Blackstone Alternative Alpha Fund II

0001193125-15-260002.txt : 20150722 0001193125-15-260002.hdr.sgml : 20150722 20150722171908 ACCESSION NUMBER: 0001193125-15-260002 CONFORMED SUBMISSION TYPE: POS 8C PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20150722 DATE AS OF CHANGE: 20150722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Blackstone Alternative Alpha Fund II CENTRAL INDEX KEY: 0001566814 IRS NUMBER: 300760484 FILING VALUES: FORM TYPE: POS 8C SEC ACT: 1933 Act SEC FILE NUMBER: 333-186044 FILM NUMBER: 151000624 BUSINESS ADDRESS: STREET 1: 345 PARK AVENUE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10154 BUSINESS PHONE: 212-583-5000 MAIL ADDRESS: STREET 1: 345 PARK AVENUE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10154 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Blackstone Alternative Alpha Fund II CENTRAL INDEX KEY: 0001566814 IRS NUMBER: 300760484 FILING VALUES: FORM TYPE: POS 8C SEC ACT: 1940 Act SEC FILE NUMBER: 811-22792 FILM NUMBER: 151000625 BUSINESS ADDRESS: STREET 1: 345 PARK AVENUE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10154 BUSINESS PHONE: 212-583-5000 MAIL ADDRESS: STREET 1: 345 PARK AVENUE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10154 POS 8C 1 d930056dpos8c.htm BLACKSTONE ALTERNATIVE ALPHA FUND II Blackstone Alternative Alpha Fund II

As filed with the Securities and Exchange Commission on July 22, 2015

Securities Act File No. 333-186044

Investment Company Act File No. 811-22792

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-2

(CHECK APPROPRIATE BOX OR BOXES)

REGISTRATION STATEMENT

UNDER


x		*THE SECURITIES ACT OF 1933*
¨		Pre-Effective Amendment No.
x		Post-Effective Amendment No. 3

and/or

REGISTRATION STATEMENT

UNDER


x		*THE INVESTMENT COMPANY ACT OF 1940*
x		Amendment No. 5

BLACKSTONE ALTERNATIVE ALPHA FUND II

(Exact name of Registrant as Specified in Charter)

345 Park Avenue

28^th Floor

New York, New York 10154

(Address of Principal Executive Offices)

Registrant’s Telephone Number, including Area Code: (212) 583-5000

Peter Koffler, Esq.

c/o Blackstone Alternative Asset Management L.P.

345 Park Avenue

28^th Floor

New York, New York 10154

(Name and Address of Agent for Service)

COPY TO:

James E. Thomas, Esq.

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199-3600

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box: x

It is proposed that this filing will become effective (check appropriate box) x when declared effective pursuant to section 8(c) of the Securities Act of 1933.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933



Title of Securities Being Registered⁽¹⁾	Proposed Maximum Aggregate Offering Price⁽²⁾	Amount of Registration Fee
Shares of beneficial interest	$250,000,000	$34,100⁽³⁾

⁽¹⁾

The Securities and Exchange Commission has granted exemptive relief permitting the Fund to offer multiple classes of shares of beneficial interest. This registration statement relates to the maximum aggregate offering of $250,000,000 of shares of beneficial interest of the Fund. The offering currently includes the following share classes: Advisor Class I Shares, Advisor Class II Shares and Advisor Class III Shares. In the future, other classes of shares of beneficial interest of the Fund may be registered and included in the offering.

⁽²⁾	Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

⁽³⁾	Previously paid.

The trustees and principal officers of Blackstone Alternative Alpha Master Fund, as the master fund in which the Registrant invests substantially all of its assets, have also executed this Registration Statement.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this Prospectus is not complete and may be changed. No person may sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated July 22, 2015.

PROSPECTUS

BLACKSTONE ALTERNATIVE ALPHA FUND II

ADVISOR CLASS I, II, & III SHARES OF BENEFICIAL INTEREST

July [ ], 2015

Blackstone Alternative Asset Management L.P. (“BAAM”)

Investment Manager

Blackstone Alternative Alpha Fund II (the “Fund”) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end, non-diversified management investment company. The Fund’s investment objective is to seek to earn long-term risk-adjusted returns that are attractive as compared to those of traditional public equity and fixed income markets. The Fund pursues its investment objective by investing substantially all of its assets in Blackstone Alternative Alpha Master Fund (the “Master Fund”), a Massachusetts business trust registered under the 1940 Act as a closed-end management investment company with the same investment objective and substantially the same investment policies as the Fund. The Master Fund in turn invests its assets, directly or indirectly, in investment partnerships, managed funds, and other investment funds, which may include investment funds commonly referred to as “hedge funds” (collectively, “Investment Funds”), managed by outside parties, that invest in or trade in a range of investments that is without limit but may include equity and fixed income securities, currencies, derivative instruments (including, but not limited to, futures and forward contracts, swaps, and call and put options), and commodities. See “Investment Objective and Strategies” below. The Investment Funds in which the Master Fund invests are subject to special risks. See “Risks Arising from Investment Activities of the Investment Funds.” Through its investment in the Master Fund and the Master Fund’s investment in Investment Funds, the Fund could be considered to be the type of fund commonly referred to as a “fund of hedge funds.”

The Fund’s shares of beneficial interest (the “Shares”) are offered in multiple classes. This Prospectus offers Advisor Class I Shares, Advisor Class II Shares, and Advisor Class III Shares. The Shares are common shares of beneficial interest offered on a continuous basis at the net asset value per share, as described in this Prospectus. The Fund has registered under the Securities Act of 1933, as amended, $250,000,000 in Shares for sale under the registration statement to which this Prospectus relates. No person who is admitted as a shareholder of the Fund (an “Investor”) will have the right to require the Fund to redeem any Shares and the Shares have very limited liquidity, as described in this Prospectus.


	Price to Public⁽¹⁾	Proceeds to the Fund⁽²⁾
Per Advisor Class I Share	At current NAV	Amount invested at current NAV
Per Advisor Class II Share	At current NAV	Amount invested at current NAV
Per Advisor Class III Share⁽¹⁾	At current NAV	Amount invested at current NAV
Total	$250,000,000	$250,000,000⁽³⁾

⁽¹⁾	The Shares are offered on a continuous basis at the net asset value (“NAV”) per share, as described in this Prospectus. See “Subscription for Shares—The Offering” below.

⁽²⁾

The combined organizational and initial offering costs of the Fund were $463,276. These expenses were paid initially by BAAM. The Fund has agreed to repay these amounts, when and if requested by BAAM, but only if and to the extent that the Fund’s Specified Expenses (and including the Fund’s pro rata share of the Master Fund’s Specified Expenses) are less than 0.35% (annualized) during the three year period ending March 31, 2016. See “Management of the Fund—Expense Limitation Undertaking” below.

