UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-21058
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
(Exact name of registrant as specified in charter)
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c/o Aetos Capital, LLC
875 Third Avenue
New York, NY 10022
(Address of principal executive offices) (Zip code)
James M. Allwin
Aetos Capital, LLC
New York, NY 10022
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-212-201-2500
DATE OF FISCAL YEAR END: JANUARY 31, 2007
DATE OF REPORTING PERIOD: JANUARY 31, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
AETOS CAPITAL OPPORTUNITIES FUND, LLC
Financial Statements
January 31, 2007
TABLE OF CONTENTS
Fund Commentaries..............................................................1
Report of Independent Registered Public Accounting Firm........................7
Schedules of Investments.......................................................8
Statements of Assets and Liabilities..........................................13
Statements of Operations......................................................14
Statements of Changes in Members' Capital.....................................15
Statements of Cash Flows......................................................18
Financial Highlights..........................................................19
Notes to Financial Statements.................................................24
Managers and Officers of the Funds............................................35
The Funds file their complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of each period. The Funds' Forms N-Q
are available on the Commission's web site at HTTP://WWW.SEC.GOV, and may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities, as well as information
relating to how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30, is available (i) without charge,
upon request, by calling 1-212-201-2500; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Fund Commentary
For the year ended January 31, 2007
(Unaudited)
The Aetos Capital Multi-Strategy Arbitrage Fund, LLC (the "Fund") allocates its
assets among a select group of portfolio managers that utilize a variety of
arbitrage strategies while seeking to produce an attractive absolute return on
invested capital, largely independent of the various benchmarks associated with
traditional asset classes.
The Fund includes allocations to event arbitrage and fixed income arbitrage
managers. Event arbitrage managers seek to identify mispricings in securities
that will be resolved through an anticipated event. Events can include mergers,
acquisitions, spinoffs, recapitalizations and bankruptcy (either entering into
bankruptcy or emerging from it). Skills required include the ability to analyze
the relative value of the securities involved and the probability of the event
taking place in a timely manner. Fixed income arbitrage managers seek to
identify discrepancies in the prices of securities that are very closely related
and arbitrage that discrepancy.
For the year ended January 31, 2007, the Fund had a total return of 10.36%.(1)
For the period from commencement of operations on August 21, 2002 through
January 31, 2007, the Fund had an average annual total return of 8.38%.
This was an extraordinarily strong year for a majority of our arbitrage
managers, and is particularly notable given that volatility remained muted. Our
event managers had an especially good year and our fixed income managers
performed well, while our short-biased credit managers struggled with a credit
market in which spreads narrowed even further. Below, we discuss some of the
major sub-strategies in the Fund.
This past year represented the first in many when merger arbitrage produced
strong returns. Aided by the most robust Mergers and Arbitrage ("M&A") market in
history with $3.8 trillion of global volume, our managers took a selective
approach in choosing deals. Particularly fruitful were transactions with higher
spreads, which typically involved more complex circumstances such as unsolicited
and cross-border activity. In fact, 2006 represented the largest year ever for
cross-border activity with European consolidation in the energy (E.ON/Endesa),
power (Iberdrola/Scottish Power), and industrial (Mittal/Arcelor) sectors. With
deal volumes building throughout 2006 and the fourth quarter the largest ever
for announced M&A, we see a healthy opportunity set for this strategy in 2007.
Our Asian convertible arbitrage manager continued to produce attractive returns
by pursuing a traditional hedged strategy in geographies where convertibles are
priced less efficiently for structural reasons. Although implied volatilities
increased only modestly in 2006, the spread between realized and implied
volatility remained healthy for much of the year, which aided returns. In
addition, some yield curve strategies benefited as the anomalies they had
identified in the shape of the forward curve corrected over the course of the
first half of the year.
- --------------------------
(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager. Returns would have been lower without such waivers and
reimbursements. Returns do not reflect Program fees and expenses charged at the
separate account level.
1
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Fund Commentary (continued)
For the year ended January 31, 2007
(Unaudited)
Our managers have also enhanced their strategies where appropriate and
complementary to an existing skill set. For instance, one manager has been able
to construct credit-neutral arbitrage positions on structured product
instruments by finding tranches that are mispriced. Given the enormous size of
the structured product market and relative lack of arbitrageurs, we are not
surprised that such opportunities exist and feel that such a strategy is a
useful addition to an absolute return portfolio. Even better, opportunities such
as these will probably become better should the markets in which they trade
become stressed, as natural buyers will be scarce and few hedge funds will have
sufficient expertise to provide liquidity.
2
Aetos Capital Distressed Investment Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2007
(Unaudited)
The Aetos Capital Distressed Investment Strategies Fund, LLC (the "Fund")
allocates its assets among a select group of portfolio managers across a variety
of distressed investment strategies while seeking to produce an attractive
absolute return on invested capital, largely independent of the various
benchmarks associated with traditional asset classes.
The Fund allocates to investment managers that buy the securities (generally
bonds and bank loans) of companies that are in bankruptcy or in danger of
bankruptcy. These managers are able to buy these securities at a discount to
their eventual value because traditional fixed income portfolio managers who
bought the bonds or banks that made the loans may not want to or be able to own
them once they are in default. The sellers may also not have the expertise and
patience to go through a lengthy restructuring process. Distressed investing
involves credit analysis, legal expertise and (often) negotiating ability, as
the portfolio manager must estimate the value of the claims he is buying, the
likely timing and resolution of the bankruptcy process and also may be called
upon to reach agreements with other claimants in order to speed the process.
For the year ended January 31, 2007, the Fund had a total return of 12.95%.(1)
For the period from commencement of operations on August 21, 2002 through
January 31, 2007, the Fund had an average annual total return of 13.23%.
Our expectation of weakening fundamentals and rising defaults proved premature
in 2006. Corporate earnings continued to surge, with double digit growth in
earnings for the S&P 500 for the fifth straight year. At the same time, defaults
remain near all time lows as weaker companies are able to refinance their way
out of jams. Given the limited supply of defaulted credits as well as the
cautious approach of our managers, we are quite pleased with the results our
managers were able to generate in 2006. Firms in the auto sector continued to
make progress on their restructuring plans. In addition, many managers' legacy
positions, some of which have transitioned to equity, benefited from the
attractive macroeconomic climate.
LBO activity and continued pressure by shareholders to return capital are
leading corporate managements to re-lever their balance sheets, with net
corporate borrowing (non-financial) returning to late 1990's levels. The result
has been a record level of buybacks and special dividends in the past year.
Ultimately, certain of these companies with unstable cash flows which decided to
increase leverage to an extreme should provide good opportunities for our
distressed managers.
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(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager. Returns would have been lower without such waivers and
reimbursements. Returns do not reflect Program fees and expenses charged at the
separate account level.
3
Aetos Capital Long/Short Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2007
(Unaudited)
The Aetos Capital Long/Short Strategies Fund, LLC (the "Fund") allocates its
assets among a select group of portfolio managers across a variety of long/short
strategies while seeking to produce an attractive absolute return on invested
capital, largely independent of the various benchmarks associated with
traditional asset classes. The Fund is composed of managers that operate
long-biased portfolios of stocks, usually based on bottom-up equity research.
These portfolios generally vary from 20% to 40% net long.
For the year ended January 31, 2007, the Fund had a total return of 9.61%.(1)
For the period from commencement of operations on August 21, 2002 through
January 31, 2007, the Fund had an average annual total return of 8.25%.
The late summer rally in the equity markets gained steam during the fourth
quarter as positive economic data combined with lower long-term interest rates
emboldened investors. The year as a whole was the best since 2003, with all
major global markets, save Japan, clocking double digit returns. Japan's poor
performance was perhaps the biggest surprise of the year. Although the economy
continued to recover, it failed to accelerate as many had expected, popping the
country's small cap growth bubble (Japan's Mothers Index was down 56% for 2006)
while larger cap names treaded water. Another surprise was that 2006 did not
mark the return of large cap dominance; instead, small cap stocks outperformed
by 3.5%.
While our long/short managers certainly benefited somewhat from the rising tide
of the equity markets, with this portfolio averaging only 38% net long, a
significant portion of the return can be attributed to superior stock selection.
