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, 2008
ITEM 1. REPORTS TO STOCKHOLDERS.
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Statements (unaudited)
For the six-month period ended September 30, 2008
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
Investment Management Agreement Approval ................................. 22
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, 2008
INVESTMENT STRATEGIES AS A PERCENTAGE OF TOTAL INVESTMENTS
(PIE CHART)
Commodity Trading Advisor - 17.2%
Equity Long Bias - 12.3%
Equity Market Neutral - 11.9%
Equity Variable Bias - 17.0%
Event Driven - 6.0%
Global Market - 9.6%
Long/Short Equity - 14.8%
Relative Value - 11.2%
%* OF
MEMBERS'
PORTFOLIO FUND COST VALUE CAPITAL LIQUIDITY**
- -------------- ---------- ---------- -------- -----------
COMMODITY TRADING ADVISOR:
Renaissance Institutional Futures Fund LLC $ 569,437 $ 556,568 3.41% Monthly
Sumatra Futures Fund L.P. 450,000 501,581 3.08% Quarterly
Tudor Tensor Fund, L.P. 1,000,000 1,318,490 8.09% Monthly
---------- ---------- -----
TOTAL COMMODITY TRADING ADVISOR 2,019,437 2,376,639 14.58%
---------- ---------- -----
EQUITY LONG BIAS:
JANA Partners Qualified, L.P. 698,000 655,423 4.02% Quarterly
JANA Piranha Fund, L.P. 750,000 681,031 4.18% Quarterly
Renaissance Institutional Equities Fund, LLC 397,497 369,001 2.26% Monthly
---------- ---------- -----
TOTAL EQUITY LONG BIAS 1,845,497 1,705,455 10.46%
---------- ---------- -----
EQUITY MARKET NEUTRAL:
Marshall Wace Market Neutral TOPS Fund, L.P. 650,000 550,536 3.38% Monthly
Two Sigma Spectrum U.S. Fund, L.P. 1,000,000 1,101,824 6.76% Quarterly
---------- ---------- -----
TOTAL EQUITY MARKET NEUTRAL 1,650,000 1,652,360 10.14%
---------- ---------- -----
1
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments (unaudited) (concluded)
September 30, 2008
%* OF
MEMBERS'
PORTFOLIO FUND COST VALUE CAPITAL LIQUIDITY**
- -------------- ----------- ----------- -------- ------------
EQUITY VARIABLE BIAS:
7x7 Institutional Partners, L.P. $ 458,000 $ 551,554 3.38% Monthly
Brevan Howard Equity Strategies Fund, L.P. 650,000 614,857 3.77% Monthly
Cedar Hill Capital Partners Onshore, L.P. 150,551 654,505 4.02% Quarterly
Rosen Real Estate Securities Value Fund II, L.P. 468,000 529,935 3.25% Quarterly
----------- ----------- -----
TOTAL EQUITY VARIABLE BIAS 1,726,551 2,350,851 14.42%
----------- ----------- -----
EVENT DRIVEN:
GoldenTree Partners, L.P. 858,000 828,083 5.08% Quarterly
----------- ----------- -----
TOTAL EVENT DRIVEN 858,000 828,083 5.08%
----------- ----------- -----
GLOBAL MARKET:
COMAC Global Macro Fund, L.P. 750,000 751,125 4.61% Monthly
Remington Investment Strategies, L.P. 650,000 576,276 3.54% Annual
----------- ----------- -----
TOTAL GLOBAL MARKET 1,400,000 1,327,401 8.15%
----------- ----------- -----
LONG/SHORT EQUITY:
FrontPoint Onshore Financial Services Fund, L.P. 500,000 469,157 2.88% Quarterly
Galante Partners, L.P. 900,000 972,212 5.97% Quarterly
Longbow Infrastructure, L.P. 650,000 610,379 3.74% Quarterly
----------- ----------- -----
TOTAL LONG/SHORT EQUITY 2,050,000 2,051,748 12.59%
----------- ----------- -----
RELATIVE VALUE:
D.E. Shaw Composite Fund, LLC 1,000,000 1,000,618 6.14% Quarterly
Ellington Mortgage Partners, L.P. 662,881 550,802 3.38% Quarterly***
----------- ----------- -----
TOTAL RELATIVE VALUE 1,662,881 1,551,420 9.52%
----------- ----------- -----
TOTAL PORTFOLIO FUNDS $13,212,366 $13,843,957 84.94%
=========== =========== =====
* Percentages are based on Members' Capital at end of period of $16,298,621.
** Liquidity terms shown apply after lock-up provisions. Please see Note 11.L
of the Notes to the Financial Statements.
