UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21061
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
(Exact name of registrant as specified in charter)
c/o Aetos Capital, LLC
375 Park Avenue
New York, New York
(Address of principal executive offices) (Zip code)
James M. Allwin
Aetos Capital, LLC
New York, New York 10152
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-212-201-2500
Date of fiscal year end: January 31, 2004
Date of reporting period: July 31, 2003
| Item 1. | Reports to Stockholders. |
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
Financial Statements
July 31, 2003
Table of Contents
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Aetos Capital Multi-Strategy Arbitrage Fund, LLC
July 31, 2003
(Unaudited)
Fund Name | Cost | Value | % of Net Assets | ||||||
AQR Global Arbitrage Offshore Fund, Ltd. | $ | 600,000 | $ | 586,089 | 22.48 | % | |||
FFIP, L.P. | 330,000 | 373,914 | 14.34 | ||||||
Perry Partners, L.P. | 600,000 | 682,095 | 26.16 | ||||||
Satellite Fund II, L.P. | 600,000 | 693,075 | 26.58 | ||||||
Total | $ | 2,130,000 | $ | 2,335,173 | 89.56 | % | |||
The aggregate cost of investments for tax purposes was $2,130,000. Net unrealized appreciation on investments for tax purposes was $205,173 consisting of $219,084 of gross unrealized appreciation and $13,911 of gross unrealized depreciation.
The investments in portfolio funds shown above, representing 89.56% of Members’ Capital, have been fair valued.
The accompanying notes are an integral part of the financial statements.
F-1
Aetos Capital Distressed Investment Strategies Fund, LLC
Schedule of Investments
July 31, 2003
(Unaudited)
Fund Name | Cost | Value | % of Net Assets | ||||||
King Street Capital, L.P. | $ | 550,000 | $ | 643,157 | 24.41 | % | |||
Satellite Credit Opportunities Fund, Ltd. | 550,000 | 687,304 | 26.09 | ||||||
Watershed Capital Partners, L.P. | 550,000 | 629,761 | 23.91 | ||||||
Total | $ | 1,650,000 | $ | 1,960,222 | 74.41 | % | |||
The aggregate cost of investments for tax purposes was $1,650,000. Net unrealized appreciation on investments for tax purposes was $310,222 consisting of $310,222 of gross unrealized appreciation.
The investments in portfolio funds shown above, representing 74.41% of Members’ Capital, have been fair valued.
The accompanying notes are an integral part of the financial statements.
F-2
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments
July 31, 2003
(Unaudited)
Fund Name | Cost | Value | % of Net Assets | ||||||
AG&J Power Opportunity Fund, L.P. | $ | 1,070,000 | $ | 1,110,408 | 21.80 | % | |||
Cavalry Technology, L.P. | 750,000 | 833,267 | 16.36 | ||||||
JL Partners, L.P. | 820,000 | 879,705 | 17.27 | ||||||
Maverick Levered Partners, L.P. | 570,000 | 587,553 | 11.54 | ||||||
Millgate Partners II, L.P. | 820,000 | 912,961 | 17.93 | ||||||
Standard Global Equity Partners SA, L.P. | 700,000 | 663,316 | 13.03 | ||||||
Total | $ | 4,730,000 | $ | 4,987,210 | 97.93 | % | |||
The aggregate cost of investments for tax purposes was $4,730,000. Net unrealized appreciation on investments for tax purposes was $257,210 consisting of $293,894 of gross unrealized appreciation and $36,684 of gross unrealized depreciation.
The investments in portfolio funds shown above, representing 97.93% of Members’ Capital, have been fair valued.
The accompanying notes are an integral part of the financial statements.
F-3
Aetos Capital Market Neutral Strategies Fund, LLC
Schedule of Investments
July 31, 2003
(Unaudited)
Fund Name | Cost | Value | % of Net Assets | ||||||
AQR Absolute Return Institutional Fund, L.P. | $ | 500,000 | $ | 512,205 | 32.11 | % | |||
Minuet Fund, L.P. | 250,000 | 249,400 | 15.63 | ||||||
Overture Fund, L.P. | 250,000 | 245,735 | 15.41 | ||||||
Pentangle Partners, L.P. | 500,000 | 519,634 | 32.58 | ||||||
Total | $ | 1,500,000 | $ | 1,526,974 | 95.73 | % | |||
The aggregate cost of investments for tax purposes was $1,500,000. Net unrealized appreciation on investments for tax purposes was $26,974 consisting of $31,839 of gross unrealized appreciation and $4,865 of gross unrealized depreciation.
