PRE 14C 1 aip_pre14c.htm PRELIMINARY INFORMATION STATEMENT aip_pre14c.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
SCHEDULE 14C INFORMATION
 
Proxy Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
(Amendment No. )
 
Check the appropriate box:
 
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Preliminary Information Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
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Definitive Information Statement
 
AIP ALTERNATIVE STRATEGIES FUNDS
(Name of Registrant as Specified in Its Charter)
 
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Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1)           Title of each class of securities to which transaction applies:
 
(2)           Aggregate number of securities to which transaction applies:
 
(3)    Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
 
(4)           Proposed maximum aggregate value of transaction:
 
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 
 
 
 
 
(1)           Amount Previously Paid:
 
 
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PRELIMINARY INFORMATION STATEMENT FOR SECURITIES AND EXCHANGE COMMISSION ONLY
 

 
AIP ALTERNATIVE STRATEGIES FUNDS
on behalf of
Alpha Hedged Strategies Fund
Beta Hedged Strategies Fund
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
(866) 569-2383


INFORMATION STATEMENT
July __, 2009


This Information Statement is being furnished by the Board of Trustees (the “Board”) of AIP Alternative Strategies Funds (the “Trust”), to the shareholders of its two series, Alpha Hedged Strategies Fund (“Alpha”) and Beta Hedged Strategies Fund (“Beta”, together with Alpha, the “Funds”), in lieu of a proxy statement pursuant to the terms of an exemption order (the “Order”) issued by the Securities and Exchange Commission (the “SEC”).  Under the Order, Alternative Investment Partners, LLC (“AIP” or the “Adviser”), the Funds’ investment adviser may enter into and materially amend agreements with sub-advisers, subject to approval of the Board but without obtaining shareholder approval.

WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

Background and Legal Analysis.  On July 7, 2009, AIP entered into a securities purchase agreement pursuant to which Hatteras Capital Investment Management, LLC (“HCIM”), a registered investment adviser located in Raleigh, North Carolina, would purchase 55% of the membership interests of AIP from an affiliate of Asset Alliance Corporation, subject to certain conditions (the “Transaction”).  Currently, Asset Alliance’s affiliate owns 66.67% of the interests of AIP, and Mr. Lee Schultheis owns the remaining 33.33%.  Prior to the closing of the Transaction, it is contemplated that Trust Advisory Group, Inc. will contribute the assets of Trust Advisors LLC to AIP.  In return for this contribution, Trust Advisory Group, Inc. will receive a membership interest in AIP, which it in turn will partially distribute to Mr. Mark Tonucci and Mr. Michael Portnoy (such Transaction, the “TA Transaction”). Asset Alliance will restructure its ownership of AIP in connection with the TA Transaction.  Therefore, the combined result of the TA Transaction and the Transaction is that the interests in AIP would be held by two affiliates of Asset Alliance, Mr. Schultheis, Trust Advisory Group, Inc., Mr. Tonucci, Mr. Portnoy and HCIM.  The Transaction is subject to the receipt of certain approvals and the fulfillment of certain other conditions contained in the securities purchase agreement.

Section 15(a) of the 1940 Act prohibits any person from serving as an investment adviser, including as a sub-adviser, to a registered investment company except pursuant to a written contract that has been approved by the shareholders.  Section 15(a) also provides that any such advisory contract must terminate on its “assignment.”  The Transaction will result in a change in control of AIP and will, therefore, constitute an “assignment” of each sub-advisory agreement to which AIP is a party (the “Current Sub-Advisory Agreements”), thereby causing each Current Sub-Advisory Agreement to terminate under the applicable provisions of the 1940 Act upon consummation of the Transaction.

AIP is responsible for selecting sub-advisers to manage the assets of the series of the Underlying Funds Trust (the “Underlying Funds”) in which each Fund invests.  The Sub-Advisers are engaged to manage the investments of the Underlying Funds in accordance with each Fund’s investment objective, policies and limitations and any investment guidelines established by AIP and the Board.  Each sub-adviser is responsible, subject to the supervision and control of AIP and the Board, for the purchase, retention and sale of securities in the portion of each Underlying Fund’s investment portfolio under its management.
 
 
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In order to facilitate the efficient supervision and management of the Sub-Advisers by AIP and the Board, the Trust and AIP applied for, and the SEC approved, the Order, which permits AIP, subject to certain conditions and approval by the Board but without shareholder approval, to hire new sub-advisers, change the terms of particular agreements with sub-advisers or continue the employment of existing sub-advisers after events that would otherwise cause an automatic termination of a sub-advisory agreement.  As a condition of the Order, AIP is obligated to provide shareholders with certain information regarding each sub-adviser in the form of an information statement (the “Information Statement”) meeting the requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the Exchange Act of 1934, except as modified to permit aggregate fee disclosure.  AIP, at all times, has sought to comply with the conditions of the Order, however, the Board believes that the disclosure provided to shareholders regarding the sub-advisers has not been sufficient so as to comply with this condition of the Order.  Therefore, the Board has determined to seek shareholder approval by soliciting proxies pursuant to a proxy statement dated July ___, 2009, to permit each sub-adviser that has provided service to the Underlying Funds, pursuant to the terms and conditions of its sub-advisory agreement, to retain such payments received from AIP.  In addition, the Board has approved the New Sub-Advisory Agreements (as defined below) and provided this Information Statement so that AIP and the Trust may rely on the Order in the future.  This Information Statement is also being provided in light of the change in control that is anticipated to be caused by the Transaction and the Board’s approval of the New Sub-Advisory Agreements (as defined below) after giving effect to the Transaction.

On June 10, 2009, at an in-person meeting of the Board, a majority of the Board, including a majority of Trustees who are not “interested persons” of the Trust (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) (the “Independent Trustees”) after having met in an executive session with independent counsel, voted to approve each sub-advisory agreement (the “New Sub-Advisory Agreements”) by and among AIP, the Underlying Funds Trust, on behalf of the Underlying Funds, and each of the following sub-advisers: Alpha Equity Management LLC, AlphaStream Capital Management, LLC, Aristos Capital Management LLC, Castle Peak Asset Management, LLC, Concise Capital Management, LP, Deltec Asset Management, LLC, FrontFour Capital Group, LLC, GAMCO Asset Management, Inc., Goldberg Advisers, LLC, Hovan Capital Management, LLC, KDC Investment Management, LP, NEF Advisors, LLC, Nicholas Investment Partners, L.P., Opportunity Research Group, LLC, Osage Energy Partners, L.P., Pacificor, LLC, Quattro Global Capital, LLC, Sage Capital Management, LLC, Seagate Global Advisors LLC, Simran Capital Management, LLC, Smith Breeden Associates, Inc., Starboard Capital Partners, L.P., Sunnymeath Asset Management, Inc., TWIN Capital Management, Inc., Venus Capital Management, Inc, and Zacks Investment Management, Inc. (each a “Sub-Adviser” and, collectively, the “Sub-Advisers”).  Such approval was considered both in light of and after giving effect to the Transaction and in response to AIP’s inadvertent failure to provide Information Statements in the past, regardless of whether the Transaction is consummated.  The form of Sub-Advisory Agreement that the Board approved is attached at Exhibit A. Mr. Stephen G. Bondi, an interested Trustee, attended the June 10, 2009 meeting by telephone.  Therefore, under the 1940 Act, Mr. Bondi could not vote regarding matters presented for approval at the meeting that required an in-person meeting to approve.  However, Mr. Bondi indicated his support of the Board’s approval.

