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 811-21063
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BACAP Opportunity Strategy, LLC
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(Exact name of registrant as specified in charter)
101 South Tryon Street
Charlotte, NC 28255
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(Address of principal executive offices) (Zip code)
National Corporate Research, Ltd.
615 South DuPont Highway
County of Kent
City of Dover
State of Delaware 19901
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(Name and address of agent for service)
Registrant's telephone number, including area code: 704-388-4353
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Date of fiscal year end: December 31, 2003
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Date of reporting period: December 31, 2003
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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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
- ------------------------------------------------------------- BACAP OPPORTUNITY
STRATEGY, LLC
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
FOR THE YEAR ENDED DECEMBER 31, 2003
BACAP OPPORTUNITY STRATEGY, LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003
CONTENTS
Report of Independent Auditors ......................................... 1
Statement of Assets, Liabilities and Members' Capital .................. 2
Statement of Operations................................................. 3
Statement of Changes in Members' Capital - Net Assets................... 4
Notes to Financial Statements........................................... 5
Schedule of Portfolio Investments....................................... 13
Schedule of Securities Sold, Not Yet Purchased.......................... 18
Fund Governance (Unaudited)............................................. 20
REPORT OF INDEPENDENT AUDITORS
To the Board of Managers and Members of BACAP Opportunity Strategy, LLC
In our opinion, the accompanying statement of assets, liabilities and members'
capital, including the schedules of portfolio investments and securities sold,
not yet purchased, and the related statements of operations and of changes in
members' capital - net assets and the financial highlights present fairly, in
all material respects, the financial position of BACAP Opportunity Strategy, LLC
(the "Fund") at December 31, 2003, the results of its operations for the year
then ended, and the changes in its members' capital - net assets and the
financial highlights for the year then ended and for the period October 1, 2002
(commencement of operations) through December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
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. We believe that our audits, which included
confirmation of securities at December 31, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2004
- 1 -
BACAP OPPORTUNITY STRATEGY, LLC
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL (IN THOUSANDS)
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DECEMBER 31, 2003
ASSETS
Investments in securities, at market value (cost - $35,864) $42,155
Cash equivalents 4,306
Deposit with Prime Broker for securities sold, not yet purchased 9,004
Receivable for investment securities sold 7,766
Receivable from investment adviser 4
Prepaid insurance 28
Interest receivable 14
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TOTAL ASSETS 63,277
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LIABILITIES
Securities sold, not yet purchased, at market value (proceeds - $4,779) 5,223
Payable for investment securities purchased 6,960
Incentive fee payable 2,259
Distribution payable 1,830
Accounting and investor servicing fees payable 69
Custody fees payable 57
Dividends payable on securities sold, not yet purchased 14
Accrued expenses 186
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TOTAL LIABILITIES 16,598
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MEMBERS' CAPITAL $46,679
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MEMBERS' CAPITAL
Represented by:
Paid in Capital $40,832
Net unrealized appreciation on investments and
securities sold, not yet purchased 5,847
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MEMBERS' CAPITAL $46,679
========
The accompanying notes are an integral part of these financial statements.
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BACAP OPPORTUNITY STRATEGY, LLC
STATEMENT OF OPERATIONS (IN THOUSANDS)
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FOR THE YEAR ENDED
DECEMBER 31, 2003
INVESTMENT INCOME
Interest $ 136
Dividends (net of foreign taxes withheld $2) 84
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220
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EXPENSES
Management fees 382
Legal fees 311
Custodian fees 167
Accounting and investor servicing fees 145
Prime broker fees 108
Dividends on securities sold, not yet purchased 92
Insurance fees 89
Audit fees 48
Board of Managers' fees and expenses 32
Registration fees 27
Organizational expenses 17
Interest 1
Miscellaneous 6
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TOTAL EXPENSES 1,425
LESS: EXPENSE WAIVER (540)
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NET EXPENSE 885
NET INVESTMENT LOSS (665)
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
NET REALIZED GAIN (LOSS) FROM:
Investment securities 8,707
Securities sold, not yet purchased (2,213)
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NET REALIZED GAIN ON INVESTMENTS 6,494
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS AND
SECURITIES SOLD, NOT YET PURCHASED
Investment securities 6,387
Securities sold, not yet purchased (328)
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6,059
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND SECURITIES
SOLD, NOT YET PURCHASED 12,553
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NET INCREASE IN MEMBERS' CAPITAL RESULTING FROM OPERATIONS $11,888
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The accompanying notes are an integral part of these financial statements.
- 3 -
BACAP OPPORTUNITY STRATEGY, LLC
STATEMENT CHANGES IN MEMBERS' CAPITAL -- NET ASSETS (IN THOUSANDS)
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AFFILIATED
MEMBERS* MEMBERS TOTAL
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MEMBERS' CAPITAL, OCTOBER 1, 2002 $ 100 $ -- $ 100
Capital contributions -- 23,701 23,701
Offering Costs (2) (215) (217)
Re-allocation of organizational costs 187 (187) --
Net investment income (loss) (2) (83) (85)
Net realized gain on investments 6 360 366
Net change in unrealized depreciation on investments and
securities sold, not yet purchased (1) (211) (212)
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MEMBERS' CAPITAL, DECEMBER 31, 2002 $ 288 $23,365 $23,653
Capital contributions -- 17,163 17,163
Capital withdrawals (2,501) (3,509) (6,010)
Offering Costs -- (15) (15)
Re-allocation of organizational costs 1 (1) --
Net investment loss (4) (661) (665)
Net realized gain on investments 26 6,468 6,494
Net change in unrealized appreciation on investments and 52 6,007 6,059
securities sold, not yet purchased
Incentive allocation from affiliated member (15) -- (15)
Incentive allocation 2,312 (2,297) 15
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MEMBERS' CAPITAL, DECEMBER 31, 2003 $ 159 $46,520 $46,679
======= ======= =======
<FN>
*The Affiliated Members are BACAP Advisory Partners, LLC and Banc of America Capital Management, LLC.
