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, 2010
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 OPPORTUNITIES FUND, LLC
Financial Statements
January 31, 2010
TABLE OF CONTENTS
Fund Commentaries ......................................................... 1
Report of Independent Registered Public Accounting Firm ................... 5
Schedules of Investments .................................................. 6
Statements of Assets and Liabilities ...................................... 11
Statements of Operations .................................................. 12
Statements of Changes in Members' Capital ................................. 13
Statements of Cash Flows .................................................. 15
Financial Highlights ...................................................... 16
Notes to Financial Statements ............................................. 20
Managers and Officers of the Fund ......................................... 33
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, 2010
(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, 2010, the Fund had a total return of 21.29%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2010, the Fund had an average annualized total return of
4.21%.
Arbitrage strategies had a banner year as the extreme dislocations of 2008 began
to subside. All arbitrage strategies saw strong performance but the categories
we expected would perform the best, convertible and fixed income arbitrage, saw
the highest returns. Fortunately, once the dust from 2008 had settled and it was
apparent which firms would survive, we were able to capitalize on our view by
tactically overweighting the convertible arbitrage strategy, a move that
enhanced returns for the Fund.
Our convertible arbitrage allocation was the most profitable sector within the
portfolio as a confluence of factors benefited our managers. In particular,
portfolios benefited from a rebound in implied volatilities, which had fallen to
near-zero levels during the crisis. In addition, continued high realized
volatility gave managers ample opportunity to generate additional returns from
gamma trading the portfolio.
Fixed income managers also realized their best returns in a decade as extreme
dislocations began to normalize. The most significant contributor to returns was
the normalization of the negative basis between cash bonds and derivative
instruments (credit default swaps). Other trades benefited from the narrowing of
sovereign swap spreads and normalization of certain yield curve abnormalities.
Our multi-strategy event managers realized substantial profits from tactically
overweighting credit investments coming into 2009. Most of their gains were
concentrated in North America and Europe, as investment grade and high yield
debt rallied dramatically. Many of these securities were issued by high quality
companies yet traded at historically wide spreads due to the financial crisis.
- ----------
(1) Returns are net of expenses and fees incurred at the Fund level and do not
reflect Program fees.
1
Aetos Capital Distressed Investment Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2010
(Unaudited)
The Aetos Capital Distressed Investment Strategies Fund, LLC (the "Fund")
allocates its assets among a select group of portfolio managers across a variety
of distressed investment strategies while seeking to produce an attractive
absolute return on invested capital, largely independent of the various
benchmarks associated with traditional asset classes.
The Fund allocates to investment managers that buy the securities (generally
bonds and bank loans) of companies that are in bankruptcy or in danger of
bankruptcy. These managers are able to buy these securities at a discount to
their eventual value because traditional fixed income portfolio managers who
bought the bonds or banks that made the loans may not want to or be able to own
them once they are in default. The sellers may also not have the expertise and
patience to go through a lengthy restructuring process. Distressed investing
involves credit analysis, legal expertise and (often) negotiating ability, as
the portfolio manager must estimate the value of the claims he is buying, the
likely timing and resolution of the bankruptcy process and also may be called
upon to reach agreements with other claimants in order to speed the process.
For the year ended January 31, 2010, the Fund had a total return of 22.03%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2010, the Fund had an average annualized total return of
9.96%.
For the credit markets, 2009 saw the reversal of 2008's flight to quality. High
yield bonds and loans were among the best performing asset classes, with the
bond index returning 55.8%. All of our distressed managers generated positive
results, and nearly all of them realized a twelve-month return above 20%. These
returns are more impressive considering the fact that they were achieved while
still employing significant hedging. In general, our managers did not try to
catch the beta wave in low-rated companies, but rather focused on a handful of
situations that afforded significant upside with downside limited by hard assets
and/or legal processes.
Due to improved new issuance conditions, as well as a modest calendar of credit
maturities this year (just $50 billion), the default rate is projected to
decline to just 4% by the end of 2010. Despite these expectations, we still view
the distressed investing strategy as one of the best risk/reward opportunities
currently available. While the official default rate may decline, the amount of
existing distressed paper created during 2009 should present high return
opportunities for some time to come. In addition, much of the refinancing of the
past year has merely kicked the can down the road for weak and/or overleveraged
companies, trading some breathing room for higher financing costs. In total,
$855 billion of high yield bonds and loans will come due from 2012-2014. This
should set up a rich multi-year opportunity set as many of these companies will
need to restructure.
- ----------
(1) Returns are net of expenses and fees incurred at the Fund level and do
not reflect Program fees.
2
Aetos Capital Long/Short Strategies Fund, LLC
Fund Commentary
For the year ended January 31, 2010
(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, 2010, the Fund had a total return of 3.57%.(1)
For the period from commencement of investment activities on September 1, 2002
through January 31, 2010, the Fund had an average annualized total return of
4.94%.
Our long/short managers produced mixed results over the twelve-month period.
During the sell-off leading up to March, our managers' stock selection was
rewarded as equity markets differentiated between strong companies and weak
ones. Gains from stock selection were much harder to come by following the March
9th rally, however, as lower quality names outperformed. The environment proved
to be a "trader's market", in which stock price momentum and beta were the most
important determinants of returns, not company-specific fundamentals. This made
for a challenging environment for our managers, as many gravitated towards
franchise companies with attractive valuations rather than lower quality
companies that will need to double margins in 2010 to meet earnings estimates.
In general, our sector-focused managers outperformed our generalist managers, as
they benefited from long exposures to the technology, financial, and energy
sectors, while also adding alpha through stock selection. A theme that worked
very well for our financial sector-focused manager was long investments in
larger banks and brokerages that had the benefit of government support, paired
with shorts in weaker, regional banks with commercial and industrial loan
exposures. Our energy/industrials-focused manager also outperformed due to long
positions in many beaten down oil exploration and production companies.
Offsetting these gains, managers' short portfolios uniformly lost money during
the period. Particularly notable losers included shorts in the consumer
discretionary sector as well as many financial names. While our managers were
often correct in identifying companies with deteriorating operating performance,
the market chose to give these companies the benefit of the doubt, looking
through near-term disappointment and believing that they could return to past
profitability.
- ----------
(1) Returns are net of expenses and fees incurred at the Fund level and do not
reflect Program fees.
