-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GBhCAuiU/VbceJKzptsvss8yB7X+TB78xMFwOkdyroXN5d8UEc/5cA54CLGKi2KY jrIVybk+mXIuWXqwfMFdeA== 0000950123-09-069139.txt : 20091208 0000950123-09-069139.hdr.sgml : 20091208 20091208145612 ACCESSION NUMBER: 0000950123-09-069139 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20090930 FILED AS OF DATE: 20091208 DATE AS OF CHANGE: 20091208 EFFECTIVENESS DATE: 20091208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Old Mutual Absolute Return Master Fund, L.L.C. CENTRAL INDEX KEY: 0001360767 IRS NUMBER: 421702426 STATE OF INCORPORATION: DE FISCAL YEAR END: 0307 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21911 FILM NUMBER: 091228527 BUSINESS ADDRESS: STREET 1: 800 WESTCHESTER AVENUE, S-618 CITY: RYE BROOK STATE: NY ZIP: 10573 BUSINESS PHONE: 888-266-2200 MAIL ADDRESS: STREET 1: 800 WESTCHESTER AVENUE, S-618 CITY: RYE BROOK STATE: NY ZIP: 10573 FORMER COMPANY: FORMER CONFORMED NAME: Old Mutual 2100 Absolute Return Master Fund, L.L.C. DATE OF NAME CHANGE: 20060426 N-CSRS 1 g55611_omabsreturnmstr-ncsrs.txt G55611_OMABSRETURNMSTR-NCSRS.TXT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM N-CSRS -------- CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES INVESTMENT COMPANY ACT FILE NUMBER 811-21911 OLD MUTUAL ABSOLUTE RETURN MASTER FUND, L.L.C. (Exact name of registrant as specified in charter) -------- 800 Westchester Avenue, S-618 Rye Brook, New York 10573 (Address of principal executive offices) (Zip code) SEI Investments Distributors One Freedom Valley Drive Oaks, PA 19456 (Name and address of agent for service) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-888-266-2200 DATE OF FISCAL YEAR END: MARCH 31 DATE OF REPORTING PERIOD: SEPTEMBER 30, 2009 ================================================================================ ITEM 1. REPORTS TO STOCKHOLDERS. Old Mutual Absolute Return Master Fund, L.L.C. Financial Statements (Unaudited) For the six-month period ended September 30, 2009 Old Mutual Absolute Return Master Fund, L.L.C. Table of Contents Financial Statements (Unaudited): Schedule of Investments............................................. 1 Statement of Assets and Liabilities................................. 3 Statement of Operations............................................. 4 Statements of Changes in Members' Capital........................... 5 Statement of Cash Flows............................................. 6 Financial Highlights................................................ 7 Notes to Financial Statements....................................... 8 Investment Management Agreement Approval............................ 23
The Fund 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 Fund'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. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, as well as information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, by calling toll free (888) 266-2200; and (ii) on the Commission's website at http://www.sec.gov. Old Mutual Absolute Return Master Fund, L.L.C. Schedule of Investments (Unaudited) September 30, 2009 INVESTMENT STRATEGIES AS A PERCENTAGE OF TOTAL INVESTMENTS [PIE CHART] CTA/Futures/Currency - 6.7% Equity Long Bias - 7.9% Equity Market Neutral - 11.3% Equity Variable Bias - 35.6% Event Driven - 13.1% Global Macro - 16.1% Equity Short Bias - 2.5% Relative Value - 6.8%
% OF FAIR MEMBERS' PORTFOLIO FUND COST VALUE CAPITAL (1) LIQUIDITY (2) - --------------------------------------------------- ---------- ---------- ----------- ------------- CTA/FUTURES/CURRENCY: Nias Futures Fund, Ltd. (Shares: 1,039.600) $1,039,600 $1,034,929 5.77% Quarterly ---------- ---------- ---- TOTAL CTA/FUTURES/CURRENCY 1,039,600 1,034,929 5.77% ---------- ---------- ---- EQUITY LONG BIAS: JANA Partners Qualified, L.P. 1,146,994 1,154,158 6.43% Quarterly JANA Piranha Fund, L.P. 112,050 76,650 0.43% Quarterly ---------- ---------- ---- TOTAL EQUITY LONG BIAS 1,259,044 1,230,808 6.86% ---------- ---------- ---- EQUITY MARKET NEUTRAL: Marshall Wace Market Neutral TOPS Fund, L.P. 650,000 587,770 3.28% Monthly Two Sigma Spectrum U.S. Fund, L.P. 1,000,000 1,172,468 6.54% Quarterly ---------- ---------- ---- TOTAL EQUITY MARKET NEUTRAL 1,650,000 1,760,238 9.82% ---------- ---------- ---- EQUITY SHORT BIAS: Galante Partners, L.P. 479,394 383,873 2.14% Quarterly ---------- ---------- ---- TOTAL EQUITY SHORT BIAS 479,394 383,873 2.14% ---------- ---------- ---- EQUITY VARIABLE BIAS: 7x7 Institutional Partners, L.P. 833,000 974,500 5.43% Monthly Atlas Fundamental Trading Fund, L.P. 550,000 529,690 2.95% Quarterly Cedar Hill Capital Partners Onshore, L.P. 122,477 258,305 1.44% Quarterly Expo Health Sciences Fund, L.P. 250,000 275,957 1.54% Quarterly
1 Old Mutual Absolute Return Master Fund, L.L.C. Schedule of Investments (Unaudited) (concluded) September 30, 2009
% OF FAIR MEMBERS' PORTFOLIO FUND COST VALUE CAPITAL (1) LIQUIDITY (2) - --------------------------------------------------- ----------- ----------- ----------- ------------- EQUITY VARIABLE BIAS -- (CONTINUED): FrontPoint Onshore Financial Services Fund, L.P. $ 500,000 $ 579,612 3.23% Quarterly GEM Realty Securities, L.P. -- Class A 375,000 402,119 2.24% Annually GEM Realty Securities, L.P. -- Class B 475,000 502,950 2.80% Quarterly Iridian Opportunity Fund, L.P. 350,000 351,452 1.96% Monthly JAT Capital Domestic Fund, L.P. 250,000 260,960 1.45% Quarterly Longbow Infrastructure, L.P. 650,000 578,635 3.23% Quarterly Longhorn Onshore Investors, L.P. 350,000 314,864 1.76% Quarterly Southpaw Credit Opportunity Partners, L.P. 500,000 513,830 2.86% Semi-annually ----------- ----------- ------ TOTAL EQUITY VARIABLE BIAS 5,205,477 5,542,874 30.89% ----------- ----------- ------ EVENT DRIVEN: GCA Credit Opportunities Fund LLC 500,000 566,401 3.16% Quarterly GoldenTree Partners, L.P. 858,000 885,700 4.94% Quarterly Greywolf Capital Partners II, L.P. 8,509 7,006 0.04% (4) Senator Global Opportunity Fund, L.P. 500,000 578,145 3.22% Quarterly ----------- ----------- ------ TOTAL EVENT DRIVEN 1,866,509 2,037,252 11.36% ----------- ----------- ------ GLOBAL MACRO: COMAC Global Macro Fund, Ltd. (Shares: 6,019.880) 823,353 891,607 4.97% Monthly Remington Investment Strategies, L.P. 650,000 696,009 3.88% Annually Tudor BVI Global Fund, Ltd. 850,000 911,946 5.08% Quarterly ----------- ----------- ------ TOTAL GLOBAL MACRO 2,323,353 2,499,562 13.93% ----------- ----------- ------ RELATIVE VALUE: D.E. Shaw Composite Fund, LLC 938,547 950,018 5.30% Quarterly (3) Ellington Mortgage Partners, L.P. 92,047 109,099 0.61% (5) ----------- ----------- ------ TOTAL RELATIVE VALUE 1,030,594 1,059,117 5.91% ----------- ----------- ------ TOTAL PORTFOLIO FUNDS 14,853,971 15,548,653 86.68% ----------- ----------- ------ CASH EQUIVALENT: SDIT Prime Obligation Fund, Class A, 0.140% (6) 2,622,909 2,622,909 14.62% Daily (7) ----------- ----------- ------ TOTAL CASH EQUIVALENT 2,622,909 2,622,909 14.62% ----------- ----------- ------ TOTAL INVESTMENTS $17,476,880 $18,171,562 101.30% =========== =========== ======
