UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-21396
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Investment Company Act file number
Excelsior Absolute Return Fund of Funds, LLC
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(Exact name of registrant as specified in charter)
225 High Ridge Road
Stamford, CT 06905
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(Address of principal executive offices) (Zip code)
Steven L. Suss
U.S. Trust Hedge Fund Management, Inc.
225 High Ridge Road
Stamford, CT 06905
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(Name and address of agent for Service)
Registrant's telephone number, including area code: (203) 352-4497
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Date of fiscal year end: 3/31/2009
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Date of reporting period: 9/30/2008
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ITEM 1. REPORTS TO STOCKHOLDERS.
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EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS, LLC
Financial Statements
(Unaudited)
Period from April 1, 2008 to September 30, 2008
Excelsior Absolute Return Fund of Funds, LLC
Financial Statements
(Unaudited)
Period from April 1, 2008 to September 30, 2008
Contents
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
September 30, 2008.......................................................1
Statement of Operations for the Period from April 1, 2008 to
September 30, 2008.......................................................2
Statements of Changes in Members' Equity - Net Assets for the Period from
April 1, 2008 to September 30, 2008 and for the Year Ended
March 31, 2008...........................................................3
Statement of Cash Flows for the Period from April 1, 2008 to
September 30, 2008.......................................................4
Financial Highlights for the Period from April 1, 2008 to September 30, 2008
and for the Years Ended March 31, 2008, 2007, 2006, 2005.................5
Notes to Financial Statements..................................................6
The Registrant 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 Registrant'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. Information on Form N-Q is available without charge,
upon request, by calling collect 1-203-352-4497.
A description of the policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling collect (203) 352-4497 and on the
Commission's website at http://www.sec.gov.
Information regarding how the Registrant voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets (Unaudited)
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September 30, 2008
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ASSETS
Investment in Excelsior Absolute Return Fund of Funds Master Fund,
LLC at fair value $176,918,642
Cash and cash equivalents 6,657,795
Prepaid fees 18,721
Interest receivable 3,710
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Total Assets 183,598,868
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LIABILITIES
Members' interests received in advance 2,745,000
Management fee payable 242,679
Professional fees payable 23,320
Board of Managers fees payable 11,250
Administration fees payable 43,526
Other payable 2,089
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Total Liabilities 3,067,864
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Net Assets $180,531,004
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $133,431,643
Accumulated net unrealized appreciation on investment 47,099,361
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Members' Equity - Net Assets $180,531,004
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The accompanying notes and attached unaudited financial statement of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
<Page>
Excelsior Absolute Return Fund of Funds, LLC
Statement of Operations (Unaudited)
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Period from April 1, 2008 to September 30, 2008
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NET INVESTMENT LOSS ALLOCATED FROM EXCELSIOR ABSOLUTE
RETURN FUND OF FUNDS MASTER FUND, LLC:
Interest $ 118,682
Expenses (1,135,141)
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Net investment loss allocated from Excelsior Absolute
Return Fund of Funds Master Fund, LLC (1,016,459)
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Fund Income:
Interest 54,822
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Fund Expenses:
Management fees 507,685
Administration fees 88,634
Professional fees 33,987
Board of Managers' fees 28,750
Other 96,092
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Total Expenses 755,148
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Net Investment Loss (1,716,785)
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REALIZED AND UNREALIZED LOSS ON INVESTMENTS ALLOCATED FROM
EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS MASTER FUND, LLC:
Net realized gain on investment 43,064
Net change in accumulated unrealized appreciation on investment (14,785,012)
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Net Realized and Unrealized Loss on Investments Allocated from
Excelsior Absolute Return Fund of Funds Master Fund, LLC (14,741,948)
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DECREASE IN MEMBERS' EQUITY - NET ASSETS DERIVED FROM OPERATIONS $(16,458,733)
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The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
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For the
Period from
April 1, For the
2008 to Year ended
September March 31,
30, 2008 2008
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OPERATIONS
Net investment loss (1,716,785) (3,702,803)
Net realized gain on investment 43,064 13,734,120
Net change in unrealized appreciation on investment (14,785,012) (7,574,954)
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(Decrease) Increase in Members' Equity - Net Assets
Derived from Operations (16,458,733) 2,456,363
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CAPITAL TRANSACTIONS
Members' subscriptions 13,460,000 30,729,425
Members' Interests repurchased (22,323,940) (47,873,622)
Offering costs - (38,428)
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Decrease in Members' Equity - Net Assets
Derived From Capital Transactions (8,863,940) (17,182,625)
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Net Decrease in Members' Equity - Net Assets (25,322,673) (14,726,262)
MEMBERS' EQUITY - NET ASSETS AT BEGINNING OF PERIOD 205,853,677 220,579,939
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MEMBERS' EQUITY - NET ASSETS AT END OF PERIOD 180,531,004 205,853,677
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The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Cash Flows (Unaudited)
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For the Period April 1, 2008 to September 30, 2008
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CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in members' equity - net assets
derived from operations $(16,458,733)
Adjustments to reconcile net decrease in members' equity -
net assets derived from operations to net cash provided by
operating activities:
Net change in accumulated unrealized appreciation on
investments allocated from Excelsior Absolute Return
Fund of Funds Master Fund, LLC 14,785,012
Net realized gain on investments allocated from Excelsior
Absolute Return Fund of Funds Master Fund, LLC (43,064)
Net investment loss allocated from Excelsior Absolute
Return Fund of Funds Master Fund, LLC 1,016,459
Purchases of investment in Excelsior Absolute Return Fund
of Funds Master Fund, LLC (10,279,157)
Proceeds from investment in Excelsior Absolute Return Fund
of Funds Master Fund, LLC 23,189,357
Decrease in prepaid fees 31,215
Decrease in other assets 567
Decrease in interest receivable 172
Increase in administration fees payable 43,526
Decrease in professional fees payable (31,905)
Decrease in Adviser management fee payable (19,196)
Decrease in Board of Managers fees payable (11,250)
Increase in other payable 1,225
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Net Cash Provided by Operating Activities 12,224,228
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 11,195,000
Payments for Members' Interests repurchased (23,189,357)
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Net Cash Used in Financing Activities (11,994,357)
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Net increase in cash and cash equivalents 229,871
Cash and cash equivalents at beginning of period 6,427,924
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Cash and Cash Equivalents at End of Period $ 6,657,795
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Supplementary Disclosure of Cash Flow Information
Cash paid during the year for interest 2,344
The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Financial Highlights (Unaudited)
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The following represents the ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
<table>
<caption>
For the period
from April 1, For the year For the year For the year For the year
2008 - ended ended ended ended
September 30, March 31, March 31, March 31, March 31,
2008* 2008 2007 2006 2005
----------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Net assets, end of period $180,531,004 $205,853,677 $220,579,939 $256,173,742 $224,424,860
Ratio of net investment (0.86%) (1.64%) (1.59%) (1.85%) (2.00%)
loss to average members'
equity - net assets (a)
Ratio of total expenses to 0.95% 1.97% 1.88% 1.84% 1.88%
average members' equity
- net assets (b), (c)
Ratio of net expenses to 0.95% 1.97% 1.88% 1.92% 2.03%
average members' equity
- net assets (b)
Total return (d) (8.38%) 0.63% 9.84% 8.04% 4.31%
</table>
* The ratios and total return are not annualized.
