UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-21396
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Investment Company Act file number
Excelsior Absolute Return Fund of Funds, LLC
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(Exact name of registrant as specified in charter)
225 High Ridge Road
Stamford, CT 06905
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(Address of principal executive offices) (Zip code)
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: 3/31/2006
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Date of reporting period: 3/31/2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
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Excelsior Absolute Return Fund of Funds, LLC
Financial Statements
With Report of Independent Registered Public Accounting Firm
Year Ended March 31, 2006
Excelsior Absolute Return Fund of Funds, LLC
Financial Statements
Year Ended March 31, 2006
Contents
Report of Independent Registered Public Accounting Firm....................... 1
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
March 31, 2006........................................................... 2
Statement of Operations for the Year Ended March 31, 2006..................... 3
Statements of Changes in Members' Equity - Net Assets for the Years Ended
March 31, 2006 and 2005................................................ . 4
Statement of Cash Flows for the Year Ended March 31, 2006..................... 5
Financial Highlights for the Years Ended March 31, 2006 and 2005 and for the
Period December 1, 2003 though March 31, 2004............................ 6
Notes to Financial Statements................................................. 7
The Registrant files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Registrant's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Information on Form N-Q is available without charge,
upon request, by calling collect 1-800-352-4497.
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 December 31 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Report of Independent Registered Public Accounting Firm
To the Members and Board of Managers of
Excelsior Absolute Return Fund of Funds, LLC
We have audited the accompanying statement of assets, liabilities and members'
equity - net assets of Excelsior Absolute Return Fund of Funds, LLC (the
"Company"), as of March 31, 2006, and the related statements of operations and
cash flows for the year then ended and the statement of changes in members'
equity - net assets for the years ended March 31, 2006 and 2005, and the
financial highlights for the two year period then ended and for the period
December 1, 2003 (commencement of operations) through March 31, 2004. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
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 Company 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 Company'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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Excelsior Absolute Return Fund of Funds, LLC as of March 31, 2006, the results
of its operations and its cash flows for the year then ended and the changes in
its members' equity - net assets for the years ended March 31, 2006 and 2005,
and the financial highlights for the two year period then ended and for the
period December 1, 2003 (commencement of operations) through March 31, 2004, in
conformity with accounting principles generally accepted in the Unites States of
America.
\s\ Deloitte & Touche LLP
May 25, 2006
Excelsior Absolute Return Fund of Funds, LLC
Statement of Assets, Liabilities and Members'Equity - Net Assets
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March 31, 2006
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ASSETS
Investment in Excelsior Absolute Return Fund of Funds Master Fund,
LLC at fair value (cost $214,259,024) $255,753,034
Cash and cash equivalents 1,513,590
Due from Adviser 245,987
Prepaid Fees 36,006
Interest Receivable 5,006
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Total Assets 257,553,623
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LIABILITIES
Management fee payable 312,157
Professional fees payable 107,000
Repurchase of Members' Interests payable 960,724
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Total Liabilities 1,379,881
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Net Assets $256,173,742
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $214,679,732
Accumulated net unrealized appreciation on investments 41,494,010
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Members' Equity - Net Assets $256,173,742
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The accompanying notes and attached audited financial statement of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Operations
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Year Ended March 31, 2006
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NET INVESTMENT LOSS ALLOCATED FROM EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS
MASTER FUND, LLC:
Interest $ 190,042
Expenses (2,676,948)
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Net investment loss allocated from Excelsior Absolute Return
Fund of Funds Master Fund, LLC (2,486,906)
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Fund Income:
Interest 53,503
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Fund Expenses:
Management fees 1,228,797
Professional fees 279,259
Administration fees 197,584
Board of Managers' fes 49,685
Other 90,441
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Total Expenses 1,845,766
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Expenses reimbursed to the Adviser 181,459
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Net Expenses 2,027,225
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Net Investment Loss (4,460,628)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
ALLOCATED FROM EXCELSIOR ABSOLUTE
RETURN FUND OF FUNDS MASTER FUND, LLC:
Net realized loss on investments (1,675,818)
Net change in unrealized appreciation on investments 25,479,569
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Net Realized and Unrealized Gain on Investments Allocated from
Excelsior Absolute Return Fund of Funds Master Fund, LLC 23,803,751
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INCREASE IN MEMBERS' EQUITY - NET ASSETS
DERIVED FROM OPERATIONS $19,343,123
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The accompanying notes and attached audited financial statement of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statements of Changes in Members' Equity - Net Assets
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For the Year ended For the Year ended
March 31,2006 March 31,2005
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OPERATIONS
Net investment loss $ (4,460,628) $ (3,483,256)
Net realized gain (loss) on investments (1,675,818) 320,977
Net unrealized appreciation on investments 25,479,569 12,233,400
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Increase in Members' Equity - Net Assets
Derived from Operations 19,343,123 9,071,121
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CAPITAL TRANSACTIONS
Members' subscriptions 38,639,693 145,459,090
Members' Interests repurchased (26,204,498) (9,665,795)
Offering costs (29,436) (31,805)
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Increase in Members' Equity - Net Assets
Derived from Capital Transactions 12,405,759 135,761,490
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Net Increase in Members' Equity - Net Assets 31,748,882 144,832,611
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF PERIOD 224,424,860 79,592,249
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MEMBERS' EQUITY - NET ASSETS
AT END OF PERIOD $ 256,173,742 224,424,860
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The accompanying notes and attached audited financial statement of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Cash Flows
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Year Ended March 31, 2006
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $19,343,123
Adjustments to reconcile net increase in members' equity -
net assets derived from operations to net cash used in operating
activities:
Net change in unrealized appreciation on investment allocated
from Excelsior Absolute Return Fund of Funds Master Fund, (25,479,569)
LLC
Net realized loss on investment allocated from Excelsior
Absolute Return Fund of Funds Master Fund, LLC 1,675,818
Net investment loss allocated from Excelsior Absolute
Return Fund of Funds Master Fund, LLC 2,486,906
Purchases of investment in Excelsior Absolute Return Fund
of Funds Master Fund, LLC (26,600,244)
Proceeds from investment in Excelsior Absolute Return Fund
of Funds Master Fund, LLC 16,959,672
Decrease in prepaid fees 20,009
Increase in interest receivable (4,699)
Increase in due from Adviser (245,987)
Decrease in due to Adviser (69,423)
Increase in Adviser management fee payable 32,133
Decrease in administration fees payable (19,303)
Increase in professional fees payable 54,000
Decrease in Board of Managers fees' payable (6,000)
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Net Cash Used in Operating Activities (11,853,564)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 38,639,693
Payments for Members' Interests repurchased (25,243,774)
Offering costs paid (29,436)
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Net Cash Provided by Financing Activities 13,366,483
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Net increase in cash and cash equivalents 1,512,919
Cash and cash equivalents at beginning of period 671
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Cash and Cash Equivalents at End of Year $ 1,513,590
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The accompanying notes and attached audited financial statement of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Financial Highlights
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The following represents the ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
For the year For the year December 1, 2003*
Ended ended to
March 31,2006 March 31,2005 March 31,2004
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Net assets, end of period $256,173,742 $224,424,860 $ 79,592,249
Ratio of net investmetn (1.85%) (2.00%) (0.60%)
loss to average
members' equity - net
assets (a)
Ratio of total expenses to 1.84% 1.88% 1.25%
average members' equity
- net assets (b), (c)
Ratio of net expenses 1.92% 2.03% 0.59%
average member's equity
- net assets (b)
Total return (d) 8.04% 4.31% 4.85%
* Commencement of operations. The ratios and total return are not
annualized for the initial 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 expenses of the Company.
