ThZeal - The Zeal

N-CSRS 1 g06575nvcsrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM N-CSRS -------- 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) -------- 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: JULY 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 (unaudited) July 31, 2010 TABLE OF CONTENTS Schedules of Investments .................................................. 1 Statements of Assets and Liabilities ...................................... 6 Statements of Operations .................................................. 7 Statements of Changes in Members' Capital ................................. 8 Statements of Cash Flows .................................................. 10 Financial Highlights ..................................................... 11 Notes to Financial Statements ............................................. 15 Approval of Investment Advisory Agreements ................................ 28

The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (the "Commission") for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of each period. The Funds' Forms N-Q are available on the Commission's web site at http://www.sec.gov, and may be reviewed and copied at the Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, as well as information relating to how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, by calling 1-212-201-2500; and (ii) on the Commission's website at http://www.sec.gov. Aetos Capital Multi-Strategy Arbitrage Fund, LLC Schedule of Investments (Unaudited) July 31, 2010 INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS (PIE CHART) ~~Quantitative Asset Allocation 12.61% Convertible Arbitrage 16.89% Fixed Income Arbitrage 22.35% Multi-Strategy/Event Arbitrage 43.32% Cash Equivalent 4.83%~~

% OF MEMBERS' PORTFOLIO FUNDS COST VALUE CAPITAL* --------------- ------------ ------------ ------------- AQR RT Fund, L.P. $ 40,000,000 $ 40,948,538 7.01% CNH CA Institutional Fund, L.P. 40,000,000 47,393,033 8.12 Davidson Kempner Partners 70,543,694 90,800,165 15.55 Farallon Capital Offshore Investors, Inc. 88,172,893 90,890,203 15.57 FFIP, L.P. 61,630,000 84,979,952 14.56 GMO Mean Reversion Fund (Onshore) 40,692,369 32,899,487 5.64 Ishin Fund LLC 45,361,920 51,522,479 8.83 Oceanwood Global Opportunities Fund LP 55,000,000 70,785,421 12.13 Parsec Trading Corp. 54,555,466 45,964,900 7.87 Sowood Alpha Fund, LP(1) 3,453,269 1,285,326 0.22 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS 499,409,611 557,469,504 95.50 ------------ ------------ ------ CASH EQUIVALENT SEI Daily Income Trust Government Fund, Class A, 0.050%** (Shares 28,279,292) 28,279,292 28,279,292 4.84 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS AND CASH EQUIVALENT $527,688,903 $585,748,796 100.34% ============ ============ ======
* Percentages are based on Members' Capital of $583,770,127. ** Rate shown is the 7-day effective yield as of July 31, 2010. (1) Portfolio Fund in liquidation. The aggregate cost of investments in Portfolio Funds and cash equivalent for tax purposes was $592,529,485. Net unrealized depreciation on investments in Portfolio Funds and cash equivalent for tax purposes was $6,780,689 consisting of $22,444,630 of gross unrealized appreciation and $29,225,319 of gross unrealized depreciation. The investments in Portfolio Funds shown above, representing 95.50% of Members' Capital, have been fair valued. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 1 Aetos Capital Distressed Investment Strategies Fund, LLC Schedule of Investments (Unaudited) July 31, 2010 INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS (PIE CHART) ~~Distressed Investments 94.73% Cash Equivalent 5.27%~~

% OF MEMBERS' PORTFOLIO FUNDS COST VALUE CAPITAL* --------------- ------------ ------------ ------------- AG Mortgage Value Partners, L.P. $ 28,987,029 $ 38,832,664 8.46% Anchorage Capital Partners, L.P. 60,000,000 76,287,539 16.63 Aurelius Capital Partners, LP 55,500,000 78,913,700 17.20 Centerbridge Credit Partners, L.P. 30,250,000 31,071,368 6.77 Davidson Kempner Distressed Opportunities Fund LP 40,000,000 43,840,085 9.56 King Street Capital, L.P. 51,050,000 76,621,598 16.70 One East Partners, L.P. 6,729,253 3,473,207 0.76 Silver Point Capital Fund, L.P. 31,387,113 30,221,452 6.59 Watershed Capital Partners, L.P. 54,050,000 58,419,678 12.73 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS 357,953,395 437,681,291 95.40 ------------ ------------ ------ CASH EQUIVALENT SEI Daily Income Trust Government Fund, Class A, 0.050%** (Shares 24,344,208) 24,344,208 24,344,208 5.31 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS AND CASH EQUIVALENT $382,297,603 $462,025,499 100.71% ============ ============ ======
* Percentages are based on Members' Capital of $458,786,030. ** Rate shown is the 7-day effective yield as of July 31, 2010. The aggregate cost of investments in Portfolio Funds and cash equivalent for tax purposes was $417,753,628. Net unrealized appreciation on investments in Portfolio Funds and cash equivalent for tax purposes was $44,271,871 consisting of $44,774,605 of gross unrealized appreciation and $502,734 of gross unrealized depreciation. The investments in Portfolio Funds shown above, representing 95.40% of Members' Capital, have been fair valued. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 2 Aetos Capital Long/Short Strategies Fund, LLC Schedule of Investments (Unaudited) July 31, 2010 INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS (PIE CHART) ~~Long/Short Equity Investments 85.00% Short Equity Investments 4.16% Cash Equivalent 10.84%~~

