UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-21396
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Investment Company Act file number
Excelsior Absolute Return Fund of Funds, LLC
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(Exact name of registrant as specified in charter)
225 High Ridge Road
Stamford, CT 06905
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(Address of principal executive offices) (Zip code)
Steven L. Suss
U.S. Trust Hedge Fund Management, Inc.
225 High Ridge Road
Stamford, CT 06905
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(Name and address of agent for Service)
Registrant's telephone number, including area code: (203) 352-4497
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Date of fiscal year end: 3/31/2008
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Date of reporting period: 9/30/2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
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EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS, LLC
Financial Statements
(Unaudited)
Period from April 1, 2007 to September 30, 2007
Excelsior Absolute Return Fund of Funds, LLC
Financial Statements
(Unaudited)
Period from April 1, 2007 to September 30, 2007
Contents
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
September 30, 2007.......................................................1
Statement of Operations for the Period from April 1, 2007 to
September 30, 2007.......................................................2
Statements of Changes in Members' Equity - Net Assets for the Period from
April 1, 2007 to September 30, 2007 and for the Year Ended
March 31, 2007...........................................................3
Statement of Cash Flows for the Period from April 1, 2007 to
September 30, 2007.......................................................4
Financial Highlights for the Period from April 1, 2007 to September 30, 2007
and for the Years Ended March 31, 2007, 2006, 2005, and for the Period
from December 1, 2003 through March 31, 2004.............................5
Notes to Financial Statements..................................................6
The Registrant files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Registrant's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Information on Form N-Q is available without charge,
upon request, by calling collect (203) 352-4497.
A description of the policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling collect (203) 352-4497 and on the
Commission's website at http://www.sec.gov.
Information regarding how the Registrant voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets (Unaudited)
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September 30, 2007
- --------------------------------------------------------------------------------
ASSETS
Investment in Excelsior Absolute Return Fund of Funds Master Fund,
LLC at fair value (cost $169,663,905) $235,744,941
Cash and cash equivalents 682,471
Investment in Excelsior Absolute Return Fund of Funds Master Fund,
LLC made in advance 2,200,000
Due from Excelsior Absolute Return Fund of Funds Master Fund, LLC 847,734
Other Assets 6,308
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Total Assets 239,481,454
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LIABILITIES
Member's interests received in advance 3,200,000
Repurchase of members' interests payable 847,734
Management fee payable 301,156
Professional fees payable 29,000
Other payable 409,816
Administration fees payable 48,497
Board of Managers fees payable 11,250
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Total Liabilities 4,847,453
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Net Assets $234,634,001
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $170,522,512
Accumulated net unrealized appreciation on investments 64,111,489
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Members' Equity - Net Assets $234,634,001
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The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Operations (Unaudited)
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Period from April 1, 2007 to September 30, 2007
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NET INVESTMENT LOSS ALLOCATED FROM EXCELSIOR ABSOLUTE
RETURN FUND OF FUNDS MASTER FUND, LLC:
Interest $ 438,673
Expenses (1,363,672)
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Net investment loss allocated from Excelsior Absolute
Return Fund of Funds Master Fund, LLC (924,999)
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Fund Income:
Interest 806
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Fund Expenses:
Management fees 594,156
Professional fees 21,740
Administration fees 96,692
Board of Managers' fees and expenses 38,250
Other 11,351
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Total Expenses 762,189
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Net Investment Loss (1,686,382)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM
EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS MASTER FUND, LLC:
Net realized gain on investments 2,786,013
Net change in unrealized appreciation on investments 5,378,987
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Net Realized and Unrealized Gain on Investments Allocated from
