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 811-21058
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
(Exact name of registrant as specified in charter)
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c/o Aetos Capital, LLC
875 Third Avenue
New York, NY 10022
(Address of principal executive offices) (Zip code)
James M. Allwin
Aetos Capital, LLC
New York, NY 10022
(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, 2006
DATE OF REPORTING PERIOD: JANUARY 31, 2006
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
AETOS CAPITAL OPPORTUNITIES FUND, LLC
Financial Statements
January 31, 2006
TABLE OF CONTENTS
Fund Commentaries............................................................. 1
Report of Independent Registered Public Accounting Firm....................... 8
Schedules of Investments...................................................... 9
Statements of Assets and Liabilities..........................................14
Statements of Operations......................................................15
Statements of Changes in Members' Capital.....................................16
Statements of Cash Flows......................................................19
Financial Highlights..........................................................20
Notes to Financial Statements.................................................25
Managers and Officers of the Funds............................................34
The Funds file their 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 each period. The Funds' Forms N-Q
are available on the Commission's web site 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 Funds use to determine how
to vote proxies relating to portfolio securities, as well as information
relating to how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30, is available (i) without charge,
upon request, by calling 1-212-201-2500; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Fund Commentary
For the year ended January 31, 2006
(Unaudited)
The Aetos Capital Multi-Strategy Arbitrage Fund, LLC (the "Fund") allocates its
assets among a select group of portfolio managers that utilize a variety of
arbitrage strategies while seeking to produce an attractive absolute return on
invested capital, largely independent of the various benchmarks associated with
traditional asset classes.
The Fund includes allocations to event arbitrage and fixed income arbitrage
managers. Event arbitrage managers seek to identify mispricings in securities
that will be resolved through an anticipated event. Events can include mergers,
acquisitions, spinoffs, recapitalizations and bankruptcy (either entering into
bankruptcy or emerging from it). Skills required include the ability to analyze
the relative value of the securities involved and the probability of the event
taking place in a timely manner. Fixed income arbitrage managers seek to
identify discrepancies in the prices of securities that are very closely related
and arbitrage that discrepancy.
For the year ended January 31, 2006, the Fund had a total return of 6.48%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2006, the Fund had an average annual total return of
7.88%.(1)
The returns of the managers in our arbitrage fund generally ranged from low to
high single digits, a much narrower range than in 2004 that may reflect the
continued low volatility environment. Fixed income arbitrage managers fared
better on average than those in the event-driven category, while our
short-biased credit managers earned middling returns while helping to reduce
risk in the portfolio.
Event-driven managers had an uneven year. Compelling opportunities in merger
arbitrage continue to be limited and the strategy still occupies a small
percentage of these managers' assets, although the average exposure has risen
somewhat from 15% in 2004 to about 25% currently. Despite merger volume of $2.7
trillion worldwide in 2005, the highest level since 2000, overall spread levels
widened only modestly compared to short term rates. Furthermore, high levels of
cash on corporate balance sheets, low interest rates, and the flood of private
equity capital meant that more deals were for cash rather than share exchanges.
Our managers have preferred to focus on large and/or complex transactions that
feature more attractive spreads, but in the process have been forced to
concentrate their investments more than in years past. Elsewhere in event-driven
portfolios, distressed allocations generally performed steadily over the course
of the year, though some did experience short-term bumps around the General
Motors downgrade in April. Event-oriented long/short equity strategies did well
for these managers, though short books caused some pain towards year-end.
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(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager, if any. Returns would have been lower without such waivers
and reimbursements. Returns do not reflect Program fees and expenses charged at
the separate account level.
1
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Fund Commentary (continued)
For the year ended January 31, 2006
(Unaudited)
U.S. convertibles never became a compelling opportunity in 2005. Having
recovered from the tumult of the first half of the year, the current pricing
offers limited potential and supply seems unlikely to increase significantly.
Issuers are either flush or have access to cheaper capital elsewhere in the
markets. Given the disappointment of recent years, there is still a risk more
capital will leave this space. However, one bright note worth highlighting in
this category is an Asian convertible bond fund we added to the portfolio in
late 2004. We believed that volatility would pick up in Asian markets,
particularly in Japan. After suffering through some down months, the fund surged
to double digit gains as realized volatility in Japan increased from 22.4% in Q1
2005 to 32.7% in Q4. The diversification of this fund's long volatility exposure
to Taiwan, Korea, and India should keep it competitive in the long-term.
Fixed income arbitrage opportunities were scattered in niches throughout the
credit markets in 2005. Some dislocation in the forward yield curve offered our
managers ways in which to eek out returns. The growth of the credit default swap
market - estimated to be fivefold over the last two years - has created more
flexibility in implementing profitable capital structure arbitrage trades,
particularly in emerging markets. The "slicing and dicing" of credit risk into
structured products also presented residual opportunities, but most were not
high return propositions.
2
Aetos Capital Distressed Investment Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2006
(Unaudited)
The Aetos Capital Distressed Investment Strategies Fund, LLC (the "Fund")
allocates its assets among a select group of portfolio managers across a variety
of distressed investment strategies while seeking to produce an attractive
absolute return on invested capital, largely independent of the various
benchmarks associated with traditional asset classes.
The Fund allocates to investment managers that buy the securities (generally
bonds and bank loans) of companies that are in bankruptcy or in danger of
bankruptcy. These managers are able to buy these securities at a discount to
their eventual value because traditional fixed income portfolio managers who
bought the bonds or banks that made the loans may not want to or be able to own
them once they are in default. The sellers may also not have the expertise and
patience to go through a lengthy restructuring process. Distressed investing
involves credit analysis, legal expertise and (often) negotiating ability, as
the portfolio manager must estimate the value of the claims he is buying, the
likely timing and resolution of the bankruptcy process and also may be called
upon to reach agreements with other claimants in order to speed the process.
For the year ended January 31, 2006, the Fund had a total return of 8.46%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2006, the Fund had an average annual total return of
13.43%.(1)
More buoyant equity markets and a drop in volatility benefited our distressed
managers in the second half of what was otherwise a relatively tepid year. After
a turbulent October that included five defaults, investors' appetite for risk
reappeared. Dovish Federal Open Market Committee minutes in the wake of what
were seen as easing inflationary pressures helped comfort investors.
Credit spreads and default rates are currently at historically low levels, but
the large amount of high yield issuance and notable relaxation of underwriting
standards should create significant opportunities when the credit cycle turns.
The downgrade of General Motors' debt to below investment grade concurrent with
Kirk Kerkorian's tender for General Motors equity temporarily caused some
commotion in the high yield markets in the late spring, but thus far turmoil has
been largely isolated to the auto sector. Later in the year, the bankruptcies of
Delphi, Delta, Refco and Calpine were also headline-making events, but overall
ratings actions were not severe. Despite our surprise that the weakness was
contained, the tight spreads and low level of defaults appear to be at or near a
cyclical trough.
Tight spreads continue to be supported by leveraged credit players, exemplified
by the burgeoning European Collateralized Debt Obligation ("CDO") market.
However, delays in rating changes and tamed inflationary fears have helped build
investor indifference toward the risks in the system. For example, 638 European
CDOs and 156 North American CDOs had exposure to Delphi bonds, but S&P only
downgraded 127.
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(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager, if any. Returns would have been lower without such waivers
and reimbursements. Returns do not reflect Program fees and expenses charged at
the separate account level.
3
Aetos Capital Distressed Investment Strategies Fund, LLC
Fund Commentary (continued)
For the year ended January 31, 2006
(Unaudited)
Once multiple losses accrue in a CDO's collateral pool, though, the probability
of the tranches being downgraded increases. Broad-based asset exposure to such
troubled companies poses significant risk to additional credit jolts, but
spreads have proven remarkably resilient thus far.
It is our experience that the weakness we have seen in the auto sector will not
remain contained. The fundamentals of the high yield market appear to be
weakening, which will pressure spreads to widen and increase near-term risks in
the distressed market. On the calendar year, high yield mutual funds witnessed
approximately $11.8 billion in outflows, almost three times the 2004 total.
Supply, in the meantime has reappeared; the new issue calendar caught a second
wind in November and December, and priced over $10 billion in each month.
Currently, distressed managers are finding a reasonable number of opportunities
but are defensively positioned as they await a more favorable environment.