The investments in portfolio funds shown above, representing 95.73% of Members’ Capital, have been fair valued.
The accompanying notes are an integral part of the financial statements.
F-4
Statements of Assets and Liabilities
July 31, 2003
(Unaudited)
Aetos Capital Multi-Strategy Arbitrage Fund, LLC | Aetos Capital Distressed Investment Strategies Fund, LLC | Aetos Capital Long/Short Strategies Fund, LLC | Aetos Capital Market Neutral Strategies Fund, LLC | |||||||||
| Assets | ||||||||||||
Investments in portfolio funds, at cost | $ | 2,130,000 | $ | 1,650,000 | $ | 4,730,000 | $ | 1,500,000 | ||||
Investments in portfolio funds, at value | $ | 2,335,173 | $ | 1,960,222 | $ | 4,987,210 | $ | 1,526,974 | ||||
Cash | 292,752 | 626,782 | 124,880 | 86,277 | ||||||||
Accrued income | 232 | 422 | 93 | 60 | ||||||||
Due from investment manager | 19,088 | 17,707 | 21,409 | 15,822 | ||||||||
Deferred costs | 6,117 | 6,117 | 6,117 | 6,117 | ||||||||
Receivable for investment securities sold | — | 64,835 | — | — | ||||||||
Total assets | 2,653,362 | 2,676,085 | 5,139,709 | 1,635,250 | ||||||||
| Liabilities | ||||||||||||
Administration fees payable | 5,854 | 5,900 | 11,293 | 3,620 | ||||||||
Board of Managers’ fees payable | 833 | 833 | 833 | 833 | ||||||||
Other accrued expenses | 39,277 | 35,135 | 34,970 | 35,794 | ||||||||
Total liabilities | 45,964 | 41,868 | 47,096 | 40,247 | ||||||||
Net Assets | $ | 2,607,398 | $ | 2,634,217 | $ | 5,092,613 | $ | 1,595,003 | ||||
Members’ Capital | ||||||||||||
Net capital | 2,402,225 | 2,323,995 | 4,835,403 | 1,568,029 | ||||||||
Net unrealized appreciation on investments in portfolio funds | 205,173 | 310,222 | 257,210 | 26,974 | ||||||||
Members’ Capital | $ | 2,607,398 | $ | 2,634,217 | $ | 5,092,613 | $ | 1,595,003 | ||||
The accompanying notes are an integral part of the financial statements.
F-5
For the six-month period ended July 31, 2003
(Unaudited)
Aetos Capital Multi-Strategy Arbitrage Fund, LLC | Aetos Capital Distressed Investment Strategies Fund, LLC | Aetos Capital Long/Short Strategies Fund, LLC | Aetos Capital Market Neutral Strategies Fund, LLC | |||||||||||||
Investment Income: | ||||||||||||||||
Interest | $ | 1,475 | $ | 821 | $ | 2,549 | $ | 428 | ||||||||
Expenses: | ||||||||||||||||
Management fee | 9,466 | 9,425 | 18,279 | 5,887 | ||||||||||||
Administration fees | 32,778 | 36,506 | 67,713 | 23,104 | ||||||||||||
Amortization of deferred offering costs | 36,665 | 36,665 | 36,665 | 36,665 | ||||||||||||
Professional fees | 57,320 | 57,320 | 57,320 | 57,320 | ||||||||||||
Registration fees | 6,096 | 4,975 | 6,595 | 2,575 | ||||||||||||
Board of Managers’ fees | 5,833 | 5,833 | 5,833 | 5,833 | ||||||||||||
Printing fees | 2,500 | 2,500 | 2,500 | 2,500 | ||||||||||||
Custodian fees | 238 | 258 | 351 | 214 | ||||||||||||
Other expenses | 1,800 | 1,800 | 5,013 | 1,800 | ||||||||||||
Total expenses | 152,696 | 155,282 | 200,269 | 135,898 | ||||||||||||
Fund expenses reimbursed | (136,945 | ) | (139,615 | ) | (169,853 | ) | (126,087 | ) | ||||||||
Net Expenses | 15,751 | 15,667 | 30,416 | 9,811 | ||||||||||||
Net Investment Loss | (14,276 | ) | (14,846 | ) | (27,867 | ) | (9,383 | ) | ||||||||
Net Gain on Portfolio Funds Sold | — | 51,835 | — | — | ||||||||||||
Net Change in Unrealized Appreciation on Investments in Portfolio Funds | 153,255 | 178,248 | 284,359 | 17,217 | ||||||||||||
Net Increase in Members’ Capital Derived from Investment Activities | $ | 138,979 | $ | 215,237 | $ | 256,492 | $ | 7,834 | ||||||||
The accompanying notes are an integral part of the financial statements.
