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 811-21252
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
(Exact name of registrant as specified in charter)
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40 West 57th Street, 33rd Floor
New York, NY 10019
(Address of principal executive offices) (Zip code)
James R. Bordewick, Esq.
Banc of America Investment Advisors, Inc.
One Financial Center
Boston, MA 02111
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-772-3333
DATE OF FISCAL YEAR END: MARCH 31
DATE OF REPORTING PERIOD: MARCH 31, 2006
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
- -------------------------------------------------------- BACAP Alternative
Multi-Strategy Fund, LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2006
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2006
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.......................1
STATEMENT OF ASSETS, LIABILITIES AND INVESTORS' CAPITAL.......................2
SCHEDULE OF INVESTMENTS.......................................................3
STATEMENT OF OPERATIONS.......................................................5
STATEMENTS OF CHANGES IN INVESTORS' CAPITAL...................................6
STATEMENT OF CASH FLOWS.......................................................7
FINANCIAL HIGHLIGHTS..........................................................8
NOTES TO FINANCIAL STATEMENTS.................................................9
FUND GOVERNANCE (UNAUDITED)..................................................16
CHANGES IN THE INVESTMENT COMMITTEE (UNAUDITED)..............................18
INVESTMENT CONTRACT RENEWAL DISCLOSURE (UNAUDITED)...........................19
CAPITALIZED TERMS IN THESE FINANCIAL STATEMENTS THAT ARE NOT DEFINED HAVE THE
MEANINGS GIVEN TO THEM IN THE FUND'S PROSPECTUS.
[PRICEWATERHOUSECOOPERS LOGO OMITTED]
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
300 Madison Avenue
New York NY 10017
Telephone (646) 471-3000
Direct phone (646) 471-3000
Direct fax (813) 286-6000
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers and Investors of
BACAP Alternative Multi-Strategy Fund, LLC
In our opinion, the accompanying statement of assets, liabilities and investors'
capital, including the schedules of investments, and the related statements of
operations, of changes in investors' capital and of cash flows and the financial
highlights present fairly, in all material respects, the financial position of
BACAP Alternative Multi-Strategy Fund, LLC (the "Fund") at March 31, 2006, and
the results of its operations, the changes in its investors' capital, its cash
flows and the financial highlights for the periods indicated, 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 Fund's 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 at March 31, 2006 by
correspondence with the custodian and portfolio funds, provide a reasonable
basis for our opinion.
As explained in Note 2, the financial statements include investments held by the
Fund valued at $58,206,000 (77.34% of the Fund's net assets), at March 31, 2006,
the values of which have been fair valued by the Investment Manager based on
estimates provided by each portfolio fund, under the general supervision of the
Board of Managers, in the absence of readily ascertainable market values. These
estimated values may differ significantly from the values that would have been
used had a ready market for the investments existed, and the differences could
be material.
[SIGNATURE OMITTED]
/s/ PRICEWATERHOUSECOOPERS LLP
May 24, 2006
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF ASSETS, LIABILITIES AND INVESTORS' CAPITAL (IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, 2006
ASSETS
Investments in Portfolio Funds, at fair value (cost $50,555) $ 58,206
Redemptions receivable from Portfolio Funds 11,985
Investments in Portfolio Funds paid in advance 6,800
Cash and cash equivalents 518
Other assets 53
----------------------
TOTAL ASSETS 77,562
----------------------
LIABILITIES
Capital contributions received in advance 1,960
Professional fees payable 213
Management fee payable 79
Investor servicing fee payable 17
Administration fee payable 7
Accrued expenses 29
----------------------
TOTAL LIABILITIES 2,305
----------------------
NET ASSETS $ 75,257
======================
Net capital (1) $ 67,606
Net unrealized appreciation on investments in Portfolio Funds 7,651
----------------------
TOTAL INVESTORS' CAPITAL $ 75,257
======================
(1) Net capital includes cumulative net investment gains/(losses) and net
realized gains/(losses) on investments in Portfolio Funds.
The accompanying notes are an integral part of these financial statements.
2
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
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March 31, 2006
---------------------------------
% OF
FAIR NET
COST VALUE ASSETS*
INVESTMENTS IN PORTFOLIO FUNDS
EQUITY HEDGE
Alydar Fund, L.P. $ 3,048 $ 3,652 4.85 %
The Japan Pragmatist Fund 2,550 2,598 3.45
New Star UK Gemini Hedge Fund, Ltd. 1,974 2,330 3.10
Royal Capital Value Fund (QP), L.P. 3,050 3,044 4.04
TCS Capital II, L.P. 1,575 3,022 4.02
------- ------- -----
TOTAL EQUITY HEDGE 12,197 14,646 19.46
EVENT DRIVEN
Centaurus Alpha Fund, L.P. 3,475 3,648 4.85
Delaware Street Capital, L.P. 289 333 0.44
Gracie Capital, L.P. 2,000 2,168 2.88
Halcyon Fund, L.P. 1,777 1,935 2.57
JANA Partners, L.P. 1,578 2,707 3.60
Longacre Capital Partners, L.P. 1,680 2,092 2.78
Scout Capital Partners II, L.P. 2,889 2,919 3.88
Strategic Value Restructuring Fund, L.P. 2,450 2,539 3.37
Trafalgar Catalyst Fund 1,710 1,903 2.53
Trafalgar Recovery Fund 2,000 2,255 3.00
------- ------- -----
TOTAL EVENT DRIVEN 19,848 22,499 29.90
MACRO
Brevan Howard, L.P. 1,800 2,160 2.87
Denali Partners, L.P. 2,400 2,686 3.57
Graham Global Investment Fund II, Ltd. K4 Portfolio 1,566 1,379 1.83
Julius Baer Diversified Fixed Income Hedge Fund 2,398 2,656 3.53
------- ------- -----
TOTAL MACRO 8,164 8,881 11.80
The accompanying notes are an integral part of these financial statements.
3
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
SCHEDULE OF INVESTMENTS (IN THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
March 31, 2006
----------------------------------
% OF
FAIR NET
COST VALUE ASSETS*
INVESTMENTS IN PORTFOLIO FUNDS
MULTI-STRATEGY AND OTHER
Golden Tree Capital Solutions Fund $ 1,500 $ 1,626 2.16%
Spinnaker Global Opportunity Fund, Ltd. 1,346 2,848 3.78
------- ------- -----
TOTAL MULTI-STRATEGY AND OTHER 2,846 4,474 5.94
RELATIVE VALUE
ASI Global Relative Value Fund, L.P. 2,650 2,847 3.78
DRV Sunrise Fund I, Ltd. 3,350 3,344 4.45
TQA Arbitrage Fund, L.P. 1,500 1,515 2.01
------- ------- -----
TOTAL RELATIVE VALUE 7,500 7,706 10.24
TOTAL INVESTMENT IN PORTFOLIO FUNDS $50,555 $58,206 77.34%
======= ======= =====
----------------------------------------------------------------------
INVESTMENT OBJECTIVE AS A PERCENTAGE OF TOTAL INVESTMENTS
IN PORTFOLIO FUNDS, AT FAIR VALUE
% of Total
Strategy Investments
--------------------------------------
Event Driven 38.65%
Equity Hedge 25.16%
Macro 15.26%
Relative Value 13.24%
Multi-Strategy and Other 7.69%
-----------------------------------------------------------------------
*Percentages are based on net assets of approximately $75,257.
The aggregate cost of investments for tax purposes was approximately $56,880.
Net unrealized appreciation on investments for tax purposes was $1,326
consisting of $4,896 of gross unrealized appreciation and $3,570 of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 77.34% of
Investors' capital, have been fair valued in accordance with procedures
established by the Board of Managers (See Note 2).
The accompanying notes are an integral part of these financial statements.
4
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF OPERATIONS (IN THOUSANDS)
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FOR THE YEAR ENDED
MARCH 31, 2006
INVESTMENT INCOME
Interest income $ 178
------------------
TOTAL INVESTMENT INCOME 178
EXPENSES
Management fees 907
Professional fees 406
Investor servicing fees 181
Administration fees 147
Insurance fees 145
Registration fees 68
Board fees 23
Miscellaneous expenses 74
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TOTAL EXPENSES 1,951
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NET INVESTMENT LOSS (1,773)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS IN PORTFOLIO FUNDS
Net realized gain on investments in Portfolio Funds 6,120
Net change in unrealized appreciation on investments in Portfolio Funds 27
------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS IN PORTFOLIO FUNDS 6,147
------------------
NET INCREASE IN INVESTORS' CAPITAL DERIVED FROM OPERATIONS $ 4,374
==================
The accompanying notes are an integral part of these financial statements.
