Advantage Advisers Xanthus Fund, L.L.C. NCSR Certified annual shareholder report (management investment company)

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

811-09205

	Advantage Advisers Xanthus Fund, L.L.C.
	(Exact name of registrant as specified in charter)

85 Broad Street

	New York, NY 10004
	(Address of principal executive offices) (Zip code)

Kenneth S. Gerstein, Esq.
Schulte Roth & Zabel LLP
919 3rd Avenue, 24th Floor

	New York, NY 10122
	(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-667-4225

Date of fiscal year end: December 31

Date of reporting period: December 31, 2014

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.

Advantage Advisers
Xanthus Fund, L.L.C.

Financial Statements
with Report of Independent
Registered Public Accounting Firm

For the Year Ended December 31, 2014

Advantage Advisers Xanthus Fund, L.L.C.

Financial Statements

For the Year Ended December 31, 2014

Contents

Report of Independent Registered Public Accounting Firm	1

Statement of Assets, Liabilities and Members’ Capital	2

Schedule of Portfolio Investments	3

Schedule of Securities Sold, Not Yet Purchased	8

Schedule of Swap Contracts	12

Statement of Operations	24

Statements of Changes in Members’ Capital	25

Statement of Cash Flows	26

Notes to Financial Statements	27

Supplemental Information (Unaudited)	42

Ernst & Young LLP
5 Times Square
New York, NY 10036

Tel: +1 212 773 3000
Fax: +1 212 773 6350
ey.com

Report of Independent Registered Public Accounting Firm

To the Members and Board of Managers of
Advantage Advisers Xanthus Fund, L.L.C.

We have audited the accompanying statement of assets, liabilities and members’ capital of Advantage Advisers Xanthus Fund, L.L.C. (the “Company”), including the schedules of portfolio investments, securities sold, not yet purchased and swap contracts, as of December 31, 2014, 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 the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company’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. We were not engaged to perform an audit of the Company’s 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 Company’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 and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. 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 Advantage Advisers Xanthus Fund, L.L.C. at December 31, 2014, the results of its operations and 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 the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

February 24, 2015

A member firm of Ernst & Young Global Limited

Advantage Advisers Xanthus Fund, L.L.C.

Statement of Assets, Liabilities and Members’ Capital

	December 31, 2014
Assets
Investments in securities, at fair value (cost $1,379,747,266)	$	1,590,730,692
Cash and cash equivalents (including restricted cash of $113,725,073, Euros of $1,715,542 with a cost of $1,866,634, Hong Kong Dollars of $5,091,509 with a cost of $5,092,777, Japanese Yen of $6,339,619 with a cost of $6,338,722, and Singapore Dollars of $5,632,785 with a cost of $5,944,597)		209,688,828
Due from broker (including Australian Dollars of $2,013 with a cost of $2,038, British Pounds Sterling of $2,908,904 with a cost of $3,026,230, Japanese Yen of $525,484 with a cost of $526,610, and Swedish Krona of $6,436 with a cost of $7,498)		117,328,410
Receivable for investment securities sold		124,379,401
Swap contracts at fair value, net		8,357,509
Dividends receivable (net of foreign withholding taxes of $12,744)		329,096
Interest receivable		208,598
Other assets		164,826
Total assets		2,051,187,360

Liabilities
Securities sold, not yet purchased, at fair value (proceeds $384,468,286)		402,774,946
Withdrawals payable (see note 3)		181,333,073
Due to broker (including Canadian Dollars of $10,444,357 with a cost of $10,538,426, Euros of $1,434,628 with a cost of $1,626,145, and Hong Kong Dollars of $17,806,012 with a cost of $17,805,782)		53,288,323
Payable for investment securities purchased		50,910,450
Dividends payable on securities sold, not yet purchased		1,103,255
Accounting and investor services fees payable		175,000
Accrued expenses		1,481,605
Total liabilities		691,066,652
Members’ Capital	$	1,360,120,708

Members’ Capital
Represented by:
Net capital contributions	$	1,159,382,243
Net unrealized gain on investments, foreign currency, and swap transactions		200,738,465
Members’ Capital	$	1,360,120,708

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Portfolio Investments

Shares				December 31, 2014 Fair Value
		Investments in Securities – 116.95%
		Common Stock – 116.18%
		United States – 88.95%
		Advertising Agencies – 1.86%
	88,270	Alliance Data Systems Corp.*		$	25,249,633
		Apparel Manufacturers – 1.50%
	233,129	Carter’s, Inc.	(a)		20,354,493
		Automobile / Truck Parts & Equipment - Original – 1.44%
	183,760	Visteon Corp.*			19,636,594
		Cable / Satellite Television – 3.13%
	734,290	Comcast Corp., Class A			42,596,163
		Computer Aided Design – 1.05%
	406,378	Aspen Technology, Inc.*			14,231,357
		Computers – 3.35%
	412,610	Apple, Inc.	(a)		45,543,892
		Computers - Memory Devices – 1.19%
	474,590	Spansion, Inc., Class A*			16,240,470
		Consulting Services – 1.66%
	351,895	Verisk Analytics, Inc., Class A*			22,538,875
		E-Commerce / Products – 0.77%
	33,911	Amazon.com, Inc.*			10,524,279
		E-Commerce / Services – 4.14%
	352,450	Coupons.com, Inc.*			6,255,988
	826,680	Groupon, Inc.*			6,828,377
	579,352	TripAdvisor, Inc.*			43,254,420
					56,338,785

		Electronic Components - Semiconductors – 3.74%
	359,061	OmniVision Technologies, Inc.*			9,335,586
	513,750	ON Semiconductor Corp.*			5,204,287
	839,450	Xilinx, Inc.	(a)		36,339,790
					50,879,663
		Electronic Design Automation – 3.18%
	587,410	Cadence Design Systems, Inc.*			11,143,168
	739,152	Synopsys, Inc.*	(a)		32,130,937
					43,274,105
		Enterprise Software / Services – 0.61%
	163,990	Guidewire Software, Inc.*			8,302,814
		Entertainment Software – 1.99%
	784,730	Activision Blizzard, Inc.	(a)		15,812,309
	402,830	Take-Two Interactive Software, Inc.*			11,291,325
					27,103,634

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Portfolio Investments (continued)

Shares				December 31, 2014 Fair Value
		Common Stock – (continued)
		United States – (continued)
		Finance - Credit Card – 7.26%
	594,160	MasterCard, Inc., Class A	(a)	$	51,192,826
	181,570	Visa, Inc., Class A			47,607,654
					98,800,480
		Finance - Other Services – 3.94%
	244,440	IntercontinentalExchange, Inc.	(a)		53,603,248
		Internet Content - Entertainment – 2.56%
	323,050	Facebook, Inc., Class A*			25,204,361
	538,590	Pandora Media, Inc.*			9,603,060
					34,807,421
		Investment Management / Advisory Services – 2.09%
	133,760	Affiliated Managers Group, Inc.*			28,389,222
		Medical - Biomedical / Genetics – 7.87%
	203,040	Alexion Pharmaceuticals, Inc.*	(a)		37,568,491
	199,860	BioMarin Pharmaceutical, Inc.*			18,067,344
	458,940	Celgene Corp.*			51,337,028
					106,972,863
		Medical - Drugs – 1.37%
	394,030	ACADIA Pharmaceuticals, Inc.*			12,510,453
	88,070	Eli Lilly & Co.			6,075,949
					18,586,402
		Medical - Outpatient / Home Medical – 2.16%
	874,743	Premier, Inc., Class A*			29,330,133
		Medical - Wholesale Drug Distribution – 2.84%
	428,920	AmerisourceBergen Corp.	(a)		38,671,427
		Multimedia – 2.26%
	832,690	Twenty-First Century Fox, Inc., Class B	(a)		30,717,934
		Office Automation & Equipment – 0.83%
	461,170	Pitney Bowes, Inc.			11,238,713
		Publishing - Newspapers – 1.87%
	1,685,745	News Corp., Class B*	(a)		25,421,035
		Retail - Consumer Electronics – 0.20%
	68,950	Best Buy Co., Inc.			2,687,671
		Retail - Discount – 9.84%
	322,250	Costco Wholesale Corp.	(a)		45,678,938
	663,210	Dollar General Corp.*			46,888,947
	585,932	Dollar Tree, Inc.*	(a)		41,237,894
					133,805,779
		Retail - Drug Stores – 1.70%
	303,900	Walgreens Boots Alliance, Inc.			23,157,180

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Portfolio Investments (continued)

Shares				December 31, 2014 Fair Value
		Common Stock – (continued)
		United States – (continued)
		Retail - Home Furnishings – 0.83%
	118,080	Restoration Hardware Holdings, Inc.*	(a)	$	11,336,861
		Retail - Major Department Store – 2.35%
	402,160	Nordstrom, Inc.	(a)		31,927,482
		Semiconductor Components - Integrated Circuits – 0.28%
	68,900	Analog Devices, Inc.			3,825,328
		Semiconductor Equipment – 3.98%
	205,800	Applied Materials, Inc.			5,128,536
	427,440	Lam Research Corp.	(a)		33,913,090
	765,090	Teradyne, Inc.			15,141,131
					54,182,757
		Television – 3.16%
	775,730	CBS Corp. Class B – Non Voting	(a)		42,928,898
		Transport - Rail – 1.95%
	217,600	Kansas City Southern			26,553,728
		Total United States (Cost $1,054,589,026)		$	1,209,759,319

		China – 9.21%
		E-Commerce / Products – 1.92%
	1,339,140	Vipshop Holdings, Ltd. - Sponsored ADS*			26,166,796
		E-Commerce / Services – 0.70%
	1,284,700	SouFun Holdings, Ltd. Sponsored ADR			9,493,933
		Gas - Distribution – 0.90%
	2,157,000	ENN Energy Holdings, Ltd.			12,238,576
		Internet Security – 1.00%
	238,310	Qihoo 360 Technology Co., Ltd. - Sponsored ADR*			13,645,631
		Web Portals / ISP – 4.69%
	241,267	Baidu, Inc. - Sponsored ADR*	(a)		55,001,638
	234,800	SINA Corp.*			8,783,868
					63,785,506
		Total China (Cost $125,471,362)		$	125,330,442

		Hong Kong – 3.55%
		Alternative Waste Technology – 3.55%
	32,469,633	China Everbright International, Ltd.			48,318,258
		Total Hong Kong (Cost $9,577,987)		$	48,318,258

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Portfolio Investments (continued)

Shares			December 31, 2014 Fair Value
		Common Stock – (continued)
		Japan – 14.47%
		Audio / Video Products – 4.50%
	2,466,700	Sony Corp.	$	50,871,056
	504,800	Sony Corp. - Sponsored ADR		10,333,256
				61,204,312
		Chemicals - Diversified – 3.72%
	732,100	Nitto Denko Corp.		41,358,959
	140,200	Shin-Etsu Chemical Co., Ltd.		9,198,565
				50,557,524
		E-Commerce / Products – 2.57%
	2,493,983	Rakuten, Inc.		34,999,890
		Electronic Components - Miscellaneous – 0.60%
	428,400	Alps Electric Co., Ltd.		8,250,714
		Entertainment Software – 0.70%
	455,033	Square Enix Holdings Co., Ltd.		9,518,939
		Finance - Other Services – 2.38%
	1,366,789	Japan Exchange Group, Inc.		32,331,498
		Total Japan (Cost $178,201,370)	$	196,862,877
		Total Common Stock (Cost $1,367,839,745)	$	1,580,270,896

Par
		Convertible Bonds – 0.77%
		Internet Content - Entertainment – 0.77%
		United States – 0.77%
	11,937,000	Twitter, Inc., 1.00%, due 09/15/2021		10,459,796
		Total United States (Cost $11,907,521)	$	10,459,796
		Total Convertible Bonds (Cost $11,907,521)	$	10,459,796
		Total Investments in Securities (Cost $1,379,747,266) – 116.95%	$	1,590,730,692
		Other Liabilities in Excess of Assets – (16.96%)**		(230,609,984	)
		Members’ Capital – 100.00%	$	1,360,120,708

(a)	Partially or wholly held in a pledged account by the Custodian as collateral for securities sold, not yet purchased.
*	Non-income producing security.
**	Includes $190,909,372 invested in a BNY Mellon Cash Reserve Account, which is 14.04% of Members’ Capital and foreign currency with a U.S. Dollar value $18,779,456 held in a BNY Mellon Cash Reserve Account, which are 1.38% of Members’ Capital. $113,725,073 is restricted cash and is in a segregated account.
ADR	American Depository Receipt
ADS	American Depository Share

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Portfolio Investments (concluded)

Investments in Securities – By Industry	December 31, 2014 Percentage of Members’ Capital (%)
Advertising Agencies		1.86
Alternative Waste Technology		3.55
Apparel Manufacturers		1.50
Audio / Video Products		4.50
Automobile / Truck Parts & Equipment - Original		1.44
Cable / Satellite Television		3.13
Chemicals - Diversified		3.72
Computer Aided Design		1.05
Computers		3.35
Computers - Memory Devices		1.19
Consulting Services		1.66
E-Commerce / Products		5.26
E-Commerce / Services		4.84
Electronic Components - Miscellaneous		0.60
Electronic Components - Semiconductors		3.74
Electronic Design Automation		3.18
Enterprise Software / Services		0.61
Entertainment Software		2.69
Finance - Credit Card		7.26
Finance - Other Services		6.32
Gas - Distribution		0.90

Investments in Securities – By Industry	December 31, 2014 Percentage of Members’ Capital (%)
Internet Content - Entertainment		3.33
Internet Security		1.00
Investment Management / Advisory Services		2.09
Medical - Biomedical / Genetics		7.87
Medical - Drugs		1.37
Medical - Outpatient / Home Medical		2.16
Medical - Wholesale Drug Distribution		2.84
Multimedia		2.26
Office Automation & Equipment		0.83
Publishing - Newspapers		1.87
Retail - Consumer Electronics		0.20
Retail - Discount		9.84
Retail - Drug Store		1.70
Retail - Home Furnishings		0.83
Retail - Major Department Store		2.35
Semiconductor Components - Integrated Circuits		0.28
Semiconductor Equipment		3.98
Television		3.16
Transport - Rail		1.95
Web Portals / ISP		4.69
Total Investments in Securities		116.95	%

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Securities Sold, Not Yet Purchased

