UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-21395
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Investment Company Act file number
Excelsior Absolute Return Fund of Funds Master Fund, 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: 3/31/2007
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Date of reporting period: 3/31/2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
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EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS MASTER FUND, LLC
Financial Statements
With Report of Independent Registered Public Accounting Firm
Year Ended March 31, 2007
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Statements
Year Ended March 31, 2007
Contents
Report of Independent Registered Public Accounting Firm.................... 1
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
March 31, 2007........................................................ 2
Schedule of Investments as of March 31, 2007............................... 3
Statement of Operations for the Year Ended March 31, 2007.................. 5
Statements of Changes in Members' Equity - Net Assets for the Years Ended
March 31, 2007 and 2006.............................................. 6
Statement of Cash Flows for the Year Ended March 31, 2007.................. 7
Financial Highlights for the Years Ended March 31, 2007, 2006 and 2005, and for
the Period December 1, 2003 through March 31, 2004................... 8
Notes to Financial Statements.............................................. 9
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 Board of Managers and Members of Excelsior Absolute Return Fund of Funds
Master Fund, LLC:
In our opinion, the accompanying statement of assets, liabilities and members'
equity - net assets, including the schedule of investments, and the related
statements of operations, of changes in members' equity - net assets and of cash
flows and the financial highlights present fairly, in all material respects, the
financial position of Excelsior Absolute Return Fund of Funds Master Fund, LLC
(the "Company") at March 31, 2007, and the results of its operations, the
changes in its members' equity - net assets, its cash flows and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
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, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of investments at March 31, 2007 by correspondence with the
custodian and the underlying portfolio funds, provides a reasonable basis for
our opinion. The financial statements of the Company as of March 31, 2006 and
for the year then ended, including the financial highlights for each of the
periods in the two years then ended and for the period December 1, 2003
(commencement of operations) through March 31, 2004, were audited by other
auditors whose report dated May 25, 2006, express an unqualified opinion on such
financial statements.
As explained in Note 2, the financial statements include investments held by the
Company valued at $257,072,644 (97.21% of the Company's net assets) at March 31,
2007, the values of which have been fair valued by the Adviser based on
estimates provided by each portfolio fund, under general supervision of the
Board of Managers, in the absence of readily ascertainable market values.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 29, 2007
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets
March 31, 2007
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ASSETS
Investments in Investment Funds, at fair value (cost $188,473,727) $257,072,644
Cash and cash equivalents 22,322,638
Due from investment funds 3,294,581
Other assets 31,544
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Total Assets 282,721,407
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LIABILITIES
Members' interests received in advance 15,727,000
Repurchase of Members' interests payable 1,761,452
Due to Adviser 682,027
Professional fees payable 70,298
Bank note facility fee and interest payable 23,438
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Total Liabilities 18,264,215
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Net Assets $264,457,192
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $195,858,273
Net unrealized appreciation on investments 68,598,919
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Members' Equity - Net Assets $264,457,192
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The accompanying notes are an integral part of these financial statements.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments
March 31, 2007
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<caption>
% of % Ownership First
First Members' of Available
Acquisition Fair Equity - Investment Redemption
Investment Funds* Date Cost** Value** Net Assets Funds Date*** Liquidity****