⁽³⁾	Total proceeds to the Fund assume the sale of all Shares registered under this registration statement.

Blackstone Advisory Partners L.P. (the “Distributor”) acts as the distributor for the Shares and serves in that capacity on a best efforts basis, subject to various conditions.

If you purchase Shares in the Fund, you will become bound by the terms and conditions of the Agreement and Declaration of Trust of the Fund, as amended from time to time (the “Declaration of Trust”).

Investments in the Fund may be made only by “Eligible Investors” as defined in this Prospectus. See “Subscription for Shares—Eligible Investors.”

Investment in the Fund involves a high degree of risk and should be considered a speculative investment that entails substantial risks, including but not limited to:

•

Loss of capital.

•

The Shares are not listed on any securities exchange and it is not anticipated that a secondary market for the Shares will develop. Unlike an investor in most closed-end investment companies, you should not expect to be able to sell your Shares regardless of how the Fund performs.

•

The Shares are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted under the Declaration of Trust.

•

Although the Fund may offer to repurchase Shares (or a portion thereof) from time to time, no assurance can be given that repurchases will occur or that any Shares properly tendered will be repurchased by the Fund. Repurchases are made at such times and on such terms as may be determined by the Board of Trustees, in its sole discretion. You may not have access to the money you invested in the Fund for an indefinite time.

•

Unlike open-end management investment companies (commonly known as mutual funds) which generally permit redemptions on a daily basis, Shares are not redeemable at an Investor’s option. As a result, an Investor may not be able to sell or otherwise liquidate his or her Shares. See “Risks Associated with BAAM and the Operation of the Fund—Liquidity Risks.”

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The Fund invests in the Master Fund as part of a master-feeder arrangement in which the Fund and the Master Fund are separate closed-end funds. The Fund is not a separate series of the Master Fund.

•

The Shares are appropriate only for Investors who can tolerate a high degree of risk and do not require a liquid investment.

•

The Investment Funds in which the Master Fund invests may pursue various investment strategies and are subject to special risks.

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The Fund is classified as a “non-diversified” investment company, which means that the percentage of its assets that may be invested in the securities of a single issuer is not limited by the 1940 Act. As a result, the Fund’s investment portfolio may be subject to greater risk and volatility than if investments were made in the securities of a broad range of issuers.

•

Investment in the Shares is speculative and there is no guarantee that the Fund will achieve its investment objective.

This Prospectus sets forth concisely information that you should know about the Fund before investing. You are advised to read this Prospectus carefully and to retain it for future reference. Additional information about the Fund, including the Fund’s statement of additional information (“SAI”), dated July [ ], 2015, has been filed with the U.S. Securities and Exchange Commission (“SEC”). You can request a copy of the SAI, and the Fund’s annual and semi-annual reports, without charge by writing to or calling State Street Bank and Trust Company (100 Huntington Avenue, Copley Place Tower 2, Floor 3, Mail Code: CPH0255, Boston, Massachusetts 02116), the Fund’s transfer agent (the “Transfer Agent”) at 1-855-890-7725. You may also call this number to request additional information or to make other inquiries pertaining to the Fund. The SAI is incorporated by reference into this Prospectus in its entirety. The table of contents of the SAI begins on page 83 of this Prospectus. You can obtain the SAI, material incorporated by reference herein, and other information about the Fund, on the SEC’s website (http://www.sec.gov). Additionally, the SAI, quarterly and monthly performance, semi-annual and annual reports and other information regarding the Fund may be found on BAAM’s website (http://www.blackstone.com/blackstone-alternative-alpha-funds). This reference to BAAM’s website is intended to allow public access to information regarding the Fund and does not, and is not intended to, incorporate BAAM’s website into this Prospectus.

No broker-dealer, salesperson, or other person is authorized to give an Investor any information or to represent anything not contained in this Prospectus. As an Investor, you must not rely on any unauthorized information or representations that anyone provides to you, including information not contained in this Prospectus, the SAI or the accompanying exhibits. The information contained in this Prospectus is current only as of the date of this Prospectus.

There is no minimum number of Shares (by all Investors in aggregate) required to be purchased in the Fund’s offering. Amounts received from potential Investors in the Fund in advance of any initial or subsequent purchases of Shares are held in a non-interest bearing account prior to investment in the Fund.

The Shares are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.

Prospective Investors should not construe the contents of this Prospectus as legal, tax, or financial advice. Each prospective Investor should consult with his or her own professional advisers as to the legal, tax, financial, or other matters relevant to the suitability of an investment in the Fund.

None of the SEC, the Commodity Futures Trading Commission (“CFTC”), or any state securities commission has approved or disapproved the Shares or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

The date of this Prospectus is July [ ], 2015.

TABLE OF CONTENTS



Summary of Terms			1

Summary of Fees and Expenses			17

Financial Highlights			19

Privacy Information			22

Information Safeguarding Policy			22

Use of Proceeds			25

Investment Objectives and Strategies			26
Investment Objective			26
Investment Strategy			26

Risks			30

Investment and Trading Risks in General			30
Risks Associated with BAAM and the Operation of the Fund			31
Tax Risks of Investing in the Fund			37
Risks Arising from Investment Activities of the Investment Funds			38

Conflicts of Interest			51

Allocation of Investment Opportunities			51
Capacity			51
Financial Interests in Underlying Managers			51
Blackstone Policies and Procedures			53
Blackstone Proprietary Funds			54
Middle- and Back-Office Services			54
Other Activities of Blackstone, BAAM and its Affiliates			55
Non-Discretionary/Advisory Clients			55
Placement Agent Arrangements			56
Service Providers and Financial Institutions as Investors			56
Transaction between the Fund and Other BAAM Clients			56

Management of the Fund			57

Board of Trustees			57
BAAM			57
Expense Limitation Undertaking			60
Pass-Through Voting			60
Other Service Providers to the Fund and Master Fund			60

Subscription for Shares			62

The Offering			62
Eligible Investors			62
Suitability of Investment			63
Distribution Arrangements			63

Determination of Net Asset Value			64

Repurchases and Transfers of Shares			67

No Right of Redemption			67
Repurchases of Shares			67
Forced Redemption			70
Transfer of Shares			71
Automatic Dividend Reinvestment Plan			71



Description of Shares			73

Portfolio Transactions			75

Tax Considerations			75

ERISA Considerations			82

General Information			82

Securities Outstanding			82
Legal Proceedings			82
Reports; Fiscal Year			82
Anti-Money Laundering			82

Table of Contents of the SAI			84

Appendix A: Supplemental Performance Information of Similar Funds			A-1

BLACKSTONE ALTERNATIVE ALPHA FUND II

ADVISOR CLASS I, II & III SHARES

Summary of Terms

This is only a summary and does not contain all of the information that a prospective Investor should consider before investing in the Shares of Blackstone Alternative Alpha Fund II (the “Fund”). Before investing, a prospective Investor in the Fund should carefully read the more detailed information appearing elsewhere in this prospectus (the “Prospectus”) and the Fund’s statement of additional information (the “SAI”), each of which should be retained for future reference by any prospective Investor.

