UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-10083
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Investment Company Act file number
Excelsior Directional Hedge 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)
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 DIRECTIONAL HEDGE FUND OF FUNDS MASTER FUND, LLC
Financial Statements
(Unaudited)
Period from April 1, 2007 to September 30, 2007
Excelsior Directional Hedge 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.......................................................3
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...........................................................4
Statement of Cash Flows for the Period from April 1, 2007 to
September 30, 2007.......................................................5
Financial Highlights for the Period from April 1, 2007 to September 30, 2007
and for the Years Ended March 31, 2007, 2006, 2005 and 2004..............6
Notes to Financial Statements..................................................7
The Registrant files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of each fiscal year on Form N-Q. The Registrant's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Information on Form N-Q is available without charge,
upon request, by calling collect (203) 352-4497.
A description of the policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling collect (203) 352-4497 and on the
Commission's website at http://www.sec.gov.
Information regarding how the Registrant voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge, upon request, by calling collect (203) 352-4497, and
on the Commission's website at http://www.sec.gov.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Statement of Assets, Liabilities and Members' Equity - Net Assets (Unaudited)
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September 30, 2007
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ASSETS
Investments in Investment Funds, at fair value (cost $255,064,524) $349,876,585
Cash and cash equivalents 9,294,435
Receivables for interests in Investment Funds sold 196,723
Other assets 119,284
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Total Assets $359,487,027
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LIABILITIES
Members' interests received in advance 8,180,000
Due to Adviser 861,452
Professional fees payable 45,082
Administration fees payable 6,000
Bank note, facility fee and interest payable 7,566,406
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Total Liabilities 16,658,940
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Net Assets $342,828,087
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MEMBERS' EQUITY - NET ASSETS
Represented by:
Capital $248,016,025
Net unrealized appreciation on investments 94,812,062
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Members' Equity - Net Assets $342,828,087
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The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Schedule of Investments (Unaudited)
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September 30, 2007
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<Caption>
% of First
First Members' % Ownership Available
Acquisition Fair Equity - of Investment Redemption
Investment Funds * Date Cost ** Value ** Net Assets Funds Date *** Liquidity ****
- ------------------------------------------------------------------------------------------------------------------------------------
Hedged Long/Short Equity Funds
- ------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Basix Capital Fund, L.P. 7/1/2004 $ 8,500,000 $11,555,901 3.37% 11.50% N/A Quarterly
Foundation Partners, L.P. 7/1/2002 8,000,000 11,725,918 3.42% 8.25% N/A Quarterly
SAB Capital Partners, L.P. 4/1/2001 - 768,982 0.22% 0.15% N/A Annually
Scopia PX, LLC 9/1/2005 9,000,000 11,184,702 3.26% 5.43% N/A Quarterly
Spring Point Opportunity Partners, L.P. 7/1/2006 17,610,520 20,699,508 6.04% 6.09% N/A Quarterly
Swiftcurrent Partners, L.P. 10/1/2000 8,550,000 14,488,464 4.23% 1.68% N/A Annually
Tonga Partners, L.P. 10/1/2000 4,060,553 11,251,269 3.28% 3.90% N/A Semi-annually
---------------------------------------
Strategy Total 55,721,073 81,674,744 23.82%
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<Caption>
Opportunistic (U.S. Only) Funds
- -------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Alson Signature Fund, L.P 9/1/2006 14,000,000 15,354,706 4.48% 3.97% N/A Quarterly
Cadmus Capital Partners (QP), L.P. 7/1/2003 12,500,000 14,488,147 4.23% 7.92% N/A Quarterly
Quaker Capital Partners I, L.P. 1/1/2001 3,164,863 10,447,500 3.05% 3.00% N/A Annually
Seminole Capital Partners, L.P. 9/1/2005 17,200,000 20,777,035 6.06% 3.28% N/A Semi-annually
Valinor Capital Partners, L.P. 7/1/2007 10,000,000 10,555,698 3.08% 6.08% 12/31/2009 Annually
---------------------------------------
Strategy Total 56,864,863 71,623,086 20.90%
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<Caption>
Hedged Sector Funds
- -------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Coatue Qualified Partners, L.P. 1/1/2002 6,000,000 14,298,785 4.17% 2.40% N/A Quarterly