Considerations of the Board of Trustees.   On June 10, 2009, the Board, including all of the Independent Trustees, met in person to consider the approval of the New Sub-Advisory Agreements.  The Trustees determined that the terms and conditions of the New Sub-Advisory Agreements are fair to, and in the best interests of, each Fund and its respective shareholders, based on the materials received from each sub-adviser in connection with their annual approval at the Board’s meeting held on February 26, 2009 (or, materials provided on November 25, 2008 for Aristos Capital Management LLC, a sub-adviser initially approved on that date), as well as certification from the Funds’ Chief Compliance Officer that such materials were still complete and accurate in all material respects.   
 
 
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The materials regarding the Sub-Advisers that the Board considered included, among other things: (a) each Sub-Adviser’s financial soundness; (b) information on economies of scale (if any) resulting from growth of the Funds’ assets; (c) the timeliness, adequacy and quality of information supplied by each Sub-Adviser in response to the requests of the Board and U.S. Bancorp Fund Services, LLC (“USBFS”), the Funds’ administrator; (d) the disclosures and responses in Parts I and II of each Sub-Adviser’s Form ADV registration as filed with the SEC; (e) each Sub-Adviser’s brokerage allocation and soft dollar practices; (f) regulatory issues; (g) each Sub-Adviser’s compliance program and chief compliance officer; and (h) other material factors affecting each Sub-Adviser.  After reviewing these due diligence materials, the Board assessed the overall quality of services provided to each Underlying Fund.  The Board considered each Sub-Adviser’s specific responsibilities in all aspects of day-to-day management of the Underlying Funds, as well as the qualifications, experience and responsibilities of the portfolio managers and other key personnel at each Sub-Adviser involved in the day-to-day activities of the Underlying Funds.

In addition, the Trust’s Chief Compliance Officer discussed with the Board the effectiveness of the Sub-Advisers’ compliance programs, noting, among other things, certifications received from each Sub-Adviser that: (a) it had adopted a Code of Ethics conforming to applicable regulatory requirements; and (b) it had adopted procedures reasonably necessary to prevent its access persons from violating its Code of Ethics.  The Board also discussed each Sub-Adviser’s business continuity plan.  The Board also considered the cost of services and the structure of the Sub-Advisers’ fees, noting that the Sub-Adviser’s fees are paid out of the Adviser’s fee.

Based on the Board’s deliberations and its evaluation of the information described above, the Board, including all of the Independent Trustees, concluded (i) that the nature and scope of the services provided was reasonable and appropriate in relation to the advisory fee and that the level of services provided by the Sub-Advisers had been maintained and that the quality of service continued to be high, and (ii) that the approval of the New Sub-Advisory Agreements would be in the best interests of the Funds and their respective shareholders.  Based on the foregoing, a majority of the Board, including a majority of the Independent Trustees, after having met in an executive session with independent counsel, voted to approve the New Sub-Advisory Agreements.

Summary of the New Sub-Advisory Agreements.  The following description is only a summary of the material terms of the New Sub-Advisory Agreements.  A form of the New Sub-Advisory Agreements is attached at Exhibit A and should be referenced for its specific terms.  Each New Sub-Advisory Agreement is dated June 10, 2009.  However, as set forth above, the Board has approved the New Sub-Advisory Agreements after giving effect to the Transaction and the New Sub-Advisory Agreements will each be executed after consummation of the Transaction and will be dated accordingly.  The New Sub-Advisory Agreements executed after the change in control caused by the Transaction will be the same in all material respects to Exhibit A, except for the date and the name of AIP, which will then be Hatteras Alternative Investment Partners, LLC.
 
The terms of the New Sub-Advisory Agreements are similar in all material respects to those of the Current Sub-Advisory Agreements, except that each New Sub-Advisory Agreement will have an initial term of two years as permitted by the 1940 Act.  Each of the Sub-Advisers relies upon respective advisory groups for the day-to-day management of the portion of each Underlying Fund’s portfolio that they manage.  As with the Current Sub-Advisory Agreements, the New Sub-Advisory Agreements provide that following the initial term, which in certain Current Sub-Advisory Agreements was one year, but in all New Sub-Advisory Agreements is two years, each will continue automatically for successive annual periods, provided such continuance is specifically approved at least annually by the Board and by a majority of the Independent Trustees at an in-person meeting called for the purpose of voting on such approval.  The New Sub-Advisory Agreements are each terminable at any time without penalty, on sixty days written notice and each will terminate automatically in the event of an assignment (as defined by the 1940 Act).  AIP will pay the Sub-Advisers monthly an annual fee based upon the daily net assets of each Underlying Fund allocated to that Sub-Adviser from the 2.50% advisory fee paid to AIP pursuant to its investment advisory agreement with the Underlying Funds Trust dated April 28, 2006.  The Funds are not responsible for the payment of Sub-Advisory fees.

Compensation. The New Sub-Advisory Agreements entitle the respective Sub-Adviser to be compensated in the same manner and at the same rate as under the Current Sub-Advisory Agreements.  Set forth below is the (i) compensation paid to the Adviser, indirectly through the Underlying Funds Trust (“UFT”), and aggregate compensation paid to the Sub-Advisers, expressed in dollars and as a percentage of net assets of the Trust and each Fund, during the fiscal year ended December 31, 2008, and (ii) the annualized compensation to be paid to the Adviser indirectly through the UFT, and aggregate compensation to be paid to the Sub-Advisers, expressed in dollars and as a percentage of net assets of the Trust and each Fund, for the fiscal year ending December 31, 2009.
 
 
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Fiscal year ended December 31, 2008:
 
 
Aggregate Dollar
Amount for the Fiscal Year Ended December 31, 2008
As a Percentage
of Average Net Assets
of the Trust
As a Percentage
of Average Net Assets
of Alpha
As a Percentage
of Average Net Assets
of Beta
Fees received by the Adviser from UFT
$16,639,061
2.38%
N/A
N/A
Aggregate fees received by the Sub-Advisers from the Adviser
$8,509,798
1.22%
1.21%
1.35%
 
Annualized for the fiscal year ending December 31, 2009:
 
 
Annualized Aggregate Dollar
Amount for the Fiscal Year Ending December 31, 2009
As a Percentage
of Average Net Assets
of the Trust
As a Percentage
of Average Net Assets
of Alpha
As a Percentage
of Average Net Assets
of Beta
Annualized fees to be received by the Adviser from UFT
$7,125,900
2.38%
N/A
N/A
Annualized aggregate fees to be received by the Sub-Advisers from the Adviser
$3,539,914
1.18%
1.18%
1.15%
 
None of the sub-advisers is an affiliated person, as defined in section 3(a)(3) of the 1940 Act, as amended, of the Trust or AIP, other than by reason of serving as a sub-adviser.
 

Information Regarding AlphaStream Capital Management, LLC (“AlphaStream”). AlphaStream is located at 2413 Webb Ave., Suite A, Alameda, CA 94501, and is a registered investment adviser. AlphaStream provides investment advice and portfolio management services to investment companies, pooled investment vehicles and other corporate entities. AlphaStream is 100% owned by its Members: Stephen Marsh and Robert Tymoczko.

