UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-22036
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Investment Company Act file number
Excelsior Directional Hedge Fund of Funds (TI), 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 DIRECTIONAL HEDGE FUND OF FUNDS (TI), LLC
Financial Statements
(Unaudited)
Period from April 1, 2008 to September 30, 2008
Excelsior Directional Hedge Fund of Funds (TI), 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 Period from April 23, 2007 (Commencement of
Operations) to March 31, 2008........................................... 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 (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 Directional Hedge Fund of Funds (TI), 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 Directional Hedge Fund of Funds Master
Fund, LLC at fair value $ 249,310,532
Cash and cash equivalents 7,450,264
Investments in Excelsior Directional Hedge Fund of Funds Master
Fund, LLC made in advance 19,471,000
Other assets 17,506
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Total Assets $ 276,249,302
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LIABILITIES
Members' interests received in advance 23,509,000
Repurchase of Members' interests payable 3,100,080
Management fee payable 343,364
Professional fees payable 22,354
Administration fees payable 53,162
Other payable 3,990
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Total Liabilities 27,031,950
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Net Assets $ 249,217,352
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $ 261,725,365
Accumulated net unrealized depreciation on investment (12,508,013)
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Members' Equity - Net Assets $ 249,217,352
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The accompanying notes and attached unaudited financial statements of
Excelsior Directional Hedge Fund of Funds Master Fund, LLC are an integral
part of these financial statements.
Excelsior Directional Hedge Fund of Funds (TI), 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 DIRECTIONAL
HEDGE FUND OF FUNDS MASTER FUND, LLC:
Interest $ 75,020
Expenses (1,593,156)
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Net investment loss allocated from Excelsior Directional Hedge
Fund of Funds Master Fund, LLC (1,518,136)
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Fund Income:
Interest 38,373
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Fund Expenses:
Management fee 733,652
Professional fees 19,520
Board of Managers' fees and expenses 4,000
Administration fees 110,941
Other 140,035
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Total Expenses 1,008,148
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Net Investment Loss before Expense Limitation (2,487,911)
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Expense limitation (97,364)
Net Investment Loss after Expense Limitation (2,585,275)
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REALIZED AND UNREALIZED LOSS ON INVESTMENTS ALLOCATED FROM
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS MASTER FUND, LLC
Net realized gain on investment 6,200,536
Net change in accumulated unrealized depreciation on investment (20,271,050)
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Net Realized and Unrealized Loss on Investments Allocated from
Excelsior Directional Hedge Fund of Funds Master Fund, LLC (14,070,514)
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DECREASE IN MEMBERS' EQUITY - NET ASSETS DERIVED FROM OPERATIONS $ (6,655,789)
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The accompanying notes and attached unaudited financial statements of
Excelsior Directional Hedge Fund of Funds Master Fund, LLC are an integral
part of these financial statements.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
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Period from
Period from April 23, 2007
April 1, 2008 - (Commencement of
September 30, Operations) -
2008 March 31, 2008
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OPERATIONS
Net investment loss $ (2,585,275) $ (5,814,036)
Net realized gain on investments 6,200,536 5,979,177
Net change in accumulated unrealized
depreciation on investments (20,271,050) 997,254
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(Decrease) Increase in Members' Equity
- Net Assets Derived from Operations (16,655,789) 1,162,395
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CAPITAL TRANSACTIONS
Members' subscriptions 23,975,000 49,432,844
Members' interests repurchased (62,046,592) (56,967,666)
Transfers of Members' interests* - 310,364,405
Offering costs - (47,245)
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(Decrease) Increase in Members' Equity
- Net Assets Derived from Capital
Transactions (38,071,592) 302,782,338
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Net (Decrease) Increase in Members' Equity -
Net Assets (54,727,381) 303,944,733
MEMBERS' EQUITY - NET ASSETS AT BEGINNING
OF PERIOD 303,944,733 -
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MEMBERS' EQUITY - NET ASSETS AT END
OF PERIOD $ 249,217,352 $ 303,944,733
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*On April 23, 2007, all Members' interests were transferred from Excelsior
Directional Hedge Fund of Funds Master Fund, LLC (the "Company"). The Fund in
turn, invested all of its capital in the Company.