Durus Life Sciences Fund, LLC 1/1/2001 586,983 67,415 0.02% 2.05% N/A (1)
Endicott Partners II, L.P. 1/1/2003 6,500,000 8,315,041 2.43% 7.92% N/A Semi-annually
Longbow Partners, L.P. 5/1/2004 16,200,000 21,641,926 6.30% 5.24% N/A Quarterly
Sivik Global Healthcare Partners, L.P. 11/1/2003 7,100,000 10,354,619 3.02% 5.75% N/A Semi-annually
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Strategy Total 36,386,983 54,677,786 15.94%
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<Caption>
Arbitrage/Distressed Funds
- --------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Canyon Value Realization Fund, L.P. 7/1/2003 11,400,000 17,025,757 4.97% 0.59% N/A Annually
Farallon Capital Partners, L.P. 11/1/2004 22,000,000 30,601,611 8.92% 0.39% N/A Annually
JMG Capital Partners, L.P. 10/1/2000 5,591,605 12,208,638 3.56% 2.23% N/A Quarterly
Polygon Global Opportunities Fund, L.P. 8/1/2006 15,600,000 17,829,778 5.20% 1.24% N/A Quarterly
---------------------------------------
Strategy Total 54,591,605 77,665,784 22.65%
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<Caption>
Opportunistic (Global/International) Funds
- ------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
AKO Partners, L.P. 10/1/2005 14,500,000 19,086,040 5.57% 5.40% N/A Quarterly
Delta Fund Europe, L.P. 5/1/2006 14,000,000 13,905,225 4.06% 2.78% 6/30/2008 Quarterly
Indus Asia Pacific Fund, L.P. 3/1/2004 6,000,000 10,509,538 3.07% 2.00% N/A Quarterly
Indus Event Driven Fund, L.P. 6/1/2005 11,000,000 11,724,045 3.42% 12.34% N/A Quarterly
Indus Japan Fund, L.P. 3/1/2004 6,000,000 9,010,337 2.63% 2.63% N/A Quarterly
---------------------------------------
Strategy Total 51,500,000 64,235,185 18.75%
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Total investments in Investment Funds $255,064,524 349,876,585 102.06%
============
Other Assets, Less Liabilities (7,048,498) (2.06%)
--------------------------
Members' Equity - Net Assets $342,828,087 100.00%
==========================
* Non-income producing investments. N/A Initial lock-up period has either expired prior to September
** See definition in Note 2a 30, 2007 or Investment Fund did not have an initial lock-up
*** From original investment date. period. However, specific redemption restrictions may apply.
**** Available frequency of redemptions after initial (1) The Investment Fund is currently in liquidation and has
lock-up period. eliminated partner withdrawal rights.
</Table>
The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Statement of Operations (Unaudited)
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Period from April 1, 2007 to September 30, 2007
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INVESTMENT INCOME
Interest $ 99,499
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Total Investment Income 99,499
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OPERATING EXPENSES
Advisory fee 1,687,917
Professional fees 36,464
Board of Managers' fees and expenses 30,500
Bank note facility fee and interest expense 166,598
Administration fees 9,000
Other 112,561
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Total Operating Expenses 2,043,040
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Net Investment Loss (1,943,541)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments in Investment Funds 4,016,265
Net change in unrealized appreciation on investments in Investment
Funds 9,866,755
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Net Realized and Unrealized Gain on Investments 13,883,020
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INCREASE IN MEMBERS' EQUITY - NET ASSETS
DERIVED FROM OPERATIONS $ 11,939,479
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The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Statements of Changes in Members' Equity - Net Assets (Unaudited)
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Period from
April 1, 2007 - Year Ended
September 30, March 31,
2007 2007
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OPERATIONS
Net investment loss $ (1,943,541) $ (5,303,738)
Net realized gain on investments 4,016,265 10,945,329
Net change in unrealized appreciation on investments 9,866,755 21,009,426
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Increase in Members' Equity - Net Assets Derived
from Operations 11,939,479 26,651,017
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CAPITAL TRANSACTIONS
Members' subscriptions 354,885,986 46,569,339
Members' interests repurchased (334,361,783) (54,878,772)
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Increase (Decrease) in Members' Equity - Net Assets
Derived from Capital Transactions 20,524,203 (8,309,433)
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Net Increase in Members' Equity - Net Assets 32,463,682 18,341,584
MEMBERS' EQUITY - NET ASSETS
AT BEGINNING OF PERIOD 310,364,405 292,022,821
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MEMBERS' EQUITY - NET ASSETS
AT END OF PERIOD $ 342,828,087 $ 310,364,405
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The accompanying notes are an integral part of these financial statements.