Information Regarding Aristos Capital Management LLC (“Aristos”).  Aristos is located at 1251 Avenue of the Americas, Suite 2370, New York, NY 10020 and is a registered investment adviser.  Aristos provides investment advice and portfolio management services to investment companies and pooled investment vehicles.  Aristos is owned by its Members: Lloyd Jagai, Lenny Shimunov and Dahniel Buie.  Lloyd Jagai is the Chief Executive Officer of Aristos.
 
 
 
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Information Regarding Castle Peak Asset Management, LLC (“Castle Peak”).  Castle Peak is located at 575 Market Street, Suite 1825, San Francisco, CA 94105, and is a registered investment adviser. Castle Peak provides investment advice and portfolio management services to investment companies and other pooled investment vehicles.  The members of Castle Peak are: Jason Stankowski, David Ciruli and Brian Lancaster.

Information Regarding Concise Capital Management, LP (“Concise”).  Concise is located at 75 Valencia Avenue, Suite 711, Coral Gables, FL 33134, and is a registered investment adviser. Concise provides investment advice and portfolio management services to high net worth individuals, investment companies, and other pooled investment vehicles.  The principals of Concise are: Glenn Koach and Tom Krasner.

Information Regarding Deltec Asset Management, LLC (“Deltec”).  Deltec is located at 623 Fifth Avenue, 28th Floor, New York, NY 10022, and is a registered investment adviser.  Deltec provides investment advice and portfolio management services to individuals, including high net worth individuals, investment companies, collateralized bond obligations, pension and profit-sharing plans and other pooled investment vehicles. Deltec is controlled by and is under common control with its managing member, Blue Tee Partners, LLC (“Blue Tee”), which is located at 623 Fifth Ave., 28th floor, New York, NY 10022.  Blue Tee is controlled by Arthur E. Byrnes, John R. Gordon and Stephen Zuppello, each a Managing Member.

Information Regarding FrontFour Capital Group, LLC (“FrontFour”).  FrontFour is located at Two Stamford Landing, 68 Southfield Avenue, Suite 290, Stamford, CT 06902, and is a registered investment adviser.  FrontFour provides investment advice and portfolio management services to investment companies and other pooled investment vehicles.  The Managing Members of FrontFour are: Zachary George and David Lorber.

Information Regarding GAMCO Asset Management, Inc. (“GAMCO”).  GAMCO is located at One Corporate Center, Rye, NY 10580, and is a registered investment adviser. GAMCO provides investment advice, management services and portfolio management services to individually managed accounts for high net worth individuals, investment companies, foundations, charitable organizations, pension and profit sharing plans, pooled investment vehicles, banking or thrift institutions, other corporate entities, and state and municipal governments. The parent company of GAMCO is GAMCO Investors, Inc., a NYSE-listed company (“GBL”), which is majority-owned by GGCP, Inc., a private corporation owning the Class B common stock of GBL.  GBL is located at One Corporate Center, Rye, NY 10580-1422 and GGCP, Inc. is located at 140 Greenwich Avenue, Greenwich, CT 06830.  The Managing Directors of GAMCO are: Douglas R. Jamieson, Regina M. Pitaro and William S. Selby.

Information Regarding Goldberg Advisers, LLC (“Goldberg”).  Goldberg is located at 44 Montgomery Street, Suite 2100, San Francisco, CA 94104, and is a registered investment adviser.  Goldberg provides investment advice and portfolio management services to individually managed accounts, investment companies, pooled investment vehicles, and other institutional clients.  The Members of Goldberg are John  and Katie Goldberg.

 
Information Regarding KDC Investment Management, LP ("KDCIM").  KDCIM is located at 900 Third Avenue, Suite 1000, New York, NY 10022, and is a registered investment adviser. KDCIM provides investment advice and portfolio management services to investment companies, other pooled investment vehicles, and institutional managed accounts.  KDCIM is owned by its Limited Partner, George A. Kellner and its General Partner, Kellner Dileo & Co., LLC, located at 900 Third Avenue, Suite 1000, New York, NY 10022.  Kellner Dileo & Co., LLC is controlled by its Principal Executive Officer and sole Managing Director, George A. Kellner. 
 
 
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Information Regarding NEF Advisors, LLC (“NEF”). NEF is located at 527 Madison Avenue, 6th  Floor, New York, NY 10022, and is a registered investment adviser.  NEF provides investment advice and portfolio management services to investment companies. NEF is owned by Sustainable Energy Associates, LLC located at 527 Madison Avenue, 6th  Floor, New York, NY 10022.  Sustainable Energy Associates, LLC’s managing member is Mark Townsend Cox.

Information Regarding Nicholas Investment Partners, L.P. (“Nicholas”).  Nicholas is located at 6451 El Sicomoro Street, Rancho Santa Fe, CA 92067, and is a registered investment adviser. Nicholas provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, investment companies and other pooled investment vehicles.  Nicholas is owned by its partners.  Partners of Nicholas with five percent or greater ownership, and the largest economic interests in Nicholas, include: Catherine Nicholas, Managing Partner and Chief Investment Officer; John Wylie, Partner and Portfolio Manager; Art Nicholas, Senior Partner; Laura DeMarco, Partner and Director of Client Service and Marketing; and A. Greg Gleeson, Partner, Chief Compliance Officer, Chief Financial Officer and Chief Operating Officer.

Information Regarding Opportunity Research Group, LLC (“Opportunity Research”).  Opportunity Research is located at 11111 Santa Monica Boulevard, Suite 1450, Los Angeles, CA 90025, and is a registered investment adviser.  Opportunity Research provides investment advice and portfolio management services to investment companies and other pooled investment vehicles.  The principals of Opportunity Research are: Mark C. Minichiello, Randy Conone and Suzanne Franks.

Information Regarding Osage Energy Partners, L.P. (“Osage”).  Osage is located at 25227 Grogan’s Mill Road, Suite 125, The Woodlands, TX 77380, and is a registered investment adviser.  Osage provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pooled investment vehicles and other corporate entities.  Osage’s General Partner is Osage Energy Management, LLC, located at 25227 Grogan’s Mill Road, Suite 125, The Woodlands, TX 77380.  Osage Energy Management, LLC is owned by: Richard J. Duszynski, Jeffrey R. Serra, Joseph S. Sheperd and Eric E. Werner.  Osage’s principals are Richard J. Duszynski, Jeffrey R. Serra, Joseph S. Sheperd and Eric E. Werner.

Information Regarding Pacificor, LLC (“Pacificor”).  Pacificor is located at 740 State Street, Suite 202, Santa Barbara, CA 93101, and is a registered investment adviser.  Pacificor provides investment advice and portfolio management services to investment companies, pension and profit-sharing plans, pooled investment vehicles, charitable organizations and other corporate entities.  Pacificor is owned 51% by Andrew B. Mitchell and 49% by the Michael B. Klein Administrative Trust.

Information Regarding Quattro Global Capital, LLC (“Quattro”).  Quattro is located at 546 Fifth Avenue, 19th Floor, New York, NY 10036, and is a registered investment adviser.  Quattro provides investment advice and portfolio management services to investment companies and other pooled investment vehicles.  Quattro’s principals are: Andrew Kaplan, Brian Swain and Louis Napoli.

