UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM N-CSRS
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-21058
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
(Exact name of registrant as specified in charter)
--------
c/o Aetos Capital, LLC
875 Third Avenue
New York, NY 10022
(Address of principal executive offices) (Zip code)
James M. Allwin
Aetos Capital, LLC
New York, NY 10022
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-212-201-2500
DATE OF FISCAL YEAR END: JANUARY 31, 2006
DATE OF REPORTING PERIOD: JULY 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
AETOS CAPITAL OPPORTUNITIES FUND, LLC
Financial Statements (unaudited)
July 31, 2006
TABLE OF CONTENTS
Schedules of Investments.................................................... 1
Statements of Assets and Liabilities........................................ 6
Statements of Operations.................................................... 7
Statements of Changes in Members' Capital................................... 8
Statements of Cash Flows.................................................... 11
Financial Highlights........................................................ 12
Notes to Financial Statements............................................... 17
Approval of Investment Advisory Agreements.................................. 27
The Funds file their complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of each period. The Funds' Forms N-Q
are available on the Commission's web site at HTTP://WWW.SEC.GOV, and may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities, as well as information
relating to how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30, is available (i) without charge,
upon request, by calling 1-212-201-2500; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Schedule of Investments (Unaudited)
July 31, 2006
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Convertible Arbitrage 5.80%
Credit Strategies 11.66%
Fixed Income Arbitrage 23.06%
Multi-Strategy/Event Arbitrage 59.48%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------------------------------------------------------------------------------------------
AQR Global Arbitrage Offshore Fund (USD), Ltd. $ 27,726,549 $ 30,853,178 8.47%
Davidson Kempner Partners 50,000,000 56,724,308 15.58
FFIP, L.P. 24,630,000 29,304,276 8.05
Ishin Fund, LLC 18,000,000 20,532,437 5.64
Lazard Emerging Income, L.P. 20,000,000 19,945,791 5.48
Parsec Trading Corp. 14,100,000 15,199,832 4.17
Pequot Credit Opportunities Fund, L.P. 20,000,000 21,246,563 5.84
Perry Partners, L.P. 34,600,000 42,630,780 11.71
Satellite Fund II, L.P. 25,850,000 31,901,559 8.77
South Hill Trading Corp. 15,000,000 17,092,809 4.70
Sowood Alpha Fund, L.P. 42,000,000 48,212,488 13.24
Standard Pacific Credit Opportunities Fund, L.P. 20,000,000 19,969,185 5.48
---------------------------------------------
Total $ 311,906,549 $ 353,613,206 97.13%
=============================================
* Percentages are based on Members' Capital of $364,075,483.
The aggregate cost of investments for tax purposes was $314,335,641. Net
unrealized appreciation on investments for tax purposes was $39,277,565
consisting of $39,331,774 of gross unrealized appreciation and $54,209 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 97.13% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
1
Aetos Capital Distressed Investment Strategies Fund, LLC
Schedule of Investments (Unaudited)
July 31, 2006
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Distressed Investments 100.00%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. $ 17,500,000 $ 17,941,362 22.83%
King Street Capital, L.P. 14,050,000 16,630,070 21.16
Satellite Credit Opportunities Fund, Ltd. 2,250,000 3,151,631 4.01
Silver Point Capital Fund, L.P. 14,100,000 19,157,952 24.37
Watershed Capital Partners, L.P. 11,050,000 13,477,911 17.15
--------------------------------------------
Total $ 58,950,000 $ 70,358,926 89.52%
============================================
* Percentages are based on Members' Capital of $78,600,433.
The aggregate cost of investments for tax purposes was $61,273,504. Net
unrealized appreciation on investments for tax purposes was $9,085,422
consisting of $9,085,422 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 89.52% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments (Unaudited)
July 31, 2006
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Short Equity Investments 2.53%
Long/Short Equity Investments 97.47%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- --------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. $ 32,000,000 $ 47,709,649 8.37%
Bay Resource Partners, L.P. 23,000,000 33,272,793 5.84
Cadmus Capital Partners (QP), L.P. 46,000,000 48,346,432 8.48
Cantillion Pacific, L.P. 13,000,000 16,330,152 2.86
Cantillion U.S., L.P. 12,699,464 13,178,059 2.31
Cavalry Technology, L.P. 38,750,000 39,951,769 7.01
The Elkhorn Fund, LLC 42,000,000 49,966,027 8.76
Highside Capital Partners, L.P. 45,000,000 47,474,342 8.33
Icarus Qualified Partners, L.P. 11,000,000 12,567,756 2.20
JL Partners, L.P. 49,820,000 60,608,765 10.63
North River Partners, L.P. 31,650,000 37,652,616 6.60
Standard Global Equity Partners SA, L.P. 38,700,000 45,097,770 7.91
Viking Global Equities, L.P. 40,000,000 44,215,193 7.76
---------------------------------------------
Total $ 423,619,464 $ 496,371,323 87.06%
=============================================
* Percentages are based on Members' Capital of $570,160,688.
The aggregate cost of investments for tax purposes was $424,541,892. Net
unrealized appreciation on investments for tax purposes was $71,829,431
consisting of $71,829,431 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 87.06% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
Aetos Capital Market Neutral Strategies Fund, LLC
Schedule of Investments (Unaudited)
July 31, 2006
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Quantitative Asset Allocation 20.68%
Multi-Strategy 24.06%
Low Beta/Market Neutral/Long Short 55.26%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -------------------------------------------------------------------------------------------------
AQR Absolute Return Institutional Fund, L.P. $ 19,900,000 $ 22,573,976 21.50%
Bravura 99 Fund, L.P. 20,682,132 22,218,672 21.16
Cantillion U.S. Low Volatility, L.P. 27,500,000 29,640,035 28.23
GMO Mean Reversion Fund 16,000,000 19,406,669 18.48
-------------------------------------------
Total $ 84,082,132 $ 93,839,352 89.37%
===========================================
* Percentages are based on Members' Capital of $104,999,549.