- ------------------------------------------------------------------------------------------------------------------------------------
Relative Value
- --------------
<s> <c> <c> <c> <c> <c> <c> <c>
Frontpoint Utility and Energy Fund, L.P. 7/1/2006 $ 6,000,000 $ 6,506,915 2.46% 0.54% N/A Quarterly
Highbridge Capital Corporation- Class A 12/1/2003 8,250,000 12,943,481 4.89% 0.13% N/A Quarterly
Polygon Global Opportunities Fund, L.P. 8/1/2004 10,200,000 16,347,159 6.18% 1.27% N/A Quarterly
Suttonbrook Capital Partners, L.P. 10/1/2004 5,500,000 8,746,942 3.31% 4.07% N/A Quarterly
The Fuller & Thaler International Long/
Short Fund, L.P. 2/1/2006 3,500,000 3,695,677 1.40% 13.35% N/A Quarterly
------------------------------------
Strategy Total 33,450,000 48,240,174 18.24%
------------------------------------
<caption>
Equity
- ------
<s> <c> <c> <c> <c> <c> <c> <c>
Cantillon World, L.P. 12/1/2003 5,050,000 6,677,289 2.52% 1.14% N/A Quarterly
Clovis Capital Partners
Institutional, L.P. 2/1/2007 8,000,000 8,125,686 3.07% 1.18% 3/31/08 Quarterly
Frontpoint Japan Fund, L.P. 7/1/2006 4,500,000 4,380,640 1.66% 0.67% N/A Quarterly
Galleon Diversified Fund, Ltd.- Class E 12/1/2003 9,600,028 13,721,823 5.19% 0.96% N/A Quarterly
Glenview Capital Partners, L.P. 12/1/2003 6,300,000 12,575,143 4.76% 3.97% N/A Quarterly
North River Partners, L.P. 7/1/2005 8,000,000 9,490,046 3.59% 1.76% N/A Quarterly
Savannah-Baltimore, L.P. 7/1/2006 9,000,000 9,701,515 3.67% 1.66% 7/1/07 Quarterly
Shoshone Partners, L.P. 12/1/2003 6,500,000 10,778,600 4.08% 2.51% N/A Annually
The Mako Europe Fund, L.P. 12/1/2003 6,500,000 8,062,134 3.05% 24.46% N/A Monthly
The Tantallon Fund, L.P. 7/1/2006 4,500,000 5,401,978 2.04% 5.58% N/A Monthly
------------------------------------
Strategy Total 67,950,028 88,914,854 33.63%
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<caption>
Macro/CTA/Short-Term Trading
- ----------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Bridgewater Pure Alpha Trading Co.
Ltd.- Class B 2/1/2004 5,400,000 6,437,609 2.43% 0.11% N/A Monthly
Catequil Partners, L.P. 12/1/2003 128,413 128,413 0.05% 1.80% N/A (1)
Caxton Global Investments (USA) LLC 1/1/2005 9,000,000 11,372,342 4.30% 1.76% N/A Annually
Grinham Diversified Fund (US), L.P. 2/1/2007 3,000,000 3,016,273 1.14% 4.81% N/A Monthly
Placer Creek Partners, L.P. 1/1/2006 5,500,000 7,841,270 2.97% 1.80% N/A Semi-annually
Sunrise Commodities Select Portfolio-
Davco Fund, L.P. 12/1/2003 5,450,000 6,029,931 2.28% 3.01% N/A Monthly
The Capital Fund (Domestic), LLC 12/1/2003 3,000,000 3,420,863 1.29% 25.09% N/A Monthly
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Strategy Total 31,478,413 38,246,701 14.46%
------------------------------------
</table>
The accompanying notes are an integral part of these financial statements.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments (continued)
March 31, 2007
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<caption>
% of % Ownership First
First Members' of Available
Acquisition Fair Equity - Investment Redemption
Investment Funds* Date Cost** Value** Net Assets Funds Date*** Liquidity****
- ------------------------------------------------------------------------------------------------------------------------------------
Event Driven
- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Bennelong Asia Pacific Muli Strategy
Equity Fund, L.P. 7/1/2006 $ 4,000,000 $ 4,182,083 1.58% 7.09% N/A Monthly
Brencourt Multi-Strategy, L.P. 9/1/2005 8,421,521 10,304,524 3.90% 5.98% N/A Quarterly
Canyon Value Realization Fund, L.P. 12/1/2003 7,500,000 12,993,721 4.91% 0.53% N/A Annually
Castlerigg Partners, L.P. 12/1/2003 6,000,000 13,098,969 4.95% 3.28% N/A Quarterly
Empyrean Capital Fund, L.P. 7/1/2004 5,673,765 8,138,206 3.08% 2.53% N/A Monthly
OZ Asia Domestic Partners, L.P. 7/1/2006 5,000,000 5,671,320 2.15% 1.38% 9/30/07 Annually
OZ Europe Domestic Partners II, L.P. 10/1/2005 11,500,000 14,898,811 5.63% 7.30% N/A Quarterly
York Capital Management, L.P. 7/1/2004 7,500,000 12,383,281 4.68% 1.61% N/A Annually
------------------------------------
Strategy Total 55,595,286 81,670,915 30.88%
------------------------------------
Total investments in Investment Funds $188,473,727 257,072,644 97.21%
============
Other Assets, Less Liabilities 7,384,548 2.79%
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Members' Equity - Net Assets $264,457,192 100.00%
======================
* Non-income producing investments. N/A Initial lock-up period has either expired prior to March 31, 2007 or the
** See definition in Note 2a. Investment Fund did not have an initial lock-up period. However,
*** From original investment date. specific redemption restrictions may apply.
**** Available frequency of redemptions after (1) The Company's remaining residual investment in the Investment Fund is
initial lock-up period an illiquid security.