(1) Percentages are based on Members' Capital at September 30, 2009, of $17,938,672. (2) Liquidity terms shown apply after lock-up provisions. Please see Note 10.L of the Notes to the Financial Statements. (3) Portfolio Fund restricted redemptions. Please see Note 10.L of the Notes to the Financial Statements. (4) Represents a side pocket balance which will be liquidated upon monetization of assets held in the side pocket. Please see Note 10.K of the Notes to the Financial Statements. (5) Ellington Mortgage Partners, L.P. is in the process of liquidating its portfolio. (6) The rate shown is the 7-day effective yield as of September 30, 2009. (7) See Note 13 of the Notes to Financial Statement regarding cash balance of the Fund. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 2 Old Mutual Absolute Return Master Fund, L.L.C. Statement of Assets and Liabilities (Unaudited) September 30, 2009 ASSETS Investments in Portfolio Funds, at fair value (cost $14,853,971) $ 15,548,653 Cash equivalent (cost $2,622,909) 2,622,909 Receivable for investments sold 12,818 Interest receivable 170 ------------ TOTAL ASSETS 18,184,550 ------------ LIABILITIES Redemption payable 129,000 Professional fees payable 107,152 Payable to Adviser 4,601 Administration fees payable 2,500 Board of Managers' fees payable 1,875 Other accrued expenses 750 ------------ TOTAL LIABILITIES 245,878 ------------ NET ASSETS $ 17,938,672 ============ MEMBERS' CAPITAL Net capital $ 16,583,590 Accumulated net investment loss (626,893) Accumulated net realized gain on Portfolio Funds 1,287,293 Net unrealized appreciation/depreciation on investments in Portfolio Funds 694,682 ------------ TOTAL MEMBERS' CAPITAL $ 17,938,672 ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 Old Mutual Absolute Return Master Fund, L.L.C. Statement of Operations (Unaudited) For the six-month period ended September 30, 2009 INVESTMENT INCOME: Interest $ 2,531 --------- EXPENSES: Professional fees 70,479 Due diligence fees 17,330 Board of Managers' fees 3,750 Printing fees 2,737 Administration fee 2,500 Insurance fees 1,322 Custody fee 750 Filing fees 95 Other expenses 2,565 --------- Total expenses 101,528 --------- NET INVESTMENT LOSS (98,997) --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS IN PORTFOLIO FUNDS Net realized loss on investments in Portfolio Funds (463,609) Net change in unrealized appreciation/ depreciation on investments in Portfolio Funds 779,927 --------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS IN PORTFOLIO FUNDS 316,318 --------- NET INCREASE IN MEMBERS' CAPITAL DERIVED FROM INVESTMENT ACTIVITIES $ 217,321 =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 Old Mutual Absolute Return Master Fund, L.L.C. Statements of Changes in Members' Capital
For the six- months ended For the year September 30, 2009 ended (Unaudited) March 31, 2009 ------------------ -------------- FROM INVESTMENT ACTIVITIES: Net investment loss* $ (98,997) $ (109,826) Net realized gain (loss) on investments in Portfolio Funds (463,609) 1,137,729 Net change in unrealized appreciation/depreciation on investments in Portfolio Funds 779,927 (1,310,281) ------------ ------------ Net increase (decrease) in Members' Capital derived from investment activities 217,321 (282,378) ------------ ------------ MEMBERS' CAPITAL TRANSACTIONS: Proceeds from sales of Interests 3,471,265 5,583,753 Redemptions of Interests (1,715,465) (2,293,032) ------------ ------------ Total Members' Capital Transactions 1,755,800 3,290,721 ------------ ------------ Net Increase in Members' Capital 1,973,121 3,008,343 Members' Capital at Beginning of Period 15,965,551 12,957,208 ------------ ------------ Members' Capital at End of Period $ 17,938,672 $ 15,965,551 ============ ============ ACCUMULATED NET INVESTMENT LOSS $ (626,893) $ (527,896) ============ ============
* Investment income less net expenses. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 Old Mutual Absolute Return Master Fund, L.L.C. Statement of Cash Flows (Unaudited) For the six-month period ended September 30, 2009 CASH FLOWS FROM OPERATING ACTIVITIES Net increase in Members' Capital derived from investment activities $ 217,321 Adjustments to reconcile net increase in Members' Capital derived from investment activities to net cash used in operating activities: Purchases of Portfolio Funds, at fair value (5,409,050) Proceeds from sales of Portfolio Funds 3,297,595 Net realized loss on investments in Portfolio Funds 463,609 Net change in unrealized appreciation/depreciation on investments in Portfolio Funds (779,927) Changes in operating assets and liabilities: Decrease in receivable for investments sold 383,475 Decrease in prepaid insurance fees 1,322 Decrease in interest receivable 747 Decrease in fund investments made in advance 350,000 Decrease in due from Old Mutual Absolute Return Fund, L.L.C 110,023 Decrease in payable to Adviser (83,656) Increase in professional fees payable 7,152 Increase in administration fees payable 1,250 Increase in other accrued expenses 375 ----------- Net cash used in operating activities (1,439,764) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of Interests 3,471,265 Redemption of Interests, net of change in redemption payable (3,046,467) ----------- Net cash provided by financing activities 424,798 ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,014,966) Cash and cash equivalents, beginning of Period 3,637,875 ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,622,909 =========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Redemption payable $ 129,000 ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 6 Old Mutual Absolute Return Master Fund, L.L.C. Financial Highlights
For the six-month period ended For the For the November 1, 2006* September 30, 2009 year ended year ended to (Unaudited) March 31, 2009 March 31, 2008 March 31, 2007 ------------------ -------------- -------------- ------------------ Total Return 1.05%(1) (1.73)% 8.83% 3.95% (1) Net assets, end of period (in 000's) $17,939 $15,966 $12,957 $11,017 Ratio to average members' capital: Expenses (2) 1.20% (3) 0.98% 2.86% 2.93% (3) Net investment loss (1.17)% (3) (0.68)% (2.56)% (2.52)% (3) Portfolio turnover rate (5) 22.99% (4) 52.98% 25.01% 2.52% (4)
* Commencement of operations. (1) Total return is for the period indicated and has not been annualized. (2) Expenses of Portfolio Funds are not included in the expense ratio. (3) Annualized. (4) Not annualized. (5) Portfolio turnover rate is the lesser of purchases or proceeds from sales of investments in Portfolio Funds during the period divided by the average value of investments in Portfolio Funds held during the period Note: The expense ratios, the net investment loss ratio, and the total return percentages are calculated for the Members taken as a whole. The computation of such ratios and return based on the amount of expenses charged to any specific Member may vary from the overall ratios presented in the financial statements as a result of the timing of capital transactions. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) September 30, 2009 1. ORGANIZATION Old Mutual Absolute Return Master Fund, L.L.C. (the "Fund") is a Delaware limited liability company that is registered under the Investment Company Act of 1940, as amended (the "1940 Act") with the United States Securities and Exchange Commission ("SEC"), as a non-diversified, closed-end, management investment company, which was formed on April 25, 2006 and commenced operations on November 1, 2006. The Fund is a master fund in a master/feeder structure into which its feeder funds, Old Mutual Absolute Return Fund, L.L.C. (the "Feeder Fund") and Old Mutual Absolute Return Institutional Fund, L.L.C. (the "Institutional Feeder Fund"), (collectively, the "Feeders" or "Members"), invest substantially all of their assets. As of September 30, 2009, the Feeder Fund's investment in the Fund represented 92.0% Members' Capital, the Institutional Feeder Fund's investment in the Fund represented 8.0% of Members' Capital. The Fund employs a "fund of funds" investment program that enables eligible investors, through one investment, to participate in the investment programs of a professionally selected group of asset managers without being subject to the high minimum investment requirements that many asset managers typically impose. The Fund is similar to a private investment fund in that it is actively managed and interests in the Feeders ("Interests") are sold solely to high net worth individual and institutional investors, but differs from a typical private investment fund in that it has registered as an investment company under the 1940 Act. The Fund's investment objective is to seek to generate attractive returns while attempting to