F-6
Statements of Changes in Members’ Capital
For the periods ended January 31, 2003 and July 31, 2003
Aetos Capital Multi-Strategy Arbitrage Fund, LLC | Aetos Capital Distressed Fund, LLC | |||||||||||||||
2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | 2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | |||||||||||||
From Investment Activities: | ||||||||||||||||
Net investment loss** | $ | (14,276 | ) | $ | (5,483 | ) | $ | (14,846 | ) | $ | (11,726 | ) | ||||
Net gain on portfolio funds sold | — | — | 51,835 | — | ||||||||||||
Net change in unrealized appreciation on investments in portfolio funds | 153,255 | 51,918 | 178,248 | 131,974 | ||||||||||||
Net increase in Members’ Capital derived from investment activities | 138,979 | 46,435 | 215,237 | 120,248 | ||||||||||||
Members’ Capital Transactions: | ||||||||||||||||
Proceeds from sales of Interests | 1,376,250 | 1,045,734 | 63,750 | 2,234,982 | ||||||||||||
Net Increase in Members’ Capital Derived from Capital Transactions | 1,376,250 | 1,045,734 | 63,750 | 2,234,982 | ||||||||||||
Net Increase in Members’ Capital | 1,515,229 | 1,092,169 | 278,987 | 2,355,230 | ||||||||||||
Members’ Capital at Beginning of Period | 1,092,169 | — | 2,355,230 | — | ||||||||||||
Members’ Capital at End of Period | $ | 2,607,398 | $ | 1,092,169 | $ | 2,634,217 | $ | 2,355,230 | ||||||||
| * | Commencement of operations. |
| ** | Investment income less net expenses. |
The accompanying notes are an integral part of the financial statements.
F-7
Statements of Changes in Members’ Capital (continued)
For the periods ended January 31, 2003 and July 31, 2003
| Aetos Capital Long/Short Strategies Fund, LLC | Aetos Capital Market Fund, LLC | |||||||||||||||
2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | 2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | |||||||||||||
From Investment Activities: | ||||||||||||||||
Net investment loss** | $ | (27,867 | ) | $ | (15,388 | ) | $ | (9,383 | ) | $ | (7,782 | ) | ||||
Net gain on portfolio funds sold | — | 9,568 | — | — | ||||||||||||
Net change in unrealized appreciation (depreciation) on investments in portfolio funds | 284,359 | (27,149 | ) | 17,217 | 9,757 | |||||||||||
Net increase (decrease) in Members’ Capital derived from investment activities | 256,492 | (32,969 | ) | 7,834 | 1,975 | |||||||||||
Members’ Capital Transactions: | ||||||||||||||||
Proceeds from sales of Interests | 1,273,750 | 3,595,340 | 61,250 | 1,523,944 | ||||||||||||
Net Increase in Members’ Capital Derived from Capital Transactions | 1,273,750 | 3,595,340 | 61,250 | 1,523,944 | ||||||||||||
Net Increase in Members’ Capital | 1,530,242 | 3,562,371 | 69,084 | 1,525,919 | ||||||||||||
Members’ Capital at Beginning of Period | 3,562,371 | — | 1,525,919 | — | ||||||||||||
Members’ Capital at End of Period | $ | 5,092,613 | $ | 3,562,371 | $ | 1,595,003 | $ | 1,525,919 | ||||||||
| * | Commencement of operations. |
| ** | Investment income less net expenses. |
The accompanying notes are an integral part of the financial statements.