</FN>
The accompanying notes are an integral part of these financial statements.
- 4 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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1. ORGANIZATION
BACAP Opportunity Strategy, LLC (the "Fund") was organized as a limited
liability company under the laws of the State of Delaware in March
2002. The Fund is registered under the Investment Company Act of 1940,
as amended (the "Act"), as a non-diversified, closed-end management
investment company. The Fund's term is perpetual unless the Fund is
otherwise terminated in accordance with the terms of the First Amended
and Restated Limited Liability Company Agreement (the "Agreement")
dated as of June 27, 2003. The Fund's investment objective is to
achieve long-term capital appreciation. It pursues this objective by
investing its assets primarily in long and short positions in
securities of (i) companies engaged in developing, producing or
delivering technology related products or services; (ii) companies that
may benefit from, or be disadvantaged by, technology related products
or services and (iii) companies that derive significant revenues from
businesses that may be affected by technological events and advances.
The Fund's portfolio of securities in the technology area is expected
to consist primarily of equity securities of both 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.
The Board of Managers of the Fund ("Board of Managers") provides broad
oversight over the operations and affairs of the Fund. BACAP Advisory
Partners, LLC (the "Adviser"), a Delaware limited liability company,
serves as the investment adviser to the Fund and is responsible for
managing the Fund's investment activities pursuant to an investment
advisory agreement. BACAP Distributors, LLC is the managing member and
controlling person of the Adviser. Alkeon Capital Management, LLC, a
member of the Adviser, has been retained to serve as the Fund's
sub-adviser and provides day-to-day investment management services to
the Fund, subject to the general supervision of the Adviser.
The acceptance of initial and additional capital contributions from
members of the Fund ("Members") is subject to approval by the Board of
Managers. The Board of Managers has delegated this responsibility to
BACAP Distributors, LLC provided that BACAP Distributors, LLC reviews
applicable subscription documentation and determines that the
prospective Members satisfy applicable eligibility requirements to
become Members. The interests of Members are represented by limited
liability company interests ("Interests"). The Fund may from time to
time offer to repurchase Interests pursuant to written tenders by
Members. Such repurchases are made at such times and on such terms as
may be determined by the Board of Managers, in its complete and
exclusive discretion. The Adviser expects that generally it will
recommend to the Board of Managers that the Fund offer to repurchase
Interests from Members twice each year, effective as of June 30 and
December 31 of each year. The Fund can be dissolved if a Member's
written request made in accordance with the Agreement to liquidate
their entire interest has not been repurchased by the Fund within two
years from the date of request.
- 5 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the Adviser to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The
Adviser believes that the estimates for income and expense accruals and
valuation of certain securities utilized in preparing the Fund's
financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
Securities transactions, including related revenue and expenses, are
recorded on a trade-date basis and dividends are recorded on an
ex-dividend date basis. Interest income and expense are recorded on the
accrual basis.
a. PORTFOLIO VALUATION
Domestic exchange traded securities (other than equity securities
traded primarily on the NASDAQ Stock Market, Inc. ("NASDAQ") and
options) are valued at their last composite sale prices on the date of
valuation as reported on the exchanges where such securities are
traded. If no sales of such securities are reported on a particular
day, the securities are valued based upon their composite bid prices
for securities held long, or their composite ask prices for securities
sold short, as reported by such exchanges. Securities traded on a
foreign securities exchange are 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 ask prices (in the case of securities
sold short) as reported by such exchange.
Other securities for which market quotations are readily available will
be valued at their bid prices (or ask prices in the case of securities
held short) as obtained from one or more dealers making markets for
those securities.
Securities traded primarily on NASDAQ are valued at the NASDAQ official
closing price ("NOCP") (which is the last trade price at or before
4:00:02 p.m. (Eastern Time) adjusted up to NASDAQ's best bid price if
the last trade price is below such bid and down to NASDAQ's best offer
price if the last trade is above such offer price.) If no NOCP is
available, the security is valued at the last sale price on the NASDAQ
prior to the calculation of the net assets of the Fund. If no sale is
shown on NASDAQ, the bid price is used. If no sale is shown and no bid
or ask price is available, the price will be deemed "stale" and the
value will be determined by, or in accordance with the fair valuation
procedures set forth by the Board of Managers.
Exchange traded options are generally valued at their latest reported
sales price as reported by the exchange. Over the counter options are
generally valued using the mean between the latest bid or ask prices.
- 6 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a. PORTFOLIO VALUATION (CONTINUED)
Debt securities are valued in accordance with the procedures described
above. Alternatively, debt securities may be valued by a pricing
service, which employs a matrix to determine valuation for normal
institutional size trading units. The Board of Managers and/or the
Valuation Committee established by 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 are, absent unusual circumstances, valued at amortized
cost.
Shares of open-end investment companies held in the Fund's portfolio
will be valued at the latest NAV reported by the investment company.
If market quotations are not readily available, securities and other
assets are valued at fair value as determined in good faith by, or in
accordance with the procedures adopted by the Board of Managers.