Excelsior Absolute Return Fund of Funds Master Fund, LLC 8,165,000
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INCREASE IN MEMBERS' EQUITY - NET ASSETS DERIVED FROM OPERATIONS $ 6,478,618
- --------------------------------------------------------------------------------
The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
- --------------------------------------------------------------------------------
For the
Period from
April 1, For the
2007 to Year ended
September March 31,
30, 2007 2007
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (1,686,382) $ (3,741,198)
Net realized gain on investments 2,786,013 7,301,108
Net change in unrealized appreciation on investments 5,378,987 18,056,469
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Increase in Members' Equity - Net Assets
Derived from Operations 6,478,618 21,616,379
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CAPITAL TRANSACTIONS
Members' subscriptions 25,479,425 27,075,000
Members' interests repurchased (17,873,782) (84,215,425)
Offering costs (30,199) (69,757)
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Increase (Decrease) in Members' Equity - Net Assets
Derived From Capital Transactions 7,575,444 (57,210,182)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Members' Equity - Net
Assets 14,054,062 (35,593,803)
MEMBERS' EQUITY - NET ASSETS AT BEGINNING OF PERIOD 220,579,939 256,173,742
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MEMBERS' EQUITY - NET ASSETS AT END OF PERIOD $234,634,001 $220,579,939
- --------------------------------------------------------------------------------
The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Statement of Cash Flows (Unaudited)
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For the Period April 1, 2007 to September 30, 2007
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $ 6,478,618
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 investment
allocated from Excelsior Absolute Return Fund of
Funds Master Fund, LLC (5,378,987)
Net realized gain on investment allocated from Excelsior
Absolute Return Fund of Funds Master Fund, LLC (2,786,013)
Net investment loss allocated from Excelsior Absolute
Return Fund of Funds Master Fund, LLC 924,999
Purchases of investment in Excelsior Absolute Return Fund
of Funds Master Fund, LLC (12,702,425)
Proceeds from investment in Excelsior Absolute Return Fund
of Funds Master Fund, LLC 18,630,586
Decrease in other assets 16,987
Increase in other payable 409,814
Increase in management fees payable 31,419
Increase in administration fees payable 3,169
Increase in professional fees payable (11,000)
Decrease in Board of Managers fees payable (10,750)
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Net Cash Provided by Operating Activities 5,606,417
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from members' subscriptions 13,702,425
Payments for members' interests repurchased (18,630,586)
Offering costs paid (30,199)
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Net Cash Used in Financing Activities (4,958,360)
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Net increase in cash and cash equivalents 648,057
Cash and cash equivalents at beginning of period 34,414
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Cash and Cash Equivalents at End of Period $ 682,471
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Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $ 52,365
The accompanying notes and attached unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Financial Highlights (Unaudited)
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The following represents the ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
<table>
<caption>
For the period
from April 1, For the year For the year For the year
2007 - ended ended ended December 1,
September 30, March 31, March 31, March 31, 2003* to
2007** 2007 2006 2005 March 31, 2004**
----------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Net assets, end of period $234,634,001 $220,579,939 $256,173,742 $224,424,860 $79,592,249
Ratio of net investment (0.72%) (1.59%) (1.85%) (2.00%) (0.60%)
loss to average members'
equity - net assets (a)
Ratio of total expenses to 0.90% 1.88% 1.84% 1.88% 1.25%
average members' equity
- net assets (b), (c)
Ratio of net expenses to 0.90% 1.88% 1.92% 2.03% 0.59%
average members' equity
- net assets (b)
Total return (d) 2.69% 9.84% 8.04% 4.31% 4.85%
</table>
* Commencement of operations.
** The ratios and total return are not annualized.
(a) The ratio reflects the income and expenses assuming inclusion of the
Fund's (as defined in Note 1) proportionate share of income and expenses
of the Company (as defined in Note 1).
(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 is net of expenses and 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 unaudited financial statements of Excelsior
Absolute Return Fund of Funds Master Fund, LLC are an integral part of these
financial statements.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited)
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September 30, 2007
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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
September 30, 2007 was 88.05%.
