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
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Advantage Advisers Xanthus Fund, LLC
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
200 Park Avenue, 24th Floor
New York, NY 10166
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(Address of principal executive offices) (Zip code)
Kenneth Gerstein
Schulte, Roth and Zabel LLP
919 3rd Avenue, 24th Floor
New York, NY 10022
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(Name and address of agent for service)
registrant's telephone number, including area code: 212-667-4225
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2005
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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. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
[ADVANTAGE ADVISERS LOGO]
Advantage Advisers
Xanthus Fund, L.L.C.
Financial Statements
with Report of Independent
Registered Public Accounting Firm
For the Year Ended December 31, 2005
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
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
Statement of Operations ................................................ 11
Statements of Changes in Members' Capital .............................. 12
Notes to Financial Statements .......................................... 13
Supplemental Information (Unaudited) ................................... 23
[ERNST & YOUNG LOGO] [_] Ernst & Young UP [_] Phone: (212) 773-3000
5 Times Square www.ey.com
New York, New York 10036-6530
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 and securities sold, not yet purchased,
as of December 31, 2005, and the related statement of operations for the year
then ended, and the statements of changes in members' capital for each of the
two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 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, 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, 2005, by correspondence with
the custodian and other brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advantage Advisers Xanthus
Fund, L.L.C. at December 31,2005, and the results of its operations for the year
then ended, and the changes in its members' capital for each of the two years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young
New York, New York
February 3, 2006
A Member Practice of Ernst & Young Global
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
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DECEMBER 31, 2005
ASSETS
Investments in securities, at market value (cost - $371,569,817) $376,287,398
Cash and cash equivalents 704,827
Due from broker 114,952,282
Receivable for investment securities sold 48,264,562
Interest receivable 515,071
Dividends receivable 190,152
Other assets 165,844
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TOTAL ASSETS 541,080,136
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LIABILITIES
Securities sold, not yet purchased, at market value (proceeds - $107,097,255) 110,153,602
Withdrawals payable 23,743,639
Payable for investment securities purchased 45,437,409
Administration fees payable 320,620
Dividends payable on securities sold, not yet purchased 197,427
Accounting and investor services fees payable 118,553
Accrued expenses 292,528
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TOTAL LIABILITIES 180,263,778
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NET ASSETS $360,816,358
============
MEMBERS' CAPITAL - NET ASSETS
Represented by:
Net capital contributions $359,155,124
Net unrealized appreciation on investments 1,661,234
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MEMBERS' CAPITAL - NET ASSETS $360,816,358
============
The accompanying notes are an integral part of these financial statements.
-2-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS
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DECEMBER 31, 2005
SHARES MARKET VALUE
COMMON STOCK - 104.29%
AGRICULTURAL CHEMICALS - 1.87%
87,180 Monsanto Co. $ 6,759,065
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APPLICATIONS SOFTWARE - 2.84%
292,110 Quest Software, Inc.* 4,261,885
163,580 Satyam Computer Services, Ltd. - Sponsored ADR 5,985,392
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10,247,277
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COMPUTER AIDED DESIGN - 1.39%
821,340 Parametric Technology Corp.* 5,010,174
------------
COMPUTER SERVICES - 1.82%
58,430 DST Systems, Inc.* 3,500,541
218,170 Perot Systems Corp., Class A* 3,084,924
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6,585,465
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COMPUTERS - 4.15%
522,810 Hewlett - Packard Co. (a) 14,968,050
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COMPUTERS - MEMORY DEVICES - 3.71%
116,840 SanDisk Corp.* 7,339,889
302,921 Seagate Technology (a) 6,055,391
------------
13,395,280
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COMPUTERS - PERIPHERAL EQUIPMENT - 2.28%
332,312 Synaptics, Inc.* 8,214,753
------------
CONSULTING SERVICES - 1.30%
162,810 Accenture Ltd., Class A (a) 4,700,325
------------
DECISION SUPPORT SOFTWARE - 1.62%
395,380 Wind River Systems, Inc.* 5,839,763
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DISTRIBUTION / WHOLESALE - 0.88%
72,460 Genuine Parts Co. 3,182,443
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DIVERSIFIED MANUFACTURING OPERATIONS - 2.65%
51,170 ITT Industries, Inc. 5,261,300
149,470 Tyco International, Ltd. 4,313,704
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9,575,004
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The accompanying notes are an integral part of these financial statements.
-3-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
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DECEMBER 31, 2005
SHARES MARKET VALUE
COMMON STOCK (CONTINUED)
E-COMMERCE / SERVICES - 2.78%
232,060 eBay, Inc.* $ 10,029,633
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ELECTRONIC COMPONENTS - MISCELLANEOUS - 1.64%
159,290 Jabil Circuit, Inc.* (a) 5,908,066
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ELECTRONIC COMPONENTS - SEMICONDUCTORS - 16.67%
1,189,870 ARM Holdings, Plc - Sponsored ADR (a) 7,389,093
296,937 Broadcom Corp., Class A* (a) 14,000,579
1,046,545 Conexant Systems, Inc.* 2,365,192
567,320 Freescale Semiconductor, Inc., Class A* (a) 14,290,791
92,334 Monolithic Power Systems, Inc.* 1,384,087
89,680 National Semiconductor Corp. 2,329,886
326,040 Texas Instruments, Inc. 10,456,103
184,562 Volterra Semiconductor Corp.* 2,768,430
205,330 Xilinx, Inc. 5,176,369
------------
60,160,530
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ELECTRONIC DESIGN AUTOMATION - 0.51%
217,250 Magma Design Automation, Inc.* 1,827,072
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ENERGY - ALTERNATE SOURCES - 1.39%
184,020 Suntech Power Holdings Co., Ltd. - Sponsored ADR* 5,014,545
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ENTERPRISE SOFTWARE / SERVICES - 3.08%
259,790 Micromuse, Inc.* 2,569,323
699,280 Oracle Corp.* 8,538,209
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11,107,532
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ENTERTAINMENT SOFTWARE - 2.59%
202,080 Activision, Inc.* (a) 2,776,579
118,995 Take-Two Interactive Software, Inc.* 2,106,211
187,082 THQ, Inc.* (a) 4,461,906
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9,344,696
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The accompanying notes are an integral part of these financial statements.
-4-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
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DECEMBER 31, 2005
SHARES MARKET VALUE
COMMON STOCK (CONTINUED)
HEALTH CARE COST CONTAINMENT - 2.30%
160,660 McKesson Corp. $ 8,288,449
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INDUSTRIAL AUDIO & VIDEO PRODUCTION - 1.85%
391,228 Dolby Laboratories, Inc., Class A* (a) 6,670,437
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MEDICAL - HMO - 1.30%
59,070 WellPoint, Inc.* 4,713,195
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MEDICAL LABS & TESTING SERVICE - 1.05%
70,110 Laboratory Corporation of America Holdings* 3,775,423
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MEDICAL - OUTPATIENT / HOME MEDICAL - 1.36%
203,280 Apria Healthcare Group, Inc.,* 4,901,081
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NETWORKING PRODUCTS - 3.38%
194,310 Atheros Communications, Inc.* 2,526,030
298,940 Cisco Systems, Inc.* 5,117,853
203,540 Juniper Networks, Inc.* 4,538,942
------------
12,182,825
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OIL COMPANIES - EXPLORATION & PRODUCTION - 1.67%
189,990 Chesapeake Energy Corp. 6,028,383
------------
PHARMACY SERVICES - 1.35%
87,270 Medco Health Solutions, Inc.* 4,869,666
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REGISTERED INVESTMENT COMPANY - 2.23%
179,850 iShares MSCI South Korea Index 8,048,288
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RETAIL - DISCOUNT - 2.27%
165,760 Costco Wholesale Corp. 8,200,147
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RETAIL - MAIL ORDER - 1.47%
122,680 Williams - Sonoma, Inc.* 5,293,642
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SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS - 6.61%
336,640 Linear Technology Corp. 12,142,605
117,350 Marvell Technology Group, Ltd.* (a) 6,582,161
The accompanying notes are an integral part of these financial statements.
