UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-10083
---------------------------------
Investment Company Act file number
Excelsior Directional Hedge 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)
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: 3/31/2005
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Date of reporting period: 3/31/2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
- ----------------------------------
EXCELSIOR DIRECTIONAL HEDGE FUND OF FUNDS, LLC
Financial Statements
With Report of Independent Registered Public Accounting Firm
Year ended March 31, 2005
Excelsior Directional Hedge Fund of Funds, LLC
Financial Statements
Year ended March 31, 2005
Contents
Report of Independent Registered Public Accounting Firm ................ 1
Statement of Assets, Liabilities and Members' Equity - Net Assets....... 2
Schedule of Investments................................................. 3
Statement of Operations................................................. 4
Statements of Changes in Members' Equity - Net Assets................... 5
Statement of Cash Flows................................................. 6
Notes to Financial Statements........................................... 7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members and Board of Managers of
Excelsior Directional Hedge Fund of Funds, LLC
We have audited the accompanying statements of assets, liabilities and members'
equity - net assets of Excelsior Directional Hedge Fund of Funds, LLC (the
"Fund"), including the schedule of investments, as of March 31, 2005, and the
related statements of operations, and cash flows for the year then ended and the
changes in members' equity - net assets and the financial highlights for each of
the two years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
years ended March 31, 2003 and 2002 and for the period October 1, 2000
(commencement of operations) through March 31, 2001 were audited by other
auditors whose report, dated May 24, 2004, expressed an unqualified opinion on
such financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of investment funds owned as of March 31, 2005, by correspondence with
management of the investment funds; where replies were not received, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Excelsior Directional Hedge
Fund of Funds, LLC as of March 31, 2005, the results of its operations and
its cash flows for the year then ended and the changes in its members' equity -
net assets and the financial highlights for each of the two years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
May 26, 2005
Excelsior Directional Hedge Fund of Funds, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets
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March 31, 2005
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ASSETS
Investments in Investment Funds, at fair value (cost $202,746,490) $240,299,646
Cash and cash equivalents 19,385,028
Receivables for interests in Investment Funds sold 718,045
Other assets 62,754
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Total Assets $260,465,473
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LIABILITIES
Members' interests received in advance 17,440,100
Payable for members' interests repurchased 966,812
Due to Advisor 890,261
Professional fees payable 142,391
Board of Managers' fees payable 7,125
Administration fees payable 75,000
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Total Liabilities 19,521,689
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Net Assets $240,943,784
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital subscriptions - net $203,390,628
Net unrealized appreciation on investments 37,553,156
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Members' Equity - Net Assets $240,943,784
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The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds, LLC
Schedule of Investments
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March 31, 2005
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% of First
First Members' %Ownership Available
Acquisition Fair Equity of Investment Redemption
Investment Funds Date Cost* Value* Net Assets Funds Date** Liquidity***
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Hedged Long/Short Equity Funds
- ------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Basix Capital Fund, L.P. 7/1/2004 $7,000,000 $6,953,390 2.89% 6.32% 7/1/05 Quarterly
Foundation Partners, L.P. 7/1/2002 8,000,000 9,089,889 3.77% 8.29% N/A Quarterly
SAB Capital Partners, L.P. 4/1/2001 5,000,000 6,831,931 2.84% 1.03% N/A Annually
Spring Point Institutional 1/1/2004 17,000,000 17,302,834 7.17% 4.86% N/A Quarterly
Partners, L.P.
Swiftcurrent Partners, L.P. 10/1/2000 3,550,000 5,684,679 2.36% 1.35% N/A Annually
Tonga Partners, L.P. 10/1/2000 3,060,553 7,600,261 3.15% 3.26% N/A Semi-annually
----------------------------------------------
Strategy Total 43,610,553 53,462,984 22.18%
----------------------------------------------
Opportunistic Long/Short Equity Funds
- -------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Alson Signature Fund I, L.P. 10/1/2002 8,748,954 11,106,690 4.61% 8.94% N/A Quarterly
Cadmus Capital partners (QP),L.P. 7/1/2003 3,500,000 4,005,783 1.66% 2.58% N/A Quarterly
Indus Asia Pacific Fund, L.P. 3/1/2004 3,000,000 3,326,278 1.38% 1.38% N/A Quarterly
Indus Japan Fund,L.P. 3/1/2004 6,000,000 7,079,471 2.94% 3.77% N/A Quarterly
Palmyra Capital Institutional 1/1/2004 9,000,000 8,265,098 3.43% 4.52% N/A Quarterly
Fund,L.P.