3
Aetos Capital Opportunities Fund, LLC
Fund Commentary
For the year ended January 31, 2010
(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, 2010, the Fund had a total return of 2.64%.(1)
For the period from commencement of investment activities on August 1, 2005
through January 31, 2010, the Fund had an average annualized total return of
1.58%.
Performance among the Fund's managers was solid, with each manager, except one
described below, realizing double-digit returns for the period. The Fund's
energy long/short manager saw the strongest returns, benefiting from rising oil
prices and a bounce back in demand for many oil services companies. Trailing
this manager only slightly was one of the Fund's long/short managers focused on
Asia, who realized strong gains from positions in Japan, Hong Kong and India.
The Fund's performance over the period was negatively impacted by a manager that
was long high quality names while shorting low quality companies throughout the
year. Accordingly, this manager exhibited a significant negative beta during the
market rally. We believed that this was an attractive trade when the position
was initiated and we remain convinced that this strategy has an attractive
return potential. However, because we want to maintain a moderately net positive
beta for the Fund overall, the target allocation for this manager is now lower.
- ----------
(1) Returns are net of expenses and fees incurred at the Fund level and do not
reflect Program fees.
4
(PRICEWATERHOUSECOOPERS LOGO)
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, and Aetos
Capital Opportunities Fund, LLC (the "Funds") at January 31, 2010, the results
of each of their operations and cash flows for the year then ended, 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 portfolio funds at January
31, 2010, 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
and Aetos Capital Opportunities Fund, LLC valued at $488,738,107 (96.61% of the
Fund's members' capital), $401,585,040 (94.54% of the Fund's members' capital),
$722,649,396 (92.54% of the Fund's members' capital), and $117,217,015 (84.90%
of the Fund's members' capital) respectively, at January 31, 2010, 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
April 1,2010
5
Aetos Capital Multi-Strategy Arbitrage Fund, LLC
Schedule of Investments
January 31, 2010
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
(PIE CHART)
Quantitative Asset Allocation 13.58%
Convertible Arbitrage 17.40%
Fixed Income Arbitrage 23.43%
Multi-Strategy/Event Arbitrage 45.59%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------- ------------ ------------ -------------
AQR RT Fund, L.P. $ 30,000,000 $ 30,771,000 6.08%
CNH CA Institutional Fund, L.P. 40,000,000 44,979,083 8.89
Davidson Kempner Partners 60,543,694 77,766,066 15.37
Farallon Capital Offshore Investors, Inc. 78,172,893 77,809,738 15.38
FFIP, L.P. 51,630,000 69,780,986 13.79
GMO Mean Reversion Fund 40,692,369 35,603,772 7.04
Ishin Fund, LLC 35,361,920 40,063,479 7.92
Oceanwood Global Opportunities Fund L.P. 55,000,000 65,938,495 13.04
Parsec Trading Corp. 54,555,466 44,734,043 8.84
Sowood Alpha Fund, L.P.(1) 3,453,269 1,291,445 0.26
------------ ------------ -----
Total $449,409,611 $488,738,107 96.61%
============ ============ =====
* Percentages are based on Members' Capital of $505,874,777.
(1) Portfolio Fund in liquidation.
The aggregate cost of investments for tax purposes was $445,974,361. Net
unrealized appreciation on investments for tax purposes was $42,763,746
consisting of $72,443,095 of gross unrealized appreciation and $29,679,349 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 96.61% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
Aetos Capital Distressed Investment Strategies Fund, LLC
Schedule of Investments
January 31, 2010
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
(PIE CHART)
Distressed Investments 100.00%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------- ------------ ------------ -------------
AG Mortgage Value Partners, L.P. $ 30,000,000 $ 36,867,622 8.68%
Anchorage Capital Partners, L.P. 60,000,000 76,062,426 17.91
Aurelius Capital Partners, L.P. 55,500,000 75,858,036 17.86
Davidson Kempner Distressed Opportunities
Fund LP 40,000,000 42,735,010 10.06
King Street Capital, L.P. 51,050,000 75,735,567 17.83
One East Partners, L.P. 7,381,604 3,438,834 0.81
Silver Point Capital Fund, L.P. 35,629,344 34,625,149 8.15
Watershed Capital Partners, L.P. 54,050,000 56,262,396 13.24
------------ ------------ -----
Total $333,610,948 $401,585,040 94.54%
============ ============ =====
* Percentages are based on Members' Capital of $424,770,025.
The aggregate cost of investments for tax purposes was $362,353,142. Net
unrealized appreciation on investments for tax purposes was $39,231,898
consisting of $46,941,130 of gross unrealized appreciation and $7,709,232 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 94.54% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments
January 31, 2010
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
(PIE CHART)
Short Equity Investments 5.92%
Long/Short Equity Investments 94.08%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------- ----------- ----------- -------------
Bay Pond Partners, L.P. $18,970,904 $47,601,596 6.09%
Brookside Capital Partners Fund II, LP 65,000,000 66,492,639 8.51
Cadian Fund LP 45,000,000 48,445,254 6.20
Cadmus Capital Partners (QP), L.P.(1) 1,816,984 1,313,747 0.17
CamCap Energy, L.P. 40,000,000 40,358,839 5.17
Conatus Capital Partners LP 65,500,000 67,512,886 8.65
Copper River Partners, L.P.(1) 3,618,505 1,298,795 0.17
Highside Capital Partners, L.P. 31,063,150 38,144,704 4.89
Icarus Qualified Partners, L.P. 36,000,000 41,497,809 5.31
Joho Partners, L.P. 50,000,000 55,196,613 7.07
Marshall Wace TOPS Fund Limited 65,000,000 64,679,844 8.28
Millgate Partners II, L.P. 62,000,000 62,723,813 8.03
North River Partners, L.P. 41,783,623 55,640,478 7.13
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
Aetos Capital Long/Short Strategies Fund, LLC
Schedule of Investments (Concluded)
January 31, 2010
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------- ------------ ------------ -------------
Tiger Consumer Partners, L.P. $ 40,000,000 $ 40,440,471 5.18%
Viking Global Equities, L.P. 48,460,934 89,824,151 11.50
Woodbourne Daybreak Global Fund L.P.(1) 10,434,913 1,477,757 0.19
------------ ------------ -----
Total $624,649,013 $722,649,396 92.54%
============ ============ =====
* Percentages are based on Members' Capital of $780,940,944.
