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
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(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, 2006
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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, 2006
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2006
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.............................. 10
Schedule of Swap Contracts.................................................. 14
Statement of Operations..................................................... 16
Statements of Changes in Members' Capital................................... 17
Notes to Financial Statements............................................... 18
Supplemental Information (Unaudited)........................................ 29
[ERNST & YOUNG LETTERHEAD]
Report of Independent Registered Public Accounting Firm
To the Members and Board of Managers of
Advantage Advisers Xanthus Fund, L.L.C.
We have audited the accompanying statement of assets, liabilities and members'
capital of Advantage Advisers Xanthus Fund, L.L.C. (the "Company"), including
the schedules of portfolio investments, securities sold, not yet purchased, and
swap contracts as of December 31, 2006, 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, 2006, by correspondence with
the custodian and brokers. 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, 2006, 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 LLP
New York, New York
February 22, 2007
A Member Practice of Ernst & Young Global
-1-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
ASSETS
Investments in securities, at market value (cost - $481,000,706) $510,992,390
Due from broker (including Hong Kong Dollars of $117,916 with a cost of
$118,180 and Singapore Dollars of $177,325 with a cost of $171,816) 83,965,847
Receivable for investment securities sold 119,917,915
Net unrealized appreciation on swap contracts 170,153
Interest receivable 354,037
Dividends receivable (net of foreign withholding taxes of $39,426) 113,377
Other assets 167,869
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TOTAL ASSETS 715,681,588
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LIABILITIES
Securities sold, not yet purchased, at market value (proceeds - $214,852,584) 213,243,186
Withdrawals payable (see note 3) 40,274,691
Payable for investment securities purchased 67,229,850
Accounting and investor services fees payable 135,381
Dividends payable on securities sold, not yet purchased 99,782
Accrued expenses 473,061
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TOTAL LIABILITIES 321,455,951
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NET ASSETS $394,225,637
============
MEMBERS' CAPITAL - NET ASSETS
Represented by:
Net capital contributions $362,449,157
Net unrealized appreciation on investments, foreign currency, and
swap transactions 31,776,480
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MEMBERS' CAPITAL - NET ASSETS $394,225,637
============
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, 2006
SHARES MARKET VALUE
INVESTMENTS IN SECURITIES - 129.62%
U.S. COMMON STOCK - 114.74%
APPAREL MANUFACTURERS - 2.46%
124,940 Polo Ralph Lauren Corp. (a) $ 9,702,840
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APPLICATIONS SOFTWARE - 6.64%
467,370 Microsoft Corp. (a) 13,955,668
639,590 Quest Software, Inc.* (a) 9,369,994
118,780 Satyam Computer Services, Ltd. - Sponsored ADR (a) 2,851,908
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26,177,570
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BUSINESS TO BUSINESS / E-COMMERCE - 1.03%
177,670 I2 Technologies, Inc.* (a) 4,054,429
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CELLULAR TELECOMMUNICATIONS - 0.34%
256,439 Linktone Ltd. - Sponsored ADR* (a) 1,330,918
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CHEMICALS - DIVERSIFIED - 1.83%
147,760 EI DuPont de Nemours & Co. (a) 7,197,390
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CHEMICALS - PLASTICS - 0.06%
12,930 Metabolix, Inc. 244,894
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COMMERCIAL SERVICES - 0.91%
170,147 Exlservice Holdings Inc.* (a) 3,579,893
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COMPUTER SERVICES - 3.31%
434,510 Manhattan Associates, Inc.* (a) 13,070,061
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COMPUTERS - 12.86%
172,070 Apple, Inc.* (a) 14,598,419
399,024 Hewlett-Packard Co. (a) 16,435,798
202,464 International Business Machines Corp. (a) 19,669,378
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50,703,595
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COMPUTERS - INTEGRATED SYSTEMS - 0.80%
384,140 Brocade Communications Systems, Inc.* (a) 3,153,789
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COMPUTERS - MEMORY DEVICES - 0.40%
119,310 EMC Corp.* 1,574,892
1 Seagate Technology Escrow 28
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1,574,920
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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, 2006
SHARES MARKET VALUE
U.S. COMMON STOCK - (CONTINUED)
COMPUTERS - PERIPHERAL EQUIPMENT - 3.38%
212,370 Logitech International S.A.* (a) $ 6,073,782
244,781 Synaptics, Inc.* (a) 7,267,548
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13,341,330
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DECISION SUPPORT SOFTWARE - 0.70%
91,930 SPSS, Inc.* 2,764,335
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ELECTRONIC COMPONENTS - SEMICONDUCTORS - 15.14%
282,180 Altera Corp.* (a) 5,553,303
2,060,873 ARM Holdings, PLC - Sponsored ADR (a) 15,044,373
291,500 Broadcom Corp., Class A* (a) 9,418,365
143,770 IPG Photonics Corp.* 3,450,480
178,970 LSI Logic Corp.* 1,610,730
88,720 NVIDIA Corp.* (a) 3,283,527
1,186,460 ON Semiconductor Corp.* (a) 8,981,502
285,780 Texas Instruments, Inc. (a) 8,230,464
273,972 Volterra Semiconductor Corp.* (a) 4,109,580
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59,682,324
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ENERGY - ALTERNATE SOURCES - 1.12%
148,281 First Solar, Inc.* (a) 4,424,705
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ENGINEERING / R&D SERVICES - 1.89%
415,390 ABB, Ltd. - Sponsored ADR (a) 7,468,712
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ENTERPRISE SOFTWARE / SERVICES - 5.93%
295,270 Business Objects S.A. - Sponsored ADR* (a) 11,648,402
150,010 Hyperion Solutions Corp.* (a) 5,391,359
463,723 Taleo Corp., Class A* (a) 6,339,093
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23,378,854