			December 31, 2014
Shares			Fair Value
		Securities Sold, Not Yet Purchased – 29.61%
		Common Stock – 29.61%
		United States – 18.41%
		Beverages – Non-Alcoholic – 0.83%
	266,540	The Coca-Cola Co.	$	11,253,319
		Commercial Services – 0.24%
	132,185	Weight Watchers International, Inc.*		3,283,475
		Commercial Services - Finance – 0.66%
	502,450	The Western Union Co.		8,998,880
		Computers - Integrated Systems – 0.66%
	205,330	Teradata Corp.*		8,968,814
		Electric - Integrated – 4.08%
	236,900	Consolidated Edison, Inc.		15,637,769
	160,290	Duke Energy Corp.		13,390,626
	208,410	Edison International		13,646,687
	260,570	The Southern Co.		12,796,593
				55,471,675
		Electronic Components - Miscellaneous – 0.82%
	489,330	Corning, Inc.		11,220,337
		Electronic Components - Semiconductors – 2.23%
	343,260	Cree, Inc.*		11,059,837
	303,400	Intel Corp.		11,010,386
	184,020	Microchip Technology, Inc.		8,301,142
				30,371,365
		Recreational Centers – 1.09%
	261,150	Life Time Fitness, Inc.*		14,786,313
		REITS - Diversified – 0.61%
	70,450	Vornado Realty Trust		8,292,670
		REITS - Office Property – 1.29%
	58,630	Boston Properties, Inc.		7,545,094
	118,230	Mack-Cali Realty Corp.		2,253,464
	409,370	Piedmont Office Realty Trust, Inc., Class A		7,712,531
				17,511,089
		REITS - Warehouse / Industrial – 1.16%
	365,590	Prologis, Inc.		15,731,338
		Retail - Apparel / Shoes – 0.63%
	162,487	The Buckle, Inc.		8,533,817
		Retail - Bedding – 0.93%
	165,600	Bed, Bath & Beyond, Inc.*		12,613,752
		Retail - Regional Department Stores – 1.06%
	219,320	Macy’s, Inc.		14,420,290

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Securities Sold, Not Yet Purchased (continued)

			December 31, 2014
Shares			Fair Value
		Common Stock – (continued)
		United States – (continued)
		Security Services – 0.75%
	283,840	The ADT Corp.	$	10,283,523
		Toys – 1.37%
	198,270	Hasbro, Inc.		10,902,867
	249,500	Mattel, Inc.		7,720,778
				18,623,645
		Total United States (Proceeds $233,376,443)	$	250,364,302

		China – 2.09%
		Computers – 0.64%
	6,618,000	Lenovo Group, Ltd.		8,704,724
		Electronic Components - Miscellaneous – 0.64%
	1,617,530	AAC Technologies Holdings, Inc.		8,666,654
		Metal - Aluminum – 0.18%
	214,600	Aluminum Corp of China, Ltd. – Sponsored ADR*		2,472,192
		Metal Processors & Fabrication – 0.32%
	9,732,000	China Zhongwang Holdings, Ltd.		4,317,065
		Real Estate Operations / Development – 0.31%
	3,524,800	Guangzhou R&F Properties Co., Ltd., Class H		4,313,490
		Total China (Proceeds $28,498,664)	$	28,474,125

		Hong Kong – 1.23%
		Distribution / Wholesale – 0.60%
	8,701,000	Li & Fung, Ltd.		8,145,802
		Electric - Integrated – 0.63%
	986,000	CLP Holdings, Ltd.		8,550,614
		Total Hong Kong (Proceeds $19,144,302)	$	16,696,416

		India – 0.95%
		Computer Services – 0.95%
	410,500	Infosys, Ltd. - Sponsored ADR		12,914,330
		Total India (Proceeds $12,068,109)	$	12,914,330

		Japan – 4.48%
		Building Products - Doors & Windows – 0.69%
	1,921,000	Asahi Glass Co., Ltd.		9,437,583
		Chemicals - Diversified – 0.51%
	603,493	Kuraray Co., Ltd.		6,936,487

The accompanying notes are an integral part of these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Securities Sold, Not Yet Purchased (continued)

			December 31, 2014
Shares			Fair Value
		Common Stock – (continued)
		Japan – (continued)
		Computers - Integrated Systems – 0.58%
	1,468,000	Fujitsu, Ltd.	$	7,889,188
		Diversified Manufacturing Operations – 0.69%
	2,199,000	Toshiba Corp.		9,398,368
		Electric Products - Miscellaneous – 0.26%
	192,800	Brother Industries, Ltd.		3,544,351
		Office Automation & Equipment – 1.75%
	524,300	Canon, Inc.		16,795,222
	164,100	Seiko Epson Corp.		6,966,979
				23,762,201
		Total Japan (Proceeds $62,205,736)	$	60,968,178

		South Korea – 0.41%
		Electronic Components - Miscellaneous – 0.41%
	367,259	LG Display Co., Ltd. - Sponsored ADR		5,563,974
		Total South Korea (Proceeds $5,291,744)	$	5,563,974

		Switzerland – 0.55%
		Computers - Peripheral Equipment – 0.55%
	554,352	Logitech International S.A.		7,444,948
		Total Switzerland (Proceeds $6,913,047)	$	7,444,948

		Taiwan – 1.49%
		Electronic Components - Miscellaneous – 0.54%
	1,459,100	Au Optronics Corp. - Sponsored ADR		7,426,819
		Semiconductor Components - Integrated Circuits – 0.95%
	868,437	Siliconware Precision Industries Co., Ltd. - Sponsored ADR		6,556,699
	2,804,033	United Microelectronics Corp. - Sponsored ADR		6,365,155
				12,921,854
		Total Taiwan (Proceeds $16,970,241)	$	20,348,673
		Total Common Stock (Proceeds $384,468,286)	$	402,774,946
		Total Securities Sold, Not Yet Purchased (Proceeds $384,468,286)	$	402,774,946

*	Non-income producing security.

The accompanying notes are an integral part of these financial statements.

-10-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Securities Sold, Not Yet Purchased (concluded)

	December 31, 2014
	Percentage of
Securities Sold, Not Yet Purchased	Members’ Capital
– By Industry	(%)
Beverages - Non-Alcoholic		0.83
Building Products - Doors & Windows		0.69
Chemicals Diversified		0.51
Commercial Services - Finance		0.66
Commercial Services		0.24
Computer Services		0.95
Computers		0.64
Computers - Integrated Systems		1.24
Computers - Peripheral Equipment		0.55
Distribution / Wholesale		0.60
Diversified Manufacturing Operation		0.69
Electric - Integrated		4.71
Electric - Products Miscellaneous		0.26
Electronic Components - Miscellaneous		2.41
Electronic Components - Semiconductors		2.23

	December 31, 2014
	Percentage of
Securities Sold, Not Yet Purchased	Members’ Capital
– By Industry	(%)
Metal - Aluminum		0.18
Metal Processors & Fabrication		0.32
Office Automation & Equipment		1.75
Real Estate Operations / Development		0.31
Recreational Centers		1.09
REITS - Diversified		0.61
REITS - Office Property		1.29
REITS - Warehouse / Industrial		1.16
Retail - Apparel / Shoes		0.63
Retail - Bedding		0.93
Retail - Regional Department Stores		1.06
Security Services		0.75
Semiconductor Components - Integrated Circuits		0.95
Toys		1.37
Total Securities Sold, Not Yet Purchased		29.61	%

The accompanying notes are an integral part of these financial statements.

-11-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – 0.61%
		Total Return Swap Contracts - Long – 0.62%
		United States – 0.05%
		Semiconductor Components - Integrated Circuits – 0.11%
$	41,866,869	6/1/2018	QUALCOMM, Inc.	$	1,509,658
			Agreement with Morgan Stanley, dated 05/27/2011 to receive the total return of the shares of QUALCOMM, Inc. in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.45%.
		Web Portals / ISP – (0.06%)
	24,100,070	6/1/2018	Google, Inc., Class A		(755,285	)
			Agreement with Morgan Stanley, dated 07/08/2011 to receive the total return of the shares of Google, Inc., Class A in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.45%.
		Total United States		$	754,373

		Japan – 0.01%
		Television – 0.01%
	7,796,550	12/24/2019	Nippon Television Holdings, Inc.		132,122
			Agreement with Morgan Stanley, dated 06/10/2013 to receive the total return of the shares of Nippon Television Holdings, Inc. in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.60%.
		Total Japan		$	132,122

The accompanying notes are an integral part of these financial statements.

-12-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Long – (continued)
		Luxembourg – 0.02%
		Retail - Discounts – 0.02%
$	4,308,233	12/13/2018	B&M European Value Retail SA	$	235,312
			Agreement with Morgan Stanley, dated 06/12/2014 to receive the total return of the shares of B&M European Value Retail SA in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.65%.
		Total Luxembourg		$	235,312

		South Korea – 0.32%
		Electronic Components - Semiconductors – 0.32%
	53,152,444	12/28/2018	Samsung Electronics Co., Ltd		4,039,356
			Agreement with Morgan Stanley, dated 12/23/2009 to receive the total return of the shares of Samsung Electronics Co., Ltd in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.90%.
	3,855,812	4/2/2019	Samsung Electronics Co., Ltd		292,644
			Agreement with Morgan Stanley, dated 03/26/2010 to receive the total return of the shares of Samsung Electronics Co., Ltd in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.90%.
					4,332,000
		Total South Korea		$	4,332,000

The accompanying notes are an integral part of these financial statements.

-13-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Long – (continued)
		United Kingdom – 0.22%
		Hotels & Motels – 0.18%
$	38,989,317	12/13/2018	Whitbread PLC	$	2,374,449
			Agreement with Morgan Stanley, dated 06/21/2013 to receive the total return of the shares of Whitbread PLC in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.65%.
		Retail - Discounts – 0.03%
	7,680,364	12/13/2018	Poundland Group PLC		408,345
			Agreement with Morgan Stanley, dated 03/12/2014 to receive the total return of the shares of Poundland Group PLC in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.65%.
		Television – 0.01%
	9,066,412	12/13/2018	ITV PLC		174,903
			Agreement with Morgan Stanley, dated 07/17/2014 to receive the total return of the shares of ITV PLC in exchange for an amount to be paid monthly equal to the Daily Fed Funds Effective Rate plus 0.65%.
		Total United Kingdom		$	2,957,697
		Total Return Swap Contracts - Long		$	8,411,504

The accompanying notes are an integral part of these financial statements.

-14-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (0.01)%
		Australia – (0.01%)
		Food - Retail – (0.01%)
$	4,964,080	12/27/2019	Wesfarmers, Ltd.	$	(37,911	)
			Agreement with Morgan Stanley, dated 12/23/2014 to deliver the total return of the shares of Wesfarmers, Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
	5,812,899	12/27/2019	Woolworths, Ltd.		(83,975	)
			Agreement with Morgan Stanley, dated 12/24/2014 to deliver the total return of the shares of Woolworths, Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
		Total Australia		$	(121,886	)

		Belgium – 0.00%
		Food - Retail – 0.00%
	12,545,224	1/4/2019	Delhaize Group SA		76,434
			Agreement with Morgan Stanley, dated 12/30/2013 to deliver the total return of the shares of Delhaize Group SA in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
		Total Belgium		$	76,434

		Japan – 0.12%
		Audio / Video Products – 0.07%
	12,370,123	12/24/2019	Sharp Corp.		1,001,952
			Agreement with Morgan Stanley, dated 08/03/2012 to deliver the total return of the shares of Sharp Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 1.52%.

The accompanying notes are an integral part of these financial statements.

-15-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		Japan – (continued)
		Electronic Components - Miscellaneous – 0.03%
$	6,315,580	12/24/2019	NEC Corp.	$	392,735
			Agreement with Morgan Stanley, dated 07/30/2012 to deliver the total return of the shares of NEC Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
	5,103,629	12/24/2019	Nippon Electric Glass Co., Ltd.		(53,942	)
			Agreement with Morgan Stanley, dated 07/19/2011 to deliver the total return of the shares of Nippon Electric Glass Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
					338,793
		Photo Equipment & Supplies – 0.02%
	5,877,620	12/24/2019	Nikon Corp.		318,408
			Agreement with Morgan Stanley, dated 10/29/2013 to deliver the total return of the shares of Nikon Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
		Total Japan		$	1,659,153

		Netherlands – (0.02%)
		Food - Retail – (0.02%)
	14,740,900	1/4/2019	Koninklijke (Royal) KPN NV		(239,036	)
			Agreement with Morgan Stanley, dated 12/30/2013 to deliver the total return of the shares of Koninklijke (Royal) KPN NV in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
		Total Netherlands		$	(239,036	)

The accompanying notes are an integral part of these financial statements.

-16-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		South Korea – 0.01%
		Electric Products - Miscellaneous – 0.04%
$	13,865,131	12/28/2018	LG Electronics, Inc.	$	1,242,103
			Agreement with Morgan Stanley, dated 11/10/2011 to deliver the total return of the shares of LG Electronics, Inc. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.71%.
	3,281,538	12/28/2018	LG Innotek Co., Ltd.		(210,498	)
			Agreement with Morgan Stanley, dated 05/02/2012 to deliver the total return of the shares of LG Innotek Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 2.75%.
	8,575,610	4/2/2019	LG Innotek Co., Ltd.		(489,499	)
			Agreement with Morgan Stanley, dated 11/10/2011 to deliver the total return of the shares of LG Innotek Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 3.00%.
					542,106
		Electronic Components - Semiconductors – (0.03%)
	12,800,703	4/2/2019	SK Hynix, Inc.		(359,438	)
			Agreement with Morgan Stanley, dated 03/26/2010 to deliver the total return of the shares of SK Hynix, Inc. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
		Total South Korea		$	182,668

The accompanying notes are an integral part of these financial statements.

-17-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		Spain – 0.02%
		Food - Retail – 0.02%
$	5,819,170	1/4/2019	Distribuidora Internacional de Alimentacion SA	$	219,064
			Agreement with Morgan Stanley, dated 09/29/2014 to deliver the total return of the shares of Distribuidora Internacional de Alimentacion SA in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
		Total Spain		$	219,064

		Taiwan – (0.10%)
		Computers – (0.02%)
	11,681,337	1/25/2018	Asustek Computer, Inc.		(123,645	)
			Agreement with Morgan Stanley, dated 03/28/2011 to deliver the total return of the shares of Asustek Computer, Inc. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 1.00%.
	7,812,384	1/25/2018	Quanta Computer, Inc.		(164,644	)
			Agreement with Morgan Stanley, dated 06/18/2009 to deliver the total return of the shares of Quanta Computer, Inc. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.98%.
					(288,289	)
		Computers - Peripheral Equipment – (0.01%)
	14,148,360	1/25/2018	Innolux Display Corp.		(191,565	)
			Agreement with Morgan Stanley, dated 03/18/2010 to deliver the total return of the shares of Innolux Display Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 1.75%.

The accompanying notes are an integral part of these financial statements.