(a) The ratio reflects the income and expenses assuming inclusion of the
Fund's proportionate share of income and expenses of the Company.
(b) The ratio reflects the expenses assuming inclusion of the Fund's
proportionate share of expenses of the Company.
(c) The ratio is before any expense limitation or reimbursement per the
Expense Limitation Agreement.
(d) Total return assumes a purchase of an interest in the Fund on the first
day and a sale of an interest on the last day of the period and is
calculated using geometrically linked monthly returns.
The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited)
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September 30, 2008
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1. Organization
Excelsior Absolute Return Fund of Funds, LLC (the "Fund") was organized as a
limited liability company under the laws of Delaware on June 17, 2003, and
commenced operations on December 1, 2003. The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end,
non-diversified, management investment company. The Fund's investment objective
is to provide long-term, risk-adjusted absolute returns in a variety of capital
market conditions. The Fund pursues its investment objective by investing
substantially all of its assets in Excelsior Absolute Return Fund of Funds
Master Fund, LLC (the "Company"), a closed-end, non-diversified, management
investment company that is registered under the 1940 Act, which has the same
investment objective as the Fund. The Company seeks to achieve its investment
objective by investing its assets primarily in private investment limited
partnerships, limited liability companies, joint ventures and other similar
investment vehicles (collectively, "Investment Funds") that are managed by
investment managers utilizing a broad range of alternative investment
strategies.
The financial statements of the Company, including the Schedule of Investments,
are attached to this report and should be read in conjunction with the Fund's
financial statements. The percentage of the Company's members' equity owned by
the Fund at September 30, 2008 was 89.06%.
U.S. Trust Hedge Fund Management, Inc. serves as the investment adviser of the
Company and as a manager to the Fund (the "Adviser"). The Adviser is an indirect
wholly-owned subsidiary of Bank of America Corporation ("Bank of America"). Bank
of America is a bank holding and a financial holding company which has its
principal executive offices at 101 North Tryon Street, Charlotte, North
Carolina. The Adviser is responsible for developing, implementing and
supervising the investment program of the Company and providing day-to-day
management services and administrative services to the Company and the Fund.
The Adviser has retained AIG Global Investment Corp. ("AIG Global"), an indirect
wholly-owned subsidiary of American International Group, Inc. ("AIG"), to serve
as the investment manager of the Company. AIG Global is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and
is responsible for Investment Fund selection and determining the portion of the
Company's assets to be allocated to each Investment Fund, subject to the general
supervision of the Adviser. On and subsequent to September 16, 2008, AIG has
entered into various arrangements with the Federal Reserve Bank of New York
(the "FRBNY") and the U.S. Department of the Treasury ("Treasury") intended to
address liquidity and other financial issues being faced by AIG. These
arrangements include a five year credit facility, the purchase of certain AIG
assets by financing entities capitalized by the FRBNY and AIG, and the purchase
by Treasury of perpetual preferred shares of AIG and warrants to purchase shares
of common stock of AIG.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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1. Organization (continued)
Upon the purchase of the preferred shares, Treasury will own 77.9% of the
equity of AIG (and own warrants to purchase an additional 2% equity interest)
and, therefore, will be deemed to control AIG.
The Fund's Board of Managers (the "Board") has overall responsibility to manage
and supervise the operations of the Fund, including the exclusive authority to
oversee and to establish policies regarding the management, conduct and
operation of the Fund's business. The Board has engaged the Adviser to manage
the day-to-day operations of the Fund.
Subscriptions for interests in the Fund ("Interests") by eligible investors may
be accepted as of the first day of each calendar quarter, or at such times as
the Board may determine. The Fund may, from time to time, offer to repurchase
Interests from its members ("Members") pursuant to written tenders by Members.
These repurchase offers will be made at such times and on such terms as may be
determined by the Board, in its sole discretion, subject to the liquidity of the
Company's assets and other factors considered by the Board. The Adviser expects
that, generally, it will recommend to the Board that the Fund offer to
repurchase Interests from Members twice each year, at June 30th and December
31st. Members can only transfer or assign Interests under certain limited
circumstances.
2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
the Fund's financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
a. Portfolio Valuation
The net asset value of the Fund is determined by, or at the direction of, the
Adviser as of the close of business at the end of each fiscal period (as defined
in the Fund's Limited Liability Company Agreement), in accordance with the
valuation principles set forth below, or as may be determined from time to time
pursuant to policies established by the Board.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
The Fund records its investment in the Company at fair value. The Fund's
investment in the Company is represented by the Fund's proportionate interest
in the Company's Members' Equity - Net Assets at September 30, 2008. Valuation
of investments held by the Company is discussed in the notes to the Company's
financial statements
The net unrealized appreciation on investments, which is included in Members'
Equity - Net Assets on the Statement of Assets, Liabilities and Members' Equity
- - Net Assets, reflects the Fund's allocated share of the Company's net
unrealized gain on investments.