Many of our managers had gains in 2006 from sizeable positions in companies they
had held for a significant amount of time. In the case of one manager, they had
made an investment in a metal producer in 2005 when this company was trading at
a cash flow yield north of 7%. As the manager gained confidence in the position,
it was increased to 8% of their portfolio and has subsequently added nine
percentage points to the fund's cumulative return.
On the short side, our managers generally proved adept at avoiding the landmines
that private equity takeouts represent. The environment of moderating growth in
the U.S. presented significant opportunities on which many of our managers were
able to capitalize. One of the most impressive performances of the year was no
doubt by our short-only manager; the fact that they were flat during this year's
powerful bull market is quite remarkable. They generated significant alpha in
homebuilders, consumer finance and consumer discretionary names. This
performance helped significantly lower the downside volatility of the portfolio,
especially in May when this fund was up over 7% percent while the S&P 500 was
down 3%.
- --------------------------
(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager. Returns would have been lower without such waivers and
reimbursements. Returns do not reflect Program fees and expenses charged at the
separate account level.
4
Aetos Capital Market Neutral Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2007
(Unaudited)
The Aetos Capital Market Neutral Strategies Fund, LLC (the "Fund") allocates its
capital among a select group of portfolio managers across a variety of market
neutral strategies while seeking to produce an attractive absolute return on
invested capital, largely independent of the various benchmarks associated with
traditional asset classes.
The Fund contains managers that attempt to create long and short portfolios that
are roughly equal in size and therefore immune to overall stock markets
movements. Often these strategies are quantitative in nature, using computer
screens to pick long and short portfolios of stocks and balancing their risk
exposure through optimization techniques.
For the year ended January 31, 2007, the Fund had a total return of 3.68%.(1)
For the period from commencement of operations on August 21, 2002 through
January 31, 2007, the Fund had an average annual total return of 2.84%.
While the returns proved steady, we continue to be disappointed with the
performance of this Fund. Ultimately, we believe the real value of a market
neutral allocation will be experienced during times of high volatility when the
Fund can serve as ballast to a portfolio, muting the volatility experienced by
allocations with higher equity and credit biases. June of this past year was
just such an example: while the other four strategy funds were flat to down for
the month as the equity markets swooned, the Fund generated 1.24%.
The long-term opportunity set for market neutral managers has become
increasingly challenging, even more so than for other absolute return
strategies. As ever more capital has flowed into this strategy, factors that
used to generate alpha have dissipated away. Success is increasingly dependent
upon building an extensive and rigorous research process that resembles a
university research laboratory. We are examining several candidates who model
their firms in this way and who are developing an investment process that
exploits a number of time horizons.
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(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager. Returns would have been lower without such waivers and
reimbursements. Returns do not reflect Program fees and expenses charged at the
separate account level.
5
Aetos Capital Opportunities Fund, LLC
Fund Commentary
For the year ended January 31, 2007
(Unaudited)
The Aetos Capital Opportunities Fund, LLC (the "Fund") allocates its assets
among a select group of portfolio managers across a variety of opportunistic
strategies while seeking to produce an attractive absolute return on invested
capital, largely independent of the various benchmarks associated with
traditional asset classes. The Fund is composed of managers that operate
smaller-sized, more idiosyncratic portfolios employing directional strategies or
focusing on particular markets or sectors.
For the year ended January 31, 2007, the Fund had a total return of 2.41%.(1)
For the period from commencement of operations on May 27, 2005 through January
31, 2007, the Fund had an average annual total return of 4.38%.
As mentioned in prior letters, we have been frustrated by the mediocre returns
for the Fund. Much of the underperformance of the Fund can be attributed to the
short credit positions which have suffered significantly as the credit markets
rallied this year. While the short credit investment currently makes the fund
look worse from a returns perspective, in the context of a portfolio it seems a
sensible tactical bet that should provide significant benefits when the credit
cycle turns.
Nevertheless, we have been diligently examining the Fund and seeking ways to
improve its performance. We are having success in identifying talented stock
pickers operating under the radar of other long/short managers whom we are
enthusiastic about adding to the portfolio. We have also selectively trimmed a
few positions from the Fund.
On the plus side, there were a number of significant positive contributions by
our smaller, more nimble managers. One manager, with assets under $500 million,
took advantage of its lean size during the year by focusing on only three new
opportunities in the small cap space. These investments included a U.K.
furniture manufacturer, a regional U.S. chicken producer and a snack food
distributor. The firm's small asset size enables it to focus on under-researched
small cap companies, occasionally becoming actively involved in corporate
governance. Our energy-focused long/short manager also continued to produce
double-digit returns, as a number of its investments in the upstream E&P sector
rallied and its Canadian natural gas production companies were able to meet
their drilling schedules. These types of investments epitomize the type of
under-researched companies that the Fund managers uncover through a
research-intensive approach.
- --------------------------
(1) Returns are net of expenses and fees incurred at the Fund level. The returns
also reflect Fund level expenses that have been waived and/or reimbursed by the
Investment Manager. Returns would have been lower without such waivers and
reimbursements. Returns do not reflect Program fees and expenses charged at the
separate account level.
6
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Members of the Aetos Capital Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations, of
changes in members' capital and of cash flows and the financial highlights
present fairly, in all material respects, the financial position of Aetos
Capital Multi-Strategy Arbitrage Fund, LLC, Aetos Capital Distressed Investment
Strategies Fund, LLC, Aetos Capital Long/Short Strategies Fund, LLC, Aetos
Capital Market Neutral Strategies Fund, LLC, and Aetos Capital Opportunities
Fund, LLC (hereafter referred to as the "Funds") at January 31, 2007, the
results of each of their operations and cash flows for the year then ended, and
the changes in each of their members' capital for each of the two years in the
period then ended and the financial highlights for the periods presented (except
for the Aetos Capital Opportunities Fund, LLC whose changes in members' capital
and financial highlights are shown for the year ended January 31, 2007 and for
the period May 27, 2005 (commencement of operations) through January 31, 2006),
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of the underlying
portfolio funds at January 31, 2007, provide a reasonable basis for our opinion.
As explained in Note 2, the financial statements include investments held by
Aetos Capital Multi-Strategy Arbitrage Fund, LLC, Aetos Capital Distressed
Investment Strategies Fund, LLC, Aetos Capital Long/Short Strategies Fund, LLC,
Aetos Capital Market Neutral Strategies Fund, LLC, and Aetos Capital
Opportunities Fund, LLC valued at $384,147,314 (85.8% of the Fund's members'
capital), $102,566,471 (93.3% of the Fund's members' capital), $732,639,134
(99.2% of the Fund's members' capital), $112,158,484 (97.9% of the Fund's
members' capital), and $125,173,697 (89.5% of the Fund's members' capital)
respectively, at January 31, 2007, the values of which have been estimated by
the Investment Manager, under general supervision of the Board of Managers, in
the absence of readily ascertainable market values. Those estimated values may
differ significantly from the values that would have been used had a ready
market for the investments existed, and the difference could be material.
PricewaterhouseCoopers, LLP
New York, NY
March 30, 2007
7
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Schedule of Investments
January 31, 2007
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Convertible Arbitrage 6.79%
Credit Strategies 8.19%
Fixed Income Arbitrage 24.85%
Multi-Strategy/Event Arbitrage 60.17%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
Davidson Kempner Partners $ 50,000,000 $ 62,651,879 14.00%
Farallon Capital Offshore Investors, Inc. 39,000,000 44,046,589 9.84
FFIP, L.P. 29,630,000 36,013,951 8.05
Ishin Fund, LLC 23,000,000 26,100,721 5.83
Lazard Emerging Income, L.P. 25,000,000 26,250,319 5.86
Parsec Trading Corp. 14,100,000 15,623,254 3.49
Pequot Credit Opportunities Fund, L.P. 20,000,000 22,229,885 4.97
Pequot Short Credit Fund, L.P. 10,000,000 9,222,141 2.06
Perry Partners, L.P. 26,868,444 34,564,195 7.72
Satellite Fund II, L.P. 25,850,000 35,102,243 7.84
South Hill Trading Corp. 15,000,000 17,564,992 3.92
Sowood Alpha Fund, L.P. 42,000,000 54,777,145 12.24
----------------------------------------------------
Total $ 320,448,444 $ 384,147,314 85.82%
====================================================
*Percentages are based on Members' Capital of $447,632,069.