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ENTERTAINMENT SOFTWARE - 1.59%
192,692 THQ, Inc.* (a) 6,266,344
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FOOTWEAR & RELATED APPAREL - 1.06%
130,500 Heelys, Inc.* (a) 4,190,355
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HEALTHCARE COST CONTAINMENT - 2.16%
167,875 McKesson Corp. (a) 8,511,263
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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, 2006
SHARES MARKET VALUE
U.S. COMMON STOCK - (CONTINUED)
INDUSTRIAL AUDIO & VIDEO PRODUCTION - 2.27%
288,188 Dolby Laboratories, Inc., Class A* (a) $ 8,939,592
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INTERNET APPLICATIONS SOFTWARE - 1.39%
372,330 Interwoven, Inc.* (a) 5,462,081
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INTERNET CONTENT - ENTERTAINMENT - 2.45%
446,270 Shanda Interactive Entertainment, Ltd. - Sponsored ADR* (a) 9,670,671
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INTERNET INFRASTRUCTURE SOFTWARE - 1.01%
53,700 F5 Networks, Inc.* 3,985,077
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INTERNET SECURITY - 0.72%
118,370 VeriSign, Inc.* (a) 2,846,799
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MOTION PICTURES & SERVICES - 0.27%
35,460 DreamWorks Animation SKG, Inc., Class A* (a) 1,045,715
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NETWORKING PRODUCTS - 7.61%
191,320 Atheros Communications* (a) 4,078,942
453,525 Cisco Systems, Inc.* (a) 12,394,838
698,430 Foundry Networks, Inc.* (a) 10,462,482
161,070 Juniper Networks, Inc.* (a) 3,050,666
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29,986,928
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SEMICONDUCTOR EQUIPMENT - 11.06%
397,230 ASML Holdings N.V.* (a) 9,783,775
367,860 KLA-Tencor Corp. (a) 18,301,035
384,688 Tessera Technologies, Inc.* (a) 15,518,314
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43,603,124
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SPECIFIED PURPOSE ACQUISITIONS - 0.56%
238,630 Endeavor Acquisition Corp.* (a) 2,193,010
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TELECOMMUNICATION EQUIPMENT - 3.36%
760,710 Avaya, Inc.* (a) 10,634,726
104,250 Optium Corp.* 2,601,037
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13,235,763
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The accompanying notes are an integral part of these financial statements.
-5-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
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DECEMBER 31, 2006
SHARES MARKET VALUE
U.S. COMMON STOCK - (CONTINUED)
TELECOMMUNICATION EQUIPMENT FIBER OPTICS - 1.54%
294,733 Oplink Communications, Inc.* (a) $ 6,059,710
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TELECOMMUNICATION SERVICES - 2.25%
266,130 Global Crossing, Ltd.* (a) 6,533,492
117,810 Time Warner Telecom, Inc., Class A* (a) 2,347,953
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8,881,445
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THERAPEUTICS - 1.96%
119,010 Gilead Sciences, Inc.* (a) 7,727,319
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WEB HOSTING / DESIGN - 2.57%
133,929 Equinix, Inc.* (a) 10,127,711
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WEB PORTALS / ISP - 4.60%
16,640 Google, Inc., Class A* (a) 7,662,387
222,826 Sina Corp.* (a) 6,395,106
170,465 Sohu.com, Inc.* (a) 4,091,160
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18,148,653
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WIRELESS EQUIPMENT - 7.51%
160,270 American Tower Corp., Class A* (a) 5,974,866
344,850 Qualcomm, Inc. (a) 13,031,881
263,086 Telefonaktiebolaget LM Ericsson* (a) 10,583,950
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29,590,697
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TOTAL U.S. COMMON STOCK (COST $427,011,827) $452,322,816
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CHINA COMMON STOCK - 2.48%
BUILDING & CONSTRUCTION PRODUCTS - MISCELLANEOUS - 2.48%
9,871,765 China Communications Construction Co. Ltd.* $ 9,761,017
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TOTAL CHINA COMMON STOCK (COST $8,719,741) $ 9,761,017
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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, 2006
SHARES MARKET VALUE
FRANCE COMMON STOCK - 3.00%
ENTERTAINMENT SOFTWARE - 3.00%
350,780 Ubisoft Entertainment SA* $ 11,827,579
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TOTAL FRANCE COMMON STOCK (COST $10,259,733) $ 11,827,579
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HONG KONG COMMON STOCK - 5.01%
AGRICULTURAL CHEMICALS - 0.20%
4,153,910 Century Sunshine Ecological Technology Holdings, Ltd. $ 790,483
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AGRICULTURAL OPERATIONS - 0.02%
152,490 China Green Holdings, Ltd. 83,330
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BUILDING - HEAVY CONSTRUCTION - 0.04%
419,648 PYI Corp., Ltd. 156,479
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DIVERSIFIED OPERATIONS - 0.36%
2,027,140 Tianjin Development Holdings, Ltd. 1,438,788
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ELECTRIC PRODUCTS - MISCELLANEOUS - 0.76%
2,172,089 Zhuzhou CSR Times Electric Co., Ltd* 3,005,134
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FINANCE - OTHER SERVICES - 0.50%
178,969 Hong Kong Exchanges & Clearing, Ltd. 1,967,514
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FOOD - MISCELLANEOUS / DIVERSIFIED - 0.31%
1,193,128 Cofco International, Ltd. 1,205,823
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LIGHTING PRODUCTS & SYSTEMS - 1.23%
5,092,412 Neo-Neon Holdings Ltd.* 4,865,039
------------
POWER CONVERSION / SUPPLY EQUIPMENT - 0.31%
1,048,578 Harbin Power Equipment Co., Ltd. 1,202,651
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REAL ESTATE OPERATIONS / DEVELOPMENT - 0.12%
1,133,470 Shenzhen Investment, Ltd. 472,203
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REGISTERED INVESTMENT COMPANY - 0.67%
178,968 Ishares Asia Trust - China Tracker ETF 2,641,747
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RENTAL AUTO / EQUIPMENT - 0.36%
596,566 Cosco Pacific, Ltd. 1,400,662
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RETAIL - REGIONAL DEPARTMENT STORES - 0.13%
591,057 Golden Eagle Retail Group Ltd. 525,148
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TOTAL HONG KONG COMMON STOCK (COST $19,608,416) $ 19,755,001
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The accompanying notes are an integral part of these financial statements.