Phinity Capital, L.P. 10/1/2004 10,200,000 9,979,048 4.14% 13.76% 10/1/05 Quarterly
Quaker Capital Partners I, L.P. 1/1/2001 6,000,000 11,412,304 4.74% 3.02% N/A Annually
----------------------------------------------
Strategy Total 46,448,954 55,174,672 22.90%
----------------------------------------------
Hedged Sector Funds
- -------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Argus Healthcare Partners, L.P. 11/1/2003 7,000,000 6,774,570 2.81% 3.99% N/A Semi-annually
Coatue Qualified Partners, L.P. 1/1/2002 6,000,000 7,193,672 2.99% 3.28% N/A Quarterly
Durus Life Sciences Fund, LLC 1/1/2001 586,983 881,857 0.37% 2.05% N/A (1)
Endicott Partners II, L.P. 1/1/2003 6,500,000 7,188,575 2.98% 4.30% N/A Semi-annually
Heirloom Qualified Partners, L.P. 4/1/2004 7,000,000 7,452,712 3.09% 4.71% N/A Quarterly
Long Bow Partners, L.P. 5/1/2004 9,200,000 9,969,793 4.14% 5.50% N/A Quarterly
Vardon Partners II, L.P. 10/1/2002 9,000,000 10,872,550 4.51% 8.30% N/A Quarterly
----------------------------------------------
Strategy Total 45,286,983 50,333,729 20.89%
----------------------------------------------
Arbitrage/Distressed Funds
- --------------------------
<s> <c> <c> <c> <c> <c> <c> <c><s>
Aviator Partners, L.P. 8/1/2004 5,000,000 4,734,681 1.97% 9.26% N/A Quarterly
Canyon Value Realization Fund, L.P. 7/1/2003 9,400,000 11,386,491 4.73% 0.79% N/A Annually
Castlerigg Partners, L.P. 4/1/2004 15,000,000 16,214,301 6.72% 2.92% N/A Quarterly
Farallon Capital Partners, L.P. 11/1/2004 10,000,000 10,958,120 4.55% 0.27% 11/1/05 Annually
JMG Capital Partners, L.P. 10/1/2000 6,750,000 10,877,367 4.51% 1.18% N/A Quarterly
K Capital II, L.P. 1/1/2001 8,000,000 9,284,984 3.85% 2.02% N/A Quarterly
M&M Arbitrage, LLC 4/1/2004 4,000,000 3,917,379 1.63% 2.58% N/A Quarterly
Satellite Fund II, L.P. 10/1/2000 3,000,000 4,349,454 1.81% 0.43% N/A Annually
Stark Investments L.P. 10/1/2000 6,250,000 9,605,483 3.99% 0.52% N/A Annually
----------------------------------------------
Strategy Total 67,400,000 81,328,260 33.76%
----------------------------------------------
Total Investments in Investment Funds $202,746,490 240,299,646 99.73%
============
Other Assets, Less Liabilities 644,138 0.27%
--------------------
Members' Equity -Net Assets $240,943,784 100.00%
====================
* See definition in Note 2a. N/A Initial lock-up period has either expired prior to March 31, 2005 or
** From original investment date. Investment Fund did not have an initial lock-up period. However
*** Available frequency of redemptions after initial specific redemption restrictions may apply.
lock-up period. (1) The Investment Fund is currently in liquidation and has eliminated
partner withdrawal rights.