(1) Portfolio Fund in liquidation.
The aggregate cost of investments for tax purposes was $682,464,004. Net
unrealized appreciation on investments for tax purposes was $40,185,392
consisting of $83,759,162 of gross unrealized appreciation and $43,573,770 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 92.54% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
Aetos Capital Opportunities Fund, LLC
Schedule of Investments
January 31, 2010
INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS
(PIE CHART)
Event-Driven 0.81%
Long/Short Equity Investments 83.59%
Real Assets 15.60%
% OF MEMBERS'
PORTFOLIO FUND NAME COST VALUE CAPITAL*
- ------------------- ------------ ------------ -------------
GMO U.S. Tactical Opportunities Fund
(Onshore), L.P. $ 21,500,000 $ 18,265,636 13.23%
Joho Partners, L.P. 19,000,000 28,133,024 20.38
Samlyn Partners, L.P. 19,500,000 21,118,673 15.29
Sansar Capital, L.P. 10,315,420 7,630,938 5.53
Sansar Capital Holdings, Ltd. 179,142 286,476 0.21
Sheffield Institutional Partners, L.P. 915,748 951,592 0.69
Spindrift Partners, L.P. 18,000,000 18,282,437 13.24
The Elkhorn Fund, LLC 20,000,000 22,548,239 16.33
------------ ------------ -----
Total $109,410,310 $117,217,015 84.90%
============ ============ =====
* Percentages are based on Members' Capital of $138,064,213.
The aggregate cost of investments for tax purposes was $121,487,143. Net
unrealized depreciation on investments for tax purposes was $4,270,128
consisting of $9,820,705 of gross unrealized appreciation and $14,090,833 of
gross unrealized depreciation.
The investments in Portfolio Funds shown above, representing 84.90% of Members'
Capital, have been fair valued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
Statements of Assets and Liabilities
January 31, 2010
AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL
MULTI-STRATEGY INVESTMENT LONG/SHORT AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-------------- ------------- ------------- -------------
ASSETS
Investments in Portfolio Funds, at cost $449,409,611 $333,610,948 $624,649,013 $109,410,310
------------ ------------ ------------ ------------
Investments in Portfolio Funds, at value $488,738,107 $401,585,040 $722,649,396 $117,217,015
Cash and cash equivalents 23,000,396 26,787,847 67,932,229 23,433,276
Receivable for sale of investments 668,520 989,063 2,496,743 123,243
Accrued income 977 1,176 2,151 955
------------ ------------ ------------ ------------
Total assets 512,408,000 429,363,126 793,080,519 140,774,489
------------ ------------ ------------ ------------
LIABILITIES
Redemptions of Interests payable 5,079,849 3,592,375 10,514,895 2,357,696
Investment management fees payable 322,441 270,745 497,766 88,001
Sales of Interests received in advance 696,480 326,820 744,720 53,580
Administration fees payable 72,832 61,032 114,947 21,626
Board of Managers' fees payable 9,531 9,531 9,531 9,531
Other accrued expenses 352,090 332,598 257,716 179,842
------------ ------------ ------------ ------------
Total liabilities 6,533,223 4,593,101 12,139,575 2,710,276
------------ ------------ ------------ ------------
NET MEMBERS' CAPITAL $505,874,777 $424,770,025 $780,940,944 $138,064,213
============ ============ ============ ============
MEMBERS' CAPITAL
Net capital $466,546,281 $356,795,933 $682,940,561 $130,257,508
Net unrealized appreciation on
investments in Portfolio Funds 39,328,496 67,974,092 98,000,383 7,806,705
------------ ------------ ------------ ------------
Members' Capital $505,874,777 $424,770,025 $780,940,944 $138,064,213
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
Statements of Operations
For the year ended January 31, 2010
AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL
MULTI-STRATEGY INVESTMENT LONG/SHORT AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-------------- ------------- ------------- -------------
Investment income:
Dividends from money market funds $ 85,538 $ 161,736 $ 272,654 $ 61,939
----------- ----------- ------------ -----------
Expenses:
Investment management fees 3,169,751 2,709,723 5,793,506 988,155
Administration fees 380,590 330,569 710,964 126,129
Board of Managers' fees 38,125 38,125 38,125 38,125
Professional fees 421,438 427,911 308,583 268,490
Custodian fees 45,007 39,224 80,436 15,685
Registration fees 13,222 14,191 23,321 11,905
Printing fees 9,169 9,169 9,169 9,169
Other expenses 24,500 30,189 11,838 13,275
----------- ----------- ------------ -----------
Total expenses 4,101,802 3,599,101 6,975,942 1,470,933
----------- ----------- ------------ -----------
Net investment loss (4,016,264) (3,437,365) (6,703,288) (1,408,994)
----------- ----------- ------------ -----------
Net loss on Portfolio Funds sold (8,683,817) (1,889,144) (39,566,144) (2,083,718)
Net change in unrealized appreciation
on investments in Portfolio Funds 93,996,765 77,224,421 69,436,602 6,392,555
----------- ----------- ------------ -----------
Net increase in Members' Capital
derived from investment activities $81,296,684 $71,897,912 $ 23,167,170 $ 2,899,843
=========== =========== ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
Statements of Changes in Members' Capital
For the years ended January 31, 2009 and January 31, 2010
AETOS CAPITAL DISTRESSED
AETOS CAPITAL MULTI-STRATEGY INVESTMENT STRATEGIES
ARBITRAGE FUND, LLC FUND, LLC
---------------------------- ---------------------------
2/1/09 - 2/1/08 - 2/1/09 - 2/1/08 -
1/31/10 1/31/09 1/31/10 1/31/09
------------ ------------- ------------ ------------
From investment activities:
Net investment loss $ (4,016,264) $ (3,859,773) $ (3,437,365) $ (819,591)
Net gain/(loss) on Portfolio Funds sold (8,683,817) 17,381,577 (1,889,144) 3,374,415
Net change in unrealized
appreciation/(depreciation) on
investments in Portfolio Funds 93,996,765 (112,321,272) 77,224,421 (35,597,793)
------------ ------------- ------------ ------------
Net increase/(decrease) in Members' Capital
derived from investment activities 81,296,684 (98,799,468) 71,897,912 (33,042,969)
------------ ------------- ------------ ------------
Distributions:
Tax withholding on behalf of foreign investors (661,087) (1,253,004) (844,815) (1,096,210)
------------ ------------- ------------ ------------
Total distributions (661,087) (1,253,004) (844,815) (1,096,210)
------------ ------------- ------------ ------------
Members' Capital transactions:
