning the Company's financial reporting;
o to the extent there are Managers who are not members of the Committee,
report its activities to the full Board on a regular basis and make such
recommendations with respect to the above and other matters as the
Committee may deem necessary or appropriate;
o review the Committee's charter at least annually and recommend any material
changes to the Board; and
o review such other matters as may be appropriately delegated to the
Committee by the Board.
Exhibit 2 - 4
DRAFT
EXHIBIT 3
PLAN AND AGREEMENT OF REORGANIZATION AND MERGER
This Plan and Agreement of Reorganization and Merger (the "Plan"
or "Agreement") is made and entered into effective as of this [__] day of
[___________] 2007, by and among Excelsior Directional Hedge Fund of Funds, LLC,
a Delaware limited liability company ("Directional Fund"), [Excelsior
Directional Feeder Fund, LLC], a Delaware limited liability company
[("Directional Feeder Fund")] and [Excelsior Directional Hedge Fund of Funds
Master Fund, LLC], a Delaware limited liability company [("Directional Master
Fund")](collectively, the "Funds").
WHEREAS, each of the Funds has its registered office in Delaware
at [1013 Center Road, Wilmington, Delaware 19805-1297] and has [Corporation
Service Company] as its registered agent for service of process in Delaware; and
WHEREAS, Directional Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a non-diversified,
closed-end, management investment company; and
WHEREAS, as of the effective date of this Agreement, Directional
Feeder Fund is the sole member of Directional Master Fund and the sole owner of
an interest therein; and
WHEREAS, Directional Fund and Directional Feeder Fund have the
same investment objective and have the substantially the same investment
policies and investment restrictions; and
WHEREAS, the Board of Managers of Directional Fund (the
"Directional Fund Board") has determined that it would be in the best interests
of Directional Fund and its members to effect a reorganization in which members
would invest in a new investment fund that would pursue its investment objective
by investing in Directional Fund; and
WHEREAS, the Board of Managers of Directional Feeder Fund (the
"Feeder Fund Board") has determined that it would be in the best interests of
Directional Feeder Fund and its members to pursue the investment objective of
Directional Feeder Fund by investing in another investment company having the
same investment objective and substantially the same investment policies and
investment restrictions as Directional Feeder Fund; and
WHEREAS, the Directional Fund Board, the Feeder Fund Board and the
Board of Managers of Directional Master Fund have made the findings required by
Rule 17a-8 under the 1940 Act that the participation by Directional Fund,
Directional Feeder Fund and Directional Master Fund, respectively, in the
transactions described in this Plan, is advisable and in the best interests of
its members, and that the interests of their respective existing members will
not be diluted as a result of such transactions; and
WHEREAS, the Directional Fund Board and the Feeder Fund Board have
each approved this Agreement; and
WHEREAS, Section 18-209(b) of the Delaware Limited Liability
Company Act (the "DLLCA") permits the merger of a Delaware limited liability
company with and into another Delaware limited liability company; and
WHEREAS, the Directional Fund Board and the Feeder Fund Board have
each determined that it would be desirable for Directional Master Fund to be
merged with and into Directional Fund, and
Exhibit 3 - 1
in connection therewith, for members of Directional Fund ("Members") holding
limited liability company interests ("Interests") in Directional Fund to receive
Interests in Directional Feeder Fund in exchange for their Interests in
Directional Fund, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements of the parties hereto, being thereunto duly entered into by and among
the Directional Fund, Directional Feeder Fund and Directional Master Fund and
approved by resolutions adopted by the Directional Fund Board and the Feeder
Fund Board, this Agreement and the terms and conditions hereof and the mode of
carrying the same into effect, are hereby determined and agreed upon as follows:
1. Pursuant to section 18-209(b) of the DLLCA, Directional Fund
and Directional Master Fund shall be merged with and into a single limited
liability company, to wit Directional Fund, which shall be the surviving company
of the merger, and which is sometimes hereinafter referred to as the "Surviving
Fund," and which shall continue to exist as the surviving company under its
present name pursuant to the provisions of the DLLCA. The merger shall become
effective at the time and on the date of the filing by the Surviving Fund of a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Secretary of State) under the applicable requirements of Delaware law, or such
later time and date as may be set forth in the Certificate of Merger (the
"Effective Time"). The separate existence of Directional Master Fund shall cease
at the Effective Time in accordance with the provisions of the DLLCA. Upon the
effectiveness of the merger, all of the assets, rights, privileges and powers of
Directional Fund and of Directional Master Fund, and all property of Directional
Fund and of Directional Master Fund, and all debts due to Directional Fund and
to Directional Master Fund, as well as all other things and causes of action
belonging to each of Directional Fund and Directional Master Fund, shall be
vested in the Surviving Fund.