reduce volatility. The Fund invests its assets primarily in private investment funds, joint ventures, investment companies and other similar investment vehicles ("Portfolio Funds") that are managed by a select group of portfolio managers ("Portfolio Managers") that invest in a variety of financial markets and utilize a broad range of alternative investment strategies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC. The following is a summary of the significant accounting policies followed by the Fund: A. Accounting Standards Codification FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") LAUNCHES ACCOUNTING STANDARDS CODIFICATION -- The FASB has issued FASB ASC 105 (formerly FASB Statement No. 168), THE "FASB ACCOUNTING STANDARDS CODIFICATION(TM)" AND THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("ASC 105"). ASC 105 established the FASB Accounting Standards Codification(TM) ("Codification" or "ASC") as the single source of authoritative U.S. generally accepted accounting principles ("GAAP") recognized 8 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. GAAP is not intended to be changed as a result of the FASB's Codification project, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Fund has implemented the Codification as of September 30, 2009. B. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Adviser to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. C. Valuation of Portfolio Investments at Fair Value and Investment Transactions In September, 2006, the FASB issued ASC 820 (formerly known as Statement of Financial Accounting Standards No. 157 Fair Value measurements), which provides enhanced guidance for using fair value to measure assets and liabilities. The Fund adopted ASC 820 on April 1, 2008. ASC 820 establishes a fair value hierarchy and specifies that a valuation technique used to measure fair value shall maximize the use of observable inputs and minimize the use of unobservable inputs. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below: - - Level 1 -- Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date; 9 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - - Level 2 -- Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and - - Level 3 -- Prices, inputs or exotic modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity). The net asset value of the Fund is determined by or at the discretion of the Adviser as of the close of business as of the end of each month in accordance with the valuation principles as may be determined from time to time pursuant to policies established by the Fund's Board of Managers (the "Board"). The net asset value of the Fund is primarily based on the fair value of each of its interests in Portfolio Funds. Ordinarily, these values are determined by the Portfolio Managers of the Portfolio Funds in accordance with the Portfolio Funds' valuation policies and as reported by the Portfolio Managers. As a general matter, the fair value of the Fund's interest in a Portfolio Fund represents the amount that the Fund could reasonably expect to receive from the Portfolio Fund if the Fund's interest were redeemed at the time of valuation, based on information reasonably available at the time the valuation is made and that the Fund believes to be reliable. The Fund's valuation procedures require the Adviser to consider all relevant information available at the time the Fund values its assets. The Adviser or, in certain cases, the Fund's Board, will consider such information, and may conclude in certain circumstances that the information provided by a Portfolio Manager does not represent the fair value of the Fund's interests in a Portfolio Fund. Following procedures adopted by the Board, in the absence of specific transaction activity in interests in a particular Portfolio Fund, the Fund could consider whether it was appropriate, in light of all relevant circumstances, to value such a position at the Portfolio 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. In its determination of fair value the Board considers subscription and redemption rights, including any restrictions on the redemptions from the Portfolio Funds. Investments in portfolio funds are included in Level 3 of the fair value hierarchy. Any such decision must be made in good faith, and subject to the review and supervision of the Board. Realized gains and losses from Portfolio Fund transactions are calculated on the identified cost basis. Investment transactions are recorded on the effective date of the subscription to or redemption from the Portfolio Fund. Interest income is recorded on an accrual basis and consists of interest earned on cash and cash equivalents. As required by ASC 820, investments are classified within the level of the lowest significant input considered in determining fair value. Investments classified within Level 3 consider several inputs and may include Level 1 or Level 2 inputs as components of the overall fair value measurement. 10 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The table below sets forth information about the level within the fair value hierarchy at which the Fund's investments are measured at September 30, 2009:
Level 1 -- Quoted Prices Level 2 -- in Active Significant Level 3 -- Markets for Other Significant Total as of Identical Observable Unobservable September 30, Assets Inputs Inputs 2009 ------------- ----------- ------------ ------------- Investments in Portfolio Funds $ -- $ -- $ 15,548,653 $ 15,548,653 Cash Equivalents 2,622,909 -- -- 2,622,909 ----------- --------- ------------ ------------ Totals $ 2,622,909 $ -- $ 15,548,653 $ 18,171,562 =========== ========= ============ ============
The following is a reconciliation of the investments in which significant unobservable inputs (Level 3) were used in determining value:
Beginning Realized and Ending Balance Balance as of unrealized Net purchase/ as of September April 1, 2009 gains/(losses) sales 30, 2009 ------------- -------------- ------------- --------------- $ 13,120,880 $ 316,318 $ 2,111,455 $ 15,548,653 ------------- -------------- ------------- ---------------
Realized and unrealized gains and losses are included in net gain (loss) on investments in the statement of operations. The change in unrealized gains (losses) for the six-month period ended September 30, 2009 for investments still held at September 30, 2009 of $779,927 is reflected in net change in unrealized appreciation/depreciation on investments in Portfolio Funds. For the six-month period ended September 30, 2009, there have been no significant changes to the Fund's fair value methodologies. 11 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Income Taxes Counsel to the Fund rendered an opinion that the Fund will be classified as a partnership and not as an association taxable as a corporation for Federal tax purposes. Counsel to the Fund also rendered its opinion that, under a "facts and circumstances" test, the Fund will not be treated as a "publicly traded partnership" taxable as a corporation. Accordingly, the Fund should not be subject to Federal income tax, and each Member will be required to report on its own annual tax return such Member's distributive share of the Fund's taxable income or loss. