UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM N-CSR
----------
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)
----------
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: MARCH 31, 2010
ITEM 1. REPORTS TO STOCKHOLDERS.
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Statements
For the year ended March 31, 2010
Old Mutual Absolute Return Master Fund, L.L.C.
Table of Contents
Financial Statements:
Report of Independent Registered Public Accounting Firm ... 1
Schedule of Investments ................................... 2
Statement of Assets and Liabilities ....................... 4
Statement of Operations ................................... 5
Statements of Changes in Members' Capital ................. 6
Statement of Cash Flows ................................... 7
Financial Highlights ...................................... 8
Notes to Financial Statements ............................. 9
Board of Managers and Officers of the Fund (unaudited) .... 23
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.
Certified Rothstein, Kass & Company, P.C. Beverly Hills
Public 4 Becker Farm Road Dallas
Accountants Roseland, NJ 07068 Denver
tel 973.994.6666 Grand Cayman
fax 973.994.0337 Irvine
www.rkco.com New York
Roseland
San Francisco
Walnut Creek
[ROTHSTEIN KASS LOGO]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers and Members of
Old Mutual Absolute Return Master Fund, L.L.C.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Old Mutual Absolute Return Master Fund, L.L.C.
(the "Fund") as of March 31, 2010, and the related statements of operations,
changes in members' capital, cash flows and financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the period November 1, 2006 (commencement of
operations) through March 31, 2007 and for the year ended March 31, 2008 were
audited by an independent registered public accounting firm whose report dated
May 29, 2008 expressed an unqualified opinion on those financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of March 31, 2010, by correspondence with the custodian and portfolio
funds. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Old
Mutual Absolute Return Master Fund, L.L.C. as of March 31, 2010, the results of
its operations, changes in members' capital, cash flows and financial highlights
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
-s- Rothstein, Kass & Company, P.C.
Roseland, New Jersey
May 27, 2010
An independent firm associated with AGN International Ltd.
[AGN INTERNATIONAL LOGO]
1
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments
March 31, 2010
INVESTMENT STRATEGIES AS A PERCENTAGE OF TOTAL INVESTMENTS
[PIE CHART]
Directional - 17.6%
Equity Strategies - 49.6%
Event Driven - 16.3%
Opportunistic - 16.5%
% OF
FAIR MEMBERS' NOTICE
PORTFOLIO FUND COST VALUE CAPITAL(1) LIQUIDITY(2) PERIOD LOCK-UP
- ----------------------------------------------------- ----------- ----------- ----------- ------------ -------- -------------
DIRECTIONAL:
COMAC Global Macro Fund, Ltd. (Shares: 6,019.880) $ 823,353 $ 996,063 4.66% Monthly 60 None
Nias Futures Fund, Ltd. (Shares: 813.584) 912,584 882,036 4.13% Quarterly 14 None
Remington Investment Strategies, L.P. 650,000 740,423 3.46% Annually 60 None
Tudor BVI Global Fund, Ltd. 803,973 873,269 4.08% Quarterly 60 None
----------- ----------- ----------
TOTAL DIRECTIONAL 3,189,910 3,491,791 16.33%
----------- ----------- ----------
EQUITY STRATEGIES:
7x7 Institutional Partners, L.P. 618,753 727,212 3.40% Monthly 60 None
Atlas Fundamental Trading Fund, L.P. 550,000 537,900 2.52% Quarterly 60 None
Cedar Hill Onshore Mortgage Opportunity Fund, L.P. 21,285 21,285 0.10% Quarterly 180 None
Cygnus Utilities, Infrastructure & Renewables, LLC 650,000 634,463 2.97% Monthly 30 None
Expo Health Sciences Fund, L.P. 475,000 558,192 2.61% Quarterly 30 None
FrontPoint Onshore Financial Services Fund, L.P. 750,000 786,660 3.68% Quarterly 30 None
Galante Partners, L.P. 479,394 329,690 1.54% Quarterly 30 None
GEM Realty Securities, L.P. - Class A 375,000 415,885 1.94% Annually 60 None
GEM Realty Securities, L.P. - Class B 475,000 519,711 2.43% Quarterly 60 None
Iridian Opportunity Fund, L.P. 625,000 629,455 2.94% Monthly 30 None
JANA Partners Qualified, L.P. 1,146,995 1,288,488 6.03% Quarterly 60 None (5)
JANA Piranha Fund, L.P. 44,649 28,177 0.13% N/A N/A Side Pocket (3)
JAT Capital Domestic Fund, L.P. 500,000 556,648 2.60% Quarterly 45 None
Longhorn Onshore Investors, L.P. 350,000 295,623 1.38% Quarterly 45 None
Marshall Wace Market Neutral TOPS Fund, L.P. 650,000 578,999 2.71% Monthly 30 None
Riley Paterson Asian Opportunities Fund 250,000 235,923 1.10% Monthly 30 None
Two Sigma Spectrum U.S. Fund, L.P. 1,225,000 1,526,491 7.14% Quarterly 55 None
----------- ----------- ----------
TOTAL EQUITY STRATEGIES 9,186,076 9,670,802 45.22%
----------- ----------- ----------
2
Old Mutual Absolute Return Master Fund, L.L.C.
Schedule of Investments (concluded)
March 31, 2010
% OF
FAIR MEMBERS' NOTICE
PORTFOLIO FUND COST VALUE CAPITAL(1) LIQUIDITY(2) PERIOD LOCK-UP
- ----------------------------------------------- ------------- ------------ ---------- ------------ ------- ------------------
EVENT DRIVEN:
GCA Credit Opportunities Fund LLC $ 500,000 $ 671,895 3.14% Quarterly 60 None
GoldenTree Partners, L.P. 106,125 120,867 0.57% Quarterly 90 None(5)
Greywolf Capital Partners II, L.P. 8,509 5,781 0.03% N/A N/A Side Pocket(3)
Kingdon Credit Partners, L.P. 475,000 501,161 2.34% Quarterly 90 None
Senator Global Opportunity Fund, L.P. 500,000 677,015 3.17% Quarterly 60 None
Southpaw Credit Opportunity Partners, L.P. 775,000 856,406 4.00% Semi-annually 60 None
Stone Lion Fund, L.P. 350,000 397,068 1.86% Quarterly 90 Until Dec. 31, 2010
------------ ------------ ---------
TOTAL EVENT DRIVEN 2,714,634 3,230,193 15.11%
------------ ------------ ---------
OPPORTUNISTIC:
D.E. Shaw Composite Fund, LLC 815,536 846,227 3.96% Quarterly 90 (5)(6)
Manikay Onshore Fund, L.P. 450,000 447,648 2.09% Quarterly 65 None
Perry Partners, L.P. 1,000,000 1,099,499 5.14% Annually 90 Until Dec. 31, 2010
Wexford Spectrum Fund, L.P. 835,000 875,154 4.09% Quarterly 90 Until Dec. 31, 2010
------------ ------------ ---------
TOTAL OPPORTUNISTIC 3,100,536 3,268,528 15.28%
------------ ------------ ---------
TOTAL PORTFOLIO FUNDS 18,191,156 19,661,314 91.94%
------------ ------------ ---------
CASH EQUIVALENT:
SDIT Prime Obligation Fund, Class A, 0.100% (4) 732,677 732,677 3.43% Daily None None
------------ ------------ ---------
TOTAL CASH EQUIVALENT 732,677 732,677 3.43%
------------ ------------ ---------
TOTAL INVESTMENTS $ 18,923,833 $ 20,393,991 95.37%
============ ============ =========
(1) Percentages are based on Members' Capital at March 31, 2010 of
$21,383,984.