-5-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2005
SHARES MARKET VALUE
COMMON STOCK (CONTINUED)
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS (CONTINUED)
159,980 Micrel, Inc.* $ 1,854,168
328,850 Taiwan Semiconductor Manufacturing Co., Ltd. -
Sponsored ADR 3,258,904
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23,837,838
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SEMICONDUCTOR EQUIPMENT - 5.30%
325,540 Lam Research Corp.* 11,615,267
86,661 Tessera Technologies, Inc.* 2,240,187
119,760 Varian Semiconductor Equipment Associates, Inc.* 5,261,057
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19,116,511
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TELECOMMUNICATION EQUIPMENT - 5.02%
181,780 ADC Telecommunications, Inc.* 4,057,329
292,110 Alcatel SA - Sponsored ADR* 3,622,164
292,120 Andrew Corp.* 3,134,448
683,740 Avaya, Inc.* 7,295,506
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18,109,447
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TELECOMMUNICATION EQUIPMENT FIBER OPTICS - 0.38%
584,230 JDS Uniphase Corp.* 1,378,783
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TELECOMMUNICATION SERVICES - 1.13%
174,540 RCN Corp.* 4,092,963
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TRANSPORT - SERVICES - 0.73%
112,990 Laidlaw International, Inc. 2,624,758
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WEB PORTALS / ISP - 0.66%
98,010 Sina Corp.* 2,367,922
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WIRELESS EQUIPMENT - 11.06%
321,320 American Tower Corp., Class A* 8,707,772
406,380 China Techfaith Wireless Communication Technology, Ltd.* 5,486,089
233,700 Nokia OYJ - Sponsored ADR 4,276,710
498,900 Powerwave Technologies, Inc.* 6,271,173
The accompanying notes are an integral part of these financial statements.
-6-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
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DECEMBER 31, 2005
SHARES MARKET VALUE
COMMON STOCK (CONTINUED)
WIRELESS EQUIPMENT (CONTINUED)
352,280 Qualcomm, Inc. $ 15,176,223
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39,917,967
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TOTAL COMMON STOCK (COST $371,454,270) $376,287,398
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CONTRACTS
PURCHASED OPTIONS - 0.00%: PUT OPTIONS - 0.00%: COMPUTER
GRAPHICS - 0.00%:
1,742 Trident Microsystems, Inc., 1/21/06, $12.50 $ 0
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TOTAL PUT OPTIONS (COST $115,547) 0
------------
TOTAL PURCHASED OPTIONS (COST $115,547) $ 0
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TOTAL INVESTMENTS IN SECURITIES (COST $371,569,817) - 104.29% $376,287,398
------------
OTHER ASSETS, LESS LIABILITIES - (4.29%)** (15,471,040)
------------
NET ASSETS - 100.00% $360,816,358
============
(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 $704,827 invested in a PNC Bank Money Market Account, which is
0.20% of net assets.
ADR American Depository Receipt
DECEMBER 31,
2005
PERCENTAGE OF
INVESTMENTS IN SECURITIES-BY INDUSTRY NET ASSETS (%)
- ------------------------------------ ----------------
Agricultural Chemicals 1.87
Applications Software 2.84
Computer Aided Design 1.39
Computer Graphics 0.00
Computer Services 1.82
Computers 4.15
Computers - Memory Devices 3.71
Computers - Peripheral Equipment 2.28
Consulting Services 1.30
Decision Support Software 1.62
Distributon / Wholesale 0.88
Diversified Manufacturing Operations 2.65
E-Commerce / Services 2.78
Electronic Components - Miscellaneous 1.64
Electronic Components - Semiconductors 16.67
Electronic Design Automation 0.51
Energy - Alternate Sources 1.39
Enterprise Software / Services 3.08
Entertainment Software 2.59
Health Care Cost Containment 2.30
DECEMBER 31,
2005
PERCENTAGE OF
INVESTMENTS IN SECURITIES-BY INDUSTRY NET ASSETS (%)
- ------------------------------------- ----------------
Industrial Audio & Video Production 1.85
Medical - HMO 1.30
Medical - Labs & Testing Service 1.05
Medical - Outpatient / Home Medical 1.36
Networking Products 3.38
Oil Companies - Exploration & Production 1.67
Pharmacy Services 1.35
Registered Investment Company 2.23
Retail - Discount 2.27
Retail - Mail Order 1.47
Semiconductor Components -
Integrated Circuits 6.61
Semiconductor Equipment 5.30
Telecommunication Equipment 5.02
Telecommunication Equipment Fiber Optics 0.38
Telecommunication Services 1.13
Transport - Services 0.73
Web Portals / ISP 0.66
Wireless Equipment 11.06
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Total Investment in Securities 104.29
======
The accompanying notes are an integral part of these financial statements.
-7-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2005
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED - (30.53%)
APPLICATIONS SOFTWARE - (0.21%)
23,270 Salesforce.com, Inc. $ (745,804)
----------
BEVERAGES - NON-ALCOHOLIC - (1.61%)
131,450 Coca-Cola Enterprises, Inc. (2,519,896)
114,380 Pepsi Bottling Group, Inc. (3,272,412)
----------
(5,792,308)
----------
CABLE TELEVISION - (2.20%)
232,060 Comcast Corp., Class A (6,014,996)
135,310 DIRECTV Group, Inc. (1,910,577)
----------
(7,925,573)
----------
CAPACITORS - (0.25%)
126,690 KEMET Corp. (895,698)
----------
CELLULAR TELECOMMUNICATIONS - (1.11%)
186,850 Vodafone Group Plc - Sponsored ADR (4,011,670)
----------
COMMERCIAL SERVICES - (0.94%)
68,640 Weight Watchers International, Inc. (3,392,875)
----------
COMMERCIAL SERVICES - FINANCE - (0.87%)
127,990 H&R Block, Inc. (3,142,155)
----------
COMPUTERS - (1.93%)
232,050 Dell, Inc. (6,949,898)
----------
CONSUMER PRODUCTS - MISCELLANEOUS - (0.46%)
75,960 American Greetings Corp., Class A (1,668,841)
----------
DECISION SUPPORT SOFTWARE - (0.56%)
58,430 Cognos, Inc. (2,028,105)
----------
E-COMMERCE / PRODUCTS - (0.94%)
71,890 Amazon.Com, Inc. (3,389,614)
----------
E-COMMERCE / SERVICES - (0.84%)
52,280 Ctrip.com International, Ltd. - Sponsored ADR (3,019,170)
----------
ELECTRIC PRODUCTS - MISCELLANEOUS - (0.44%)
61,480 Molex, Inc. (1,595,406)
----------
The accompanying notes are an integral part of these financial statements.