Information Regarding Sage Capital Management, LLC (“Sage”).  Sage is located at 665 South Orange Avenue, Suite 3, Sarasota, FL 34236, and is a registered investment adviser. Sage provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, investment companies, other pooled investment vehicles and pension and profit-sharing plans.  The principals of Sage are: Peter deLisser, Michael C. Ippolito and Karen Heston.

Information Regarding Seagate Global Advisors LLC (“Seagate”).  Seagate is located at 999 Sepulveda Blvd., Suite 550, El Segundo, CA 90245, and is a registered investment adviser.  Seagate provides investment advice and portfolio management services to investment companies and other pooled investment vehicles.  Seagate is owned by its member Gregory Hastings and its Chairman is William Lawton.
 
 
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Information Regarding Simran Capital Management, LLC (“Simran”).  Simran is located at 161 North Clark Street, 47th  Floor, Chicago, IL 60601, and is a registered investment adviser. Simran provides investment advice and portfolio management services to investment companies and other pooled investment vehicles. Simran’s Managing Member and President is Mesh Tandon and Member and Chief Compliance Officer is Jon Thomas.  Simran’s Managing Directors and Senior Portfolio Managers are Stephen J. Cooke and Shawn P. Groves.

Information Regarding Smith Breeden Associates, Inc. (“Smith Breeden”).  Smith Breeden is located at 280 South Mangum Street, Suite 301, Durham, NC 27701, and is a registered investment adviser. Smith Breeden provides investment advice, management services and portfolio management services to individually managed accounts for high net worth individuals, banking and thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, state and municipal government entities foundations and insurance funds.  The Directors of Smith Breeden are:  Timothy Rowe, Lewis Jester, Michael Brennan, Eugene Flood, John Sprow and Mike Giarla.

Information Regarding Starboard Capital Partners, L.P. (“Starboard”).  Starboard is located at 3000 Weslayan Street, Suite 385, Houston, TX 77027, and is a registered investment adviser.  Starboard provides investment advice and portfolio management services to investment companies and other pooled investment vehicles.  Starboard’s Limited Partner is Robert P. Ross and its General Partner is The Starboard Capital Management Corporation (“TSCMC”), located at 3000 Weslayan Street, Suite 385, Houston, TX 77027.  TSCMC is owned by its president, Robert P. Ross.

Information Regarding Sunnymeath Asset Management, Inc. (“Sunnymeath”). Sunnymeath is located at 151 Bodman Place, Suite 100, Red Bank, NJ 07701, and is a registered investment adviser. Sunnymeath provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pension and profit-sharing plans, other pooled investment vehicles and charitable organizations.  Sunnymeath’s principal and sole director is James P. O’Mealia.

Information Regarding TWIN Capital Management, Inc. (“TWIN Capital”). TWIN Capital is located at 3244 Washington Road, Suite 202, McMurray, PA 15317, and is a registered investment adviser. TWIN Capital provides investment advice, management services and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pension and profit sharing plans, pooled investment vehicles, other corporate entities, and state and municipal governments.  TWIN Capital is owned by its principals: Geoffrey Gerber, James Hough and Christopher Erfort.

Information Regarding Venus Capital Management, Inc. (“Venus”).  Venus is located at 99 Summer Street, Suite M100, Boston, MA 02111, and is a registered investment adviser.  Venus provides investment advice and portfolio management services to businesses or institutional investors, investment companies and other pooled investment vehicles.  Venus is owned by its founder and Chief Executive Officer, Vikas Mehrotra.

Information Regarding Zacks Investment Management, Inc. (“Zacks”).  Zacks is located at 100 North Riverside Plaza, Suite 2200, Chicago, IL 60606, and is a registered investment adviser.  Zacks provides investment advice, management services and portfolio management services to individually managed accounts for individuals, high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles and state or municipal government entities.  Zacks’ sole shareholder is Zacks Investment Research, located at 111 N. Canal St., Suite 1101, Chicago, IL 60606.  Zacks Investment Research is owned by Leonard Zacks, Director of Zacks, and Benjamin Zacks, President of Zacks.
 
 
 
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Management of the Sub-Advisers.  Set forth below are the names and principal occupations of the principal executive officers and directors (or persons engaged in similar roles) of each Sub-Adviser and the addresses of each are the same as those provided above for the respective Sub-Adviser.
 
Sub-Adviser
Name
Principal Occupation/Title
Alpha Equity
Kevin Means
Vince Fioramonti
Neil Kochen
Donald Townswick
Chief Compliance Officer
Vice President, Internal Portfolio Manager
Chief Risk Officer
Vice President, U.S. Portfolio Manager
AlphaStream
Stephen Marsh
Robert Tymoczko
Manager
Chief Compliance Officer
Aristos
Lloyd Jagai
Leonid Shimunov
Nelson Woodard
Chief Executive Officer and Chief Financial Officer
Portfolio Manager
Portfolio Manager
Castle Peak
Jason Stankowski
David Ciruli
Brian Lancaster.
Manager, Member
Manager, Member
Manager, Member, Chief Compliance Officer
Concise
Glenn Koach
Tom Krasner
Michael Borowsky
Partner
Partner
Chief Compliance Officer
Deltec
Arthur E. Byrnes
John R. Gordon
Stephen Zuppello
Senior Managing Director
Senior Managing Director
Senior Managing Director, Chief Compliance Officer
FrontFour
Zachary George
David Lorber
Jerry Meyer
Managing Member
Managing Member
Chief Compliance Officer
GAMCO
Mario J. Gabelli
Jeffrey M. Farber
Douglas R. Jamieson
Regina M. Pitaro
William S. Selby
Christopher Michailoff
Peter Goldstein
Howard Ward
Chairman and Chief Executive Officer
Executive Vice-President and Chief Financial Officer
Managing Director and President
Managing Director
Managing Director
Secretary and General Counsel
Chief Compliance Officer
Chief Investment Officer
Goldberg
John Goldberg
Managing Member and Chief Compliance Officer
Hovan
Kurt Hovan
Lisa Hovan
Chief Executive Officer
Chief Financial Officer and Chief Compliance Officer
KDCIM
Glen M. Friedman
George A. Kellner
Keith M. Moore
Katalin E. Kutasi
Domenick Migliorato
Chief Financial Officer and Chief Compliance Officer
Chief Executive Officer
Portfolio Manager
Portfolio Manager
Senior Operations Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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NEF
Mark Townsend Cox
Abigail Laufer
Member, Chief Executive Officer
Member, Chief Operating Officer and Chief Compliance Officer
Nicholas
Catherine Nicholas
John Wylie
Art Nicholas,
Laura DeMarco
A. Greg Gleeson
Managing Partner and Chief Investment Officer
Partner and Portfolio Manager
Senior Partner
Partner and Director of Client Service and Marketing
Partner, Chief Compliance Officer, Chief Financial Officer and Chief Operating Officer
Opportunity Research
Mark C. Minichiello
Randy Conone
Suzanne Franks
Chief Compliance Officer
Manager
Manager
Osage
Eric  E. Werner
Richard J. Duszynski
Jeffrey R. Serra
Joseph S. Sheperd
Limited Partner and Chief Compliance Officer
Limited Partner
Limited Partner
Limited Partner
Pacificor
Andrew B. Mitchell
Steven C. Roth
Chief Executive Officer and Chief Investment Officer
Chief Financial Officer and Chief Compliance Officer
Quattro
Andrew Kaplan
Brian Swain
Louis Napoli
Patrick Criscillo
Stephen Ellwood
Principal
Principal
Principal
Chief Financial Officer
General Counsel and Chief Compliance Officer
Sage
Peter deLisser
Karen Heston
Michael C. Ippolito
Chief Executive Officer
Chief Investment Officer
Chief Compliance Officer
Seagate
Robert Reveley
William Lawton
James Pan
Douglas Metcalf
President and Chief Compliance Officer
Chairman and Chief Investment Officer
Vice President
President, Funds Management
Simran
Mesh Tandon
Stephen J. Cooke
Shawn P. Groves
Jon Thomas
Managing Member, President and Chief Executive Officer
Managing Director and Senior Portfolio Manager
Managing Director and Senior Portfolio Manager
Member and Chief Compliance Officer
Smith Breeden
Eugene Flood
Timothy Rowe
John Sprow
Mike Giarla
Stephen Eason
Douglas Breeden
Daniel Dektar
Marianne Odoherty
William Schwartz
Lewis Jester
Michael Brennan
Director, President and Chief Executive Officer
Director, Principal and Senior Portfolio Manager
Director and Chief Risk Officer
Director and Chairman
Executive Vice President and Director of Marketing and Client Service
Chairman Emeritus
Executive Vice President and Chief Investment Officer
Chief Compliance Officer
General Counsel and Secretary
Director; Manager, Crude Oil Marketing Division, Chevron Corp.
Director; Irwin and Goldyne Hearsh Professor of Banking and Finance, Anderson Graduate School of Management, University of California, Los Angeles and Professor of Finance at London Business School
 