The accompanying notes and attached unaudited financial statements of
Excelsior Directional Hedge Fund of Funds Master Fund, LLC are an integral
part of these financial statements.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Statement of Cash Flows (Unaudited)
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Period from 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 $ (16,655,789)
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 depreciation on 20,271,050
investment allocated from Excelsior Directional Hedge
Fund of Funds Master Fund, LLC
Net realized gain on investment allocated from Excelsior (6,200,536)
Directional Hedge Fund of Funds Master Fund, LLC
Net investment loss allocated from Excelsior Directional 1,518,136
Hedge Fund of Funds Master Fund, LLC
Purchases of investment in Excelsior Directional Hedge (37,427,425)
Fund of Funds Master Fund, LLC
Proceeds from investment in Excelsior Directional Hedge 62,046,592
Fund of Funds Master Fund, LLC
Decrease in reimbursement for expenses in excess of 97,364
expense limitation
Decrease in other assets 74,995
Decrease in management fee payable (58,200)
Increase in administration fees payable 53,162
Decrease in professional fees payable (3,867)
Increase in other payable 325
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Net Cash Provided by Operating Activities 23,715,807
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from members' subscriptions 39,199,000
Payments for members' interests repurchased (60,096,280)
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Net Cash Used in Financing Activities (20,897,280)
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Net increase in cash and cash equivalents 2,818,527
Cash and cash equivalents at beginning of period 4,631,737
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Cash and Cash Equivalents at End of Period $ 7,450,264
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Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $ 3,142
The accompanying notes and attached unaudited financial statements of
Excelsior Directional Hedge Fund of Funds Master Fund, LLC are an integral
part of these financial statements.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Financial Highlights (Unaudited)
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The following represents certain ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
For the period from
April 23, 2007
For the period from (Commencement
April 1, 2008 - of Operations) -
September 30, 2008* March 31, 2008
-------------------------------------------
Net assets, end of period $249,217,352 $303,944,733
Ratio of net investment loss to (0.90%) (1.78%)
average members' equity -
net assets (a)
Ratio of total expenses to 0.91% 1.89%
average members' equity -
net assets (b) (c)
Ratio of net expenses to
average members' equity -
net assets (b) 0.94% 1.86%
Total return (d) (6.71%) (0.13%)
* The ratios and total return are not annualized for the period.
(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 the 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 the 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 Directional Hedge Fund of Funds Master Fund, LLC are an integral
part of these financial statements.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Notes to Financial Statements (Unaudited)
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September 30, 2008
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1. Organization
Excelsior Directional Hedge Fund of Funds (TI), LLC (the "Fund") was organized
as a limited liability company under the laws of Delaware on February 26, 2007,
and commenced operations on April 23, 2007. 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 seek capital appreciation. The Fund pursues its investment objective by
investing substantially all of its assets in Excelsior Directional Hedge Fund of
Funds Master Fund, LLC (the "Company"), a closed-end, non-diversified,
management investment company that is registered under the 1940 Act. The Company
pursues its investment objective principally through a multi-manager,
multi-strategy program of investments in a diverse group of investment funds
that primarily invest or trade in a wide range of equity and debt securities.
The investment managers selected by the Company generally conduct their
investment programs through these investment funds (collectively, the
"Investment Funds"), in which the Company invests as a limited partner or member
along with other investors.
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 68.75%.
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 provides various management and administrative services to
the Company and the Fund.
The 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 the
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.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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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.
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 or depreciation 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 or loss 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:
Excelsior Directional Hedge Fund of Funds (TI), LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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2. Summary of Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
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:
Level 1 Level 2 Level 3 Total
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Investment in the Company $ - $ - $249,310,532 $249,310,532
----------------------------------------------
Total $ - $ - $249,310,532 $249,310,532
==============================================
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.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
b. Fund Expenses (continued)
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 1.84% 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
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. The Expense
Limitation Agreement will remain in effect until December 31, 2010 and continue
thereafter until terminated by the Adviser or the Fund. As of September 30,
2008, the Fund has not exceeded the expense limitation per the Expense
Limitation Agreement. During the six month period ended September 30, 2008, the
Adviser recouped $97,364 of reimbursable expenses paid on behalf of the Fund
during the fiscal period ended March 31, 2008. As of September 30, 2008, the
Fund has fully reimbursed the Adviser for prior period expenses.
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.