(2) Liquidity terms shown apply after lock-up provisions. Please see Note
10.L. of the Notes to the Financial Statements.
(3) Represents a side pocket balance which will be liquidated upon
monetization of assets held in the side pocket. Please see Note 10.L. of
the Notes to the Financial Statements.
(4) The rate shown is the 7-day effective yield as of March 31, 2010.
(5) A portion of the investment has been deemed a side pocket investment.
(6) Fund has restricted liquidity since 12/31/08. A gate provision permits a
maximum withdrawal of 6.25% of capital per quarter.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Assets and Liabilities
March 31, 2010
ASSETS
Investments in Portfolio Funds, at fair value (cost $18,191,156) $ 19,661,314
Cash equivalent, at fair value (cost $732,677) 732,677
Fund investments made in advance 1,075,000
Receivable for investments sold 295,297
Interest receivable 103
------------
TOTAL ASSETS 21,764,391
------------
LIABILITIES
Redemption payable 312,000
Professional fees payable 60,454
Payable to Adviser 4,431
Board of Managers' fees payable 1,875
Administration fees payable 1,250
Other accrued expenses 397
------------
TOTAL LIABILITIES 380,407
------------
NET ASSETS $ 21,383,984
============
MEMBERS' CAPITAL
Net capital $ 19,250,690
Accumulated net investment loss (791,675)
Accumulated net realized gain on Portfolio Funds 1,454,811
Net unrealized appreciation/depreciation on investments in
Portfolio Funds 1,470,158
------------
TOTAL MEMBERS' CAPITAL $ 21,383,984
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Operations
For the year ended March 31, 2010
INVESTMENT INCOME:
Interest $ 3,803
-----------
EXPENSES:
Professional fees 206,026
Due diligence fees 35,813
Board of Managers' fees 7,500
Administration fee 5,000
Printing fees 3,689
Custody fee 1,525
Insurance fees 1,322
Filing fees 338
Registration fees 147
Other expenses 6,222
-----------
Total expenses 267,582
-----------
NET INVESTMENT LOSS (263,779)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
IN PORTFOLIO FUNDS
Net realized loss on investments in Portfolio Funds (296,091)
Net change in unrealized appreciation/ depreciation
on investments in Portfolio Funds 1,555,403
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
IN PORTFOLIO FUNDS 1,259,312
-----------
NET INCREASE IN MEMBERS' CAPITAL DERIVED FROM
INVESTMENT ACTIVITIES $ 995,533
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
Old Mutual Absolute Return Master Fund, L.L.C.
Statements of Changes in Members' Capital
For the year For the year
ended ended
March 31, 2010 March 31, 2009
-------------- --------------
FROM INVESTMENT ACTIVITIES:
Net investment loss* $ (263,779) $ (109,826)
Net realized gain (loss) on investments in
Portfolio Funds (296,091) 1,137,729
Net change in unrealized appreciation/depreciation
on investments in Portfolio Funds 1,555,403 (1,310,281)
------------- --------------
Net increase (decrease) in Members' Capital derived
from investment activities 995,533 (282,378)
------------- --------------
MEMBERS' CAPITAL TRANSACTIONS:
Proceeds from sales of Interests 5,958,900 5,583,753
Redemptions of Interests (1,536,000) (2,293,032)
------------- --------------
Total Members' Capital Transactions 4,422,900 3,290,721
------------- --------------
NET INCREASE IN MEMBERS' CAPITAL: 5,418,433 3,008,343
Members' Capital at Beginning of year 15,965,551 12,957,208
------------- --------------
Members' Capital at End of year $ 21,383,984 $ 15,965,551
============= ==============
ACCUMULATED NET INVESTMENT LOSS $ (791,675) $ (527,896)
============= ==============
* Investment income less net expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
Old Mutual Absolute Return Master Fund, L.L.C.
Statement of Cash Flows
For the year ended March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' Capital derived from investment activities $ 995,533
Adjustments to reconcile net increase in Members' Capital derived
from investment activities to net cash used in operating activities:
Purchases of Portfolio Funds, at fair value (10,821,447)
Proceeds from sales of Portfolio Funds 5,540,325
Net realized loss on investments in Portfolio Funds 296,091
Net change in unrealized appreciation/depreciation
on investments in Portfolio Funds (1,555,403)
Changes in operating assets and liabilities:
Decrease in receivable for investments sold 100,996
Decrease in prepaid insurance fees 1,322
Decrease in interest receivable 814
Decrease in Fund investments made in advance (725,000)
Increase in due from Old Mutual
Absolute Return Fund, L.L.C. 110,023
Decrease in payable to Adviser (83,826)
Decrease in professional fees payable (39,546)
Increase in other accrued expenses 22
-------------
Net cash used in operating activities (6,180,096)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of Interests 5,958,900
Redemption of Interests, net of change in redemption payable (2,684,002)
-------------
Net cash provided by financing activities 3,274,898
-------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,905,198)
Cash and cash equivalents, beginning of year 3,637,875
-------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 732,677
=============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Redemption payable $ 312,000
=============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
Old Mutual Absolute Return Master Fund, L.L.C.
Financial Highlights
For the For the For the November 1, 2006*
year ended year ended year ended to
March 31, 2010 March 31, 2009 March 31, 2008 March 31, 2007
-------------- -------------- -------------- ------------------
Total Return 5.05% (1.73)% 8.83% 3.95%(1)
Net assets, end of period (in 000's) $ 21,384 $ 15,966 $ 12,957 $ 11,017
Ratio to average members' capital:
Expenses (2) 1.45% 0.98% 2.86% 2.93%(3)
Net investment loss (1.43)% (0.68)% (2.56)% (2.52)%(3)
Portfolio turnover rate (5) 35.03% 52.98% 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.
(5) Portfolio turnover rate is the lesser of purchases or proceeds from sales
of investments in Portfolio Funds during the period divided by the average
value of investments in Portfolio Funds held during the year.
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.
8
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements
March 31, 2010
1. ORGANIZATION
Old Mutual Absolute Return Master Fund, L.L.C. (the "Fund") is a Delaware
limited liability company that is registered under the Investment Company Act of
1940, as amended (the "1940 Act") with the United States Securities and Exchange
Commission ("SEC"), 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") and
Old Mutual Absolute Return Institutional Fund, L.L.C. (the "Institutional Feeder
Fund"), (collectively, the "Feeders" or "Members"), invest substantially all of
their assets. As of March 31, 2010, the Feeder Fund's investment in the Fund
represented 91.67% of Members' Capital and the Institutional Feeder Fund's
investment in the Fund represented 8.33% 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America and the rules and
regulations of the SEC. The following is a summary of the significant accounting
policies followed by the Fund:
9
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. Accounting Standards Codification
FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") LAUNCHES ACCOUNTING STANDARDS
CODIFICATION - The FASB has issued FASB ASC 105 (formerly FASB Statement No.
