DATE: May 1, 2007 ADMINISTRATION AGREEMENT -between- ACP Strategic Opportunities Fund II, LLC -and- PINNACLE FUND ADMINISTRATION LLC Pinnacle Fund Administration LLC Charlotte, NC 28226
Exhibit
99.2K
DATE: May
1, 2007
-between-
ACP
Strategic Opportunities Fund II, LLC
-and-
PINNACLE
FUND ADMINISTRATION LLC
Pinnacle
Fund Administration LLC
0000
Xxxxxxxxx Xxxxxx Xxxxx Xxxxx 000
Xxxxxxxxx,
XX 00000
DATE OF AGREEMENT: May
1, 2007
PARTIES:
1.
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ACP Strategic
Opportunities Fund II, LLC (the “Fund”), a
limited liability company formed under the laws of the State of Delaware
and registered under the Investment Company Act of 1940, as amended, with
its principal office located at 0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx,
Xxxxxxxxxxxx 00000.
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2.
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PINNACLE
FUND ADMINISTRATION LLC (the “Administrator”), a limited liability company
formed under the Delaware Limited Liability Company Act whose registered
office is c/o BlumbergExcelsior Corporate Services, Inc., 0000 X. Xxxxxx
Xxxxxx Xxxxx 000, Xxxxxxxxxx, XX 00000 with its principal office located
at 0000 Xxxxxxxxx Xxxxxx Xxxxx Xxxxx 000, Xxxxxxxxx XX
00000.
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RECITALS:
A.
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The
Fund wishes to appoint the Administrator to provide accounting, transfer
agent and other administrative
services.
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B.
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The
Administrator has agreed to provide such accounting, transfer agent and
other administrative services to the Fund on the terms of this
Agreement.
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OPERATIVE
PROVISIONS:
1.
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DEFINITIONS
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1.1
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The
following words and expressions shall have the following
meanings:
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“Auditor”:
the auditor of the Fund from time to time.
“Investment
Manager”: the Investment Manager of the Fund from time to
time. Currently Ascendant Capital Partners, LP; a registered
investment advisor with the Securities and Exchange Commission (“SEC”) under the
Investment Advisors Act of 1940, as amended.
“Limited
Partnership Agreement”: the Limited Partnership Agreement of the Fund as may be
amended from time to time.
“Members”: the
holders of Units of the Fund.
“Memorandum”: the
Confidential Private Placement Memorandum of the Fund dated September 2004 and
all amendments to that document.
“Register”: the
register of members’ interest holders of the Fund.
“Statement
of Additional Information (“SAI”): the SAI of the Fund as may be amended from
time to time.
“Units”:
shares representing beneficial interest in the Fund.
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1.2
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Words
and expressions contained in this Agreement shall bear the same meaning as
in the Limited Partnership Agreement, SAI or Memorandum as the context
requires.
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1.3
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Words
importing the singular number shall include the plural and vice
versa. Words importing the masculine gender shall include the
feminine gender and words importing persons shall include firms and
companies and vice versa.
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1.4
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The
division of this Agreement into sections, clauses and sub-clauses and the
insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this
Agreement.
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2.
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APPOINTMENT
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The Fund
hereby appoints the Administrator to administer the Fund from the date of this
Agreement to provide accounting, transfer agent and other administrative
services referred to in this Agreement.
3.
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PROVISION
OF FACILITIES
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The
Administrator shall provide and pay for an adequate staff and shall provide
suitable office accommodation and other facilities for efficiently performing
its functions as set out in this Agreement, but the Fund shall not be entitled
to the exclusive use of any such accommodation or to the exclusive services of
any member of such staff.
4.
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DUTIES
OF THE ADMINISTRATOR
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During
the continuance of this Agreement the Administrator shall perform the functions
of an administrator to the Fund namely:
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4.1
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calculate
and publish the net asset value per limited partnership interest in
accordance with the provisions of the Limited Partnership Agreement, SAI
and the Memorandum;
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4.2
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at
any time during the Administrator’s business hours permit the Auditor or
any duly appointed agent or representative of the Fund, at the expense of
the Fund, to audit or inspect the financial records of the Fund and any
other documents or records kept by the Administrator under the terms of
this Agreement and make available all such documents and records in its
possession to the Auditor, agent or representative during business hours
whenever reasonably required to do so and afford all such
information, explanations and assistance as the Auditor, agent or
representative may require;
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4.3
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dispatch
all such circulars, reports, financial statements or other written
material to all persons entitled to receive the same under the Limited
Partnership Agreement, SAI and the Memorandum as the Fund may
require;
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4.4
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deal
with and answer all correspondence or other inquiries from or on behalf of
the Members, prospective Members or
others;
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4.5
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maintain
the principal books of account of the Fund as required by law or otherwise
for the proper conduct of the financial affairs of the
Fund;
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4.6
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oversee
and review the calculation and payment of fees payable to the
Administrator, the Investment Manager and such other service providers to
the Fund as so directed by the Investment
Manager;
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4.7
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subject
to the ultimate discretion and approval of the Investment Manager,
establish accounting policies for the Fund and reconcile accounting issues
with the Fund’s Directors, the Auditor and legal
counsel;
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4.8
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generally
perform all the duties usually performed by Administrators of limited
liability companies including (without limitation) the keeping of all
records required to be kept and made under regulations in the State of
Delaware for the time being in
force;
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4.9
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preparing
and maintaining all customary financial and accounting books and records
in the appropriate form and in sufficient detail to support an annual
independent audit of the financial condition of the Fund, and performing
all other accounting and clerical services necessary in connection with
the administration of the Fund;
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4.10
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preparing
annual financial statements (which shall have been examined by the Fund’s
auditors) within 60 days after the close of each financial year; preparing
semi-annual financial statements within 60 days after the close of the
semi-annual period; and
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4.11
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providing
any other service as required.
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5
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RIGHTS
OF THE ADMINISTRATOR
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The
Administrator may:
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5.1
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employ
servants or agents in the performance of its duties and the exercise of
its rights under this Agreement;
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5.2
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with
the prior approval of the Fund, delegate its functions, powers,
discretions, privileges and duties under this Agreement or any of them to
such persons on such terms and conditions as it may deem appropriate,
provided that such responsibility may not be delegated to the extent that
they are to be performed by any person outside the United States if such
responsibilities are required to be performed within the United States
under United States law;
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5.3
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use
the name of the Fund and sign any necessary letters or other documents for
and on behalf of the Fund as Administrator of the Fund in the performance
of its duties under this Agreement;
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5.4
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act
as Administrator for any other persons on such terms as may be arranged
with such persons and shall not be deemed to be affected with notice of,
or to be under any duty to disclose to the Fund, any fact or thing which
may come to the knowledge of the Administrator or any servant, agent or
delegate of the Administrator in the course of so doing or in any manner
whatsoever otherwise than in the course of carrying out the duties of
Administrator under this Agreement;
and
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5.5
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acquire,
hold or deal with for the account of any customer or other persons and in
its own name or in the name of such customer or person or of a nominee any
units or securities for the time being issued by the Fund or any
investment in which the Fund is authorized to invest and shall not be
required to account to the Fund for any profit arising
therefrom.
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6
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CONTROL
BY INVESTMENT MANAGER
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In
the performance of its duties under this Agreement the Administrator shall
at all times be subject to the control of, and review by, the Investment
Manager.
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7
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REMUNERATION
OF THE ADMINISTRATOR
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7.1
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The
Administrator shall be paid by the Fund by way of remuneration for its
services under this Agreement fees at such rates as may be agreed from
time to time between the Investment Manager and the
Administrator. The initial fees payable by the Fund to the
Administrator are as set out in the attached schedule
1.
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7.2
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Amounts
payable by the Fund to the Administrator under this Agreement shall be
paid in United States Dollars monthly in
arrears.
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8
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DUTIES
OF THE FUND
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The
Fund shall:
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8.1
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with
all reasonable expedition approve or disapprove transfers submitted to it
by the Administrator; and
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8.2
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deliver,
or cause to be delivered, from time to time to the Administrator proper
certified or authenticated copies of its SAI and all amendments thereto
and of such resolutions, votes and other proceedings as may be necessary
for the Administrator in the performance of its duties under this
Agreement.