% OF MEMBERS' PORTFOLIO FUNDS COST VALUE CAPITAL* --------------- ----------- ----------- ------------- Bay Pond Partners, L.P. $18,970,904 $49,753,519 5.70% Brookside Capital Partners Fund II, L.P. 65,000,000 65,548,693 7.50 Cadian Fund LP 50,000,000 58,130,177 6.65 Cadmus Capital Partners (QP), LP(1) 1,816,984 1,316,587 0.15 CamCap Energy, L.P. 45,000,000 47,902,341 5.48 Conatus Capital Partners LP 65,500,000 68,709,392 7.87 Copper River Partners, L.P.(1) 2,710,246 966,816 0.11 Highside Capital Partners, L.P. 31,063,150 38,285,268 4.38 Icarus Qualified Partners, L.P. 36,000,000 35,483,807 4.06 Joho Partners, L.P. 50,000,000 61,652,807 7.06 MW European TOPS Fund 80,000,000 77,475,416 8.87 Millgate Partners II, L.P. 77,000,000 70,592,047 8.08 North River Partners, L.P. 46,783,623 57,975,280 6.64
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 Aetos Capital Long/Short Strategies Fund, LLC Schedule of Investments (Unaudited) (Concluded) July 31, 2010
% OF MEMBERS' PORTFOLIO FUNDS (CONTINUED) COST VALUE CAPITAL* --------------------------- ------------ ------------ ------------- Tiger Consumer Partners, L.P. $ 55,000,000 $ 55,775,093 6.39% Viking Global Equities LP 48,460,934 90,272,626 10.33 Woodbourne Daybreak Global Fund, L.P.(1) 6,968,833 878,963 0.10 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS 680,274,674 780,718,832 89.37 ------------ ------------ ------ CASH EQUIVALENT SEI Daily Income Trust Government Fund, Class A, 0.050%** (Shares 94,879,323) 94,879,323 94,879,323 10.86 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS AND CASH EQUIVALENT $775,153,997 $875,598,155 100.23% ============ ============ ======
* Percentages are based on Members' Capital of $873,620,916. ** Rate shown is the 7-day effective yield as of July 31, 2010. (1) Portfolio Fund in liquidation. The aggregate cost of investments in Portfolio Funds and cash equivalent for tax purposes was $840,967,697. Net unrealized appreciation on investments in Portfolio Funds and cash equivalent for tax purposes was $34,630,458 consisting of $61,182,233 of gross unrealized appreciation and $26,551,775 of gross unrealized depreciation. The investments in Portfolio Funds shown above, representing 89.37% of Members' Capital, have been fair valued. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 Aetos Capital Opportunities Fund, LLC Schedule of Investments (Unaudited) July 31, 2010 INVESTMENT STRATEGY AS A PERCENTAGE OF INVESTMENTS (PIE CHART) ~~Event-Driven 0.67% Cash Equivalent 20.41% Long/Short Equity Investments 66.34% Real Assets 12.58%~~

% OF MEMBERS' PORTFOLIO FUNDS COST VALUE CAPITAL* --------------- ------------ ------------ ------------- GMO Tactical Opportunities Fund (Onshore) $ 21,500,000 $ 15,138,753 10.14% Joho Partners, L.P. 19,000,000 31,459,402 21.06 Samlyn Onshore Fund, LP 21,500,000 22,628,949 15.15 Sansar Capital, L.P. 2,554,147 1,824,932 1.22 Sansar Capital Holdings, Ltd. 289,082 401,755 0.27 Sheffield Institutional Partners, L.P. 915,748 1,008,097 0.67 Spindrift Partners, L.P. 18,000,000 18,826,687 12.60 The Elkhorn Fund, LLC 25,000,000 27,881,466 18.67 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS 108,758,977 119,170,041 79.78 ------------ ------------ ------ CASH EQUIVALENT SEI Daily Income Trust Government Fund, Class A, 0.050%** (Shares 30,558,783) 30,558,783 30,558,783 20.46 ------------ ------------ ------ TOTAL PORTFOLIO FUNDS AND CASH EQUIVALENT $139,317,760 $149,728,824 100.24% ============ ============ ======
* Percentages are based on Members' Capital of $149,367,590. ** Rate shown is the 7-day effective yield as of July 31, 2010. The aggregate cost of investments in Portfolio Funds and cash equivalent for tax purposes was $147,360,605. Net unrealized appreciation on investments in Portfolio Funds and cash equivalent for tax purposes was $2,368,219 consisting of $13,890,598 of gross unrealized appreciation and $11,522,379 of gross unrealized depreciation. The investments in Portfolio Funds shown above, representing 79.78% of Members' Capital, have been fair valued. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 Statements of Assets and Liabilities July 31, 2010 (Unaudited)
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 and cash equivalent, at cost $527,688,903 $382,297,603 $775,153,997 $139,317,760 ------------ ------------ ------------ ------------ Investments in Portfolio Funds and cash equivalent, at value $585,748,796 $462,025,499 $875,598,155 $149,728,824 Accrued income 1,211 1,063 4,171 1,309 Receivable for sale of investments -- 238,483 -- -- ------------ ------------ ------------ ------------ Total assets 585,750,007 462,265,045 875,602,326 149,730,133 ------------ ------------ ------------ ------------ LIABILITIES Redemptions of Interests payable 1,062,858 2,682,596 988,949 38,544 Investment management fees payable 372,091 292,427 556,839 95,206 Administration fees payable 141,247 110,373 212,862 37,909 Board of Managers' fees payable 10,094 10,094 10,094 10,094 Other accrued expenses 393,590 383,525 212,666 180,790 ------------ ------------ ------------ ------------ Total liabilities 1,979,880 3,479,015 1,981,410 362,543 ------------ ------------ ------------ ------------ NET MEMBERS' CAPITAL $583,770,127 $458,786,030 $873,620,916 $149,367,590 ============ ============ ============ ============ MEMBERS' CAPITAL Net capital $525,710,234 $379,058,134 $773,176,758 $138,956,526 Net unrealized appreciation on investments in Portfolio Funds and cash equivalent 58,059,893 79,727,896 100,444,158 10,411,064 ------------ ------------ ------------ ------------ Members' Capital $583,770,127 $458,786,030 $873,620,916 $149,367,590 ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 6 Statements of Operations For the six-month period ended July 31, 2010 (Unaudited)