 
 
9
 
Starboard
Robert P. Ross
Limited Partner and Chief Compliance Officer
Sunnymeath
James P. O’Mealia.
Jerry Grospe
Julie Crolius
Edward King
Stephen Johnson
Sean Duddy
President, Principal and Director
Senior Vice President and Chief Compliance Officer
Vice President
Senior Vice President
Vice President
Vice President
TWIN
Geoffrey Gerber
James Hough
Christopher Erfort
James Drake
President and Chief Executive Officer
Senior Vice President
Senior Vice President
Controller and Chief Compliance Officer
Venus
Vikas Mehrotra
Vikas Chawla
Awadhesh Mehta
President and Chief Executive Officer
Chief Operating Officer
Chief Compliance Officer
Zacks
Benjamin Zacks
Leonard Zacks
Frank Lanza
President
Director
Chief Compliance Officer
 
 Other Investment Companies Advised or Sub-Advised by the Sub-Advisers

Sub-Adviser
Fund
Fund Assets as
of May 31, 2009
Annual Rate of
Compensation
Fee Waiver or Expense Reimbursement Arrangement
Alpha Equity
RidgeWorth International Equity 130/30 Fund (ticker: SCEIX)
$89 million
0.75%
No
Sage
Ascentia Alternative Strategies Fund (ticker: AASFX)
$14 million
1.25%
No
TWIN Capital
Absolute Strategies Fund (ticker: ASFIX)
$950.4 million
1.60% (1)
Yes (2)
Zacks
Zacks Market Neutral Fund (ticker: ZMNAX)
$160 million
1.65%
Yes (3)
 
 
10
 
(1)    
ASFIX’s investment adviser receives an annual fee of 1.60% of the average daily net assets of ASFIX and then pays each sub-adviser, including TWIN Capital, a sub-advisory fee calculated as a percentage of the average daily net assets managed.
(2)    
ASFIX’s investment adviser has contractually agreed to waive its fees and/or reimburse expenses to limit total annual operating expenses of Institutional shares, class R shares and class C shares of ASFIX to 1.95%, 2.25% and 3.00%, respectively, of each class' average daily net assets through July 31, 2008.
(3)    
Zacks has contractually agreed to waive its management fee, if necessary, to limit total annual fund operating expenses (with some exclusion) to 1.65% on class A shares of ZMNAX and 2.40% on class C shares of ZMNAX. This agreement is in effect until 03/31/2012.

The following Sub-Advisers have each stated it does not currently act as adviser or sub-adviser to any registered investment company having similar investment objectives to the Underlying Funds allocated to the respective Sub-Adviser:  AlphaStream, Aristos, Castle Peak, Concise, Deltec, FrontFour, GAMCO, Goldberg, Hovan, KDCIM, NEF, Nicholas, Opportunity Research, Osage, Pacificor, Quattro, Seagate, Simran, Smith Breeden, Starboard, Sunnymeath and Venus.

Information about the Funds.  The Trust, on behalf of the Funds, is required by Federal law to file reports, proxy materials and other information with the Securities and Exchange Commission (“SEC”).  The SEC maintains a website that contains information about the Funds (www.sec.gov). Any such reports, proxy materials and other information can be inspected and copied, after paying a duplicating fee, at the Office of Public Reference, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-0102 or by electronic request at the following E-mail address: publicinfo@sec.gov.   The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at (800) SEC-0330.

Other Information. As noted above, the Funds’ investment adviser is Alternative Investment Partners, LLC, 600 Mamaroneck Avenue, Suite 400, Harrison, New York 10528.  The Funds’ current distributor and principal underwriter is Quasar Distributors, LLC (“Quasar”), 615 East Michigan Street, Milwaukee, Wisconsin, 53202.  In addition to serving as the Funds’ administrator, USBFS also serves as the Funds’ transfer and dividend disbursing agent, and is an affiliate of Quasar.  USBFS is located at 615 East Michigan Street, Milwaukee, Wisconsin, 53202.  Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, serves as Custodian for the Funds’ securities and cash.

Reports to Shareholders.  COPIES OF THE FUNDS’ MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS ARE AVAILABLE WITHOUT CHARGE UPON WRITING TO THE FUNDS, C/O U.S. BANCORP FUND SERVICES, LLC, P.O. BOX 701, MILWAUKEE, WISCONSIN, 53201-0701 OR BY CALLING, TOLL-FREE, (866) 569-2383.  THESE REPORTS ARE ALSO AVAILABLE ON THE SEC’S WEBSITE, WWW.SEC.GOV.

Management Ownership.  To the knowledge of the Funds’ management, before the close of business on June 30, 2009, the officers and Trustees of the Trust owned, as a group, 0.21% and 2.10% of Alpha and Beta, respectively.  In addition, the following table shows the dollar range of shares beneficially owned by each Trustee and each Trustee Nominee in the Funds as of June 30, 2009:

 
 
Name of Person/Position
Dollar Range of Equity Securities of Alpha Beneficially Owned
Dollar Range of Equity Securities of Beta Beneficially Owned
Aggregate Dollar Range of Equity  Securities
of Family of Investment Companies Beneficially Owned**
Joseph Breslin/Independent Trustee
$50,001 - $100,000
$0
$50,001 - $100,000
Robert Anderson/Independent Trustee
$50,001 - $100,000
$0
$50,001 - $100,000
 
 
 
11
 
Name of Person/Position
Dollar Range of Equity Securities of Alpha Beneficially Owned
Dollar Range of Equity Securities of Beta Beneficially Owned
Aggregate Dollar Range of Equity  Securities
of Family of Investment Companies Beneficially Owned**
Joy Montgomery Rocklin/Independent Trustee
$50,001 - $100,000
$0
$50,001 - $100,000
Thomas Mann/Independent Trustee
$50,001 - $100,000
$0
$50,001 - $100,000
Gregory Sellers/Independent Trustee Nominee
$0
$0
$0
Steve Moss/Independent Trustee Nominee
$0
$0
$0
H. Alexander Holmes/Independent Trustee Nominee
$0
$0
$0
David Perkins/Interested Trustee Nominee
$0
$0
$0
** The Family of Investment Companies includes the Trust (consisting of two funds) and the Underlying Funds Trust (consisting of twelve funds).

