Exhibit 10.71








Exhibit 10.71



FINANCIAL STATEMENTS AND REPORT OF

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




TRICADIA CDO FUND, L.P.




December 31, 2007





 









 














	 	 	 
	 

	 	Audit • Tax • Advisory
	 
	 	 
	 

	 	Grant Thornton LLP
	 

	 	60 Broad Street, 24th Floor
	 

	 	New York, NY 10004-2306
	 
	 	 
	 

	 	T 212.422.1000
	 

	 	F 212.422.0144
	 

	 	www.Grant Thornton.com





 



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




To the Partners of




     Tricadia CDO Fund, L.P.


We have audited the accompanying statement of financial condition of Tricadia CDO Fund, L.P. (the
“Partnership”) as of December 31, 2007, including the condensed schedule of investments, and the
related statements of income and special allocation, changes in partners’ capital and cash flows
for the year then ended. These financial statements are the responsibility of the Partnership’s
management. Our responsibility is to express an opinion on these financial statements based on our
audit.



We conducted our audit in accordance with auditing standards generally accepted in the United
States of America as established by the American Institute of Certified Public Accountants. Those
standards 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 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 Partnership’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. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Tricadia CDO Fund, L.P. at December 31, 2007 and its
operations and cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.









New York, New York

May 5, 2008



Grant Thornton LLP

U.S. member firm of Grant Thornton International Ltd




-2-










 









Tricadia CDO Fund, L.P.



 



STATEMENT OF FINANCIAL CONDITION




December 31, 2007

(expressed in United States dollars)




	 	 	 	 	 
	ASSETS

	Investment in investment entity, at fair value
	 	$	30,000,000	 
	Securities owned, at fair value (cost $5,225,006)
	 	 	4,125,008	 
	Receivable from brokers
	 	 	9,151,538	 
	Other fee receivables
	 	 	83,119	 
	Other receivables
	 	 	1,050,000	 
	 
	 	 	 
	 
	 	 	 	 
	Total assets
	 	$	44,409,665	 
	 
	 	 	 
	 
	 	 	 	 
	LIABILITIES AND PARTNERS’ CAPITAL

	 
	 	 	 	 
	Accrued expenses
	 	$	147,307	 
	 
	 	 	 
	 
	 	 	 	 
	Partners’ capital
	 	 	44,262,358	 
	 
	 	 	 
	 
	 	 	 	 
	Total liabilities and partners’ capital
	 	$	44,409,665	 
	 
	 	 	 






The accompanying notes are an integral part of this statement.




-3-









 







Tricadia CDO Fund, L.P.







CONDENSED SCHEDULE OF INVESTMENTS




December 31, 2007

(expressed in United States dollars)




	 	 	 	 	 	 	 	 	 
	Quantity	 	 	 	 	Fair value	 
	 	 	 	 	INVESTMENT IN INVESTMENT ENTITY, AT FAIR VALUE (67.78%)
	 	 	 	 
	 	 	 	 	United States (67.78%)
	 	 	 	 
	 	 	 	 	Financial (67.78%)
	 	 	 	 
	 	2,000,000	 	 	Tiptree Financial Partners, LP (67.78%)
	 	$	30,000,000	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	SECURITIES OWNED, AT FAIR VALUE (9.32%)
	 	 	 	 
	 	 	 	 	ASSET-BACKED SECURITIES (9.32%)
	 	 	 	 
	 	 	 	 	United States (8.47%)
	 	 	 	 
	 	 	 	 	Financial (8.47%)
	 	 	 	 
	 	5,000,000	 	 	Telos 2006-1A sub 10/11/2021 (8.47%)
	 	$	3,750,008	 
	 	 	 	 	Cayman Islands (0.85%)
	 	 	 	 
	 	 	 	 	Financial (0.85%)
	 	 	 	 
	 	500,000	 	 	Telos 2006-1X sub 10/11/2021 (0.85%)
	 	 	375,000	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	TOTAL ASSET-BACKED SECURITIES (COST $5,225,006)
	 	 	4,125,008	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	SECURITIES OWNED, AT FAIR VALUE (COST $5,225,006)
	 	$	4,125,008	 
	 	 	 	 	 
	 	 	 






The accompanying notes are an integral part of this schedule.





-4-









 






Tricadia CDO Fund, L.P.