The aggregate cost of investments for tax purposes was $337,704,312. Net unrealized appreciation on investments
for tax purposes was $46,443,002 consisting of $47,220,861 of gross unrealized appreciation and $777,859 of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 85.82% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
Aetos Capital Distressed Investment Strategies Fund, LLC
Schedule of Investments
January 31, 2007
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Distressed Investments 100.00%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. $ 27,500,000 $ 30,291,525 27.55%
King Street Capital, L.P. 24,050,000 29,880,355 27.17
One East Partners, L.P. 1,500,000 1,593,649 1.45
Silver Point Capital Fund, L.P. 19,100,000 26,469,027 24.07
Watershed Capital Partners, L.P. 11,050,000 14,331,915 13.03
----------------------------------------------------
Total $ 83,200,000 $ 102,566,471 93.27%
====================================================
*Percentages are based on Members' Capital of $109,966,905.
The aggregate cost of investments for tax purposes was $87,837,247. Net unrealized appreciation on investments
for tax purposes was $14,729,224 consisting of $14,729,224 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 93.27% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments
January 31, 2007
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Short Equity Investments 2.19%
Long/Short Equity Investments 97.81%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. $ 32,000,000 $ 53,184,043 7.20%
Bay Resource Partners, L.P. 33,000,000 47,256,601 6.40
Cadmus Capital Partners (QP), L.P. 64,330,248 75,613,237 10.24
Cantillion Pacific, L.P. 13,000,000 16,709,503 2.26
Cantillion U.S., L.P. 12,699,464 13,848,975 1.88
Cavalry Technology, L.P. 58,750,000 64,924,619 8.80
The Elkhorn Fund, LLC 42,854,685 50,360,824 6.82
Highside Capital Partners, L.P. 60,000,000 66,393,253 8.99
Icarus Qualified Partners, L.P. 16,000,000 16,056,007 2.18
JL Partners, L.P. 57,820,000 74,639,035 10.11
North River Partners, L.P. 36,650,000 43,313,497 5.87
Standard Global Equity Partners SA, L.P. 58,700,000 70,574,259 9.56
ValueAct Capital Partners III, L.P. 75,000,000 78,164,371 10.59
Viking Global Equities, L.P. 50,000,000 61,600,910 8.35
----------------------------------------------------
Total $ 610,804,397 $ 732,639,134 99.25%
====================================================
*Percentages are based on Members' Capital of $738,209,954.
The aggregate cost of investments for tax purposes was $627,637,077. Net unrealized appreciation on investments
for tax purposes was $105,002,057 consisting of $105,002,057 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 99.25% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
Aetos Capital Market Neutral Strategies Fund, LLC
Schedule of Investments
January 31, 2007
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Quantitative Asset Allocation 17.55%
Multi-Strategy 26.04%
Low Beta/Market Neutral/Long Short 56.41%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
AQR Absolute Return Institutional Fund, L.P. $ 26,187,363 $ 29,208,914 25.50%
Bravura 99 Fund, L.P. 30,682,132 33,211,718 29.00
Cantillion U.S. Low Volatility, L.P. 27,500,000 30,060,310 26.24
GMO Mean Reversion Fund 16,000,000 19,677,542 17.18
----------------------------------------------------
Total $ 100,369,495 $ 112,158,484 97.92%
====================================================
*Percentages are based on Members' Capital of $114,536,900.
The aggregate cost of investments for tax purposes was $104,188,632. Net unrealized appreciation on investments
for tax purposes was $7,969,852 consisting of $7,969,852 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 97.92% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
Aetos Capital Opportunities Fund, LLC
Schedule of Investments
January 31, 2007
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE CHART GRAPHIC OMITTED]
Plot points are as follows:
Real Assets 15.58%
Credit Related 7.94%
Event-Driven 20.11%
Long/Short Equity Investments 56.37%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- -----------------------------------------------------------------------------------------------------------------
GMO U.S. Tactical Opportunities Fund (Onshore), L.P. $ 14,500,000 $ 13,899,240 9.93%
Joho Partners, L.P. 19,000,000 22,997,647 16.44
Pequot Short Credit Fund, L.P. 8,000,000 7,214,524 5.16
Sansar Capital, L.P. 2,000,000 2,046,734 1.46
Saras Capital Partners, L.P. 15,000,000 16,834,503 12.03
Scopia PX, LLC 14,000,000 15,707,040 11.23
Sheffield Institutional Partners, L.P. 8,500,000 9,470,511 6.77
Spindrift Partners, L.P. 18,000,000 19,499,144 13.94
Standard Pacific Asymmetric Opportunities Fund, L.P. 3,000,000 2,722,610 1.95
Venn Global Opportunities Fund L.P. 14,500,000 14,781,744 10.56
----------------------------------------------------
Total $ 116,500,000 $ 125,173,697 89.47%
====================================================
*Percentages are based on Members' Capital of $139,908,529.
The aggregate cost of investments for tax purposes was $116,476,124. Net unrealized appreciation on investments
for tax purposes was $8,697,573 consisting of $10,160,270 of gross unrealized appreciation and $1,462,697 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 89.47% of Members' Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
Statements of Assets and Liabilities
January 31, 2007
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 $320,448,444 $ 83,200,000 $610,804,397 $100,369,495 $116,500,000
-----------------------------------------------------------------------------------------
Investments in Portfolio Funds, at value $384,147,314 $102,566,471 $732,639,134 $112,158,484 $125,173,697
Cash and cash equivalents 2,527,411 916,273 1,948,799 3,298,506 544,742
Prepaid investments 60,000,000 7,000,000 10,000,000 -- 13,000,000
Receivable for sale of investments 5,331,897 326,152 -- -- 1,458,011
Accrued income 165,266 30,489 42,600 11,466 33,072
Prepaid tax withholding -- 5,206 -- -- --
Due from investment manager -- 489 -- -- --
-----------------------------------------------------------------------------------------
Total assets 452,171,888 110,845,080 744,630,533 115,468,456 140,209,522
-----------------------------------------------------------------------------------------
LIABILITIES
Sales of Interests received in advance 4,049,695 705,405 5,661,235 755,040 103,725
Investment management fees payable 285,320 70,093 470,546 73,007 89,180
Administration fees payable 65,759 16,549 106,784 18,132 20,211
Board of Managers' fees payable 5,475 5,475 5,475 5,475 5,475
Tax withholding payable 4,272 -- 26,587 3,347 3,792
Other accrued expenses 129,298 80,653 149,952 76,555 78,610
-----------------------------------------------------------------------------------------
Total liabilities 4,539,819 878,175 6,420,579 931,556 300,993
-----------------------------------------------------------------------------------------
NET MEMBERS' CAPITAL $447,632,069 $109,966,905 $738,209,954 $114,536,900 $139,908,529
=========================================================================================
MEMBERS' CAPITAL
Net capital $383,933,199 $ 90,600,434 $616,375,217 $102,747,911 $131,234,832
Net unrealized appreciation on
investments in Portfolio Funds 63,698,870 19,366,471 121,834,737 11,788,989 8,673,697
-----------------------------------------------------------------------------------------
Members' Capital $447,632,069 $109,966,905 $738,209,954 $114,536,900 $139,908,529
=========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
Statements of Operations
For the year ended January 31, 2007
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 $ 773,282 $ 285,298 $ 1,618,605 $ 336,627 $ 525,881
-----------------------------------------------------------------------------------------
Expenses:
Investment management fees 2,907,589 664,118 4,569,268 814,980 833,450
Administration fees 351,056 82,151 544,599 102,386 99,238
Board of Managers' fees 21,900 21,900 21,900 21,900 21,900
Professional fees 184,968 145,684 191,557 128,699 131,688
Registration fees 127,936 15,459 154,434 15,911 29,238
Custodian fees 42,762 12,881 64,870 14,901 15,266
Printing fees 8,042 5,694 13,063 5,531 7,389
Offering costs -- -- -- -- 14,425
Other expenses 6,860 4,783 5,882 5,187 6,623
-----------------------------------------------------------------------------------------
Total expenses 3,651,113 952,670 5,565,573 1,109,495 1,159,217
Fund expenses reimbursed -- (68,300) -- (27,965) (11,275)
-----------------------------------------------------------------------------------------
Net expenses 3,651,113 884,370 5,565,573 1,081,530 1,147,942
-----------------------------------------------------------------------------------------
Net investment loss (2,877,831) (599,072) (3,946,968) (744,903) (622,061)
-----------------------------------------------------------------------------------------
Net gain/(loss) on Portfolio Funds sold 5,872,811 2,284,426 3,884,397 251,096 (1,948,906)
Net change in unrealized appreciation
on investments in Portfolio Funds 35,987,994 9,650,831 60,092,379 4,492,304 6,112,694
-----------------------------------------------------------------------------------------
Net increase in Members' Capital