U.S. Trust Hedge Fund Management, Inc. serves as the investment adviser of the
Company and as a manager to the Fund (the "Adviser"). On July 1, 2007, the
Adviser became an indirect wholly-owned subsidiary of Bank of America
Corporation ("Bank of America"). As a result, the Adviser is now controlled by
Bank of America. Bank of America is a bank holding and a financial holding
company which has its principal executive offices at 101 North Tryon Street,
Charlotte, North Carolina 28255. Prior to July 1, 2007, the Adviser was a
wholly-owned subsidiary of U.S. Trust Corporation ("U.S. Trust"), a registered
financial holding company, which, in turn, was a wholly-owned subsidiary of The
Charles Schwab Corporation. On July 1, 2007, U.S. Trust and its subsidiaries,
including the Adviser, were acquired by Bank of America (the "Sale"). The
Adviser continued to serve as the investment adviser to the Company after the
Sale pursuant to a new investment advisory agreement with the Company (the "New
Advisory Agreement") that was approved at a special meeting of members of the
Company held on March 15, 2007. The New Advisory Agreement is identical in all
material respects to the previous investment advisory agreement except for the
term and the date of effectiveness. 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.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
- --------------------------------------------------------------------------------
1. Organization (continued)
The Fund's Board of Managers (the "Board") has overall responsibility to manage
and supervise the operations of the Fund, including the exclusive authority to
oversee and to establish policies regarding the management, conduct and
operation of the Fund's business. The Board has engaged the Adviser to manage
the day-to-day operations of the Fund.
Subscriptions for interests in the Fund ("Interests") by eligible investors may
be accepted as of the first day of each calendar quarter, or at such times as
the Board may determine. The Fund may, from time to time, offer to repurchase
Interests from its members ("Members") pursuant to written tenders by Members.
These repurchase offers will be made at such times and on such terms as may be
determined by the Board, in its sole discretion, subject to the liquidity of the
Company's assets and other factors considered by the Board.
The Adviser expects that, generally, it will recommend to the Board that the
Fund offer to repurchase Interests from Members twice each year, at June 30th
and December 31st. Members can only transfer or assign Interests under certain
limited circumstances.
2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
the Fund's financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
a. Portfolio Valuation
The net asset value of the Fund is determined by, or at the direction of, the
Adviser as of the close of business at the end of each fiscal period (as defined
in the Fund's Limited Liability Company Agreement), in accordance with the
valuation principles set forth below, or as may be determined from time to time
pursuant to policies established by the Board.
The Fund records its investment in the Company at fair value. The Fund's
investment in the Company is represented by the Fund's proportionate interest in
the Company's Members' Equity - Net Assets at September 30, 2007. Valuation of
investments held by the Company is discussed in the notes to the Company's
financial statements.
The net unrealized appreciation on investments, which is included in Members'
Equity - Net Assets on the Statement of Assets, Liabilities and Members' Equity
- - Net Assets, reflects the Fund's allocated share of the Company's net
unrealized gain on investments.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
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. Realized gains or losses on
investments in Investment Funds are measured by the difference between the
proceeds from the sale or liquidation and the cost basis of the investment using
the specific identification method without regard to unrealized appreciation or
depreciation reported in prior years.
b. Fund Expenses
The Fund bears its own expenses and, indirectly, bears a pro rata portion of the
Company's expenses, 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; legal fees; accounting and auditing fees; custodial and
escrow fees; fees paid to the Fund's and the Company's administrator; costs of
insurance; the management fees and the advisory fees; travel and related
expenses of the Fund's and the Company's Boards; all costs with respect to
communications regarding the Fund's and the Company's transactions among the
Adviser and any custodian or other agent engaged by the Fund; and other types of
expenses approved by the Fund's and the Company's Boards.