-8-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2005
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
ELECTRONIC COMPONENTS - MISCELLANEOUS - (1.04%)
143,140 AU Optronics Corp. - Sponsored ADR $ (2,148,531)
25,160 AVX Corp. (364,317)
58,420 LG Philips LCD Co., Ltd. - Sponsored ADR (1,253,693)
------------
(3,766,541)
------------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - (2.45%)
291,480 Fairchild Semiconductor International, Inc. (4,928,927)
87,640 Microsemi Corp. (2,424,122)
81,680 Semtech Corp. (1,491,477)
------------
(8,844,526)
------------
ELECTRONIC CONNECTORS - (0.80%)
65,380 Amphenol Corp., Class A (2,893,719)
------------
ELECTRONIC MEASURING INSTRUMENTS - (0.45%)
50,260 National Instruments Corp. (1,610,833)
------------
FOOD - MISCELLANEOUS / DIVERSIFIED - (1.37%)
175,360 Kraft Foods, Inc., Class A (4,939,891)
------------
HOME FURNISHINGS - (0.49%)
48,810 Ethan Allen Interiors, Inc. (1,783,029)
------------
MEDICAL - DRUGS - (2.82%)
147,090 Eli Lilly & Co. (8,323,823)
58,430 Merck & Co., Inc. (1,858,658)
------------
(10,182,481)
------------
MEDICAL INSTRUMENTS - (0.58%)
49,238 Ventana Medical Systems, Inc. (2,085,229)
------------
MULTIMEDIA - (0.76%)
57,110 E.W. Scripps Co., Class A (2,742,422)
------------
PUBLISHING - NEWSPAPERS - (0.49%)
58,720 Tribune Co. (1,776,867)
------------
PUBLISHING - PERIODICALS - (0.23%)
30,240 Dex Media, Inc. (819,202)
------------
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS - (1.77%)
224,380 Power Integrations, Inc. (5,342,488)
The accompanying notes are an integral part of these financial statements.
-9-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2005
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS (CONTINUED)
155,640 Semiconductor Manufacturing International Corp. -
Sponsored ADR $ (1,052,126)
-------------
(6,394,614)
-------------
SEMICONDUCTOR EQUIPMENT - (0.43%)
62,780 Formfactor, Inc. (1,533,715)
-------------
TELECOMMUNICATION EQUIPMENT - (0.43%)
163,710 Arris Group, Inc. (1,550,334)
-------------
TELEPHONE - INTEGRATED - (3.37%)
131,440 AT&T, Inc. (3,218,966)
87,260 CenturyTel, Inc. (2,893,542)
233,700 Qwest Communications International, Inc (1,320,405)
105,170 Telefonica S.A. - Sponsored ADR (4,734,753)
-------------
(12,167,666)
-------------
WEB PORTALS / ISP - (0.69%)
225,510 EarthLink, Inc. (2,505,416)
-------------
TOTAL SECURITIES SOLD, NOT YET PURCHASED
(PROCEEDS $107,097,255) $(110,153,602)
=============
DECEMBER 31,
2005
SECURITIES SOLD, NOT YET PURCHASED- PERCENTAGE OF
BY INDUSTRY NET ASSETS (%)
- ---------------------------------- ----------------
Applications Software (0.21)
Beverages Non-Alcoholic (1.61)
Cable Television (2.20)
Capacitors (0.25)
Cellular Telecommunications (1.11)
Commercial Services (0.94)
Commercial Services - Finance (0.87)
Computers (1.93)
Consumer Products - Miscellaneous (0.46)
Decision Support Software (0.56)
E-Commerce / Products (0.94)
E-Commerce / Services (0.84)
Electric Products - Miscellaneous (0.44)
Electronic Components - Miscellaneous (1.04)
Electronic Components - Semiconductors (2.45)
DECEMBER 31,
2005
SECURITIES SOLD, NOT YET PURCHASED- PERCENTAGE OF
BY INDUSTRY NET ASSETS (%)
- ----------------------------------- ----------------
Electronic Connectors (0.80)
Electronic Measuring Instruments (0.45)
Food - Miscellaneous / Diversified (1.37)
Home Furnishings (0.49)
Medical - Drugs (2.82)
MEDICAL INSTRUMENTS (0.58)
Multimedia (0.76)
Publishing - Newspapers (0.49)
Publishing - Periodicals (0.23)
Semiconductor Components -
Integrated Circuits (1.77)
Semiconductor Equipment (0.43)
Telecommunication Equipment (0.43)
Telephone - Integrated (3.37)
Web Portals / ISP (0.69)
------
Total Securities Sold, Not Yet Purchased (30.53)
======
The accompanying notes are an integral part of these financial statements.
-10-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 2005
INVESTMENT INCOME
Interest $ 3,481,449
Dividends, net of withholding taxes of $96,501 1,822,831
Other income 15,845
------------
5,320,125
-----------
EXPENSES
Administration fees 3,761,181
Dividends on securities sold, not yet purchased 1,994,510
Prime broker fees 1,674,510
Accounting and investor services fees 400,546
Audit and tax fees 202,842
Insurance expense 200,593
Legal fees 174,028
Custodian fees 124,399
Printing expense 61,578
Board of Managers' fees and expenses 50,500
Registration expense 33,780
Miscellaneous 40,939
-----------
TOTAL EXPENSES 8,719,406
-----------
NET INVESTMENT LOSS (3,399,281)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
REALIZED GAIN ON INVESTMENTS:
Investment securities 46,799,538
Written options 176,987
Securities sold, not yet purchased 328,377
-----------
NET REALIZED GAIN ON INVESTMENTS 47,304,902
NET CHANGE IN UNREALIZED DEPRECIATION ON INVESTMENTS (5,129,531)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 42,175,371
-----------
NET INCREASE IN MEMBERS' CAPITAL DERIVED FROM INVESTMENT ACTIVITIES $38,776,090
===========
The accompanying notes are an integral part of these financial statements.
-11-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
- ---------------------------------------------------------------------------------------------------------------------------
SPECIAL
ADVISORY
MEMBER MEMBERS TOTAL
----------- ----------- -----------
MEMBERS' CAPITAL, DECEMBER 31, 2003 $ -- $502,520,697 $502,520,697
------------ ------------- -------------
FROM INVESTMENT ACTIVITIES
Net investment loss -- (6,303,566) (6,303,566)
Net realized loss on investments -- (15,588,707) (15,588,707)
Net change in unrealized depreciation on
investments -- (16,332,352) (16,332,352)
Incentive allocation 1,074 (1,074) --
------------ ------------- -------------
NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES 1,074 (38,225,699) (38,224,625)
------------ ------------- -------------
MEMBERS' CAPITAL TRANSACTIONS
Capital contributions -- 59,181,520 59,181,520
Capital withdrawals (1,074) (133,715,420) (133,716,494)
------------ ------------- -------------
NET DECREASE IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS (1,074) (74,533,900) (74,534,974)
------------ ------------- -------------
MEMBERS' CAPITAL, DECEMBER 31, 2004 $ -- $389,761,098 $389,761,098
------------ ------------- -------------
FROM INVESTMENT ACTIVITIES
Net investment loss $ -- $ (3,399,281) $ (3,399,281)
Net realized gain on investments -- 47,304,902 47,304,902
Net change in unrealized depreciation on
investments -- (5,129,531) (5,129,531)
Incentive allocation 3,335,825 (3,335,825) --
------------ ------------- -------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES 3,335,825 35,440,265 38,776,090
------------ ------------- -------------
MEMBERS' CAPITAL TRANSACTIONS
Capital contributions -- 20,092,791 20,092,791
Capital withdrawals (3,335,825) (84,477,796) (87,813,621)
------------ ------------- -------------
NET DECREASE IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS (3,335,825) (64,385,005) (67,720,830)
------------ ------------- -------------
MEMBERS' CAPITAL, DECEMBER 31, 2005 $ -- $360,816,358 $360,816,358
------------ ------------- -------------
The accompanying notes are an integral part of these financial statements.