derived from investment activities $38,982,974 $11,336,185 $60,029,808 $3,998,497 $3,541,727
=========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
Statements of Changes in Members' Capital
For the years ended January 31, 2006 and January 31, 2007
AETOS CAPITAL DISTRESSED
AETOS CAPITAL MULTI-STRATEGY INVESTMENT STRATEGIES
ARBITRAGE FUND, LLC FUND, LLC
--------------------------------- ---------------------------------
2/1/06 - 2/1/05 - 2/1/06 - 2/1/05 -
1/31/07 1/31/06 1/31/07 1/31/06
--------------------------------- ---------------------------------
From investment activities:
Net investment loss $ (2,877,831) $ (2,129,851) $ (599,072) $ (331,929)
Net gain on Portfolio Funds sold 5,872,811 281,749 2,284,426 --
Net change in unrealized appreciation on
investments in Portfolio Funds 35,987,994 19,837,724 9,650,831 4,773,363
--------------------------------- ---------------------------------
Net increase in Members' Capital
derived from investment activities 38,982,974 17,989,622 11,336,185 4,441,434
--------------------------------- ---------------------------------
Distributions:
Tax withholding on behalf of foreign investors (148,370) (471,422) 25,426 (353,256)
--------------------------------- ---------------------------------
Total distributions (148,370) (471,422) 25,426 (353,256)
--------------------------------- ---------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 98,597,798 84,600,699 39,449,483 14,611,996
Redemptions of Interests (14,826,540) (11,329,467) (7,788,545) (184,006)
Transfers of Interests 4,759,000 (16,486,000) 436,000 2,738,000
--------------------------------- ---------------------------------
Net increase in Members' Capital derived from
capital transactions 88,530,258 56,785,232 32,096,938 17,165,990
--------------------------------- ---------------------------------
Net increase in Members' Capital 127,364,862 74,303,432 43,458,549 21,254,168
Members' Capital at beginning of year 320,267,207 245,963,775 66,508,356 45,254,188
--------------------------------- ---------------------------------
Members' Capital at end of year $447,632,069 $320,267,207 $109,966,905 $66,508,356
================================= ==================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
Statements of Changes in Members' Capital (continued)
For the years ended January 31, 2006 and January 31, 2007
AETOS CAPITAL
AETOS CAPITAL LONG/SHORT MARKET NEUTRAL
STRATEGIES FUND, LLC STRATEGIES FUND, LLC
--------------------------------- ----------------------------------
2/1/06 - 2/1/05 - 2/1/06 - 2/1/05 -
1/31/07 1/31/06 1/31/07 1/31/06
--------------------------------- ----------------------------------
From investment activities:
Net investment loss $ (3,946,968) $ (2,904,647) $ (744,903) $ (577,610)
Net gain on Portfolio Funds sold 3,884,397 1,794,958 251,096 --
Net change in unrealized appreciation on
investments in Portfolio funds 60,092,379 45,632,962 4,492,304 4,248,825
--------------------------------- ----------------------------------
Net increase in Members' Capital
derived from investment activities 60,029,808 44,523,273 3,998,497 3,671,215
--------------------------------- ----------------------------------
Distributions:
Tax withholding on behalf of foreign investors (170,544) (1,386,016) (95,949) (204,118)
--------------------------------- ----------------------------------
Total distributions (170,544) (1,386,016) (95,949) (204,118)
--------------------------------- ----------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 232,971,335 144,104,472 23,497,767 25,303,681
Redemptions of Interests (24,776,905) (33,975,401) (4,890,124) (3,371,932)
Transfers of Interests (1,659,000) (6,788,000) (3,558,000) (12,043,772)
--------------------------------- ----------------------------------
Net increase in Members' Capital derived from
capital transactions 206,535,430 103,341,071 15,049,643 9,887,977
--------------------------------- ----------------------------------
Net increase in Members' Capital 266,394,694 146,478,328 18,952,191 13,355,074
Members' Capital at beginning of year 471,815,260 325,336,932 95,584,709 82,229,635
--------------------------------- ----------------------------------
Members' Capital at end of year $738,209,954 $471,815,260 $114,536,900 $95,584,709
================================= ==================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
Statement of Changes in Members' Capital (concluded)
For the period ended January 31, 2006 and the year ended January 31, 2007
AETOS CAPITAL
OPPORTUNITIES FUND, LLC
----------------------------------
2/1/06 - 5/27/05* -
1/31/07 1/31/06
----------------------------------
From investment activities:
Net investment loss $ (622,061) $ (182,742)
Net loss on Portfolio Funds sold (1,948,906) --
Net change in unrealized appreciation
on investments in Portfolio Funds 6,112,694 2,561,003
----------------------------------
Net increase in Members' Capital
derived from investment activities 3,541,727 2,378,261
----------------------------------
Distributions:
Tax withholding on behalf of foreign investors (21,233) (25,000)
----------------------------------
Total distributions (21,233) (25,000)
----------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 65,538,828 39,826,616
Redemptions of Interests (2,028,981) (1,903,461)
Transfers of Interests 22,000 32,579,772
----------------------------------
Net increase in Members' Capital derived from
capital transactions 63,531,847 70,502,927
----------------------------------
Net increase in Members' Capital 67,052,341 72,856,188
Members' Capital at beginning of period 72,856,188 --
----------------------------------
Members' Capital at end of period $139,908,529 $72,856,188
==================================
*Commencement of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
Statements of Cash Flows
For the year ended January 31, 2007
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 $(94,800,000) $(40,000,000) $(267,199,464) $(32,000,000) $(77,000,000)
Sales of Portfolio Funds 61,330,916 11,034,426 34,699,464 10,348,043 23,551,094
Net investment loss (2,877,831) (599,072) (3,946,968) (744,903) (622,061)
Adjustments to reconcile net investment loss to net
cash used in operating activities:
Increase in prepaid investments (60,000,000) (7,000,000) (10,000,000) -- (9,000,000)
Decrease/(increase) in accrued income (121,526) (12,280) 80,089 26,386 (15,240)
Increase in prepaid tax withholding -- (5,206) -- -- --
Decrease/(increase) in receivable for
sale of investments (5,331,897) (326,152) 905,124 -- (1,458,011)
Increase in due from investment manager -- (489) -- -- --
Decrease in deferred offering costs -- -- -- -- 14,425
Increase in investment management fees payable 80,987 27,510 169,292 11,993 42,726
Increase/(decrease) in administration fees payable (11,657) 846 (5,156) (5,226) 3,761
Increase/(decrease) in other accrued expenses (1,307) 10,076 (1,672) (1,403) 22,067
-----------------------------------------------------------------------------
Net cash used in operating activities (101,732,315) (36,870,341) (245,299,291) (22,365,110) (64,461,239)
-----------------------------------------------------------------------------
DISTRIBUTIONS
Tax withholding on behalf of foreign investors (454,098) (274,574) (963,957) (232,602) (42,441)
-----------------------------------------------------------------------------
Total distributions (454,098) (274,574) (963,957) (232,602) (42,441)
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in sales of Interests
received in advance 3,403,195 499,705 3,909,735 552,390 (11,925)
Proceeds from sales of Interests 98,597,798 39,449,483 232,971,335 23,497,767 65,538,828
Redemptions of Interests (14,826,540) (7,788,545) (24,776,905) (4,890,124) (2,028,981)
Transfers of Interests 4,759,000 436,000 (1,659,000) (3,558,000) 22,000
-----------------------------------------------------------------------------
Net cash provided by financing activities 91,933,453 32,596,643 210,445,165 15,602,033 63,519,922
-----------------------------------------------------------------------------
Net decrease in cash and cash equivalents (10,252,960) (4,548,272) (35,818,083) (6,995,679) (983,758)
Cash and cash equivalents, beginning of year 12,780,371 5,464,545 37,766,882 10,294,185 1,528,500
-----------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,527,411 $ 916,273 $ 1,948,799 $ 3,298,506 $ 544,742
=============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
Financial Highlights
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
-----------------------------------------------------------------------------------
2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/07 1/31/06 1/31/05 1/31/04 1/31/03
-----------------------------------------------------------------------------------
Total return(1) 10.36% 6.48% 2.98% 13.17% 4.44%
Net assets, end of period (000's) $ 447,632 $ 320,267 $ 245,964 $ 35,075 $ 1,092
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 0.95% 0.95% 1.07% 5.04% 43.96%(3)
Expenses, net of waivers and
reimbursements (2)(4) 0.95% 0.95% 1.00% 1.13% 1.25%(3)
Net investment loss, before waivers
and reimbursements (0.75)% (0.77)% (0.96)% (4.87)% (43.95)(3)
Net investment loss, net of waivers
and reimbursements (0.75)% (0.77)% (0.89)% (0.96)% (1.24)(3)
Portfolio turnover rate (5) 16.80% 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.