5
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENTS OF CHANGES IN INVESTORS' CAPITAL (IN THOUSANDS)
- --------------------------------------------------------------------------------
AFFILIATED
INVESTORS* INVESTORS TOTAL
INVESTORS' CAPITAL AT MARCH 31, 2004 $ 27,240 $ 36,915 $ 64,155
Contributions - 26,855 26,855
Withdrawals (10,236) (11,422) (21,658)
Allocation of net increase in Investors'
capital resulting from operations before
incentive allocation 472 1,941 2,413
Incentive allocation 21 (21) --
------------- ------------- -------------
INVESTORS' CAPITAL AT MARCH 31, 2005 17,497 54,268 71,765
------------- ------------- -------------
Contributions -- 14,532 14,532
Withdrawals (169) (15,245) (15,414)
Allocation of net increase in Investors'
capital resulting from operations 1,040 3,334 4,374
------------- ------------- -------------
INVESTORS' CAPITAL AT MARCH 31, 2006 $ 18,368 $ 56,889 $ 75,257
============= ============= =============
* The affiliated Investors are NB Funding Company, LLC and Columbia Management
Distributors, Inc.
The accompanying notes are an integral part of these financial statements.
6
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
STATEMENT OF CASH FLOWS (IN THOUSANDS)
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FOR THE YEAR ENDED
MARCH 31, 2006
Cash flows from operating activities:
Net increase in Investors' capital resulting from operations $ 4,374
Adjustments to reconcile net increase in Investors' capital resulting from
operations to net cash used in operating activities:
Net realized gain on investments in Portfolio Funds (6,120)
Net change in unrealized appreciation on investments in Portfolio Funds (27)
Cost of investments purchased (32,789)
Proceeds from sale of investments 52,326
Increase/decrease in operating assets and liabilities:
Increase in investments in Portfolio Funds paid in advance (6,300)
Increase in redemptions receivable from Portfolio Funds (11,642)
Increase in other assets (45)
Decrease in management fee payable (69)
Increase in professional fees payable 104
Decrease in investor servicing fee payable (13)
Decrease in administration fee payable (23)
Decrease in accrued expenses (36)
--------------------
NET CASH USED IN OPERATING ACTIVITIES (260)
--------------------
Cash flows from financing activities:
Capital contributions 14,532
Capital withdrawals (15,414)
Increase in capital contributions received in advance 1,072
Decrease in capital withdrawals payable (21)
--------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 169
--------------------
Net decrease in cash and cash equivalents (91)
Cash and cash equivalents, beginning of year 609
--------------------
Cash and cash equivalents, end of year $ 518
====================
The accompanying notes are an integral part of these financial statements.
7
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FINANCIAL HIGHLIGHTS
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The below ratios are calculated by dividing total dollars of income or expenses
as applicable by the average of total annual Investors' capital. Total return
amounts are calculated by geometrically linking returns based on the change in
value during each accounting period. An individual investor's return may vary
from these returns based on the timing of capital contributions and withdrawals.
APRIL 1, 2003
Ratios to average Investors' capital: YEARS ENDED, (COMMENCEMENT OF
--------------------------------- OPERATIONS) THROUGH
MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2004
-------------- -------------- ------------------
Net investment loss - prior to incentive allocation (2.49%) (2.56%) (2.36%) (1)(2)
Incentive allocation 0.00% (6) (0.03%) (0.50%)
------------ ------------- -----------
Net investment loss - net of incentive allocation (2.49%) (2.59%) (2.86%) (1)
============ ============= ===========
Expenses before organization expenses (3) 2.74% 2.66% 2.72% (1)(4)
------------ ------------- -----------
Expenses (3) 2.74% 2.66% 2.87% (1)(2)
Incentive allocation (3) 0.00% (6) 0.03% 0.50%
------------ ------------- -----------
Total expenses and incentive allocation (3) 2.74% 2.69% 3.37% (1)(2)
============ ============= ===========
Total return - prior to incentive allocation(5) 6.38% 2.61% 10.34%
Incentive allocation 0.00% (6) (0.02%) (0.46%)
------------ ------------- -----------
Total return - net of incentive allocation(5) 6.38% 2.59% 9.88%
============ ============= ===========
Portfolio turnover rate 47.84% 61.24% 43.16%
============ ============= ===========
Investors' capital, end of year ($000) $75,257 $71,765 $64,155
============ ============= ===========
(1) Annualized.
(2) Includes organization expenses of $45,000 incurred prior to commencement
of operations, charged to Investors' Capital Accounts.
(3) Does not include expenses of the Portfolio Funds in which the Fund
invests. The expense ratio (expense and incentive allocation ratio) is
calculated for the Investors taken as a whole. The computation of such
ratios based on the amount of expenses and incentive allocation assessed
to an individual Investor's capital may vary from these ratios based on
the timing of capital transactions.
(4) Does not include organization expenses charged during the year ended March
31, 2004 in the amount of $22,668.
(5) Total return is calculated for all the Investors taken as a whole, net of
all fees, except where noted that performance is prior to incentive fee
allocation. An individual Investor's return may vary from these returns
based on the timing of capital transactions.
(6) Effective December 1, 2005, the Fund terminated the incentive fee accrual
retroactively to April 1, 2005.
The accompanying notes are an integral part of these financial statements.
8
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS
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1. ORGANIZATION
BACAP Alternative Multi-Strategy Fund, LLC (the "Fund") is a Delaware
limited liability company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a non-diversified, closed-end
management investment company. The Fund's limited liability company
interests ("Interests") are registered under the Securities Act of 1933,
as amended (the "1933 Act"). The Fund commenced investment operations on
April 1, 2003.
Banc of America Investment Advisors, Inc. ("BAIA") serves as the Fund's
investment adviser ("Adviser") and has the responsibility for the
management of the business and affairs of the Fund on a daily basis. The
Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). Prior to June 13,
2005, Columbia Management Advisers, LLC (formerly known as Banc of America
Capital Management, LLC) ("CMA"), an advisory affiliate of the Adviser,
served as the investment adviser to the Fund. Investors approved the
Investment Advisory Agreement with the Adviser at a meeting held on June
13, 2005.
The investment objective of the Fund is to generate consistent long-term
capital appreciation with low volatility and limited risk under a wide
range of market conditions. The Fund attempts to achieve the investment
objective by allocating its assets among at least 15 private investment
funds, discretionary managed accounts or special purpose vehicles created
for the Fund (collectively, "Portfolio Funds"). The Adviser allocates the
assets of the Fund among Portfolio Funds that generally employ one or more
of the following strategies: (i) Event Driven (e.g.; Risk (Merger)
Arbitrage, High Yield Securities, Distressed Securities and Special
Situations); (ii) Relative Value (e.g.; Convertible Arbitrage, Fixed
Income Arbitrage, Statistical Arbitrage, Capital Structure and Volatility
Arbitrage); (iii) Equity Hedge; (iv) Macro; and (v) Other.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
The following are the significant accounting policies adopted by the
Fund:
A. VALUATIONS
The Fund's investments are fair valued by the Adviser in accordance
with policies and procedures that seek to ensure that the Fund is able
to reliably determine the value of its investments in the Portfolio
Funds. Investments in Portfolio Funds are generally valued at net asset
value, which approximates fair value, as reported by the administrators
or investment managers of the Portfolio Funds. Such values generally
represent the Fund's proportionate share of the net assets of the
Portfolio Funds. Accordingly, the value of investments in Portfolio
Funds is generally increased by additional contributions to the
Portfolio Funds and the Fund's share of net earnings from the Portfolio
Funds and decreased by withdrawals and the Fund's share of net losses
from the Portfolio Funds. The Portfolio Funds' administrators or
investment managers generally value their investments at fair value.
Listed
9
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. VALUATIONS (CONTINUED)
investment securities are generally valued by an independent pricing
source. Securities with no readily available market value are initially
valued at cost, with subsequent adjustments to values, which reflect
either the basis of meaningful third-party transactions in the private
market, or fair value deemed appropriate by Portfolio Funds'
management. In such instances, consideration is also given to the
financial condition and operating results of the issuer, the amount
that the Portfolio Funds can reasonably expect to realize upon sale of
the securities and other factors deemed relevant.
B. SECURITY TRANSACTIONS
Purchases of investments in Portfolio Funds are recorded as of the
first day of legal ownership of a Portfolio Fund and sales of Portfolio
Funds are recorded as of the last day of legal ownership or
participation. Purchases and sales of other securities are accounted
for on the trade-date basis. Realized gains and losses are recorded at
the time of disposition of the respective investment on an average cost
basis.
C. INCOME ALLOCATION
As of the last day of each calendar month, any net profit or net loss
for the calendar month, and any offering costs required by applicable
accounting principles to be charged to capital that are paid or accrued
during the calendar month, are allocated among and credited to or
debited against the Capital Accounts of the Investors in accordance
with their respective Capital Account balances for such calendar month.
D. INTEREST AND DIVIDENDS
Interest income is recognized on an accrual basis. Dividend income is
recognized on the ex-dividend date.
E. FUND EXPENSES
The Fund bears its own expenses including, but not limited to: any
taxes; organizational expenses; offering costs; investment-related
expenses incurred by the Fund (e.g., fees and expenses charged by the
Adviser and Portfolio Funds, placement fees, professional fees, custody
and administration fees).
F. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and liquid
investments with original maturities of less than 90 days. As of March
31, 2006, the Fund has $518,219 in cash and cash equivalents held in an
interest-bearing sweep account.