-7-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
SHARES MARKET VALUE
SPAIN COMMON STOCK - 2.06%
POWER CONVERSION / SUPPLY EQUIPMENT - 2.06%
295,527 Gamesa Corporacion Tecnologica, S.A. $ 8,125,190
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TOTAL SPAIN COMMON STOCK (COST $7,323,863) $ 8,125,190
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SINGAPORE COMMON STOCK - 2.33%
AGRICULTURAL OPERATIONS - 0.47%
1,182,112 Wilmar International, Ltd. $ 1,872,210
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FINANCE - OTHER SERVICES - 1.86%
1,968,658 Singapore Exchange, Ltd. 7,313,662
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TOTAL SINGAPORE COMMON STOCK (COST $8,146,881) $ 9,185,872
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CONTRACTS
PURCHASED OPTIONS - 0.00%
PUT OPTIONS - 0.00%
ELECTRONIC COMPONENTS - SEMICONDUCTORS - 0.00%
2,983 Micron Technology, Inc., 1/20/2007, $12.50 $ 14,915
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TOTAL PUT OPTIONS (COST $77,558) 14,915
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TOTAL PURCHASED OPTIONS (COST $77,558) $ 14,915
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TOTAL INVESTMENTS (COST $481,000,706) - 129.62% $510,992,390
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OTHER ASSETS, LESS LIABILITIES - (29.62%) (116,766,753)
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NET ASSETS - 100.00% $394,225,637
============
(a) Partially or wholly held in a pledged account by the Custodian as
collateral for securities sold, not yet purchased.
* Non-income producing security.
ADR American Depository Receipt
The accompanying notes are an integral part of these financial statements.
-8-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31,
2006
PERCENTAGE OF
INVESTMENTS IN SECURITIES - BY INDUSTRY NET ASSETS (%)
- -------------------------------------- ----------------
Agricultural Chemicals 0.20
Agricultural Operations 0.49
Apparel Manufacturers 2.46
Applications Software 6.64
Building - Heavy Construction 0.04
Building & Construction - Miscellaneous 2.48
Business - To - Business / E - Commerce 1.03
Cellular Telecommunications 0.34
Chemicals - Diversified 1.83
Chemicals - Plastics 0.06
Commercial Services 0.91
Computer Services 3.31
Computers 12.86
Computers - Integrated Systems 0.80
Computers - Memory Devices 0.40
Computers - Peripheral Equipment 3.38
Decision Support Software 0.70
Diversified Operations 0.36
Electric Products - Miscellaneous 0.76
Electronic Components - Semiconductors 15.14
Energy - Alternate Sources 1.12
Engineering / R&D Services 1.89
Enterprise Software / Services 5.93
Entertainment Software 4.59
Finance - Other Services 2.36
Food - Miscellaneous / Diversified 0.31
Footwear & Related Apparel 1.06
Healthcare Cost Containment 2.16
Industrial Audio & Video Products 2.27
Internet Applications Software 1.39
Internet Content - Entertainment 2.45
Internet Infrastructure Software 1.01
Internet Security 0.72
Lighting Products & Systems 1.23
Motion Pictures & Services 0.27
Networking Products 7.61
Power Conversion / Supply Equipment 2.37
Real Estate Operation / Development 0.12
Registered Investment Company 0.67
Rental / Auto Equipment 0.36
Retail - Regional Department Stores 0.13
Semiconductor Equipment 11.06
Specified Purpose Acquisition 0.56
Telecommunications Equipment 3.36
Telecommunications Equipment Fiber Optics 1.54
Telecommunications Services 2.25
Therapeutics 1.96
Web Hosting / Design 2.57
Web Portals / Isp 4.60
Wireless Equipment 7.51
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TOTAL INVESTMENT IN SECURITIES 129.62
======
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
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
SHARES MARKET VALUE
SECURITIES SOLD, NOT YET PURCHASED - (54.09%)
U.S. COMMON STOCK - (54.09%)
AUDIO / VIDEO PRODUCTS - (0.39%)
35,650 SONY Corp. - Sponsored ADR $ (1,526,889)
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BUILDING PRODUCTS - WOOD - (1.49%)
197,140 Masco Corp. (5,888,572)
------------
CAPACITORS - (0.23%)
126,690 Kemet Corp. (924,837)
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CELLULAR TELECOMMUNICATIONS - (0.78%)
70,930 China Mobile (Hong Kong), Ltd. - Sponsored ADR (3,065,594)
1 Vodafone Group PLC - Sponsored ADR (21)
------------
(3,065,615)
------------
COMMERCIAL SERVICES - FINANCE - (1.01%)
117,380 Jackson Hewitt Tax Service, Inc. (3,987,399)
------------
COMPUTER GRAPHICS - (0.91%)
196,410 Trident Microsystems, Inc. (3,570,734)
------------
COMPUTERS - (2.27%)
356,040 Dell, Inc. (8,933,044)
------------
COMPUTERS - MEMORY DEVICES - (2.91%)
266,740 SanDisk Corp. (11,477,822)
------------
CONSUMER PRODUCTS - MISCELLANEOUS - (0.72%)
119,310 American Greetings Corp., Class A (2,847,930)
------------
CRUISE LINES - (1.03%)
82,890 Carnival Corp. (4,065,754)
------------
DIRECT MARKETING - (1.19%)
169,700 Harte-Hanks, Inc. (4,702,387)
------------
DIVERSIFIED MANUFACTURING OPERATIONS - (2.36%)
142,410 Illinois Tool Works, Inc. (6,577,918)
35,260 Parker Hannifin Corp. (2,710,789)
------------
(9,288,707)
------------
ELECTRIC PRODUCTS - MISCELLANEOUS - (0.71%)
88,380 Molex, Inc. (2,795,459)
------------
The accompanying notes are an integral part of these financial statements.