Proceeds from transfer of assets* -- 46,535,603 -- --
Proceeds from sales of Interests 47,497,205 67,981,151 52,930,465 93,747,605
Redemptions of Interests (70,770,292) (143,399,567) (55,446,922) (23,401,469)
Transfers of Interests 59,829,647 (56,506,622) 2,559,325 149,040,607
------------ ------------- ------------ ------------
Net increase/(decrease) in Members' Capital
derived from capital transactions 36,556,560 (85,389,435) 42,868 219,386,743
------------ ------------- ------------ ------------
Net increase/(decrease) in Members' Capital 117,192,157 (185,441,907) 71,095,965 185,247,564
Members' Capital at beginning of year 388,682,620 574,124,527 353,674,060 168,426,496
------------ ------------- ------------ ------------
Members' Capital at end of year $505,874,777 $ 388,682,620 $424,770,025 $353,674,060
============ ============= ============ ============
* See Note 5 in Notes to Financial Statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
Statements of Changes in Members' Capital (concluded)
For the years ended January 31, 2009 and January 31, 2010
AETOS CAPITAL LONG/SHORT AETOS CAPITAL
STRATEGIES FUND, LLC OPPORTUNITIES FUND, LLC
------------------------------ ---------------------------
2/1/09 - 2/1/08 - 2/1/09 - 2/1/08 -
1/31/10 1/31/09 1/31/10 1/31/09
------------- -------------- ------------ ------------
From investment activities:
Net investment loss $ (6,703,288) $ (6,235,720) $ (1,408,994) $ (808,257)
Net gain/(loss) on Portfolio Funds sold (39,566,144) 27,893,467 (2,083,718) (356,519)
Net change in unrealized
appreciation/(depreciation) on
investments in Portfolio funds 69,436,602 (117,075,472) 6,392,555 (14,392,498)
------------- -------------- ------------ ------------
Net increase/(decrease) in Members' Capital
derived from investment activities 23,167,170 (95,417,725) 2,899,843 (15,557,274)
------------- -------------- ------------ ------------
Distributions:
Tax withholding on behalf of foreign investors (2,413,742) (2,555,363) (454,264) (560,463)
------------- -------------- ------------ ------------
Total distributions (2,413,742) (2,555,363) (454,264) (560,463)
------------- -------------- ------------ ------------
Members' Capital transactions:
Proceeds from sales of Interests 109,450,677 131,535,348 21,441,584 22,928,303
Redemptions of Interests (169,491,276) (194,799,810) (34,732,394) (27,369,517)
Transfers of Interests (63,545,672) 1,638,741 1,156,700 (18,511,397)
------------- -------------- ------------ ------------
Net decrease in Members' Capital derived from
capital transactions (123,586,271) (61,625,721) (12,134,110) (22,952,611)
------------- -------------- ------------ ------------
Net decrease in Members' Capital (102,832,843) (159,598,809) (9,688,531) (39,070,348)
Members' Capital at beginning of year 883,773,787 1,043,372,596 147,752,744 186,823,092
------------- -------------- ------------ ------------
Members' Capital at end of year $ 780,940,944 $ 883,773,787 $138,064,213 $147,752,744
============= ============== ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
Statements of Cash Flows
For the year ended January 31, 2010
AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL
MULTI-STRATEGY INVESTMENT LONG/SHORT AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-------------- ------------- ------------- ------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net increase in Members' Capital derived from
investment activities $ 81,296,684 $ 71,897,912 $ 23,167,170 $ 2,899,843
Adjustments to reconcile net increase in Members'
Capital from investment activities to net cash
used in operating activities
Purchases of Portfolio Funds (132,000,000) (143,000,000) (348,000,000) (32,993,318)
Sales of Portfolio Funds 39,986,460 18,321,541 274,614,889 12,193,020
Net loss on Portfolio Funds sold 8,683,817 1,889,144 39,566,144 2,083,718
Net change in unrealized appreciation on
investments in Portfolio Funds (93,996,765) (77,224,421) (69,436,602) (6,392,555)
Decrease in accrued income 45,951 108,863 196,660 41,405
Decrease in prepaid tax withholding -- -- -- 918
Decrease/(increase) in receivable for
sale of investments 3,856,070 547,026 4,145,037 (123,243)
Increase/(decrease) in investment
management fees payable 75,375 45,932 (64,005) (5,918)
Decrease in administration fees payable (59,446) (46,417) (158,796) (28,974)
Increase in Board of Managers' fees payable 975 975 975 975
Increase/(decrease) in other accrued expenses (117,626) 158,486 56,411 75,660
------------- ------------- ------------- ------------
Net cash used in operating activities (92,228,505) (127,300,959) (75,912,117) (22,248,469)
------------- ------------- ------------- ------------
DISTRIBUTIONS
Tax withholding on behalf of foreign investors (661,087) (844,815) (2,413,742) (454,264)
------------- ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of Interests 48,193,685 53,257,285 110,195,397 21,495,164
Redemptions of Interests (72,797,485) (52,936,056) (170,115,960) (33,325,236)
Transfers of Interests 59,829,647 2,559,325 (63,545,672) 1,156,700
------------- ------------- ------------- ------------
Net cash provided by/(used in) financing activities 35,225,847 2,880,554 (123,466,235) (10,673,372)
------------- ------------- ------------- ------------
Net decrease in cash and cash equivalents (57,663,745) (125,265,220) (201,792,094) (33,376,105)
Cash and cash equivalents, beginning of year 80,664,141 152,053,067 269,724,323 56,809,381
------------- ------------- ------------- ------------
Cash and cash equivalents, end of year $ 23,000,396 $ 26,787,847 $ 67,932,229 $ 23,433,276
============= ============= ============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
Financial Highlights
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
--------------------------------------------------------
2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 2/1/05 -
1/31/10 1/31/09 1/31/08 1/31/07 1/31/06
-------- -------- -------- -------- --------
Total return(1) 21.29% (20.29)% (1.76)% 10.36% 6.48%
Net assets, end of period (000's) $505,875 $388,683 $574,125 $447,632 $320,267
Ratios to average net assets:
Expenses (2)(3) 0.98% 0.96% 0.90% 0.95% 0.95%
Net investment loss (0.96)% (0.80)% (0.62)% (0.75)% (0.77)%
Portfolio turnover rate 11.01% 5.35% 14.01% 16.80% 6.24%
(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.