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds, LLC
Statement of Operations
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Year ended March 31, 2005
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INVESTMENT INCOME
Interest $ 89,520
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Total Investment Income 89,520
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OPERATING EXPENSES
Management fee 3,285,747
Professional fees 295,082
Administration fees 150,000
Board of Managers' fees and expenses 51,375
Other 161,543
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Total Operating Expenses 3,943,747
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Net Investment Loss (3,854,227)
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REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net Realized gain from investments in Investment Funds 4,381,777
Change in net unrealized appreciation on
investments in Investment Funds 10,736,054
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Net Realized and Unrealized Gain from Investments 15,117,831
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INCREASE IN MEMBERS' EQUITY - NET ASSETS
DERIVED FROM OPERATIONS $11,263,604
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The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds, LLC
Statements of Changes in Members'Equity - Net Assets
- --------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $(3,854,227) $(2,855,805)
Net realized gain from investments 4,381,777 2,991,622
Change in net unrealized appreciation
on investments 10,736,054 19,855,356
- --------------------------------------------------------------------------------
Increase in Members' Equity - Net Assets
Derived from Operations 11,263,604 19,991,173
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CAPITAL TRANSACTIONS
Members' subscriptions $76,831,709 38,682,473
Members' interests repurchased (21,115,712) (19,745,980)
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Increase in Members' Equity - Net Assets
Derived from Capital Transactions 55,715,997 18,936,493
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Net Increase in Members' Equity - Net Assets 66,979,601 38,927,666
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF YEAR 173,964,183 135,036,517
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MEMBERS' EQUITY - NET ASSETS
AT END OF YEAR $240,943,784 $173,964,183
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The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds, LLC
Statement of Cash Flows
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Year ended March 31, 2005
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $11,263,604
Adjustments to reconcile net increase in members' equity -
net assets derived from operations to net cash used in
operating activities:
Change in net unrealized appreciation on investments (10,736,054)
Net realized gain from investments (4,381,777)
Purchases of Investment Funds (93,800,000)
Proceeds from sales of Investment Funds 33,081,777
Increase in receivables from Investment Funds (112,913)
Increase in other assets (6,098)
Increase in due to Advisor 251,163
Decrease in Board of Managers' fees payable (1,125)
Increase in professional fees payable 57,390
Increase in administration fees payable 37,500
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Net Cash Used in Operating Activities (64,346,533)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from members' subscriptions 66,003,501
Payments for members' interests repurchased (21,292,191)
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Net Cash Provided by Financing Activities 44,711,310
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Net decrease in cash and cash equivalents (19,635,223)
Cash and cash equivalents at beginning of year 39,020,251
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Cash and Cash Equivalents at End of Year $19,385,028
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The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements
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March 31, 2005
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1. Organization
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 maximize 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
investment funds (collectively, the "Investment Funds") in which the Company
invests as a limited partner or member along with other investors.
U.S. Trust Hedge Fund Management, Inc. (formerly known as NCT Opportunities,
Inc.) serves as the investment advisor of the Company (the "Advisor"). The
Advisor is a wholly-owned subsidiary of U.S. Trust Corporation, and is
registered as an investment adviser under the Investment Advisers Act of
1940, as amended.
The Company's Board of Managers (the "Managers") 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 Managers have engaged the Advisor
to provide investment advice regarding the selection of Investment Funds and the
responsibility of the day-to-day management of the Company.
Member subscriptions for investment interests by eligible investors may be
accepted as of the first day of each calendar quarter, or at such times as the
Managers may determine. The Managers reserve the right to reject any application
for interests in the Company. The Company may, from time to time, offer to
repurchase interests from members pursuant to written tenders by the members.
These repurchases will be made at such times and on such terms as may be
determined by the Managers, in their sole discretion, subject to the liquidity
of the Company's assets and other factors considered by the Managers. The
Advisor expects that, generally, it will recommend to the Managers 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 their Company
interests under certain limited circumstances.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
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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 that management 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
Advisor as of the close of business at the end of any 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 Managers.
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 Advisor, or, in
certain cases, the Managers, 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 Managers, 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 of Managers. 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, valued at $881,857
and representing 0.37% of members' equity - net assets as of March 31, 2005, was
fair valued in good faith by the Advisor at a value different than the value
supplied by this Investment Fund's manager. This Investment Fund is in
liquidation at March 31, 2005, and therefore, the Advisor determined the fair
value of the Company's investment based on information provided to the Advisor.
Due to this Investment Fund being in liquidation there are no ongoing redemption
rights available to partners.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
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2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
Such Investment Fund's fair value does not reflect any potential contingent
liabilities associated with either the liquidation of the Investment Fund or, if
any, pending litigation against it.
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, if
any, any excess as a realized gain from investments.
b. Company Expenses
The Company will bear 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;
certain legal fees; accounting and auditing fees; custodial fees; fees paid to
the Company's administrator; costs of insurance; management fee; travel and
related expenses of the Managers; all costs with respect to communications
regarding the Company's transactions among the Advisor and any custodian or
other agent engaged by the Company; and other types of expenses approved by the
Managers.