-10-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
SHARES MARKET VALUE
U.S. COMMON STOCK - (CONTINUED)
ELECTRONIC COMPONENTS - MISCELLANEOUS - (3.78%)
231,340 AU Optronics Corp. - Sponsored ADR $ (3,194,805)
405,010 AVX Corp. (5,990,098)
277,720 LG.Philips LCD Co., Ltd. - Sponsored ADR (4,185,240)
112,460 Vishay Intertechnology, Inc. (1,522,709)
------------
(14,892,852)
------------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - (5.43%)
267,040 Advanced Micro Devices, Inc. (5,434,264)
114,980 Fairchild Semiconductor International, Inc. (1,932,814)
175,580 Microchip Technology, Inc. (5,741,466)
268,470 Micron Technology, Inc. (3,747,841)
177,300 Spansion Inc., Class A (2,634,678)
132,560 Zoran Corp. (1,932,725)
------------
(21,423,788)
------------
ENTERPRISE SOFTWARE / SERVICES - (0.16%)
11,820 SAP AG - Sponsored ADR (627,642)
------------
ENTERTAINMENT SOFTWARE - (1.27%)
99,046 Electronic Arts, Inc. (4,987,956)
------------
INTERNET SECURITY - (0.42%)
76,241 Check Point Software Technologies, Ltd. (1,671,203)
------------
MACHINERY - PUMPS - (0.76%)
75,420 Graco, Inc. (2,988,140)
------------
MEDICAL - DRUGS - (1.94%)
147,170 Eli Lilly & Co. (7,667,557)
------------
MEDICAL INSTRUMENTS - (1.09%)
99,660 Ventana Medical Systems, Inc. (4,288,370)
------------
MULTIMEDIA - (1.71%)
46,850 E.W. Scripps Co., Class A (2,339,689)
78,160 Meredith Corp. (4,404,316)
------------
(6,744,005)
------------
POWER CONVERSION / SUPPLY EQUIPMENT - (0.69%)
60,600 Hubbell, Inc., Class B (2,739,726)
------------
The accompanying notes are an integral part of these financial statements.
-11-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
SHARES MARKET VALUE
U.S. COMMON STOCK - (CONTINUED)
PRINTING - COMMERCIAL - (0.38%)
103,820 Valassis Communications, Inc. $ (1,505,390)
------------
REGISTERED INVESTMENT COMPANY - (8.04%)
208,790 Ishares Lehman 1 - 3 yr Treasury Bond Fund (16,694,848)
294,470 Ishares MSCI Hong Kong Index (4,711,520)
238,600 NASDAQ-100 Trust, Series I (10,297,976)
------------
(31,704,344)
------------
RETAIL - CONSUMER ELECTRONICS - (1.68%)
111,460 Best Buy Co., Inc. (5,482,717)
59,660 Circuit City Stores, Inc. (1,132,347)
------------
(6,615,064)
------------
RETAIL - DISCOUNT - (1.40%)
119,310 Wal-Mart Stores, Inc. (5,509,736)
------------
RETAIL - MAJOR DEPARTMENT STORE - (0.66%)
33,410 J.C. Penney Co., Inc. (2,584,598)
------------
RETAIL - REGIONAL DEPARTMENT STORES - (1.04%)
59,660 Kohl's Corp. (4,082,534)
------------
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS - (0.93%)
208,230 Genesis Microchip, Inc. (2,111,452)
17,320 Hittite Microwave Corp. (559,782)
155,640 Semiconductor Manufacturing International Corp. - Sponsored
ADR (1,002,322)
------------
(3,673,556)
------------
SEMICONDUCTOR EQUIPMENT - (2.72%)
134,230 Novellus Systems, Inc. (4,620,196)
298,680 Teradyne, Inc. (4,468,253)
35,790 Varian Semiconductor Equipment Associates, Inc. (1,629,161)
------------
(10,717,610)
------------
TELEPHONE - INTEGRATED - (0.71%)
336,180 Qwest Communications International, Inc. (2,813,827)
------------
The accompanying notes are an integral part of these financial statements.
-12-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
SHARES MARKET VALUE
U.S. COMMON STOCK - (CONTINUED)
TRANSPORT - SERVICES - (1.21%)
58,670 C.H. Robinson Worldwide, Inc. $ (2,399,016)
46,190 Ryder System, Inc. (2,358,462)
-------------
(4,757,478)
-------------
WEB PORTALS / ISP - (0.70%)
279,950 EarthLink, Inc. (1,987,645)
41,130 Netease.com, Inc. - Sponsored ADR (768,720)
-------------
(2,756,365)
-------------
WIRELESS EQUIPMENT - (1.37%)
266,550 Nokia Corp. - Sponsored ADR (5,416,296)
-------------
TOTAL SECURITIES SOLD, NOT YET PURCHASED (PROCEEDS $214,852,584)
$(213,243,186)
=============
DECEMBER 31,
2006
SECURITIES SOLD, NOT YET PURCHASED - PERCENTAGE OF
BY INDUSTRY NET ASSETS (%)
- ----------------------------------- ----------------
Audio / Video Products (0.39)
Building Products - Wood (1.49)
Capacitors (0.23)
Cellular Telecommunications (0.78)
Commercial Services - Finance (1.01)
Computer Graphics (0.91)
Computers (2.27)
Computers - Memory Devices (2.91)
Consumer Products - Miscellaneous (0.72)
Cruise Lines (1.03)
Direct Marketing (1.19)
Diversified Manufacturing Operations (2.36)
Electric Products - Miscellaneous (0.71)
Electronic Components - Miscellaneous (3.78)
Electronic Components - Semiconductors (5.43)
Enterprise Software / Services (0.16)
Entertainment Software (1.27)
Internet Security (0.42)
Machinery - Pumps (0.76)
Medical - Drugs (1.94)
Medical Instruments (1.09)
Multimedia (1.71)
Power Conversion / Supply Equipment (0.69)
Printing - Commercial (0.38)
Registered Investment Company (8.04)
Retail - Consumer Electronics (1.68)
RETAIL - DISCOUNT (1.40)
Retail - Major Department Store (0.66)
Retail - Regional Department Stores (1.04)
Semiconductor Components - Integrated Circuits (0.93)
Semiconductor Equipment (2.72)
Telephone - Integrated (0.71)
Transport - Services (1.21)
Web Portals / ISP (0.70)
Wireless Equipment (1.37)
------
TOTAL SECURITIES SOLD, NOT YET PURCHASED (54.09)
======
The accompanying notes are an integral part of these financial statements.