16
Financial Highlights (continued)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
--------------------------------------------------------
2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 2/1/05 -
1/31/10 1/31/09 1/31/08 1/31/07 1/31/06
-------- -------- -------- -------- --------
Total return(1) 22.03% (8.57)% 4.32% 12.95% 8.46%
Net assets, end of period (000's) $424,770 $353,674 $168,426 $109,967 $66,508
Ratios to average net assets:
Expenses (2)(3) 1.00% 1.02% 1.03% 1.08% 1.24%
Expenses, net of waivers and
reimbursements (2)(3) 1.00% 1.01% 0.99% 1.00% 1.00%
Net investment loss, before waivers
and reimbursements (0.95)% (0.30)% (0.69)% (0.76)% (0.88)%
Net investment loss, net of waivers
and reimbursements (0.95)% (0.29)% (0.65)% (0.68)% (0.64)%
Portfolio turnover rate 6.74% 12.51% 0.00% 13.69% 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.
17
Financial Highlights (continued)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
--------------------------------------------------------
2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 2/1/05 -
1/31/10 1/31/09 1/31/08 1/31/07 1/31/06
-------- -------- ---------- -------- --------
Total return(1) 3.57% (9.33)% 7.04% 9.61% 11.66%
Net assets, end of period (000's) $780,941 $883,774 $1,043,373 $738,210 $471,815
Ratios to average net assets:
Expenses (2)(3) 0.89% 0.88% 0.88% 0.92% 0.94%
Net investment loss (0.86)% (0.63)% (0.66)% (0.65)% (0.78)%
Portfolio turnover rate 42.29% 12.24% 20.12% 6.13% 9.65%
(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.
18
Financial Highlights (concluded)
AETOS CAPITAL OPPORTUNITIES FUND, LLC
---------------------------------------------------------
2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 5/27/05* -
1/31/10 1/31/09 1/31/08 1/31/07 1/31/06
-------- -------- -------- -------- ----------
Total return(1) 2.64% (9.03)% 7.24% 2.41% 4.94%
Net assets, end of period (000's) $138,064 $147,753 $186,823 $139,909 $72,856
Ratios to average net assets:
Expenses, before waivers and
reimbursements (2)(4) 1.11% 0.99% 0.97% 1.05% 1.44%(3)
Expenses, net of waivers and
reimbursements (2)(4) 1.11% 0.99% 0.97% 1.04% 1.07%(3)
Net investment loss, before waivers
and reimbursements (1.06)% (0.46)% (0.37)% (0.57)% (1.11)%(3)
Net investment loss, net of waivers
and reimbursements (1.06)% (0.46)% (0.37)% (0.56)% (0.74)%(3)
Portfolio turnover rate (5) 11.83% 5.54% 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.
19
Notes to Financial Statements
January 31, 2010
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, 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,
2010 the Feeder Funds' beneficial ownership of their corresponding Master Funds'
members' capital are 79%, 84%, 83%, and 90% for the Aetos Capital Multi-Strategy
Arbitrage Cayman Fund, Aetos Capital Distressed Investment Strategies Cayman
Fund, Aetos Capital Long/Short Strategies Cayman Fund, and Aetos Capital
Opportunities Cayman Fund, respectively, and 1%, 1%, 1%, and less than 1% for
the Aetos Capital Multi-Strategy Arbitrage Cayman II Fund, Aetos Capital
Distressed Investment Strategies Cayman II Fund, Aetos Capital Long/Short
Strategies Cayman II Fund and Aetos Capital Opportunities Cayman II 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.
20
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:
In June 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") Topic 105, GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("ASC 105") (formerly Statement of Financial Accounting
Standards ("SFAS") No. 168, ACCOUNTING STANDARDS CODIFICATION AND HIERARCHY OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: A REPLACEMENT OF FASB STATEMENT NO.
162). ASC 105 establishes the FASB Accounting Standards Codification
("Codification") as the single source of authoritative accounting principles
recognized by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with U.S. generally accepted
accounting principles ("GAAP"). ASC 105 is effective for interim and annual
periods ending after September 15, 2009. All existing accounting standards
documents are superseded as described in ASC 105, and all other accounting
literature not included in ASC 105 is non-authoritative. Updates to the
Codification Standards are issued as Accounting Standard Updates ("ASU"s) by the
FASB. In these financial statements, a dual presentation of the Codification and
the former reference has been adopted. The adoption of the Codification does not
impact the Funds' financial statements except for references made to
authoritative accounting literature in the footnotes.
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.
21
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and any restrictions on or illiquidity of the
interests in the Portfolio Funds, in determining fair value.
Considerable judgment is required to interpret the factors used to develop
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts the Fund could realize in a current market exchange and the differences
could be material to the financial statements. The use of different factors or
estimation methodologies could have a significant effect on the estimated fair
value.
The FASB issued ASC Topic 820, FAIR VALUE MEASUREMENTS AND DISCLOSURES,
(formerly SFAS No. 157 FAIR VALUE MEASUREMENTS), which establishes a fair value
hierarchy and specifies that a valuation technique used to measure fair value
shall maximize the use of observable inputs and minimize the use of unobservable
inputs. The objective of a fair value measurement is to determine the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price).
