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 811-21061
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE 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)
Harold Schaaff
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
DATE OF REPORTING PERIOD: JANUARY 31, 2008
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, 2008
TABLE OF CONTENTS
Fund Commentaries..............................................................1
Report of Independent Registered Public Accounting Firm........................6
Schedules of Investments.......................................................7
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
Shareholder Voting Results....................................................36
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, 2008
(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, 2008, the Fund had a total return of -1.76%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2008, the Fund had an average annual total return of 6.48%.
While nearly all our arbitrage managers had positive returns, the fund's
performance for the year was adversely impacted by a manager whose capital
structure arbitrage positions fell victim to the dramatic widening of spreads
between senior secured loans and high yield bonds over the summer and was forced
to sell its portfolio at a substantial loss.
Merger arbitrage, which began the year strongly, has seen heightened volatility
recently as several high profile deals involving financial buyers failed to
close. Even in cases where a deal is proceeding as planned, spreads have widened
as investors question whether leveraged buyout bidders might suffer buyers'
remorse and attempt to back out. While the strategy produced positive returns
for the period, the credit market disruption had a large impact, and the outlook
for merger arbitrage has dimmed. Furthermore, the volume of deals has abated
significantly with the leveraged buyout market all but shut down.
Within the fixed income arbitrage strategy, the recent market turmoil has been a
welcome development. Specifically, opportunities to trade abnormalities
presented by G7 yield curves increased considerably during the fourth quarter as
heightened volatility in worldwide markets caused fixed income rates to shift,
and fear in the financial sector caused swap spreads to widen. Nonetheless, as
we enter 2008, managers must proceed cautiously as systemic deleveraging can
distort historic relationships, at least temporarily.
Our Asian-focused convertible manager saw healthy returns for the period as high
realized volatility and healthy new issuance provided an attractive environment
for generating returns. We expect this heightened level of volatility to persist
in 2008 and are optimistic on returns for this strategy.
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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.
1
Aetos Capital Distressed Investment Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2008
(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, 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 (i) estimate the value of the claims to be acquired,
(ii) evaluate the likely timing, and resolution, of the bankruptcy process and
(iii) reach agreements with other claimants in order to speed the process.
For the year ended January 31, 2008, the Fund had a total return of 4.32%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2008, the Fund had an average annual total return of 11.61%.
As a whole, the past year was mediocre for the distressed strategy as widening
spreads and a dearth of new activity impeded returns. Most managers continued to
harvest legacy positions while conservatively approaching new investments.
Several of the managers' remaining reorganizations suffered setbacks during the
second half of the year as negotiations between stake holders took longer than
anticipated and the market for new financing tightened considerably. These
adverse developments resulted in lower expected recoveries for creditors,
driving the price of the debt down.
Although the global corporate default rate has remained at the lowest sustained
level in over two decades, the writing is clearly on the wall. With many
companies facing reduced credit availability and deteriorating fundamentals, we
anticipate new distressed opportunities will materialize towards the latter half
of 2008. Our managers are well positioned to take advantage of these
opportunities as many have significant dry powder ready to deploy.
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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.
2
Aetos Capital Long/Short Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2008
(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, 2008, the Fund had a total return of 7.04%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2008, the Fund had an average annual total return of 8.07%.
The past year saw the implosion of the U.S. mortgage lending bubble and the
specter of recession grow substantially. After declining -6.1% in January, the
S&P return for the last twelve months was -4.1%, with consumer discretionary and
financials sectors the biggest losers. The period also saw the reversal of
several trends for the equity markets. In particular, growth stocks outperformed
value stocks for the first time since before the bursting of the technology
bubble. In addition, the period was also the first in some time when large cap
stocks outperformed small caps.
The Long/Short Fund did a good job of preserving capital even as the broader
equity markets wilted. Much as the markets saw increased volatility this year,
so too did our managers. Dispersion between our managers was very high, with a
few managers generating returns north of 30% for the period. While shorting
(financials, in particular) received much publicity in 2007, opportunities on
the long side were still abundant. In fact, our managers with exceptional
performance generally realized a majority of their returns from their long
portfolios.
On the short side, the housing/subprime theme was a large driver of returns as
many managers were one step ahead of the broader markets in understanding how
problems in housing would impact other companies, including many in the consumer
discretionary and financials sectors. We remain optimistic on the prospects for
shorting, as many shaky, speculative companies outside of the housing/finance
sector were given a pass last year despite their deteriorating fundamentals. We
suspect that the coming year will not be as kind to these companies as weakness
in the economy exposes flawed business models and excessive valuations.
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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 Market Neutral Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2008
(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.
For the year ended January 31, 2008, the Fund had a total return of 3.11%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2008, the Fund had an average annual total return of 2.90%.
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. These strategies may be quantitative in nature, using computer
screens to pick long and short portfolios of stocks and balancing their risk
exposure through optimization techniques.
Performance was disappointing and suffered notably from one quantitative market
neutral manager that experienced poor returns. These poor returns were driven in
large part by the contagion within the equity market neutral strategy witnessed
in August and also in November, when a similar but smaller scale version of the
prior contagion occurred. We have spent substantial time analyzing what happened
to this manager's strategies during these contagion periods as well as their
other strategies and have decided to redeem our investment.
Fortunately, this negative performance by one manager was more than offset by
positive performance from the other managers in this fund. In particular, our
manager with a large tactical bet long companies with stable earnings and low
leverage and short their inverse performed well for the period, up over 20%. The
systematic underperformance of high quality companies with stable earnings and
low leverage over the past five years is emblematic of the tremendous risk
seeking behavior that was the norm for this period. We believe that the pendulum
has just begun to swing back the other way and are very optimistic about the
prospects for this manager's strategy in the coming quarters.
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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.
4
Aetos Capital Opportunities Fund, LLC
Fund Commentary
For the year ended January 31, 2008
(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, 2008, the Fund had a total return of 7.24%.(1)
For the period from commencement of investment activities on May 27, 2005
through January 31, 2008, the Fund had an average annual total return of 5.43%.
Our Opportunities Fund generated reasonable returns during the period despite
turmoil in the capital markets as its diversified mix of underlying managers and
strategies complemented one another.