All assets and liabilities initially expressed in foreign currencies
are converted into U.S. dollars using foreign exchange rates provided
by a pricing service compiled as of 4:00 p.m. London time. Trading in
foreign securities generally is completed, and the values of 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 Fund is determined. When, in the judgment of the Fund's adviser or
sub-adviser, an event materially affects the values of securities held
by the Fund or its liabilities, such securities and liabilities are
valued at fair value as determined in good faith by, or in accordance
with procedures adopted by the Board of Managers.
b. CASH EQUIVALENTS
The Fund treats all highly-liquid financial instruments that mature
within three months as cash equivalents. At December 31, 2003,
$4,305,722 in cash equivalents were invested in a PNC Bank Money Market
Deposit Account.
c. INCOME TAXES
The Fund is a limited liability company and has elected to be treated
as a Partnership for federal income tax purposes. No provision for the
payment of Federal, state or local income taxes on the profits of the
Fund has been made. The Members are individually liable for the income
taxes on their share of the Fund's income.
- 7 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. ORGANIZATIONAL EXPENSES AND OFFERING COSTS
The Fund's organizational expenses of $16,586 for the year ended
December 31, 2003, have been expensed as incurred. Offering costs of
$15,177 were charged directly to capital. In order to achieve a more
equitable distribution of the impact of organizational expenses and
offering costs among Members, the allocation of these expenses and
costs were adjusted as of each date during the one year period
following commencement of the Fund's operations that additional capital
was contributed to the Fund by Members.
3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER
In consideration of services provided by the Adviser, the Fund pays the
Adviser a fee computed and paid monthly at the annual rate of 1.00% of
the aggregate value of outstanding Interests determined as of the last
day of each month (before reduction for any repurchase of Interests or
the Incentive Allocation (as defined below).
The Fund's portfolio transactions may be executed by brokerage firms
affiliated with the Adviser and Alkeon Capital Management, LLC. During
the year ended December 31, 2003, Banc of America Securities LLC and
Mainsail Group LLC earned $12,831 and $52,414 respectively in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
The Adviser serves as the Special Advisory Member of the Fund. In such
capacity, the Adviser is entitled to receive a performance-based
incentive allocation (the "Incentive Allocation"), charged to the
capital account of each Member, generally computed as of the end of
each calendar year, of 20% of the net profits allocated to the Member.
The Incentive Allocation will apply only to net profits allocable to
the Member for the applicable period that exceed previously allocated
net losses. During the year ended December 31, 2003, an Incentive
Allocation of $2,311,755 was made to the Adviser. Alkeon Capital
Management, LLC, as a non-managing member of the Adviser, has a right
to participate in the revenues of the Adviser, including the Incentive
Allocation.
Each member of the Board of Managers (a "Manager") who is not an
"interested person" (as defined by the Act) of the Fund, receives an
annual retainer of $6,000 plus $1,000 for each Board or committee
meeting attended. All non-interested Managers are reimbursed by the
Fund for all reasonable out-of-pocket expenses incurred by them in
performing their duties.
PFPC Trust Company (the "Custodian") serves as custodian of the Fund's
assets. PFPC Inc. serves as the Administrator, Investor Services and
Accounting Agent to the Fund and in that capacity provides certain
administration, accounting, record keeping, tax and investor related
services. PFPC Inc. has waived $58,669 of its fees for the year ended
December 31, 2003.
The Adviser has entered into an agreement with the Fund to waive its
fees or absorb Fund expenses to the extent necessary to limit the total
annual ordinary operating expenses of the Fund to 2.30%,
- 8 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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3. MANAGEMENT FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
excluding organization and offering costs. In consideration for the
Adviser's agreement to limit the Fund's expenses, the Fund will carry
forward the amount of expenses paid or absorbed by the Adviser in
excess of the expense limitation, for a period not to exceed three
years from the end of the fiscal year in which the expense was
incurred, and will reimburse the Adviser such amounts to the extent
that such reimbursement would not cause the Fund to exceed the expense
limitation in effect at the time of recovery. At December 31, 2003, the
amount potentially recoverable is $685,323, representing an increase of
$481,361 from December 31, 2002, which relates to the waiver from the
Adviser for the year ended December 31, 2003.
4. SECURITIES TRANSACTIONS
Aggregate purchases and sales of investment securities, excluding
short-term securities, for the year ended December 31, 2003, amounted
to $151,296,094, and $139,034,989, respectively.
At December 31, 2003, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes. At December 31, 2003, accumulated net unrealized appreciation
on investments was $5,846,857, consisting of $6,648,744 gross
unrealized appreciation and $801,887 gross unrealized depreciation.
5. SHORT-TERM BORROWINGS
The Fund 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 Fund
to satisfy an asset coverage requirement of 300% of its indebtedness,
including amounts borrowed, measured at the time the Fund incurs the
indebtedness. The Fund pays interest on outstanding margin borrowings
at an annualized rate of LIBOR plus 0.0875%. The Fund pledges
securities as collateral for the margin borrowings, which are
maintained in a segregated account held by the Custodian. As of
December 31, 2003, the Fund had no outstanding margin borrowings. For
the year ended December 31, 2003, the average daily amount of such
borrowings was $41,212 and the daily average interest rate was 2.41%.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Fund may trade various financial
instruments and enter into various investment activities with
off-balance sheet risk. These financial instruments include forward
contracts, 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 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
- 9 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR
CONCENTRATIONS OF CREDIT RISK (CONTINUED)
may be in excess of the amounts recognized in the statement of assets,
liabilities and members' capital. There were no transactions in forward
contracts during the year ended December 31, 2003.