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 $ 6,218 $ 7,648 $ 20,685 $ 6,898 ------------ ------------ ----------- ----------- Expenses: Investment management fees 2,042,789 1,654,638 3,111,234 539,978 Administration fees 257,789 212,333 391,580 70,898 Board of Managers' fees 19,625 19,625 19,625 19,625 Professional fees 193,863 188,023 140,568 111,938 Custodian fees 28,932 23,730 43,289 8,755 Registration fees 6,000 6,000 6,000 6,000 Printing fees 3,000 3,000 3,000 3,000 Other expenses 11,247 10,273 10,621 9,342 ------------ ------------ ----------- ----------- Total expenses 2,563,245 2,117,622 3,725,917 769,536 ------------ ------------ ----------- ----------- Net investment loss (2,557,027) (2,109,974) (3,705,232) (762,638) ------------ ------------ ----------- ----------- Net gain/(loss) on Portfolio Funds sold 568 3,192,471 (3,605,468) (1,682,384) Net change in unrealized appreciation on investments in Portfolio Funds and cash equivalent 18,731,397 11,753,804 2,443,775 2,604,359 ------------ ------------ ----------- ----------- Net increase/(decrease) in Members' Capital derived from investment activities $ 16,174,938 $ 12,836,301 $(4,866,925) $ 159,337 ============ ============ =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 Statements of Changes in Members' Capital For the six-month period ended July 31, 2010 and the year ended January 31, 2010
AETOS AETOS CAPITAL DISTRESSED CAPITAL MULTI-STRATEGY INVESTMENT STRATEGIES ARBITRAGE FUND, LLC FUND, LLC --------------------------- --------------------------- 2/1/10 - 2/1/10 - 7/31/10 2/1/09 - 7/31/10 2/1/09 - (UNAUDITED) 1/31/10 (UNAUDITED) 1/31/10 ------------ ------------ ------------ ------------ From investment activities: Net investment loss $ (2,557,027) $ (4,016,264) $ (2,109,974) $ (3,437,365) Net gain/(loss) on Portfolio Funds sold 568 (8,683,817) 3,192,471 (1,889,144) Net change in unrealized appreciation on investments in Portfolio Funds and cash equivalent 18,731,397 93,996,765 11,753,804 77,224,421 ------------ ------------ ------------ ------------ Net increase in Members' Capital derived from investment activities 16,174,938 81,296,684 12,836,301 71,897,912 ------------ ------------ ------------ ------------ Distributions: Tax withholding on behalf of foreign investors (62,679) (661,087) (18,828) (844,815) ------------ ------------ ------------ ------------ Total distributions (62,679) (661,087) (18,828) (844,815) ------------ ------------ ------------ ------------ Members' Capital transactions: Proceeds from sales of Interests 73,206,774 47,497,205 48,590,989 52,930,465 Redemptions of Interests (11,423,683) (70,770,292) (27,392,457) (55,446,922) Transfers of Interests -- 59,829,647 -- 2,559,325 ------------ ------------ ------------ ------------ Net increase in Members' Capital derived from capital transactions 61,783,091 36,556,560 21,198,532 42,868 ------------ ------------ ------------ ------------ Net increase in Members' Capital 77,895,350 117,192,157 34,016,005 71,095,965 Members' Capital at beginning of period 505,874,777 388,682,620 424,770,025 353,674,060 ------------ ------------ ------------ ------------ Members' Capital at end of period $583,770,127 $505,874,777 $458,786,030 $424,770,025 ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 Statements of Changes in Members' Capital (concluded) For the six-month period ended July 31, 2010 and the year ended January 31, 2010
AETOS CAPITAL LONG/SHORT AETOS CAPITAL STRATEGIES FUND, LLC OPPORTUNITIES FUND, LLC ---------------------------- --------------------------- 2/1/10 - 2/1/10 - 7/31/10 2/1/09 - 7/31/10 2/1/09 - (UNAUDITED) 1/31/10 (UNAUDITED) 1/31/10 ------------ ------------- ------------ ------------ From investment activities: Net investment loss $ (3,705,232) $ (6,703,288) $ (762,638) $ (1,408,994) Net loss on Portfolio Funds sold (3,605,468) (39,566,144) (1,682,384) (2,083,718) Net change in unrealized appreciation on investments in Portfolio funds and cash equivalent 2,443,775 69,436,602 2,604,359 6,392,555 ------------ ------------- ------------ ------------ Net increase/(decrease) in Members' Capital derived from investment activities (4,866,925) 23,167,170 159,337 2,899,843 ------------ ------------- ------------ ------------ Distributions: Tax withholding on behalf of foreign investors (598,693) (2,413,742) (406,087) (454,264) ------------ ------------- ------------ ------------ Total distributions (598,693) (2,413,742) (406,087) (454,264) ------------ ------------- ------------ ------------ Members' Capital transactions: Proceeds from sales of Interests 110,602,934 109,450,677 12,222,287 21,441,584 Redemptions of Interests (12,457,344) (169,491,276) (672,160) (34,732,394) Transfers of Interests -- (63,545,672) -- 1,156,700 ------------ ------------- ------------ ------------ Net increase/(decrease) in Members' Capital derived from capital transactions 98,145,590 (123,586,271) 11,550,127 (12,134,110) ------------ ------------- ------------ ------------ Net increase/(decrease) in Members' Capital 92,679,972 (102,832,843) 11,303,377 (9,688,531) Members' Capital at beginning of period 780,940,944 883,773,787 138,064,213 147,752,744 ------------ ------------- ------------ ------------ Members' Capital at end of period $873,620,916 $ 780,940,944 $149,367,590 $138,064,213 ============ ============= ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 Statements of Cash Flows For the six-month period ended July 31, 2010 (Unaudited)