(c) The ratio is before any expense limitation or reimbursement per the
Expense Limitation Agreement.
(d) Total return assumes a purchase of an interest in the Fund on the first
day and a sale of interest on the last day of the period.
The accompanying notes and attached audited financial statement of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements
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March 31, 2006
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1. Organization
Excelsior Absolute Return Fund of Funds, LLC (the "Fund") was organized as a
limited liability company under the laws of Delaware on June 17, 2003, and
commenced operations on December 1, 2003. The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end,
non-diversified, management investment company. The Fund's investment objective
is to provide long-term, risk-adjusted absolute returns in a variety of capital
market conditions. The Fund pursues its investment objective by investing
substantially all of its assets in Excelsior Absolute Return Fund of Funds
Master Fund, LLC (the "Company"), a closed-end, non-diversified, management
investment company which has the same investment objective as the Fund. The
Company seeks to achieve its investment objective by investing its assets
primarily in private investment limited partnerships or limited liability
companies and other similar investment vehicles (collectively, "Investment
Funds") that are managed by investment managers utilizing a broad range of
alternative investment strategies.
The financial statements of the Company, including the Schedule of Investments,
are attached to this report and should be read with the Fund's financial
statements. The percentage of the Company's members' equity owned by the Fund at
March 31, 2006 was 86.11%.
U.S. Trust Hedge Fund Management, Inc. serves as the investment adviser of the
Company (the "Adviser"). The Adviser is a wholly-owned subsidiary of U.S. Trust
Company, N.A., and is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). The Adviser provides
various management and administrative services to the Company and the Fund.
The Adviser has retained AIG Global Investment Corp. ("AIG Global"), an indirect
wholly-owned subsidiary of American International Group, Inc., to serve as the
investment sub-adviser of the Company. AIG Global is registered as an investment
adviser under the Advisers Act, and is responsible for Investment Fund selection
and determining the portion of the Company's assets to be allocated to each
Investment Fund, subject to the general supervision of the Adviser.
The Fund's Board of Managers (the "Board") has overall responsibility to manage
and supervise the operations of the Fund and the Company, including the
exclusive authority to oversee and to establish policies regarding the
management, conduct and operation of the Fund's business.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2006
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1. Organization (continued)
Initial and additional 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 members ("Members") pursuant to written
tenders by Members. These repurchase offers will be made at such times and on
such terms as may be determined by the Board, in its sole discretion, subject to
the liquidity of the Company's assets and other factors considered by the Board.
The Adviser expects that, generally, it will recommend to the Board that the
Fund offer to repurchase Interests from Members twice each year, at June 30th
and December 31st. Members can only transfer or assign Interests under certain
limited circumstances.
2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
the Fund's financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
a. Portfolio Valuation
The net asset value of the Fund is determined by, or at the direction of, the
Adviser as of the close of business at the end of each fiscal period (as defined
in the Fund's Limited Liability Company Agreement), in accordance with the
valuation principles set forth below, or as may be determined from time to time
pursuant to policies established by the Board.
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 March 31, 2006. Valuation of
investments held by the Company is discussed in these notes to the Company's
financial statements.
The net unrealized appreciation on investments, which is included in Members'
Equity - Net Assets on the Statement of Assets, Liabilities and Members' Equity
- - Net Assets, reflects the Fund's allocated share of the Company's net
unrealized gain on investments.
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.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2006
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2. Significant Accounting Policies (continued)
b. Fund Expenses
The Fund bears its own expenses and, indirectly, bears a pro rata portion of the
Company's expenses, including, but not limited to: 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
and escrow fees; fees paid to the Fund's administrator; costs of insurance; the
advisory fee; travel and related expenses of Board; all costs with respect to
communications regarding the Fund's transactions among the Adviser and any
custodian or other agent engaged by the Fund; and other types of expenses
approved by the Board.
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 the ordinary operating
expenses of the Fund, to the extent necessary to limit the ordinary operating
expenses of the Fund, including organizational and offering costs and the
proportionate share of the Company's expenses to 2% per annum of the Fund's
average monthly net assets (the "Expense Limitation"). In consideration of the
Adviser's agreement to limit the Fund's expenses, the Fund will carry forward
the amount of expenses waived, paid or absorbed by the Adviser in excess of the
Expense Limitation for a period not to exceed three years from the end of the
fiscal year in which they were incurred, and will reimburse the Adviser such
amounts. Reimbursement will be made as promptly as possible, but only to the
extent it does not cause the Fund's ordinary operating expenses to exceed the
Expense Limitation.
As of March 31, 2006, the Fund has fully reimbursed $1,517,773 of expenses paid
by the Adviser on behalf of the Fund pursuant to the Expense Limitation
Agreement. The Adviser has also agreed to pay back to the Fund $245,987 of
over-reimbursed expenses pursuant to the Expense Limitation Agreement, which is
reflected as Due from Adviser on the Statement of Assets, Liabilities, and
Members' Equity- Net Assets.
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.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2006
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2. Significant Accounting Policies (continued)
c. Income Taxes (continued)
Net investment income or loss and net realized and unrealized gain or loss from
investments of the Fund for each fiscal period are allocated among, and credited
to or debited against, the capital accounts of all Members as of the last day of
each fiscal period in accordance with each member's respective investment
percentage for the fiscal period, as defined in the Fund's Limited Liability
Company Agreement.
The cost of the Fund's investment in the Company for Federal income tax purposes
is based on amounts reported to the Fund by the Company on Schedule K-1 for the
year ended December 31, 2005. At December 31, 2005, the cost for Federal income
tax purposes was $248,535,768. This consisted of aggregate gross unrealized
appreciation of $11,185,211.
d. Other
Cash and cash equivalents consist of amounts maintained in a PFPC Trust Company
interest-bearing account. Interest income is recorded on the accrual basis.
The Fund records its proportionate share of the Company's investment income,
expenses and realized and unrealized gain and losses.
3. Management Fee, Related Party Transactions and Other
As of March 31, 2006, the Adviser's employees and affiliates have a combined
interest of approximately 14.32% of the Fund's Members' equity - net assets.
The Adviser provides certain investment advisory services and incurs travel and
other expenses related to the selection and monitoring of investment managers
for the Company's Investment Funds pursuant to the terms of an advisory
agreement between the Adviser and the Company ("the Advisory Agreement". For the
fiscal year ended March 31, 2006, the Company paid $2,844,351 to the Adviser
pursuant to the Advisory Agreement.