-18-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		Taiwan – (continued)
		Electronic Components - Miscellaneous – 0.05%
$	11,490,601	1/25/2018	AU Optronics Corp.	$	(1,090,669	)
			Agreement with Morgan Stanley, dated 07/26/2012 to deliver the total return of the shares of AU Optronics Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 1.25%.
	17,925,422	1/25/2018	Hon Hai Precision Industry Co., Ltd.		1,800,489
			Agreement with Morgan Stanley, dated 01/08/2013 to deliver the total return of the shares of Hon Hai Precision Industry Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
					709,820
		Electronic Components - Semiconductors – (0.05%)
	7,087,321	1/25/2018	Inotera Memories, Inc.		(754,601	)
			Agreement with Morgan Stanley, dated 10/07/2014 to deliver the total return of the shares of Inotera Memories, Inc. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.99%.
		Metal Processors & Fabrication – 0.03%
	14,803,850	1/25/2018	Catcher Technology Co., Ltd.		426,849
			Agreement with Morgan Stanley, dated 09/25/2009 to deliver the total return of the shares of Catcher Technology Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 3.98%.

The accompanying notes are an integral part of these financial statements.

-19-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		Taiwan – (continued)
		Photo Equipment & Supplies – (0.01%)
$	4,717,220	1/25/2018	Largan Precision Co., Ltd.	$	(89,893	)
			Agreement with Morgan Stanley, dated 08/10/2011 to deliver the total return of the shares of Largan Precision Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 1.50%.
		Semiconductor Components - Integrated Circuits – (0.09%)
	12,053,579	1/25/2018	Novatek Microelectronics Corp.		(292,808	)
			Agreement with Morgan Stanley, dated 07/19/2013 to deliver the total return of the shares of Novatek Microelectronics Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 2.25%.
	8,553,927	1/25/2018	Powertech Technology, Inc.		(455,286	)
			Agreement with Morgan Stanley, dated 11/09/2011 to deliver the total return of the shares of Powertech Technology, Inc. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 2.50%.
	5,778,106	1/25/2018	Realtek Semiconductor Corp.		(228,983	)
			Agreement with Morgan Stanley, dated 09/11/2009 to deliver the total return of the shares of Realtek Semiconductor Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 2.41%

The accompanying notes are an integral part of these financial statements.

-20-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		Taiwan – (continued)
		Semiconductor Components - Integrated Circuits – (continued)
$	3,993,228	1/25/2018	Siliconware Precision Industries Co., Ltd.	$	(152,039	)
			Agreement with Morgan Stanley, dated 07/31/2014 to deliver the total return of the shares of Siliconware Precision Industries Co., Ltd. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.80%.
	2,238,522	1/25/2018	United Microelectronics Corp.		(87,735	)
			Agreement with Morgan Stanley, dated 08/08/2013 to deliver the total return of the shares of United Microelectronics Corp. in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.49%.
					(1,216,851	)
		Total Taiwan		$	(1,404,530	)

		United Kingdom – (0.03%)
		Food - Retail – (0.03%)
	8,084,894	12/13/2018	J Sainsbury PLC		(325,069	)
			Agreement with Morgan Stanley, dated 06/03/2014 to deliver the total return of the shares of J Sainsbury PLC in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 3.26%.
	9,410,363	12/13/2018	Tesco PLC		(17,788	)
			Agreement with Morgan Stanley, dated 04/17/2013 to deliver the total return of the shares of Tesco PLC in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.

The accompanying notes are an integral part of these financial statements.

-21-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (continued)

				December 31, 2014
Notional		Maturity		Unrealized
Amount		Date		Gain/(Loss)
		Swap Contracts – (continued)
		Total Return Swap Contracts - Short – (continued)
		United Kingdom – (continued)
		Food - Retail – (continued)
$	7,709,073	12/13/2018	WM Morrison Supermarkets PLC	$	(83,005	)
			Agreement with Morgan Stanley, dated 12/07/2012 to deliver the total return of the shares of WM Morrison Supermarkets PLC in exchange for an amount to be received monthly equal to the Daily Fed Funds Effective Rate less 0.40%.
					(425,862	)
		Total United Kingdom		$	(425,862	)
		Total Return Swap Contracts - Short		$	(53,995	)
		Total Swap Contracts		$	8,357,509

The accompanying notes are an integral part of these financial statements.

-22-

Advantage Advisers Xanthus Fund, L.L.C.

Schedule of Swap Contracts (concluded)

	December 31, 2014
	Percentage of
	Members’ Capital
Swap Contracts - By Industry	(%)
Audio / Video Products		0.07
Computers		(0.02	)
Computers - Peripheral Equipment		(0.01	)
Electric Products - Miscellaneous		0.04
Electronic Components - Miscellaneous		0.08
Electronic Components - Semiconductors		0.24
Food - Retail		(0.04	)

	December 31, 2014
	Percentage of
	Members’ Capital
Swap Contracts - By Industry	(%)
Hotels & Motels		0.18
Metal Processors & Fabrication		0.03
Photo Equipment & Supplies		0.01
Retail - Discount		0.05
Semiconductor Components - Integrated Circuits		0.02
Television		0.02
Web Portals / ISP		(0.06	)
Total Swap Contracts		0.61	%

The accompanying notes are an integral part of these financial statements.

-23-

Advantage Advisers Xanthus Fund, L.L.C.

Statement of Operations

	Year Ended
	December 31, 2014
Investment income
Dividends (net of withholding taxes of $355,239)	$	15,773,549
Interest		784,981
Total investment income		16,558,530
Expenses
Administration fees		20,889,032
Dividends on securities sold, not yet purchased		13,314,459
Prime broker fees		12,043,496
Advisor fees		6,189,343
Accounting and investor services fees		1,081,903
Legal fees		524,614
Custodian fees		439,569
Interest expense		425,652
Audit and tax fees		324,004
Board of Managers’ fees and expenses		281,000
Insurance expense		231,132
Printing expense		118,589
Registration expense		91,480
Miscellaneous expenses		167,529
Total operating expenses		56,121,802
Net investment loss		(39,563,272	)
Net realized and unrealized gain/(loss) from investment activities, foreign currency transactions and swap contracts
Net realized gain from investment in securities		195,375,040
Net realized gain from foreign currency transactions		217,052
Net realized loss from swap contracts		(42,048,104	)
Net realized loss from securities sold, not yet purchased		(72,800,694	)
Net realized gain from investment activities, foreign currency transactions and swap contracts		80,743,294

Net change in unrealized gain/(loss) from swap contracts		13,077,311
Net change in unrealized gain/(loss) from investment activities and foreign currency transactions		(141,287,537	)
Net realized gain and unrealized gain/(loss) from investment activities, foreign currency transactions and swap contracts		(47,466,932	)
Net decrease in Members’ Capital resulting from operations	$	(87,030,204	)

The accompanying notes are an integral part of these financial statements.

-24-

Advantage Advisers Xanthus Fund, L.L.C.

Statements of Changes in Members’ Capital

	Special
	Advisory
	Member			Members			Total
MEMBERS’ CAPITAL, December 31, 2012	$	—		$	1,349,903,868		$	1,349,903,868

From investment activities
Net investment loss	$	—		$	(40,753,729	)	$	(40,753,729	)
Net realized gain from investment activities, foreign currency transactions and swap contracts		—			277,573,811			277,573,811
Net change in unrealized gain/(loss) from investment activities, foreign currency transactions and swap contracts		—			204,951,800			204,951,800
Incentive allocation		87,710,760			(87,710,760	)		—
Net increase in Members’ Capital resulting from operations		87,710,760			354,061,122			441,771,882

Members’ Capital transactions
Capital contributions		—			116,203,390			116,203,390
Capital withdrawals		(87,710,760	)		(150,611,747	)		(238,322,507	)
Net decrease in Members’ Capital resulting from capital transactions		(87,710,760	)		(34,408,357	)		(122,119,117	)

MEMBERS’ CAPITAL, December 31, 2013	$	—		$	1,669,556,633		$	1,669,556,633

From investment activities
Net investment loss	$	—		$	(39,563,272	)	$	(39,563,272	)
Net realized gain from investment activities, foreign currency transactions and swap contracts		—			80,743,294			80,743,294
Net change in unrealized gain/(loss) from investment activities, foreign currency transactions and swap contracts		—			(128,210,226	)		(128,210,226	)
Incentive allocation		345,423			(345,423	)		—
Net decrease in Members’ Capital resulting from operations		345,423			(87,375,627	)		(87,030,204	)
Members’ Capital transactions
Capital contributions		—			95,412,811			95,412,811
Capital withdrawals		(345,423	)		(317,473,109	)		(317,818,532	)
Net decrease in Members’ Capital resulting from capital transactions		(345,423	)		(222,060,298	)		(222,405,721	)

MEMBERS’ CAPITAL, December 31, 2014	$	—		$	1,360,120,708		$	1,360,120,708

The accompanying notes are an integral part of these financial statements.

-25-

Advantage Advisers Xanthus Fund, L.L.C.

Statement of Cash Flows

	Year Ended
	December 31, 2014
Cash flows from operating activities
Net decrease in Members’ Capital resulting from operations	$	(87,030,204	)
Adjustments to reconcile net decrease in Members’ Capital resulting from operations to net cash provided by operating activities:
Proceeds from sales of investments		2,225,920,794
Purchases of investments		(1,669,652,223	)
Proceeds from securities sold short, not yet purchased		1,000,116,351
Cover of securities sold short, not yet purchased		(1,238,275,419	)
Net realized gain from investment activities		(122,574,346	)
Net change in unrealized gain/(loss) from investment activities		128,061,694
Amortization of premium and accretion of discount, net		(1,240	)
Changes in assets and liabilities related to operations:
Increase in due from broker		(81,597,797	)
Increase in receivable for investment securities sold		(10,438,351	)
Increase in dividends receivable		(66,600	)
Increase in interest receivable		(102,851	)
Decrease in other assets		33,232
Increase in due to broker		18,742,087
Decrease in payable for investment securities purchased		(30,222,182	)
Decrease in dividends payable on securities sold, not yet purchased		(99,176	)
Decrease in accounting and investor services fees		(211,744	)
Decrease in accrued expenses		(149,503	)
Net cash provided by operating activities		132,452,522

Cash flows from financing activities
Capital contributions		95,412,811
Capital withdrawals		(264,199,361	)
Net cash used in financing activities		(168,786,550	)

Net change in cash and cash equivalents		(36,334,028	)
Cash and cash equivalents at beginning of year		246,022,856
Cash and cash equivalents at end of year	$	209,688,828

Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	406,671

The accompanying notes are an integral part of these financial statements.

-26-

Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014

Organization

Advantage Advisers Xanthus Fund, L.L.C. (the “Company”) was organized as a limited liability company under the laws of Delaware in January 1999. The Company is registered under the Investment Company Act of 1940, as amended (the “Act”), as a closed-end, non-diversified management investment company. The Company’s term is perpetual unless the Company is otherwise terminated under the terms of the second amended and restated Limited Liability Company Agreement dated July 1, 2011. The Company’s investment objective is to achieve maximum capital appreciation. The Company pursues its investment objective by investing its assets primarily in equity securities of U.S. and foreign companies that the investment adviser believes are well positioned to benefit from demand for their products or services, particularly companies that can innovate or grow rapidly relative to their peers in their markets. These type of companies are generally considered to be “growth companies.” Companies that derive a major portion of their revenues from technology-related business lines or which are expected to benefit from technological events are an important part of the universe of growth companies. The Company may invest without limitation, however, in other market sectors, if those other sectors present attractive opportunities for capital appreciation. The Company’s portfolio of securities includes long and short positions primarily in equity securities and total return swaps of U.S. and non-U.S. companies. Equity securities include common and preferred stock and other securities having equity characteristics, including convertible debt securities, stock options, warrants and rights.

Responsibility for the overall management and supervision of the operations of the Company is vested in the individuals who serve as the Board of Managers of the Company (the “Board of Managers”). There are six members of the Board of Managers, one of whom is considered an “interested person” of the Company under the Act. The Company’s investment adviser is Advantage Advisers Multi-Manager, L.L.C. (“Multi-Manager”), a subsidiary of Oppenheimer Asset Management Inc. (“OAM”) and an affiliate of Oppenheimer & Co. Inc. (“Oppenheimer”). Multi-Manager is retained to provide administrative services to the Company pursuant to the administrative services agreement. Multi-Manager has also been retained as the Company’s investment adviser pursuant to an investment advisory agreement dated July 1, 2011. OAM is the managing member of Multi-Manager and Alkeon Capital Management L.L.C. (“Alkeon”) is a non-managing member of Multi-Manager; together they make up the Special Advisory Member (“Special Advisory Member”). Alkeon has been retained to manage the Company’s investment portfolio under the supervision of Multi-Manager pursuant to a Sub-Investment Advisory Agreement dated July 1, 2011.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Organization (continued)

The acceptance of initial and additional contributions from persons who purchase interests in the Company (“Members”) are subject to approval by the Board of Managers. The Company generally accepts initial and additional contributions as of the first day of each month. No Member has the right to require the Company to redeem its interest. The Company may from time to time offer to repurchase interests pursuant to written tenders by Members. Such repurchases will be made at such times and on such terms as may be determined by the Board of Managers, in its complete and exclusive discretion. Multi-Manager expects that generally it will recommend to the Board of Managers that the Company offer to repurchase interests from Members twice each year, based upon the value of interests determined as of the end of the second fiscal quarter and again at the end of the year.

Generally, except as provided under applicable law, a Member shall not be liable for the Company’s debts, obligations and liabilities in any amount in excess of the capital account balance of such Member, plus such Member’s share of undistributed profits and assets.

Significant Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (hereafter referred to as “authoritative guidance”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing the Company’s financial statements are reasonable and prudent; however, actual results could differ from these estimates and such differences could be material.

The following is a summary of the Company’s accounting policies:

Revenue Recognition

Securities transactions are recorded on trade date basis utilizing first-in-first-out (“FIFO”) for determining realized gains and losses associated with investment transactions. Dividends are recorded on the ex-dividend date, net of applicable withholding taxes. Interest income and expense are recorded on the accrual basis. Premiums and discounts on fixed income securities are amortized using the effective interest rate method.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Significant Accounting Policies (continued)

Portfolio Valuation

The Company’s securities are valued in accordance with policies adopted by the Board of Managers, which are summarized below.

(i)

Domestic exchange traded securities (other than options and not including those securities traded on NASDAQ) shall be valued as follows:

(1)

at their last composite sale price as reported on the exchanges where those securities are traded; or

(2)

if no sales of those securities are reported on a particular day, the securities are valued based upon their composite bid price for securities held long, or their composite asked price for securities sold, not yet purchased, as reported by those exchanges.

(ii)

Securities traded on NASDAQ shall be valued as follows:

(1)

at the NASDAQ Official Closing Price (“NOCP”) (which is the last trade price at or before 4:00 p.m. (Eastern Time) adjusted up to NASDAQ’s best offer price if the last traded price is below such bid and down to NASDAQ’s best offer price if the last trade is above such offer price); or

(2)

if no NOCP is available at the last sale price on the NASDAQ prior to the calculation of the net asset value of the Company; or

(3)

if no sale is shown on NASDAQ at the bid price; or

(4)

if no sale is shown and no bid price is available, the price will be deemed “stale” and the value will be determined in accordance with the fair valuation procedures set forth herein.

