UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-021252
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
(Exact name of registrant as specified in charter)
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101 South Tryon Street
Charlotte, NC 28255
(Address of principal executive offices)
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
CODE: 646-313-8890
DATE OF FISCAL YEAR END: MARCH 31, 2004
DATE OF REPORTING PERIOD: SEPTEMBER 30, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE PERIOD APRIL 1, 2003 (COMMENCEMENT OF OPERATIONS) THROUGH
SEPTEMBER 30, 2003
CONTENTS
SCHEDULE OF INVESTMENTS ...................................................... 2
STATEMENT OF ASSETS, LIABILITIES AND INVESTORS' CAPITAL ...................... 3
STATEMENT OF OPERATIONS ...................................................... 4
STATEMENT OF CHANGES IN INVESTORS' CAPITAL ................................... 5
STATEMENT OF CASH FLOWS ...................................................... 6
FINANCIAL HIGHLIGHTS ......................................................... 7
NOTES TO FINANCIAL STATEMENTS ................................................ 8
CAPITALIZED TERMS IN THESE FINANCIAL STATEMENTS THAT ARE NOT DEFINED HAVE THE
MEANINGS GIVEN TO THEM IN THE FUND'S PROSPECTUS.
1
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
SCHEDULE OF INVESTMENTS (UNAUDITED)
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SEPTEMBER 30, 2003
INVESTMENTS COST RELATIVE VALUE %OF NET
UNDERLYING FUNDS (000'S) (000'S) ASSETS
EVENT DRIVEN
Delaware Street Capital, L.P. $ 2,750 $ 3,013 6.43 %
Harbert Distressed Investment Fund, L.P. 2,350 2,710 5.79
JANA Partners, L.P. 2,000 2,115 4.52
L.C. Capital Partners, L.P. 3,050 3,451 7.37
LibertyView Credit Opportunities Fund, L.L.C. 3,100 3,317 7.08
----------------- ----------------------------- ----------------
TOTAL EVENT DRIVEN 13,250 14,606 31.19
EQUITY HEDGE
Imperium Market Neutral Fund, L.P. 2,140 2,202 4.70
TCS Capital II, L.P. 2,600 2,831 6.04
Williamson McAree Investment Partners, L.P. 750 705 1.51
----------------- ----------------------------- ----------------
TOTAL EQUITY HEDGE 5,490 5,738 12.25
MACRO
Graham Global Investment Fund, Ltd. 2,750 2,542 5.43
----------------- ----------------------------- ----------------
MULTI-STRATEGY
RAM Capital, L.L.C. 2,500 2,546 5.44
----------------- ----------------------------- ----------------
RELATIVE VALUE
Arx Global High Yield Securities Fund I, L.P. 2,750 2,839 6.06
Aristeia Partners, L.P. 3,000 3,092 6.60
Clinton Riverside Convertible Fund, L.P. 1,500 1,451 3.10
Clinton Multi-Strategy Fund, LLC, Class A 1,750 1,734 3.70
MKP Partners, L.P. 2,250 2,174 4.64
MKP Opportunity Partners, L.P. 2,250 2,255 4.81
San Gabriel Opportunity Fund, L.L.C. 1,500 1,515 3.23
Spinnaker Global Opportunity Fund, Ltd. 2,825 3,229 6.89
----------------- ----------------------------- ----------------
TOTAL RELATIVE VALUE 17,825 18,289 39.03
TOTAL UNDERLYING FUNDS 41,815 43,721 93.34
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MONEY MARKET FUND
AIM Prime Portfolio 3,306 3,306 7.06
----------------- ----------------------------- ----------------
TOTAL INVESTMENTS $ 45,121 $ 47,027 100.40 %
----------------- ----------------------------- ----------------
The aggregate cost of investments for tax purposes was $45,121. Net unrealized
appreciation on investments for tax purposes was $1,906 consisting of $2,300 of
gross unrealized appreciation and $394 of gross unrealized depreciation.
The investments in Underlying Funds shown above, representing 100.40% of
Investors' capital, have been fair valued in accordance with procedures
established by the Board of Managers.