Share Ownership.  As of June 30, 2009, there were 29,733,462 shares of Alpha Hedged Strategies Fund outstanding and 603,712 shares of Beta Hedged Strategies Fund outstanding.  To the knowledge of the Funds’ management, before the close of business on June 30, 2009, the following persons owned of record more than 5% of the outstanding shares of each Fund:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
 
Name and Address
Name of Fund
Number of Shares
% Ownership
Type of Ownership
Charles Schwab & Co.
101 Montgomery Street
San Francisco, CA  94104-4151
Alpha Hedged Strategies Fund – No Load Class
5,708,912.872
20.98%
Record
Morgan Stanley Smith Barney
333 W. 34th Street
New York, NY  10001-2402
Alpha Hedged Strategies Fund – No Load Class
4,504,488.997
16.56%
Record
National Financial Services LLC
200 Liberty Street
New York, NY  10281-1003
Alpha Hedged Strategies Fund – No Load Class
2,206,939.839
8.11%
Record
SEI Private Trust Company
One Freedom Valley Drive
Oaks, PA  19456-9989
Alpha Hedged Strategies Fund – No Load Class
1,791,328.510
6.58%
Record
Morgan Keegan & Co., Inc.
50 N. Front Street
Memphis, TN  38103-2126
Alpha Hedged Strategies Fund – Class C
258,364.699
10.22%
Record
Pershing LLC
P.O. Box 2052
Jersey City, NJ  07303-2052
Alpha Hedged Strategies Fund – Class C
173,068.745
6.84%
Record
First Clearing LLC
1 N. Jefferson Avenue
St. Louis, MO  63103-2205
Alpha Hedged Strategies Fund – Class C
161,311.604
6.38%
Record
Morgan Stanley Smith Barney
333 W. 34th Street
New York, NY  10001-2402
Alpha Hedged Strategies Fund – Class C
153,752.338
6.08%
Record
Charles Schwab & Co.
101 Montgomery Street
San Francisco, CA  94104-4151
Beta Hedged Strategies Fund – No Load Class
147,862.379
30.22%
Record
National Financial Services LLC
200 Liberty Street
New York, NY  10281-1003
Beta Hedged Strategies Fund – No Load Class
75,281.716
15.38%
Record
Pershing LLC
P.O. Box 2052
Jersey City, NJ  07303-2052
Beta Hedged Strategies Fund – Class C
22,967.796
20.08%
Record
Morgan Stanley Smith Barney
333 W. 34th Street
New York, NY  10001-2402
Beta Hedged Strategies Fund – Class C
8,461.865
7.40%
Record
National Financial Services LLC
200 Liberty Street
New York, NY  10281-1003
Beta Hedged Strategies Fund – Class C
6,892.210
6.03%
Record

Shareholder Proposals.  The Trust is not required to, nor does it intend to, hold regular annual meetings of its shareholders. If such an annual meeting is called, any shareholder who wishes to submit a proposal for consideration at the meeting should submit the proposal or notice of the proposal, if the shareholder chooses to include the proposal in the Trust’s proxy materials, to the Trust within a reasonable time prior to the Trust printing and mailing its proxy materials in accordance with, respectively, Rule 14a-8 or Rule 14a-4(c) under the Securities Exchange Act.
 
 
13

 
Householding.  Only one copy of this Information Statement and other documents related to the Funds, such as proxy materials, prospectuses and annual and semi-annual reports, etc. is being delivered to two or more security holders who share an address, unless the Funds have received contrary instructions from one or more of the security holders.  Shareholders who wish to discontinue householding in the future, and shareholders sharing an address and receiving only one copy of this Information Statement, can request additional copies by calling 1-877-Low-Beta (1-877-569-2382) or writing to AIP Alternative Strategies Funds, c/o U.S. Bancorp Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
 
 
Important Notice regarding the Availability of Information Statement: The Information Statement is available at http://www.aipfunds.com.
 
 
 
 
 
 
 
 
 
 
 
 
 
14
 

EXHIBIT A

FORM OF SUB-ADVISORY AGREEMENT

THIS AGREEMENT is made and entered into as of this ___ day of _________, 2009, by and among Alternative Investment Partners, LLC, a Delaware limited liability company (the “Advisor”), ____________________, a ______________ (the “Sub-Advisor”), and the Underlying Funds Trust, a Delaware statutory trust (the “Trust”) on behalf of its series, _________________ (the “Fund”).

WHEREAS, the Trust and each series comprising the Trust, including the Fund (collectively, the “Funds”), have been formed for the purpose of creating a fund-of-funds structure with their affiliate, AIP Alternative Strategies Funds, a Delaware statutory trust (“AIP Funds”), in which each series of AIP Funds, including any future series of AIP Funds, invests 100% of its assets in certain or all of the Funds; and

WHEREAS, by virtue of the fund-of-funds structure, the Sub-Advisor will indirectly serve as a sub-advisor to any series of AIP Funds which invests in the Fund; and

WHEREAS, the Trust, and therefore the Fund, is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”); and

WHEREAS, the Advisor has been appointed investment advisor to the Fund, pursuant to an Investment Advisory Agreement dated ____________, 2009 (the “Advisory Agreement”), which has been approved by the Trust’s Board of Trustees (the “Board of Trustees”); and

WHEREAS, the Advisor has the authority to determine, in its sole discretion, the percentage of the Trust’s net assets (i) to be contributed into or subtracted from the Fund and (ii) to be advised by the Sub-Advisor; and

WHEREAS, the Advisor and the Trust desire to retain the Sub-Advisor to assist the Advisor in providing a continuous investment program for a portion of the Fund’s assets (designated herein as a “Separate Account”) and the Sub-Advisor is willing to do so; and

WHEREAS, the Board of Trustees has approved this Agreement, and the Sub-Advisor is willing to furnish such services upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows:

1.            Appointment. The Advisor and the Trust hereby appoint the Sub-Advisor to serve as sub-advisor to the Advisor with respect to the Separate Account. Intending to be legally bound, the Sub-Advisor accepts such appointment and agrees to render the services herein set forth for the compensation herein provided.

2.            Advisory Services. Subject to the supervision of the Board of Trustees and the Advisor, the Sub-Advisor will assist the Advisor in providing a continuous investment program for the Separate Account, including investment research and management with respect to the securities and investments and cash equivalents comprising the Separate Account. The Sub-Advisor will provide services under this Agreement in accordance with the Fund’s investment objective, policies and restrictions as set forth in the Fund’s (i) registration statement filed with the Securities and Exchange Commission in effect on the date hereof and as amended or supplemented during the term of this Agreement and (ii) resolutions of the Board of Trustees applicable to the Fund.  The Fund shall provide the Sub-Advisor with written notice of any changes to such objective, policies and restrictions no less than 60 days prior to the effectiveness of any such change.
 