*** The Fund is in the process of liquidating its portfolio. Please see Note 2
of the Notes to the Financial Statements.
The aggregate cost of investments for tax purposes was $13,212,366. Net
unrealized appreciation on investments for tax purposes was $631,591
consisting of $1,205,293 of gross unrealized appreciation and ($573,702) of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 84.94% 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, 2008
ASSETS
Investments in Portfolio Funds, at fair value (cost $13,212,366) $13,843,957
Cash and cash equivalents 1,818,895
Receivable for Investments sold 825,763
Due from Old Mutual Absolute
Return Institutional Fund, L.L.C. 91,271
Prepaid insurance fees 9,257
Interest receivable 3,939
-----------
TOTAL ASSETS 16,593,082
-----------
LIABILITIES
Payable to Adviser 209,219
Professional fees payable 73,905
Administration fees payable 2,917
Board of Managers' fees payable 1,875
Redemptions payable 857
Other accrued expenses 5,688
-----------
TOTAL LIABILITIES 294,461
-----------
NET ASSETS $16,298,621
===========
MEMBERS' CAPITAL
Net capital $15,194,412
Accumulated net investment loss (403,796)
Accumulated net realized gain on Portfolio Funds 876,414
Net unrealized appreciation on investments in Portfolio Funds 631,591
-----------
MEMBERS' CAPITAL $16,298,621
===========
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, 2008
INVESTMENT INCOME:
Interest $ 32,549
Other income 7,991
---------
Total investment income 40,540
EXPENSES:
Insurance fees 6,612
Filing fees 5,123
Due diligence fees 4,403
Board of Managers' fees 3,750
Administration fee 2,757
Custody fee 750
Other expenses 2,871
---------
Total expenses 26,266
---------
NET INVESTMENT INCOME 14,274
---------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS IN PORTFOLIO FUNDS
Net Realized Gain on
Investments in Portfolio Funds 263,241
Net Change in Unrealized Depreciation on
Investments in Portfolio Funds (593,445)
---------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS IN PORTFOLIO FUNDS (330,204)
---------
NET DECREASE IN MEMBERS' CAPITAL DERIVED
FROM INVESTMENT ACTIVITIES $(315,930)
=========
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
For the six-month
period ended For the year
September 30, 2008 ended
(unaudited) March 31, 2008
------------------ --------------
FROM INVESTMENT ACTIVITIES:
Net investment gain (loss)* $ 14,274 $ (306,895)
Net realized gain (loss) on investments
in Portfolio Funds 263,241 618,091
Net change in unrealized appreciation (depreciation)
on investments in Portfolio Funds (593,445) 690,424
----------- -----------
Net increase (decrease) in Members' Capital
derived from investment activities (315,930) 1,001,620
----------- -----------
MEMBERS' CAPITAL TRANSACTIONS:
Proceeds from Sales of Interests 3,970,043 1,481,395
Redemptions of Interests (312,700) (542,328)
----------- -----------
Total Members' Capital Transactions 3,657,343 939,067
----------- -----------
NET INCREASE IN MEMBERS' CAPITAL: 3,341,413 1,940,687
Members' Capital at Beginning of Period 12,957,208 11,016,521
----------- -----------
Members' Capital at End of Period $16,298,621 $12,957,208
=========== ===========
ACCUMULATED NET INVESTMENT LOSS $ (403,796) $ (418,070)
=========== ===========
* 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, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in Members' Capital derived from investment activities $ (315,930)
Adjustments to reconcile net increase in Members' Capital derived
from investment activities to net cash used in operating
activities:
Purchases of Portfolio Funds (5,550,000)
Proceeds from sales of Portfolio Funds 2,088,852
Net realized gain on investments in Portfolio Funds (263,241)
Net change in unrealized depreciation on investments in
Portfolio Funds 593,445
Decrease in receivable for Investments sold 247,830
Increase in prepaid insurance fees (9,257)
Decrease in interest receivable 58
Decrease in Fund Investments Made in Advance 1,250,000
Decrease in due from Old Mutual Absolute Return Institutional
Fund, L.L.C. 7,749
Increase in payable to Adviser 20,212
Decrease in professional fees payable (84,834)
Decrease in administration fees payable (576)
Decrease in Board of Managers' fees payable (1,875)
Increase in other accrued expenses 4,563
-----------
Net cash used in operating activities (2,013,004)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Interests 3,970,043
Redemptions of Interests (365,021)
-----------
Net cash provided by financing activities 3,605,022
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,592,018
Cash and cash equivalents, beginning of Period 226,877
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,818,895
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Redemptions payable $ 857
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Highlights
For the six-month
period ended For the year November 1, 2006*
September 30, 2008 ended to
(unaudited) March 31, 2008 March 31, 2007
------------------ -------------- -----------------
Total Return (1.83)%(1) 8.83% 3.95%(1)
Net assets, end of period (000's) $16,299 $12,957 $11,017
Ratio to average net assets:
Expenses (2) 0.33%(3) 2.86% 2.93%(3)
Net investment loss 0.18%(3) (2.56)% (2.52)%(3)
Portfolio turnover rate 16.50%(4) 25.01% 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
September 30, 2008 (unaudited)
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, 2008, the Feeder Fund's investment in the Fund represented 92.1%
Members' Capital, the Institutional Feeder Fund's investment in the Fund
represented 1.1% of Members' Capital and an affiliate of the Adviser (as defined
in Note 3.A.) had an investment in the Fund which represented 6.8% 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 (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 primarily based 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.