19
Financial Highlights (continued)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
-----------------------------------------------------------------------------------
2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/07 1/31/06 1/31/05 1/31/04 1/31/03
-----------------------------------------------------------------------------------
Total return(1) 12.95% 8.46% 10.24% 22.13% 5.38%
Net assets, end of period (000's) $ 109,967 $ 66,508 $ 45,254 $ 14,179 $ 2,355
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.08% 1.24% 1.55% 7.72% 22.93%(3)
Expenses, net of waivers and
reimbursements (2)(4) 1.00% 1.00% 1.00% 1.18% 1.25%(3)
Net investment loss, before waivers
and reimbursements (0.76)% (0.88)% (1.50)% (7.65)% (22.92)(3)
Net investment loss, net of waivers
and reimbursements (0.68)% (0.64)% (0.95)% (1.11)% (1.24)(3)
Portfolio turnover rate (5) 13.69% 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.
20
Financial Highlights (continued)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
-----------------------------------------------------------------------------------
2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/07 1/31/06 1/31/05 1/31/04 1/31/03
-----------------------------------------------------------------------------------
Total return(1) 9.61% 11.66% 3.90% 12.88% (0.89)%
Net assets, end of period (000's) $ 738,210 $ 471,815 $ 325,337 $ 57,668 $ 3,562
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 0.92% 0.94% 1.05% 4.09% 18.87%(3)
Expenses, net of waivers and
reimbursements (2)(4) 0.92% 0.94% 1.00% 1.14% 1.25%(3)
Net investment loss, before waivers
and reimbursements (0.65)% (0.78)% (0.95)% (3.96)% (18.86)(3)
Net investment loss, net of waivers
and reimbursements (0.65)% (0.78)% (0.90)% (1.01)% (1.24)(3)
Portfolio turnover rate (5) 6.13% 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.
21
Financial Highlights (continued)
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
-----------------------------------------------------------------------------------
2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 - 8/21/02* -
1/31/07 1/31/06 1/31/05 1/31/04 1/31/03
-----------------------------------------------------------------------------------
Total return(1) 3.68% 4.19% 1.84% 2.81% 0.13%
Net assets, end of period (000's) $ 114,537 $ 95,585 $ 82,230 $ 14,120 $ 1,526
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.02% 1.09% 1.33% 8.79% 31.67%(3)
Expenses, net of waivers and
reimbursements (2)(4) 1.00% 1.00% 1.00% 1.15% 1.25%(3)
Net investment loss, before waivers
and reimbursements (0.71)% (0.74)% (1.28)% (8.69)% (31.65)(3)
Net investment loss, net of waivers
and reimbursements (0.69)% (0.65)% (0.95)% (1.05)% (1.23)(3)
Portfolio turnover rate (5) 10.29% 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.
22
Financial Highlights (concluded)
AETOS CAPITAL
OPPORTUNITIES, LLC
-----------------------------------
2/1/06 - 5/27/05* -
1/31/07 1/31/06
-----------------------------------
Total return(1) 2.41% 4.94%
Net assets, end of period (000's) $ 139,909 $ 72,856
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.05% 1.44%(3)
Expenses, net of waivers and
reimbursements (2)(4) 1.04% 1.07%(3)
Net investment loss, before waivers
and reimbursements (0.57)% (1.11)(3)
Net investment loss, net of waivers
and reimbursements (0.56)% (0.74)(3)
Portfolio turnover rate (5) 24.26% 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.
23
Notes to Financial Statements
January 31, 2007
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 Funds operate under a master fund/feeder fund structure. Feeder Funds invest
substantially all of their investable assets in the Funds. As of January 31,
2007 the Feeder Funds' beneficial ownership of their corresponding Master Funds'
members' capital are 71%, 68%, 70%, 68% and 79% for the Aetos Capital
Multi-Strategy Arbitrage Cayman Fund, Aetos Capital Distressed Investment
Strategies Cayman Fund, Aetos Capital Long/Short Strategies Cayman Fund, Aetos
Capital Market Neutral Strategies Cayman Fund and Aetos Capital Opportunities
Cayman Fund, respectively.
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.
24
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
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.
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
25
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. Portfolio Valuation and Security Transactions (continued)
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.
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 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 January 31, 2007, 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 in the Statements of Changes in
Members' Capital, and are allocated to the individual Members' Capital accounts
to which they apply.
26
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
27
Notes to Financial Statements (continued)
3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
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.
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.
28
Notes to Financial Statements (continued)
5. CONCENTRATION OF RISK (CONTINUED)
In the normal course of business, the Funds enter into contracts that contain a
variety of representations which provide general indemnifications. Each Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against each Fund that have not yet occurred.
However, based on experience, the Funds expect the risk of loss to be remote.
6. INVESTMENT TRANSACTIONS
For the year ended January 31, 2007, purchases and sales of investments were as
follows:
FUND PURCHASES SALES
- ----------------------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $ 94,800,000 $61,330,916
Aetos Capital Distressed Investment Strategies Fund, LLC 40,000,000 11,034,426
Aetos Capital Long/Short Strategies Fund, LLC 267,199,464 34,699,464
Aetos Capital Market Neutral Strategies Fund, LLC 32,000,000 10,348,043
Aetos Capital Opportunities Fund, LLC 77,000,000 23,551,094
7. INVESTMENTS
As of January 31, 2007, collectively the Funds had investments in forty-four
Portfolio Funds, none of which were related parties. The following table lists
the Funds' investments in Portfolio Funds as of January 31, 2007. 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.