The Fund maintains cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Fund 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 Fund to
deliver specified securities and thereby create a liability to purchase
such securities in the market at prevailing prices. Accordingly, these
transactions result in off-balance sheet risk, as the Fund's ultimate
obligation to such securities may exceed the amount indicated in the
statement of assets, liabilities and members' capital.
A risk associated with purchasing an option is that the Fund pays a
premium whether or not the option is exercised. Additionally, the Fund
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 Fund writes an option, the premium received by the Fund 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 Fund has realized a gain or loss.
In writing an option, the Fund 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 Fund could result in the
Fund selling or buying a security at a price different from the current
market value. During the year ended December 31, 2003, there were no
transactions in written options.
7. FINANCIAL HIGHLIGHTS
The following represents the ratios to average net assets and other
supplemental information for each of the periods presented:
- 10 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
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OCTOBER 1, 2002
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 2003** DECEMBER 31, 2002**
------------------- -------------------
Net assets, end of period (000) $ 46,679 $ 23,653
Ratio of net investment income (loss) to
average net assets* (1.76%) (2.25%)
Ratio of expenses to average net assets
(excluding organizational expenses)* (2.30%) (2.30%)
Ratio of expenses to average net assets,
net of waivers * (2.35%) (3.23%)
Ratio of expenses to average net assets,
gross of waivers * (3.78%) (7.33%)
Portfolio turnover rate 413% 273%
Total return *** 30.72% (0.51%)
<FN>
* Ratios are annualized and reflect the re-allocation of
organizational expenses to all Members outlined in Note 2d.
** Net investment income (loss) ratio, expenses to average net
assets ratio and total return are calculated for the Members as
a whole. An individual Member's return may vary from this return
based on the timing of capital transactions.
*** Total return is net of all fees including performance based fees
and the Incentive Allocation.
</FN>
8. SUBSEQUENT EVENTS
Effective January 1, 2004, the Fund received capital contributions from
investors of $4,100,000. Effective February 1, 2004, the Fund received
capital contributions from investors of $4,040,000.
9. LITIGATION EVENT
On September 3, 2003, the Office of the Attorney General for the State
of New York ("NYAG") simultaneously filed and settled a complaint
against Canary Capital Partners, et al. (collectively "Canary") in
connection with an investigation into alleged improper mutual fund
trading practices with certain families of mutual funds, including the
Nations Funds family for which BACAP Distributors, LLC also serves as
distributor. Specifically, the NYAG alleged that Canary engaged in
activities that it characterized as "market timing" and also "late
trading."
Since September 5, 2003, a number of lawsuits have been filed in
connection with these circumstances. BACAP Distributors, LLC, as well
as a former President and Manager of the Fund, certain officers of the
Fund and affiliates of the Adviser and BACAP Distributors, LLC, among
others, are named as defendants in some of these lawsuits in connection
with their relationships with the Nations Funds. As
- 11 -
BACAP OPPORTUNITY STRATEGY, LLC
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003 (CONTINUED)
- --------------------------------------------------------------------------------
of the date of this report, these lawsuits and investigations by
various state and federal authorities, including the NYAG and
Securities and Exchange Commission, are ongoing.
- 12 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF PORTFOLIO INVESTMENTS (IN THOUSANDS)
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DECEMBER 31, 2003
SHARES VALUE
COMMON STOCK - 87.70%
AEROSPACE / DEFENSE - EQUIPMENT - 0.66%
9,630 United Defense Industries, Inc.* (a) $ 307
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APPLICATIONS SOFTWARE - 8.19%
14,250 Citrix Systems, Inc.* (a) 302
5,750 Mercury Interactive Corp.* (a) 280
85,300 Microsoft Corp. 2,349
24,050 Quest Software, Inc.* (a) 341
39,620 Siebel Systems, Inc.* (a) 550
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3,822
-------
BROADCASTING SERVICES / PROGRAMMING - 1.24%
9,500 4Kids Entertainment, Inc.* (a) 247
36,080 New Frontier Media, Inc.* (a) 334
-------
581
-------
CABLE TELEVISION - 1.64%
14,240 Comcast Corp., Special Class A* (a) 445
9,340 EchoStar Communications Corp.* (a) 318
-------
763
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CASINO SERVICES - 0.77%
4,900 International Game Technology (a) 175
10,800 Scientific Games Corp., Class A* (a) 184
-------
359
-------
COMPUTER SERVICES - 0.20%
17,900 CompuCom Systems, Inc.* 94
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COMPUTERS - 2.69%
37,000 Dell, Inc.* 1,257
-------
COMPUTERS - MEMORY DEVICES - 1.38%
20,050 EMC Corp.* 259
18,200 Maxtor Corp.* (a) 202
9,730 Seagate Technology 184
-------
645
-------
COMPUTERS - PERIPHERAL EQUIPMENT - 0.35%
5,100 InFocus Corp.* 49
4,000 Interphase Corp.* 52
2,500 TransAct Technologies, Inc.* 61
-------
162
-------
The accompanying notes are an integral part of these financial statements.