The Fund's tactical short credit bet generated significant gains as credit
spreads widened substantially during the period. In addition, the Fund's
investment in a niche strategy focused on handicapping drug trial outcomes saw
outsized returns. Other significant contributors included one of our
Asia-focused long/short managers and our relative value bet between "high" and
"low" quality stocks.
As mentioned in last year's letter, we had been frustrated by the initial
returns for the Fund and have spent considerable time re-optimizing the
underlying mix of managers. During the last year, we trimmed a few positions and
initiated new investments with managers whom we thought were talented stock
pickers. Although we may continue to make changes to the fund going forward, we
believe that the Fund is better positioned than it was a year ago.
- --------------------
(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
[PRICEWATERHOUSECOOPERS LOGO OMITTED]
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PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers Center
300 Madison Avenue
New York NY 10017
Telephone (646) 471 3000
Facsimile (813) 286 6000
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, 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, 2008, 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, 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 portfolios funds at
January 31, 2008, 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 $536,259,329 (93.4% of the Fund's members'
capital), $151,547,464 (90.0% of the Fund's members' capital), $932,836,479
(89.4% of the Fund's members' capital), $74,361,272 (56.0% of the Fund's
members' capital), and $146,506,648 (78.4% of the Fund's members' capital)
respectively, at January 31, 2008, 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.
/s/ PricewaterhouseCoopers, LLP
March 28, 2008
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Schedule of Investments
January 31, 2008
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE GRAPH OMITTED]
Plot points are as follows:
Multi-Strategy/Event Arbitrage 52.06%
Fixed Income Arbitrage 23.94%
Credit Strategies 14.35%
Convertible Arbitrage 9.65%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
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Davidson Kempner Partners $ 50,000,000 $ 64,743,842 11.28 %
Farallon Capital Offshore Investors, Inc. 69,000,000 74,304,768 12.94
FFIP, L.P. 46,630,000 56,711,091 9.88
HBK Fund L.P. 60,000,000 59,919,108 10.44
Ishin Fund, LLC 43,000,000 51,762,569 9.02
Lazard Emerging Income, L.P. 29,000,000 34,117,335 5.94
Oceanwood Global Opportunities Fund L.P. 55,000,000 50,665,065 8.82
Parsec Trading Corp. 18,200,000 21,773,230 3.79
Pequot Credit Opportunities Fund, L.P. 35,000,000 38,317,661 6.67
Pequot Short Credit Fund, L.P. 32,000,000 38,622,251 6.73
Satellite Fund II, L.P. 17,850,000 24,251,078 4.22
South Hill Trading Corp. 13,433,560 15,794,715 2.75
Sowood Alpha Fund, L.P. 9,492,766 5,276,616 0.92
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Total $ 478,606,326 $ 536,259,329 93.40 %
========================================================
*Percentages are based on Members' Capital of $574,124,527.
The aggregate cost of investments for tax purposes was $518,654,038. Net
unrealized appreciation on investments for tax purposes was $17,605,291
consisting of $38,916,869 of gross unrealized appreciation and $21,311,578 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 93.40% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
Aetos Capital Distressed Investment Strategies Fund, LLC
Schedule of Investments
January 31, 2008
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE GRAPH OMITTED]
Plot points are as follows:
Distressed Investments 100.00%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- --------------------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. $ 30,500,000 $ 34,521,776 20.50 %
King Street Capital, L.P. 26,050,000 36,814,192 21.86
One East Partners, L.P. 31,500,000 32,003,564 19.00
Silver Point Capital Fund, L.P. 26,100,000 34,012,649 20.19
Watershed Capital Partners, L.P. 11,050,000 14,195,283 8.43
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Total $ 125,200,000 $ 151,547,464 89.98 %
========================================================
*Percentages are based on Members' Capital of $168,426,496.
The aggregate cost of investments for tax purposes was $135,503,713. Net
unrealized appreciation on investments for tax purposes was $16,043,751
consisting of $16,043,751 of gross unrealized appreciation and $0 of gross
unrealized depreciation.
The investments in Portfolio Funds shown above, representing 89.98% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments
January 31, 2008
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE GRAPH OMITTED]
Plot points are as follows:
Long/Short Equity Investments 92.39%
Short Equity Investments 7.61%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
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Bay Pond Partners, L.P. $ 32,000,000 $ 61,959,011 5.94 %
Bay Resource Partners, L.P. 37,500,000 61,103,534 5.86
Bay II Resource Partners, L.P. 5,000,000 4,930,000 0.47
Cadian Fund LP 35,000,000 34,685,179 3.32
Cadmus Capital Partners (QP), L.P. 33,039,413 34,199,392 3.28
Cantillon Pacific, L.P. 13,000,000 16,684,537 1.60
Cantillon U.S., L.P. 22,699,464 26,022,436 2.49
Cantillon World, L.P. 30,000,000 28,425,265 2.73
Cavalry Technology, L.P. 29,576,608 41,463,390 3.97
Conatus Capital Partners LP 17,500,000 16,616,719 1.59
Copper River Partners, L.P. 36,000,000 36,636,952 3.51
The Elkhorn Fund, LLC 67,854,685 74,513,654 7.14
Highside Capital Partners, L.P. 48,361,169 69,741,557 6.68
Icarus Qualified Partners, L.P. 26,000,000 34,396,383 3.30
JL Partners, L.P. 51,015,887 67,703,636 6.49
Millgate Partners II, L.P. 22,000,000 21,883,803 2.10
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments (continued)
January 31, 2008
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
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North River Partners, L.P. $ 45,650,000 $ 52,007,206 4.99 %
UC Financials Fund Limited 43,000,000 40,956,558 3.93
ValueAct Capital Partners III, L.P. 75,000,000 68,459,130 6.56
Viking Global Equities, L.P. 55,000,000 87,146,125 8.35
Woodbourne Daybreak Global Fund L.P. 62,000,000 53,302,012 5.11
--------------------------------------------------------
Total $ 787,197,226 $ 932,836,479 89.41 %
========================================================
*Percentages are based on Members' Capital of $1,043,372,596.