29
Notes to Financial Statements (continued)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2007 CAPITAL LIQUIDITY*
- ------------------------------------------------------------------------------------------------------------------------------------
Davidson Kempner Partners Multi-Strategy/Event Arbitrage $ 62,651,879 14.00 % Quarterly
Farallon Capital Offshore Investors, Inc. Multi-Strategy/Event Arbitrage 44,046,589 9.84 Annual
FFIP, L.P. Fixed Income Arbitrage 36,013,951 8.05 Annual
Ishin Fund, LLC Convertible Arbitrage 26,100,721 5.83 Annual
Lazard Emerging Income, L.P. Fixed Income Arbitrage 26,250,319 5.86 Monthly
Parsec Trading Corp. Fixed Income Arbitrage 15,623,254 3.49 Monthly
Pequot Credit Opportunities Fund, L.P. Credit Strategies 22,229,885 4.97 Annual
Pequot Short Credit Fund, L.P. Credit Strategies 9,222,141 2.06 Quarterly
Perry Partners, L.P. Multi-Strategy/Event Arbitrage 34,564,195 7.72 Annual
Satellite Fund II, L.P. Multi-Strategy/Event Arbitrage 35,102,243 7.84 Annual
South Hill Trading Corp. Fixed Income Arbitrage 17,564,992 3.92 Monthly
Sowood Alpha Fund, L.P. Multi-Strategy/Event Arbitrage 54,777,145 12.24 Annual
--------------------------
$384,147,314 85.82 %
--------------------------
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2007 CAPITAL LIQUIDITY*
- ------------------------------------------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. Distressed Investments $ 30,291,525 27.55 % Semi-Annual
King Street Capital, L.P. Distressed Investments 29,880,355 27.17 Quarterly
One East Partners, L.P. Distressed Investments 1,593,649 1.45 Quarterly
Silver Point Capital Fund, L.P. Distressed Investments 26,469,027 24.07 Annual
Watershed Capital Partners, L.P. Distressed Investments 14,331,915 13.03 Quarterly
--------------------------
$102,566,471 93.27 %
--------------------------
*The liquidity of the Portfolio Funds may be further restricted due to withdrawal limitations.
30
Notes to Financial Statements (continued)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2007 CAPITAL LIQUIDITY*
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. Long/Short Equity Investments $ 53,184,043 7.20 % Semi-Annual
Bay Resource Partners, L.P. Long/Short Equity Investments 47,256,601 6.40 Annual
Cadmus Capital Partners (QP), L.P. Long/Short Equity Investments 75,613,237 10.24 Quarterly
Cantillion Pacific, L.P. Long/Short Equity Investments 16,709,503 2.26 Quarterly
Cantillion U.S., L.P. Long/Short Equity Investments 13,848,975 1.88 Quarterly
Cavalry Technology, L.P. Long/Short Equity Investments 64,924,619 8.80 Annual
The Elkhorn Fund, LLC Long/Short Equity Investments 50,360,824 6.82 Quarterly
Highside Capital Partners, L.P. Long/Short Equity Investments 66,393,253 8.99 Annual
Icarus Qualified Partners, L.P. Short Equity Investments 16,056,007 2.18 Annual
JL Partners, L.P. Long/Short Equity Investments 74,639,035 10.11 Quarterly
North River Partners, L.P. Long/Short Equity Investments 43,313,497 5.87 Quarterly
Standard Global Equity Partners SA, L.P. Long/Short Equity Investments 70,574,259 9.56 Annual
ValueAct Capital Partners III, L.P. Long/Short Equity Investments 78,164,371 10.59 Annual
Viking Global Equities, L.P. Long/Short Equity Investments 61,600,910 8.35 Annual
--------------------------
$732,639,134 99.25 %
--------------------------
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2007 CAPITAL LIQUIDITY*
- ------------------------------------------------------------------------------------------------------------------------------------
AQR Absolute Return Institutional Fund, L.P. Multi-Strategy $ 29,208,914 25.50 % Quarterly
Bravura 99 Fund, L.P. Low Beta/Market Neutral/Long Short 33,211,718 29.00 Quarterly
Cantillion U.S. Low Volatility L.P. Low Beta/Market Neutral/Long Short 30,060,310 26.24 Quarterly
GMO Mean Reversion Fund Quantitative Asset Allocation 19,677,542 17.18 Quarterly
--------------------------
$112,158,484 97.92 %
--------------------------
*The liquidity of the Portfolio Funds may be further restricted due to withdrawal limitations.
31
Notes to Financial Statements (continued)
7. INVESTMENTS (CONTINUED)
AETOS CAPITAL OPPORTUNITIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2007 CAPITAL LIQUIDITY*
- ------------------------------------------------------------------------------------------------------------------------------------
GMO U.S. Tactical Opportunities
Fund (Onshore), L.P. Long/Short Equity Investments $ 13,899,240 9.93 % Monthly
Joho Partners, L.P. Long/Short Equity Investments 22,997,647 16.44 Semi-Annual
Pequot Short Credit Fund, L.P. Credit Related 7,214,524 5.16 Quarterly
Sansar Capital, L.P. Long/Short Equity Investments 2,046,734 1.46 Quarterly
Saras Capital Partners, L.P. Long/Short Equity Investments 16,834,503 12.03 Annual
Scopia PX, LLC Event-Driven 15,707,040 11.23 Quarterly
Sheffield Institutional Partners, L.P. Event-Driven 9,470,511 6.77 Annual
Spindrift Partners, L.P. Real Assets 19,499,144 13.94 Semi-Annual
Standard Pacific Asymmetric
Opportunities Fund, L.P. Credit Related 2,722,610 1.95 Annual
Venn Global Opportunities Fund L.P. Long/Short Equity Investments 14,781,744 10.56 Quarterly
--------------------------
$125,173,697 89.47 %
--------------------------
*The liquidity of the Portfolio Funds may be further restricted due to withdrawal limitations.
8. SUBSEQUENT EVENTS
Through March 1, 2007, the Funds received the following contributions:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $44,963,183
Aetos Capital Distressed Investment Strategies Fund, LLC 12,727,393
Aetos Capital Long/Short Strategies Fund, LLC 68,802,473
Aetos Capital Market Neutral Strategies Fund, LLC 13,510,215
Aetos Capital Opportunities Fund, LLC 7,771,463
recorded the following transfers:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $11,981,000
Aetos Capital Distressed Investment Strategies Fund, LLC 2,967,000
Aetos Capital Long/Short Strategies Fund, LLC (6,713,000)
Aetos Capital Market Neutral Strategies Fund, LLC (8,235,000)
Aetos Capital Opportunities Fund, LLC --
and paid no redemptions.
32
Notes to Financial Statements (continued)
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-than-not to be sustained as of the adoption date. Management
continues to evaluate the application of the Interpretation to the Funds, and is
not in position at this time to estimate the significance of its impact, if any,
on the Funds' financial statements.
In September 2006, the FASB issued Statement on Financial Accounting Standards
("SFAS") No. 157, "FAIR VALUE MEASUREMENTS." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. Management is currently evaluating the impact the
adoption of SFAS No. 157 will have on the Funds' financial statement
disclosures.