The accompanying notes are an integral part of these financial statements.
2
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF ASSETS, LIABILITIES AND INVESTOR'S CAPITAL (IN THOUSANDS)
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SEPTEMBER 30, 2003
ASSETS (UNAUDITED)
Investments, at fair value (cost $45,121) $ 47,027
Redemptions receivable from Underlying Funds 93
Other assets 33
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TOTAL ASSETS 47,153
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LIABILITIES
Management fee payable 82
Investor servicing fee payable 18
Offering costs payable 134
Professional fees payable 39
Administration fee payable 18
Organizational costs payable 3
Accrued expenses 22
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TOTAL LIABILITIES 316
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INVESTORS' CAPITAL $ 46,837
===========================
Affiliated Investors' capital 25,246
Investors' capital 21,591
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TOTAL INVESTORS' CAPITAL $ 46,837
===========================
The accompanying notes are an integral part of these financial statements.
3
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF OPERATIONS (IN THOUSANDS)
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PERIOD APRIL 1, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 2003
INVESTMENT INCOME (UNAUDITED)
Interest income $ 5
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EXPENSES
Management fees 217
Investor servicing fees 43
Professional fees 47
Organization costs 45
Administration fees 43
Insurance fees 43
Directors fees 18
Miscellaneous expenses 31
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TOTAL GROSS EXPENSES 487
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LESS: EXPENSE WAIVER (12)
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TOTAL NET EXPENSES 475
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NET INVESTMENT LOSS (470)
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (217)
Net unrealized gain on investments 1,906
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,689
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NET INCREASE IN INVESTORS' CAPITAL RESULTING FROM OPERATIONS
BEFORE INCENTIVE ALLOCATION $ 1,219
========
The accompanying notes are an integral part of these financial statements.
4
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF CHANGES IN INVESTORS' CAPITAL (IN THOUSANDS)
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(UNAUDITED)
AFFILIATED
INVESTORS INVESTORS TOTAL
Investors' capital at April 1, 2003 $ 100 $ - $ 100
Contributions 24,345 21,406 45,751
Allocation of net increase in Investors'
capital resulting from operations before
incentive allocation 925 294 1,219
Offering costs (124) (109) (233)
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INVESTORS' CAPITAL AT SEPTEMBER 30, 2003 $ 25,246 $ 21,591 $ 46,837
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF CASH FLOWS (IN THOUSANDS)
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PERIOD APRIL 1, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
Cash flows from operating activities:
Net increase in Investors' capital resulting from operations before incentive
allocation $ 1,219
Adjustments to reconcile net increase in Investors' capital resulting from
operations before incentive allocation to net cash used in operating activities:
Net realized loss on investments 217
Net unrealized gain on investments (1,906)
Cost of investments purchased (46,271)
Proceeds from sale of investments 933
Increase/decrease in operating assets and liabilities:
Redemptions receivable from Underlying Funds (93)
Other assets (33)
Management fee payable 82
Investor servicing fee payable 18
Offering costs payable 134
Professional fees payable 39
Administration fee payable 18
Organizational costs payable 3
Accrued expenses 22
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NET CASH USED IN OPERATING ACTIVITIES (45,618)
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Cash flows from financing activities:
Capital contributions 45,518
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NET CASH PROVIDED BY FINANCING ACTIVITIES 45,518
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Net decrease in cash and cash equivalents (100)
Cash and cash equivalents, beginning of period 100
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Cash and cash equivalents, end of period $ -
==========
The accompanying notes are an integral part of these financial statements.
6
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FINANCIAL HIGHLIGHTS
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APRIL 1, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
TOTAL RETURN
Total return before incentive allocation (1) 3.73 %
Incentive allocation (0.02)
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Total return after incentive allocation(1) 3.71 %
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Investors' capital, end of period (000's) $ 46,837
RATIOS TO AVERAGE NET ASSETS*
Net investment loss ratio
Net investment loss, before waivers (3) (2.79)%
Net investment loss, net of waivers (3) (2.72)%
Expense ratio before incentive allocation
Operating expenses, before waivers (2) (3) 2.82 %
Operating expenses, net of waivers (2) (3) 2.75 %
Operating expenses, before organizational expenses (2) (3) (4) 2.45 %
Expense ratio, net after incentive allocation (3) 2.79 %
Portfolio turnover rate (5) 2.49 %
<FN>
* Average net assets are calculated using month end net assets averaged over the period.