The aggregate cost of investments for tax purposes was $828,664,076. Net
unrealized appreciation on investments for tax purposes was $104,172,403
consisting of $126,702,593 of gross unrealized appreciation and $22,530,190 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 89.41% 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, 2008
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE GRAPH OMITTED]
Plot points are as follows:
Low Beta/Market Neutral/Long Short 46.95%
Quantitative Asset Allocation 42.18%
Multi-Strategy 10.87%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
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AQR Absolute Return Institutional Fund, L.P. $ 10,000,000 $ 8,086,425 6.09 %
Bravura 99 Fund, L.P. 30,682,132 34,911,375 26.31
GMO Mean Reversion Fund 23,000,000 31,363,472 23.63
--------------------------------------------------------
Total $ 63,682,132 $ 74,361,272 56.03 %
========================================================
*Percentages are based on Members' Capital of $132,719,851.
The aggregate cost of investments for tax purposes was $65,747,075. Net
unrealized appreciation on investments for tax purposes was $8,614,197
consisting of $9,700,619 of gross unrealized appreciation and $1,086,422 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 56.03% 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, 2008
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
[PIE GRAPH OMITTED]
Plot points are as follows:
Long/Short Equity Investments 69.25%
Real Assets 14.31%
Credit Related 10.90%
Event-Driven 5.54%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
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Davidson Kempner Healthcare Fund L.P. $ 12,700,000 $ 13,049,539 6.98 %
GMO U.S. Tactical Opportunities Fund (Onshore), L.P. 21,500,000 22,648,387 12.12
Joho Partners, L.P. 19,000,000 28,328,206 15.16
Pequot Short Credit Fund, L.P. 14,000,000 15,968,175 8.55
Sansar Capital, L.P. 18,000,000 17,257,921 9.24
Saras Capital Partners, L.P. 19,000,000 20,177,083 10.80
Sheffield Institutional Partners, L.P. 8,500,000 8,121,162 4.35
Spindrift Partners, L.P. 18,000,000 20,956,175 11.22
-----------------------------------------------------
Total $ 130,700,000 $ 146,506,648 78.42 %
=====================================================
*Percentages are based on Members' Capital of $186,823,092.
The aggregate cost of investments for tax purposes was $131,981,246. Net
unrealized appreciation on investments for tax purposes was $14,525,402
consisting of $16,311,579 of gross unrealized appreciation and $1,786,177 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 78.42% 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, 2008
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 $478,606,326 $125,200,000 $ 787,197,226 $ 63,682,132 $130,700,000
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Investments in Portfolio Funds, at value $536,259,329 $151,547,464 $ 932,836,479 $ 74,361,272 $146,506,648
Cash and cash equivalents 40,479,629 17,911,462 109,037,034 57,310,399 23,300,696
Receivable for sale of investments 727,343 -- 5,761,579 1,622,102 17,851,607
Accrued income 128,428 67,166 265,809 183,839 84,508
Due from investment manager -- 7,295 -- 1,282 --
Prepaid tax withholding -- 2,904 -- -- 918
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Total assets 577,594,729 169,536,291 1,047,900,901 133,478,894 187,744,377
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LIABILITIES
Redemptions of Interests payable 2,593,516 741,601 2,750,995 462,711 584,181
Investment management fees payable 365,943 107,354 665,038 84,595 119,080
Sales of Interests received in advance 250,000 100,000 750,000 75,000 75,000
Administration fees payable 86,554 26,502 157,569 20,760 28,876
Board of Managers' fees payable 6,845 6,845 6,845 6,845 6,845
Other accrued expenses 167,344 127,493 197,858 109,132 107,303
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Total liabilities 3,470,202 1,109,795 4,528,305 759,043 921,285
---------------------------------------------------------------------------------------
NET MEMBERS' CAPITAL $574,124,527 $168,426,496 $1,043,372,596 $132,719,851 $186,823,092
=======================================================================================
MEMBERS' CAPITAL
Net capital $516,471,524 $142,079,032 $897,733,343 $122,040,711 $171,016,444
Net unrealized appreciation on
investments in Portfolio Funds 57,653,003 26,347,464 145,639,253 10,679,140 15,806,648
---------------------------------------------------------------------------------------
Members' Capital $574,124,527 $168,426,496 $1,043,372,596 $132,719,851 $186,823,092
=======================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
Statements of Operations
For the year ended January 31, 2008
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 $ 1,558,087 $ 514,575 $ 2,110,418 $ 1,009,020 $ 1,046,496
----------------------------------------------------------------------------------------
Expenses:
Investment management fees 4,136,859 1,134,767 7,131,219 969,095 1,303,577
Administration fees 484,807 136,526 821,760 120,150 153,471
Board of Managers' fees 27,380 27,380 27,380 27,380 27,380
Professional fees 223,697 199,308 240,596 152,677 157,335
Custodian fees 58,102 18,102 97,936 15,914 20,479
Registration fees 16,682 13,771 28,652 13,483 5,182
Printing fees 4,518 3,943 3,758 3,943 3,758
Other expenses 22,906 18,193 19,030 16,994 14,432
----------------------------------------------------------------------------------------
Total expenses 4,974,951 1,551,990 8,370,331 1,319,636 1,685,614
Fund expenses reimbursed -- (49,211) -- (31,038) --
----------------------------------------------------------------------------------------
Net expenses 4,974,951 1,502,779 8,370,331 1,288,598 1,685,614
----------------------------------------------------------------------------------------
Net investment loss (3,416,864) (988,204) (6,259,913) (279,578) (639,118)
----------------------------------------------------------------------------------------
Net gain/(loss) on Portfolio Funds sold (590,910) -- 41,772,879 5,325,193 4,440,778
Net change in unrealized
appreciation/(depreciation) on
investments in Portfolio Funds (6,045,867) 6,980,993 23,804,516 (1,109,849) 7,132,951
----------------------------------------------------------------------------------------
Net increase/(decrease) in Members'
Capital derived from
investment activities $ (10,053,641) $ 5,992,789 $ 59,317,482 $ 3,935,766 $ 10,934,611
=======================================================================================-
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
Statements of Changes in Members' Capital