4
Aetos Capital Long/Short Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2006
(Unaudited)
The Aetos Capital Long/Short Strategies Fund, LLC (the "Fund") allocates its
assets among a select group of portfolio managers across a variety of long/short
strategies while seeking to produce an attractive absolute return on invested
capital, largely independent of the various benchmarks associated with
traditional asset classes. The Fund is composed of managers that operate
long-biased portfolios of stocks, usually based on bottom-up equity research.
These portfolios generally vary from 20% to 40% net long.
For the year ended January 31, 2006, the Fund had a total return of 11.66%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2006, the Fund had an average annual total return of
7.93%.(1)
Performance for our long/short managers was generally strong across the board as
the equity markets rewarded - to a greater degree than 2004 at least - the
stock-picking skills of most of our managers. Though volatility sunk even lower,
the dispersion of sector returns increased significantly and inflationary trends
showed signs of testing corporate earnings. Slight volatility spikes and
increased dispersion followed any signs that earnings difficulties might be a
trend. Naturally, our managers with exposure to energy or utilities benefited
from broad sector rallies, but success was not limited to sector allocation.
Several generated meaningful returns in financials, healthcare and technology
despite lackluster overall performance in those industries. A primary factor in
this kind of success is a longer-term investment horizon in a market
increasingly dominated by investors' need for immediate results.
Despite a global bull market in equities, the U.S. stock market lagged, with S&P
delivering its lowest return (4.9%) in three years. The indices moved within a
relatively narrow range, shrugging off the hurricanes, the sharp rise in energy
prices and the Federal Reserve rate hikes. Value investors, in particular,
struggled. The historical outperformance of value stocks over growth stocks in
recent years has resulted in a dramatic narrowing of the valuation spreads
between the two groups. In terms of price/earnings and price/sales, the
valuations of value stocks are close to being at their most expensive level
ever. Value investors are finding that traditional value screens are not
generating nearly enough long ideas. The value-oriented investors in our Fund
have found success in 2005 by using a broader fundamental toolkit that involves
deep industry expertise and an understanding of return drivers, rather than
reflexive application of traditional value-based metrics.
Though the bulk of our long/short returns were generated in the U.S., the
addition of international exposure at the end of 2004 also benefited the
portfolio. Asian stock markets such as Korea, Japan, and India rose greater than
40% on the year while in Europe stocks hit three-year highs. Though the
magnitude of the Asian rally is eye-opening, the bullishness followed
significant Gross Domestic Product growth, reform measures, and attractively
priced assets across the region.
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(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager, if any. Returns would have been lower without such waivers
and reimbursements. Returns do not reflect Program fees and expenses charged at
the separate account level.
5
Aetos Capital Market Neutral Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2006
(Unaudited)
The Aetos Capital Market Neutral Strategies Fund, LLC (the "Fund") allocates its
capital among a select group of portfolio managers across a variety of market
neutral strategies while seeking to produce an attractive absolute return on
invested capital, largely independent of the various benchmarks associated with
traditional asset classes.
The Fund contains managers that attempt to create long and short portfolios that
are roughly equal in size and therefore immune to overall stock markets
movements. Often these strategies are quantitative in nature, using computer
screens to pick long and short portfolios of stocks and balancing their risk
exposure through optimization techniques.
For the year ended January 31, 2006, the Fund had a total return of 4.19%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2006, the Fund had an average annual total return of
2.61%.(1)
Earlier in 2005, a temporary return to value-based factors coupled with spikes
in volatility boosted the equity-based strategies in this portfolio. However, in
the third and fourth quarters, a slew of positive macroeconomic data and healthy
earnings reports lifted overall equity markets, but disproportionately benefited
growth and lower quality stocks. The Russell 3000 Growth index, which
underperformed the Russell 3000 Value index for five of the first six months,
outperformed in the last two quarters. For our equity managers in this
portfolio, this development created losses in the short portfolios which are
heavily slanted towards "junkier" growth stocks.
The currency and tactical asset allocation managers in this portfolio generated
the bulk of the positive returns in the fiscal year. Among those strategies that
performed were currency positions, Latin American equity exposures, and
commodities. A long position in the Brazilian Real represented a consistently
profitable position for several of our managers as the currency posted a 12%
gain on the year. It was the Real's third straight annual gain and the largest
increase against the dollar of the 16 major currencies. Our managers' models
still indicate further upside in the currency. In other areas of our
quantitative portfolios, momentum models yielded little in way of returns and
tactical stock selection worked intermittently.
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(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager, if any. Returns would have been lower without such waivers
and reimbursements. Returns do not reflect Program fees and expenses charged at
the separate account level.
6
Aetos Capital Opportunities Fund, LLC
Fund Commentary
For the period ended January 31, 2006
(Unaudited)
The Aetos Capital Opportunities Fund, LLC (the "Fund") allocates its assets
among a select group of portfolio managers across a variety of opportunistic
strategies while seeking to produce an attractive absolute return on invested
capital, largely independent of the various benchmarks associated with
traditional asset classes. The Fund is composed of managers that operate
smaller-sized, more idiosyncratic portfolios employing directional strategies or
focusing on particular markets or sectors.
From the commencement of operations on May 27, 2005 through the fiscal year
ended January 31, 2006, the Fund had a total return of 4.94%.(1)
We have been pleased so far with the idiosyncratic nature of the higher
concentration positions and the robust portfolio construction represented in the
Fund. Though the returns are less meaningful as the portfolio is maturing, it
has already demonstrated a tendency to generate positive results with low
correlation to the overall market, i.e. positive returns in two out of three
down months for the S&P 500 since its August launch.
One of our largest and best performing positions this fiscal year was in a
long/short Asia manager whose background includes over fifteen years of
Japan-focused hedge fund investing. While maintaining a relatively low net
exposure to a runaway Nikkei, the strategy has enjoyed significant success.
However, we feel that the strategy is positioned for greater gains as the
initial euphoria subsides, and rising global and Japanese interest rates lead to
more divergent and fundamentally based performance in stocks.
In recent months, we added two fund exposures to our current portfolio
composition with an international manager and a quantitatively-based tactical
strategy. The international exposure will comprise of thematic concentrated
investments across industrial, real estate, and telecom sectors in Japan and
Western Europe. The quantitatively-based tactical bet seeks to exploit the
valuation dichotomy between high quality and low quality stocks, favoring large
capitalization U.S. companies with high economic profit, low leverage, and low
earnings volatility.
These new positions should provide an attractive risk-adjusted return over a
longer-term investment horizon. They complement our bullish sector specialists
such as our energy fund and should provide a healthy dose of downside market
protection for the overall portfolio.
- --------------------------
(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager, if any. Returns would have been lower without such waivers
and reimbursements. Returns do not reflect Program fees and expenses charged at
the separate account level.
7
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Members of:
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
Aetos Capital Opportunities Fund, LLC
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations, changes
in members' capital and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of 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, and Aetos Capital Opportunities
Fund, LLC (hereafter referred to as the "Funds") at January 31, 2006, and the
results of each of their operations, cash flows and the changes in each of their
members' capital and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments with the
portfolio funds at January 31, 2006, provide a reasonable basis for our opinion.
As explained in Note 2, the financial statements include investments held by
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, and Aetos Capital
Opportunities Fund, LLC valued at $308,817,425 (96.4% of the Fund's net assets),
$61,665,640 (92.7% of the Fund's net assets), $436,162,358 (92.4% of the Fund's
net assets), $85,763,127 (89.7% of the Fund's net assets), and $67,561,003
(92.7% of the Fund's net assets) respectively, at January 31, 2006, the values
of which have been estimated by the Investment Manager, under general
supervision of the Board of Managers, in the absence of readily ascertainable
market values. Those estimated values may differ significantly from the values
that would have been used had a ready market for the investments existed, and
the difference could be material.