The Fund:

Blackstone Alternative Alpha Fund II is a Massachusetts business trust that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end, non-diversified management investment company. The Fund invests substantially all of its assets in Blackstone Alternative Alpha Master Fund (the “Master Fund”).

The Fund is offering shares of beneficial interest (the “Shares”). The Fund has been granted exemptive relief permitting it to offer multiple classes of Shares with different terms and conditions. This Prospectus offers Advisor Class I Shares, Advisor Class II Shares, and Advisor Class III Shares. Advisor Class I Shares, Advisor Class II Shares, and Advisor Class III Shares are subject to different fees and expenses, which may affect performance. All Shares are sold in large minimum denominations solely to high net worth individual and institutional investors, and are restricted as to transfer. (See “Subscription for Shares.”)

The Master Fund:

Blackstone Alternative Alpha Master Fund is a Massachusetts business trust that is registered under the 1940 Act as a closed-end, non-diversified management investment company. The Master Fund has the same investment objective and substantially the same investment policies as the Fund. The Master Fund may have investors in addition to the Fund from time to time that may (individually or in the aggregate) own a greater percentage of the Master Fund than is owned by the Fund.

Investment Objective:

The Fund’s (and the Master Fund’s) investment objective is to seek to earn long-term risk-adjusted returns that are attractive as compared to those of traditional public equity and fixed income markets. There can be no assurance that the Fund (or the Master Fund) will achieve its objective. The investment objective is not fundamental and the Fund’s board of trustees (the “Board” or the “Board of Trustees” and each member, a “Trustee”) may change the Fund’s (or the Master Fund’s) investment objective without shareholder (“Investor”) approval.

Investment Strategy:

Through its investment in the Master Fund, the Fund is a “fund of funds” that provides a means for investors to participate in investments in various Investment Funds (as defined below). The Master Fund pursues its investment objective by investing, directly or indirectly through the Subsidiary (as defined below), in non-traditional or “alternative” strategies by investing in investment partnerships,

managed funds, and other investment funds, which may include investment funds commonly referred to as “hedge funds” (“Investment Funds”), generally managed by outside parties (the “Portfolio Managers”), that invest in or trade in a range of investments that is without limit but may include equities and fixed income securities, currencies, derivative instruments (including, but not limited to, futures and forward contracts, swaps, and call and put options), and commodities. Although the Master Fund obtains exposure to a variety of alternative strategies, it expects under normal circumstances to have exposure predominantly to Investment Funds with equity-based strategies. See “Investment Objective and Strategies.” In addition, the Master Fund may, under limited circumstances, invest or trade directly in securities and financial instruments for hedging purposes and/or pursuant to investment advice of discretionary or non-discretionary managers (as defined below).

Through its investment in the Master Fund, the Fund offers its shareholders (“Investors”) the following potential features: the spreading of risk across a number of investment strategies, Portfolio Managers, Investment Funds, and markets; professional identification, researching, interviewing, evaluation, selection, and monitoring of the services of a select group of non-traditional asset fund managers; the ability to invest with Portfolio Managers who may be generally unavailable to new investors or who require a minimum account size that is higher than most individual investors would be willing or able to commit to; and administrative convenience.

The Master Fund may invest a portion of its assets (but not more than 25%) in a wholly-owned and controlled subsidiary (the “Subsidiary”) of the Master Fund formed under the laws of the Cayman Islands. The Subsidiary is not registered under the 1940 Act and, unless otherwise noted in this Prospectus, is not subject to the investor protections of the 1940 Act. The Subsidiary is advised by BAAM and has the same investment objective as the Master Fund. BAAM invests the Subsidiary’s assets in various Investment Funds. The Master Fund does not intend to sell or transfer shares of the Subsidiary to any third party. The Master Fund looks through the Subsidiary for purposes of compliance with its investment policies and the applicable provisions of the 1940 Act relating to capital structure, affiliated transactions, and custody.

Under normal circumstances, at least 80% of the Master Fund’s net assets, plus the amount of borrowings (if any) for investment purposes, are invested (or held pending investment) in Investment Funds, directly or indirectly through the Subsidiary.

Risk Factors:

An investment in the Fund is an appropriate investment only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Risks of investing in the Fund include:

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Investors may lose capital.

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The Portfolio Managers, in some cases, may be newly organized or have only limited operating histories upon which their performance may be evaluated.

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Although BAAM has substantial experience in the selection, evaluation and monitoring of Investment Funds, the Fund and the Master Fund have only limited operating histories upon which their performance may be evaluated.

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Investors in the Shares bear two layers of asset-based management fees (at the Master Fund level and the Investment Fund level) and a single layer of incentive fees (at the Investment Fund level). Advisor Class I Shares also directly pay an ongoing asset-based distribution and service fee and Advisor Class II Shares directly pay an ongoing service fee. The Fund does not directly pay a management fee with respect to any period during which the only investment security held by the Fund is that of the Master Fund. As a result, as long as the Fund continues to invest in the Master Fund as part of a master-feeder arrangement, Investors will incur a single fee for management services provided by BAAM to the Fund and the Master Fund. Neither the Master Fund nor the Fund directly pays any incentive fees. Expenses exist at the Fund level, the Master Fund level and the Investment Fund level.

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Shares are not traded on any securities exchange or other market and are subject to restrictions on transfer.

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The Master Fund’s, and therefore the Fund’s, performance depends upon the performance of the Portfolio Managers and selected strategies, the adherence by the Portfolio Managers to their selected strategies, the instruments used by the Portfolio Managers, and BAAM’s ability to select Portfolio Managers and strategies and to successfully allocate Master Fund assets among the Portfolio Managers.

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Identifying the appropriate Portfolio Managers and suitable Investment Funds is difficult and involves a high degree of uncertainty. In addition, certain Investment Funds, from time to time, are oversubscribed or closed, and it may not be possible to make investments that are identified as attractive opportunities.

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BAAM will be dependent on information, including performance information, provided by the Investment Funds, which if inaccurate could adversely affect BAAM’s ability to accurately value the Master Fund’s shares. In most cases, BAAM has little or no means of independently verifying this information.

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The Master Fund is classified as a “non-diversified” investment company. A non-diversified fund may invest a greater portion of its assets in the securities of fewer issuers than a “diversified” fund. As a result, the Fund’s investment portfolio may be subject to greater risk and volatility than if investments had been made in the securities of a broader range of issuers.