In September 2006, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards ("SFAS") No. 157, which provides
enhanced guidance for using fair value to measure assets and liabilities. The
Fund adopted SFAS No. 157 on April 1, 2008. SFAS No. 157 establishes a fair
value hierarchy and specifies that a valuation technique used to measure fair
value shall maximize the use of observable inputs and minimize the use of
unobservable inputs. The objective of a fair value measurement is to determine
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). Accordingly, the fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
Level 1 - Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to
access at the measurement date;
Level 2 - Quoted prices which are not active, or inputs that are observable
(either directly or indirectly) for substantially the full term of the
asset or liability; and
Level 3 - Prices, inputs or exotic modeling techniques which are both
significant to the fair value measurement and unobservable (supported
by little or no market activity).
As required by SFAS No.157, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 consider several inputs and may include Level 1 or
Level 2 inputs as components of the overall fair value measurement. The table
below sets forth information about the level within the fair value hierarchy at
which the Fund investments are measured at September 30, 2008:
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
Level 1 Level 2 Level 3 Total
----------------------------------------------------
Investments in
the Company $ - $ - $176,918,64 $176,918,642
----------------------------------------------------
Total $ - $ - $176,918,64 $176,918,642
====================================================
Distributions received from the Company, whether in the form of cash or
securities, are applied first as a reduction of the investment's cost and any
excess is treated as realized gain from investments in Investment Funds.
Realized gains or losses on investments in Investment Funds are measured by the
difference between the proceeds from the sale or liquidation and the cost basis
of the investment using the specific identification method without regard to
unrealized appreciation or depreciation reported in prior years.
b. Fund Expenses
The Fund bears its own expenses and, indirectly, bears a pro rata portion of the
Company's expenses incurred in its business, including, but not limited to, the
following: fees paid directly or indirectly to the investment managers of the
Investment Funds; all costs and expenses directly related to portfolio
transactions and positions for the Company's account; legal fees; accounting and
auditing fees; custodial and escrow fees; fees paid to the Fund's and the
Company's administrator; costs of insurance; management fees and advisory fees;
travel and related expenses of the Fund's and the Company's Boards; all costs
with respect to communications regarding the Fund's and the Company's
transactions among the Adviser and any custodian or other agent engaged by the
Fund; and other types of expenses approved by the Fund's and the Company's
Boards.
The Adviser and the Fund have entered into an expense limitation and
reimbursement agreement (the "Expense Limitation Agreement"), under which the
Adviser has agreed to waive its fees, or to pay or absorb (subject to the
reimbursement described below) the ordinary operating expenses of the Fund, to
the extent necessary to limit the ordinary operating expenses of the Fund,
including organizational and offering costs and the proportionate share of the
Company's expenses to 2% per annum of the Fund's average monthly net assets (the
"Expense Limitation"). In consideration of the Adviser's agreement to limit the
Fund's expenses, the Fund will carry forward the amount of expenses waived, paid
or absorbed by the Adviser in excess of the Expense Limitation for a period not
to exceed three years from the end of the fiscal year in which they were
incurred, and will reimburse the Adviser such amounts. Reimbursement will be
made as promptly as possible, but only to the extent it does not cause the
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
b. Fund Expenses (continued)
Fund's ordinary operating expenses to exceed the Expense Limitation in effect at
the time the fee was waived or the expense was paid or absorbed.
For the period April 1, 2008 to September 30, 2008, the Fund did not incur
expenses in excess of the Expense Limitation.
c. Income Taxes
As a limited liability company, no provision for the payment of Federal, state
or local income taxes has been provided by the Fund. Each Member is individually
required to report on its own tax return its share of the Fund's taxable income
or loss. The Fund has a tax year end of December 31.
Net investment income or loss and net realized and unrealized gain or loss from
investments of the Fund for each fiscal period are allocated among, and credited
to or debited against, the capital accounts of all Members as of the last day of
each fiscal period in accordance with each Member's respective investment
percentage for the fiscal period, as defined in the Fund's Limited Liability
Company Agreement.
The cost of the Fund's investment in the Company for Federal income tax purposes
is based on amounts reported to the Fund by the Company on a Schedule K-1 for
the year ended December 31, 2007. At December 31, 2007, the cost of investment
for Federal income tax purposes was $193,454,267. This includes aggregate gross
unrealized appreciation of $16,588,118.
Effective April 1, 2007, the Fund adopted FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns in order to determine whether the tax positions
are "more-likely-than-not" of being sustained by the applicable tax authority.
Tax positions not deemed to meet the "more-likely-than-not" threshold would be
recorded as a tax benefit or expense in the current year. The Fund has
evaluated the application of FIN 48 and has determined that it does not have a
material impact on the Fund's financial statements. There is no tax liability
resulting from unrecognized tax benefits relating to uncertain income tax
positions taken or expected to be taken on the tax return for the year ended
December 31, 2007. No income tax returns are currently under examination. The
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
c. Income Taxes (continued)
statute of limitations on the Fund's U.S. Federal tax returns remains open for
the years ended December 31, 2005 through December 31, 2007. The statute of
limitations on the Fund's state and local tax returns may remain open for an
additional year depending upon the jurisdiction.
d. Other
Cash and cash equivalents consist of amounts maintained in a PFPC Trust Company
interest-bearing account. Interest income is recorded on the accrual basis.
The Fund records its proportionate share of the Company's investment income,
expenses and realized and unrealized gain and losses.
3. Management Fee, Related Party Transactions and Other
As of September 30, 2008, the Adviser's employees and affiliates have a combined
interest of approximately 0.07% of the Fund's Members' equity - net assets.
Pursuant to the terms of the management agreement between the Fund and the
Adviser (the "Management Agreement"), the Adviser provides certain management
and administrative services to the Fund including providing office space and
other support services, maintaining files and records, and preparing and filing
various regulatory materials. In consideration for such services under the
Management Agreement, the Fund pays the Adviser a quarterly management fee at an
annual rate of 0.5% of the Fund's average monthly net assets on the first
business day of each month in the quarter after adjustments for any
subscriptions effective on that date. As of September 30, 2008, the management
fee was $507,685, of which $242,679 was payable as of September 30, 2008.