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether it is "more-likely than-not" (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The Fund did not record any tax provision in the current period. However, management's conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities (i.e., the last 3 tax year ends, as applicable), on-going analysis of and changes to tax laws, regulations and interpretations thereof. As of and during the six-month period ended September 30, 2009, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the six-month period ended September 30, 2009, the Fund did not incur any significant interest or penalties. The aggregate income tax basis of investments was $17,476,880. Net unrealized appreciation on investments for income tax purposes was $694,862, consisting of $1,020,818 of gross unrealized appreciation and ($326,136) of gross unrealized depreciation. E. Distribution Policy The Fund has no present intention of making periodic distributions of its net investment income or capital gains, if any, to Members. The amount and frequency of distributions, if any, will be determined in the sole discretion of the Board. F. Distributions from Portfolio Funds Distributions from Portfolio Funds will be classified as investment income or realized gains in the Statements of Operations, or alternatively, as a decrease to the cost of the investments based on the U.S. income tax characteristics of the distribution if such information is available. In cases where the tax characteristics are not available, such distribution will be classified as investment income. 12 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED) G. Cash and Cash Equivalents As of September 30, 2009, cash and cash equivalents consists of an investment in a money market fund affiliated with the Administrator (as defined in Note 3). 3. RELATED PARTY TRANSACTIONS AND OTHER A. Related Party Transactions Larch Lane Advisors LLC (the "Adviser"), a Delaware limited liability company, serves as the investment adviser of the Fund. The Adviser is a registered investment adviser (RIA) under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). LLA Holdings, LLC, the special member of the Adviser, owns a majority of the Adviser and is an indirect majority-owned subsidiary of Old Mutual (US) Holdings, Inc. ("OMUSH"), which is a wholly- owned subsidiary of Old Mutual plc, a London exchange listed international financial services firm. Effective April 1, 2009, OMUSH transferred its ownership interest in the Fund of approximately $1,111,500 to Old Mutual Absolute Return Institutional Fund, L.L.C. in exchange for 11,005 units of the Fund and does not own any Interests as of September 30, 2009. The Adviser is responsible for developing, implementing and supervising the Fund's investment program and providing day-to-day management services to the Fund. The Adviser has also paid various expenses for the Fund for which the Fund has a non-interest bearing payable which is due upon demand. The accompanying Statement of Assets and Liabilities includes a payable to Adviser of $4,601. Under the agreement with the Adviser, the Fund does not pay any investment management fee to the Adviser. The fees are paid at the Feeder Fund level. However, under the agreement, in the event the Adviser ceases to serve as the Adviser to each Feeder, the Master Fund would then be subject to a fee that is calculated and payable in accordance with the lowest annual rate that had most recently been charged by the Adviser to a Feeder. The Fund and the Feeder Fund have entered into a Master/Feeder Agreement dated October 13, 2006, and the Fund and the Institutional Feeder Fund have entered into a Master/Feeder Agreement dated February 8, 2007. Pursuant to the agreements, the Fund and the Feeders will each have the same investment objective and substantially the same investment policies. The Feeders will pursue their investment objectives by investing on an ongoing basis substantially all of their investable assets in the Fund in exchange for limited liability company interests in the Fund. The Master/Feeder Agreements will remain in effect unless terminated by the Fund or the Feeders. B. Other Pursuant to an administrative services agreement, SEI Investments Global Funds Services (the "Administrator"), provides various administrative services to the Fund and the Feeders, including fund accounting, investor accounting and taxation services, maintaining the register of the Fund and generally performing all actions related to the issuance and transfer of Interests; reviewing and, subject to approval by the Fund, accepting subscriptions for Interests and accepting payment therefore; performing all acts related to the repurchase of Interests; and performing all other clerical services necessary in connection with the administration of the Fund. 13 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 3. RELATED PARTY TRANSACTIONS AND OTHER (CONCLUDED) In consideration for the services provided by the Administrator, the Fund pays the Administrator a monthly fee calculated and assessed monthly in arrears at an annualized rate of 0.01% of the Fund's net assets, subject to a minimum annual fee of $5,000. SEI Private Trust Company (the "Custodian") serves as the custodian for the assets of the Fund. In consideration for the services provided by the Custodian, the Fund pays the Custodian a monthly fee at an annualized rate of 0.0075% of the Fund's net assets, subject to a minimum annual fee of $1,500. The agreement will remain in effect unless terminated by the Fund or the Custodian. The Fund is managed by the Board of Managers (the "Board") and each member of the Board who is not an "interested manager" of the Fund, as defined by the 1940 Act (the "Independent Managers"), is entitled to an annual retainer of $2,500 and will be reimbursed by the Fund for travel-related expenses. The Independent Managers of the Board are Gerald Hellerman, Paul D. Malek, and George W. Morriss. 4. FUND EXPENSES The Fund bears its own operating expenses. These operating expenses include, but are not limited to: all investment-related expenses (including, but not limited to, fees paid directly or indirectly to Portfolio Managers, investment-related interest expenses, all costs and expenses directly related to portfolio transactions and positions, transfer taxes and premiums and taxes withheld on foreign dividends); any non-investment related interest expense; fees and disbursements of any attorneys or accountants engaged on behalf of the Fund; entity-level taxes, audit and tax preparation fees and expenses; administrative expenses and fees of the Fund; custody expenses of the Fund; the costs of an errors and omissions/directors and officers liability insurance and a fidelity bond for the Fund; fees and travel-related expenses of the Board of the Fund who are not employees of the Adviser or any affiliate of the Adviser; all costs and charges for equipment or services used in communicating information regarding the Fund's transactions among the Adviser and any custodian or other agent engaged by the Fund; any extraordinary expenses; and such other expenses as may be approved from time to time by the Board. Amounts shown as expenses in the statement of operations and financial highlights include only those expenses charged directly to the Fund and do not reflect management fees, advisory fees, brokerage commissions and other fees and expenses incurred by the Portfolio Funds in which the Fund invested. These amounts are included in realized and unrealized gain (loss) on investments in funds in the statement of operations. The Fund also indirectly bears fees and expenses of the Portfolio Funds. Each Portfolio Manager generally receives a management fee and a performance fee or allocation with respect to the assets of Portfolio Funds that it manages. The amount of these fees and allocations varies among Portfolio Managers, but the management fees are generally expected to be between 1.0%-2.0%, on an annual basis, of the total assets managed by a Portfolio Manager, and the performance fees or allocations are generally expected to be between 15%-25% of the net capital appreciation (if any) in the assets managed by a Portfolio Manager. 14 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 5. BORROWINGS The Fund is authorized to borrow money for investment purposes, to meet repurchase requests and for cash management purposes. Borrowings by the Fund are subject to a 300% asset coverage requirement under the 1940 Act. Portfolio Funds that are not registered investment companies are not subject to this requirement. The Fund had no borrowings during the six-month period ended September 30, 2009. 