168), The "FASB Accounting Standards Codification(TM)" and the Hierarchy of
Generally Accepted Accounting Principles ("ASC 105"). ASC 105 established the
FASB Accounting Standards Codification(TM) ("Codification" or "ASC") as the
single source of authoritative U.S. generally accepted accounting principles
("GAAP") recognized by the FASB to be applied by nongovernmental entities. Rules
and interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. The Codification
supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative.
Following the Codification, the FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates, which will serve to update
the Codification, provide background information about the guidance and provide
the basis for conclusions on the changes to the Codification.
GAAP is not intended to be changed as a result of the FASB's Codification
project, but it will change the way the guidance is organized and presented. As
a result, these changes will have a significant impact on how companies
reference GAAP in their financial statements and in their accounting policies
for financial statements issued for interim and annual periods ending after
September 15, 2009. The Fund has implemented the Codification as of September
30, 2009.
B. Use of Estimates
The preparation of financial statements in conformity with GAAP 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.
C. Valuation of Portfolio Investments at Fair Value and Investment Transactions
GAAP 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). 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).
10
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The three levels of the fair value hierarchy under GAAP 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).
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.
As permitted under GAAP, the investments in portfolio funds are valued, as a
practical expedient, utilizing the net asset valuations provided by the
underlying portfolio funds, without adjustment, when the net asset valuations of
the portfolio funds are calculated (or adjusted by the Fund if necessary) in a
manner consistent with GAAP for investment companies. 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. In its determination of fair value the Board
considers subscription and redemption rights, including any restrictions on the
redemptions from the Portfolio Funds. Investments in portfolio funds are
included in either Level 2 or 3 of the fair value hierarchy. In determining the
level, the Fund considers the length of time until the investment is redeemable
including notice and lock up periods or any other restriction on the disposition
of the investment. The Fund also considers the nature of the portfolios of the
portfolios of the underlying portfolio funds and their ability to liquidate
their underlying investments. Any such decision must be made in good faith, and
subject to the review and supervision of the Board.
11
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and cash equivalents.
As required by GAAP, 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 Fund's investments are measured at March 31, 2010:
Level 1 --
Quoted Prices Level 2 --
in Active Significant Level 3 --
Markets for Other Significant
Identical Observable Unobservable Total as of
Assets Inputs Inputs March 31, 2010
-------------- -------------- -------------- --------------
Assets (at fair value)
Investments in Portfolio Funds $ - $ 18,219,860 $ 1,441,454 $ 19,661,314
Cash Equivalent 732,677 - - 732,677
-------------- -------------- -------------- --------------
Total $ 732,677 $ 18,219,860 $ 1,441,454 $ 20,393,991
============== ============== ============== ==============
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
Beginning Realized and Ending Balance
Balance as of unrealized Net purchase/ as of March 31,
April 1, 2009 gains/(losses) sales Transfer in/out 2010
- --------------- -------------- ------------- --------------- ---------------
$ 13,120,880 $ (53,014) $ (4,644,441) $ (6,981,971) $ 1,441,454
=============== ============= ============= =============== ===============
Realized and unrealized gains and losses are included in net gain (loss) on
investments in the Statement of Operations. The change in unrealized gains
(losses) for the year ended March 31, 2010 for investments still held at March
31, 2010 of $(548,404) is reflected in net change in unrealized
appreciation/depreciation on investments in Portfolio Funds.
For the year ended March 31, 2010, there have been no significant changes to the
Fund's fair value methodologies.
12
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. 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.
The Fund evaluates tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether it is "more-likely
than-not" (i.e., greater than 50-percent) that each tax position will be
sustained upon examination by a taxing authority based on the technical merits
of the position. Tax positions not deemed to meet the more-likely-than-not
threshold are recorded as a tax benefit or expense in the current year. The Fund
did not record any tax provision in the current period. However, management's
conclusions regarding tax positions taken may be subject to review and
adjustment at a later date based on factors including, but not limited to,
examination by tax authorities (i.e., the last 3 tax year ends, as applicable),
on-going analysis of and changes to tax laws, regulations and interpretations
thereof.
As of and during the year ended March 31, 2010, the Fund did not have a
liability for any unrecognized tax benefits. The Fund recognizes interest and
penalties, if any, related to unrecognized tax benefits as income tax expense in
the Statement of Operations. During the year ended March 31, 2010, the Fund did
not incur any significant interest or penalties.
The aggregate income tax basis of investments was $19,690,560. Net unrealized
depreciation on investments for income tax purposes was $(181,882), consisting
of $1,557,440 of gross unrealized appreciation and $(1,739,322) of gross
unrealized depreciation.
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.
G. Cash Equivalent
As of March 31, 2010, cash equivalent consists of an investment in a money
market fund affiliated with the Administrator (as defined in Note 3).
13
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
H. Accounting Pronouncements Recently Issued or Adopted
On September 30, 2009 the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2009-12. This ASU was issued to provide
guidance for reporting entities that calculate net asset value (NAV) or an
equivalent. This ASU provides a practical expedient to measure the fair value of
investments within the scope of the ASU. The purpose of the ASU is to reduce
some of the complexity and inconsistency amongst investors who report
investments in these types of vehicles at fair value in accordance with Topic
(ASC) 820 Fair Value Measurements and Disclosures. The Funds' adopted the
provisions of the ASU effective for the year beginning April 1, 2009.
On January 21, 2010, the FASB issued an ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,
which provides guidance on how investment assets and liabilities are to be
valued and disclosed. Specifically, the amendment requires reporting entities
to disclose i) the input and valuation techniques used to measure fair value for
both recurring and nonrecurring fair value measurements, for Level 2 or Level 3
positions, ii) transfers between all levels (including Level 1 and Level 2) will
be required to be disclosed on a gross basis (i.e. transfers out must be
disclosed separately from transfers in) as well as the reason(s) for the
transfers and iii) purchases, sales, issuances and settlements must be shown on
a gross basis in periods beginning after December 15, 2009, however the
requirement to provide the Level 3 activity for purchases, sales, issuances and
settlements on a gross basis will be effective for interim and annual periods
beginning after December 15, 2010. At this time the Fund is evaluating the
implications of the amendment to ASC 820 and the impact to the financial
statements.
3. RELATED PARTY TRANSACTIONS AND OTHER
A. Related Party Transactions
Larch Lane Advisors LLC (the "Adviser"), a Delaware limited liability company,
serves as the investment adviser of the Fund. The Adviser is a registered
investment adviser (RIA) under the Investment Advisers Act of 1940, as amended
(the "Advisers Act"). LLA 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.
Effective April 1, 2009, OMUSH transferred its ownership interest in the Fund of
approximately $1,111,500 to the Institutional Feeder Fund in exchange for 11,005
units of the Institutional Feeder Fund. OMUSH does not own any Interests as of
March 31, 2010. The Adviser is responsible for developing, implementing and
supervising the Fund's investment program and providing day-to-day management
services to the Institutional Feeder 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 a payable to Adviser of $4,431.