-13-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SWAP CONTRACTS
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
NET UNREALIZED
NOTIONAL MATURITY APPRECIATION/
AMOUNT DATE DEPRECIATION
SCHEDULE OF SWAP CONTRACTS - 0.04%
E-COMMERCE / PRODUCTS - (0.02%)
$5,839,134 4/21/2008 Daum Communications Corp. $ (110,268)
------------
Agreement with Morgan Stanley, dated
7/13/2006 to receive the total return of
the shares of Daum Communications Corp. in
exchange for an amount to be paid monthly,
equal to the LIBOR rate plus 0.45%.
E-COMMERCE / SERVICES - 0.00%
$3,231,102 4/21/2008 Esang Networks Co., Ltd. 9,700
------------
Agreement with Morgan Stanley, dated
9/22/2006 to receive the total return of
the shares of Esang Networks Co., Ltd..in
exchange for an amount to be paid monthly,
equal to the LIBOR rate plus 0.45%.
ELECTRONIC COMPONENTS - SEMICONDUCTORS - 0.01%
($2,302,909) 4/21/2008 Hynix Semiconductor 7,660
Agreement with Morgan Stanley, dated
10/26/2006 to receive the total return of
the shares of Hynix Semiconductor in
exchange for an amount to be paid monthly,
equal to the LIBOR rate less 3.00%.
$1,976,627 10/20/2008 Renesola, Ltd. 62,562
Agreement with Morgan Stanley, dated
11/15/2006 to receive the total return of
the shares of Renasola, Ltd. in exchange
for an amount to be paid monthly, equal to
the LIBOR rate plus 0.50%.
------------
70,222
------------
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS - 0.05%
($4,455,193) 10/20/2008 CSR, PLC (159,910)
Agreement with Morgan Stanley, dated
10/18/2006 to receive the total return of
the shares of CSR,PLC in exchange for an
amount to be paid monthly, equal to the
LIBOR rate less 0.475%.
The accompanying notes are an integral part of these financial statements.
-14-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
SCHEDULE OF SWAP CONTRACTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2006
NET UNREALIZED
NOTIONAL MATURITY APPRECIATION/
AMOUNT DATE DEPRECIATION
SCHEDULE OF SWAP CONTRACTS - (CONTINUED)
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS - (CONTINUED)
$10,771,813 4/21/2008 Powertech Technology, Inc. $ 360,439
Agreement with Morgan Stanley, dated
9/15/2006 to receive the total return of
the shares of Powertech Technology, Inc.
in exchange for an amount to be paid
monthly, equal to the LIBOR rate plus
0.45%.
------------
200,529
------------
WEB PORTALS / ISP - 0.00%
$5,433,782 4/21/2008 NHN Corp. (30)
Agreement with Morgan Stanley, dated
6/30/2006 to receive the total return of
the shares of NHN Corp. in exchange for an
amount to be paid monthly, equal to the
LIBOR rate plus 0.45%.
------------
TOTAL SWAP CONTRACTS $ 170,153
============
DECEMBER 31,
2006
PERCENTAGE OF
SWAP CONTRACTS - BY INDUSTRY NET ASSETS (%)
- ---------------------------------- ----------------
E-Commerce / Products (0.02)
E-Commerce / Services 0.00
Electronic Components - Semiconductors 0.01
Semiconductor Components - Integrated Circuits 0.05
Web Portals / ISP 0.00
------
TOTAL SWAP CONTRACTS 0.04
======
The accompanying notes are an integral part of these financial statements.
-15-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 2006
INVESTMENT INCOME
Interest $ 5,790,839
Dividends, net of withholding taxes of $109,143 1,921,810
------------
7,712,649
------------
EXPENSES
Administration fees 3,944,097
Dividends on securities sold, not yet purchased 2,493,512
Prime broker fees 2,192,555
Accounting and investor services fees 401,017
Custodian fees 214,737
Insurance expense 199,715
Audit and tax fees 199,246
Legal fees 165,645
Board of Managers' fees and expenses 55,083
Printing expense 29,667
Registration expense 16,519
Interest expense 9,634
Miscellaneous 64,147
------------
TOTAL EXPENSES 9,985,574
------------
NET INVESTMENT LOSS (2,272,925)
------------
REALIZED GAIN (LOSS) AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN CURRENCY
TRANSACTIONS AND SWAP CONTRACTS
REALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY TRANSACTIONS
AND SWAP CONTRACTS:
Investment securities 61,202,688
Written options (1,570,693)
Securities sold, not yet purchased (9,473,100)
Foreign currency transactions (195,990)
Swap contracts 761,714
------------
Net realized gain on investments, foreign currency transactions and
swap contracts 50,724,619
------------
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 29,945,093
------------
NET CHANGE IN UNREALIZED APPRECIATION ON SWAP CONTRACTS 170,153
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN
CURRENCY TRANSACTIONS AND SWAP CONTRACTS 80,839,865
------------
NET INCREASE IN MEMBERS' CAPITAL DERIVED FROM INVESTMENT ACTIVITIES $ 78,566,940
============
The accompanying notes are an integral part of these financial statements.