Accordingly the fair value hierarchy gives the highest priority to valuations
based upon unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to valuations based upon
unobservable inputs that are significant to the valuation (Level 3). The levels
of the fair value hierarchy under FASB ASC Topic 820-10-35-39 to 55 are as
follows:
- Level 1 - Inputs that reflect unadjusted quoted prices in active
markets for identical, unrestricted assets or liabilities that the
Funds have the ability to access at the measurement date;
- Level 2 - Inputs other than quoted prices that are observable for the
asset or liability either directly or indirectly, including inputs in
markets that are not considered to be active;
- Level 3 - Inputs that are unobservable;
Inputs broadly refer to assumptions that market participants use to make
valuation decisions, including assumptions about risk. ASC Topic 820-10-35-59
permits the Investment Manager to estimate the fair value of the investments in
the Portfolio Funds at the net asset value reported by the Portfolio Funds if
22
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. Portfolio Valuation and Security Transactions (continued)
the net asset value is calculated in a manner consistent with the measurement
principles of ASC Topic 946, FINANCIAL SERVICES - INVESTMENT COMPANIES. The
Investment Manager evaluates each Portfolio Fund individually to determine that
its net asset value is calculated in a manner consistent with ASC 946. The
Investment Manager also considers whether an adjustment to the net asset value
reported by the Portfolio Fund is necessary based upon various factors,
including, but not limited to, the attributes of the interest in the Portfolio
Fund held, including the rights and obligations, and any restrictions on or
illiquidity of such interests, and the fair value of such Portfolio Fund's
investment portfolio or other assets and liabilities. The Investment Manager
also considers such factors in determining whether a Portfolio Fund should be
classified as Level 2 or Level 3 within the fair value hierarchy.
The following table presents information about the level within the fair value
hierarchy at which the Funds' investments are measured as of January 31, 2010:
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ------------ ------------ ------------
Investments in Portfolio Funds $-- $106,438,251 $382,299,856 $488,738,107
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ------- ------------ ------------
Investments in Portfolio Funds $-- $-- $401,585,040 $401,585,040
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ------------ ------------ ------------
Investments in Portfolio Funds $-- $209,206,047 $513,443,349 $722,649,396
AETOS CAPITAL OPPORTUNITIES FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ----------- ----------- ------------
Investments in Portfolio Funds $-- $40,813,875 $76,403,140 $117,217,015
23
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. Portfolio Valuation and Security Transactions (continued)
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL
MULTI-STRATEGY INVESTMENT LONG/SHORT AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-------------- ------------- ------------- -------------
Beginning Balance as of 1/31/09 $311,411,619 $201,571,304 $619,393,827 $ 92,107,880
Realized loss (8,683,817) (1,889,144) (42,699,767) (2,083,718)
Change in unrealized appreciation 84,886,942 77,224,421 58,881,889 16,667,935
Net purchase/sales 62,013,540 124,678,459 (24,614,889) 800,298
Net transfers in and/or out of
Level 3 (67,328,428) -- (97,517,711) (31,089,255)
------------ ------------ ------------ ------------
Ending Balance as of 1/31/10 $382,299,856 $401,585,040 $513,443,349 $ 76,403,140
============ ============ ============ ============
All net realized gains and losses and changes in unrealized appreciation and
depreciation in the preceding table are included in the Statements of
Operations. The changes in net unrealized depreciation of investments in
Portfolio Funds still held by the Funds at January 31, 2010 were as follows:
AETOS CAPITAL
AETOS CAPITAL DISTRESSED AETOS CAPITAL
MULTI-STRATEGY INVESTMENT LONG/SHORT AETOS CAPITAL
ARBITRAGE STRATEGIES STRATEGIES OPPORTUNITIES
FUND, LLC FUND, LLC FUND, LLC FUND, LLC
-------------- ------------- ------------- -------------
Change in unrealized appreciation $75,773,272 $71,612,054 $7,197,553 $13,509,809
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.
24
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fund Income and Expenses (continued)
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.
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
Cash and cash equivalents is defined as cash on deposit at financial
institutions, investments in money market funds, and highly liquid investments
with original maturities of three months or less. Each Fund invests its cash in
the SEI Daily Income Trust Government Fund, a money market fund managed by an
affiliate of the Administrator. These holdings are included in the cash and cash
equivalents balance on the Statements of Assets and Liabilities. The cost of the
money market funds held at January 31, 2010 equals fair value.
25
Notes to Financial Statements (continued)
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 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 Program fee may also include 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 each Cayman feeder fund.
Each Member of the Board who is not an "interested person" of the Funds as
defined by the 1940 Act received an annual retainer of $35,500 and regular
quarterly meeting fees of $3,625 per meeting (additional meeting fees are $500
per meeting). The Chairman of the audit committee received an additional annual
retainer of $2,500. Any Manager who is an "interested person" does not receive
any annual or other fee from the Funds. All Managers are reimbursed by the Funds
for reasonable out-of-pocket expenses.
Net profits or net losses of the Funds for each fiscal period are allocated
among and credited to or debited against the capital accounts of Members as of
the last day of each fiscal period in accordance with each Member's respective
investment percentage for each Fund. Net profits or net losses are measured as
the net change in the value of the net assets of a Fund during a fiscal period,
before giving effect to any repurchases of Interests in the Fund, and excluding
the amount of any items to be allocated among the capital accounts of the
Members of the Fund, other than in accordance with the Members' respective
investment percentages.
26
Notes to Financial Statements (continued)
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. FUND MERGER
On November 1, 2008, Aetos Capital Market Neutral Strategies Fund, LLC was
reorganized into Aetos Capital Multi-Strategy Arbitrage Fund, LLC. The value of
the Aetos Capital Market Neutral Fund, LLC on November 1, 2008 was $46,535,603,
which was comprised of $40,692,369 of an investment in a Portfolio Fund,
$5,952,897 of cash, $682,234 of receivable for sale of investments, $9,688 of
interest receivable, $546,873 of redemptions of interests payable, and $254,712
of expenses payable.
6. RISK FACTORS
Limitations on the Funds' ability to withdraw their assets from Portfolio Funds
may limit the Funds' ability to repurchase their Interests. For example, many
Portfolio Funds impose lock-up periods prior to allowing withdrawals, which can
be two years or longer. After expiration of the lock-up period, withdrawals
typically are permitted only on a limited basis, such as monthly, quarterly,
semi-annually or annually. Many Portfolio Funds may also indefinitely suspend
redemptions or establish restrictions on the ability to fully receive proceeds
from redemptions through the application of a redemption restriction or "gate."
In instances where the primary source of funds to repurchase Interests will be
withdrawals from Portfolio Funds, the application of these lock-ups and
withdrawal limitations may significantly limit the Funds' ability to repurchase
their Interests.