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Statement of Cash Flows (Unaudited)
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Period from April 1, 2007 to September 30, 2007
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' equity - net assets
derived from operations $ 11,939,479
Adjustments to reconcile net increase in members' equity -
net assets derived from operations to net cash used in
operating activities:
Change in net unrealized appreciation on investments (9,866,755)
Net realized gain from investments (4,016,265)
Purchases of Investment Funds (11,000,000)
Proceeds from sales of Investment Funds 4,016,265
Increase in receivables from Investment Funds (55,612)
Increase in other assets (30,019)
Decrease in due to Adviser (273,351)
Increase in bank note facility fee and interest payable 38,403
Decrease in professional fees payable (49,918)
Decrease in administration fees payable (50,549)
Decrease in due to custodian (179,380)
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Net Cash Used in Operating Activities (9,527,702)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from member subscriptions 342,513,077
Payments for member interests repurchased (336,556,177)
Borrowings on bank loan payable 7,500,000
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Net Cash Provided by Financing Activities 13,456,900
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Net increase in cash and cash equivalents 3,929,198
Cash and cash equivalents at beginning of period 5,365,237
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Cash and Cash Equivalents at End of Period $ 9,294,435
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Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $ 96,930
The accompanying notes are an integral part of these financial statements.
<Page>
Excelsior Directional Hedge Fund of Funds Master Fund, 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 For the year
2007 - ended ended ended ended
September March 31, March 31, March 31, March 31,
30, 2007* 2007 2006 2005 2004
------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Net assets, end of
period $342,828,087 $310,364,405 $292,022,821 $240,943,784 $173,964,183
Ratio of net (0.57%) (1.71%) (1.75%) (1.77%) (1.82%)
investment
loss to average
Members' equity -
net assets (a), (b)
Ratio of expenses 0.60% 1.86% 1.85% 1.81% 1.87%
to average
Members' equity
- net assets (a), (b)
Portfolio turnover 1.17% 30.25% 15.33% 15.61% 22.70%
Total return (c) 3.65% 8.82% 10.09% 4.83% 13.68%
</table>
* The Company (as defined in Note 1) reorganized into a master-feeder
structure for this period. Also the ratios, portfolio turnover and total
returns are not annualized.
(a) Ratio does not reflect the Company's proportionate share of 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 Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited)
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September 30, 2007
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1. Organization
Excelsior Directional Hedge Fund of Funds Master Fund, LLC, formerly known as
Excelsior Directional Hedge Fund of Funds, LLC (the "Company"), was organized as
a limited liability company under the laws of Delaware on July 6, 2000, and
commenced operations on October 1, 2000. The Company is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end,
non-diversified, management investment company. The Company's investment
objective is to seek capital appreciation. The Company pursues its investment
objective principally through a multi-manager, multi-strategy program of
investments in a diverse group of investment funds that primarily invest or
trade in a wide range of equity and debt securities. The investment managers
selected by the Company generally conduct their investment programs through
these investment funds (collectively, the "Investment Funds") in which the
Company invests as a limited partner or member along with other investors.
On April 23, 2007, pursuant to member approval, the Company was reorganized into
a "master/feeder" investment structure. Effective that date, the Company became
a master fund and member interests in the Company were transferred to a new
entity, Excelsior Directional Hedge Fund of Funds (TI), LLC, a Delaware limited
liability company that is registered under the 1940 Act as a closed-end,
non-diversified, management investment company (the "Fund"). The Fund in turn
invested substantially all of its assets into the Company. On July 1, 2007,
Excelsior Directional Hedge Fund of Funds, Ltd. (the "Offshore Fund") also
became a feeder of the Company.