6. CAPITAL ACCOUNTS AND ALLOCATIONS The Fund maintains a separate capital account for each Member. The net profits or net losses of the Fund (including, without limitation, net realized gain or loss and the net change in unrealized appreciation or depreciation of securities positions) are credited to or debited against the capital accounts of Members as of the end of each fiscal period in accordance with their respective investment percentages for the period. Each Member's investment percentage is determined each fiscal period by dividing, as of the commencement of the period, the balance of the Member's capital account by the sum of the balances of the capital accounts of all Members. A fiscal period begins on the day after the last day of the preceding fiscal period and ends at the close of business on the first to occur of: (i) the last day of each fiscal year (March 31); (ii) the last day of each taxable year (December 31); (iii) the day preceding the date as of which any contributions to the capital of the Fund is made; (iv) any day as of which the Fund repurchases the Interest (or portion thereof) of any Member; or (v) any day as of which any amount is credit to or debited from the capital account of any Member other than an amount to be credited to or debited from the capital accounts of all Members in accordance with their respective investment percentages. 7. SUBSCRIPTIONS AND REDEMPTIONS OF INTERESTS The Board may admit one or more Members generally at the beginning of each month; provided, however, that the Fund may, in the discretion of the Board, admit Members more or less frequently. No Member or other person holding an Interest or portion thereof shall have the right to require the Fund to repurchase that Interest or portion thereof. The Board, in its sole discretion and on such terms and conditions as it may determine, may cause the Fund to repurchase Interests or portions thereof pursuant to written tenders. In determining whether to cause the Fund to repurchase Interests or portions thereof pursuant to written tenders, the Board shall consider, among other things, the recommendation of the Adviser. 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Portfolio Funds in which the Fund invests trade various financial instruments and enter into various investment activities with off-balance sheet risk. These include, but are not limited to, short selling activities, writing options contracts, and swap contracts. The Fund's risk of loss in the Portfolio Funds is limited to the value of the Fund's Investment. 15 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 9. INDEMNIFICATIONS In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 10. CONCENTRATIONS OF RISK The Fund invests primarily in Portfolio Funds that are not registered under the 1940 Act which invest in and actively trade securities and other financial instruments using different strategies and investment techniques, including leverage, which may involve significant risks. These Portfolio Funds may invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, the Portfolio Funds may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility of the Portfolio Funds' net asset value. The Fund may invest in a limited number of Portfolio Funds. Such concentration may result in additional risk. The Portfolio Funds may enter into the following transactions and certain of the related risks are described below: A. Short Sales Short sales are sales of securities that are not owned or that are not intended for delivery and the seller will therefore be obligated to purchase such securities at a future date. The value of the open short position is recorded as a liability, and the seller records unrealized gain or loss to the extent of the difference between the proceeds received and the value of the open short position. A realized gain or loss is recorded when the short position is closed out. By entering into short sales, the seller bears the market risk of increases in value of the security sold short in excess of the proceeds received. B. Swap Agreements A swap contract is a contract under which two parties agree to make periodic payments to each other based on the value of a security, a specified interest rate, an index or the value of some other instrument applied to a stated or "notional" amount. Swaps are subject to various types of risk, including market risk, liquidity risk, counterparty credit risk, legal risk and operations risk. C. Options The Portfolio Funds may buy or write put and call options through listed exchanges and the over-the-counter market. The buyer has the right, but not the obligation, to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of a specific security or other underlying asset at a specified price prior to or on a specified expiration date. The writer of an option is exposed to the risk of loss if the market price of the underlying asset declines (in the case of a put option) or increases (in the case of call option). The writer of an option can never profit by more than the premium paid by the buyer but can lose an unlimited amount. 16 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 10. CONCENTRATIONS OF RISK (CONTINUED) D. Futures Contracts The Portfolio Funds may use futures contracts for hedging and non-hedging purposes. Upon entering into a futures contract, the Portfolio Funds are required to deposit an amount ("initial margin") equal to a certain percentage of the contract value. Pursuant to the contract, the Portfolio Funds agree to receive from, or pay to, the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the Portfolio Funds as unrealized gains or losses. When the contract is closed, the Portfolio Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time when it was closed. The use of futures transactions includes the risk of imperfect correlation in movements in the price of futures contracts, interest rates, underlying hedged assets, and the possible inability of the counterparties to meet the terms of their contracts. E. Leverage Transactions In order to obtain more investable cash, the Portfolio Funds may use various forms of leverage including purchasing securities on margin. Such leverage may allow the Portfolio Funds to increase partners' capital at a greater rate during favorable markets, but also may lead to a more rapid decrease in partners' capital in unfavorable markets. A margin transaction consists of purchasing an investment with money loaned by a broker and agreeing to repay the broker at a later date. Interest expense on the outstanding margin balance is based on market rates at the time of the borrowing. F. Forward Foreign Currency Contracts The Portfolio Funds may enter into forward foreign currency contracts. Forward contracts are over-the-counter contracts for delayed delivery of currency in which the buyer agrees to buy and the seller agrees to deliver a specified currency at a specified price on a specified date. Because the terms of forward contracts are not standardized, they are not traded on organized exchanges and generally can be terminated or closed-out only by agreement of both parties to the contract. All commitments are marked to market on each valuation date at the applicable foreign exchange rate and any resulting unrealized gain or loss is recorded on such date. The Portfolio Fund realizes gains and losses at the time forward contracts are extinguished or closed upon entering into an offsetting contract. G. Repurchase Agreements Repurchase agreements are agreements under which a Portfolio Fund or the Fund purchases securities from a bank that is a member of the Federal Reserve System, a foreign bank or a securities dealer that agrees to repurchase the securities from the Portfolio Fund at a higher price on a