In connection with the services provided by AIG Global pursuant to an investment
sub-advisory agreement between the Adviser and AIG Global,the Adviser pays AIG
Global a quarterly fee computed by applying the following annual rates to the
Company's average monthly net assets determined on the first business day of
each month: 0.80% of assets not exceeding $200 million; 0.70% of assets
exceeding $200 million but less than $400 million; 0.60% of assets exceeding
$400 million but less than $800 million; and 0.50% of assets exceeding $800
million.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
3. Management Fee, Related Party Transactions and Other (continued)
As of September 12, 2008, the Board is made up of three managers who are not
"interested persons" (the "Disinterested Managers"), as defined by Section
2(a)(19) of the 1940 Act, of the Fund. David R. Bailin, a member of the Board
who was an "interested person" of the Fund, as defined under the 1940 Act,
resigned from the Board effective September 12, 2008. The Disinterested Managers
are each paid an annual retainer of $7,000 ($8,000 for the chairperson of the
Board and $7,500 for the chairperson of the audit committee) and per-meeting
fees of: $2,000 for in-person attendance at quarterly meetings of the Board
($2,500 for the chairperson of the Board); $1,000 for telephone participation at
a quarterly Board meeting or for participation at a telephonic special meeting
of the Board; and $750 for each audit committee meeting (whether held in-person
or by telephone). All Disinterested Managers may be reimbursed for expenses of
attendance, if any, at each regular or special meeting of the Board or of any
committee thereof and for their expenses, if any, in connection with any other
service or activity they perform or engage in as directors. Managers who are
"interested persons," if any, do not receive any annual or other fee from the
Fund. The Fund incurred $28,750 of annual retainer and per meeting fees for the
period April 1, 2008 to September 30, 2008, $11,250 of which was payable as of
September 30, 2008.
The Fund has retained J.D. Clark & Company (the "Administrator") to provide
accounting and certain administrative and investor services to the Fund. In
connection with such services provided, the Fund pays the Administrator a
quarterly fee equal to the greater of: (i) $3,000; or (ii) .00025 of the Fund's
net assets as of the first day of each calendar quarter on the first $150
million of net assets, plus .000125 of the Fund's net assets in excess of $150
million. For the period April 1, 2008 to September 30, 2008, the Fund incurred
$88,634 in expenses related to such administrative services, $43,526 of which
was payable as of September 30, 2008.
4. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Investment Funds in which the Company
invests trade various financial instruments and enter into various investment
activities with off-balance sheet risk. These may include, but are not limited
to, short selling activities, writing option contracts, contracts for
differences and equity swaps. However, as a result of the investments by the
Company as a limited partner or member, the Company's liability with respect to
its investments in the Investment Funds is limited to the net asset value of its
interest in each Investment Fund.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
5. Guarantees
In the normal course of business, the Fund enters into contracts that provide
general indemnifications. The Fund's maximum exposure under these arrangements
is dependent on future claims that may be made against the Fund, and therefore,
cannot be established; however, based on experience, the risk of loss from any
such claims is considered remote.
6. Subsequent Events
Subsequent to September 30, 2008, subscriptions for Interests by eligible
investors will be accepted by the Fund on the first day of each calendar month.
This policy is subject to change at the discretion of the Board in consultation
with the Adviser.
At September 30, 2008, the Fund had received subscriptions in advance for
Interests from Members in the amount of $2,745,000. These subscriptions became
interests in the Fund effective October 1, 2008.
EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS MASTER FUND, LLC
Financial Statements
(Unaudited)
Period from April 1, 2008 to September 30, 2008
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Statements
(Unaudited)
Period from April 1, 2008 to September 30, 2008
Contents
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
September 30, 2008........................................................1
Schedule of Investments as of September 30, 2008...............................2
Statement of Operations for the Period from April 1,2008 to
September 30, 2008........................................................4
Statements of Changes in Members' Equity - Net Assets for the Period from
April 1, 2008 to September 30, 2008 and for the Year Ended
March 31, 2008............................................................5
Statement of Cash Flows for the Period from April 1, 2008 to
September 30, 2008........................................................6
Financial Highlights for the Period from April 1, 2008 to September 30, 2008
and for the Years Ended March 31, 2008, 2007, 2006 and 2005...............7
Notes to Financial Statements..................................................8
The Registrant 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 Registrant'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. Information on Form N-Q is available without charge,
upon request, by calling collect (203) 352-4497.
A description of the policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling collect (203) 352-4497 and on the
Commission's website at http://www.sec.gov.