STATEMENT OF INCOME AND SPECIAL ALLOCATION




Year ended December 31, 2007

(expressed in United States dollars)




	 	 	 	 	 
	Investment income
	 	 	 	 
	Interest
	 	$	7,373,355	 
	Dividends
	 	 	860,000	 
	Other fee income
	 	 	3,972,115	 
	 
	 	 	 
	 
	 	 	 	 
	Total investment income
	 	 	12,205,470	 
	 
	 	 	 
	 
	 	 	 	 
	Expenses
	 	 	 	 
	Management fees
	 	 	332,171	 
	Professional fees
	 	 	126,422	 
	Interest
	 	 	92,312	 
	Other
	 	 	342	 
	 
	 	 	 
	 
	 	 	 	 
	Total expenses 
	 	 	551,247	 
	 
	 	 	 
	 
	 	 	 	 
	Net investment income
	 	 	11,654,223	 
	 
	Net realized loss on securities
	 	 	(2,922,416	)
	Net unrealized gain on swap contracts
	 	 	28,000	 
	Net change in unrealized loss on securities
	 	 	722,513	 
	 
	 	 	 
	 
	 	 	 	 
	Net income available for pro rata allocation to all partners
	 	$	9,482,320	 
	 
	 	 	 
	 
	 	 	 	 
	Special allocation to General Partner
	 	$	732,671	 
	 
	 	 	 






The accompanying notes are an integral part of this statement.



-5-











 






Tricadia CDO Fund, L.P.







STATEMENT OF CHANGES IN PARTNERS’ CAPITAL




Year ended December 31, 2007

(expressed in United States dollars)




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	General	 	 	Limited	 	 	Total	 
	 	 	Partner	 	 	Partner	 	 	Capital	 
	Partners’ capital at December 31, 2006
	 	$	396,250	 	 	$	28,430,038	 	 	$	28,826,288	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Capital contributions
	 	 	 	 	 	 	6,250,000	 	 	 	6,250,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Capital withdrawals
	 	 	(296,250	)	 	 	 	 	 	 	(296,250	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Allocation of net income
	 	 	 	 	 	 	 	 	 	 	 	 
	Special allocation
	 	 	732,671	 	 	 	(732,671	)	 	 	—	 
	Pro rata allocation
	 	 	63,876	 	 	 	9,418,444	 	 	 	9,482,320	 
	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Partners’ capital at December 31, 2007
	 	$	896,547	 	 	$	43,365,811	 	 	$	44,262,358	 
	 
	 	 	 	 	 	 	 	 	 






The accompanying notes are an integral part of this statement.




-6-









 






Tricadia CDO Fund, L.P.







STATEMENT OF CASH FLOWS




Year ended December 31, 2007

(expressed in United States dollars)




	 	 	 	 	 
	Cash flows from operating activities
	 	 	 	 
	Net income available for pro rata allocation to all partners
	 	$	9,482,320	 
	Adjustments to reconcile net income to net cash used in operating activities
	 	 	 	 
	Changes in assets and liabilities
	 	 	 	 
	Decrease (increase) in operating assets
	 	 	 	 
	Investment in investment entity, at fair value
	 	 	(30,000,000	)
	Securities owned, at fair value
	 	 	8,902,492	 
	Receivable from brokers
	 	 	5,971,741	 
	Other fee receivables
	 	 	745,076	 
	Other receivables
	 	 	(1,050,000	)
	Decrease in operating liabilities
	 	 	 	 
	Accrued expenses
	 	 	(5,379	)
	 
	 	 	 
	 
	 	 	 	 
	Net cash used in operating activities
	 	 	(5,953,750	)
	 
	 	 	 
	 
	 	 	 	 
	Cash flows from financing activities
	 	 	 	 
	Capital withdrawal
	 	 	(296,250	)
	Capital contributions
	 	 	6,250,000	 
	 
	 	 	 
	 
	 	 	 	 
	Net cash provided by financing activities
	 	 	5,953,750	 
	 
	 	 	 
	 
	 	 	 	 
	Cash at beginning of year
	 	 	—	 
	 
	 	 	 
	 
	Cash at end of year
	 	$	—	 
	 
	 	 	 






The accompanying notes are an integral part of this statement.