designated future date. If the seller under a repurchase agreement becomes insolvent, the Portfolio Fund's right to dispose of the securities may be restricted, or the value of the securities may decline before the Portfolio Fund is able to dispose of them. 17 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 10. CONCENTRATIONS OF RISK (CONTINUED) H. Reverse Repurchase Agreements Reverse repurchase agreements are a form of borrowing that involves a sale of a security by a Portfolio Fund to a bank or securities dealer and the Portfolio Fund's simultaneous agreement to repurchase that security for a fixed price (reflecting a market rate of interest) on a specific date. These transactions involve a risk that the other party to a reverse repurchase agreement will be unable or unwilling to complete the transaction as scheduled, which may result in losses to the Portfolio Fund. Reverse repurchase transactions are a form of leverage and may increase the volatility of a Portfolio Fund's investment portfolio. I. Lending Portfolio Securities Portfolio Funds may lend securities held in their portfolios to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. The lending Portfolio Fund continues to be entitled to payments in amounts equal to the interest, dividends or other distributions payable on the loaned securities which afford it an opportunity to earn interest on the amount of the loan and on the loaned securities' collateral. Loans of portfolio securities by a Sub-Manager may not exceed 33-1/3% of the value of a Portfolio Account's total assets, and, in respect of such transactions, the Portfolio Fund will receive collateral consisting of cash, U.S. Government Securities or irrevocable letters of credit which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. A Portfolio Fund might experience loss if the institution with which the Portfolio Fund has engaged in a portfolio loan transaction breaches its agreement with the Portfolio Fund. J. When-Issued and Forward Commitment Securities Portfolio Managers may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis in order to hedge against anticipated changes in interest rates and prices. These transactions involve a commitment by a Portfolio Fund to purchase or sell securities at a future date (ordinarily one or two months later). The price of the underlying securities, which is generally expressed in terms of yield, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. No income accrues on securities that have been purchased pursuant to a forward commitment or on a when-issued basis prior to delivery to the Portfolio Fund. When-issued securities and forward commitments may be sold prior to the settlement date. If a Portfolio Fund disposes of the right to acquire a when-issued security prior to its acquisition or disposes of its right to deliver or receive against a forward commitment, it may incur a gain or loss. There is a risk that securities purchased on a when-issued basis may not be delivered and that the purchaser of securities sold by a Portfolio Fund on a forward basis will not honor its purchase obligation. In such cases, a Portfolio Fund may incur a loss. 18 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 10. CONCENTRATIONS OF RISK (CONCLUDED) K. Restricted and Illiquid Investments Portfolio Funds may invest in restricted securities and other investments which are illiquid. Restricted securities are securities that may not be sold to the public without an effective registration statement under the Securities Act of 1933 or, if they are unregistered, may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. Further, from time to time, certain Portfolio Managers may allocate certain Portfolio Fund assets (which generally are illiquid) to special investment accounts within the particular Portfolio Fund managed by the Portfolio Manager (I.E., "side pockets" or "special investment accounts"). Generally, the Portfolio Funds will not be able to withdraw their interest in such side pockets or special investment accounts until they are disposed of by the Portfolio Manager. The market prices, if any, for illiquid securities tend to be volatile and a Portfolio Fund may not be able to sell them when it desires to do so or to realize what it perceives to be their fair value in the event of a sale. The Fund's interests in unregistered Portfolio Funds are themselves illiquid and subject to substantial restrictions on transfer. The Fund may liquidate an interest and withdraw from an unregistered Portfolio Fund pursuant to limited withdrawal rights. The illiquidity of these interests may adversely affect the Fund if it is unable to withdraw its investment in a Portfolio Fund promptly after it determines to do so. L. Liquidity The Portfolio Funds provide for periodic redemptions, with lock-up provisions up to two years from the initial investment. The liquidity provisions shown on the Schedule of Investments apply after the lock-up provisions expire. Certain Portfolio Funds may restrict the ability of investors to redeem their interests in the fund, whether temporarily or during a liquidation of the Portfolio Fund, and may seek to amend their liquidity provisions and impose additional restrictions on investor liquidity. Certain Portfolio Funds may permit withdrawals on a date other than as provided under standard liquidity terms subject to the payment of certain additional fees or charges. M. Credit Risk The Fund will be exposed to credit risk on Portfolio Funds with whom they trade and will always bear the risk of settlement on default. N. Interest Rate Risk A number of the underlying funds that the Fund invests in may be interest rate sensitive, which means that their value and consequently, the New Asset Value of the Fund, may fluctuate as interest rates fluctuate. 11. INVESTMENT TRANSACTIONS For the six-month period ended September 30, 2009, the Fund made investments in Portfolio Funds in the amount of $5,409,050 and redeemed investments in Portfolio Funds in the amount of $3,297,595. 19 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 12. INVESTMENTS As of September 30, 2009, the Fund had investments in twenty-six Portfolio Funds, none of which are related parties. The Fund limits its investment position in any one Portfolio Fund to less than 5% of the Portfolio Fund's outstanding voting securities, absent an order of the Securities and Exchange Commission (the "SEC") (or assurances from the SEC staff) under which the Fund's contribution and withdrawal of capital from a Portfolio Fund in which it holds 5% or more of the outstanding interests will not be subject to various 1940 Act prohibitions on affiliated transactions. The Fund also is not required to adhere to this 5% investment limitation to the extent that it relies on certain SEC rules that provide exemptions from 1940 Act prohibitions on affiliated transactions. However, to facilitate investments in smaller Portfolio Funds deemed attractive by the Adviser, the Fund may purchase non-voting securities of, or waive its right to vote its interests in, Portfolio Funds. Although the Fund may hold non-voting interests, the 1940 Act and the rules and regulations thereunder may nevertheless require the Fund to limit its position in any one Portfolio Fund, if investments in a Portfolio Fund by the Fund will equal or exceed 25% of the Portfolio Fund's assets, or such lower percentage limit as may be determined by the Fund in consultation with its counsel. These restrictions could change from time to time as applicable laws, rules or interpretations thereof are modified. Portfolio Funds' Investment Strategies: CTA/FUTURES/CURRENCY Commodity Trading Advisor managers will typically have portfolio funds employing this particular strategy purchase and sell local or foreign currency, commodity futures and options or such futures contracts based on supply and demand factors affecting price within each