10
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. INCOME TAXES
The Fund is not subject to federal and state income tax. Accordingly,
for federal and state income tax purposes, each Investor is responsible
for the tax liability or benefit related to his/her share of taxable
income or loss.
3. INVESTORS' CAPITAL ACCOUNTS
A separate Capital Account is maintained for each Investor of the Fund.
The increase or decrease in Investors' capital resulting from operations
is allocated to each Investor at the end of each calendar month, based on
its pro-rata share of aggregated capital in the Fund.
A. CONTRIBUTIONS
Interests in the Fund are offered through Columbia Management
Distributors, Inc. (the "Distributor") (successor to BACAP
Distributors, LLC), an affiliate of the Adviser, and through Selling
Agents exclusively to "qualified clients" as defined in the regulations
under the Advisers Act.
Investments in the Fund may be subject to a sales load of up to 3.00%.
The sales load may be waived by the Fund for certain types of
investors. In addition, the Fund may compensate Selling Agents for
selling Interests to their customers. The Fund may pay Selling Agents a
service fee for investor service and account maintenance services.
B. WITHDRAWALS
The Fund may from time to time offer to repurchase Interests pursuant
to written tenders by Investors. Repurchases are made at such times and
on such terms as may be determined by the Board, in its sole
discretion, and generally includes an offer to repurchase a specified
dollar amount of outstanding Interests. In determining whether and when
the Fund should repurchase Interests, the Board considers
recommendations from the Adviser. Depending on market conditions and
other factors, the Adviser expects that it will recommend to the Board
that the Fund offer to repurchase Interests from Investors twice each
year, effective as of June 30 and December 31 of each year. For the
year ended March 31, 2006, tender offers were conducted by the Fund as
of June 30 and December 31 in the amounts of $3,816,774 and
$11,596,753, respectively.
4. INVESTMENTS IN PORTFOLIO FUNDS
The agreements related to investments in Portfolio Funds typically provide
for compensation to the general partners/managers in the form of
management fees of 1% to 2% (per annum) of net assets and
performance/incentive fees or allocations of up to 25% of net profits
earned. The Portfolio Funds generally provide for periodic redemptions
ranging from monthly to annually with lock up provisions of up to two
years from initial investment. Some Portfolio Funds may charge redemption
fees. Such provisions may restrict the Fund's ability to respond to
changing market conditions. None of the Portfolio Funds are expected to
make distributions (e.g., dividend payments to investors).
Aggregate purchases and sales of Portfolio Funds for the year ended March
31, 2006, amounted to $32,789,096 and $52,325,601, respectively.
11
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. MANAGEMENT FEES
In consideration of services provided by the Adviser, the Fund pays the
Adviser a monthly fee (the "Management Fee") computed at an annual rate of
1.25% of the net assets of the Fund as of the last day of each month,
before reduction for any repurchases of Interests. Ordinary operating
expenses do not include organizational costs, interest, taxes, and
extraordinary expenses.
6. INCENTIVE ALLOCATION
Effective December 1, 2005, the Adviser is no longer entitled to receive
any Incentive Allocation. Any amounts accrued, but not paid to the
Adviser, as of December 1, 2005 remained in the relevant Investor's
Capital Account and were not paid to the Adviser.
7. ADMINISTRATION, SUB-ADMINISTRATION AND REGULATORY ADMINISTRATION
AGREEMENTS
The Fund has entered into an administration agreement with the Adviser to
perform certain administration services. These administrative services
include, among other things, maintaining the Fund's books and records and
handling Investors' capital transactions. Effective June 13, 2005, the
Distributor assigned all of its rights, duties, responsibilities and
obligations under the Administration Agreement to the Adviser. The Adviser
has agreed to assume all such rights, duties, responsibilities and
obligations.
Per the administration agreement, the Fund pays the Adviser a monthly
administration fee computed at the annual rate of 0.07% of the net assets
of the Fund before reduction for any repurchases of Interests, as well as
other expenses set forth in the administration agreement. Prior to
December 1, 2005, the Fund paid the Adviser a monthly administration fee
computed at an annual rate of 0.25% of the net assets of the Fund before
reduction for any purchases of Interests. For the year ended March 31,
2006, the Fund paid an administration fee of $146,831.
The Fund and the Distributor have contracted with SEI Investments Global
Fund Services ("SEI") as Sub-Administrator to perform administration
services. The Adviser pays SEI a fee at the annual rate of 0.07% of the
Fund's net asset value. Effective June 13, 2005, the Distributor assigned
all of its rights, duties, responsibilities and obligations under the
Sub-Administration Agreement to the Adviser. The Adviser has agreed to
assume all such rights, duties, responsibilities and obligations.
Effective January 1, 2005, the Fund has entered into an agreement with
PFPC Inc. ("PFPC") to perform regulatory administration services. The Fund
pays PFPC 0.015% per year on average net assets subject to a $30,000
minimum fee. For the year ended March 31, 2006, the Fund paid $48,050 to
PFPC under this agreement which is included in Miscellaneous expenses in
the Statement of Operations.
8. INVESTOR SERVICING AGREEMENT
The Fund pays the Distributor and/or Selling Agents a monthly Investor
Servicing Fee calculated at the annual rate of 0.25% of the net assets of
the Fund as of the last day of each month to compensate securities dealers
and other financial intermediaries for account maintenance services under
the Investor Service Plan and Investor Service Agreement. Pursuant to the
Investor Service Plan, intermediaries will handle investor inquiries
regarding investments in the Fund, capital account balances and report and
12
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
8. INVESTOR SERVICING AGREEMENT (CONTINUED)
prepare tax information, assist in the maintenance of Fund records
containing Investor information, and provide other such information and
services as the Distributor or Adviser may reasonably request.
9. RELATED PARTY TRANSACTIONS
During the year ended March 31, 2006, the Adviser determined that aged
receivable balances of $141,186 would not be collected by the Fund.
Accordingly, the Fund included realized capital losses of that amount in
the Statement of Operations during the period. The realized capital loss
was allocated to only those Investors who originally participated in the
revenue that was originally recorded, to the extent that such Investors
were still invested in the Fund. The amount so allocated totaled $118,405.
The remaining realized capital loss of $22,781 was charged solely to the
capital account of NB Funding Company, LLC, an affiliate of the Adviser.
In April 2005, the Adviser reimbursed the Fund $2,598 that had been
expensed to Miscellaneous expense on the Statement of Operations in the
previous fiscal year. The Fund recorded the reimbursement as a credit to
Miscellaneous expense in the Statement of Operations during the current
period. Effective April 1, 2005, Chief Compliance Officer expenses of the
Fund are paid directly by the Adviser.
Each manager who is not an "interested person" of the Fund, as defined by
the 1940 Act, receives an annual retainer of $6,000 plus a fee of $1,000
for each meeting attended. Any manager or officer who is an "interested
person" does not receive any annual fee or other fees from the Fund. All
managers are reimbursed by the Fund for reasonable out-of-pocket expenses.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CONCENTRATION OF CREDIT
RISK, AND OTHER RISKS
In the normal course of business, the Portfolio Funds in which the Fund
invests 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. To the extent that the Fund's investment activity is limited
to making investments in investment funds via limited partnership
interests or limited liability company holdings, the Fund's risk of loss
in these investment funds is generally limited to the value of these
investments reported by the Fund. To date, the Fund has only invested in
such limited partnership and limited liability company interests.
Because the Fund is a closed-end investment company, its Interests are not
be redeemable at the option of Investors and will not be exchangeable for
interests of any other fund. Although the Board in its discretion may
cause the Fund to offer from time to time to repurchase Interests at their
members' capital account value, the Interests are considerably less liquid
than shares of funds that trade on a stock exchange or shares of open-end
investment companies. With respect to any tender offer for Interests by
the Fund, the aggregate repurchase amount will be determined by the Board
in its discretion and such repurchase amount may represent only a small
portion of the Fund's outstanding Interests. Because the Fund's
investments in Portfolio Funds themselves have limited liquidity, the Fund
may not be able to fund significant repurchases. Investors whose Interests
are accepted for repurchase also bear the risk that the Fund's members'
capital may fluctuate significantly between the time that they submit
their request for repurchase and the date of the repurchase.
13
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CONCENTRATION OF CREDIT
RISK, AND OTHER RISKS (CONTINUED)
There are a number of other risks to the Fund. Three principal types of
risk that can adversely affect the Fund's investment approach are market
risk, strategy risk, and manager risk. The Fund is also subject to
multiple manager risks, possible limitations in investment opportunities,
allocation risks, illiquidity, lack of diversification, and other risks
for the Fund and potentially for each Portfolio Fund.
11. CONTINGENCIES AND COMMITMENTS
In the normal course of business, the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risk of loss to be remote. As of April 1,
2006, the Fund made investments in Campbell Institutional Multi-Strategy
Investment Fund, LLC, The Japan Pragmatist Fund, Royal Capital Value Fund
(QP), L.P., and Tiedemann/Falconer Partners, LP for $3,000,000, $500,000,
$300,000, and $3,000,000, respectively. Such amounts are reflected as
Investments in Portfolio Funds paid in advance in the Statement of Assets,
Liabilities and Investors' Capital.