Pursuant to a management agreement (the "Management Agreement") between the Fund
and the Adviser, the Adviser provides certain management and administrative
services to the Fund including providing office space and other support
services, maintaining files and records, and preparing and filing various
regulatory materials. In consideration for such services under the Management
Agreement, the Fund pays the Adviser a quarterly management fee at an annual
rate of 0.5% of the Fund's net assets on the first business day of each quarter
after adjustments for any subscriptions effective on that date. For the fiscal
year ended March 31, 2006, the management fee was $1,228,797, of which $312,157
was payable as of March 31, 2006.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2006
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3. Management Fee, Related Party Transactions and Other (continued)
In connection with the services provided by AIG Global pursuant to an investment
sub-advisory agreement between the Adviser and AIG Global, the Adviser pays AIG
Global a quarterly fee computed by applying the following annual rates to the
Company's average monthly net assets determined on the first business day of
each month: 0.80% of assets not exceeding $200 million; .70% of assets exceeding
$200 million but less than $400 million; .60% of assets exceeding $400 million
but less than $800 million; and .50% of assets exceeding $800 million.
The Board is made up of three Managers who are independent of the Investment
Manager and the Advisor (the "Disinterested Managers"), and one manager who is
an "interested person" as defined by 2(a) (19) of the Investment Company Act of
1940, as amended. The Disinterested Managers receive two thousand dollars
($2,000) per meeting attended and seven thousand dollars ($7,000) annually for
their services. The chairperson receives an additional five hundred ($500) per
meeting and an additional one thousand dollars ($1,000) annually. The audit
committee chairperson receives an additional five hundred dollars ($500)
annually. All Disinterested Managers may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the Board or
of any committee thereof and for their expenses, if any, in connection with any
other service or activity they perform or engage in as directors. The Manager
who is an "interested person" does not receive any annual or other fee from the
Fund. The Fund incurred $49,685 of annual retainer and per meeting fees for
fiscal year ended March 31, 2006, none of which was payable as of March 31,
2006.
The Fund has retained J.D. Clark & Co. (the "Administrator") to provide
accounting and certain administrative and investor services to the Company. 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 fiscal year ended March 31, 2006, the Company incurred $197,584
in expenses related to such administrative services, none of which was payable
as of March 31, 2006.
4. 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.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (continued)
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March 31, 2006
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5. 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.
6. Subsequent Events
Subsequent to March 31, 2006, the Fund received subscriptions for Interests from
Members in the amount of $2,245,000. These subscriptions became interests in the
Fund effective April 1, 2006. The Fund also invested $2,245,000 in the Company
as of April 1, 2006.
Excelsior Absolute Return Fund of Funds, LLC
Company Management (Unaudited)
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March 31, 2006
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Information pertaining to the Board of Managers and officers of the Fund is set
forth below:
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Held with the and Length of Overseen by
Name, Address, and Age Fund Time Served Principal Occupation During Past Five Years Manager
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Disinterested Managers
<s> <c> <c> <c> <c>
Virginia G. Breen Manager (Chair) Term - Partner, Sienna Ventures(1/05 - present); Partner, Blue 3
230 Lackwanna Dr. Indefinite; Rock (8/95 to present); Also a manager of Excelsior
Andover,NJ 07821 Length - since Buyout Investors LLC,Excelsior Absolute Return Fund of
Age 41 June 2003 Funds Master Fund LLC and Excelsior LaSalle Property
Fund Inc.
Jonathan B. Bulkeley Manager Term - CEO of Scanbuy, a wireless software company (3/06 to 3
1133 5th Ave., Apt. 3 Indefinite; present); Managing Partner of Achilles Partners (10/01 to
New York NY 10128 Length - since 3/06); Non-Executive Chairman of QXL, PLC (2/98 to
Age 45 2/05); Chairman and CEO, Lifeminders, an online direct
marketing company (2/01 to 10/01); CEO,
barnesandnoble.com (12/98 to 1/00). Also a manager of
Excelsior Buyout Investors, LLC, Excelsior Absolute
Return Fund of Funds Master Fund, LLC, and Excelsior
LaSalle Property Fund, Inc.
Thomas F. McDevitt Manager Term - Managing Partner of Edgewood Capital Partners and 3
Edgewood Capital Indefinite; President of Edgewood Capital Advisors (5/02 to present);
1055 Summer St. Length - since Managing Director, Societe Generale (6/98 to 3/02); Also
Stamford,CT 06905 June 2003 a manager of Excelsior Buyout Investors LLC, Excelsior
Age 49 Absolute Return Fund of Funds Master Fund LLC and
Excelsior LaSalle Property Inc.
Interested Manager
James L. Bailey* Manager and Term - Executive Vice President and Chief Operating Officer of 3
U.S. Trust Company Co-Chief Indefinite; U.S. Trust(4/06 to present), United Trust Company of New
225 High Ridge Road Executive Length - since York(12/04 to 3/06) and U.S.Trust Corporation (12/04 to
Stamford, CT 06905 Officer June 2005 present); Executive Vice President of United Trust Company
Age 60 of New York and U.S. Trust Corporation (1/03 to 12/04);
Chairman and Director of U.S. Trust Hedge Fund
Management Inc.(12/05 to 4/06);President, Excelsior
Funds, Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior
Funds Trust (2003 to 7/04); Consultant in the financial
services industry (8/00 to 1/03). Also a manger of Excelsior
Buyout Investors, LLC,Excelsior Absolute Return Fund of
Funds Master Fund,LLC, Excelsior LaSalle Property Fund,
Inc.,Excelsior Tax-Exempt Funds, Inc., Excelsior Funds
Trust and Excelsior Funds, Inc.
* Manager is an "interested person" (as defined by the 1940 Act) of the Fund
because of his affiliation with the Adviser and its affiliates.
Excelsior Absolute Return Fund of Funds, LLC
Company Management (Unaudited) Continued
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March 31, 2006
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Number of
Portfolios in
Position(s) Term of Office Fund Complex
Held with the and Length of Overseen by
Name, Address, and Age Fund Time Served Principal Occupation During Past Five Years Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Officers who are not Managers
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Lee Gardella Co-Chief Term - Senior Vice President, CTC Consultin, Inc. (1/06 to N/A
U.S. Trust Company Executive Officer Indefinite; present); Senior Vice President and Portfolio Manger,
225 High Ridge Road Length - Officer UST Advisers, Inc. (12/05 to present); Senior Vice
Stamford, CT 06905 since June 2003, President, U.S. Trust(4/06 to present) and U.S. Trust
Age 38 Co-Chief Company, N.A.(3/00 to 3/06); Vice President, U.S. Trust
Executive Officer Hedge Fund Management, Inc. (7/04 to present) and
since June 2005 Director (5/03 to present).