33
Notes to Financial Statements (concluded)
10. COMMITMENTS
At January 31, 2007, the Funds had made commitments to purchase underlying funds
as follows:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Farallon Capital Offshore Investors, Inc. $30,000,000
HBK Fund, L.P. 30,000,000
--------------
60,000,000
--------------
Aetos Capital Distressed Investment Strategies Fund, LLC
One East Partners, L.P. 7,000,000
Aetos Capital Long/Short Strategies Fund, LLC
Copper River Partners, L.P. 10,000,000
Aetos Capital Market Neutral Strategies Fund, LLC --
Aetos Capital Opportunities Fund, LLC
Sansar Capital, L.P. 13,000,000
34
Managers and Officers of the Funds (unaudited)
NUMBER OF FUNDS IN
POSITION(S) LENGTH OF PRINCIPAL OCCUPATION(S) DURING THE PAST 5 THE FUND COMPLEX
NAME, ADDRESS(1), HELD WITH TIME YEARS/OTHER DIRECTORSHIPS(3) HELD BY BOARD OVERSEEN BY
AGE FUNDS SERVED(2) MEMBER MANAGER(4)
- -------------------------------------------------------------------------------------------------------------------
INDEPENDENT
MANAGERS:
- -------------------------------------------------------------------------------------------------------------------
Senior Vice President, Mercantile
Bankshares, February 2003-Present;
Partner and Manager of Fixed Income,
Brown Investment Advisory and Trust Co.,
April 2000-December 2002; Partner,
Miller Anderson & Sherrerd/Morgan
Ellen Harvey Since Stanley Dean Witter Investment
52 Manager 2002 Management, October 1984-January 2000. 5
- -------------------------------------------------------------------------------------------------------------------
Managing Director and Consultant,
Promontory Financial Group, March 2005-
Present; Chairman, Atlantic Whitehall
Funds, January 2004-Present; Managing
Director and Chief Legal Officer,
Pierre de Saint iFormation Group, November 2000-November
Phalle Since 2003; Partner, Davis Polk & Wardwell,
58 Manager 2002 January 1983-October 2000. 5
- -------------------------------------------------------------------------------------------------------------------
Chairman and Chief Investment Officer,
First Western Investment Management,
September 2002-Present; President and
Warren J. Olsen Since CEO, IBJ Whitehall Asset Management
50 Manager 2003 Group, May 1999-February 2002. 5
- -------------------------------------------------------------------------------------------------------------------
INTERESTED
MANAGERS:
- -------------------------------------------------------------------------------------------------------------------
Chief Executive Officer, Aetos Capital,
LLC, March 1999-Present; Advisory Director,
Manager and Morgan Stanley Dean Witter & Co., January
Chairman 1999-September 1999; President, Morgan
James M. Allwin(5) of Since Stanley Dean Witter Investment Management,
53 the Board 2002 1996-January 1999. 5
- -------------------------------------------------------------------------------------------------------------------
Co-President, Aetos Alternatives Management
and Managing Director, Aetos Capital, LLC,
March 2000-Present; Managing Director,
Morgan Stanley Dean Witter & Co. and
President, Morgan Stanley Institutional
Funds, June 1998-March 2000; Principal,
Michael Klein(6) Manager and Since Morgan Stanley Dean Witter & Co., August
48 President 2003 1997-December 1999. 5
- -------------------------------------------------------------------------------------------------------------------
35
Managers and Officers of the Funds (unaudited) (continued)
NUMBER OF FUNDS IN
POSITION(S) LENGTH OF PRINCIPAL OCCUPATION(S) DURING THE PAST 5 THE FUND COMPLEX
NAME, ADDRESS(1), HELD WITH TIME YEARS/OTHER DIRECTORSHIPS(3) HELD BY BOARD OVERSEEN BY
AGE FUNDS SERVED(2) MEMBER MANAGER(4)
- -------------------------------------------------------------------------------------------------------------------
OFFICERS:
- -------------------------------------------------------------------------------------------------------------------
Managing Director, Aetos Capital, LLC,
October 2001-Present; Chief Investment
Officer, Stanford Management Company,
Chief November 1998-September 2001; Managing
Anne Casscells Investment Since Director of Investment Policy Research,
48 Officer 2002 Stanford University, April1996-October 1998. N/A
- -------------------------------------------------------------------------------------------------------------------
Vice President, Aetos Capital, LLC, August
2004-Present; Client Portfolio Manager,
GE Asset Management, 2002-July 2004;
Manager of Fund Operations, GE Asset
Scott Sawyer Since Management 2000-2002; Audit Manager,
38 Treasurer 2004 PricewaterhouseCoopers LLP, 1998-2000. N/A
- -------------------------------------------------------------------------------------------------------------------
General Counsel and Managing Director,
Aetos Capital, LLC, March 2001-Present;
Vice President, Morgan Stanley Institutional
President Funds, March 2000-March 2001; Managing
Harold J. Schaaff and Since Director, Morgan Stanley Dean Witter
46 Secretary 2002 & Co., December 1999-March 2001. N/A
- -------------------------------------------------------------------------------------------------------------------
(1) Each Manager can be contacted by writing to Aetos Capital, LLC 875 Third Avenue, New York, NY 10022.
(2) Each Manager holds office until the next meeting of shareholders at which Managers are elected following his
or her election or appointment and until his successor has been elected and qualified.
(3) Directorships of companies required to report to the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (i.e., "public companies") or other investment companies registered under the 1940 Act.
(4) The "Fund Complex" consists of all registered investment companies for which Aetos Alternatives Management,
LLC or any of its affiliates serves as investment adviser.
(5) Mr. Allwin is considered to be an "interested person" of the Fund as defined in the 1940 Act because he is
Chief Executive Officer of Aetos Capital, LLC.
(6) Mr. Klein is considered to be an "interested person" of the Fund as defined in the 1940 Act because he is a
Managing Director of Aetos Capital, LLC.
For more information regarding the Managers and Officers, please refer to the Statement of Additional Information.
36
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
President and Treasurer. The registrant has not made any amendments to its code
of ethics during the covered period. The registrant has not granted any waivers
from any provisions of the code of ethics during the covered period.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's Board of Managers has determined that the registrant has
at least one audit committee financial expert serving on the audit committee.
(a)(2) The audit committee financial expert is Warren J. Olsen. Mr. Olsen is
independent as defined in Form N-CSR Item 3(a)(2).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees billed by PricewaterhouseCoopers ("PwC") Related to the Fund.
PwC billed the Fund aggregate fees for services rendered to the Trust for the
last two fiscal years as follows:
FISCAL 2007 FISCAL 2006
All fees and All other fees All fees and All other fees
services to and services to services to and services to
All fees and service service All fees and service service
services to the affiliates that affiliates that services to the affiliates that affiliates that
Fund that were were did not require Trust that were were did not require
pre-approved pre-approved pre-approval pre-approved pre-approved pre-approval
(a) Audit
Fees(1) $55,700 $0 $0 $49,000 $0 $0
(b) Audit-
Related
Fees $0 $0 $0 $0 $0 $0
(c) Tax Fees
(2) $39,000 $0 $0 $30,900 $0 $0
(d) All
Other
Fees $0 $0 $0 $0 $0 $0
Notes:
(1) Audit fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings.
(2) Tax fees relate to preparation of federal and state tax returns.
(e)(1) The audit committee has adopted pre-approval policies and procedures
that require the audit committee to pre-approve all audit and non-audit
services (including tax services) to be provided to the Fund and all
non-auditing services to be provided to the Fund's investment adviser
(or any affiliate thereof that provides ongoing services to the Fund)
if such services relate directly to operations and financial reporting
of the Fund.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
FISCAL 2007 FISCAL 2006
Audit-Related Fees 0% 0%
Tax Fees 0% 0%
All Other Fees 0% 0%
(f) Not applicable.
(g) The aggregate non-audit fees and services billed by PwC for the last
two fiscal years were $0 and $0 for Fiscal 2007 and
Fiscal 2006, respectively.
(h) During the past fiscal year no non-audit services were provided by the
registrant's principal accountant to either the registrant's investment
adviser or to any entity controlling, controlled by, or under common
control with the registrant's investment adviser that provides ongoing
services to the registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
AETOS ALTERNATIVES MANAGEMENT, LLC
PROXY VOTING POLICY
I. INTRODUCTION
This policy sets forth Aetos Alternatives Management, LLC ("AAM")
policies and procedures for voting proxies with respect to portfolio
securities held in the accounts for which AAM provides discretionary
investment management services and for which AAM has the explicit
authority to vote their proxies. The policy will be reviewed and, if
necessary, updated periodically to address new or revised proxy voting
issues as they arise.
As an investment manager for various clients, including clients
governed by the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), AAM may vote proxies as part of its authority to
manage, acquire and dispose of client account assets, unless the "named
fiduciary" for an ERISA account has explicitly reserved the authority
for itself, or in the case of an account not governed by ERISA, the
client investment management agreement does not provide that AAM will
vote proxies. When voting proxies for client accounts, AAM will make
voting decisions solely in the best interests of its clients and its
ERISA plan clients and beneficiaries and participants, considering all
relevant factors and without undue influence from individuals or groups
who may have an economic interest in the outcome of a proxy vote. In
fulfilling its obligations to its clients, AAM will act in a manner it
deems prudent and diligent and which is intended to enhance the
economic value of the underlying portfolio securities held in its
clients' accounts.
II. ROUTINE CORPORATE MATTERS
AAM will generally, although not always, vote in support of management
on matters which are common management-sponsored initiatives, provided
that, in AAM's opinion, approval of such initiatives will not detract
from the economic value of the company's securities held in AAM client
accounts. These matters are set out below:
(i) Appointment or election of auditors;
(ii) Routine elections or re-elections of directors;
(iii) Director's liability and indemnification;
(iv) General updating/corrective amendments to charter;
(v) Name changes;
(vi) Elimination of cumulative voting; and
(vii) Elimination of preemptive rights.
