-----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, NIS7rPJK39w8Vqjy4olLmGvHlLfCTKD1s1Rwe/KMiW02cQiHF6kGOTP0gm2+U+0x 57rBXtNvwEjnG3YrqPBvdA== 0000950123-10-056589.txt : 20100608 0000950123-10-056589.hdr.sgml : 20100608 20100608150832 ACCESSION NUMBER: 0000950123-10-056589 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20100331 FILED AS OF DATE: 20100608 DATE AS OF CHANGE: 20100608 EFFECTIVENESS DATE: 20100608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PNC Absolute Return TEDI Fund LLC CENTRAL INDEX KEY: 0001339210 IRS NUMBER: 432097066 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21815 FILM NUMBER: 10884374 BUSINESS ADDRESS: STREET 1: 2 HOPKINS PLAZA STREET 2: 11TH FL. CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 800-239-0418 MAIL ADDRESS: STREET 1: 2 HOPKINS PLAZA STREET 2: 11TH FL. CITY: BALTIMORE STATE: MD ZIP: 21201 FORMER COMPANY: FORMER CONFORMED NAME: Mercantile Absolute Return Fund for Tax-Exempt/Deferred Investors (TEDI) LLC DATE OF NAME CHANGE: 20050920 N-CSR 1 g57705_pncabsrettedi-ncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM N-CSR ---------- CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES INVESTMENT COMPANY ACT FILE NUMBER 811-21815 PNC ABSOLUTE RETURN TEDI FUND LLC (Exact name of registrant as specified in charter) ---------- Two Hopkins Plaza Baltimore, MD 21201 (Address of principal executive offices) (Zip code) SEI Investments Global Funds Services 1 Freedom Valley Drive Oaks, PA 19456 (Name and address of agent for service) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-800-239-0418 DATE OF FISCAL YEAR END: MARCH 31, 2010 DATE OF REPORTING PERIOD: MARCH 31, 2010 ITEM 1. REPORTS TO STOCKHOLDERS. PNC ABSOLUTE RETURN TEDI FUND LLC ANNUAL REPORT MARCH 31, 2010 PNC ABSOLUTE RETURN TEDI FUND LLC CONTENTS MARCH 31, 2010
PAGE ---- Report of Independent Registered Public Accounting Firm.................. 2 FINANCIAL STATEMENTS Consolidated Statement of Assets and Liabilities......................... 3 Consolidated Statement of Operations..................................... 4 Consolidated Statements of Changes in Members' Capital................... 5 Consolidated Statement of Cash Flows..................................... 6 Consolidated Financial Highlights........................................ 7 Notes to Consolidated Financial Statements............................... 8 Directors and Officers of the Fund (Unaudited)........................... 16 Other Information (Unaudited)............................................ 21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Members and Board of Directors of PNC Absolute Return TEDI Fund LLC: We have audited the accompanying consolidated statement of assets and liabilities of PNC Absolute Return TEDI Fund LLC (the "Fund") as of March 31, 2010, and the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in members' capital for each of the two years in the period then ended and the consolidated financial highlights for the years ended March 31, 2010, 2009, and 2008 and for the period from May 10, 2006 (date of initial seeding) through March 31, 2007. These consolidated financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these consolidated financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2010, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the PNC Absolute Return TEDI Fund LLC as of March 31, 2010, the results of its operations and its cash flows for the year then ended, the changes in its members' capital for each of the two years in the period then ended, and its financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, the consolidated financial statements include an investment in PNC Absolute Return Master Fund LLC (the "Master Fund") valued at $2,621,171 (99.71% of total members' capital) as of March 31, 2010, whose fair value has been estimated by management in the absence of a readily ascertainable market value. Management's estimate is based on information provided by the investment managers or general partners of the underlying funds of the Master Fund. DELOITTE & TOUCHE LLP Chicago, Illinois May 28, 2010 2 PNC ABSOLUTE RETURN TEDI FUND LLC CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2010 ASSETS Investment in PNC Absolute Return Master Fund LLC ("Master Fund") $2,621,171 Receivable from Master Fund for tender offer 1,500,000 Restricted cash 520,000 Receivable from Manager 52,239 Prepaid expenses 1,612 Other receivable 4,000 ---------- Total assets 4,699,022 ---------- LIABILITIES Note payable for tender offer 1,520,000 Capital contributions received in advance 500,000 Administration fees payable 3,750 Incentive fee payable 3,719 Directors' fees payable 667 Chief Compliance Officer fees payable 389 Deferred compensation 250 Other accrued expenses 41,434 ---------- Total liabilities 2,070,209 ---------- Net assets $2,628,813 ========== MEMBERS' CAPITAL Capital $2,801,500 Accumulated net investment loss (359,264) Accumulated net realized gain on investments 967,033 Net unrealized depreciation on investments (780,456) ---------- Members' capital $2,628,813 ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 PNC ABSOLUTE RETURN TEDI FUND LLC CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2010 NET INVESTMENT LOSS ALLOCATED FROM MASTER FUND Dividend income $ 1,228 Expenses (95,456) --------- Net investment loss allocated from Master Fund (94,228) --------- OPERATING EXPENSES Administration fees 25,042 Directors' fees 6,964 Incentive fee 3,719 Chief Compliance Officer fees 715 Audit and tax fees 50,075 Legal fees 49,737 Printing fees 21,089 Tax expenses 399 Registration fees 194 Other expenses 2,899 --------- Total operating expenses 160,833 --------- Less: Expense waiver/reimbursement from Manager (142,114) --------- Net operating expenses 18,719 --------- Net investment loss (112,947) --------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM MASTER FUND Net realized gain on investments 275,688 Net change in unrealized depreciation on investments 332,836 --------- Net realized and unrealized gain on investments allocated from Master Fund 608,524 --------- Net increase in members' capital from operating activities $ 495,577 =========
The accompanying notes are an integral part of the consolidated financial statements. 4 PNC ABSOLUTE RETURN TEDI FUND LLC CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL FOR THE YEAR ENDED MARCH 31, 2009 FROM OPERATING ACTIVITIES Net investment loss $ (100,594) Net realized gain on investments 180,915 Net change in unrealized depreciation on investments (913,659) ----------- Net decrease in members' capital from operating activities (833,338) ----------- MEMBERS' CAPITAL TRANSACTIONS Proceeds from sales of Interests 300,000 Cost of Interests repurchased (200,000) ----------- Net increase in members' capital from capital transactions 100,000 ----------- MEMBERS' CAPITAL Balance at beginning of year 4,466,574 ----------- Balance at end of year $ 3,733,236 =========== FOR THE YEAR ENDED MARCH 31, 2010 FROM OPERATING ACTIVITIES Net investment loss $ (112,947) Net realized gain on investments 275,688 Net change in unrealized depreciation on investments 332,836 ----------- Net increase in members' capital from operating activities 495,577 ----------- MEMBERS' CAPITAL TRANSACTIONS Cost of Interests repurchased (1,600,000) ----------- Net decrease in members' capital from capital transactions (1,600,000) ----------- MEMBERS' CAPITAL Balance at beginning of year 3,733,236 ----------- Balance at end of year $ 2,628,813 ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 PNC ABSOLUTE RETURN TEDI FUND LLC CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED MARCH 31, 2010 CASH FLOWS FROM OPERATING ACTIVITIES Net increase in members' capital from operating activities $ 495,577 Adjustments to reconcile net increase in members' capital from operating activities to net cash used in operating activities Purchases of investments in Master Fund (165,301) Proceeds from sale of investments in Master Fund 390,352 Net investment loss and realized/unrealized gain allocated from Master Fund (514,296) Increase in restricted cash (500,000) Decrease in receivable from Manager 20,718 Decrease in subscriptions receivable 4,291 Increase in other receivable (4,000) Increase in prepaid expenses (232) Increase in incentive fee payable 3,719 Decrease in administration fees payable (38,487) Increase in Directors' fees payable 667 Increase in Chief Compliance Officer fees payable 389 Increase in deferred compensation 250 Increase in other accrued expenses 6,353 ---------- Net cash used in operating activities (300,000) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of Interests 500,000 Cost of Interests repurchased (200,000) ---------- Net cash provided by financing activities 300,000 ---------- Net change in cash and cash equivalents -- CASH AND CASH EQUIVALENTS Beginning of year -- ---------- End of year $ -- ========== NON-CASH OPERATING ACTIVITIES: Receivable from Master Fund for tender offer $1,500,000
The accompanying notes are an integral part of the consolidated financial statements. 6 PNC ABSOLUTE RETURN TEDI FUND LLC CONSOLIDATED FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2010 2009 2008 2007+ --------- --------- --------- ------------ Total return (1) 13.29% (18.68)% 3.01% 3.85% Incentive fee (0.09)% (0.00)% (0.00)% (0.35)% ------ ------- ------ ------- Total return after incentive fee (1) 13.20% (18.68)% 3.01% 3.50% ====== ======= ====== ======= Members' capital, end of year (000's) $2,629 $ 3,733 $4,467 $ 2,825 RATIOS TO AVERAGE NET ASSETS Net investment loss ratio, Before waivers and reimbursements (6.33)% (5.45)% (5.70)% (10.16)%(3) Net of waivers and reimbursements (2.81)% (2.42)% (2.40)% (3.59)%(3) Expense ratio before incentive fee, Before waivers and reimbursements (2) 6.27% 5.55% 5.77% 9.56%(3) Net of waivers and reimbursements (2) 2.74% 2.52% 2.47% 2.99%(3) Expense ratio before incentive fee, net of waivers and reimbursements (2) 2.74% 2.52% 2.47% 2.99%(3) Incentive fee (2) 0.09% 0.00% 0.00% 0.51%(4) ------ ------- ------ ------- Expense ratio after incentive fee, net of waivers and reimbursements 2.83% 2.52% 2.47% 3.50%(3) ====== ======= ====== ======= Portfolio turnover (5) 24.52% 11.39% 14.22% 35.12%
+ The Fund was seeded on May 10, 2006 and commenced investment operations on July 1, 2006. (1) Total return is calculated for all members taken as a whole. A member's return may vary from these returns based on the timing of capital transactions. The total return is calculated for the period indicated. (2) Does not include expenses of the Investment Funds in which the Master Fund invests. The expense ratio and incentive fee ratio are calculated for all members taken as a whole. The computation of such ratios based on the amount of expenses and incentive fee assessed to a member's capital may vary from these ratios based on the timing of capital transactions. The waivers/ reimbursements consist of voluntary payments made by the Manager. See Note 2F in Notes to Consolidated Financial Statements. (3) Annualized. (4) Not Annualized. (5) Portfolio turnover represents the Master Fund's portfolio turnover and is calculated for the period indicated. The accompanying notes are an integral part of the consolidated financial statements. 7 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 1. ORGANIZATION PNC Absolute Return TEDI Fund LLC (the "Fund"), is a limited liability company organized under the laws of the state of Delaware and registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a closed-end, non-diversified, investment management company. The Fund's interests (the "Interests") are registered under the Securities Act of 1933, as amended, but are subject to substantial limits on transferability and resale. The Fund was formed on August 4, 2005 with operations commencing on July 1, 2006. The Fund's investment objective is to seek capital appreciation. The Fund seeks to achieve this objective by investing substantially all of its investable assets into the PNC Absolute Return Cayman Fund LDC (the "Offshore Fund"), a Cayman Islands limited duration company with the same investment objectives as the Fund. The Offshore Fund commenced operations on July 1, 2006. The Offshore Fund invests substantially all of its investable assets into PNC Absolute Return Master Fund LLC (the "Master Fund"), a Delaware limited liability company with the same investment objectives as the Fund and the Offshore Fund. The Offshore Fund serves solely as an intermediate entity through which the Fund invests in the Master Fund. The Offshore Fund makes no independent investment decisions and has no investment or other discretion over the investable assets. The Fund owned 100% of the Offshore Fund, and the Offshore Fund owned approximately 10.1% of the Master Fund as of March 31, 2010. As the Fund controls substantially all of the operations of the Offshore Fund, these financial statements are the consolidation of the Fund and the Offshore Fund. Inter-company balances have been eliminated through consolidation. The Master Fund seeks to achieve the investment objectives by investing in investment vehicles, typically referred to as hedge funds ("Investment Funds") managed by third-party investment managers ("Investment Managers") who employ a variety of alternative investment strategies each of which typically invests in either one or more absolute return strategies that tend to exhibit substantially lower volatility (as measured by standard deviation) than the average common stock trading on a U.S. exchange or an index of stocks such as the S&P 500 Index. The Master Fund seeks Investment Funds that have historically shown relatively low (in some cases negative) correlation to each other, as well as low to negative correlation to broad equity and bond indices. Therefore, a fund of hedge funds, such as the Master Fund, focusing on the absolute return sector seeks to generate positive absolute returns over a market cycle with relatively low volatility. The performance of the Fund is directly affected by the performance of the Master Fund. Attached are the financial statements of the Master Fund which should be read in conjunction with the Fund's financial statements. The Fund's Board of Directors (the "Board") has overall responsibility for the oversight of management and business operations of the Fund on behalf of the members. The Board consists of persons who are not "interested persons" (as defined in the 1940 Act). Prior to September 29, 2009, PNC Capital Advisors, Inc. served as investment manager of the Fund and Master Fund. On September 29, 2009, the predecessor investment manager to the Master Fund and the Fund, PNC Capital Advisors, Inc., merged with Allegiant Asset Management Company ("Allegiant"), its affiliate, to form PNC Capital Advisors, LLC (the "Manager"), a Delaware limited 8 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 liability company (the "Merger"). The Manager and its predecessors, PNC Capital Advisors, Inc. and Allegiant, are indirect wholly-owned subsidiaries of The PNC Financial Services Group, Inc. ("PNC"). PNC acquired Allegiant through the merger of National City Corporation into PNC on December 31, 2008 and subsequently consolidated the institutional and mutual fund investment advisory operations of PNC Capital Advisors, Inc. and Allegiant to form the Manager. The Merger resulted in an "assignment," as that term is defined in the 1940 Act, of the investment management agreements with PNC Capital's predecessor that were in effect prior to the Merger. As a result, those agreements automatically terminated in accordance with their terms. The Manager continued to provide investment management services to the Fund and Master Fund under interim investment management agreements (the "Interim Investment Management Agreements") approved by the Board of Directors, from September 29, 2009 through January 22, 2010, when the Members approved the new investment management agreements. The Manager oversees the management of the day-to-day operations of the Fund and the Master Fund under the supervision of both the Fund's and Master Fund's Board of Directors, respectively. At March 31, 2010, PNC Investment Corp., an affiliate of the Manager, had a capital balance in the Fund of $132,890. The Manager has delegated its responsibilities for formulating a continuing investment program for the Master Fund and investment decisions regarding the purchases and withdrawals of interests in the Investment Funds to Ramius Alternative Solutions LLC (the "Adviser"). The Adviser is registered as an investment adviser under the Advisers Act. On November 2, 2009, the Adviser, formerly known as Ramius Fund of Funds Group LLC changed its name to Ramius Alternative Solutions LLC ("RASL") and became an indirect wholly owned subsidiary of Cowen Group, Inc. ("Cowen"), which is controlled by RCG Holdings LLC ("RCG Holdings"). The transaction with Cowen resulted in an "assignment", as that term is defined in the 1940 Act, of the investment advisory agreement with Ramius Fund of Funds Group LLC that was in effect prior to the transaction. As a result, the investment advisory agreement automatically terminated in accordance with its terms. The Adviser continued to provide investment advisory services to the Master Fund under an interim investment advisory agreement (the "Interim Investment Advisory Agreement") approved by the Board of Directors, from November 2, 2009 through January 22, 2010, when the Members approved the new investment advisory agreement. Generally, initial and additional subscriptions for Interests by eligible members may be accepted at such times as the Fund may determine. The Fund reserves the right to reject any subscriptions for Interests in the Fund. The Fund from time to time may offer to repurchase outstanding Interests pursuant to written tenders by members. These repurchases will be made at such times and on such terms as may be determined by the Board, in its complete and absolute discretion. 