UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSRS
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-21911
OLD MUTUAL ABSOLUTE RETURN MASTER FUND, L.L.C.
(Exact name of registrant as specified in charter)
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800 Westchester Avenue, S-618
Rye Brook, New York 10573
(Address of principal executive offices) (Zip code)
SEI Investments Distributors
One Freedom Valley Drive
Oaks, PA 19456
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-888-266-2200
DATE OF FISCAL YEAR END: MARCH 31
DATE OF REPORTING PERIOD: SEPTEMBER 30, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
Old Mutual Absolute Return Master Fund, L.L.C.
(formerly Old Mutual 2100 Absolute Return Master Fund, L.L.C.)
Financial Statements (unaudited)
For the six month period ended September 30, 2007
Old Mutual Absolute Return Master Fund, L.L.C.
Table of Contents
Financial Statements (unaudited):
Schedule of Investments ................................................... 1
Statement of Assets and Liabilities ....................................... 3
Statement of Operations ................................................... 4
Statements of Changes in Members' Capital ................................. 5
Statement of Cash Flows ................................................... 6
Financial Highlights ...................................................... 7
Notes to Financial Statements ............................................. 8
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (the "Commission") for the first and third quarters of
each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the
Commission's website at HTTP://WWW.SEC.GOV, and may be reviewed and copied at
the Commission's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, as well as information
regarding how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30, is available (i) without charge, upon
request, by calling toll free (888) 266-2200; and (ii) on the Commission's
website at HTTP://WWW.SEC.GOV.
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments (unaudited)
September 30, 2007
INVESTMENT STRATEGIES AS A PERCENTAGE OF TOTAL INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Capital Structure Arbitrage 12.1%
Commodity Trading Advisor 10.1%
Equity Long Bias 17.0%
Equity Market Neutral 13.2%
Equity Variable Bias 21.5%
Event Driven 17.9%
Relative Value 8.2%
%* OF
MEMBERS'
PORTFOLIO FUND COST VALUE CAPITAL LIQUIDITY
- ----------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE ARBITRAGE:
BAM Opportunity Fund, L.P. $ 339,000 $ 378,643 3.20% Quarterly
Linden Investors, L.P. 479,000 505,123 4.26% Quarterly
Tenor Opportunity Fund, L.P. 415,000 437,206 3.69% Quarterly
------------------------------------
TOTAL CAPITAL STRUCTURE ARBITRAGE 1,233,000 1,320,972 11.15%
------------------------------------
COMMODITY TRADING ADVISOR:
Tudor Tensor Fund, L.P. 1,000,000 1,098,138 9.27% Monthly
------------------------------------
TOTAL COMMODITY TRADING ADVISOR 1,000,000 1,098,138 9.27%
------------------------------------
EQUITY LONG BIAS:
JANA Partners Qualified, L.P. 448,000 507,126 4.28% Quarterly
Quadrangle Equity Investors, L.P. 415,000 507,185 4.28% Quarterly
Renaissance Institutional Equities Fund, LLC 800,000 838,874 7.08% Monthly
------------------------------------
TOTAL EQUITY LONG BIAS 1,663,000 1,853,185 15.64%
------------------------------------
1
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments (unaudited) (concluded)
September 30, 2007
%* OF
MEMBERS'
PORTFOLIO FUND COST VALUE CAPITAL LIQUIDITY
- ----------------------------------------------------------------------------------------------------
EQUITY MARKET NEUTRAL:
The Black Mesa Fund $ 415,000 $ 446,109 3.76% Monthly
Two Sigma Spectrum U.S. Fund, L.P. 1,000,000 993,541 8.38% Quarterly
------------------------------------
TOTAL EQUITY MARKET NEUTRAL 1,415,000 1,439,650 12.14%
------------------------------------
EQUITY VARIABLE BIAS:
7x7 Institutional Partners, L.P. 458,000 509,700 4.30% Monthly
Cedar Hill Capital Partners Onshore, L.P. 449,000 798,241 6.74% Quarterly
Enso Global Equities Partnership, L.P. 468,000 520,745 4.39% Quarterly
Rosen Real Estate Securities Value Fund II, L.P. 468,000 515,379 4.35% Quarterly
------------------------------------
TOTAL EQUITY VARIABLE BIAS 1,843,000 2,344,065 19.78%
------------------------------------
EVENT DRIVEN:
Claren Road Credit Partners, L.P. 458,000 500,727 4.22% Quarterly
GoldenTree Partners, L.P. 458,000 510,129 4.30% Quarterly
Greywolf Capital Partner II, L.P. 458,000 509,130 4.30% Annually
Jefferies Buckeye Fund, LLC 415,000 431,147 3.64% Quarterly
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TOTAL EVENT DRIVEN 1,789,000 1,951,133 16.46%
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RELATIVE VALUE:
Ellington Mortgage Partners, L.P. 1,000,000 898,919 7.59% Quarterly
------------------------------------
TOTAL RELATIVE VALUE 1,000,000 898,919 7.59%
------------------------------------
TOTAL PORTFOLIO FUNDS $9,943,000 $10,906,062 92.03%
====================================
* Percentages are based on Members' Capital at end of period of $11,850,469.