12. LITIGATION EVENT
The events described below have not directly impacted the Fund or had any
material adverse effect on its financial position or results of
operations.
On February 9, 2005, the Distributor and certain affiliates, including the
former investment adviser to the Fund entered into Assurances of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlements") and consented to the entry of cease-and-desist orders by the
Securities and Exchange Commission ("SEC") (the "SEC Orders") in
connection with matters related to late trading and market timing of
mutual funds advised and distributed by affiliates of the Adviser. The SEC
Orders and the NYAG Settlements contain substantially the same terms and
conditions outlined in the agreements in principle that affiliates to the
Adviser entered into with the SEC and NYAG in March 2004. A copy of the
SEC Orders is available on the SEC website at http://www.sec.gov. A copy
of the NYAG Settlements is available as part of the Bank of America
Corporation Form 8-K filing of February 10, 2005.
In connection with these matters, various parties have filed suit against
certain Columbia Funds, the Trustees of the Columbia Funds, including
former Nations Funds, FleetBoston Financial Corporation (the former parent
of the Adviser) and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases, including
those filed against entities unaffiliated with the Trustees of these
funds, their Boards, FleetBoston Financial Corporation and its
affiliated entities and/or Bank of America Corporation and its
affiliated entities, have been transferred to the Federal District Court
in Maryland and consolidated in a multi-district proceeding. Other
actions against certain of the Columbia Funds, advisers and affiliated
entities, alleging among other things excessive fees and inappropriate use
of fund assets for distribution, have been consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION on
March 2, 2005. These actions are ongoing.
14
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS
Effective April 1, 2006, the Fund received additional capital
contributions of $2,006,100.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of the period. The Fund's Form N-Q is
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, as well as information
relating to how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30, is available (i) without charge,
upon request, by calling (888) 786-9977; and (ii) on the Commission's website at
http://www.sec.gov.
15
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FUND GOVERNANCE (UNAUDITED)
- --------------------------------------------------------------------------------
The identity of the Managers and executive officers of BACAP Alternative
Multi-Strategy Fund, LLC and brief biographical information regarding each
Manager and officer during the past five years is set forth below.
NUMBER OF
FUNDS IN
TERM OF FUND
POSITION OFFICE AND COMPLEX
HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS HELD
NAME, ADDRESS AND AGE THE FUND TIME SERVED DURING THE PAST FIVE YEARS BY MANAGER BY MANAGER
- -------------------------------------------------------------------------------------------------------------------------
INDEPENDENT MANAGERS
- -------------------------------------------------------------------------------------------------------------------------
Thomas W. Brock Manager Indefinite Chief Executive Officer, 4 None
c/o BACAP Alternative term; Stone Harbor Investment
Multi-Strategy Fund, LLC Manager Partners (investment firm)
40 West 57th Street since 2003 from April 2006; formerly,
New York, NY 10019 Adjunct Professor, Columbia
(Born 1947) University Graduate School
of Business from September
1998 to April 2006;
Chairman, CEO, Salomon
Brothers Asset Management,
Inc. from 1993 to 1998.
Alan Brott Manager Indefinite Consultant, since October 2 None
c/o BACAP Alternative term; 1991; Associate Professor,
Multi-Strategy Fund, LLC Manager Columbia University Graduate
40 West 57th Street since 2003 School of Business, since
New York, NY 10019 2000.
(Born 1942)
Thomas G. Yellin Manager Indefinite President, PJ Productions 2 None
c/o BACAP Alternative term; since 2002; Executive
Multi-Strategy Fund, LLC Manager Producer, ABC News from 1989
40 West 57th Street since 2003 to December 2002.
New York, NY 10019
(Born 1954)
16
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
FUND GOVERNANCE (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
POSITION HELD WITH THE TERM OF OFFICE AND
NAME, ADDRESS AND AGE FUND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lawrence R. Morgenthal President 1 year term; President Executive Vice President, Banc of America
40 West 57th Street since 2003 Investment Advisors, Inc. since 2005;
New York, NY 10019 Managing Director, Banc of America Capital
(Born 1968) Management, LLC since 2002; Senior Managing
Director, Weiss, Peck & Greer (an investment
firm)from 1998 to 2002.
James R. Bordewick, Jr. Senior Vice President, 1 year term since Associate General Counsel, Bank of America
One Financial Center Chief Legal Officer 2006 since April 2005; Senior Vice President and
Boston, MA 02111 and Secretary Associate General Counsel, MFS Investment
(Born 1959) Management (investment management) prior to
April 2005.
Mary Joan Hoene Senior Vice President Since 2004 Senior Vice President and Chief Compliance
100 Federal Street and Chief Compliance Officer of funds in the Columbia Fund
Boston, Massachusetts Officer Complex since 2004; Partner, Carter, Ledyard
(Born 1949) & Milburn LLP (law firm) from January 2001
to August 2004.
David Hohmann Senior Vice President 1 year term; Treasurer Director, Alternative Investment Group
100 Federal Street and Treasurer since 2005 Funds' Operations and Administration, Banc
Boston, MA 02110 of America Investment Advisors, Inc. since
(Born 1967) April 2004; Division Controller of
FleetBoston's Principal Investing Group,
March 1999 to March 2004.
The Statement of Additional Information contains additional information about
the Board of Managers and is available, without charge, upon request, by
contacting the Fund toll-free at (888) 786-9977.
17
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
CHANGES IN THE INVESTMENT COMMITTEE (UNAUDITED)
- --------------------------------------------------------------------------------
The membership of the investment committee that makes portfolio decisions for
the Fund has changed as follows:
Sandra Spies, Patti Stoll and Lisa Paternel have resigned from the committee and
the following individual has been added:
WILLIAM W. MARTIN, SENIOR VICE PRESIDENT, RISK EXECUTIVE, BANK OF AMERICA. Mr.
Martin is the Risk Management Executive for Columbia Management Group and the
Alternative Investment Group at Bank of America. In this role, which he has held
since May 2005, he is responsible for managing market, credit and operational
risk across $400 billion of assets managed in Active Equities, Quantitative
Strategies, Cash Investments, Fixed Income, Funds of Hedge Funds, Private Equity
and Real Estate. Mr. Martin joined BAC in May 2005 from INVESCO, where he was
Global Head of Investment Risk Management, responsible for risk management and
performance measurement across $200 billion of assets managed in investment
centers around the world, covering Equities, Fixed Income, Structures Products,
CDOs/CLOs, Hedge Funds, Private Equity and Real Estate. During his tenure,
INVESCO achieved "global" AIMR GIPS compliant status, covering all assets under
management. Prior to that, he was Global Head of Risk Management at the Royal
Bank of Scotland Group, responsible for strategic, credit, market and
operational risk across the Group's businesses.
In addition, Mr. Martin is Chairman of the Board of Trustees & Executive
Committee for the Global Association of Risk Professionals (WWW.GARP.COM), a
not-for-profit association of 40,000 risk professionals around the world,
offering education in all areas of risk management. Within GARP, Mr. Martin is
also a member of the Editorial Board of the GARP Digital Library.
Mr. Martin earned his bachelor of business administration degree in Management
Science from the Baruch School of Business Administration of the City University
of New York in 1978.
18
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
INVESTMENT CONTRACT RENEWAL DISCLOSURE (UNAUDITED)
- --------------------------------------------------------------------------------
BOARD ACTION WITH RESPECT TO INVESTMENT ADVISORY AGREEMENT
At a meeting held on November 14, 2005, the Fund's Board of Managers, which
consists only of independent Managers, approved an amendment to the Fund's
investment advisory agreement with BAIA to eliminate the payment of an incentive
allocation to BAIA. The other terms of the agreement remained unchanged.
The Board had previously approved the investment advisory agreement at a meeting
held on March 28, 2005. The agreement became effective after shareholder
approval obtained on June 13, 2005. Prior to BAIA becoming the investment
adviser, Banc of America Capital Management, LLC ("BACAP") provided investment
advisory services to the Fund under an investment advisory agreement that had
substantially the same terms, and provided for fees identical to those provided
in, the investment advisory agreement with BAIA.
At its March 28, 2005 meeting when considering the investment advisory agreement
with BAIA, the Board considered information and factors that it believed were
relevant to the interests of the Fund's investors, and during its deliberations
consulted with independent legal counsel to the independent Managers and with
Fund counsel.
INFORMATION ABOUT BAIA. The Board reviewed various materials relating to BAIA,
including information about BAIA's personnel, organizational structure,
operations and financial condition. The Board gave particular consideration to
matters relating to BAIA's organizational capabilities, including the facts that
substantially all of the key personnel of BACAP who provided services to the
Fund under the then-existing investment advisory agreement with BACAP were also,
or would become, employees of BAIA and would continue to provide services to the
Fund if the investment advisory agreement with BAIA were approved by
shareholders and that the investment approach then employed by BACAP was the
approach intended to be employed by BAIA. In addition, the Board considered
BAIA's research capabilities, the nature of BAIA's experience and resources,
including the experience of relevant personnel (including those at the time
employed by BACAP) and the availability of these resources following the
expected reorganization of certain BACAP personnel and resources to BAIA, and
BAIA's resources, practices and procedures designed to address regulatory
compliance matters.