For the years ended January 31, 2007 and January 31, 2008
AETOS CAPITAL DISTRESSED
AETOS CAPITAL MULTI-STRATEGY INVESTMENT STRATEGIES
ARBITRAGE FUND, LLC FUND, LLC
------------------------------- ---------------------------------
2/1/07 - 2/1/06 - 2/1/07 - 2/1/06 -
1/31/08 1/31/07 1/31/08 1/31/07
------------------------------- ---------------------------------
From investment activities:
Net investment loss $ (3,416,864) $ (2,877,831) $ (988,204) $ (599,072)
Net gain/(loss) on Portfolio Funds sold (590,910) 5,872,811 -- 2,284,426
Net change in unrealized
appreciation/(depreciation) on
investments in Portfolio Funds (6,045,867) 35,987,994 6,980,993 9,650,831
------------------------------- ---------------------------------
Net increase/(decrease) in Members' Capital
derived from investment activities (10,053,641) 38,982,974 5,992,789 11,336,185
------------------------------- ---------------------------------
Distributions:
Tax withholding on behalf of foreign investors (554,995) (148,370) (827,652) 25,426
------------------------------- ---------------------------------
Total distributions (554,995) (148,370) (827,652) 25,426
------------------------------- ---------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 209,871,597 98,597,798 77,603,591 39,449,483
Redemptions of Interests (85,788,723) (14,826,540) (30,929,329) (7,788,545)
Transfers of Interests 13,018,220 4,759,000 6,620,192 436,000
------------------------------- ---------------------------------
Net increase in Members' Capital derived from
capital transactions 137,101,094 88,530,258 53,294,454 32,096,938
------------------------------- ---------------------------------
Net increase in Members' Capital 126,492,458 127,364,862 58,459,591 43,458,549
Members' Capital at beginning of year 447,632,069 320,267,207 109,966,905 66,508,356
------------------------------- ---------------------------------
Members' Capital at end of year $574,124,527 $447,632,069 $168,426,496 $109,966,905
=============================== =================================
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, 2007 and January 31, 2008
AETOS CAPITAL
AETOS CAPITAL LONG/SHORT MARKET NEUTRAL
STRATEGIES FUND, LLC STRATEGIES FUND, LLC
------------------------------- ---------------------------------
2/1/07 - 2/1/06 - 2/1/07 - 2/1/06 -
1/31/08 1/31/07 1/31/08 1/31/07
------------------------------- ---------------------------------
From investment activities:
Net investment loss $ (6,259,913) $ (3,946,968) $ (279,578) $ (744,903)
Net gain on Portfolio Funds sold 41,772,879 3,884,397 5,325,193 251,096
Net change in unrealized
appreciation/(depreciation) on
investments in Portfolio funds 23,804,516 60,092,379 (1,109,849) 4,492,304
------------------------------- ---------------------------------
Net increase in Members' Capital
derived from investment activities 59,317,482 60,029,808 3,935,766 3,998,497
------------------------------- ---------------------------------
Distributions:
Tax withholding on behalf of foreign investors (1,684,374) (170,544) (384,458) (95,949)
------------------------------- ---------------------------------
Total distributions (1,684,374) (170,544) (384,458) (95,949)
------------------------------- ---------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 399,384,519 232,971,335 48,898,000 23,497,767
Redemptions of Interests (149,063,587) (24,776,905) (16,371,443) (4,890,124)
Transfers of Interests (2,791,398) (1,659,000) (17,894,914) (3,558,000)
------------------------------- ---------------------------------
Net increase in Members' Capital derived from
capital transactions 247,529,534 206,535,430 14,631,643 15,049,643
------------------------------- ---------------------------------
Net increase in Members' Capital 305,162,642 266,394,694 18,182,951 18,952,191
Members' Capital at beginning of year 738,209,954 471,815,260 114,536,900 95,584,709
------------------------------- ---------------------------------
Members' Capital at end of year $1,043,372,596 $738,209,954 $ 132,719,851 $114,536,900
=============================== =================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
Statement of Changes in Members' Capital (concluded)
For the years ended January 31, 2007 and January 31, 2008
AETOS CAPITAL
OPPORTUNITIES FUND, LLC
-------------------------------
2/1/07 - 2/1/06 -
1/31/08 1/31/07
-------------------------------
From investment activities:
Net investment loss $ (639,118) $ (622,061)
Net gain/(loss) on Portfolio Funds sold 4,440,778 (1,948,906)
Net change in unrealized appreciation
on investments in Portfolio Funds 7,132,951 6,112,694
-------------------------------
Net increase in Members' Capital
derived from investment activities 10,934,611 3,541,727
-------------------------------
Distributions:
Tax withholding on behalf of foreign investors (315,560) (21,233)
-------------------------------
Total distributions (315,560) (21,233)
-------------------------------
Members' Capital transactions:
Proceeds from sales of Interests 68,442,924 65,538,828
Redemptions of Interests (33,195,312) (2,028,981)
Transfers of Interests 1,047,900 22,000
-------------------------------
Net increase in Members' Capital derived from
capital transactions 36,295,512 63,531,847
-------------------------------
Net increase in Members' Capital 46,914,563 67,052,341
Members' Capital at beginning of year 139,908,529 72,856,188
-------------------------------
Members' Capital at end of year $186,823,092 $139,908,529
===============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
Statements of Cash Flows
For the year ended January 31, 2008
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 $(230,100,000) $(42,000,000) $(314,000,000) $ (7,000,000) $(45,700,000)
Sales of Portfolio Funds 71,351,208 -- 179,380,050 49,012,556 35,940,778
Net investment loss (3,416,864) (988,204) (6,259,913) (279,578) (639,118)
Adjustments to reconcile net investment loss to net
cash provided by/(used in) operating activities:
Decrease in prepaid investments 60,000,000 7,000,000 10,000,000 -- 13,000,000
Decrease/(increase) in accrued income 36,838 (36,677) (223,209) (172,373) (51,436)
Decrease/(increase) in prepaid tax withholding -- 2,302 -- -- (918)
Decrease/(increase) in receivable for
sale of investments 4,604,554 326,152 (5,761,579) (1,622,102) (16,393,596)
Increase in due from investment manager -- (6,806) -- (1,282) --
Increase in redemptions of Interests payable 2,593,516 741,601 2,750,995 462,711 584,181
Increase in investment management fees payable 80,623 37,261 194,492 11,588 29,900
Increase in administration fees payable 20,795 9,953 50,785 2,628 8,665
Increase in Board of Managers' fees payable 1,370 1,370 1,370 1,370 1,370