2. Prior to the Effective Time, Directional Fund shall have
received an opinion from counsel to Directional Fund that consummation of the
transactions contemplated by this Agreement should not be a taxable event to
Directional Fund, Directional Feeder Fund or the Members.
3. Prior to the Effective Time, each of Directional Fund,
Directional Feeder Fund and Directional Master Fund will be registered under the
1940 Act, as a non-diversified, closed-end, management investment company.
4. At the Effective Time, and as an inducement to Directional
Fund's willingness to enter into this Agreement, Directional Feeder Fund shall
issue Interests in Directional Feeder Fund ("Feeder Fund Interests") to Members
holding Interests in Directional Fund at the Effective Time in exchange for and
in cancellation of the Interests of such Members in Directional Fund. The Feeder
Fund Interests issued to each Member shall have a value equal to the value of
such Member's Interest in Directional Fund determined as of the last
determination of the values of capital accounts of Members in Directional Fund
as of or prior to the Effective Time.
5. Annexed hereto and made a part hereof is a copy of the Limited
Liability Company Agreement ("LLC Agreement") of the Surviving Fund as the same
shall be in force and effect at the Effective Time, and said LLC Agreement shall
continue to be the LLC Agreement of the Surviving Fund until amended and changed
pursuant to the provisions of such LLC Agreement and the provisions of the
DLLCA.
6. The name of the Surviving Fund shall be "Excelsior Directional
Hedge Fund of Funds Master Fund, LLC".
7. As the Surviving Fund, Directional Fund shall retain written
records that describe the merger as required by paragraph (a)(5) of Rule 17a-8
under the 1940 Act, and the determinations of the Directional Fund Board and the
Feeder Fund Board and the bases thereof, including the factors
Exhibit 3 - 2
considered by the Directional Fund Board and the Feeder Fund Board, shall be
recorded fully in the minute books of the Surviving Fund and Directional Feeder
Fund, respectively.
8. The members of the Board of Managers and officers of
Directional Fund at the Effective Time shall be the members of the Board of
Managers and officers of the Surviving Fund, all of whom shall hold their
respective positions until the due election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the LLC Agreement of the Surviving Fund.
9. Promptly after the Effective Time, Directional Feeder Fund
shall file an amendment to its Certificate of Formation with the Secretary of
State and take such other actions as may be necessary to change its name to
"Excelsior Directional Hedge Fund of Funds, LLC."
10. As soon as practicable after the Effective Time, the Surviving
Fund shall on behalf of Directional Master Fund file an application with the
Securities and Exchange Commission pursuant to Section 8(f) of the 1940 Act for
an order declaring that Directional Master Fund has ceased to be an investment
company.
11. Consummation of the merger and other transactions
contemplated by this Agreement is subject to the condition that this agreement
shall have been approved by Members and by Directional Feeder Fund, as the sole
holder of an Interest in Directional Master Fund.
12. In the event that this Agreement shall have been duly
approved and adopted as set forth in Section 9 above, the parties hereto agree
that they will cause to be executed and filed and recorded any document or
documents prescribed by the laws of the State of Delaware and that they will
cause to be performed all necessary acts within the State of Delaware and
elsewhere to effectuate the merger and reorganization herein provided for.
13. The Directional Fund Board and the Feeder Fund Board and the
proper officers of Directional Fund and Directional Feeder Fund are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and record any and all instruments, papers and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Agreement or of the merger and
reorganization herein provided for.
14. Notwithstanding the full approval and adoption of this
Agreement, this Agreement and the transactions contemplated hereby may be
terminated at any time prior to the filing of the Certificate of Merger with the
Secretary of State by the Directional Fund Board or by the Feeder Fund Board in
the event that such Board of Managers determines that the merger and
reorganization herein provided for is no longer in the best interests of
Directional Fund or Directional Feeder Fund, respectively.
{THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK}
Exhibit 3 - 3
IN WITNESS WHEREOF, the parties hereto have caused this Plan and
Agreement of Reorganization and Merger to be duly executed and delivered as of
the date first above written.
Excelsior Directional Hedge Fund of Funds, LLC
By:
---------------------------------
Name:
Title:
[Excelsior Directional Feeder Fund, LLC]
By:
---------------------------------
Name:
Title:
[Excelsior Directional Hedge Fund of Funds Master Fund, LLC]
By:
---------------------------------
Name:
Title:
Exhibit 3 - 4
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
PROXY SOLICITED ON BEHALF OF THE
BOARD OF MANAGERS FOR THE
SPECIAL MEETING OF MEMBERS TO BE HELD ON MARCH 15, 2007
The undersigned hereby appoints Ralph A. Pastore and Robert F.