The Adviser and the Fund have entered into an expense limitation and
reimbursement agreement (the "Expense Limitation Agreement"), under which the
Adviser has agreed to waive its fees, or to pay or absorb (subject to the
reimbursement described below) the ordinary operating expenses of the Fund, to
the extent necessary to limit the ordinary operating expenses of the Fund,
including organizational and offering costs and the proportionate share of the
Company's expenses to 2% per annum of the Fund's average monthly net assets (the
"Expense Limitation"). In consideration of the Adviser's agreement to limit the
Fund's expenses, the Fund will carry forward the amount of expenses waived, paid
or absorbed by the Adviser in excess of the Expense Limitation for a period not
to exceed three years from the end of the fiscal year in which they were
incurred, and will reimburse the Adviser such amounts. Reimbursement will be
made as promptly as possible, but only to the extent it does not cause the
Fund's ordinary operating expenses to exceed the Expense Limitation in effect at
the time the fee was waived or the expense was paid or absorbed.
As of September 30, 2007, the Fund had not incurred expenses in excess of the
Expense Limitation.
c. Income Taxes
As a limited liability company, no provision for the payment of Federal, state
or local income taxes has been provided by the Fund. Each Member is individually
required to report on its own tax return its share of the Fund's taxable income
or loss. The Fund has a tax year end of December 31.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
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, 2006. At December 31, 2006, the cost for Federal income
tax purposes was $189,867,056. This includes aggregate gross unrealized
appreciation of $15,286,691.
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 Fund is in the process of
evaluating the effects of the adoption of FIN 48 on the financial statements.
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 (GAAP), 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 Fund is reviewing the statement and its impact on the
financial statements.
e. 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.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
3. Management Fee, Related Party Transactions and Other
As of September 30, 2007, the Adviser's employees and affiliates have a combined
interest of approximately 0.30% of the Fund's Members' equity - net assets.
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 average monthly net assets on the first business day
of each month in the quarter after adjustments for any subscriptions effective
on that date. For the period from April 1, 2007 to September 30, 2007, the
management fee was $594,156, of which $301,156 was payable as of September 30,
2007.
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 not "interested persons" (the
"Disinterested Managers"), and one manager who is an "interested person," as
defined by Section 2(a)(19) of the 1940 Act, of the Fund. The Disinterested
Managers are each paid an annual retainer of $7,000 ($8,000 for the chairperson
of the Board and $7,500 for the chairperson of the audit committee) and
per-meeting fees of: $2,000 for in-person attendance at quarterly meetings of
the Board ($2,500 for the chairperson of the Board); $1,000 for telephone
participation at a quarterly Board meeting or for participation at a telephonic
special meeting of the Board; and $750 for each audit committee meeting (whether
held in-person or by telephone). All Disinterested Managers may be reimbursed
for expenses of attendance, if any, at each regular or special meeting of the
Board or of any committee thereof and for their expenses, if any, in connection
with any other service or activity they perform or engage in as directors. The
Manager who is an "interested person" does not receive any annual or other fee
from the Fund. The Fund incurred $38,250 of annual retainer and per meeting fees
for the period April 1, 2007 to September 30, 2007, $11,250 of which was payable
as of September 30, 2007.
The Fund has retained J.D. Clark & Company (the "Administrator") to provide
accounting and certain administrative and investor services to the Fund. In
connection with such services provided, the Fund pays the Administrator a
quarterly fee equal to the greater of: (i) $3,000; or (ii) .00025 of the Fund's
net assets as of the first day of each calendar quarter on the first $150
million of net assets, plus .000125 of the Fund's net assets in excess of $150
million. For the period April 1, 2007 to September 30, 2007, the Fund incurred
$96,692 in expenses related to such administrative services, $48,497 of which
was payable as of September 30, 2007.
Excelsior Absolute Return Fund of Funds, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
- --------------------------------------------------------------------------------
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.
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
At September 30, 2007, the Fund had received subscriptions in advance for
Interests from Members in the amount of $3,200,000. These subscriptions became
interests in the Fund effective October 1, 2007. The Fund also invested
$2,200,000 in the Company as of October 1, 2007.