Excelsior Directional Hedge Fund of Funds (TI), LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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2. Summary of Significant Accounting Policies (continued)
c. Income Taxes (continued)
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 $284,044,434. This includes aggregate gross
unrealized appreciation of $32,946,937.
Effective April 23, 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 statute of
limitations on the Fund's U.S. Federal tax returns remains open for the year
ended 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 gains 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 9.24% of the Members' equity - net assets.
The Adviser provides certain investment advisory services to the Company and
incurs research, travel and other expenses related to the selection and
monitoring of investment managers. Further, 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
Excelsior Directional Hedge Fund of Funds (TI), LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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3. Management Fee, Related Party Transactions and Other (continued)
and filing various regulatory materials. In consideration for such services,
the Fund pays the Adviser a quarterly management fee at an annual rate of 0.5%
based on the Fund's net assets on the first business day of each quarter after
adjustment for any subscriptions effective on that date. For the period from
April 1, 2008 to September 30, 2008, the management fee was $733,652, of which
$343,364 was payable as of September 30, 2008.
As of September 26, 2008, the Board is made up of three Managers who are not
"interested persons," as defined by Section 2(a)(19) of the 1940 Act, of the
Fund (the "Disinterested Managers"). 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 26, 2008. The Disinterested Managers receive
per-meeting fees of: $500 for attendance at quarterly meetings of the Board; and
$500 for telephone participation at a quarterly Board meeting or for
participation at a telephonic special meeting of the Board. 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 Managers. Any managers who are "interested persons," as defined
by the 1940 Act of the Fund, if any, do not receive any retainer or other fee
from the Fund. The Fund incurred $4,000 of per meeting fees for the period from
April 1, 2008 to September 30, 2008, none 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 from April 1, 2008 to September 30, 2008, the Fund
incurred $110,941 in expenses related to such administrative services, of which
$53,162 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 Directional Hedge Fund of Funds (TI), 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 as of 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 $23,509,000. These subscriptions became
Interests in the Fund effective October 1, 2008. The Fund also invested
$19,471,000 in the Company as of October 1, 2008.
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS MASTER FUND, LLC
Financial Statements
(Unaudited)
Period from April 1, 2008 to September 30, 2008
Excelsior Directional Hedge 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 Directional Hedge 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 $307,259,971) $361,999,418
Cash and cash equivalents 8,073,698
Investments in Investment Funds made in advance 29,000,000
Receivables for interests in Investment Funds sold 1,300,036
Other assets 17,515
- --------------------------------------------------------------------------------
Total Assets $400,390,667
- --------------------------------------------------------------------------------
LIABILITIES
Members' interests received in advance 36,699,000
Due to Adviser 995,186
Professional fees payable 40,000
Bank note facility fee payable 28,750
Administration fees payable 6,000
Other payable 3,357
- --------------------------------------------------------------------------------
Total Liabilities 37,772,293
- --------------------------------------------------------------------------------
Net Assets $362,618,374
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $307,878,927
Accumulated net unrealized appreciation on investments 54,739,447
- --------------------------------------------------------------------------------
Members' Equity - Net Assets $362,618,374
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
<Caption>
% of First
First Members' % Ownership Available
Acquisition Fair Equity - of Investment Redemption
Investment Funds * Date Cost ** Value ** Net Assets Funds Date *** Liquidity ****