 
A-1
 
Without limiting the generality of the foregoing, the Sub-Advisor further agrees that it:

(a)           will assist in determining from time to time what securities and other investments will be purchased, retained or sold for the Separate Account;

(b)           will manage, in consultation with the Advisor, the Separate Account’s temporary investments in securities, cash and cash equivalents;

(c)           will place orders pursuant to its investment determinations for the Separate Account either directly with the issuer or with any broker or dealer;

(d)           will consult with the Advisor on a continuous basis as to the Fund’s total assets which shall be invested in the Separate Account;

(e)           will attend regular business and investment-related meetings with the Board of Trustees and the Advisor, as requested by the Trust, the Advisor or both; and

(f)           will maintain books and records with respect to the securities transactions for the Separate Account, furnish to the Advisor and the Board of Trustees such periodic and special reports as they may reasonably request with respect to the Separate Account, and provide in advance to the Advisor all reports to the Board of Trustees for examination and review within a reasonable time prior to the Board of Trustees’ meetings.

3.            Covenants by the Sub-Advisor. The Sub-Advisor agrees with respect to the services provided to the Fund that it:

(a)           as part of its retention as a Sub-Advisor with respect to the investment of the Separate Account, a portion of the assets held by the Fund, as determined by the Advisor, is authorized by its governing documents to enter into this Agreement and the terms of this Agreement do not violate any obligation by which the Sub-Advisor is bound, whether arising by contract, operation of law or otherwise;

(b)           will maintain its status as a Registered Investment Advisor with the Securities and Exchange Commission;

(c)           will conform with all Rules and Regulations of the Securities and Exchange Commission;

(d)           will telecopy trade information to the Fund’s designated Fund Accountant no later than the first business day following the day of the trade and cause broker confirmations to be sent directly to the Fund’s designated Fund Accountant and adopt such other trade reporting, settlement and clearance procedures with respect to the Fund as shall be in accordance with the Fund’s existing procedures and as mutually agreed by the parties hereto;
 
 
A-2
 
(e)           will treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund and prior, present or potential shareholders, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder (except i) after prior written notification to the Trust, to respond to requests that are a part of routine regulatory audits or inspections or ii) after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld, and may not be withheld and will be deemed granted where the Sub-Advisor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust);

(f)             will maintain its own Code of Ethics and report to the Advisor’s Compliance Officer any violation of such Code that pertains to the management of the Fund, via a periodic compliance certification;

(g)           will maintain its own compliance program or manual, pursuant to Rule 206(4) -7 of the Investment Advisors Act.  The Sub-Advisor will provide either the manual or a summary thereof, including updates thereto, to the Advisor’s Compliance Officer; and

(h)           provide written notice to the Advisor and the Board of Trustees of any change to the amount contributed by any officer, director, manager, owner or other key individual of the Sub-Advisor to the accounts or funds managed by the Sub-Advisor, as compared to the amount which has been previously represented to the Advisor or the Board of Trustees, promptly, but in no case later than three business days from the date of such change.

4.            Covenants by the Advisor and the Trust. The Advisor and the Trust agree with respect to the services provided to the Fund:

(a)           that the retention of the Sub-Advisor as investment advisor with respect to the Separate Account, is authorized by the governing documents relating to the Fund, and the terms of this Agreement do not violate any obligation by which the Fund is bound, whether arising by contract, operation of law or otherwise;

(b)           that the Sub-Advisor may use the Fund’s name on a representative client list.

5.            Services Not Exclusive. The services furnished by the Sub-Advisor hereunder are deemed not to be exclusive, and nothing in this Agreement shall (i) prevent the Sub-Advisor or any affiliated person (as defined in the 1940 Act) of the Sub-Advisor or any employee, agent, manager or affiliated person of such person from acting as investment advisor or manager for any other person or persons, including other management investment companies or investment vehicles or accounts of any type with investment objectives and policies the same as or similar to those of the Fund or (ii) limit or restrict the Sub-Advisor or any such employee, agent, manager or affiliated person from buying, selling or trading any securities or other investments (including any securities or other investments which the Fund is eligible to buy) for its or their own accounts or for the accounts of others for whom it or they may be acting; provided, however, that the Sub-Advisor agrees that it will not undertake any activities which, in its reasonable judgment, will adversely affect the performance of its obligations under this Agreement.
 
 
A-3
 
6.           Separate Account Transactions. Investment decisions for the Separate Account shall be made by the Sub-Advisor independently from those for any other investment companies and accounts advised or managed by the Sub-Advisor. The Separate Account and such investment companies and accounts may, however, invest in the same securities. When the Sub-Advisor seeks to purchase or sell  the same security at substantially the same time on behalf of the Separate Account and/or another investment company or account, the Sub-Advisor shall, to the extent permitted by law and to the extent reasonably practicable, aggregate such orders or otherwise effect such transaction on an average price basis, and available investments will be allocated as to amount in a manner which the Sub-Advisor believes to be equitable to the Fund and such other investment company or account. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or sold by the Fund. To the extent permitted by law, the Sub-Advisor may aggregate the securities to be sold or purchased for the Separate Account with those to be sold or purchased for other investment companies or accounts in order to obtain best execution on an overall basis for all the Sub-Advisor’s clients.

The Sub-Advisor shall place orders for the purchase and sale of portfolio securities
for the Separate Account and will solicit broker-dealers to execute transactions in accordance with the Fund’s policies and restrictions regarding brokerage allocations. If applicable, the Sub-Advisor shall place orders pursuant to its investment determinations for the Separate Account either directly with the issuer or with any broker or dealer. If it executes portfolio transactions and selects brokers or dealers, the Sub-Advisor shall use its reasonable best efforts to seek the most favorable execution of orders, after taking into account all factors the Sub-Advisor deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. Consistent with this obligation, the Sub-Advisor may, to the extent permitted by law, purchase and sell portfolio securities to and from brokers and dealers who provide brokerage and/or research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of the Separate Account and/or other accounts over which the Sub-Advisor or any of its affiliates exercises investment discretion. The Sub-Advisor is authorized to pay to a broker or dealer who provides such brokerage and/or research services a commission for executing a portfolio transaction for the Separate Account which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Sub-Advisor determines in good faith that such commission was reasonable in relation to the value of the brokerage and/or research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Sub-Advisor’s overall responsibilities to the Fund. In no instance will portfolio securities be purchased from or sold to the Advisor or the Sub-Advisor or any affiliated person of either thereof; except as permitted by Rules and Regulations of the Securities and Exchange Commission.

7.           Covenants by the Advisor. The Advisor agrees with respect to the services provided to the Advisor hereunder that the Advisor will conform to the applicable Rules and Regulations of the Securities and Exchange Commission.

8.           Certain Representations and Warranties. Each of the parties hereto represents and warrants to the other that, as of the date hereof; this Agreement has been duly and validly authorized by all necessary action (corporate, limited liability company or otherwise) on the part of such party, has been duly executed and delivered by such party and constitutes the valid and legally binding obligation of such party, enforceable against such party in accordance with its terms and conditions.
 
 
A-4
 
9.            Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records which it maintains for the Fund are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust’s request. The Sub-Advisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act with respect to the services provided by the Sub-Advisor hereunder.

10.           Expenses. During the term of this Agreement, the Sub-Advisor will pay its own expenses incurred in connection with the performance of its obligations under this Agreement. Nothing herein, however, shall be deemed to require the Sub-Advisor to pay any expenses of the Fund or the Advisor.