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/(decrease) in Members' Capital derived from investment activities $ 16,174,938 $ 12,836,301 $ (4,866,925) $ 159,337 Adjustments to reconcile net increase/(decrease) in Members' Capital from investment activities to net cash used in operating activities: Purchases of Portfolio Funds (50,000,000) (30,250,000) (60,000,000) (7,184,460) Purchases of cash equivalent (28,279,292) (24,344,208) (94,879,323) (30,558,783) Sales of Portfolio Funds 568 9,100,024 768,871 6,153,409 Net (gain)/loss on Portfolio Funds sold (568) (3,192,471) 3,605,468 1,682,384 Net change in unrealized appreciation on investments in Portfolio Funds and cash equivalent (18,731,397) (11,753,804) (2,443,775) (2,604,359) Decrease/(increase) in accrued income (234) 113 (2,020) (354) Decrease in receivable for sale of investments 668,520 750,580 2,496,743 123,243 Increase in investment management fees payable 49,650 21,682 59,073 7,205 Increase in administration fees payable 68,415 49,341 97,915 16,283 Increase in Board of Managers' fees payable 563 563 563 563 Increase/(decrease) in other accrued expenses 41,500 50,927 (45,050) 948 ------------ ------------ ------------- ------------ Net cash used in operating activities (80,007,337) (46,730,952) (155,208,460) (32,204,584) ------------ ------------ ------------- ------------ DISTRIBUTIONS Tax withholding on behalf of foreign investors (62,679) (18,828) (598,693) (406,087) ------------ ------------ ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of Interests 72,510,294 48,264,169 109,858,214 12,168,707 Redemptions of Interests (15,440,674) (28,302,236) (21,983,290) (2,991,312) ------------ ------------ ------------- ------------ Net cash provided by financing activities 57,069,620 19,961,933 87,874,924 9,177,395 ------------ ------------ ------------- ------------ Net decrease in cash and cash equivalents (23,000,396) (26,787,847) (67,932,229) (23,433,276) Cash and cash equivalents, beginning of period 23,000,396 26,787,847 67,932,229 23,433,276 ------------ ------------ ------------- ------------ Cash, end of period $ -- $ -- $ -- $ -- ============ ============ ============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 Financial Highlights
AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC ----------------------------------------------------------------------- 2/1/10 - 7/31/10 2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 2/1/05 - (UNAUDITED) 1/31/10 1/31/09 1/31/08 1/31/07 1/31/06 ----------- -------- -------- -------- -------- -------- Total return(1) 3.28% 21.29% (20.29)% (1.76)% 10.36% 6.48% Net assets, end of period (000's) $583,770 $505,875 $388,683 $574,125 $447,632 $320,267 Ratios to average net assets: Expenses (2)(4) 0.95%(3) 0.98% 0.96% 0.90% 0.95% 0.95% Net investment loss (0.95)%(3) (0.96)% (0.80)% (0.62)% (0.75)% (0.77)% Portfolio turnover rate (5) 0.00% 11.01% 5.35% 14.01% 16.80% 6.24%
(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. 11 Financial Highlights (continued)
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC ----------------------------------------------------------------------- 2/1/10 - 7/31/10 2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 2/1/05 - (UNAUDITED) 1/31/10 1/31/09 1/31/08 1/31/07 1/31/06 ----------- -------- -------- -------- -------- -------- Total return(1) 3.16% 22.03% (8.57)% 4.32% 12.95% 8.46% Net assets, end of period (000's) $458,786 $424,770 $353,674 $168,426 $109,967 $66,508 Ratios to average net assets: Expenses, before waivers and reimbursements (2)(4) 0.97%(3) 1.00% 1.02% 1.03% 1.08% 1.24% Expenses, net of waivers and reimbursements (2)(4) 0.97%(3) 1.00% 1.01% 0.99% 1.00% 1.00% Net investment loss, before waivers and reimbursements (0.96)%(3) (0.95)% (0.30)% (0.69)% (0.76)% (0.88)% Net investment loss, net of waivers and reimbursements (0.96)%(3) (0.95)% (0.29)% (0.65)% (0.68)% (0.64)% Portfolio turnover rate (5) 2.19% 6.74% 12.51% 0.00% 13.69% 0.00%
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain investors is treated as a reinvested distribution. (2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds. (3) Annualized. (4) The expense ratios do not include the Program fees charged separately to investors as described in Note 3 in the Notes to Financial Statements. (5) Portfolio turnover rate for periods less than one year have not been annualized. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 12 Financial Highlights (continued)
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC -------------------------------------------------------------------------- 2/1/10 - 7/31/10 2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 2/1/05 - (UNAUDITED) 1/31/10 1/31/09 1/31/08 1/31/07 1/31/06 ----------- -------- -------- ---------- -------- -------- Total return(1) (0.28)% 3.57% (9.33)% 7.04% 9.61% 11.66% Net assets, end of period (000's) $873,621 $780,941 $883,774 $1,043,373 $738,210 $471,815 Ratios to average net assets: Expenses (2)(4) 0.91%(3) 0.89% 0.88% 0.88% 0.92% 0.94% Net investment loss (0.90)%(3) (0.86)% (0.63)% (0.66)% (0.65)% (0.78)% Portfolio turnover rate (5) 0.10% 42.29% 12.24% 20.12% 6.13% 9.65%
(1) Total return for periods less than one year have not been annualized. Tax withholding on behalf of certain investors is treated as a reinvested distribution. (2) Expense ratios do not reflect the Fund's proportionate share of expenses of the Portfolio Funds. (3) Annualized. (4) The expense ratios do not include the Program fees charged separately to investors as described in Note 3 in the Notes to Financial Statements. (5) Portfolio turnover rate for periods less than one year have not been annualized. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 13 Financial Highlights (concluded)