- ------------------------------------------------------------------------------------------------------------------------------------
Hedged Long/Short Equity Funds
- ------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Basix Capital Fund, L.P. 7/1/2004 $ 5,500,000 $ 8,721,784 2.41% 9.37% N/A Quarterly
Foundation Partners, L.P. 7/1/2002 10,000,000 13,944,106 3.85% 9.64$ N/A Quarterly
SAB Capital Partners, L.P. 4/1/2001 - 763,224 0.21% 0.15% N/A Annually
Scopia PX, LLC 9/1/2005 11,000,000 13,248,740 3.65% 6.23% (1) Quarterly
Spring Point Opportunity Partners, L.P. 7/1/2006 17,610,520 21,412,022 5.90% 5.68% N/A Quarterly
---------------------------------------
Strategy Total 44,110,520 58,089,876 16.02%
---------------------------------------
<Caption>
Opportunistic Long/Short (U.S. Only) Funds
- ------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Addison Clark Fund, L.P. 4/1/2008 15,000,000 15,344,534 4.23% 5.35% 3/31/2009 Quarterly
Alson Signature Fund, L.P. 9/1/2006 14,000,000 12,716,717 3.51% 3.89% N/A Quarterly
Cadmus Capital Partners (QP), L.P. 7/1/2003 287,052 1,008,090 0.28% 9.51% N/A (2)
Quaker Capital Partners I, L.P. 1/1/2001 3,164,863 9,706,401 2.68% 3.12% N/A Annually
Royal Capital Value Fund (QP), L.P. 7/1/2008 7,000,000 6,481,070 1.79% 0.93% 9/30/2009 Annually
Seminole Capital Partners, L.P. 9/1/2005 17,200,000 20,079,239 5.54% 4.75% N/A Semi-annually
Swiftcurrent Partners, L.P. 10/1/2000 8,550,000 13,487,741 3.72% 1.37% N/A Annually
Tonga Partners, L.P. 10/1/2000 4,060,553 9,446,270 2.61% 4.83% N/A Semi-annually
Valinor Capital Partners, L.P. 7/1/2007 13,000,000 12,828,575 3.54% 4.73% (3) Annually
---------------------------------------
Strategy Total 82,262,468 101,098,637 27.90%
---------------------------------------
<Caption>
Hedged Sector Funds
- -------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Coatue Qualified Partners, L.P. 1/1/2002 6,000,000 14,584,247 4.02% 1.79% N/A Quarterly
Durus Life Sciences Fund, LLC 1/1/2001 586,983 53,623 0.01% 2.05% N/A (4)
Longbow Partners, L.P. 5/1/2004 16,200,000 20,218,420 5.58% 6.18% N/A Quarterly
Sivik Global Healthcare Partners, L.P. 11/1/2003 1,600,000 4,178,747 1.15% 3.10% N/A Semi-annually
---------------------------------------
Strategy Total 24,386,983 39,035,037 10.76%
---------------------------------------
<Caption>
Event Driven/Relative Value Funds
- ---------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
American Durham L.P. 7/1/2008 12,000,000 11,154,846 3.08% 7.54% 12/31/2008 Quarterly
Aristeia Partners, L.P. 4/1/2008 17,000,000 15,025,413 4.14% 3.48% N/A Quarterly
Canyon Value Realization Fund, L.P. 7/1/2003 11,400,000 14,863,846 4.10% 0.56% N/A Annually
Farallon Capital Partners, L.P. 11/1/2004 22,000,000 27,015,947 7.44% 0.37% N/A Annually
Pentwater Event Fund LLC 7/1/2008 6,000,000 5,416,503 1.49% 3.52% N/A (5)
Polygon Global Opportunities Fund, L.P. 8/1/2006 15,600,000 14,150,536 3.90% 1.64% N/A (6)
Waterfall Eden Fund, L.P. 7/1/2008 9,000,000 8,729,190 2.41% 4.84% (7) Quarterly
---------------------------------------
Strategy Total 93,000,000 96,356,281 26.56%
---------------------------------------
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
<Caption>
% of First
First Members' % Ownership Available
Acquisition Fair Equity - of Investment Redemption
Investment Funds * Date Cost ** Value ** Net Assets Funds Date *** Liquidity ****
- ------------------------------------------------------------------------------------------------------------------------------------
Opportunistic Long/Short (Global) Funds
- ---------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
AKO Partners, L.P. 10/1/2005 14,500,000 16,663,576 4.60% 4.13% N/A Quarterly
Artha Emerging Markets Funds, L.P. 4/1/2008 14,000,000 12,988,058 3.58% 3.18% 3/31/2010 Quarterly
Delta Fund Europe, L.P. 5/1/2006 14,000,000 12,432,688 3.43% 2.89% N/A Quarterly
Indus Asia Pacific Fund, L.P. 3/1/2004 15,000,000 17,565,336 4.84% 3.11% (8) Quarterly
Indus Event Driven Fund, L.P. 6/1/2005 - 42,529 0.01% 4.25% N/A (2)
Indus Japan Fund, L.P. 3/1/2004 6,000,000 7,727,400 2.13% 2.93% N/A Quarterly
---------------------------------------
Strategy Total 63,500,000 67,419,587 18.59%
---------------------------------------
Total investments in Investment Funds $307,259,971 361,999,418 99.83%
============
Other Assets, Less Liabilities 618,956 0.17%
--------------------------
Members' Equity - Net Assets $362,618,374 100.00%
==========================
* Non-income producing investments. (1) $1,944,742 locked up until 9/30/2009.