The aggregate cost of investments for tax purposes was $83,716,002. Net
unrealized appreciation on investments for tax purposes was $10,123,350
consisting of $10,123,350 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in portfolio funds shown above, representing 89.37% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
Aetos Capital Opportunities Fund, LLC
Schedule of Investments (Unaudited)
July 31, 2006
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Real Assets 10.07%
Credit Related 16.28%
Event-Driven 15.42%
Long/Short Equity Investments 58.23%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -------------------------------------------------------------------------------------------------------------
Avdan Partners, L.P. $ 5,000,000 $ 4,324,367 3.86%
GMO U.S. Tactical Opportunities Fund (Onshore), L.P. 7,500,000 7,203,477 6.42
Joho Partners, L.P. 12,000,000 13,911,850 12.41
Pequot Short Credit Fund, L.P. 6,000,000 5,814,708 5.19
Phinity Partners, L.P. 10,000,000 9,029,491 8.05
Rimrock High Income PLUS, L.P. 5,500,000 5,485,409 4.89
Saras Capital Partners, L.P. 9,000,000 9,162,349 8.17
Scopia PX, LLC 8,000,000 8,236,858 7.35
Sheffield Institutional Partners, L.P. 5,000,000 5,839,266 5.21
Spindrift Partners, L.P. 8,000,000 9,190,106 8.20
Standard Pacific Asymmetric Opportunities Fund, L.P. 4,000,000 3,562,884 3.18
Venn Global Opportunities Fund L.P. 9,500,000 9,514,867 8.49
---------------------------------------------
Total $ 89,500,000 $ 91,275,632 81.42%
=============================================
* Percentages are based on Members' Capital of $112,102,117.
The aggregate cost of investments for tax purposes was $89,500,000. Net
unrealized appreciation on investments for tax purposes was $1,775,632
consisting of $4,355,296 of gross unrealized appreciation and $2,579,664 of
gross unrealized depreciation.
The investments in portfolio funds shown above, representing 81.42% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
Statements of Assets and Liabilities
July 31, 2006
(Unaudited)
AETOS CAPITAL AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL MARKET
MULTI-STRATEGY INVESTMENT LONG/SHORT NEUTRAL AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC FUND, LLC
----------------------------------------------------------------------------------
ASSETS
Investments in portfolio funds, at cost $311,906,549 $ 58,950,000 $423,619,464 $ 84,082,132 $ 89,500,000
--------------------------------------------------------------------------------
Investments in portfolio funds, at value $353,613,206 $ 70,358,926 $496,371,323 $ 93,839,352 $ 91,275,632
Cash and cash equivalents 10,791,800 5,108,324 66,769,870 2,529,675 11,023,473
Prepaid investments 40,000,000 20,000,000 91,000,000 20,000,000 22,000,000
Accrued income 69,275 45,147 363,483 53,829 98,059
Prepaid tax withholding 1,900 -- -- -- 1,400
Due from investment manager -- 5,745 -- 2,350 --
--------------------------------------------------------------------------------
Total assets 404,476,181 95,518,142 654,504,676 116,425,206 124,398,564
--------------------------------------------------------------------------------
LIABILITIES
Sales of Interests received in advance 40,064,995 16,692,664 83,856,862 11,269,499 12,150,678
Investment management fees payable 232,257 50,291 363,939 67,015 71,469
Administration fees payable 56,221 12,465 83,216 16,121 14,584
Board of Managers' fees payable 5,475 5,475 5,475 5,475 5,475
Other accrued expenses 41,750 156,814 34,496 67,547 54,241
--------------------------------------------------------------------------------
Total liabilities 40,400,698 16,917,709 84,343,988 11,425,657 12,296,447
--------------------------------------------------------------------------------
NET MEMBERS' CAPITAL $364,075,483 $ 78,600,433 $570,160,688 $104,999,549 $112,102,117
================================================================================
MEMBERS' CAPITAL
Net capital $322,368,826 $ 67,191,507 $497,408,829 $ 95,242,329 $110,326,485
Net unrealized appreciation on
investments in portfolio funds 41,706,657 11,408,926 72,751,859 9,757,220 1,775,632
--------------------------------------------------------------------------------
Members' Capital $364,075,483 $ 78,600,433 $570,160,688 $104,999,549 $112,102,117
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
Statements of Operations
For the six-month period ended July 31, 2006
(Unaudited)
AETOS CAPITAL AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL MARKET
MULTI-STRATEGY INVESTMENT LONG/SHORT NEUTRAL AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC FUND, LLC
---------------------------------------------------------------------------------
Investment income:
Interest $ 438,810 $ 180,003 $ 1,142,177 $ 248,202 $ 188,434
--------------------------------------------------------------------------------
Expenses:
Investment management fees 1,294,140 274,924 1,940,314 373,974 340,518
Administration fees 161,784 35,656 239,522 48,071 41,260
Board of Managers' fees 10,950 10,950 10,950 10,950 10,950
Professional fees 81,775 60,650 90,700 60,400 60,025
Registration fees 49,840 426 62,216 192 7,855
Custodian fees 19,804 6,112 28,484 7,445 7,126
Printing fees 12,000 12,000 12,000 12,000 12,000
Organizational costs -- -- -- -- 14,425
Other expenses 5,564 5,544 5,544 5,544 5,544
--------------------------------------------------------------------------------
Total expenses 1,635,857 406,262 2,389,730 518,576 499,703
Fund expenses reimbursed -- (39,968) -- (20,142) (11,275)
--------------------------------------------------------------------------------
Net expenses 1,635,857 366,294 2,389,730 498,434 488,428
--------------------------------------------------------------------------------
Net investment loss (1,197,047) (186,291) (1,247,553) (250,232) (299,994)
--------------------------------------------------------------------------------
Net gain/(loss) on portfolio funds sold -- 1,272,904 699,464 (36,266) --
Net change in unrealized
appreciation/(depreciation) on
investments in portfolio funds 13,995,781 1,693,286 11,009,501 2,460,535 (785,371)
--------------------------------------------------------------------------------
Net increase/(decrease) in Members'
Capital derived from
investment activities $ 12,798,734 $ 2,779,899 $ 10,461,412 $ 2,174,037 $ (1,085,365)
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
Statements of Changes in Members' Capital
For six-month period ended July 31, 2006 and the year ended January 31, 2006
AETOS CAPITAL DISTRESSED
AETOS CAPITAL MULTI-STRATEGY INVESTMENT STRATEGIES
ARBITRAGE FUND, LLC FUND, LLC
------------------------------- -------------------------------
2/1/06 - 2/1/06 -
7/31/06 2/1/05 - 7/31/06 2/1/05 -
(UNAUDITED) 1/31/06 (UNAUDITED) 1/31/06
------------------------------- -------------------------------
From investment activities:
Net investment loss $ (1,197,047) $ (2,129,851) $ (186,291) $ (331,929)
Net gain on portfolio funds sold -- 281,749 1,272,904 --
Net change in unrealized appreciation on
investments in portfolio funds 13,995,781 19,837,724 1,693,286 4,773,363
------------------------------- -------------------------------
Net increase in Members' Capital
derived from investment activities 12,798,734 17,989,622 2,779,899 4,441,434
------------------------------- -------------------------------
Distributions:
Tax withholding on behalf of foreign investors -- (471,422) -- (353,256)
------------------------------- -------------------------------
Total distributions -- (471,422) -- (353,256)
------------------------------- -------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 37,741,300 84,600,699 14,663,945 14,611,996
Redemptions of Interests (6,640,758) (11,329,467) (5,247,767) (184,006)
Transfers of Interests (91,000) (16,486,000) (104,000) 2,738,000
------------------------------- -------------------------------
Net increase in Members' Capital derived from
capital transactions 31,009,542 56,785,232 9,312,178 17,165,990