</table>
At March 31, 2007, the Company holds the following number of shares in the
investment funds indicated:
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Highbridge Capital Corporation - Class A 172.3483
Galleon Diversified Fund, Ltd. - Class E 8,720.4083
Bridgewater Pure Alpha Trading Co. Ltd - Class B 5,263.5900
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, 2007
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INVESTMENT INCOME
Interest $ 869,986
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Total Investment Income 869,986
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OPERATING EXPENSES
Advisory fee 2,771,113
Professional fees 172,799
Bank facility fee and interest expense 88,694
Administration fees 24,000
Other 106,095
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Total Operating Expenses 3,162,701
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Net Investment Loss (2,292,715)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments in Investment Funds 8,690,426
Net change in unrealized appreciation on investments in Investment
Funds 21,291,189
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Net Realized and Unrealized Gain on Investments 29,981,615
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INCREASE IN MEMBERS' EQUITY - NET ASSETS
DERIVED FROM OPERATIONS $ 27,688,900
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The accompanying notes are an integral part of these financial statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statements of Changes in Members' Equity - Net Assets
For the year ended For the year ended
March 31, 2007 March 31, 2006
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OPERATIONS
Net investment loss $ (2,292,715) $ (2,891,184)
Net realized gain (loss) from
investments 8,690,426 (1,938,551)
Net change in unrealized appreciation
on investments 21,291,189 29,530,719
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Increase in Members' Equity - Net
Assets Derived from Operations 27,688,900 24,700,984
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CAPITAL TRANSACTIONS
Members' subscriptions 29,524,100 42,459,726
Members' interests repurchased (89,770,507) (21,875,840)
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Net Increase (Decrease) in Members'
Equity - Net Assets (32,557,507) 45,284,870
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF PERIOD 297,014,699 251,729,829
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MEMBERS' EQUITY - NET ASSETS
AT END OF PERIOD $ 264,457,192 $ 297,014,699
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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, 2007
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $ 27,688,900
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 (21,291,189)
Net realized gain from investments in Investment Funds (8,690,426)
Proceeds from Investment Funds 113,366,632
Purchases of Investment Funds (47,000,000)
Increase in due from Investment Funds (2,747,912)
Increase in other assets (23,148)
Decrease in due to Adviser (77,507)
Increase in professional fees payable 7,799
Decrease in other payable (2,500)
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Net Cash Provided by Operating Activities 61,230,649
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from member subscriptions 45,251,100
Payments for member interests repurchased (88,009,055)
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Net Cash Used by Financing Activities (42,757,955)
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Net increase in cash and cash equivalents 18,472,694
Cash and cash equivalents at beginning of period 3,849,944
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Cash and Cash Equivalents at End of Year $ 22,322,638
- --------------------------------------------------------------------------------
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:
<table>
<caption>
For the year For the year For the year For the period
ended ended ended from December 1,
March 31, March 31, March 31, 2003 * -
2007 2006 2005 March 31, 2004
-------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net assets, end of
period $264,457,192 $297,014,699 $251,729,829 $ 83,029,523
Ratio of net investment
loss to average
members' equity - net
assets (a) (b) (0.82%) (1.01%) (1.09%) (0.54%)
Ratio of expenses to
average members' equity 1.13% 1.09% 1.11% 0.54%
- net assets (a) (b)
Portfolio turnover 17.70% 20.24% 7.07% -
Total return (c) 10.72% 8.93% 5.26% 5.02%
</table>
* 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, 2007
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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 United
States Trust Company, National Association, 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.
On November 20, 2006, The Charles Schwab Corporation ("Schwab") announced an
agreement to sell U.S. Trust Corporation ("U.S. Trust Corp."), a wholly-owned
subsidiary of Schwab, to the Bank of America Corporation (the "Sale"). The Sale
of U.S. Trust Corp. includes all of U.S. Trust Corp's subsidiaries, including
the Adviser. The Sale is subject to Federal Reserve Board and other regulatory
approvals.