PricewaterhouseCoopers, LLP
New York, New York
March 31, 2006
8
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Schedule of Investments
January 31, 2006
Investment Strategy as a Percentage of Investments
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Convertible Arbitrage 6.27%
Credit Strategies 13.22%
Fixed Income Arbitrage 18.58%
Multi-Strategy/Event Arbitrage 61.93%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
AQR Global Arbitrage Offshore Fund (USD), Ltd. $ 27,726,549 $ 29,871,197 9.33%
Davidson Kempner Partners 40,000,000 43,688,712 13.64
FFIP, L.P. 24,630,000 27,771,716 8.67
Ishin Fund, LLC 18,000,000 19,349,165 6.04
Parsec Trading Corp. 13,300,000 13,242,579 4.13
Pequot Credit Opportunities Fund, L.P. 20,000,000 20,583,383 6.43
Perry Partners, L.P. 34,600,000 40,955,501 12.79
Satellite Fund II, L.P. 25,850,000 29,918,498 9.34
South Hill Trading Corp. 15,000,000 16,361,721 5.11
Sowood Alpha Fund, L.P. 42,000,000 46,816,043 14.62
Standard Pacific Credit Opportunities Fund, L.P. 20,000,000 20,258,910 6.33
----------------------------------------------------
Total $ 281,106,549 $ 308,817,425 96.43%
====================================================
*Percentages are based on Members' Capital of $320,267,207.
The aggregate cost of investments for tax purposes was $283,535,641. Net unrealized appreciation on investments
for tax purposes was $25,281,784 consisting of $25,339,205 of gross unrealized appreciation and $57,421 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 96.43% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
Aetos Capital Distressed Investment Strategies Fund, LLC
Schedule of Investments
January 31, 2006
Investment Strategy as a Percentage of Investments
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Distressed Investments 100.00%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. $ 10,000,000 $ 10,068,510 15.14%
King Street Capital, L.P. 11,050,000 13,137,503 19.75
Satellite Credit Opportunities Fund, Ltd. 8,750,000 10,730,299 16.13
Silver Point Capital Fund, L.P. 11,100,000 15,054,663 22.64
Watershed Capital Partners, L.P. 11,050,000 12,674,665 19.06
----------------------------------------------------
Total $ 51,950,000 $ 61,665,640 92.72%
====================================================
*Percentages are based on Members' Capital of $66,508,356.
The aggregate cost of investments for tax purposes was $54,273,504. Net unrealized appreciation on investments
for tax purposes was $7,392,136 consisting of $7,392,136 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 92.72% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments
January 31, 2006
Investment Strategy as a Percentage of Investments
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Low Beta/Market Neutral/Long Short 2.95%
Short Equity Investments 2.46%
Long/Short Equity Investments 94.59%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. $ 32,000,000 $ 45,928,097 9.73%
Bay Resource Partners, L.P. 20,000,000 29,193,976 6.19
Cadmus Capital Partners (QP), L.P. 21,000,000 23,745,441 5.03
Cantillion Pacific, L.P. 13,000,000 16,325,605 3.46
Cantillion U.S. Low Volatility, L.P. 12,000,000 12,878,105 2.73
Cavalry Technology, L.P. 38,750,000 42,469,877 9.00
The Elkhorn Fund, LLC 32,000,000 35,572,728 7.54
Highside Capital Partners, L.P. 35,000,000 36,260,392 7.68
Icarus Qualified Partners, L.P. 10,500,000 10,734,112 2.28
JL Partners, L.P. 49,820,000 59,149,871 12.54
North River Partners, L.P. 31,650,000 34,928,534 7.40
Standard Global Equity Partners SA, L.P. 38,700,000 44,142,834 9.36
Viking Global Equities, L.P. 40,000,000 44,832,786 9.50
----------------------------------------------------
Total $ 374,420,000 $ 436,162,358 92.44%
====================================================
*Percentages are based on Members' Capital of $471,815,260.
The aggregate cost of investments for tax purposes was $376,041,892. Net unrealized appreciation on investments
for tax purposes was $60,120,466 consisting of $60,120,466 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 92.44% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
Aetos Capital Market Neutral Strategies Fund, LLC
Schedule of Investments
January 31, 2006
Investment Strategy as a Percentage of Investments
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Quantitative Asset Allocation 22.07%
Multi-Strategy 25.10%
Low Beta/Market Neutral/Long Short 52.83%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
AQR Absolute Return Institutional Fund, L.P. $ 19,900,000 $ 21,523,612 22.52%
Bravura 99 Fund, L.P. 8,682,132 10,060,907 10.52
Cantillion U.S. Low Volatility, L.P. 27,500,000 28,902,601 30.24
GMO Market Neutral Fund (Onshore) 6,384,310 6,342,841 6.63
GMO Mean Reversion Fund 16,000,000 18,933,166 19.81
----------------------------------------------------
Total $ 78,466,442 $ 85,763,127 89.72%
====================================================
*Percentages are based on Members' Capital of $95,584,709.
The aggregate cost of investments for tax purposes was $78,012,960. Net unrealized appreciation on investments
for tax purposes was $7,750,167 consisting of $7,750,167 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 89.72% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
Aetos Capital Opportunities Fund, LLC
Schedule of Investments
January 31, 2006
Investment Strategy as a Percentage of Investments
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Real Assets 13.58%
Credit Related 16.59%
Event-Driven 18.81%
Long/Short Equity Investments 51.02%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
Avdan Partners, L.P. $ 5,000,000 $ 4,708,763 6.46%
GMO U.S. Tactical Opportunities Fund (Onshore), L.P. 5,500,000 5,045,088 6.93
Joho Partners, L.P. 8,000,000 8,985,758 12.33
Pequot Short Credit Fund, L.P. 4,000,000 3,864,130 5.30
Phinity Partners, L.P. 6,000,000 6,590,163 9.05
Rimrock High Income PLUS, L.P. 3,500,000 3,576,595 4.91
Saras Capital Partners, L.P. 7,000,000 7,132,642 9.79
Scopia PX, LLC 7,000,000 7,328,805 10.06
Sheffield Institutional Partners, L.P. 5,000,000 5,378,196 7.38
Spindrift Partners, L.P. 8,000,000 9,175,701 12.59
Standard Pacific Asymmetric Opportunities Fund, L.P. 4,000,000 3,766,826 5.17
Venn Global Opportunities Fund L.P. 2,000,000 2,008,336 2.76
----------------------------------------------------
Total $ 65,000,000 $ 67,561,003 92.73%
====================================================
*Percentages are based on Members' Capital of $72,856,188.