9 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 2. SIGNIFICANT ACCOUNTING POLICIES The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The following is a summary of the significant accounting policies followed by the Fund: A. RECENT ACCOUNTING DEVELOPMENTS FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") ACCOUNTING STANDARDS CODIFICATION ("ASC"). In July 2009, the FASB launched the FASB Accounting Standards Codification (the "Codification") as the single source of GAAP. While the Codification did not change GAAP, it introduced a new structure to the accounting literature and changed references to accounting standards and other authoritative accounting guidance. The Codification did not have an effect on the Fund's financial condition, results of operations or cash flows. IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. In January 2010, the FASB issued ASU No. 2010-06 which provides amendments to Fair Value Measurements and Disclosures (Topic 820). This guidance requires new disclosures, and also clarifies existing disclosures. The new disclosures relate to the transfers in and out of Level 1 and Level 2 assets, and disclosures about purchases, sales, issuance and settlements in the roll-forward of activity in Level 3 assets. The guidance also clarifies existing disclosures regarding the level of disaggregation, inputs and valuation techniques. The new disclosures and clarification of existing disclosures are effective for annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuance, and settlements in the roll-forward of activity in Level 3 assets, which are effective for fiscal years beginning after December 15, 2010. The Fund is currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-06. B. VALUATION The net asset value (assets less liabilities, including accrued fees and expenses) of the Fund is determined as of the close of business at the end of each month. The Fund's investment in the Master Fund represents substantially all of the Fund's assets. All investments owned are carried at value which is the portion of the net asset value of the Master Fund held by the Fund. The accounting for and valuation of investments by the Master Fund is discussed in Note 2C of the Master Fund's financial statements. C. INCOME RECOGNITION AND SECURITY TRANSACTIONS Dividend income is recorded on the ex-dividend date. Security transactions are recorded on the effective date of the subscription in, or redemption out of, the Master Fund. The Fund will bear, as an investor in the Master Fund, its share of the income, realized and unrealized gains and losses of the Master Fund. D. INVESTMENT IN REGISTERED INVESTMENT COMPANY The Fund may invest in a registered investment company, SEI Daily Income Trust Money Market Fund, for cash management purposes. At March 31, 2010, there was no investment in this registered investment company. E. SEGREGATED ACCOUNT A portion of the investment in the Master Fund is segregated to finance the repurchase of Interests from tender offers. 10 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 F. FUND EXPENSES The Fund will bear all expenses incurred in its business. The expenses of the Fund include, but are not limited to, the following: legal fees; administrative fees; auditing fees; costs of insurance; registration expenses; expenses of meetings of the Board and members; all costs with respect to communications to members; and other types of expenses as may be approved from time to time by the Board. The Fund will bear, as an investor in the Master Fund, its share of the fees and expenses of the Master Fund. Certain expenses of the Fund have been voluntarily paid by the Manager. These voluntary payments are temporary and the Manager may terminate all or a portion of these voluntary payments at any time and without notice to members. The Master Fund pays the expense allocated to, and incurred by, the Fund and is reimbursed by the Fund through the redemption of Interests in the Master Fund. G. INCOME TAXES The Fund intends to operate and has elected to be treated as a partnership for Federal income tax purposes. Each member is individually responsible for the tax liability or benefit relating to such member's distributive share of taxable income or loss. Accordingly, no provision for Federal income taxes is reflected in the accompanying financial statements. Tax years 2007, 2008 and 2009 remain subject to examination by Federal and State jurisdictions, including those States where investors reside or States where the Fund is subject to other filing requirements. H. 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. I. CAPITAL ACCOUNTS Net profits or net losses of the Fund for each fiscal period will be allocated to the capital accounts of members as of the last day of each fiscal period in accordance with members' respective investment percentages of the Fund. Net profits or net losses will be measured as the net change in the value of the net assets of the Fund during a fiscal period, before giving effect to any repurchases of interest in the Fund, and excluding the amount of any items to be allocated to the capital accounts of the members of the Fund, other than in accordance with the members' respective investment percentages. J. RESTRICTED CASH The Fund holds non-interest bearing restricted cash, which serves as collateral for the note payable for the tender offer. K. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reported period. The Manager believes that the estimates utilized in preparing the Fund's financial statements are reasonable and prudent; however, actual results could differ from these estimates. 11 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 3 RELATED PARTY TRANSACTIONS A. INCENTIVE FEES The Fund pays the Manager an annual incentive fee ("Incentive Fee"), payable at the fiscal period-end (the "Incentive Period"), equal to 10% of each member's net profits in excess of such member's "Loss Carryforward Amount" and the Benchmark Return. The Loss Carryforward Amount for each member commences at zero and, for each Incentive Period, is increased or reduced by the net losses or net profits, respectively, allocated to each member's capital account for such Incentive Period. The "Benchmark Return" is a non-cumulative return, determined from the first date of the fiscal year, except if a member's initial capital contribution is made after the beginning of the fiscal year, the Benchmark Return is instead determined from such initial contribution date. The Benchmark Return as of any accounting date equals the average of the rates for the generic three-month LIBOR as of the last day of each of the four immediately preceding calendar quarters, as published by Bloomberg, L.P. The Manager will pay the Adviser to the Master Fund one-half of the Incentive Fee. B. ADMINISTRATION AND OTHER FEES The Fund has also retained the Manager to serve as the administrator and pays the Manager an administration fee at an annual rate of 0.25% of members' capital of the Fund plus a $15,000 flat fee. The Manager has retained SEI Investments Global Funds Services ("SEI") to serve as sub-administrator whereby SEI provides administrative, accounting, and investor services, as well as serves in the capacity of transfer and distribution disbursing agent for the Fund. As compensation for services provided, the Manager pays SEI a fee pursuant to a written agreement between the Manager and SEI. SEI Private Trust Company serves as custodian and escrow agent for the Fund's assets. C. BOARD FEES The Fund pays each Director an annual retainer of $1,000. The Directors will not receive any fees from the Fund for attending regular, special or telephonic Board meetings. The Fund also reimburses all Board members for all reasonable out of pocket expenses. Total amounts incurred related to Board meetings by the Master Fund allocated to the Fund for the year ended March 31, 2010 were $13,211, which includes $6,247 allocated from the Master Fund. Directors who receive fees are eligible for participation in the Fund's Deferred Compensation Plan (the "Plan"), an unfunded, nonqualified deferred compensation plan. The Plan, which became effective January 1, 2010, allows each eligible Director to defer receipt of all or a percentage of fees that would otherwise be payable for services performed. 4. CONCENTRATION OF RISK The Master Fund invests primarily in Investment Funds that are not registered under the 1940 Act and invest in, and actively trade securities and other financial instruments using different strategies and investment techniques that may involve significant risks. The Master Fund's concentration of risk is discussed in Note 4 of the Master Fund's financial statements. 12 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Investment Funds in which the Master Fund invests trade various financial instruments and enter into various investment activities with off-balance sheet risk. The Master Fund's off balance sheet risk in these financial instruments is discussed in Note 5 of the Master Fund's financial statements. 6. GUARANTOR OBLIGATIONS AND INDEMNIFICATIONS In the normal course of business the Fund enters into contracts that contain a variety of warranties and representations, which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote. 7. INVESTMENT TRANSACTIONS For the year ended March 31, 2010, aggregate purchases of the Master Fund amounted to $165,301 and aggregate sales of the Master Fund amounted to $390,352. 8. TENDER OFFER On February 24, 2009, the Fund offered to purchase in cash an amount of Interests or portions of Interest up to $100,000 of members' capital of the Fund tendered by members of the Fund at a price equal to the net asset value at June 30, 2009. Tenders with a value in the amount of $100,000 were received and accepted by the Fund from limited members. A non-interest bearing Promissory Note was issued by the Fund entitling the members to a payment on or about 30 days after June 30, 2009. Members received an initial payment of $90,000 on August 3, 2009 and the remaining amount will be paid promptly after completion of the Fund's March 31, 2010 year-end audit. On August 28, 2009, the Fund offered to purchase in cash an amount of Interests or portions of Interest up to $100,000 of members' capital of the Fund tendered by members of the Fund at a price equal to the net asset value at December 31, 2009. Tenders with a value in the amount of $100,000 were received and accepted by the Fund from Members. A non-interest bearing Promissory Note was issued by the Fund entitling the members to a payment on or about 30 days after December 31, 2009. Members received an initial payment of $90,000 on February 1, 2010 and the remaining amount will be paid promptly after the completion of the Fund's March 31, 2010 year-end audit. On February 26, 2010, the Fund offered to purchase in cash an amount of Interests or portions of Interest up to $1.5 million of members' capital of the Fund tendered by members of the Fund at a price equal to the net asset value at June 30, 2010. Tenders with an estimated value in the amount of $1.5 million were received and accepted by the Fund from limited members. A non-interest bearing Promissory Note was issued by the Fund entitling the members to an initial payment in an amount equal to at least 90% of the tender, on or about 30 days after June 30, 2010, and the remaining amount will be paid promptly after the completion of the Fund's March 31, 2011 year-end audit. 13 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 9. SUBMISSION OF MATTERS TO A VOTE OF MEMBERS (UNAUDITED) ELECTION OF DIRECTORS At a Special Meeting of Members held on January 22, 2010, Members of the Fund elected five Directors to the Board of Directors. The voting results were as detailed below:
INTERESTS INTERESTS INTERESTS NOMINEE FOR AGAINST ABSTAINED - ------- --------- --------- --------- Dorothy A. Berry 100.00% 0.00% 0.00% Kelley J. Brennan 100.00% 0.00% 0.00% Dale C. LaPorte 100.00% 0.00% 0.00% Richard W. Furst 100.00% 0.00% 0.00% Robert D. Neary 100.00% 0.00% 0.00%
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS Through the merger of National City Corporation into PNC on December 31, 2008, PNC acquired Allegiant, and subsequently on September 29, 2009 the institutional and mutual fund investment advisory operations of PNC Capital Advisors, Inc. and Allegiant were consolidated to form the Manager. The Merger resulted in an "assignment", as the term is defined in the 1940 Act, of the investment management agreements with PNC Capital Advisors, Inc. that were in effect prior to the Merger. As a result, those agreements automatically terminated in accordance with their terms. In anticipation of the Merger, at a regular meeting held on August 11, 2009, the Directors of the Fund, including a majority of the Directors who are not "interested persons" (the "Independent Directors"), met in person and voted to approve an Interim Investment Management Agreement and a new investment management agreement between the Manager and the Fund in order for the Manager to continue to serve as investment manager, in the event the Merger occurred prior to Member approval of a new investment management agreement. For information about the Board's deliberations and the reasons for its recommendation, see "Board Approval of Investment Management and Advisory Agreements" in the Fund's September 30, 2009 Semi-Annual Report. At a Special Meeting of Members held on January 22, 2010, Members of the Fund approved a new investment management agreement with PNC Capital Advisors, LLC. The voting results were as detailed below:
INTERESTS INTERESTS INTERESTS FUND FOR AGAINST ABSTAINED - ---- --------- --------- --------- PNC Absolute Return TEDI Fund LLC 100.00% 0.00% 0.00%
APPROVAL OF INVESTMENT ADVISORY AGREEMENT On November 2, 2009, the Adviser, formerly known as Ramius Fund of Funds Group LLC changed its name to Ramius Alternative Solutions LLC ("RASL") and became an indirect wholly owned subsidiary of Cowen Group, Inc. ("Cowen"), which is controlled by RCG Holdings LLC ("RCG Holdings"). The transaction with Cowen resulted in an "assignment", as that term is defined in the 1940 Act, of the investment advisory agreement with Ramius Fund of Funds Group LLC that was in effect prior to the transaction. As a result, the investment advisory agreement automatically terminated in accordance with its terms. 14 PNC ABSOLUTE RETURN TEDI FUND LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 In anticipation of the transaction with Cowen, at a regular meeting held on August 11, 2009, the Directors of the Master Fund and Fund, including a majority of the Directors who are not "interested persons" (the "Independent Directors"), met in person and voted to approve an Interim Investment Advisory Agreement and new investment advisory agreement between the Manager, the Adviser and the Master Fund in order for the Adviser to continue to serve as investment adviser, in the event the transaction with Cowen occurred prior to member approval of a new investment advisory agreement. For information about the Board's deliberations and the reasons for its recommendation, see "Board Approval of Investment Management and Advisory Agreements" in the Funds' September 30, 2009 Semi-Annual Report. At a Special Meeting of Members held on January 22, 2010, Members of the Fund approved a new investment advisory agreement with PNC Capital Advisors, LLC. The voting results were as detailed below:
INTERESTS INTERESTS INTERESTS FUND FOR AGAINST ABSTAINED - ---- --------- --------- ---------- PNC Absolute Return TEDI Fund LLC 100.00% 0.00% 0.00%
10. SUBSEQUENT EVENTS The Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through May 31, 2010, the date the financial statements were issued. Based on this evaluation, no adjustments were required to the Financial Statements as of March 31, 2010. However, the following are details relating to subsequent events that occurred since March 31, 2010 through May 31, 2010. As of May 31, 2010, SEI will no longer provide sub-administration services and SEI Private Trust Company will no longer provide custody and escrow agent services for the Fund. Effective June 1, 2010, PNC Global Investment Servicing (U.S.) Inc., PFPC Trust Company and PNC Bank, N.A. will serve as sub-administrator, custodian and escrow agent, respectively, for the Fund. On April 26, 2010, the Board approved the termination of Kramer Levin Naftalis & Frankel LLP and K&L Gates LLP as counsel to the Fund and counsel to the independent directors, respectively. Effective April 27, 2010, Ropes & Gray LLP and Sutherland Asbill & Brennan LLP assumed the responsibilities as counsel to the Fund and counsel to the independent directors, respectively. 15 PNC ABSOLUTE RETURN TEDI FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010 The business and affairs of the Fund are managed under the general supervision of the Board in accordance with the laws of the state of Delaware and the Fund's Limited Liability Company Agreement. Information pertaining to the Directors and officers of the Fund is set forth below. Each Director serves for an indefinite term until either (1) the date that his or her successor in office becomes effective, or (2) the date that he or she resigns or, his or her term as a Director is terminated in accordance with the Fund's Limited Liability Agreement. The Directors are not "interested persons" as defined in the 1940 Act. Mr. Murphy and Mr. Neary serve as Co-Chairmen of the Board of Directors of the Fund. The address of each Director and officer is c/o PNC Absolute Return TEDI Fund LLC, Two Hopkins Plaza, Baltimore, Maryland 21201.