NATURE, EXTENT AND QUALITY OF THE SERVICES PROVIDED. The Board considered
the nature, quality and extent of the advisory services provided by BACAP
under the then-existing investment advisory agreement. It considered the
investment approach BACAP employed, BACAP's research capabilities, the
nature of BACAP's experience and resources, the experience of relevant
BACAP personnel, and BACAP's resources, practices and procedures designed
to address regulatory compliance matters.
INVESTMENT PERFORMANCE. The Board reviewed the Fund's investment
performance and the performance of other investment companies with similar
investment styles to the Fund. In addition, the Board reviewed information
compiled by BACAP and a third party intended to indicate average
performance over various periods by the universe of fund of hedge fund
products and information with respect to the Fund's performance under
different market conditions and during different phases of market cycles,
the volatility of the Fund's returns, and other factors that BACAP
identified as contributing to performance.
19
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
INVESTMENT CONTRACT RENEWAL DISCLOSURE (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
EXPENSE INFORMATION, PROFITABILITY AND ECONOMIES OF SCALE. The Board gave
substantial consideration to the fees payable under the Fund's
then-existing investment advisory agreement. The Board reviewed the actual
dollar amount of fees paid to BACAP under the then-existing investment
advisory agreement and BACAP's expenses in providing its services and, in
this context, considered the fact that BACAP or its affiliates provide
other services to the Fund and its investors and receive payment for these
services. The Board also considered so-called "fallout benefits" to BACAP,
such as any incremental increase to its reputation derived from serving as
investment adviser to the Fund. In addition, the Board reviewed a
comparison of the fees payable under the Fund's then-existing investment
advisory agreement (which did not provide for fee breakpoints) to fees paid
under advisory agreements to other investment advisers serving other
investment companies with similar investment programs to the Fund, which
assisted the Board in evaluating the reasonableness of the fees paid to
BACAP. The Board also considered information regarding the fees paid by
certain similar registered and private funds then managed by BACAP, and
discussed with BACAP why BACAP believed that any differences in fees
charged were appropriate.
The Board considered the Fund's expense ratio and the expense ratios of
other investment companies with similar investment styles. In addition, the
Board considered the effective fees under the then-existing investment
advisory agreement as a percentage of assets at different Fund asset
levels, and possible economies of scale with respect to the management of
the Fund. In this regard, the Board considered the Fund's then-existing and
reasonably foreseeable asset levels and information related to BACAP's
estimated costs, and took into account the arrangement in place under which
BACAP absorbed certain expenses of the Fund to cap the Fund's expense
ratio.
OTHER CONSIDERATIONS. The Board also considered the terms of the investment
advisory agreement, including the applicable standard of care, and the
structure of, and the method used to determine, the compensation of
portfolio managers.
Information about the Fund's investment performance under its then-existing
investment advisory agreement with BACAP was relevant to the Board's evaluation
of the investment advisory agreement with BAIA because the personnel that
managed the Fund's portfolio as employees of BACAP would continue to manage the
Fund's portfolio as employees of BAIA. The Board concluded that the fact that
BAIA would have personnel familiar with the Fund and would employ an investment
approach the same as that employed by BACAP meant that a transition to BAIA as
the Fund's investment adviser should not be disruptive to the Fund.
In approving the amendment to the Fund's investment advisory agreement with BAIA
at its November 14, 2005 meeting, the Board considered the information that it
had reviewed when it originally approved the Investment Advisory Agreement at
its March 28, 2005 meeting, as well as performance and other information
received since then. The Board also considered the fact that the elimination of
the incentive allocation would mean that no portion of BAIA's compensation would
be directly dependent upon the Fund's investment performance, and weighed this
against the value to the Fund and its investors of the potential reduction in
advisory fees.
20
BACAP ALTERNATIVE MULTI-STRATEGY FUND, LLC
INVESTMENT CONTRACT RENEWAL DISCLOSURE (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Based on these considerations and following deliberation, the Board concluded
that BAIA would have sufficient resources to fulfill its duties under the
amended investment advisory agreement, that the scope and quality of services to
be provided under the amended investment advisory agreement is consistent with
the Fund's operational requirements, and that the advisory fees to be paid to
BAIA under the amended investment advisory agreement were reasonable in light of
the services that BAIA was expected to provide, its anticipated costs and
reasonably foreseeable Fund asset levels.
21
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(c) The registrant's Board of Directors adopted, effective January 3,
2006, a revised code of ethics described in 2(a) above. The revised
code of ethics, which is attached as an exhibit hereto, does not
differ materially from the code of ethics in effect for the year ended
March 31, 2005.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, that relates to one or
more of the items set forth in paragraph (b) of this item's
instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that Alan Brott is qualified to serve as an audit
committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for the fiscal years ended March 31, 2005
and March 31, 2006 for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for
those fiscal years are $60,000 and $60,000, respectively.
AUDIT-RELATED FEES
(b) The aggregate fees billed for the fiscal years ended March 31, 2004
and March 31, 2005 for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under
paragraph (a) of this Item are $4,500 and $4,850, respectively.
Audit-related fees include certain agreed-upon procedures performed
for semi-annual shareholder reports and technical research on
accounting and disclosure matters.
During the fiscal years ended March 31, 2005 and March 31, 2006, there
were no Audit-Related Fees billed by the Fund's principal accountant
to the Fund's investment adviser (not including a sub-adviser whose
role is primarily portfolio management and is sub-contracted or
overseen by another investment adviser) and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the Fund for an engagement that
related directly to the operations and financial reporting of the
Fund.
TAX FEES
(c) The aggregate fees billed for the fiscal years ended March 31, 2005
and March 31, 2006 for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning are
$39,500 and $40,000, respectively.
During the fiscal years ended March 31, 2005 and March 31, 2006, there
were no Tax Fees billed by the Fund's principal accountant to the
Fund's investment adviser (not including a sub-adviser whose role is
primarily portfolio management and is sub-contracted or overseen by
another investment adviser) and any entity controlling, controlled by,
or under common control with the investment adviser that provides
ongoing services to the Fund for an engagement that related directly
to the operations and financial reporting of the Fund.
ALL OTHER FEES
(d) The aggregate fees billed for the fiscal years ended March 31, 2005
and March 31, 2006 for products and services provided by the principal
accountant, other than the services reported in paragraphs (a) through
(c) of this Item are $0 and $5,500, respectively.
During the fiscal years ended March 31, 2005 and March 31, 2006, there
were no All Other Fees billed by the Fund's principal accountant to
the Fund's investment adviser (not including a sub-adviser whose role
is primarily portfolio management and is sub-contracted or overseen by
another investment adviser) and any entity controlling, controlled by,
or under common control with the investment adviser that provides
ongoing services to the Fund for an engagement that relates directly
to the operations and financial reporting of the Fund.
(e)(1) The registrant's Audit Committee is required to pre-approve the
engagement of the registrant's independent accountants to provide
audit and permissible non-audit services to the registrant and
non-audit services to its investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) or any
entity controlling, controlled by or under common control with such
investment adviser that provides ongoing services to the registrant
("Adviser Affiliates"), if the engagement relates directly to the
operations or financial reporting of the registrant.
The Audit Committee has adopted a Policy for Engagement of Independent
Accountants for Audit and Non-Audit Services ("Policy"). The Policy
sets forth the understanding of the Audit Committee regarding the
engagement of the registrant's independent accountants to provide (i)
audit and permissible audit-related, tax and other services to the
registrant (collectively "Fund Services"); (ii) non-audit services to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with
or overseen by another investment adviser) and Adviser Affiliates, if
the engagement relates directly to the operations or financial
reporting of a Fund (collectively "Fund-related Adviser Services");
and (iii) certain other audit and non-audit services to the
registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser) and Adviser Affiliates. Unless
a type of service receives general pre-approval under the Policy, it
requires specific pre-approval by the Audit Committee if it is to be
provided by the independent accountants. Pre-approval of non-audit
services to the registrant, the registrant's investment adviser (not
including any sub-adviser whose role is primarily portfolio management
and is subcontracted with or overseen by another investment adviser)
and Adviser Affiliates may be waived provided that the "de minimis"
requirements set forth under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X are met.
Under the Policy, the Audit Committee may delegate pre-approval
authority to any pre-designated member or members who are independent
directors. The member(s) to whom such authority is delegated must
report, for informational purposes only, any pre-approval decisions to
the Audit Committee at its next regular meeting. The Audit Committee's
responsibilities with respect to the pre-approval of services
performed by the independent accountants may not be delegated to
management.