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9
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RESIGNATION
AND CANCELLATION OF APPOINTMENT
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9.1
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The
initial term is for one (1) year from the date of this
Agreement. This agreement will be automatically renewed for
each subsequent one year period under the same terms and conditions as
stated in this Agreement. Written notice of cancellation of, or
modification to, its terms must be provided by either party to this
Agreement no less than ninety (90) days before each automatic renewal
date.
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9.2
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The
appointment of the Administrator may be terminated at any time without
penalty by either party upon not less than 90 days written notice, or at
any time without such notice if (i) the other party commits a breach of
its obligations under the agreement and such party fails to remedy the
breach within thirty (30) days; (ii) the other party shall go into
liquidation (except a voluntary liquidation for the purpose of
reconstruction or amalgamation upon terms previously approved in writing
by the terminating party); (iii) a receiver of any of the assets of the
other party is appointed; (iv) the other party takes any action or omits
to take any action and such action or omission, in the judgment of the
terminating party, violates or will violate any applicable law, rule or
regulation or any order, judgment or decree or any court or other agency
of government, in each case in any material respect; or (v) immediately
upon written notice to the other party for “cause” (defined as acts of
gross negligence, bad faith, willful misconduct or
fraud).
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9.3
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Upon
the resignation or any cancellation of the appointment of the
Administrator, the Administrator
shall:
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9.3.1
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be
released and discharged from its obligations under this
Agreement;
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9.3.2
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upon
receipt of all amounts owing to the Administrator under the terms of this
Agreement, immediately transfer all moneys and papers to its
successor;
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9.3.3
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refund
any unearned fees, if any, at the time of termination;
and
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9.3.4
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provide
reasonable assistance to any successor
Administrator.
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10
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RESPONSIBILITY
OF ADMINISTRATOR AND
INDEMNIFICATION
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10.1
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The
Administrator shall use reasonable care in carrying out its
responsibilities, including any responsibilities that it may delegate
under sections 5.1 and 5.2 of this
Agreement.
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10.2
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The
Administrator shall not incur liability by refusing in good faith to
perform any duty or obligation herein which in its reasonable judgment is
improper or unauthorized, provided that in performing its duties and
obligations pursuant to this Agreement it shall not be required at any
time to do or procure the doing of anything contrary to or in breach of or
which constitutes any offence against any applicable law or regulation
then in force.
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10.3
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The
Administrator shall not be responsible for the loss or damage to any
documents or property of the Fund, in the possession of the Administrator
or for any failure to fulfill its duties hereunder if such loss, damage or
failure shall be caused by or directly or indirectly be due to war, enemy
action, the act of government or other competent authority, riots, civil
disturbance, rebellion, xxxxx, xxxxxxx, accident fire, strike, explosion
or lock-out or any occurrence or event beyond the reasonable control of
the Administrator. The above notwithstanding, if possible, the
Administrator will take reasonable precautions to protect the records and
assets of the Fund against such
losses.
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10.4
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The
Administrator shall not be responsible for any loss or damage occurring as
a result of any investments that have been incorrectly priced as at any
net asset valuation date for the purposes of contributions or withdrawals
of limited partnership interests, any such losses or damages occurring
being the responsibility of the Investment Manager in their entirety,
provided that such prices or net asset value is established in accordance
with information provided by the Investment Manager and the Administrator
acted in good faith and without willful misconduct, gross negligence, bad
faith, breach of fiduciary duty or reckless disregard of its
duties.
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10.5
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The
Administrator shall not be liable to the Fund or its shareholders for any
acts or omissions in the performance of its services in the absence of
willful misconduct, gross negligence, bad faith, breach of fiduciary duty
or reckless disregard of its
duties.
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10.6
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The
Fund shall indemnify the Administrator (which shall include solely for
purposes of this Section 10, each of the Administrator’s Managers,
officers, employees and members) and hold the Administrator harmless from
and against any expense, loss, liability or damage arising out of any
claim asserted or threatened to be asserted in connection with this
Agreement or the services to be provided hereunder; provided, however,
that the Administrator shall not be entitled to any such indemnification
with respect to any expense, loss, liability or damage which was caused by
the Administrator’s own willful misconduct, gross negligence, bad faith,
breach of fiduciary duty or reckless disregard of its duties under this
Agreement.
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10.7
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The
Administrator shall indemnify the Fund and hold the Fund harmless from and
against any reasonable expense, loss, liability or damage arising out of
any claim asserted or threatened to be asserted in connection with this
Agreement, directly or indirectly, caused by the Administrator’s willful
misconduct, gross negligence, bad faith, breach of fiduciary duty or
reckless disregard of its duties.
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10.8
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The
indemnification provisions of this Section 10 shall survive any
termination of this Agreement.
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11
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FRAUD
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In the
absence of willful misconduct, gross negligence, breach of fiduciary duty or
reckless disregard of its duties and provided that the officers, servants or
agents of the Administrator are not parties to any fraud, the Administrator
shall not be responsible to the Fund for any action taken by the Administrator
upon the faith of any forged or fraudulent document in any case where, had the
document not been forged or fraudulent, the action taken by the Administrator
would have been the normal and reasonable action to be taken. The
above notwithstanding, the Administrator shall take reasonable precautions to
insure that it does not act upon a forged or fraudulent document.
12
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CONFIDENTIALITY
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Neither
of the parties to this Agreement shall, unless compelled so to do by any court
of competent jurisdiction, either before or after the termination of this
Agreement, disclose any information relating to the other party without the
prior written consent of the other party.
13
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NOTICES
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Any
notice, instruction or other instrument required or permitted to be given under
this Agreement may be delivered in person or delivered prepaid registered mail
or by fax or e-mail to the parties at the addresses set out in this document or
such other address as may be notified by either party from time to
time.
Such
notice, instruction or other instrument shall be deemed to have been served in
the case of a registered letter at the expiration of five (5) business days
after posting, in the case of fax or e-mail, immediately on notification of
receipt and if delivered outside normal business hours it shall be deemed to
have been received at the next time after delivery when normal business hours
commence subject to receipt of confirmation. Evidence that the
notice, instruction or other instrument was properly addressed, stamped and put
into the post shall be conclusive evidence of posting.
14
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BINDING
EFFECT AND ASSIGNMENT
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This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Neither the benefit nor
the burden of this Agreement shall be assigned by either the Administrator or
the Fund save with the consent of the other party to this Agreement. Any
attempted assignment, transfer or delegation hereof without such consent shall
be void.
15
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PROPER
LAW
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This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware.
16
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ENTIRE
AGREEMENT
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This
Agreement contains the entire Agreement between the parties with respect to the
subject matter hereof.
17
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COUNTERPARTS
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This
Agreement may be signed in any number of counterparts. Any single counterpart or
a set of counterparts signed in either case by the parties hereto shall
constitute a full and original Agreement for all purposes.
Signed as
an Agreement on behalf of the parties on the date set out in this
document.
SIGNED BY
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Name
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Title
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duly
authorized for and on behalf of
ACP
Strategic Opportunities Fund II, LLC
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in the presence of
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SIGNED
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Name
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Title
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duly
authorized for and on behalf of
PINNACLE
FUND ADMINISTRATION LLC
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in the presence of
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SCHEDULE
1
Fees of
the Administrator
15.00
basis points per annum
Subject
to a monthly minimum fee of $3,000
SCHEDULE
2
PINNACLE
FUND ADMINISTRATION LLC
CLIENT
SERVICE PLAN FOR:
ASCENDANT
CAPITAL PARTNERS FUND OF FUNDS
It is our
pleasure to provide you with the following client service plan, which has been
tailored to meet your specific needs and expectations based on your anticipated
needs and expectations.
Services
to be provided
Pinnacle
Fund Administration LLC (“PFA”) staff in Charlotte, NC will have responsibility
for the following:
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·
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Booking
of all investment activity on a periodic basis via accessing the custodian
account online.
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·
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Calculation
of the month end NAV’s for both the Master and Feeder
funds. PFA staff will produce a draft NAV of the Master Fund
for detailed review by Ascendant Capital Management (“ACM”) staff before
the end of the second business day following receipt of the last final NAV
of the underlying sub-funds for the relevant month
end. Once approved and signed off by ACP and PFA
personnel, the final Master Fund NAV will be used to calculate the draft
NAV’s for each respective Feeder
fund.