** See definition in Note 2a. (2) The Investment Fund is closing and is in the process of
*** From original investment date. returning capital to its partners.
**** Available frequency of redemptions after initial (3) $909,841 has an initial lock-up period that expires on
lock-up period. 12/31/2009, $4,052,793 has an initial lock-up period that
N/A Initial lock-up period has either expired prior to September expires on 12/31/2010 and $1,822,032 has an initial lock-up
30, 2008 or the Investment Fund did not have an initial period that expires on 12/31/2011.
lock-up period. However, specific redemption restrictions (4) The Investment Fund is currently in liquidation and has
may apply. eliminated partner withdrawal rights.
(5) The Investment Fund has temporarily suspended withdrawal
rights.
(6) The Investment Fund will be liquidating its assets and has
suspended redemption rights.
(7) $3,862,247 has an initial lock-up period that expires on
9/30/2009 and $4,866,943 has an initial lock-up period that
expires on 9/30/2010.
(8) $1,826,618 has an initial lock-up period that expires on
9/30/2009.
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Period from April 1, 2008 to September 30, 2008
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 100,518
- --------------------------------------------------------------------------------
Total Investment Income 100,518
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Advisory fee 1,926,610
Bank note facility fee expense 57,188
Professional fees 53,900
Other 31,170
Board of Managers' fees and expenses 27,500
Administration fees 12,000
- --------------------------------------------------------------------------------
Total Operating Expenses 2,108,368
- --------------------------------------------------------------------------------
Net Investment Loss (2,007,850)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from Investment Fund redemptions 7,486,397
Net change in accumulated unrealized appreciation on investments (30,504,467)
- --------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Investments (23,018,070)
- --------------------------------------------------------------------------------
DECREASE IN MEMBERS' EQUITY - NET ASSETS DERIVED FROM OPERATIONS $(25,025,920)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
- --------------------------------------------------------------------------------
Period from
April 1, 2008 - Year Ended
September 30, March 31,
2008 2008
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (2,007,850) $ (3,987,859)
Net realized gain on investments 7,486,397 6,109,713
Net change in accumulated unrealized appreciation
on investments (30,504,467) 298,607
- --------------------------------------------------------------------------------
(Decrease) Increase in Members' Equity - Net Assets
Derived from Operations (25,025,920) 2,420,461
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Members' subscriptions 130,121,025 374,515,210
Members' interests repurchased (62,046,592) (57,365,810)
Transfers of Members' interests* - (310,364,405)
- --------------------------------------------------------------------------------
Increase in Members' Equity - Net Assets Derived
from Capital Transactions 68,074,433 6,784,995
- --------------------------------------------------------------------------------
Net Increase in Members' Equity - Net Assets 43,048,513 9,205,456
MEMBERS' EQUITY - NET ASSETS AT BEGINNING OF PERIOD 319,569,861 310,364,405
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS AT END OF PERIOD $ 362,618,374 $ 319,569,861
- --------------------------------------------------------------------------------
*On April 23, 2007, all Members' interests were transferred to Excelsior
Directional Hedge Fund of Funds (TI), LLC (the "Feeder Fund"). The Feeder Fund,
in turn, invested all of its capital in the Company.
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge 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 $ (25,025,920)
Adjustments to reconcile net decrease in members' equity -
net assets derived from operations to net cash used in
operating activities:
Net change in accumulated unrealized appreciation on
investments 30,504,467
Net realized gain from Investment Fund redemptions (7,486,397)
Purchases of Investment Funds (83,000,000)
Proceeds from sales of Investment Funds 25,389,192
Increase in other assets (6,500)
Increase in due to Adviser 151,985
Decrease in professional fees payable (85,377)
Increase in bank note facility fee 28,750
Increase in administration fees payable 6,000
Increase in other payable 484
- --------------------------------------------------------------------------------
Net Cash Used in Operating Activities (59,523,316)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from member subscriptions 121,820,025
Payments for member interests repurchased (62,046,592)
- --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 59,773,433
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 250,117
Cash and cash equivalents at beginning of period 7,823,581
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 8,073,698
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge 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:
For the period
from April 1, For the year For the year For the year For the year
2008 - ended ended ended ended
September March 31, March 31, March 31, March 31,
30, 2008** 2008* 2007 2006 2005
------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Net assets, end of
period $ 362,618,374 $ 319,569,861 $ 310,364,405 $ 292,022,821 $ 240,943,784
Ratio of net (0.54%) (1.18%) (1.71%) (1.75%) (1.77%)
investment loss
to average
Members' equity -
net assets (a), (b)
Ratio of expenses 0.57% 1.24% 1.86% 1.85% 1.81%
to average
Members' equity
- net assets (a), (b)
Portfolio turnover 7.19% 7.37% 30.25% 15.33% 15.61%
Total return (c) (6.35%) 0.45% 8.82% 10.09% 4.83%
* The Company reorganized into a master-feeder structure on April 23, 2007.