The aggregate cost of investments for tax purposes was $9,943,000. Net
unrealized appreciation on investments for tax purposes was $963,062 consisting
of $1,070,602 of gross unrealized appreciation and ($107,540) of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 92.03% of Members'
Capital, have been fair valued as described in Note 2.B.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Assets and Liabilities (unaudited)
September 30, 2007
ASSETS
Investments in Portfolio Funds, at fair value (cost $9,943,000) $ 10,906,062
Cash 777,895
Receivable for Investment sold 200,950
Due from Old Mutual Absolute
Return Institutional Fund, L.L.C. 99,020
Prepaid insurance fees 15,000
Deferred offering costs 1,227
Interest receivable 3,254
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TOTAL ASSETS 12,003,408
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LIABILITIES
Payable to Adviser 109,625
Professional fees payable 32,873
Administration fees payable 4,583
Board of Managers' fees payable 1,875
Other accrued expenses 3,983
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TOTAL LIABILITIES 152,939
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NET ASSETS $ 11,850,469
=============
MEMBERS' CAPITAL
Net capital $ 11,123,536
Accumulated net investment loss (163,161)
Accumulated net realized loss on Portfolio Funds (72,968)
Net unrealized appreciation on investments in Portfolio Funds 963,062
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MEMBERS' CAPITAL $ 11,850,469
=============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Operations (unaudited)
For the six month period ended September 30, 2007
INVESTMENT INCOME:
Interest $ 13,721
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EXPENSES:
Professional fees 41,769
Offering costs 7,363
Board of Managers' fees 3,750
Administration fee 2,117
Custody fee 750
Other expenses 9,958
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Total expenses 65,707
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NET INVESTMENT LOSS (51,986)
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NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS IN PORTFOLIO FUNDS
Net Realized Loss on
Investments in Portfolio Funds (68,050)
Net Change in Unrealized Appreciation on
Investments in Portfolio Funds 428,450
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NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS IN PORTFOLIO FUNDS 360,400
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NET INCREASE IN MEMBERS' CAPITAL DERIVED
FROM INVESTMENT ACTIVITIES $ 308,414
=============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
Old Mutual Absolute Return Master Fund, L.L.C.
Statements of Changes in Members' Capital (unaudited)
For the six month November 1, 2006*
period ended to
September 30, 2007 March 31, 2007
------------------- -----------------
FROM INVESTMENT ACTIVITIES:
Net investment loss** $ (51,986) $ (111,175)
Net realized loss on investments
in Portfolio Funds (68,050) (4,918)
Net change in unrealized appreciation on
investments in Portfolio Funds 428,450 534,612
------------------ -----------------
Net increase in Members' Capital
derived from investment activities 308,414 418,519
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MEMBERS' CAPITAL TRANSACTIONS:
Proceeds from sales of Interests 595,520 10,696,310
Redemptions of Interests (69,986) (103,408)
------------------ -----------------
Total Members' Capital Transactions 525,534 10,592,902
------------------ -----------------
NET INCREASE IN MEMBERS' CAPITAL: 833,948 11,011,421
Members' Capital at Beginning of Period 11,016,521 5,100
------------------ -----------------
Members' Capital at End of Period $ 11,850,469 $ 11,016,521
================== =================
ACCUMULATED NET INVESTMENT LOSS $ (163,161) $ (111,175)
================== =================
* Commencement of operations.
** Investment income less net expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Cash Flows (unaudited)
For the six month period ended September 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' Capital derived from investment activities $ 308,414
Adjustments to reconcile net increase in Members' Capital derived
from investment activities to net cash used in operating activities:
Proceeds from sales of Portfolio Funds 200,950
Net realized loss on
Investments in Portfolio Funds 68,050
Net change in unrealized appreciation
on investments in Portfolio Funds (428,450)
Decrease in receivable for Investment sold 43,132
Decrease in deferred offering costs 7,363
Increase in interest receivable (1,284)
Increase in prepaid insurance expense (15,000)
Increase in due from Absolute Return Institutional Fund, L.L.C. (99,020)
Decrease in due to Absolute Return Master Fund, L.L.C. (99,000)
Decrease in professional fees payable (56,536)
Increase in administration fee payable 2,500
Increase in Board of Managers' fees payable 833
Decrease in other accrued expenses (24,110)
------------
Net cash used in operating activities (92,158)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Interests 595,520
Redemptions of Interests (120,327)
------------
Net cash provided by financing activities 475,193
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NET INCREASE IN CASH 383,035
Cash, beginning of period 394,860
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CASH, END OF PERIOD $ 777,895
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Highlights (unaudited)
For the six month November 1, 2006*
period ended to
September 30, 2007 March 31, 2007
------------------ ------------------
Total Return (1) 2.81% 3.95%
Net assets, end of period (000's) $ 11,850 $ 11,017
Ratio to average net assets:
Expenses (2) 1.15% (3) 2.93% (3)
Net investment loss (0.91)% (3) (2.52)% (3)
Portfolio turnover rate 0.00% (4) 2.52% (4)
* Commencement of operations.