Information regarding how the Registrant voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
ASSETS
Investments in Investment Funds, at fair value (cost $144,676,979) $188,709,800
Cash and cash equivalents 4,244,161
Investments in Investment Funds made in advance 6,000,000
Due from Investment Funds 317,621
Other assets 8,878
- --------------------------------------------------------------------------------
Total Assets 199,280,460
- --------------------------------------------------------------------------------
LIABILITIES
Due to Adviser 534,012
Professional fees payable 55,650
Administration fees payable 6,000
Bank note facility fee payable 23,958
Due to custodian 4,625
- --------------------------------------------------------------------------------
Total Liabilities 624,245
- --------------------------------------------------------------------------------
Net Assets $198,656,215
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $154,623,394
Accumulated net unrealized appreciation on investments 44,032,821
- --------------------------------------------------------------------------------
Members' Equity - Net Assets $198,656,215
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
<caption>
% of % Ownership First
First Members' of Available
Acquisition Fair Equity - Investment Redemption
Investment Funds* Date Cost** Value** Net Assets Funds Date*** Liquidity****
- ------------------------------------------------------------------------------------------------------------------------------------
Relative Value
- --------------
<s> <c> <c> <c> <c> <c> <c> <c>
Frontpoint Utility and Energy Fund, L.P. 7/1/2006 $ 6,000,000 $ 6,311,486 3.18% 0.33% N/A Quarterly
Ionic Capital LLC 2/1/2008 5,000,000 5,118,358 2.58% 0.86% 2/1/09 Quarterly
Menta Global Master, L.P. 7/1/2007 5,000,000 4,094,689 2.06% 1.66% N/A Monthly
Polygon Global Opportunities Fund, L.P. 8/1/2004 7,200,000 9,882,492 4.97% 1.15% N/A (1)
Suttonbrook Capital Partners, L.P. 10/1/2004 8,500,000 11,642,186 5.85% 3.82% N/A Quarterly
------------------------------------
Strategy Total 31,700,000 37,049,211 18.64%
------------------------------------
<caption>
Equity
- ------
<s> <c> <c> <c> <c> <c> <c> <c>
Cantillon World, L.P. 12/1/2003 5,050,000 7,023,365 3.54% 0.81% N/A Quarterly
Clovis Capital Partners
Institutional, L.P. 2/1/2007 10,000,000 9,731,779 4.90% 1.28% N/A Quarterly
Galleon Partners, SPC L.P. 2/1/2008 9,900,932 8,977,658 4.52% 0.47% N/A Quarterly
Glenview Capital Partners, L.P. 12/1/2003 2,300,000 7,326,747 3.69% 3.70% N/A Quarterly
North River Partners, L.P. 7/1/2005 7,000,000 8,186,005 4.12% 1.75% N/A Quarterly
Sandler Associates 2/1/2008 5,000,000 4,889,916 2.46% 1.52% N/A Quarterly
Shoshone Partners, L.P. 12/1/2003 2,500,000 6,895,200 3.47% 2.09% N/A Annually
The Tantallon Fund, L.P. 7/1/2006 4,500,000 4,273,426 2.15% 5.37% N/A Monthly
------------------------------------
Strategy Total 46,250,932 57,304,096 28.85%
------------------------------------
<caption>
Macro/CTA/Short-Term Trading
- ----------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Boronia Diversified Fund (U.S.), L.P. 2/1/2007 4,200,000 4,668,411 2.35% 2.46% N/A Monthly
Catequil Partners, L.P. 12/1/2003 128,413 130,094 0.06% 1.84% N/A (2)
Caxton Global Investments (USA) LLC 1/1/2005 7,101,200 9,591,282 4.83% 1.60% N/A Annually
Episode L.P. 2/1/2008 4,000,000 3,467,724 1.75% 5.33% 2/1/09 Quarterly
Placer Creek Partners, L.P. 1/1/2006 3,500,000 5,127,034 2.58% 1.36% N/A Semi-annually
Sunrise Commodities Select Portfolio-
Davco Fund, L.P. 12/1/2003 5,450,000 7,665,879 3.86% 3.39% N/A Monthly
------------------------------------
Strategy Total 24,379,613 30,650,424 15.43%
------------------------------------
</table>
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
<caption>
% of % Ownership First
First Members' of Available
Acquisition Fair Equity - Investment Redemption
Investment Funds* Date Cost** Value** Net Assets Funds Date*** Liquidity****
- ------------------------------------------------------------------------------------------------------------------------------------
Event Driven
- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Bennelong Asia Pacific Multi Strategy
Equity Fund, L.P. 7/1/2006 $ 4,000,000 $ 4,673,423 2.35% 1.96% N/A Monthly
Brencourt Multi-Strategy, L.P. 9/1/2005 2,421,521 3,347,880 1.69% 3.00% N/A Quarterly
Canyon Value Realization Fund, L.P. 12/1/2003 7,500,000 11,563,092 5.82% 0.43% N/A Annually
Castlerigg Partners, L.P. 12/1/2003 4,000,000 10,030,996 5.05% 1.97% N/A (3)
Empyrean Capital Fund, L.P. 7/1/2004 - 81,747 0.04% 0.03% N/A (2)
King Street Capital, L.P. 8/1/2007 7,500,000 7,687,908 3.87% 0.19% 9/30/09 Quarterly
OZ Asia Domestic Partners, L.P. 7/1/2006 5,000,000 5,263,806 2.65% 0.75% N/A Annually
OZ Europe Domestic Partners II, L.P. 10/1/2005 7,424,913 11,285,671 5.68% 2.82% N/A Annually
York Capital Management, L.P. 7/1/2004 4,500,000 9,771,546 4.92% 0.89% N/A Annually
------------------------------------
Strategy Total 42,346,434 63,706,069 32.07%
------------------------------------
Total investments in Investment Funds $144,676,979 188,709,800 94.99%
============
Other Assets, Less Liabilities 9,946,415 5.01%
----------------------
Members' Equity - Net Assets $198,656,215 100.00%
======================
* Non-income producing investments. N/A Initial lock-up period has either expired prior to September 30, 2008
** See definition in Note 2a. or the Investment Fund did not have an initial lock-up period. However,
*** From original investment date. specific redemption restrictions may apply.
**** Available frequency of redemptions after (1) The Investment Fund will be liquidating its assets and has suspended
initial lock-up period. redemption rights.
(2) The Company's remaining residual investment in the Investment Fund is an
illiquid security.
(3) The Investment Fund is closing and is in the process of returning
capital to its partners.