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The net asset value of the Master Fund, as determined based on the fair value of its interests in Investment Funds, may vary from the amount the Master Fund would realize on withdrawing its investments from the Investment Funds (as used herein, references to the withdrawal of an investment in an Investment Fund should be read to include a redemption of an investment in, or withdrawal from, an Investment Fund as appropriate in light

of the organizational structure of the Investment Fund). This could adversely affect Investors whose Shares are repurchased as well as new Investors and remaining Investors.

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Many of the Master Fund’s assets will be priced, in the absence of a readily available market, based on estimates of fair value, which may prove to be inaccurate; these valuations will be used to calculate fees payable to BAAM, and the price at which purchases and repurchases of Shares are made.

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Investments in Investment Funds are generally illiquid, and some of the Investment Funds may not permit withdrawals at the same time as the Master Fund or the Fund are repurchasing their shares. Some Investment Funds may impose limits (known as “gates”) on the aggregate amount that a shareholder or all shareholders in the Investment Fund may withdraw on any single withdrawal date. Additionally, some Investment Funds may suspend the withdrawal rights of their shareholders, including the Master Fund, from time to time. As a result, the Fund’s ability to provide liquidity to Investors could be adversely affected.

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Certain Investment Funds may invest a portion of their assets in investments that the Portfolio Managers believe are illiquid, lack a readily assessable market value, or should be held until the resolution of a special event or circumstance (“Special Investments”). The Portfolio Managers may “side pocket” Special Investments, which generally means that an investor, such as the Master Fund, is not able to redeem the portion of its investment in the Investment Fund that is side pocketed until that investment is realized by the Investment Fund. Investment Funds generally are permitted to make payment to withdrawing investors in-kind. Thus, upon the Master Fund’s withdrawal of all or a portion of its interest from an Investment Fund, the Master Fund may receive an in-kind distribution of investments, including Special Investments, that are illiquid or difficult to value. As a result, the Fund’s ability to provide liquidity to Investors could be adversely affected. In addition, the Fund and Investors could receive distributions in-kind of Special Investments or other investments that are illiquid and difficult to value.

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Investment Funds generally are not registered as investment companies under the 1940 Act, and, therefore, the Master Fund is not able to avail itself of the protections of the 1940 Act.

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Investment Funds may not be subject to the surprise audit requirement under Rule 206(4)-2 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The surprise audit requirement is generally intended to assist in the detection and deterrence of mishandling client assets, and investments in Investment Funds that are not subject to the surprise audit requirement may be at greater risk than other investments.

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Investors in the Fund have no right to receive information about the Investment Funds or Portfolio Managers, and have no recourse against Investment Funds or their Portfolio Managers.

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Portfolio Managers may use proprietary investment strategies that are not fully disclosed to BAAM, and which may involve risks under some market conditions that are not anticipated by BAAM.

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Portfolio Managers may receive compensation for positive performance of an Investment Fund even if the Fund’s overall returns are negative.

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Portfolio Managers may make investment decisions which conflict with each other; for example, at any particular time, one Investment Fund may be purchasing shares of an issuer whose shares are being sold by another Investment Fund. Consequently, the Fund could incur indirectly transaction costs without accomplishing any net investment result.

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Investors may be exposed to significant indirect indemnification obligations to the Investment Funds, their Portfolio Managers and their third party service providers.

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Individual Portfolio Managers may invest in highly speculative strategies, which involve significant risk of loss, including, but not limited to, selling securities short, focusing investments in foreign currencies, focusing on emerging markets or investing solely in volatile industry sectors, among others.

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Portfolio Managers may change their investment strategies (i.e., may experience “style drift”) at any time. Style drift among Portfolio Managers may impair BAAM’s ability to construct and monitor the Master Fund’s portfolio.

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Portfolio Managers may invest without limitation in restricted and illiquid securities.

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Portfolio Managers may invest in below-investment-grade debt (so-called “junk bonds”).

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Portfolio Managers may invest in equity securities without limitation as to market capitalization, such as those issued by smaller capitalization companies, including micro-cap companies, the prices of which may be subject to erratic changes.

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Portfolio Managers may seek to profit from the occurrence of specific corporate events. A delay in the timing of these events, or the failure of these events to occur at all, may have a significant negative effect on the Investment Funds’ performance.

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Portfolio Managers may seek to predict the direction of complex markets, including international securities, foreign currencies, and commodities and may use highly volatile futures contracts and other derivative instruments which may magnify the potential volatility of the Shares.

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Portfolio Managers may use model-based strategies that, while historically effective, may not be successful on an ongoing basis or could contain unknown errors.

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Performance fees charged by Portfolio Managers may create incentives for Portfolio Managers to make investments that are riskier or more speculative than in the absence of these fees. Because these fees are often based on both realized as well as unrealized appreciation, the fee may be greater than if it were based only on realized gains.

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Portfolio Managers may focus on a particular industry or industries, which may subject its Investment Fund to greater risk and volatility than if investments had been made in issuers in a broader range of industries.

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Portfolio Managers may focus on securities of non-U.S. issuers, including those located in developing countries, which may involve special risks caused by foreign political, social and economic factors, including exposure to currency fluctuations, less liquidity, less developed and less efficient trading markets, political instability and less developed legal and auditing standards.

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Investment Funds may have a high portfolio turnover rate which may result in higher brokerage commissions and, therefore, lower investment returns.

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Portfolio Managers may use derivatives (including, but not limited to, futures and forward contracts, swaps, and call and put options) for hedging and non-hedging purposes; derivatives can be volatile and illiquid, can be subject to counterparty credit risk, and may entail investment exposure greater than their notional amount.

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BAAM may have conflicts of interests which could interfere with its management of the Fund. Investments made on behalf of other clients of BAAM may restrict the Master Fund’s ability to purchase or sell certain Investment Funds under applicable law.

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A short sale of a security involves the theoretical risk of unlimited loss because of increases in the market price of the security sold short. A Portfolio Manager’s use of short sales, in certain circumstances, can result in significant losses.

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The Investment Funds’ portfolios may include investments that are difficult to value and that may only be able to be disposed of by the Portfolio Managers at substantial discounts or losses.

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As described in this Prospectus, the Master Fund may borrow money (or use leverage) to fund investments in Investment Funds, to satisfy repurchase requests and to obtain investment exposure to various markets or investment styles, which could magnify significantly the potential volatility of the Shares. Although BAAM does not generally operate the Master Fund on a leveraged basis, under some circumstances the Master Fund could be leveraged for an extended period of time.

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The Master Fund may invest in put options or utilize futures contracts, both of which can be illiquid and subject the Master Fund to counterparty credit risk.