14
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS AND OTHER (CONCLUDED)
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 dated February 8, 2007. Pursuant to the
agreements, 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 agreement, 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 a minimum annual
fee of $5,000.
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.
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.
15
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
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 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. 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 year ended March 31, 2010.
6. 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.
16
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
6. CAPITAL ACCOUNTS AND ALLOCATIONS (CONTINUED)
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.
7. 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. 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.
8. 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.
9. 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.
10. RISK AND UNCERTAINTIES
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.
17
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
10. RISK AND UNCERTAINTIES (CONTINUED)
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 a 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.
18
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
10. RISK AND UNCERTAINTIES (CONTINUED)
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.
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.
19
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
10. RISK AND UNCERTAINTIES (CONTINUED)
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.
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. Further, from time to
time, certain Portfolio Managers may allocate certain Portfolio Fund assets
(which generally are illiquid) to special investment accounts within the
particular Portfolio Fund managed by the Portfolio Manager (i.e., "side pockets"
or "special investment accounts"). Generally, the Portfolio Funds will not be
able to withdraw their interest in such side pockets or special investment
accounts until they are disposed of by the Portfolio Manager. The market prices,
if any, for illiquid securities tend to be volatile and a Portfolio Fund may not
be able to sell them when it desires to do so or to realize what it perceives to
be their fair value in the event of a sale. 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.
20
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
10. RISK AND UNCERTAINTIES (CONTINUED)
L. Liquidity
The Portfolio Funds provide for periodic redemptions, with lock-up provisions up
to two 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 Net Asset Value of
the Fund, may fluctuate as interest rates fluctuate.
11. INVESTMENT TRANSACTIONS
For the year ended March 31, 2010, the Fund made investments in Portfolio Funds
in the amount of $10,821,447 and redeemed investments in Portfolio Funds in the
amount of $5,540,325.
12. INVESTMENTS
As of March 31, 2010, the Fund had investments in thirty-one 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.
21
Old Mutual Absolute Return Master Fund, L.L.C.
Notes to Financial Statements (continued)
12. INVESTMENTS (CONTINUED)
Portfolio Funds' Investment Strategies:
DIRECTIONAL
Directional strategies derive their primary source of return from directional
positions in asset classes. These strategies include global macro funds and
commodity trading advisors ("CTA"). Macro strategies generally utilize analysis
of macro-economic, geopolitical and financial conditions to establish
directional views and seek to capitalize on such views by trading in securities,
commodities, interest rates, currencies and other instruments. CTA strategies
also look to establish directional views on various financial instruments and
geographies but generally do so in a systematic manner.
EQUITY STRATEGIES
Equity Strategies derive their primary source of return from positions in the
equity markets. Stock selection is of primary importance to these strategies.
Equity strategies include long-bias, short-bias, variable bias and equity market
neutral strategies. Long bias managers will always be net long, short bias
managers are expected to maintain a negative net exposure; variable bias
managers can adjust net exposure and be either net long, net short or market
neutral; equity market neutral managers are expected to maintain a net exposure
+/-20%.
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.
OPPORTUNISTIC
Opportunistic strategies derive their primary source of return from a broad
range of strategies, asset classes and securities, investing opportunistically
across the broad spectrum of asset classes. They seek to invest in strategies,
asset classes and geographies that they feel exhibit the best risk/reward
profile. These managers are expected to dynamically adjust their exposure and
positions as market opportunities vary.
13. SUBSEQUENT EVENTS
From April 1, 2010 through May 27, 2010, the Fund received subscriptions in the
amount of $1,381,300. In addition, as of May 27, 2010, the Fund has received
tender offers that are anticipated to be effective on June 30, 2010. The member
interests for these requests were approximately 2.1% of the members' capital of
the Fund, or approximately $450,000, as of March 31, 2010. The ultimate amounts
redeemed for these requests may vary based upon the performance of the Fund.
Effective April 1 and May 1, 2010, the Fund made investments in Portfolio Funds
in the amounts of $1,075,000 and $1,000,000 respectively.
The Fund's management has evaluated the need for disclosures and/or adjustments
resulting from subsequent events through May 27, 2010, the date the financial
statements were available to be issued. Based on this evaluation, no adjustments
were required to the financial statements as of March 31, 2010.
22
Old Mutual Absolute Return Master Fund, L.L.C.
Board of Managers and Officers of the Fund (unaudited)
NUMBER
OF FUNDS
IN FUND
TERM OF COMPLEX
NAME, AGE, AND OFFICE*AND OVERSEEN PRESENT OR PAST (WITHIN 5 YEARS)
POSITION WITH THE LENGTH OF PRINCIPAL OCCUPATION BY OTHER DIRECTORSHIPS HELD BY
FUND TIME SERVED DURING PAST 5 YEARS MANAGER MANAGERS
- ----------------- ---------------- ------------------------ --------- ---------------------------------
DISINTERESTED MANAGERS
Gerald Hellerman Indefinite/Since Principal, Hellerman 6 Director, The Mexico
Year of Birth: 1937 October 2006 Associates (financial Equity and Income
Manager and corporate consulting), Fund, Inc., June 2001 - present;
1993 - present; Chief Director and Audit- Chair,
Compliance Officer and MVC Capital Inc.,
Chief Financial Officer, March 2003 - present;
The Mexico Equity and Director, Brantley
Income Fund, Inc., Capital, March 2003 - March 2006
June 2001 - present; and March 2007 - present;
Chief Compliance Director, Special
Officer and Chief Opportunities Fund,
Financial Officer, Inc., August 2009 - present;
Special Opportunities Director, Innovative
Fund, Inc., August 2009 - Clinical Solutions,
present; President, Innovative May 2002 - 2008;
Clinical Solutions, Director and
May 2002 - 2008. Audit-Chair,
AirNet Systems,
July 2005 - May 2008;
Director, FNC Realty,
May 2002 - 2007;
Director, Element
Long/Short
Equity,
May 2005 -
November 2005.
Paul D. Malek Indefinite/Since General Counsel, 6 None
Year of Birth: 1967 October 2006 Stonehill Capital
Manager Management LLC,
April 2009 -present;
General Counsel, Latigo
Partners, LP (hedge fund),
February 2006 -
March 2009;
Associate, Milbank,
Tweed, Hadley &
McCloy LLP,
May 2001 -
January 2006.
George W. Morriss Indefinite/Since Retired 6 Trustee/Director, open-
Year of Birth: 1947 October 2006 end and closed-end
Manager funds in Neuberger
Berman Fund
Complex, February
2007 - present;
Advisory Director,
Berkshire Capital
Securities, August
2006 - February
2007 and July
2009 - present;
Director, Lehman
Brothers First
Trust Income
Opportunity
Fund, July 2003 -
April 2006; Trustee,
Element Long/Short
Funds, March 2005 -
September 2005.