(1) Total return is for the period indicated and has not been annualized.
(2) Expenses of Portfolio Funds are not included in the expense ratio.
(3) Annualized.
(4) Not annualized.
Note: The expense ratios, the net investment loss ratio, and the total return
percentages are calculated for the Members taken as a whole. The computation of
such ratios and return based on the amount of expenses charged to any specific
Member may vary from the overall ratios presented in the financial statements as
a result of the timing of capital transactions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited)
September 30, 2007
1. ORGANIZATION
Old Mutual Absolute Return Master Fund, L.L.C. (the "Fund") (formerly Old Mutual
2100 Absolute Return Master Fund, L.L.C.) is a Delaware limited liability
company that is registered under the Investment Company Act of 1940, as amended
(the "1940 Act") as a non-diversified, closed-end, management investment
company, which was formed on April 25, 2006 and commenced operations on November
1, 2006. The Fund is a master fund in a master/feeder structure into which its
feeder funds, Old Mutual Absolute Return Fund, L.L.C. (the "Feeder Fund")
(formerly Old Mutual 2100 Absolute Return Fund, L.L.C.) and Old Mutual Absolute
Return Institutional Fund, L.L.C. (the "Institutional Feeder Fund") (formerly
Old Mutual 2100 Absolute Return Institutional Fund, L.L.C.), (collectively, the
"Feeders" or "Members"), invest substantially all of their assets. As of
September 30, 2007, the Feeder Fund's investment in the Fund represented 89.7%
of Members' Capital, the Institutional Feeder Fund's investment in the Fund
represented 1.3% of Members' Capital and an affiliate of the Adviser (as defined
in Note 3) had an investment in the Fund which represented 9.0% of Members'
Capital.
The Fund employs a "fund of funds" investment program that enables eligible
investors, through one investment, to participate in the investment programs of
a professionally selected group of asset managers without being subject to the
high minimum investment requirements that many asset managers typically impose.
The Fund is similar to a private investment fund in that it is actively managed
and interests in the Feeders ("Interests") are sold solely to high net worth
individual and institutional investors, but differs from a typical private
investment fund in that it has registered as an investment company under the
1940 Act.
The Fund's investment objective is to seek to generate attractive returns while
attempting to reduce volatility. The Fund invests its assets primarily in
private investment funds, joint ventures, investment companies and other similar
investment vehicles ("Portfolio Funds") that are managed by a select group of
portfolio managers ("Portfolio Managers") that invest in a variety of financial
markets and utilize a broad range of alternative investment strategies.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America. The following is
a summary of the significant accounting policies followed by the Fund:
A. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Adviser to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
8
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. Portfolio Valuation and Investment Transactions
The net asset value of the Fund is determined by or at the discretion of the
Adviser as of the close of business as of the end of each month in accordance
with the valuation principles as may be determined from time to time pursuant to
policies established by the Fund's Board of Managers (the "Board"). The net
asset value of the Fund is based primarily on the fair value of each of its
interests in Portfolio Funds. Ordinarily, these values are determined by the
Portfolio Managers of the Portfolio Funds in accordance with the Portfolio
Funds' valuation policies and as reported by the Portfolio Managers. As a
general matter, the fair value of the Fund's interest in a Portfolio Fund
represents the amount that the Fund could reasonably expect to receive from the
Portfolio Fund if the Fund's interest were redeemed at the time of valuation,
based on information reasonably available at the time the valuation is made and
that the Fund believes to be reliable.
The Fund's valuation procedures require the Adviser to consider all relevant
information available at the time the Fund values its assets. The Adviser or, in
certain cases, the Fund's Board, will consider such information, and may
conclude in certain circumstances that the information provided by a Portfolio
Manager does not represent the fair value of the Fund's interests in a Portfolio
Fund. Following procedures adopted by the Board, in the absence of specific
transaction activity in interests in a particular Portfolio Fund, the Fund could
consider whether it was appropriate, in light of all relevant circumstances, to
value such a position at the Portfolio Fund's net asset value as reported at the
time of valuation, or whether to adjust such value to reflect a premium or
discount to net asset value. Any such decision must be made in good faith, and
subject to the review and supervision of the Board.