The Fund and the Offshore Fund (together the "Feeders") pursue their investment
objectives by investing substantially all of their interests in the Company. The
Feeders have the same investment objective and substantially the same investment
policies as the Company (except that the Feeders pursue their investment
objectives by investing in the Company). As of September 30, 2007, the Fund and
the Offshore Fund ownership of the Company's Members' Equity - Net Assets were
98.38% and 1.47%, respectively.
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.
<Page>
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
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1. Organization (continued)
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 by the Board of Managers (the "Board") of the Company at a meeting held
on January 11, 2007 and was approved by members of the Company at a special
meeting of members of the Company held on March 29, 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 Board has overall responsibility to manage and supervise the operations of
the Company, including the exclusive authority to oversee and to establish
policies regarding the management, conduct and operation of the Company's
business. The Board has engaged the Adviser to provide investment advice
regarding the selection of Investment Funds and to manage the day-to-day
operations of the Company.
Member subscriptions for interests in the Company ("Interests") by eligible
investors may be accepted as of the first day of each calendar quarter, or at
such times as the Board may determine. The Company may, from time to time, offer
to repurchase Interests from its members ("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 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 Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
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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 interests in an Investment
Fund will represent the amount that the Company could reasonably expect to
receive from the Investment Fund if the Company's interests were redeemed at the
time of valuation, based on information reasonably available at the time the
valuation is made and that the Adviser believes to be reliable. The Adviser, or,
in certain cases, the Board, will consider such information, and may conclude in
certain circumstances that the information provided by an Investment Fund's
manager does not represent the fair value of the Company's interests in an
Investment Fund. Following procedures adopted by the Board, and in the absence
of specific transaction activity in interests in a particular Investment Fund,
the Company could consider whether it was appropriate, in light of all relevant
circumstances, to value such a position at the Investment Fund's net asset value
as reported at the time of valuation, or whether to adjust such value to reflect
a premium or discount to net asset value. Any such decision must be made in good
faith, and subject to the review and supervision of the Board. Because of the
inherent uncertainty of valuation, the values of the Company's investments may
differ significantly from the values that would have been used had a ready
market for the investments held by the Company been available.
The Company's investment in Durus Life Sciences Fund, LLC ("Durus") is valued at
$67,415 and represents 0.02% of Members' equity - net assets as of September 30,
2007. Durus was fair valued in good faith by the Adviser, in accordance with
procedures adopted by the Board. As of September 30, 2007, Durus is in
liquidation and there are no ongoing redemption rights available to partners.
Distributions received from Investment Funds, whether in the form of cash or
securities, are applied first as a reduction of the investment's cost, and any
excess is treated as realized gain from investments in Investment Funds.
Realized gains or losses on investments in Investment Funds are measured by the
difference between the proceeds from the sale or liquidation and the cost basis
of the Investment using the specific identification method without regard to
unrealized appreciation or depreciation reported in prior years.
<Page>
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
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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 the fiscal period in accordance with each Member's respective
investment percentage for the fiscal period, as defined in the Company's Limited
Liability Company Agreement.
The cost of the Company's investments in Investment Funds for Federal income tax
purposes is based on amounts reported to the Company by the Investment Funds on
a Schedule K-1 or PFIC annual information statement for the year ended December
31, 2006. Based on Investment Funds owned at December 31, 2006, the cost of
investments for Federal income tax purposes was $275,386,601. This included
aggregate gross unrealized appreciation of $30,248,573 and aggregate gross
unrealized depreciation of $898,733.
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 Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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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.
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.
3. Advisory Fee, Related Party Transactions and Other
The Adviser provides certain investment advisory services and incurs research,
travel and other expenses related to the selection and monitoring of investment
managers. Further, the Adviser provides certain management and administrative
services to the Company, including providing office space and other support
services, maintaining files and records, and preparing and filing various
regulatory materials. In consideration for such services, the Company pays the
Adviser a quarterly advisory fee at an annual rate of 1% based on the Company's
net assets on the first business day of each quarter after adjustment for any
subscriptions effective on that date. For the period from April 1, 2007 to
September 30, 2007, the advisory fee was $1,687,917, of which $861,452 is
included in "Due to Adviser" as of September 30, 2007.