The Adviser will continue to serve as the investment adviser to the Company
after the Sale. However, due to the change in ownership of the Adviser, the Sale
may have the effect of terminating the existing investment advisory agreement
between the Company and the Adviser. Accordingly, the Adviser would be required
to enter into a new investment advisory agreement with the Company upon
consummation of the Sale (the "New Advisory Agreement"). The Company's Board of
Managers (the "Board") approved the New Advisory Agreement at its special
meeting held on January 12, 2007. The proposed New Advisory Agreement was
submitted to the Members of the Company for approval, and a proxy statement
providing further details with respect to the Sale and the proposed New Advisory
Agreement was mailed to the Members of the Company on or about February 8, 2007.
At a special meeting held on March 15, 2007, the Members of the Company approved
the New Advisory Agreement, effective upon the consummation of the Sale, and
reelected the members of the Board.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2007
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1. Organization (continued)
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 Board has overall responsibility to manage and supervise the operations of
the Company, including the exclusive authority to oversee and to establish
policies regarding the management, conduct and operation of the Company's
business. The Board is comprised of three managers who are not "interested
persons" (the "Disinterested Managers") and one manager who is an "interested
person" as defined by the 1940 Act.
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, 2007, the Feeder Fund and Offshore Fund ownership
of the Company's Members' Equity - Net Assets were 83.53% and 16.47%,
respectively.
Member subscriptions for interests in the Company ("Interests") by eligible
investors may be accepted as of the first day of each calendar quarter, or at
such times as the Board may determine. The Company may, from time to time, offer
to repurchase Interests from Members pursuant to written tenders by Members.
These repurchase offers will be made at such times and on such terms as may be
determined by the Board, in its sole discretion, subject to the liquidity of the
Company's assets and other factors considered by the Board. The Adviser expects
that, generally, it will recommend to the Board that the Company offer to
repurchase Interests from Members twice 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.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2007
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
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.
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. Realized
gains or losses on investments in Investment Funds are measured by the
difference between the proceeds from the sale or liquidation and the cost basis
of the investment using the specific identification method without regard to
unrealized appreciation or depreciation reported in prior years.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2007
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
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.
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, 2006. Based on Investment Funds owned at December 31, 2006, the cost of
investments for Federal income tax purposes was $236,284,953. This included
aggregate gross unrealized appreciation of $17,681,157 and aggregate gross
unrealized depreciation of $2,965,391.
d. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company is in
the process of evaluating the effects of the adoption of FIN 48 on the financial
statements.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2007
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
d. New Accounting Pronouncements (continued)
FASB issued a Statement No. 157 in September 2006, Fair Value Measurements,
which is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. This
statement provides enhanced guidance for using fair value to measure assets and
liabilities. It clarifies fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. The standard applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value. The standard
does not expand the use of fair value in any new circumstances. The Company is
reviewing the statement and its impact on the financial statements.
3. Advisory Fee, Related Party Transactions and Other
Pursuant to the terms of the advisory agreement between the Adviser and the
Company ("Advisory Agreement"), the Company pays the Adviser a quarterly
advisory fee at an annual rate of 1%, based on the Company's net assets on the
first business day of each month, after adjustments for any subscriptions
effective on that date. For the year ended March 31, 2007, the advisory fee was
$2,771,113, of which $645,088 is included in "Due to Adviser" as of March 31,
2007.
As of March 31, 2007 the Company owes the Adviser $36,939 for certain
reimbursable operating expenses paid on behalf of the Company.
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 & Company (the "Administrator") to provide
accounting and certain administrative and investor services to the Company. In
connection with such services provided, the Company pays the Administrator a
quarterly fee equal to $3,000 per fund invested in the Company. For the year
ended March 31, 2007, the Company incurred $24,000 in expenses related to such
administrative services, none of which was payable as of March 31, 2007.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2007
- --------------------------------------------------------------------------------
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, 2007, 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 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, 2007 are $47,000,000 and $113,366,632, 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, 2007, the Company incurred $88,694 in facility fees related to the bank line
of credit. As of March 31, 2007 the Company did not have any revolving note
balance outstanding. The bank line of credit was not used during the year ended
March 31, 2007.