<page>
EXCELSIOR ABSOLUTE RETURN FUND OF FUNDS MASTER FUND, LLC
Financial Statements
(Unaudited)
Period from April 1, 2007 to September 30, 2007
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Statements
(Unaudited)
Period from April 1, 2007 to September 30, 2007
Contents
Statement of Assets, Liabilities and Members' Equity - Net Assets as of
September 30, 2007.......................................................1
Schedule of Investments as of September 30, 2007...............................2
Statement of Operations for the Period from April 1, 2007 to
September 30, 2007.......................................................4
Statements of Changes in Members' Equity - Net Assets for the Period from
April 1, 2007 to September 30, 2007 and for the Year Ended
March 31, 2007...........................................................5
Statement of Cash Flows for the Period from April 1, 2007 to
September 30, 2007.......................................................6
Financial Highlights for the Period from April 1, 2007 to September 30, 2007
and for the Years Ended March 31, 2007, 2006 and 2005, and for the
Period from 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 June 30 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
ASSETS
Investments in Investment Funds, at fair value (cost $183,233,323) $258,495,310
Cash and cash equivalents 12,422,590
Due from investment funds 894,020
Other assets 503,825
- --------------------------------------------------------------------------------
Total Assets 272,315,745
- --------------------------------------------------------------------------------
LIABILITIES
Members' interests received in advance 2,200,000
Repurchase of Members' interests payable 1,556,001
Due to Adviser 723,090
Professional fees payable 55,000
Bank note facility fee and interest payable 23,958
Administration fees payable 6,000
- --------------------------------------------------------------------------------
Total Liabilities 4,564,049
- --------------------------------------------------------------------------------
Net Assets $267,751,696
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $192,489,708
Net unrealized appreciation on investments 75,261,988
- --------------------------------------------------------------------------------
Members' Equity - Net Assets $267,751,696
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
<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 $ 7,201,028 2.69% 0.44% N/A Quarterly
Highbridge Capital Corporation- Class A 12/1/2003 8,250,000 13,173,399 4.92% 0.11% N/A Quarterly
Menta Global Master, L.P. 7/1/2007 5,000,000 4,673,308 1.75% 1.59% 7/31/08 Monthly
Polygon Global Opportunities Fund, L.P. 8/1/2004 10,200,000 15,530,913 5.79% 1.08% N/A Quarterly
Suttonbrook Capital Partners, L.P. 10/1/2004 9,500,000 12,735,905 4.76% 4.03% N/A Quarterly
------------------------------------
Strategy Total 38,950,000 53,314,553 19.91%
------------------------------------
<caption>
Equity
- ------
<s> <c> <c> <c> <c> <c> <c> <c>
Cantillon World, L.P. 12/1/2003 5,050,000 7,253,539 2.71% 0.99% N/A Quarterly