- 13 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF PORTFOLIO INVESTMENTS (IN THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
SHARES VALUE
COMMON STOCK (CONTINUED)
DATA PROCESSING / MANAGEMENT - 1.82%
22,900 VERITAS Software Corp.* (a) $ 851
-------
DENTAL SUPPLIES & EQUIPMENT - 0.61%
6,270 DENTSPLY International, Inc. (a) 283
-------
DISTRIBUTION / WHOLESALE - 1.42%
11,500 CDW Corp. (a) 664
-------
E-COMMERCE / PRODUCTS - 0.77%
6,790 Amazon.com, Inc.* (a) 357
-------
E-COMMERCE / SERVICES - 0.77%
75,510 HomeStore, Inc.* (a) 357
-------
ELECTRONIC COMPONENTS - MISCELLANEOUS - 3.92%
2,500 Benchmark Electronics, Inc.* (a) 87
9,270 Jabil Circuit, Inc.* (a) 262
31,200 Sanmina-SCI Corp.* (a) 393
47,450 Vishay Intertechnology, Inc.* (a) 1,087
-------
1,829
-------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - 13.06%
7,900 Advanced Micro Devices, Inc.* (a) 118
200,680 Agere Systems, Inc., Class A* (a) 612
37,400 Altera Corp.* (a) 849
68,530 ATI Technologies, Inc.* (a) 1,036
123,300 Bookham Technology PLC - Sponsored ADR* (a) 308
13,600 Fairchild Semiconductor International, Inc.* 339
41,510 Intel Corp. (a) 1,337
21,540 National Semiconductor Corp.* (a) 849
16,700 Xilinx, Inc.* 647
-------
6,095
-------
ELECTRONIC CONNECTORS - 1.48%
10,830 Amphenol Corp.* (a) 692
-------
ENTERPRISE SOFTWARE / SERVICES - 5.75%
32,900 Informatica Corp.* (a) 339
52,540 Novell, Inc.* (a) 553
110,900 Oracle Corp.* (a) 1,464
4,970 SAP AG - Sponsored ADR (a) 207
14,080 Ultimate Software Group, Inc.* 123
-------
2,686
-------
The accompanying notes are an integral part of these financial statements.
- 14 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF PORTFOLIO INVESTMENTS (IN THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
SHARES VALUE
COMMON STOCK (CONTINUED)
ENTERTAINMENT SOFTWARE - 2.18%
22,590 Activision, Inc.* (a) $ 411
35,930 THQ, Inc.* (a) 608
-------
1,019
-------
INSTRUMENTS - CONTROLS - 0.83%
15,300 Thermo Electron Corp.* (a) 386
-------
INTERNET INFRASTRUCTURE SOFTWARE - 0.36%
25,440 AsiaInfo Holdings, Inc.* (a) 170
-------
INTERNET SECURITY - 0.53%
3,040 Blue Coat Systems, Inc.* (a) 68
10,120 Secure Computing Corp.* (a) 181
-------
249
-------
MEDICAL - BIOMEDICAL / GENETICS - 1.08%
10,200 Genzyme Corp.* (a) 503
-------
MEDICAL - HMO - 0.64%
3,980 Anthem, Inc.* (a) 299
-------
MEDICAL PRODUCTS - 0.92%
6,350 Henry Schein, Inc.* (a) 429
-------
NETWORKING PRODUCTS - 5.34%
87,560 Cisco Systems, Inc.* (a) 2,127
19,560 Juniper Networks, Inc.* (a) 365
-------
2,492
-------
PHARMACY SERVICES - 0.46%
8,510 Caremark Rx, Inc.* (a) 216
-------
SCHOOLS - 1.39%
2,760 Apollo Group, Inc., Class A* (a) 188
10,000 DeVry, Inc.* (a) 251
6,680 Education Management Corp.* (a) 207
-------
646
-------
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS - 8.09%
20,150 Analog Devices, Inc. (a) 920
16,970 Cypress Semiconductor Corp.* (a) 362
12,790 Linear Technology Corp. (a) 538
23,430 Marvell Technology Group Ltd.* (a) 889
The accompanying notes are an integral part of these financial statements.
- 15 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF PORTFOLIO INVESTMENTS (IN THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
SHARES VALUE
COMMON STOCK (CONTINUED)
SEMICONDUCTOR COMPONENTS - INTEGRATED CIRCUITS (CONTINUED)
78,500 Taiwan Semiconductor Manufacturing Company
Ltd. - Sponsored ADR* $ 804
53,618 United Microelectronics Corp.* (a) 265
-------
3,778
-------
SEMICONDUCTOR EQUIPMENT - 8.69%
80,840 Applied Materials, Inc.* (a) 1,815
28,500 Brooks Automation, Inc.* (a) 689
23,180 Lam Research Corp.* (a) 748
4,900 MKS Instruments, Inc.* 142
12,700 Novellus Systems, Inc.* (a) 534
25,200 Siliconware Precision Industries Co. -
Sponsored ADR* (a) 130
-------
4,058
-------
TELECOMMUNICATION EQUIPMENT - 3.38%
49,500 ADC Telecommunications, Inc.* 147
35,140 Comverse Technology, Inc.* (a) 618
191,910 Nortel Networks Corp.* (a) 812
-------
1,577
-------
TELECOMMUNICATION EQUIPMENT - FIBER OPTICS - 0.73%
32,830 Corning, Inc.* (a) 342
-------
TELECOMMUNICATION SERVICES - 0.58%
12,030 Amdocs Ltd.* (a) 270
-------
TELEPHONE - INTEGRATED - 0.44%
20,100 Primus Telecommunications Group, Inc.* (a) 205
-------
TRANSPORT - SERVICES - 0.41%
9,890 Sirva, Inc.* 193
-------
WEB HOSTING / DESIGN - 0.44%
11,200 eCollege.com, Inc.* (a) 207
-------
WEB PORTALS / ISP - 4.25%
33,320 GigaMedia Ltd.* 56
8,250 Pacific Internet Ltd.* (a) 67
39,580 SINA Corp.* (a) 1,336
11,630 Yahoo!, Inc.* (a) 525
-------
1,984
-------
The accompanying notes are an integral part of these financial statements.