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·
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PFA
will produce the draft NAV’s of the Feeder Funds within 1 business day of
approval of the final Master Fund NAV and will send them for detailed
review and approval by ACM personnel prior to distribution to interested
parties.
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·
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Once
approved and signed off by Ascendant and PFA personnel, the final NAV will
be distributed to all interested
parties.
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·
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Compute
management fee promptly on finalization of each month end NAV and advise
Ascendant staff of amount to be
paid.
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·
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Assist
the ACM with the processing of contribution and withdrawal requests,
ensuring compliance with all relevant anti-money laundering
legislation.
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·
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Liaison
with Ascendant staff and external auditors for preparation and completion
of the annual audited financial statements as well as the semi-annual
financials for the Master Fund and the Feeder
Funds.
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·
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Liaising
with investors in responding to
enquiries.
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·
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PFA
staff will respond to all requests within 1 business
day.
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Ascendant
staff will assist PFA staff by:
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·
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Providing
copies of PPM’s and LPA’s for contributions to underlying funds, which
should include dates and amounts of each contribution (the custodian will
keep all copies of contribution documents). Contribution
documents should instruct administrators of the underlying funds to send
copies of all correspondence relating to the Fund’s investment in such
underlying fund to PFA directly.
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·
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Notify
PFA promptly of all investment decisions in the underlying
funds.
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·
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Providing
copies of all subscription/withdrawal requests received by the Fund’s
investors.
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ACP
Strategic Opportunities
Fund
II, LLC
Financial
Statements for the Year
Ended
December 31, 2007
Reports
to Stockholders.
ACP
Strategic Opportunities Fund II, LLC
Financial
Statements for the Year
Ended
December 31, 2007
Strategy
Objective
The ACP
Strategic Opportunities strategy seeks capital appreciation through investments
focused in long/short equity hedge funds. The main objective is to generate
long-term absolute returns similar to those of stocks, but with significantly
less volatility. In general, the strategy will maintain a net positive exposure
to equity markets, though that exposure will vary based on tactical decisions
and underlying manager objectives. The strategy seeks to generate returns that
are not highly correlated with traditional stock investments, thereby providing
investors with an opportunity for improved diversification of their overall
portfolios.
Performance Review and
Update
During
the fourth quarter of 2007, the Strategic Opportunities Strategy increased in
value by 2.90%. This compares favorably to losses in the S&P 500 and Xxxxxxx
2000 of -3.33% and -4.58% respectively. For the entire year of 2007, the ACP
strategy gained 12.32% compared to a gain in the S&P 500 of 5.49% and a loss
in the Xxxxxxx 2000 of
-2.75%.
Since inception, April 2, 2002, the cumulative return of this strategy is up 46%
net of all fees compared to the S&P 500 Index return of 42% during the same
period.
For the
year, the returns of our seventeen managers ranged from -6.24% to +61.23%. Only
one of our managers lost money for the year while twelve earned double digit
returns. Importantly, the returns of our managers were not highly correlated
with one another which allowed the strategy to go through this volatile year
with only one down month.
Looking
forward to 2008, we expect the volatility within the overall markets to continue
thereby creating opportunities on the long and short side of the equity market.
The year is off to a very tough start and, year to date, the major equity
indices are all showing double digit declines.
Industry
Update
-"This
is like deja vu all over again."
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-Xxxx
Xxxxx
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On July
24, 1915, the X.X. Xxxxxxxx, a 269 foot long steamship, was moored at her dock
between LaSalle and Xxxxx Streets on the south bank of the Chicago River.
Immediately, as the ship cast off with its 2,572 passengers aboard, it
inexplicably rolled over and capsized, drowning 844 passengers making this
Chicago’s worst single disaster.
How could
a ship this big capsize right next to its dock and why am I writing about it in
our year-end letter? The answer to the first question is still subject to much
debate. The answer to the second is that, while the loss of life is never
comparable to the loss of money, I want to draw some similarities between this
very sad event and what seems to repeatedly happen in the investment world in
both traditional and alternative investing. Lastly, I want to continue this
analogy to give you a better understanding of what we do in our strategy and how
we try to avoid becoming a victim of such occurrences.
The X.X.
Xxxxxxxx had a passenger capacity of 2500, so it was more than full that day.
Despite multiple investigations after the accident, the reasons for the
capsizing have never been fully discovered. Poor construction, overcrowding,
miscommunication, crowd behavior and hubris have all been mentioned as possible
reasons for the disaster. Ironically, the then recent safety precaution of
adding more life boats on the upper decks may have made this top-heavy ship even
more unstable. Nevertheless, a structure that was perceived to be very stable
became very dangerous when, in a crowded situation, the balance of that
structure was disturbed.
Over the
years, investments such as tulip bulbs in 1634 and internet stocks in 1999 have
fallen victim to circumstances analogous to those of the X.X. Xxxxxxxx. What was
thought to be very stable became drastically less so when placed under duress.
These investments were popular at the time and were perceived to have limited
risk. Additionally, some strategies, like 1987’s “portfolio insurance”, even had
names that sounded safe. They were all innovative and the more successful they
became, the less risky they seemed, causing more and more investors to pile in.
Eventually, the perceived risks became so low that investors began to employ
(the always dangerous tool) leverage to magnify their returns. Ultimately, some
event changed the perception of risk, upsetting the balance, compelling
investors to “rush for the exit” at the same time causing a dramatic drop in
prices.
2007 saw
another strategy added to this long list of calamities. Structured investment
products (SIV’s, CDO’s, CMO’s etc.) which were once touted as innovative
investment vehicles, have to date incurred write-offs of over $100 billion.
These products had grown dramatically since 2000 and, as they grew, their
perceived risk profile began to diminish. Through modern-day financial alchemy,
portions of these vehicles managed to receive “AAA” credit ratings and
eventually found their way into a variety of investment portfolios throughout
our financial system. Finally, problems in the sub-prime mortgage market upset
the balance and caused a dramatic reassessment of the risks of these structures
leading to huge losses. So far, these losses have forced the Federal
Reserve to cut its benchmark rate three times and inject billions into our
credit system.
Losses have hammered the stock prices of many of our largest investment banks
forcing them to negotiate emergency capital infusions from outside investors.
The full extent of losses is still being discovered as the valuation process for
these vehicles requires a certain amount of guesswork. This uncertainty is
inhibiting the flow of credit within our financial system which negatively
affects the worldwide economy. While structured products will still be around in
the future, the way they
are viewed by investors, the leverage they can support and how they are valued
will never be the same. Déjà vu all over again.
During
our careers some of us have personally witnessed some of the events referred to
above and, as a result, we take risk very seriously here at ACP. We understand
that when assessing risk, you not only need to look at what has happened in the
past (i.e. quantitative analysis) but at what could happen in the future.
Quantitative analysis, while useful, is the beginning not the end of the risk
management process. The next steps require thoughtful analysis and, more
importantly, lots of experience and common sense. We accomplish this through a
systematic disciplined process. First, we search for a variety of managers
skilled at generating high risk-adjusted returns within the long/short equity
sector. Next we construct our portfolio from those selected managers who employ
dissimilar styles and techniques in order to mitigate the risk that one macro or
specific event could result in significant losses for the overall fund. In
keeping with the X.X. Xxxxxxxx analogy we not only try to assure that our
individual boats are stable but we also diversify into many different boats
thereby diminishing the chance of one event damaging our entire portfolio. Our
intent is to provide you with a strategy that is able to enhance the
diversification and performance of your overall asset allocation. A well
diversified portfolio is the best way to preserve and grow your hard earned
wealth.
We would
like to wish you much happiness and look forward to a mutually prosperous 2008.
If you have any questions or would like to discuss some of the thoughts in this
letter, please contact us. We welcome your calls and look forward to speaking
with you. Thank you for this opportunity to be of service.
All the
best,
Xxxx X.
Xxxxxxx
President
and Chief Investment Officer
Ascendant
Capital Partners, LP
Performance
shown for the previously mentioned strategy is net of all expenses charged to
shareholders. Information regarding the strategy set forth herein, including
discussions regarding performance and Ascendant’s investment strategies, are
qualified by reference to the Private Placement Memorandum. The
memorandum contains important information about fees and expenses, as well as
risks associated with an investment in the Fund. Please read it
carefully before you invest or send money. This Fund may not be
suitable for all investors. Past performance is no
guarantee of future results and investors may suffer losses, including
loss of principal, in connection with an investment in the
strategy.