F-8
For the six-month period ended July 31, 2003
(Unaudited)
Aetos Capital Multi-Strategy Arbitrage Fund, LLC | Aetos Capital Distressed Investment Strategies Fund, LLC | Aetos Capital Long/Short Strategies Fund, LLC | Aetos Capital Market Neutral Strategies Fund, LLC | |||||||||||||
Cash Flows Used in Operating Activities | ||||||||||||||||
Purchases/sales of Portfolio Funds | $ | (1,100,000 | ) | $ | 537,000 | $ | (1,170,432 | ) | $ | — | ||||||
Net investment loss | (14,276 | ) | (14,846 | ) | (27,867 | ) | (9,383 | ) | ||||||||
Adjustments to reconcile net investment loss to net cash used in operating activities: | ||||||||||||||||
Increase in accrued income | (219 | ) | (393 | ) | (55 | ) | (40 | ) | ||||||||
Increase in due from investment manager | (4,836 | ) | (1,176 | ) | (3,961 | ) | (1,150 | ) | ||||||||
Amortization of deferred offering costs | 36,665 | 36,665 | 36,665 | 36,665 | ||||||||||||
Deferred offering costs paid | (21,475 | ) | (21,475 | ) | (21,475 | ) | (21,475 | ) | ||||||||
Decrease in administration fees payable | (1,492 | ) | (9,887 | ) | (8,561 | ) | (6,718 | ) | ||||||||
Decrease in Board of Managers’ fees payable | (3,834 | ) | (3,834 | ) | (3,834 | ) | (3,834 | ) | ||||||||
Decrease in other accrued expenses | (13,397 | ) | (17,541 | ) | (17,705 | ) | (16,881 | ) | ||||||||
Net cash used in operating activities | (1,122,864 | ) | 504,513 | (1,217,225 | ) | (22,816 | ) | |||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Sales of Interests | 1,376,250 | 63,750 | 1,273,750 | 61,250 | ||||||||||||
Net increase in cash and cash equivalents | 253,386 | 568,263 | 56,525 | 38,434 | ||||||||||||
Cash and cash equivalents, beginning of period | 39,366 | 58,519 | 68,355 | 47,843 | ||||||||||||
Cash and cash equivalents, end of period | $ | 292,752 | $ | 626,782 | $ | 124,880 | $ | 86,277 | ||||||||
The accompanying notes are an integral part of the financial statements.
F-9
For the periods ended January 31, 2003 and July 31, 2003
Aetos Capital Multi-Strategy Arbitrage Fund, LLC | Aetos Capital Distressed Investment Strategies Fund, LLC | |||||||||||||||
2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | 2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | |||||||||||||
Total Return (1) | 5.70 | % | 4.44 | % | 8.95 | % | 5.38 | % | ||||||||
Net assets, end of period (000’s) | $ | 2,607 | $ | 1,092 | $ | 2,634 | $ | 2,355 | ||||||||
Ratios to average net assets: | ||||||||||||||||
Expenses, before waivers and reimbursements (2)(3)(4) | 12.16 | % | 43.96 | % | 12.44 | % | 22.93 | % | ||||||||
Expenses, net of waivers and reimbursements (2)(3)(4) | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | ||||||||
Net investment loss, before waivers and reimbursements (3) | (12.04 | )% | (43.95 | )% | (12.38 | )% | (22.92 | )% | ||||||||
Net investment loss, net of waivers and reimbursements (3) | (1.13 | )% | (1.24 | )% | (1.19 | )% | (1.24 | )% | ||||||||
Portfolio turnover rate (5) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
| * | Commencement of operations. |
| (1) | Total return is for the period indicated and has not been annualized. |
| (2) | Expense ratios of underlying funds are not included in the expense ratio. |
| (3) | Annualized. |
| (4) | The expense ratios do not include the Program fees charged separately to investors as described in Note 3 in the Notes to Financial Statements. |
| (5) | Not annualized. |
The accompanying notes are an integral part of the financial statements.