Securities traded on a foreign securities exchange are valued at their last sale price on the exchange where such securities are primarily traded, or in the absence of a reported sale on a particular day, at their bid price (in the case of securities held long) or asked price (in the case of securities sold, not yet purchased) as reported by such exchange.

Listed options are valued at their bid price (or asked price in the case of listed written options) as reported by the exchange with the highest volume on the last day a trade was reported. Other securities for which market quotations are readily available are valued at their bid price (or asked price in the case of securities sold, not yet purchased) as obtained from one or more dealers making markets for those securities. If market quotations are not readily available, the fair value of the securities and other assets are determined in good faith by, or under the supervision of, the Board of Managers.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Significant Accounting Policies (continued)

Portfolio Valuation (continued)

Swaps are valued based on the values of their reference securities determined in accordance with the procedures described above, net of any contractual terms with the counterparty.

Debt securities are valued using valuations furnished by a pricing service which employs a matrix to determine valuation for normal institutional size trading units or consultation with brokers and dealers in such securities.

All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars using foreign exchange rates provided by a pricing service compiled as of 4:00 p.m. London time. Trading in foreign securities generally is completed, and the values of foreign securities are determined, prior to the close of securities markets in the U.S. Foreign exchange rates are also determined prior to such close. On occasion, the values of foreign securities and exchange rates may be affected by events occurring between the time such values or exchange rates are determined and the time that the net asset value of the Company is determined. When such events materially affect the values of securities held by the Company or its liabilities, such securities and liabilities are fair valued as determined in good faith by, or under the supervision of, the Board of Managers. The Company includes that portion of the results of operations resulting from changes in foreign exchange rates on investments in net realized and net change in unrealized gain/ (loss) from investments in securities on the Statement of Operations.

The determination of fair value takes into account relevant factors and surrounding circumstances, which may include: (i) the nature and pricing history (if any) of the security or other investment; (ii) whether any dealer quotations are available; (iii) possible valuation methodologies that could be used to determine fair value; (iv) the recommendation of Multi-Manager with respect to the valuation; (v) whether the same or similar securities or other investments are held by other accounts or other funds managed by Multi-Manager and the valuation method used by Multi-Manager with respect thereto; (vi) the extent to which the fair value to be determined will result from the use of data or formulae produced by third parties independent of Multi-Manager; and (vii) the liquidity or illiquidity of the market for the security or other investment.

The fair value of the Company’s assets and liabilities which qualify as financial instruments approximates the carrying amounts presented in the Statement of Assets, Liabilities and Members’ Capital.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Significant Accounting Policies (continued)

Portfolio Valuation (continued)

During the year ended December 31, 2014, the Company followed authoritative guidance for fair value measurement. The authoritative guidance establishes a framework for measuring fair value and a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The authoritative guidance establishes three levels of inputs in the hierarchy that may be used to measure fair value as follows:

Level 1 — observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.).

Level 3 — significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The Company recognizes transfers into and out of levels indicated above at the end of the reporting period. There were no such transfers during the year ended December 31, 2014.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.

Additional information on the investments can be found in the Schedule of Portfolio Investments, the Schedule of Securities Sold, Not Yet Purchased and the Schedule of Swap Contracts.

The following is a summary of the inputs used, as of December 31, 2014, in valuing the Company’s investments at fair value.

Valuation Inputs	Investments in Securities		Securities Sold, Not Yet Purchased		Other Financial Instruments
Level 1—Quoted Prices
Common Stock	$	1,580,270,896	$	402,774,946	$	—
Level 2—Other Significant Observable Inputs
Convertible Bond		10,459,796		—		—
Total Return Swaps		—		—		8,357,509
Level 3—Other Significant Unobservable Inputs		—		—		—
Total	$	1,590,730,692	$	402,774,946	$	8,357,509

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Significant Accounting Policies (continued)

Cash and Cash Equivalents

The Company treats all highly liquid financial instruments that mature within three months at the time of purchase as cash equivalents. Restricted cash of $113,725,073 listed in the Statement of Assets, Liabilities and Members’ Capital represents funds held by the Company’s custodian, The Bank of New York Mellon (the “Custodian”), of which $107,947,672 are held as collateral for swap contracts. At December 31, 2014, $190,909,372 in cash equivalents was held at the Custodian in a cash reserve account and foreign currency with a U.S. Dollar value of $18,779,456 was held by the Custodian.

As further discussed in Note 6, the Company has additional cash and cash equivalents on deposit with a broker primarily to satisfy margin and short sale requirements at December 31, 2014.

Income Taxes

The Company is treated as a partnership for tax purposes. For federal, state and local income tax purposes, each Member is individually required to report on its own tax return its distributive share of the Company’s taxable income or loss.

In accordance with authoritative guidance, Management has analyzed the Company’s tax position for all open tax years and has concluded that no liability for non-US capital gain tax is required in the Company’s financial statements. The Company recognizes interest and penalties, if any, related to non-US tax expense within the Statement of Operations. However, during the period, the Company did not record any interest or penalties.

Administration Fee, Related Party Transactions and Other

Multi-Manager provides administrative and investor services to the Company at an annual rate of 1.35% and advisory services at an annual rate of 0.40%, of Members’ Capital.

During the year ended December 31, 2014, Oppenheimer earned $82,969 in brokerage commissions from portfolio transactions executed on behalf of the Company. The brokerage commissions are reflected in the net realized and unrealized gain/(loss) from investment activities, foreign currency transactions and swap contracts in the Statement of Operations within these financial statements.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Administration Fee, Related Party Transactions and Other (continued)

Net profits or net losses of the Company for each fiscal period are allocated among and credited to or debited against the capital accounts of all Members (but not the Special Advisory Member) as of the last day of each fiscal period in accordance with Members’ respective investment percentages for the fiscal period. In addition, so long as Multi-Manager serves as the investment adviser of the Company, Multi-Manager is entitled to be the Special Advisory Member of the Company. In such capacity, Multi-Manager generally is entitled to receive an incentive allocation (the “Incentive Allocation”), charged to the capital account of each Member as of the last day of each allocation period, in an amount equal to 20% of the amount by which net profits, if any, exceed the positive balance in the Member’s “Loss Recovery Account” as defined in the Company’s confidential memorandum. The Incentive Allocation is credited to the Special Advisory Account. By the last business day of the month following the date on which an Incentive Allocation is made, the Special Advisory Member may withdraw up to 100% of the Incentive Allocation that was credited to the Special Advisory Account with respect to the allocation period. During the year ended December 31, 2014, an Incentive Allocation of $345,423 was credited to the capital account of the Special Advisory Member and was included in withdrawals payable at December 31, 2014, in the Statement of Assets, Liabilities and Members’ Capital.

Each Member of the Board of Managers (each a “Manager”) who is not an “interested person” of the Company, as defined by the Act, receives an annual retainer of $30,000 plus a fee for each meeting attended. The lead independent Manager and the chair of the audit committee receive a supplemental retainer of $7,500 each per annum. Total Board of Manager’s fees and expenses amounted to $281,000 during the year. Managers who are “interested persons” do not receive any annual or other fee from the Company. Managers who are not “interested persons” are reimbursed by the Company for all reasonable out-of-pocket expenses incurred by them in performing their duties.

The Bank of New York Mellon serves as custodian of the Company’s assets and is responsible for maintaining custody of the Company’s cash and securities and for retaining sub-custodians to maintain custody of foreign securities held by the Company.

BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”) serves as accounting and investor services agent to the Company and in that capacity provides certain accounting, recordkeeping and investor related services. The Company pays BNY Mellon a fee for these services based primarily on Members’ Capital of the Company as of the last day of each month, payable monthly, subject to a minimum annual fee.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Administration Fee, Related Party Transactions and Other (continued)

Oppenheimer acts as the non-exclusive placement agent for the Company, without special compensation from the Company, and bears costs associated with its activities as placement agent. However, the placement agent is entitled to charge a sales commission (placement fee) of up to 3% (up to 3.1% of the amount invested) in connection with a purchase of interests, at its discretion. Placement fees, if any, will reduce the amount of a Member’s investment in the Company and will neither constitute an investment made by the investor in the Company nor form part of the assets of the Company. For the year ended December 31, 2014, such sales commissions earned by Oppenheimer amounted to $294,562.

Indemnifications

The Company has entered into several contracts that contain routine indemnification clauses. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects the risk of loss to be remote.

Securities Transactions

Aggregate purchases and sales of investment securities, excluding short-term securities, for the year ended December 31, 2014, amounted to $1,669,652,223 and $2,225,920,794, which includes $81,013 from return of capital, respectively. Aggregate purchases and sales of securities sold, not yet purchased, excluding short-term securities, for the year ended December 31, 2014, amounted to $1,238,275,419, which includes $205,684 from return of capital, and $1,000,116,351, respectively.

At December 31, 2014, the aggregate cost for Federal income tax purposes of portfolio securities and securities sold, not yet purchased was $1,389,287,004 and $377,185,895, respectively.

For Federal income tax purposes, at December 31, 2014, accumulated net unrealized gain on portfolio securities and securities sold, not yet purchased was $175,854,636, consisting of $249,630,019 gross unrealized gain and $73,775,383 gross unrealized loss.

Due from / to Broker

Due from broker primarily represents proceeds from securities sold, not yet purchased, net of excess cash, held at the prime broker as of December 31, 2014, which serves as collateral for securities sold, not yet purchased.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Due from / to Broker (continued)

The Company has the ability to trade on margin and borrow funds from brokers and banks for investment purposes. Trading in equity securities on margin involves an initial cash requirement representing at least 50% of the underlying security’s value with respect to transactions in U.S. markets and varying percentages with respect to transactions in foreign markets. The Act requires the Company to satisfy an asset coverage requirement of 300% of its indebtedness, including amounts borrowed, measured at the time the Company incurs the indebtedness. The Company pays interest on outstanding margin borrowings at an annualized rate of LIBOR plus 0.875%. The Company pledges securities and cash as collateral for securities sold, not yet purchased and margin borrowings (except for cash proceeds of securities sold, held at the prime broker), which are maintained in a segregated account held by the Custodian. As of December 31, 2014, the total value of this collateral was $699,061,776, comprised of pledged securities with a value of $698,859,171 which are included in investments in securities in the Statement of Assets, Liabilities and Members’ Capital and $202,605 cash which is included in the cash and cash equivalents’ restricted cash in the Statement of Assets, Liabilities and Members’ Capital. Pledge securities with a value of $623,209,131 are held at the Custodian and securities with a value of $75,650,040 are held at Credit Suisse LLC. For the year ended December 31, 2014, the average daily amount of the margin borrowings was $35,066,080 and the daily weighted average annualized interest rate was 1.21%. The Company had borrowings outstanding at December 31, 2014, totaling $53,288,323, recorded as due to broker in the Statement of Assets, Liabilities and Members’ Capital.

Financial Instruments with Off-Balance Sheet Risk or Concentrations of Credit Risk

In the normal course of business, the Company trades various financial instruments and enters into various transactions with off-balance sheet risk. These financial instruments include options, swaps and short sales. Generally, these financial instruments (other than long options positions) represent future commitments to purchase or sell other financial instruments or to make certain payments at specific terms at specified future dates. Each of these financial instruments contains varying degrees of off-balance sheet risk whereby changes in the market value of the securities underlying the financial instruments may be in excess of the amounts recognized in the Statement of Assets, Liabilities and Members’ Capital.

The Company maintains cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits.

Securities sold, not yet purchased represent obligations of the Company to deliver specified securities and thereby creates a liability to purchase such securities in the market at prevailing prices. Accordingly, these transactions result in off-balance sheet risk as the Company’s ultimate obligation to satisfy the sale of securities sold, not yet purchased may

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Financial Instruments with Off-Balance Sheet Risk or Concentrations of Credit Risk (continued)

exceed the amount indicated in the Statement of Assets, Liabilities and Members’ Capital. Primarily all investments in securities sold, not yet purchased and due from broker are positions with, and amounts due from, the prime broker, Morgan Stanley. Accordingly, the Company has a concentration of individual counterparty credit risk with the prime broker. The Company maintains cash with the prime broker and pledges securities in an account at the Custodian, for the benefit of the prime broker, to meet the margin requirement as determined by the prime broker.

Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political, regulatory and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies and the U.S. government.

The Company has invested approximately 11.3% of its Members’ Capital in China equity securities (includes both long and short securities). Political, social or economic changes in this market may have a greater impact on the value of the Company’s portfolio due to this concentration.

The Company uses total return swaps to gain long or short investment exposure in lieu of purchasing or selling an equity security directly. A swap is a contract under which two parties agree to make periodic payments to each other based on specified interest rates, an index or the value of some other instrument, applied to a stated, or “notional” amount. Swaps generally can be classified as interest rate swaps, currency swaps, commodity swaps or equity swaps which can also include contracts for difference, depending on the type of index or instrument used to calculate the payments. Such swaps would increase or decrease the Company’s investment exposure to the particular interest rate, currency, commodity or equity involved. Securities associated with swaps are marked-to-market based on the Company’s valuation procedures that are outlined in Section 2b of these notes. The change in value of swaps, including the periodic amounts of interest to be paid or received on swaps, is reported as net change in unrealized gains or losses in the Statement of Operations. Net unrealized gains are reported as an asset and net unrealized losses are reported as a liability in the Statement of Assets, Liabilities and Members’ Capital. A realized gain or loss is recorded upon payment or receipt of a periodic payment or termination of swap agreements. The net realized gain/(loss) on swap contracts is reflected in the Statement of Operations within these financial statements.

Swap agreements entered into by the Company require the calculation of the obligations of the parties to the agreements on a “net basis.” Consequently, current obligations (or rights) under a swap agreement generally will be equal to only the net amount to be paid or received under the agreement based on the relative payment obligations of each party to the agreement (the “net amount”).

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Financial Instruments with Off-Balance Sheet Risk or Concentrations of Credit Risk (continued)

Certain equity placement swaps in which the Company engages have the effect of providing economic leveraging of the Company’s assets. Such leverage can be significant. As such, the impact of an adverse change in the Company’s exposure may result in losses greater than the nominal value of the swap, which can be significant under certain circumstances.

The Company is subject to the market risk associated with changes in the value of the underlying investment or instrument, as well as exposure to credit risk associated with counterparty non-performance on swap contracts. The Company is exposed to significant concentration of credit risk as the counterparty to the swap contracts is the prime broker, Morgan Stanley. The risk of loss with respect to swaps is limited to the net amount of payments that the Company is contractually obligated to make. If the counterparty to a swap defaults, the Company’s risk of loss consists of the net amount of payments that the Company contractually is entitled to receive, which may be different than the amounts recorded in the Statement of Assets, Liabilities and Members’ Capital.

The unrealized gain/(loss) amounts presented in the Schedule of Swap Contracts, rather than the notional amount, represents the approximate future cash to be received or paid, (i.e., the fair value) on each swap contract, respectively, as at December 31, 2014. The net change in unrealized gain/(loss) from swap contracts is reflected in the Statement of Operations within these financial statements.