-12-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005
- --------------------------------------------------------------------------------
1. 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 Limited
Liability Company Agreement dated as of June 5, 2003. The Company's
investment objective is to achieve maximum capital appreciation. It
pursues this objective by actively investing in a portfolio consisting
primarily of equity securities of technology companies and of companies
which derive a major portion of their revenue directly or indirectly
from technological events and advances. The Company's portfolio of
securities in the technology area is expected to include long and short
positions primarily in equity securities 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 ("Board of Managers"). There are six
members of the Board of Managers, one of whom is considered an
"interested person" under the Act. The Company's investment adviser is
Advantage Advisers Management, L.L.C., a Delaware limited liability
company (the "Adviser"). The Adviser is a subsidiary of Oppenheimer
Asset Management Inc. ("OAM") and an affiliate of Oppenheimer & Co.
Inc. ("Oppenheimer"). The Adviser is responsible for managing the
Company's investment activities pursuant to an investment advisory
agreement dated June 5, 2003. OAM is the managing member of the
Adviser, and Alkeon Capital Management L.L.C. ("Alkeon") is a
non-managing member of the Adviser. Investment professionals employed
by Alkeon, including Mr. Takis Sparaggis, who serves as the Company's
portfolio manager, manage the Company's portfolio on behalf of the
Adviser under the supervision of OAM. Oppenheimer has a minority profit
participation interest in Alkeon.
The acceptance of initial and additional contributions from Members is
subject to approval by the Board of Managers. From January 1, 2004 to
December 31, 2004, new Members were not accepted into the Company,
although existing Members as of December 31, 2003 were allowed to make
additional contributions. At a meeting held on November 1, 2004, the
Board of Managers approved the acceptance of initial contributions by
the Company from new members on or after January 1, 2005. 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 their
complete and exclusive discretion. The Adviser expects that generally
it will recommend to the Board of Managers that the Company offer to
repurchase interests from Members twice each year, effective at 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.
-13-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires the Adviser to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The Adviser believes that
the estimates utilized in preparing the Company's financial statements
are reasonable and prudent; however, actual results could differ from
these estimates.
A. REVENUE RECOGNITION
Securities transactions, including related revenue and expenses, are
recorded on a trade-date basis, and 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.
B. 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 those
securities traded on NASDAQ) shall be valued:
(1) at their last composite sale prices 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
prices for securities held long, or their composite asked
prices for securities sold, not yet purchased, as reported by
those exchanges.
(ii)Securities traded on NASDAQ shall be valued:
(1) at the NASDAQ Official Closing Price ("NOCP") (which is the
last trade price at or before 4:00 PM (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
-14-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. PORTFOLIO VALUATION (CONTINUED)
(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 will be valued at
their last sale prices on the exchange where such securities are
primarily traded, or in the absence of a reported sale on a particular
day, at their bid prices (in the case of securities held long) or asked
prices (in the case of securities sold, not yet purchased) as reported
by such exchange. Listed options will be valued at their bid prices (or
asked prices 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 will
be valued at their bid prices (or asked prices 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, securities and other assets will be valued at
fair value as determined in good faith by, or under the supervision of,
the Board of Managers.
Debt securities will be valued in accordance with the procedures
described above, which with respect to such securities may include the
use of 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. The Board of
Managers will periodically monitor the reasonableness of valuations
provided by any such pricing service. Debt securities with remaining
maturities of 60 days or less will, absent unusual circumstances, be
valued at amortized cost, so long as such valuation is determined by
the Board of Managers to represent fair value.
All assets and liabilities initially expressed in foreign currencies
will be 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
such 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 such 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 will be valued at fair value as determined
in good faith by, or under the supervision of, the Board of Managers.
-15-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. PORTFOLIO VALUATION (CONTINUED)
Fair value shall take into account the 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 the
Adviser 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 the Adviser and the valuation method used by the
Adviser 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 the Adviser; 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 under Statement of Financial Accounting Standards
No. 107, "Discloses about Fair Value of Financial Instruments,"
approximates the carrying amounts presented in the Statement ofAssets,
Liabilities and Members' Capital.
C. CASH EQUIVALENTS
The Company treats all highly liquid financial instruments that mature
within three months at the time of purchase as cash equivalents. At
December 31, 2005, $704,827 in cash equivalents was held at PNC Bank.
D. INCOME TAXES
No provision for the payment of Federal, state or local income taxes on
the profits of the Company is made as the Members are individually
liable for the income taxes on their share of the Company's income.
The Company has reclassified ($3,399,281) and $47,304,902 from
accumulated net investment loss and accumulated net realized gain on
investments, respectively, to net capital contributions during the year
ended December 31, 2005. This reclassification was a result of
permanent book to tax differences to reflect, as an adjustment to net
capital contributions, the amounts of taxable loss and net realized
gain on investments that have been allocated to the Company's Members
and had no effect on net assets.
3. ADMINISTRATION FEE, RELATED PARTY TRANSACTIONS AND OTHER
Oppenheimer provides certain administrative services to the Company
including, among other things, providing office space and other support
services. In exchange for such services, the Company pays Oppenheimer a
monthly administration fee of 0.08333% (1% on an annualized basis) of
the Company's net assets determined as of the beginning of the month.
-16-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
3. ADMINISTRATION FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
During the year ended December 31, 2005, Oppenheimer earned $221,800 as
brokerage commissions from portfolio transactions executed on behalf of
the Company. Mainsail Group, L.L.C., a broker-dealer affiliate of
Alkeon, earned $1,054,243 as brokerage commissions from portfolio
transactions executed on behalf of the Company.
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. The Adviser, in its capacity as the
Special Advisory Member of the Company, 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, of 20% of the amount by which net profits, if any, exceed the
positive balance in the Member's "loss recovery account." The Incentive
Allocation is credited to the Special Advisory Account of the Adviser.
By the last business day of the month following the date on which an
Incentive Allocation is made, the Adviser 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, 2005, an Incentive Allocation of $3,335,825 was credited
to the Special Advisory Member's capital account.
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 $5,000 plus a fee for each meeting attended. Any
Manager who is an "interested person" does 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.
PFPC Trust Company (the "Custodian") serves as custodian of the
Company's assets.
PFPC Inc. ("PFPC") serves as investor services and accounting agent to
the Company and in that capacity provides certain accounting,
recordkeeping and investor related services. The Company pays PFPC an
accounting and investor services fee based primarily on the average net
assets of the Company as of the last day of each month, payable
monthly, subject to a minimum annual fee.
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 of up to 3%
(up to 3.1% of the amount invested) in connection with a purchase of
interests, at its discretion. For the year ended December 31, 2005,
such sales commissions earned by Oppenheimer amounted to $23,650.
-17-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
4. 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.
5. SECURITIES TRANSACTIONS
Aggregate purchases and sales of investment securities, excluding
short-term securities, for the year ended December 31, 2005, amounted
to $1,619,963,725 and $1,742,832,458, respectively. Aggregate purchases
and sales of securities sold, not yet purchased, excluding short-term
securities, for the year ended December 31, 2005, amounted to
$733,503,939 and $720,202,262, respectively.
At December 31, 2005, the aggregate cost for Federal income tax
purposes of portfolio investments and securities sold, not yet
purchased was $375,525,790, and $106,579,426, respectively.