AETOS CAPITAL OPPORTUNITIES FUND, LLC ------------------------------------------------------------------------- 2/1/10 - 7/31/10 2/1/09 - 2/1/08 - 2/1/07 - 2/1/06 - 5/27/05* - (UNAUDITED) 1/31/10 1/31/09 1/31/08 1/31/07 1/31/06 ----------- -------- -------- -------- -------- ---------- Total return(1) 0.25% 2.64% (9.03)% 7.24% 2.41% 4.94% Net assets, end of period (000's) $149,368 $138,064 $147,753 $186,823 $139,909 $72,856 Ratios to average net assets: Expenses, before waivers and reimbursements (2)(4) 1.08%(3) 1.11% 0.99% 0.97% 1.05% 1.44%(3) Expenses, net of waivers and reimbursements (2)(4) 1.08%(3) 1.11% 0.99% 0.97% 1.04% 1.07%(3) Net investment loss, before waivers and reimbursements (1.07)%(3) (1.06)% (0.46)% (0.37)% (0.57)% (1.11)%(3) Net investment loss, net of waivers and reimbursements (1.07)%(3) (1.06)% (0.46)% (0.37)% (0.56)% (0.74)%(3) Portfolio turnover rate (5) 5.25% 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. 14 Notes to Financial Statements July 31, 2010 (Unaudited) 1. ORGANIZATION The Aetos Capital Multi-Strategy Arbitrage Fund, LLC, the Aetos Capital Distressed Investment Strategies Fund, LLC, the Aetos Capital Long/Short Strategies Fund, LLC, 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 July 31, 2010 the Feeder Funds' beneficial ownership of their corresponding Master Funds' members' capital are 81.51%, 84.54%, 84.93%, and 91.13% 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. 15 Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) Aetos Capital Opportunities Fund, LLC 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 and any restrictions on or illiquidity of the interests in the Portfolio Funds, in determining fair value. 16 Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Portfolio Valuation and Security Transactions (continued) 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 Financial Accounting Standards Board ("FASB") issued ASC Topic 820, FAIR VALUE MEASUREMENTS AND DISCLOSURES, 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 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. 17 Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Portfolio Valuation and Security Transactions (continued) The following table presents information about the level within the fair value hierarchy at which the Funds' investments are measured as of July 31, 2010: AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------- ------------ ------------ ------------ Investments in Portfolio Funds $ -- $171,335,404 $386,134,100 $557,469,504 Cash equivalent 28,279,292 -- -- 28,279,292 ----------- ------------ ------------ ------------ TOTAL $28,279,292 $171,335,404 $386,134,100 $585,748,796 =========== ============ ============ ============
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------- ------- ------------ ------------ Investments in Portfolio Funds $ -- $-- $437,681,291 $437,681,291 Cash equivalent 24,344,208 -- -- 24,344,208 ----------- --- ------------ ------------ TOTAL $24,344,208 $-- $437,681,291 $462,025,499 =========== === ============ ============
AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------- ------------ ------------ ------------ Investments in Portfolio Funds $ -- $256,929,379 $523,789,453 $780,718,832 Cash equivalent 94,879,323 -- -- 94,879,323 ----------- ------------ ------------ ------------ TOTAL $94,879,323 $256,929,379 $523,789,453 $875,598,155 =========== ============ ============ ============
AETOS CAPITAL OPPORTUNITIES FUND, LLC
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------- ----------- ----------- ------------ Investments in Portfolio Funds $ -- $43,020,219 $76,149,822 $119,170,041 Cash equivalent 30,558,783 -- -- 30,558,783 ----------- ----------- ----------- ------------ TOTAL $30,558,783 $43,020,219 $76,149,822 $149,728,824 =========== =========== =========== ============
18 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 1/31/10 $382,299,856 $401,585,040 $513,443,349 $76,403,140 Realized gain/(loss) -- 3,192,471 (3,605,467) (1,682,384) Change in unrealized appreciation 18,568,287 11,753,804 572,604 5,398,015 Net purchase/sales 30,000,000 21,149,976 24,231,128 (3,968,949) Net transfers in and/or out of Level 3 (44,734,043) -- (10,852,161) -- ------------ ------------ ------------ ----------- Ending Balance as of 7/31/10 $386,134,100 $437,681,291 $523,789,453 $76,149,822 ============ ============ ============ ===========
All net realized gains and losses and changes in unrealized appreciation in the preceding table are included in the Statements of Operations. The changes in net unrealized appreciation/(depreciation) of investments in Portfolio Funds still held by the Funds at July 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/(depreciation) $18,568,287 $11,517,686 $(2,984,878) $3,422,872 =========== =========== =========== ==========
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. In January 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU No. 2010-6 enhances and clarifies existing fair value measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Funds adopted ASU 2010-6 on February 1, 2010. The adoption of ASU No. 2010-6 did not have any impact on the Funds' financial statements. 19 Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Fund Income and Expenses Each Fund bears its own expenses including, but not limited to: any taxes; organizational expenses; offering costs; investment-related expenses incurred by the Funds (e.g., fees and expenses charged by the Portfolio Managers and Portfolio Funds, placement fees, professional fees, custody and administrative fees). Most expenses of the Funds can be directly attributed to a particular Fund. Expenses which cannot be directly attributed are apportioned among the Funds based upon relative net assets or on another reasonable basis. Interest income is recorded on an accrual basis and consists of interest earned on cash and cash equivalents. 