-7-









 





Tricadia CDO Fund, L.P.







NOTES TO FINANCIAL STATEMENTS




December 31, 2007




NOTE A — ORGANIZATION





Tricadia CDO Fund, L.P. (the “Partnership”), formerly known as Mariner Tiptree (CDO) Fund I,
L.P. was formed on July 3, 2003 as a Delaware limited partnership and commenced operations on
October 1, 2003. The Partnership amended and restated the terms of its limited partnership
agreement (the “Partnership Agreement”) effective August 1, 2006 (the “Amendment Date”), to
include, among other things, a new name for the Partnership and a new basis for calculating the
special allocation to the General Partner.




Tricadia Capital, LLC (the “General Partner”), a Delaware limited liability company, is the
General Partner of the Partnership. Tricadia CDO Management, LLC (the “Investment Manager”) is
the Investment Manager of the Partnership. The Investment Manager provides administrative and
management services to the Partnership. The General Partner and Investment Manager are
affiliated with Mariner Investment Group, LLC (“MIG”), a Delaware limited liability company,
which is registered with the Securities and Exchange Commission as an investment adviser under
the Investment Advisers Act of 1940.




The Partnership seeks to achieve realized capital appreciation by investing in, among other
things, interests in collateralized debt obligation (“CDO”) securities, collateralized loan
obligation (“CLO”) securities, credit-related structured product (“CRS”) securities and other
structured product securities that are structured, managed, advised or issued by the General
Partner or the Investment Manager.



NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The accompanying financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.




The following are the significant accounting policies adopted by the Partnership:




	 	1.	 	Investment in Investment Entity, at Fair Value
	 
	 	 	 	Investment in investment entity represents ownership in a private investment partnership
that is carried at fair value in the statement of financial condition. Such fair value is
solely determined by the General Partner based upon, among other things, the Partnership’s
proportionate share of the value of the investee entity’s net assets. The Partnership’s risk
of loss in this entity is limited to its investment in the investee entity.





-8-









 








Tricadia CDO Fund, L.P.




NOTES TO FINANCIAL STATEMENTS




December 31, 2007




NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





	 	2.	 	Securities Owned, at Fair Value
	 
	 	 	 	Securities transactions are recorded on a trade-date basis.
	 
	 	 	 	The Partnership values securities that are traded on a national securities exchange (or a
National Market Security reported by the National Association of Securities Dealers
Automated Quotations system) at the last reported sales price on the day of determination.
	 
	 	 	 	Fixed income securities traded in the over-the-counter market are stated at fair value
which is established based on quotes from third-party market makers in those markets.
	 
	 	 	 	Securities for which no market prices are available will be valued by the General Partner in
reliance upon one or more quotes received from a securities broker-dealer that has been
granted the designation of primary dealer by the Federal Reserve Bank of New York.
	 
	 	 	 	Unrealized gains or losses are credited or charged directly to income.
	 
	 	 	 	Credit default swap (“CDS”) contracts are marked to market to reflect fair value, which
approximates the amounts that would be received from, or paid to, a third party in
settlement of the contracts as if those contracts were to settle on December 31, 2007. CDS
contracts are valued at fair value, determined by the Investment Manager using pricing
models that utilize third-party quoted inputs. Unrealized gains on CDS contracts are
included net unrealized gain on swap contracts on the statement of income and special
allocation.






	 	3.	 	Income Taxes
	 
	 	 	 	Income of the Partnership is allocated to the individual partners for inclusion in their
respective tax returns. Accordingly, no provision is made for Federal, state or local income
taxes in the accompanying financial statements, nor are any income taxes payable by the
Partnership.






	 	4.	 	Use of Estimates
	 
	 	 	 	The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and disclosure of
contingent assets and






-9-









 






Tricadia CDO Fund, L.P.




NOTES TO FINANCIAL STATEMENTS




December 31, 2007




NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





	 	4.	 	Use of Estimates (continued)
	 
	 	 	 	liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.