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 since 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.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
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2. Significant Accounting Policies (continued)
c. Income Taxes (continued)
The cost of the Company's investments in Investment Funds for Federal income tax
purposes is based on amounts reported to the Company on Schedule K-1 by the
Investment Funds for the year ended December 31, 2004. Based on Investment Funds
owned at December 31, 2004, the cost of investments for Federal income tax
purposes was $218,268,261. This consisted of aggregate gross unrealized
appreciation of $19,426,188 and aggregate gross unrealized depreciation of
$1,290,001.
d. Other
Cash and cash equivalents consist of monies invested in a U.S. Trust Company,
N.A. custody account, which earn interest at money market rates. Interest
income is recorded on the accrual basis.
3. Management Fee, Related Party Transactions and Other
As of March 31, 2005, the employees and affiliates of the Advisor have a
combined interest of approximately 7.29% of the Company's members' equity - net
assets.
The Advisor provides certain investment advisory services and incurs research,
travel and other expenses related to the selection and monitoring of investment
managers. Further, the Advisor 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
Advisor a quarterly management 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. For the year ended March 31, 2005,
the management fee was $3,285,747, of which $890,261 was payable as of March 31,
2005.
The Company earned $89,520 of interest income on cash balances maintained at
U.S. Trust Company, N.A., an affiliate of the Company. At March 31, 2005, the
Company had a cash balance of $19,385,028 held by this affiliate. The Company
invested $13,000,000 in four existing Investment Funds as of April 1, 2005.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
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3. Management Fee, Related Party Transactions and Other (continued)
Each Manager, who is not an "interested person" of the Company as defined by the
1940 Act, receives an annual retainer of $7,000 plus a fee for each meeting
attended. Any Manager who is an "interested person" does not receive any annual
or other fee from the Company. All Managers who are not an "interested person"
of the Company are reimbursed by the Company for all reasonable out-of-pocket
expenses. The Company incurred $51,375 of such expenses for the year ended March
31, 2005, of which $7,125 is payable as of March 31, 2005.
The Company incurred $8,000 in fees for the year ended March 31, 2005 related to
custodian services provided by U.S. Trust Company, N.A.
The Company has retained J.D. Clark & Co. to provide accounting and certain
administrative and investor services to the Company for a fixed fee as agreed
from time to time. For the year ended March 31, 2005, the Company incurred
$150,000 in expenses related to such administrative services, of which $75,000
was payable as of March 31, 2005. On March 1, 2005 the Managers approved a new
agreement with J.D. Clark & Co beginning April 1, 2005.
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 March 31, 2005, the Company had investments in twenty-nine Investment
Funds. The agreements related to investments in Investment Funds provide for
compensation to the general partners/managers of the Investment Funds in the
form of management fees of 0.5% to 2.0% (per annum) of net assets and incentive
fees or allocations ranging from 15% to 20% of net profits earned. The
Investment Funds provide for periodic redemptions, with lock-up provisions
ranging from three months to one year from initial investment.
Aggregate purchases and proceeds from sales of interest in Investment Funds for
the year ended March 31, 2005 amounted to $93,800,000 and $33,081,777,
respectively.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
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6. Financial Highlights
The following represents the ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
<s> <c> <c> <c> <c> <c>
For the For the For the For the
year year year year October 1,
ended ended ended ended 2000* -
March 31, March 31, March 31, March 31, March 31
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period $240,943,784 $173,964,183 $135,036,517 $75,655,074 $21,109,962
Ratio of net investment (1.77%) (1.82%) (1.88%) (2.15%) (1.32%)
loss to average members'
equity - net assets (a), (b)
Ratio of expenses to 1.81% 1.87% 1.92% 2.16% 1.33%
average members' -
net assets (a), (b)
Portfolio turnover 15.61% 22.70% 14.31% - -
Total return (c) 4.83% 13.68% (1.98%) 6.98% 5.44%
* Commencement of operations. The ratios and total return are not
annualized for the initial period.
(a) Average members' equity - net assets is determined using the net assets at
the end of each month during the period indicated.
(b) Ratios do not reflect the Company's proportionate share of the net
investment income (loss) and expenses, including incentive allocation, of
the Investment Funds.
(c) Total return assumes a purchase of an interest in the Company on the first
day and the sale of the interest on the last day of the period.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
- --------------------------------------------------------------------------------
7. Subsequent Events
As of March 31, 2005, the Company received capital subscriptions from members in
the amount of $17,440,100, 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 April 1,
2005. The Company also invested $13,000,000 in four existing Investment Funds as
of April 1, 2005.
