SCHEDULE 14A
                                 (RULE 14a-101)

                     INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION

 PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
                                (AMENDMENT NO. )

Filed by the Registrant | |

Filed by a Party other than the Registrant |X|

Check the appropriate box:

      | | Preliminary Proxy Statement

      | | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

      | | Definitive Proxy Statement

      |X| Definitive Additional Materials

      | | Soliciting Material Under Rule 14a-12

                        SUNSET FINANCIAL RESOURCES, INC.
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                (Name of Registrant as Specified in Its Charter)

                      WESTERN INVESTMENT HEDGED PARTNERS LP
                             WESTERN INVESTMENT LLC
                  WESTERN INVESTMENT INSTITUTIONAL PARTNERS LLC
                    WESTERN INVESTMENT ACTIVISM PARTNERS LLC
                                ARTHUR D. LIPSON
                                MATTHEW S. CROUSE
                               JAMES S. SCHALLHEIM
                                 D. JAMES DARAS
                               MARSHALL W. COBURN
                                GERALD HELLERMAN
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    (Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

      Payment of Filing Fee (Check the appropriate box):

      |X| No fee required.

      | | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.




      (1) Title of each class of securities to which transaction applies:

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      (2) Aggregate number of securities to which transaction applies:

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      (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):

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      (4) Proposed maximum aggregate value of transaction:

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      (5) Total fee paid:

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      | | Fee paid previously with preliminary materials:

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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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      (2) Form, Schedule or Registration Statement No:

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      (3) Filing Party:

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      (4) Date Filed:

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          Western Investment Hedged Partners LP ("Western Investment"), together
with the other participants named herein, is filing materials  contained in this
Schedule 14A with the Securities and Exchange  Commission in connection with the
solicitation of proxies against the proposed merger  involving  Sunset Financial
Resources, Inc. (the "Company") and Alesco Financial Trust and related proposals
(collectively,  the  "Merger  Proposals")  to be  submitted  to a  vote  of  the
stockholders of the Company at a special meeting of stockholders scheduled to be
held on October 6, 2006 (the "Special Meeting").

          Item 1: On October 5, 2006, Western  Investment  delivered a letter to
certain principal stockholders of the Company, the text of which is as follows:


I am writing to you on behalf of the Western Group, the holder of 9.7% of Sunset
Financial  Resources,  Inc.  ("SFO"),  as a fellow concerned  stockholder who is
seeking to maximize the value of SFO's  shares.  We are strongly  opposed to the
proposed merger with Alesco  Financial Trust being  considered at the October 6,
2006 Special Meeting of Stockholders,  and urge you to join us in voting AGAINST
the proposed merger and related proposals.

As  discussed  in an article  appearing in THE NEW YORK TIMES on October 3, 2006
(Big  Board  Delays  Plan  on  Voting,  by  Gretchen  Morgenson),  institutional
investors  are highly  critical  of  stockholders  being  disenfranchised.  This
practice often results in the  entrenchment  of board members and diminishes the
accountability  of directors to their  stockholders.  Now is your opportunity to
stand  up and  demonstrate  to the SFO  board  of  directors,  a board  that has
repeatedly  failed to respond to stockholder  concerns,  that its decisions that
adversely affect SFO's stockholders will not be  rubber-stamped.  Don't accept a
performance  from the SFO board of directors that you would not accept from your
own employees.  We as  institutional  investors must be the  fiduciaries for our
constituents.

We urge you to consider the following, which we believe clearly demonstrates the
inferior economics of the proposed transaction:

      o   Under the  proposed  deal with  Alesco,  stockholders  of Alesco  will
          receive  1.26 SFO shares for each share of Alesco that they own.  This
          means:

              --  SFO  stockholders  are effectively  PAYING $13.13 per share*
                  for assets Alesco is carrying at $9.40 per share*.

              --  SFO stockholders are effectively  PAYING Alesco holders a 40%*
              premium for their shares.

          As a result,  the book value of SFO shares  would DROP by $2.65 in the
          transaction.

- ------------------
* based upon book values at 3/31/06.




      o   SFO's stockholders would own at most 42% of the combined company.  Why
          are Alesco's stockholders, rather than SFO's stockholders, receiving a
          change of control premium in this transaction?

      o   We believe that the new Cohen  Brothers  investment  strategy for SFO,
          which current management put in place without stockholder approval, is
          badly timed and carries much more credit risk and leverage  than SFO's
          original  business plan. We believe,  and other fixed income  analysts
          agree,  that risky low-grade fixed income securities are overvalued in
          today's market and that it is the wrong time in the credit cycle to be
          investing in long-term credit derivatives. If this merger is approved,
          SFO  stockholders  would be  paying a  premium  price  for an  already
          aggressively valued sector. We believe the merger represents the exact
          opposite  of  value  investing  and  does  not  adequately  compensate
          investors for the potential  downside risk posed by the Cohen Brothers
          investment strategy.