III. ISSUES HAVING THE POTENTIAL FOR MAJOR ECONOMIC IMPACT
A. AAM will generally, although not always, vote in support of
management initiatives which may have a substantive financial
or best interest impact, provided that, in AAM's opinion,
approval of such initiatives will not detract from the
economic value of the company's securities held in AAM client
accounts. These matters are set out below:
(i) Capitalization changes which eliminate other classes
of stock and voting rights;
(ii) Changes in capitalization authorization for stock
splits, stock dividends, and other specified needs
which are no more than 50% of the existing
authorization;
(iii) Stock purchase plans with an exercise price of not
less than 85% of fair market value;
(iv) Stock option plans that are incentive based and not
excessive;
(v) Other stock-based plans which are appropriately
structured;
(vi) Reductions in supermajority vote requirements; and
(vii) Adoption of anti-greenmail provisions.
B. AAM will generally not vote in support of management on
certain issues which have a potential substantive financial or
best interest impact when AAM believes that approval of the
proposal may negatively impact the economic value of the
company's securities held in AAM client accounts. These
matters are set out below:
(i) Capitalization changes which add classes of stock
which are blank check in nature or that dilute the
voting interests of existing shareholders;
(ii) Changes in capitalization authorization where
management does not offer an appropriate rationale or
that are contrary to the best interest of existing
shareholders;
(iii) Anti-takeover and related provisions which serve to
prevent the majority of shareholders from exercising
their rights or effectively deter appropriate tender
offers and other offers;
(iv) Amendments to by-laws which would require
supermajority shareholder votes to pass or repeal
certain provisions;
(v) Classified boards of directors;
(vi) Reincorporation into a state which has more stringent
anti-takeover and related provisions;
(vii) Shareholder rights plans which allow appropriate
offers to shareholders to be blocked by the board or
trigger provisions which prevent legitimate offers
from proceeding;
(viii) Excessive compensation or non-salary compensation
related proposals;
(ix) Change-in-control provisions in non-salary
compensation plans, employment contracts and
severance agreements that benefit management and
would be costly to shareholders if triggered; and
(x) "Other business as properly comes before the meeting"
proposals which give a blank check to those acting as
proxy.
IV. SOCIAL AND CORPORATE RESPONSIBILITY ISSUES
AAM, believing that management's job is to handle ordinary business
matters, and not wanting to arbitrarily impose a judgment on such
matters, usually votes with management on these proposals. Third party
analyses of these issues are taken into account. If an issue will, in
our view negatively impact the investment merits of a company, we will
oppose it.
V. CONFLICT OF INTERESTS
Situations may arise where there are material conflicts between AAM's
interest and those of its advisory clients. AAM may resolve potential
conflicts by using any of the following methods: (1) adopting a policy
of disclosing the conflict to clients and obtaining their consent
before voting: (2) basing the proxy vote on pre-determined voting
guidelines if the application of the guidelines to the matter do not
involve the exercise of discretion on the part of AAM; or (3) using the
recommendations of an independent third party.
VI. PROXY VOTING RECORD RETENTION
AAM retains the following records: (1) proxy voting policies and
procedures; (2) proxy statements; (3) records of votes cast on behalf
of clients; (4) records of clients' requests for proxy voting
information; and (5) any documents prepared by or on behalf of AAM that
were material in making decisions on how to vote. AAM retains the
above-mentioned records for a minimum of five years.
VII. PROXY ADMINISTRATION
AAM's internal Proxy Committee (the "Committee") develops the firm's
positions on all major corporate issues, creates guidelines, and
oversees the voting process. The Committee, comprised of the Chief
Investment Officer, Chief Operating Officer, and General Counsel,
analyzes types of proposals based on whether they would adversely
affect shareholder's interests and make a company less attractive to
own. In evaluating proxy proposals each year, the Committee relies upon
our own knowledge of each company and its management, independent
research provided by third parties, and information presented by
company managements and shareholder groups.
Once the Committee establishes its recommendations, they are
distributed to AAM's Portfolio Management Group as voting guidelines.
Ultimately, the investment professional primarily accountable for a
portfolio is responsible for votes on companies in that portfolio. Most
vote consistent with AAM's guidelines. Occasionally, some will take an
independent view on certain issues and vote differently. When an
investment professional casts votes which are counter to the
Committee's guidelines, they are required to document their reasons in
writing for the Committee. Annually, the Board of Managers of the AAM
Funds will review AAM's proxy voting process, policies, and voting
records.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(a)(1)
INVESTMENT MANAGEMENT TEAM
NAME & TITLE (YEARS OF SERVICE)
Anne Casscells Co-President and Chief Investment Officer,
Managing Director and Chief Investment Officer, Aetos Aetos Alternatives Management, LLC and
Alternatives Management, LLC (5) Managing Director, Aetos Capital, LLC,
October 2001-Present; Chief Investment
Officer, Stanford Management Company,
November 1998-September 2001; Managing
Director of Investment Policy Research,
Stanford University, April 1996-October 1998.
James Gibbons Managing Director and Portfolio Manager,
Managing Director and Portfolio Manager, Aetos Alternatives Aetos Alternatives Management LLC, July 2002-
Management, LLC (5) Present; Senior Vice President, Evaluation
Associates Capital Markets, January 1998-
June 2002.
Michael Klein Co-President, Aetos Alternatives Management,
Managing Director, Aetos Alternatives Management, LLC (5) LLC and Managing Director, Aetos Capital,
LLC, March 2000-Present; Managing Director,
Morgan Stanley Dean Witter & Co. and
President, Morgan Stanley Institutional Funds,
June 1998-March 2000; Principal, Morgan
Stanley Dean Witter & Co., August 1997-
December 1999.
(a)(2)(i), (ii), (iii)
The following tables show information regarding accounts (other than the Fund)
managed by each named portfolio manager as of January 31, 2007.
Total Assets in
Number of Accounts where
Accounts where Advisory Firm's
Advisory Firm's Fee is Based on
Anne Casscells Total Assets in Fee is Based on Account
James Gibbons Number of Accounts Account Performance
Michael Klein Accounts ($ million) Performance ($ million)
Registered Investment Companies None N/A N/A N/A
Other Pooled Investment Vehicles None N/A N/A N/A
Other Accounts 8 $2,638 5 $2,032
(a)(2)(iv)
MATERIAL CONFLICTS OF INTEREST
The Investment Manager manages multiple accounts for multiple clients. In
addition to the Funds, these other accounts may include separate accounts,
collective trusts, or offshore funds. The Investment Manager manages
potential conflicts between funds or with other types of accounts through
allocation policies and procedures, internal review processes, and oversight by
directors and independent third parties. The Investment Manager has developed
trade allocation procedures and controls to ensure that no one client,
regardless of type, is intentionally favored at the expense of another.
Allocation policies are designed to address potential conflicts in situations
where two or more funds or accounts participate in investment decisions
involving the same securities.
(a)(3)
DESCRIPTION OF COMPENSATION
Professionals employed by the Investment Manager are subject to a compensation
structure that includes base salary and a discretionary bonus. Bonuses are
variable and depend on many factors, including firm, business unit and
individual performance relative to established benchmarks and criteria.
Individuals that consistently exceed performance objectives are eligible for
promotions and/or equity participation in the firm. Officers are also eligible
to share in the net profits of the business under a profit participation plan.
Participation amounts are determined on the basis of performance and
contribution. In addition, all managing directors of the Investment Manager have
a common equity membership in Aetos Capital, LLC.
(a)(4)
OWNERSHIP OF SECURITIES
As of January 31, 2007 the portfolio managers owned Interests of the Fund as
follows:
Anne Casscells $100,001-500,000
James Gibbons $100,001-500,000
Michael Klein $50,001-100,000
(b) Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable as Interests of the Fund are not registered pursuant to Section
12 of the Exchange Act.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of Security Holders during the covered
period.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
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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: 4/04/07
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: 4/04/07
By (Signature and Title)* /s/ Scott D. Sawyer
----------------------------------
Scott D. Sawyer, Treasurer
Date: 4/04/07
* Print the name and title of each signing officer under his or her signature.