------------------------------- -------------------------------
Net increase in Members' Capital 43,808,276 74,303,432 12,092,077 21,254,168
Members' Capital at beginning of period 320,267,207 245,963,775 66,508,356 45,254,188
------------------------------- -------------------------------
Members' Capital at end of period $ 364,075,483 $ 320,267,207 $ 78,600,433 $ 66,508,356
=============================== ===============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
Statements of Changes in Members' Capital (continued)
For six-month period ended July 31, 2006 and the year ended January 31, 2006
AETOS CAPITAL
AETOS CAPITAL LONG/SHORT MARKET NEUTRAL
STRATEGIES FUND, LLC STRATEGIES FUND, LLC
------------------------------- -------------------------------
2/1/06 - 2/1/06 -
7/31/06 2/1/05 - 7/31/06 2/1/05 -
(UNAUDITED) 1/31/06 (UNAUDITED) 1/31/06
------------------------------- -------------------------------
From investment activities:
Net investment loss $ (1,247,553) $ (2,904,647) $ (250,232) $ (577,610)
Net gain/(loss) on portfolio funds sold 699,464 1,794,958 (36,266) --
Net change in unrealized appreciation on
investments in portfolio funds 11,009,501 45,632,962 2,460,535 4,248,825
------------------------------- -------------------------------
Net increase in Members' Capital
derived from investment activities 10,461,412 44,523,273 2,174,037 3,671,215
------------------------------- -------------------------------
Distributions:
Tax withholding on behalf of foreign investors -- (1,386,016) -- (204,118)
------------------------------- -------------------------------
Total distributions -- (1,386,016) -- (204,118)
------------------------------- -------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 101,393,997 144,104,472 9,138,118 25,303,681
Redemptions of Interests (13,660,981) (33,975,401) (1,919,315) (3,371,932)
Transfers of Interests 151,000 (6,788,000) 22,000 (12,043,772)
------------------------------- -------------------------------
Net increase in Members' Capital derived from
capital transactions 87,884,016 103,341,071 7,240,803 9,887,977
------------------------------- -------------------------------
Net increase in Members' Capital 98,345,428 146,478,328 9,414,840 13,355,074
Members' Capital at beginning of period 471,815,260 325,336,932 95,584,709 82,229,635
------------------------------- -------------------------------
Members' Capital at end of period $ 570,160,688 $ 471,815,260 $ 104,999,549 $ 95,584,709
=============================== ===============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
Statement of Changes in Members' Capital (concluded)
For six-month period ended July 31, 2006 and the period ended January 31, 2006
AETOS CAPITAL
OPPORTUNITIES FUND, LLC
-------------------------------
2/1/06 -
7/31/06 5/27/05* -
(UNAUDITED) 1/31/06
-------------------------------
From investment activities:
Net investment loss $ (299,994) $ (182,742)
Net gain on portfolio funds sold -- --
Net change in unrealized
appreciation/(depreciation) on
investments in portfolio funds (785,371) 2,561,003
-------------------------------
Net increase/(decrease) in Members' Capital
derived from investment activities (1,085,365) 2,378,261
-------------------------------
Distributions:
Tax withholding on behalf of foreign investors -- (25,000)
-------------------------------
Total distributions -- (25,000)
-------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 42,308,625 39,826,616
Redemptions of Interests (1,999,331) (1,903,461)
Transfers of Interests 22,000 32,579,772
-------------------------------
Net increase in Members' Capital derived from
capital transactions 40,331,294 70,502,927
-------------------------------
Net increase in Members' Capital 39,245,929 72,856,188
Members' Capital at beginning of period 72,856,188 --
-------------------------------
Members' Capital at end of period $ 112,102,117 $ 72,856,188
===============================
* Commencement of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
Statements of Cash Flows
For the six-month period ended July 31, 2006
(Unaudited)
AETOS CAPITAL AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL MARKET
MULTI-STRATEGY INVESTMENT LONG/SHORT NEUTRAL AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-----------------------------------------------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Purchases of Portfolio Funds $(30,800,000) $(13,500,000) $(61,199,464) $(12,000,000) $(24,500,000)
Sales of Portfolio Funds -- 7,772,904 12,699,464 6,348,044 --
Net investment loss (1,197,047) (186,291) (1,247,553) (250,232) (299,994)
Adjustments to reconcile net investment loss to net
cash used in operating activities:
Increase in prepaid investments (40,000,000) (20,000,000) (91,000,000) (20,000,000) (18,000,000)
Increase in accrued income (25,535) (26,938) (240,794) (15,977) (80,227)
Increase in prepaid tax withholding (1,900) -- -- -- (1,400)
Decrease in receivable for sale of investments -- -- 905,124 -- --
Increase in due from investment manager -- (5,745) -- (2,350) --
Decrease in deferred offering costs -- -- -- -- 14,425
Increase in investment management
fees payable 27,924 7,708 62,685 6,001 25,015
Decrease in administration fees payable (21,195) (3,238) (28,724) (7,237) (1,866)
Decrease in other accrued expenses (88,855) (3,563) (117,128) (10,411) (2,302)
----------------------------------------------------------------------------
Net cash used in operating activities (72,106,608) (25,945,163) (140,166,390) (25,932,162) (42,846,349)
----------------------------------------------------------------------------
DISTRIBUTIONS
Tax withholding on behalf of foreign investors (310,000) (210,200) (820,000) (140,000) (25,000)
----------------------------------------------------------------------------
Total distributions (310,000) (210,200) (820,000) (140,000) (25,000)
----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in sales of Interests received in advance 39,418,495 16,486,964 82,105,362 11,066,849 12,035,028
Proceeds from sales of Interests 37,741,300 14,663,945 101,393,997 9,138,118 42,308,625
Redemptions of Interests (6,640,758) (5,247,767) (13,660,981) (1,919,315) (1,999,331)
Transfers of Interests (91,000) (104,000) 151,000 22,000 22,000
----------------------------------------------------------------------------
Net cash provided by financing activities 70,428,037 25,799,142 169,989,378 18,307,652 52,366,322
----------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (1,988,571) (356,221) 29,002,988 (7,764,510) 9,494,973
Cash and cash equivalents, beginning of period 12,780,371 5,464,545 37,766,882 10,294,185 1,528,500
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 10,791,800 $ 5,108,324 $ 66,769,870 $ 2,529,675 $ 11,023,473
============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
Financial Highlights
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
---------------------------------------------------------------------
2/1/06 -
7/31/06 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
(UNAUDITED) 1/31/06 1/31/05 1/31/04 1/31/03
---------------------------------------------------------------------
Total return (1) 3.82% 6.48% 2.98% 13.17% 4.44%
Net assets, end of period (000's) $ 364,075 $ 320,267 $ 245,964 $ 35,075 $ 1,092
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 0.95% (3) 0.95% 1.07% 5.04% 43.96% (3)
Expenses, net of waivers and
reimbursements (2)(4) 0.95% (3) 0.95% 1.00% 1.13% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.70) (3) (0.77)% (0.96)% (4.87)% (43.95) (3)
Net investment loss, net of waivers
and reimbursements (0.70) (3) (0.77)% (0.89)% (0.96)% (1.24) (3)
Portfolio turnover rate (5) 0.00% 6.24% 0.00% 0.00% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax
withholding on behalf of certain investors is treated as a reinvested
distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses
of the Portfolio Funds.