F-10
Financial Highlights (continued)
For the periods ended January 31, 2003 and July 31, 2003
| Aetos Capital Long/Short Strategies Fund, LLC | Aetos Capital Market Neutral Strategies Fund, LLC | |||||||||||||||
2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | 2/1/03 – 7/31/03 (unaudited) | 8/21/02* – 1/31/03 | |||||||||||||
Total Return (1) | 5.32 | % | (0.89 | )% | 0.51 | % | 0.13 | % | ||||||||
Net assets, end of period (000’s) | $ | 5,093 | $ | 3,562 | $ | 1,595 | $ | 1,526 | ||||||||
Ratios to average net assets: | ||||||||||||||||
Expenses, before waivers and reimbursements (2)(3)(4) | 8.25 | % | 18.87 | % | 17.32 | % | 31.67 | % | ||||||||
Expenses, net of waivers and reimbursements (2)(3)(4) | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | ||||||||
Net investment loss, before waivers and reimbursements (3) | (8.15 | )% | (18.86 | )% | (17.26 | )% | (31.65 | )% | ||||||||
Net investment loss, net of waivers and reimbursements (3) | (1.15 | )% | (1.24 | )% | (1.19 | )% | (1.23 | )% | ||||||||
Portfolio turnover rate (5) | 0.00 | % | 20.87 | % | 0.00 | % | 0.00 | % | ||||||||
| * | Commencement of operations. |
| (1) | Total return is for the period indicated and has not been annualized. |
| (2) | Expense ratios of underlying funds are not included in the expense ratio. |
| (3) | Annualized. |
| (4) | The expense ratios do not include the Program fees charged separately to investors as described in Note 3 in the Notes to Financial Statements. |
| (5) | Not annualized. |
The accompanying notes are an integral part of the financial statements.
F-11
July 31, 2003
(Unaudited)
1. Organization
The Aetos Capital Multi-Strategy Arbitrage Fund, LLC, the Aetos Capital Distressed Investment Strategies Fund, LLC, the Aetos Capital Long/Short Strategies Fund, LLC and the Aetos Capital Market Neutral Strategies Fund, LLC (collectively the “Funds” and individually a “Fund”) were formed in the state of Delaware as limited liability companies. The Funds are registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as closed-end, non-diversified, management investment companies. Each of the Funds is a fund-of-funds. The Funds seek capital appreciation by allocating their assets among a select group of private investment funds (commonly known as hedge funds) (“Portfolio Funds”) that utilize a variety of alternative investment strategies specific for each Fund to produce an attractive absolute return on invested capital, largely independent of the various benchmarks associated with traditional asset classes. Aetos Alternatives Management, LLC serves as the Investment Manager to the Funds.
The principal investment objective of each Fund is as follows:
Aetos Capital Multi-Strategy Arbitrage Fund, LLC seeks to produce an attractive absolute return on invested capital, largely independent of the various benchmarks associated with traditional asset classes, by allocating its assets among a select group of portfolio managers that utilize a variety of arbitrage strategies.
Aetos Capital Distressed Investment Strategies Fund, LLC seeks to produce an attractive absolute return on invested capital, largely independent of the various benchmarks associated with traditional asset classes, by allocating its assets among a select group of portfolio managers across a variety of distressed investment strategies.
Aetos Capital Long/Short Strategies Fund, LLC seeks to produce an attractive absolute return on invested capital, largely independent of the various benchmarks associated with traditional asset classes, by allocating its assets among a select group of portfolio managers across a variety of long/short strategies.
Aetos Capital Market Neutral Strategies Fund, LLC seeks to produce an attractive absolute return on invested capital, largely independent of the various benchmarks associated with traditional asset classes, by allocating its assets among a select group of portfolio managers across a variety of market neutral strategies.
F-12
Notes to Financial Statements—(continued)(unaudited)
1. Organization (continued)
The Funds may offer, from time to time, to repurchase outstanding Interests pursuant to written tenders by Members. Repurchase offers will be made at such times and on such terms as may be determined by the Funds’ Board of Managers (the “Board”) in its sole discretion. The Funds may offer to repurchase Interests four times each year, as of the last business day of March, June, September and December.