The Fund
is available only to investors who are “accredited investors” under Regulation D
promulgated by the SEC under the Securities Act of 1933. Each
investor must also have a net worth of $1.5 million or more, subject to certain
exceptions. Each investor must have such knowledge and experience in
financial and business matters so that such investor is capable of evaluating
the merits and risks of this investment and must be able to bear the economic
risks of this investment.
The
indices illustrated herein are unmanaged indices. You cannot invest
in an index. Index returns do not reflect the impact of any
management fees, transaction costs or expenses. The index information
seen here is for illustrative purposes only, and is not reflective of the
performance of Ascendant Capital Partner funds.
The
S&P 500 Index is an unmanaged index composed of U.S. Large Cap Stocks with a
market capitalization of $3 billion or more.
The
Xxxxxxx 2000 Index is composed of U.S. Small Cap Stocks. The Xxxxxxx 2000 is constructed to provide a comprehensive and unbiased
small-cap barometer and is completely reconstituted annually to ensure larger
stocks do not distort the performance and characteristics of the true small-cap
opportunity set. The Xxxxxxx 2000 includes the smallest 2000 securities in the
Xxxxxxx 3000.
Risk
Factors
|
|
Hedge
funds generally offer less liquidity than other investment securities, and
are generally not subject to regulation under the U.S. federal securities
laws.
|
|
Hedge
funds are often dependent for their success upon the efforts of one or a
relatively few number of
individuals.
|
|
Hedge
funds typically offer only periodic redemptions, and there is generally no
secondary market for investors to access for liquidity
purposes.
|
Funds
that invest in hedge funds, such as those managed by Ascendant, present
additional considerations for investors:
|
|
These
funds are dependent upon the ability of their advisers to select and hold
individual hedge funds.
|
|
Investors
in these funds cannot readily sell or dispose of their interests in the
secondary market, and may look only to the funds for periodic (and,
possibly, limited) liquidity.
|
|
The
fund of funds structure adds additional fees and expenses, which can
materially impact an investor’s
returns.
|
ACP
Strategic Opportunities Fund II, LLC
For
the Year Ended
December
31, 2007
Table
of Contents
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
1
|
Schedule
of Investments
|
2
|
Statement
of Assets, Liabilities and Members' Capital
|
3
|
Statement
of Operations
|
4
|
Statement
of Changes in Members' capital
|
5
|
Statement
of Cash Flows
|
6
|
Financial
Highlights
|
7
|
Notes
to the financial statements
|
8 -
15
|
Board
of Directors (unaudited)
|
16
- 17
|
Fund
Management (unaudited)
|
18
|
Other
Information (unaudited)
|
19
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Members and Board of Directors of
ACP
Strategic Opportunities Fund II, LLC
We have
audited the accompanying statement of assets, liabilities and members’ capital
of ACP Strategic Opportunities Fund II, LLC (the “Fund”), including the schedule
of investments, as of December 31, 2007, and the related statements of
operations and cash flows for the year then ended, the statements of changes in
members’ capital for each of the two years in the period then ended, and the
financial highlights for each of the four years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund’s management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for the year ended December 31, 2003
were audited by other auditors whose report, dated February 24, 2004, expressed
an unqualified opinion on those financial highlights.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. The Fund is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included
confirmation of investments owned as of December 31, 2007, by correspondence
with the Underlying Funds and custodian. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of the Fund as
of December 31, 2007, the results of its operations and its cash flows for the
year then ended, the changes in its members’ capital for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
As
discussed in Note 2 to the financial statements, the financial statements
include investments in Underlying Funds, valued at $34,350,648 (87.65% of total
assets) as of December 31, 2007, whose fair values have been estimated by
management in the absence of readily determinable fair
values. Management’s estimates are based on information provided by
the managers of the Underlying Funds.
Deloitte
& Touche LLP
Philadelphia,
PA
February
27, 2008
ACP
Strategic Opportunities Fund II, LLC
Schedule
of Investments - December 31, 2007
Investments
|
Percentage
of
Member's
Capital
|
Fair
Value
|
||||||
Underlying
Funds
|
||||||||
Long/Short
Equity ^#
|
||||||||
Consumer
|
||||||||
Xxxxxxxxx/Xxxxxxxx
Partners, L.P. (cost $2,000,000)
|
6.8 | % | $ | 2,558,214 | ||||
Zeke,
L.P. (cost $590,000)
|
2.7 | % | 1,023,011 | |||||
9.5 | % | 3,581,225 | ||||||
Financial
Services
|
||||||||
Xxxxxxx
Partners, L.P. (cost $2,000,000)
|
6.9 | % | 2,602,342 | |||||
Large
Cap Value
|
||||||||
Xxxxx
Circle Partners, L.P. (cost $1,808,000)
|
7.2 | % | 2,699,605 | |||||
Mid
Cap Growth
|
||||||||
Bull
Path I Fund, L.P. (cost $2,050,000)
|
6.7 | % | 2,519,489 | |||||
JetStream
Global Institutional Fund, L.P. (cost $1,500,000)
|
8.4 | % | 3,136,144 | |||||
Redstone
Investors, L.P. (cost $1,400,000)
|
5.9 | % | 2,197,210 | |||||
Sonar
Partners, L.P. (cost $2,000,000)
|
6.3 | % | 2,371,677 | |||||
27.3 | % | 10,224,520 | ||||||
Natural
Resources
|
||||||||
Hard
Assets Partners, L.P. (cost $2,000,000)
|
6.7 | % | 2,514,861 | |||||
Small
Cap Growth
|
||||||||
Akahi
Fund, L.P. (cost $1,000,000)
|
2.9 | % | 1,082,504 | |||||
Bluefin
Investors, L.P. (cost $2,000,000)
|
5.6 | % | 2,112,316 | |||||
8.5 | % | 3,194,820 | ||||||
Small
Cap Value
|
||||||||
Odyssey
Value Partners, L.P. (cost $500,000)
|
1.4 | % | 525,392 | |||||
Rivanna
Partners, L.P. (cost $2,500,000)
|
7.5 | % | 2,803,683 | |||||
8.9 | % | 3,329,075 |
ACP
Strategic Opportunities Fund II, LLC
Schedule
of Investments - December 31, 2007
Technology
|
||||||||
Brightfield
Partners, L.P. (cost $1,690,000)
|
5.4 | % | 2,011,667 | |||||
Connective
Capital I, L.P. (cost $1,750,000)
|
5.7 | % | 2,141,762 | |||||
STG
Capital Partners, L.P. (cost $2,000,000)
|
5.6 | % | 2,050,771 | |||||
16.7 | % | 6,204,200 | ||||||
Total
Long/Short Equity (cost $26,788,000)*
|
91.7 | % | 34,350,648 | |||||
Money
Market:
|
||||||||
Federated
Treasury Obligations Fund (cost $1,888,058)
|
5.1 | % | 1,888,058 | |||||
Total
Money Market (cost $1,888,058)*
|
5.1 | % | 1,888,058 | |||||
Total
Investments in Underlying Funds (cost $28,676,058)*
|
96.8 | % | $ | 36,238,706 | ||||
Other
Assets and Liabilities
|
3.2 | % | 1,211,409 | |||||
Members'
Capital
|
100.0 | % | $ | 37,450,115 |
# -
Non-income producing securities
^ -
Securities in private placement transactions and as such are restricted as to
resale. Total cost and
fair
value of restricted securities as of December 31, 2007 was $26,788,000 and
$34,350,648 respectively.
* - Cost
for Federal income tax purposes is the same as for financial statement
purposes. Net unrealized
appreciation
(depreciation) consists of:
Gross
Unrealized Appreciation
|
$ | 7,562,648 | ||
Gross
Unrealized Depreciation
|
- | |||
Net
Unrealized Appreciation
|
$ | 7,562,648 |
The
accompanying notes are an integral part of these financial
statements.