(3) Annualized.
(4) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
(5) Portfolio turnover rate for periods less than one year have not been
annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
Financial Highlights (continued)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
---------------------------------------------------------------------
2/1/06 -
7/31/06 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
(UNAUDITED) 1/31/06 1/31/05 1/31/04 1/31/03
---------------------------------------------------------------------
Total return (1) 3.95% 8.46% 10.24% 22.13% 5.38%
Net assets, end of period (000's) $ 78,600 $ 66,508 $ 45,254 $ 14,179 $ 2,355
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.11% (3) 1.24% 1.55% 7.72% 22.93% (3)
Expenses, net of waivers and
reimbursements (2)(4) 1.00% (3) 1.00% 1.00% 1.18% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.62) (3) (0.88)% (1.50)% (7.65)% (22.92) (3)
Net investment loss, net of waivers
and reimbursements (0.51) (3) (0.64)% (0.95)% (1.11)% (1.24) (3)
Portfolio turnover rate (5) 11.96% 0.00% 0.00% 16.94% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax
withholding on behalf of certain investors is treated as a reinvested
distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses
of the Portfolio Funds.
(3) Annualized.
(4) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
(5) Portfolio turnover rate for periods less than one year have not been
annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
Financial Highlights (continued)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
---------------------------------------------------------------------
2/1/06 -
7/31/06 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
(UNAUDITED) 1/31/06 1/31/05 1/31/04 1/31/03
---------------------------------------------------------------------
Total return (1) 2.12% 11.66% 3.90% 12.88% (0.89)%
Net assets, end of period (000's) $ 570,161 $ 471,815 $ 325,337 $ 57,668 $ 3,562
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 0.93% (3) 0.94% 1.05% 4.09% 18.87% (3)
Expenses, net of waivers and
reimbursements (2)(4) 0.93% (3) 0.94% 1.00% 1.14% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.48) (3) (0.78)% (0.95)% (3.96)% (18.86) (3)
Net investment loss, net of waivers
and reimbursements (0.48) (3) (0.78)% (0.90)% (1.01)% (1.24) (3)
Portfolio turnover rate (5) 2.70% 9.65% 4.06% 0.00% 20.87%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax
withholding on behalf of certain investors is treated as a reinvested
distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses
of the Portfolio Funds.
(3) Annualized.
(4) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
(5) Portfolio turnover rate for periods less than one year have not been
annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
Financial Highlights (continued)
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
---------------------------------------------------------------------
2/1/06 -
7/31/06 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
(UNAUDITED) 1/31/06 1/31/05 1/31/04 1/31/03
---------------------------------------------------------------------
Total return (1) 2.10% 4.19% 1.84% 2.81% 0.13%
Net assets, end of period (000's) $ 105,000 $ 95,585 $ 82,230 $ 14,120 $ 1,526
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.04% (3) 1.09% 1.33% 8.79% 31.67% (3)
Expenses, net of waivers and
reimbursements (2)(4) 1.00% (3) 1.00% 1.00% 1.15% 1.25% (3)
Net investment loss, before waivers
and reimbursements (0.54) (3) (0.74)% (1.28)% (8.69)% (31.65) (3)
Net investment loss, net of waivers
and reimbursements (0.50) (3) (0.65)% (0.95)% (1.05)% (1.23) (3)
Portfolio turnover rate (5) 7.09% 0.00% 45.70% 0.00% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax
withholding on behalf of certain investors is treated as a reinvested
distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses
of the Portfolio Funds.
(3) Annualized.
(4) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
(5) Portfolio turnover rate for periods less than one year have not been
annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
Financial Highlights (concluded)
AETOS CAPITAL
OPPORTUNITIES FUND, LLC
---------------------------
2/1/06 -
7/31/06 5/27/05* -
(UNAUDITED) 1/31/06
---------------------------
Total return (1) (1.13)% 4.94%
Net assets, end of period (000's) $ 112,102 $ 72,856
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.10% (3) 1.44% (3)
Expenses, net of waivers and
reimbursements (2)(4) 1.08% (3) 1.07% (3)
Net investment loss, before waivers
and reimbursements (0.68) (3) (1.11) (3)
Net investment loss, net of waivers
and reimbursements (0.66) (3) (0.74) (3)
Portfolio turnover rate (5) 0.00% 0.00%
* Commencement of operations.
(1) Total return for periods less than one year have not been annualized. Tax
withholding on behalf of certain investors is treated as a reinvested
distribution.
(2) Expense ratios do not reflect the Fund's proportionate share of expenses
of the Portfolio Funds.
(3) Annualized.