NAME, DATE OF LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS HELD BY BIRTH AND AGE TIME SERVED DURING PAST 5 YEARS DIRECTOR DURING PAST 5 YEARS(1) - --------------------- ----------- ----------------------- ------------------------------- John R. Murphy Since 2002 Vice-Chairman, National Director, Omnicom Group, Inc. Date of Birth: 1/7/34 Geographic Society, (media and marketing); Age: 76 March 1998 to present; Director, Sirsi Dynix Managing Partner, Rock (technology); Director, PNC Solid Holdings, 2009 to Funds, PNC Advantage Funds, PNC present. Absolute Return Master Fund LLC, PNC Absolute Return Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company) Robert D. Neary Since 2010 Retired; Co-Chairman of Director, Strategic Date of Birth: Ernst & Young LLP (an Distribution, Inc. (sales and 9/30/33 accounting firm), 1984 management of maintenance Age: 76 - 1993. supplies) until March 2007; Director, Commercial Metals Company; Director, PNC Funds, PNC Advantage Funds, PNC Absolute Return Master Fund LLC, PNC Absolute Return Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
16 PNC ABSOLUTE RETURN TEDI FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
NAME, DATE OF LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS HELD BY BIRTH AND AGE TIME SERVED DURING PAST 5 YEARS DIRECTOR DURING PAST 5 YEARS(1) - --------------------- ----------- ----------------------- ------------------------------- Dorothy A. Berry Since 2010 President, Talon Chairman and Director, Date of Birth: Industries, Inc. Professionally Managed 9/12/43 (administrative, Portfolios; Director, PNC Age: 66 management and business Funds, PNC Advantage Funds, PNC consulting), since Absolute Return Master Fund 1986. LLC, PNC Absolute Return Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company) Kelley J. Brennan Since 2010 Retired; Partner, Director, PNC Funds, PNC Date of Birth: PricewaterhouseCoopers Advantage Funds, PNC Absolute 7/7/42 LLP (an accounting Return Master Fund LLC, PNC Age: 67 firm), 1981 - 2002. Absolute Return Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company) Richard W. Furst Since 2010 Consultant and Private Director, Central Bank & Trust Date of Birth: Investor, Dean Emeritus Co.; Director, Central 9/13/38 and Garvice D. Kincaid Bancshares; Director, PNC Age: 71 Professor of Finance Funds, PNC Advantage Funds, PNC (Emeritus), Gatton Absolute Return Master Fund College of Business and LLC, PNC Absolute Return Fund Economics, University LLC, PNC Long-Short Master Fund of Kentucky, since LLC, PNC Long-Short Fund LLC, 2003. PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
17 PNC ABSOLUTE RETURN TEDI FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
NAME, DATE OF LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS HELD BY BIRTH AND AGE TIME SERVED DURING PAST 5 YEARS DIRECTOR DURING PAST 5 YEARS(1) - --------------------- ----------- ----------------------- ------------------------------- Dale C. LaPorte Since 2010 Retired; Senior Vice Director, Invacare Corporation; Date of Birth: President and General Director, PNC Funds, PNC 1/04/42 Counsel, Invacare Advantage Funds, PNC Absolute Age: 68 Corporation Return Master Fund LLC, PNC (manufacturer of Absolute Return Fund LLC, PNC healthcare products), Long-Short Master Fund LLC, PNC December 2005 - 2008; Long-Short Fund LLC, PNC Partner, 1974 - 2005 Long-Short TEDI Fund LLC, PNC and Chairman of Alternative Strategies Master Executive Committee, Fund LLC, PNC Alternative 2000 - 2004, of Calfee, Strategies Fund LLC, PNC Halter & Griswold LLP Alternative Strategies TEDI (law firm). Fund LLC (each a registered investment company) L. White Matthews, Since 2003 Retired since 2001; Director, Matrixx Initiatives, III Chairman and Director, Inc. (pharmaceuticals); Date of Birth: Ceridian Corporation Director, Imation Corp. (data 10/5/45 (payroll and human storage products); Director, Age: 64 resources services), PNC Funds, PNC Advantage Funds, 2003 to 2007; Director PNC Absolute Return Master Fund and Chairman of the LLC, PNC Absolute Return Fund Board of Constar LLC, PNC Long-Short Master Fund International Inc. LLC, PNC Long-Short Fund LLC, (bottles and packaging PNC Long-Short TEDI Fund LLC, manufacturer), 2009 to PNC Alternative Strategies present. Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
18 PNC ABSOLUTE RETURN TEDI FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
NAME, DATE OF LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS HELD BY BIRTH AND AGE TIME SERVED DURING PAST 5 YEARS DIRECTOR DURING PAST 5 YEARS(1) - --------------------- ----------- ----------------------- ------------------------------- Edward D. Miller, Jr. Since 2002 Dean and Chief Director, Care Fusion (health Date of Birth: Executive Officer, care devices); Director, PNC 2/1/43 Johns Hopkins Medicine, Funds, PNC Advantage Funds, PNC Age: 67 January 1997 to Absolute Return Master Fund present. LLC, PNC Absolute Return Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
(1.) Includes directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended (i.e., "public companies"), or other investment companies registered under the 1940 Act. The Fund is part of a "Fund Complex" that is comprised of 10 other registered investment companies which are included in this column for each Director. The total number of portfolios in the Fund Complex overseen by each of the Directors is 36. OFFICERS OF THE FUND Officers are elected by the Directors and hold office until they resign, are removed or are otherwise disqualified to serve. The following table sets forth certain information about the Fund's officers who are not Directors.
NAME, ADDRESS, POSITION HELD WITH DATE OF BIRTH AND AGE MASTER FUND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ---------------------------- ------------------- --------------------------- ------------------------------------------- Kevin A. McCreadie President Since 2004 President and Chief Executive Officer, PNC Two Hopkins Plaza, Capital Advisors, LLC (formerly PNC Capital 4th Floor Advisors, Inc.) since March 2004; Chief Baltimore, MD 21201 Investment Officer of PNC Capital Advisors, Date of Birth: 8/14/60 LLC since 2002; Chief Investment Officer of Age: 49 PNC Asset Management Group since 2007; Executive Vice President of PNC Bank, N.A. since 2007; Partner of Brown Investment Advisory & Trust Company, 1999-2002.
19 PNC ABSOLUTE RETURN TEDI FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
NAME, ADDRESS, POSITION HELD WITH DATE OF BIRTH AND AGE MASTER FUND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ---------------------------- ------------------- --------------------------- ------------------------------------------- Jennifer E. Spratley Vice President and Since March 2008 and Managing Director and Head of Fund Two Hopkins Plaza, 4th Floor Treasurer September 2007, Administration, PNC Capital Advisors, LLC Baltimore, MD 21201 respectively (formerly PNC Capital Advisors, Inc.) since Date of Birth: 2/13/69 2007; Treasurer, PNC Capital Advisors, Age: 41 Inc., September 2007 - September 2009; Unit Leader, Fund Accounting and Administration, SEI Investments Global Funds Services 2005 to 2007; Fund Accounting Director, SEI Investments Global Funds Services 1999 to 2007. George L. Stevens Assistant Vice Since 2008 Director - CCO Services, Beacon Hill Fund Beacon Hill Fund Services, President and Chief Services, Inc. (distributor services, chief Inc. Compliance Officer compliance officer services and/or chief 4041 N. High Street financial officer services) since 2008; Columbus, Ohio 43214 Vice President, Citi Fund Services Ohio, Date of Birth: 2/10/51 Inc. 1995-2008. Age: 59 Jennifer Vollmer Secretary Since 2002 Senior Counsel, PNC since 2007; Secretary, The PNC Financial Services PNC Capital Advisors, LLC (formerly, PNC Group, Inc. Capital Advisors, Inc.), since 2001. 1600 Market Street, 28th Floor Philadelphia, PA 19103 Date of Birth: 12/30/71 Age: 38 Savonne L. Ferguson Assistant Secretary Since 2004 Vice President and Director of Regulatory Two Hopkins Plaza, 4th Floor Fund Administration, PNC Capital Advisors, Baltimore, MD 21201 LLC (formerly, PNC Capital Advisors, Inc.) Date of Birth: 10/31/73 since 2010; Vice President, PNC Capital Age: 36 Advisors, Inc. 2007-2009; Assistant Vice President, PNC Capital Advisors, Inc. 2002-2007.
20 PORTFOLIO HOLDINGS DISCLOSURE The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Fund's Forms N-Q are available on the Commission's web site 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. PROXY VOTING POLICIES AND PROCEDURES 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 relating to 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 1-800-239-0418; and (ii) on the Commission's website at http://www.sec.gov. 21 PNC ABSOLUTE RETURN MASTER FUND LLC ANNUAL REPORT MARCH 31, 2010 PNC ABSOLUTE RETURN MASTER FUND LLC CONTENTS MARCH 31, 2010
PAGE ---- Fund Commentary (Unaudited)............................................ 2 Report of Independent Registered Public Accounting Firm................ 5 FINANCIAL STATEMENTS Schedule of Investments................................................ 6 Statement of Assets and Liabilities.................................... 8 Statement of Operations................................................ 9 Statements of Changes in Members' Capital.............................. 10 Statement of Cash Flows................................................ 11 Financial Highlights................................................... 12 Notes to Financial Statements.......................................... 13 Directors and Officers of the Fund (Unaudited)......................... 24 Other Information (Unaudited).......................................... 29
PNC ABSOLUTE RETURN MASTER FUND LLC FUND COMMENTARY (UNAUDITED) MARCH 31, 2010 Dear Members: PNC Absolute Return Master Fund(1) (the "Fund") gained 13.43%, net of all fees, expenses and incentive allocations, for the 12 months ended March 31, 2010 (the "Reporting Period"). The Fund produced positive returns in each of the 12 months ended March 31, 2010. To compare, the Fund significantly outperformed the HFRX Absolute Return Index(2), which generated a -4.34% return during the same time frame. The Fund also notably outpaced the 7.70% advance of the Barclays Capital U.S. Aggregate Bond Index(3), although it lagged the 49.77% return of the S&P 500 Index(4) over the same period. As always, it is important to maintain a long-term perspective. Since its inception on December 27, 2002, the Fund has gained 3.66%, net of all fees, expenses and incentive allocations, on an annualized basis through March 31, 2010. MARKET AND ECONOMIC REVIEW The Reporting Period took its lead from the significant turnaround in the equity markets that began March 9, 2009 after Vikram Pandit, CEO of Citigroup, commented that Citigroup was having its best quarter since 2007. Interestingly, on that same day, the American Association of Individual Investors admitted that its latest survey indicated the most bearish view since it began collecting data in 1987. In the dramatic ripple effects of these announcements, the Reporting Period itself was then defined by the realization that the economic depression-like contraction of global inventory levels was creating a mini-cyclical boom, as reflected in data such as industrial output and business and consumer confidence. Another factor dominating the investment markets during the Reporting Period was the growing belief that central banks and governments would support asset prices, especially for any nation in debt. The view that inflation is the better of two evils and that asset values are key to any type of credit extension into the economy became consensus. Monetary and fiscal policies were directed to asset re-inflation, if not bubble creation, at a time when acceptable yield was no longer available in traditional money market assets. The result was a push into risk assets and away from the curse of cash, a push that seemingly became almost mandatory. FUND REVIEW By the end of the Reporting Period, the percentage of the Fund's total assets allocated to the Global Macro, Managed Futures, Opportunistic Equity and Multi-Strategy strategies was modest. The following discussion focuses only on those strategies where the Fund had its greatest emphasis during the Reporting Period. CREDIT-BASED. The credit markets experienced a tremendous rally during the Reporting Period. The rally was due primarily to the massive influx of liquidity by central banks globally, which led to sharply lower interest rates and strong market technicals. Institutional and retail investors alike allocated a healthy portion of their low yielding cash to all parts of the credit markets--especially high yield corporate bonds and leveraged loans. Additionally, a receptive new issuance market and government-sponsored programs designed to foster demand for securitized assets proved beneficial. These considerations brought risk premiums in the credit indices to levels below where they were trading prior to the calamitous events of September 2008. The rally was led by lower quality, higher risk companies and, as a result, the market was pricing in much less differentiation across the credit quality spectrum at the end of the Reporting Period than it was one year prior. 