Clovis Capital Partners
Institutional, L.P. 2/1/2007 10,000,000 11,059,338 4.13% 1.45% 3/31/08 Quarterly
Frontpoint Japan Fund, L.P. 7/1/2006 4,000,000 3,721,011 1.39% 0.71% N/A Quarterly
Galleon Diversified Fund, Ltd.- Class E 12/1/2003 6,100,028 11,000,092 4.11% 0.69% N/A Quarterly
Glenview Capital Partners, L.P. 12/1/2003 3,300,000 10,477,660 3.91% 3.26% N/A Quarterly
North River Partners, L.P. 7/1/2005 7,000,000 8,325,361 3.11% 1.62% N/A Quarterly
Savannah-Baltimore, L.P. 7/1/2006 9,000,000 9,634,665 3.60% 1.67% N/A Quarterly
Shoshone Partners, L.P. 12/1/2003 6,500,000 11,765,900 4.39% 2.47% N/A Annually
The Mako Europe Fund, L.P. 12/1/2003 1,808,448 2,846,613 1.06% 10.05% N/A Monthly
The Tantallon Fund, L.P. 7/1/2006 4,500,000 6,245,094 2.33% 6.12% N/A Monthly
------------------------------------
Strategy Total 57,258,476 82,329,273 30.74%
------------------------------------
<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 6,859,476 2.56% 0.12% 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 11,005,302 4.11% 1.67% N/A Annually
Grinham Diversified Fund (US), L.P. 2/1/2007 4,200,000 4,533,894 1.69% 5.64% N/A Monthly
Placer Creek Partners, L.P. 1/1/2006 3,500,000 6,991,757 2.61% 1.30% N/A Semi-annually
Sunrise Commodities Select Portfolio-
Davco Fund, L.P. 12/1/2003 5,450,000 5,963,607 2.23% 2.96% N/A Monthly
------------------------------------
Strategy Total 27,678,413 35,482,449 13.25%
------------------------------------
</table>
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
<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 $ 4,620,815 1.73% 7.90% N/A Monthly
Brencourt Multi-Strategy, L.P. 9/1/2005 11,421,521 13,392,131 5.00% 6.66% N/A Quarterly
Canyon Value Realization Fund, L.P. 12/1/2003 7,500,000 13,251,340 4.95% 0.46% N/A Annually
Castlerigg Partners, L.P. 12/1/2003 6,000,000 13,784,806 5.15% 1.98% N/A Quarterly
Empyrean Capital Fund, L.P. 7/1/2004 - 128,460 0.05% 0.06% N/A (1)
King Street Capital, L.P. 8/1/2007 7,500,000 7,300,716 2.73% 0.23% 9/30/09 Quarterly
OZ Asia Domestic Partners, L.P. 7/1/2006 5,000,000 5,921,130 2.21% 0.96% N/A Annually
OZ Europe Domestic Partners II, L.P. 10/1/2005 10,424,913 14,978,899 5.59% 3.26% N/A Quarterly
York Capital Management, L.P. 7/1/2004 7,500,000 13,990,738 5.23% 1.32% N/A Annually
------------------------------------
Strategy Total 59,346,434 87,369,035 32.64%
------------------------------------
Total investments in Investment Funds $183,233,323 258,495,310 96.54%
============
Other Assets, Less Liabilities 9,256,386 3.46%
----------------------
Members' Equity - Net Assets $267,751,696 100.00%
======================
* Non-income producing investments. N/A Initial lock-up period has either expired prior to September 30, 2007
** See definition in Note 2a. or the Investment Fund did not have an initial lock-up period. However,
*** From original investment date. specific redemption restrictions may apply.
**** Available frequency of redemptions after (1) The Company's remaining residual investment in the Investment Fund is an
initial lock-up period. illiquid security.