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. 20 Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 investments in Portfolio Funds and cash equivalent balance on the Statements of Assets and Liabilities. The cost of the money market funds held at July 31, 2010 equals fair value. 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. 21 Notes to Financial Statements (continued) 3. INVESTMENT MANAGER FEE, RELATED PARTY TRANSACTIONS AND OTHER (CONTINUED) 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. 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. 22 Notes to Financial Statements (continued) 5. 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. 6. INVESTMENT TRANSACTIONS For the six-month period ended July 31, 2010, purchases and sales of investments in Portfolio Funds were as follows:
FUND PURCHASES SALES ---- ----------- ---------- Aetos Capital Multi-Strategy Arbitrage Fund, LLC $50,000,000 $ 568 Aetos Capital Distressed Investment Strategies Fund, LLC 30,250,000 9,100,024 Aetos Capital Long/Short Strategies Fund, LLC 60,000,000 768,871 Aetos Capital Opportunities Fund, LLC 7,184,460 6,153,409
7. INVESTMENTS As of July 31, 2010, collectively the Funds had investments in forty-two Portfolio Funds, none of which were related parties. 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. 23 Notes to Financial Statements (continued) 7. INVESTMENTS (CONTINUED) The liquidity provisions shown in the following tables apply after any applicable lock-up provisions.
NUMBER OF % OF TOTAL PORTFOLIO PORTFOLIO FUNDS FUNDS --------- ---------- AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC Funds allowing monthly withdrawals (notice period of 30 days) 2 15.60% Funds allowing quarterly withdrawals (notice periods ranging from 14 to 60 days) 3 23.64% Funds allowing annual withdrawals (notice periods ranging from 45 to 90 days) 4 60.53% Funds in liquidation 1 0.23%

NUMBER OF % OF TOTAL PORTFOLIO PORTFOLIO FUNDS FUNDS --------- ---------- AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC Funds allowing quarterly withdrawals (notice periods ranging from 60 to 90 days) 3 31.65% Funds allowing semi-annual withdrawals (notice period of 65 days) 1 18.03% Funds allowing annual withdrawals (notice periods ranging from 60 to 90 days) 4 43.22% Funds allowing bi-annual withdrawals (notice period of 90 days) 1 7.10%

NUMBER OF % OF TOTAL PORTFOLIO PORTFOLIO FUNDS FUNDS --------- ---------- AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC Funds allowing monthly withdrawals (notice period of 30 days) 1 9.92% Funds allowing quarterly withdrawals (notice periods ranging from 45 to 90 days) 7 54.40% Funds allowing semi-annual withdrawals (notice periods ranging from 30 to 45 days) 2 14.27% Funds allowing annual withdrawals (notice periods ranging from 30 to 45 days) 3 21.01% Funds in liquidation 3 0.40%

NUMBER OF % OF TOTAL PORTFOLIO PORTFOLIO FUNDS FUNDS --------- ---------- AETOS CAPITAL OPPORTUNITIES FUND, LLC Funds allowing monthly withdrawals (notice periods ranging from 5 to 30days) 2 36.10% Funds allowing quarterly withdrawals (notice period of 45 days) 1 1.53% Funds allowing semi-annual withdrawals (notice periods ranging from 30 to 65 days) 3 61.18% Funds allowing annual withdrawals (notice periods ranging from 45 to 90 days) 2 1.19%
24 Notes to Financial Statements (continued) 7. INVESTMENTS (CONTINUED) The following tables list the Funds' investments in Portfolio Funds as of July 31, 2010. AETOS CAPITAL MULTI-STRATEGY ARBITRAGE FUND, LLC
FAIR VALUE % OF MEMBERS' PORTFOLIO FUND NAME STRATEGY 7/31/2010 CAPITAL LIQUIDITY* ------------------- ------------------------------ ------------ ------------- ----------- AQR RT Fund, L.P. Quantitative Asset Allocation $ 40,948,538 7.01% Monthly CNH CA Institutional Fund, L.P. Convertible Arbitrage 47,393,033 8.12 Quarterly Davidson Kempner Partners Multi-Strategy/Event Arbitrage 90,800,165 15.55 Annual Farallon Capital Offshore Investors, Inc. Multi-Strategy/Event Arbitrage 90,890,203 15.57 Annual FFIP, L.P. Fixed Income Arbitrage 84,979,952 14.56 Annual GMO Mean Reversion Fund (Onshore) Quantitative Asset Allocation 32,899,487 5.64 Quarterly Ishin Fund LLC Convertible Arbitrage 51,522,479 8.83 Quarterly Oceanwood Global Opportunities Fund LP Multi-Strategy/Event Arbitrage 70,785,421 12.13 Annual Parsec Trading Corp. Fixed Income Arbitrage 45,964,900 7.87 Monthly Sowood Alpha Fund, LP Multi-Strategy/Event Arbitrage 1,285,326 0.22 Annual ------------ ----- $557,469,504 95.50% ------------ -----
AETOS CAPITAL DISTRESSED INVESTMENT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS' PORTFOLIO FUND NAME STRATEGY 7/31/2010 CAPITAL LIQUIDITY* ------------------- ------------------------------ ------------ ------------- ----------- AG Mortgage Value Partners, L.P. Distressed Investments $ 38,832,664 8.46% Annual Anchorage Capital Partners, L.P. Distressed Investments 76,287,539 16.63 Annual Aurelius Capital Partners, LP Distressed Investments 78,913,700 17.20 Semi-Annual Centerbridge Credit Partners, L.P. Distressed Investments 31,071,368 6.77 Bi-Annual Davidson Kempner Distressed Opportunites Fund LP Distressed Investments 43,840,085 9.56 Annual King Street Capital, L.P. Distressed Investments 76,621,598 16.70 Quarterly One East Partners, L.P. Distressed Investments 3,473,207 0.76 Quarterly Silver Point Capital Fund, L.P. Distressed Investments 30,221,452 6.59 Annual Watershed Capital Partners, L.P. Distressed Investments 58,419,678 12.73 Quarterly ------------ ----- $437,681,291 95.40% ------------ -----