Increase in other accrued expenses 38,046 46,840 47,906 32,577 28,693
-----------------------------------------------------------------------------
Net cash provided by/(used in) operating activities (94,789,914) (34,866,208) (133,819,103) 40,448,095 (13,191,481)
-----------------------------------------------------------------------------
DISTRIBUTIONS
Tax withholding on behalf of foreign investors (559,267) (827,652) (1,710,961) (387,805) (319,352)
-----------------------------------------------------------------------------
Total distributions (559,267) (827,652) (1,710,961) (387,805) (319,352)
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in sales of Interests received in advance (3,799,695) (605,405) (4,911,235) (680,040) (28,725)
Proceeds from sales of Interests 209,871,597 77,603,591 399,384,519 48,898,000 68,442,924
Redemptions of Interests (85,788,723) (30,929,329) (149,063,587) (16,371,443) (33,195,312)
Transfers of Interests 13,018,220 6,620,192 (2,791,398) (17,894,914) 1,047,900
-----------------------------------------------------------------------------
Net cash provided by financing activities 133,301,399 52,689,049 242,618,299 13,951,603 36,266,787
-----------------------------------------------------------------------------
Net increase in cash and cash equivalents 37,952,218 16,995,189 107,088,235 54,011,893 22,755,954
Cash and cash equivalents, beginning of year 2,527,411 916,273 1,948,799 3,298,506 544,742
-----------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 40,479,629 $ 17,911,462 $ 109,037,034 $ 57,310,399 $ 23,300,696
=============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
Financial Highlights
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
-----------------------------------------------------------------
2/1/07 - 2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 -
1/31/08 1/31/07 1/31/06 1/31/05 1/31/04
-----------------------------------------------------------------
Total return(1) (1.76)% 10.36% 6.48% 2.98% 13.17%
Net assets, end of period (000's) $ 574,125 $ 447,632 $ 320,267 $ 245,964 $ 35,075
Ratios to average net assets:
Expenses, before waivers and
reimbursements(2)(3) 0.90% 0.95% 0.95% 1.07% 5.04%
Expenses, net of waivers and
reimbursements(2)(3) 0.90% 0.95% 0.95% 1.00% 1.13%
Net investment loss, before waivers
and reimbursements (0.62)% (0.75)% (0.77)% (0.96)% (4.87)%
Net investment loss, net of waivers
and reimbursements (0.62)% (0.75)% (0.77)% (0.89)% (0.96)%
Portfolio turnover rate 14.01% 16.80% 6.24% 0.00% 0.00%
(1) 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) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
Financial Highlights (continued)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
-----------------------------------------------------------------
2/1/07 - 2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 -
1/31/08 1/31/07 1/31/06 1/31/05 1/31/04
-----------------------------------------------------------------
Total return(1) 4.32% 12.95% 8.46% 10.24% 22.13%
Net assets, end of period (000's) $ 168,426 $ 109,967 $ 66,508 $ 45,254 $ 14,179
Ratios to average net assets:
Expenses, before waivers and
reimbursements(2)(3) 1.03% 1.08% 1.24% 1.55% 7.72%
Expenses, net of waivers and
reimbursements(2)(3) 0.99% 1.00% 1.00% 1.00% 1.18%
Net investment loss, before waivers
and reimbursements (0.69)% (0.76)% (0.88)% (1.50)% (7.65)%
Net investment loss, net of waivers
and reimbursements (0.65)% (0.68)% (0.64)% (0.95)% (1.11)%
Portfolio turnover rate 0.00% 13.69% 0.00% 0.00% 16.94%
(1) 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) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
20
Financial Highlights (continued)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
-----------------------------------------------------------------
2/1/07 - 2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 -
1/31/08 1/31/07 1/31/06 1/31/05 1/31/04
-----------------------------------------------------------------
Total return(1) 7.04% 9.61% 11.66% 3.90% 12.88%
Net assets, end of period (000's) $1,043,373 $ 738,210 $ 471,815 $ 325,337 $ 57,668
Ratios to average net assets:
Expenses, before waivers and
reimbursements(2)(3) 0.88% 0.92% 0.94% 1.05% 4.09%
Expenses, net of waivers and
reimbursements(2)(3) 0.88% 0.92% 0.94% 1.00% 1.14%
Net investment loss, before waivers
and reimbursements (0.66)% (0.65)% (0.78)% (0.95)% (3.96)%
Net investment loss, net of waivers
and reimbursements (0.66)% (0.65)% (0.78)% (0.90)% (1.01)%
Portfolio turnover rate 20.12% 6.13% 9.65% 4.06% 0.00%
(1) 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) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
Financial Highlights (continued)
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
-----------------------------------------------------------------
2/1/07 - 2/1/06 - 2/1/05 - 2/1/04 - 2/1/03 -
1/31/08 1/31/07 1/31/06 1/31/05 1/31/04
-----------------------------------------------------------------
Total return(1) 3.11% 3.68% 4.19% 1.84% 2.81%
Net assets, end of period (000's) $ 132,720 $ 114,537 $ 95,585 $ 82,230 $ 14,120
Ratios to average net assets:
Expenses, before waivers and
reimbursements(2)(3) 1.02% 1.02% 1.09% 1.33% 8.79%
Expenses, net of waivers and
reimbursements(2)(3) 1.00% 1.00% 1.00% 1.00% 1.15%
Net investment loss, before waivers
and reimbursements (0.24)% (0.71)% (0.74)% (1.28)% (8.69)%
Net investment loss, net of waivers
and reimbursements (0.22)% (0.69)% (0.65)% (0.95)% (1.05)%
Portfolio turnover rate 6.49% 10.29% 0.00% 45.70% 0.00%
(1) 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) The expense ratios do not include the Program fees charged separately to
investors as described in Note 3 in the Notes to Financial Statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
Financial Highlights (concluded)
AETOS CAPITAL OPPORTUNITIES FUND, LLC
-----------------------------------------
2/1/07 - 2/1/06 - 5/27/05* -
1/31/08 1/31/07 1/31/06
-----------------------------------------
Total return(1) 7.24% 2.41% 4.94%
Net assets, end of period (000's) $ 186,823 $ 139,909 $ 72,856
Ratios to average net assets:
Expenses, before waivers and
reimbursements(2)(4) 0.97% 1.05% 1.44%(3)
Expenses, net of waivers and
reimbursements(2)(4) 0.97% 1.04% 1.07%(3)
Net investment loss, before waivers
and reimbursements (0.37)% (0.57)% (1.11)%(3)
Net investment loss, net of waivers
and reimbursements (0.37)% (0.56)% (0.74)%(3)
Portfolio turnover rate(5) 24.25% 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, 2008
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,
2008 the Feeder Funds' beneficial ownership of their corresponding Master Funds'
members' capital are 70%, 67%, 71%, 74% 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.