The aggregate cost of investments for tax purposes was $65,000,000. Net unrealized appreciation on investments
for tax purposes was $2,561,003 consisting of $3,676,196 of gross unrealized appreciation and $1,115,193 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 92.73% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
Statements of Assets and Liabilities
January 31, 2006
AETOS CAPITAL AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL MARKET
MULTI-STRATEGY INVESTMENT LONG/SHORT NEUTRAL AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-----------------------------------------------------------------------------------------
ASSETS
Investments in portfolio funds, at cost $281,106,549 $51,950,000 $374,420,000 $78,466,442 $65,000,000
-----------------------------------------------------------------------------------------
Investments in portfolio funds, at value $308,817,425 $61,665,640 $436,162,358 $85,763,127 $67,561,003
Cash and cash equivalents 12,780,371 5,464,545 37,766,882 10,294,185 1,528,500
Accrued income 43,740 18,209 122,689 37,852 17,832
Prepaid investments -- -- -- -- 4,000,000
Deferred offering costs -- -- -- -- 14,425
Receivable for sale of investments -- -- 905,124 -- --
-----------------------------------------------------------------------------------------
Total assets 321,641,536 67,148,394 474,957,053 96,095,164 73,121,760
-----------------------------------------------------------------------------------------
LIABILITIES
Sales of Interests received in advance 646,500 205,700 1,751,500 202,650 115,650
Investment manager fees payable 204,333 42,583 301,254 61,014 46,454
Administration fees payable 77,416 15,703 111,940 23,358 16,450
Board of Managers' fees payable 5,475 5,475 5,475 5,475 5,475
Tax withholding payable 310,000 300,000 820,000 140,000 25,000
Other accrued expenses 130,605 70,577 151,624 77,958 56,543
-----------------------------------------------------------------------------------------
Total liabilities 1,374,329 640,038 3,141,793 510,455 265,572
-----------------------------------------------------------------------------------------
NET MEMBERS' CAPITAL $320,267,207 $66,508,356 $471,815,260 $95,584,709 $72,856,188
=========================================================================================
MEMBERS' CAPITAL
Net capital $292,556,331 $56,792,716 $410,072,902 $88,288,024 $70,295,185
Net unrealized appreciation on
investments in portfolio funds 27,710,876 9,715,640 61,742,358 7,296,685 2,561,003
-----------------------------------------------------------------------------------------
Members' Capital $320,267,207 $66,508,356 $471,815,260 $95,584,709 $72,856,188
=========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
Statements of Operations
For the year or period ended January 31, 2006
AETOS CAPITAL AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL MARKET
MULTI-STRATEGY INVESTMENT LONG/SHORT NEUTRAL AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC FUND, LLC*
-----------------------------------------------------------------------------------------
Investment income:
Interest $ 496,725 $ 183,723 $ 589,437 $ 300,290 $ 79,237
-----------------------------------------------------------------------------------------
Expenses:
Management fees 2,075,183 390,103 2,811,792 666,090 184,244
Administration fees 276,541 53,816 374,803 89,780 23,555
Board of Managers' fees 24,638 24,638 24,638 24,638 10,950
Professional fees 177,865 121,833 193,759 126,209 70,699
Custodian fees 31,024 8,571 40,857 12,254 3,935
Printing fees 23,640 22,535 23,756 21,890 --
Registration fees 11,807 10,623 18,622 12,668 6,764
Amortization of offering costs -- -- -- -- 30,668
Organizational costs -- -- -- -- 20,866
Other expenses 5,878 5,857 5,857 5,857 1,328
-----------------------------------------------------------------------------------------
Total expenses 2,626,576 637,976 3,494,084 959,386 353,009
Fund expenses reimbursed -- (122,324) -- (81,486) (91,030)
-----------------------------------------------------------------------------------------
Net expenses 2,626,576 515,652 3,494,084 877,900 261,979
-----------------------------------------------------------------------------------------
Net investment loss (2,129,851) (331,929) (2,904,647) (577,610) (182,742)
-----------------------------------------------------------------------------------------
Net gain on portfolio funds sold 281,749 -- 1,794,958 -- --
Net change in unrealized appreciation
on investments in portfolio funds 19,837,724 4,773,363 45,632,962 4,248,825 2,561,003
-----------------------------------------------------------------------------------------
Net increase in Members' Capital
derived from investment activities $17,989,622 $4,441,434 $44,523,273 $3,671,215 $2,378,261
=========================================================================================
*For the period May 27, 2005 (commencement of operations) through January 31, 2006.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
Statements of Changes in Members' Capital
For the years ended January 31, 2005 and January 31, 2006
AETOS CAPITAL DISTRESSED
AETOS CAPITAL MULTI-STRATEGY INVESTMENT STRATEGIES
ARBITRAGE FUND, LLC FUND, LLC
--------------------------------- ---------------------------------
2/1/05 - 2/1/04 - 2/1/05 - 2/1/04 -
1/31/06 1/31/05 1/31/06 1/31/05
--------------------------------- ---------------------------------
From investment activities:
Net investment loss $ (2,129,851) $ (1,340,727) $ (331,929) $ (324,337)
Net gain on portfolio funds sold 281,749 -- -- --
Net change in unrealized appreciation on
investments in portfolio funds 19,837,724 6,931,365 4,773,363 3,931,069
--------------------------------- ---------------------------------
Net increase in Members' Capital
derived from investment activities 17,989,622 5,590,638 4,441,434 3,606,732
--------------------------------- ---------------------------------
Distributions:
Tax withholding on behalf of foreign investors (471,422) -- (353,256) --
--------------------------------- ---------------------------------
Total distributions (471,422) -- (353,256) --
--------------------------------- ---------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 84,600,699 198,877,612 14,611,996 34,412,376
Redemptions of Interests (11,329,467) (196,464) (184,006) (163,410)
Transfers of Interests (16,486,000) 6,616,600 2,738,000 (6,780,600)
--------------------------------- ---------------------------------
Net increase in Members' Capital derived from
capital transactions 56,785,232 205,297,748 17,165,990 27,468,366
--------------------------------- ---------------------------------
Net increase in Members' Capital 74,303,432 210,888,386 21,254,168 31,075,098
Members' Capital at beginning of year 245,963,775 35,075,389 45,254,188 14,179,090
--------------------------------- ---------------------------------
Members' Capital at end of year $320,267,207 $245,963,775 $66,508,356 $45,254,188
================================= =================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
Statements of Changes in Members' Capital (continued)
For the years ended January 31, 2005 and January 31, 2006
AETOS CAPITAL
AETOS CAPITAL LONG/SHORT MARKET NEUTRAL
STRATEGIES FUND, LLC STRATEGIES FUND, LLC
--------------------------------- ----------------------------------
2/1/05 - 2/1/04 - 2/1/05 - 2/1/04 -
1/31/06 1/31/05 1/31/06 1/31/05
--------------------------------- ---------------------------------
From investment activities:
Net investment loss $ (2,904,647) $ (1,821,116) $ (577,610) $ (495,128)
Net gain/(loss) on portfolio funds sold 1,794,958 401,496 -- (35,660)
Net change in unrealized appreciation on
investments in portfolio funds 45,632,962 14,218,146 4,248,825 2,853,177
--------------------------------- ---------------------------------
Net increase in Members' Capital
derived from investment activities 44,523,273 12,798,526 3,671,215 2,322,389
--------------------------------- ---------------------------------
Distributions:
Tax withholding on behalf of foreign investors (1,386,016) -- (204,118) --
--------------------------------- ---------------------------------
Total distributions (1,386,016) -- (204,118) --
--------------------------------- ---------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 144,104,472 255,135,361 25,303,681 65,834,326
Redemptions of Interests (33,975,401) (417,274) (3,371,932) (58,815)
Transfers of Interests (6,788,000) 152,000 (12,043,772) 12,000
--------------------------------- ---------------------------------
Net increase in Members' Capital derived from
capital transactions 103,341,071 254,870,087 9,887,977 65,787,511
--------------------------------- ---------------------------------
Net increase in Members' Capital 146,478,328 267,668,613 13,355,074 68,109,900
Members' Capital at beginning of year 325,336,932 57,668,319 82,229,635 14,119,735
--------------------------------- ---------------------------------
Members' Capital at end of year $471,815,260 $325,336,932 $95,584,709 $82,229,635
================================= =================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
Statement of Changes in Members' Capital (concluded)
For the period ended January 31, 2006
AETOS
CAPITAL
OPPORTUNITIES
FUND, LLC
---------------
5/27/05* -
1/31/06
---------------
From investment activities:
Net investment loss $ (182,742)
Net gain on portfolio funds sold --
Net change in unrealized appreciation on
investments in portfolio funds 2,561,003
---------------
Net increase in Members' Capital
derived from investment activities 2,378,261
---------------
Distributions:
Tax withholding on behalf of foreign investors (25,000)
---------------
Total distributions (25,000)
---------------
Members' Capital transactions:
Proceeds from sales of Interests 39,826,616
Redemptions of Interests (1,903,461)
Transfers of Interests 32,579,772
---------------
Net increase in Members' Capital derived from
capital transactions 70,502,927
---------------
Net increase in Members' Capital 72,856,188
Members' Capital at beginning of period --
---------------
Members' Capital at end of period $72,856,188
===============
*Commencement of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
Statements of Cash Flows
For the year or period ended January 31, 2006
AETOS CAPITAL AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL MARKET
MULTI-STRATEGY INVESTMENT LONG/SHORT NEUTRAL AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC FUND, LLC*
-----------------------------------------------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Purchases of Portfolio Funds $(65,800,000) $(14,000,000) $(106,900,000) $(5,000,000) $(65,000,000)
Sales of Portfolio Funds 16,281,749 -- 34,294,958 -- --
Net investment loss (2,129,851) (331,929) (2,904,647) (577,610) (182,742)
Adjustments to reconcile net investment loss to net
cash used in operating activities:
Decrease/(increase) in prepaid investments 7,000,000 -- -- -- (4,000,000)
Increase in accrued income (31,523) (13,881) (107,009) (27,503) (17,832)
Increase in receivable for sale of investments -- -- (544,966) -- --
Decrease in due from investment manager -- 3,090 -- -- --
Increase in deferred offering costs -- -- -- -- (14,425)
Increase in investment manager fees payable 74,461 42,583 126,798 37,573 46,454
Increase in administration fees payable 43,374 9,468 66,086 11,608 16,450
Increase in Board of Managers' fees payable 1,725 1,725 1,725 1,725 5,475
Increase/(decrease) in other accrued expenses 14,179 (8,628) 13,205 (6,087) 56,543
-----------------------------------------------------------------------------
Net cash used in operating activities (44,545,886) (14,297,572) (75,953,850) (5,560,294) (69,090,077)
-----------------------------------------------------------------------------
DISTRIBUTIONS
Tax withholding on behalf of foreign investors (161,422) (53,256) (566,016) (64,118) --
-----------------------------------------------------------------------------
Total distributions (161,422) (53,256) (566,016) (64,118) --
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in sales of Interests received in advance 441,529 205,700 1,553,606 202,650 115,650
Proceeds from sales of Interests 84,600,699 14,611,996 144,104,472 25,303,681 39,826,616
Redemptions of Interests (11,329,467) (184,006) (33,975,401) (3,371,932) (1,903,461)
Transfers of Interests (16,486,000) 2,738,000 (6,788,000) (12,043,772) 32,579,772
-----------------------------------------------------------------------------
Net cash provided by financing activities 57,226,761 17,371,690 104,894,677 10,090,627 70,618,577
-----------------------------------------------------------------------------
Net increase in cash and cash equivalents 12,519,453 3,020,862 28,374,811 4,466,215 1,528,500
Cash and cash equivalents, beginning of period 260,918 2,443,683 9,392,071 5,827,970 --
-------------------------------------------------------------------------------
Cash and cash equivalents, end of period $12,780,371 $5,464,545 $37,766,882 $10,294,185 $1,528,500
===============================================================================
*For the period May 27, 2005 (commencement of operations) through January 31,2006.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
Financial Highlights
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
-------------------------------------------------------------------
2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/06 1/31/05 1/31/04 1/31/03
-------------------------------------------------------------------
Total return(1) 6.48% 2.98% 13.17% 4.44%
Net assets, end of period (000's) $ 320,267 $ 245,964 $ 35,075 $ 1,092
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 0.95% 1.07% 5.04% 43.96% (3)
Expenses, net of waivers and
reimbursements (2)(4) 0.95% 1.00% 1.13% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.77)% (0.96)% (4.87)% (43.95)% (3)
Net investment loss, net of waivers
and reimbursements (0.77)% (0.89)% (0.96)% (1.24)% (3)
Portfolio turnover rate (5) 6.24% 0.00% 0.00% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain
investors is treated as a reinvested distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds.