Realized gains and losses from Portfolio Fund transactions are calculated on the
identified cost basis. Investments are recorded on the effective date of the
subscription to or redemption from the Portfolio Fund.
Interest income is recorded on an accrual basis and consists of interest earned
on cash.
C. Income Taxes
Counsel to the Fund rendered an opinion that the Fund will be classified as a
partnership and not as an association taxable as a corporation for Federal tax
purposes. Counsel to the Fund also rendered its opinion that, under a "facts and
circumstances" test, the Fund will not be treated as a "publicly traded
partnership" taxable as a corporation. Accordingly, the Fund should not be
subject to Federal income tax, and each Member will be required to report on its
own annual tax return such Member's distributive share of the Fund's taxable
income or loss.
9
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
D. Distribution Policy
The Fund has no present intention of making periodic distributions of its net
investment income or capital gains, if any, to Members. The amount and frequency
of distributions, if any, will be determined in the sole discretion of the
Board.
E. Distributions from Portfolio Funds
Distributions from Portfolio Funds will be classified as investment income or
realized gains in the Statements of Operations, or alternatively, as a decrease
to the cost of the investments based on the U.S. income tax characteristics of
the distribution if such information is available. In cases where the tax
characteristics are not available, such distribution will be classified as
investment income.
F. Cash
As of September 30, 2007, cash consists of an investment in a money market fund
affiliated with the Administrator (as defined in Note 3). The investment is
carried at cost, which approximates market value.
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER
Larch Lane Advisors LLC (the "Adviser") (formerly, 2100 Larch Lane LLC), a
Delaware limited liability company, serves as the investment adviser of the Fund
pursuant to an agreement dated October 13, 2006. The initial term of the
agreement expires on October 13, 2008 and may be continued in effect from year
to year thereafter if its continuance is approved annually. The Adviser is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"). LLA Holdings, LLC, the special member of the
Adviser, owns 81.25% of the Adviser and is an indirect majority-owned subsidiary
of Old Mutual (US) Holdings, Inc. ("OMUSH"), which is a wholly-owned subsidiary
of Old Mutual plc, a London exchange listed international financial services
firm. OMUSH is also a member of the Fund. OMUSH did not contribute during the
period and has Members' capital of $1,068,597 as of September 30, 2007. The
Adviser is responsible for developing, implementing and supervising the Fund's
investment program and providing day-to-day management services to the Fund.
Under the agreement with the Adviser, the Fund does not pay any investment
management fee to the Adviser. However, under the agreement, in the event the
Adviser ceases to serve as the Adviser to each Feeder, the Master Fund would
then be subject to a fee that is calculated and payable in accordance with the
lowest annual rate that had most recently been charged by the Adviser to a
Feeder.
10
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONCLUDED)
The Fund and the Feeder Fund have entered into a Master/Feeder Agreement dated
October 13, 2006 and the Fund and the Institutional Feeder Fund have entered
into a Master/Feeder Agreement dated February 8, 2007. Pursuant to the
agreement, the Fund and the Feeders will each have the same investment objective
and substantially the same investment policies. The Feeders will pursue their
investment objectives by investing on an ongoing basis substantially all of
their investable assets in the Fund in exchange for limited liability company
interests in the Fund. The Master/Feeder Agreements will remain in effect unless
terminated by the Fund or the Feeders.
The Fund is managed by the Board of Managers (the "Board") and each member of
the Board who is not an "interested manager" of the Fund, as defined by the 1940
Act (the "Independent Managers"), is entitled to an annual retainer of $2,500
and will be reimbursed by the Fund for travel-related expenses. The Independent
Managers of the Board are Gerald Hellerman, Paul D. Malek, and George W.
Morriss.
Pursuant to an administrative services agreement dated October 13, 2006 and
amended February 8, 2007, SEI Investments Global Funds Services (the
"Administrator"), provides various administrative services to the Fund and the
Feeders, including fund accounting, investor accounting and taxation services,
maintaining the register of the Fund and generally performing all actions
related to the issuance and transfer of Interests; reviewing and, subject to
approval by the Fund, accepting subscriptions for Interests and accepting
payment therefore; performing all acts related to the repurchase of Interests;
and performing all other clerical services necessary in connection with the
administration of the Fund. The initial term of the agreement expires on
November 1, 2009 and may be continued in effect from year to year thereafter if
its continuance is approved annually.
In consideration for the services provided by the Administrator, the Fund pays
the Administrator a monthly fee calculated and assessed monthly in arrears at an
annualized rate of 0.01% of the Fund's net assets, subject to a minimum annual
fee of $5,000.