For Federal income tax purposes, at December 31, 2005, accumulated net
unrealized depreciation on portfolio investments and securities sold,
not yet purchased was $2,928,116, consisting of $16,343,541 gross
unrealized appreciation and $19,271,657 gross unrealized depreciation.
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, 2005.
6. SHORT-TERM BORROWINGS
The Company has the ability to trade on margin and, in that connection,
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 as collateral for the margin
borrowings, which are maintained in a segregated account held by the
Custodian. As of and for the year ended December 31, 2005, the Company
had no outstanding margin borrowings.
-18-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF
CREDIT RISK
In the normal course of business, the Company may trade various
financial instruments and enter into various investment activities with
off-balance sheet risk. These financial instruments include options and
securities sold, not yet purchased. Generally, these financial
instruments represent future commitments to purchase or sell other
financial instruments 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 exceed the amount indicated in the statement of
assets, liabilities and members' capital.
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.
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 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. 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 an option written by the Company 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, 2005,
transactions in written options were as follows:
-19-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
CALL OPTIONS PUT OPTIONS
--------------------------------- ----------------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
------------ --------- ------------ ---------
Beginning balance -- $ -- -- $ --
Options written 291 48,595 1,162 130,138
Options closed (291) (48,595)
Options exercised -- -- -- --
Options expired -- -- (1,162) (130,138)
Options split -- -- -- --
--------- --------- --------- ---------
Written options outstanding
as of December 31, 2005 -- $ -- -- $ --
========= ========= ========= =========
-20-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------
8. FINANCIAL HIGHLIGHTS
The following represents the ratios to average net assets and other
supplemental information for each period indicated:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ------------ ------------- ------------- -------------
Net assets, end of period
(000s) $ 360,816 $ 389,761 $ 502,521 $ 338,197 $ 395,087
Ratio of net investment
income (loss) to average
net assets** (0.91)% (1.35%) (1.31%) (0.72%) 0.80%
Ratio of expenses to
average net assets** 2.33% 2.13% 1.88% 1.80% 1.99%
Ratio of incentive
allocation to average
net assets 0.89% 0%+ 5.29% 0%+ 0.07%
Portfolio turnover 365% 323% 398% 763% 688%
Total return - gross* 11.47% (6.58%) 41.66% (5.44%) (0.15%)
Total return - net* 9.18% (6.58%) 33.33% (5.44%) (0.15%)
Average debt ratio N/A 0.77% 0.70% N/A N/A
* 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.
N/A Not applicable
+ Less than 0.01%
-21-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (CONCLUDED)
- --------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS
Subsequent to December 31, 2005 and through February 3, 2006, the
Company received initial and additional capital contributions from
Members of $4,293,970.
-22-
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 inception through December 31, 2005 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 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.
-23-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
Information pertaining to the Managers is set forth below. The Statement of
Additional Information (SAI) includes additional information about the Company
is available without charge, upon request, by calling Oppenheimer Asset
Management Inc. collect at (212) 667-4225.
INDEPENDENT MANAGERS
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, AGE, ADDRESS 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
- ---------------------------- -------------- ----------------------------------------------- --------------
Luis Rubio, 50 Indefinite; President of Centro de Investigacion Para el 9
c/o Oppenheimer Asset Since Desarrollo, A.C. (Center of Research Development)
Management Inc. May 2003 (2000 to present) and Director of same 1984 -
200 Park Avenue 2000); Adjunct Fellow of the Center for Strategic
New York, NY 10166 and International Studies; Member of the Advisory
Manager Board of the National Council of Science and
Technology of Mexico (1993 to present); Director
of the Human Rights Commission of Mexico City
(1994 to 2002; Director of The Asia Tigers Fund,
Inc. and The India Fund, Inc.*; Manager of
Advantage Advisers Augusta Fund, L.L.C., Advantage
Advisers Catalyst International, Ltd., Advantage
Advisers Multi-Sector Fund I, Advantage Advisers
Technology Partners, L.L.C., Advantage Advisers
Technology International, Ltd., Advantage Advisers
Troon Fund, L.L.C., Advantage Advisers Whistler
Fund, L.L.C., Advantage Advisers Whistler
International, Ltd. and Advantage Advisers Xanthus
Fund, L.L.C., which are affiliates.
Janet L. Schinderman, 54 Indefinite; Associate Dean for Special Projects and 5
c/o Oppenheimer Asset Since Secretary to the Board of Overseers at Columbia
Management Inc. May 2003 Business School since 1990; Manager of
200 Park Avenue Advantage Advisers Augusta Fund, L.L.C.,
New York, NY 10166 Advantage Advisers Multi-Sector Fund I,
Manager Advantage Advisers Troon Fund, L.L.C.,
Advantage Advisers Whistler Fund, L.L.C., and
Advantage Advisers Xanthus Fund L.L.C., which
are affiliates.
-24-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
INDEPENDENT MANAGERS
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, AGE, ADDRESS 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
- ---------------------------- -------------- ----------------------------------------------- --------------
Lawrence Becker, 50 Indefinite; Private investor in real estate investment 5
c/o Oppenheimer Asset Since management concerns. From February 2000 through
Management Inc. October 2003 June 2003, he was V.P.--Controller/ Treasurer
200 Park Avenue for National Financial Partners, which
New York, NY 10166 specializes in financial services distribution.
Manager 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 treasurer
of The France Growth Fund, Inc.; Director of
the Asia Tigers Fund, Inc. and The India Fund
Inc.*; Manager of Advantage Advisers Augusta
Fund, L.L.C., Advantage Advisers Multi-Sector
Fund I, Advantage Advisers Troon Fund, L.L.C.,
Advantage Advisers Whistler Fund, L.L.C., and
Advantage Advisers Xanthus Fund, L.L.C., which
are affiliates.
Jesse H. Ausubel, 54 Indefinite; Director, Program for the Human Environment and 2
c/o Oppenheimer Asset Since Senior Research Associate, The Rockefeller
Management Inc. May 1999 University (1993 to present); Director, Richard
200 Park Avenue Lounshery Foundation (1997 to present); Program
New York, NY 10116 Director, Alfred P. Sloan Foundation (1994 to
Manager present); Adjunct Scientist, Woods Hole
Oceanographic Institution (1995 to present).
Mr. Ausubel is a Manager of Advantage Advisers
Whistler Fund, L.L.C., and Advantage Advisers
Xanthus Fund, L.L.C.
-25-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
INDEPENDENT MANAGERS
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, AGE, ADDRESS 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
- ---------------------------- -------------- ----------------------------------------------- --------------
James E. Buck, 69 Indefinite; since Retired: Senior Vice President and Corporate 2
c/o Oppenheimer Asset April 2003 Secretary of the New York Stock Exchange, Inc.
Management Inc. (the "Exchange") and the subsidiaries of the
200 Park Avenue Exchange, including the NYSE Foundation. Mr.
New York, NY 10116 Buck is a Manager of Advantage Advisers
Manager Whistler Fund, L.L.C. and Advantage Advisers
Xanthus Fund, L.L.C.
Sol Gittleman
resigned as a Manager of the Company effective as of August 16, 2005.
INTERESTED TRUSTEE
Bryan McKigney,** 47, Indefinite; Mr. McKigney is a Managing Director and the 5
c/o Oppenheimer Asset Manager since Chief Administrative Officer of Oppenheimer
Management Inc. December 1, 2004; Asset Management Inc. He has been in the
200 Park Avenue President and financial services industry since 1981 and has
New York, NY 10166 CEO since held various management positions at Canadian
Manager, President, CEO September 23, 2004 Imperial Bank of Commerce (1993 - 2003) and the
Chase Manhattan Bank N.A. (1981 - 1993). He
serves as Manager of Advantage Advisers Augusta
Fund, L.L.C., Advantage Advisers Multi-Sector
Fund I, Advantage Advisers Troon Fund, L.L.C.,
Advantage Advisers Whistler Fund, L.L.C., and
Advantage Advisers Xanthus Fund, L.L.C., which
are affiliates.