-16-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
- --------------------------------------------------------------------------------
SPECIAL
ADVISORY
MEMBER MEMBERS TOTAL
------------ ------------ ------------
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
------------ ------------ ------------
FROM INVESTMENT ACTIVITIES
Net investment loss $ -- $ (2,272,925) $ (2,272,925)
Net realized gain on investments, foreign currency
transactions and swap contracts -- 50,724,619 50,724,619
Net change in unrealized appreciation on investments,
foreign currency transactions and swap contracts -- 30,115,246 30,115,246
Incentive allocation 15,713,324 (15,713,324) --
------------ ------------ ------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM INVESTMENT ACTIVITIES 15,713,324 62,853,616 78,566,940
------------ ------------ ------------
MEMBERS' CAPITAL TRANSACTIONS
Capital contributions -- 19,090,422 19,090,422
Capital withdrawals (15,713,324) (48,534,759) (64,248,083)
------------ ------------ ------------
NET DECREASE IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS (15,713,324) (29,444,337) (45,157,661)
------------ ------------ ------------
MEMBERS' CAPITAL, DECEMBER 31, 2006 $ -- $394,225,637 $394,225,637
============ ============ ============
The accompanying notes are an integral part of these financial statements.
-17-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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 (the "Board of Managers"). There are
six members of the Board of Managers, one of whom is considered an
"interested person" under the Act. On March 1, 2006, the Company named
James E. Buck as lead Independent Manager of the Board of Managers. 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. 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.
-18-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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
-19-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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.
-20-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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, "Disclosures 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.
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 ($2,272,925) and $50,724,619 from
accumulated net investment loss and accumulated net realized gain on
investments, respectively, to net capital contributions during the year
ended December 31, 2006. 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.
-21-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
3. ADMINISTRATION FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
During the year ended December 31, 2006, Oppenheimer earned $251,654 as
brokerage commissions from portfolio transactions executed on behalf of
the Company. Mainsail Group, L.L.C., a broker-dealer affiliate of
Alkeon, earned $1,522,053 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, 2006, an Incentive Allocation of $15,713,324 was credited
to the Special Advisory Member's capital account and was included in
withdrawals payable at December 31, 2006, in the Statement of Assets,
Liabilities and Members' Capital.
Each member of the Board of Managers (each a "Manager") who is not an
"interested person" of the Company, as defined by the Act, receives an
annual retainer of $5,000 plus a fee for each meeting attended. The
lead independent manager receives an additional fee of $2,500. Managers
who are "interested persons" do not receive any annual or other fee
from the Company. Managers who are not "interested persons" are
reimbursed by the Company for all reasonable out-of-pocket expenses
incurred by them in performing their duties.
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, 2006,
such sales commissions earned by Oppenheimer amounted to $156,650.
-22-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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, 2006, amounted
to $2,677,113,040 and $2,637,436,507, respectively. Aggregate purchases
and sales of securities sold, not yet purchased, excluding short-term
securities, for the year ended December 31, 2006, amounted to
$1,510,786,614 and $1,609,068,843, respectively.
At December 31, 2006, the aggregate cost for Federal income tax
purposes of portfolio investments and securities sold, not yet
purchased was $483,709,250, and $214,852,584, respectively.
For Federal income tax purposes, at December 31, 2006, accumulated net
unrealized appreciation on portfolio investments and securities sold,
not yet purchased was $28,897,783, consisting of $41,381,068 gross
unrealized appreciation and $12,483,285 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, 2006.
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, 2006, the Company
had no outstanding margin borrowings.
-23-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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,
swaps 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. Primarily all investments in
securities sold, not yet purchased and due from broker are positions
with, and amounts due from, the prime broker, Morgan Stanley.
Accordingly, the Fund has a concentration of individual counterparty
credit risk with the prime broker. The Fund pledges securities in an
account at PFPC Trust Company, for the benefit of the prime broker, to
meet the margin requirement as determined by the prime broker.
A swap is a contract under which two parties agree to make periodic
payments to each other based on specified interest rates, an index or
the value of some other instrument, applied to a stated, or "notional"
amount. Swaps generally can be classified as interest rate swaps,
currency swaps, commodity swaps or equity swaps which can also include
contracts for difference, depending on the type of index or instrument
used to calculate the payments. Such swaps would increase or decrease
the Company's investment exposure to the particular interest rate,
currency, commodity or equity involved. Securities associated with
swaps are marked-to-market based on the Company's valuation procedures
that are outlined in Section 2b of these notes. The change in value of
swaps, including the periodic amounts of interest to be paid or
received on swaps, is reported as unrealized gains or losses in the
Statement of Operations. Net unrealized gains are reported as an asset
and net unrealized losses are reported as a liability on the Statement
of Assets, Liabilities and Members' Capital. A realized gain or loss is
recorded upon payment or receipt of a periodic payment or termination
of swap agreements.
Most swap agreements entered into by the Company require the
calculation of the obligations of the parties to the agreements on a
"net basis." Consequently, current obligations (or rights) under a swap
agreement generally will be equal to only to the net amount to be paid
or received under the agreement based on the relative values of the
positions held by each party to the agreement (the "net amount").
-24-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
The Company is subject to the market risk associated with changes in
the value of the underlying investment or instrument, as well as
exposure to credit risk associated with counterparty non-performance on
swap contracts. The risk of loss with respect to swaps is limited to
the net amount of payments that the Company is contractually obligated
to make. If the other party to a swap defaults, the Fund's risk of loss
consists of the net amount of payments that the Company contractually
is entitled to receive, which may be different than the amounts
recorded on the Statement of Assets, Liabilities and Members' Capital.
The unrealized appreciation/depreciation, rather than the notional
amount, represents the approximate future cash to be received or paid,
respectively.