2 PNC ABSOLUTE RETURN MASTER FUND LLC FUND COMMENTARY (UNAUDITED) MARCH 31, 2010 HEDGED EQUITY. Global equity markets rallied markedly during the Reporting Period. As with the credit markets, the strong performance of the global equity markets was influenced by extraordinary government initiatives, which led to improving economic results but also to historically low interest rates. These low rates encouraged investors to move away from the safety of low yielding instruments and toward riskier assets. Equity long/short managers recognized this development in early spring, referring to cash as the "crowded trade," which was captured by a measured increase in both gross and net exposures. The pace of balance sheet deployment, however, did not meaningfully accelerate until the second half of the Reporting Period, when the simultaneous decline in realized equity volatility and an overall reduction in correlation between stocks and sectors fostered increased risk-taking by managers. EVENT-DRIVEN. The Fund's event-driven strategy managers generated positive returns during the Reporting Period, led by stressed/distressed corporate credit strategies and directional equity strategies, such as deep value, catalyst-oriented sub-funds. The merger arbitrage sub-fund underperformed other strategies but still produced solid positive returns for the Reporting Period. In the merger arbitrage sub-fund, the largest and most widely held deals were two pharmaceutical acquisitions--namely, Pfizer's acquisition of Wyeth in a $67 billion deal and Merck's acquisition of Schering-Plough in a $42 billion deal. These both had been announced in the first quarter of 2009 and made up the bulk of manager allocations to merger arbitrage during the Reporting Period due to the high annualized returns--greater than 20%--available in both of these deals. Within distressed strategies, technical tailwinds were strong and loan retirement through new extended maturity bond issues was a major theme. By the end of 2009, only 0.8% of the market was trading at levels traditionally defined as distressed (i.e. less than 50% of par) and the projected default rate was expected to decrease to just 4% in 2010, according to Moody's Investors Services. This sharp reversal from the outlook a year earlier was driven by the steadily increasing availability of credit throughout 2009, allowing many firms with maturing debt to refinance. Activist strategy sub-funds benefited during the Reporting Period from the tailwind of strong equity market performance coupled with a number of stock-specific events that helped performance. However, many managers were focusing at the end of the Reporting Period on friendly activist or more passive, deep value investments versus a hostile, public approach due to the significant resources in terms of time and energy required to properly execute the strategy. STRATEGY AHEAD Given the push into risk assets during much of the Reporting Period and the conditions and policies supporting this investor mindset, we believe an ongoing scenario of further asset price momentum is as likely as any other path. With that said, the market environment at the end of March 2010 was characterized by diverging economic data between the U.S., Europe, Japan and the emerging economies on the one hand and sovereign solvency issues such as those experienced by Dubai World and Greece on the other. Still, a common thread across much of the world was the sustainable level of global economic growth. The recovery in economic activity, in our view, was well in place and recent data generally was ahead of consensus expectations. Still, questions on the durability of these conditions remained unanswered for two primary reasons. First, it was not clear where the sustainable levels of economic activity will settle once shorter term cyclical influences, such as the positive inventory cycle, and government spending recede. Second, global economic growth would suffer a damaging blow if the excessive growth and highly accommodative monetary conditions in China force inflation higher and potentially result in a hard landing as policy makers look to intervene and overshoot. The world, in our view, is likely to be flat and dispersion less relevant if either of these outcomes is materially worse than discounted at the end of the Reporting Period. 3 PNC ABSOLUTE RETURN MASTER FUND LLC FUND COMMENTARY (UNAUDITED) MARCH 31, 2010 For credit-based managers, we believe that going forward, there may be significant dispersion in the credit markets. Thus, at the end of the Reporting Period, we were favoring a fundamental long/short credit approach for the months ahead rather than the beta-driven approach that would have worked well in 2009. Beta is a measure of sensitivity to market movements. For hedged equity managers, the declining correlation and increased dispersion seen during the last few months of the Reporting Period suggested that stock picking may play an increasingly important role in manager performance going forward. Earnings momentum, rather than multiple expansion, will likely be crucial in supporting valuations. We believe that stocks undeserving of their multiples from a fundamental standpoint will likely be re-rated over the course of the coming year. At the same time, many high quality businesses with strong balance sheets and free cash flows, many of which have fallen behind in the beta-led rally, may well benefit from increased investor appreciation. For event-driven distressed strategy managers, the dramatically lower projected default rate and other technical tailwinds will likely lead, in our view, to a more modest distressed opportunity set in the near term, but may allow for a more consistently attractive investment landscape over the next several years as close to $1 trillion in high yield corporate debt and high yield bank loans are due to mature between 2012 and 2015. Sincerely, RAMIUS ALTERNATIVE SOLUTIONS LLC (1) THE FUND COMMENCED INVESTMENT OPERATIONS ON JULY 1, 2006. THE PERFORMANCE AND PORTFOLIO HOLDINGS DISCUSSED HEREIN INCLUDE THE PAST PERFORMANCE AND PORTFOLIO HOLDINGS OF A PREDECESSOR FUND WITH THE SAME INVESTMENT OBJECTIVE AND STRATEGIES THAT TRANSFERRED ALL OF ITS ASSETS TO THE FUND ON JULY 1, 2006. (2) THE HFRX ABSOLUTE RETURN INDEX IS AN INVESTABLE HEDGE FUND INDEX DESIGNED TO PROVIDE CONSISTENT RETURNS WITH MINIMAL CORRELATION TO THE EQUITY AND FIXED INCOME MARKETS. (3) THE BARCLAYS CAPITAL AGGREGATE BOND INDEX (FORMERLY THE LEHMAN BROTHERS AGGREGATE BOND INDEX) IS A MARKET-WEIGHTED, INTERMEDIATE-TERM BOND INDEX THAT ENCOMPASSES U.S. TREASURY AND AGENCY SECURITIES AND INVESTMENT GRADE CORPORATE AND INTERNATIONAL (DOLLAR DENOMINATED) BONDS. IT IS AN UNMANAGED INDEX FREQUENTLY USED AS A GENERAL MEASURE OF BOND MARKET PERFORMANCE. AN INVESTOR MAY NOT INVEST DIRECTLY INTO THE INDEX. (4) THE S&P 500 INDEX IS A CAPITALIZATION WEIGHTED INDEX OF 500 OF THE LARGEST COMPANIES TRADING ON THE NYSE, AS SELECTED BY STANDARD & POOR'S. WIDELY REGARDED AS THE STANDARD FOR MEASURING LARGE-CAP U.S. STOCK MARKET PERFORMANCE, THE INDEX INCLUDES EXPOSURE IN ALL SECTORS AND INDUSTRIES. AN INVESTOR MAY NOT INVEST DIRECTLY INTO THE INDEX. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Members and Board of Directors of PNC Absolute Return Master Fund LLC: We have audited the accompanying statement of assets and liabilities of PNC Absolute Return Master Fund LLC (the "Fund"), including the schedule of investments, as of March 31, 2010, and the related statements of operations and cash flows for the year then ended, the statements of changes in members' capital for each of the two years in the period then ended, and financial highlights for the years ended March 31, 2010, 2009, and 2008 and for the period from May 10, 2006 (date of initial seeding) through March 31, 2007. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of March 31, 2010, by correspondence with the custodian, investment managers, and general partners. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the PNC Absolute Return Master Fund LLC as of March 31, 2010, the results of its operations and its cash flows for the year then ended, the changes in its members' capital for each of the two years in the period then ended, and its financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the financial statements, the financial statements include investments in underlying funds, valued at $26,665,529 (102.42% of total members' capital) as of March 31, 2010, whose fair values have been estimated by management in the absence of readily determinable fair values. Management's estimates are based on information provided by the investment managers or general partners of the underlying funds. DELOITTE & TOUCHE LLP Chicago, Illinois May 28, 2010 5 PNC ABSOLUTE RETURN MASTER FUND LLC SCHEDULE OF INVESTMENTS MARCH 31, 2010 INVESTMENT STRATEGY AS A PERCENTAGE OF TOTAL INVESTMENTS (PIE CHART) Event-Driven 25% Hedged Equity 22% Credit Based 22% Multi-Strategy 15% Global Macro 9% Managed Futures 3% Opportunistic Equity 3% Cash Equivalent 1%
% OF MEMBERS' INVESTMENT FUNDS* COST VALUE CAPITAL - ----------------- ----------- ----------- -------- EVENT-DRIVEN Canyon Value Realization Fund, L.P. $ 197,750 $ 270,066 1.04% Castlerigg Partners, L.P. 288,069 210,776 0.81 Cerberus SPV, LLC 1,093,746 1,910,942 7.34 Cevian Capital II, L.P. 1,750,000 1,784,025 6.85 Icahn Partners, L.P. 1,337,873 1,189,466 4.57 Lenado Partners, Series A of Lenado Capital Partners L.P. +** 979,474 220,207 0.85 Montrica Global Opportunities Fund, L.P. 162,647 99,884 0.38 Taconic Opportunity Fund, L.P. 897,415 1,142,136 4.39 ----------- ----------- ------ Total Event-Driven 6,706,974 6,827,502 26.23 HEDGED EQUITY Atlas Global, LLC 1,500,000 1,627,532 6.25 OMG Opportunities 2X Fund Limited 520,104 541,136 2.08 Perry Partners, L.P. 88,849 87,758 0.34 PFM Diversified Fund, L.P. 1,500,000 1,687,632 6.48 SAC Multi-Strategy Fund LP 136,494 119,544 0.46 SCP Ocean Fund, L.P. 1,000,000 1,827,823 7.02 ----------- ----------- ------ Total Hedged Equity 4,745,447 5,891,425 22.63 CREDIT BASED Blue Mountain Credit Alternatives Fund, L.P. 658,764 1,107,200 4.25 Brigade Leveraged Capital Structures Fund, L.P. 803,680 954,966 3.67 Claren Road Credit Partners, L.P. 1,200,000 1,361,596 5.23 GSO Liquidity Partners L.P. 418,844 338,176 1.30 GSO Special Situations Fund, L.P. 260,343 270,798 1.04 MKP Credit, L.P. 1,193,430 1,813,712 6.97 ----------- ----------- ------ Total Credit Based 4,535,061 5,846,448 22.46
(CONTINUED) 6 PNC ABSOLUTE RETURN MASTER FUND LLC SCHEDULE OF INVESTMENTS MARCH 31, 2010
% OF MEMBERS' INVESTMENT FUNDS* (CONTINUED) COST VALUE CAPITAL - ----------------------------- ----------- ----------- -------- MULTI-STRATEGY Amaranth Partners, L.L.C. $ 156,400 $ 97,734 0.38% Goldman Sachs Investment Partners 1,722,349 1,804,945 6.93 HBK SLV, LP** 169,723 153,628 0.59 Millenium USA, LP** 1,713,760 2,036,476 7.82 ----------- ----------- ------ Total Multi-Strategy 3,762,232 4,092,783 15.72 GLOBAL MACRO Brevan Howard, L.P. 597,239 1,208,590 4.64 COMAC Global Macro Fund, L.P. 1,000,000 1,190,898 4.57 ----------- ----------- ------ Total Global Macro 1,597,239 2,399,488 9.21 MANAGED FUTURES BlueTrend Fund L.P. (Class A) 762,473 859,776 3.30 ----------- ----------- ------ Total Managed Futures 762,473 859,776 3.30 OPPORTUNISTIC EQUITY SAC Capital Management L.P.** 646,469 748,107 2.87 ----------- ----------- ------ Total Opportunistic Equity 646,469 748,107 2.87 ----------- ----------- ------ Total Investment Funds 22,755,895 26,665,529 102.42 ----------- ----------- ------ REGISTERED INVESTMENT COMPANY SEI Daily Income Trust Money Market Fund, Class A, 0.090%++ 216,011 216,011 0.83 ----------- ----------- ------ TOTAL INVESTMENTS $22,971,906 $26,881,540 103.25% =========== =========== ======
* All Investment Funds are non-income producing. See Note 4 for additional information on liquidity of Investment Funds. ** Fund investment fully or partially segregated to cover tender offers. + This Investment Fund has been fair valued by the Fund's Pricing Committee in accordance with procedures approved by the Board of Directors. ++ Rate shown is the 7-day effective yield as of March 31, 2010. As of March 31, 2010, the value of PNC Absolute Return Master Fund LLC's (the "Master Fund") investments by country as a percentage of members' capital is as follows:
COUNTRY COST VALUE - ------- ----------- ----------- Cayman Islands - 9.31% $ 2,432,751 $ 2,425,045 United States - 93.94% 20,539,155 24,456,495 ----------- ----------- $22,971,906 $26,881,540 =========== ===========
The aggregate cost of investments for tax purposes is expected to be similar to book cost of $22,971,906. Net unrealized appreciation on investments for tax purposes was $3,909,634 consisting of $5,130,834 of gross unrealized appreciation and $1,221,200 of gross unrealized depreciation. The investments in Investment Funds shown above, representing 102.42% of members' capital, have been fair valued in accordance with procedures established by the Board of Directors. 7 PNC ABSOLUTE RETURN MASTER FUND LLC STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2010 ASSETS Investment Funds, at value (cost $ 22,755,895) $26,665,529 Investment in registered investment company (cost $216,011)* 216,011 Receivable from fund investments sold 1,749,519 Receivable from Manager 17,010 Prepaid expenses 14,271 Dividend income receivable 12 Other receivable 35,013 ----------- Total assets 28,697,365 ----------- LIABILITIES Due to feeder funds for tender offers 2,500,000 Management fee payable 88,850 Administration fee payable 21,200 Directors' fees payable 7,444 Chief Compliance Officer fees payable 389 Deferred compensation 2,583 Other accrued expenses 43,234 ----------- Total liabilities 2,663,700 ----------- Net assets $26,033,665 =========== MEMBERS' CAPITAL Capital $13,285,392 Accumulated net investment loss (3,901,427) Accumulated net realized gain on investments 12,740,066 Net unrealized appreciation on investments 3,909,634 ----------- Members' capital $26,033,665 ===========
* See Note 2G in Notes to Financial Statements. The accompanying notes are an integral part of the financial statements. 8 PNC ABSOLUTE RETURN MASTER FUND LLC STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2010 INVESTMENT INCOME Dividend income $ 13,079 ---------- OPERATING EXPENSES Management fees 572,423 Administration fees 83,030 Directors' fees 62,557 Chief Compliance Officer fees 11,075 Audit fees 55,779 Legal fees 40,953 Custodian fees 10,686 Tax expenses 11,767 Line of credit facility fees 9,375 Printing fees 9,107 Interest expense 4,243 Other expenses 18,288 ---------- Operating expenses 889,283 ---------- Net investment loss (876,204) ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on investments 2,688,886 Net change in unrealized appreciation on investments 3,405,925 ---------- Net realized and unrealized gain on investments 6,094,811 ---------- Net increase in members' capital from operating activities $5,218,607 ==========
The accompanying notes are an integral part of the financial statements. 9 PNC ABSOLUTE RETURN MASTER FUND LLC STATEMENTS OF CHANGES IN MEMBERS' CAPITAL FOR THE YEAR ENDED MARCH 31, 2009 FROM OPERATING ACTIVITIES Net investment loss $ (1,033,760) Net realized gain on investments 2,196,747 Net change in unrealized appreciation on investments (10,928,265) ------------ Net decrease in members' capital from operating activities (9,765,278) ------------ MEMBERS' CAPITAL TRANSACTIONS Proceeds from sales of Interests 691,350 Cost of Interests repurchased (5,680,674) ------------ Net decrease in members' capital from capital transactions (4,989,324) ------------ MEMBERS' CAPITAL Balance at beginning of year 55,099,742 ------------ Balance at end of year $ 40,345,140 ============ FOR THE YEAR ENDED MARCH 31, 2010 FROM OPERATING ACTIVITIES Net investment loss $ (876,204) Net realized gain on investments 2,688,886 Net change in unrealized appreciation on investments 3,405,925 ------------ Net increase in members' capital from operating activities 5,218,607 ------------ MEMBERS' CAPITAL TRANSACTIONS Proceeds from sales of Interests 378,113 Cost of Interests repurchased (19,908,195) ------------ Net decrease in members' capital from capital transactions (19,530,082) ------------ MEMBERS' CAPITAL Balance at beginning of year 40,345,140 ------------ Balance at end of year $ 26,033,665 ============