As of September 30, 2007, the Adviser has an interest of approximately 0.15% of
the Members' equity - net assets. The Adviser intends to redeem its entire
investment as of December 31, 2007, the valuation date of the next repurchase of
Interests.
<Page>
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
- --------------------------------------------------------------------------------
September 30, 2007
- --------------------------------------------------------------------------------
3. Advisory Fee, Related Party Transactions and Other (continued)
The Board is made up of three Managers who are independent of the Adviser (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 Disinterested
Managers receive an annual retainer of $10,000 and per-meeting fees of: $2,000
for in-person attendance at quarterly meetings of the Board; $1,000 for
telephone participation at a quarterly Board meeting or for participation at a
telephonic special meeting of the Board; and $1,000 for each audit committee
meeting (whether held in-person or by telephone). All Disinterested Managers may
be reimbursed for expenses of attendance, if any, at each regular or special
meeting of the Board or of any committee thereof and for their expenses, if any,
in connection with any other service or activity they perform or engage in as
Managers. Any Manager who is an "interested person" does not receive any
retainer or other fee from the Company. The Company incurred $30,500 of retainer
and per meeting fees for the period from April 1, 2007 to September 30, 2007.
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 $9,000 in
expenses related to such administrative services, $6,000 of which is payable as
of 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-six Investment
Funds. The agreements related to investments in Investment Funds provide for
compensation to the general partners/managers of the Investment Funds in the
form of management fees of 0.5% to 2.0% (per annum) of net assets and incentive
fees or allocations ranging from 15% to 20% of net profits earned. The
Investment Funds provide for periodic redemptions, with lock-up provisions
ranging from three months to three years from initial investment.
Aggregate purchases and proceeds of interests in Investment Funds for the period
from April 1, 2007 to September 30, 2007 are $25,100,000 and $4,016,264,
respectively.
<Page>
Excelsior Directional Hedge Fund of Funds Master Fund, LLC
Notes to Financial Statements (Unaudited) continued
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September 30, 2007
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6. Bank Note- Line of Credit Facility
The Company maintains a $30,000,000 revolving line of credit agreement with a
U.S. financial institution that is collateralized by the Company's cash and
investments. Based upon the election of the Company, interest accrues at either
the financial institution's prime rate less 1.25% per annum or LIBOR plus 1.5%
per annum. The note also 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 $166,598 in facility fees and interest
expenses related to the bank note, of which $66,406 was payable as of September
30, 2007. As of September 30, 2007 the Company had an outstanding revolving note
balance of $7,500,000. The average debt outstanding and the average interest
rate for the period from April 1, 2007 to September 30, 2007 was $2,540,984 and
6.97%, respectively.
7. Guarantees
In the normal course of business, the Company enters into contracts that provide
general indemnifications. The Company's maximum exposure under these
arrangements is dependent on future claims that may be made against the Company,
and therefore, cannot be established; however, based on experience, the risk of
loss from any such claim is considered remote.
8. Subsequent Events
As of September 30, 2007, the Company received capital subscriptions from
Members in the amount of $8,180,000, which is reflected as Members' interests
received in advance on the Statement of Assets, Liabilities and Members' Equity
- - Net Assets. These subscriptions became Interests in the Company effective
October 1, 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.
- -------------------
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certifications for the Registrant's Principal Executive
Officer and Principal Financial Officer, as required by Rule 30a-2(a)
under the 1940 Act are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Directional Hedge Fund of Funds Master Fund, LLC
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By (Signature and Title) /s/ Spencer N. Boggess
--------------------------
Spencer N. Boggess, Principal Executive Officer
Date December 7, 2007
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Excelsior Directional Hedge Fund of Funds Master Fund, LLC
----------------------------------------------------------
By (Signature and Title) /s/ Steven L. Suss
------------------------
Steven L. Suss, Principal Financial Officer
Date December 7, 2007
----------------