Total return swap agreements contain provisions that require the Company to maintain a predetermined level of Members’ Capital and/or provide limits regarding decline in the Company’s Members’ Capital over one month, three months and twelve month periods. If the Company were to violate such provisions, the counterparty to the total return swap agreements could terminate the agreements and request immediate payment or demand increased collateral for the net obligation owed the counter-party. Further, the agreements state if the authority of Multi-Manager and/or Alkeon are terminated and an acceptable successor(s) is not appointed, this would cause the agreements to be terminated.

As of December 31, 2014, $107,947,672 was posted by the Company as collateral, related to its total return swaps. This amount is included in the cash and cash equivalents in the Statement of Assets, Liabilities and Members’ Capital within these financial statements and is restricted.

The Company may purchase put and call options on securities and use derivative instruments in order to gain exposure to or protect against changes in the markets. The risk associated with purchasing an option is that the Company pays a premium whether or not the option is exercised. Additionally, the Company bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as investment securities. During the year ended December 31, 2014, the Company had no transactions in purchased options.

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Financial Instruments with Off-Balance Sheet Risk or Concentrations of Credit Risk (continued)

The Company may also write (sell) put and call options on securities and use derivative instruments in order to gain exposure to or protect against changes in the markets. Option contracts serve as components of the Company’s investment strategies and are utilized to structure investments to enhance the performance of the Company.

When the Company writes an option, the premium received by the Company is recorded as a liability and is subsequently adjusted to the current market value of the option written. If a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Company has realized a gain or loss. If a written put option is exercised, the premium reduces the cost basis of the securities purchased by the Company. In writing an option, the Company bears the market risk of an unfavorable change in the price of the security or index underlying the written option. Exercise of a written option by a counterparty could result in the Company selling or buying a security at a price different from the current market value. During the year ended December 31, 2014, the Company did not write any options.

The Company follows authoritative guidance on disclosures about derivative instruments and hedging activities. Authoritative guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. All accounting policies and disclosures have been made in accordance with authoritative guidance and are incorporated for the current period as part of the disclosures within this Note.

The Adviser believes the average notional amount shown in the table below is the most relevant measure of derivative activity and is indicative of the Company’s volume of derivative activity during the year ended December 31, 2014.

Total return swaps:
Average notional amount		$	531,301,065

The following tables identify the gross and net unrealized gain/(loss) on derivative instruments. The net unrealized gain/(loss) for swap contracts are disclosed in the Statement of Assets, Liabilities and Members’ Capital as a liability as of December 31, 2014. The net change in unrealized gain/(loss) on swap contracts is reflected in the Statement of Operations within these financial statements.

	Gross Unrealized Gain		Gross Unrealized Loss		Net Unrealized gain/(loss)
Total return swaps	$	14,644,824	$	6,287,315	$	8,357,509
Total	$	14,644,824	$	6,287,315	$	8,357,509

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Financial Instruments with Off-Balance Sheet Risk or Concentrations of Credit Risk (continued)

The following table identifies the gross and net realized gain/(loss) on derivative instruments. The net realized gain/(loss) on swap contracts is reflected in the Statement of Operations within these financial statements.

	Gross		Gross		Net
	Realized		Realized		Realized
	Gain		Loss		gain/(loss)
Total return swaps	$	149,163,500	$	191,211,604	$	(42,048,104	)
Total	$	149,163,500	$	191,211,604	$	(42,048,104	)

Balance Sheet Offsetting

In the normal course of business the Company has entered into swap contracts governed by an agreement with the prime broker. The agreement allows the Company and the counterparty to make net payments in respect of all transactions in the same currency, settling on the same date. The Company posts cash as collateral with the Custodian to secure the Company’s obligations to the counterparty. Such cash is held by the Custodian in a segregated account and its use is restricted.

In the event that the Company fails to post said collateral, fails to comply with any restrictions or provisions of the agreement, fails to comply with or perform any agreement or obligation, then the counterparty has the right to set-off any amounts payable by the Company with respect to any obligations against any posted collateral or the cash equivalent of any posted collateral. Further, the counterparty has the right to liquidate, sell, pledge, re-hypothecate, or dispose such posted collateral to satisfy any outstanding obligations.

The table below presents the swap contracts that are set-off, if any, as well as collateral delivered, related to those swap contracts.

	Offsetting of Financial Assets and Derivative Assets

			Gross Amounts			Net Amounts of		Gross Amounts Not Offset in the
			Offset in the			Assets Presented		Statement of Assets, Liabilities
			Statement of			in the Statement		and Members’ Capital
	Gross Amounts of Recognized Asset		Assets, Liabilities and Members’ Capital			of Assets, Liabilities and Members’ Capital		Financial Instruments		Cash Collateral Received		Net Amount
Total return swaps	$	14,644,824	$	(6,287,315	)	$	8,357,509	$	—	$	—	$	8,357,509
Total	$	14,644,824	$	(6,287,315	)	$	8,357,509	$	—	$	—	$	8,357,509

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Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (continued)

Balance Sheet Offsetting (continued)

	Offsetting of Financial Liabilities and Derivative Liabilities

						Net Amounts
			Gross Amounts			of Liabilities		Gross Amounts Not Offset in the
			Offset in the			Presented in		Statement of Assets, Liabilities
			Statement of			the Statement		and Members’ Capital
	Gross Amounts		Assets, Liabilities			of Assets,				Cash
	of Recognized		and Members’			Liabilities and		Financial		Collateral		Net
	Liabilities		Capital			Members’ Capital		Instruments		Pledged(a)		Amount
Total return swaps	$	6,287,315	$	(6,287,315	)	$	—	$	—	$	—	$	—
Total	$	6,287,315	$	(6,287,315	)	$	—	$	—	$	—	$	—

(a)

Collateral pledged to counterparties is based off notional exposure. There is $107,947,672 of collateral pledged to counterparties related to derivative trading activities which is included in the cash and cash equivalents’ restricted cash in the Statement of Assets, Liabilities and Members’ Capital.

Financial Highlights

The following represents the ratios to average Members’ Capital and other supplemental information for each period indicated:

	Year Ended December 31, 2014			Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2010
Members’ Capital, end of period (000s)	$	1,360,121		$	1,669,557		$	1,349,904		$	1,132,774		$	1,059,196
Ratio of net investment loss to average Members’ Capital**		(2.57	%)		(2.65	%)		(3.22	%)		(3.10	%)		(2.60	%)
Ratio of expenses to average Members’ Capital**		3.65	%		3.47	%		4.49	%		4.08	%		3.62	%
Ratio of incentive allocation to average Members’ Capital		0.02	%		5.69	%		1.73	%		0.13	%		1.94	%
Portfolio turnover		91	%		158	%		126	%		94	%		197	%
Total return - gross*		(4.91	%)		33.00	%		11.23	%		0.18	%		9.43	%
Total return - net*		(4.91	%)		26.40	%		8.98	%		0.14	%		7.55	%
Ratio of average borrowings to average Members’ Capital		2.28	%		1.99	%		0.21	%		0.17	%		0.28	%

	*	Total return assumes a purchase of an interest in the Company on the first day and a sale of the interest on the last day of the period noted, gross/net of incentive allocation to the Special Advisory Member, if any. The figures do not include any applicable sales charges imposed by the placement agent.

	**	Ratios do not reflect the effects of incentive allocation to the Special Advisory Member, if any.

-40-

Advantage Advisers Xanthus Fund, L.L.C.

Notes to Financial Statements – December 31, 2014 (concluded)

Financial Highlights (continued)

An individual Member’s ratios and returns may vary from the above based on the timing of capital transactions.

10.

Subsequent Events

Management has evaluated the impact of subsequent events on the Company through the date the financial statements were issued. Management has determined that there are no material events that would require additional disclosure in the Company’s financial statements except as disclosed below.

Mr. Lawrence Becker resigned as a manager of the Company and the Chairman of the Audit Committee of the Board on February 14, 2015.

The Company received initial and additional contributions from Members of $5,379,936 from January 1, 2015 through February 24, 2015.

-41-

Advantage Advisers Xanthus Fund, L.L.C.

Supplemental Information (Unaudited)

I.	Proxy Voting

A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities is available without charge upon request by calling Oppenheimer Asset Management Inc. collect at 212-667-4225 and at the Securities and Exchange Commission’s (“SEC”’s) website at http://www.sec.gov.

Information regarding how the Company voted proxies relating to portfolio securities during the period from June 30, 2011 through June 30, 2014 is available, without charge, upon request, by calling Oppenheimer Asset Management Inc. collect at 212-667-4225 and at the SEC’s website at http://www.sec.gov.

II.

Portfolio Holdings

The Company files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Company’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

-42-

Advantage Advisers Xanthus Fund, L.L.C.

Company Management (Unaudited)

Information pertaining to the Managers is set forth below. Additional Information about the Company is available without charge, upon request, by calling Oppenheimer Asset Management Inc. collect at (212) 667-4225.

Independent Managers

Name, Age, Address⁽¹⁾and Position(s) with the Company	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years Other Directorships Held by Managers	Number of Portfolios in Fund Complex Overseen by Managers
Luis Rubio, 59 Manager	Indefinite; Since May 2003	President of Centro de Investigacion Para el Desarrollo, A.C. (Center of Research Development) (2000 to present) and Director of same 1984 – 2000); Adjunct Fellow of the Center for Strategic and International Studies; Director of The Asia Tigers Fund, Inc. and The India Fund, Inc.; and Director of Empresa Ica SA de CV, a Mexican construction company (since 2006).	1

Janet L. Schinderman, 63 Manager	Indefinite; Since May 2003	Education consultant specializing in international relations, board management and initiating special projects; Associate Dean for Special Projects and Secretary to the Board of Overseers at Columbia Business School from 1990 until June 2006; and Independent director for two registered investment companies advised by The Central Park Group.	1

Lawrence Becker, 59 Manager	Indefinite; Since October 2003	Private investor in real estate investment management concerns. From February 2000 through June 2003, he was V.P.—Controller/Treasurer for National Financial Partners, which specializes in financial services distribution. Prior to that, Mr. Becker was a Managing Director—Controller/ Treasurer of Oppenheimer Capital and its Quest for Value Funds. (Oppenheimer Capital is not affiliated with Oppenheimer Asset Management Inc.). Mr. Becker is a licensed CPA. He serves as the Director of the Asia Tigers Fund, Inc. and The India Fund Inc. Mr. Lawrence Becker resigned as manager of the Company and the Chairman of the Audit Committee of the Board on February 14, 2015.	1

-43-

Advantage Advisers Xanthus Fund, L.L.C.

Company Management (Unaudited) (continued)

Independent Managers (continued)

			Number of
			Portfolios in
	Term of Office		Fund Complex
Name, Age, Address⁽¹⁾and	and Length of	Principal Occupation(s) During Past 5 Years	Overseen by
Position(s) with the Company	Time Served	Other Directorships Held by Managers	Managers
Jesse H. Ausubel, 63 Manager	Indefinite; Since May 1999	Director, Program for the Human Environment and Senior Research Associate, The Rockefeller University (1993 to present); Director, Richard Lounshery Foundation (1998 to present); Program Director, Alfred P. Sloan Foundation (1994 to present); Adjunct Scientist, Woods Hole Oceanographic Institution (1990 to present).	1

James E. Buck, 78 Manager	Indefinite; since April 2003	Retired in 2002 as Senior Vice President and Corporate Secretary of the New York Stock Exchange, Inc. (the “Exchange”) and the subsidiaries of the Exchange, including the NYSE Foundation.	1
Interested Manager
Bryan McKigney,* 56 President, CEO, and Manager	Indefinite; Manager since December 1, 2004; President and CEO since September 23, 2004	Mr. McKigney is a Managing Director and the Chief Administrative Officer of Oppenheimer Asset Management Inc. He has been in the financial services industry since 1981 and has held various management positions at Canadian Imperial Bank of Commerce (1993 – 2003) and Chase Manhattan Bank N.A. (1981 – 1993).	1

-44-

Advantage Advisers Xanthus Fund, L.L.C.

Company Management (Unaudited) (continued)

Company Officers

In accordance with the Limited Liability Company Agreement, the Board has selected the following persons to serve as officers of the Company:

	Term of Office
Name, Age, Address⁽¹⁾and	and Length of	Principal Occupation(s)
Position(s) with the Company⁽²⁾	Time Served	During Past 5 Years
Vineet Bhalla, 54 Chief Financial Officer	One year; Since July 27, 2005	Mr. Bhalla has been a Senior Director at Oppenheimer Asset Management since May 2005. From July 2002 to May 2005, he was an Assistant Vice President at Zurich Capital Markets Inc., a Director of the Client Service Group at GlobeOp Financial Services, and a Senior Consultant at Capital Markets Company. Prior to that, he was a Vice President at Blackrock Financial Management since June 1999. Mr. Bhalla is a Certified Public Accountant. He graduated with an MBA from Saint Mary’s University, Halifax, Canada in 1986.

Salvatore Faia, 52 Chief Compliance Officer	One year; Since December 31, 2014	President, Vigilant Compliance, LLC since 2004; and Director of EIP Growth and Income Fund since 2005.


Deborah Kaback, 63 Chief Legal Officer	One year; Since July 23, 2003	Ms. Kaback has been a Managing Director at Oppenheimer Asset Management since June 2003. She was Executive Director of CIBC World Markets Corp. from July 2001 through June 2003. Prior to that, she was Vice-President and Senior Counsel of Oppenheimer Funds, Inc. from November 1999 through July 2001. Prior to that, she was Senior Vice President and Deputy General Counsel at Oppenheimer Capital from April 1989 through November 1999.

-45-

Advantage Advisers Xanthus Fund, L.L.C.

Company Management (Unaudited) (concluded)

Company Officers (concluded)

	Term of Office
Name, Age, Address⁽¹⁾and	and Length of	Principal Occupation(s)
Position(s) with the Company⁽²⁾	Time Served	During Past 5 Years
Bryan McKigney, 56 President, CEO, and Manager	One year term for President and CEO; since September 23, 2004. Indefinite term for Manager; since December 1, 2004;	Mr. McKigney is a Managing Director and the Chief Administrative Officer of Oppenheimer Asset Management Inc. He has been in the financial services industry since 1981 and has held various management positions at Canadian Imperial Bank of Commerce (1993 – 2003) and Chase Manhattan Bank N.A. (1981 – 1993).

*	“Interested Person” of the Company as defined in the Act. Mr. McKigney is an interested person due to his position as President and Chief Executive Officer of the Company and as a Senior Managing Director and the Chief Administrative Officer of Oppenheimer Asset Management Inc., which is a corporate parent of the managing member of the Adviser.
(1)	The address of each independent manager and officer is c/o Oppenheimer Asset Management, 85 Broad Street, New York, NY 10004.
(2)	Officers are not compensated by the Company.