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.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (continued)
March 31, 2007
- --------------------------------------------------------------------------------
8. Subsequent Events
At March 31, 2007, the Company had received subscriptions in advance for
Interests from Members in the amount of $15,727,000. These subscriptions became
interests in the Company effective April 1, 2007.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Company Management (Unaudited)
March 31, 2007
-------------------------------------------------------------------------------
Information pertaining to the Board of Managers and officers of the Company is
set forth below:
<table>
<caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Address Held with and Length of Overseen by
and Age the Company Time Served Principal Occupation During Past Five Years Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Disinterested Managers
- ------------------------------------------------------------------------------------------------------------------------------------
<c> <c> <c> <c> <c>
Virginia G. Breen Manager Term - Partner, Blue Rock (8/95 to present); 4
c/o Excelsior Absolute (Chair) Indefinite; also a manager of Excelsior Absolute
Return Fund of Funds Length - Return Fund of Funds LLC, Excelsior
Master Fund, LLC since June Buyout Investors LLC, and Excelsior
225 High Ridge Road 2003 LaSalle Property Fund Inc.
Stamford, CT 06905
Age 42
Jonathan B. Bulkeley Manager Term - CEO of Scanbuy, a wireless software 4
c/o Excelsior Absolute Indefinite; company (3/06 to present); Managing
Return Fund of Funds Length - Partner of Achilles Partners (10/01 to
Master Fund, LLC since June 3/06); Non-Executive Chairman of QXL, PLC
225 High Ridge Road 2003 (2/98 to 2/05); also a manager of
Stamford, CT 06905 Excelsior Absolute Return Fund of Funds,
Age 46 LLC, Excelsior Buyout Investors, LLC, and
Excelsior LaSalle Property Fund, Inc.
Thomas F. McDevitt Manager Term - Managing Partner of Edgewood Capital 4
c/o Excelsior Absolute Indefinite; Partners and President of Edgewood
Return Fund of Funds Length - Capital Advisors (5/02 to present);
Master Fund, LLC since June Managing Director, Societe Generale (6/98
225 High Ridge Road 2003 to 3/02); also a manager of Excelsior
Stamford, CT 06905 Absolute Return Fund of Funds LLC,
Age 50 Excelsior Buyout Investors LLC, and
Excelsior LaSalle Property Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Interested Manager
- ------------------------------------------------------------------------------------------------------------------------------------
David R. Bailin* Manager and Term Managing Director of U.S. Trust's 4
c/o United States Trust President Indefinite; Alternative Investment Division (since
Company, National Length- 9/06); co-founder of Martello Investment
Association Since Management, a hedge fund-of-funds
225 High Ridge Road September specializing in trading strategies (2/02
Stamford, CT 06905 2006 to 9/06); Chief Operating Officer and
Age 47 Partner of Violy, Byorum and Partners,
LLC, an investment banking firm focusing
on Latin America (1/00 to 1/02); also a
manager of Excelsior Absolute Return Fund
of Funds LLC, Excelsior Buyout Investors
LLC and Excelsior LaSalle Property 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.
</table>
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Company Management (Unaudited) Continued
March 31, 2007
-------------------------------------------------------------------------------
Information pertaining to the Board of Managers and officers of the Company is
set forth below:
<table>
<caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Address Held with and Length of Overseen by
and Age the Company Time Served Principal Occupation During Past Five Years Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Officers who are not Managers
- ------------------------------------------------------------------------------------------------------------------------------------
<c> <c> <c> <c> <c>
Steven L. Suss Chief Term - President and Director, UST N/A
United States Trust Financial Indefinite; Advisers, Inc. (4/07 to present);
Company, National Officer and Length - since Senior Vice President, Alternative Investments
Association Treasurer April 2007 Division, USTCNA (4/07 to present); Chief
114 W. 47th Street Financial Officer and Chief Compliance Officer,
New York, NY 10036 Heirloom Capital Management, L.P. (5/02 to 9/06);
Age: 47 Vice President and Chief Financial Officer,
Westway Capital LLC (9/97 to 1/02).
Kristina McDonough Vice Term - Managing Director, Alternative Investments Division, N/A
United States Trust President Indefinite; USTCNA (8/03 to present); Co-Head of Global Marketing
Company, National Length - since and Investor Relations and Head of the U.S. Marketing
Association September 2006 and Client Service, HypoVerins Bank (2/03 to 7/03);
114 W. 47th Street Client Portfolio Manager, Credit Suisse Asset Management
New York, NY 10036 (8/00 to 2/03).
