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 811-021252
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
(Exact name of registrant as specified in charter)
101 South Tryon Street
CHARLOTTE, NC 28255
(Address of principal executive offices) (Zip code)
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, 2005
Date of reporting period: SEPTEMBER 30, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
BACAP ALTERNATIVE
MULTI-STRATEGY FUND, LLC
FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2004
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004
CONTENTS
SCHEDULE OF INVESTMENTS .................................................... 1
STATEMENT OF ASSETS, LIABILITIES AND INVESTORS' CAPITAL .................... 3
STATEMENT OF OPERATIONS .................................................... 4
STATEMENTS 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.
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, % OF
COST 2004 FAIR NET
INVESTMENTS (000'S) VALUE (000'S) ASSETS LIQUIDITY
UNDERLYING FUNDS
EVENT DRIVEN
Delaware Street Capital, L.P. $ 2,562 $ 3,185 4.18% Annually
Harbert Distressed Investment Fund, L.P. 1,951 2,507 3.29 Quarterly
JANA Partners, L.P. 2,000 2,610 3.43 Quarterly
L.C. Capital Partners, L.P. 1,222 1,623 2.13 Quarterly
LibertyView Credit Opportunities Fund, L.L.C 2,224 2,571 3.37 Monthly
------- ------- -----
TOTAL EVENT DRIVEN 9,959 12,496 16.40
EQUITY HEDGE
Alydar Fund, L.P. 3,500 3,545 4.65 Quarterly
Harvest Opportunity Partners II, L.P. 3,761 3,966 5.21 Quarterly
Imperium Market Neutral Fund, L.P. 2,140 2,172 2.85 Quarterly
Kinetics Partners, L.P. 1,500 1,527 2.00 Quarterly
Passport I, L.P. 2,928 2,968 3.90 Quarterly
Torrey Pines Fund, L.L.C 3,750 3,733 4.90 Monthly
TCS Capital II, L.P. 2,600 3,380 4.44 Quarterly
Zander Fund, L.P. 4,025 3,934 5.16 Quarterly
------- ------- -----
TOTAL EQUITY HEDGE 24,204 25,225 33.11
MACRO
Brevan Howard, L.P. 1,800 1,791 2.35 Monthly
Graham Global Investment Fund, Ltd. 2,216 2,051 2.69 Monthly
Julius Baer Diversified Fixed Income Fund 2,750 2,744 3.60 Quarterly
Salem Futures Fund, L.P. 1,000 946 1.24 Monthly
Spinnaker Global Opportunity Fund, Ltd. 2,287 3,254 4.27 Quarterly
------- ------- -----
TOTAL MACRO 10,053 10,786 14.15
MULTI-STRATEGY
Epsilon Global Active Fund II, L.P. 4,000 4,008 5.26 Annually
Kayne Anderson Capital Income Partners (QP), L.P. 2,403 2,632 3.46 Monthly
------- ------- -----
TOTAL MULTI-STRATEGY 6,403 6,640 8.72
The accompanying notes are an integral part of these financial statements.
1
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
SCHEDULE OF INVESTMENTS (CONTINUED) (UNAUDITED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, % OF
COST 2004 FAIR NET
INVESTMENTS (000'S) VALUE (000'S) ASSETS LIQUIDITY
RELATIVE VALUE
Arx Global High Yield Securities Fund I, L.P. $ 3,000 $ 3,644 4.78% Annually
Aristeia Partners, L.P. 3,800 3,949 5.18 Quarterly
Marathon Global Convertible Fund, L.P. 2,500 2,472 3.24 Quarterly
Parmenides Fund, L.P. 3,500 3,539 4.65 Monthly
Precept Domestic Fund, L.P. 3,740 3,646 4.79 Quarterly
------- ------- -----
TOTAL RELATIVE VALUE 16,540 17,250 22.64
TOTAL INVESTMENTS $67,159 $72,397 95.02%
======= ======= =====
[Pie Chart Omitted]
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AS A PERCENTAGE OF TOTAL
INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Event Driven 17.26%
Equity Hedge 34.84%
Macro 14.90%
Multi-Strategy 9.17%
Relative Value 23.83%
- --------------------------------------------------------------------------------
The investments in Underlying Funds shown above, representing 95.02% of
Investors' capital, have been fair valued in accordance with procedures
established by the Board of Managers (See Note 2).