2. Significant Accounting Policies
The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The following is a summary of the significant accounting policies followed by the Funds:
A. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Investment Manager to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
B. Portfolio Valuation
The net asset value of the Funds is determined as of the close of business at the end of each month in accordance with the valuation principles set forth below or as may be determined from time to time pursuant to policies established by the Board.
Investments in Portfolio Funds are presented in the accompanying financial statements at fair value, as determined by the Funds’ Investment Manager under the general supervision of the Board. Such fair value generally represents a Fund’s pro-rata interest in the net assets of a Portfolio Fund as provided by the Portfolio Funds. The Investment Manager considers information provided by the Portfolio Funds regarding the methods they use to value underlying investments in the Portfolio Funds in determining fair value.
Considerable judgment is required to interpret the factors used to develop estimates of fair value. Accordingly, the estimates may not be indicative of the amounts the Fund could realize in a current market exchange and the differences could be material to the financial statements. The use of different factors or estimation methodologies could have a significant effect on the estimated fair value.
F-13
Notes to Financial Statements—(continued)(unaudited)
2. Significant Accounting Policies (continued)
C. Fund Expenses
Each Fund bears its own expenses including, but not limited to: any taxes; organizational expenses; offering costs; investment-related expenses incurred by the Funds (e.g., fees and expenses charged by the Portfolio Managers and Portfolio Funds, placement fees, professional fees, custody and administrative fees). Most expenses of the Funds can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or on another reasonable basis.
D. Income Taxes
Each Fund intends to be treated as a partnership for Federal income tax purposes. Each Member is responsible for the tax liability or benefit relating to the Member’s distributive share of taxable income or loss. Accordingly, no provision for Federal income taxes is reflected in the accompanying financial statements.
E. Distribution Policy
Each Fund has no present intention of making periodic distributions of its net investment income or capital gains, if any, to Members. The amount and frequency of distributions, if any, will be determined in the sole discretion of the Board.
F. Distributions from Portfolio Funds
Distributions from Portfolio Funds will be classified as investment income or realized gains in the Statements of Operations, or alternatively, as a decrease to the cost of the investments based on the U.S. income tax characteristics of the distribution if such information is available. In cases where the tax characteristics from a Portfolio Fund are not available, such distribution will be classified as investment income.
F-14
Notes to Financial Statements—(continued)(unaudited)
2. Significant Accounting Policies (continued)
G. Cash and Cash Equivalents
The Funds treat all highly liquid financial instruments that mature within three months as cash equivalents.
3. Investment Manager Fee, Related Party Transactions and Other
The Funds will pay the Investment Manager a monthly management fee (the “Management Fee”) at the annual rate of 0.75% of the net asset value of each Fund as of the last day of the month (before any repurchases of Interests). The Investment Manager is responsible for providing day-to-day investment management services to the Funds, and for providing various administrative services to the Funds. The Investment Manager has contractually agreed to reimburse the Funds in order to limit the Funds’ other expenses (defined as total operating expenses excluding the Management Fee) at 0.50% of each Fund’s average monthly net assets, at least until September 1, 2004.
The Investment Manager is also paid a Program fee outside of the Funds for services rendered to investors. The Program fee is paid directly by the investors at an annual rate of up to 0.50% of an investor’s assets in the Funds. The Investment Manager is also paid an annual performance-based incentive fee outside of the Funds based on the return of an investor’s account with the Investment Manager.
SEI Investments Global Funds Services (the “Administrator”) provides certain administration, accounting and investor services for the Funds. In consideration for such services, each Fund will pay the Administrator a monthly fee based on month-end net assets at an annual rate of up to 0.12%, subject to certain fee minimums, and will reimburse the Administrator for certain out-of-pocket expenses.
SEI Private Trust Company acts as custodian (the “Custodian”) for the Funds’ assets. In consideration for such services, each Fund will pay the Custodian, a monthly fee, based on month-end net assets, at an annual rate of up to 0.01%.