(1) Total return is for the period indicated and has not been annualized. Total return is calculated for all the Investors
taken as a whole. An individual Investor's return may vary from these returns based on the timing of capital transactions.
(2) Does not include expenses of the Underlying Funds in which the Fund invests. The expense ratio (expense and incentive
allocation ratio) is calculated for the Investors taken as a whole. The computation of such ratios based on the amount of
expenses and incentive allocation assessed to an individual Investor's capital may vary from these ratios based on the timing
of capital transactions.
(3) Annualized.
(4) Does not include organizational costs charged during the period ending September 30, 2003. Those amounts can be found on
the Statement of Operations.
(5) Not annualized.
</FN>
The accompanying notes are an integral part of these financial statements.
7
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
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1. ORGANIZATION
BACAP Alternative Multi-Strategy Fund, LLC (the "Fund"), is a Delaware
limited liability company registered under the Investment Company Act of
1940, as amended, (the "1940 Act") as a non-diversified, closed-end
management investment company. The Fund's limited liability company
interests ("Interests") are registered under the Securities Act of 1933,
as amended (the "1933 Act"). The Fund commenced operations on April 1,
2003.
Banc of America Capital Management, LLC ("BACAP"), serves as the Fund's
investment adviser ("Adviser") and has the responsibility for the
management of the business and affairs of the Fund on a daily basis. BACAP
is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended (the "Advisers Act").
The investment objective of the Fund is to generate consistent long-term
capital appreciation with low volatility and limited risk under a wide
range of market conditions. The Fund will attempt to achieve the
investment objective by allocating its assets among at least 15 private
investment funds, discretionary managed accounts or special purpose
vehicles created for the Fund (collectively, "Underlying Funds"). The
Adviser allocates the assets of the Fund among Underlying Funds that
employ one or more of the following strategies: (i) Event Driven (e.g.Risk
(Merger) Arbitrage, Capital Structure Arbitrage, Distressed Securities and
Special Situations); (ii) Relative Value (e.g.Convertible Arbitrage, Fixed
Income Arbitrage, Statistical Arbitrage, Non-Traditional Convertible
Arbitrage and Volatility Arbitrage); (iii) Equity Hedge; and (iv) Macro .
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America
except for the deferral and amortization of organization costs as more
fully explained below. The preparation of financial statements in
accordance with such generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from these estimates.
The offering costs were charged directly to capital upon the initial sale
of Interests. The organizational costs are expensed as incurred, however,
in order to achieve a more equitable distribution of the impact of
organizational and initial offering costs among Investors, an initial
allocation of these costs is made as of the first date on which capital
contributions of Investors are made. These allocations will thereafter be
adjusted as of each date during the one year period following commencement
of the Fund's operations that additional capital is contributed to the
Fund by Investors. This procedure generally will result in a final
allocation of the Fund's organizational and initial offering costs among
Investors based on the percentage that an Investor's contributed capital
to the Fund bears to the total capital contributed to the Fund through its
twelfth month of operation.
The following are the significant accounting policies adopted by the Fund:
8
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS
Purchases and sales of investments in Underlying Funds are recorded on the
effective date as specified in the Underlying Funds' investment agreement.
Purchases and sales of other securities are accounted for on the
trade-date basis. Realized gains and losses are recorded at the time of
disposition of the respective investment on a first in, first out basis.
VALUATIONS
The net asset value of the Fund is determined by or at the direction of
the Adviser as of the close of business at the end of any Fiscal Period in
accordance with U.S. generally accepted accounting principles and the
valuation principles set forth below or as may be determined from time to
time pursuant to policies established by the Board of Managers (the
"Board"). The net asset value of the Fund equals the value of the assets
of the Fund, less all of its liabilities, including accrued fees and
expenses.