SEI Private Trust Company (the "Custodian") serves as the custodian for the
assets of the Fund pursuant to an agreement dated October 13, 2006. In
consideration for the services provided by the Custodian, the Fund pays the
Custodian a monthly fee at an annualized rate of 0.0075% of the Fund's net
assets, subject to a minimum annual fee of $1,500. The agreement will remain in
effect unless terminated by the Fund or the Custodian.
4. FUND EXPENSES
The Fund bears its own operating expenses. These operating expenses include, but
are not limited to: all investment-related expenses (including, but not limited
to, fees paid directly or indirectly to Portfolio Managers, investment-related
interest expenses, all costs and expenses directly related to portfolio
transactions and positions, transfer taxes and premiums and taxes withheld on
foreign dividends); any non-investment related interest expense; fees and
disbursements of any attorneys or accountants engaged
11
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
4. FUND EXPENSES (CONCLUDED)
on behalf of the Fund; entity-level taxes, audit and tax preparation fees and
expenses; administrative expenses and fees of the Fund; custody expenses of the
Fund; the costs of an errors and omissions/directors and officers liability
insurance and a fidelity bond for the Fund; fees and travel-related expenses of
the Board of the Fund who are not employees of the Adviser or any affiliate of
the Adviser; all costs and charges for equipment or services used in
communicating information regarding the Fund's transactions among the
sub-Adviser and any custodian or other agent engaged by the Fund; any
extraordinary expenses; and such other expenses as may be approved from time to
time by the Board.
The Fund also indirectly bears fees and expenses of the Portfolio Funds. Each
Portfolio Manager generally receives a management fee and a performance fee or
allocation with respect to the assets of Portfolio Funds that it manages. The
amount of these fees and allocations varies among Portfolio Managers, but the
management fees are generally expected to be between 1.0%-2.0%, on an annual
basis, of the total assets managed by a Portfolio Manager, and the performance
fees or allocations are generally expected to be between 15%-25% of the net
capital appreciation (if any) in the assets managed by a Portfolio Manager.
5. INITIAL OFFERING COSTS AND ORGANIZATION EXPENSES
The Fund incurred initial offering costs totaling approximately $14,725
comprised principally of legal costs pertaining to the preparation of the Fund's
offering documents. These costs are being amortized over the initial
twelve-month period which expired on October 31, 2007.
Costs incurred in connection with the organization of the Fund were expensed at
April 25, 2006, the inception date. The Adviser paid the costs in connection
with the organization of the Fund and agreed to absorb $15,000 of the
organization costs. The Fund incurred $109,900 in organization costs and will
repay the Adviser.
6. BORROWINGS
The Fund is authorized to borrow money for investment purposes, to meet
repurchase requests and for cash management purposes. Borrowings by the Fund are
subject to a 300% asset coverage requirement under the 1940 Act. Portfolio Funds
that are not registered investment companies are not subject to this
requirement. The Fund had no borrowings during the period ended September 30,
2007.
12
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
7. CAPITAL ACCOUNTS AND ALLOCATIONS
The Fund maintains a separate capital account for each Member. The net profits
or net losses of the Fund (including, without limitation, net realized gain or
loss and the net change in unrealized appreciation or depreciation of securities
positions) are credited to or debited against the capital accounts of Members as
of the end of each fiscal period in accordance with their respective investment
percentages for the period. Each Member's investment percentage is determined
each fiscal period by dividing, as of the commencement of the period, the
balance of the Member's capital account by the sum of the balances of the
capital accounts of all Members.
A fiscal period begins on the day after the last day of the preceding fiscal
period and ends at the close of business on the first to occur of: (i) the last
day of each fiscal year (March 31); (ii) the last day of each taxable year
(December 31); (iii) the day preceding the date as of which any contributions to
the capital of the Fund is made; (iv) any day as of which the Fund repurchases
the Interest (or portion thereof) of any Member; or (v) any day as of which any
amount is credit to or debited from the capital account of any Member other than
an amount to be credited to or debited from the capital accounts of all Members
in accordance with their respective investment percentages.
8. SUBSCRIPTIONS AND REDEMPTIONS OF INTERESTS
The Board may admit one or more Members generally at the beginning of each
month; provided, however, that the Fund may, in the discretion of the Board,
admit Members more or less frequently.
No Member or other person holding an Interest or portion thereof shall have the
right to require the Fund to repurchase that Interest or portion thereof. The
Board, in its sole discretion and on such terms and conditions as it may
determine, may cause the Fund to repurchase Interests or portions thereof
pursuant to written tenders. However, the Fund shall not offer to repurchase
Interests on more than four occasions during any one fiscal year; provided that
offers made more than semi-annually in any taxable year shall only be accepted
if Members give at least 65 days' notice of their acceptance in any tax year,
unless it has consulted with counsel to the Fund and determined that more
frequent offers would not cause any adverse tax consequences to the Fund or the
Members. In determining whether to cause the Fund to repurchase Interests or
portions thereof pursuant to written tenders, the Board shall consider, among
other things, the recommendation of the Adviser.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Portfolio Funds in which the Fund invests
trade various financial instruments and enter into various investment activities
with off-balance sheet risk. These include, but are not limited to, short
selling activities, writing options contracts, and swap contracts. The Fund's
risk of loss in the Portfolio Funds is limited to the value of these investments
reported by the Portfolio Funds.