ACP
Strategic Opportunities Fund II, LLC
Statement
of Assets, Liabilities and Members' Capital
December
31, 2007
Assets:
|
||||
Investments
in underlying funds, at fair value (cost, $28,676,058)
|
$ | 36,238,706 | ||
Cash
|
249,179 | |||
Receivables:
|
||||
Redemption
from underlying fund
|
2,613,987 | |||
Receivable
from Investment Manager
|
70,334 | |||
Due
from affiliates
|
2,000 | |||
Dividends
|
3,556 | |||
Other
assets
|
11,117 | |||
Total
assets
|
39,188,879 | |||
Liabilities:
|
||||
Contributions
received in advance
|
1,250,000 | |||
Withdrawals
payable
|
420,992 | |||
Accrued
expenses:
|
||||
Professional
fees
|
60,500 | |||
Accounting
and administration fees
|
4,688 | |||
Custody
fees
|
2,584 | |||
Total
liabilities
|
1,738,764 | |||
Members'
capital
|
$ | 37,450,115 |
ACP
Strategic Opportunities Fund II, LLC
Statement
of Assets, Liabilities and Members' Capital (cont)
December
31, 2007
Members'
capital
|
||||
Represented
by:
|
||||
Capital
contributions (net)
|
$ | 29,587,962 | ||
Accumulated
net investment loss
|
(1,438,767 | ) | ||
Accumulated
net realized gain on investments
|
1,738,272 | |||
Net
unrealized appreciation on investments
|
7,562,648 | |||
Members'
capital
|
$ | 37,450,115 | ||
Units
Outstanding (100,000,000 units authorized)
|
2,550,473 | |||
Net
Asset Value per Unit (offering and redemption price per
unit)
|
$ | 14.68 |
The
accompanying notes are an integral part of these financial
statements.
Statement
of Operations
Year
ended December 31, 2007
Investment
Income
|
||||
Interest
|
$ | 93,267 | ||
Dividends
|
15,651 | |||
Total
investment income
|
108,918 | |||
Expenses
|
||||
Investment
management fee
|
476,386 | |||
Professional
fees
|
159,391 | |||
Accounting
and administration fees
|
72,800 | |||
Board
of Directors fees
|
22,750 | |||
Insurance
expense
|
19,958 | |||
Custody
fees
|
8,246 | |||
Other
expenses
|
13,082 | |||
Total
expenses
|
772,613 | |||
Less:
expenses reimbursed by Investment Manager
|
(70,339 | ) | ||
Net
expenses
|
702,274 | |||
Net
investment loss
|
(593,356 | ) | ||
Realized
and unrealized gain from investments
|
||||
Net
realized gain from investments in underlying funds
|
975,721 | |||
Net
increase in unrealized appreciation on investments in underlying
funds
|
3,459,697 | |||
Net
realized and unrealized gain from investments
|
4,435,418 | |||
Increase
in members' capital resulting from operations
|
$ | 3,842,062 |
The
accompanying notes are an integral part of these financial
statements.
ACP
Strategic Opportunities Fund II, LLC
Statement
of Changes in Members' Capital
For
the Year Ended
December 31, 2007
|
For
the Year Ended
December 31, 2006
|
|||||||
Members'
capital - beginning of year
|
$ | 27,129,830 | $ | 17,804,064 | ||||
Capital
contributions
|
9,053,753 | 9,297,969 | ||||||
Capital
withdrawals
|
(2,575,530 | ) | (1,638,834 | ) | ||||
Net
investment loss
|
(593,356 | ) | (279,235 | ) | ||||
Net
realized gain from investments in underlying funds
|
975,721 | 312,649 | ||||||
Net
increase in unrealized appreciation on investments in underlying
funds
|
3,459,697 | 1,633,217 | ||||||
Members'
capital - end of year
|
$ | 37,450,115 | $ | 27,129,830 |
The
accompanying notes are an integral part of these financial
statements.
ACP
Strategic Opportunities Fund II, LLC
Statement
of Cash Flows
Year
ended December 31, 2007
Cash
flows from operating activities:
|
||||
Net
increase in members' capital resulting from operations
|
$ | 3,842,062 | ||
Adjustments
to reconcile net increase in partners' capital resulting from operations
to net cash used in operating activities:
|
||||
Cost
of investments in underlying funds purchased
|
(11,000,000 | ) | ||
Proceeds
from redemptions of investments in underlying funds
|
3,565,721 | |||
Net
realized gain from investments in underlying funds
|
(975,721 | ) | ||
Net
change in unrealized appreciation on investments in underlying
funds
|
(3,459,697 | ) | ||
Net
purchase of money market fund
|
(1,888,058 | ) | ||
Increase
in receivable for redemption of underlying funds
|
(1,529,544 | ) | ||
Decrease
in receivable from Investment Manager
|
301,104 | |||
Decrease
in dividends and interest receivable
|
1,952 | |||
Increase
in other assets
|
(11,117 | ) | ||
Decrease
in due from affiliates
|
30,083 | |||
Decrease
in accrued professional fees payable
|
(76,213 | ) | ||
Decrease
in accounting and administration fees payable
|
(190,477 | ) | ||
Decrease
in management fees payable
|
(187,679 | ) | ||
Decrease
in custody fees payable
|
(13,498 | ) | ||
Decrease
in Board of Director's fees payable
|
(4,500 | ) | ||
Decrease
in other accrued expenses
|
(5,594 | ) | ||
Net
cash used in operating activities
|
(11,601,176 | ) | ||
Cash
flows from financing activities:
|
||||
Capital
contributions received (net of contributions received in
advance)
|
10,303,753 | |||
Capital
withdrawals paid (net of change in withdrawals payable)
|
(2,157,269 | ) | ||
Net
cash provided by financing activities
|
8,146,484 |
ACP
Strategic Opportunities Fund II, LLC
Statement
of Cash Flows (cont)
Year
ended December 31, 2007
Net
decrease in cash
|
(3,454,692 | ) | ||
Cash
at beginning of year
|
3,703,871 | |||
Cash
at end of year
|
$ | 249,179 |
The
accompanying notes are an integral part of these financial
statements.
ACP
Strategic Opportunities Fund II, LLC
Financial
Highlights
|
||||||||||||||||||||
For
the Year Ended December 31,
|
||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
(b)
|
||||||||||||||||
NET
ASSET VALUE, Beginning of Year
|
$ | 13.07 | $ | 12.10 | $ | 11.39 | $ | 10.64 | $ | 9.32 | ||||||||||
INVESTMENT
OPERATIONS
|
||||||||||||||||||||
Net
investment loss
|
(0.25 | ) (a) | (0.16 | ) (a) | (0.15 | ) (a) | (0.17 | ) (a) | (0.12 | ) | ||||||||||
Net
realized and unrealized gain (loss) from investments in Underlying
Funds
|
1.86 | 1.13 | 0.86 | 0.92 | 1.44 | |||||||||||||||
Total
from investment operations
|
1.61 | 0.97 | 0.71 | 0.75 | 1.32 | |||||||||||||||
NET
ASSET VALUE, End of Year
|
$ | 14.68 | $ | 13.07 | $ | 12.10 | $ | 11.39 | $ | 10.64 | ||||||||||
TOTAL
RETURN
|
12.32 | % | 8.02 | % | 6.23 | % | 7.05 | % | 14.16 | % | ||||||||||
RATIOS
/ SUPPLEMENTAL DATA
|
||||||||||||||||||||
Members'
Capital at end of period (000's omitted)
|
$ | 37,450 | $ | 27,130 | $ | 17,804 | $ | 13,577 | $ | 7,585 | ||||||||||
Ratios
to Average Net Assets:
|
||||||||||||||||||||
Net
investment loss
|
(1.83 | )% | (1.26 | )% | (1.29 | )% | (1.57 | )% | (1.43 | )% | ||||||||||
Expenses,
net of reimbursements/waiver of fees
|
2.17 | % | 1.67 | % | 1.42 | % | 1.60 | % | 1.45 | % | ||||||||||
Expenses,
excluding reimbursement/waiver of fees
|
2.38 | % | 2.98 | % | 3.17 | % | 3.27 | % | 4.31 | % | ||||||||||
PORTFOLIO
TURNOVER RATE
|
12 | % | 11 | % | 35 | % | 15 | % | 18 | % |
(a)
Calculated using average shares outstanding during the year.
(b)
Audited by other auditors.
The
accompanying notes are an integral part of these financial
statements.