NOTE C — MANAGEMENT FEE





The Partnership pays the Investment Manager a quarterly management fee (the “Management Fee”),
in arrears, equal to 0.375% (approximately 1.50% per annum). During the two-year period
extending from the Amendment Date through the second anniversary thereof, the Management Fee is
calculated on the higher of the limited partner’s (i) aggregate capital contributions and (ii)
capital account value, as of the last day of each month in the fiscal quarter to which the
Management Fee relates. After the conclusion of this two-year period, the Management Fee will be
calculated against the value of the limited partner’s capital account only. If the limited
partner makes a capital contribution or capital withdrawal other than as of the first day of a
fiscal quarter, the Management Fee shall be computed on a pro rata basis for such partial
period. In consideration for the Management Fee, the Investment Manager provides investment
management and certain administrative services to the Partnership. The Investment Manager has
elected to exclude the value of the Partnership’s investment in Tiptree Financial Partners, L.P.
(“Tiptree”), a master limited partnership advised by an affiliate of the Investment Manager. For
the year ended December 31, 2007, the total Management Fee charged to the Partnership was based
on the value of the limited partner’s capital account, less the limited partner’s pro rata
portion of the investment in Tiptree, and amounted to $332,171, of which $17,784 is payable and
included in accrued expenses on the statement of financial condition.



NOTE D — SPECIAL ALLOCATION





The General Partner is entitled to receive an incentive allocation (the “Special Allocation”)
with respect to the capital account of the limited partner generally at the end of each fiscal
year. Pursuant to the terms of the Partnership Agreement, the Special Allocation is equal to 25%
of the positive performance change allocated to the limited partner’s capital account in excess
of a non-cumulative hurdle rate comprised of the product of the limited partner’s capital
account, as adjusted for contributions and withdrawals, and the yield on the applicable
one-month USD LIBOR in effect during the period plus a margin of 2%, excluding income allocated
to the limited partner’s capital account attributable to other fee income from certain CDO’s
(see Note F).




For the year ended December 31, 2007, the total Special Allocation charged to the limited
partner’s capital account and credited to the General Partner’s capital account was
$732,671.



-10-









 






Tricadia CDO Fund, L.P.




NOTES TO FINANCIAL STATEMENTS




December 31, 2007




NOTE E — RELATED PARTY TRANSACTIONS





An affiliate of MIG provides monthly accounting services to the Partnership. The Partnership is
subject to a monthly asset-based fee for such services, which amounted to $38,013 included in
professional fees on the Statement of Income and Special Allocation for the year ended December
31, 2007, of which $3,613 is payable and included in accrued expenses on the statement of
financial condition.



NOTE F — OTHER FEE INCOME





In order to entice the Partnership to purchase equity interests in a CDO, CLO or CRS that is
managed or advised by the Investment Manager, any fee received by the Investment Manager for
managing such CDO, CLO or CRS, exclusive of any fees paid to MIG, will be shared with the
Partnership to enhance the yield of the investment. The amount of fees shared with the
Partnership is based on the management fees attributable to the investment multiplied by a
fraction, the numerator of which is the amount of equity in an investment held by the
Partnership and the denominator of which is the total amount of equity interests issued. In the
event that the Partnership disposes of all or a portion of its equity in such an investment, the
portion of management fees to which the Partnership is entitled shall be reduced accordingly as
of the date of the disposition. Generally, only in limited circumstances shall the level of fees
shared with the Partnership be less than 12.5% of such fees. A portion of these yield-enhancing
fees were not subject to the Special Allocation, and were allocable solely to the limited
partner.




Collectively, income from these other fees amounted to $3,972,115 during the year ended December
31, 2007, of which $83,120 is receivable and included in other fee receivables on the statement
of financial condition.



NOTE G — INVESTMENT IN INVESTMENT ENTITY





The Partnership acquired 2,000,000 limited partnership units of Tiptree Financial Partners, LP
(“Tiptree”) in June 2007 at $15.00 per unit, or $30,000,000. Tiptree is a Delaware limited
partnership that seeks to acquire performing and distressed credit assets and related equity
instruments, and make acquisitions and form joint ventures primarily focused on specialty
finance companies and alternative asset managers. The Investment Manager of the Partnership
and Tiptree share the same managing members.



-11-









 






Tricadia CDO Fund, L.P.