The accompanying notes are an integral part of the financial statements. 10 PNC ABSOLUTE RETURN MASTER FUND LLC STATEMENT OF CASH FLOWS YEAR ENDED MARCH 31, 2010 CASH FLOWS FROM OPERATING ACTIVITIES Net increase in members' capital from operating activities $ 5,218,607 Adjustments to reconcile net increase in members' capital from operating activities to net cash provided by operating activities Net change in unrealized appreciation on investments (3,405,925) Net realized gain on investments (2,688,886) Purchases of investments (8,000,000) Proceeds from sale of investments 20,275,304 Net sale of short term investments 5,990,431 Decrease in dividend income receivable 4,164 Decrease in fund investments made in advance 2,300,000 Increase in receivable from Manager (17,010) Increase in other receivable (35,013) Decrease in prepaid expenses 3,223 Decrease in Chief Compliance Officer fees payable (454) Decrease in administration fee payable (44,992) Increase in management fee payable 19,678 Increase in Directors' fees payable 4,980 Increase in deferred compensation 2,583 Increase in other accrued expenses 3,392 ------------ Net cash provided by operating activities 19,630,082 ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of Interests 378,113 Cost of Interests repurchased (20,008,195) Proceeds from line of credit 1,595,200 Repayment on line of credit (1,595,200) ------------ Net cash used in financing activities (19,630,082) ------------ Net change in cash and cash equivalents -- CASH AND CASH EQUIVALENTS Beginning of year -- ------------ End of year $ -- ============ SUPPLEMENTAL INFORMATION: Interest paid on line of credit* $ 4,243 ============ Non-cash transfer between Investment Funds with the same adviser $ 485,255 ============
* See Note 9 in Notes to Financial Statements. The accompanying notes are an integral part of the financial statements. 11 PNC ABSOLUTE RETURN MASTER FUND LLC FINANCIAL HIGHLIGHTS
PERIOD YEAR ENDED YEAR ENDED YEAR ENDED ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2010 2009 2008 2007+ ---------- ---------- ---------- --------- Total return (1) 13.43% (17.62)% 3.29% 4.42% Members' Capital, end of period (000's) $26,034 $40,345 $55,100 $56,079 RATIOS TO AVERAGE NET ASSETS Net investment loss (2.16)% (2.03)% (1.93)% (1.92)%(3) Net operating expenses (2) 2.19% 2.12% 2.00% 2.02%(3) Portfolio turnover 24.52% 11.39% 14.22% 35.12%(4)
+ The Fund was seeded on May 10, 2006 and commenced investment operations on July 1, 2006. (1) Total return is calculated for all the Members taken as a whole. A member's return may vary from these returns based on the timing of capital transactions. The total return is calculated for the period indicated. (2) Does not include expenses of the Investment Funds in which the Master Fund invests. The expense ratio is calculated for all Members taken as a whole. The computation of such ratios based on the amount of expenses assessed to a member's capital may vary from these ratios based on the timing of capital transactions. (3) Annualized. (4) Not annualized. The accompanying notes are an integral part of the financial statements. 12 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 1. ORGANIZATION PNC Absolute Return Master Fund LLC (the "Master Fund"), is a limited liability company organized under the laws of the state of Delaware and registered under the Investment Company Act of 1940, as amended (the "1940 Act") as a closed-end, non-diversified, investment management company. The Master Fund was formed on August 4, 2005 with operations commencing upon the transfer of $55,921,867 (comprised of $54,892,511 of fund investments, $796,101 of cash, $232,881 of receivable from fund investments sold, and $374 of dividends receivable) from PNC Absolute Return Fund LLC on July 1, 2006. Unrealized appreciation on the fund investments of $12,732,962 was included in the transfer. The Master Fund is a "master" fund within a "master-feeder" structure. Within this structure, one or more feeder funds (the "Members") invest all or substantially all of their investable assets in a master fund. The feeder funds' investment objectives are substantially the same as those of the Master Fund. The Master Fund's investment objective is to seek capital appreciation principally by investing in investment vehicles, typically referred to as hedge funds ("Investment Funds") managed by third-party investment managers ("Investment Managers") who employ a variety of alternative investment strategies each of which typically invests in either one or more absolute return strategies that tend to exhibit substantially lower volatility (as measured by standard deviation) than the average common stock trading on a U.S. exchange or an index of stocks such as the S&P 500 Index. The Master Fund seeks Investment Funds that have historically shown relatively low (in some cases negative) correlation to each other, as well as low to negative correlation to broad equity and bond indices. Therefore, a fund of hedge funds, such as the Master Fund, focusing on the absolute return sector seeks to generate positive absolute returns over a market cycle with relatively low volatility. The Master Fund's Board of Directors (the "Board") has overall responsibility for the oversight of management and business operations of the Master Fund on behalf of the members. The Board consists of persons who are not "interested persons" (as defined in the 1940 Act). Prior to September 29, 2009, PNC Capital Advisors, Inc. served as investment manager of the Master Fund. On September 29, 2009, the predecessor investment manager to the Master Fund, PNC Capital Advisors, Inc., merged with Allegiant Asset Management Company ("Allegiant"), its affiliate, to form PNC Capital Advisors, LLC (the "Manager"), a Delaware limited liability company (the "Merger"). The Manager and its predecessors, PNC Capital Advisors, Inc. and Allegiant, are indirect wholly-owned subsidiaries of The PNC Financial Services Group, Inc. ("PNC"). PNC acquired Allegiant through the merger of National City Corporation into PNC on December 31, 2008 and subsequently consolidated the institutional and mutual fund investment advisory operations of PNC Capital Advisors, Inc. and Allegiant to form the Manager. The Merger resulted in an "assignment," as that term is defined in the 1940 Act, of the investment management agreements with PNC Capital's predecessor that were in effect prior to the Merger. As a result, those agreements automatically terminated in accordance with their terms. The Manager continued to provide investment management services to the Master Fund under an interim investment management agreement (the "Interim Investment Management Agreement") approved by the Board of Directors, from September 29, 2009 through January 22, 2010, when the Members approved the new investment management agreement. The Manager oversees the management of the day-to-day operations of the Master Fund under the supervision of the Master Fund's Board of Directors. 13 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 The Manager has delegated its responsibilities for formulating a continuing investment program for the Master Fund and investment decisions regarding the purchases and withdrawals of interests in the Investment Funds to Ramius Alternative Solutions LLC (the "Adviser"). The Adviser is registered as an investment adviser under the Advisers Act. On November 2, 2009, the Adviser, formerly known as Ramius Fund of Funds Group LLC changed its name to Ramius Alternative Solutions LLC ("RASL") and became an indirect wholly owned subsidiary of Cowen Group, Inc. ("Cowen"), which is controlled by RCG Holdings LLC ("RCG Holdings"). The transaction with Cowen resulted in an "assignment", as that term is defined in the 1940 Act, of the investment advisory agreement with Ramius Fund of Funds Group LLC that was in effect prior to the transaction. As a result, the investment advisory agreement automatically terminated in accordance with its terms. The Adviser continued to provide investment advisory services to the Master Fund under an interim investment advisory agreement (the "Interim Investment Advisory Agreement") approved by the Board of Directors, from November 2, 2009 through January 22, 2010, when the Members approved the new investment advisory agreement. Generally, initial and additional subscriptions for limited liability company interests ("Interests") by eligible Members may be accepted at such times as the Master Fund may determine. The Master Fund reserves the right to reject any subscriptions for Interests in the Master Fund. The Master Fund from time to time may offer to repurchase outstanding Interests pursuant to written tenders by Members. These repurchases will be made at such times and on such terms as may be determined by the Board, in its complete and absolute discretion. 2. SIGNIFICANT ACCOUNTING POLICIES The Master Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The following is a summary of the significant accounting policies followed by the Master Fund: A. RECENT ACCOUNTING DEVELOPMENTS FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") ACCOUNTING STANDARDS CODIFICATION ("ASC"). In July 2009, the FASB launched the FASB Accounting Standards Codification (the "Codification") as the single source of GAAP. While the Codification did not change GAAP, it introduced a new structure to the accounting literature and changed references to accounting standards and other authoritative accounting guidance. The Codification did not have an effect on the Master Fund's financial condition, results of operations or cash flows. IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. In January 2010, the FASB issued ASU No 2010-06 which provides amendments to Fair Value Measurements and Disclosures (Topic 820). This guidance requires new disclosures, and also clarifies existing disclosures. The new disclosures relate to the transfers in and out of Level 1 and Level 2 assets, and disclosures about purchases, sales, issuance and settlements in the roll-forward of activity in Level 3 assets. The guidance also clarifies existing disclosures regarding the level of disaggregation, inputs and valuation techniques. The new disclosures and clarification of existing disclosures are effective for annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuance, and settlements in the roll-forward of activity in Level 3 assets, which are effective for fiscal years beginning after December 15, 2010. The Master Fund is currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-06. 14 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 B. PORTFOLIO VALUATION The net asset value (assets less liabilities, including accrued fees and expenses) of the Master Fund is determined as of the close of business at the end of each month 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. C. INVESTMENT VALUATION The Master Fund's investments in the Investment Funds are considered to be illiquid and can only be redeemed periodically. The Board has approved procedures pursuant to which the Master Fund values its investments in Investment Funds at fair value. In accordance with these procedures, the fair value of investments in Investment Funds as of each month-end ordinarily is the value determined as of such month-end for each Investment Fund in accordance with each Investment Fund's valuation policies and reported at the time of the Master Fund's valuation. As a general matter, the fair value of the Master Fund's interest in an Investment Fund will represent the amount that the Master Fund could reasonably expect to receive from an Investment Fund if the Master Fund's ownership interest was redeemed at the time of valuation, based on information reasonably available at the time the valuation is made and that the Master Fund believes to be reliable. In the event that an Investment Fund does not report a month-end value to the Master Fund on a timely basis or the Adviser concludes that the value provided by the Investment Fund does not represent the fair value of the Master Fund's interest in the Investment Fund, the Master Fund determines the fair value of such Investment Fund based on the most recent value reported by the Investment Fund, as well as any other relevant information available at such time. Considerable judgment is required to interpret the factors used to develop estimates of fair value. Accordingly, the estimates may not be indicative of the amounts the Master Fund could realize in a current market exchange and the differences could be material to the financial statements. The use of different factors or estimation methodologies could have a significant effect on the estimated fair value. The values assigned to these investments are based on available information and do not necessarily represent amounts that might ultimately be realized, as such amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated. In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, 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 Funds have the ability to access at the measurement date; - 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). 15 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 As required by ASC 820, investments are classified within the level of the lowest significant input considered in determining fair value. In evaluating the level at which the Master Fund's investments have been classified, the Master Fund has assessed factors including, but not limited to price transparency, the ability to redeem at net asset value at the measurement date and the existence or absence of certain restrictions at the measurement date. In accordance with ASU No. 2009-12, if the Master Fund has the ability to redeem from the investment at the measurement date or in the near-term at net asset value, the investment is classified as a Level 2 fair value measurement. Alternatively, if the Master Fund will never have the ability to redeem from the investment or is restricted from redeeming for an uncertain or extended period of time from the measurement date, the investment is classified as a Level 3 fair value measurement. The table below sets forth information about the level within the fair value hierarchy at which the Master Fund's investments are measured at March 31, 2010:
Investments by investment strategy Level 1 Level 2 Level 3 Total - ---------------------------------- -------- ----------- ----------- ----------- Event-Driven $ -- $ 1,189,466 $ 5,638,036 $ 6,827,502 Hedged Equity -- 5,684,123 207,302 5,891,425 Credit Based -- 2,316,562 3,529,886 5,846,448 Multi-Strategy -- 2,036,476 2,056,307 4,092,783 Global Macro -- 2,399,488 -- 2,399,488 Managed Futures -- 859,776 -- 859,776 Opportunistic Equity -- -- 748,107 748,107 Short-Term Investments 216,011 -- -- 216,011 -------- ----------- ----------- ----------- Total investments by Investment Strategy $216,011 $14,485,891 $12,179,638 $26,881,540 ======== =========== =========== ===========
The following table summarizes the changes in fair value of the Master Fund's Level 3 investments for the year ended March 31, 2010. The "Net Level 3 transfers in/(out)" shown in the reconciliation below reflect the adoption of ASU No. 2009-12, which resulted in the transfer of certain investments from Level 3 to Level 2.