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The Master Fund generally purchases non-voting securities of, or contractually foregoes the right to vote in respect of, Investment

Funds in order to prevent the Master Fund from becoming an “affiliated person” of the Investment Fund for purposes of the 1940 Act and becoming subject to the prohibitions on transactions with affiliated persons contained in the 1940 Act. Consequently, the Master Fund will not be able to vote to the full extent of its economic interest on matters that require the approval of investors in each Investment Fund, including matters that could adversely affect the Master Fund’s investment.

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By investing in the Subsidiary, the Master Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the 1940 Act and, unless otherwise noted in this Prospectus, is not subject to the investor protections of the 1940 Act. Changes in the laws of the United States and/or the Cayman Islands could result in the inability of the Master Fund and/or the Subsidiary to operate as expected and could adversely affect the Master Fund.

•

The application of federal income tax requirements for treatment as a regulated investment company under the Internal Revenue Code (described below) to certain of the Fund’s or Master Fund’s investments, including the Master Fund’s investment in the Subsidiary, is uncertain. As a result, it may be difficult for the Fund to satisfy the 90% gross income, diversification, and/or distribution requirements described below. The Fund would almost certainly be unable to satisfy the requirements for treatment as a regulated investment company if the Master Fund were to fail to meet those requirements, and not to cure that failure (as described below). Failure to satisfy any one of these requirements could subject the Fund and/or the Master Fund to corporate income or other taxes at the fund level and could have a material adverse effect on the value of the Fund’s Shares and the amount of the Fund’s distributions to Investors.

•

The Master Fund’s intention to qualify as a regulated investment company may in some cases prevent it from taking advantage of attractive investment opportunities or may force it to liquidate investments at disadvantageous times or prices.

An investment in the Fund should be considered a speculative investment that entails substantial risks, and you should invest in the Fund only if you can sustain a complete loss of your investment. An investment in the Fund should be viewed only as part of an overall investment program. No assurance can be given that the Fund’s investment program will be successful.

See “Risks.”

Investment Manager (BAAM):

The Blackstone Group L.P. (“Blackstone”), founded in 1985, is one of the world’s leading investment and advisory firms. BAAM, the hedge fund solutions group within Blackstone, was founded in 1990 to manage the internal assets of the firm by creating a diversified portfolio of hedge fund investments to offset the equity exposure of the firm’s other businesses. BAAM, a Delaware limited partnership and registered investment adviser under the Advisers Act, serves as the investment

manager for the Fund and the Master Fund. BAAM is located at 345 Park Avenue, 28th Floor, New York, New York 10154.

BAAM advises many of the world’s largest and most sophisticated investors, including corporate, public, and union pension funds, as well as sovereign wealth funds, central banks, insurance companies, high net worth individuals, family trusts, and other institutional investors. As of April 1, 2015, BAAM had approximately $66.7 billion (unaudited) in assets under management. For more information regarding BAAM, see “Management of the Fund—BAAM.”

Each investment with a hedge fund manager is the culmination of BAAM’s investment decision-making process, which is based on rigorous evaluations (incorporating, among other things, in-person meetings and assessments) of portfolio managers, a top-down assessment of opportunities across market sectors, and a bottom-up approach to portfolio construction.

BAAM and its affiliates, their individual members and employees, and funds and accounts managed by any of them currently maintain significant proprietary investments, totaling approximately $435 million as of April 1, 2015, in privately offered funds that have substantially similar investment strategies to the Fund.

Conflicts of Interest:

BAAM devotes to the Fund as much time as is necessary or appropriate, in its judgment, to manage the Fund’s activities. Investment activities by BAAM and its affiliates, including the establishment of other investment funds and the provision of advisory services to discretionary or non-discretionary separate accounts, may give rise to conflicts of interest. BAAM and its affiliates may also engage in business activities unrelated to the Fund that create conflicts of interest. See “Conflicts of Interest.”

Management Fee:

In light of BAAM’s arrangements with the Master Fund and the fact that the Fund will seek to achieve its investment objective by investing substantially all of its assets in the Master Fund, BAAM will not charge the Fund a management fee with respect to any period during which the only investment security held by the Fund is that of the Master Fund. As a result, as long as the Fund continues to invest in the Master Fund as part of a master-feeder arrangement, Investors will incur a single fee for management services provided by BAAM to the Fund and Master Fund. On a quarterly basis, the Master Fund will pay BAAM a management fee (the “Management Fee”) in arrears that will accrue monthly at an annual rate of 1.25% of the Master Fund’s net asset value at the end of such month before giving effect to any purchases or repurchases of Master Fund shares or any distributions by the Master Fund.

Investor Eligibility:

Shares will be sold only to persons who are “accredited investors,” as defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). These persons are referred to as Eligible Investors in this Prospectus. See “Subscription for Shares—Eligible Investors.”

If they are accredited investors, tax-exempt entities, including investors subject to the Employee Retirement Income Security Act of

1974, as amended (“ERISA”), including employee benefit plans, individual retirement accounts (each an “IRA”), and 401(k) and Keogh Plans, may purchase Shares. Because the Fund will be registered as an investment company under the 1940 Act, the underlying assets of the Fund will not be considered to be “plan assets” of the ERISA plans investing in the Fund for purposes of ERISA’s fiduciary responsibility and prohibited transaction rules. Thus, BAAM will not be a fiduciary within the meaning of ERISA with respect to the assets of any ERISA plan that becomes an Investor, solely as a result of the ERISA plan’s investment in the Fund. See “ERISA Considerations.”

Clients of Eligible Financial Intermediaries may generally invest in Shares. “Clients of Eligible Financial Intermediaries” are investors who invest in the Fund through financial intermediaries that (i) charge such investors an ongoing fee for advisory, investment, consulting or similar services, or (ii) have entered into an agreement with the Distributor to offer Shares through a no-load network or platform (“Eligible Investment Programs”). Such investors may include pension and profit sharing plans, other employee benefit trusts, endowments, foundations and corporations. Eligible Investment Programs may also include direct retail investment platforms through mutual fund “supermarkets,” where the sponsor links its client’s account (including IRA accounts on such platforms) to a master account in the sponsor’s name. Your financial intermediary may not offer all classes of Shares offered by this Prospectus and may have its own eligibility requirements for different classes of Shares. The financial intermediary may impose separate investment minimums. In addition, investors may, under certain circumstances, be able to purchase Shares directly from the Fund.

Minimum Investment:

The minimum initial investment in the Fund by an investor is $25,000, and the minimum subsequent investment in the Fund by an investor is $5,000. BAAM may waive these requirements from time to time in its sole discretion. Financial intermediaries may impose additional minimum initial and subsequent investment amounts, which may be higher than those imposed by the Fund. Contact your financial intermediary for further information.