Age: 43
Marina Belaya Secretary Term - Vice President, Senior Attorney, the Office of General N/A
United States Trust Indefinite; Counsel, United States Trust Company, National
Company, National Length - since Association (2/06 to present); Vice President,
Association April 2007 Corporate Counsel, Prudential Financial (4/05 to 1/06);
114 W. 47th Street Associate, Schulte Roth & Zabel, LLP (9/02 to 3/05).
New York, NY 10036
Age: 40
Joan Hoffman Chief Term - Managing Director and Head of Compliance, USTCNA N/A
United States Trust Compliance Indefinite; (8/04 to present) and Chief Compliance Officer of
Company, National Officer Length - since the Excelsior Investment Funds; Managing Director,
Association January 2007 Regulatory Relationships, Operational Risk Management
114 W. 47th Street and Cross Product Service (3/02 to 7/04) and Global
New York, NY 10036 Risk Manager (7/98 to 3/02, Deutsche Bank.
Age: 51
</table>
All officers of the Fund are employees and/or officers of the Adviser.
The SAI (or Statement of Additional Information) includes additional information
about the managers of the Fund and is available upon request.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Supplemental Proxy Information and Change in Independent
Registered Public Accounting Firm (Unaudited)
March 31, 2007
- --------------------------------------------------------------------------------
Supplemental Proxy Information (Unaudited)
A special meeting of Members of the Company was held on March 15, 2007 at the
offices of the Company, 225 High Ridge Road, Stamford, Connecticut 06905. The
meeting was held for the following purposes: (1) to approve the New Advisory
Agreement between the Company and the Adviser to become effective upon
completion of the Sale and (2) to elect four members of the Board, David R.
Bailin, Virginia G. Breen, Jonathan B. Bulkeley, and Thomas F. McDevitt, as
members of the Board of the Company.
The results of the proxy solicitation on the above matters were as follows:
Votes Votes
Votes for against withheld Abstentions
--------- ------- -------- -----------
Proposal 1 2 0 - 0
Proposal 2
1. David R. Bailin 2 - 0 -
2. Virginia G. Breen 2 - 0 -
3. Jonathan B. Bulkeley 2 - 0 -
4. Thomas F. McDevitt 2 - 0 -
Change in Independent Registered Public Accounting Firm:
On December 11, 2006, Deloitte & Touche LLP ("D&T") informed the Company that
D&T is not independent of The Bank of America Corporation ("Bank of America"),
and that, effective upon the closing date of the Sale, D&T will no longer be
able to serve as the Company's Independent Registered Public Accounting Firm and
provide any attest services to the Company.
On January 29, 2007, the Board received a letter of resignation from D&T
indicating that D&T will no longer serve as the Company's Independent Registered
Public Accounting Firm. The audit reports of D&T on the Company's financial
statements as of and for the fiscal years ended March 31, 2006 and 2005 did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
fiscal years ended March 31, 2006 and 2005 through the date hereof, there were
no disagreements between the Company and D&T concerning any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of D&T,
would have caused D&T to make reference to the subject matter of the
disagreements in connection with its reports; and there were no reportable
events as defined in Item 301(a)(1)(iv) of Regulation S-K.
<page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Supplemental Proxy Information and Change in Independent
Registered Public Accounting Firm (Unaudited)
March 31, 2007
- --------------------------------------------------------------------------------
Change in Independent Registered Public Accounting Firm (continued):
On January 29, 2007, the Company engaged PricewaterhouseCoopers ("PWC") as the
Company's Independent Registered Public Accounting Firm for the fiscal year
ending March 31, 2007, replacing the Company's prior Independent Registered
Public Accounting Firm. This action was taken pursuant to resolutions of the
Board, including the Disinterested Managers, acting on the recommendation of its
Audit Committee. The Company did not consult with PWC during its fiscal years
ended March 31, 2006 and 2005 on the application of accounting principles to a
specified transaction, the type of opinion that might be rendered on the
Company's financial statements, any accounting, auditing or financial reporting
issue, or any item that was either the subject of a disagreement or a reportable
event as defined in Item 304 of Regulation S-K.