market. Certain Portfolio funds also use commodity-related equities to implement their strategies. EQUITY LONG BIAS Equity Long Bias managers will typically have portfolios of long equities as well as some short positions. Unlike variable bias or market neutral, Equity Long Bias managers are expected to average at least 70% net long (gross long positions minus short positions). Leverage may be employed, though likely at a lower amount than market neutral or variable bias strategies. This strategy will show a high degree of correlation to equity markets, as the majority of their profits will stem from their long positions. Short positions will typically be used to hedge though may also be opportunistic in nature. EQUITY MARKET NEUTRAL Equity Market Neutral managers will typically have portfolios of long equities and short equities in equal amounts. While this strategy does offer some flexibility, managers in this strategy are expected to keep their net exposure within +/-20%. Leverage will be employed. Short positions can be hedges or profit centers. While an overall fund can be market neutral, managers may take sector exposure (though many do not). This strategy should show little correlation to equity markets, as returns are driven by stock picking, or in the case of quantitatively driven strategies, factors. 20 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (continued) 12. INVESTMENTS (CONCLUDED) Portfolio Funds' Investment Strategies (concluded): EQUITY SHORT BIAS Equity Short Bias managers will typically have portfolios of short equities as well as some long positions. Leverage may be employed, though likely at a lower amount than market neutral or variable bias strategies. This strategy will show a low degree of correlation to equity markets, as the majority of their profits are expected to stem from their short positions. Long positions will typically be used to hedge though may also be opportunistic in nature. EQUITY VARIABLE BIAS Equity Variable Bias managers will typically have portfolios of long equities and short equities. As per the strategy name, net exposure is variable, ranging from net long to net short to market neutral. Security selection may either be fundamental or quantitative while net exposure can be either bottom up (security specific) or top down (macro driven). Leverage is also variable, with some managers in this strategy using little or no leverage while others may use substantial leverage; typically, leverage will be lower than found in Equity Market Neutral. Short positions can be hedges or profit centers. While the bulk of the portfolio should consist of equities, indices, ETFS, options and futures may also be used. This strategy's correlation to equity markets will vary, with returns are driven by stock picking as well as net positioning. EVENT DRIVEN Event Driven managers will typically employ strategies that involve investing in companies experiencing significant corporate changes. Mispricings arise from events such as spin-offs, restructurings, stub trades, or other corporate changes that the broad market does not fully comprehend and appropriately value. This strategy also includes activist managers who take controlling stakes in companies and force the "event" internally. GLOBAL MACRO Global macro strategies generally utilize analysis of macroeconomic, geopolitical, and financial conditions to develop views on country, regional or broader economic themes and then seek to capitalize on such views by trading in securities, commodities, interest rates, currencies and other instruments. RELATIVE VALUE Relative Value managers typically seek risk-adjusted absolute returns with volatility and correlation lower than the broad equity markets by allocating assets to Advisors that operate primarily in the global relative value sector. Relative value strategies seek to profit from the mispricing of financial instruments, capturing spreads between related securities that deviate from their fair value or historical norms. Directional and market exposure is generally held to a minimum or completely hedged. Strategies that may be utilized in the relative value sector include convertible arbitrage, equity arbitrage and fixed-income arbitrage. Other strategies may be employed as well. 21 Old Mutual Absolute Return Master Fund, L.L.C. Notes to Financial Statements (Unaudited) (concluded) 13. SUBSEQUENT EVENTS From October 1, 2009 through November 25, 2009, the Fund received subscriptions in the amount of $441,500. Effective November 1 2009, the Fund made investments in Portfolio Funds in the amount of $1,400,000. The Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through November 25, 2009, the date the financial statements were available to be issued. Based on this evaluation, no adjustments were required to the financial statements as of September 30, 2009. 22 Old Mutual Absolute Return Master Fund, L.L.C. Investment Management Agreement Approval (Unaudited) The investment management agreement between Old Mutual Absolute Return Master Fund, L.L.C., a Delaware limited liability company (the "Fund"), and Larch Lane Advisors LLC, a Delaware limited liability company (the "Adviser") (the "Investment Management Agreement"), may be continued in effect from year to year subject to approval by: (i) the Fund's Board of Managers (the "Board"); or (ii) the vote of a majority of the outstanding voting securities, as defined by the 1940 Act, of the Fund, provided that, in either event, the continuance must also be approved by a majority of the managers (the "Managers") who are not "interested persons," as defined by the 1940 Act, of the Fund (the "Independent Managers"), by vote cast in person at a meeting called for the purpose of voting on such approval. The Fund is a master fund in a master/feeder structure in which its feeder funds (each, a "Feeder" and collectively with the Fund, the "Funds") invest substantially all of their assets in the Fund. At a meeting of the Board held on September 15, 2009, all of the Managers, including all of the Independent Managers, approved the continuance of the Investment Management Agreement for an additional year. In considering whether to renew the Investment Management Agreement, the Board reviewed various materials from counsel and from the Adviser which included: (i) information concerning the services rendered to the Funds by the Adviser and the fees paid by the Funds to the Adviser; (ii) information concerning the individuals responsible for the day-to-day management of the Fund's assets; and (iii) a summary of the legal duties of the Board under the 1940 Act. In particular, the Board considered the following: (a) THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER. The Managers reviewed the services that the Adviser provides to the Fund and reviewed various presentations from management in this regard. In connection with the investment advisory services provided to the Fund, the Board discussed, in detail, with representatives of the Adviser the management of the Fund's investments in accordance with the Fund's stated investment objective and policies and the types of transactions that are entered into on behalf of the Fund. The Board noted that, in addition to the investment advisory services provided to the Fund under the Investment Management Agreement, the Adviser also provides certain administrative and other services necessary for the operation of the Fund (including oversight of the Fund's day-to-day operations and Fund accounting services). Based on its review of the information provided at the meeting, and the discussions with the representatives of the Adviser and counsel to the Fund at the meeting, the Board concluded that the Fund was receiving the services required from the Adviser under the Investment Management Agreement and that these services were of reasonably high quality. (b) INVESTMENT PERFORMANCE OF THE FUND AND ADVISER. In connection with the evaluation of the services provided by the Adviser, the Board considered the investment performance of the Fund, and compared the performance of the Fund to that of the S&P 500 Index and the HFRI Fund of Funds Index covering periods since the Fund's inception through June 30, 2009. The Board found the Fund's overall returns to be satisfactory. 