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 for the year ended December 31,
2006, transactions in written options were as follows:
-25-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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 -- -- 530 754,852
Options closed -- -- (530) (754,852)
Options exercised -- -- -- --
Options expired -- -- -- --
Options split -- -- -- --
----------- ---------- ----------- -----------
Written options outstanding
as of December 31, 2006 -- $ -- -- $ --
=========== ========== =========== ===========
-26-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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,
2006 2005 2004 2003 2002
------------ ------------ ------------- ------------- -------------
Net assets, end of period
(000s) $394,226 $360,816 $389,761 $502,521 $338,197
Ratio of net investment
income (loss) to average
net assets** (0.58)% (0.91)% (1.35%) (1.31%) (0.72%)
Ratio of expenses to
average net assets** 2.54% 2.33% 2.13% 1.88% 1.80%
Ratio of incentive
allocation to average
net assets 4.00% 0.89% 0%+ 5.29% 0%+
Portfolio turnover 546% 365% 323% 398% 763%
Total return - gross* 22.26% 11.47% (6.58%) 41.66% (5.44%)
Total return - net* 17.81% 9.18% (6.58%) 33.33% (5.44%)
Average debt ratio N/A N/A 0.77% 0.70% 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%
-27-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (CONCLUDED)
- --------------------------------------------------------------------------------
9. RECENT ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board (FASB)
released FASB Interpretation No. 48 "Accounting for Uncertainty in
Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in
the financial statements. FIN 48 requires the evaluation of tax
positions taken or expected to be taken in the course of preparing the
Company's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not
threshold would be recorded as a tax benefit or expense in the current
year. Adoption of FIN 48 is required for fiscal years beginning after
December 15, 2006 and is to be applied to all open tax years as of the
effective date. Recent SEC guidance allows deferring the implementation
of FIN 48. As a result, the Company will incorporate FIN 48 in its semi
annual report on June 30, 2007.
In September 2006, the Financial Accounting Standards Board (FASB)
issued STATEMENT ON FINANCIAL ACCOUNTING STANDARDS NO. 157, "FAIR VALUE
MEASUREMENTS" (FAS 157). This standard clarifies the definition of fair
value for financial reporting, establishes a framework for measuring
fair value and requires additional disclosures about the use of fair
value measurements. FAS 157 is effective for fianancial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. As of December 31, 2006, the Company
does not believe the adoption of FAS 157 will impact the amounts
reported in the financial statements, however, additional disclosures
will be required about the inputs used to develop the measurements of
fair value and the effect of certain of the measurements reported in
the statement of operations for a fiscal year.
10. SUBSEQUENT EVENTS
Subsequent to December 31, 2006 and through February 22, 2007, the
Company received initial and additional capital contributions from
Members of $10,412,783.
-28-
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, 2006 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.
-29-
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, 51 Indefinite; President of Centro de Investigacion Para el 9
c/o Oppenheimer Asset Since Desarrollo, A.C. (Center of Research Development) (2000
Management Inc. May 2003 to present) and Director of same 1984 - 2000); Adjunct
200 Park Avenue Fellow of the Center for Strategic and International
New York, NY 10166 Studies; Director of The Asia Tigers Fund, Inc. and The
Manager 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., and Advantage Advisers
Whistler International, Ltd., which are affiliates;
Director of Empresa Ica SA de CV, a Mexican
construction company (since 2006).
Janet L. Schinderman, 55 Indefinite; Associate Dean for Special Projects and Secretary to 5
c/o Oppenheimer Asset Since the Board of Overseers at Columbia Business School from
Management Inc. May 2003 1990 until June 2006; Manager of Advantage Advisers
200 Park Avenue Augusta Fund, L.L.C., Advantage Advisers Multi-Sector
New York, NY 10166 Fund I, Advantage Advisers Troon Fund, L.L.C., and
Manager Advantage Advisers Whistler Fund, L.L.C., which are
affiliates.
-30-
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, 51 Indefinite; Private investor in real estate investment management 5
c/o Oppenheimer Asset Since concerns. From February 2000 through June 2003, he was
Management Inc. October 2003 V.P.--Controller/ Treasurer for National Financial
200 Park Avenue Partners, which specializes in financial services
New York, NY 10166 distribution. Prior to that, Mr. Becker was a Managing
Manager 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., and Advantage Advisers
Whistler Fund, L.L.C., which are affiliates.
Jesse H. Ausubel, 55 Indefinite; Director, Program for the Human Environment and Senior 5
c/o Oppenheimer Asset Since Research Associate, The Rockefeller University (1993 to
Management Inc. May 1999 present); Director, Richard Lounshery Foundation (1998
200 Park Avenue to present); Program Director, Alfred P. Sloan
New York, NY 10116 Foundation (1994 to present); AdjunctScientist, Woods
Manager Hole Oceanographic Institution (1990 to present).Mr.
Ausubel is a Manager of Advantage Advisers Augusta
Fund, L.L.C., Advantage Advisers Troon Fund, L.L.C.,
Advantage Advisers Multi-Sector Fund I, and Advantage
Advisers Whistler Fund, L.L.C., which are affiliates.
-31-
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
- ---------------------------- -------------- -------------------------------------------------------- -------------
James E. Buck, 70 Indefinite; Retired in 2002 as Senior Vice President and Corporate 5
c/o Oppenheimer Asset since Secretary of the New York Stock Exchange, Inc. (the
Management Inc. April 2003 "Exchange") and the subsidiaries of the Exchange,
200 Park Avenue including the NYSE Foundation. Mr.Buck is a Manager of
New York, NY 10116 Advantage Advisers Augusta Fund, L.L.C., Advantage
Manager Advisers Troon Fund, L.L.C., Advantage Advisers
Multi-Sector Fund I, and Advantage Advisers Whistler
Fund, L.L.C., which are affiliates.
INTERESTED TRUSTEE
Bryan McKigney,** 48 Indefinite; Mr. McKigney is a Senior Managing Director and the Chief 5
c/o Oppenheimer Asset Manager since Administrative Officer of Oppenheimer Asset Management
Management Inc. December 1, Inc. He has been in the financial services industry
200 Park Avenue 2004; since 1981 and has held various management positions at
New York, NY 10166 Canadian Imperial Bank of Commerce (1993 - 2003) and the
Manager, President, CEO President and Chase Manhattan Bank N.A. (1981 - 1993). He serves as
CEO since Manager of Advantage Advisers Augusta Fund, L.L.C.,
September 23, Advantage Advisers Multi-Sector Fund I, Advantage
2004 Advisers Troon Fund, L.L.C., and Advantage Advisers
Whistler Fund, L.L.C., which are affiliates.