Each Member of the Board who is not an “interested person” of the Funds as defined by the 1940 Act receives an annual fee of $20,000. Any Manager who is an “interested person” does not receive any annual or other fee from the Funds. All Managers are reimbursed by the Funds for reasonable out-of-pocket expenses.
F-15
Notes to Financial Statements—(continued)(unaudited)
3. Investment Manager Fee, Related Party Transactions and Other (continued)
Net profits or net losses of the Funds for each fiscal period are allocated among and credited to or debited against the capital accounts of Members as of the last day of each fiscal period in accordance with each Member’s respective investment percentage for each Fund. Net profits or net losses are measured as the net change in the value of the net assets of a Fund during a fiscal period, before giving effect to any repurchases of interest in the Fund, and excluding the amount of any items to be allocated among the capital accounts of the Members of the Fund, other than in accordance with the Members’ respective investment percentages.
4. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Portfolio Funds in which the Funds invest trade various financial instruments and enter into various investment activities with off-balance sheet risk. These include, but are not limited to, short selling activities, writing option contracts, and equity swaps. The Funds’ risk of loss in these Portfolio Funds is limited to the value of these investments reported by the Portfolio Funds.
5. Concentration of Risk
The Funds invest primarily in Portfolio Funds that are not registered under the 1940 Act and invest in and actively trade securities and other financial instruments using different strategies and investment techniques, including leverage, that may involve significant risks. These Portfolio Funds may invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, the Portfolio Funds may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility of the Portfolio Funds’ net asset value.
Various risks are also associated with an investment in the Funds, including risks relating to the multi-manager structure of the Funds, risks relating to compensation arrangements and risks relating to the limited liquidity of Interests.
In the normal course of business, the Funds enter into contracts that contain a variety of representations which provide general indemnifications. Each Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against each Fund that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
F-16
Notes to Financial Statements—(continued)(unaudited)
6. Initial Offering Costs and Organizational Expenses
The Funds have incurred initial offering costs totaling approximately $68,000 per Fund comprised principally of legal costs pertaining to the preparation of the Funds’ offering documents. These costs are being amortized over a twelve-month period.
Costs incurred in connection with the organization of the Funds were expensed at the commencement of operations.
7. Investment Transactions
For the six-month period ended July 31, 2003, purchases and sales of investments were as follows:
Fund | Purchases | Sales | ||||
Aetos Capital Multi-Strategy Arbitrage Fund, LLC | $ | 1,100,000 | $ | — | ||
Aetos Capital Distressed Investment Strategies Fund, LLC | — | 601,835 | ||||
Aetos Capital Long/Short Strategies Fund, LLC | 1,750,000 | — | ||||
Aetos Capital Market Neutral Strategies Fund, LLC | — | — | ||||
F-17
| Item 2. | Code of Ethics. |
Not applicable – only effective for annual reports for periods ending on or after July 15, 2003.
| Item 3. | Audit Committee Financial Expert. |
Not applicable – only effective for annual reports for periods ending on or after July 15, 2003.
| Item 4. | Principal Accountant Fees and Services. |
Not applicable – only effective for annual reports for periods ending on or after December 15, 2003.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
| Item 6. | (Reserved) |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
| Item 8. | (Reserved) |
| Item 9. | Controls and Procedures. |
(a) The certifying officers, whose certifications are included herewith, have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing date of this report. In their opinion, based on their evaluation, the registrant’s disclosure controls and procedures are adequately designed, and are operating effectively to ensure, that information required to be disclosed by the registrant in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) There were no significant changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
| Items 10. | Exhibits. |
(a)(1) Not applicable.
(a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing as an Exhibit.
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC | |||||||
| By (Signature and Title)* | /S/ MICHAEL F. KLEIN | |||||||
| Michael F. Klein, President | ||||||||
Date 09/24/03
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By | (Signature and Title)* | /S/ MICHAEL F. KLEIN | ||||
| Michael F. Klein, President | ||||||
Date 09/24/03
| By | (Signature and Title)* | /S/ JOSEPH P. STADLER | ||||
| Joseph P. Stadler, Treasurer | ||||||
Date 09/24/03
| * | Print the name and title of each signing officer under his or her signature. |