The accompanying notes are an integral part of these financial statements.
2
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF ASSETS, LIABILITIES AND INVESTORS' CAPITAL (IN THOUSANDS)
(UNAUDITED)
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SEPTEMBER 30, 2004
ASSETS
Investments in Underlying Funds, at fair value (cost $67,159) $ 72,397
Cash and cash equivalents 736
Investments in Underlying Funds paid in advance 3,000
Redemptions receivable from Underlying Funds 320
Other assets 76
--------
TOTAL ASSETS 76,529
--------
LIABILITIES
Management fee payable 157
Professional fees payable 67
Investor servicing fee payable 31
Administration fee payable 31
Accrued expenses 51
--------
TOTAL LIABILITIES 337
--------
NET ASSETS $ 76,192
========
Net capital $ 72,608
Net investment loss (2,045)
Net realized and unrealized appreciation on investments in portfolio funds 5,629
--------
TOTAL INVESTORS' CAPITAL $ 76,192
========
The accompanying notes are an integral part of these financial statements.
3
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
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FOR THE SIX
MONTHS ENDED
SEPTEMBER 30, 2004
INVESTMENT INCOME
Interest income $ 24
Other income 64
-------
TOTAL INVESTMENT INCOME 88
EXPENSES
Management fees 455
Professional fees 137
Investor servicing fees 91
Administration fees 91
Insurance fees 61
Board of Managers fees 21
Registration fees 14
Custody fees 2
Miscellaneous expenses 17
-------
TOTAL EXPENSES 889
-------
NET INVESTMENT LOSS (801)
-------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain on investments 375
Net change in unrealized appreciation on investments (1,028)
-------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS (653)
-------
NET DECREASE IN INVESTORS' CAPITAL RESULTING FROM
OPERATIONS BEFORE INCENTIVE ALLOCATION $(1,454)
=======
The accompanying notes are an integral part of these financial statements.
4
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENTS OF CHANGES IN INVESTORS' CAPITAL (IN THOUSANDS)
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AFFILIATED OTHER
INVESTORS* INVESTORS TOTAL
INVESTORS' CAPITAL AT APRIL 1, 2003 $ 100 $ -- $ 100
Contributions 24,300 39,807 64,107
Withdrawals (9) (4,904) (4,913)
Allocation of net increase in Investors'
capital resulting from operations before
incentive allocation 2,842 2,196 5,038
Incentive allocation from affiliated investors (124) -- (124)
Incentive allocation 225 (101) 124
Offering costs (94) (83) (177)
-------- -------- --------
INVESTORS' CAPITAL AT MARCH 31, 2004 $ 27,240 $ 36,915 $ 64,155
======== ======== ========
(unaudited)
INVESTORS' CAPITAL AT MARCH 31, 2004 $ 27,240 $ 36,915 $ 64,155
Contributions -- 21,229 21,229
Withdrawals (5,215) (2,523) (7,738)
Allocation of net decrease in Investors'
capital resulting from operations before
incentive allocation (604) (850) (1,454)
-------- -------- --------
INVESTORS' CAPITAL AT SEPTEMBER 30, 2004 $ 21,421 $ 54,771 $ 76,192
======== ======== ========
Capital reallocable to the Affiliated Investors
had the investors' measurement period for
incentive allocation closed on
September 30, 2004 $ 1
========
*The affiliated Investors are Banc of America Capital Management, LLC, NB
Funding Company, LLC and BACAP Distributors, LLC.
The accompanying notes are an integral part of these financial statements.