Robert F. Aufenanger Chief Financial Term - President and Director, UST Advisers, Inc. (12/05 to N/A
U.S. Trust Company Officer and Indefinite present); Senior Vice President, Alternative Investments
225 High Ridge Road Treasurer Length - since Division, U.S. Trust Company, N.A. (4/03 to 3/06); Chief
Stamford, CT 06905 June 2003 Financial Officer, Treasurer and Director, U.S. Trust
Age 52 Hedge Fund Management, Inc. (7/03 to present);
Consultant to private equity funds (1/02 to 3/03); Chief
Financial Officer, Icon Holding Corp. (12/99 to 12/01).
Stefanie A Firtell Chief Term - Chief Compliance Officer of U.S. Trust's Alternative N/A
U.S. Trust Company Compliance Indefinite Investments Division and Vice President of U.S. Trust
114 West 47th Street Officer Length - since (4/05 to present); Assistant Vice President,Deutsche Asset
New York, NY 10036 November 2005 Management (8/03 to 3/05); Assistant Corporate
Age 32 Secretary,Triarc Companies, Inc.(5/02 to 7/03);
Corporate Staff Attorney, Paul Weiss Rifkind Wharton &
Garrison (3/01 to 5/02).
All officers of the Fund are employees and/or officers of the Investment
Adviser.
The SAI (or Statement of Additional Information) includes additional information
about the managers of the Fund and is available upon request.
EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS MASTER FUND, LLC
Financial Statements
With Report of Independent Registered Public Accounting Firm
Year Ended March 31, 2006
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Statements
Year Ended March 31, 2006
Contents
Report of Independent Registered Public Accounting Firm....................... 1
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
March 31, 2006........................................................... 2
Schedule of Investments as of March 31, 2006.................................. 3
Statement of Operations for the Year Ended March 31,2006...................... 4
Statements of Changes in Members' Equity - Net Assets for the Years Ended
March 31, 2006 and 2005................................................. 5
Statement of Cash Flows for the Year Ended March 31,2006...................... 6
Financial Highlights for the Years Ended March 31, 2006 and 2005, and for the
Period December 1, 2003 through March 31,2004........................... 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 December 31 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Report of Independent Registered Public Accounting Firm
To the Members and Board of Managers of
Excelsior Absolute Return Fund of Funds Master Fund, LLC
We have audited the accompanying statement of assets, liabilities and members'
equity - net assets of Excelsior Absolute Return Fund of Funds Master Fund, LLC
(the "Company"), including the schedule of investments, as of March 31, 2006,
and the related statements of operations, and cash flows for the year then ended
and the statement of changes in members' equity - net assets for the years ended
March 31, 2006 and 2005, and the financial highlights for the two year period
then ended and for the period December 1, 2003 (commencement of operations)
through March 31, 2004. These financial statements and financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
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 Company 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 Company'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, 2006, 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of
Excelsior Absolute Return Fund of Funds Master Fund, LLC as of March 31, 2006,
the results of its operations and its cash flows for the year then ended and the
changes in its members' equity - net assets for the years ended March 31, 2006
and 2005, and the financial highlights for the two year period then ended, and
for the period December 1, 2003 (commencement of operations) through March 31,
2004, in conformity with accounting principles generally accepted in the Unites
States of America.
\s\ Deloitte & Touche LLP
May 25, 2006
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Assets,Liabilities and Members' Equity - Net Assets
- --------------------------------------------------------------------------------
March 31, 2006
- --------------------------------------------------------------------------------
ASSETS
Investments in Investment Funds, at fair value(cost $246,021,518) $293,329,248
Cash and cash equivalents 3,849,944
Due from investment fund 675,082
Other assets 8,396
- --------------------------------------------------------------------------------
Total Assets 297,862,670
- --------------------------------------------------------------------------------
LIABILITIES
Due to Adviser 759,534
Professional fees payable 62,500
Bank note facility fee and interest payable 23,437
Other payables 2,500
- --------------------------------------------------------------------------------
Total Liabilities 847,971
- --------------------------------------------------------------------------------
Net Assets $297,014,699
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $249,706,969
Net unrealized appreciation on investments 47,307,730
- --------------------------------------------------------------------------------
Members' Equity - Net Assets $297,014,699
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments
- --------------------------------------------------------------------------------
March 31, 2006
- -------------------------------------------------------------------------------
% of First
First Members' %Ownership Available
Acquisition Fair Equity of Investment Redemption
Date Cost* Value* Net Assets Fund Date** Liquidity***
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income
- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Citadel Wellington, LLC 12/01/2003 $17,350,000 $21,731,237 7.32% 0.51% N/A Quarterly
Highbridge Capital Corporation-Class A 12/01/2003 11,250,000 13,550,581 4.56% 0.24% N/A Quarterly
MKP Opportunity Partners, L.P. 12/01/2003 2,500,000 2,881,977 0.97% 2.83% N/A Monthly
MKP Partner, L.P. 12/01/2003 2,600,000 2,755,110 0.93% 3.39% N/A Quarterly
Polygon Global Opportunities Fund, L.P. 8/01/2004 10,200,000 12,921,634 4.35% 2.73% N/A Quarterly
Suttonbrook Capital Partners, L.P. 10/01/2004 9,500,000 11,170,300 3.76% 6.46% N/A Quarterly
The Fuller & Thaler International Long/Short
Fund, L.P. 2/01/2006 5,000,000 5,026,106 1.69% 9.97% N/A Quarterly
----------------------------------
Strategy Total 58,400,000 70,033,945 23.58%
----------------------------------
Equity
- ------
<s> <c> <c> <c> <c> <c> <c> <c>
Cantillon World, L.P. 12/01/2003 5,050,000 6,222,195 2.09% 1.32% N/A Quarterly
Copper Beech Partners II, L.P. 12/01/2003 7,750,000 8,770,345 2.95% 5.32% N/A Quarterly
Galleon Diversified Fund, Ltd.-Class E 12/01/2003 12,600,000 14,887,991 5.01% 2.35% N/A Quarterly
Glenview Capital Partners, L.P. 12/01/2003 11,300,000 16,349,163 5.50% 5.47% N/A Quarterly
Heirloom Qualified Partners, L.P. 12/01/2003 5,350,000 6,645,793 2.24% 7.70% N/A Quarterly
Maverick Levered Partners, L.P. 5/01/2004 6,000,000 6,496,744 2.19% 0.82% 5/1/07 Quarterly
North River Partners,L.P. 7/01/2005 9,000,000 9,531,709 3.21% 2.11% 7/1/06 Quarterly
Shoshone Partners,L.P. 12/01/2003 10,500,000 15,065,400 5.07% 3.35% N/A Annually
The Mako Europe Fund, L.P. 12/01/2003 5,000,000 6,103,716 2.06% 24.28% N/A Monthly
------------------------------------
Strategy Total 72,550,000 90,073,056 0.33%
------------------------------------
Macro/CTA/Short-Term Trading
- ----------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Bridgewater Pure Alpha Trading Co. Ltd.-
Class B 2/01/2004 6,400,000 7,365,352 2.48% 0.14% N/A Monthly
Caxton Global Investments (USA) LLC 1/01/2005 9,000,000 10,396,406 3.50% 1.99% N/A Annually
Placer Creek Partners, L.P. 1/01/2006 10,000,000 11,530,079 3.88% 3.34% N/A Semi-annually
Sunrise Commodities Select Portfolio-
Davco Fund, L.P. 12/01/2003 7,450,000 7,894,429 2.66% 2.64% N/A Monthly
The Capital Fund (Domestic), LLC 12/01/2003 5,000,000 5,217,780 1.76% 14.30% N/A Monthly