* The liquidity of the Portfolio Funds may be further restricted due to withdrawal limitations. 25 Notes to Financial Statements (continued) 7. INVESTMENTS (CONTINUED) AETOS CAPITAL LONG/SHORT STRATEGIES FUND, LLC
FAIR VALUE % OF MEMBERS' PORTFOLIO FUND NAME STRATEGY 7/31/2010 CAPITAL LIQUIDITY* ------------------- ------------------------------ ------------ ------------- ----------- Bay Pond Partners, L.P. Long/Short Equity Investments $ 49,753,519 5.70% Semi-Annual Brookside Capital Partners Fund II, L.P. Long/Short Equity Investments 65,548,693 7.50 Quarterly Cadian Fund LP Long/Short Equity Investments 58,130,177 6.65 Quarterly Cadmus Capital Partners (QP), LP Long/Short Equity Investments 1,316,587 0.15 Quarterly CamCap Energy, L.P. Long/Short Equity Investments 47,902,341 5.48 Quarterly Conatus Capital Partners LP Long/Short Equity Investments 68,709,392 7.87 Quarterly Copper River Partners, L.P. Short Equity Investments 966,816 0.11 Annual Highside Capital Partners, L.P. Long/Short Equity Investments 38,285,268 4.38 Annual Icarus Qualified Partners, L.P. Short Equity Investments 35,483,807 4.06 Annual Joho Partners, L.P. Long/Short Equity Investments 61,652,807 7.06 Semi-Annual MW European TOPS Fund Long/Short Equity Investments 77,475,416 8.87 Monthly Millgate Partners II, L.P. Long/Short Equity Investments 70,592,047 8.08 Quarterly North River Partners, L.P. Long/Short Equity Investments 57,975,280 6.64 Quarterly Tiger Consumer Partners, L.P. Long/Short Equity Investments 55,775,093 6.39 Quarterly Viking Global Equities LP Long/Short Equity Investments 90,272,626 10.33 Annual Woodbourne Daybreak Global Fund, L.P. Long/Short Equity Investments 878,963 0.10 Quarterly ------------ ----- $780,718,832 89.37% ------------ -----
AETOS CAPITAL OPPORTUNITIES FUND, LLC
FAIR VALUE % OF MEMBERS' PORTFOLIO FUND NAME STRATEGY 7/31/2010 CAPITAL LIQUIDITY* ------------------- ------------------------------ ------------ ------------- ----------- GMO Tactical Opportunities Fund (Onshore) Long/Short Equity Investments $ 15,138,753 10.14% Monthly Joho Partners, L.P. Long/Short Equity Investments 31,459,402 21.06 Semi-Annual Samlyn Onshore Fund, LP Long/Short Equity Investments 22,628,949 15.15 Semi-Annual Sansar Capital, L.P. Long/Short Equity Investments 1,824,932 1.22 Quarterly Sansar Capital Holdings, Ltd. Long/Short Equity Investments 401,755 0.27 Annual Sheffield Institutional Partners, L.P. Event-Driven 1,008,097 0.67 Annual Spindrift Partners, L.P. Real Assets 18,826,687 12.60 Semi-Annual The Elkhorn Fund, LLC Long/Short Equity Investments 27,881,466 18.67 Monthly ------------ ----- $119,170,041 79.78% ------------ -----
* The liquidity of the Portfolio Funds may be further restricted due to withdrawal limitations. 26 Notes to Financial Statements (concluded) 8. COMMITMENTS At July 31, 2010, the Funds had made no commitments to purchase Portfolio Funds and had submitted no redemption requests from the Portfolio Funds. 9. SUBSEQUENT EVENTS Through September 1, 2010, the Funds paid no redemptions and received the following contributions:
FUND AMOUNT ---- ---------- Aetos Capital Multi-Strategy Arbitrage Fund, LLC $3,093,969 Aetos Capital Distressed Investment Strategies Fund, LLC 1,548,281 Aetos Capital Long/Short Strategies Fund, LLC 3,098,281 Aetos Capital Opportunities Fund, LLC 13,968
The following table summarizes the redemption requests received by the Funds subsequent to July 31, 2010:
ESTIMATED REDEMPTION % OF NUMBER OF AMOUNT SUBSEQUENT MEMBERS' FUND INVESTORS TO 7/31/10 CAPITAL ---- --------- -------------------- -------- Aetos Capital Multi-Strategy Arbitrage Fund, LLC 32 $15,434,989 2.64% Aetos Capital Distressed Investment Strategies Fund, LLC 32 14,886,132 3.24% Aetos Capital Long/Short Strategies Fund, LLC 33 53,033,147 6.07% Aetos Capital Opportunities Fund, LLC 27 13,018,813 8.72%
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 July 31, 2010. 27 Approval of Investment Advisory Agreements July 31, 2010 (Unaudited) At a meeting held in person on July 20, 2010, the Board of Managers of each Fund, including the independent board members (the "Boards"), discussed the materials previously provided to them and reviewed the nature, quality and scope of the services provided to the Funds by the Investment Manager. The Boards also considered the proposed fees to be charged under the Investment Advisory Agreements, as well as each Fund's performance, and reviewed the comparative fee and performance data previously provided by the Investment Manager. They also considered the information provided by the Investment Manager regarding the Investment Manager's financial performance and profitability. In considering the approval of the Advisory Agreement for each Fund, the Board members gave particular consideration to the following factors: NATURE, EXTENT AND QUALITY OF SERVICES The Board of each Fund reviewed and considered the nature and extent of the investment advisory services provided by the Investment Manager to the Funds under the Investment Advisory Agreements, including the selection of underlying hedge funds ("Portfolio Funds"), allocation of each Fund's assets among, and monitoring performance of, Portfolio Funds, evaluation of risk exposure of Portfolio Funds and reputation, experience and training of Portfolio Funds' investment managers ("Portfolio Managers"), management of short-term cash and operations of each Portfolio Fund, and day-to-day portfolio management and general due diligence examination of Portfolio Funds before and after committing assets of each Fund for investment. The Boards also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Investment Manager under the Investment Advisory Agreements, including, among other things, providing to each Fund office