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.
The Portfolio Funds may invest a higher 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
Fund's net asset value.
27
Notes to Financial Statements (continued)
6. RISK FACTORS (CONTINUED)
The Portfolio Funds may invest in securities of foreign companies that involve
special risks and considerations not typically associated with investments in
the United States of America, due to concentrated investments in a limited
number of countries or regions, which may vary throughout the year depending on
the Portfolio Fund. Such concentrations may subject the Portfolio Funds to
additional risks resulting from political or economic conditions in such
countries or regions and the possible imposition of adverse governmental laws or
currency exchange restrictions could cause the securities and their markets to
be less liquid and their prices to be more volatile than those of comparable
U.S. securities.
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
Fund, risks relating to compensation arrangements and risks related to limited
liquidity of the Interests.
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.
7. INVESTMENT TRANSACTIONS
For the year ended January 31, 2010, purchases and sales of investments were as
follows:
FUND PURCHASES SALES
- ---- ------------ ------------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $132,000,000 $ 39,986,460
Aetos Capital Distressed Investment Strategies Fund, LLC 143,000,000 18,321,541
Aetos Capital Long/Short Strategies Fund, LLC 348,000,000 274,614,889
Aetos Capital Opportunities Fund, LLC 32,993,318 12,193,020
8. INVESTMENTS
As of January 31, 2010, collectively the Funds had investments in forty-one
Portfolio Funds, none of which were related parties. The following table lists
the Funds' investments in Portfolio Funds as of January 31, 2010. 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.
28
Notes to Financial Statements (continued)
8. INVESTMENTS (CONTINUED)
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2010 CAPITAL LIQUIDITY*
- ------------------- ------------------------------ ------------ ------------- ----------
AQR RT Fund, L.P. Quantitative Asset Allocation $ 30,771,000 6.08% Monthly
CNH CA Institutional Fund, L.P. Convertible Arbitrage 44,979,083 8.89 Quarterly
Davidson Kempner Partners Multi-Strategy/Event Arbitrage 77,766,066 15.37 Annual
Farallon Capital Offshore
Investors, Inc. Multi-Strategy/Event Arbitrage 77,809,738 15.38 Annual
FFIP, L.P. Fixed Income Arbitrage 69,780,986 13.79 Annual
GMO Mean Reversion Fund Quantitative Asset Allocation 35,603,772 7.04 Quarterly
Ishin Fund, LLC Convertible Arbitrage 40,063,479 7.92 Quarterly
Oceanwood Global
Opportunities Fund L.P. Multi-Strategy/Event Arbitrage 65,938,495 13.04 Annual
Parsec Trading Corp. Fixed Income Arbitrage 44,734,043 8.84 Monthly
Sowood Alpha Fund, L.P. Multi-Strategy/Event Arbitrage 1,291,445 0.26 Annual
------------ -----
$488,738,107 96.61%
============ =====
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2010 CAPITAL LIQUIDITY*
- ------------------- ---------------------- ------------ ------------- -----------
AG Mortgage Value Partners, L.P. Distressed Investments $ 36,867,622 8.68% Annual
Anchorage Capital Partners, L.P. Distressed Investments 76,062,426 17.91 Annual
Aurelius Capital Partners, L.P. Distressed Investments 75,858,036 17.86 Semi-Annual
Davidson Kempner Distressed
Opportunites Fund LP Distressed Investments 42,735,010 10.06 Annual
King Street Capital, L.P. Distressed Investments 75,735,567 17.83 Quarterly
One East Partners, L.P. Distressed Investments 3,438,834 0.81 Quarterly
Silver Point Capital Fund, L.P. Distressed Investments 34,625,149 8.15 Annual
Watershed Capital Partners, L.P. Distressed Investments 56,262,396 13.24 Quarterly
------------ -----
$401,585,040 94.54%
============ =====
* The liquidity of the Portfolio Funds may be further restricted due to
withdrawal limitations.
29
Notes to Financial Statements (continued)
8. INVESTMENTS (CONTINUED)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2010 CAPITAL LIQUIDITY*
- ------------------- ----------------------------- ------------ ------------- -----------
Bay Pond Partners, L.P. Long/Short Equity Investments $ 47,601,596 6.09% Semi-Annual
Brookside Capital Partners
Fund II, LP Long/Short Equity Investments 66,492,639 8.51 Quarterly
Cadian Fund LP Long/Short Equity Investments 48,445,254 6.20 Quarterly
Cadmus Capital Partners (QP), L.P. Long/Short Equity Investments 1,313,747 0.17 Quarterly
CamCap Energy, L.P. Long/Short Equity Investments 40,358,839 5.17 Quarterly
Conatus Capital Partners LP Long/Short Equity Investments 67,512,886 8.65 Quarterly
Copper River Partners, L.P. Short Equity Investments 1,298,795 0.17 Annual
Highside Capital Partners, L.P. Long/Short Equity Investments 38,144,704 4.89 Annual
Icarus Qualified Partners, L.P. Short Equity Investments 41,497,809 5.31 Annual
Joho Partners, L.P. Long/Short Equity Investments 55,196,613 7.07 Semi-Annual
Marshall Wace TOPS Fund Limited Long/Short Equity Investments 64,679,844 8.28 Monthly
Millgate Partners II, L.P. Long/Short Equity Investments 62,723,813 8.03 Quarterly
North River Partners, L.P. Long/Short Equity Investments 55,640,478 7.13 Quarterly
Tiger Consumer Partners, L.P. Long/Short Equity Investments 40,440,471 5.18 Quarterly
Viking Global Equities, L.P. Long/Short Equity Investments 89,824,151 11.50 Annual
Woodbourne Daybreak Global Fund
L.P. Long/Short Equity Investments 1,477,757 0.19 Quarterly
------------ -----
$722,649,396 92.54%
============ =====
AETOS CAPITAL OPPORTUNITIES FUND, LLC
FAIR VALUE % OF MEMBERS'
PORTFOLIO FUND NAME STRATEGY 1/31/2010 CAPITAL LIQUIDITY*
- ------------------- ----------------------------- ------------ ------------- -----------
GMO U.S. Tactical Opportunities
Fund (Onshore), L.P. Long/Short Equity Investments $ 18,265,636 13.23% Monthly
Joho Partners, L.P. Long/Short Equity Investments 28,133,024 20.38 Semi-Annual
Samlyn Partners, L.P. Long/Short Equity Investments 21,118,673 15.29 Semi-Annual
Sansar Capital, L.P. Long/Short Equity Investments 7,630,938 5.53 Quarterly
Sansar Capital Holdings, Ltd. Long/Short Equity Investments 286,476 0.21 Annual
Sheffield Institutional Partners,
L.P. Event-Driven 951,592 0.69 Annual
Spindrift Partners, L.P. Real Assets 18,282,437 13.24 Semi-Annual
The Elkhorn Fund, LLC Long/Short Equity Investments 22,548,239 16.33 Monthly
------------ -----
$117,217,015 84.90%
============ =====
* The liquidity of the Portfolio Funds may be further restricted due to
withdrawal limitations.