</table>
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Period from April 1, 2008 to September 30, 2008
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 133,771
- --------------------------------------------------------------------------------
Total Investment Income 133,771
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Advisory fee 1,116,057
Professional fees 56,223
Bank facility fee 47,656
Administration fees 12,000
Other 52,295
- --------------------------------------------------------------------------------
Total Operating Expenses 1,284,231
- --------------------------------------------------------------------------------
Net Investment Loss (1,150,460)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from Investment Fund redemptions 48,356
Net change in accumulated unrealized appreciation on investments (16,589,137)
- --------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Investments (16,540,781)
- --------------------------------------------------------------------------------
DECREASE IN MEMBERS' EQUITY - NET ASSETS DERIVED FROM OPERATIONS $(17,691,241)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
- --------------------------------------------------------------------------------
For the period from
April 1, 2008 to For the year ended
September 30, 2008 March 31, 2008
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (1,150,460) (2,462,393)
Net realized gain from Investment
Fund redemptions 48,356 15,549,594
Net change in unrealized appreciation
on investments (16,589,137) (7,976,959)
- --------------------------------------------------------------------------------
(Decrease) Increase in Members' Equity -
Net Assets Derived from Operations (17,691,241) 5,110,242
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Members' subscriptions 10,279,157 28,758,657
Members' interests repurchased (25,323,940) (66,933,852)
- --------------------------------------------------------------------------------
Decrease in Members' Equity - Net Assets
Derived from Capital Transactions (15,044,783) (38,175,195)
- --------------------------------------------------------------------------------
Net Decrease in Members' Equity -
Net Assets (32,736,024) (33,064,953)
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF PERIOD 231,392,239 264,457,192
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
AT END OF PERIOD $ 198,656,215 $ 231,392,239
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
Period from April 1, 2008 to September 30, 2008
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in members' equity - net assets
derived from operations $(17,691,241)
Adjustments to reconcile net decrease in members'equity -
net assets derived from operations to net cash provided by
operating activities:
Net change in accumulated unrealized appreciation
on investments 16,589,137
Net realized gain from Investment Fund redemptions (48,356)
Proceeds from Investment Funds 6,048,356
Decrease in due from Investment Funds 13,408,528
Increase in investments in Investment Funds made in advance (6,000,000)
Increase in other assets (466)
Decrease in due to Adviser (53,983)
Decrease in professional fees payable (74,278)
Increase in other payable 23,891
Increase in administration fees payable 6,000
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 12,207,588
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from member subscriptions 10,279,157
Payments for member interests repurchased (26,912,398)
- --------------------------------------------------------------------------------
Net Cash Used in Financing Activities (16,633,241)
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,425,653)
Cash and cash equivalents at beginning of period 8,669,814
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 4,244,161
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
The following represents certain ratios to average members' equity - net assets,
total return, and other supplemental information for the periods indicated:
<table>
<caption>
For the period
from April 1, For the year For the year For the year For the year
2008 - ended ended ended ended
September 30, March 31, March 31, March 31, March 31,
2008* 2008 2007 2006 2005
----------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Net assets, end of
period $198,656,215 $231,392,239 $264,457,192 $297,014,699 $251,729,829
Ratio of net investment
loss to average
members' equity - net
assets (a) (b) (0.53%) (0.94%) (0.82%) (1.01%) (1.09%)
Ratio of expenses to
average members'
equity - net assets
(a) (b) 0.59% 1.26% 1.13% 1.09% 1.11%
Portfolio turnover - 18.92% 17.70% 20.24% 7.07%
Total return (c) (8.22%) 1.30% 10.72% 8.93% 5.26%
</table>
* The ratios and total return are not annualized for the period
(a) Ratio does not reflect the Company's proportionate share of the net
income (loss) and expenses, including incentive fees or allocations, of
the Investment Funds.
(b) Average members' equity - net assets is determined using the net assets at
the end of each month during the period and net assets at the beginning of
the period.
(c) Total return assumes a purchase of an interest in the Company on the first
day and a sale of an interest on the last day of the period and is
calculated using geometrically linked monthly returns.
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
1. Organization
Excelsior Absolute Return Fund of Funds Master Fund, LLC (the "Company") was
organized as a limited liability company under the laws of Delaware on June 17,
2003, and commenced operations on December 1, 2003. The Company is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, closed-end management investment company. The Company's
investment objective is to provide attractive long-term, risk-adjusted absolute
returns in a variety of capital market conditions. The Company pursues its
investment objective by investing its assets primarily in private investment
limited partnerships, limited liability companies, joint ventures and other
similar investment vehicles (collectively, the "Investment Funds") that are
managed by a select group of alternative investment managers ("Investment
Managers") that utilize a broad range of alternative investment strategies.
U.S. Trust Hedge Fund Management, Inc. serves as the investment adviser of the
Company (the "Adviser"). The Adviser is an indirect wholly-owned subsidiary of
Bank of America Corporation ("Bank of America"). Bank of America is a bank
holding and a financial holding company which has its principal executive
offices at 101 North Tryon Street, Charlotte, North Carolina. The Adviser is
responsible for developing, implementing and supervising the investment program
and providing day-to-day management services.
The Adviser has retained AIG Global Investment Corp. ("AIG Global"), an indirect
wholly-owned subsidiary of American International Group, Inc. ("AIG"), to serve
as the investment manager of the Company. AIG Global is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and is
responsible for Investment Fund selection and determining the portion of the
Company's assets to be allocated to each Investment Fund, subject to the general
supervision of the Adviser. On and subsequent to September 16, 2008, AIG has
entered into various arrangements with the Federal Reserve Bank of New York
(the "FRBNY") and the U.S. Department of the Treasury ("Treasury") intended to
address liquidity and other financial issues being faced by AIG. These
arrangements include a five year credit facility, the purchase of certain AIG
assets by financing entities capitalized by the FRBNY and AIG, and the
purchase by Treasury of perpetual preferred shares of AIG and warrants to
purchase shares of common stock of AIG. Upon the purchase of the preferred
shares, Treasury will own 77.9% of the equity of AIG (and own warrants to
purchase an additional 2% equity interest) and, therefore, will be deemed to
control AIG.
The Company's Board of Managers (the "Board") has overall responsibility to
manage and supervise the operations of the Company, including the exclusive
authority to oversee and to establish policies regarding the management, conduct
and operation of the Company's business. Effective September 12, 2008, the Board
is comprised of three managers who are not "interested persons" (the
"Disinterested Managers"), as defined by Section 2(a)(19) of the 1940 Act, of
the Company. David R. Bailin, a member of the Board who was an "interested
person" of the Company, as defined under the 1940 Act, resigned from the Board
effective September 12, 2008. The Board has engaged the Adviser to manage the
day-to-day operations of the Company.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
1. Organization (continued)
The Company was established to hold substantially all of the assets of Excelsior
Absolute Return Fund of Funds, LLC (the "Feeder Fund") and Excelsior Absolute
Return Fund of Funds, Ltd. (the "Offshore Fund") as members of the Company
("Members"). As of September 30, 2008, the Feeder Fund and Offshore Fund
ownership of the Company's Members' Equity - Net Assets were 89.06% and 10.94%,
respectively.
Member subscriptions for interests in the Company ("Interests") by eligible
investors may be accepted as of the first day of each calendar quarter, or at
such times as the Board may determine. The Company may, from time to time, offer
to repurchase Interests from Members pursuant to written tenders by Members.