Ellington Mortgage Partners, L.P. is in the process of liquidating their
portfolio. They still have active positions that they are managing and are
attempting to reduce in an opportunistic way. There is no timeline of how long
they expect the liquidation to take. As of December 31, 2007 the financial
statements of Ellington Mortgage Partners, L.P. included investments whose fair
values have been estimated by the investment manager in the absence of readily
determinable fair values. The Funds proportionate share of these investments was
$1,143,953 at December 31, 2007. Those estimated values may differ significantly
from the value that would have been used had a ready market for the investments
existed, and differences could be material. Financial statements subsequent to
December 31, 2007 were not available.
Realized gains and losses from Portfolio Fund transactions are calculated on the
identified cost basis. Investment transactions 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 balances.
In September, 2006, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards ("SFAS") No. 157, which provides
enhanced guidance for using fair value to measure assets and liabilities. The
Master Fund adopted SFAS No. 157 on April 1, 2008. SFAS No. 157 establishes a
fair value hierarchy and specifies that a valuation technique used to measure
fair value shall maximize the use of observable inputs and minimize the use of
unobservable inputs. The objective of a fair value measurement is to determine
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price).
9
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accordingly, the fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities (Level
1) and the lowest priority to unobservable inputs (Level 3). The three levels of
the fair value hierarchy under SFAS No. 157 are described below:
- Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to access
at the measurement date;
- Level 2 -- Quoted prices which are not active, or inputs that are
observable (either directly or indirectly) for substantially the full term
of the asset or liability; and
- Level 3 -- Prices, inputs or exotic modeling techniques which are both
significant to the fair value measurement and unobservable (supported by
little or no market activity).
As required by SFAS No. 157, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 consider several inputs and may include Level 1 or
Level 2 inputs as components of the overall fair value measurement. The table
below sets forth information about the level within the fair value hierarchy at
which the Master Fund's investments are measured at September 30, 2008:
Level 1 Level 2 Level 3 Total
------- ------- ----------- -----------
Investments in other hedge funds $-- $-- $13,843,957 $13,843,957
--- --- ----------- -----------
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
Change in
Beginning unrealized Net transfers in
Balance as of Realized appreciation/ Net purchase/ and/or out of Ending Balance
3/31/08 gain/(loss) (depreciation) sales Level 3 as of 9/30/08
- ------------- ----------- -------------- ------------- ---------------- --------------
$10,713,013 $263,241 $(593,445) $3,461,148 $-- $13,843,957
----------- -------- --------- ---------- --- -----------
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.
10
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
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. 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. Accordingly, the Fund
adopted FIN 48 effective April 1, 2007. 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.
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 and cash equivalents
As of September 30, 2008, 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
A. Related Parties
Larch Lane Advisors LLC (the "Adviser") (formerly, 2100 Larch Lane LLC), a
Delaware limited liability company, serves as the investment adviser of the
Fund. The Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). LLA
11
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
Holdings, LLC, the special member of the Adviser, owns a majority 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 purchase or sell any Interests during the six-month
period ended September 30, 2008 and owns $1,106,965, which is 6.8% of Interests
as of September 30, 2008. The Adviser is responsible for developing,
implementing and supervising the Fund's investment program and providing
day-to-day management services to the Fund. The Adviser has also paid various
expenses for the Fund for which the Fund has a non-interest bearing payable
which is due upon demand. The accompanying Statement of Assets and Liabilities
includes an advisory fee payable of $209,219.
Under the agreement with the Adviser, the Fund does not pay any investment
management fee to the Adviser. The fees are paid at the Feeder Fund level.
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.
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. 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.
B. Other
Pursuant to an administrative services, 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.
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 increases annually
in the minimum annual fee.