13
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
10. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that contain a
variety of representations which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be against the Fund that have not yet occurred. However,
based on experience, the Fund expects the risk of loss to be remote.
11. CONCENTRATION OF RISK
The Fund invests primarily in Portfolio Funds that are not registered under the
1940 Act which invest in and actively trade securities and other financial
instruments using different strategies and investment techniques, including
leverage, which may involve significant risks. These Portfolio Funds may invest
a high percentage of their assets in specific sectors of the market in order to
achieve a potentially greater investment return. As a result, the Portfolio
Funds may be more susceptible to economic, political, and regulatory
developments in a particular sector of the market, positive or negative, and may
experience increased volatility of the Portfolio Funds' net asset value.
The Fund may invest in a limited number of Portfolio Funds. Such concentration
may result in additional risk. The Portfolio Funds may enter into the following
transactions and certain of the related risks are described below:
A. Short Sales
Short sales are sales of securities that are not owned or that are not intended
for delivery and the seller will therefore be obligated to purchase such
securities at a future date. The value of the open short position is recorded as
a liability, and the seller records unrealized gain or loss to the extent of the
difference between the proceeds received and the value of the open short
position. A realized gain or loss is recorded when the short position is closed
out. By entering into short sales, the seller bears the market risk of increases
in value of the security sold short in excess of the proceeds received.
B. Swap Agreements
A swap contract is a contract under which two parties agree to make periodic
payments to each other based on the value of a security, a specified interest
rate, an index or the value of some other instrument applied to a stated or
"notional" amount. Swaps are subject to various types of risk, including market
risk, liquidity risk, counterparty credit risk, legal risk and operations risk.
C. Options
The Portfolio Funds may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer has the right, but not the
obligation, to purchase (in the case of a call option)
14
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
11. CONCENTRATION OF RISK (CONTINUED)
or sell (in the case of a put option) a specified quantity of a specific
security or other underlying asset at a specified price prior to or on a
specified expiration date. The writer of an option is exposed to the risk of
loss if the market price of the underlying asset declines (in the case of a put
option) or increases (in the case of call option). The writer of an option can
never profit by more than the premium paid by the buyer but can lose an
unlimited amount.
D. Futures Contracts
The Portfolio Funds may use futures contracts for hedging and non-hedging
purposes. Upon entering into a futures contract, the Portfolio Funds are
required to deposit an amount ("initial margin") equal to a certain percentage
of the contract value. Pursuant to the contract, the Portfolio Funds agree to
receive from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Portfolio Funds as unrealized gains
or losses. When the contract is closed, the Portfolio Funds record a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time when it was closed. The use of
futures transactions includes the risk of imperfect correlation in movements in
the price of futures contracts, interest rates, underlying hedged assets, and
the possible inability of the counterparties to meet the terms of their
contracts.
E. Leverage Transactions
In order to obtain more investable cash, the Portfolio Funds may use various
forms of leverage including purchasing securities on margin. Such leverage may
allow the Portfolio Funds to increase partners' capital at a greater rate during
favorable markets, but also may lead to a more rapid decrease in partners'
capital in unfavorable markets. A margin transaction consists of purchasing an
investment with money loaned by a broker and agreeing to repay the broker at a
later date. Interest expense on the outstanding margin balance is based on
market rates at the time of the borrowing.
F. Forward Foreign Currency Contracts
The Portfolio Funds may enter into forward foreign currency contracts. Forward
contracts are over-the-counter contracts for delayed delivery of currency in
which the buyer agrees to buy and the seller agrees to deliver a specified
currency at a specified price on a specified date. Because the terms of forward
contracts are not standardized, they are not traded on organized exchanges and
generally can be terminated or closed-out only by agreement of both parties to
the contract. All commitments are marked to market on each valuation date at the
applicable foreign exchange rate and any resulting unrealized gain or loss is
recorded on such date. The Portfolio Fund realizes gains and losses at the time
forward contracts are extinguished or closed upon entering into an offsetting
contract.
15
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
11. CONCENTRATION OF RISK (CONTINUED)
G. Repurchase Agreements
Repurchase agreements are agreements under which a Portfolio Fund or the Fund
purchases securities from a bank that is a member of the Federal Reserve System,
a foreign bank or a securities dealer that agrees to repurchase the securities
from the Portfolio Fund at a higher price on a designated future date. If the
seller under a repurchase agreement becomes insolvent, the Portfolio Fund's
right to dispose of the securities may be restricted, or the value of the
securities may decline before the Portfolio Fund is able to dispose of them.