11.           Compensation. In consideration of the services rendered pursuant to this Agreement, during the term of this Agreement the Advisor will pay to the Sub-Advisor, as compensation for the services provided by the Sub-Advisor under this Agreement, a monthly fee equal to 1.00% (on an annualized basis) of the average net assets of the Separate Account, plus any leveraged amount applied to the Separate Account by the Advisor. The Advisor shall pay the Sub-Advisor as soon as practical after the last day of each calendar month, but no later than five (5) business days after the end of each month. In case of termination or expiration of this Agreement during any calendar month, the fee with respect to such month shall be reduced proportionately based upon the number of calendar days during which it is in effect and the fee shall be computed upon the average net assets of the Separate Account in accordance with the Fund’s prospectus.

12.          Standard of Care: Limitation of Liability: Limited Indemnity.  The Sub-Advisor shall exercise due care and diligence and use the same skill and care in providing its services hereunder as it uses in providing services to other investment companies, accounts and customers, but shall not be liable for any action taken or omitted by the Sub-Advisor in the absence of bad faith, willful misconduct, gross negligence or reckless disregard of its duties. The Fund further agrees to indemnify, defend and hold the Sub-Advisor, and its managers, officers, directors, equityholders, employees and agents (“Related Persons”), harmless from and against all losses, claims, damages, liabilities, costs and expenses arising by reason of being or having been Sub-Advisor to the Fund, or in connection with the past or present performance of services to the Fund in accordance with this Agreement, except to the extent that the loss, claim, damage, liability, cost or expense was caused by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties on the part of the Sub-Advisor in the performance of its duties and obligations under this Agreement. These losses, claims, damages, liabilities, costs and expenses include, but are not limited to, amounts paid in satisfaction of judgments, in compromise, or as fines or penalties, and counsel fees and expenses, incurred in connection with the defense or disposition of any action, suit, investigation or other proceeding, whether civil or criminal, before any judicial, arbitral, administrative or legislative body, in which the indemnitee may be or may have been involved as a party or otherwise, or with which such indemnitee may be or may have been threatened, while in office or thereafter. Federal and various state securities laws may afford the Advisor and/or the Fund certain rights and remedies under certain circumstances, even in the absence of bad faith, willful misconduct, gross negligence or reckless disregard by the Sub-Advisor or its Related Persons, and nothing contained herein shall in any way constitute a waiver or limitation of any such rights and remedies that the Advisor, the Fund or both may have under any such federal or state securities laws.
 
 
A-5
 
13.           Reference to the Sub-Advisor. Neither the Advisor nor any affiliate or agent of it shall make reference to this Agreement or use the name of the Sub-Advisor or any of its affiliates except with respect to references in regulatory filings and communications with shareholders concerning the identity of and services provided by the Sub-Advisor to the Fund, which references shall not differ in substance from those typically included in a proxy statement or annual report of the Fund, or the Fund’s registration statement and any advertising or promotional materials, provided such materials are FINRA compliant, without the prior approval of the Sub-Advisor.

14.           Duration and Termination. Unless sooner terminated, this Agreement shall be for an initial period of two years, and thereafter shall continue automatically for successive annual periods, provided such continuance is specifically approved at least annually by the Board of Trustees provided that its continuance also is approved by a majority of the members of the Board of Trustees who are not “interested persons” (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable at any time without penalty, on sixty (60) days’ written notice, by the Board of Trustees, by the Advisor or by the Sub-Advisor or by vote of a majority of the outstanding voting securities of the Fund. This Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act). Termination or expiration of this Agreement, however caused, shall be without prejudice to any compensation accrued to the date of termination or expiration and Sections 3(e), 9, 11, 12 and 13 shall survive any termination or expiration.

15.            Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by the Board of Trustees, including a majority of the members of the Board of Trustees who are not interested persons of the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.

16.           Notice. Any notice, advice or report to be given pursuant to this Agreement shall be delivered or mailed:

To the Sub-Advisor at:

_____________________
_____________________
_____________________

To the Advisor at:

Alternative Investment Partners, LLC
600 Mamaroneck Avenue, Suite 400
Harrison, NY 10528
Facsimile:  (914) 761-9500
To the Board of Trustees or the Fund at:
 
 
 
A-6
 
AIP Alternative Strategies Funds
600 Mamaroneck Avenue, Suite 400
Harrison, NY 10528
Facsimile:  (914) 761-9500

with a copy to:

Blank Rome LLP
405 Lexington Avenue
New York, New York 10174
Attention:  Thomas R. Westle, Esq.
Facsimile:    (917) 332-3817

The effective date of any notice shall be (i) the date such notice is sent if such delivery is effected by hand or facsimile; (ii) one business day after the date such notice is sent if such delivery is effected by national overnight courier; or (iii) the fifth (5th) business day after the date of the mailing thereof.

17.           Proxy Voting.  The Sub-Advisor is authorized to vote proxies received on securities held in the Separate Account.  The Advisor and the Trust represent that proxy voting authority is not expressly reserved to any other party under the documents governing the Funds. All proxies will be voted in accordance with the Advisor’s written policy in effect from time to time, receipt of which the Sub-Advisor hereby acknowledges.  The Advisor and the Trust shall instruct the Fund’s custodian to forward promptly to the Sub-Advisor receipt of such communications and to follow the Sub-Advisor’s instructions concerning the same.  The Sub-Advisor shall not be responsible for voting proxies not timely received by the Sub-Advisor.

18.           Legal Proceedings. The Sub-Advisor will not advise or act for the Advisor of the Fund in any legal proceedings, including bankruptcies or class actions, involving securities held or previously held in the Fund or the issuers of these securities, without the prior written consent of the Advisor.

19.           Force Majeure.                                In addition, and without limiting any other provision of this Agreement, the Sub-Advisor shall not be liable for (i) force majeure or other events beyond the control of the Sub-Advisor, including without limitation any failure, default or delay in performance resulting from computer or other electronic or mechanical equipment failure, unauthorized access, theft, operator errors, government restrictions, exchange or market rulings or suspension of trading, strikes, failure of common carrier or utility systems, severe weather or breakdown in communications not reasonably within the control of the Sub-Advisor or other causes commonly known as “acts of god”, whether or not any such cause was reasonably foreseeable, or (ii) general market conditions rather than a violation of this Agreement by the Sub-Advisor.

20.           Limits on Obligations.  Notwithstanding anything to the contrary in this Agreement, in no event will the Sub-Advisor be obligated to effect any transaction or instruction it believes (without verification or inquiry) would violate any law, rule or regulation; the rules or regulations of any regulatory or self-regulatory body; or the Sub-Advisor’s legal, regulatory, or operational policies and procedures; provided, however, that the Sub-Advisor must provide the Advisor written notice of its decision not to effect a transaction within one business day of such decision.

21.   Miscellaneous. Neither the holders of shares of the Fund nor the members of the Board of Trustees shall be personally liable hereunder. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
 
 
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22.   Entire Agreement.  This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior writings and understandings relating thereto.

23.          Governing Law. This Agreement constitutes the entire agreement of the parties, shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by New York law in a manner not in conflict with the provisions of the 1940 Act.

24.           Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed by its authorized officer.


 ______________________

By: _____________________________
Name:
Title:

Alternative Investment Partners, LLC

By: _____________________________
Name:
Title:

Underlying Funds Trust

By: _____________________________
Name:
Title:


 
 
 
 
 
 
 
 
 
 
 
 
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