-46-

Item 2. Code of Ethics.

(a)

The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.

(c)

There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description.

(d)

The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions.

Item 3. Audit Committee Financial Expert.

Mr. Lawrence Becker served as a non-interested Manager of the registrant and as Chairman of the Audit Committee from October 30, 2003 until February 14, 2015, when he resigned. The registrant’s board of managers had determined that Mr. Becker was an “audit committee financial expert.” Accordingly, after the resignation of Mr. Becker, the registrant does not have an audit committee financial expert. The board of managers of the registrant intends to seek a replacement for Mr. Becker to serve as Chairman of the Audit Committee who will be both independent and an audit committee financial expert.

Item 4. Principal Accountant Fees and Services.

Audit Fees

(a)

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $143,361 for 2014 and $215,100 for 2013.

Audit-Related Fees

(b)

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $5,000 for 2014 and $5,000 for 2013. Audit related fees principally include fees associated with reviewing and providing comments on semi-annual statements.

Tax Fees

(c)

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $110,000 for 2014 and $105,000 for 2013. Tax fees include fees for tax compliance services and assisting management in the preparation of tax estimates.

All Other Fees

(d)

The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2014 and $0 for 2013.

(e)(1)

Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

The registrant’s Audit Committee Charter provides that the Audit Committee shall pre-approve, to the extent required by applicable law, all audit and non–audit services that the registrant’s independent auditors provide to the registrant and (ii) all non-audit services that the registrant’s independent auditors provide to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the registrant’s investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant; provided that the Committee may implement policies and procedures by which such services are approved other than by the full Committee prior to their ratification by the Committee.

(e)(2)

The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c) (7) (i) (C) of Rule 2-01 of Regulation S-X are as follows:

	(b)	100%

	(c)	100%

	(d)	Not Applicable

(f)

The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.

(g)

The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $105,274 for 2014 and $105,000 for 2013.

(h)

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

(a)

Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.

(b)

Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

The Proxy Voting Policies are attached herewith.

Advantage Advisers Management,
L.L.C.
Advantage Advisers Multi-Manager,
L.L.C.
Advantage Advisers Private Equity
Management, L.L.C.

Oppenheimer Alternative Investment
Management, L.L.C.

Proxy Voting Policies and Procedures

INTRODUCTION

	CHAPTER 1 BOARD OF DIRECTORS
	Voting on Director Nominees In Uncontested Elections		6
	Chairman & CEO are the same person		7
	independence of directors		8
	Stock owenership request		9
	Charitable Contributions		10
	Director and Officer Indemnification and Liability Protection		11
	Vote Recommendation		12
	Size of the Board		13
	Voting on Director Nominees in Contested Elections		14
	Term Of Office		15
	Compensation Disclosure		16

	CHAPTER 2 AUDITORS		17
	Ratifying Auditors		18

	CHAPTER 3 TENDER OFFER DEFENSES		19
	Poison Pills		20
	Greenmail		21
	Supermajority Vote		22

	CHAPTER 4 MERGERS AND CORPORATE RESTRUCTURING		23
	Changing Corporate Name		24
	Reincorporation		25

	CHAPTER 5 PROXY CONTEST DEFENSES		26
	Board Structure: Staggered vs. Annual Elections		27
	Cumulative Voting		28
	Shareholders’ Ability to Call Special Meeting		29
	Shareholders’ Ability to Alter Size of the Board		30

	CHAPTER 6 MISCELLANEOUS CORPORATE GOVERNANCE PROVISIONS		31
	Confidential Voting		32
	Shareholder Advisory Committees		33
	Foreign Corporate Matters		34
		Government Service List	35

	CHAPTER 7 SOCIAL AND ENVIRONMENTAL ISSUES		36
	Energy and Environmental issues (CERES Principles)		37
	Northern Ireland (MacBride Principles)		38
	Maquiladora Standards & International Operations and Policies		39
	Equal Employment Opportunity & Discrimination		40
	Animal Rights		41

	CHAPTER 8 CAPITAL STRUCTURE		42
	Common Stock Authorization		43
	Blank Check Preferred Stock		44
	Preemptive Rights		45
	Stock Distribution: Splits and Dividends		46
	Reverse Stock Splits		47
	Adjustments to Par Value of Common Stock		48
	Debt Restructuring		49

	CHAPTER 9 EXECUTIVE AND DIRECTOR COMPENSATION		50
	Director Compensation		51
	Shareholder Proposal to Limit Executive and Director Pay		52
	Employee Stock Ownership Plans (ESOPs)		53
	Options Expensing		54
	Golden Parachutes		55
	Proposal to Ban Golden Parachutes		56
	Outside Directors’ Retirement Compensation		57

	CHAPTER 10 STATE OF INCORPORATION		58
	Control Share Acquisition Statutes		59
	Opt-Out of State Takeover Statutes		60
	Corporate Restructuring, Spin-Offs, Asset Sales, Liquidations		61

	CHAPTER 11 Conflict of Interest		62
	Conflicts		63
	Conflicts cont’d		64

	Chapter 12 Corporate Governance Committee & Proxy Managers		65
	Corporate Governance Committee		66
	Proxy Managers		67

	CHAPTER 13 Special Issues with Voting foreign proxies		68
	special issues		69

	Chapter 14 Record Keeping		70
	record keeping		71

INTRODUCTION

Rule 206(4)-6 (the “Rule”) adopted under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) requires all registered investment advisers that exercise voting discretion over securities held in client portfolios to adopt proxy voting policies and procedures.

Advantage Advisers Management,
L.L.C., Advantage Advisers Multi-
Manager, L.L.C., Advantage Advisers
Private Equity Management, L.L.C.,
and Oppenheimer Alternative
Investment Management, L.L.C.,
(collectively, the “Advisers”) are
registered investment advisers under
the Advisers Act and are therefore
required to adopt proxy voting
policies and procedures pursuant to
the Rule.

The Advisers act as investment advisers, managers or general partners to registered and unregistered investment companies and managed accounts (collectively, the “Accounts”). When an Adviser has investment discretion over an Account’s investment portfolio, then the Adviser votes proxies for the Account pursuant to the policies and procedures set forth herein.

Investment discretion for a number of the Advisers’ Accounts is exercised by portfolio managers that are either non-managing members of limited partners of an Adviser, or act as portfolio managers or subadvisers pursuant to agreements with the Advisers and/or the Accounts (collectively, the “Portfolio Managers”). In all cases where Portfolio Managers exercise investment discretion over the Accounts, the Portfolio Managers vote proxies for the Accounts in accordance with the policies and procedures of the investment advisory firms with which the Portfolio Managers are affiliated.

Appendix A hereto sets forth the Accounts for which each Adviser is responsible, whether the Advisers’ proxy policies or the proxy policies of the Portfolio Managers are applicable to the Account.

Voting on Director Nominees
in Uncontested Elections

These proposals seek shareholder votes for persons who have been nominated by a corporation’s board of directors to stand for election to serve as members of that board. No candidates are opposing these board nominees.

In each analysis of an uncontested election of directors you should review:

	a)	Company performance
	b)	Composition of the board and key board committees
	c)	Attendance at board meetings
	d)	Corporate governance provisions and takeover activity

We may also consider:

	a)	Board decisions concerning executive compensation
	b)	Number of other board seats held by the nominee
	c)	Interlocking directorships

Vote Recommendation
	It is our policy to vote IN FAVOR of the candidates proposed by the board.

We will look carefully at each candidate’s background contained in the proxy statement. In the absence of unusual circumstances suggesting a nominee is clearly not qualified to serve as a member of the board, we will vote with management.

Chairman and CEO are the same person

Shareholders may propose that different persons hold the positions of the chairman and the CEO.

We would evaluate these proposals on a case by case basis depending on the size of the company and performance of management.

Independence of Directors

Shareholders may request that the board be comprised of a majority of independent directors and that audit, compensation and nominating committees of the Board consists exclusively of independent directors. We believe that independent directors are important to corporate governance.

Vote Recommendation
	It is our policy to vote FOR proposals requesting that a majority of the Board be independent and that the audit, compensation and nominating committees of the board include only independent directors.

Stock Ownership Requirements

Shareholders may propose that directors be required to own a minimum amount of company stock or that directors should be paid in company stock, not cash. This proposal is based on the view that directors will align themselves with the interest of shareholders if they are shareholders themselves. We believe that directors are required to exercise their fiduciary duty to the company and its shareholders whether or not they own shares in the company and should be allowed to invest in company stock based on their own personal considerations.

Vote Recommendation
	Shareholders Proposals)
	Vote AGAINST proposals that require director stock ownership

Charitable Contributions

Charitable contributions by companies are generally useful for assisting worthwhile causes and for creating goodwill between the company and its community. Moreover, there may be certain long-term financial benefits to companies from certain charitable contributions generated from, for example, movies spent helping educational efforts in the firm’s primary employment areas. Shareholders should not decide what the most worthwhile charities are.

Vote Recommendation
	(Shareholders Proposals)
	Vote AGAINST proposals regarding charitable contribution.

Shareholders have differing and equally sincere views as to which charities the company should contribute to, and the amount it should contribute. In the absence of bad faith, self-dealing, or gross negligence, management should determine which contributions are in the best interest of the company.

Director and Officer Indemnification
and Liability Protection

These proposals typically provide for protection (or additional protection) which is to be afforded to the directors of a corporation in the form of indemnification by the corporation, insurance coverage or limitations upon their liability in connection with their responsibilities as directors.

When a corporation indemnifies its directors and officers, it means the corporation promises to reimburse them for certain legal expenses, damages, and judgments incurred as a result of lawsuits relating to their corporate actions. The corporation becomes the insurer for its officers and directors.

Vote Recommendation

	Vote AGAINST proposals that eliminate entirely director and officers’ liability for monetary damages for violating the duty of care.

	Vote AGAINST indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligations than mere carelessness.

	Vote FOR only those proposals providing such expanded coverage in cases when a director’s or officer’s legal defense was unsuccessful if: a) the director was found to have acted in good faith, and b) only if the director’s legal expenses would be covered.

The following factors should be considered:

The present environment in which directors operate provides substantial risk of claims or suits against them in their individual capacities arising out of the discharge of their duties.

Attracting and retaining the most qualified directors enhances shareholder value.

Size of the Board

Typically there are three reasons for changing the size of the board. The first reason may be to permit inclusion into the board of additional individuals who, by virtue of their ability and experience, would benefit the corporation. The second reason may be to reduce the size of the board due to expiration of terms, resignation of sitting directors or, thirdly, to accommodate the corporation’s changing needs.

Vote Recommendation
	Vote FOR the board’s recommendation to increase or decrease the size of the board.

The following factors should be considered:

	1.	These proposals may aim at reducing or increasing the influence of certain groups of individuals.

	2.	This is an issue with which the board of directors is uniquely qualified to deal, since they have the most experience in sitting on a board and are up-to-date on the specific needs of the corporation.

Voting on Director Nominees in Contested Elections

Votes in contested elections of directors are evaluated on a CASE-BY-CASE basis.

The following factors are considered:

	1.	management’s track record
	2.	background to the proxy contest
	3.	qualifications of director nominees

Term of Office

This is a shareholder’s proposal to limit the tenure of outside directors. This requirement may not be an appropriate one. It is an artificial imposition on the board, and may have the result of removing knowledgeable directors from the board.

Vote recommendation
	Vote AGAINST shareholder proposals to limit the tenure of outside directors.

The following factors should be considered:

	1.	An experienced director should not be disqualified because he or she has served a certain number of years.

	2.	The nominating committee is in the best position to judge the directors’ terms in office due to their understanding of a corporation’s needs and a director’s abilities and experience.

	3.	If shareholders are not satisfied with the job a director is doing, they can vote him/her off the board when the term is up.

Compensation Disclosure

These proposals seek shareholder approval of a request that the board of directors disclose the amount of compensation paid to officers and employees, in addition to the disclosure of such information in the proxy statement as required by the SEC regulations.

Vote Recommendation
	(Shareholders Policy)
	Vote AGAINST these proposals that require disclosure, unless we have reason to believe that mandated disclosures are insufficient to give an accurate and meaningful account of senior management compensation.

The following factors should be considered:

	1.	Federal securities laws require disclosure in corporate proxy statements of the compensation paid to corporate directors and officers.

	2.	Employees other than executive officers and directors are typically not in policy-making roles where they have the ability to determine, in a significant way, the amount of their own compensation.

	3.	The disclosure of compensation of lower-level officers and employees infringes upon their privacy and might create morale problems.

CHAPTER 2

AUDITORS

Ratifying Auditors

Shareholders must make certain that auditors are responsibly examining the financial statements of a company, that their reports adequately express any legitimate financial concerns, and that the auditor is independent of the company it is serving.

Vote Recommendation
	Vote FOR proposal to ratify auditors.

The following factors should be considered:

	1.	Although lawsuits are sometimes filed against accounting firms, including those nationally recognized, these firms typically complete their assignments in a lawful and professional manner.

	2.	Sometimes it may be appropriate for a corporation to change accounting firms, but the board of directors is in the best position to judge the advantages of any such change and any disagreements with former auditors must be fully disclosed to shareholders.

	3.	If there is a reason to believe the independent auditor has rendered an opinion which is neither accurate nor indicative of the company’s financial position, then in this case vote AGAINST ratification.

CHAPTER 3

TENDER OFFER DEFENSES

Poison Pills

Poison pills are corporate-sponsored financial devices that, when triggered by potential acquirers, do one or more of the following: a) dilute the acquirer’s equity in the target company, b) dilute the acquirer’s voting interests in the target company, or c) dilute the acquirer’s equity holdings in the post-merger company. Generally, poison pills accomplish these tasks by issuing rights or warrants to shareholders that are essentially worthless unless triggered by a hostile acquisition attempt.

A poison pill should contain a redemption clause that would allow the board to redeem it even after a potential acquirer has surpassed the ownership threshold. Poison pills may be adopted by the board without shareholder approval. But shareholders must have the opportunity to ratify or reject them at least every two years.

Vote Recommendation
	Vote FOR shareholder proposals asking that a company submit its poison pill for shareholder ratification.

	Vote on a CASE-BY-CASE basis regarding shareholder proposals to redeem a company’s poison pill.

	Vote on a CASE-BY-CASE basis regarding management proposals to ratify a poison pill.

Greenmail

Greenmail payments are targeted share repurchases by management of company stock from individuals or groups seeking control of the company. Since only the hostile party receives payment, usually at a substantial premium over the market, the practice discriminates against all other shareholders.

Greenmail payments usually expose the company to negative press and may result in lawsuits by shareholders. When a company’s name is associated with such a practice, company customers may think twice about future purchases made at the expense of the shareholders.

Vote Recommendation
	Vote FOR proposals to adopt anti Greenmail or bylaw amendments or otherwise restrict a company’s ability to make Greenmail payments

	Vote on a CASE-BY-CASE basis regarding anti-Greenmail proposals when they are bundled with other charter or bylaw amendments.