-32-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
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, 46 One year; Mr. Bhalla has been a Senior Vice President at
Chief Financial Officer Since Oppenheimer Asset Management since May 2005. From July
July 27, 2005. 2002 to May 2005, he was an Assistant Vice President at
Zurich Capital Markets Inc., a Director of the Client
Service Group at GlobeOp Financial Services, and a
Senior Consultant at Capital Markets Company. Prior to
that, he was a Vice President at Blackrock Financial
Management since June 1999. Mr. Bhalla is a Certified
Public Accountant. He graduated with an MBA from Saint
Mary's University, Halifax, Canada in 1986.
Stephen C. Beach, 53 One year; Since February 2005, Mr. Beach has been the Chief
Chief Compliance Officer Since Compliance Officer for Oppenheimer Asset Management.
March 18, 2005. Prior to that, he 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, 55 One year; Ms. Kaback has been a Senior Vice President at
Chief Legal Officer and Since Oppenheimer Asset Management since June 2003. She was
Vice President July 23, 2003 Executive Director of CIBC World Markets Corp. from July
2001 through June 2003. Prior to that, she was
Vice-President and Senior Counsel of Oppenheimer Funds,
Inc. from November 1999 through July 2001. Prior to
that, she was Senior Vice President and Deputy General
Counsel at Oppenheimer Capital from April 1989 through
November 1999.
-33-
ADVANTAGE ADVISERS XANTHUS FUND, L.L.C.
COMPANY MANAGEMENT ( UNAUDITED)
- --------------------------------------------------------------------------------
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, 48 One year term Mr. McKigney is a Senior Managing Director and the Chief
c/o Oppenheimer Asset for President Administrative Officer of Oppenheimer Asset Management
Management Inc. and CEO; since Inc. He has been in the financial services industry
200 Park Avenue September 23, since 1981 and has held various management positions at
New York, NY 10166 2004. Canadian Imperial Bank of Commerce (1993 - 2003) and
President, CEO, Indefinite term the Chase Manhattan Bank N.A. (1981 - 1993). He serves
and Manager for Manager; as Manager of Advantage Advisers Augusta Fund, L.L.C.,
since Advantage Advisers Multi-Sector Fund I, Advantage
December 1, 2004; 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 Senior 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.
-34-
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
$143,246 for 2006 and $136,425 for 2005.
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 2006 and $3,500 for 2005. 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 2006 and $0 for
2005.
-35-
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 2006 and $0 for 2005.
(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) Not Applicable
(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 $423,936 for 2006 and $300,479 for 2005.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
-36-
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 December 31, 2006
PROXY VOTING POLICIES
Alkeon has entered into an agreement with Institutional Shareholder Services
("ISS"), an independent third party, for ISS to provide Alkeon with its research
on proxies and to facilitate the electronic voting of proxies. Alkeon has
adopted ISS's proxy voting policies in order to ensure that it votes proxies in
the best interests of its clients. Alkeon has instructed ISS to vote all proxies
in accordance with this policy, unless instructed by Alkeon to vote otherwise.
Alkeon generally votes in favor of routine corporate housekeeping proposals,
such as proposals to ratify auditors and reasonably crafted shareholder
proposals calling for directors to be elected with an affirmative majority of
votes. For all other proposals, Alkeon will vote in accordance with the proxy
voting guidelines adopted by ISS.
Clients may obtain a copy of the Proxy Procedures and information about how
Alkeon voted a client's proxies by contacting Greg Jakubowsky via e-mail at
gjakubowsky@alkeoncapital.com or by telephone at (212) 389-8710.
Alkeon may make cash payments to third parties who provide client referrals in
accordance with Rule 206(4)-3 of the Investment Advisers Act of 1940. Except as
described in the preceding sentence, Alkeon does not enter into agreements with,
or make commitments to, any broker-dealer that would bind Alkeon to compensate
that broker-dealer, directly or indirectly for client referrals. However, when
one or more broker-dealer is believed capable of providing the best price and
execution with respect to a particular portfolio transaction, Alkeon may select
a broker-dealer who may have referred clients to Alkeon, or who may refer
clients to Alkeon in the future. In doing so, Alkeon does not pay higher
commissions than those that would be paid to other broker-dealers on a similar
transaction.
-37-
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, 2006:
-------------------- ------------- ------------ ---------------- -------------- -------------------------
No. of
Accounts
Total where Total Assets in
Name of Portfolio No. of Advisory Fee Accounts where Advisory
Manager or Type of Accounts is Based on Fee is Based on
TEAM MEMBER ACCOUNTS MANAGED Total ASSETS PERFORMANCE PERFORMANCE
-------------------- ------------- ------------ ---------------- -------------- -------------------------
Panayotis Sparaggis Registered 1 $21,318,844 1 $21,318,844
Investment
Companies:
-------------------- ------------- ----------------------------- -------------- -------------------------
Panayotis Sparaggis Other 6 $298,974,321 6 $298,974,321
Pooled
Investment
Vehicles:
-------------------- ------------- ----------------------------- -------------- -------------------------
Panayotis Sparaggis Other 0 $0 0 $0
Accounts:
-------------------- ------------- ----------------------------- -------------- -------------------------
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.
-38-
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, 2006.
Dollar ($) Range
of Fund Shares
Name of Portfolio 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
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registrant last provided disclosure in response to the requirements of Item
407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15)
of Schedule 14A (17 CFR 240.14a-101)), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any a mendment thereto, that is the subject of
disclosur e 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.
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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 MARCH 5, 2007
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ BRYAN MCKIGNEY
-------------------------------------------------------
Bryan McKigney, Principal Executive Officer
(principal executive officer)
Date MARCH 5, 2007
----------------------------------------------------------------------------
By (Signature and Title)* /s/ VINEET BHALLA
-------------------------------------------------------
Vineet Bhalla, Chief Financial Officer
(principal financial officer)
Date MARCH 5, 2007
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.
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