Subscription for Shares:

The Fund is offered in multiple classes of Shares. All Shares are being offered on a continuous basis with monthly opportunities for purchases at the net asset value per share, as described in this Prospectus. The Fund, in the discretion of the Fund’s Board, may sell Shares to new investors and may allow existing Investors to purchase additional Shares, generally as of the first Business Day (a “Business Day” is any day on which the New York Stock Exchange is open for business, and any other day so designated by the Board in its sole discretion) of each month.

The full subscription amount is payable in federal funds, which must be received by the Distributor not later than three Business Days before the date as of which Shares are to be issued (the “Effective Date”). Shares are issued at net asset value per share as of the Effective Date. Notice of each Share transaction is furnished to

Investors (or their financial representatives) as soon as practicable but not later than seven days after the Fund’s net asset value is distributed and shareholder transactions are settled, together with information relevant for personal and tax records. The net asset value applicable to a purchase of Shares generally will be available within 30 days after the Effective Date; at that time, the number of Shares based on that net asset value and each Investor’s subscription amount will be determined and credited to the Investor’s account. For more information regarding subsequent closings, see “Subscription for Shares—The Offering.”

Each prospective Investor must complete the subscription documents, in which the investor must certify, among other things, that he or she is an “Eligible Investor” and meets other requirements for investment. In order for a subscription to be accepted, the Transfer Agent generally must receive the executed subscription documents at least five Business Days before the date as of which Shares are to be issued.

However, in the Fund’s or BAAM’s discretion, subscription documents received after this deadline may be accepted. For more information, see “Subscription for Shares—The Offering.”

Distributor; Selling Agents:

The Distributor, an affiliate of BAAM, acts as the distributor of the Shares and serves in that capacity on a best efforts basis, subject to various conditions. The Shares are not subject to a sales load. The Fund may be offered through other brokers or dealers (referred to as “selling agents”) that have entered into selling agreements with the Distributor. Investors should consult with their financial intermediaries about any additional fees or charge they might impose.

In addition, BAAM and/or its affiliates may pay additional compensation, out of their own assets and not as an additional charge to the Fund or the Master Fund, to selling agents in connection with the sale and/or distribution of Shares or the servicing of Investor accounts.

Distributions; Automatic Dividend Reinvestment Plan:

The Fund pays dividends at least annually in amounts representing substantially all of the net investment income of the Fund, if any, earned each year. The Fund pays substantially all net realized capital gain to Investors at least annually.

Dividends and capital gain distributions paid by the Fund are reinvested in additional Shares as part of the Fund’s Automatic Dividend Reinvestment Plan (the “DRIP”) unless an Investor “opts out” (elects not to reinvest in the relevant class of Shares) or is otherwise ineligible. Investors may opt out by indicating that choice on the subscription documents. Investors may also change their election at any time by contacting the Administrator (as defined below). Investors who choose to tender Shares in connection with the Fund’s offer to repurchase Shares (as described below under “Repurchases”) will be automatically terminated from the DRIP with respect to those Shares that the Fund repurchases as of the applicable

Tender Valuation Date (as defined below in “Repurchases and Transfers of Shares—Repurchases of Shares”) and any distributions due but not yet paid as of that date with respect to repurchased Shares will be paid in cash on the scheduled payment date. Shares purchased by reinvestment will be issued at their net asset value on the ex-dividend date (generally, the last Business Day of a month). There is no sales charge or other charge for reinvestment. The Fund reserves the right to suspend or limit at any time the ability of Investors to reinvest distributions.

Fund Expenses:

The Fund bears its own expenses, including but not limited to fees and expenses paid to the Administrator and the custodian; fees and expenses for accounting, brokerage, custody, transfer, registration, insurance, interest, its Board of Trustees, legal services, audit services, tax preparation, investment banking, risk management, and indemnification; tax and other operational expenses, such as broker-dealer expenses; and extraordinary expenses. The Fund bears indirectly its pro rata share of the Master Fund’s expenses. The Fund also bears the expenses incurred in connection with the organization of the Fund and in the offering and sale of its Shares and, indirectly, the costs associated with the organization of the Master Fund and other expenses of the Master Fund, including the Management Fee. As described below under “Management of the Fund—Management Agreement,” BAAM has contractually agreed to waive its fees and/or reimburse expenses of the Fund to limit the amount of the Fund’s “Specified Expenses” (as defined below and including the Fund’s pro rata share of the Master Fund’s Specified Expenses), subject to recapture by BAAM if the estimated annualized Specified Expenses of the Fund (including the Fund’s pro rata share of the Master Fund’s Specified Expenses) for a given month subsequently fall below 0.35% within the three year period after BAAM bears the expense.

Master Fund Expenses:

The Master Fund bears its own fees and expenses, including the Management Fee. It also pays fees and expenses incidental to the purchase, holding and sale of interests in, and bears a pro rata share of the fees, including, but not limited to, any commitment fees, and expenses of, any Investment Fund and recurring investment expenses, including custodial costs, brokerage costs, and interest charges with respect to investments and any other expenses which the Board of Trustees determines to be directly related to the investment of the Master Fund’s assets, including investment-related due diligence expenses (including, but not limited to, travel expenses). These expenses are indirectly borne, on a pro rata basis, by the Fund, and therefore also by the Investors.

Repurchases:

The Fund is organized as a closed-end management investment company. Closed-end funds differ from open-end management investment companies (commonly known as mutual funds) in that investors in a closed-end fund do not have the right to redeem their shares on a daily basis. In addition, with very limited exceptions, the Fund’s Shares are not transferable and liquidity will be available only through limited tender offers described below. An investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the Shares and should be viewed as a long-term investment. See “Risks Associated with BAAM and the Operation of the Fund—Liquidity Risks.”

No Investor has the right to require the Fund to redeem Shares and you are not able to redeem your Shares on a daily basis because the Fund is a closed-end fund. However, the Fund may from time to time offer to repurchase a portion of its outstanding Shares pursuant to written tenders by Investors.

Repurchases will be made at such times and on such terms as may be determined by the Board of Trustees, in its sole discretion. In determining whether the Fund should offer to repurchase Shares from Investors, the Board of Trustees will consider the recommendations of BAAM. BAAM expects that it will recommend to the Board of Trustees that the Fund offer to repurchase a portion of the Shares from Investors four times each year, effective March 31, June 30, September 30 and December 31. The Board of Trustees will typically consider the following factors, among others, in making this determination: (i) whether any Investors have requested that the Fund repurchase their Shares; (ii) the liquidity of the Master Fund’s assets; (iii) the investment plans and working capital requirements of the Fund; (iv) the relative economies of scale with respect to the size of the Fund; (v) the history of the Fund in repurchasing Shares; (vi) the condition of the securities markets; and (vii) the anticipated tax consequences of any proposed repurchases of Shares.