-26-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
COMPANY OFFICERS
In accordance with the Declaration of Trust, the Board has selected the
following persons to serve as officers of the Company:
TERM OF OFFICE
NAME, AGE,(1) ADDRESS AND AND LENGTH OF PRINCIPAL OCCUPATION(S)
POSITION(S) WITH THE COMPANY TIME SERVED DURING PAST 5 YEARS
- -------------------------- -------------- --------------------------------------------------------
Vineet Bhalla, 45, One year; Mr. Bhalla has been a Senior Vice President at Oppenheimer
Chief Financial Officer Since Asset Management since May 2005. From July 2002 to May 2005,
July 27, 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.
Stephen C. Beach, 52, One year; Since February 2005, Mr. Beach has been the Chief Compliance
Chief Compliance Officer Since Officer for Oppenheimer Asset Management. Prior to that, he
March 18, 2005. had his own law firm with a focus on mutual funds, investment
advisers and general securities law, beginning in 2001. Mr.
Beach obtained an LL.M. in Taxation at Temple University
School of Law during the period 1999 - 2001.
Deborah Kaback, 54 One year; Ms. Kaback has been a Senior Vice President at Oppenheimer
Chief Legal Officer and Since Asset Management since June 2003. She was Executive Director
Vice President July 23, 2003 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.
-27-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
TERM OF OFFICE
NAME, AGE,(1) ADDRESS AND AND LENGTH OF PRINCIPAL OCCUPATION(S)
POSITION(S) WITH THE COMPANY TIME SERVED DURING PAST 5 YEARS
- -------------------------- -------------- --------------------------------------------------------
Bryan McKigney, 47, One year term for Mr. McKigney is a Managing Director and the Chief
c/o Oppenheimer Asset President and Administrative Officer of Oppenheimer Asset Management Inc. He
Management Inc. CEO; since has been in the financial services industry since 1981 and has
200 Park Avenue September 23, 2004. held various management positions at Canadian Imperial Bank of
New York, NY 10166 Indefinite term for Commerce (1993 - 2003) and the Chase Manhattan Bank N.A. (1981
President, CEO, and Manager Manager; since - 1993). He serves as Manager of Advantage Advisers Augusta
December 1, 2004; Fund, L.L.C., Advantage Advisers Multi-Sector Fund I,
Advantage Advisers Troon Fund, L.L.C., Advantage Advisers
Whistler Fund, L.L.C., and Advantage Advisers Xanthus Fund,
L.L.C., which are affiliates.
* Effective December 4, 2005, The Asia Tigers Fund, Inc. and The India Fund,
Inc. were no longer affiliated with Oppenheimer.
** "Interested Person" of the Fund as defined in the 40 Act. Mr. McKigney is
an interested person due to his position as President and Chief Executive
Officer of the Fund and as a Managing Director and the Chief Administrative
Officer of Oppenheimer Asset Management Inc., which is a corporate parent
of the managing member of the Investment Adviser.
(1) The address of each officer is c/o Oppenheimer Asset Management, 200 Park
Avenue, 24th Floor, New York, New York 10166.
(2) Officers are not compensated by the Company.
-28-
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.
The registrant's board of directors has determined that the registrant has at
least one audit committee financial expert serving on its audit committee, Mr.
Lawrence Becker, and that Mr. Becker is "independent." Mr. Becker was elected as
a non-interested Director of the registrant and as Chairman of the Audit
Committee at a meeting of the board of directors held on October 30, 2003.
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
$136,425 for 2005 and $127,500 for 2004.
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 $3,500 for 2005 and $3,500
for 2004. Such services provided related to the review of the
registrant's semi-annual report.
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 $0 for 2005 and $92,500
for 2004. Such services included tax compliance services provided to
the registrant.
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 2005 and $0 for 2004.
(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 $300,479 for 2005 and $1,652,614 for 2004.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
ALKEON CAPITAL MANAGEMENT, LLC
PROXY VOTING POLICIES AND PROCEDURES
As of February 27, 2006
I. POLICY
Proxy voting is an important right of shareholders and reasonable care and
diligence must be undertaken to ensure that such rights are properly and timely
exercised. When Alkeon Capital Management, LLC ("Alkeon") has discretion to vote
the proxies of its clients, it will vote those proxies in the best interest of
its clients and in accordance with these policies and procedures.
II. PROXY VOTING PROCEDURES
(a) All proxies received by Alkeon will be sent to Alkeon"s Compliance
Officer, currently Greg Jakubowsky. The Compliance Officer will:
(1) Keep a record of each proxy received;
(2) Determine if there are any routine proposals and vote them
accordingly (see Section III). If there are non-routine proposals, the
Compliance Officer will then forward the proxy to the Portfolio Manager or
Analyst responsible for that given security;
(3) Determine which accounts managed by Alkeon hold the security to
which the proxy relates;
(4) Provide the Portfolio Manager or Analyst with the date by which
Alkeon must vote the proxy in order to allow enough time for the completed proxy
to be submitted to the issuer prior to the vote taking place.
(5) Absent material conflicts (see Section IV), the Portfolio Manager
or Analyst will determine how Alkeon should vote the proxy. The Portfolio
Manager or Analyst will send his or her decision on how Alkeon will vote a proxy
to the Compliance Officer. The Compliance Officer is responsible for completing
the proxy and entering the vote information in the ADP ProxyEdge system, or
mailing the proxy in a timely manner if ADP ProxyEdge is not available.
III. VOTING GUIDELINES
In the absence of specific voting guidelines from the client, Alkeon will
vote proxies in the best interests of each particular client, which may result
in different voting
results for proxies for the same issuer. Alkeon believes that voting proxies in
accordance with the following guidelines is in the best interest of its clients.
o Generally, Alkeon will vote in favor of routine corporate housekeeping
proposals, including election of directors (where no corporate
governance issues are implicated) and selection of auditors.
o Generally, Alkeon will vote against proposals that make it more
difficult to replace members of the issuer's board of directors,
including proposals to stagger the board, cause management to be over
represented on the board, introduce cumulative voting, introduce
unequal voting rights, and create supermajority voting.
o Alkeon has determined that in most cases it will vote for the
expensing of stock options as the consensus feeling is that options
are an actual expense of a given issuer unless in extraordinary
circumstances approved by the Compliance Officer.
For other proposals, Alkeon shall determine whether a proposal is in the
best interests of its clients and may take into account the following factors,
among others:
(1) whether the proposal was recommended by management and Alkeon's opinion
of management;
(2) whether the proposal acts to entrench existing management; and
(3) whether the proposal fairly compensates management for past and future
performance.
IV. CONFLICTS OF INTEREST
(1) The Compliance Officer will identify any conflicts that exist between
the interest of Alkeon and its clients. This examination will include a review
of the relationship of Alkeon and its affiliates with the issuer of each
security and any of the issuer's affiliates to determine if the issuer or its
management is a client of Alkeon or an affiliate of Alkeon or has some other
relationship with Alkeon or a client of Alkeon. Examples of conflicts would be
voting on any security of Oppenheimer & Co Inc., as Alkeon manages funds
sponsored by the entity.