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
1.
|
Organization
and Investment Objective
|
ACP
Strategic Opportunities Fund II, LLC (the “Fund”) is a Delaware limited
liability company that is a non-diversified, closed-end management investment
company with a continuous offering period, registered under the Investment
Company Act of 1940, as amended (the “Investment Company Act”). Its units of
beneficial interest (“Units”) are not registered under the Securities Act of
1933, as amended. The Fund’s investment objective is to achieve an absolute
return in excess of the long-term return of the U.S. equity market. It attempts
to achieve this objective through the allocation of its assets among a select
group of non-registered investment funds (the “Underlying Funds”). The
Investment Manager (as defined below) invests the Fund’s assets in Underlying
Funds whose investment style is primarily opportunistic and that are believed to
be able to generate above average returns while maintaining strict risk controls
in order to keep losses to a minimum.
Ascendant
Capital Partners, LP, a Delaware limited partnership, serves as the investment
manager (“Investment Manager”) to the Fund. The Fund has entered into an
investment management agreement with the Investment Manager (“Investment
Management Agreement”), pursuant to which the Investment Manager is responsible
for formulating a continuing investment program for the Fund. The Investment
Manager is registered as an investment adviser with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended. Responsibility
for the overall management and supervision of the operations of the Fund is
vested in the individuals who serve as the Board of Directors of the Fund (the
“Board”).
2.
Significant Accounting Policies
These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and are expressed in United
States dollars. The following is a summary of significant accounting and
reporting policies used in preparing the financial statements.
a.
|
Investment
Valuation
|
The Fund
values interests in the Underlying Funds at fair value, which ordinarily is the
value determined by their respective investment managers, in accordance with
procedures established by the Board. Investments in Underlying Funds are subject
to the terms of the Underlying Funds’ offering documents. Valuations of the
Underlying Funds may be subject to estimates and are net of management and
performance incentive fees or allocations payable to the Underlying Funds’
managers as required by the Underlying Funds’ offering documents. If the
Investment Manager determines that the most recent value reported by the
Underlying Fund does not represent fair value or if the Underlying Fund fails to
report a value to the Fund, a fair value determination is made under procedures
established by and under the general supervision of the Board. Because of the
inherent uncertainty in valuation, the estimated values may differ from the
values that would have been used had a ready market for the securities existed,
and the differences could be material. Prospective investors should
be aware that situations involving uncertainties as to the value of portfolio
positions could have an adverse effect in the Fund’s net assets if the judgments
of the Board, the Investment Manager or investment advisor to the Underlying
Fund should prove incorrect. Investment advisors to the Underlying
Funds only provide determinations of the net asset values of Underlying Funds on
a weekly or monthly basis, in which event it will not be possible to determine
the net asset value of the Fund more frequently. The interests in the
Underlying Funds in which the Fund invests or plans to invest are generally
illiquid. The Fund may not be able to dispose of Underlying Fund
interest that it has purchased. These investments represent 91.7% of
the net assets of the Fund.
18
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
a.
|
Investment
Valuation (cont)
|
The Fund also invests excess cash in the Federated Treasury Obligations Fund, an open-end money market fund which is included on the schedule of investments.
b.
|
Net
Asset Valuation
|
The
Fund’s Administrator, Pinnacle Fund Administration LLC (“Pinnacle” or
“Administrator”) will calculate the net asset value per Unit in dollars as
determined as of the close of business of the New York Stock Exchange,
(generally 4:00 p.m. Eastern Standard Time) on the last business day of each
Allocation Period (as defined in Note 3), unless the calculation of the net
asset value has been suspended. The net asset value for the Fund is
comprised of the net asset value of the Underlying Funds in which the Fund
invests, less the expenses and liabilities.
c.
|
Investment
Transactions and related Investment
Income
|
Investment
transactions are accounted for on a trade-date basis. Realized gains
and losses on investment transactions are recorded on an identified-cost
basis. Interest is recognized on the accrual
basis. Dividends are recognized on the ex-dividend date.
d.
|
Fund
Expenses
|
The
Investment Manager agreed to reimburse certain expenses (other than the
Management Fee) to the extent those other expenses exceed 0.15% per annum of
average net assets through April 30, 2007. As of December 31, 2007,
the receivable from the Investment Manager for the Fund totaled
$70,334. For the year ended December 31, 2007, the Investment Manager
has reimbursed the Fund $371,443 representing the entire balance of reimbursable
expense accruals prior to December 31, 2006. For the year ended
January 1, 2007 through December 31, 2007, the Investment Manager has agreed to
reimburse the Fund an additional $70,339 for expenses accrued during that
year. The Investment
Manager has also entered into an agreement with the Fund’s Board to repay all
outstanding expense reimbursement accruals in order that the balances will be
zero by December 31, 2008. The receivable occurred principally as a
result of a one time accrual required to settle the final payments due to the
Fund's former administrator.
19
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
e.
|
Income
Taxes
|
The Fund
is treated as a partnership for Federal income tax purposes and therefore is not
subject to Federal income tax. For income tax purposes, each person who has
purchased interests in the Fund (each a “Member”, together the “Members”) will
be treated as a partner of the Fund and, as such, will be taxed upon its
distributive share of each item of the Fund’s income, gain, loss, deductions and
credits for each taxable year of the Fund ending with or within each Member’s
taxable year.
2.
Significant Accounting Policies (continued)
f.
|
Cash
|
The Fund
maintains a demand deposit account at UMB Bank, N.A. for the purpose of managing
contribution and withdrawal cash flows and for paying expenses. Such
cash, at times, may exceed federally insured limits. The Fund
has not experienced any such losses nor does it believe it is exposed to any
significant credit risk. At December 31, 2007, the Fund held $249,179
in this account and it is included on the statement of assets &
liabilities.
g.
|
Use
of Estimates
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Fund to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expense during the reporting period. Actual results could differ from
these estimates.
3.
Allocation of Members’ Capital Account
The Fund
maintains a separate capital account for each Member that has an opening balance
equal to the sum of the net asset value of the total number of Units owned by
such Member. Net profits or net losses of the Fund for each Allocation Period
(as defined below) will be allocated among and credited to or debited against
the capital accounts of the Members. Allocation Periods begin on the day after
the last day of the preceding Allocation Period and end at the close of business
on (1) the last day of each month, (2) the last day of each taxable year, (3)
the day preceding each day on which Units are purchased, (4) the day on which
Units are repurchased, or (5) the day on which any amount is credited to or
debited from the capital account of any Member other than an amount to be
credited to or debited from the capital accounts of all Members in accordance
with their respective investment percentages.
20
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
4. Management Fee, Related Party
Transactions and Other
Pursuant
to the Investment Management Agreement, the Investment Manager will be entitled
to receive an annual management fee (the “Management Fee”). The base Management
Fee is equal to 1.50% of the Fund’s net assets and is subject to a performance
adjustment based on the Fund’s rolling twelve-month return. The Management Fee
will not be lower than 1.00% per annum or higher than 1.50%. For the
year ended December 31, 2007, the Fund paid the Investment Manager fees totaling
$664,065 (which includes payment for the 3rd and 4th Quarters of 2006) and
incurred expenses of $476,386 as disclosed on the statement of
operations.
Each
member of the Board, who is not an “interested person” of the Fund, as defined
by the Investment Company Act, receives a $2,500 fee for each meeting attended
in person and a $500 fee for each meeting attended by telephone. All directors
are reimbursed by the Fund for all reasonable out-of-pocket expenses incurred by
them in performing their duties.
In May
2007, the Fund engaged Pinnacle to serve as the administrator and accounting
agent to the Fund and provides certain accounting, record keeping, and investor
related services. Prior to that, the Fund had entered into a Fund
Accounting Services Agreement with Citigroup Fund Services, LLC. This agreement
was terminated effective February 3, 2007 and from February 3, 2007 to April 30,
2007 the Investment Manager (together with outside accounting assistance)
assumed the work of aggregating underlying values, determining the Fund’s net
asset value and performing other incidental administration services. In
addition, the Investment Manager temporarily assumed responsibility for Fund
accounting until Pinnacle was engaged. These changes were designed to reduce
total fund expenses.
Citigroup
Trust Co. (“Citigroup”) served as custodian of the Fund’s assets through August
30, 2007. At that time, UMB Bank assumed the role as the Fund’s
custodian.