These repurchase offers will be made at such times and on such terms as may be
determined by the Board, in its sole discretion, subject to the liquidity of the
Company's assets and other factors considered by the Board. The Adviser expects
that, generally, it will recommend to the Board that the Company offer to
repurchase Interests from Members twice each year, at June 30th and December
31st. Members can only transfer or assign Company Interests under certain
limited circumstances.
2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
the Company's financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
a. Portfolio Valuation
The net asset value of the Company is determined by, or at the direction of, the
Adviser as of the close of business at the end of each fiscal period (as defined
in the Company's Limited Liability Company Agreement), in accordance with the
valuation principles set forth below, or as may be determined from time to time
pursuant to policies established by the Board.
Ordinarily, the Company's investments in Investment Funds are carried at fair
value as determined by the Company's pro-rata interest in the net assets of each
Investment Fund as reported by the Investment Manager who determines the value
of the Investment Fund's net assets. The values of the Investment Funds' net
assets are determined in accordance with their valuation policies as described
in their respective offering memoranda or operating agreements. All valuations
utilize financial information supplied by the Investment Manager of each
Investment Fund and are net of management and performance incentive fees or
allocations pursuant to the Investment Funds' agreements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
As a general matter, the fair value of the Company's interest in an Investment
Fund will represent the amount that the Company could reasonably expect to
receive from the Investment Fund if the Company's interest were redeemed at the
time of valuation, based on information reasonably available at the time the
valuation is made and that the Adviser believes to be reliable. The Adviser or,
in certain cases, the Board, will consider such information, and may conclude in
certain circumstances that the information provided by an Investment Fund's
manager does not represent the fair value of the Company's interests in an
Investment Fund. Following procedures adopted by the Board, and in the absence
of specific transaction activity in interests in a particular Investment Fund,
the Company could consider whether it was appropriate, in light of all relevant
circumstances, to value such a position at the Investment Fund's net asset value
as reported at the time of valuation, or whether to adjust such value to reflect
a premium or discount to net asset value. Any such decision must be made in good
faith, and subject to the review and supervision of the Board. Because of the
inherent uncertainty of valuation, the values of the Company's investments may
differ significantly from the values that would have been used had a ready
market for the investments held by the Company been available.
In September 2006, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards ("SFAS") No. 157, which provides
enhanced guidance for using fair value to measure assets and liabilities. The
Company adopted SFAS No. 157 on April 1, 2008. SFAS No. 157 establishes a fair
value hierarchy and specifies that a valuation technique used to measure fair
value shall maximize the use of observable inputs and minimize the use of
unobservable inputs. The objective of a fair value measurement is to determine
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). Accordingly, the fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
Level 1- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Company 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).
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
As required by SFAS No.157, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 consider several inputs and may include Level 1 or
Level 2 inputs as components of the overall fair value measurement. The table
below sets forth information about the level within the fair value hierarchy at
which the Company's investments are measured at September 30, 2008:
Level 1 Level 2 Level 3 Total
---------------------------------------------------------
Investments in
Investment Funds $ - $ - $188,709,800 $188,709,800
---------------------------------------------------------
Total $ - $ - $188,709,800 $188,709,800
=========================================================
Distributions received from Investment Funds, whether in the form of cash or
securities, are applied first as a reduction of the investment's cost and any
excess is treated as realized gain from investments in Investment Funds.
Realized gains or losses on investments in Investment Funds are measured by the
difference between the proceeds from the sale or liquidation and the cost basis
of the investment using the specific identification method without regard to
unrealized appreciation or depreciation reported in prior years.
b. Company Expenses
The Company bears certain expenses incurred in its business, including, but not
limited to, the following: fees paid directly or indirectly to the Investment
Managers of the Investment Funds; all costs and expenses directly related to
portfolio transactions and positions for the Company's account; legal fees;
accounting and auditing fees; custodial fees; fees paid to the Company's
administrator; costs of insurance; advisory fees; travel and related expenses of
the Board; all costs with respect to communications regarding the Company's
transactions among the Adviser and any custodian or other agent engaged by the
Company; and other types of expenses approved by the Board.
c. Income Taxes
As a limited liability company, no provision for the payment of Federal, state
or local income taxes has been provided by the Company. Each Member is
individually required to report on its own tax return its share of the Company's
taxable income or loss. The Company has a tax year end of December 31.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
c. Income Taxes (continued)
Net investment income or loss and net realized and unrealized gain or loss from
investments of the Company for each fiscal period are allocated among, and
credited to or debited against, the capital accounts of all Members as of the
last day of each fiscal period in accordance with each Member's respective
investment percentage for the fiscal period, as defined in the Company's Limited
Liability Company Agreement.
The cost of the Company's investment in Investment Funds for Federal income tax
purposes is based on amounts reported to the Company by the Investment Funds on
a Schedule K-1 or PFIC annual information statement for the year ended December
31, 2007. Based on Investment Funds owned at December 31, 2007, the cost of
investments for Federal income tax purposes was $198,720,566. This included
aggregate gross unrealized appreciation of $19,415,893 and aggregate gross
unrealized depreciation of $700,268.
Effective April 1, 2007, the Company adopted FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of
preparing the Company's tax returns in order to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the "more-likely-than-not"
threshold would be recorded as a tax benefit or expense in the current year. The
Company has evaluated the application of FIN 48 and has determined that it does
not have a material impact on the Company's financial statements. There is no
tax liability resulting from unrecognized tax benefits relating to uncertain
income tax positions taken or expected to be taken on the tax return for the
year ended December 31, 2007. No income tax returns are currently under
examination. The statute of limitations on the Company's U.S. Federal tax
returns remains open for the years ended December 31, 2005 through December 31,
2007. The statute of limitations on the Company's state and local tax returns
may remain open for an additional year depending upon the jurisdiction.
d. Other
Cash and cash equivalents consist of amounts maintained in a PFPC Trust Company
interest-bearing account. Interest income is recorded on the accrual basis.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
3. Advisory Fee, Related Party Transactions and Other
Pursuant to the terms of the advisory agreement between the Adviser and the
Company (the "Advisory Agreement"), the Company pays the Adviser a quarterly
advisory fee at an annual rate of 1%, based on the Company's net assets on the
first business day of each month, after adjustments for any subscriptions
effective on that date. For the period from April 1, 2008 to September 30, 2008,
the advisory fee was $1,116,057, of which $534,012 is payable as of September
30, 2008.