5
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
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FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 2004
Cash flows from operating activities:
Net decrease in Investors' capital resulting from operations before incentive
allocation $ (1,454)
Adjustments to reconcile net decrease in Investors' capital resulting from
operations before incentive allocation to net cash used in operating activities:
Net realized gain on investments (375)
Net change in unrealized appreciation on investments 1,028
Cost of investments purchased (27,640)
Proceeds from sales of investments 18,865
Increase/decrease in operating assets and liabilities:
Increase in investments in Underlying Funds paid in advance (3,000)
Decrease in redemptions receivable from Underlying Funds 24
Increase in other assets (75)
Increase in management fee payable 64
Increase in professional fees payable 14
Increase in investor servicing fee payable 6
Increase in administration fee payable 6
Increase in accrued expenses 15
--------
NET CASH USED IN OPERATING ACTIVITIES (12,522)
--------
Cash flows from financing activities:
Capital contributions 21,229
Capital withdrawals (7,738)
Decrease in withdrawals payable (233)
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,258
--------
Net increase in cash and cash equivalents 736
Cash and cash equivalents, beginning of period --
--------
Cash and cash equivalents, end of period $ 736
========
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
FOR THE SIX (COMMENCEMENT
MONTHS ENDED OF OPERATIONS)
SEPTEMBER 30, 2004 THROUGH
(UNAUDITED) MARCH 31, 2004
TOTAL RETURN (1)
Total return before incentive allocation (2.11)% 10.34%
Incentive allocation --% (0.46)%
---------- ----------
Total return after incentive allocation (2.11)% 9.88%
========== ==========
Total return after incentive allocation, (2.11)% 10.11%
before organization expenses ========== ==========
Investors' capital, end of period (000's) $ 76,192 $ 64,155
RATIOS TO AVERAGE NET ASSETS*
Net investment loss ratio
Net investment loss (2.25)%(5) (2.86)%(2)
Net investment loss, before incentive allocation (2.25)%(5) (2.36)%(2)
Expense ratio before incentive allocation
Operating expenses(3) 2.50%(5) 2.87%(2)
Operating expenses, before
organization expenses (3) 2.50%(5) 2.72%(4)
Incentive allocation --% 0.50%
---------- ----------
Expense ratio, including incentive allocation(3) 2.50%(5) 3.37%(2)
========== ==========
Portfolio turnover rate 24.62% 43.16%
* 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, net of
all fees including organization and offering costs, except where noted
that performance is prior to incentive fee allocation. An individual
Investor's return may vary from these returns based on the timing of
capital transactions.
(2) Includes organization expenses of $45,000 incurred prior to commencement
of operations, charged to Investors' capital accounts.
(3) 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.
(4) Does not include organization expenses charged during the year ended March
31, 2004 in the amount of $22,668.
(5) Annualized.
Amounts designated as "-" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of these financial statements.
7
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (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 investment 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 attempts 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 generally 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.
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 were 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 were made as of the first date on which capital
contributions of Investors were made. These allocations were thereafter
adjusted as of each date during the one year period following commencement
of the Fund's operations that additional capital was contributed to the
Fund by Investors.
The following are the significant accounting policies adopted by the Fund:
A. SECURITY TRANSACTIONS
Purchases of investments in Underlying Funds are recorded as of the first
day of legal ownership of an Underlying Fund and sales of Underlying Funds
are recorded as of the last day of legal ownership or participation.
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 an average cost basis.
8
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. 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 accounting principles generally accepted in the United
States of America 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 Underlying 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 Underlying
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 Underlying 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 Underlying Fund. As a general matter, the fair
value of the Fund's interest in an Underlying Fund will represent the
amount that the Fund could reasonably expect to receive from the
Underlying 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 event that an Underlying Fund does not report a value to
the Fund on a timely basis, the Fund will determine the fair value of the
Underlying Fund based on the most recent value reported by the Underlying
Fund, as well as any other relevant information available at the time the
Fund values its portfolio. Prior to investing in any Underlying Fund, the
Valuation Committee conducts a due diligence review of the valuation
methodology used by the Underlying 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 Underlying Fund, the Valuation Committee considers 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 an Underlying Fund 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 that either
increases or decreases the net asset value of the Fund at the time that
the Fund is provided with information regarding the adjustment does not
result in the Fund restating its previous net asset values to reflect such
adjustment or revision by an Underlying 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 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.
9
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. VALUATIONS (CONTINUED)
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 monthly or
quarterly 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.