NOTES TO FINANCIAL STATEMENTS




December 31, 2007




NOTE H — RECEIVABLE FROM BROKERS





The receivable from brokers represents funds which have not yet been invested and proceeds from
realized securities transactions held by the primary clearing broker, deposits held by the
derivative counterparty, and unrealized gains and losses from derivative transactions. These
funds, as well as fully paid for and margined securities, are essentially restricted to the
extent that they serve as collateral against margin debit balances. During the year ended
December 31, 2007, an interest-bearing deposit was placed with a broker acting as counterparty
to CDS contracts with the Partnership. Additionally, deposits were placed with warehousing
brokers as collateral in accordance with agreements made by the Investment Manager and such
brokers in connection with future CDO and CLO offerings that will be managed or advised by the
Investment Manager. Under these agreements, the brokers warehouse in their own accounts
securities that will ultimately be resold by the brokers to CDO and CLO structures offered to
investors. The Investment Manager has directed the Partnership to provide cash collateral as
security to the brokers with respect to the securities warehoused by them.




At the conclusion of the warehouse period, the securities are sold to the CDO and CLO structures
by the brokers and the cash collateral is returned to the Partnership. In addition, the
Partnership receives income with respect to the cash collateral provided. As of December 31,
2007, the Partnership had no cash collateral held by warehousing brokers. The Partnership earned
$5,571,561 of income pursuant to warehouse agreements during the year ended December 31, 2007.




It is the Partnership’s policy to monitor the credit standing of the brokers with whom it
conducts business.



NOTE I — OTHER RECEIVABLES





At the end of November 2007, the Partnership purchased a security directly from an unrelated
entity for $994,883 cash, and then subsequently sold such security directly to another unrelated
entity for $1,050,000. Such amount was included in other receivables on the statement of
financial condition at December 31, 2007, and was collected in full on January 7, 2008.



NOTE J — FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET AND CREDIT RISK





In the normal course of business, the Partnership may enter into transactions in financial
instruments with off-balance-sheet risk. These financial instruments contain varying degrees of
off-balance-sheet risk to the extent that subsequent changes in the market value of the
securities underlying the financial instruments may be in excess of the amounts recognized in
the statement of financial condition. In many cases, the Partnership would attempt to limit its
risk by holding offsetting securities positions.



-12-









 







Tricadia CDO Fund, L.P.




NOTES TO FINANCIAL STATEMENTS




December 31, 2007




NOTE J — FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET AND CREDIT
RISK (continued)





The Partnership is subject to credit risk at December 31, 2007 with respect to securities and
funds held by its primary clearing broker and the CDS contract counterparty.




Collateral deposits held by warehousing brokers would be subject to market risk under the remote
circumstance where the anticipated issuance of CDO and CLO structures does not occur and there
is a deficiency in the liquidated value of the warehouse account at the broker. Market risk is
mitigated, however, due to the substantial amount of investment grade securities purchased by
those brokers into the warehouse. There were no warehouses outstanding at December 31, 2007.



NOTE K — FINANCIAL HIGHLIGHTS





Financial highlights of the Partnership for the year ended December 31, 2007 are as follows:



	 	 	 	 	 
	Total return (1)
	 	 	 	 
	Total return before special allocation
	 	 	31.30 	%
	Special allocation
	 	 	(2.71	)
	 
	 	 	 	 
	 
	 	 	 	 
	Total return after special allocation
	 	 	28.59 	%
	 
	 	 	 	 
	 
	 	 	 	 
	Ratio to average net assets (2)
	 	 	 	 
	Net investment income
	 	 	30.72 	%
	Net realized and unrealized loss on investments
	 	 	(5.73	)
	 
	 	 	 	 
	Expenses and special allocation
	 	 	 	 
	Expenses
	 	 	(1.47	)%
	Special allocation
	 	 	(1.97	)
	 
	 	 	 	 
	 
	 	 	 	 
	Total expenses and special allocation
	 	 	(3.44	)%
	 
	 	 	 	 








 




			
	(1)	 	Total return represents the change in value of an investment by comparing the aggregate
beginning
and ending values of the limited partner’s capital taken as a whole, adjusted for cash
flows related
to capital contributions or withdrawals during the period. An individual investor’s return
may vary
from this return based on the timing of capital transactions.
	 
	(2)	 	Average net assets were derived from the beginning and ending limited partner’s capital
balance for
the period, and annualized, as well as adjusted for cash flows related to the capital
contributions
and withdrawals during the period. For the year ended December 31, 2007, the average net
assets
amounted to $37,146,466.





-13-