</table>
At September 30, 2007, the Company holds the following number of shares in the
investment funds indicated:
- --------------------------------------------------------------------------------
Bridgewater Pure Alpha Trading Co. Ltd - Class B 5,263.5900
Galleon Diversified Fund, Ltd. - Class E 6,580.2009
Highbridge Capital Corporation - Class A 172.3483
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Period from April 1, 2007 to September 30, 2007
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 511,777
- --------------------------------------------------------------------------------
Total Investment Income 511,777
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Advisory fee 1,383,171
Professional fees 75,140
Bank facility fee and interest expense 47,656
Administration fees 12,000
Other 72,039
- -------------------------------------------------------------------------------
Total Operating Expenses 1,590,006
- --------------------------------------------------------------------------------
Net Investment Loss (1,078,229)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments in Investment Funds 3,164,246
Net change in unrealized appreciation on investments in Investment
Funds 6,663,069
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 9,827,315
- --------------------------------------------------------------------------------
INCREASE IN MEMBERS' EQUITY - NET ASSETS DERIVED FROM OPERATIONS $8,749,086
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
For the period from
April 1, 2007 to For the year ended
September 30, 2007 March 31, 2007
- --------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (1,078,229) $ (2,292,715)
Net realized gain on investments 3,164,246 8,690,426
Net change in unrealized appreciation
on investments 6,663,069 21,291,189
- --------------------------------------------------------------------------------
Increase in Members' Equity - Net
Assets Derived from Operations 8,749,086 27,688,900
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Members' subscriptions 26,878,150 29,524,100
Members' interests repurchased (32,332,732) (89,770,507)
- --------------------------------------------------------------------------------
Decrease in Members' Equity - Net Assets
Derived from Capital Transactions (5,454,582) (60,246,407)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Members'
Equity - Net Assets 3,294,504 (32,557,507)
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF PERIOD 264,457,192 297,014,699
- --------------------------------------------------------------------------------
MEMBERS' EQUITY - NET ASSETS
AT END OF PERIOD $ 267,751,696 $ 264,457,192
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
Period from April 1, 2007 to September 30, 2007
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $ 8,749,086
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 (6,663,069)
Net realized gain from investments in Investment Funds (3,164,246)
Proceeds from Investment Funds 31,104,650
Purchases of Investment Funds (22,700,000)
Decrease in due from Investment Funds 2,400,562
Increase in other assets (472,283)
Increase in due to Adviser 41,064
Decrease in professional fees payable (15,300)
Increase in administration fees payable 6,000
Increase in bank note facility fee and interest payable 520
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 9,286,984
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from member subscriptions 13,351,150
Payments for member interests repurchased (32,538,182)
- --------------------------------------------------------------------------------
Net Cash Used by Financing Activities (19,187,032)
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (9,900,048)
Cash and cash equivalents at beginning of period 22,322,638
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 12,422,590
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
The following represents the ratios to average members' equity - net assets,
total return and other supplemental information for the periods indicated:
<table>
<caption>
For the period
from April 1, For the year For the year For the year For the period
2007 - ended ended ended from December 1,
September 30, March 31, March 31, March 31, 2003 * -
2007** 2007 2006 2005 March 31, 2004
----------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Net assets, end of
period $267,751,696 $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) (0.39%) (0.82%) (1.01%) (1.09%) (0.54%)
Ratio of expenses to
average members'
equity - net assets
(a) (b) 0.57% 1.13% 1.09% 1.11% 0.54%
Portfolio turnover 8.72% 17.70% 20.24% 7.07% -
Total return (c) 3.03% 10.72% 8.93% 5.26% 5.02%
</table>
* Commencement of Operations. The ratios and total return are not
annualized for the period.
** The ratios, portfolio turnover and total return are not annualized for
this period.
(a) Ratio does not reflect the Company's (as defined in Note 1) 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 is net of expenses and 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.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
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"). On July 1, 2007, the Adviser became an indirect
wholly-owned subsidiary of Bank of America Corporation ("Bank of America"). As a
result, the Adviser is now controlled by Bank of America. Bank of America is a
bank holding and a financial holding company which has its principal executive
offices at 101 North Tryon Street, Charlotte, North Carolina 28255. Prior to
July 1, 2007, the Adviser was a wholly-owned subsidiary of U.S. Trust
Corporation ("U.S. Trust"), a registered financial holding company, which in
turn, was a wholly-owned subsidiary of The Charles Schwab Corporation.
On July 1, 2007, U.S. Trust and its subsidiaries, including the Adviser, were
acquired by Bank of America (the "Sale"). The Adviser continued to serve as the
investment adviser to the Company after the Sale pursuant to a new investment
advisory agreement with the Company (the "New Advisory Agreement") that was
approved at a special meeting of members of the Company held on March 15, 2007.
The New Advisory Agreement is identical in all material respects to the previous
investment advisory agreement except for the term and the date of effectiveness.