(4) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
(5) Portfolio turnover rate for periods less than one year have not been
annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
Notes to Financial Statements
July 31, 2006
(Unaudited)
1. ORGANIZATION
The Aetos Capital Multi-Strategy Arbitrage Fund, LLC, the Aetos Capital
Distressed Investment Strategies Fund, LLC, the Aetos Capital Long/Short
Strategies Fund, LLC, the Aetos Capital Market Neutral Strategies Fund, LLC and
the Aetos Capital Opportunities Fund, LLC (collectively the "Funds" and
individually a "Fund") were formed in the state of Delaware as limited liability
companies. The Funds are registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as closed-end, non-diversified, management investment
companies. Each of the Funds is a fund-of-funds. The Funds seek capital
appreciation by allocating their assets among a select group of private
investment funds (commonly known as hedge funds) ("Portfolio Funds") that
utilize a variety of alternative investment strategies specific for each Fund to
produce an attractive absolute return on invested capital, largely independent
of the various benchmarks associated with traditional asset classes. Aetos
Alternatives Management, LLC serves as the Investment Manager to the Funds.
The principal investment objective of each Fund is as follows:
Aetos Capital Multi-Strategy Arbitrage Fund, LLC seeks to produce an attractive
absolute return on invested capital, largely independent of the various
benchmarks associated with traditional asset classes, by allocating its assets
among a select group of portfolio managers that utilize a variety of arbitrage
strategies.
Aetos Capital Distressed Investment Strategies Fund, LLC seeks to produce an
attractive absolute return on invested capital, largely independent of the
various benchmarks associated with traditional asset classes, by allocating its
assets among a select group of portfolio managers across a variety of distressed
investment strategies.
Aetos Capital Long/Short Strategies Fund, LLC seeks to produce an attractive
absolute return on invested capital, largely independent of the various
benchmarks associated with traditional asset classes, by allocating its assets
among a select group of portfolio managers across a variety of long/short
strategies.
Aetos Capital Market Neutral Strategies Fund, LLC seeks to produce an attractive
absolute return on invested capital, largely independent of the various
benchmarks associated with traditional asset classes, by allocating its assets
among a select group of portfolio managers across a variety of market neutral
strategies.
Aetos Capital Opportunities Fund, LLC (the "Opportunities Fund") seeks capital
appreciation by investing its assets among a select group of alternative asset
managers employing different absolute return investment strategies in pursuit of
attractive risk-adjusted returns consistent with the preservation of capital.
17
Notes to Financial Statements (continued) (unaudited)
1. ORGANIZATION (CONTINUED)
The Funds may offer, from time to time, to repurchase outstanding members'
interests ("Interests") pursuant to written tenders by Members. Repurchase
offers will be made at such times and on such terms as may be determined by the
Funds' Board of Managers (the "Board") in its sole discretion. The Funds may
offer to repurchase Interests four times each year, as of the last business day
of March, June, September and December.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America. The following is
a summary of the significant accounting policies followed by the Funds:
A. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Investment
Manager to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates.
B. Portfolio Valuation and Security Transactions
The net asset values of the Funds are determined as of the close of business at
the end of each month in accordance with the valuation principles set forth
below or as may be determined from time to time pursuant to policies established
by the Board.
Investments in Portfolio Funds are presented in the accompanying financial
statements at fair value, as determined by the Funds' Investment Manager under
the general supervision of the Board. Such fair value generally represents a
Fund's pro-rata interest in the net assets of a Portfolio Fund as provided by
the Portfolio Funds. The Investment Manager considers information provided by
the Portfolio Funds regarding the methods they use to value underlying
investments in the Portfolio Funds in determining fair value.
Considerable judgment is required to interpret the factors used to develop
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts the Fund could realize in a current market exchange and the differences
could be material to the financial statements. The use of different factors or
estimation methodologies could have a significant effect on the estimated fair
value.
Realized gains and losses from Portfolio Fund transactions are calculated on the
identified cost basis. Investments are recorded on the effective date of the
subscription in the Portfolio Fund.
18
Notes to Financial Statements (continued) (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fund Income and Expenses
Each Fund bears its own expenses including, but not limited to: any taxes;
organizational expenses; offering costs; investment-related expenses incurred by
the Funds (e.g., fees and expenses charged by the Portfolio Managers and
Portfolio Funds, placement fees, professional fees, custody and administrative
fees). Most expenses of the Funds can be directly attributed to a particular
Fund. Expenses which cannot be directly attributed are apportioned among the
Funds based upon relative net assets or on another reasonable basis.
Interest income is recorded on an accrual basis and consists of interest earned
on cash and cash equivalents.
Costs incurred in connection with the organization of the Opportunities Fund
totaling $20,866 were expensed at the commencement of operations. These costs
were principally comprised of legal, audit and regulatory filing fees.
Costs incurred with the initial registration and offering of Interests in the
Opportunities Fund totaling $45,093 were deferred and were amortized over a
period of one year, commencing with operations. As of July 31, 2006, such costs
have been fully amortized.
D. Income Taxes
Each Fund intends to continue to be treated as a partnership for Federal income
tax purposes. Each Member is responsible for the tax liability or benefit
relating to the Member's distributive share of taxable income or loss.
Accordingly, no provision for Federal income taxes is reflected in the
accompanying financial statements. The Funds withhold and pay taxes on U.S.
source income and U.S. effectively connected income, if any, allocated from
Portfolio Funds to the extent such income is not exempted from withholding under
the Internal Revenue Code and Regulations thereunder. The actual amount of such
taxes is not known until all Form K-1s from Portfolio Funds are received,
usually in the following tax year. Prior to the final determination the amount
of tax is estimated based on information available. The final tax could be
different from the estimated tax and the difference could be significant. Such
withholdings are listed as distributions on the Statement of Changes in Members'
Capital, and are allocated to the individual Members' Capital accounts to which
they apply.
E. Distribution Policy
The Funds have no present intention of making periodic distributions of their
net investment income or capital gains, if any, to Members. The amount and
frequency of distributions, if any, will be determined in the sole discretion of
the Board.
19
Notes to Financial Statements (continued) (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Distributions from Portfolio Funds
Distributions from Portfolio Funds will be classified as investment income or
realized gains in the Statements of Operations, or alternatively, as a decrease
to the cost of the investments based on the U.S. income tax characteristics of
the distribution if such information is available. In cases where the tax
characteristics are not available, such distribution will be classified as
investment income.
G. Cash and Cash Equivalents
The Funds treat all highly liquid financial instruments that mature within three
months as cash equivalents.