** 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. Please refer to Note 5 for additional information
about the expenses of the Investment Funds that the Company indirectly
bears.
(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 is net of expenses and 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 Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
1. Organization
Excelsior Directional Hedge Fund of Funds Master Fund, LLC, formerly known as
Excelsior Directional Hedge Fund of Funds, LLC (the "Company"), was organized as
a limited liability company under the laws of Delaware on July 6, 2000, and
commenced operations on October 1, 2000. The Company is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end,
non-diversified, management investment company. The Company's investment
objective is to seek capital appreciation. The Company pursues its investment
objective principally through a multi-manager, multi-strategy program of
investments in a diverse group of investment funds that primarily invest or
trade in a wide range of equity and debt securities. The investment managers
selected by the Company generally conduct their investment programs through
these investment funds (collectively, the "Investment Funds") in which the
Company invests as a limited partner or member along with other investors.
On April 23, 2007, pursuant to member approval, the Company was reorganized into
a "master/feeder" investment structure (the "Reorganization"). Effective that
date, the Company became a master fund and member interests in the Company were
transferred to a new entity, Excelsior Directional Hedge Fund of Funds (TI),
LLC, a Delaware limited liability company that is registered under the 1940 Act
as a closed-end, non-diversified, management investment company (the "Feeder
Fund"). The Feeder Fund in turn invested substantially all of its assets into
the Company. On July 1, 2007, Excelsior Directional Hedge Fund of Funds, Ltd.
(the "Offshore Fund") also became a feeder of the Company.
The Feeder Fund and the Offshore Fund (together, the "Feeder Funds") pursue
their investment objectives by investing substantially all of their interests in
the Company. The Feeder Funds have the same investment objective and
substantially the same investment policies as the Company (except that the
Feeder Funds pursue their investment objectives by investing in the Company).
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 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. The Board has engaged the Adviser to
provide investment advice regarding the selection of Investment Funds and to
manage the day-to-day operations of the Company.
Excelsior Directional Hedge 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 the
Feeder Fund and the Offshore Fund, as members of the Company ("Members"). As of
September 30, 2008, the Feeder Fund's and Offshore Fund's ownership of the
Company's Members' Equity--Net Assets were 68.75% and 31.25%, 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 its 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 in 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. The investments in
Investment Funds, representing 99.83% of the Members' equity, have been fair
valued in accordance with procedures established by the Board.
Excelsior Directional Hedge 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 interests in an Investment
Fund will represent the amount that the Company could reasonably expect to
receive from the Investment Fund if the Company's interests 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. The Company's
investment in Durus Life Sciences Fund, LLC ("Durus") is valued at $53,623 and
represents 0.01% of the Company's Members' Equity - Net Assets as of September
30, 2008. Durus was fair valued in good faith by the Adviser, in accordance with
procedures adopted by the Board. As of September 30, 2008, Durus is in
liquidation and there are no ongoing redemption rights available to partners.
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:
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
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).
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 $ - $ - $ 361,999,418 $ 361,999,418
----------------------------------------------
Total $ - $ - $ 361,999,418 $ 361,999,418
==============================================
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.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
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.
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 the 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 investments 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 $303,932,199. This included
aggregate gross unrealized appreciation of $35,480,886 and aggregate gross
unrealized depreciation of $2,332,690.