The Fund
pays a monthly fee to the administrator and the custodian based upon average
members’ capital, subject to certain minimums.
5.
Investment Transactions
Total
purchases of Underlying Funds for the year ended December 31, 2007, amounted to
$11,000,000. Total proceeds from redemptions of Underlying Funds for the year
ended December 31, 2007, amounted to $3,565,721. The cost of investments in
Underlying Funds for
Federal income tax purposes is adjusted for items of taxable income allocated to
the Fund from the Underlying Funds. The Fund has not received information from
the Underlying Funds as to the amounts of taxable income allocated to the Fund
as of December 31, 2007.
21
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
6.
Risk Factors
An
investment in the Fund involves significant risks that should be carefully
considered prior to investing and should only be considered by persons
financially able to maintain their investment and who can afford a loss of a
substantial part or all of such investment. The Fund intends to invest
substantially all of its available capital in securities of unregistered
investment companies. These investments will generally be restricted securities
that are subject to substantial holding periods or are not traded in public
markets at all, so that the Fund may not be able to resell some of its
securities holdings for extended periods, which may be several years. No
guarantee or representation is made that the investment objective will be
met.
7.
Underlying Funds
The
following is a summary of the investment objectives and liquidity provisions of
the Underlying Funds.
Akahi Fund L.P. seeks
to achieve superior risk adjusted returns by employing a fundamental, small cap,
long/short equity strategy. This Underlying Fund maintains a low net exposure,
usually +/- 5%, although they may go to +/- 20%. This Underlying Fund overlays
its stock selection with rigorous risk controls to assure that they remain
within their stated exposure levels. With at least 30 days
written notice a limited partner may withdraw all or a part of their capital
account balance as of the last day of any fiscal quarter that occurs on or after
the day preceding the first anniversary of such limited partner’s admission to
the partnership.
Bluefin Investors, LP
seeks to achieve high risk adjusted returns through investing in small and
mid-cap equities that have been overlooked by the investment community. This
Underlying Fund manages long and short exposure to preserve capital during
periods of market stress. The fund has no lock-up but has a
3%
redemption fee for withdrawals made in the first year. The fund allows for
quarterly redemptions with 35 days notice.
Brightfield Partners,
LP seeks to achieve superior long-term rates of return primarily through
investments in publicly traded U.S. equities in the technology sector. This
Underlying Fund allows for quarterly redemptions upon 30 days prior notice,
after one year has elapsed since initial investment.
22
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
7.
Underlying Funds (cont)
Bull Path Fund I LP
invests in U.S. equities across all industry sectors using a research intense
approach. The fund primarily invests in long/short US equity which are listed on
the major exchanges. This Underlying Fund allows for semi-annual redemptions
with 12-month lock-up since initial investment, quarterly after that, upon 45
days prior notice.
Xxxxxxx Partners, LP
seeks to achieve long-term capital appreciation through investment primarily in
publicly traded equity securities of United States financial institutions. This
Underlying Fund allows for withdrawals on June 30 and December 31 upon 45 days
prior notice, after one year has elapsed since initial investment.
Connective
Capital I LP focuses its
investments in publicly traded equities in the technology and communications
sectors. This Underlying Fund allows for quarterly redemptions with 45
days notice after one year has elapsed since the initial
investment.
Hard Asset Partners,
LP seeks capital appreciation primarily through investments in securities
of companies that are directly or indirectly engaged in exploration,
development, production, servicing of natural resources. This Underlying Fund
allows for monthly redemptions upon 30 days prior notice, after six months have
elapsed since initial investment.
Xxxxx Circle Partners,
LP seeks to preserve capital while generating consistent absolute returns
by holding equity positions in multiple industry sectors and with varying market
capitalizations. This Underlying Fund allows for semi-annual redemptions upon 45
days prior notice, after one year has elapsed since initial
investment.
JetStream Global
Institutional Fund, LP seeks to achieve growth of capital through
investments in common stocks. This Underlying Fund allows for quarterly
redemptions upon 30 days prior notice, after one year has elapsed since initial
investment.
Odyssey Value Partners,
L.P. combines the discipline and long-term perspective of private equity
investing with the liquidity of public capital markets. Executing a
value-oriented approach, this Underlying Fund seeks to deliver superior absolute
returns over the long-term while controlling portfolio volatility and adhering
to strict risk management disciplines. This Underlying Fund targets double-digit
annualized net returns and alpha-generation on both the long and short sides of
the portfolio. The investment team performs original research and analysis,
yielding a low correlation to the broader market indices and the Underlying Fund
has had strong results in down markets. This Underlying Fund allows
for quarterly redemptions upon 45 days prior notice, after one year has elapsed
since initial investment.
Redstone Investors,
LP invests primarily in small- and mid-cap growth equities. This
Underlying Fund allows for redemptions quarterly upon 45 days prior notice,
after one year has elapsed since initial investment.
23
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
7.
Underlying Funds (cont)
Rivanna Partners, LP
is a "bottom-up" long/short U.S. equities fund. This Underlying Fund
focuses on a broad range of industries including technology, industrial
products, consumer products and services, energy and natural resources.
This Underlying Fund allows for quarterly redemptions with 45 days notice after
one year has elapsed since the initial investment.
Sonar Partners, LP
seeks capital appreciation by buying, holding and selling a broad range of
equity securities, debt securities, options, futures and other derivatives over
time frames ranging from intra-day to several or more months. This Underlying
Fund allows for redemptions quarterly upon 30 days prior notice, after one year
has elapsed since initial investment.
STG Capital Partners (QP),
LP seeks to maximize returns while preserving capital primarily by
investing in U.S. equities with a focus on the technology sector. This
Underlying Fund generally maintains a low net exposure to the overall market.
This Underlying Fund has a one year lock-up on new investments and
quarterly
redemptions with 30 days notice.
Xxxxxxxxx/Xxxxxxxx Partners,
LP seeks to maximize absolute returns through investing both long and
short in U.S. common equities, option contracts tied to such equities, exchange
traded funds and American Depository Receipts. This Underlying Fund allows for
quarterly redemptions upon 45 days prior notice.
Zeke, LP seeks to
maximize long-term capital appreciation and total returns by investing in small
and mid-cap U.S. companies that it believes have significant growth
characteristics. This Underlying Fund allows for redemptions quarterly upon 45
days notice, after one year has elapsed since initial
investment.
24
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
8.
Redemptions and Repurchase of Units and Distributions
With very
limited exceptions, Units are not transferable. No Member or other person
holding a Unit will have the right to require the Fund to redeem that Unit or
portion thereof. There is no public market for the Units, and none is expected
to develop. Consequently, investors may not be able to liquidate their
investment other than as a result of the repurchase of Units by the
Fund.
The Board
may, from time to time and in their sole discretion, cause the Fund to
repurchase Units from Members pursuant to written tenders by Members at such
times and on such terms and conditions as established by the Board. In
determining whether the Fund should offer to repurchase Units, the Board will
consider the recommendation of the Investment Manager. The Investment Manager
expects that it will generally recommend to the Board that the Fund offer to
repurchase Units from Members twice each year, effective June 30 and December
31.
The Fund
does not intend to distribute to the Members any of the Fund’s income, but
intends to reinvest substantially all income and gains allocable to the Members.
A Member may therefore be allocated income and gains taxable for Federal, state
and local income tax purposes and not receive any cash
distribution.
9.
Capital Stock Transactions
Transactions
in Units are as follows:
For
the
Year
ended
A.
December
31,
2007
|
For
the
Year
ended
B.
December
31,
2006
|
|||||||
Number
of Units issued
|
657,897 | 736,011 | ||||||
Number
of Units redeemed
|
(183,705 | ) | (130,557 | ) | ||||
Net
increase in Units outstanding
|
474,192 | 605,454 | ||||||
Units
outstanding, beginning of year
|
2,076,281 | 1,470,827 | ||||||
Units
outstanding, end of year
|
2,550,473 | 2,076,281 |
25
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
9.
Capital Stock Transactions (cont)
On
December 31, 2007, six shareholders held approximately 89% of the outstanding
Shares of the Fund. Some of the shareholders are comprised of feeder funds,
which are themselves owned by several shareholders.
10.