The following factors should be considered:

While studies by the SEC and others show that Greenmail devalues the company’s stock price, an argument can be made that a payment can enable the company to pursue plans that may provide long-term gains to the shareholders.

Supermajority Vote

Supermajority provisions violate the principle that a simple majority of voting shares should be all that is necessary to effect change regarding a company and its corporate governance provisions. These proposals seek shareholder approval to exceed the normal level of shareholder participation and approval from a simple majority of the outstanding shares to a much higher percentage.

Vote Recommendations
	Vote AGAINST management proposals to require a Supermajority shareholder vote to approve mergers and other significant business combinations.

	Vote FOR shareholder proposals to lower Supermajority vote requirements for mergers and other significant business combinations.

The following factors should be considered:

	1.	Supermajority requirements ensure broad agreement on issues that may have a significant impact on the future of the company.

	2.	Supermajority vote may make action all but impossible.

	3.	Supermajority requirements are counter to the principle of majority rule.

CHAPTER 4

MERGERS
AND
CORPORATE
RESTRUCTURING

Changing Corporate Name

This proposal seeks shareholder approval to change the corporation’s name. It is probably better to vote for the proposed name change before management goes back to the drawing board and spends another small fortune attempting again to change the name.

Vote Recommendation
	Vote FOR changing the corporate name.

The following factors should be considered:

	1.	A name of a corporation symbolizes its substance.

	2.	There are many reasons a corporation may have for changing its name, including an intention to change the direction of the business or to have a contemporary corporate image.

	3.	The board of directors is well-positioned to determine the best name for the corporation because, among other reasons, it usually seeks professional advice on such matters.

Reincorporation

These proposals seek shareholder approval to change the state in which a company is incorporated. Sometimes this is done to accommodate the company’s most active operations or headquarters. More often, however, the companies want to reincorporate in a state with more stringent anti-takeover provisions. Delaware’s state laws, for instance, including liability and anti-takeover provisions, are more favorable to corporations.

Vote recommendation
	Vote on a CASE-BY-CASE basis, carefully reviewing the new state’s laws and any significant changes the company makes in its charter and by-laws.

The following factors should be considered:

The board is in the best position to determine the company’s need to incorporate.

Reincorporation may have considerable implications for shareholders, affecting a company’s takeover defenses, its corporate structure or governance features.

Reincorporation in a state with stronger anti-takeover laws may harm shareholder value.

CHAPTER 5

PROXY
CONTEST
DEFENSES

Board Structure: Staggered vs. Annual Elections

A company that has classified, or staggered, board is one in which directors are typically divided into three classes, with each class serving three-year terms; each class’s reelection occurs in different years. In contrast, all directors of an annually elected board serve one-year and the entire board stands for election each year.

Classifying the board makes it more difficult to change control of a company through a proxy contest involving election of directors. Because only a minority of the directors are elected each year, it will be more difficult to win control of the board in a single election.

Vote Recommendations
	Vote AGAINST proposals to classify the board. Vote FOR proposals to repeal classified boards and to elect all directors annually.

The following factors should be considered:

The annual election of directors provides an extra check on management’s performance. A director who is doing a good job should not fear an annual review of his/her directorship.

Cumulative Voting

Most companies provide that shareholders are entitled to cast one vote for each share owned, the so-called “one share, one vote” standard. This proposal seeks to allow each shareholder to cast votes in the election of directors proportionate to the number of directors times the number of shares owned by each shareholder for one nominee.

Vote Recommendation
	Vote AGAINST proposals that permit cumulative voting.

The following factors should be considered:

Cumulative voting would allow a minority owner to create an impact disproportionate to his/her holdings.

Cumulative voting can be used to elect a director who would represent special interests and not those of the corporation and its shareholders.

Cumulative voting can allow a minority to have representation.

Cumulative Voting can lead to a conflict within the board which could interfere with its ability to serve the shareholders’ best interests.

Shareholders’ Ability to Call Special Meeting

Most state corporation statutes allow shareholders to call a special meeting when they want to take action on certain matters that arise between regularly scheduled annual meetings.

Vote Recommendation

	Vote AGAINST proposals to restrict or prohibit shareholder ability to call special meetings.

	Vote FOR proposals that remove restrictions on the right of shareholders to act independently of management.

Shareholders’ Ability to Alter Size of the Board

Proposals which would allow management to increase or decrease the size of the board at its own discretion are often used by companies as a takeover defense.

Shareholders should support management proposals to fix the size of the board at a specific number of directors, preventing management from increasing the size of the board without shareholder approval. By increasing the size of the board, management can make it more difficult for dissidents to gain control of the board.

Vote Recommendations

	Vote FOR proposal which seek to fix the size of the board.

	Vote AGAINST proposals which give management the ability to alter the size of the board without shareholder approval.

CHAPTER 6

MISCELLANEOUS
CORPORATE
GOVERNANCE
PROVISIONS

Confidential Voting

Confidential voting, also known as voting by secret ballot, is one of the key structural issues in the proxy system. All proxies, ballots, and voting tabulations that identify individual shareholders are kept confidential.

Vote Recommendations

	Vote FOR shareholder proposals requesting that corporations adopt confidential voting.

	Vote FOR management proposals to adopt confidential voting.

The following factors should be considered:

Some shareholders elect to have the board not know how they voted on certain issues.

Should the board be aware of how a shareholder voted, the board could attempt to influence the shareholder to change his/her vote, giving itself an advantage over those that do not have access to this information.

Confidential voting is an important element of corporate democracy which should be available to the shareholder.

Shareholder Advisory Committees

These proposals request that the corporation establish a shareholder advisory committee to review the board’s performance. In some instances, it would have a budget funded by the corporation and would be composed of salaried committee members with authority to hire outside experts and to include reports in the annual proxy statement.

Vote Recommendation

	Vote AGAINST proposals to establish a shareholder advisory committee.

The following factors should be considered:

Directors already have fiduciary responsibility to represent shareholders and are accountable to them by law, thus rendering shareholder advisory committees unnecessary.

Adding another layer to the current corporate governance system would be expensive and unproductive.

Foreign Corporate Matters

These proposals are usually submitted by companies incorporated outside of the United States seeking shareholder approval for actions which are considered ordinary business and do not require shareholder approval in the United States (i.e., declaration of dividends, approval of financial statements, etc.).

Vote Recommendation

	Vote FOR proposals that concern foreign companies incorporated outside of the United States.

The following factors should be considered:

The laws and regulations of various countries differ widely as to those issues on which shareholder approval is needed, usually requiring consent for actions which are considered routine in the United States.

The board of directors is well-positioned to determine whether or not these types of actions are in the best interest of the corporation’s shareholders.

Government Service List

This proposal requests that the board of directors prepare a list of employees or consultants to the company who have been employed by the government within a specified period of time and the substance of their involvement.

Solicitation of customers and negotiation of contractual or other business relationships is traditionally the responsibility of management. Compilation of such a list does not seem to serve a useful purpose, primarily because existing laws and regulations serve as a checklist on conflicts of interest.

Vote Recommendation

	Vote AGAINST these proposals which a request a list of employees having been employed by the government.

The following factors should be considered:

For certain companies, employing individuals familiar with the regulatory agencies and procedures is essential and, therefore, is in the best interests of the shareholders.

Existing laws and regulations require enough disclosure and serve as a check on conflicts of interest.

Additional disclosure would be an unreasonable invasion of such individual’s privacy.

CHAPTER 7

SOCIAL
AND
ENVIRONMENTAL
ISSUES

Energy and Environmental Issues
(CERES Principles)

CERES proposals ask management to sign or report on process toward compliance with ten principles committing the company to environmental stewardship. Principle 10 directs companies to fill out the CERES report. This report requires companies to disclose information about environmental policies, toxic emissions, hazardous waste management, workplace safety, energy use, and environmental audits.

Vote Recommendation

	Vote AGAINST proposals requesting that companies sign the CERES Principles.

The following factors should be considered:

We do not believe a concrete business case is made for this proposal. In our opinion, the company will be best served by continuing to carry on its business as it did before the proposal was made.

Northern Ireland
(MacBride Principles)

It is well documented that Northern Ireland’s Catholic community faces much higher unemployment figures than the Protestant community. Most proposals ask companies to endorse or report on progress with respect to the MacBride Principles.

In evaluating a proposal to adopt the MacBride Principles, you must decide if the principles will cause the company to divest, and worsen unemployment problems.

Vote Recommendation

	REFRAIN from voting on proposals that request companies to adopt the MacBride Principles.

The following factors should be considered:

We believe that human and political rights are of the utmost importance for their own sake as well as for the enhancement of economic potential of a nation.

We do not believe a concrete business case has been made for this proposal. We will refrain from making social or political statements by voting for these proposals. We will only vote on proposals that maximize the value of the issuers’ status without regard to (i.e., we will not pass judgment upon) the non-economic considerations.

Maquiladora Standards and
International Operations and Policies

Proposals in this area generally request companies to report on or to adopt certain principles regarding their operations in foreign countries.

The Maquiladora Standards are a set of guidelines that outline how U.S. companies should conduct operations in Maquiladora facilities just across the U.S.-Mexican border. These standards cover such topics as community development, environmental policies, health and safety policies, and fair employment practices.

Vote Recommendation

	ABSTAIN from providing a vote recommendation on proposals regarding the Maquiladora Standards and international operating policies.

The following factors should be considered:

We believe that human rights are of the utmost importance for their own sake as well as for the enhancement of economic potential of a nation.

We do not believe that a concrete business case has been made for these proposals. We will refrain from making social statements by voting for these proposals. We will not only vote on proposals that maximize the value of the issuers’ securities without regard to (i.e., we will not pass judgment upon) the non-economic considerations.

Equal Employment Opportunity
And Discrimination

In regards to equal employment and discrimination, companies without comprehensive EEO programs will find it hard to recruit qualified employees and find them at a long-term competitive disadvantage. Companies who are not carefully watching their human resource practices could also face lawsuits.

Vote Recommendation

	REFRAIN from voting on any proposals regarding equal employment opportunities and discrimination.

The following factors should be considered:

We feel that the hiring and promotion of employees should be free from prohibited discriminatory practices. We also feel that many of these issues are already subject to significant state and federal regulations.

Animal Rights

A Corporation is requested to issue a report on its progress towards reducing reliance on animal tests for consumer product safety.

Vote Recommendation

	REFRAIN from making vote recommendations on proposals regarding animal rights.

The following factors should be considered:

Needless cruelty to animals should never be tolerated. However, the testing of products on animals may be very important to the health and safety of consumers.

We also feel that this issue is already subject to significant state and federal regulation.

CHAPTER 8

CAPITAL
STRUCTURE

Common Stock Authorization

The ability to increase the number of authorized shares could accommodate the sale of equity, stock splits, dividends, compensation-based plans, etc. The board can usually be trusted to use additional shares for capital-raising and other transactions that are in the corporation’s best interests.

However, excessive escalation in the number of authorized shares may allow the board to radically change the corporation’s direction without shareholder approval. Be careful to view that the increased number of shares will not enable the company to activate a poison pill.

Vote Recommendation

	Vote Case-By-Case on proposals increase the number of shares of common stock authorized for issue.

	Vote AGAINST proposed common share authorization that increase existing authorization by more then 100 percent unless a clear need for the excess shares is presented by the company.

The following factors should be considered:

Is this company going to make frequent business acquisitions over a period of time?

Is the company expanding its operations?

Within the company, are there any debt structuring or prepackaged bankruptcy plans?

Blank Check Preferred Stock

The terms of blank check preferred stock give the board of directors the power to issue shares of preferred stock at their discretion, with voting, conversion, distribution and other rights to be determined by the board at the time of the issue.

Blank check preferred stock can provide corporations with the flexibility to meet changing financial conditions. However, once the blank check preferred stock has been authorized, the shareholders have no further power over how or when it will be allocated.

Vote Recommendation

	Vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights.

The following factors should be considered:

Blank check preferred stock can be used as the vehicle for a poison pill defense against hostile suitors, or it may be placed in friendly hands to help block a takeover bid.

Preemptive Rights

These proposals request that the corporation provide existing shareholders with an opportunity to acquire additional shares in proportion to their existing holdings whenever new shares are issued. In companies with a large shareholder base and ease in which shareholders could preserve their relative interest through purchases of shares on the open market, the cost of implementing preemptive rights does not seem justifiable in relation to the benefits.

Vote Recommendation

	Vote AGAINST proposals seeking preemptive rights.

The following factors should be considered:

The existence of preemptive rights can considerably slow down the process of issuing new shares due to the logistics involved in protecting such rights.

Preemptive rights are not necessary for the shareholder in today’s corporations, whose stock is held by a wide range of owners and is, in most cases, highly liquid.

Stock Distributions: Splits and Dividends

Stock Splits

The corporation requests authorization for a stock split.

Vote recommendation

	Vote FOR management proposal to authorize stock splits unless the split will result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the split.

Reverse Stock Splits

Vote Recommendation

	Vote FOR management proposal to authorize reverse stock split unless the reverse stock split results in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the reverse split.

Adjustments to Par Value of Common Stock

The purpose of par value stock is to establish the maximum responsibility of stockholder in the event that a corporation becomes insolvent. It represents the maximum amount that a shareholder must pay the corporation if the stock is to be fully paid when issued.

The corporation requests permission to reduce the par value of its stock. In most cases, adjusting par value is a routine financing decision and should be supported.

Vote Recommendation

	Vote FOR management proposals to reduce the par value of common stock.

The following factors should be considered:

State laws sometimes prohibit issuance of new stock priced below that of the outstanding shares.

A corporation may be unable to raise capital if the par value is overstated.

Debt Restructurings

The corporation may propose to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan.

Vote Recommendation

	It is our policy to vote CASE-BY-CASE on debt restructuring

The following factors should be considered:

Dilution - How much will ownership interest of existing shareholders be reduced and how extreme will dilution to future earnings be?

Change in Control - Will the transaction result in a change of control of the company?

Bankruptcy - Is the threat of bankruptcy, which would result in severe losses in shareholder value, the main factor driving the debt restructuring?

CHAPTER 9

EXECUTIVE
AND
DIRECTOR
COMPENSATION

Director Compensation

Directors represent shareholders and are responsible for protecting shareholder interests. Companies state in the proxy material that they pay directors well in order to attract the most qualified candidates. All compensation packages for any executive, director or employee should include a pay-for-performance component.

Vote Recommendation

	Vote on a CASE-BY-CASE basis for director compensation.

The following factors should be considered:

As directors take an increasingly active role in corporate decision-making and governance, their compensation is becoming more performance-based.

Shareholder Proposal to Limit Executive and Director Pay

Shareholder compensation proposals that set limits or reduce executive compensation should be closely scrutinized. Many of these proposals may be flawed in their emphasis on an absolute dollar figure in compensation.