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.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2008
- --------------------------------------------------------------------------------
3. Advisory Fee, Related Party Transactions and Other
The Adviser provides certain investment advisory services and incurs research,
travel and other expenses related to the selection and monitoring of investment
managers. Further, the Adviser provides certain management and administrative
services to the Company, including providing office space and other support
services, maintaining files and records, and preparing and filing various
regulatory materials. In consideration for such services, the Company pays the
Adviser a quarterly advisory fee at an annual rate of 1.0% based on the
Company's net assets on the first business day of each quarter after adjustment
for any subscriptions effective on that date. Each Feeder Fund also pays the
Adviser a quarterly management fee at an annual rate of 0.5% based on the Feeder
Fund's net assets on the first business day of each quarter after adjustment for
any subscriptions effective on that date. Prior to the Reorganization, the
Company paid the Adviser an advisory fee at an annual rate of 1.5% based on the
Company's net assets on the first business day of each quarter after adjustment
for any subscriptions effective on that date. The change in the fee structure
resulting from the Reorganization does not have a material impact on the total
advisory and management fees attributable to the capital accounts of the
investors of the Feeder Funds.
For the period from April 1, 2008 to September 30, 2008, the Company incurred
advisory fees totaling $1,926,610, based on the current advisory fee rate of
1.0%. Of total advisory fees, $995,186 was payable as of September 30, 2008.
As of September 26, 2008, the Board is made up of three Managers who are not
"interested persons," as defined by Section 2(a)(19) of the 1940 Act, of the
Company (the "Disinterested Managers"). 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 26, 2008. The Disinterested Managers
receive an annual retainer of $10,000 and per-meeting fees of: $2,000 for
in-person attendance at quarterly meetings of the Board; $1,000 for telephone
participation at a quarterly Board meeting or for participation at a telephonic
special meeting of the Board; and $1,000 for each audit committee meeting
(whether held in-person or by telephone). 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
Managers. Any managers who are "interested persons," as defined in the 1940 Act,
of the Company, if any, do not receive any retainer or other fee from the
Company. The Company incurred $27,500 of retainer and per meeting fees for the
period from April 1, 2008 to September 30, 2008, none of which is payable as of
September 30, 2008.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2008
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3. Advisory Fee, Related Party Transactions and Other (Continued)
The Company has retained J.D. Clark & Company (the "Administrator") to provide
accounting and certain administrative and investor services to the Company. As a
result of the Reorganization, the Company's contract with the Administrator was
amended to reflect the new "master/feeder" structure. Previously, the Company
paid the Administrator a quarterly fee equal to the greater of: (i) $3,000; or
(ii) .00025 of the Company's net assets as of the first day of each calendar
quarter on the first $150 million of net assets, plus .000125 of the Company's
net assets in excess of $150 million. As of April 23, 2007, the Company pays the
Administrator a quarterly fee equal to $3,000 per Feeder 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. The Feeder Funds incur additional
expenses directly for the services provided by the Administrator.
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 thirty-one Investment
Funds. The Company, as an investor in these Investment Funds, is charged
management fees ranging from 0.0% to 2.0% (per annum) of the net asset value of
its ownership interests in the Investment Funds, as well as incentive fees or
allocations ranging from 15% to 20% 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 1.5% to
14.7% of the Company's average invested capital in each Investment Fund.
Incentive fees or allocations for the same fiscal year ranged from approximately
0.0% to 8.1% 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.
Excelsior Directional Hedge 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)
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 $96,000,000 and $26,486,386,
respectively.
6. Bank Note-Line of Credit Facility
The Company maintains a $30,000,000 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 $57,188 in facility fees related to the
bank line of credit, $28,750 of which was payable as of September 30, 2008. As
of September 30, 2008, the Company did not have an outstanding revolving note
balance.
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 any such claim is considered remote.
8. Subsequent Events
As of September 30, 2008, the Company received subscriptions in advance for
Interests from Members in the amount of $36,699,000, which is reflected as
Members' interests received in advance on the Statement of Assets, Liabilities
and Members' Equity - Net Assets. These subscriptions became Interests in the
Company effective 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 NCSR.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSE-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
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Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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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 that occurred during the Registrant's 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 Directional Hedge Fund of Funds (TI), LLC
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By (Signature and Title) /s/ Spencer N. Boggess
--------------------------
Spencer N. Boggess, 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 Directional Hedge Fund of Funds (TI), LLC
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By (Signature and Title) /s/ Steven L. Suss
------------------------
Steven L. Suss, Principal Financial Officer
Date December 5, 2008
----------------