In connection with the services provided by AIG Global pursuant to the
investment sub-advisory agreement between the Adviser and AIG Global, the
Adviser pays AIG Global a quarterly fee computed by applying the following
annual rates to the Company's average monthly net assets determined on the first
business day of each month: 0.80% of assets not exceeding $200 million; 0.70% of
assets exceeding $200 million but less than $400 million; 0.60% of assets
exceeding $400 million but less than $800 million; and 0.50% of assets exceeding
$800 million.
The Company has retained J.D. Clark & Company (the "Administrator") to provide
accounting and certain administrative and investor services to the Company. In
connection with such services provided, the Company pays the Administrator a
quarterly fee equal to $3,000 per fund invested in the Company. For the period
from April 1, 2008 to September 30, 2008, the Company incurred $12,000 in
expenses related to such administrative services, $6,000 of which was payable as
of September 30, 2008.
4. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Investment Funds in which the Company
invests, trade various financial instruments and enter into various investment
activities with off-balance sheet risk. These may include, but are not limited
to, short selling activities, writing option contracts, contracts for
differences and equity swaps. However, as a result of the investments by the
Company as a limited partner or member, the Company's liability with respect to
its investments in the Investment Funds is limited to the net asset value of its
interest in each Investment Fund.
5. Investments in Investment Funds
As of September 30, 2008, the Company had investments in twenty-eight Investment
Funds. The Company, as an investor in these Investment Funds, is charged
management fees ranging from 0.0% to 3.0% (per annum) of the net asset value of
its ownership interests in the Investment Funds, as well as incentive fees or
allocations ranging from 20% to 25% of net profits earned that are attributable
to the Company's ownership interests in such Investment Funds. The Company also
generally bears a pro rata share of the other expenses of each Investment Fund
in which it invests. Total expenses, including incentive fees or allocations,
for the fiscal year ended March 31, 2008, ranged from approximately 1.0% to
11.5% of the Company's average invested capital in each Investment Fund.
Incentive fees or allocations for the same fiscal year ranged from approximately
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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5. Investments in Investment Funds (continued)
0.0% to 5.4% of the Company's average invested capital in each Investment Fund.
These ratios may vary over time depending on the allocation of the Company's
assets among the Investment Funds and the actual expenses and investment
performance of the Investment Funds. Although the ranges of Investment Fund
expense ratios are based on audited financial data received from the Investment
Funds, the ranges were not reviewed by the Company's auditors.
In general, most of the Investment Funds in which the Fund invests provide for
periodic withdrawals of capital ranging from monthly to annually and, in some
cases, have lock up provisions under which the Fund may not withdraw capital for
a specified period after the date of its contribution, which may be up to three
years. The governing documents of Investment Funds generally provide that the
Investment Fund may suspend, limit or delay the right of its investors, such as
the Fund, to withdraw capital. In addition, some of the Investment Funds may
invest a portion of their assets in illiquid securities and may not permit the
portion of the Fund's capital invested in these Investment Funds that is
allocable to illiquid securities to be withdrawn until the securities are sold
or become liquid.
Aggregate purchases and proceeds of interests in Investment Funds for the period
from April 1, 2008 to September 30, 2008 are $0 and $6,048,356, respectively.
6. Bank Note - Line of Credit Facility
The Company maintains a $25,000,000 revolving line of credit agreement with a
U.S. financial institution that is collateralized by the Company's cash and
investments. Based upon the election of the Company, interest accrues at either
the financial institution's prime rate less 1.25% per annum or Libor plus 1.5%
per annum. The note also includes a provision for a facility fee of 0.375% per
annum on the unused portion of the note. For the period from April 1, 2008 to
September 30, 2008, the Company incurred $47,656 in facility fees related to the
bank line of credit, of which $23,958 was payable as of September 30, 2008. As
of September 30, 2008, the Company did not have an outstanding revolving note
balance. The bank line of credit was not used during the period from April 1,
2008 to September 30 2008.
7. Guarantees
In the normal course of business, the Company enters into contracts that provide
general indemnifications. The Company's maximum exposure under these
arrangements is dependent on future claims that may be made against the Company,
and therefore, cannot be established; however, based on experience, the risk of
loss from such claims is considered remote.
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Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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8. Subsequent Events
At September 30, 2008, the Company had invested $6,000,000 in two Investment
Funds, which is reflected as Investments in Investment Funds made in advance on
the Statement of Assets, Liabilities and Members' Equity - Net Assets. These
investments became effective on October 1, 2008.
ITEM 2. CODE OF ETHICS.
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Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
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Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
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Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
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Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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The Schedule of Investments is included as part of the report to members filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
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MANAGEMENT INVESTMENT COMPANIES.
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Not applicable for semi-annual reports.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
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There has been no change, as of the date of this filing, in any of the portfolio
managers identified in response to paragraph (a)(1) of this Item in the
Registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSE-END MANAGEMENT INVESTMENT
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COMPANY AND AFFILIATED PURCHASERS.
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Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- --------------------------------------------------------------
There have been no material changes to the procedures by which members may
recommend nominees to the Registrant's board of managers that would require
disclosure.
ITEM 11. CONTROLS AND PROCEDURES.
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(a) The Registrant's Principal Executive Officer and Principal Financial Officer
have concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) were effective as of a date within 90 days prior to the filing
date of this report, based on their evaluation of the effectiveness of the
Registrant's disclosure controls and procedures, as required by Rule 30a-3(b) of
the 1940 Act.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) 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.
ITEM 12. EXHIBITS.
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(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certifications for the Registrant's Principal Executive
Officer and Principal Financial Officer, as required by Rule 30a-2(a)
under the 1940 Act are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Absolute Return Fund of Funds, LLC
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By (Signature and Title) /s/ David R. Bailin
--------------------------
David R. Bailin, Principal Executive Officer
Date December 5, 2008
----------------
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) Excelsior Absolute Return Fund of Funds, LLC
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By (Signature and Title) /s/ Steven L. Suss
------------------------
Steven L. Suss, Principal Financial Officer
Date December 5, 2008
----------------