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.
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.
26
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Distributions from Portfolio Funds
Distributions from Portfolio Funds will be classified as investment income or
realized gains in the Statements of Operations, or alternatively, as a decrease
to the cost of the investments based on the U.S. income tax characteristics of
the distribution if such information is available. In cases where the tax
characteristics are not available, such distribution will be classified as
investment income.
G. Cash and Cash Equivalents
The Funds treat all highly liquid financial instruments that mature within three
months as cash equivalents.
3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER
The Funds pay the Investment Manager a monthly management fee (the "Management
Fee") at the annual rate of 0.75% of the net asset value of each Fund as of the
last day of the month (before any repurchases of Interests). The Investment
Manager is responsible for providing day-to-day investment management services
to the Funds, and for providing various administrative services to the Funds.
The Investment Manager contractually agreed to reimburse the Funds in order to
limit the Funds' other expenses (defined as total operating expenses excluding
the Management Fee) at 0.25% (0.35% in the case of the Opportunities Fund) of
each Fund's average monthly net assets, at least until May 31, 2008.
The Investment Manager may also be paid a Program fee outside of the Funds for
services rendered to investors. The Program fee is paid directly by the
investors at an annual rate of up to 0.50% of an investor's assets in the Funds.
The Investment Manager may also be paid an annual performance-based incentive
fee outside of the Funds based on the return of an investor's account with the
Investment Manager.
SEI Investments Global Funds Services (the "Administrator") provides certain
administration, accounting and investor services for the Funds. In consideration
for such services, each Fund pays the Administrator a monthly fee based on
month-end net assets at an annual rate of 0.12% on the first $250 million of net
assets, 0.10% on net assets between $250 million and $500 million and 0.08% on
net assets over $500 million, and will reimburse the Administrator for certain
out-of-pocket expenses.
SEI Private Trust Company acts as custodian (the "Custodian") for the Funds'
assets. In consideration for such services, each Fund pays the Custodian a
monthly fee, based on month-end net assets, at an annual rate of up to 0.01%.
Each Fund also pays the Custodian $3,000 annually to act as qualified Custodian
for its Cayman feeder fund.
27
Notes to Financial Statements (continued)
3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED)
Each Member of the Board who is not an "interested person" of the Funds as
defined by the 1940 Act receives an annual retainer of $32,000 and regular
quarterly meeting fees of $3,250 per meeting (additional meeting fees are $500
per meeting). The Chairman of the audit committee receives an additional annual
retainer of $1,900. 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 that may
involve significant risks. Such risks include those related to the volatility of
the equity, credit and currency markets, the use of leverage associated with
certain fixed income strategies, derivative contracts and in connection with
short positions, the potential illiquidity of certain instruments, and
counterparty and broker arrangements. 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, 2008, purchases and sales of investments were as
follows:
FUND PURCHASES SALES
- ----------------------------------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $230,100,000 $71,351,208
Aetos Capital Distressed Investment Strategies Fund, LLC 42,000,000 --
Aetos Capital Long/Short Strategies Fund, LLC 314,000,000 179,380,050
Aetos Capital Market Neutral Strategies Fund, LLC 7,000,000 49,012,556
Aetos Capital Opportunities Fund, LLC 45,700,000 35,940,778
7. INVESTMENTS
As of January 31, 2008, collectively the Funds had investments in forty-nine
Portfolio Funds, none of which were related parties. The following table lists
the Funds' investments in Portfolio Funds as of January 31, 2008. 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 3 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 1/31/2008 CAPITAL LIQUIDITY*
- -------------------------------------------------------------------------------------------------------------------------------
Davidson Kempner Partners Multi-Strategy/Event Arbitrage $ 64,743,842 11.28 % Quarterly
Farallon Capital Offshore Investors, Inc. Multi-Strategy/Event Arbitrage 74,304,768 12.94 Annual
FFIP, L.P. Fixed Income Arbitrage 56,711,091 9.88 Annual
HBK Fund L.P. Multi-Strategy/Event Arbitrage 59,919,108 10.44 Quarterly
Ishin Fund, LLC Convertible Arbitrage 51,762,569 9.02 Annual
Lazard Emerging Income, L.P. Fixed Income Arbitrage 34,117,335 5.94 Monthly
Oceanwood Global
Opportunities Fund L.P. Multi-Strategy/Event Arbitrage 50,665,065 8.82 Annual
Parsec Trading Corp. Fixed Income Arbitrage 21,773,230 3.79 Monthly
Pequot Credit Opportunities Fund, L.P. Credit Strategies 38,317,661 6.67 Annual
Pequot Short Credit Fund, L.P. Credit Strategies 38,622,251 6.73 Quarterly
Satellite Fund II, L.P. Multi-Strategy/Event Arbitrage 24,251,078 4.22 Annual
South Hill Trading Corp. Fixed Income Arbitrage 15,794,715 2.75 Monthly
Sowood Alpha Fund, L.P. Multi-Strategy/Event Arbitrage 5,276,616 0.92 Annual
-------------------------------
$ 536,259,329 93.40 %
-------------------------------
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2008 CAPITAL LIQUIDITY*
- -------------------------------------------------------------------------------------------------------------------------------