The Policy requires the Fund Treasurer or his or her designee to
submit to the Audit Committee, on an annual basis, a schedule of the
types of services that are subject to general pre-approval. The
schedule(s) provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide
estimated fee caps for each instance of providing each service. The
Audit Committee will review and approve the types of services and
review the projected fees for the next fiscal year and may add to, or
subtract from, the list of general pre-approved services from time to
time based on subsequent determinations. That approval acknowledges
that the Audit Committee is in agreement with the specific types of
services that the independent accountants will be permitted to
perform. The Fund Treasurer or his or her designee must update the fee
amounts to the extent necessary at each of the regularly scheduled
meetings of the Audit Committee.
If the registrant, any Adviser Affiliate or a Control Affiliate wishes
to engage the registrant's independent account to perform a service
that has not received general pre-approval but for which pre-approval
is required, management must prepare a request for approval and the
matter must be included in the agenda of the next regularly scheduled
meeting of the Audit Committee. If a more timely consideration of the
matter is required, the Chairperson of the Audit Committee may take
action on the matter or call a special meeting of the Audit Committee
to consider the proposal.
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under
paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X during the
fiscal years ended March 31, 2006 and March 31, 2005 was zero.
(f) Not applicable.
(g) During the fiscal years ended March 31, 2005 and March 31, 2006,
respectively, aggregate non-audit fees of approximately $24.9 million
and $25.1 million were billed by the registrant's principal accountant
to the registrant's investment adviser (not including a sub-adviser
whose role is primarily portfolio management and is sub-contracted or
overseen by another investment adviser) and any entity controlling,
controlled by, or under common control with the investment adviser,
including entities that provide ongoing services to the registrant.
(h) The registrant's audit committee considered whether the provision of
non-audit services rendered to the registrant's investment adviser
(not including a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment
adviser) and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to
the registrant that were not pre-approved is compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is 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.
THE FOLLOWING IS A SUMMARY OF BAIA'S PROXY VOTING POLICY (THE "POLICY") AND
PROXY VOTING GUIDELINES (THE "VOTING GUIDELINES").
Banc of America Investment Advisors, Inc. ("BAIA") generally will vote all
proxies of which it becomes aware, subject to certain exceptions as noted below.
BAIA's clients may invest in securities ("Alternative Investments") issued by
alternative investment vehicles (i.e. hedge funds, private equity funds, and
other alternative investment pools) that are structured as private limited
partnerships ("LPs"), limited liability companies ("LLCs") or offshore
corporations. Generally, Alternative Investment Group ("AI Group") is the
platform through which BAIA provides advisory services relating to Alternative
Investments. In rare cases, BAIA is requested to vote on matters relating to
investments in operating companies.
The voting rights of Alternative Investments generally are rights of contract
set forth in the Limited Liability Company or limited partnership agreement, in
the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws,
in the case of offshore corporations. Also, as privately placed securities,
Alternative Investments generally are not subject to the regulatory scheme
applicable to public companies. Consequently, in most cases, proxies are not
solicited regarding Alternative Investment vehicles. Instead, consents may be
solicited from members, limited partners or shareholders.
PROCESS
AI Group will vote all Alternative Investment proxies and consents in accordance
with this Policy. AIG Investment Committee votes AI Group proxies consist of AI
Group senior management, investment and operations professionals.
STANDARD FOR VOTING PROXIES
When BAIA votes proxies, it does so in a manner considered by BAIA to be in the
best interest of its clients without regard to any resulting benefit or
detriment to BAIA or its affiliates. The "best interest" of clients is defined
for this purpose as the interest of enhancing or protecting the economic value
of client accounts, considered as a group rather than individually, as BAIA
determines in its sole and absolute discretion.
CONFLICTS
From time to time, proxy-voting proposals may create or give rise to an actual
or apparent conflict of interest between the interests of BAIA's clients and the
interests of BAIA, its employees, ultimate parent company and/or many
affiliates. BAIA and it's parent have adopted various policies and procedures
designed to address any material conflicts of interest that may arise.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(a)(1) The Fund's portfolio management decisions are made by an investment
committee with representatives from portfolio management, operations, risk and
other groups within the Adviser and Bank of America Corporation. The members of
the investment committee, each of whom has a vote on decisions, are identified
below.
LAWRENCE R. MORGENTHAL, CFA, MANAGING DIRECTOR, ALTERNATIVE INVESTMENT GROUP AND
EXECUTIVE VICE PRESIDENT, BANC OF AMERICA INVESTMENT ADVISORS, INC. As managing
director of Bank of America's Alternative Investment Group ("AI Group"), Mr.
Morgenthal is charged with overseeing the entire spectrum of alternative
investment products and strategies within AI Group. AI Group products include
hedge fund, private equity, real estate and exchange fund investments offered to
qualified investors. Prior to assuming his current position in 2002, Mr.
Morgenthal was senior managing director, director of alternative investments and
director of sales at Weiss, Peck & Greer. During his four-year tenure, he
managed the firm's alternative investment business consisting of venture
capital, buyout and hedge funds. From 1994 to 1998, he worked for ABB Asea Brown
Boveri as a manager in the firm's pension and thrift management division.
Previously, Mr. Morgenthal was a senior financial analyst at AT&T (NCR Corp.) in
the pension fund investment group. He began his career as a pension consultant
at Preferred Pension Concepts. He has been a member of the investment community
since 1988.
Mr. Morgenthal earned his MBA with high honors from the University of Michigan
and a bachelor's degree in economics from the State University of New York at
Binghamton. He holds the Chartered Financial Analyst designation and is a member
of the New York Society of Security Analysts and the Association for Investment
Management and Research.
ALLEN CHENG, MANAGING DIRECTOR, PORTFOLIO MANAGEMENT, FUND OF HEDGE FUNDS -
ALTERNATIVE INVESTMENT GROUP AND SENIOR VICE PRESIDENT, BANC OF AMERICA
INVESTMENT ADVISORS, INC. Mr. Cheng joined Bank of America in 2004 as manager of
AI Group's fund-of-hedge funds team. He has significant experience in the
alternative investment industry, particularly in identifying, selecting and
monitoring hedge fund managers across multiple investment disciplines. From 2000
to 2004, Mr. Cheng was managing director and head of research at Optima Fund
Management, an investment advisory firm that specializes in alternative
investments. Prior to that, he was principal and vice president at Investment
Management Services where he was responsible for risk management integration and
operational support services for the firm's alternative investment business. He
also managed the company founder's alternative investment portfolio. Mr. Cheng
began his alternative investment career at Moore Capital Management where he
managed asset allocation and research for hedge fund multi-manager products.
Mr. Cheng earned a BA in Finance from the University of Maryland and an MBA
degree from the University of Michigan.
JIM BOWDEN, MANAGING DIRECTOR - PORTFOLIO MANAGEMENT, PRIVATE EQUITY FUND OF
FUNDS - ALTERNATIVE INVESTMENT GROUP AND SENIOR VICE PRESIDENT, BANC OF AMERICA
INVESTMENT ADVISORS, INC. Mr. Bowden has managed AI Group's private equity
fund-of-funds business since its formation in 1998. In that capacity, Mr. Bowden
has acted as the primary investment strategist for various private placement
offerings and client advisory activities associated with the private equity
asset class. He has led private placement capital raising activities, directed
investment origination and has ongoing management and administration
responsibilities for the business.
From 1993 to 1998, Mr. Bowden served as the manager of the Chicago office of
Corporate Credit Examination Services for Continental Bank, where he had
responsibility for the independent oversight of the Private Equity Investing
Division. He continued in that capacity after Continental Bank merged with Bank
of America.
From 1988 to 1993, Mr. Bowden was a Managing Consultant in the Financial
Advisory Services practice of Coopers & Lybrand, specializing in corporate
turnarounds. His career focused on commercial lending and problem loan workouts
prior to joining Coopers & Lybrand, with work at Continental Bank from 1985 to
1988, Citicorp from 1980 to 1985 and American National Bank of Chicago from 1977
to 1980.
Mr. Bowden received his MBA and BBA from the University of Michigan in 1977 and
1975, respectively. Mr. Bowden is a Certified Public Accountant.
REED MURPHY, DIRECTOR OF CONSULTING SERVICES GROUP AND EXECUTIVE VICE PRESIDENT,
BANC OF AMERICA INVESTMENT ADVISORS, INC. As the managing director of the
Consulting Services Group ("CSG") of Bank of America's Global Wealth and
Investment Management ("GWIM") group, Mr. Murphy oversees all aspects of the
group's research, product development, due diligence, program management and
client reporting associated with its advisory and fee based separate account and
mutual fund programs. CSG also encompasses a national accounts team, which is
responsible for managing the firm's non-advisory mutual funds and 529 program
offerings, and the All Star group, which is responsible for CSG's line-up of
closed-end funds. CSG serves the firm's affluent, mass affluent, ultra high net
worth and institutional clients through Bank of America Premier Banking &
Investments, The Private Bank of Bank of America, and their extensions including
International Private Bank, Family Wealth Advisors, Philanthropic Management
Services, and Retirement Services Group. Mr. Reed joined Bank of America in
March 2002.