INTERESTED MANAGER
Matthew Appelstein ** Indefinite/Since Executive Vice 6 Trustee, TS&W/
Year of Birth: 1961 April 2008 President/Head Claymore Tax-
Manager, President and of Global Sales Advantage
Chief Executive Officer and Marketing, Balanced Fund,
Old Mutual (US) November 2004 -
Holdings Inc., present; Trustee,
October 2008 - Old Mutual/Claymore
present; Senior Long-Short Fund,
Vice President, April 2005 - present;
Old Mutual (US) Director, Old Mutual
Holdings Inc., Global Funds plc,
October 2006 - May 2008 - present;
October 2008; Trustee, Old Mutual
Vice President, Investment Partners,
Old Mutual (US) August 2009 -
Holdings, Inc., present; Manager,
December 2003 - Director, Old
October 2006. Mutual Asset
Management
International, Ltd.,
November 2009 - present.
NAME, AGE, AND POSITION WITH THE TERM OF OFFICE* AND LENGTH
FUND OF TIME SERVED PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ------------------------------------- --------------------------- ----------------------------------------
OFFICERS
Ross Weissman Indefinite/Since Chief Financial
Year of Birth: 1970 October 2006 Officer, Larch
Treasurer and Chief Financial Officer Lane Advisors LLC,
2005 - present;
Controller and
Chief Financial
Officer, Larch
Lane Advisors LP,
1999 - 2005.
Stephen A. McShea Indefinite/Since
Year of Birth: 1971 September 2009 Chief Compliance
Chief Compliance Officer Officer and General
Counsel, Larch Lane
Advisors LLC, June
2009 - present;
Associate, Dechert
LLP, May 2004 -
February 2009.
The business address of each Manager and Officer is c/o Larch Lane Advisors LLC,
800 Westchester Avenue, S-618, Rye Brook, New York 10573.
* Officer of the Fund until such time as his or her successor is duly
elected and qualified.
** Mr. Appelstein is a Manager who may be deemed an "interested person" of
the Fund, as that term is defined by the 1940 Act, because he is the
Principal Executive Officer of the Fund and he is an officer of an
affiliate of the Adviser.
23
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer or persons
performing similar functions, regardless of whether these individuals are
employed by the registrant or a third party. For the fiscal year ended March 31,
2010, there were no amendments to a provision of its code of ethics, nor were
there any waivers granted from a provision of the code of ethics. A copy of this
code of ethics is filed with this form N-CSR under Item 12 (a)(1).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's board of managers has determined that the registrant has
at least one audit committee financial expert serving on the audit committee.
(a)(2) The audit committee financial expert is Gerald Hellerman. Mr. Hellerman
is independent as defined in Form N-CSR Item 3(a)(2).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Aggregate fees for services rendered by Rothstein, Kass & Company, P.C.
("Rothstein") to Old Mutual Absolute Return Master Fund (the "Fund") for the
fiscal years ended March 31, 2009 and March 31, 2010, are as follows:
2009
------------------------------------------------------------------------------------------
All fees and services to All other fees and services
All fees and services to the service affiliates that were to service affiliates that
Fund that were pre-approved pre-approved did not require pre-approval
---------------------------- ---------------------------- ----------------------------
(a) Audit Fees(1) $55,000 N/A N/A
(b) Audit-Related Fees(2) $ 0 N/A N/A
(c) Tax Fees(3) $20,000 N/A N/A
(d) All Other Fees(4) $ 0 N/A N/A
2010
------------------------------------------------------------------------------------------
All fees and services to All other fees and services
All fees and services to the service affiliates that were to service affiliates that
Fund that were pre-approved pre-approved did not require pre-approval
---------------------------- ---------------------------- ----------------------------
(a) Audit Fees(1) $56,875 N/A N/A
(b) Audit-Related Fees(2) $ 0 N/A N/A
(c) Tax Fees(3) $20,000 N/A N/A
(d) All Other Fees(4) $ 0 N/A N/A
Notes:
(1) Audit Fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings or
engagements.
(2) Audit-Related Fees would encompass all additional audit or accounting
research services not directly related to the audit of the
registrant's financial statements.
(3) Tax Fees include amounts related to the preparation of partnership
income tax returns including Schedule k-1's for investors.
(4) All Other Fees include amounts related to services provided in order
to provide auditor consents for audits to be included in subsequent
filings.
(e)(1) The registrant's Audit Committee pre-approves the principal accountant's
engagements for audit and non-audit services to the registrant and, as
required, non-audit services to service affiliates on a case-by-case
basis. Pre-approval considerations include whether the proposed services
are compatible with maintaining the principal accountant's independence.
(e)(2) Percentage of fees billed by Rothstein applicable to non-audit services
pursuant to waiver of pre-approval requirement were as follows:
2009 2010
---- ----
Audit-Related Fees 0% 0%
Tax Fees 0% 0%
All Other Fees 0% 0%
(f) Not applicable.
(g) The amount of non-audit fees that were billed by Rothstein for services
rendered to (i) the registrant, and (ii) the registrant's investment
adviser and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant for the
fiscal years ended March 31, 2009 and March 31, 2010, were $90,000 and
$90,000, respectively.
(h) 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-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The following is the Proxy Voting Policies and Procedures of Larch Lane Advisors
LLC (the "Adviser") in its entirety:
The Firm provides investment advisory services to private investment funds and
managed accounts, and invests the assets of these Funds and accounts in
securities issued by private issuers. Through these private issuers the Firm may
be delegated the right to vote, on behalf of the Funds and accounts, proxies
received from companies, the securities of which are owned by the underlying
private issuers in which the Funds and accounts have invested. In addition, from
time to time, the private issuers may amend or revise their governing documents
or seek investor consents. The Firm has authority to vote proxies relating to
such securities on behalf of the Funds and accounts it manages.
The Securities and Exchange Commission (the "SEC") has adopted Rule 206(4)-6
under the Investment Advisers Act. Under this rule, registered investment
advisers that exercise voting authority over securities held in client
portfolios are required to implement proxy voting policies and describe those
policies to their clients.
The Investment Committee (which may delegate a Proxy Committee for this purpose)
is responsible for making all proxy voting decisions in accordance with these
proxy voting policy and procedures (the "POLICIES"). The investment team is
responsible for the actual voting of all proxies in a timely manner, while the
Compliance Officer is responsible for monitoring the effectiveness of the
Policies. (SEE Section IV, "Procedures for Proxies".)
The Policies attempt to generalize a complex subject. The Firm may, from time to
time, determine that it is in the best interests of its clients to depart from
specific policies described herein. The rationale for any such departure will be
memorialized in writing by the Compliance Officer.
I. GENERAL POLICY
The general policy is to vote proxy proposals, amendments, consents or
resolutions relating to client securities, including interests in private
investment funds, if any (collectively, "PROXIES"), in a manner that reasonably
furthers the best interests of the Funds managed by the Firm and is consistent
with the investment philosophy as set forth in the relevant investment
management documents, as determined by the Firm in its discretion, and taking
into account relevant factors, including, but not limited to:
- - the impact on the value of the securities;
- - the anticipated costs and benefits associated with the proposal;
- - the effect on liquidity; and
- - customary industry and business practices.