(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.
20
Financial Highlights (continued)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
-------------------------------------------------------------------
2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/06 1/31/05 1/31/04 1/31/03
-------------------------------------------------------------------
Total return(1) 8.46% 10.24% 22.13% 5.38%
Net assets, end of period (000's) $ 66,508 $ 45,254 $ 14,179 $ 2,355
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.24% 1.55% 7.72% 22.93% (3)
Expenses, net of waivers and
reimbursements (2)(4) 1.00% 1.00% 1.18% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.88)% (1.50)% (7.65)% (22.92)% (3)
Net investment loss, net of waivers
and reimbursements (0.64)% (0.95)% (1.11)% (1.24)% (3)
Portfolio turnover rate (5) 0.00% 0.00% 16.94% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain
investors is treated as a reinvested distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds.
(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.
21
Financial Highlights (continued)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
-------------------------------------------------------------------
2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/06 1/31/05 1/31/04 1/31/03
-------------------------------------------------------------------
Total return(1) 11.66% 3.90% 12.88% (0.89)%
Net assets, end of period (000's) $ 471,815 $ 325,337 $ 57,668 $ 3,562
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 0.94% 1.05% 4.09% 18.87% (3)
Expenses, net of waivers and
reimbursements (2)(4) 0.94% 1.00% 1.14% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.78)% (0.95)% (3.96)% (18.86)% (3)
Net investment loss, net of waivers
and reimbursements (0.78)% (0.90)% (1.01)% (1.24)% (3)
Portfolio turnover rate (5) 9.65% 4.06% 0.00% 20.87%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain
investors is treated as a reinvested distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds.
(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.
22
Financial Highlights (continued)
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
-------------------------------------------------------------------
2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/06 1/31/05 1/31/04 1/31/03
-------------------------------------------------------------------
Total return(1) 4.19% 1.84% 2.81% 0.13%
Net assets, end of period (000's) $ 95,585 $ 82,230 $ 14,120 $ 1,526
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.09% 1.33% 8.79% 31.67% (3)
Expenses, net of waivers and
reimbursements (2)(4) 1.00% 1.00% 1.15% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.74)% (1.28)% (8.69)% (31.65)% (3)
Net investment loss, net of waivers
and reimbursements (0.65)% (0.95)% (1.05)% (1.23)% (3)
Portfolio turnover rate (5) 0.00% 45.70% 0.00% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain
investors is treated as a reinvested distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds.
(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.
23
Financial Highlights (concluded)
AETOS CAPITAL
OPPORTUNITIES
FUND, LLC
-------------------
5/27/05* -
1/31/06
-------------------
Total return(1) 4.94%
Net assets, end of period (000's) $ 72,856
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.44% (3)
Expenses, net of waivers and
reimbursements (2)(4) 1.07% (3)
Net investment loss, before waivers
and reimbursements (1.11)% (3)
Net investment loss, net of waivers
and reimbursements (0.74)% (3)
Portfolio turnover rate (5) 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain
investors is treated as a reinvested distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds.
(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.
24
Notes to Financial Statements
January 31, 2006
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, the Aetos Capital Market Neutral Strategies Fund, LLC and
the Aetos Capital Opportunities 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.
Aetos Capital Opprortunities Fund, LLC (the "Opportunities Fund") seeks capital
appreciation by investing its assets among a select group of alternative asset
managers employing different absolute return investment strategies in pursuit of
attractive risk-adjusted returns consistent with the preservation of capital.
25
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The Funds may offer, from time to time, to repurchase outstanding members'
interests ("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 and Security Transactions
The net asset values of the Funds are 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.
Realized gains and losses from Portfolio Fund transactions are calculated on the
identified cost basis. Investments are recorded on the effective date of the
subscription in the Portfolio Fund.
26
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fund Income and 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.
Interest income is recorded on an accrual basis and consists of interest earned
on cash and cash equivalents.
Costs incurred in connection with the organization of the Opportunities Fund
totaling $20,866 were expensed at the commencement of operations. These costs
were principally comprised of legal, audit and regulatory filing fees.
Costs incurred with the initial registration and offering of Interests in the
Opportunities Fund totaling $45,093 were deferred and are being amortized over a
period of one year, commencing with operations.
D. Income Taxes
Each Fund intends to continue 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. The Funds withhold and pay taxes on U.S.
source income and U.S. effectively connected income, if any, allocated from
Portfolio Funds to the extent such income is not exempted from withholding under
the Internal Revenue Code and Regulations thereunder. The actual amount of such
taxes is not known until all Form K-1s from Portfolio Funds are received,
usually in the following tax year. Prior to the final determination the amount
of tax is estimated based on information available. The final tax could be
different from the estimated tax and the difference could be significant. Such
withholdings are listed as distributions on the Statement of Changes in Members'
Capital, and are allocated to the individual Members' Capital accounts to which
they apply.
E. Distribution Policy
The Funds have 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.
27
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 are not available, such distribution will be classified as
investment income.
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 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 contractually agreed to reimburse the Funds in order to
limit the Funds' other expenses (defined as total operating expenses excluding
the Management Fee) at 0.25% (0.35% in the case of the Opportunities Fund) of
each Fund's average monthly net assets, at least until May 31, 2007.
The Investment Manager may also be 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 may also be 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 pays the Administrator a monthly fee based on
month-end net assets at an annual rate of 0.12% on the first $250 million of net
assets, 0.10% on net assets between $250 million and $500 million and 0.08% on
net assets over $500 million, 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 pays the Custodian a
monthly fee, based on month-end net assets, at an annual rate of up to 0.01%.
Each Fund also pays the Custodian $3,000 annually to act as qualified Custodian
for its Cayman feeder fund.
28
Notes to Financial Statements (continued)
3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
Each Member of the Board who is not an "interested person" of the Funds as
defined by the 1940 Act receives an annual retainer of $25,000 and regular
quarterly meeting fees of $2,500 per meeting (additional meeting fees are $500
per meeting). The Chairman of the audit committee receives an additional annual
retainer of $1,500. 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.
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 Interests 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. The
Funds invest in a limited number of Portfolio Funds. Such concentration may
result in additional risk.
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.
29
Notes to Financial Statements (continued)
5. CONCENTRATION OF RISK (CONTINUED)
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.