30
Notes to Financial Statements (continued)
9. COMMITMENTS
At January 31, 2010, the Funds had made no commitments to purchase underlying
funds.
At January 31, 2010, the Funds had submitted redemption requests from the
underlying funds as follows:
FUND AMOUNT
- ---- ----------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $ --
Aetos Capital Distressed Investment Strategies Fund, LLC
One East Partners, L.P. 3,438,834
----------
3,438,834
----------
Aetos Capital Long/Short Strategies Fund, LLC --
Aetos Capital Opportunities Fund, LLC
Sansar Capital, L.P. 7,630,938
Sansar Capital Holdings, Ltd.. 286,476
----------
7,917,414
----------
10. SUBSEQUENT EVENTS
Through March 1, 2010, the Funds paid no redemptions and received the following
contributions:
FUND AMOUNT
- ---- ----------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC $4,381,449
Aetos Capital Distressed Investment Strategies Fund, LLC 3,493,601
Aetos Capital Long/Short Strategies Fund, LLC 8,431,501
Aetos Capital Opportunities Fund, LLC 1,409,549
31
Notes to Financial Statements (concluded)
10. SUBSEQUENT EVENTS (CONTINUED)
The following table summarizes the redemption requests received by the Funds
subsequent to January 31, 2010:
ESTIMATED REDEMPTION % OF
NUMBER OF AMOUNT SUBSEQUENT MEMBERS'
FUND INVESTORS TO 1/31/10 CAPITAL
- ---- --------- -------------------- --------
Aetos Capital Multi-Strategy Arbitrage Fund, LLC 23 $ 8,877,149 2%
Aetos Capital Distressed Investment Strategies Fund, LLC 24 25,435,221 6%
Aetos Capital Long/Short Strategies Fund, LLC 24 8,370,245 1%
Aetos Capital Opportunities Fund, LLC 16 393,179 0%
The Funds have evaluated the need for additional disclosures and/or adjustments
resulting from subsequent events through the date the financial statements were
issued. Based on this evaluation, no additional disclosures or adjustments were
required to the financial statements as of January 31, 2010.
32
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:
Ellen Harvey Manager Since Principal, Lindsey Criswell LLC, July 4
55 2002 2008-Present; Principal, Vanguard, January
2008-June 2008; Senior Vice President,
Mercantile Bankshares, February 2003-Present.
Pierre de Saint Manager Since Managing Director and Consultant, Promontory 4
Phalle 2002 Financial Group, March 2005-Present; Chairman,
61 Atlantic Whitehall Funds, January 2004-Present;
Managing Director and Chief Legal Officer,
iFormation Group, November 2000-November 2003.
Warren J. Olsen Manager Since Chairman and Chief Investment Officer, First 4
53 2003 Western Investment Management, September
2002-Present.
INTERESTED MANAGERS:
Michael Klein(5) Manager and Since Co-President, Aetos Alternatives Management and 4
51 President 2003 Managing Director, Aetos Capital, LLC, March
2000-Present.
OFFICERS:
Anne Casscells Chief Since Co-President, Aetos Alternatives Management and N/A
51 Investment 2002 Managing Director, Aetos Capital, LLC, October
Officer 2001-Present.
Scott Sawyer Treasurer Since Director, Aetos Capital, LLC, August 2004- N/A
41 2004 Present; Client Portfolio Manager, GE Asset
Management, 2002-July 2004.
Harold J. Schaaff Vice Since General Counsel and Managing Director, Aetos N/A
49 President and 2001 Capital, LLC, March 2001-Present.
Secretary
(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.
33
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 Fund for the
last two fiscal years as follows:
FISCAL 2010 FISCAL 2009
------------------------------------------------- -------------------------------------------------
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) $ 35,755 $0 $0 $ 39,326 $0 $0
(b) Audit-Related
Fees $ 0 $0 $0 $ 0 $0 $0
(c) Tax Fees(2) $245,745 $0 $0 $250,662 $0 $0
(d) All Other
Fees $ 0 $0 $0 $ 0 $0 $0
Notes:
(1) Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings.
(2) Tax fees relate to preparation of federal and state tax returns.
(e)(1) The audit committee has adopted pre-approval policies and procedures that
require the audit committee to pre-approve all audit and non-audit
services (including tax services) to be provided to the Fund and all
non-auditing services to be provided to the Fund's investment adviser (or
any affiliate thereof that provides ongoing services to the Fund) if such
services relate directly to operations and financial reporting of the
Fund.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
FISCAL 2010 FISCAL 2009
----------- -----------
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 2010 and Fiscal 2009,
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, Aetos
Managing Director and Chief Investment Officer, Aetos Alternatives Management, LLC and Managing
Alternatives Management, LLC (8) Director, Aetos Capital, LLC, October 2001-
Present.
James Gibbons Managing Director and Portfolio Manager, Aetos
Managing Director and Portfolio Manager, Aetos Alternatives Alternatives Management LLC, July 2002 - Present.
Management, LLC (8)
Michael Klein Co-President , Aetos Alternatives Management,
Managing Director, Aetos Alternatives Management, LLC (8) 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, 2010.
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 7 $2,085 4 $1,398
(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, 2010 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: 4/06/10
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: 4/06/10
By (Signature and Title)* /s/ Scott D. Sawyer
----------------------------------------
Scott D. Sawyer, Treasurer
Date: 4/06/10
* Print the name and title of each signing officer under his or her
signature.