-----------------------------------
Strategy Total 37,850,000 42,404,046 14.28%
-----------------------------------
Event Driven
- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Brencourt Multi-Strategy, L.P. 9/01/2005 8,421,518 8,943,815 3.01% 6.14% N/A Quarterly
Castlerigg Partners, L.P. 12/01/2003 16,000,000 20,060,696 6.75% 4.01% N/A Quarterly
Canyon Value Realization Fund, L.P. 12/01/2003 12,500,000 15,979,241 5.38% 0.86% N/A Annually
Empyrean Capital Fund, L.P. 7/01/2004 11,500,000 12,666,721 4.26% 2.28% N/A Monthly
K Capital Scructural Arbitrage
Offshore, L.P. 10/01/2005 2,800,000 2,821,251 0.95% 0.41% 10/1/07 Annually
OZ Europe Domestic Partners II, L.P. 10/01/2005 11,500,000 12,634,802 4.25% 5.69% 12/31/07 Quarterly
York Capital Management, L.P. 7/01/2004 14,500,000 17,711,675 5.96% 3.11% N/A Annually
-----------------------------------
Strategy Total 77,221,518 90,818,201 30.58%
-----------------------------------
Total Investments in investment funds $246,021,518 293,329,248 98.76%
============
Other Assets, Less Liabilities 3,685,451 1.24%
---------------------
Members' Equity - Net Assets $297,014,699 100.00%
======================
* See definition in Note 2a. N/A Initial lock-up period has either expired prior to
** From original investment date. March 31, 2006 or the Investment Fund did not
*** Available frequency of redemptions after initial lock-up have an initial lock-up period. However specific
period. redemption restrictions may apply.
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Operations
Year Ended March 31, 2006
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 220,403
- --------------------------------------------------------------------------------
Total Investment Income 220,403
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Advisory fee 2,844,351
Professional fees 102,711
Bank facility fee and interest expense 92,106
Administration fees 24,000
Other 48,419
- --------------------------------------------------------------------------------
Total Operating Expenses 3,111,589
- --------------------------------------------------------------------------------
Net Investment Loss (2,891,184)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investments in (1,938,551)
Investment Funds
Net change in unrealized appreciation on investments in 29,530,719
Investment Funds
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 27,592,168
- --------------------------------------------------------------------------------
INCREASE IN MEMBERS' EQUITY - NET ASSETS
DERIVED FROM OPERATIONS $ 24,700,984
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Changes in Members' Equity - Net Assets
- --------------------------------------------------------------------------------
For the year ended For the year ended
March 31, 2006 March 31, 2005
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (2,891,184) $ (2,154,033)
Net realized gain (loss) from investments (1,938,551) 362,933
Net change in unrealized appreciation 29,530,719 13,832,449
on investments
- --------------------------------------------------------------------------------
Increase in Members' Equity - Net
Assets Derived from Operations 24,700,984 12,041,349
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Members' subscriptions 42,459,726 164,246,463
Members' interests repurchased (21,875,840) (7,587,506)
- --------------------------------------------------------------------------------
Increase in Members' Equity - Net Assets
Derived From Capital Transactions 14,583,888 156,658,957
- --------------------------------------------------------------------------------
Net Increase in Members' Equity - Net Assets 45,284,870 168,700,306
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF PERIOD 251,729,829 83,029,523
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
AT END OF PERIOD $297,014,699 $251,729,829
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Cash Flows
Year Ended March 31, 2006
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $24,700,984
Adjustments to reconcile net increase in members' equity -
net assets derived from operations to net cash provided by
operating activities:
Net change in unrealized appreciation on investments (29,530,719)
Net realized loss from investments in Investment Funds 1,938,551
Proceeds from Investment Funds 56,811,449
Purchases of Investment Funds (50,721,521)
Increase in due from Investment Funds (234,338)
Increase in other assets (5,791)
Increase in bank note facility fee and interest payable 23,437
Decrease in due to Adviser (16,251)
Increase in professional fees 2,500
Decrease in administration fees payable (6,000)
Increase in other payable 2,503
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,964,804
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from member subscriptions 42,459,726
Payments for member interests repurchased (21,875,840)
Decrease in due to Custodian (19,698,746)
- --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 885,140
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,849,944
Cash and cash equivalents at beginning of period 0
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $3,849,944
- --------------------------------------------------------------------------------
Supplementary Disclosure of Cash Flow Information
Cash paid during the year for interest $ 68,669
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Highlights
- --------------------------------------------------------------------------------
The following represents the ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
For the period
from December
For the year ended For the year ended 1, 2003* -
March 31, 2006 March 31, 2005 March 31, 2004
-------------------------------------------
Net assets, end of period $297,014,699 $251,729,829 $ 83,029,523
Ratio of net investment loss to
average members' equity -
net assets (a)(b) (1.01%) (1.09%) (0.54%)
Ratio of expenses to average 1.09% 1.11% 0.54%
members' equity - net
assets (a)(b)
Portfolio turnover 20.24% 7.07% -
Total return (c) 8.93% 5.26% 5.02%
* Commencement of Operations. The ratios and total return are not annualized
for the period.
(a) Ratio doesn't reflect the Company's proportionate share of the net income
(loss) and expenses, including incentive allocation, of the Investment
Funds.
(b) Average members' equity - net assets is determined using the net assets at
the end of each month during the period.
(c) Total return assumes a purchase of an interest in the Company
on the first day and a sale of interest on the last day of the period.
The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements
March 31, 2006
- --------------------------------------------------------------------------------
1. Organization
Excelsior Absolute Return Fund of Funds Master Fund, LLC (the "Company") was
organized as a limited liability company under the laws of Delaware on June 17,
2003, and commenced operations on December 1, 2003. The Company is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, closed-ended management investment company. The Company's
investment objective is to provide attractive long-term, risk-adjusted absolute
returns in a variety of capital market conditions. The Company pursues its
investment objective by investing its assets primarily in private investment
limited partnerships, limited liability companies, joint ventures and other
similar investment vehicles (collectively, the "Investment Funds") that are
managed by a select group of alternative investment managers ("Investment
Managers") that utilize a broad range of alternative investment strategies.
U.S. Trust Hedge Fund Management, Inc. serves as the investment Adviser of the
Company (the "Adviser"). The Adviser is a wholly-owned subsidiary of U.S. Trust
Company, N.A., and is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended. The Adviser is responsible for developing,
implementing and supervising the investment program and providing day-to-day
management services.