C. ORGANIZATION EXPENSES AND OFFERING COSTS
The Fund has expensed as incurred a total of $67,668 in organization
expenses, of which $45,000 occurred prior to the commencement of
operations. Offering costs of $177,292 were charged directly to capital.
In order to achieve a more equitable distribution among Investors, these
offering costs were re-allocated on each date during the one year period
following commencement of the Fund's operations that additional capital
was contributed to the Fund by Investors.
D. 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, are 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.
E. INTEREST AND DIVIDENDS
Interest income is recognized on an accrual basis. Dividend income is
recognized on the ex-dividend date.
F. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and liquid investments
with maturities of less than 90 days. As of September 30, 2004, the Fund
has $735,684 in cash and cash equivalents held in an interest-bearing
sweep account.
G. FUND EXPENSES
The Fund bears its own expenses including, but not limited to: any taxes;
organizational expenses; offering costs; investment-related expenses
incurred by the Fund (e.g., fees and expenses charged by the Adviser and
Underlying Funds, placement fees, professional fees, custody and
administration fees).
10
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. 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.
A. CONTRIBUTIONS
Interests in the Fund are offered through BACAP Distributors, LLC (the
"Distributor"), an affiliate of the Adviser, 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.
B. 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
generally includes an offer 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 twice each year, effective as of June
30 and December 31 of each year. During the six months ended September 30,
2004, tender offers were conducted by the Fund as of June 30, 2004 in the
amount of $7,522,721. For the year ended March 31, 2004, tender offers
were conducted by the Fund as of December 31, 2003 in the amount of
$4,648,822.
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, 2004, the Fund was invested in twenty-five
Underlying Funds, none of which are related parties. Because the Fund's
investments in Underlying Funds themselves have limited liquidity, the
Fund may not be able to fund significant repurchases.
11
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
5. MANAGEMENT FEES
In consideration of services provided by the Adviser, the Fund pays the
Adviser a monthly fee (the "Management 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 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 voluntarily 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 in effect at the time of
recovery. At September 30, 2004, there were no amounts potentially
recoverable by the Adviser.
6. INCENTIVE ALLOCATION
At the end of each calendar year, an amount equal to 10% of the excess of
the net capital appreciation allocated to the capital account of each
Investor for such calendar year is reallocated from the 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 Incentive Allocation is calculated exceeds the sum of: (i) such
Investor's "Hurdle Amount" (as defined below) and (ii) any unrecovered
balance remaining in the Investor's "Loss Carryforward" (as defined
below).
The "Hurdle Amount" is the amount that an Investor would have earned for
the calendar 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.
Under the loss carryforward provision, no Incentive Allocation is made
with respect to a particular Investor for a calendar year until any net
loss previously allocated to the Capital Account of such Investor has been
offset by subsequent net profits (the "Loss Carryforward"). If an
Investor's Capital Account is reduced (as a result of a Fund repurchase of
an Investor's Interest), the Investor's Loss Carryforward, if any, will be
reduced on a pro rata basis. As of September 30, 2004, there was $601
accrued as an Incentive Allocation.
7. INVESTMENT TRANSACTIONS
For the six months ended September 30, 2004, the Fund had gross purchases
of Underlying Funds in the amount of $ 27,640,000 and sales proceeds of
Underlying Funds in the amount of $16,639,654.
8. ADMINISTRATION AND SUB-ADMINISTRATION AGREEMENTS
The Fund has entered into an Administration Agreement with the Distributor
to perform certain administrative services. These administrative services
include, among other things, maintaining the Fund's books and records and
handling Investors' capital transactions. The Distributor has contracted
12
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
8. ADMINISTRATION AND SUB-ADMINISTRATION AGREEMENTS (CONTINUED)
with SEI Investments Global Fund Services as Sub-Administrator to perform
these services at no additional cost to the Fund.
Per the Administration Agreement, the Fund pays the Distributor a monthly
Administration Fee computed at the annual rate of 0.25% of the net assets
of the Fund before reduction for any purchases of Interests or the
Incentive Allocation as of the last day of the month.
9. 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.