6. INVESTMENT TRANSACTIONS
For the year ended January 31, 2006, purchases and sales of investments were as
follows:
FUND PURCHASES SALES
- ----------------------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $ 65,800,000 $16,281,749
Aetos Capital Distressed Investment Strategies Fund, LLC 14,000,000 --
Aetos Capital Long/Short Strategies Fund, LLC 106,900,000 34,294,958
Aetos Capital Market Neutral Strategies Fund, LLC 5,000,000 --
Aetos Capital Opportunities Fund, LLC 65,000,000 --
7. INVESTMENTS
As of January 31, 2006, collectively the Funds had investments in forty-five
Portfolio Funds, none of which were related parties. The following table lists
the Funds' investments in Portfolio Funds as of January 31, 2006. The agreements
related to investments in Portfolio Funds provide for compensation to the
general partners/managers in the form of management fees of 1.0% to 2.0% (per
annum) of the net assets and incentive fees or allocations of 10% to 20% of net
profits earned. The Portfolio Funds provide for periodic redemptions, with
lock-up provisions ranging from 3 months to 2 years from initial investment. The
liquidity provisions shown in the table apply after any applicable lock-up
provisions.
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
AQR Global Arbitrage Offshore Fund (USD), Ltd. Multi-Strategy/Event Arbitrage $ 29,871,197 9.33 % Quarterly
Davidson Kempner Partners Multi-Strategy/Event Arbitrage 43,688,712 13.64 Quarterly
FFIP, L.P. Fixed Income Arbitrage 27,771,716 8.67 Annual
Ishin Fund, LLC Convertible Arbitrage 19,349,165 6.04 Annual
Parsec Trading Corp. Fixed Income Arbitrage 13,242,579 4.13 Monthly
Pequot Credit Opportunities Fund, L.P. Credit Strategies 20,583,383 6.43 Annual
Perry Partners, L.P. Multi-Strategy/Event Arbitrage 40,955,501 12.79 Annual
Satellite Fund II, L.P. Multi-Strategy/Event Arbitrage 29,918,498 9.34 Annual
South Hill Trading Corp. Fixed Income Arbitrage 16,361,721 5.11 Monthly
Sowood Alpha Fund, L.P. Multi-Strategy/Event Arbitrage 46,816,043 14.62 Annual
Standard Pacific Credit Opportunities Fund, L.P. Credit Strategies 20,258,910 6.33 Annual
--------------------------
$308,817,425 96.43%
--------------------------
30
Notes to Financial Statements (continued)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------- ---------------------------------------------
Aurelius Capital Partners, L.P. Distressed Investments $ 10,068,510 15.14% Semi-Annual
King Street Capital, L.P. Distressed Investments 13,137,503 19.75 Quarterly
Satellite Credit Opportunities Fund, Ltd. Distressed Investments 10,730,299 16.13 Annual
Silver Point Capital Fund, L.P. Distressed Investments 15,054,663 22.64 Annual
Watershed Capital Partners, L.P. Distressed Investments 12,674,665 19.06 Quarterly
--------------------------
$ 61,665,640 92.72%
--------------------------
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. Long/Short Equity Investments $ 45,928,097 9.73% Semi-Annual
Bay Resource Partners, L.P. Long/Short Equity Investments 29,193,976 6.19 Annual
Cadmus Capital Partners (QP), L.P. Long/Short Equity Investments 23,745,441 5.03 Quarterly
Cantillion Pacific, L.P. Long/Short Equity Investments 16,325,605 3.46 Quarterly
Cantillion U.S. Low Volatility, L.P. Low Beta/Market Neutral/Long Short 12,878,105 2.73 Quarterly
Cavalry Technology, L.P. Long/Short Equity Investments 42,469,877 9.00 Annual
The Elkhorn Fund, LLC Long/Short Equity Investments 35,572,728 7.54 Quarterly
Highside Capital Partners, L.P. Long/Short Equity Investments 36,260,392 7.68 Annual
Icarus Qualified Partners, L.P. Short Equity Investments 10,734,112 2.28 Annual
JL Partners, L.P. Long/Short Equity Investments 59,149,871 12.54 Quarterly
North River Partners, L.P. Long/Short Equity Investments 34,928,534 7.40 Quarterly
Standard Global Equity Partners SA, L.P. Long/Short Equity Investments 44,142,834 9.36 Annual
Viking Global Equities, L.P. Long/Short Equity Investments 44,832,786 9.50 Annual
--------------------------
$436,162,358 92.44%
--------------------------
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
AQR Absolute Return Institutional Fund, L.P. Multi-Strategy $ 21,523,612 22.52% Quarterly
Bravura 99 Fund, L.P. Low Beta/Market Neutral/Long Short 10,060,907 10.52 Quarterly
Cantillion U.S. Low Volatility L.P. Low Beta/Market Neutral/Long Short 28,902,601 30.24 Quarterly
GMO Market Neutral Fund (Onshore) Low Beta/Market Neutral/Long Short 6,342,841 6.63 Quarterly
GMO Mean Reversion Fund Quantitative Asset Allocation 18,933,166 19.81 Quarterly
--------------------------
$ 85,763,127 89.72%
--------------------------
31
Notes to Financial Statements (continued)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL OPPORTUNITIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------
Avdan Partners, L.P. Long/Short Equity Investments $ 4,708,763 6.46% Annual
GMO U.S. Tactical Opportunities
Fund (Onshore), L.P. Long/Short Equity Investments 5,045,088 6.93 Monthly
Joho Partners, L.P. Long/Short Equity Investments 8,985,758 12.33 Semi-Annual
Pequot Short Credit Fund, L.P. Credit Related 3,864,130 5.30 Quarterly
Phinity Partners, L.P. Long/Short Equity Investments 6,590,163 9.05 Quarterly
Rimrock High Income PLUS, L.P. Credit Related 3,576,595 4.91 Quarterly
Saras Capital Partners, L.P. Long/Short Equity Investments 7,132,642 9.79 Annual
Scopia PX, LLC Event-Driven 7,328,805 10.06 Quarterly
Sheffield Institutional Partners, L.P. Event-Driven 5,378,196 7.38 Annual
Spindrift Partners, L.P. Real Assets 9,175,701 12.59 Semi-Annual
Standard Pacific Asymmetric
Opportunities Fund, L.P. Credit Related 3,766,826 5.17 Annual
Venn Global Opportunities Fund L.P. Long/Short Equity Investments 2,008,336 2.76 Quarterly
--------------------------
$ 67,561,003 92.73%
--------------------------
8. SUBSEQUENT EVENTS
Through March 1, 2006, the Funds received the following contributions:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $6,125,238
Aetos Capital Distressed Investment Strategies Fund, LLC 3,363,938
Aetos Capital Long/Short Strategies Fund, LLC 14,829,238
Aetos Capital Market Neutral Strategies Fund, LLC 403,825
Aetos Capital Opportunities Fund, LLC 13,149,388
and paid no redemptions.