- 16 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF PORTFOLIO INVESTMENTS (IN THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
SHARES VALUE
COMMON STOCK (CONTINUED)
WIRELESS EQUIPMENT - 0.24%
9,520 Alvarion Ltd.* (a) $ 110
-------
TOTAL COMMON STOCK (COST $34,620) 40,937
-------
CONTRACTS
PURCHASED OPTIONS - 2.61%
PUT OPTIONS - 2.61%
REGISTERED INVESTMENT COMPANY - 2.61%
8,700 Nasdaq-100 Index Tracking Stock,
06/19/04, $34.00 1,218
-------
TRANSPORT - SERVICES - 0.00%+
35 United Parcel Service, Inc., Class B,
01/17/04, $60.00 0++
-------
TOTAL PUT OPTIONS (COST $1,244) 1,218
-------
TOTAL PURCHASED OPTIONS (COST $1,244) 1,218
-------
TOTAL INVESTMENTS (COST $35,864) - 90.31% 42,155
-------
OTHER ASSETS, LESS LIABILITIES - 9.69% ** 4,524
-------
NET ASSETS - 100.00% $46,679
=======
(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 $4,305,722 invested in a PNC Bank Money Market Deposit Account
which is 9.22% of net assets.
+ Amount represents less than 0.01%.
++ Amount represents less than $500.
ADR Aamerican Depository Receipt
The accompanying notes are an integral part of these financial statements.
- 17 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (IN THOUSANDS)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
SHARES VALUE
SECURITIES SOLD, NOT YET PURCHASED - (11.19%)
APPLICATIONS SOFTWARE - (0.25%)
2,560 National Instruments Corp. $ (116)
-------
CAPACITORS - (0.25%)
8,430 KEMET Corp. (115)
-------
CHEMICALS - SPECIALTY - (0.47%)
4,440 Cabot Microelectronics Corp. (218)
-------
COMMERCIAL SERVICES - FINANCE - (0.50%)
6,240 Paychex, Inc. (232)
-------
COMPUTERS - (0.81%)
4,100 International Business Machines Corp. (380)
-------
CONSULTING SERVICES - (0.36%)
3,610 Corporate Executive Board Co. (168)
-------
DATA PROCESSING / MANAGEMENT - (0.20%)
5,100 Acxiom Corp. (95)
-------
DENTAL SUPPLIES & EQUIPMENT - (0.78%)
5,700 Patterson Dental Co. (366)
-------
ELECTRONIC COMPONENTS - MISCELLANEOUS - (0.21%)
5,820 AVX Corp. (97)
-------
ELECTRONIC COMPONENTS - SEMICONDUCTORS - (0.60%)
5,890 Cree, Inc. (104)
18,250 Lattice Semiconductor Corp. (177)
-------
(281)
-------
ELECTRONIC PARTS DISTRIBUTION - (0.25%)
4,950 Arrow Electronics, Inc. (115)
-------
ENTERPRISE SOFTWARE / SERVICES - (0.52%)
8,900 Computer Associates International, Inc. (243)
-------
HOTELS & MOTELS - (0.28%)
7,600 Hilton Hotels Corp. (130)
-------
INSTRUMENTS - SCIENTIFIC - (0.39%)
8,800 Applera Corp. - Applied Biosystems Group (182)
-------
MEDICAL - DRUGS - (0.50%)
5,100 Merck & Co., Inc. (236)
-------
The accompanying notes are an integral part of these financial statements.
- 18 -
BACAP OPPORTUNITY STRATEGY, LLC
SCHEDULE OF SECURITIES SOLD, NOT YET PURCHASED (IN THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
SHARES VALUE
SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
MEDICAL - HOSPITALS - (0.53%)
4,600 Universal Health Services, Inc., Class B $ (247)
-------
MEDICAL - WHOLESALE DRUG DISTRIBUTION - (0.53%)
4,080 Cardinal Health, Inc. (249)
-------
MEDICAL PRODUCTS - (0.57%)
5,130 Johnson & Johnson (265)
-------
MOTORCYCLE / MOTOR SCOOTER - (0.39%)
3,800 Harley-Davidson, Inc. (181)
-------
PUBLISHING - NEWSPAPERS - (0.44%)
4,110 Dow Jones & Co., Inc. (205)
-------
SEMICONDUCTOR EQUIPMENT - (0.61%)
6,850 DuPont Photomasks, Inc. (166)
6,090 Photronics, Inc. (121)
-------
(287)
-------
TELECOMMUNICATION EQUIPMENT - (0.29%)
7,900 Nokia Corp. - Sponsored ADR (134)
-------
TELEPHONE - INTEGRATED - (1.46%)
5,050 ALLTEL Corp. (235)
9,040 BellSouth Corp. (256)
7,300 SBC Communications, Inc. (190)
-------
(681)
-------
TOTAL SECURITIES SOLD, NOT YET PURCHASED
(PROCEEDS $4,779) $(5,223)
=======
The accompanying notes are an integral part of these financial statements.