H. Reverse Repurchase Agreements
Reverse repurchase agreements are a form of borrowing that involves a sale of a
security by a Portfolio Fund to a bank or securities dealer and the Portfolio
Fund's simultaneous agreement to repurchase that security for a fixed price
(reflecting a market rate of interest) on a specific date. These transactions
involve a risk that the other party to a reverse repurchase agreement will be
unable or unwilling to complete the transaction as scheduled, which may result
in losses to the Portfolio Fund. Reverse repurchase transactions are a form of
leverage and may increase the volatility of a Portfolio Fund's investment
portfolio.
I. Lending Portfolio Securities
Portfolio Funds may lend securities held in their portfolios to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. The lending Portfolio Fund continues to be entitled to
payments in amounts equal to the interest, dividends or other distributions
payable on the loaned securities which afford it an opportunity to earn interest
on the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities by a Sub-Manager may not exceed 33-1/3% of the value of a
Portfolio Account's total assets, and, in respect of such transactions, the
Portfolio Fund will receive collateral consisting of cash, U.S. Government
Securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. A Portfolio Fund might experience loss if the institution
with which the Portfolio Fund has engaged in a portfolio loan transaction
breaches its agreement with the Portfolio Fund.
J. When-Issued and Forward Commitment Securities
Portfolio Managers may purchase securities on a when-issued basis and may
purchase or sell securities on a forward commitment basis in order to hedge
against anticipated changes in interest rates and prices. These transactions
involve a commitment by a Portfolio Fund to purchase or sell securities at a
future date (ordinarily one or two months later). The price of the underlying
securities, which is generally expressed in terms of yield, is fixed at the time
the commitment is made, but delivery and payment for
16
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
11. CONCENTRATION OF RISK (CONCLUDED)
the securities takes place at a later date. No income accrues on securities that
have been purchased pursuant to a forward commitment or on a when-issued basis
prior to delivery to the Portfolio Fund. When-issued securities and forward
commitments may be sold prior to the settlement date. If a Portfolio Fund
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss.
There is a risk that securities purchased on a when-issued basis may not be
delivered and that the purchaser of securities sold by a Portfolio Fund on a
forward basis will not honor its purchase obligation. In such cases, a Portfolio
Fund may incur a loss.
K. Restricted and Illiquid Investments
Portfolio Funds may invest in restricted securities and other investments which
are illiquid. Restricted securities are securities that may not be sold to the
public without an effective registration statement under the Securities Act of
1933 or, if they are unregistered, may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. The Fund's interests
in unregistered Portfolio Funds are themselves illiquid and subject to
substantial restrictions on transfer. The Fund may liquidate an interest and
withdraw from an unregistered Portfolio Fund pursuant to limited withdrawal
rights. The illiquidity of these interests may adversely affect the Fund if it
is unable to withdraw its investment in a Portfolio Fund promptly after it
determines to do so.
L. Liquidity
The Portfolio Funds provide for periodic redemptions, with lock-up provisions
ranging from one year to three years from the initial investment. The liquidity
provisions shown on the Schedule of Investments apply after the lock-up
provisions.
12. INVESTMENT TRANSACTIONS
For the period ended September 30, 2007, the Fund redeemed investments in
Portfolio Funds in the amount of $200,950.
13. INVESTMENTS
As of September 30, 2007, the Fund had investments in eighteen Portfolio Funds,
none of which were related parties.
The Fund limits its investment position in any one Portfolio Fund to less than
5% of the Portfolio Fund's outstanding voting securities, absent an order of the
Securities and Exchange Commission (the "SEC") (or assurances from the SEC
staff) under which the Fund's contribution and withdrawal of capital from a
17
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
13. INVESTMENTS (CONTINUED)
Portfolio Fund in which it holds 5% or more of the outstanding interests will
not be subject to various 1940 Act prohibitions on affiliated transactions. The
Fund also is not required to adhere to this 5% investment limitation to the
extent that it relies on certain SEC rules that provide exemptions from 1940 Act
prohibitions on affiliated transactions. However, to facilitate investments in
smaller Portfolio Funds deemed attractive by the Adviser, the Fund may purchase
non-voting securities of, or waive its right to vote its interests in, Portfolio
Funds. Although the Fund may hold non-voting interests, the 1940 Act and the
rules and regulations thereunder may nevertheless require the Fund to limit its
position in any one Portfolio Fund, if investments in a Portfolio Fund by the
Fund will equal or exceed 25% of the Portfolio Fund's assets, or such lower
percentage limit as may be determined by the Fund in consultation with its
counsel. These restrictions could change from time to time as applicable laws,
rules or interpretations thereof are modified.