Aurelius Capital Partners, L.P. Distressed Investments $ 34,521,776 20.50 % Semi-Annual
King Street Capital, L.P. Distressed Investments 36,814,192 21.86 Quarterly
One East Partners, L.P. Distressed Investments 32,003,564 19.00 Quarterly
Silver Point Capital Fund, L.P. Distressed Investments 34,012,649 20.19 Annual
Watershed Capital Partners, L.P. Distressed Investments 14,195,283 8.43 Quarterly
-------------------------------
$ 151,547,464 89.98 %
-------------------------------
*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 1/31/2008 CAPITAL LIQUIDITY*
- -------------------------------------------------------------------------------------------------------------------------------
Bay Pond Partners, L.P. Long/Short Equity Investments $ 61,959,011 5.94 % Semi-Annual
Bay Resource Partners, L.P. Long/Short Equity Investments 61,103,534 5.86 Annual
Bay II Resource Partners, L.P. Long/Short Equity Investments 4,930,000 0.47 Quarterly
Cadian Fund LP Long/Short Equity Investments 34,685,179 3.32 Quarterly
Cadmus Capital Partners (QP), L.P. Long/Short Equity Investments 34,199,392 3.28 Quarterly
Cantillion Pacific, L.P. Long/Short Equity Investments 16,684,537 1.60 Quarterly
Cantillion U.S., L.P. Long/Short Equity Investments 26,022,436 2.49 Quarterly
Cantillon World, L.P. Long/Short Equity Investments 28,425,265 2.73 Quarterly
Cavalry Technology, L.P. Long/Short Equity Investments 41,463,390 3.97 Annual
Conatus Capital Partners LP Long/Short Equity Investments 16,616,719 1.59 Quarterly
Copper River Partners, L.P. Short Equity Investments 36,636,952 3.51 Annual
The Elkhorn Fund, LLC Long/Short Equity Investments 74,513,654 7.14 Quarterly
Highside Capital Partners, L.P. Long/Short Equity Investments 69,741,557 6.68 Annual
Icarus Qualified Partners, L.P. Short Equity Investments 34,396,383 3.30 Annual
JL Partners, L.P. Long/Short Equity Investments 67,703,636 6.49 Quarterly
Millgate Partners II, L.P. Long/Short Equity Investments 21,883,803 2.10 Quarterly
North River Partners, L.P. Long/Short Equity Investments 52,007,206 4.99 Quarterly
UC Financials Fund Limited Long/Short Equity Investments 40,956,558 3.93 Monthly
ValueAct Capital Partners III, L.P. Long/Short Equity Investments 68,459,130 6.56 Annual
Viking Global Equities, L.P. Long/Short Equity Investments 87,146,125 8.35 Annual
Woodbourne Daybreak Global Fund L.P. Long/Short Equity Investments 53,302,012 5.11 Quarterly
-------------------------------
$ 932,836,479 89.41 %
-------------------------------
AETOS CAPITAL MARKET NEUTRAL STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2008 CAPITAL LIQUIDITY*
- -------------------------------------------------------------------------------------------------------------------------------
AQR Absolute Return
Institutional Fund, L.P. Multi-Strategy $ 8,086,425 6.09 % Quarterly
Bravura 99 Fund, L.P. Low Beta/Market Neutral/Long Short 34,911,375 26.31 Quarterly
GMO Mean Reversion Fund Quantitative Asset Allocation 31,363,472 23.63 Quarterly
-------------------------------
$ 74,361,272 56.03 %
-------------------------------
*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 1/31/2008 CAPITAL LIQUIDITY*
- -------------------------------------------------------------------------------------------------------------------------------
Davidson Kempner Healthcare Fund L.P. Long/Short Equity Investments $ 13,049,539 6.98 % Semi-Annual
GMO U.S. Tactical Opportunities
Fund (Onshore), L.P. Long/Short Equity Investments 22,648,387 12.12 Monthly
Joho Partners, L.P. Long/Short Equity Investments 28,328,206 15.16 Semi-Annual
Pequot Short Credit Fund, L.P. Credit Related 15,968,175 8.55 Quarterly
Sansar Capital, L.P. Long/Short Equity Investments 17,257,921 9.24 Quarterly
Saras Capital Partners, L.P. Long/Short Equity Investments 20,177,083 10.80 Annual
Sheffield Institutional Partners, L.P. Event-Driven 8,121,162 4.35 Annual
Spindrift Partners, L.P. Real Assets 20,956,175 11.22 Semi-Annual
-------------------------------
$ 146,506,648 78.42 %
-------------------------------
*The liquidity of the Portfolio Funds may be further restricted due to
withdrawal limitations.
8. SUBSEQUENT EVENTS
Through March 1, 2008, the Funds received the following contributions:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $1,414,845
Aetos Capital Distressed Investment Strategies Fund, LLC 364,595
Aetos Capital Long/Short Strategies Fund, LLC 2,240,095
Aetos Capital Market Neutral Strategies Fund, LLC 457,345
Aetos Capital Opportunities Fund, LLC 114,095
and paid no redemptions.
The following table summarizes the redemption requests received by the Funds as
of January 31, 2008:
% OF
NUMBER OF ESTIMATED REDEMPTION MEMBERS'
FUND INVESTORS AMOUNT AS OF 1/31/08 CAPITAL
- ---------------------------------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC 13 $63,037,462 10.98%
Aetos Capital Distressed Investment Strategies Fund, LLC 11 6,881,316 4.09%
Aetos Capital Long/Short Strategies Fund, LLC 15 88,022,298 8.44%
Aetos Capital Market Neutral Strategies Fund, LLC 12 14,199,076 10.70%
Aetos Capital Opportunities Fund, LLC 1 54,263 0.03%
32
Notes to Financial Statements (continued)
9. RECENT ACCOUNTING PRONOUNCEMENTS
The Funds adopted Financial Accounting Standards Board ("FASB") Interpretation
No. 48 "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, AN INTERPRETATION OF FASB
STATEMENT NO. 109" ("FIN 48"), as required, on February 1, 2007. FIN 48 requires
the Investment Manager to determine whether a tax position of a Fund is more
likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The tax benefit to be recognized
is measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement which could result in the Fund
recording a tax liability that would reduce net assets. FIN 48 must be applied
to all existing tax positions upon initial adoption and the cumulative effect,
if any, is to be reported as an adjustment to net assets as of February 1, 2007.