As of October 1, 2004, the Fund made an initial investment in Longacre
Capital Partners, L.P. for $3,000,000. Such amount is reflected as
Investments in Underlying Funds paid in advance in the statement of
assets, liabilities and investors' capital.
10. CONCENTRATION OF RISK
The Fund invests primarily in Underlying Funds, which may engage in a
variety of investments and off-balance-sheet financial instruments,
including derivatives, which may expose the Fund and the Underlying Funds
to various types of 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 assets, liabilities and investors' capital. 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 certain of the related risks are described below:
A. 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 the seller records unrealized
gain or loss to the extent of the difference between the proceeds received
and the value of the open short position. 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.
B. 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.
13
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
10. CONCENTRATION OF RISK (CONTINUED)
C. 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.
D. FUTURES CONTRACTS
The Underlying Funds may use 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
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.
E. 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 favorable markets, but also may lead to a more rapid
decrease in partners' capital in unfavorable markets. 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.
F. FORWARD FOREIGN CURRENCY CONTRACTS
The Underlying Funds may enter into forward foreign currency contracts.
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.
14
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
11. CONTINGENCIES AND OTHER EVENTS
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, et al. (collectively, "Canary"). The
complaint alleged, among other things, that Canary engaged in improper
trading in various mutual funds including certain funds in the Nations
family of Funds (the "Nations Funds") for which the fund's adviser also
serves as adviser. Specifically, the NYAG alleged that Canary engaged in
activities that it characterized as "market timing" and "late trading."
The NYAG later announced a criminal action, and the SEC announced a civil
action, against a former employee of Banc of America Securities, LLC, a
selling agent affiliated with the Nations Funds' distributor and adviser.
In connection with these events, various lawsuits have been filed, some of
which name the Nations Funds, among others, as defendants (see Civil
Litigation below).
The independent Trustees of the Nations Funds have engaged independent
legal counsel and, through them, accountants to evaluate the extent of any
monetary impact to any Nations Funds from discretionary market timing or
from late trading. On September 8, 2003, Bank of America Corporation and
the Boards of Trustees of the Nations Funds (the "Boards") jointly
announced that: (i) to the extent that the independent counsel and
accountants determine that the Nations Funds were adversely affected by
any late trading or any discretionary market timing agreement, BACAP would
make appropriate restitution; and (ii) BACAP and BACAP Distributors would
promptly return to the Nations Funds that were the subject of a market
timing agreement all advisory and administration fees they received as a
result of such an agreement, irrespective as to whether or not there is an
independent determination of any negative impact to any Nations Fund
shareholders. In addition, Bank of America Corporation has also agreed to
make appropriate reimbursement of costs incurred by the Nation Funds in
connection with this matter.
Settlements in Principle with Regulators
On March 15, 2004, Bank of America Corporation and FleetBoston Financial
Corporation ("Fleet") entered into agreements in principle (each an
"Agreement" and together, the "Agreements") with the NYAG and the SEC over
matters related to improper late trading and market timing of mutual
funds. As noted below, on April 1, 2004, Bank of America Corporation
acquired Fleet.
Under the Agreements, Bank of America Corporation has agreed to pay $250
million in total disgorgement and restitution and a penalty of $125
million and FleetBoston Financial Corporation agreed to pay $70 million in
total disgorgement and restitution and a penalty of $70 million. In
addition, the Agreement with the NYAG requires an aggregate reduction in
mutual fund fees of $32 million per year for five years across selected
non-money market funds in the Nations Funds and Fleet mutual fund
complexes. The final amount payable as restitution and whether such
restitution will be effectuated through a Nations Fund or directly to
shareholders, has not yet been determined.
When finalized, the Agreements will conclude the investigation by the NYAG
and the SEC of Bank of America Corporation and its affiliates relating to
late trading and market timing activities, provided that the NYAG and the
SEC have reserved the right to continue their respective investigations of
and actions against individuals.
15
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
11. CONTINGENCIES AND OTHER EVENTS (CONTINUED)
Management believes that the Agreements, and their finalization, could
have a positive effect, but in no case will they have a material adverse
effect, on any Nations Fund's financial positions or results of
operations. However, a review by the accountants engaged to investigate
these matters for the Boards remains ongoing. Accordingly, an estimate of
the financial impact on any Nations Fund cannot currently be made.