The Adviser has retained AIG Global Investment Corp. ("AIG Global"), an indirect
wholly-owned subsidiary of American International Group, Inc., to serve as the
investment manager of the Company. AIG Global is responsible for Investment Fund
selection and determining the portion of the Company's assets to be allocated to
each Investment Fund, subject to the general supervision of the Adviser.
The Company's Board of Managers (the "Board") has overall responsibility to
manage and supervise the operations of the Company, including the exclusive
authority to oversee and to establish policies regarding the management, conduct
and operation of the Company's business.
The Company was established to hold substantially all of the assets of Excelsior
Absolute Return Fund of Funds, LLC (the "Feeder Fund") and Excelsior Absolute
Return Fund of Funds, Ltd. (the "Offshore Fund") as members of the Company
("Members"). As of March 31, 2006, the Feeder Fund and Offshore Fund ownership
of the Company's Members' Equity - Net Assets were 86.11% and 13.89%,
respectively.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2006
- --------------------------------------------------------------------------------
1. Organization (continued)
Member subscriptions for interests in the Company ("Interests") by eligible
investors may be accepted as of the first day of each calendar quarter, or at
such times as the Board may determine. The Company may, from time to time, offer
to repurchase Interests from Members pursuant to written tenders by Members.
These repurchase offers will be made at such times and on such terms as may be
determined by the Board, in its sole discretion, subject to the liquidity of the
Company's assets and other factors considered by the Board. The Adviser expects
that, generally, it will recommend to the Board that the Company offer to
repurchase Interests from Members twice 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.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2006
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
As a general matter, the fair value of the Company's interest in an Investment
Fund will represent the amount that the Adviser could reasonably expect to
receive from the Investment Fund if the Company's interest were redeemed at the
time of valuation, based on information reasonably available at the time the
valuation is made and that the Adviser believes to be reliable. The Adviser or,
in certain cases, the Board, will consider such information, and may conclude in
certain circumstances that the information provided by an Investment Fund's
manager does not represent the fair value of the Company's interests in an
Investment Fund. Following procedures adopted by the Board, and in the absence
of specific transaction activity in interests in a particular Investment Fund,
the Company could consider whether it was appropriate, in light of all relevant
circumstances, to value such a position at the Investment Fund's net asset value
as reported at the time of valuation, or whether to adjust such value to reflect
a premium or discount to net asset value. Any such decision must be made in good
faith, and subject to the review and supervision of the Board. Because of the
inherent uncertainty of valuation, the values of the Company's investments may
differ significantly from the values that would have been used had a ready
market for the investments held by the Company been available.
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 fund.
b. Company Expenses
The Company bears certain expenses incurred in its business, including, but not
limited to, the following: fees paid directly or indirectly to the Investment
Managers of the Investment Funds, all costs and expenses directly related to
portfolio transactions and positions for the Company's account; legal fees;
accounting and auditing fees; custodial fees; fees paid to the Company's
administrator; costs of insurance; advisory fees; travel and related expenses of
the Board; all costs with respect to communications regarding the Company's
transactions among the Adviser and any custodian or other agent engaged by the
Company; and other types of expenses approved by the Board.
c. Income Taxes
As a limited liability company, no provision for the payment of Federal, state
or local income taxes has been provided by the Company. Each Member is
individually required to report on its own tax return its share of the Company's
taxable income or loss. The Company has a tax year end of December 31.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2006
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
c. Income Taxes
Net investment income or loss and net realized and unrealized gain or loss from
investments of the Company for each fiscal period are allocated among, and
credited to or debited against, the capital accounts of all Members as of the
last day of each fiscal period in accordance with each Member's respective
investment percentage for the fiscal period, as defined in the Company's Limited
Liability Company Agreement.
The cost of the Company's investment in Investment Funds for Federal income tax
purposes is based on amounts reported to the Company by the Investment Funds on
a Schedule K-1 or PFIC annual information statement for the year ended December
31, 2005. Based on Investment Funds owned at December 31, 2005, the cost of
investments for Federal income tax purposes was $267,036,311. This consisted of
aggregate gross unrealized appreciation of $12,751,547 and aggregate gross
unrealized depreciation of $1,128,622.
3. Advisory Fee, Related Party Transactions and Other
The Company pays the Adviser a quarterly advisory fee at an annual rate of 1%,
based on the Company's net assets on the first business day of each month, after
adjustments for any subscriptions effective on that date. For the year ended
March 31, 2006, the advisory fee was $2,844,351, of which $722,595 is included
in "Due to Adviser" as of March 31, 2006.
As of March 31, 2006 the Company owes the Adviser $36,939 for certain
reimbursable operating expenses paid on behalf of the Company of which $215,310
was paid by the Adviser during the year ended March 31, 2006.
In connection with the services provided by AIG Global pursuant to the
investment sub-advisory agreement between the Adviser and AIG Global, the
Adviser pays AIG Global a quarterly fee computed by applying the following
annual rates to the Company's average monthly net assets determined on the first
business day of each month: 0.80% of assets not exceeding $200 million; .70% of
assets exceeding $200 million but less than $400 million; .60% of assets
exceeding $400 million but less than $800 million; and .50% of assets exceeding
$800 million.
The Company has retained J.D. Clark & Co. (the "Administrator) to provide
accounting and certain administrative and investor services to the Company. In
connection with such services provided, the Company pays the Administrator a
quarterly fee equal to $3,000 per fund invested in the Company. For the year
ended March 31, 2006, the Company incurred $24,000 in expenses related to such
administrative services, none of which was payable as of March 31, 2006.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2006
- --------------------------------------------------------------------------------
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, 2006, the Company had investments in twenty-eight 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 1.0% to 2.0% (per annum) of net assets and incentive
fees or allocations ranging from 20% to 25% of net profits earned. The
Investment Funds provide for periodic redemptions, with lock-up provisions
ranging from one month to one year from initial investment.
Aggregate purchases and proceeds of interests in Investment Funds for the year
ended March 31, 2006 are $71,921,521 and $56,811,449, respectively.
6. Bank Note- Line of Credit Facility
On May 2, 2005 the Company entered into a $25,000,000 revolving line of credit
agreement with a U.S. financial institution that is collateralized by the
Company's cash and investments. Based upon the election of the Company, interest
accrues at either the financial institution's prime rate less 1.25% per annum or
Libor plus 1.5% per annum. The note also included a provision for a facility fee
of 0.375% per annum on the unused portion of the note. For the year ended March
31, 2006, the Company incurred $92,106 in facility fees and interest expense
related to the bank line of credit. As of March 31, 2006 the Company did not
have any revolving note balance outstanding.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2006
- --------------------------------------------------------------------------------
7. Guarantees
In the normal course of business, the Company enters into contracts that provide
general indemnifications. The Company's maximum exposure under these
arrangements is dependent on future claims that may be made against the Company,
and therefore, cannot be established; however, based on experience, the risk of
loss from such claim is considered remote.