<page>
New Advisory Agreement Approval
At a meeting held in person on January 12, 2007, the Board, including a majority
of the Disinterested Managers, approved the New Advisory Agreement with the
Adviser to become effective upon, and subject to, consummation of the Sale. The
Board also approved the continuance of the sub-advisory agreement between the
Adviser and AIG Global (the "Sub-Advisory Agreement") at this meeting. The
Disinterested Managers were assisted in their review of the proposal to approve
the New Advisory Agreement and to approve the continuance of the Sub-Advisory
Agreement by independent legal counsel and met in an executive session with such
counsel separate from representatives of the Adviser and AIG Global.
In determining whether to approve the New Advisory Agreement and whether to
approve the renewal of the sub-advisory agreement between the Adviser and AIG
Global, the Board reviewed various written materials, including: performance
information on and expense ratios of comparable registered investment companies,
including similar funds managed by AIG Global and the Adviser; and information
relating to the costs and profitability of the Adviser and AIG Global from their
relationships with the Fund. The Board evaluated and considered: (i) the nature,
extent and quality of services provided by the Adviser and AIG Global; (ii) the
investment performance of the Fund; (iii) the costs of services provided and the
profits realized by the Adviser and AIG Global from their existing relationships
with the Fund; (iv) the extent to which economies of scale in costs of providing
services would be realized as the Company grows; and (v) whether the fees
payable to the Adviser and AIG Global pursuant to the advisory agreements
properly reflect these economies of scale for the benefit of investors.
The Board considered the nature, extent and quality of operations and services
to date provided by the Adviser and AIG Global to the Company, which are
expected to continue to be provided after the Sale. It also considered the fact
that the current investment advisory agreement between the Company and the
Adviser and the New Advisory Agreement, including the terms relating to the
services to be performed by the Adviser, and the fees payable by the Company,
are identical except for the term and date of its effectiveness. With respect to
the fees payable under the New Advisory Agreement, the Board compared the fees
and overall expense levels of the Company to those of competitive funds and
other funds with similar investment objectives (including other funds advised by
the Adviser and its affiliates). In evaluating the advisory fee, the Board also
took into account the complexity and quality of the investment management
services required by the Company. The Board also considered the investment
performance of the Company, including comparisons of the Company's performance
to that of other similar funds, and the costs of services provided and the
profits realized by the Adviser from its relationship with the Company. The
Board considered the extent to which economies of scale in costs of providing
services would be realized as the Company grows and whether the fees payable to
the Adviser pursuant to the New Advisory Agreement properly reflects these
economies of scale for the benefit of investors. The benefits to the Adviser of
its relationship with the Company were also considered. The Board viewed as
significant the fact that the key personnel of the Adviser who provide
investment advisory services to the Company will continue to provide services to
the Company after the Sale, and the commitment of Bank of America to maintain
the continuity of management functions and the services provided to the Company.
In addition to the foregoing, the Board considered the expected financial
condition and resources of the Adviser following the Sale in light of the
business reputation and financial condition of Bank of America, and considered
whether there are any aspects of the Sale likely to affect adversely the ability
of the Adviser to retain and attract qualified personnel following the Sale and
to otherwise provide services to the Company.
Possible alternatives to approval of the New Advisory Agreement were also
considered by the Board. During its review and deliberations, the Board
evaluated the potential benefits, detriments and costs to the Company and
Members of the Sale. The Board determined that Members will likely benefit from
the expected retention and the continued availability of the management
expertise of the key personnel of the Adviser who now provide investment advice
to the Company. In addition, the Board deemed it beneficial to the Company to be
affiliated with Bank of America for several reasons, including the expanded
distribution capabilities that can be offered by Bank of America and the
extensive investment, compliance and operations infrastructure that will be
available as a result of the Sale.
After consideration, the Board noted its overall satisfaction with the nature,
quality and extent of services provided by the Adviser and AIG Global and
concluded that the Company was receiving, and would continue to receive under
the New Advisory Agreement, all services required from the Adviser and that
these services were of high quality. The Board also concluded that the Company's
performance compared favorably with the performance of similar registered funds,
and determined that the fees and expense ratios of the Company are within the
range of the fees and expense ratios of similar funds. It also concluded that
the profitability to the Adviser from its relationship with the Company was not
disproportionately large so that it bore no reasonable relationship to the
services rendered and determined that, given the overall performance of the
Company and superior service levels, the current profitability was not
excessive. With regard to economies of scale, the Board noted that economies of
scale are realized when a fund's assets increase significantly and that,
although the net assets of the Company have grown since its inception, the
Company has not reached a size sufficient for the Adviser or AIG Global to have
realized significant economies of scale that should be shared with Members.