facilities, equipment and personnel. The Boards also reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Investment Manager who provide the investment advisory and administrative services to each Fund. The Boards determined that the Investment Manager's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Boards concluded that the overall quality of the advisory and administrative services was satisfactory. PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS The Boards reviewed the performance of each Fund based on information provided by the Investment Manager that showed each Fund's return for its most recent fiscal year as compared to the return of other comparable registered funds-of-hedge-funds for their most recent fiscal years. The Boards considered each Fund's performance since inception, the relative lack of correlation of such performance to fixed income or equity indices generally, and the performance of each Fund over the prior year during a period of extreme market stress. The Boards concluded that each Fund's performance was satisfactory. 28 Approval of Investment Advisory Agreements (concluded) FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS The Boards reviewed the management fee rate (the "Management Fee") and total expense ratio of each Fund. The Boards also reviewed the annual separate program (the "Program") fee of up to 0.50% and the performance fee of up to 10% of aggregate Program net profits above the return of the 90 day Treasury Bill (the "Incentive Fee") payable to the Investment Manager by investors in the Funds. The Boards also reviewed a report prepared by the Investment Manager comparing the fees payable by each Fund to those payable by other comparable registered funds-of-hedge-funds. The Boards noted that the fees payable to the Investment Manager, including the Program fee and the Incentive Fee, were lower than or comparable to the fees payable to the advisers of most comparable registered funds-of-hedge-funds. The Board concluded that each Fund's Management Fee, Program fee, Incentive Fee and total expense ratio were reasonable and satisfactory in light of the services provided. BREAKPOINTS AND ECONOMIES OF SCALE The Boards reviewed the structure of each Fund's Management Fee schedule under the Investment Advisory Agreements and noted that it does not include any breakpoints. The Boards considered that each Fund's Management Fee was 0.75% and concluded that the fee was sufficiently low that the Boards did not need to consider adding breakpoints at this time. The Boards also determined that, given the relative size of each Fund, economies of scale were not a factor that needed to be considered at this time. PROFITABILITY OF ADVISER AND AFFILIATES The Boards considered and reviewed information concerning the costs incurred and profits realized by the Investment Manager and its affiliates during the previous year from the Investment Manager's relationship with each Fund. The Boards noted that the Funds' investor base consists of sophisticated investors that are capable of evaluating whether the fees charged and the services provided by the Investment Manager are appropriate. The Boards noted that the Investment Manager had first become profitable in 2005, and that its profit margins had not substantially increased since that time. Based on their review of the information they received, the Boards concluded that the profits earned by the Investment Manager and its affiliates were not excessive in light of the advisory, administrative and other services provided to each Fund. GENERAL CONCLUSION After considering and weighing all of the above factors, the Board of each Fund concluded it would be in the best interest of the Funds and its Members to approve the Investment Advisory Agreements. 29 ITEM 2. CODE OF ETHICS. Not applicable for semi-annual report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual report. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual report. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable for semi-annual report. ITEM 6. SCHEDULE OF INVESTMENTS. Included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual report. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual report. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable as Interests of the Fund are not registered pursuant to Section 12 of the Exchange Act. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant's board of directors since the Registrant's last proxy solicitation. ITEM 11. CONTROLS AND PROCEDURES. (a) The certifying officers, whose certifications are included herewith, have evaluated the registrant's disclosure controls and procedures within 90 days of the filing date of this report. In their opinion, based on their evaluation, the registrant's disclosure controls and procedures are adequately designed, and are operating effectively to ensure, that information required to be disclosed by the registrant in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEMS 12. EXHIBITS. (a)(1) Not applicable for semi-annual report. (a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed herewith. (b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing as an Exhibit. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Aetos Capital Multi-Strategy Arbitrage Fund, LLC By (Signature and Title)* /s/ Michael F. Klein ---------------------------------------- Michael F. Klein, President Date: 10/1/10 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: 10/1/10 By (Signature and Title)* /s/ Scott D. Sawyer ---------------------------------------- Scott D. Sawyer, Treasurer Date: 10/1/10 * Print the name and title of each signing officer under his or her signature.