32
Notes to Financial Statements (concluded)
9. COMMITMENTS
At January 31, 2006, the Funds had made commitments to purchase underlying funds
as follows:
FUND AMOUNT
------------------------------------------------------------------------------
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 --
Aetos Capital Opportunities Fund, LLC
GMO U.S. Tactical Opportunities Fund (Onshore), L.P. 1,000,000
Pequot Short Credit Fund, L.P. 1,000,000
Phinity Partners, L.P. 1,000,000
Scopia PX, LLC 1,000,000
--------------
4,000,000
33
Managers and Officers of the Funds (unaudited)
NUMBER OF FUNDS IN
POSITION(S) LENGTH OF PRINCIPAL OCCUPATION(S) DURING THE PAST 5 THE FUND COMPLEX
NAME, ADDRESS(1), HELD WITH TIME YEARS/OTHER DIRECTORSHIPS(3) HELD BY BOARD OVERSEEN BY
AGE FUNDS SERVED(2) MEMBER MANAGER(4)
- -------------------------------------------------------------------------------------------------------------------
INDEPENDENT
MANAGERS:
- -------------------------------------------------------------------------------------------------------------------
Senior Vice President, Mercantile
Bankshares, February 2003-Present;
Partner and Manager of Fixed Income,
Brown Investment Advisory and Trust Co.,
April 2000-December 2002; Partner,
Miller Anderson & Sherrerd/Morgan
Ellen Harvey Since Stanley Dean Witter Investment
51 Manager 2002 Management, October 1984-January 2000. 5
- -------------------------------------------------------------------------------------------------------------------
Consultant, Promontory Financial Group,
March 2005-Present; Chairman, Atlantic
Whitehall Funds, January 2004-Present;
Managing Director and Chief Legal Officer,
Pierre de Saint iFormation Group, November 2000-November
Phalle Since 2003; Partner, Davis Polk & Wardwell,
57 Manager 2002 January 1983-October 2000. 5
- -------------------------------------------------------------------------------------------------------------------
Chairman and Chief Investment Officer,
First Western Investment Management,
September 2002-Present; President and
Warren J. Olsen Since CEO, IBJ Whitehall Asset Management Group,
49 Manager 2003 May 1999-February 2002. 5
- -------------------------------------------------------------------------------------------------------------------
INTERESTED
MANAGERS:
- -------------------------------------------------------------------------------------------------------------------
Chief Executive Officer, Aetos Capital,
LLC, March 1999-Present; Advisory Director,
Manager and Morgan Stanley Dean Witter & Co., January
Chairman 1999-September 1999; President, Morgan
James M. Allwin(5) of Since Stanley Dean Witter Investment Management,
52 the Board 2002 1996-January 1999. 5
- -------------------------------------------------------------------------------------------------------------------
Co-President and Chief Operating Officer,
Aetos Alternatives Management and Managing
Director, Aetos Capital, LLC, March 2000-
Present; Managing Director, Morgan Stanley
Dean Witter & Co. and President, Morgan
Stanley Institutional Funds, June 1998-March
Michael Klein(6) Manager and Since 2000; Principal, Morgan Stanley Dean Witter
47 President 2003 & Co., August 1997-December 1999. 5
- -------------------------------------------------------------------------------------------------------------------
34
Managers and Officers of the Funds (unaudited) (continued)
NUMBER OF FUNDS IN
POSITION(S) LENGTH OF PRINCIPAL OCCUPATION(S) DURING THE PAST 5 THE FUND COMPLEX
NAME, ADDRESS(1), HELD WITH TIME YEARS/OTHER DIRECTORSHIPS(3) HELD BY BOARD OVERSEEN BY
AGE FUNDS SERVED(2) MEMBER MANAGER(4)
- -------------------------------------------------------------------------------------------------------------------
OFFICERS:
- -------------------------------------------------------------------------------------------------------------------
Managing Director, Aetos Capital, LLC,
October 2001-Present; Chief Investment
Officer, Stanford Management Company,
November 1998-September 2001;
Chief Managing Director of Investment Policy
Anne Casscells Investment Since Research, Stanford University, April 1996-
47 Officer 2002 October 1998. N/A
- -------------------------------------------------------------------------------------------------------------------
Vice President, Aetos Capital, LLC, August
2004-Present; Client Portfolio Manager,
GE Asset Management, 2002-July 2004;
Manager of Fund Operations, GE Asset
Scott Sawyer Since Management 2000-2002; Audit Manager,
37 Treasurer 2004 PricewaterhouseCoopers LLP, 1998-2000. N/A
- -------------------------------------------------------------------------------------------------------------------
General Counsel and Managing Director,
Aetos Capital, LLC, March 2001-Present;
Vice President, Morgan Stanley Institutional
President Funds, March 2000-March 2001; Managing
Harold J. Schaaff and Since Director, Morgan Stanley Dean Witter
45 Secretary 2002 & Co., December 1999-March 2001. N/A
- -------------------------------------------------------------------------------------------------------------------
(1) Each Manager can be contacted by writing to Aetos Capital, LLC 875 Third Avenue, New York, NY 10022.
(2) Each Manager holds office until the next meeting of shareholders at which Managers are elected following his or
her election or appointment and until his successor has been elected and qualified.
(3) Directorships of companies required to report to the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (i.e., "public companies") or other investment companies registered under the 1940 Act.
(4) The "Fund Complex" consists of all registered investment companies for which Aetos Alternatives Management, LLC
or any of its affiliates serves as investment adviser.
(5) Mr. Allwin is considered to be an "interested person" of the Fund as defined in the 1940 Act because he is Chief
Executive Officer of Aetos Capital, LLC.
(6) Mr. Klein is considered to be an "interested person" of the Fund as defined in the 1940 Act because he is a
Managing Director of Aetos Capital, LLC.
For more information regarding the Managers and Officers, please refer to the Statement of Additional Information.
35
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
President and Treasurer. The registrant has not made any amendments to its code
of ethics during the covered period. The registrant has not granted any waivers
from any provisions of the code of ethics during the covered period.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's Board of Managers has determined that the registrant has
at least one audit committee financial expert serving on the audit committee.
(a)(2) The audit committee financial expert is Warren J. Olsen. Mr. Olsen is
independent as defined in Form N-CSR Item 3(a)(2).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees billed by PricewaterhouseCoopers ("PwC") Related to the Fund.
PwC billed the Fund aggregate fees for services rendered to the Trust for the
last two fiscal years as follows:
FISCAL 2006 FISCAL 2005
All fees and All other fees All fees and All other fees
services to and services to services to and services to
All fees and service service All fees and service service
services to the affiliates that affiliates that services to the affiliates that affiliates that
Fund that were were did not require Trust that were were did not require
pre-approved pre-approved pre-approval pre-approved pre-approved pre-approval
(a) Audit
Fees(1) $49,000 $0 $0 $44,600 $0 $0
(b) Audit-
Related $0 $0 $0 $0 $0 $0
Fees
(c) Tax
Fees (2) $30,900 $0 $0 $27,350 $0 $0
(d) All
Other $0 $0 $0 $0 $0 $0
Fees
Notes:
(1) Audit fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings.
(2) Tax fees relate to preparation of federal and state tax returns.
(e)(1) The audit committee has adopted pre-approval policies and procedures
that require the audit committee to pre-approve all audit and non-audit
services (including tax services) to be provided to the Fund and all
non-auditing services to be provided to the Fund's investment adviser
(or any affiliate thereof that provides ongoing services to the Fund)
if such services relate directly to operations and financial reporting
of the Fund.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
FISCAL 2006 FISCAL 2005
Audit-Related Fees 0% 0%
Tax Fees 0% 0%
All Other Fees 0% 0%
(f) Not applicable.
(g) The aggregate non-audit fees and services billed by PwC for the last
two fiscal years were $0 and $0 for Fiscal 2006 and Fiscal 2005,
respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
AETOS ALTERNATIVES MANAGEMENT, LLC
PROXY VOTING POLICY
I. INTRODUCTION
This policy sets forth Aetos Alternatives Management, LLC ("AAM")
policies and procedures for voting proxies with respect to portfolio
securities held in the accounts for which AAM provides discretionary
investment management services and for which AAM has the explicit
authority to vote their proxies. The policy will be reviewed and, if
necessary, updated periodically to address new or revised proxy voting
issues as they arise.
As an investment manager for various clients, including clients
governed by the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), AAM may vote proxies as part of its authority to
manage, acquire and dispose of client account assets, unless the "named
fiduciary" for an ERISA account has explicitly reserved the authority
for itself, or in the case of an account not governed by ERISA, the
client investment management agreement does not provide that AAM will
vote proxies. When voting
proxies for client accounts, AAM will make voting decisions
solely in the best interests of its clients and its ERISA plan clients
and beneficiaries and participants, considering all relevant factors
and without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. In fulfilling its
obligations to its clients, AAM will act in a manner it deems prudent
and diligent and which is intended to enhance the economic value of the
underlying portfolio securities held in its clients' accounts.
II. ROUTINE CORPORATE MATTERS
AAM will generally, although not always, vote in support of management
on matters which are common management-sponsored initiatives, provided
that, in AAM's opinion, approval of such initiatives will not detract
from the economic value of the company's securities held in AAM client
accounts. These matters are set out below:
(i) Appointment or election of auditors;
(ii) Routine elections or re-elections of directors;
(iii) Director's liability and indemnification;
(iv) General updating/corrective amendments to charter;
(v) Name changes;
(vi) Elimination of cumulative voting; and
(vii) Elimination of preemptive rights.