23 Old Mutual Absolute Return Master Fund, L.L.C. Investment Management Agreement Approval (Unaudited) (concluded) (c) COST OF THE SERVICES PROVIDED AND PROFITS REALIZED BY THE ADVISER FROM THE RELATIONSHIP WITH THE FUNDS. The Managers also considered the cost of the services provided by the Adviser. Under the Investment Management Agreement, the Fund does not pay any investment management fee to the Adviser so long as the Adviser serves as the investment adviser to a Feeder. The Board noted that in the event the Adviser ceases to serve as the Adviser to the Feeders, the Fund will be charged the lowest annual rate that had most recently been charged by the Adviser to a Feeder. The Board considered that, under the Feeders' Investment Management Agreements with the Adviser, the Feeders each pay the Adviser a fee at the annual rate of 1.25% of the Feeder's average net assets. The Board also considered that the Fund also bears the advisory fees charged by the Portfolio Funds. The Board noted that an expense cap is in place for each of the Feeders and the impact of the cap on the Adviser. The Managers reviewed information comparing the advisory fee rate and total expense ratio of the Feeders to those of comparable registered funds. The profitability realized by the Adviser was also considered. The Board relied principally on information relating to the costs and profitability of the Adviser from its relationship with the Funds. After reviewing the information contained in the Profitability Analysis, the Board observed the Adviser's lack of profitability from its relationship with the Funds. The Managers considered the fact that the Adviser was absorbing a significant portion of the Funds' expenses as a result of the Feeders' expense caps. The Managers compared both the services rendered and the fees paid under the Investment Management Agreement to other contracts of the Adviser and to contracts of other advisers with respect to similar closed-end registered investment companies. In particular, the Board evaluated the Funds' contractual fee rate for advisory services as compared to the contractual fee rate of other publicly offered closed-end funds that are managed by other investment advisers that invest primarily in unregistered funds. The Board found that the Feeders' (and, thus, the Fund's) advisory fee rates compared favorably to those of other similar registered funds and were in line with other similar accounts managed by the Adviser. (d) THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE. The Board was cognizant of the fact that economies of scale in costs of providing services may be realized when there is a significant increase in a fund's assets. The Independent Managers concluded, however, that the Fund had not begun to reach an appropriate size to support fee reductions based on economies of scale realized by the Adviser in providing services to the Funds. CONCLUSION. Based on all of the foregoing, and such other matters that were deemed relevant, the Board found the Fund's (and, thus, each Feeder's) level of advisory fees to be fair and reasonable in light of the services provided by the Adviser. No single factor was determinative to the decision of the Board. Based on this determination, all of the Managers who were present at the September 15, 2009 meeting, including all of the Independent Managers, approved the continuance of the Investment Management Agreement for an additional year. 24 ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. 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 shareholders filed under Item 1 of this form N-CSRS. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) The certifying officers, whose certifications are included herewith, have evaluated the registrant's disclosure controls and procedures within 90 days of the filing date of this report. In their opinion, based on their evaluation, the registrant's disclosure controls and procedures are adequately designed, and are operating effectively to ensure, that information required to be disclosed by the registrant in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no significant changes in the registrant's internal control over financial reporting 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. ITEMS 12. EXHIBITS. (a)(1) Not applicable. (a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant, as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed herewith. (b) Not applicable. 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) Old Mutual Absolute Return Master Fund, L.L.C. By (Signature and Title)* /s/ Matthew J. Appelstein ----------------------------------------- Matthew J. Appelstein President & Chief Executive Officer Date: December 7, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Matthew J. Appelstein ----------------------------------------- Matthew J. Appelstein President & Chief Executive Officer Date: December 7, 2009 By (Signature and Title)* /s/ Ross Weissman ----------------------------------------- Ross Weissman Treasurer & Chief Financial Officer Date: December 7, 2009 * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 g55611_302cert.txt G55611_302CERT.TXT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Matthew J. Appelstein, certify that: 1. I have reviewed this report on Form N-CSRS of Old Mutual Absolute Return Master Fund, L.L.C.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 7, 2009 /s/ Matthew J. Appelstein - -------------------------------------------- Matthew J. Appelstein President & Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ross Weissman, certify that: 1. I have reviewed this report on Form N-CSRS of Old Mutual Absolute Return Master Fund, L.L.C.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 7, 2009 /s/ Ross Weissman - --------------------------------------- Ross Weissman Treasurer & Chief Financial Officer EX-99.906CERT 3 g55611_906cert.txt G55611_906CERT.TXT CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Chief Executive Officer of Old Mutual Absolute Return Master Fund, L.L.C. (the "Fund"), with respect to the Fund's Form N-CSRS for the period ended September 30, 2009 as filed with the Securities and Exchange Commission (the "Commission"), hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. such Form N-CSRS fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSRS fairly presents, in all material respects, the financial condition and results of operations of the Fund. Date: December 7, 2009 /s/ Matthew J. Appelstein ---------------------------------------- Matthew J. Appelstein President & Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to the Fund and will be retained by the Fund and furnished to the Commission or its staff upon request. CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Chief Financial Officer of Old Mutual Absolute Return Master Fund, L.L.C. (the "Fund"), with respect to the Fund's Form N-CSRS for the period ended September 30, 2009 as filed with the Securities and Exchange Commission (the "Commission"), hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. such Form N-CSRS fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSRS fairly presents, in all material respects, the financial condition and results of operations of the Fund. Date: December 7, 2009 /s/ Ross Weissman --------------------------------------- Ross Weissman Treasurer & Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Fund and will be retained by the Fund and furnished to the Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----