3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER
The Funds pay the Investment Manager a monthly management fee (the "Management
Fee") at the annual rate of 0.75% of the net asset value of each Fund as of the
last day of the month (before any repurchases of Interests). The Investment
Manager is responsible for providing day-to-day investment management services
to the Funds, and for providing various administrative services to the Funds.
The Investment Manager contractually agreed to reimburse the Funds in order to
limit the Funds' other expenses (defined as total operating expenses excluding
the Management Fee) at 0.25% (0.35% in the case of the Opportunities Fund) of
each Fund's average monthly net assets, at least until May 31, 2007.
The Investment Manager may also be paid a Program fee outside of the Funds for
services rendered to investors. The Program fee is paid directly by the
investors at an annual rate of up to 0.50% of an investor's assets in the Funds.
The Investment Manager may also be paid an annual performance-based incentive
fee outside of the Funds based on the return of an investor's account with the
Investment Manager.
SEI Investments Global Funds Services (the "Administrator") provides certain
administration, accounting and investor services for the Funds. In consideration
for such services, each Fund pays the Administrator a monthly fee based on
month-end net assets at an annual rate of 0.12% on the first $250 million of net
assets, 0.10% on net assets between $250 million and $500 million and 0.08% on
net assets over $500 million, and will reimburse the Administrator for certain
out-of-pocket expenses.
SEI Private Trust Company acts as custodian (the "Custodian") for the Funds'
assets. In consideration for such services, each Fund pays the Custodian a
monthly fee, based on month-end net assets, at an annual rate of up to 0.01%.
Each Fund also pays the Custodian $3,000 annually to act as qualified Custodian
for its Cayman feeder fund.
20
Notes to Financial Statements (continued) (unaudited)
3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
Each Member of the Board who is not an "interested person" of the Funds as
defined by the 1940 Act receives an annual retainer of $25,000 and regular
quarterly meeting fees of $2,500 per meeting (additional meeting fees are $500
per meeting). The Chairman of the audit committee receives an additional annual
retainer of $1,500. Any Manager who is an "interested person" does not receive
any annual or other fee from the Funds. All Managers are reimbursed by the Funds
for reasonable out-of-pocket expenses.
Net profits or net losses of the Funds for each fiscal period are allocated
among and credited to or debited against the capital accounts of Members as of
the last day of each fiscal period in accordance with each Member's respective
investment percentage for each Fund. Net profits or net losses are measured as
the net change in the value of the net assets of a Fund during a fiscal period,
before giving effect to any repurchases of Interests in the Fund, and excluding
the amount of any items to be allocated among the capital accounts of the
Members of the Fund, other than in accordance with the Members' respective
investment percentages.
4. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Portfolio Funds in which the Funds invest
trade various financial instruments and enter into various investment activities
with off-balance sheet risk. These include, but are not limited to, short
selling activities, writing option contracts, and equity swaps. The Funds' risk
of loss in these Portfolio Funds is limited to the value of these investments
reported by the Portfolio Funds.
5. CONCENTRATION OF RISK
The Funds invest primarily in Portfolio Funds that are not registered under the
1940 Act and invest in and actively trade securities and other financial
instruments using different strategies and investment techniques, including
leverage, that may involve significant risks. These Portfolio Funds may invest a
high percentage of their assets in specific sectors of the market in order to
achieve a potentially greater investment return. As a result, the Portfolio
Funds may be more susceptible to economic, political, and regulatory
developments in a particular sector of the market, positive or negative, and may
experience increased volatility of the Portfolio Funds' net asset value. The
Funds invest in a limited number of Portfolio Funds. Such concentration may
result in additional risk.
Various risks are also associated with an investment in the Funds, including
risks relating to the multi-manager structure of the Funds, risks relating to
compensation arrangements and risks relating to the limited liquidity of
Interests.
21
Notes to Financial Statements (continued) (unaudited)
5. CONCENTRATION OF RISK (CONTINUED)
In the normal course of business, the Funds enter into contracts that contain a
variety of representations which provide general indemnifications. Each Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against each Fund that have not yet occurred.
However, based on experience, the Funds expect the risk of loss to be remote.
6. INVESTMENT TRANSACTIONS
For the six-month period ended July 31, 2006, purchases and sales of investments
were as follows:
FUND PURCHASES SALES
- ------------------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $30,800,000 $ --
Aetos Capital Distressed Investment Strategies Fund, LLC 13,500,000 7,772,904
Aetos Capital Long/Short Strategies Fund, LLC 61,199,464 12,699,464
Aetos Capital Market Neutral Strategies Fund, LLC 12,000,000 6,348,044
Aetos Capital Opportunities Fund, LLC 24,500,000 --
7. INVESTMENTS
As of July 31, 2006, collectively the Funds had investments in forty-six
Portfolio Funds, none of which were related parties. The following table lists
the Funds' investments in Portfolio Funds as of July 31, 2006. The agreements
related to investments in Portfolio Funds provide for compensation to the
general partners/managers in the form of management fees of 1.0% to 2.0% (per
annum) of the net assets and incentive fees or allocations of 10% to 20% of net
profits earned. The Portfolio Funds provide for periodic redemptions, with
lock-up provisions ranging from 3 months to 2 years from initial investment. The
liquidity provisions shown in the table apply after any applicable lock-up
provisions.