The Valuation Committee values interests in Private Funds at fair value in
accordance with written policies and procedures (the "Valuation
Procedures") approved by the Board that seek to ensure that the Fund is
able to reliably determine the value of its investments in Private Funds.
The Fund's Board, including the Independent Managers, has been advised
about its duties with respect to valuation as described in the Valuation
Procedures. Fair value of interests of Private Funds ordinarily is the
value determined by the Valuation Committee based upon the valuation
reported by the Fund Manager in accordance with the policies established
by the relevant Private Fund. As a general matter, the fair value of the
Fund's interest in a Private Fund will represent the amount that the Fund
could reasonably expect to receive from the Private Fund if the Fund's
interests were redeemed at the time of the valuation, based upon
information reasonably available at the time the valuation is made and
that the Valuation Committee believes to be reliable. In the unlikely
event that a Private Fund does not report a value to the Fund on a timely
basis, the Fund will determine the fair value of the Private Fund based on
the most recent value reported by the Private Fund, as well as any other
relevant information available at the time the Fund values its portfolio.
Prior to investing in any Private Fund, the Valuation Committee will
conduct a due diligence review of the valuation methodology used by the
Private Fund, which as a general matter will use market value when
available, and otherwise use principles of fair value that the Valuation
Committee reasonably believes to be consistent with those used by the Fund
for valuing its own investments. Following the Valuation Procedures, in
the absence of specific transaction activity in a particular Private Fund,
the Valuation Committee will consider whether it is appropriate, in light
of all relevant circumstances, to value such a position at its net asset
value as reported at the time of valuation, or whether to adjust such
value to reflect a premium or discount.
Valuations provided to the Fund by a Fund Manager may be based upon
estimated or unaudited reports, and may be subject to later adjustment or
revision by the Fund Manager. Any such adjustment or revision will either
increase or decrease the net asset value of the Fund at the time that the
Fund is provided with information regarding the adjustment. The Fund does
not expect to restate its previous net asset values to reflect an
adjustment or revision by a Private Fund. Accordingly, an Investor may
have its Interest (or portion thereof) repurchased at a price that is
higher or lower than a subsequently adjusted amount. For example, any
increases in the net asset value of the Fund
9
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
resulting from a subsequent adjusted valuation is entirely for the benefit
of the outstanding Interests of the Fund and to the detriment of Investors
who had Interests of the Fund repurchased at a price lower than the
adjusted amount. The same principles apply to the purchase of Interests,
and new Investors may be affected in a similar way. Although the Valuation
Committee reviews the valuations provided by Fund Managers, the Valuation
Committee cannot confirm the accuracy of valuations provided by Fund
Managers.
Situations involving uncertainties as to the valuation of portfolio
positions could have an adverse effect on the Fund's net assets if the
judgments of the Adviser or Fund Managers regarding appropriate valuations
should prove incorrect. Also, Fund Managers may only provide
determinations of the net asset value of Underlying Funds on a weekly or
monthly basis, in which event it may not be possible to determine the net
asset value of the Fund more frequently. If Fund Manager valuations are
consistently delayed, missing or inaccurate, the Adviser generally will
consider whether the Underlying Fund continues to be an appropriate
investment for the Fund. The Fund may be unable to sell interests in an
Underlying Fund quickly, and could therefore be obligated to continue to
hold the interests. In such a case, the Valuation Committee would continue
to value the interests without the benefit of the Fund Manager valuations,
and the Valuation Committee may determine to discount the value of the
interests or value them at zero.
INCOME ALLOCATION
As of the last day of each fiscal period, any net profit or net loss for
the fiscal period, and any offering costs required by applicable
accounting principles to be charged to capital that are paid or accrued
during the fiscal period, shall be allocated among and credited to or
debited against the Capital Accounts of the Investors in accordance with
their respective Capital Account balances for such fiscal period.
INTEREST AND DIVIDENDS
Interest income is recognized on an accrual basis. Dividend income is
recognized on the ex-dividend date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and liquid investments
with maturities of less than 90 days.
INCOME TAXES
The Fund is not subject to federal and state income tax. Accordingly, for
federal and state income tax purposes, each Investor is responsible for
the tax liability or benefit related to his/her share of taxable income or
loss.