(2) If a material conflict exists, the Compliance Officer will determine
whether voting in accordance with the voting guidelines and factors described
above is in the best interest of the client. The Compliance Officer will ensure
that all proposals are voted in the best interest of the client by having all
material conflicts reviewed by a proxy voting committee consisting of the
Compliance Officer and two Portfolio Managers.
V. DISCLOSURE
(a) Alkeon will disclose in its Form ADV Part II that clients may contact
the Compliance Officer via e-mail at gjakubowsky@alkeoncapital.com or telephone
at (212) 389-8710 in order to obtain information on how Alkeon voted such
client's proxies, and to request a copy of these policies and procedures. If a
client requests this information, the Compliance Officer will prepare a report
to the client that lists, with respect to each voted proxy that the client has
inquired about, (1) the name of the issuer; (2) the proposal voted upon and (3)
how Alkeon voted the client's proxy.
(b) A concise summary of these Proxy Voting Policies and Procedures will be
included in Alkeon's Form ADV Part II, and will be updated whenever these
policies and procedures are updated. The Compliance Officer will arrange for a
copy of this summary to be sent to all existing clients either as a separate
mailing or along with a periodic account statement or other correspondence sent
to clients.
VI. RECORDKEEPING
The Compliance Officer will maintain files relating to Alkeon's proxy
voting procedures in Alkeon's office at 350 Madison Avenue, 9th Floor, New York,
NY 10017. Records will be maintained and preserved for five years from the end
of the fiscal year during which the last entry was made on a record, with
records for the first two years kept in the offices of Alkeon. Records of the
following will be included in the files:
(a) Copies of these proxy voting policies and procedures, and any
amendments thereto.
(b) A copy of each proxy statement that Alkeon receives, provided however
that Alkeon may rely on obtaining a copy of proxy statements from the SEC's
EDGAR system for those proxy statements that are so available.
(c) A record of each vote that Alkeon casts on behalf of clients.
(d) A copy of each written client request for information on how Alkeon
voted such client's proxies, and a copy of any written response to any (written
or oral) client request for information on how Alkeon voted its proxies.
(e) A copy of any document Alkeon created that was material to making a
decision how to vote proxies, or that memorializes the basis for decision.
ADVANTAGE ADVISERS, L.L.C.
ADVANTAGE ADVISERS MANAGEMENT, L.L.C.
ADVANTAGE ADVISERS MULTI-MANAGER, L.L.C.
ADVANTAGE ADVISERS PRIVATE EQUITY MANAGEMENT, L.L.C.
TROON MANAGEMENT, L.L.C.
OPPENHEIMER CATALYST MANAGEMENT, L.P.
PROXY VOTING POLICIES AND PROCEDURES
1
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
-------------------------------------------------------------------------------------------------------
2
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
-------------------------------------------------------------------------------------------------------
3
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, L.L.C., Advantage Advisers Management, L.L.C., Advantage
Advisers Multi-Manager, L.L.C., Advantage Advisers Private Equity Management,
L.L.C., Advantage Advisers Augusta Management, L.L.C., Advantage Advisers Troon
Management, L.L.C., and Oppenheimer Catalyst Management, L.P.(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.
4
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.
5
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.
6
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.
7
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
Vote AGAINST proposals that
require director stock ownership
8
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.
9
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 judgements incurred as a result of lawsuits relating to
their corporate actions. The corporation becomes the insurer for its
officers and directors.
10
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:
1. The present environment in which directors operate provides
substantial risk of claims or suits against against them in their
individual capacities arising out of the discharge of their
duties.
2. Attracting and retaining the most qualified directors enhances
shareholder value.
11
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.
12
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
13
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.
14
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.
15
CHAPTER 2
AUDITORS
16
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.
17
CHAPTER 3
TENDER OFFER DEFENSES
18
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.
19
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:
1. 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.
20
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.
21
CHAPTER 4
MERGERS
AND
CORPORATE
RESTRUCTURING
22
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.
23
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:
1. The board is in the best position to determine the company's need
to incorporate.
2. Reincorporation may have considerable implications for
shareholders, affecting a company's takeover defenses, its
corporate structure or governance features.
3. Reincorporation in a state with stronger anti-takeover laws may
harm shareholder value.
24
CHAPTER 5
PROXY
CONTEST
DEFENSES
25
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:
1. 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.
26
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:
1. Cumulative voting would allow a minority owner to create an
impact disproportionate to his/her holdings.
2. Cumulative voting can be used to elect a director who would
represent special interests and not those of the corporation and
its shareholders.
3. Cumulative voting can allow a minority to have representation.
4. Cumulative Voting can lead to a conflict within the board which
could interfere with its ability to serve the shareholders' best
interests.
27
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.
28
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.
29
CHAPTER 6
MISCELLANEOUS
CORPORATE
GOVERNANCE
PROVISIONS
30
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:
1. Some shareholders elect to have the board not know how they voted
on certain issues.
2. 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.
3. Confidential voting is an important element of corporate
democracy which should be available to the shareholder.
31
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:
1. Directors already have fiduciary responsibility to represent
shareholders and are accountable to them by law, thus rendering
shareholder advisory committees unnecessary.
2. Adding another layer to the current corporate governance system
would be expensive and unproductive.
32
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:
1. 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.
2. 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.
33
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:
1. For certain companies, employing individuals familiar with the
regulatory agencies and procedures is essential and, therefore,
is in the best interests of the shareholders.
2. Existing laws and regulations require enough disclosure and serve
as a check on conflicts of interest.
3. Additional disclosure would be an unreasonable invasion of such
individual's privacy.
34
CHAPTER 7
SOCIAL
AND
ENVIRONMENTAL
ISSUES
35
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:
1. 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.
36
NORTHERN IRELAND
(MACBRIDE PRINCIPLES)
---------------------
It is well documented that Northern Ireland's Catholic community faces much
higher unemployment figures then 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:
1. 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.
2. 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 judgement upon) the
non-economic considerations.
37
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:
1. 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.
2. 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 judgement upon) the non-economic
considerations.
38
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:
1. 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.
39
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:
1. 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.
2. We also feel that this issue is already subject to significant
state and federal regulation.
40
CHAPTER 8
CAPITAL
STRUCTURE
41
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:
1. Is this company going to make frequent business acquisitions over
a period of time?
2. Is the company expanding its operations?
3. Within the company, are there any debt structuring or prepackaged
bankruptcy plans?
42
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:
1. 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.
43
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:
1. The existence of preemptive rights can considerably slow down the
process of issuing new shares due to the logistics involved in
protecting such rights.
2. 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.
44
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.
45
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.
46
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:
1. State laws sometimes prohibit issuance of new stock priced below
that of the outstanding shares.
2. A corporation may be unable to raise capital if the par value is
overstated.
47
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:
1. Dilution - How much will ownership interest of existing
shareholders be reduced and how extreme will dilution to future
earnings be?
2. Change in Control - Will the transaction result in a change of
control of the company?
3. Bankruptcy - Is the threat of bankruptcy, which would result in
severe losses in shareholder value, the main factor driving the
debt restructuring?
48
CHAPTER 9
EXECUTIVE
AND
DIRECTOR
COMPENSATION
49
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:
1. As directors take an increasingly active role in corporate
decision-making and governance, their compensation is becoming
more performance-based.
50
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:
1. 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.
51
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:
1. The exercise price for stock options is less than 85% of fair
market value on the date of the grant.
2. 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.
3. 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:
1. Re-load options (new options issued for any exercised).
2. 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.
52
OPTIONS EXPENSING
-----------------
Shareholder proposal to expense options.