Net change in Beginning unrealized Ending balance as of appreciation/ Net Level 3 balance as of Investments by March 31, Realized (depreciation) Net purchase/ transfers March 31, Investment Strategy 2009 gain/(loss) on investments sales in/(out) 2010 - ------------------- ------------- ------------ -------------- ------------- ------------- ------------- Event-Driven $ 9,173,619 $ (417,950) $1,779,856 $(3,711,194) $ (1,186,295) $ 5,638,036 Hedged Equity 5,163,794 384,624 445,794 (243,291) (5,543,619) 207,302 Credit-Based 4,660,498 248,428 1,199,668 (321,293) (2,257,415) 3,529,886 Muli-Strategy 7,956,938 1,984,899 (521,838) (5,420,866) (1,942,826) 2,056,307 Global Macro 2,534,368 107,032 328,569 892,968 (3,862,937) -- Fixed Income Arbitrage 735,786 (366,769) 410,654 (779,671) -- -- Managed Futures -- 12,473 40,039 750,000 (802,512) -- Opportunistic Equity -- 82,641 101,638 563,828 -- 748,107 ----------- ---------- ---------- ----------- ------------ ------------ Total investments by Investment Strategy $30,225,003 $2,035,378 $3,784,380 $(8,269,519) $(15,595,604) $ 12,179,638 =========== ========== ========== =========== ============ ============
Opportunistic Event-Driven Hedged Equity Credit-Based Multi-Strategy Equity ------------ ------------- ------------ -------------- ------------- Changes in unrealized gains/(losses) included in earnings related to securities still held at reporting date $1,520,101 $173,042 $756,070 $631,426 $101,638
16 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 For the year ended March 31, 2010, there have been no significant changes to the Fund's fair valuation methodologies. The Master Fund did not hold any investments with unfunded commitments on March 31, 2010. D. INCOME RECOGNITION AND SECURITY TRANSACTIONS Dividend income is recorded on the ex-dividend date. Realized gains and losses from Investment Fund transactions are calculated on the average cost basis. Security transactions are recorded on the effective date of the subscription in, or redemption out of, the Investment Fund. Distributions from Investment Funds, if any, will be classified as investment income or realized gains in the Statement 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 of a distribution from an Investment Fund are not available, such distribution will be classified as investment income. E. FUND EXPENSES The Master Fund bears all expenses incurred in its business. The expenses of the Master Fund include, but are not limited to, the following: all costs and expenses related to investment transactions and positions for the Master Fund's account; legal fees; administrative fees; auditing fees; custodial fees; costs of insurance; expenses of meetings of the Board and members; all costs with respect to communications to Members; and other types of expenses as may be approved from time to time by the Board. The Master Fund allocates the expenses it incurs to its Members. In addition, the Master Fund pays the expense allocated to, and incurred by, the Members and is reimbursed by the Members through the redemption of Interests by the Members. The managers of the Investment Funds in which the Master Fund invests also receive fees for their services. These allocations/fees include management fees based upon the net asset value of the Master Fund's investment and an incentive or performance fee based upon the Master Fund's share of net profits in the Investment Fund. For the year ended March 31, 2010, allocations/fees for these services ranged from 1.0% to 2.5% annually for management fees and ranged from 20% to 25% annually for the performance or incentive allocations. F. INCOME TAXES The Master Fund intends to operate, and has elected to be treated, as a partnership for Federal income tax purposes. Each member is individually responsible for the tax liability or benefit relating to their distributive share of taxable income or loss. Accordingly, no provision for Federal income taxes is reflected in the accompanying financial statements. Tax years 2007, 2008 and 2009 remain subject to examination by Federal and State jurisdictions, including those States where investors reside or States where the Master Fund is subject to other filing requirements. On behalf of non-U.S. Members the Master Fund withholds and pays taxes on U.S. source income allocated from Investment Funds. G. INVESTMENT IN REGISTERED INVESTMENT COMPANY The Master Fund invests in a registered investment company, SEI Daily Income Trust Money Market Fund (the "Fund"), for cash management purposes. At March 31, 2010, this investment consisted of 216,011 shares which amounted to 0.8% of members' capital. 17 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 H. SEGREGATED INVESTMENTS Certain investments have been segregated to finance the repurchase of Interests from tender offers. I. CAPITAL ACCOUNTS Net profits or net losses of the Master Fund for each fiscal period will be allocated to the capital accounts of Members as of the last day of each fiscal period in accordance with Members' respective investment percentages of the Master Fund. Net profits or net losses will be measured as the net change in the value of the members' capital of the Master Fund during a fiscal period, before giving effect to any repurchases of interest in the Master Fund, and excluding the amount of any items to be allocated to the capital accounts of the Members of the Master Fund, other than in accordance with the Members' respective investment percentages. J. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reported period. The Manager believes that the estimates utilized in preparing the Master Fund's financial statements are reasonable and prudent; however, actual results could differ from these estimates. 3. RELATED PARTY TRANSACTIONS A. MANAGEMENT FEE The Master Fund pays the Manager a quarterly management fee at the annual rate of 1.25% of the members' capital of the Master Fund as of the last day of the quarter including assets attributable to the Manager and before giving effect to any repurchases of Interests by the Master Fund that have not settled as of the end of the quarter. The Manager pays the Adviser half of the management fees earned from the Master Fund. B. FEES EARNED UNDER THE INTERIM INVESTMENT MANAGEMENT AGREEMENT AND INTERIM INVESTMENT ADVISORY AGREEMENT Under the Interim Investment Management Agreement, the management fees earned by the Manager for services provided during September 29, 2009 to January 22, 2010 were being held in an interest bearing escrow account. A majority of the feeder funds' outstanding voting securities approved the new investment management agreement dated January 22, 2010, and as a result the amount in the escrow account for the Master Fund (including any interest earned) was paid to the Manager. Under the Interim Investment Advisory Agreement, the advisory fees earned by the Adviser for services provided during November 2, 2009 to January 22, 2010 were being held in an interest bearing escrow account. A majority of the feeder funds' outstanding voting securities approved the new investment advisory agreement dated January 22, 2010, and as a result the amount in the escrow account for the Master Fund (including any interest earned) was paid by the Manager to the Adviser. 18 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 C. ADMINISTRATION AND OTHER FEES The Master Fund has also retained the Manager to serve as the administrator and pays the Manager an administration fee at an annual rate of 0.20% of members' capital of the Master Fund. The Manager has retained SEI Investments Global Funds Services ("SEI") to serve as sub-administrator whereby SEI provides administrative, accounting, and investor services, as well as serves in the capacity of transfer and distribution disbursing agent for the Master Fund. As compensation for services provided, the Manager pays SEI a fee pursuant to a written agreement between the Manager and SEI. SEI Private Trust Company serves as custodian for the Master Fund's assets. D. BOARD FEES Prior to February 18, 2010, each Board member received an annual retainer of $6,500 plus a fee for each meeting attended. In addition, each Board member received $500 plus expenses for special or telephonic meetings. The Chairman of the Board received an additional annual fee of $3,333. Effective February 18, 2010, each Board member receives an annual retainer of $6,333 plus a fee for each meeting attended, as well as a $500 fee for special or telephonic meetings. The Co-Chairmen of the Board also receive an additional annual fee of $3,000. The Master Fund also reimburses all Board members for all reasonable out of pocket expenses. Total amounts incurred related to Board meetings by the Master Fund for the year ended March 31, 2010 were $62,557. Directors who receive fees are eligible for participation in the Master Fund's Deferred Compensation Plan (the "Plan"), an unfunded, nonqualified deferred compensation plan. The Plan, which became effective January 1, 2010, allows each eligible Director to defer receipt of all or a percentage of fees that would otherwise be payable for services performed. 4. CONCENTRATION OF RISK The Master Fund invests primarily in Investment Funds that are not registered under the 1940 Act and invest in and actively trade securities and other financial instruments using different strategies and investment techniques, including leverage, which may involve significant risks. These Investment 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 Investment 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 Investment Funds' net asset value. Various risks are also associated with an investment in the Master Fund, including risks relating to the multi-manager structure of the Master Fund, risks relating to compensation arrangements and risks relating to limited liquidity. 19 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 The following table summarizes the liquidity provisions related to the Master Fund's investments in Investment Funds by investment strategy at March 31, 2010:
Investment Funds Redemption Estimated Remaining by Investment Strategy Fair Value Redemption Period Notice Period Holding Period (2) - ---------------------- ---------- ------------------- ------------- ------------------- EVENT DRIVEN (A) Unrestricted $1,189,466 Semi-Annually 90 days None Restricted (1) 5,638,036 Annually 90 days 9 months HEDGED EQUITY (B) Unrestricted 5,684,123 Monthly - Quarterly 30-65 days None Restricted (1) 207,302 N/A N/A Unknown CREDIT BASED (C) Unrestricted 2,316,562 Quarterly 45-60 days None Restricted (1) 3,529,886 Quarterly - 3 years 65-90 days 10-19 months MULTI-STRATEGY (D) Unrestricted 2,036,476 Quarterly 90 days None Restricted (1) 2,056,307 Quarterly 91 days 22 months GLOBAL MACRO (E) Unrestricted 2,399,488 Monthly 60-90 days None MANAGED FUTURES(F) Unrestricted 859,776 Monthly 60 days None OPPORTUNISTIC EQUITY (G) Restricted (1) 748,107 Annually 30 days 9 months
(1) As of March 31, 2010, these Investment Funds have notified the Master Fund of certain restrictions on liquidity which may include side pocket investments, suspended redemptions, restrictions from redeeming for an extended period of time from the measurement date or other restrictions. Certain other Investment Funds have redemption terms which inhibit liquidity for a period greater than 90 days. (2) Represents remaining holding period of locked-up Investment Funds or estimated remaining restriction period for illiquid investments such as side pockets and suspended redemptions. For some illiquid investments, the remaining holding period is unknown and is either stated in the table or excluded from the range shown for other investments in the strategy. (A) Event-Driven covers several major strategies that all rely upon defined corporate events including merger arbitrage, activist, special situations/restructuring and distressed/bankruptcy investing. While market exposure can vary depending on the strategy and implementation, typically there is some exposure to large market movements, changes in credit spreads, market illiquidity and increased volatility. (B) Hedged Equity focuses on equity strategies with low/moderate market exposure. The strategy attempts to profit from active security selection and management of long/short exposure profile. The funds have a modest cyclical dependence on equity returns and are typically managed to be low/moderate volatility. (C) Credit Based aims to generate return via positions in the credit sensitive areas of the fixed income markets which generally covers corporate, structured and mortgage debt. A myriad of securities can be utilized for expressing long or short positions including investment grade corporate bonds, high yield bonds, bank loans, mortgage-backed securities, asset-backed securities, CDS, etc. Most portfolios are structured to have low interest rate exposure and many funds attempt to achieve returns with low/moderate volatility. (D) Multi-Strategy is an investment style that offers flexibility to allocate assets dynamically across a wide variety of strategies based on the opportunity set in each strategy at a given point in time (E) Global Macro seeks to profit from broad trends in global markets across equities, fixed income, credit, currency and commodity markets through a discretionary trading style typically predicated upon analysis of macroeconomic factors. Global macro tends to have low correlation with other strategies and offers performance opportunities in a variety of market environments. (F) Managed Futures aims to profit from broad trends or reversals in global markets across equities, fixed income, credit, currency and commodity markets through systematic trading strategies typically executed through very liquid financial instruments. Managed futures strategies tend to be characterized by higher volatility returns but the uncorrelated nature of those returns can provide a benefit to overall portfolio construction. (G) Opportunistic Equity focuses on equity strategies with moderate/high market exposure. Long positions are held in companies with improving fundamentals, price momentum and/or a catalyst. Short positions are held as hedges or alpha generating positions. Typically a more aggressive approach to managing exposure is utilized and some may have concentrated portfolios or an industry sector focus. 20 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Investment Funds in which the Master 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 option contracts, contracts for differences, and interest rate, credit default and total return equity swaps contracts. The Master Fund's risk of loss in these Investment Funds is limited to the value of these investments reported by the Master Fund. The Master Fund itself does not invest directly in securities with off-balance sheet risk. 6. GUARANTOR OBLIGATIONS AND INDEMNIFICATIONS In the normal course of business the Master Fund enters into contracts that contain a variety of warranties and representations, which provide general indemnifications. The Master Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Master Fund that have not yet occurred. However, the Master Fund expects the risk of loss to be remote. 7. INVESTMENT TRANSACTIONS For the year ended March 31, 2010, the aggregate purchases and sales of investments (excluding short-term securities) were $8,485,225 and $18,139,540, respectively. 8. TENDER OFFER On February 24, 2009, the Master Fund offered to purchase in cash an amount of Interests or portions of Interest up to $2.6 million of the members' capital of the Master Fund tendered by Members of the Master Fund at a price equal to the net asset value at June 30, 2009. Tenders with a value in the amount of $2,600,000 were received and accepted by the Master Fund from Members. Members received a payment on August 3, 2009. On August 28, 2009, the Master Fund offered to purchase in cash an amount of Interests or portions of Interest up to $10.1 million of members' capital of the Master Fund tendered by Members of the Master Fund at a price equal to the net asset value at December 31, 2009. Pursuant to the terms and conditions set forth in the Offer, tenders with a value in the amount of $16,958,198 were received and accepted by the Master Fund from Members. Members received a payment on February 1, 2010. On February 26, 2010, the Master Fund offered to purchase in cash an amount of Interests or portions of Interest up to $2.5 million of members' capital of the Master Fund tendered by Members of the Master Fund at a price equal to the net asset value at June 30, 2010. Tenders with an estimated value in the amount of $2,500,000 were received and accepted by the Master Fund from Members. Members are entitled to receive a payment of $2,500,000 on or about 30 days after June 30, 2010. 9. LINE OF CREDIT The Master Fund has a line of credit with Boston Private Bank & Trust Company. The Master Fund pays a facility fee to Boston Private Bank & Trust Company equal to one quarter of one percent of the amount of the facility. For the year ended March 31, 2010, the Master Fund had borrowings of $1,595,200 over a period of 24 days at an interest rate 4.25%. As of March 31, 2010, there were no borrowings outstanding. 21 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 10. SUBMISSION OF MATTERS TO A VOTE OF MEMBERS (UNAUDITED) The PNC Absolute Return Fund LLC (the "Fund") and the PNC Absolute Return TEDI Fund LLC (the "TEDI Fund") operate as feeder funds in a master-feeder arrangement with the Master Fund. As a result, the Fund and the TEDI Fund are the voting members of the Master Fund. Pursuant to the requirements of the 1940 Act, the Fund's and the TEDI Fund's voting rights with respect to the Master Fund's interests that they hold must be passed through to the Fund's and TEDI Fund's own Members. Therefore, the following chart details the voting results of the Fund's and TEDI Fund's Members on the matters indicated below are applicable to the Master Fund: ELECTION OF DIRECTORS At a Special Meeting of Members held on January 22, 2010, Members of the Fund and TEDI Fund elected five Directors to the Board of Directors. The voting results were as detailed below:
INTERESTS INTERESTS INTERESTS NOMINEE FOR AGAINST ABSTAINED - ------- --------- --------- --------- Dorothy A. Berry 100.00% 0.00% 0.00% Kelley J. Brennan 100.00% 0.00% 0.00% Dale C. LaPorte 100.00% 0.00% 0.00% Richard W. Furst 100.00% 0.00% 0.00% Robert D. Neary 100.00% 0.00% 0.00%
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS Through the merger of National City Corporation into PNC on December 31, 2008, PNC acquired Allegiant, and subsequently on September 29, 2009 the institutional and mutual fund investment advisory operations of PNC Capital Advisors, Inc. and Allegiant were consolidated to form the Manager. The Merger resulted in an "assignment", as the term is defined in the 1940 Act, of the investment management agreements with PNC Capital Advisors, Inc. that were in effect prior to the Merger. As a result, those agreements automatically terminated in accordance with their terms. In anticipation of the Merger, at a regular meeting held on August 11, 2009, the Directors of the Master Fund, Fund and TEDI Fund, including a majority of the Directors who are not "interested persons" (the "Independent Directors"), met in person and voted to approve Interim Investment Management Agreements and new investment management agreements between the Manager and the Funds in order for the Manager to continue to serve as investment manager, in the event the Merger occurred prior to Member approval of new investment management agreements. For information about the Board's deliberations and the reasons for its recommendation, see "Board Approval of Investment Management and Advisory Agreements" in the Fund's September 30, 2009 Semi-Annual Report. At a Special Meeting of Members held on January 22, 2010, Members of the Fund and TEDI Fund approved new investment management agreements with PNC Capital Advisors, LLC. The voting results were as detailed below:
INTERESTS INTERESTS INTERESTS FUND FOR AGAINST ABSTAINED - ---- --------- --------- --------- PNC Absolute Return Fund LLC 100.00% 0.00% 0.00% PNC Absolute Return TEDI Fund LLC 100.00% 0.00% 0.00%
22 PNC ABSOLUTE RETURN MASTER FUND LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2010 APPROVAL OF INVESTMENT ADVISORY AGREEMENT On November 2, 2009, the Adviser, formerly known as Ramius Fund of Funds Group LLC changed its name to Ramius Alternative Solutions LLC ("RASL") and became an indirect wholly owned subsidiary of Cowen Group, Inc. ("Cowen"), which is controlled by RCG Holdings LLC ("RCG Holdings"). The transaction with Cowen resulted in an "assignment", as that term is defined in the 1940 Act, of the investment advisory agreement with Ramius Fund of Funds Group LLC that was in effect prior to the transaction. As a result, the investment advisory agreement automatically terminated in accordance with its terms. In anticipation of the transaction with Cowen, at a regular meeting held on August 11, 2009, the Directors of the Master Fund, Fund and TEDI Fund, including a majority of the Directors who are not "interested persons" (the "Independent Directors"), met in person and voted to approve an Interim Investment Advisory Agreement and new investment advisory agreement between the Manager, the Adviser and the Master Fund in order for the Adviser to continue to serve as investment adviser, in the event the transaction with Cowen occurred prior to Member approval of a new investment advisory agreement. For information about the Board's deliberations and the reasons for its recommendation, see "Board Approval of Investment Management and Advisory Agreements" in the Fund's September 30, 2009 Semi-Annual Report. At a Special Meeting of Members held on January 22, 2010, Members of the Fund and TEDI Fund approved a new investment advisory agreement with PNC Capital Advisors, LLC. The voting results were as detailed below:
INTERESTS INTERESTS INTERESTS FUND FOR AGAINST ABSTAINED - ---- --------- --------- --------- PNC Absolute Return Fund LLC 100.00% 0.00% 0.00% PNC Absolute Return TEDI Fund LLC 100.00% 0.00% 0.00%
11. SUBSEQUENT EVENTS The Master Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no adjustments were required to the Financial Statements as of March 31, 2010. However, the following are details relating to subsequent events that occurred since March 31, 2010 through May 31, 2010. As of May 31, 2010, SEI will no longer provide sub-administration services and SEI Private Trust Company will no longer provide custody and escrow agent services for the Master Fund. Effective June 1, 2010, PNC Global Investment Servicing (U.S.) Inc., PFPC Trust Company and PNC Bank, N.A. will serve as sub-administrator, custodian and escrow agent, respectively, for the Master Fund. On April 26, 2010, the Board approved the termination of Kramer Levin Naftalis & Frankel LLP and K&L Gates LLP as counsel to the Master Fund and counsel to the independent directors, respectively. Effective April 27, 2010, Ropes & Gray LLP and Sutherland Asbill & Brennan LLP assumed the responsibilities as counsel to the Master Fund and counsel to the independent directors, respectively. 23 PNC ABSOLUTE RETURN MASTER FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010 The business and affairs of the Master Fund are managed under the general supervision of the Board in accordance with the laws of the state of Delaware and the Master Fund's Limited Liability Company Agreement. Information pertaining to the Directors and officers of the Master Fund is set forth below. Each Director serves for an indefinite term until either (1) the date that his or her successor in office becomes effective, or (2) the date that he or she resigns or, his or her term as a Director is terminated in accordance with the Master Fund's Limited Liability Agreement. The Directors are not "interested persons" as defined in the 1940 Act. Mr. Murphy and Mr. Neary serve as Co-Chairmen of the Board of Directors of the Master Fund. The address of each Director and officer is c/o PNC Absolute Return Master Fund LLC, Two Hopkins Plaza, Baltimore, Maryland 21201.
PRINCIPAL OTHER DIRECTORSHIPS NAME, DATE OF BIRTH LENGTH OF TIME OCCUPATION(S) DURING HELD BY DIRECTOR DURING AND AGE SERVED PAST 5 YEARS PAST 5 YEARS(1) - ------------------- ---------------- ---------------------------- ------------------------------------------ John R. Murphy Since 2002 Vice-Chairman, National Director, Omnicom Group, Inc. (media Date of Birth: 1/7/34 Geographic Society, March and marketing); Director, Sirsi Age: 76 1998 to present. Dynix (technology); Director, PNC Funds, PNC Advantage Funds, PNC Absolute Return Fund LLC, PNC Absolute Return TEDI Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company) Robert D. Neary Since 2010 Retired; Co-Chairman of Director, Strategic Distribution, Date of Birth: 9/30/33 Ernst & Young LLP (an Inc. (sales and management of Age: 76 accounting firm), 1984 - maintenance supplies) until March 1993. 2007; Director, Commercial Metals Company; Director, PNC Funds, PNC Advantage Funds, PNC Absolute Return Fund LLC, PNC Absolute Return TEDI Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
24 PNC ABSOLUTE RETURN MASTER FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
PRINCIPAL OTHER DIRECTORSHIPS NAME, DATE OF BIRTH LENGTH OF TIME OCCUPATION(S) DURING HELD BY DIRECTOR DURING AND AGE SERVED PAST 5 YEARS PAST 5 YEARS(1) - ------------------- ---------------- ---------------------------- ------------------------------------------ Dorothy A. Berry Since 2010 President, Talon Industries, Chairman and Director, Date of Birth: 9/12/43 Inc. (administrative, Professionally Managed Portfolios; Age: 66 management and business Director, PNC Funds, PNC Advantage consulting), since 1986; Funds, PNC Absolute Return Fund Managing Partner, Rock Solid LLC, PNC Absolute Return TEDI Fund Holdings, 2009 to present. LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company) Kelley J. Brennan Since 2010 Retired; Partner, Director, PNC Funds, PNC Advantage Date of Birth: 7/7/42 PricewaterhouseCoopers LLP Funds, PNC Absolute Return Fund Age: 67 (an accounting firm), 1981 - LLC, PNC Absolute Return TEDI Fund 2002. LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company) Richard W. Furst Since 2010 Consultant and Private Director, Central Bank & Trust Co.; Date of Birth: 9/13/38 Investor, Dean Emeritus and Director, Central Bancshares; Age: 71 Garvice D. Kincaid Professor Director, PNC Funds, PNC Advantage of Finance (Emeritus), Funds, PNC Absolute Return Fund Gatton College of Business LLC, PNC Absolute Return TEDI Fund and Economics, University of LLC, PNC Long-Short Master Fund Kentucky, since 2003. LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
25 PNC ABSOLUTE RETURN MASTER FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
PRINCIPAL OTHER DIRECTORSHIPS NAME, DATE OF BIRTH LENGTH OF TIME OCCUPATION(S) DURING HELD BY DIRECTOR DURING AND AGE SERVED PAST 5 YEARS PAST 5 YEARS(1) - ------------------- ---------------- ---------------------------- ------------------------------------------ Dale C. LaPorte Since 2010 Retired; Senior Vice Director, Invacare Corporation; Director, Date of Birth: 1/04/42 President and General PNC Funds, PNC Advantage Funds, PNC Age: 68 Counsel, Invacare Absolute Return Fund LLC, PNC Absolute Corporation (manufacturer Return TEDI Fund LLC, PNC Long-Short of healthcare products), Master Fund LLC, PNC Long-Short Fund LLC, December 2005 - 2008; PNC Long-Short TEDI Fund LLC, PNC Partner, 1974 - 2005 and Alternative Strategies Master Fund LLC, Chairman of Executive PNC Alternative Strategies Fund LLC, PNC Committee, 2000 - 2004, Alternative Strategies TEDI Fund LLC (each of Calfee, Halter & a registered investment company) Griswold LLP (law firm). L. White Matthews, III Since 2003 Retired since 2001; Director, Matrixx Initiatives, Inc. Date of Birth: 10/5/45 Chairman and Director, (pharmaceuticals); Director, Imation Corp. Age: 64 Ceridian Corporation (data storage products); Director, PNC (payroll and human Funds, PNC Advantage Funds, PNC Absolute resources services), 2003 Return Fund LLC, PNC Absolute Return TEDI to 2007; Director and Fund LLC, PNC Long-Short Master Fund LLC, Chairman of the Board of PNC Long-Short Fund LLC, PNC Long-Short Constar International TEDI Fund LLC, PNC Alternative Strategies Inc. (bottles and Master Fund LLC, PNC Alternative packaging manufacturer), Strategies Fund LLC, PNC Alternative 2009 to present. Strategies TEDI Fund LLC (each a registered investment company) Edward D. Miller, Jr. Since 2002 Dean and Chief Executive Director, Care Fusion (health care Date of Birth: 2/1/43 Officer, Johns Hopkins devices); Director, PNC Funds, PNC Age: 67 Medicine, January 1997 to Advantage Funds, PNC Absolute Return Fund present. LLC, PNC Absolute Return TEDI Fund LLC, PNC Long-Short Master Fund LLC, PNC Long-Short Fund LLC, PNC Long-Short TEDI Fund LLC, PNC Alternative Strategies Master Fund LLC, PNC Alternative Strategies Fund LLC, PNC Alternative Strategies TEDI Fund LLC (each a registered investment company)
(1.) Includes directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended (i.e., "public companies"), or other investment companies registered under the 1940 Act. The Master Fund is part of a "Fund Complex" that is comprised of 10 other registered investment companies which are included in this column for each Director. The total number of portfolios in the Fund Complex overseen by each of the Directors is 36. 26 PNC ABSOLUTE RETURN MASTER FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010 OFFICERS OF THE MASTER FUND Officers are elected by the Directors and hold office until they resign, are removed or are otherwise disqualified to serve. The following table sets forth certain information about the Master Fund's officers who are not Directors.
POSITION HELD NAME, ADDRESS, DATE OF WITH MASTER PRINCIPAL OCCUPATION(S) DURING BIRTH AND AGE FUND LENGTH OF TIME SERVED PAST 5 YEARS - ---------------------- ---------------- ---------------------------- ------------------------------------------ Kevin A. McCreadie President Since 2004 President and Chief Executive Two Hopkins Plaza, 4th Officer, PNC Capital Advisors, LLC Floor (formerly PNC Capital Advisors, Baltimore, MD 21201 Inc.) since March 2004; Chief Date of Birth: 8/14/60 Investment Officer of PNC Capital Age: 49 Advisors, LLC since 2002; Chief Investment Officer of PNC Asset Management Group since 2007; Executive Vice President of PNC Bank, N.A. since 2007; Partner of Brown Investment Advisory & Trust Company, 1999-2002. Jennifer E. Spratley Vice President Since March 2008 and Managing Director and Head of Fund Two Hopkins Plaza, 4th and Treasurer September 2007, Administration, PNC Capital Floor respectively Advisors, LLC (formerly PNC Capital Baltimore, MD 21201 Advisors, Inc.) since 2007; Date of Birth: 2/13/69 Treasurer, PNC Capital Advisors, Age: 41 Inc., September 2007 - September 2009; Unit Leader, Fund Accounting and Administration, SEI Investments Global Funds Services 2005 to 2007; Fund Accounting Director, SEI Investments Global Funds Services 1999 to 2007. George L. Stevens Assistant Vice Since 2008 Director - CCO Services, Beacon Hill Beacon Hill Fund President and Fund Services, Inc. (distributor Services, Inc. Chief Compliance services, chief compliance officer 4041 N. High Street Officer services and/or chief financial Columbus, Ohio 43214 officer services) since 2008; Vice Date of Birth: 2/10/51 President, Citi Fund Services Ohio, Age: 59 Inc. 1995-2008.
27 PNC ABSOLUTE RETURN MASTER FUND LLC DIRECTORS AND OFFICERS OF THE FUND (UNAUDITED) MARCH 31, 2010
POSITION HELD NAME, ADDRESS, DATE OF WITH MASTER PRINCIPAL OCCUPATION(S) DURING BIRTH AND AGE FUND LENGTH OF TIME SERVED PAST 5 YEARS - ---------------------- ---------------- ---------------------------- ------------------------------------------ Jennifer Vollmer Secretary Since 2002 Senior Counsel, PNC since 2007; The PNC Financial Secretary, PNC Capital Advisors, LLC Services Group, Inc. (formerly, PNC Capital Advisors, 1600 Market Street, Inc.), since 2001. 28th Floor Philadelphia, PA 19103 Date of Birth: 12/30/71 Age: 38 Savonne L. Ferguson Assistant Since 2004 Vice President and Director of Two Hopkins Plaza, 4th Secretary Regulatory Fund Administration, PNC Floor Capital Advisors, LLC (formerly, PNC Baltimore, MD 21201 Capital Advisors, Inc.) since 2010; Date of Birth: 10/31/73 Vice President, PNC Capital Age: 36 Advisors, Inc. 2007-2009; Assistant Vice President, PNC Capital Advisors, Inc. 2002-2007.