22
Notes to Financial Statements (continued) (unaudited)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 7/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
AQR Global Arbitrage Offshore Fund (USD), Ltd. Multi-Strategy/Event Arbitrage $ 30,853,178 8.47% Quarterly
Davidson Kempner Partners Multi-Strategy/Event Arbitrage 56,724,308 15.58 Quarterly
FFIP, L.P. Fixed Income Arbitrage 29,304,276 8.05 Annual
Ishin Fund, LLC Convertible Arbitrage 20,532,437 5.64 Annual
Lazard Emerging Income, L.P. Fixed Income Arbitrage 19,945,791 5.48 Monthly
Parsec Trading Corp. Fixed Income Arbitrage 15,199,832 4.17 Monthly
Pequot Credit Opportunities Fund, L.P. Credit Strategies 21,246,563 5.84 Annual
Perry Partners, L.P. Multi-Strategy/Event Arbitrage 42,630,780 11.71 Annual
Satellite Fund II, L.P. Multi-Strategy/Event Arbitrage 31,901,559 8.77 Annual
South Hill Trading Corp. Fixed Income Arbitrage 17,092,809 4.70 Monthly
Sowood Alpha Fund, L.P. Multi-Strategy/Event Arbitrage 48,212,488 13.24 Annual
Standard Pacific Credit Opportunities Fund, L.P. Credit Strategies 19,969,185 5.48 Annual
--------------------------
$ 353,613,206 97.13%
--------------------------
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 7/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. Distressed Investments $ 17,941,362 22.83% Semi-Annual
King Street Capital, L.P. Distressed Investments 16,630,070 21.16 Quarterly
Satellite Credit Opportunities Fund, Ltd. Distressed Investments 3,151,631 4.01 Annual
Silver Point Capital Fund, L.P. Distressed Investments 19,157,952 24.37 Annual
Watershed Capital Partners, L.P. Distressed Investments 13,477,911 17.15 Quarterly
--------------------------
$ 70,358,926 89.52%
--------------------------
23
Notes to Financial Statements (continued) (unaudited)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 7/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. Long/Short Equity Investments $ 47,709,649 8.37% Semi-Annual
Bay Resource Partners, L.P. Long/Short Equity Investments 33,272,793 5.84 Annual
Cadmus Capital Partners (QP), L.P. Long/Short Equity Investments 48,346,432 8.48 Quarterly
Cantillion Pacific, L.P. Long/Short Equity Investments 16,330,152 2.86 Quarterly
Cantillion U.S., L.P. Long/Short Equity Investments 13,178,059 2.31 Quarterly
Cavalry Technology, L.P. Long/Short Equity Investments 39,951,769 7.01 Annual
The Elkhorn Fund, LLC Long/Short Equity Investments 49,966,027 8.76 Quarterly
Highside Capital Partners, L.P. Long/Short Equity Investments 47,474,342 8.33 Annual
Icarus Qualified Partners, L.P. Short Equity Investments 12,567,756 2.20 Annual
JL Partners, L.P. Long/Short Equity Investments 60,608,765 10.63 Quarterly
North River Partners, L.P. Long/Short Equity Investments 37,652,616 6.60 Quarterly
Standard Global Equity Partners SA, L.P. Long/Short Equity Investments 45,097,770 7.91 Annual
Viking Global Equities, L.P. Long/Short Equity Investments 44,215,193 7.76 Annual
--------------------------
$ 496,371,323 87.06%
--------------------------
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 7/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
AQR Absolute Return Institutional Fund, L.P. Multi-Strategy $ 22,573,976 21.50% Quarterly
Bravura 99 Fund, L.P. Low Beta/Market Neutral/Long Short 22,218,672 21.16 Quarterly
Cantillion U.S. Low Volatility L.P. Low Beta/Market Neutral/Long Short 29,640,035 28.23 Quarterly
GMO Mean Reversion Fund Quantitative Asset Allocation 19,406,669 18.48 Quarterly
--------------------------
$ 93,839,352 89.37%
--------------------------
24
Notes to Financial Statements (continued) (unaudited)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL OPPORTUNITIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 7/31/2006 CAPITAL LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------------
Avdan Partners, L.P. Long/Short Equity Investments $ 4,324,367 3.86% Annual
GMO U.S. Tactical Opportunities
Fund (Onshore), L.P. Long/Short Equity Investments 7,203,477 6.42 Monthly
Joho Partners, L.P. Long/Short Equity Investments 13,911,850 12.41 Semi-Annual
Pequot Short Credit Fund, L.P. Credit Related 5,814,708 5.19 Quarterly
Phinity Partners, L.P. Long/Short Equity Investments 9,029,491 8.05 Quarterly
Rimrock High Income PLUS, L.P. Credit Related 5,485,409 4.89 Quarterly
Saras Capital Partners, L.P. Long/Short Equity Investments 9,162,349 8.17 Annual
Scopia PX, LLC Event-Driven 8,236,858 7.35 Quarterly
Sheffield Institutional Partners, L.P. Event-Driven 5,839,266 5.21 Annual
Spindrift Partners, L.P. Real Assets 9,190,106 8.20 Semi-Annual
Standard Pacific Asymmetric
Opportunities Fund, L.P. Credit Related 3,562,884 3.18 Annual
Venn Global Opportunities Fund L.P. Long/Short Equity Investments 9,514,867 8.49 Quarterly
--------------------------
$ 91,275,632 81.42%
--------------------------
8. SUBSEQUENT EVENTS
Through September 1, 2006, the Funds received the following contributions:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $47,706,733
Aetos Capital Distressed Investment Strategies Fund, LLC 19,152,502
Aetos Capital Long/Short Strategies Fund, LLC 97,525,100
Aetos Capital Market Neutral Strategies Fund, LLC 12,409,124
Aetos Capital Opportunities Fund, LLC 13,231,865
and paid no redemptions.
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
interpretation 48 ("FIN 48"), "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES". This
standard defines the threshold for recognizing the benefits of tax-return
positions in the financial statements as "more-likely-than-not" to be sustained
by the taxing authority and requires measurement of a tax position meeting the
more-likely-than-not criterion, based on the largest benefit that is more than
50 percent likely to be realized. FIN 48 is effective as of the beginning of the
first fiscal year beginning after December 15, 2006. At adoption, companies must
adjust their financial statements to reflect only those tax positions that are
more-likely-
25
Notes to Financial Statements (concluded) (unaudited)
9. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
than-not to be sustained as of the adoption date. As of July 31, 2006, the Funds
do not believe the impact of the adoption of FIN 48 will be material to the
financial statements.