      o   Cohen Brothers and its affiliates stand to earn enormous up-front fees
          from  managing  and  structuring  investments  for  SFO,  which  would
          adversely  affect the economics for SFO  stockholders.  COHEN BROTHERS
          AND ITS AFFILIATES  HAVE RECEIVED OVER $22 MILLION IN FEES FROM ALESCO
          DEALS IN JUST THE FIRST SIX MONTHS OF 2006.  Management  and incentive
          fees totaled only $859,000  over the same period.  We believe that the
          bulk of a  manager's  compensation  should  be based on  results,  not
          up-front fees.

      o   The deal,  which SFO  estimates  will cost $13.8  million to complete,
          includes  approximately  $2.3 - $2.7 million in severance  payments to
          SFO's management.

The execution of SFO's business,  and by implication the SFO board of directors,
has been severely  criticized by many major long-term  stockholders of SFO. What
makes you believe we can trust their judgment now?

The Western Group intends to nominate  candidates  for election to the SFO board
of directors at its 2006 annual  meeting.  If the Alesco deal is voted down, you
will have an opportunity to elect directors who will put stockholders' interests
first.  We believe  SFO should  remain a  standalone  company and  that--with  a
dedicated  board and new  management--it  can succeed in maximizing the value of
SFO's shares. We have had discussions in that regard with Michael Tokarz, who is
currently Chairman and Portfolio Manager of MVC Capital,  Inc.,  Chairman of The
Tokarz Group and formerly a General  Partner of Kohlberg  Kravitz  Roberts & Co.
(KKR).  We  believe  that Mr.  Tokarz is a  superior  portfolio  manager of high
integrity with a proven track record of increasing  returns and returning  money
to stockholders.  MVC's stock has returned over 22% annually to its stockholders
since Mr. Tokarz became Chairman in November 2003.

We are  convinced  that  the  proposed  merger  was not  structured  in the best
interests of SFO's  stockholders.  We are conducting our proxy  solicitation  to
ensure that SFO's  stockholders are given a choice as to the future direction of
their  company,  rather  than  having a highly  dilutive  merger  and  risky new
investment  strategy thrust upon them by a board that we believe is not properly
motivated by stockholder  interests.  Please join us, on behalf of institutional
investors everywhere,  in taking a stand against misuses of corporate power. Now
is the time to stand up and be counted.

/s/ Art Lipson

Art Lipson
On behalf of the Western Group




                   CERTAIN INFORMATION CONCERNING PARTICIPANTS

Western  Investment,  together with the other  Participants  (as defined  below)
named herein  (collectively,  the "Western Group"), has made a definitive filing
with  the  Securities  and  Exchange   Commission  of  a  proxy   statement  and
accompanying proxy card to be used to solicit votes against the Merger Proposals
at the Special Meeting.

THE WESTERN GROUP STRONGLY  ADVISES ALL  STOCKHOLDERS OF THE COMPANY TO READ THE
PROXY  STATEMENT  AND OTHER PROXY  MATERIALS  RELATING  TO THE  SPECIAL  MEETING
BECAUSE THEY CONTAIN IMPORTANT  INFORMATION.  SUCH PROXY MATERIALS ARE AVAILABLE
AT  NO  CHARGE  ON  THE  SECURITIES  AND  EXCHANGE   COMMISSION'S  WEB  SITE  AT
HTTP://WWW.SEC.GOV.  IN ADDITION,  THE  PARTICIPANTS  IN THE  SOLICITATION  WILL
PROVIDE COPIES OF THE DEFINITIVE PROXY MATERIALS,  WITHOUT CHARGE, UPON REQUEST.
REQUESTS FOR COPIES  SHOULD BE DIRECTED TO THE  PARTICIPANTS'  PROXY  SOLICITOR,
INNISFREE M&A INCORPORATED, AT ITS TOLL-FREE NUMBER: (888) 750-5834.

The  participants  in the  solicitation  are  Western  Investment  LLC,  Western
Investment Hedged Partners LP, Western  Investment  Institutional  Partners LLC,
Western Investment  Activism Partners LLC, Arthur D. Lipson,  Matthew S. Crouse,
James S.  Schallheim,  D. James Daras,  Marshall W. Coburn and Gerald  Hellerman
(collectively,  the "Participants").  Information regarding the Participants and
their direct or indirect  interests is available in their Schedule 13D initially
filed  with the  Securities  and  Exchange  Commission  on March  17,  2005,  as
subsequently  amended on March 29, 2005, May 6, 2005, August 29, 2005, September
23,  2005,  October 4, 2005,  November 1, 2005,  December 5, 2005,  December 13,
2005, May 3, 2006, June 20, 2006 and July 7, 2006.