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.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
1. Organization (continued)
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 Section 2(a)(19) of the 1940 Act of the Company.
The Company was established to hold substantially all of the assets of Excelsior
Absolute Return Fund of Funds, LLC (the "Feeder Fund") and Excelsior Absolute
Return Fund of Funds, Ltd. (the "Offshore Fund") as members of the Company
("Members"). As of September 30, 2007, the Feeder Fund and Offshore Fund
ownership of the Company's Members' Equity - Net Assets were 88.05 % and 11.95%,
respectively.
Member subscriptions for interests in the Company ("Interests") by eligible
investors may be accepted as of the first day of each calendar quarter, or at
such times as the Board may determine. The Company may, from time to time, offer
to repurchase Interests from Members pursuant to written tenders by Members.
These repurchase offers will be made at such times and on such terms as may be
determined by the Board, in its sole discretion, subject to the liquidity of the
Company's assets and other factors considered by the Board.The Adviser expects
that, generally, it will recommend to the Board that the Company offer to
repurchase Interests from Members twice each year, at June 30th and December
31st. Members can only transfer or assign Company Interests under certain
limited circumstances.
2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
the Company's financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
a. Portfolio Valuation
The net asset value of the Company is determined by, or at the direction of, the
Adviser as of the close of business at the end of each fiscal period (as defined
in the Company's Limited Liability Company Agreement), in accordance with the
valuation principles set forth below, or as may be determined from time to time
pursuant to policies established by the Board.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
a. Portfolio Valuation (continued)
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.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 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.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 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 period from April 1, 2007 to September 30, 2007,
the advisory fee was $1,383,171, of which $686,152 is included in "Due to
Adviser" as of September 30, 2007.
As of September 30, 2007 the Company owes the Adviser $36,938 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 period
from April 1, 2007 to September 30, 2007, the Company incurred $12,000 in
expenses related to such administrative services, $6,000 of which was payable as
of September 30, 2007.
<Page>
Excelsior Absolute Return Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 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 September 30, 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 period
from April 1, 2007 to September 30, 2007 are $22,700,000 and $31,104,650,
respectively.
6. Bank Note- Line of Credit Facility
The Company maintains a $25,000,000 revolving line of credit agreement with a
U.S. financial institution that is collateralized by the Company's cash and
investments. Based upon the election of the Company, interest accrues at either
the financial institution's prime rate less 1.25% per annum or Libor plus 1.5%
per annum. The note also included a provision for a facility fee of 0.375% per
annum on the unused portion of the note. For the period from April 1, 2007 to
September 30, 2007, the Company incurred $47,656 in facility fees related to the
bank line of credit, of which $23,958 was payable as of September 30, 2007. As
of September 30, 2007, the Company did not have an outstanding revolving note
balance. The bank line of credit was not used during the period from April 1,
2007 to September 30 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 (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
8. Subsequent Events
At September 30, 2007, the Company had received subscriptions in advance for
Interests from Members in the amount of $2,200,000. These subscriptions became
Interests in the Company effective October 1, 2007.
ITEM 2. CODE OF ETHICS.
- -------------------------
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ------------------------------------------
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- ------------------------------------------------
Not applicable for semi-annual reports.
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.
- --------------------------------
Not applicable for semi-annual reports.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
- --------------------------------------------------------------------------
There has been no change, as of the date of this filing, in any of the portfolio
managers identified in response to paragraph (a)(1) of this Item in the
Registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSE-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
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 (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
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(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certifications for the Registrant's Principal Executive
Officer and Principal Financial Officer, as required by Rule 30a-2(a)
under the 1940 Act are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Absolute Return Fund of Funds, LLC
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By (Signature and Title) /s/ David R. Bailin
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David R. Bailin, Principal Executive Officer
Date December 7, 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, LLC
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By (Signature and Title) /s/ Steven L. Suss
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Steven L. Suss, Principal Financial Officer
Date December 7, 2007
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