II. SPECIFIC POLICIES
A. ROUTINE MATTERS
Routine matters are typically proposed by Management (as defined below) of a
company and meet the following criteria: (i) they do not measurably change the
structure, management, control or operation of the company; (ii) they do not
measurably change the terms of, or fees or expenses associated with, an
investment in the company; and (iii) they are consistent with customary industry
standards and practices, as well as the laws of the state of incorporation
applicable to the company.
For routine matters, the Firm will vote in accordance with the recommendation of
the company's management, directors, general partners, managing members or
trustees (collectively, the "MANAGEMENT"), as applicable, unless, in the Firm's
opinion, such recommendation is not in the best interests of the investing Funds
or accounts.
1. GENERAL MATTERS
The Firm will generally vote FOR proposals:
- to set time and location of annual meeting;
- to change the fiscal year of the company; and
- to change the name of a company.
2. BOARD MEMBERS
A. ELECTION OR RE-ELECTION. The Firm will generally vote FOR Management
proposals to elect or re-elect Board members.
B. FEES TO BOARD MEMBERS. The Firm will generally vote FOR proposals to increase
fees paid to Board members, unless it determines that the compensation exceeds
market standards.
3. CAPITAL STRUCTURE
The Firm will generally vote FOR proposals to change capitalization, including
to increase authorized common shares or to increase authorized preferred shares,
as long as the proposal does not either: (i) establish a class or classes of
shares or interests with terms that may disadvantage the class held by the
investing Funds or accounts or (ii) result in disproportionate voting rights for
preferred shares or other classes of shares or interests.
4. APPOINTMENT OF AUDITORS
The Firm will generally vote FOR the approval of auditors and proposals
authorizing the Board to fix auditor fees, unless:
- the Firm has serious concerns about the accountants presented,
including their independence, or the audit procedures used; or
- the auditors are being changed without explanation.
B. NON-ROUTINE MATTERS
Non-routine matters involve a variety of issues and may be proposed by a
company's Management or beneficial owners (I.E., shareholders, members,
partners, etc. (collectively, the "OWNERS")). These proxies may involve one or
more of the following: (i) a measurable change in the structure, management,
control or operation of the company; (ii) a measurable change in the terms of,
or fees or expenses associated with, an investment in the company; or (iii) a
change that is inconsistent with industry standards and/or the laws of the state
of incorporation applicable to the company.
1. BOARD MEMBERS
A. TERM LIMITS. The Firm will generally vote FOR proposals to require a
reasonable retirement age (E.G., 72) for Board members, and will vote on a
CASE-BY-CASE basis on proposals to attempt to limit tenure.
B. REPLACEMENT. The Firm will generally vote AGAINST proposals that make it more
difficult to replace Board members, including proposals:
- to stagger the Board;
- to overweight Management representation on the Board;
- to introduce cumulative voting (cumulative voting allows the Owners to
"stack" votes behind one or a few individuals for a position on the
Board, thereby giving minority Owners a greater chance of electing the
Board member(s));
- to introduce unequal voting rights;
- to create supermajority voting; or
- to establish pre-emptive rights.
C. LIABILITY AND INDEMNIFICATION. In order to promote accountability, the Firm
will generally vote AGAINST proposals to limit the personal liability of Board
members for any breach of fiduciary duty or failure to act in good faith.
D. OWNERSHIP ISSUES. The Firm will generally vote FOR proposals that require
Management to own a minimum interest in the company. The purpose of this policy
is to encourage the alignment of Management's interests with the interests of
the company's Owners. However, the Firm will generally vote AGAINST proposals
for stock options or other compensation that grant an ownership interest for
Management IF SUCH PROPOSALS offer greater than 15% of the outstanding
securities of a company because such options may dilute the voting rights of
other Owners of the company.
2. COMPENSATION, FEES AND EXPENSES
In general, the Firm will vote AGAINST proposals to increase compensation, fees
or expenses to be paid to the company's Owners, unless the Firm determines that
the benefits resulting to the company and its Owners justifies the increased
compensation, fees or expenses.
In many circumstances, where private investment funds seek to change material
terms such as compensation, fee and expense terms, the Firm will examine the
investment opportunity anew in light of the proposed new terms, considering the
private investment funds returns, portfolio and strategy allocations,
alternative investment opportunities and other factors generally considered when
making an investment decision. When applying this examination, the Firm may vote
for proposals where the circumstances of a particular investment justify the
revised compensation, fee and expense terms.
3. VOTING RIGHTS
The Firm will generally vote AGAINST proposals:
- to introduce unequal voting or dividend rights among the classes;
- to change the amendment provisions of a company's charter documents by
removing Owner approval requirements;
- to require supermajority (2/3) approval for votes rather than a simple
majority (1/2);
- to restrict the Owners' right to act by written consent; or
- to restrict the Owners' right to call meetings, propose amendments to
the articles of incorporation or other governing documents of the
company or nominate Board members.
The Firm will generally vote FOR proposals that eliminate any of the foregoing
rights or requirements.
4. TAKEOVER DEFENSES AND RELATED ACTIONS
The Firm will generally vote AGAINST any proposal to create any plan or
procedure designed primarily to discourage a takeover or other similar action,
including "poison pills". Examples of "poison pills" include:
- large increases in the amount of stock authorized but not issued;
- blank check preferred stock (stock with a fixed dividend and a
preferential claim on company assets relative to common shares, the
terms of which are set by the Board at a future date without further
action by the Owners);
- compensation that would act to reward Management as a result of a
takeover attempt, whether successful or not, such as revaluing
purchase price of stock options, or "golden parachutes";
- fixed price amendments that require a certain price to be offered to
all Owners based on a fixed formula; and
- greenmail provisions that allow a company to make payments to a bidder
in order to persuade the bidder to abandon its takeover plans.
The Firm will generally vote FOR proposals that eliminate any of the foregoing
rights or requirements, as well as proposals to:
- require that golden parachutes or golden handcuffs be submitted for
ratification by the Owners; and
- to opt out of state anti-takeover laws deemed by the Firm to be
detrimental.
The Firm will generally vote on a CASE-BY-CASE basis regarding other proposals
that may be used to prevent takeovers, such as the establishment of employee
stock purchase or ownership plans.
5. REINCORPORATION
The Firm will generally vote FOR a change in the state of incorporation if the
change is for valid business reasons (such as reincorporating in the same state
as the headquarters of any controlling company).
6. DEBT ISSUANCE AND PLEDGING OF ASSETS FOR DEBT
The Firm will generally vote proxies relating to the issuance of debt, the
pledging of assets for debt, and an increase in borrowing powers on a
CASE-BY-CASE basis, taking into consideration relevant factors, including, for
example:
- the potential increase in the company's outstanding interests or
shares, if any (E.G., convertible bonds); and
- the potential increase in the company's capital, if any, over the
current outstanding capital.
7. MERGERS OR ACQUISITIONS
The Firm will vote proxies relating to mergers or acquisitions on a CASE-BY-CASE
basis, but will generally vote for any proposals that the Firm believes will
offer fair value to its clients.