8. Subsequent Events
As of April 1, 2006, the Company received subscriptions for interests from
Members in the amount of $3,145,000. These subscriptions became interests in the
Company effective April 1, 2006. The Company also withdrew $13,156,107 from two
Investment Funds as of April 1, 2006.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Company Management (unaudited)
March 31, 2006
- --------------------------------------------------------------------------------
Information pertaining to the Board of Managers and officers of the Company is
set forth below:
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Held with and Length of Principal Occupation Overseen by
Name, Address and Age the Fund Time Served During Past Five Years Manager
- ---------------------------------------------------------------------------------------------------------------
Disinterested Managers
<s> <c> <c> <c> <c>
Virginia G. Breen Manager Term - Partner, Sienna Ventures (1/05 - 3
230 Lackwanna Dr. (Chair) Indefinite; present); Partner, Blue Rock (8/95 to
Andover, NJ 07821 Length - present); Also a manager of Excelsior
Age 41 since June Buyout Investors LLC, Excelsior Absolute
2003 Return Fund of Funds Master Fund LLC and
Excelsior LaSalle Property Fund Inc.
Jonathan B. Bulkeley Manager Term - CEO of Scanbuy, a wireless software 3
1133 5th Ave., Apt. 3 Indefinite; company (3/06 to present); Managing
New York, NY 10128 Length - Partner of Achilles Partners (10/01 to
Age 45 since June 3/06); Non-Executive Chairman of QXL, PLC
2003 (2/98 to 2/05); Chairman and CEO,
Lifeminders, an online direct marketing
company (2/01 to 10/01); CEO,
barnesandnoble.com (12/98 to 1/00). Also
a manager of Excelsior Buyout Investors,
LLC, Excelsior Absolute Return Fund of
Funds, LLC, and Excelsior LaSalle
Property Fund, Inc.
Thomas F. McDevitt Manager Term - Managing Partner of Edgewood Capital 3
Edgewood Capital Indefinite; Partners and President of Edgewood
1055 Summer St. Length - Capital Advisors (5/02 to present);
Stamford, CT 06905 since June Managing Director, Societe Generale (6/98
Age 49 2003 to 3/02); Also a manager of Excelsior
Buyout Investors LLC, Excelsior Absolute
Return Fund of Funds Master Fund LLC and
Excelsior LaSalle Property Inc.
Interested Manager
James L. Bailey* Manager and Term - Executive Vice President and Chief 3
U.S. Trust Company Co-Chief Indefinite; Operating Officer of U.S. Trust (4/06 to
225 High Ridge Road Executive Length- present), United Trust Company of New
Stamford, CT 06905 Officer since June York (12/04 to 3/06) and U.S. Trust
Age 60 2005 Corporation (12/04 to present); Executive
Vice President of United Trust Company of
New York and U.S. Trust Corporation (1/03
to 12/04); Chairman and Director of U.S.
Trust Hedge Fund Management Inc. (12/05
to 4/06); President, Excelsior Funds,
Inc., Excelsior Tax-Exempt Funds, Inc.
and Excelsior
</Table>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Held with and Length of Principal Occupation Overseen by
Name, Address and Age the Fund Time Served During Past Five Years Manager
- ---------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
James L. Bailey Funds Trust (2003 to 7/04); Consultant in
(continued)* the financial services industry (8/00 to
(1/03). Also a manager of Excelsior Buyout
Investors, LLC, Excelsior Absolute Return
Fund of Funds, LLC, Excelsior LaSalle
Property Fund, Inc., Excelsior Tax-Exempt
Funds, Inc., Excelsior Funds Trust and
Excelsior Funds, Inc.
* Manager is an "interested person" (as defined by the 1940 Act) of the Fund
because of his affiliation with the Adviser and its affiliates.
Officers who are not Managers
Lee Gardella Co-Chief Term - Senior Vice President and Vice President in N/A
U.S. Trust Company Executive Indefinite U.S. Trust's Alternative Investments
225 High Ridge Road Officer Length- Division (9/97 to present); Vice President
Stamford, CT 06905 Officer of Excelsior Private Equity Fund II, Inc.
Age 38 since June (10/97 to present) and Excelsior Venture
2003; Partners III, LLC (5/00 to present).
Co-Chief
Executive
Officer
since June
2005
Robert F. Aufenanger Chief Term - Chief Financial Officer and Treasurer of U.S. N/A
U.S. Trust Company Financial Indefinite Trust's Alternative Investments Division
225 High Ridge Road Officer Length- and Senior V.P. of U.S. Trust (4/03 to
Stamford, CT 06905 and since present); Independent consultant to private
Age 52 Treasurer June 2003 equity funds (1/02 to 3/03); Chief Financial
Officer, IconHolding Corp. (12/99 to 12/01).
Stefanie A. Firtell Chief Term - Chief Compliance Officer of U.S. Trust's N/A
U.S. Trust Company Compliance Indefinite Alternative Investments Division and Vice
114 West 47th Street Officer Length President of U.S. Trust (4/05 to present);
New York, NY 10036 since Assistant Vice President, Deutsche Asset
Age 32 November Management (8/03 to 3/05); Assistant
2005 Corporate Secretary, Triarc Companies, Inc.
(5/02 to 7/03); Corporate Staff Attorney,
Paul Weiss Rifkind Wharton & Garrison
(3/01 to 5/02).
All officers of the Fund are employees and/or officers of the Investment
Adviser. The SAI (or Statement of Additional Information) includes additional
information about the managers of the Fund and is available upon request.
ITEM 2. CODE OF ETHICS.
- -------------------------
The Registrant has adopted a code of ethics that applies to the Registrant's
co-principal executive officers, principal financial officer, principal
accounting officer or controller or persons performing similar functions. For
the fiscal year ended March 31, 2006, there were no amendments to a provision of
the code of ethics, nor were 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 Virginia G. Breen
and Jonathan B. Bulkeley possess the technical attributes identified in
Instruction 2(b) of Item 3 to Form N-CSR to qualify as "audit committee
financial experts", and has designated Ms. Breen and Mr. Bulkeley as the Audit
Committee's financial experts. Ms. Breen and Mr. Bulkeley are "independent"
Managers 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 for the fiscal years ended March 31, 2005 and March 31,
2006 were $29,000 and $45,118 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, 2006, were $0 and
$754,000, 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 March 31, 2005, were $0 and $618,675,
respectively.
(h) The Registrant's audit committee has considered whether the provision of
non-audit services that may be 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. No such
services were rendered.
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
- --------------------------------------------------------------------------
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and
Description of Role of Portfolio Manager(s) or Management Team Members - As of
the date of the filing.
The following individuals at the Sub-Adviser have primary responsibility for
managing the Company.