Bank of America Corporation Acquisition of Fleet
On April 1, 2004, Bank of America Corporation acquired Fleet. As a result
of this acquisition, Columbia Management Advisors, Inc. ("CMA") and
Columbia Funds Distributor, Inc. ("CFDI") are now indirect wholly-owned
subsidiaries of Bank of America Corporation. The SEC and NYAG filed
proceedings against both CMA and CFDI on February 24, 2004 alleging that
they had violated certain provisions of the federal securities laws in
connection with trading activity in mutual funds shares and violated
certain New York anti-fraud statutes. In order to settle these matters, as
noted above, Fleet entered into the March 15, 2004 Agreements with the
NYAG and the SEC. In addition, both Bank of America and Fleet committed to
use best efforts to implement certain enhanced governance and compliance
procedures with respect to advised mutual funds and agreed to the
retention of independent consultants to review compliance, control and
other policies and procedures relating to their respective mutual fund
advisory businesses.
If either CMA or CFDI is ultimately unsuccessful in its defense of, or
efforts to procure a final settlement of, the February 24, 2004
proceedings, or if any final settlement includes an injunction against CMA
or CFDI prohibiting them from engaging in certain conduct, CMA, CFDI or
any company that is an affiliated person of CMA and CFDI could be barred
from serving as an investment adviser or distributor for any investment
company registered under the Investment Company Act of 1940. As a result
of the Fleet acquisition, BACAP and BACAP Distributors are now affiliated
persons of CMA and CFDI and, therefore, under these circumstances, could
be barred from serving as an investment adviser or distributor for any
registered investment company, including the Nations Funds and the fund.
If either CMA or CFDI is ultimately unsuccessful in its defense of, or
efforts to procure a final settlement of, the February 24, 2004
proceedings, it is expected that BACAP and BACAP Distributors would seek
exemptive relief from the SEC to permit them to continue serving as the
investment adviser of the Nations Funds and the fund.
Civil Litigation
In connection with the events described in detail above, various parties
have filed suit against certain Nations Funds, their Boards and/or Bank of
America Corporation (and affiliated entities). These cases have been
consolidated in a multi-district proceeding and transferred to the Federal
District Court in Maryland.
These suits and certain regulatory investigations are ongoing.
Accordingly, an estimate of the financial impact of this litigation on any
Fund, if any, cannot currently be made.
16
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS
During the months ended September 30, 2004 and October 31, 2004, Investors
contributed a total of $2,380,000 and $200,000, respectively, which was
credited to Investors' accounts in the next month.
Beginning on the fiscal quarter ended December 31, 2004, the Fund will file its
complete schedule of portfolio holdings with the Securities and Exchange
Commission for the first and third quarters of each fiscal year on Form N-Q
within sixty days after the end of the period. The Fund's Form N-Q will be
available on the Commission's website at HTTP://WWW.SEC.GOV, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, as well as information
relating to how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30, is available (i) without charge,
upon request, by calling1-646-313-8890; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
17
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors, where those changes
were implemented after the registrant last provided disclosure in response to
the requirements of item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this item.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits.
(a)(1)Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 are attached hereto.
(a)(2)Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
By (Signature and Title)* /s/ Lawrence Morgenthal
------------------------------
Lawrence Morgenthal, President
(principal executive officer)
Date DECEMBER 7, 2004
------------------------------
(registrant) BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
By (Signature and Title)* /s/ Eric Pisauro
------------------------------
Eric Pisauro, Chief Financial Officer
(principal financial officer)
Date DECEMBER 7, 2004
------------------------------
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/ Lawarence Morgenthal
------------------------------
Lawrence Morgenthal, President
(principal executive officer)
Date DECEMBER 7, 2004
------------------------------
By (Signature and Title)* /s/ Eric Pisauro
------------------------------
Eric Pisauro, Chief Financial Officer
(principal financial officer)
Date DECEMBER 7, 2004
------------------------------
* Print the name and title of each signing officer under his or her signature.