8. 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 claim is considered remote.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2005
- --------------------------------------------------------------------------------
9. Company Management (Unaudited)
Information pertaining to the Board of Managers and officers of the Company is
set forth below:
<c> <c> <c> <c>
Position(s) Term of Principal Number of
held Office and Occupation Portfolios in
with Length of During Fund Complex
the Time Last Overseen by
Name, address and age Company Served Five Years Manager
- ----------------------------------------------------------------------------------------------------
Disinterested Managers
Gene M.Bernstein Manager Term - Director of NIC 4
U.S. Trust Company Indefinite Holding Corp; Dean
114 West 47th Street Length of the Skodneck
New York, NY 10036 - since Business Development
Age 57 October Center at Hofstra
2000 University (2000 to
2001); President and
Vice Chairman at
Northville
Industries, a petroleum
marketing, distribution,
trading and storage company.
Also Director or Manager of
Excelsior Private Equity
Fund II, Inc., Excelsior
Venture Partners III,
LLC and Excelsior Venture
Investors III, LLC.
Stephen V. Murphy Manager Term - President, S.V. 4
U.S. Trust Company Indefinite Murphy & Co., Inc.
114 West 47th Street Length (1991 to present).
New York, NY 10036 - since Also Director or
Age 59 October Manager of Excelsior
2000 Private Equity Fund
II, Inc., Excelsior
Venture Partners III,
LLC and Excelsior
Venture Investors
III, LLC.
Victor F. Imbimbo, Jr. Manager Term - President of North 4
U.S. Trust Company Indefinite America
114 West 47th Street Length - TBWA/WorldHealth, a
New York, NY 10036 since global healthcare
Age 52 October marketing agency
2000 (October 2002 to
present);Founder,
President and Chief
Executive
Officer,Bedrock
Communications, Inc.
(1998 to 2002);
Founder, President
and Chief Executive
Officer, Hadley Group
(1985 to 1998). Also
Director or Manager
of Excelsior Private
Equity Fund II, Inc.,
Excelsior Venture
Partners III, LLC,
and Excelsior Venture
Investors III, LLC.
Excelsior Directional Hedge Fund of Funds, LLC
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
March 31, 2005
- --------------------------------------------------------------------------------
9. Company Management (Unaudited) (continued)
<table>
<c> <c> <c> <c>
Position Term of Principal Number of
Held Office and Occupation Portfolios
With Length of During Fund Complex
The Time Past Overseen by
Name, Address and Age Company Served Five Years Manager
- --------------------------------------------------------------------------------------------------
Interested Manager
Douglas Lindgren* Manager Term - Chair of U.S. Trust's 7
U.S. Trust Company and Indefinite Alternative
225 High Ridge Road Chairman Length Investments Division,
Stamford, CT 06905 - since Managing Director and
Age 44 July Senior V.P. of U.S.
2003 Trust (4/95 to
present). Also a
manager of Excelsior
Buyout Investors LLC
and Excelsior
Directional Hedge
Fund of Funds LLC.
Officers who are not Managers
Spencer Boggess Chief Term - Chief Executive N/A
U.S. Trust Company Executive Indefinite Officer of U.S. Trust
222 High Ridge Road Officer Length Hedge Fund
Stamford, CT 06905 -since Management, Inc.
Age 37 July (7/04 to present);
2004 Portfolio manager of
Excelsior Directional
Hedge Fund of Funds,
LLC (7/03 to
present); Senior
V.P. and Co-Director
of Research of CTC
Consulting, Inc.
(10/00 to 6/03);
Principal of Winston
Partners (9/96 to
9/00)
Robert F. Aufenanger Chief Term - Chief Financial N/A
U.S. Trust Company Financial Indefinite Officer and Treasurer
225 High Ridge Road Officer Length of U.S. Trust's
Stamcord, CT 06905 and - since Alternative
Age 51 Treasurer July Investments Division
2003 and Senior V.P. of
U.S. Trust (4/03 to
present); Independent
consultant to private
equity funds (1/02 to
3/03); Chief
Financial Officer,
Icon Holding Corp.
(12/99 to 12/01);
Chief Financial
Officer, Partnership
Group, Merrill Lynch
& Co., Inc. (6/85 to
10/99).