SEI Private Trust Company (the "Custodian") serves as the custodian for the
assets of the Fund. 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.
12
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONCLUDED)
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.
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 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.
Amounts shown as expenses in the statement of operations and financial
highlights include only those expenses charged directly to the Fund and do not
reflect management fees, advisory fees, brokerage commissions and other fees and
expenses incurred by the Portfolio Funds in which the Fund invested. These
amounts are included in realized and unrealized gain (loss) on investments in
funds in the statement of operations.
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
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 were amortized over the initial twelve-month
period, which expired on October 31, 2007.
13
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
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 six-month period ended
September 30, 2008.
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 the Fund's
Investment.
14
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (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) 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.
15
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
11. CONCENTRATION OF RISK (CONTINUED)
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.
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.
16
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
11. CONCENTRATION OF RISK (CONTINUED)
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 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.
17
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
11. CONCENTRATION OF RISK (CONCLUDED)
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 expire.
Certain Portfolio Funds may restrict the ability of investors to redeem their
interests in the fund, whether temporarily or during a liquidation of the
Portfolio Fund, and may seek to amend their liquidity provisions and impose
additional restrictions on investor liquidity. Certain Portfolio Funds may
permit withdrawals on a date other than as provided under standard liquidity
terms subject to the payment of certain additional fees or charges.
M. Credit Risk
The Fund will be exposed to credit risk on Portfolio Funds with whom they trade
and will always bear the risk of settlement on default.
N. Interest Rate Risk
A number of the underlying funds that the Fund invests in may be interest rate
sensitive, which means that their value and consequently, the New Asset Value of
the Fund, may fluctuate as interest rates fluctuate.
12. INVESTMENT TRANSACTIONS
For the six-month period ended September 30, 2008, the Fund made investments in
Portfolio Funds in the amount of $5,550,000 and redeemed investments in
Portfolio Funds in the amount of $2,088,852.
18
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
13. INVESTMENTS
As of September 30, 2008, the Fund had investments in twenty Portfolio Funds,
none of which are 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
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:
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.
19
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (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.
GLOBAL MARKET
Global Market marketing strategy is used mainly by multinational companies to
sell goods or services internationally. Global marketing requires that there be
harmonization between the marketing policies for different countries and that
the marketing mix for the different countries can be adapted to the local market
conditions. Global marketing is sometimes used to refer to overseas expansion
efforts through licensing, franchises, and joint ventures.
LONG/SHORT EQUITY
Equity Long/Short managers generally involve making long and short equity
investments, based primarily on the Advisor's assessment of fundamental value
compared to market price. The managers employ a wide range of styles.
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.
20
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (concluded)
14. SUBSEQUENT EVENTS
Subsequent to period end through November 25, 2008, the Fund received
subscriptions in the amount of $245,000 and received proceeds from sales of
Interests of $42,504.
Additionally, a Portfolio Fund constituting 5.08% of Members' capital as of
September 30, 2008 has announced that it is imposing a "gate" or a limit on the
amount of interests that may be redeemed in a single redemption period.
21
INVESTMENT MANAGEMENT AGREEMENT APPROVAL
The investment management agreement between Old Mutual Absolute Return Master
Fund, L.L.C., a Delaware limited liability company (the "Fund"), and Larch Lane
Advisors LLC, a Delaware limited liability company (the "Adviser") (the
"Investment Management Agreement"), may be continued in effect from year to year
subject to approval by: (i) the Fund's Board of Managers (the "Board"); or (ii)
the vote of a majority of the outstanding voting securities, as defined by the
1940 Act, of the Fund, provided that, in either event, the continuance must also
be approved by a majority of the managers (the "Managers") who are not
"interested persons," as defined by the 1940 Act, of the Fund (the "Independent
Managers"), by vote cast in person at a meeting called for the purpose of voting
on such approval. The Fund is a master fund in a master/feeder structure in
which its feeder funds (each, a "Feeder" and collectively with the Fund, the
"Funds") invest substantially all of their assets in the Fund.