Based on its analysis, the Investment Manager has determined that the adoption
of FIN 48 did not have a material impact on the Funds' financial statements.
However, the Investment Manager's conclusions regarding FIN 48 may be subject to
review and adjustment at a later date based on factors including, but not
limited to, further implementation guidance expected from the FASB, and on-going
analyses of tax laws, regulations and interpretations thereof.
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, 2008, the Funds had made no commitments to purchase underlying
funds.
At January 31, 2008, the Funds had submitted redemption requests from the
underlying funds as follows:
FUND AMOUNT
- --------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Satellite Fund II, L.P. $17,527,112
Sowood Alpha Fund, L.P. 2,972,142
---------------
20,499,254
---------------
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 --
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:
- --------------------------------------------------------------------------------------------------------------------------
Principal, Vanguard, January 2008-Present;
Ellen Harvey Since Senior Vice President, Mercantile Bankshares,
53 Manager 2002 February 2003-Present. 5
- --------------------------------------------------------------------------------------------------------------------------
Managing Director and Consultant,
Promontory Financial Group, March
2005-Present; Chairman, Atlantic
Whitehall January 2004-Present; Managing
Pierre de Saint Phalle Since Managing Director and Chief Legal Officer,
59 Manager 2002 iFormation Group, November 2000-November 2003. 5
- --------------------------------------------------------------------------------------------------------------------------
Chairman and Chief Investment Officer,
Warren J. Olsen Since First Western Investment Management,
51 Manager 2003 September 2002-Present. 5
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED MANAGERS:
- --------------------------------------------------------------------------------------------------------------------------
Co-President, Aetos Alternatives Management
Michael Klein(5) Manager and Since Managing Director, Aetos Capital, LLC,
49 President 2003 March 2000-Present. 5
- --------------------------------------------------------------------------------------------------------------------------
OFFICERS:
- --------------------------------------------------------------------------------------------------------------------------
Chief
Anne Casscells Investment Since Managing Director, Aetos Capital, LLC,
49 Officer 2002 October 2001-Present. N/A
- --------------------------------------------------------------------------------------------------------------------------
Vice President, Aetos Capital, LLC, August 2004-
Scott Sawyer Since Present; Client Portfolio Manager, GE Asset
39 Treasurer 2004 Management, 2002-July 2004. N/A
- --------------------------------------------------------------------------------------------------------------------------
Harold J. Schaaff Vice President Since General Counsel and Managing Director,
47 and Secretary 2002 Aetos Capital, LLC, March 2001-Present. 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. Klein is considered to be an "interested person" of the Fund as defined
in the 1940 Act because he is a Managing Director of Aetos Capital, LLC.
For more information regarding the Managers and Officers, please refer to
the Statement of Additional Information.
35
Shareholder Voting Results
January 31, 2008
(Unaudited)
At a special meeting held on February 18, 2008, Fund investors were asked to
consider the approval of successor investment advisory agreements. Each
successor investment advisory agreement was approved as summarized in the
following table:
AMOUNT OF % OF
INTERESTS AS OF % OF INTERESTS INTERESTS
12/31/07 OUTSTANDING VOTED
- -------------------------------------------------------------------------------------------------------------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Affirmative 388,780,143 66.75% 100.00%
Against -- 0.00% 0.00%
Total 388,780,143 66.75% 100.00%
Aetos Capital Distressed Investment Strategies Fund, LLC
Affirmative 107,758,909 62.83% 100.00%
Against -- 0.00% 0.00%
Total 107,758,909 62.83% 100.00%
Aetos Capital Long/Short Strategies Fund, LLC
Affirmative 703,254,016 65.10% 100.00%
Against -- 0.00% 0.00%
Total 703,254,016 65.10% 100.00%
Aetos Capital Market Neutral Strategies Fund, LLC
Affirmative 81,732,187 60.57% 100.00%
Against -- 0.00% 0.00%
Total 81,732,187 60.57% 100.00%
Aetos Capital Opportunities Fund, LLC
Affirmative 122,113,794 62.71% 100.00%
Against -- 0.00% 0.00%
Total 122,113,794 62.71% 100.00%
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 2008 FISCAL 2007
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) $42,200 $0 $0 $42,950 $0 $0
(b) Audit-
Related $0 $0 $0 $0 $0 $0
Fees
(c) Tax
Fees (2) $91,320 $0 $0 $56,550 $0 $0
(d) All
Other $0 $0 $0 $0 $0 $0
Fees
Notes:
(1) Audit fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings.
(2) Tax fees relate to preparation of federal and state tax returns.
(e)(1) The audit committee has adopted pre-approval policies and procedures
that require the audit committee to pre-approve all audit and non-audit
services (including tax services) to be provided to the Fund and all
non-auditing services to be provided to the Fund's investment adviser
(or any affiliate thereof that provides ongoing services to the Fund)
if such services relate directly to operations and financial reporting
of the Fund.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
FISCAL 2008 FISCAL 2007
----------- -----------
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 2008 and Fiscal 2007,
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 (6) Managing Director, Aetos Capital, LLC,
October 2001-Present.
James Gibbons Managing Director and Portfolio Manager,
Managing Director and Portfolio Manager, Aetos Alternatives Aetos Alternatives Management LLC,
Management, LLC (6) July 2002-Present.
Michael Klein Co-President, Aetos Alternatives Management,
Managing Director, Aetos Alternatives Management, LLC (6) LLC and Managing Director, Aetos Capital, LLC,
March 2000-Present.
(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, 2008.
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 9 $3,190 5 $2,070
(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, 2008 the portfolio managers owned Interests of the Fund as
follows:
Anne Casscells $100,001-500,000
James Gibbons $100,001-500,000
Michael Klein $10,001-50,000
(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 have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors since the registrant's
last proxy solicitation.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Aetos Capital Multi-Strategy Arbitrage Fund, LLC
By (Signature and Title)* /s/ Michael F. Klein
-----------------------------------
Michael F. Klein, President
Date: 4/04/08
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: 4/04/08
By (Signature and Title)* /s/ Scott D. Sawyer
-----------------------------------
Scott D. Sawyer, Treasurer
Date: 4/04/08
* Print the name and title of each signing officer under his or her signature.