Guarantees
In the
normal course of business, the Fund enters into contracts that provide general
indemnifications. The Fund’s maximum exposure under these agreements is
dependent on future claims that may be made against the Fund, and therefore
cannot be established; however, based on experience, the risk of loss from such
claims is considered remote.
26
ACP
Strategic Opportunities Fund II, LLC
Notes
to Financial Statements
11.
Recent Accounting Pronouncements
SFAS No. 157
In September 2006, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 157 (SFAS 157), “Fair Value Measurements”, which clarifies the definition of
fair value and requires companies to expand their disclosure about the use of
fair value to measure assets and liabilities in interim and annual periods
subsequent to initial recognition. Adoption of SFAS 157 requires the use of the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. SFAS
157 is effective for financial statements issues for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
The adoption of SFAS 157 is not expected to have a material impact on the
Fund’s financial statements.
FASB
Interpretation No. 48
Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in accordance with FASB Statement No. 109,
“Accounting for Income Taxes”. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. It
also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 is
effective on the last business day of the first required financial reporting
period for fiscal years beginning after December 15, 2006. Management has
concluded that as of December 31, 2007, there are no uncertain tax positions
that would require financial statement recognition, de-recognition, or
disclosure.
The Fund files U.S. federal and New York, Pennsylvania, Georgia, and New Jersey state tax returns. No income tax
returns are currently under examination. The Fund’s U.S. federal tax and state returns remain
open for examination for the years ended December 31, 2004 through December 31,
2007.
12. Subsequent
Events
Effective
January 1, 2008, the Members contributed $1,250,000 to the Fund, all of which
was received prior to January 1, 2008.
Effective
January 16, 2008 the Investment Manager paid down the Receivable from Investment
Manager by an additional $15,000.
27
ACP
Strategic Opportunities Fund II, LLC
Board
of Directors (unaudited)
The
identity of the members of the Board (each, a “Director”) and brief biographical
information is set forth below. The Statement of Additional Information includes
additional information about the Directors and is available, without charge,
upon request by shareholders, by calling collect (000) 000-0000.
Independent
Directors
Name,
Age and Address
|
Position(s)
Held with Fund
|
Term
of Office and Length of Time Served
|
Principal
Occupation(s)
During
Past 5 Years
|
Number
of Portfolios in Fund Complex Overseen by Director
|
Other
Directorships
held
by Director or
Nominee
|
Xxxx
Xxxxxxx
Age:
65
000
Xxxxxxxxxx Xxxx
Xxxxxxxx
0, xxxxx 000
Xxxxxx,
XX 00000
|
Director
|
Term: Indefinite
Length: Since
2002
|
Portfolio
Manager, Guyasuta Investment Advisors (Since 12/2000); previously,
Portfolio Manager, Delaware Investments. N/A (1977-2000); portfolio
manager Mellon Bank (1967-1977); Financial Analyst IBM
(10/65-6/67)
|
ACP
Funds Trust (2 series); ACP Strategic Opportunities Fund II,
LLC.
|
None.
|
Xxxxxx
Xxxxxx
Age: 68
Xxxxxx
Capital Management
00
Xxxx Xxxxx Xxxx
Xxxxxx,
XX 00000
|
Director
|
Term:
Indefinite
Length:
Since 2004
|
President,
Xxxxxx Capital Management (present); previously, Haverford Trust
(2005-Present); Xxxxxxxxxx Xxxxxx & Co. (1989-1994); President,
Xxxxxxx Xxxxx Mortgage Capital (1970-1987);National Sales Manager,
Municipal Securities, Xxxxxx Peabody (1968-1970); Xxxxxxx X. Xxxx &
Co. (1962-1964)Municipal Bond Division., X.X. Xxxxxx
(1957-1962).
|
ACP
Funds Trust (2 series); ACP Strategic Opportunities Fund II,
LLC.
|
None.
|
28
ACP
Strategic Opportunities Fund II, LLC
Board
of Directors (unaudited)
Xxxxx
Xxxxxxx
Age: 53
000
Xxxx Xxxxxxxxx Xxx.
Xxxxx,
XX 00000
|
Director
|
Term: Indefinite
Length: Since
2007
|
President,
Xxxxxx X. XxXxxxxxxx Agency, Inc. (Independent Insurance
Broker)
(since
1979)
|
ACP
Funds Trust (2 series); ACP Strategic Opportunities Fund II,
LLC.
|
Quaker
Investment Trust (8 series).
|
Interested
Director(s)
Name,
Age and Address
|
Position(s)
Held with Fund
|
Term
of Office and Length of Time Served
|
Principal
Occupation(s)
During
Past 5 Years
|
Number
of Portfolios in Fund Complex Overseen by Director
|
Other
Directorships held by Director or Nominee
|
Xx.
Xxxx Xxxxxxx
Age:
53
0000
Xxxxxxxxx Xxxxx
Xxxxx
000
Xxxxxx,
XX 00000
|
President,
Chief Investment Officer and Director
|
Term: Indefinite
Length: Since
2007 (Director)
Since
2001 (President and CIO)
|
President
& Chief Investment Officer of Ascendant Capital Partners,
LP. (since 2001); previously, General Partner of Argos Advisors
(1988-2000).
|
ACP
Funds Trust (2 series);ACP Strategic Opportunities Fund II,
LLC).
|
BHR
Fund Advisors.
|
29
ACP
Strategic Opportunities Fund II, LLC
Board
of Directors (unaudited)
Audit
Committee
Messrs.
Xxxxxxx, Xxxxxxx and Xxxxxx are members of the Audit Committee of the
Board. Although the Board has not designated an Audit Committee
Financial Expert, each member of the Audit Committee has significant financial
industry expertise. Messrs. Xxxxxxx and Xxxxxx each have more than 40
years experience in the investment and securities industries. Xx.
Xxxxxxx has served other investment company boards and has worked in the
insurance industry for more than 25 years. All three members of the
Audit Committee are disinterested persons on the Investment Company
Act. The Audit Committee does not believe that adding a specific
Financial Expert would materially increase the Committee’s judgment or
effectiveness.
30
ACP
Strategic Opportunities Fund II, LLC
Fund
Management (unaudited)
Set forth
below is the name, age, position with the Fund, length of term of office, and
the principal occupation for the last five years of each of the persons
currently serving as Executive Officers of the Fund. Unless otherwise noted, the
business address of each officer is 0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, XX,
00000.
Name,
Age and Address
|
Position(s)
Held with Fund
|
Term
of Office and Length of Time Served
|
Principal
Occupation(s)During Past 5 Years
|
Number
of Portfolios in Fund Complex Overseen by Director
|
Other
Directorships held by Director or Nominee
|
Xxxx
Xxxxxxx
Age:
53
|
President,
Chief Investment Officer and Director
|
Term: Indefinite
Length: Since
2007 (Director)
Since
2001 (President and CIO)
|
President
& Chief Investment Officer of Ascendant Capital Partners,
LP. (since 2001); previously, General Partner of Argos Advisors
(1988-2000).
|
ACP
Funds Trust (2 series);ACP Strategic Opportunities Fund II,
LLC).
|
BHR
Fund Advisors.
|
Xxxxxxxxx
Xxxxx Xxxxx
Age:
37
|
Director,
Client Services and Administration
|
Term: Indefinite
Length: Since
2001
|
Director,
Client Services and Fund Operations of Ascendant Investments,
LP; previously Institutional Equity Sales, Credit Suisse First
Boston
|
31
ACP
Strategic Opportunities Fund II, LLC
Fund
Management (unaudited)
Proxy
Voting Information
A
description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities and the Fund’s record of actual
proxy votes cast is available on the SEC’s website at xxx.xxx.xxx and may be
obtained at no additional charge by calling collect 610-993-9999 or writing: ACP
Strategic Opportunities Fund II, LLC, 0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx,
Xxxxxxxxxxxx 00000.
Availability
of Quarterly Portfolio Schedules
The Fund
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 Fund’s Form N-Q is
available, on the SEC’s website at xxx.xxx.xxx or may be reviewed and copied at
the SEC’s Public Reference Room in Washington, DC. Information on the operation
of the Public Reference Room may be obtained by calling (800)
SEC-0330. The Fund’s Form N-Q is also available from the Fund,
without charge and upon request, by calling 610-993-9999 or writing to ACP
Strategic Opportunities Fund II, LLC, 0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx,
XX 00000.
32