The Fund generally will not offer to repurchase Shares unless the Master Fund conducts a repurchase offer for the Master Fund’s shares at or around the same time. It is anticipated that each repurchase offer of the Fund will extend only to a specified portion of the Fund’s net assets (generally, 5–25% of the Fund’s net assets), based upon, among other things, the liquidity of the Master Fund’s assets. Any Investor that sells Shares to the Fund in a repurchase offer that has a Tender Valuation Date within the 12-month period following the original issue date of those Shares will be subject to a repurchase fee at a rate of 2% of the aggregate net asset value of the Investor’s Shares repurchased by the Fund (an “early withdrawal fee”). For illustrative purposes, an Investor that acquires Shares on the first Business Day of April would not incur an early withdrawal fee for participating in a repurchase offer that has a Tender Valuation Date of March 31 of the following year, but would incur an early withdrawal fee for participating in a repurchase offer with an earlier Tender Valuation Date. Payment of the early withdrawal fee is made by netting the fee against the repurchase proceeds. The early withdrawal fee is retained by the Fund for the benefit of remaining Investors. The Fund may, in its sole discretion, waive the early withdrawal fee in certain cases (e.g. in case of a repurchase request by an Investor following a transfer by operation of law). Any such waiver does not imply that the early withdrawal fee will be waived at any time in the future. If an Investor has made multiple subscriptions and tenders a portion of its Shares, the early withdrawal fee is calculated on a first-in/first-out basis. Shares acquired through the Fund’s DRIP are not considered to be part of a separate subscription and do not trigger a new issue date for those Shares. If the aggregate Shares tendered by Investors in response to the Fund’s repurchase offer exceed the amount of the Fund’s repurchase offer, tendering Investors will generally participate on a pro rata basis. See “Repurchases and Transfers of Shares” below for additional information about Share repurchases.

The Fund may effect a compulsory repurchase of all or a portion of an Investor’s Shares to the extent consistent with applicable law and if the Board deems it advisable to do so, taking into account the interests of the Fund and its Investors. In such cases, the Fund may, in its sole discretion, waive the early withdrawal fee, if applicable. See “Repurchases and Transfers of Shares—Forced Redemption.”

The Fund’s repurchase offers are subject to additional terms, conditions, and restrictions. For more information concerning repurchases, see “Risks Associated with BAAM and the Operation of the Fund—Liquidity Risks” and “Repurchases and Transfers of Shares.”

Although the Fund intends to engage in periodic repurchases as described herein, no assurances can be given that such repurchases will occur or that any shares you tender will be repurchased. In the event that the Fund does not at least once during any 24-month period beginning after January 1, 2014 offer to repurchase any of the Shares tendered in accordance with the procedures determined by the Board from time to time, the Board will call a meeting of Investors for the purpose of determining whether the Fund should be dissolved.

Transferability of Shares:

There is no market for Shares and none is expected to develop. Shares are not assignable or transferable without the prior written consent of the Fund, which may be granted or withheld in its sole discretion. Transfers of Shares effected without compliance with the Declaration of Trust will not be recognized by the Fund.

Valuations:

The Administrator calculates the net asset value of the Fund as of the close of each fiscal period, which generally is expected to be the close of business on the last Business Day of each month, in accordance with procedures established by the Board of Trustees. The Board may, however, in its sole discretion, elect to use any other period as a fiscal period, and may elect to determine the Fund’s net asset value at any other time. In most cases, the Fund values its assets in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) based on valuations reported by the Master Fund, which in turn, in most cases, values its assets in accordance with valuations reported by the Portfolio Managers, although the Fund and the Master Fund have discretion to use other valuation methods. The Administrator and BAAM may not have the ability to assess the accuracy of valuations reported by Portfolio Managers. Also, valuations are reported to the Master Fund based on interim unaudited financial records of Investment Funds, and are estimates subject to adjustment. See the section entitled “Determination of Net Asset Value” for more information.

Summary of Tax Matters:

The Fund intends to qualify and be eligible to be treated as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code (the “Code”), which generally will relieve the Fund of any liability for federal income tax to the extent its earnings are distributed to Investors. In order to so qualify and be eligible, the Fund must, among other things, satisfy the diversification, 90% gross income and distribution requirements (described below). The Fund generally expects to satisfy the requirements to qualify and be eligible to be treated as a RIC, provided that the Master Fund also meets these

requirements; the Fund currently expects that the Master Fund will meet these requirements. Nonetheless, there can be no assurance that either the Fund or the Master Fund will so qualify and be eligible.

Because the Fund invests substantially all of its assets in the Master Fund, if the Master Fund were to fail to satisfy the diversification, 90% gross income, or distribution requirement and were not to cure that failure (as described below), the Fund itself would be unable to satisfy the diversification requirement. The application of these RIC requirements to certain of the Master Fund’s investments is uncertain. In particular, among other requirements, in order to qualify as a RIC the Master Fund must derive at least 90% of its gross income each taxable year from sources treated as “qualifying income” under the Code. The Master Fund takes the position that income from its investment in the Subsidiary will constitute “qualifying income,” and may take certain measures to ensure that such income so qualifies. Under current law and in the absence of an Internal Revenue Service (“IRS”) ruling or other guidance, this result is uncertain. It is possible that the IRS will take the position that all or a portion of such income does not constitute qualifying income, including retroactively; if the IRS were successful in this position, the Master Fund might well not meet the 90% gross income requirement. As a result, there can be no assurance that the Fund or the Master Fund will be able to qualify or maintain its qualification for treatment as a RIC. Failure to so qualify or to maintain such qualification could subject the Fund or the Master Fund to regular corporate income taxes.

The Master Fund invests in Investment Funds that are classified as PFICs (described below), controlled foreign corporations (described below), or partnerships for U.S. federal income tax purposes. Investments of this type will likely require the Master Fund to recognize income or gain in excess of any cash it receives. Thus, to the extent the Master Fund makes such investments, it may be required to sell assets, potentially including such investments, possibly when it is not advantageous to do so (to the Master Fund, and therefore to the Fund), in order to generate the cash necessary to make the distributions required to maintain its status as a RIC and to avoid the imposition of a federal income tax and/or a nondeductible 4% excise tax. There can be no assurances that the Master Fund will be successful in this regard.

Under the DRIP, Investors may elect to have their dividends on a class of Shares reinvested in Shares of that class. Investors subject to U.S. federal income tax generally will be required to recognize the full amount of the dividend (including the portion payable in Shares) as ordinary dividend income (and, to the extent applicable, as a capital gain dividend, as defined below) to the extent of the Fund’s current and accumulated earnings and profits for U.S. federal income tax purposes.

Reports:

The Fund distributes a semi-annual report containing unaudited financial statements and an annual report containing audited financial statements within 60 days of the end of each semi-annual or annual period. Any Investor may request from the Administrator an estimate, based on unaudited data, of the net asset value of the Fund as of the end of any calendar month.