8. TERMINATION OR LIQUIDATION OF THE COMPANY
The Firm will vote proxies relating to the termination or liquidation of a
company on a CASE-BY-CASE basis, taking into consideration one or more of the
following factors:
- terms of liquidation;
- past performance of the company; and
- strategies employed to save the company.
9. SOCIAL & ENVIRONMENTAL ISSUES AND CORPORATE RESPONSIBILITY
The Firm will vote proxies relating to social and environmental issues on a
CASE-BY-CASE basis, but will generally vote for any proposals that will reduce
discrimination, improve protections to minorities and disadvantaged classes, and
increase conservation of resources and wildlife.
The Firm will generally vote AGAINST any proposals that place arbitrary
restrictions on the company's ability to invest, market, enter into contractual
arrangements or conduct other activities. The Firm will also generally vote
AGAINST proposals:
- to bar or restrict charitable contributions; or
- to limit corporate political activities.
10. ALL OTHER MATTERS
All other decisions regarding proxies will be determined on a CASE-BY-CASE basis
taking into account the general policy, as set forth above.
C. ABSTAINING FROM VOTING OR AFFIRMATIVELY NOT VOTING
The Firm will abstain from voting (which generally requires submission of a
proxy voting card) or affirmatively decide not to vote if the Firm determines
that abstaining or not voting is in the best interests of the Fund or account.
In making such a determination, the Firm will consider various factors,
including, but not limited to: (i) the costs associated with exercising the
proxy (E.G., translation or travel costs); and (ii) any legal restrictions on
trading resulting from the exercise of a proxy. The Firm will not abstain from
voting or affirmatively decide not to vote a proxy if the Fund or account is a
plan asset fund subject to the requirements of the Employee Retirement Income
Security Act of 1974, as amended. Furthermore, the Firm will not abstain from
voting or affirmatively decide not to vote merely to avoid a conflict of
interest.
III. CONFLICTS OF INTEREST
At times, conflicts may arise between the interests of the investing Funds or
accounts, on the one hand, and the interests of the Firm or its affiliates, on
the other hand. If the Firm determines that it has, or may be perceived to have,
a conflict of interest when voting a proxy, the Firm will address matters
involving such conflicts of interest as follows:
A. If a proposal is addressed by the specific policies herein, the Firm will
vote in accordance with such policies;
B. If the Firm believes it is in the best interest of the investing Funds or
accounts to depart from the specific policies provided for herein, the Firm will
be subject to the requirements of C or D below, as applicable;
C. If the proxy proposal is (1) not addressed by the specific policies or (2)
requires a case-by-case determination by the Firm, the Firm may vote such proxy
as it determines to be in the best interest of the investing Funds or accounts,
without taking any action described in D below, provided that such vote would be
against the Firm's own interest in the matter (I.E., against the perceived or
actual conflict). The Firm will memorialize the rationale of such vote in
writing; and
D. If the proxy proposal is (1) not addressed by the specific policies or (2)
requires a case-by-case determination by the Firm, and the Firm believes it
should vote in a way that may also benefit, or be perceived to benefit, its own
interest, then the Firm must take one of the following actions in voting such
proxy: (a) delegate the voting decision for such proxy proposal to an
independent third party; (b) delegate the voting decision to an independent
committee of partners, members, directors or other representatives of the Funds
or accounts, as applicable; (c) inform the investors in the investing Funds or
the owners of the investing accounts of the conflict of interest and obtain
consent to (majority consent in the case of a Fund) vote the proxy as
recommended by the Firm; or (d) obtain approval of the decision from the Firm's
Compliance Officer and third party Legal Advisors.
IV. PROCEDURES FOR PROXIES
The Investment Committee will be responsible for determining whether each proxy
is for a "routine" matter or not, as described above. All proxies identified as
"routine" will be voted by the Chief Legal Officer in accordance with the
Policies.
Any proxies that are not clearly "routine" will be submitted to the Investment
Committee, who/which will determine how to vote each such proxy by applying the
Policies. Upon making a decision, the proxy will be executed and returned to the
Chief Legal Officer for submission to the company. Upon receipt of an executed
proxy, the Firm's paralegal will update the investing Funds' or accounts' proxy
voting record. The Chief Legal Officer is responsible for the actual voting of
all proxies in a timely manner. The Compliance Officer is responsible for
monitoring the effectiveness of the Policies.
In the event the Firm determines that the investing Funds or accounts should
rely on the advice of an independent third party or a committee regarding the
voting of a proxy, the Firm will submit the proxy to such third party or
committee for a decision. The Chief Legal Officer will execute the proxy in
accordance with such third party's or committee's decision.
V. RECORD OF PROXY VOTING
The Compliance Officer also will maintain, or have available, written or
electronic copies of each proxy statement received and of each executed proxy.
The Compliance Officer will also maintain records relating to each proxy,
including (i) the determination as to whether the proxy was routine or not, (ii)
the voting decision with regard to each proxy; and (iii) any documents created
by the Investment Committee, or others, that were material to making the voting
decision.
The Firm will maintain a record of each written request from an investor in a
Fund or owner of an managed account for proxy voting information and the Firm's
written response to any request (oral or written) from an investor in a Fund or
owner of an managed account for proxy voting information.
The Compliance Officer will maintain such records in its offices for two years
from the end of the fiscal year during which the record was created, and for an
additional three years in an easily accessible place.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(A)(1) PORTFOLIO MANAGERS
The day-to-day management of the Fund's and the Master Fund's portfolio
will be the responsibility of the Adviser's Investment Committee, which is led
by Mark Jurish, the Adviser's Chief Investment Officer, and also includes
Kenneth Stemme and Kevin Mirabile.
MARK JURISH, Chief Investment Officer, founded Larch Lane Advisors L.P., the
predecessor entity of the Adviser, in August 1999. He has managed accounts that
are managed by the Adviser from their inception. In addition, he is the founder
and Chief Executive Officer of the managing entities of private investment
vehicles that invest in early-stage hedge funds. Prior to joining the Adviser,
Mr. Jurish was Managing Director at Paloma Partners, a firm that he joined in
1988. At Paloma, Mr. Jurish was primarily responsible for evaluating, selecting,
and monitoring suitable investments for various Paloma trading entities, as well
as creating and structuring new products. From 1986 to 1988, Mr. Jurish was
employed at Skadden, Arps, Slate, Meagher & Flom as a specialist in financial
investment modeling and management consulting. Mr. Jurish began his financial
career in 1984 at Arthur Young & Company (a predecessor of Ernst & Young, LLP),
an international accounting and consulting firm, where Paloma Partners was one
of his main clients. He served as an Independent Trustee of an investment
manager's investment grade municipal fund. Previously, he served on the Best
Practices Committee of the Greenwich Roundtable and on the Board of Directors
for the Managed Funds Association. Mr. Jurish received his B.A. from State
University of New York at Albany and his M.B.A. in Finance from New York
University.
Mr. Jurish is a member of the Investment Committee.
KENNETH W. STEMME, Director of Research, joined the Adviser in April 2007. Mr.