III. ISSUES HAVING THE POTENTIAL FOR MAJOR ECONOMIC IMPACT
A. AAM will generally, although not always, vote in support of
management initiatives which may have a substantive financial
or best interest impact, provided that, in AAM's opinion,
approval of such initiatives will not detract from the
economic value of the company's securities held in AAM client
accounts. These matters are set out below:
(i) Capitalization changes which eliminate other classes
of stock and voting rights;
(ii) Changes in capitalization authorization for stock
splits, stock dividends, and other specified needs
which are no more than 50% of the existing
authorization;
(iii) Stock purchase plans with an exercise price of not
less than 85% of fair market value;
(iv) Stock option plans that are incentive based and not
excessive;
(v) Other stock-based plans which are appropriately
structured;
(vi) Reductions in supermajority vote requirements; and
(vii) Adoption of anti-greenmail provisions.
B. AAM will generally not vote in support of management on
certain issues which have a potential substantive financial or
best interest impact when AAM believes that approval of the
proposal may negatively impact the economic value of the
company's securities held in AAM client accounts. These
matters are set out below:
(i) Capitalization changes which add classes of stock
which are blank check in nature or that dilute the
voting interests of existing shareholders;
(ii) Changes in capitalization authorization where
management does not offer an appropriate rationale or
that are contrary to the best interest of existing
shareholders;
(iii) Anti-takeover and related provisions which serve to
prevent the majority of shareholders from exercising
their rights or effectively deter appropriate tender
offers and other offers;
(iv) Amendments to by-laws which would require
supermajority shareholder votes to pass or repeal
certain provisions;
(v) Classified boards of directors;
(vi) Reincorporation into a state which has more stringent
anti-takeover and related provisions;
(vii) Shareholder rights plans which allow appropriate
offers to shareholders to be blocked by the board or
trigger provisions which prevent legitimate offers
from proceeding;
(viii) Excessive compensation or non-salary compensation
related proposals;
(ix) Change-in-control provisions in non-salary
compensation plans, employment contracts and
severance agreements that benefit management and
would be costly to shareholders if triggered; and
(x) "Other business as properly comes before the meeting"
proposals which give a blank check to those acting as
proxy.
IV. SOCIAL AND CORPORATE RESPONSIBILITY ISSUES
AAM, believing that management's job is to handle ordinary business
matters, and not wanting to arbitrarily impose a judgment on such
matters, usually votes with management on these proposals. Third party
analyses of these issues are taken into account. If an issue will, in
our view negatively impact the investment merits of a company, we will
oppose it.
V. CONFLICT OF INTERESTS
Situations may arise where there are material conflicts between AAM's
interest and those of its advisory clients. AAM may resolve potential
conflicts by using any of the following methods: (1) adopting a policy
of disclosing the conflict to clients and obtaining their consent
before voting: (2) basing the proxy vote on pre-determined voting
guidelines if the application of the guidelines to the matter do not
involve the exercise of discretion on the part of AAM; or (3) using the
recommendations of an independent third party.
VI. PROXY VOTING RECORD RETENTION
AAM retains the following records: (1) proxy voting policies and
procedures; (2) proxy statements; (3) records of votes cast on behalf
of clients; (4) records of clients' requests for proxy voting
information; and (5) any documents prepared by or on behalf of AAM that
were material in making decisions on how to vote. AAM retains the
above-mentioned records for a minimum of five years.
VII. PROXY ADMINISTRATION
AAM's internal Proxy Committee (the "Committee") develops the firm's
positions on all major corporate issues, creates guidelines, and
oversees the voting process. The Committee, comprised of the Chief
Investment Officer, Chief Operating Officer, and General Counsel,
analyzes types of proposals based on whether they would adversely
affect shareholder's interests and make a company less attractive to
own. In evaluating proxy proposals each year, the Committee relies upon
our own knowledge of each company and its management, independent
research provided by third parties, and information presented by
company managements and shareholder groups.
Once the Committee establishes its recommendations, they are
distributed to AAM's Portfolio Management Group as voting guidelines.
Ultimately, the investment professional primarily accountable for a
portfolio is responsible for votes on companies in that portfolio. Most
vote consistent with AAM's guidelines. Occasionally, some will take an
independent view on certain issues and vote differently. When an
investment professional casts votes which are counter to the
Committee's guidelines, they are required to document their reasons in
writing for the Committee. Annually, the Board of Managers of the AAM
Funds will review AAM's proxy voting process, policies, and voting
records.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(a)(1)
INVESTMENT MANAGEMENT TEAM
NAME & TITLE (YEARS OF SERVICE)
Anne Casscells Managing Director and Chief Investment
Managing Director and Chief Investment Officer, Aetos Officer, Aetos Alternatives Management, LLC
Alternatives Management, LLC (4) and Managing Director, Aetos Capital, LLC,
October 2001-Present; Chief Investment
Officer, Stanford Management Company,
November 1998-September 2001; Managing
Director of Investment Policy Research,
Stanford University, April 1996-October 1998.
James Gibbons Managing Director and Portfolio Manager, Aetos
Managing Director and Portfolio Manager, Aetos Alternatives Alternatives Management LLC, July 2002 -
Management, LLC (4) Present; Senior Vice President, Evaluation
Associates Capital Markets, January 1998 - June
2002.
Michael Klein Co-President, Aetos Alternatives Management,
Managing Director, Aetos Alternatives Management, LLC (4) LLC and Managing Director, Aetos Capital, LLC,
March 2000-Present; Managing Director, Morgan
Stanley Dean Witter & Co. and President, Morgan
Stanley Institutional Funds, June 1998-March
2000; Principal, Morgan Stanley Dean Witter &
Co., August 1997-December 1999.
Jeffrey Mora Managing Director and Portfolio Manager, Aetos
Managing Director and Portfolio Manager, Aetos Alternatives Alternatives Management LLC, November 2001 -
Management, LLC (4) Present; Portfolio Manager - Alternative
Assets, Northwestern University, April 1994 -
October 2001.
(a)(2)(i), (ii), (iii)
The following tables show information regarding accounts (other than the Fund)
managed by each named portfolio manager as of January 31, 2006.
Total Assets in
Number of Accounts where
Accounts where Advisory Firm's
Anne Casscells Advisory Firm's Fee is Based on
James Gibbons Total Assets in Fee is Based on Account
Jeffrey Mora Number of Accounts Account Performance
Michael Klein Accounts ($ million) Performance ($ million)
Registered Investment Companies None N/A N/A N/A
Other Pooled Investment Vehicles None N/A N/A N/A
Other Accounts 7 $1,900 6 $1,550
(a)(2)(iv)
MATERIAL CONFLICTS OF INTEREST
The Investment Manager manages multiple accounts for multiple clients. In
addition to the Funds, these other accounts may include separate accounts,
collective trusts, or offshore funds. The Investment Manager manages potential
conflicts between funds or with other types of accounts through allocation
policies and procedures, internal review processes, and oversight by directors
and independent third parties. The Investment Manager has developed trade
allocation procedures and controls to ensure that no one client, regardless of
type, is intentionally favored at the expense of another. Allocation policies
are designed to address potential conflicts in situations where two or more
funds or accounts participate in investment decisions involving the same
securities.
(a)(3)
DESCRIPTION OF COMPENSATION
Professionals employed by the Investment Manager are subject to a compensation
structure that includes base salary and a discretionary bonus. Bonuses are
variable and depend on many factors, including firm, business unit and
individual performance relative to established benchmarks and criteria.
Individuals that consistently exceed performance objectives are eligible for
promotions and/or equity participation in the firm. Officers are also eligible
to share in the net profits of the business under a profit participation plan.
Participation amounts are determined on the basis of performance and
contribution. In addition, all managing directors of the Investment Manager have
a common equity membership in Aetos Capital, LLC.
(a)(4)
OWNERSHIP OF SECURITIES
As of January 31, 2006 the portfolio managers owned Interests of the Funds as
follows:
Anne Casscells $100,001-500,000
Jeffrey J. Mora $1-10,000
James Gibbons $100,001-500,000
Michael Klein None
(b) Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable as Interests of the Fund are not registered pursuant to Section
12 of the Exchange Act.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of Security Holders during the covered
period.
ITEM 11. 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 have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(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 Long/Short Strategies Fund, LLC
By (Signature and Title)* /s/ Michael F. Klein
---------------------------
Michael F. Klein, President
Date: 3/31/06
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: 3/31/06
By (Signature and Title)* /s/ Scott D. Sawyer
---------------------------
Scott D. Sawyer, Treasurer
Date: 3/31/06
* Print the name and title of each signing officer under his or her signature.