- 19 -
THIS PAGE IS INTENTIONALLY BLANK.
BACAP OPPORTUNITY STRATEGY, LLC
FUND GOVERNANCE (UNAUDITED)
The identity of the Managers and officers of BACAP Opportunity
Strategy, LLC and brief biographical information regarding each Manager and
officer during the past five years is set forth below.
NUMBER OF
TERM OF FUNDS IN
OFFICE FUND
POSITION AND COMPLEX
HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS HELD
NAME, ADDRESS AND AGE WITH THE TIME DURING THE PAST FIVE YEARS MANAGER BY MANAGER
FUND SERVED
- -----------------------------------------------------------------------------------------------------------------------
INDEPENDENT MANAGERS
- -----------------------------------------------------------------------------------------------------------------------
Thomas W. Brock Manager Indefinite Adjunct Professor, 2 Blythedale Children's
600 Mamaroneck Avenue term; Columbia University Hospital; WestHab; BACAP
Suite 431 Manager Graduate School of Alternative Multi-Strategy
Harrison, NY 10528 since 2002 Business since September Fund, LLC
Age: 54 1998; Chairman, CEO,
Salomon Brothers Asset
Management, Inc. from
1993 to 1998
Alan Brott Manager Indefinite Consultant, since October 2 BACAP Alternative
Columbia University term; 1991; Associate Multi-Strategy Fund, LLC
School of Business Manager Professor, Columbia
Uris Hall since 2003 University Graduate
3022 Broadway School of Business, since
New York, NY 10027 2000; Adjunct Professor,
Age: 61 Columbia University
Graduate School of Business
from 1992 to 2000; Adjunct
Professor, New York
University, 1999 to present
Thomas G. Yellin Manager Indefinite President, PJ Productions 2 BACAP Alternative
ABC News term; since 2003; Executive Multi-Strategy Fund, LLC
125 West End Avenue Manager Producer, ABC News since
4th Floor since 2002 June 1989
New York, NY 10023
Age: 49
- 20 -
BACAP OPPORTUNITY STRATEGY, LLC
FUND GOVERNANCE (UNAUDITED)
NUMBER OF
TERM OF FUNDS IN
OFFICE FUND
POSITION AND COMPLEX
HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS HELD
NAME, ADDRESS AND AGE WITH THE TIME DURING THE PAST FIVE YEARS MANAGER BY MANAGER
TRUST SERVED
- -----------------------------------------------------------------------------------------------------------------------
OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lawrence R. Morgenthal President 1 year Managing Director, Banc of N/A None
40 West 57th Street term; America Capital Management,
New York, NY 10019 President LLC since 2002; Senior
Age: 37 since 2003 Managing Director, Weiss,
Peck & Greer (an investment
firm) from 1998 to 2002.
Edward D. Bedard Chief 1 year Senior Vice President, N/A None
One Bank of America Plaza Financial term; Chief Operating Officer,
Charlotte, NC 28255 Officer Chief BACAP Distributors, LLC (or
Age: 45 Financial its predecessors) since
Officer 1996; Manager, BACAP
since 2003 Distributors, LLC (or its
predecessors) since 1997;
Chief Administrative Officer,
Treasurer, Banc of America
Capital Management, LLC (or
its predecessors) since
January 2000; Interim
President and Chief Executive
Officer, Nations Funds Trust,
Nations Master Investment
Trust and Nations Separate
Account Trust since Sept 2003;
Interim President and Chief
Executive Officer, Nations
Balanced Target Maturity Fund,
Inc., Nations Government
Income Term Trust 2004, Inc.
and Hatteras Income
Securities, Inc. since Sept.
2003; Chief Financial Officer
of Nations Funds Trust,
Nations Master Investment
Trust and Nations Separate
Account Trust from October
2002 through Oct. 2003 (Chief
Financial Officer) to October
2003; Chief Operating Officer,
BACAP Advisory Partners, LLC
since May 2002; Chief
Financial Officer, Nations
Balanced Target Maturity Fund,
Inc., Nations Government
Income Term Trust 2004, Inc.
and Hatteras Income
Securities, Inc. from 1997
through Oct. 2003.
- 21 -
BACAP OPPORTUNITY STRATEGY, LLC
FUND GOVERNANCE (UNAUDITED)
NUMBER OF
TERM OF FUNDS IN
OFFICE FUND
POSITION AND COMPLEX
HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS HELD
NAME, ADDRESS AND AGE WITH THE TIME DURING THE PAST FIVE YEARS MANAGER BY MANAGER
TRUST SERVED
Gerald Murphy Treasurer 1 year Senior Vice President, N/A None
One Bank of America Plaza term; BACAP Distributors, LLC (
Charlotte, NC 28255 Treasurer or its predecessors)
Age: 44 since 2003 since 1998; Treasurer ,
Nations Funds Trust,
Nations Master Investment
Trust and Nations
Separate Account Trust
since January 2003;
interim Chief Financial
Officer, Nations Funds
Trust, Nations Master
Investment Trust and
Nations Separate Account
Trust since Sept. 2003;
Chief Financial Officer
Nations Balanced Target
Maturity Fund, Inc.,
Nations Government Income
Term Trust 2004, Inc.,
and Hatteras Income
Securities, Inc. since
Sept. 2003; Senior Vice
President, BACAP Advisory
Partners, LLC since May
2002; Treasurer Nations
Balanced Target Maturity
Fund, Inc., Nations
Government Income Term
Trust 2004, Inc., and
Hatteras Income
Securities, Inc. since
1999; Vice President,
Citibank 1997 to December
1998.