3. INVESTORS' CAPITAL ACCOUNTS
A separate capital account is maintained for each Investor of the Fund.
The increase or decrease in Investors' capital resulting from operations
is allocated to each Investor based on its pro-rata share of aggregated
capital in the Fund.
CONTRIBUTIONS
The Fund is offered through BACAP Distributors, LLC (the "Distributor"),
an affiliate of the Adviser,
10
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
and through Selling Agents exclusively to "qualified clients" as defined
in the Advisers Act and the regulations thereunder. The minimum initial
investment in the Fund is $50,000. Subsequent investments must be at least
$10,000. These minimums may be modified by the Fund from time to time, and
they may be waived by the Fund for certain investors.
Investments in the Fund may be subject to a sales load of up to 3.00%. The
sales load may be waived by the Fund for certain types of investors. In
addition, the Fund may compensate Selling Agents for selling Interests to
their customers. The Fund may pay Selling Agents a service fee for
investor service and account maintenance services.
WITHDRAWALS
The Fund may from time to time offer to repurchase Interests pursuant to
written tenders by Investors. Repurchases are made at such times and on
such terms as may be determined by the Board, in its sole discretion, and
are generally offers to repurchase a specified dollar amount of
outstanding Interests. In determining whether and when the Fund should
repurchase Interests, the Board considers recommendations from the
Adviser. Depending on market conditions and other factors, the Adviser
expects that it will recommend to the Board that the Fund offer to
repurchase Interests from Investors as of December 31, 2003. Thereafter,
depending on market conditions and other factors, the Adviser expects that
it will recommend to the Board that the Fund offer to repurchase Interests
from Investors twice each year, effective as of June 30 and December 31 of
each year.
4. INVESTMENTS IN UNDERLYING FUNDS
The valuation of the investments in Underlying Funds represents the
approximate amount the Fund could expect to receive if it were to
liquidate its investments in the Underlying Funds at the time of
valuation. As of September 30, 2003, the Fund was invested in nineteen
Underlying Funds, none of which are related parties.
5. MANAGEMENT FEES
In consideration of services provided by the Adviser, the Fund pays the
Adviser a monthly fee computed at an annual rate of 1.25% of the net
assets of the Fund as of the last day of each month, before reduction for
any repurchases of Interests or the Incentive Allocation (the "Management
Fee"). The Management Fee will be prorated for any period that is less
than a full month and adjusted for contributions to the Fund during a
month.
The Adviser has agreed to waive fees and/or reimburse expenses of the Fund
until December 31, 2004, to the extent necessary to assure that the total
ordinary operating expenses of the Fund do not exceed an annual rate of
2.95% of the average monthly net assets of the Fund. Ordinary operating
expenses do not include organizational costs, interest, taxes, the
Incentive Allocation and extraordinary expenses. The Adviser is entitled
to recover from the Fund any fees waived or expenses reimbursed for a
three year period following the end of the fiscal year in which such
waiver or reimbursement occurred, if such recovery does not cause the
Fund's expenses to exceed the expense limitation. At September 30, 2003,
$11,592 was recoverable by the Adviser pursuant to this arrangement.
6. INCENTIVE ALLOCATION
At the end of each fiscal year, an amount equal to 10% of the excess of
the net capital appreciation allocated to the capital account of each
Investor for such fiscal year will be reallocated from the
11
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
capital account of each Investor to the capital account of the Adviser
(the "Incentive Allocation"), provided however, that the net capital
appreciation upon which the calculation of the Incentive Allocation
exceeds the sum of: (i) such Investors' "Hurdle Amount" (as defined below)
and (ii) any unrecovered balance remaining in the Investors' "Loss
Carryforward" (as defined below).
The "Hurdle Amount" is the amount that an Investor would have earned for
the fiscal year if it had received an annualized rate of return equal to
the applicable Hurdle Rate on its opening capital account balance. The
Hurdle rate is 6.00% per annum, computed on the basis of a 360-day year.
The Hurdle Rate is not cumulative from year to year.