Portfolio Funds' Investment Strategies:
CAPITAL STRUCTURE ARBITRAGE
Capital Structure Arbitrage managers will typically buy "long" and sell "short"
different classes of securities of the same issuer in anticipation of profiting
from the relative mispricing between them. Convertible-bond arbitrage and
equity-warrant arbitrage are forms of balance-sheet arbitrage.
COMMODITY TRADING ADVISOR
Commodity Trading Advisor managers will typically have portfolio funds employing
this particular strategy purchase and sell local or foreign currency, commodity
futures and options or such futures contracts based on supply and demand factors
affecting price within each market. Certain Portfolio funds also use
commodity-related equities to implement their strategies.
EQUITY LONG BIAS
Equity Long Bias managers will typically have portfolios of long equities as
well as some short positions. Unlike variable bias or market neutral, Equity
Long Bias managers are expected to average at least 70% net long (gross long
positions minus short positions). Leverage may be employed, though likely at a
lower amount than market neutral or variable bias strategies. This strategy will
show a high degree of correlation to equity markets, as the majority of their
profits will stem from their long positions. Short positions will typically be
used to hedge though may also be opportunistic in nature.
EQUITY MARKET NEUTRAL
Equity Market Neutral managers will typically have portfolios of long equities
and short equities in equal amounts. While this strategy does offer some
flexibility, managers in this strategy are expected to keep their net exposure
within +/-20%. Leverage will be employed. Short positions can be hedges or
profit centers. While an overall fund can be market neutral, managers may take
sector exposure (though many do not). This strategy should show little
correlation to equity markets, as returns are driven by stock picking, or in the
case of quantitatively driven strategies, factors.
18
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (continued)
13. INVESTMENTS (CONCLUDED)
Portfolio Funds' Investment Strategies (concluded):
EQUITY VARIABLE BIAS
Equity Variable Bias managers will typically have portfolios of long equities
and short equities. As per the strategy name, net exposure is variable, ranging
from net long to net short to market neutral. Security selection may either be
fundamental or quantitative while net exposure can be either bottom up (security
specific) or top down (macro driven). Leverage is also variable, with some
managers in this strategy using little or no leverage while others may use
substantial leverage; typically, leverage will be lower than found in Equity
Market Neutral. Short positions can be hedges or profit centers. While the bulk
of the portfolio should consist of equities, indices, ETFS, options and futures
may also be used. This strategy's correlation to equity markets will vary, with
returns are driven by stock picking as well as net positioning.
EVENT DRIVEN
Event Driven managers will typically employ strategies that involve investing in
companies experiencing significant corporate changes. Mispricings arise from
events such as spin-offs, restructurings, stub trades, or other corporate
changes that the broad market does not fully comprehend and appropriately value.
This strategy also includes activist managers who take controlling stakes in
companies and force the "event" internally.
RELATIVE VALUE
Relative Value managers typically seek risk-adjusted absolute returns with
volatility and correlation lower than the broad equity markets by allocating
assets to Advisors that operate primarily in the global relative value sector.
Relative value strategies seek to profit from the mispricing of financial
instruments, capturing spreads between related securities that deviate from
their fair value or historical norms. Directional and market exposure is
generally held to a minimum or completely hedged. Strategies that may be
utilized in the relative value sector include convertible arbitrage, equity
arbitrage and fixed-income arbitrage. Other strategies may be employed as well.
14. RECENT ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year.
19
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (unaudited) (concluded)
14. RECENT ACCOUNTING PRONOUNCEMENTS (CONCLUDED)
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006 and is to be applied to all open tax years as of the effective date. Based
on its analysis, management has determined that the adoption of FIN 48 did not
have a material impact to the Fund's financial statements upon adoption.
However, management's conclusions regarding FIN 48 may be subject to review and
adjustment at a later date based on factors including, but not limited to,
further implementation guidance expected from the FASB, and on-going analyses of
and changes to tax laws, regulations and interpretations thereof.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. At this time, management is evaluating the implications of
FAS 157 and its impact on the financial statements has not yet been determined.
20
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of the report to shareholders
filed under Item 1 of this form N-CSRS.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's last fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Not applicable for semi-annual report.
(a)(2) A separate certification for each of the principal executive officer and
the principal financial officer of the registrant, as required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)),
FILED HEREWITH.
(b) Officer certifications, as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)), FILED HEREWITH.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Old Mutual Absolute Return Master
Fund, L.L.C.
By (Signature and Title)* /s/ William J. Landes
----------------------
William J. Landes
President & Chief Executive Officer
Date: December 4, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ William J. Landes
---------------------
William J. Landes
President & Chief Executive Officer
Date: December 4, 2007
By (Signature and Title)* /s/ Ross Weissman
-----------------
Ross Weissman
Treasurer & Chief Financial Officer
Date: December 5, 2007
* Print the name and title of each signing officer under his or her signature.