Based on the information provided to the Board, and the considerations and
conclusions described above, the Board, including each of the Disinterested
Managers, determined that: (i) it is appropriate that the Adviser provide and
that AIG Global continue to provide investment advisory services to the Company;
(ii) the advisory fee to be paid by the Company, and the fee paid by the Adviser
to AIG Global, for these services are fair and reasonable; and (iii) it is in
the best interest of the Company and its members to enter into the New Advisory
Agreement and to continue the Sub-Advisory Agreement for an additional annual
period.
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, 2007, 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 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, 2006 and March 31,
2007 were $78,245 and $105,000, 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, 2007, were $0
and $0, 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, 2006, were $0 and $754,000,
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 AIG Global have primary responsibility for
managing the Fund.
Robert Discolo, CFA, is a Managing Director, Alternative Investments and Head of
the Hedge Fund Strategies Group. Mr. Discolo joined AIG Global in 1999. Mr.
Discolo, who is also a member of AIG Global'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 AIG Global 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 Managing Director, Hedge Fund Strategies Group. Ms. Khanna
joined AIG Global 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 AIG
Global, 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, 2007:
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, 2007. Please note that one
Registered Investment Company and twenty Other Pooled Investments accounts are
subject to performance-based fees (*).
- --------------------------------------------------------------------------------
No. of Accounts Market Value
- --------------------------------------------------------------------------------
Robert Discolo RIC 2 $344,621,402
- --------------------------------------------------------------------------------
performance fee* 1 $79,901,993
- --------------------------------------------------------------------------------
OPI* 20 $4,174,210,639
- --------------------------------------------------------------------------------
performance fee* 19 $4,143,730,185
- --------------------------------------------------------------------------------
OA 5 $2,976,795,669
- --------------------------------------------------------------------------------
Eileen Casey RIC 2 $344,621,402
- --------------------------------------------------------------------------------
performance fee* 1 $79,901,993
- --------------------------------------------------------------------------------
OPI* 20 $4,174,210,639
- --------------------------------------------------------------------------------
performancefee* 19 $4,143,730,185
- --------------------------------------------------------------------------------
OA 5 $2,976,795,669
- --------------------------------------------------------------------------------
Vinti Khanna RIC 2 $344,621,402
- --------------------------------------------------------------------------------
performance fee* 1 $79,901,993
- --------------------------------------------------------------------------------
OPI* 20 $4,174,210,639
- --------------------------------------------------------------------------------
performance fee* 19 $4,143,730,185
- --------------------------------------------------------------------------------
OA 5 $2,976,795,669
- --------------------------------------------------------------------------------
Potential Conflicts of Interest
AIG Global 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, AIG Global
has adopted and implemented policies and procedures, including brokerage and
trade allocation policies and procedures, which AIG Global believes address the
conflicts associated with managing multiple accounts for multiple clients
(including affiliated clients). AIG Global also monitors a variety of areas,
including compliance with guidelines of the Fund and other accounts it manages
and compliance with AIG Global's Code of Ethics. Furthermore, AIG Global's
management periodically reviews the performance of a portfolio manager. Although
AIG Global does not track the time a portfolio manager spends on a single
portfolio, AIG Global 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 AIG Global 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 AIG Global. 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 AIG Global'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 AIG Global 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 Principal Executive Officer and Principal Financial Officer
have concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) were effective as of a date within 90 days prior to the filing
date of this report, based on their evaluation of the effectiveness of the
Registrant's disclosure controls and procedures, as required by Rule 30a-3(b) of
the 1940 Act.
(b) There were no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's second fiscal quarter of the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
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(a)(1) 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.
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 Master Fund, LLC
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By (Signature and Title) /s/ David R. Bailin
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David R. Bailin, Principal
Executive Officer
Date June 8, 2007
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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 Master Fund, LLC
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By (Signature and Title) /s/ Steven L. Suss
------------------------
Steven L. Suss, Principal
Financial Officer
Date June 8, 2007
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