10. COMMITMENTS
At July 31, 2006, the Funds had made commitments to purchase underlying funds as
follows:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Ishin Fund, LLC $ 5,000,000
Lazard Emerging Income, L.P. 5,000,000
Farallon Capital Offshore Investors, Inc. 20,000,000
Pequot Short Credit Fund, L.P. 10,000,000
------------
40,000,000
------------
Aetos Capital Distressed Investment Strategies Fund, LLC
Aurelius Capital Partners, L.P. 10,000,000
King Street Capital, L.P. 10,000,000
------------
20,000,000
------------
Aetos Capital Long/Short Strategies Fund, LLC
Cadmus Capital Partners (QP), L.P. 20,000,000
Cavalry Technology, L.P. 20,000,000
The Elkhorn Fund, LLC 18,000,000
Highside Capital Partners, L.P. 15,000,000
JL Partners, L.P. 8,000,000
Standard Global Equity Partners SA, L.P. 20,000,000
Viking Global Equities, L.P. 10,000,000
------------
111,000,000
------------
Aetos Capital Market Neutral Strategies Fund, LLC
AQR Absolute Return Institutional Fund, L.P. 10,000,000
Bravura 99 Fund, L.P. 10,000,000
------------
20,000,000
------------
Aetos Capital Opportunities Fund, LLC
GMO U.S. Tactical Opportunities Fund (Onshore), L.P. 5,000,000
Pequot Short Credit Fund, L.P. 2,000,000
Rimrock High Income PLUS, L.P. 1,000,000
Saras Capital Partners, L.P. 3,000,000
Scopia PX, LLC 5,000,000
Standard Pacific Asymmetric Opportunities Fund, L.P. 3,000,000
Venn Global Opportunities Fund L.P. 3,000,000
------------
22,000,000
------------
26
Approval of Investment Advisory Agreements (unaudited)
At a meeting held in person on July 11, 2006, the Board of Managers of each
Fund, including the independent board members (the "Boards"), discussed the
materials previously provided to them and reviewed the nature, quality and scope
of the services provided to the Funds by Aetos. The Boards also considered the
proposed fees to be charged under the advisory agreements, as well as each
Fund's performance, and reviewed the comparative fee and performance data
previously provided by Aetos. The Independent Board Members reviewed reports
from third parties and management about the foregoing factors. The Board members
gave particular consideration to the following factors:
NATURE, EXTENT AND QUALITY OF SERVICES
The Boards reviewed and considered the nature and extent of the investment
advisory services provided by Aetos to each Fund under the Investment Advisory
Agreements (the "Advisory Agreement"), including the selection of underlying
hedge funds ("Portfolio Funds"), allocation of each Fund's assets among, and
monitoring performance of, Portfolio Funds, evaluation of risk exposure of
Portfolio Funds and reputation, experience and training of Portfolio Funds'
investment managers ("Portfolio Managers"), management of short-term cash and
operations of each Portfolio Fund, and day-to-day portfolio management and
general due diligence examination of Portfolio Funds before and after committing
assets of each Fund for investment. The Boards also reviewed and considered the
nature and extent of the non-advisory, administrative services provided by Aetos
under the Advisory Agreement, including, among other things, providing to each
Fund office facilities, equipment, and personnel. The Boards also reviewed and
considered the qualifications of the portfolio managers, the senior
administrative managers and other key personnel of Aetos who provide the
investment advisory and administrative services to each Fund. The Boards
determined that Aetos' portfolio managers and key personnel are well qualified
by education and/or training and experience to perform the services in an
efficient and professional manner. The Boards concluded that the overall quality
of the advisory and administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Boards reviewed the performance of each Fund based on information provided
by Aetos that showed (i) each Fund's historical performance as of May 2006
compared to various diversified hedge fund indices, and (ii) each Fund's return
for its most recent fiscal year as compared to the return of other comparable
registered funds-of-hedge-funds for their most recent fiscal years. The Boards
considered each Fund's positive performance since inception and the relative
lack of correlation of such performance to fixed income or equity indices
generally or to any one Portfolio Fund, and the relatively low level of
performance volatility of the Funds. The Boards concluded that each Fund's
performance was satisfactory.
27
Approval of Investment Advisory Agreements (continued) (unaudited)
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Boards reviewed the advisory fee rate and total expense ratio of each Fund.
The Boards also reviewed the annual 0.50% separate program (the "Program") fee
and the performance fee of 10% of aggregate Program net profits (the "Incentive
Fee") payable to Aetos by investors in the Funds. The Boards noted that Aetos
had contractually agreed to cap "other expenses," other than extraordinary or
non-recurring expenses, at 0.25% (0.35% with respect to the Aetos Capital
Opportunities Fund) at least until May 31, 2007, so that the net expenses
(excluding the Incentive Fee) do not exceed (a) 1.50% (1.60% with respect to an
investor in the Aetos Capital Opportunities Fund) of an investor's average
monthly Program assets (assuming that the maximum Program fee applies), with
respect to investors participating in the Program or (b) 1.00% (1.10% with
respect to an investor in the Aetos Capital Opportunities Fund) of an investor's
average monthly Fund assets, with respect to investors investing directly in the
Funds. The Boards also reviewed a report prepared by Aetos comparing the fees
payable by each Fund to those payable by other comparable registered
funds-of-hedge-funds. The Boards noted that the fees payable to Aetos, including
the Program fee and the Incentive Fee, were lower than or comparable to the fees
payable to the advisers of most comparable registered funds-of-hedge-funds. The
Board concluded that each Fund's advisory fee, Program fee, Incentive Fee and
total expense ratio were reasonable and satisfactory in light of the services
provided.
BREAKPOINTS AND ECONOMIES OF SCALE
The Boards reviewed the structure of each Fund's management fee schedule under
the Advisory Agreement and noted that it does not include any breakpoints. The
Boards considered that each Fund's advisory fee was 0.75% and concluded that the
fee was sufficiently low that the Boards did not need to consider adding
breakpoints at this time. The Boards also determined that, given the relative
size of each Fund, economies of scale were not a factor that needed to be
considered at this time.
PROFITABILITY OF ADVISER AND AFFILIATES
The Boards considered and reviewed information concerning the costs incurred and
profits realized by Aetos and its affiliates during the previous year from
Aetos' relationship with each Fund. The Boards noted that the Funds' investor
base consists of sophisticated investors that are capable of evaluating whether
the fees charged and the services provided by Aetos are appropriate. The Boards
noted that Aetos had become profitable in 2005 for the first time, but that its
profit margins were not substantial at this point. Based on their review of the
information they received, the Boards concluded that the profits earned by Aetos
and its affiliates were not excessive in light of the advisory, administrative
and other services provided to each Fund.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Boards concluded it
would be in the best interest of each Fund and its members to approve renewal of
the Advisory Agreement for an additional annual term.
28
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable as Interests of the Fund are not registered pursuant to Section
12 of the Exchange Act.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's board of directors since the Registrant's
last proxy solicitation.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Not applicable for semi-annual report.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Aetos Capital Long/Short Strategies Fund, LLC
By (Signature and Title)* /s/ Michael F. Klein
---------------------------
Michael F. Klein, President
Date: 09/26/06
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Michael F. Klein
---------------------------
Michael F. Klein, President
Date: 09/26/06
By (Signature and Title)* /s/ Scott D. Sawyer
--------------------------
Scott D. Sawyer, Treasurer
Date: 09/26/06
* Print the name and title of each signing officer under his or her signature.