VOTE RECOMMENDATION
It is our policy to vote FOR proposals
to expense options
53
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:
1. The stability of management may be affected by an attempted
acquisition of the corporation.
2. 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.
54
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.
55
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.
56
CHAPTER 10
STATE
OF
INCORPORATION
57
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:
1. These proposals deprive the board of directors of its ability to
act quickly in propitious circumstances.
2. Conforming to these requirements can be expensive.
3. The board of directors is uniquely qualified and positioned to be
able to make these decisions without prior shareholder approval.
4. The threshold levels usually imposed by these proposals are much
more stringent than required by law.
58
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:
1. It is the directors' responsibility to act on behalf of the
shareholders in opposing coercive takeover attempts.
2. Creating deterrents to corporate takeovers may allow for
entrenchment of inefficient management.
3. These statutes strengthen the board's ability to deal with
potential buyers on fair and reasonable terms.
4. Shareholders should have the final say on whether the company
should be merged or acquired.
59
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.
60
CHAPTER 11
CONFLICTS
OF
INTEREST
61
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:
1. 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.
2. 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.
3. 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:
1. Routine proxy proposals are presumed not to involve a material
conflict of interest.
2. Non-routine proxy proposals-Proxy proposals that are "non-
routine" will be presumed to involve a material conflict of
interest 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.
62
CONFLICTS CONT'D
3. 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-a-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:
a) Obtain instructions from the client on how to vote.
b) Use existing proxy guidelines if the policy with
respect to the proposal is specifically addressed and
does not involve a case by case analysis.
c) 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.
63
CHAPTER 12
GOVERNANCE COMMITTEE
AND
PROXY MANAGERS
64
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) Bryan McKigney, Managing Director, OAM
Alternative Investments Group (2) Chief Compliance Officer and (3) Chief Legal
Officer.
65
PROXY MANAGERS
- --------------
The Proxy Manager for the Advisers is Caroline Gilllespie, Executive Director,
Oppenheimer & Co. Inc. The Proxy Manager will determine how votes will be cast
on proposals that are evaluated on a case-by case basis.
66
CHAPTER 13
SPECIAL ISSUES WITH VOTING
FOREIGN PROXIES
67
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:
1. Each country has its own rules and practices regarding
shareholder notification, voting restrictions, registration
conditions and share blocking.
2. 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.
3. Time frames between shareholder notification, distribution of
proxy materials, book closures and the actual meeting date may be
too short to allow timely action.
4. 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.
68
CHAPTER 14
RECORD KEEPING
69
RECORD KEEPING
The Advisers will maintain the following records:
1. Copies of these policies
2. 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.
3. 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.
4. 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.
5. 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.
70
APPENDIX A
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ADVISOR CLIENT POLICY
- -------------------------------------------------------------------------------------------------------------
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ADVANTAGE ADVISERS ADVANTAGE ADVISERS TECHNOLOGY Alkeon proxy policy, attached
MANAGEMENT, L.L.C. PARTNERS, L.L.C. Alkeon Capital hereto as Exhibit A, is
Management, L.L.C. ("Alkeon") applicable.
acts as portfolio manager.
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ADVANTAGE ADVISERS STRATIGOS Alkeon proxy policy is applicable.
FUND, L.L.C. Alkeon acts as
portfolio manager.
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ADVANTAGE ADVISERS XANTHUS FUND, Alkeon proxy policy is applicable.
L.L.C. Alkeon acts as portfolio
manager.
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ADVANTAGE ADVISERS AUGUSTA FUND, Eden proxy policy, attached
L.L.C. Eden Capital Management hereto as Exhibit B, is
Partners, L.P. ("Eden") acts as applicable.
portfolio manager.
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ADVANTAGE ADVISERS WYNSTONE FUND, KBW proxy policy, attached hereto
L.L.C. KBW Asset Management Inc. as Exhibit C, is applicable.
("KBW") acts as portfolio manager.
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ADVANTAGE ADVISERS WHISTLER FUND, This policy is applicable.
L.L.C. is a registered fund of
funds.
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Mercantile Long-Short Manager This policy is applicable.
Fund, L.L.C. Advantage Advisers
Management, L.L.C. acts as
subadvisor to this fund.
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ADVANTAGE ADVISERS MULTI-MANAGER, ADVANTAGE ADVISERS CATALYST Ridgecrest proxy policy, attached
L.L.C. INTERNATIONAL, LTD. Ridgecrest hereto as Exhibit D, is
Investment Management, LLC applicable.
("Ridgecrest") acts as
portfolio manager.
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ADVANTAGE ADVISERS TECHNOLOGY Alkeon proxy policy is
INTERNATIONAL, LTD. Alkeon acts applicable.
as portfolio manager.
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ADVANTAGE ADVISERS SAWGRASS This policy is applicable.
INTERNATIONAL, LTD.
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ADVANTAGE ADVISERS WHISTLER This policy is applicable.
INTERNATIONAL, LTD. is a fund of
funds.
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ADVANTAGE ADVISERS, L.L.C. ADVANTAGE ADVISERS MULTI-SECTOR KBW, Alkeon and Kilkenny proxy
FUND I. KBW, Alkeon and Kilkenny policies, the latter attached
Capital Management, L.L.C. hereto as Exhibit F, are
("Kilkenny") applicable.
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71
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ADVISOR CLIENT POLICY
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ADVANTAGE ADVISERS PRIVATE EQUITY General partner to ADVANTAGE This policy is applicable.
MANAGEMENT, L.L.C. ADVISERS PRIVATE EQUITY PARTNERS,
L.P. ("COPEP")
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TROON MANAGEMENT, L.L.C. ADVANTAGE ADVISERS TROON FUND, MAMC proxy policy is applicable.
L.L.C. MAMC acts as portfolio
manager.
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OPPENHEIMER CATALYST MANAGEMENT L.P. General Partner and investment Ridgecrest proxy policy is
adviser to ADVANTAGE ADVISERS applicable.
CATALYST PARTNERS, L.P.
Ridgecrest acts as portfolio
manager.
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72
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
Panayotis Sparaggis has served as the Portfolio Manager of the Fund
since its inception. Mr. Sparaggis is the Chief Investment Officer and
a controlling person of Alkeon Capital Management, LLC ("Alkeon"),
which he founded 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, 2005:
--------------------------------------------------------------------------------------------------------------
No. of
Accounts Total Assets
where in Accounts
Name of Portfolio Total Advisory Fee where Advisory
Manager or Type of No. of Accounts is Based on Fee is Based
Team Member Accounts Managed Total Assets Performance on Performance
--------------------------------------------------------------------------------------------------------------
Panayotis Sparaggis Registered 1 $28 million 1 $28 million
Investment
Companies:
--------------------------------------------------------------------------------------------------------------
Other Pooled 6 $243 million 6 $243 million
Investment
Vehicles:
--------------------------------------------------------------------------------------------------------------
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:
o 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.
o 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.
o 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.
o 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, 2005.
Dollar ($) Range
Name of Portfolio of Fund Shares
Manager or Beneficially
Team Member 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 7(d)(2)(ii)(G) 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.
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, LLC
-----------------------------------------------------------------
By (Signature and Title)* /s/ Bryan McKigney
-------------------------------------------------------
Bryan McKigney, Principal Executive Officer
(principal executive officer)
Date 2/27/06
----------------------------------------------------------------------------
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 2/27/06
----------------------------------------------------------------------------
By (Signature and Title)* /s/ Vineet Bhalla
-------------------------------------------------------
Vineet Bhalla, Chief Financial Officer
(principal financial officer)
Date 2/27/06
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.