The "Loss Carryforward" is a memorandum account, established for each
Investor. At the end of each fiscal year, the Loss Recovery Account will
be increased for each Investor's proportionate share of the aggregate net
capital depreciation (or net loss) incurred during the fiscal year;
provided, however, that the Loss Carryforward amount will be reduced
proportionately to reflect any withdrawls of capital by a Investor. The
Loss Recovery Account must be reduced to zero before the Investor can be
charged an incentive fee in any of the following years. As of September
30, 2003, there was $6,889 accrued as an incentive fee.
7. ADMINISTRATION AGREEMENT
The Fund has entered into an administration services agreement (the
"Administration Agreement") with SEI Investments Global Fund Services (the
"Administrator"), to perform certain administrative services. These
administrative services include, among other things, maintaining the
Fund's books and records and handling Members' capital transactions.
As per the Administration Agreement, the Fund pays the Administrator a fee
which is accrued and calculated based on predetermined rates.
8. CONTINGENCIES AND COMMITMENTS
In the normal course of business, the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risk of loss to be remote.
9. RECENT FASB INTERPRETATION
The Fund has invested, for purposes of capital appreciation, in various
Underlying Funds that vary by size, industry and geographical
concentration. The Fund has not yet evaluated these investments for
purposes of determining which would be deemed "variable interest entities"
as defined in Financial Accounting Standards Board Interpretation No. 46,
"Consolidation of Variable Interest Entities-an Interpretation of ARB No.
51" (FIN 46). However, the Fund's maximum exposure to loss as a result of
its involvement with any of those investments deemed to be a variable
interest entity in accordance with FIN 46 would be limited to the total
amount of its investments in the Underlying Funds.
10. RELATED PARTY TRANSACTIONS
On February 25, 2003, BACAP seeded the Fund with $100,000. In addition, to
assist in implementing the investment program, NB Funding Company, LLC
("NB Funding"), a wholly-owned subsidiary
12
of Bank of America Corporation and BACAP invested $24,300,000 and $145,000
respectively at April 1, 2003.
11. CONCENTRATION OF RISK
The Fund invests primarily in Underlying Funds, which engage in a variety
of investments and off-balance-sheet financial instruments, including
derivatives, which expose the Fund and the Underlying Funds to risk.
Market risk arises principally from the potential for changes in the price
of underlying securities and the volatility of prices, which may exceed
the value stated on the Underlying Funds' statement of financial
condition. Credit risk arises primarily from the potential inability of
counterparties to perform in accordance with the contract, including
clearing brokers. The Fund's exposure to credit risk associated with
counterparty non-performance is generally limited to the fair value of its
investment in each Underlying Fund. The Underlying Funds may enter into
the following transactions and the related risks are described below:
SHORT SALES
Short sales are sale of securities that are not owned or that are not
intended for delivery and the seller will therefore be obligated to
purchase such securities at a future date. The value of the open short
position is recorded as a liability, and unrealized gain or loss to the
extent of the difference between the proceeds received and the value of
the open short position is recorded by the seller. A realized gain or loss
is recorded when the short position is closed out. By entering into short
sales, the seller bears the market risk of increases in value of the
security sold short in excess of the proceeds received.
SWAP AGREEMENTS
A swap contract is a contract under which two parties agree to make
periodic payments to each other based on the value of a security, a
specified interest rate, an index or the value of some other instrument
applied to a stated or "notional" amount. Swaps are subject to various
types of risk, including market risk, liquidity risk, counterparty credit
risk, legal risk and operations risk.
OPTIONS
The Underlying Funds may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer has the right but not
the obligation, to purchase (in the case of a call option) or sell (in the
case of a put option) a specified quantity of a specific security or other
underlying asset at a specified price prior to or on a specified
expiration date. The writer of an option is exposed to the risk of loss if
the market price of the underlying asset declines (in the case of a put
option) or increases (in the case of call option). The writer of an option
can never profit by more than the premium paid by the buyer but can lose
an unlimited amount.