Mr. Murphy chairs GWIM's Investment Strategy and Portfolio Management
Committees. The Investment Strategies Committee is responsible for defining and
distributing investment strategies across GWIM, including but not limited to,
economic, market and asset allocation advice. The Portfolio Management Committee
is responsible for the approval and oversight of investment manager offerings,
portfolio construction methodologies and the discretionary management of
separate account, mutual fund and ETF portfolios.
Prior to joining Bank of America, Mr. Murphy worked for First Union where he
served in several capacities with the firm's investment consulting division. As
senior vice president, his responsibilities included roles as research director,
regional investment consulting representative, and product management for the
organization's separate account program offerings. Mr. Murphy's background also
includes tenure as director of investment consulting services for a regional
brokerage firm. In this role, he was responsible for the group's marketing,
research,
operations and institutional services for all fee-based programs. He has been a
member of the investment community since 1991.
Mr. Murphy graduated summa cum laude from Saint Louis University with a degree
in finance. He was awarded membership to the Beta Gamma Sigma Business Honor
Society. He holds an Investment Strategist Certification and earned the
Certified Investment Management Analyst (CIMA) designation, both from the
Wharton School of Business and the Investment Management Consultants Association
(IMCA). Mr. Murphy is a current member of the Managed Money Institute (MMI)
where is co-chair of the Bank Distribution and Services Committee. He is also a
member of the Investment Management Consultants Association (IMCA) and the
Global Association of Risk Professionals (GARP).
WILLIAM W. MARTIN, SENIOR VICE PRESIDENT, RISK EXECUTIVE, BANK OF AMERICA. Mr.
Martin is the Risk Management Executive for Columbia Management Group and AI
Group at Bank of America. In this role, which he has held since May 2005, he is
responsible for managing market, credit and operational risk across ~ $400
billion of assets managed in Active Equities, Quantitative Strategies, Cash
Investments, Fixed Income, Funds of Hedge Funds, Private Equity and Real Estate.
Mr. Martin joined BAC in May 2005 from INVESCO, where he was Global Head of
Investment Risk Management, responsible for risk management and performance
measurement across ~ $200 billion of assets managed in investment centers around
the world, covering Equities, Fixed Income, Structures Products, CDOs/CLOs,
Hedge Funds, Private Equity and Real Estate. During his tenure, INVESCO achieved
"global" AIMR GIPS compliant status, covering all assets under management. Prior
to that, he was Global Head of Risk Management at the Royal Bank of Scotland
Group, responsible for strategic, credit, market and operational risk across the
Group's businesses.
In addition, Mr. Martin is Chairman of the Board of Trustees & Executive
Committee for the Global Association of Risk Professionals, a not-for-profit
association of 40,000 risk professionals around the world, offering education in
all areas of risk management. Within GARP, Mr. Martin is also a member of the
Editorial Board of the GARP Digital Library.
Mr. Martin earned his bachelor of business administration degree in Management
Science from the Baruch School of Business Administration of the City University
of New York in 1978.
JOSEPH P. QUINLAN, MANAGING DIRECTOR, CHIEF MARKET STRATEGIST - INVESTMENT
STRATEGIES GROUP AND SENIOR VICE PRESIDENT, BANC OF AMERICA INVESTMENT ADVISORS,
INC. As Managing Director and Chief Market Strategist, Mr. Quinlan oversees the
development and implementation of investment strategies to institutional and
high-net-worth individuals, families and foundations for investment
representatives, financial advisors and portfolio managers within The Private
Bank, Banc of America Investment Services, Inc. ("BAI") and GWIM. In this role,
he surveys and evaluates the range of views across the financial marketplace,
helps develop the firm's overall investment strategy and communicates the
organization's point of view. Mr. Quinlan joined Bank of America in June 2003.
With nearly 20 years of financial services experience, Mr. Quinlan most recently
served as a senior global economist/strategist for Morgan Stanley. Mr. Quinlan
started his career with Merrill Lynch.
Mr. Quinlan earned his Master's in Political Economics and International
Development from Fordham University and a BA in Political Science from Niagara
University. Mr. Quinlan lectures on finance at New York University, where he has
been a faculty member since 1992. In 1998 he was nominated as an Eisenhower
Fellow and is currently a Fellow at the Paul H. Nitze School of Advanced
International Studies of Johns Hopkins University and a Senior Fellow at the
German Marshal Fund.
He has published more than 125 articles on economics, trade and finance, with
publications appearing in such venues as FOREIGN AFFAIRS, THE FINANCIAL TIMES,
THE WALL STREET JOURNAL and BARRON'S. He is the author, co-author, editor or
contributor to eight books. He regularly appears on CNBC as a guest host on
Squawk Box, as well as Bloomberg television, PBS and other media venues.
ALISON BALLARD, CFA, DIRECTOR OF RESEARCH - CONSULTING SERVICES GROUP AND VICE
PRESIDENT, BANC OF AMERICA INVESTMENT ADVISORS, INC. Ms. Ballard oversees CSG's
mutual fund and separate account manager research efforts and the facilitation
and development of topic papers and other advice-related deliverables for
advisors and their clients. Ms. Ballard manages the analysts on the CSG Research
team. Prior to joining Bank of America in June 2005, Ms. Ballard most recently
served as the director of manager research and chair of the Due Diligence
Committee at New England Pension Consultants ("NEPC"), where she was responsible
for monitoring and assessing all investment managers across NEPC's diverse
client base. Initially employed as a senior research analyst specializing in
fixed income managers, Ms. Ballard was promoted to director of manager research
in January 2002. At the time of her departure, assets under advisement were in
excess of $225 billion. Her prior work experience also includes positions at
Brown Brothers Harriman, Batterymarch Financial Management and Mellon Trust. Ms.
Ballard is a CFA(R) charter holder and a member of both the CFA Institute and
the Boston Security Analysts Society. She completed her M.B.A. at Warwick
University in Warwickshire, England.
DAVID M. HOHMANN, DIRECTOR OF FUND ADMINISTRATION OPERATIONS - ALTERNATIVE
INVESTMENT GROUP AND SENIOR VICE PRESIDENT, BANC OF AMERICA INVESTMENT ADVISORS,
INC. Mr. Hohmann has been involved with the private equity industry for the past
seven years. He is responsible for the operations of AI Group including its $1.4
billion private equity fund of funds business. In that capacity he is
responsible for the business' financial and tax reporting, accounting, audit and
cash management functions. Prior to his current position, which he assumed in
November 2005, he served as the Division Controller of FleetBoston's Principal
Investing Group, where he had accounting responsibility for the group's direct
private equity portfolio as well as the group's Fiduciary business. Mr. Hohmann
was a Senior Associate in the Audit and Assurance practice of
PricewaterhouseCoopers, specializing in the investment management industry. He
received his undergraduate degree from the University of Massachusetts at Boston
in 1991. Mr. Hohmann also served in the United States Naval Reserves until 1994.
(2) The table below provides information regarding accounts managed by the
investment committee members, as of March 31, 2006, as part of the committee or
otherwise, except with respect to Mr. Quinlan, Ms. Ballard and Mr. Hohmann, who
joined the investment committee in May 2006 and whose information is provided as
of May 31, 2006:
NUMBER OF
ACCOUNTS
MANAGED FOR ASSETS MANAGED
WHICH ADVISORY FOR WHICH
NUMBER OF FEE IS ADVISORY FEE IS
ACCOUNTS PERFORMANCE- PERFORMANCE-
TYPE OF ACCOUNT MANAGED TOTAL ASSETS MANAGED BASED BASED
LAWRENCE MORGENTHAL
Registered Investment Companies 1 $75,256,923 0 N/A
Other pooled investment vehicles 17 $2,471,962,893 14 $2,155,827,623
Other accounts 0 N/A 0 N/A
ALLEN CHENG
Registered Investment Companies 1 $75,256,923 0 N/A
Other pooled investment vehicles 17 $2,471,962,893 14 $2,155,827,623
Other accounts 0 N/A 0 N/A
JIM BOWDEN
Registered Investment Companies 1 $75,256,923 0 N/A
Other pooled investment vehicles 17 $2,471,962,893 14 $2,155,827,623
Other accounts 0 N/A 0 N/A
REED MURPHY
Registered Investment Companies 1 $75,256,923 0 N/A
Other pooled investment vehicles 17 $2,471,962,893 14 $2,155,827,623
Other accounts 0 N/A 0 N/A
WILLIAM MARTIN
Registered Investment Companies 1 $75,256,923 0 N/A
Other pooled investment vehicles 17 $2,471,962,893 14 $2,155,827,623
Other accounts 0 N/A 0 N/A
JOSEPH P. QUINLAN
Registered Investment Companies 1 $82,061,911 0 N/A
Other pooled investment vehicles 17 $2,556,212,899 14 $2,232,319,747
Other accounts 0 N/A 0 N/A
ALISON BALLARD
Registered Investment Companies 1 $82,061,911 0 N/A
Other pooled investment vehicles 17 $2,556,212,899 14 $2,232,319,747
Other accounts 0 N/A 0 N/A
DAVID HOHMANN
Registered Investment Companies 1 $82,061,911 0 N/A
Other pooled investment vehicles 17 $2,556,212,899 14 $2,232,319,747
Other accounts 0 N/A 0 N/A
BAIA Affiliates are active participants in the global currency, equity,
commodity, fixed-income and other markets in which the Fund directly or
indirectly invests. As such, BAIA Affiliates are actively engaged in
transactions in the same securities and other instruments in which the
underlying funds selected by BAIA may invest. The proprietary activities or
portfolio strategies of BAIA Affiliates and managers of underlying funds ("Fund
Managers"), or the activities or strategies used for accounts managed by BAIA
Affiliates or Fund Managers for other customer accounts, could conflict with the
transactions and strategies employed by BAIA for the Fund or the Fund Managers
for the underlying funds and could affect the prices and availability of the
securities and instruments in which the Fund invests directly or indirectly
through its investments in underlying funds. BAIA Affiliates' and the Fund
Managers' trading activities are carried out without reference to positions held
directly or indirectly by the Fund and may have an effect on the value of the
positions so held or may result in their having an interest in an issuer that is
adverse to that of the Fund. Neither BAIA Affiliates nor the Fund Managers are
under any obligation to share any investment opportunity, idea or strategy with
the Fund. As a result, BAIA Affiliates and the Fund Managers may directly or
indirectly compete with the Fund for appropriate investment opportunities.