Aufenanger, jointly and severally, as proxies ("Proxies"), with full power to
appoint one or more substitutes, and hereby authorizes them to represent and to
vote, as designated below, the interest in Excelsior Directional Hedge Fund of
Funds, LLC (the "Fund") held of record by the undersigned on January 12, 2007 at
the Special Meeting (the "Meeting") of Members of the Fund to be held at the
offices of United States Trust Company, National Association, 225 High Ridge
Road, Stamford, Connecticut 06905 on March 15, 2007 at 11:00 a.m. (Eastern
Standard time) and at any and all adjournments thereof, with all the powers the
undersigned would possess if personally present at such Meeting, and hereby
revokes any proxies that may previously have been given by the undersigned with
respect to the interest in the Fund covered hereby. I acknowledge receipt of the
Notice of Special Meeting of Members and the Proxy Statement dated [------],
2007.
The Board of Managers recommends a vote "FOR" Proposal 1 and Proposal 3 and "FOR
ALL" of the nominees.
INSTRUCTIONS: Check ONE of the boxes for each Proposal.
----------------------------- -------------------------------- --------------------------- -------------------------------
1. APPROVAL OF NEW
INVESTMENT ADVISORY FOR AGAINST ABSTAIN
AGREEMENT / / / / / /
----------------------------- --------------------------------------------------------------------------------------------
2. ELECTION OF o Mark "FOR" if you wish to vote for all nominees.
MANAGERS o Mark "WITHHOLD AUTHORITY" if you wish to withhold authority for all nominees.
o Mark "FOR ALL EXCEPT" below and write on the lines below the number(s) of the
individual nominee(s) for whom you wish to withhold authority.
WITHHOLD
FOR ALL AUTHORITY FOR ALL EXCEPT*
/ / / / / /
NOMINEES: 01 - David R. Bailin 02 - Gene M. Bernstein
03 - Victor F. Imbimbo, Jr. 04 - Stephen V. Murphy
* To withhold authority to vote for any individual, mark the box "FOR ALL EXCEPT" and
write the Nominee's number on the line below.
----------------------------- --------------------------------------------------------------------------------------------
---------------------------------------------
----------------------------- -------------------------------- --------------------------- -------------------------------
3. APPROVAL OF
REORGANIZATION OF THE FUND FOR AGAINST ABSTAIN
/ / / / / /
----------------------------- -------------------------------- --------------------------- -------------------------------
4. IN THEIR DISCRETION ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
----------------------------- -------------------------------- --------------------------- -------------------------------
PLEASE MARK, SIGN AND DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
If this proxy is properly executed and received by the Fund prior to the
Meeting, the interests in the Fund represented hereby will be voted in the
manner directed on this proxy card. If not otherwise specified, this proxy will
be voted "FOR" Proposal 1 and Proposal 3 and "FOR ALL" nominees for election as
managers.
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ON THIS PROXY CARD. INDIVIDUALS,
JOINT TENANTS AND IRA INVESTORS, PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS
PROXY CARD. WITH RESPECT TO ENTITY INVESTORS, EACH PERSON REQUIRED TO SIGN UNDER
THE INVESTOR'S GOVERNING DOCUMENTS MUST SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, ETC. SHOULD GIVE THEIR FULL TITLE. IF MORE THAN ONE AUTHORIZED
SIGNATORY IS REQUIRED, EACH SIGNATORY SHOULD SIGN. IF INTERESTS IN THE FUND ARE
HELD JOINTLY, EACH HOLDER SHOULD SIGN.
--------------------------------------------------------------- --------------------------------------------------------
------------------------------------------------ -------------------------------------------------------
Signatory (Please sign) Additional Signatory (Please sign, if applicable)
Name: Name:
Title: Title:
Date: Date:
--------------------------------------------------------------- --------------------------------------------------------
CONTROL NUMBER:
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
TO VOTE BY INTERNET TO VOTE BY TELEPHONE TO VOTE BY MAIL
------------------- -------------------- ---------------
o Read the Proxy Statement and have o Read the Proxy Statement o Read the Proxy Statement
this card at hand and have this card at hand o Check the appropriate
o Log on to www.proxyweb.com o Call toll-free at boxes on this proxy card
o Follow the on-screen instructions 1-888-221-0697 o Sign, date and return
o Do NOT mail this proxy card o Follow the recorded instructions this proxy card
o Do NOT mail this proxy card o Mail your completed proxy card
in the enclosed envelope
PLEASE DO NOT VOTE USING MORE THAN ONE METHOD
DO NOT MAIL YOUR PROXY CARD IF YOU VOTE BY INTERNET OR TELEPHONE
ONLY PROPERLY-EXECUTED PROXIES RECEIVED BEFORE THE MEETING WILL BE VOTED AT THE
MEETING OR ANY ADJOURNMENT THEREOF.