At a meeting of the Board held on September 15, 2008, all of the Managers,
including all of the Independent Managers, approved the continuance of the
Investment Management Agreement for an additional year. In considering whether
to renew the Investment Management Agreement, the Board reviewed various
materials from counsel and from the Adviser which included: (i) information
concerning the services rendered to the Funds by the Adviser and the fees paid
by the Funds to the Adviser; (ii) information concerning the individuals
responsible for the day-to-day management of the Fund's assets; and (iii) a
summary of the legal duties of the Board under the 1940 Act. In particular, the
Board considered the following:
(a) THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER. The
Managers reviewed the services that the Adviser provides to the Fund and
reviewed various presentations from management in this regard. In connection
with the investment advisory services provided to the Fund, the Board discussed,
in detail, with representatives of the Adviser the management of the Fund's
investments in accordance with the Fund's stated investment objective and
policies and the types of transactions that are entered into on behalf of the
Fund. The Board noted that, in addition to the investment advisory services
provided to the Fund under the Investment Management Agreement, the Adviser also
provides certain administrative and other services necessary for the operation
of the Fund (including legal and compliance services relating to the provision
of investment services). Based on its review of the information provided at the
meeting, and the discussions with the representatives of the Adviser and counsel
to the Fund at the meeting, the Board concluded that the Fund was receiving the
services required from the Adviser under the Investment Management Agreement and
that these services were of reasonably high quality.
(b) INVESTMENT PERFORMANCE OF THE FUND AND ADVISER. In connection with the
evaluation of the services provided by the Adviser, the Board considered the
investment performance of the Fund, and compared the performance of the Fund to
that of the S&P 500 Index and the HFRI Fund of Funds Index covering periods
since the Fund's inception through July 31, 2008. The Board found the Fund's
overall returns to be satisfactory.
(c) COST OF THE SERVICES PROVIDED AND PROFITS REALIZED BY THE ADVISER FROM THE
RELATIONSHIP WITH THE FUNDS. The Managers also considered the cost of the
services provided by the Adviser. Under the Investment Management Agreement, the
Fund does not pay any investment management fee to the Adviser so long as the
Adviser serves as the investment adviser to a Feeder. The Board noted that in
the event the Adviser ceases to serve as the Adviser to the Feeders, the Fund
will be charged the lowest annual rate that had most recently been charged by
the Adviser to a Feeder. The Board considered that, under the Feeders'
Investment Management Agreements with the Adviser, the Feeders each pay the
Adviser a fee at
22
INVESTMENT MANAGEMENT AGREEMENT APPROVAL (CONCLUDED)
the annual rate of 1.25% of the Feeder's average net assets. The Board also
considered that the Fund also bears the advisory fees charged by the Portfolio
Funds. The Board noted that an expense cap is in place for each of the Feeders
and the impact of the cap on the Adviser. The Managers reviewed information
comparing the advisory fee rate and total expense ratio of the Feeders to those
of comparable registered funds.
The profitability realized by the Adviser was also considered. The Board relied
principally on information relating to the costs and profitability of the
Adviser from its relationship with the Funds. After reviewing the information
contained in the Profitability Analysis, the Board observed the Adviser's lack
of profitability from its relationship with the Funds. The Managers considered
the fact that the Adviser was absorbing a significant portion of the Funds'
expenses as a result of the Feeders' expense caps.
The Managers compared both the services rendered and the fees paid under the
Investment Management Agreement to other contracts of the Adviser and to
contracts of other advisers with respect to various similar closed-end
registered investment companies. In particular, the Board evaluated the Funds'
contractual fee rate for advisory services as compared to the contractual fee
rate of other publicly offered closed-end funds that are managed by other
investment advisers that invest primarily in unregistered funds. The Board found
that the Feeders' (and, thus, the Fund's) advisory fee rates compared favorably
to those of other similar registered funds.
(d) THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS
AND WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE. The Board was
cognizant of the fact that economies of scale in costs of providing services may
be realized when there is a significant increase in a fund's assets. The
Independent Managers concluded, however, that the Fund had not begun to reach an
appropriate size to support fee reductions based on economies of scale realized
by the Adviser in providing services to the Funds.
CONCLUSION. Based on all of the foregoing, and such other matters that were
deemed relevant, the Board found the Fund's (and, thus, each Feeder's) level of
advisory fees to be fair and reasonable in light of the services provided by the
Adviser. No single factor was determinative to the decision of the Board. Based
on this determination, all of the Managers who were present at the September 15,
2008 meeting, including all of the Independent Managers, approved the
continuance of the Investment Management Agreement for an additional year.
23
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 significant changes in the registrant's internal control over
financial reporting that occurred during the second fiscal quarter of the period
covered by this report 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.
(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/ Matthew Appelstein
----------------------------------
Matthew Appelstein
President & Chief Executive Officer
Date: December 10, 2008
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/ Matthew Appelstein
----------------------------------
Matthew Appelstein
President & Chief Executive Officer
Date: December 10, 2008
By (Signature and Title)* /s/ Ross Weissman
----------------------------------
Ross Weissman
Treasurer & Chief Financial Officer
Date: December 10, 2008
* Print the name and title of each signing officer under his or her signature.