Cynthia Englert Secretary Term - V.P. of U.S. Trust N/A
U.S. Trust Company Indefinite (8/01 to present);
225 High Ridge Road Length Controller, Whitney &
Stamford, CT 06905 -since Company (5/99 to
Age 40 June 8/01); Financial
2003 analyst, Greenwich
Capital Markets (7/93
to 3/99).
* Manager is an "interested person" (as defined by the 1940 Act) of the Company
because of his affiliation with the Advisor and its affiliates.
All officers of the Company are employees and/ or officers of the Investment
Advisor.
The SAI (or Statement of Additional Information) includes additional information
about the managers of the Company and is available upon request.
ITEM 2. CODE OF ETHICS.
- -------------------------
The Registrant has adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. For the fiscal
year ended March 31, 2005, there were no amendments to a provision of the code
of ethics, nor were there any waivers granted from a provision of the code of
ethics. A copy of the Registrant's code of ethics is filed with this form N-CSR
under Item 12(a)(1).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ------------------------------------------
The Board of Managers of the Registrant has determined that Stephen V. Murphy,
possesses the technical attributes identified in Instruction 2(b) of Item 3 to
Form N-CSR to qualify as an "audit committee financial expert", and has
designated Mr. Murphy as the Audit Committee's financial expert. Mr. Murphy is
an "independent" Manager pursuant to paragraph (a)(2) of Item 3 on Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- ------------------------------------------------
(a) Audit Fees
The aggregate fees, billed for professional services rendered by the
Registrant's principal accountant for the audit of the Registrant's annual
financial statements and security counts required under Rule 17f-2 of the
Investment Company Act of 1940, (the "1940 Act") for the fiscal years ended
March 31, 2004 and March 31, 2005 were $56,000 and $56,000, respectively.
(b) Audit-Related Fees
There were no audit related services provided by the principal accountant to the
Registrant for the last two fiscal years.
(c) Tax Fees
The principal accountant for the audit of the Registrant's annual financial
statements billed no fees, for tax compliance, tax advice or tax planning
services, to the Registrant during the last two fiscal years.
(d) All Other Fees
The principal accountant billed no other fees to the Registrant during the last
two fiscal years.
(e) (1)
During its regularly scheduled periodic meetings, the Registrant's audit
committee will pre-approve all audit, audit-related, tax and other services to
be provided by the principal accountants of the Registrant. The audit committee
has delegated pre-approval authority to its Chairman for any subsequent new
engagements that arise between regularly scheduled meeting dates provided that
any such pre-approved fees are presented to the audit committee at its next
regularly scheduled meeting.
(e) (2) None
(f) Not applicable.
(g) The amount of non-audit fees that were billed by the registrant's accountant
for services rendered to (i) the registrant, and (ii) the registrant's
investment adviser and any control person of the adviser that provides ongoing
services to the registrant for the fiscal year ended March 31, 2005, were $0 and
$618,675, respectively.
The amount of non-audit fees that were billed by the registrant's accountant for
services rendered to (i) the registrant, and (ii) the registrant's investment
adviser and any control person of the adviser that provides ongoing services to
the registrant for the fiscal year ended December 31, 2003, were $0 and
$623,000, respectively.
(h) The Registrant's audit committee of the board of managers has considered
whether the provision of non-audit services that were rendered to the
Registrant's investment adviser, and any entity controlling, controlled by, or
under common control with the investment adviser that provides ongoing services
to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X is compatible with maintaining the principal
account's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ------------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- ----------------------------------
The Schedule of Investments is included as part of the report to members filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND
PROCEDURES FOR CLOSED-END
- ---------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES.
- --------------------------------
A copy of the Proxy Voting Policies and Procedures is included as Exhibit 2 to
this form.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES
- --------------------------------------------------------------------------
Not yet applicable.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSE-END
MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
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.
- ----------------------------------
(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 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.
- -------------------
(a)(1) CODE OF ETHICS (See Exhibit 1)
(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.
(a)(3) Not applicable to the Registrant.
(b) Not applicable to the Registrant.
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, LLC
----------------------------------------------
By (Signature and Title) /s/ Douglas A. Lindgren
-------------------------
Douglas A. Lindgren, Principal
Executive Officer
Date June 7, 2005
------------
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, LLC
- -----------------------------------------------------------
By (Signature and Title) /s/ Robert Aufenanger
------------------------
Robert Aufenanger, Principal
Financial Officer
Date June 7, 2005
------------