Robert Discolo, CFA, is a Managing Director, Alternative Investments and Head of
the Hedge Fund Strategies Group. Mr. Discolo joined AIGGIG in 1999. Mr. Discolo,
who is also a member of AIGGIG's Hedge Fund Investment Selection and Asset and
Strategy Allocation Committees, has over 20 years experience with major
financial institutions in various capacities relating to investment products,
primarily hedge and private equity funds. Previously, he held positions at
PaineWebber Inc., Bank Julius Baer, and Merrill Lynch & Co., where his
responsibilities included creating portfolios of hedge funds for private and
institutional clients, development of hedge fund and private equity products,
oversight of business structure and development for hedge funds and hedge fund
of funds, and managing the evaluation and selection process of hedge funds for
both discretionary and advisory clients. Mr. Discolo was also President of the
European Warrant Fund (a NYSE listed closed-end fund) and Julius Baer
International Equity Fund. Mr. Discolo received a BS in accounting from St.
John's University and an MBA from the Lubin School of Business at Pace
University. He holds Series 7 and Series 24 licenses and he is a CFA and CAIA
charterholder. Mr. Discolo is also a CPA and a member of the AICPA, CFA
Institute, CAIA Institute, GARP, and NY State Society of Security Analysts.
Eileen Casey, CFA, CPA, is a Managing Director and Head of Hedge Fund Research,
Hedge Fund Strategies Group. Ms. Casey joined AIGGIG in 1998, bringing with her
over eight years of experience in accounting and investment management. She is
responsible for coordinating portfolio manager research for the Hedge Fund
Strategies Group, monitoring existing investments and making recommendations for
investments to the Investment Selection Committee for portfolio construction.
Ms. Casey is also involved in all aspects of the investment process including
sourcing new managers, manager due diligence, risk management and portfolio
construction. Previously, Ms. Casey was at Fischer, Francis, Trees & Watts,
Inc. as the manager of their Client Services Group. Prior to that, she was with
Neuberger & Berman and Arthur Andersen & Co. Ms. Casey is a CFA charterholder
and also a CPA. She received a BS in Accounting and Finance from Fairfield
University.
Vinti Khanna is a Vice President, Hedge Fund Strategies Group. Ms. Khanna joined
AIGGIG in 2002. She is the Assistant Director of Hedge Fund Research, with asset
management experience since 1997. She is responsible for manager research,
portfolio monitoring and structuring, and making investment recommendations to
the Investment Selection Committee. Before joining AIGGIG, she was an Associate
at Goldman Sachs Princeton, The Hedge Fund Strategies Group, from 1999 to 2002.
Her responsibilities included conducting analysis on multi-manager hedge fund
portfolios, analyzing and evaluating hedge fund managers using diverse
strategies in alternative investments, and recommending new managers for
funding. From 1997 to 1999, she was in the Emerging Markets Equities Group at
Goldman Sachs Asset Management with a focus on Latin America. Ms. Khanna
received a BA from the University of Delhi, India and an MBA from SDA Bocconi in
Milan, Italy. Ms. Khanna holds Series 7 and Series 63 licenses.
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member
and Potential Conflicts of Interest
Other Accounts Managed by Portfolio Manager(s) or Management Team Members- As of
March 31, 2006:
The following table indicates the type (Registered Investment Company ("RIC"),
Other Pooled Investments ("OPI"), and Other Accounts ("OA")), number of
accounts, and total assets of the accounts for which each Portfolio Manager had
day-to-day responsibilities as of March 31, 2006. Please note that one
Registered Investment Company and fourteen Other Pooled Investments accounts are
subject to performance-based fees (*).
No. of Accounts Market Value
Robert Discolo
RIC 2 $365,171,850
performance fee* 1 $67,905,150
OPI* 15 $3,404,772,355
performance fee* 14 $3,377,501,385
OA 7 $2,926,646,622
Eileen Casey
RIC 2 $365,171,850
performance fee* 1 $67,905,150
OPI* 15 $3,404,772,355
performance fee* 14 $3,377,501,385
OA 7 $2,926,646,622
Vinti Khanna
RIC 2 $365,171,850
performance fee* 1 $67,905,150
OPI* 15 $3,404,772,355
performance fee* 14 $3,377,501,385
OA 7 $2,926,646,622
Potential Conflicts of Interest
AIG Global Investment Corp. ("AIGGIC") aims to conduct its activities in such a
manner that permits it to deal fairly with each of its clients on an overall
basis in accordance with applicable securities laws and fiduciary obligations.
In that regard, AIGGIC has adopted and implemented policies and procedures,
including brokerage and trade allocation policies and procedures, which AIGGIC
believes address the conflicts associated with managing multiple accounts for
multiple clients (including affiliated clients). AIGGIC also monitors a variety
of areas, including compliance with guidelines of the Fund and other accounts it
manages and compliance with AIGGIC's Code of Ethics. Furthermore, AIGGIC's
management periodically reviews the performance of a portfolio manager. Although
AIGGIC does not track the time a portfolio manager spends on a single portfolio,
AIGGIC does periodically assess whether a portfolio manager has adequate time
and resources to effectively manage all of such portfolio manager's accounts.
(a)(3) Compensation Structure of Portfolio Manager(s) or Management Team Members
- - As of March 31, 2006:
Compensation for AIGGIG portfolio managers has both a salary and a bonus
component. The salary component is a fixed base salary, which is generally based
upon several factors, including experience and market levels of salary for such
position. The bonus component is based both on a portfolio manager's individual
performance and the organizational performance of AIGGIC. The bonus component is
generally calculated as follows: (1) 60% is linked to the management of a
portfolio manager's funds; (2) 20% is based on AIGGIC's profitability; and (3)
20% is determined on a discretionary basis (including individual qualitative
goals). For the 60% component, the measures for a portfolio manager may vary
according to the day-to-day responsibilities of a particular portfolio manager.
The measures comprise any combination of (a) total return measures, (b)
benchmark measures and (c) peer group measures. Any long-term compensation may
include stock options and restricted stock units, both having vesting schedules.
Ownership of Fund Securities
None of the AIGGIG portfolio managers listed under (a)(1) above own shares of
the Fund.
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 Co-Principal Executive Officers 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.
- -------------------
(a)(1) Code of Ethics (see Exhibit 1)
(a)(2) Separate certifications for the Registrant's Co-Principal Executive
Officers and Principal Financial Officer, as required by Rule 30a-2(a)
under the 1940 Act are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Absolute Return Fund of Funds, LLC
--------------------------------------------------------
By (Signature and Title) /s/ James L. Bailey
--------------------------
James L. Bailey, Co-Principal Executive Officer
Date June 6, 2006
------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Absolute Return Fund of Funds, LLC
--------------------------------------------------------
By (Signature and Title) /s/ Lee A. Gardella
--------------------------
Lee A. Gardella, Co-Principal Executive Officer
Date June 6, 2006
------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Absolute Return Fund of Funds, LLC
--------------------------------------------------------
By (Signature and Title) /s/ Robert Aufenanger
------------------------
Robert Aufenanger, Principal Financial Officer
Date June 6, 2006
------------