28 PNC ABSOLUTE RETURN MASTER FUND LLC OTHER INFORMATION (UNAUDITED) MARCH 31, 2010 PORTFOLIO HOLDINGS DISCLOSURE The Master Fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Master Fund's Forms N-Q will be available on the Commission's web site 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. PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Master Fund uses to determine how to vote proxies relating to portfolio securities, as well as information relating to 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 1-800-239-0418; and (ii) on the Commission's website at http://www.sec.gov. 29 MANAGER AND ADMINISTRATOR PNC Capital Advisors, LLC Two Hopkins Plaza Baltimore, Maryland 21201 ADVISER Ramius Alternative Solutions LLC 599 Lexington Avenue, 19th Floor New York, New York 10022 SUB-ADMINISTRATOR SEI Investments Global Funds Services One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Ropes & Gray LLP One International Place Boston, MA 02110-2624 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer. The principal financial officer also is the principal accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's board of directors has determined that the registrant has at least one audit committee financial expert serving on the audit committee. (a)(2) The audit committee financial experts are Robert D. Neary, Kelly J. Brennan and Richard W. Furst. Messrs. Neary, Brennan and Furst are independent as defined in Form N-CSR Item 3(a)(2). ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Fees billed by Deloitte & Touche, LLP ("D&T") related to the registrant. D&T billed the registrant aggregate fees for services rendered to the registrant for the fiscal years ended March 31, 2010 and March 31, 2009 set forth in the table below.
2010 2009 ------------------------------------------------- -------------------------------------------------- All fees and All fees and All other fees All fees and All fees and All other fees services billed services to and services to services billed services to and services to to the service service to the service service Registrant that affiliates that affiliates that Registrant that affiliates that affiliates that were were did not require were were did not require pre-approved pre-approved pre-approval pre-approved pre-approved pre-approval --------------- --------------- --------------- --------------- --------------- ---------------- (a) Audit $25,556 N/A N/A $25,843 N/A N/A Fees(1) (b) Audit-Related Fees N/A N/A N/A N/A N/A N/A (c) Tax Fees $18,111 N/A N/A $17,667 N/A N/A (d) All Other Fees N/A N/A N/A N/A N/A N/A
Notes: (1) Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. (e)(1) The registrant's Audit Committee must pre-approve all audit and non-audit services provided by the independent accountant relating to the operations or financial reporting of the registrant, its investment manager (other than its sub-adviser) or any entity controlling, controlled by, or under common control with the investment manager ("adviser affiliate"). Prior to the commencement of any audit or non-audit services to the registrant, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. (e)(2) During the registrant's last two fiscal years, there were no waivers of the requirement that non-audit services provided to the registrant or any adviser affiliate be pre-approved. (f) Not Applicable. (g) The aggregate non-audit fees and services billed by D&T for the last two fiscal years were $18,111 and $17,667, respectively. (h) Not Applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. 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. The registrant does not invest in voting securities. The registrant is a feeder fund that invests substantially all of its assets, through a Cayman Islands domiciled fund, in a master fund which has the same investment objective as the registrant. Pursuant to the requirements of the Investment Company Act of 1940, as amended, applicable to master-feeder fund arrangements, the registrant's voting rights with respect to the Cayman Islands fund and the master fund will pass down to the registrant's own members. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES The registrant is a feeder fund that invests substantially all of its assets, through a Cayman Islands domiciled fund, in a master fund which has the same investment objective as the master fund. The investment advisory services are provided to the master fund. As such, the following information pertains to the portfolio managers of the master fund's investment portfolio: (a)(1) Ramius Alternative Solutions LLC (the "Adviser"), a Delaware limited liability company organized under the laws of Delaware, is the investment adviser of the master fund. The Adviser is registered as an investment adviser under the Advisers Act. The Adviser's offices are located at 599 Lexington Avenue, 19th Floor, New York, NY 10022. On November 2, 2009, RCG Holdings LLC (formerly known as Ramius LLC and the managing member of the Adviser) completed a previously announced transaction with Cowen Group Inc. whereby the Adviser became an indirect wholly-owned subsidiary of a newly formed Cowen Group, Inc. ("Cowen"). Subsequent to the transaction, Ramius Fund of Funds Group LLC changed its name to Ramius Alternative Solutions LLC and is no longer a joint venture between UniCredit Bank AG (formerly known as Bayerische Hypo-und Vereinsbank AG and RCG Holdings LLC. The Adviser continues to manage the day-to-day operations of the master fund, including making all decisions regarding investments, client servicing and reporting. The transaction has not resulted in any change in the management personnel of, or any material change in investment management services provided by, the Adviser. The managing member of the Adviser is Ramius (as defined below). Cowen is a leading diversified financial services firm providing alternative investment management, investment banking, research, and sales and trading services through its two business units, Ramius LLC and Cowen and Company, LLC. The Ramius LLC ("Ramius") business unit operates the combined company's alternative investment management business which includes hedge funds, fund of funds, real estate funds, healthcare royalty funds, cash management and commodity trading funds, offered primarily under the Ramius name. Cowen and Company, LLC offers industry-focused investment banking for growth-oriented companies, domain knowledge-driven research and a sales and trading platform for institutional investors. The common stock of Cowen currently trades on NASDAQ under the symbol "COWN". Founded in 1918, the firm is headquartered in New York and has offices located in major financial centers around the world. THE DAY-TO-DAY MANAGEMENT OF THE MASTER FUND'S PORTFOLIO WILL BE THE RESPONSIBILITY OF THE ADVISER'S INVESTMENT MANAGEMENT COMMITTEE (THE "IMC"). The members of the IMC are senior professionals of the Adviser who are responsible for defining portfolio objectives/ structure, evaluating the current and projected environment for each strategy, establishing the strategy allocation targets and approving all sub-manager hiring/firing decisions. The IMC currently is made up of six members, five of which are employees of the Adviser and the sixth who is a principal of Ramius Trading Strategies LLC, an affiliate of the Adviser and the trading manager of multi-advisor managed futures funds. Thomas W. Strauss serves as Chief Executive Officer and President of Ramius Alternative Investments (which includes both Ramius and Ramius Alternative Solutions LLC). Mr. Strauss also serves as a member of the Executive and Operating Committees of Cowen. Mr. Strauss is a founding principal of RCG Holdings LLC (formerly known as Ramius LLC) and was also the Chief Executive Officer of the Adviser. From 1963 to 1991, Mr. Strauss was with Salomon Brothers Inc. where he was admitted as a General Partner in 1972 and was appointed to the Executive Committee in 1981. In 1986, he became President of Salomon Brothers and a Vice Chairman and member of the Board of Directors of Salomon Inc., the holding company of Salomon Brothers and Phibro Energy, Inc. In 1993, Mr. Strauss became Co-Chairman of Granite Capital International Group. Mr. Strauss is a former member of the Board of Governors of the American Stock Exchange, the Chicago Mercantile Exchange, the Public Securities Association, the Securities Industry Association, the Federal Reserve International Capital Markets Advisory Committee and the U.S. Japan Business-Council. He is a past President of the Association of Primary Dealers in U.S. Government Securities. Mr. Strauss currently serves on the Board of Trustees of the U.S.-Japan Foundation and is a member of the Board of Trustees and Executive Committee of Mount Sinai Medical Center and Mount Sinai-NYU Health System Stuart Davies is a Managing Director, Chief Investment Officer and Head of the Investment Management Committee of Ramius Alternative Solutions LLC. Mr. Davies joined the firm in January 2009. Prior to joining Ramius, Mr. Davies was a Managing Director and Global Head of Investments at Ivy Asset Management in New York and was a member of Ivy's Executive Committee and Investment Committee. Earlier in Mr. Davies' career, he was a member of the International Investment Committee of Coronation Fund Manager and also spent three years at Nedcor Investment Bank International, a subsidiary of Old Mutual Plc, as Head of the Investment Team. Mr. Davies started his career in 1992 with Deloitte and Touche in both their audit and corporate finance divisions. Mr. Davies graduated from the University of Cape Town with a Bachelor of Commerce and Post Graduate Diploma in Accounting. He is also a Chartered Accountant and a CFA charterholder. Vikas Kapoor is a Managing Director and Head of Portfolio Construction and Risk Management of Ramius Alternative Solutions LLC. Mr. Kapoor joined the firm in June 2008. Prior to joining Ramius, Mr. Kapoor was a Managing Director at Arden Asset Management focusing on Portfolio Construction and Risk Management and was a member of Arden's Investment Committee and Management Committee. Earlier in Mr. Kapoor's career, he was Managing Director of Deutsche Bank's Absolute Return Strategies Group where he headed the Quantitative Analysis and Applications Group. Mr. Kapoor received an M.S. in Computational Finance from Carnegie Mellon University in 2003, an M.B.A. in Finance with Honors from the Tulane University in New Orleans in 1996 and a B.Tech. in Mechanical Engineering from Regional Engineering College, Kurukshetra, India in 1991. Brian Briskin is a Managing Director at Ramius Alternative Solutions LLC. Mr. Briskin is responsible for underlying manager selection, due diligence and monitoring of equities oriented hedge fund managers. Mr. Briskin joined the firm in April 2007. Prior to joining the firm in April 2007, Mr. Briskin was a Managing Director at Focus Investment Group from February 2000 through March 2007. Specifically, Mr. Briskin worked as a member of the Asset Management Committee responsible for underlying manager selection, due diligence, and portfolio management. From 1996 to 2000, Mr. Briskin worked as a Portfolio Research Analyst at Neuberger Berman in New York. Mr. Briskin received a M.B.A. in Finance from The Zicklin School of Business at Baruch College in 1999, and received a B.A. from The State University of New York at Oneonta in Business Economics in 1992. Mr. Briskin is a CFA charterholder. William Marr is the President and CEO of Ramius Trading Strategies LLC. Mr. Marr was the former Global Head of Hedge Fund Research & Portfolio Construction at Merrill Lynch overseeing more than $25 billion in hedge fund assets (2006-2009) and Global Head of Alternative Investments for Julius Bear Investment Management (2002-2006) with 24 years of industry experience. Mr. Marr has been allocating to hedge funds through managed accounts since 1997. Hiren Patel is a Managing Director at Ramius Alternative Solutions LLC and is the primary interface between portfolio management and business development efforts for the group. Previously, as a Senior Portfolio Manager, he was responsible for manager selection, due diligence, portfolio management and risk assessment activities across a variety of investment strategies. Mr. Patel joined the firm in February 1998. Prior to joining Ramius, Mr. Patel was a Senior Consultant in the Securities Industry Consulting Group at Price Waterhouse where he was primarily responsible for providing strategy, technology and operations consulting services to international and domestic commercial banks interested in forming broker/dealer subsidiaries. Mr. Patel received an M.B.A. in Finance from Virginia Tech and a B.S. in Finance from Virginia Tech. (a)(2) The following table provides information relating to other accounts managed by the Investment Management Committee, which is responsible for the day-to-day management of the master fund's portfolio, for the fiscal year ended MARCH 31, 2010.
Number of Accounts Total Assets Managed with Managed with Number of Performance- Performance- Accounts Based Based Managed Advisory Fees Total Assets Advisory Fees Tom Strauss, Stuart Davies, Vikas Kapoor, Brian Briskin, Bill Marr, and Hiren Patel* Registered investment companies 2 1 $ 38,526,041 $ 29,094,866 Other pooled investment vehicles 18 13 $ 484,146,999 $ 282,477,116 Other accounts 17 10 $ 1,803,519,360 $ 894,504,776
* All portfolio managers work together as a management team, and no individual portfolio manager is solely responsible for an account. The Adviser and its affiliates may carry on investment activities for their own accounts, for the accounts of their employees (and their families) and for other accounts in which the Master Fund has no interest. The Adviser and its affiliates also provide investment management services to other clients, including other collective investment vehicles. The Adviser and its affiliates may give advice and recommend securities to other managed accounts or investment funds which may differ from advice given to, or securities recommended or bought for, the master fund, even though their investment programs may be the same or similar. Certain inherent conflicts of interest arise from the fact that the Adviser and its affiliates generally carry on other investment activities in which the registrant will have no interest. (a)(3) Compensation for the portfolio managers is a combination of a fixed salary and a discretionary bonus. The discretionary bonus is not tied directly to the performance or the value of assets of the registrant or any other fund managed by the Adviser. The amount of salary and bonus paid to the portfolio managers is based on a variety of factors, including the financial performance of the Adviser, execution of managerial responsibilities, quality of client interactions and teamwork support. As part of their compensation, portfolio managers also have 401k plans that enable employees to direct a percentage of their pre-tax salary and bonus into a tax-qualified retirement plan. In addition, senior members of the team are eligible to receive equity-based compensation, which is determined, in part, based on the profits earned by the Adviser. (a)(4) As of MARCH 31, 2010, no portfolio manager was the beneficial owner of any securities in the registrant or the master fund. 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 material information relating to the registrant, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this report is being prepared. Further, in their opinion, 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) At the date of filing this Form N-CSR, there were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. ITEMS 12. EXHIBITS. (a)(1) Code of Conduct for the principal executive and principal financial officers is incorporated by reference to the registrant's certified shareholder report on Form N-CSR filed with the SEC on June 9, 2008. (Reg. Nos. 811-21815, 33-128723). (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) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) 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) PNC Absolute Return TEDI Fund LLC By (Signature and Title)* /s/ Kevin A. McCreadie ---------------------------------------- Kevin A. McCreadie Chief Executive Officer Date: May 28, 2010 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/ Kevin A. McCreadie ---------------------------------------- Kevin A. McCreadie Chief Executive Officer Date: May 28, 2010 By (Signature and Title)* /s/ Jennifer E. Spratley ---------------------------------------- Jennifer E. Spratley Chief Financial Officer Date: May 28, 2010 EX-99.CERT 2 g57705_cert302.txt CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Kevin A. McCreadie, certify that: 1. I have reviewed this report on Form N-CSR of PNC Absolute Return TEDI Fund LLC (TEDI); 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 registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual 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: May 28, 2010 /s/ Kevin A. McCreadie - ------------------------------------- Kevin A. McCreadie Chief Executive Officer CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Jennifer E. Spratley, certify that: 1. I have reviewed this report on Form N-CSR of PNC Absolute Return TEDI Fund LLC; 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 registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual 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: May 28, 2010 /s/ Jennifer E. Spratley - ------------------------------------- Jennifer E. Spratley Chief Financial Officer EX-99.906CERT 3 g57705_cert906.txt CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Chief Executive Officer of PNC Absolute Return TEDI Fund LLC (the "Fund"), with respect to the Fund's Form N-CSR for the period ended March 31, 2010 as filed with the Securities and Exchange 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-CSR 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-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: May 28, 2010 /s/ Kevin A. McCreadie ---------------------------------------- Kevin A. McCreadie CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Chief Financial Officer of PNC Absolute Return TEDI Fund LLC (the "Fund"), with respect to the Fund's Form N-CSR for the period ended March 31, 2010 as filed with the Securities and Exchange 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-CSR 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-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: May 28, 2010 /s/ Jennifer E. Spratley ---------------------------------------- Jennifer E. Spratley -----END PRIVACY-ENHANCED MESSAGE-----