BAIA Affiliates may create, write or issue derivative instruments where the
counterparty is an underlying fund in which the Fund has invested or the
performance of which is based on the performance of the Fund. BAIA Affiliates
may keep any profits, commissions and fees accruing to them in connection with
their activities for themselves and other clients, and the fees or allocations
from the Fund to BAIA Affiliates are not reduced thereby.
Conflicts also may arise because the BAIA Affiliates and the Fund Managers and
their respective affiliates serve as investment managers to numerous other
accounts, some of which may have investment programs similar to that Fund or the
underlying funds, as the case may be. Although BAIA manages investments on
behalf of a number of other investment funds and customer accounts, investment
decisions and allocations are not necessarily made in parallel among the Fund's
account and the other investment funds and customer accounts. Investments made
by the Fund do not, and are not intended to, replicate the investments, or the
investment methods and strategies, of other accounts managed by BAIA Affiliates.
Nevertheless, the BAIA Affiliates at times, and from time to time, may elect to
make, on behalf of other accounts that they manage, the same investments that
the Fund makes; however, these investments may not be made in parallel and the
size of these investments may not be based on the capital in each account.
Rather, such investments may be allocated among accounts based on perception of
the appropriate risk and reward ratio for each account, the liquidity of the
account at the time of the investment and on an on-going basis, and the overall
portfolio composition and performance of the account. Moreover, other accounts
managed by BAIA Affiliates may make investments and utilize investment
strategies that may not be made or utilized by the Fund. Accordingly, the other
accounts managed by BAIA or BAIA affiliates may produce results that are
materially different from those experienced by the Fund. There may be similar
conflicts of interest between Fund Managers and underlying funds, which could
indirectly disadvantage the Fund by virtue of its investments in underlying
funds.
BAIA Affiliates from time to time may invest proprietary or client capital with
portfolio managers, including Fund Managers selected for the Fund, and may also
invest in the same underlying funds that may be purchased for the Fund or in the
Fund directly. BAIA Affiliates may have other business relationships with such
Fund Managers and/or underlying funds, including without limitation prime
brokerage relationships.
BAIA provides investment management services to other clients, including other
multi-manager funds and managed accounts that follow investment programs
substantially similar to that of the Fund. As a result, where a limited
investment opportunity would be appropriate for the Fund and also for one or
more of its other clients, BAIA is
required to choose among the Fund and such other clients in allocating such
opportunity, or to allocate less of such opportunity to the Fund than it would
ideally allocate if it did not provide investment management services to other
clients. In addition, BAIA may determine that an investment opportunity is
appropriate for a particular client, or for itself or an affiliate, but not for
the Fund. Situations may arise in which other client accounts managed by BAIA or
its affiliates have made investments that would have been suitable for the Fund
but, for various reasons, were not pursued by, or available to, the Fund. BAIA
attempts to allocate limited investment opportunities among the Fund and its
other client accounts in a manner it believes to be reasonable and equitable.
Subject to applicable law, BAIA may allocate assets of the Fund to Fund Managers
affiliated with it or with which BAIA Affiliates have a business relationship,
but not on terms more favorable to such Fund Managers than could be obtained
through arm's length negotiation. Such business relationships could include
agreements pursuant to which a BAIA Affiliate provides services to a Fund
Manager and is compensated by receiving a share of such Fund Manager's revenue,
including revenue based on a percentage of the Fund Manager's assets under
management. BAIA Affiliates may enter into placement agent agreements with a
Fund Manager, pursuant to which such Fund Manager may compensate BAIA Affiliates
for referring investors (other than the Fund) to the Fund Manager.
The Fund Managers may manage other accounts and may have financial incentives to
favor certain of such accounts over the Fund or the underlying funds. Any of
their proprietary accounts and other customer accounts may compete with the Fund
or the underlying funds for specific trades, or may hold positions opposite to
positions maintained on behalf of the Fund or the underlying Funds. The Fund
Managers may give advice and recommend securities to, or buy or sell securities
for, their respective portfolio or managed accounts in which the Fund's assets
are invested, which advice or securities may differ from advice given to, or
securities recommended or bought or sold for, other accounts and customers even
though their investment objectives may be the same as, or similar to, those of
the Fund.
If a Fund Manager seeks to purchase or sell the same financial instruments for
an underlying fund and other accounts managed by such Fund Manager (including
managed accounts of employees and other related accounts), it is authorized to
bunch orders for the underlying fund with orders of other clients and to
allocate the aggregate amount of the investment purchased or sold among such
accounts. When executions occur at different prices during the day, a Fund
Manager generally will give participating clients the average price in that
security during the day. If the amount that a Fund Manager has been able to
execute in the desired price range is not sufficient to fill all of its orders,
the total amount executed will be allocated to its accounts in a manner
determined in the discretion of such Fund Manager to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold by the Fund Manager on behalf of an underlying fund.
The management of accounts with different advisory fee rates and/or fee
structures, including accounts that pay advisory fees based on account
performance ("performance fee accounts"), may raise potential conflicts of
interest by creating an incentive to favor higher-fee accounts. These potential
conflicts may include, among others:
o The most attractive investments could be allocated to higher-fee accounts
or performance fee accounts.
o The trading of higher-fee accounts could be favored as to timing and/or
execution price. For example, higher-fee accounts could be permitted to
sell securities earlier than other accounts when a prompt sale is desirable
or to buy securities at an earlier and more opportune time.
o The trading of other accounts could be used to benefit higher-fee accounts
(front- running).
o The investment management team could focus their time and efforts primarily
on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers
have personal investments in other accounts that may create an incentive to
favor those accounts.
Other present and future activities of BAIA Affiliates, the Fund Managers and/or
their affiliates may give rise to additional conflicts of interest.
(3) Each committee member is a senior executive from business units within Bank
of America's Global Wealth and Investment Management business. As such, the
compensation packages for the members on the Fund's investment committee are
composed of the same components used with all Bank of America senior executives:
base salary, annual incentive performance bonus and equity awards. There is no
direct link between any member's specific compensation with the Fund's
investment performance.
In determining the base salaries, Bank of America intends to be competitive in
the marketplace and ensure salaries are commensurate with each member's
experience and ultimate responsibilities within each member's respective
business unit. Bank of America regularly evaluates base salary levels with
external industry studies and analysis of industry trends.
Each committee member's annual bonus and equity awards are discretionary awards
distributed after measuring each member's contributions against quantitative and
qualitative goals relative to their individual business responsibilities.
Quantitative goals are relative to the individual's business unit, and are not
directly related to the performance of the Fund or any other portfolio relative
to any benchmark, or to the size of the Fund. An example of a quantitative
measure is associate turnover ratio. Qualitative measures may include staff
management and development, process management (ex: adherence to internal and
external policies), business management and strategic business input to the
business platform.
There are no pre-set allocations regarding the split between salary and
performance incentives resulting in the total compensation for the individual
member.
(4) As of March 31, 2006, no investment committee member owned any Interests in
the Fund.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing of this report, have
concluded that such controls and procedures are adequately designed to ensure
that information required to be disclosed by the registrant in Form N-CSR is
accumulated and communicated to the registrant's management, including the
principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))
that occurred during the registrant's second fiscal quarter of the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the registrants internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) BACAP Alternative Multi-Strategy Fund, LLC
By (Signature and Title)* /s/ Lawrence R. Morgenthal
---------------------------------
Lawrence R. Morgenthal, President
(Principal Executive Officer)
Date: June 7, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Lawrence R. Morgenthal
---------------------------------
Lawrence R. Morgenthal, President
(Principal Executive Officer)
Date: June 7, 2006
By (Signature and Title)* /s/ David Hohmann
--------------------------
David Hohmann, Treasurer
and Senior Vice President
(Principal Financial Officer)
Date: June 7, 2006
* Print the name and title of each signing officer under his or her signature.