Vote Recommendation

	Vote on a CASE-BY-CASE basis

The following factors should be considered:

Executive compensation is established by a committee that consists of independent directors who have fiduciary responsibility to act in the best interest of the shareholders and who are best placed to make compensation decisions.

Employee Stock Ownership Plans (ESOPs)

These proposals ask for stockholder endorsement of compensation plans for key employees which involve the issuance of company shares by granting of stock options, SARs, restricted stock, etc. These plans help attract and retain best-qualified corporate personnel and tie their interests more closely to those of the shareholders.

Vote Recommendation

	Vote FOR proposals to adopt share-based compensation plans when the following items are involved:

The exercise price for stock options is less than 85% of fair market value on the date of the grant.

It is an omnibus stock plan which gives directors broad discretion in deciding how much and what kind of stock to award, when and to whom.

The shares for issue exceed 8% of the company’s outstanding shares; or, in the case of the evergreen plans, the amount of increase exceeds 1.5% of the total number of shares outstanding.

	Vote AGAINST proposals adopting share based compensation plans when the following items are involved:

Re-load options (new options issued for any exercised).

The plan would allow for management to pyramid their holdings by using stock to purchase more stock, without having to lay out cash. Vote YES if this is for directors.

Options Expensing

Shareholder proposal to expense options.

Vote Recommendation

	It is our policy to vote FOR proposals to expense options

Golden Parachutes

Golden parachutes are designed to protect the employees of a corporation in the event of a change in control. The change in control agreement will specify the exact payments to be made under the golden parachutes. The calculation for payout is usually based on some multiple of an employee’s annual or monthly compensation. Golden parachutes are generally given to employees whose annual compensation exceeds $112,000.

Recent experience has shown a willingness of many managements to treat severance agreements as equal to equity investments and to reward themselves as if substantial amounts of equity were at risk.

Vote Recommendation

	Vote FOR proposals which seek to limit additional compensation payments.

	Vote FOR shareholder proposals to have golden parachutes submitted for shareholder ratification.

The following factors should be considered:

The stability of management may be affected by an attempted acquisition of the corporation.

There is a tendency on the part of an entrenched management to overstate the value of their continuing control of and influence on the day-to-day functions of a corporation.

Proposal to Ban Golden Parachutes

Based on the foregoing information:

Vote Recommendation

	We are FOR this proposal, which essentially bans golden parachutes, because we feel management’s compensation should be solely based on real-time contributions to the corporation while they are serving it. Deferred current compensation is viewed differently than future, contingent compensation for current services.

Outside Directors’ Retirement Compensation

We believe that directors should only be compensated while serving the company.

Vote Recommendations

	Vote AGAINST proposals establishing outside directors’ retirement compensation. Vote FOR proposals that revoke outside directors’ retirement compensation.

CHAPTER 10

STATE
OF
INCORPORATION

Control Share Acquisition Statutes

These proposals suggest that the board of directors solicit shareholder approval before committing acquisitions or divestiture of a business exceeding stipulated threshold levels. Such statutes function by denying shares their voting rights when they contribute to ownership in excess of certain thresholds.

Vote Recommendation

	Vote AGAINST proposals which request the board to seek shareholder approval before committing to an acquisition.

The following factors should be considered:

These proposals deprive the board of directors of its ability to act quickly in propitious circumstances.

Conforming to these requirements can be expensive.

The board of directors is uniquely qualified and positioned to be able to make these decisions without prior shareholder approval.

The threshold levels usually imposed by these proposals are much more stringent than required by law.

Opt-Out of State Takeover Statutes

These proposals seek shareholder approval to opt-out (not be governed by) certain provisions of the anti-takeover laws of various states. Delaware law, for instance, dictates that a bidder has to acquire at least 85% of a company’s stock before exercising control, unless he or she has board approval. This means that a company may thwart an otherwise successful bidder by securing 15% of its stock in friendly hands.

Vote recommendation

	Vote on a CASE-BY-CASE basis for these proposals.

The following factors should be considered:

It is the directors’ responsibility to act on behalf of the shareholders in opposing coercive takeover attempts.

Creating deterrents to corporate takeovers may allow for entrenchment of inefficient management.

These statutes strengthen the board’s ability to deal with potential buyers on fair and reasonable terms.

Shareholders should have the final say on whether the company should be merged or acquired.

Corporate Restructuring, Spin-Offs Asset Sales, Liquidations

Votes on corporate restructuring, spin-offs, asset sales and liquidations are evaluated on a case by case basis.

CHAPTER 11

CONFLICTS

INTEREST

Conflicts

From time to time, proxy voting proposals may raise conflicts between the interests of the Advisers’ clients and the interests of the Advisers, their affiliates and their employees. Conflicts of interest may arise when:

Proxy votes regarding non-routine matters are solicited by an issuer that may have a separate account relationship with an affiliate of an Adviser or an investment banking relationship with Oppenheimer & Co. Inc., an affiliate of the Advisers.

A proponent of a proxy proposal has a business relationship with an Adviser or one of its affiliates or an Adviser or one of its affiliates has a business relationship with participants in proxy contests, corporate directors or director candidates.

An employee of an Adviser has a personal interest in the outcome of a particular matter before shareholders.

If an Adviser receives a proxy that to the knowledge of the Proxy Manager raises a conflict of interest, the Proxy Manager shall advise the Governance Committee which shall determine whether the conflict is “material” to any specific proposal involved in the proxy. The Governance Committee will determine whether the proposal is material as follows:

Routine proxy proposals are presumed not to involve a material conflict of interest.

Non-routine proxy proposals-Proxy proposals that are “non-routine” will be presumed to involve a material conflict of interest Alkeon proxy policy, attached hereto as Exhibit A, is applicable unless the Governance Committee determines that the conflict is unrelated to the proposal. Non-routine proposals would include a merger, compensation matters for management and contested elections of directors.

Conflicts cont’d

The Governance Committee may determine on a case by case basis that particular non-routine proposals do not involve a material conflict of interest because the proposal is not directly related to an Adviser’s conflict vis-à-vis the issue. The Governance Committee will record the basis for any such determination. With respect to any proposal that the Governance Committee determines presents a material conflict of interest, an Adviser may vote regarding that proposal in any of the following ways:

Obtain instructions from the client on how to vote.

Use existing proxy guidelines if the policy with respect to the proposal is specifically addressed and does not involve a case by case analysis.

Vote the proposal that involves the conflict according to the recommendations of an independent third party, including, but not limited to, Institutional Share Services Inc. or Investor Responsibility Research Center.

CHAPTER 12

GOVERNANCE COMMITTEE

AND

PROXY MANAGERS

Governance Committee

The Governance Committee is responsible for the maintenance of the Proxy Voting Policies and Procedures and will determine whether any conflict between the interest of clients and an Adviser in voting proxies is material. The Governance Committee includes the following: (1) Managing Director, OAM Alternative Investments Group (2) Chief Compliance Officer and (3) Chief Legal Officer.

PROXY MANAGERS

The Proxy Manager for the Advisers is the director of OAM’s Hedge Fund Due Diligence Committee. The Proxy Manager will determine how votes will be cast on proposals that are evaluated on a case-by case basis.

CHAPTER 13

SPECIAL ISSUES WITH VOTING

FOREIGN PROXIES

Special Issues with Voting Foreign Proxies

Voting proxies with respect to shares of foreign stock may involve significantly greater effort and corresponding cost than voting proxies in the U.S domestic market. Issues in voting foreign proxies include the following:

Each country has its own rules and practices regarding shareholder notification, voting restrictions, registration conditions and share blocking.

In some foreign countries shares may be “blocked” by custodian or depository or bearer shares deposited with specific financial institutions for a certain number of days before or after the shareholders meeting. When blocked, shares typically may not be traded until the day after the blocking period. The Advisers may refrain from voting shares of foreign stocks subject to blocking restrictions where in an Adviser’s judgment, the benefit from voting the shares is outweighed by the interest in maintaining client liquidity in the shares. This decision is made on a case by case basis based on relevant factors including the length of the blocking period, the significance of the holding and whether the stock is considered a long-term holding.

Time frames between shareholder notification, distribution of proxy materials, book closures and the actual meeting date may be too short to allow timely action.

In certain countries, applicable regulations require that votes must be made in person at the shareholder meeting. The Advisers will weigh the costs and benefits of voting on proxy proposals in such countries on a case by case basis and make decisions on whether voting on a given proxy proposal is prudent. Generally, the Advisers will not vote shares in any such markets on routine matters such as uncontested elections of directors, ratification of auditors, etc.

CHAPTER 14

RECORD KEEPING

Record Keeping

The Advisers will maintain the following records:

Copies of these policies

A copy of each proxy statement that an Adviser receives regarding client securities. An Adviser may satisfy this requirement by relying on a third party to keep copies of proxy statements provided that the Adviser has an undertaking from the third party to provide a copy of the proxy statement promptly upon request.

A record of each vote cast on behalf of a client. A third party may keep these voting records provided that the Adviser has an undertaking from the third party to provide a copy of the record promptly upon request.

A copy of any document created by an Adviser that was material to making a decision on how to vote proxies or that memorializes the basis for that decision.

A copy of each written client request for information on how the Advisers voted proxies on behalf of the client and a copy of written response by an Adviser to any client request for information on how the Adviser voted proxies on behalf of the client.

The above records shall be maintained for five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the Advisers.

APPENDIX A

Adviser	Client	Policy

Advantage Advisers Management, L.L.C.	Advantage Advisers Global Growth, L.L.C. Alkeon Capital Management, L.L.C. (“Alkeon”) acts as portfolio manager.	Alkeon proxy policy, attached hereto as Exhibit A, is applicable.
Advantage Advisers Multi-Manager, L.L.C.	Advantage Advisers Global Growth, Ltd. Alkeon acts as portfolio manager.	Alkeon proxy policy, attached hereto as Exhibit A, is applicable.
	Advantage Advisers Xanthus Fund, L.L.C.	Alkeon proxy policy, attached hereto as Exhibit A, is applicable.
Advantage Advisers Private Equity Management, L.L.C.	General Partner to Advantage Advisers Private Equity Partners, L.P. (“COPEP”)	This policy is applicable.
Oppenheimer Alternative Investment Management, L.L.C.	Oppenheimer Capital Structures Opportunities Fund, L.P.	This policy is applicable.
	Oppenheimer Private Equity Fund I, L.P.	This policy is applicable.
	Oppenheimer Private Equity Offshore Fund I, L.P.	This policy is applicable.
	Oppenheimer Private Equity Co-Invest Fund I, L.P.	This policy is applicable.
	Oppenheimer Private Equity Co-Invest Offshore Fund I, L.P.	This policy is applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

(a)(1)

Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members

Mr. Panayotis (“Takis”) Sparaggis, the controlling person and Chief Investment Officer of Alkeon Capital Management, LLC, (“Alkeon”) has served since the Fund’s inception as the Fund’s principal portfolio manager (the “Portfolio Manager”) and is the lead member of Alkeon’s Investment Team. Other members of the Investment Team assist Mr. Sparaggis in his role as the Fund’s Portfolio Manager. Mr. Sparaggis founded Alkeon in December 2001. From May 1995 until the founding of Alkeon, Mr. Sparaggis was employed by CIBC World Markets Corp or its predecessors.

(a)(2)

Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest

Other Accounts Managed by Portfolio Manager(s) or Management Team Member

The table below includes details about the type, number, and assets under management for the various types of accounts, and total assets in the accounts with respect to which the advisory fee is based on the performance of the accounts that Mr. Sparaggis managed as of December 31, 2014:

Name of Portfolio Manager or Team Member	Type of Accounts	Total No. of Accounts Managed	Total Assets	No. of Accounts where Advisory Fee is Based on Performance	Total Assets in Accounts where Advisory Fee is Based on Performance
Panayotis Sparaggis	Registered Investment Companies:	2	$2,052,974,909	1	$2,048,331,021
	Other Pooled Investment Vehicles:	7	$2,858,629,772	6	$2,842,221,374
	Other Accounts:	0	$0	0	$0

Potential Conflicts of Interests

Actual or apparent conflicts of interest may arise when a Portfolio Manager also has day-to-day responsibilities with respect to one or more accounts. These potential conflicts include:

	·	Allocation of Limited Time and Attention. Because the Portfolio Manager manages other accounts, the Portfolio Manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as if the Portfolio Manager were to devote substantially more attention to the management of fewer accounts.

	·	Allocation of Investment Opportunities. If the Portfolio Manager identifies an investment opportunity that may be suitable for multiple accounts, the Fund may not be able to take full advantage of that opportunity because the opportunity may need to be allocated among all or many of these accounts.

	·	Pursuit of Differing Strategies. At times, the Portfolio Manager may determine that an investment opportunity may be appropriate for only some of the accounts for which he exercises investment responsibility, or may decide that certain of these accounts should take differing positions with respect to a particular security. In these cases, the Portfolio Manager may execute differing or opposite transactions for one or more accounts which may affect the market price of the security or the execution of the transactions, or both, to the detriment of one or more of his accounts.

	·	Performance Fees. The Portfolio Manager manages other accounts that are subject to a performance allocation or performance fee which in some cases may be greater than the fee payable by the Fund. This could create a conflict because the Portfolio Manager may benefit if a more attractive investment is allocated to an account that bears a greater performance allocation or fee.

(a)(3)

Compensation Structure of Portfolio Manager(s) or Management Team Members

Mr. Sparaggis’ compensation consists of periodic advances and the income from the profits of Alkeon Capital Management, LLC derived by him as its sole principal. The level of Alkeon

Capital Management’s profitability in turn is dependent on the advisory fees and performance fees and allocations received from the Fund and other advisory clients.

(a)(4)

Disclosure of Securities Ownership

The table below sets forth beneficial ownership of shares of the registrant by the Portfolio Manager as of December 31, 2014.

Name of Portfolio Manager or Team Member		Dollar ($) Range of Fund Shares Beneficially Owned

Panayotis Sparaggis		$0

(b)

Not applicable

Item 9.

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.

Item 11. Controls and Procedures.

(a)

The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s

second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1)

Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto.

	(a)(2)	Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

	(a)(3)	Not applicable.

	(b)	Not applicable.

(12.other)		Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)

Advantage Advisers Xanthus Fund, L.L.C.

By (Signature and Title)*	/s/ Bryan McKigney
	Bryan McKigney, Principal Executive Officer
	(principal executive officer)

Date

March 5, 2015

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/ Bryan McKigney
	Bryan McKigney, Principal Executive Officer
	(principal executive officer)

Date

March 5, 2015

By (Signature and Title)*	/s/ Vineet Bhalla
	Vineet Bhalla, Chief Financial Officer
	(principal financial officer)

Date

March 5, 2015

^* Print the name and title of each signing officer under his or her signature.

Advantage Advisers Xanthus Fund, L.L.C. N-CSRCertified annual shareholder report (management investment company)