Robert B. Carroll Secretary 1 year Associate General N/A None
One Bank of America Plaza term; Counsel, Bank of America
Charlotte, NC 28255 Secretary Corporation since 1999;
Age: 43 since 2002 Secretary and Chief Legal
Officer of Nations Funds
Trust, Nations Master
Investment Trust and
Nations Separate Account
Trust since January 2003
(Secretary) and August
2003 (Chief Legal
Officer); Secretary of
Nations Balanced Target
Maturity Fund, Inc.,
Nations Government Income
Term Trust 2004, Inc. and
Hatteras Income
Securities, Inc. since
1997; Assistant General
Counsel, Bank of America
Corporation 1996-1999.
The Statement of Additional Information contains additional information about
the Board of Managers and is available, without charge, upon request, by
contacting the Fund toll-free at (800) 321-7854.
- 22 -
BACAP OPPORTUNITY STRATEGY, LLC
CHANGE IN INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP ("PwC") serves as the independent accountants of the
Fund. Its principal address is 1177 Avenue of the Americas, New York, New York,
10036. The previous independent auditors, Ernst & Young LLP ("E&Y"), resigned on
December 11, 2002 because of independence concerns arising out of certain
relationships with affiliates of the Adviser. These relationships were in
existence at the time that E&Y performed its audit of the Fund's initial
financial statements, dated June 14, 2002, upon which E&Y issued an unqualified
opinion based on its audit. During the period which E&Y served as the
independent accountants of the Fund, there was no disagreement between E&Y and
the Fund on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of E&Y, would have caused it to make reference to
the subject matter of the disagreement in connection with its report. The Board
retained PwC on December 12, 2002 to serve as independent accountants and
requested that PwC re-audit these financial statements; PwC issued an
unqualified opinion on the June 14, 2002 financial statements based on its
audit. PwC also issued an unqualified opinion on the December 31, 2002 financial
statements based on this audit.
- 23 -
BACAP OPPORTUNITY STRATEGY, LLC
ANNUAL MEETING OF INTERESTHOLDERS (UNAUDITED)
On October 16, 2003, the Fund held a Special Meeting of Interestholders. Alan
Brott was elected to the Board of Managers of the Fund with an indefinite term.
100% of interests represented in person or by proxy at the meeting voted in
favor of Mr. Brott. Mr. Brott will serve an indefinite term. The other Managers
of the Fund are Thomas Brock and Thomas Yellin.
- 24 -
BOSAR - 0204
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.
(b) 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.
(c) 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.
(d) The registrant's code of ethics is attached as an exhibit hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Managers has determined that Mr. Alan Brott is qualified to serve as an audit
committee financial expert serving on its audit committee and that he is
"independent," as defined by this Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES - 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 $52,900 for 2002 and $61,000 for 2003.
(b) AUDIT RELATED FEES - 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 $0 for 2002 and $0 for 2003.
(c) TAX FEES - 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 $16,500 for 2002
and $17,500 for 2003.
(d) ALL OTHER FEES - 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 2002 and $2,500 for 2003.
In 2003, the principal accountant performed a review of a
partnership agreement (for $2,500).
(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.
Before the accountant is engaged by the Registrant or its
subsidiaries to render audit or non-audit services, the
engagement is approved by the Registrant's audit 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) 0
(c) 0
(d) 0
(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 zero percent (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 $0 (except for fees on tax services as disclosed
above) and $18.1 million, respectively, for year ended December 31,
2002 and $0 (except for fees on tax services as disclosed above) and
$14.7 million, respectively, for year ended December 31, 2003.
(h) The registrant's Audit Committee has considered whether the provision
of non-audit services that were 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 investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to (c)(7)(ii) or Rule 2-01 of Regulation S-X is compatible with
maintaining the independence of the registrant's principal accountant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Fund has approved the proxy voting policy of Alkeon Capital Management LLC
as the policy and procedures used to vote proxies on behalf of the Fund. The
proxy voting policy of Alkeon Capital Management LLC is set forth below.
ALKEON CAPITAL MANAGEMENT, LLC
------------------------------
PROXY VOTING POLICIES AND PROCEDURES
------------------------------------
As of June 30, 2003
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 Boye. 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 Bank of America or Fahnstock, as Alkeon manages funds
sponsored by both entities.
(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
gboye@alkeoncapital.com or telephone at (212) 389-8704 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.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. 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
last fiscal half-year (the registrant's second fiscal half-year
in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 11. 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 Section 302 of the Sarbanes-Oxley
Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 are attached hereto.
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) BACAP Opportunity Strategy, LLC
--------------------------------------------------------
By (Signature and Title)* /s/ Lawrence Morgenthal
------------------------------------------------
Lawrence Morgenthal, President
(principal executive officer)
Date March 8, 2004
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(registrant) BACAP Opportunity Strategy, LLC
-------------------------------------------------------------
By (Signature and Title)* /s/ Edward D. Bedard
------------------------------------------------
Edward D. Bedard, Chief Financial Officer
(principal financial officer)
Date March 10, 2004
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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/ Lawrence Morgenthal
------------------------------------------------
Lawrence Morgenthal, President
(principal executive officer)
Date March 8, 2004
-----------------------------------------------------------------------
By (Signature and Title)* /s/ Edward D. Bedard
------------------------------------------------
Edward D. Bedard, Chief Financial Officer
(principal financial officer)
Date March 10, 2004
-----------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.