FUTURES CONTRACTS
The Underlying Funds may use equity index futures contracts for hedging
and non-hedging purposes. Upon entering into a futures contract, the
Underlying Funds are required to deposit an amount ("initial margin")
equal to a certain percentage of the contract value. Pursuant to the
contract, the Underlying Funds agree to receive from, or pay to, the
broker an amount of cash equal to the daily fluctuation in the value of
the contract. Such receipts or payments are known as "variation margin"
and are recorded by the
13
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Underlying Funds as unrealized gains or losses. When the contract is
closed, the Underlying Funds record a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time when it was closed. The use of futures transactions
includes the risk of imperfect correlation in movements in the price of
futures contracts, interest rates, underlying hedged assets, and the
possible inability of the counterparties to meet the terms of their
contracts.
LEVERAGE TRANSACTIONS
In order to obtain more investable cash, the Underlying Funds may use
various forms of leverage including purchasing securities on margin. Such
leverage may allow the Underlying Funds to increase partners' capital at a
greater rate during increasing markets, but also may lead to a more rapid
decrease in partners' capital in a declining market. A margin transaction
consists of purchasing an investment with money loaned by a broker and
agreeing to repay the broker at a later date. Interest expense on the
outstanding margin balance is based on market rates at the time of the
borrowing.
FORWARD FOREIGN CURRENCY CONTRACTS
The Underlying Funds may enter into forward foreign currency contracts
with approved counterparties as hedges against portfolio positions.
Forward contracts are over-the-counter contracts for delayed delivery of
currency in which the buyer agrees to buy and the seller agrees to deliver
a specified currency at a specified price on a specified date. Because the
terms of forward contracts are not standardized, they are not traded on
organized exchanges and generally can be terminated or closed-out only by
agreement of both parties to the contract. All commitments are "marked to
market" on each valuation date at the applicable foreign exchange rate and
any resulting unrealized gain or loss is recorded on such date. The
Underlying Fund realizes gains and losses at the time forward contracts
are extinguished or closed upon entering into an offsetting contract.
12. LITIGATION EVENT
On September 3, 2003, the Office of the Attorney General for the State of
New York ("NYAG") simultaneously filed and settled a complaint against
Canary Capital Partners, LLC ("Canary") and its managers in connection
with an investigation into alleged improper mutual fund trading practices
with certain families of mutual funds, including the Nations Funds family,
for which the Adviser serves as investment adviser and the Distributor as
distributor. Specifically, the NYAG alleged that Canary and its managers
engaged in activities that it characterized as "market timing" and also
"late trading." The Adviser and Distributor are cooperating with the NYAG,
the U.S. Securities and Exchange Commission and other regulators in
connection with inquiries arising from these allegations.
Since September 5, 2003, a number of lawsuits have been filed in
connection with these circumstances. The Fund's Adviser and Distributor,
as well as Robert H. Gordon (formerly the President and a Manager of the
Fund) and affiliates of the Adviser and Distributor, are named as
defendants in many of these lawsuits. The lawsuits generally allege
violations of various federal and state laws in connection with these
circumstances. Additional lawsuits arising out of these circumstances and
presenting allegations that are not materially different from those
described above may be filed against these and related parties in the near
future.
14
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2003 (UNAUDITED)
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13. SUBSEQUENT EVENTS
During the months ended September 30, 2003 and October 31, 2003, Investors
contributed a total of $2,214,694 and $1,300,000, respectively.
15
ITEM 2. CODE OF ETHICS.
Only effective for annual reports for periods ending on or after July 15, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Only effective for annual reports for periods ending on or after July 15, 2003.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Only effective for annual reports for periods ending on or after December 15,
2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
ITEM 6. (RESERVED)
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
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)
(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) BACAP Alternative Multi-Strategy Fund, LLC
By (Signature and Title)* /s/Lawrence Morgenthal
---------------------------
Lawrence Morgenthal
Date: December 18, 2003 President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/Lawrence Morgenthal
---------------------------
Lawrence Morgenthal
Date: December 18, 2003 President
By (Signature and Title)* /s/ Edward D. Bedard
---------------------------
Edward D. Bedard
Date: December 23, 2003 Chief Financial Officer
* Print the name and title of each signing officer under his or her signature.