Stemme was previously a Senior Vice President and Director of Hedge Fund
Investments at Northern Trust Global Advisors, where he managed approximately $1
billion in assets and chaired the Hedge Fund Investment Committee. Prior to
joining Northern Trust in 2003, Mr. Stemme was a Managing Director in the
Alternative Investment Group at American Express Asset Management. From 1999 to
2002, Mr. Stemme was Executive Director in the Alternative Investment Group at
CIBC Oppenheimer, where he was involved in the creation and management of a
registered fund of funds. From 1990 through 1998, Mr. Stemme worked at Harris
Associates, last serving as a research associate. Mr. Stemme received his B.A.
from Cornell University and his M.B.A. from DePaul University.
Mr. Stemme is a member of the Investment Committee.
KEVIN MIRABILE, Chief Operating Officer, joined the Adviser in May 2008.
Immediately prior to joining Larch Lane, Mr. Mirabile was C.O.O. of Orca Asset
Management, a registered investment adviser. Mr. Mirabile has over 20 years of
business development, regulatory, financing, trading and sales experience with
the hedge fund sector dating back to 1983. Mr. Mirabile was previously a
principal at Morgan Stanley, President of the Morgan Stanley Trust Company, an
Executive V.P. at Daiwa Securities and a Managing Director and Operating
Committee Member of Barclays Capital. At Barclays he headed the firm's
Collateralized Finance Division from 1998 to 2004, which included Global
Futures, Corporate Bond and Treasury Repo and the firms multi asset class Prime
Brokerage and
electronic execution business. He was also responsible globally for the firm's
business development and relationship management with the hedge fund sector. Mr.
Mirabile is a C.P.A., a member of the A.I.C.P.A., the International Association
of Financial Engineers, the Greenwich Roundtable's Founders Council and is a
part-time Adjunct Professor of Finance at Fordham University's Graduate School
of Business where he teaches an introductory course on hedge fund investment
management. Mr. Mirabile received his B.S. in Accounting from State University
of New York at Albany and his M.S. in Banking and Finance from Boston
University.
Mr. Mirabile is a member of the Investment Committee.
(A)(2) OTHER FUNDS AND ACCOUNTS MANAGED
The following table sets forth information about funds and accounts, other
than the Fund, for which the Portfolio Managers are primarily responsible for
the day-to-day portfolio management as of March 31, 2010.
REGISTERED INVESTMENT POOLED INVESTMENT OTHER ACCOUNTS
COMPANIES MANAGED BY VEHICLES MANAGED BY MANAGED BY THE
THE PORTFOLIO MANAGER THE PORTFOLIO MANAGER PORTFOLIO MANAGER
NAME OF --------------------- --------------------- ---------------------
PORTFOLIO TOTAL TOTAL
MANAGER NUMBER ASSETS NUMBER ASSETS NUMBER TOTAL ASSETS
- -------------- ------ ----------- ------ ------------ ------ ------------
Mark Jurish 5 $37 million 19 $996 million 1 $52 million
Kenneth Stemme 5 $37 million 19 $996 million 1 $52 million
Kevin Mirabile 5 $37 million 19 $996 million 1 $52 million
REGISTERED INVESTMENT POOLED INVESTMENT VEHICLES OTHER ACCOUNTS
COMPANIES MANAGED BY MANAGED BY THE MANAGED BY THE
THE PORTFOLIO MANAGER PORTFOLIO MANAGER PORTFOLIO MANAGER
-------------------------------- -------------------------------- --------------------------------
NAME OF NUMBER WITH TOTAL ASSETS WITH NUMBER WITH TOTAL ASSETS WITH NUMBER WITH TOTAL ASSETS
PORTFOLIO PERFORMANCE- PERFORMANCE-BASED PERFORMANCE- PERFORMANCE-BASED PERFORMANCE- WITH PERFORMANCE-
MANAGER BASED FEES FEES BASED FEES FEES BASED FEES BASED FEES
- -------------- ------------ ----------------- ------------ ----------------- ------------ -----------------
Mark Jurish 0 $0 5 $544 million 0 $0
Kenneth Stemme 0 $0 5 $544 million 0 $0
Kevin Mirabile 0 $0 5 $544 million 0 $0
Investment decisions at the Adviser are made with oversight by the Investment
Committee. The committee holds regular meetings to discuss the investment
portfolios, and their exposure in terms of risk and strategy, and to review
forthcoming investment decisions.
Real, potential or apparent conflicts of interest may arise when a Portfolio
Manager has day-to-day portfolio management responsibilities with respect to
more than one fund. The Portfolio Managers may manage other accounts with
investment strategies similar to the Fund and the Master Fund, including other
investment companies, pooled investment vehicles and separately managed
accounts. Fees earned by the Adviser may vary among these accounts and the
Portfolio Managers may personally invest in these accounts. These factors could
create conflicts of interest because Portfolio Managers may have incentives to
favor certain accounts over others, resulting in other accounts outperforming
the Fund or the Master Fund. A conflict may also exist if the Portfolio Managers
identify a limited investment opportunity that may be appropriate for more than
one account, but the Fund or the Master Fund is not able to take full advantage
of that opportunity due to the need to allocate that opportunity among multiple
accounts. In addition, the Portfolio Managers may execute transactions for
another account that may adversely impact the value of securities held by the
Fund or the Master Fund. However, the Adviser believes that these risks are
mitigated by the fact that accounts with like investment strategies managed by
the Portfolio Managers are generally managed in a similar fashion and the
Adviser has a policy that seeks to allocate opportunities on a fair and
equitable basis.
(A)(3) COMPENSATION
As of March 31, 2010, compensation for the Portfolio Managers is a combination
of a fixed salary and a bonus. The bonus paid to a Portfolio Manager for any
year may be made with reference, in part, to the performance of the Fund or the
Master Fund or any other fund or account managed by the Adviser during such year
as compared to the performance of the HFR Fund of Funds Composite Index or
another index or indices deemmed relevant by the senior management of the
Adviser. The amount of salary and bonus paid to the Portfolio Managers is based
on a variety of factors, including the financial performance of the Adviser,
execution of managerial responsibilities, client interactions and teamwork
support. As part of their compensation, the Portfolio Managers also have 401k
plans that enable them to direct a percentage of their pre-tax salary and bonus,
without any contribution from the Adviser, into a tax-qualified retirement plan.
(A)(4) FUND OWNERSHIP
The following table sets forth the dollar range of Units beneficially owned by
the Portfolio Managers as of the date of this Prospectus.
PORTFOLIO MANAGER DOLLAR RANGE
- ----------------- ------------
Mark Jurish None
Kenneth Stemme None
Kevin Mirabile None
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 has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for 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)), are filed
herewith.
(b) Not applicable.
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 J. Appelstein
-----------------------------------
Matthew J. Appelstein
President & Chief Executive Officer
Date: June 9, 2010
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 J. Appelstein
-----------------------------------
Matthew J. Appelstein
President & Chief Executive Officer
Date: June 9, 2010
By (Signature and Title)* /s/ Ross Weissman
-----------------------------------
Ross Weissman
Treasurer & Chief Financial Officer
Date: June 9, 2010
* Print the name and title of each signing officer under his or her
signature.