Borrowings:

Subject to limitations imposed by the 1940 Act, the Fund and Master Fund (as applicable) may borrow money from time to time. The Fund and Master Fund (as applicable) currently intend to limit borrowings to those made (i) on a short-term basis and (ii) for the purpose of (a) repurchasing Shares of the Fund/Master Fund in the event that the Fund/Master Fund has no available cash or immediately available liquid investments, (b) paying fees and expenses, (c) making any investments in Investment Funds prior to the availability of cash or immediately available liquid investments (i.e., bridge financing for portfolio management purposes and not to leverage investments) and/or (d) meeting distribution requirements for eligibility to be treated as a RIC that would otherwise result in the liquidation of investments. Although BAAM does not generally intend to operate the Master Fund on a leveraged basis, under some circumstances the Master Fund could be leveraged for an extended period of time. See “Risks Associated with BAAM and the Operation of the Fund—Borrowing by the Fund; Investments are Leveraged.”

Exculpation, Indemnification, etc.:

Under each of the Fund’s and the Master Fund’s Declaration of Trust, each of the Fund and the Master Fund has agreed to indemnify each member of its Board of Trustees and its officers (including such persons who serve at the Fund’s or the Master Fund’s request as directors, officers, or trustees of another organization in which the Fund or the Master Fund, as applicable, has any interest as a shareholder, creditor or otherwise) (each such person hereinafter referred to as a “Fund Covered Person”) against all liabilities and expenses, except with respect to any matter as to which such Fund Covered Person shall have been finally adjudicated in a decision on the merits in any such action, suit, or other proceeding not to have acted in good faith in the reasonable belief that such Fund Covered Person’s action was in the best interests of the Fund or was at least not opposed to the best interests of the Fund and except that no Fund Covered Person shall be indemnified against any liability to the Fund or its Investors to which such Fund Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Fund Covered Person’s office. Upon certain conditions, the Fund shall advance expenses incurred by any Fund Covered Person in advance of the final disposition of any such action, suit or proceeding. See “Description of Shares.”

Term:

The Fund will continue indefinitely until the Board determines that it is in the best interests of the Fund to cease operations permanently or the Fund is terminated pursuant to the terms of the Declaration of Trust.

Administrator:

Each of the Fund and the Master Fund has entered into an administration agreement with State Street Bank and Trust Company (the “Administrator”). The Administrator is responsible for certain matters pertaining to the administration of the Fund and the Master Fund, including: (a) maintaining corporate and financial books and records of the Fund and the Master Fund, (b) providing administration services, and (c) performing other accounting and clerical services necessary in connection with the administration of the Fund and the Master Fund.

Distributor:

Blackstone Advisory Partners L.P.

Transfer Agent:

State Street Bank and Trust Company.

Independent Registered Public Accounting Firm:

Deloitte & Touche LLP.

Custodian:

Citibank, N.A. (the “Custodian”) acts as custodian to the Fund and the Master Fund pursuant to an agreement between the Custodian and each of the Fund and the Master Fund. In furtherance of its duties to the Fund, the Custodian may appoint sub-custodians from time to time. Other entities may be appointed in the future to provide custodial services to the Fund.

Fiscal Year:

For accounting purposes, the Fund’s fiscal year is the 12-month period ending on March 31.

Summary of Fees and Expenses

This table describes the combined fees and expenses of the Fund and the Master Fund that you will incur (directly or indirectly) if you buy and hold Advisor Class I, Advisor Class II, or Advisor Class III Shares. The direct and indirect expenses associated with investing in a “fund of funds,” such as the investment program provided by the Fund and the Master Fund, are generally higher than those of other types of funds that do not invest primarily in other investment funds. This is because of the expectation that Investors in the Fund will bear two layers of asset-based management fees (at the Master Fund level and the Investment Fund level), a single layer of incentive fees (at the Investment Fund level), and other expenses at the Fund level, the Master Fund level and the Investment Fund level. The Fund does not directly pay a management fee with respect to any period during which the only investment security held by the Fund is that of the Master Fund. As a result, as long as the Fund continues to invest in the Master Fund as part of a master-feeder arrangement, Investors will incur a single fee for management services provided by BAAM to the Fund and the Master Fund. Neither the Master Fund nor the Fund directly pays any incentive fees. The fees and expenses charged at the underlying fund level are estimated in the table below under the caption “Acquired Fund Fees and Expenses.” Investors in the Fund will bear indirectly fees and expenses of the Master Fund and fees and expenses of the Investment Funds, both of which are reflected in the following table and the examples below. The Investment Fund fees are described below in the section “Risks Associated with BAAM and the Operation of the Fund—Duplicative Payments and Expenses.”


	Advisor Class I Shares		Advisor Class II Shares		Advisor Class III Shares
Shareholder Transaction Expenses

Maximum Sales Load (as a percentage of the offering price)⁽¹⁾		None		None		None

Maximum Repurchase Fee⁽²⁾		2.00%		2.00%		2.00%

Annual Expenses (as a percentage of net assets of the Fund attributable each class of Shares)

Management Fee⁽³⁾		1.25%		1.25%		1.25%

Distribution and Service Fee ⁽⁴⁾ or Service Fee⁽⁵⁾		0.40%		0.25%		None

Other Expenses⁽⁶⁾		1.52%		1.52%		1.52%

Acquired Fund Fees and Expenses⁽⁷⁾		5.17%		5.17%		5.17%

Total Annual Expenses		8.34%		8.19%		7.94%

Fee Waiver and/or Expense Reimbursement⁽⁸⁾		(1.13)%		(1.13)%		(1.13)%

Total Annual Expenses After Fee Waiver/Expense Reimbursement		7.21%		7.06%		6.81%

⁽¹⁾	The Distributor acts as the distributor of the Shares on a best efforts basis, subject to various conditions. The Fund may be offered through other brokers or dealers (selling agents) that have entered into selling agreements with the Distributor.

⁽²⁾

Any Investor that sells Shares to the Fund in a repurchase offer that has a Tender Valuation Date within the 12 month period following the original issue date of the Shares is subject to a repurchase fee at a rate of 2% of the aggregate net asset value of the Investor’s Shares repurchased by the Fund (an “early withdrawal fee”). Payment of the early withdrawal fee is made by netting the fee against the repurchase proceeds. The early withdrawal fee is retained by the Fund for the benefit of remaining Investors. If an Investor has made multiple subscriptions and tenders a portion of its Shares, the early withdrawal fee is calculated on a first-in/first-out basis. See “Repurchases and Transfers of Shares” below for additional information about Share repurchases.

⁽³⁾	The management fee is payable by the Master Fund, but is borne indirectly by Investors as a result of the Fund’s investment in the Master Fund. The Fund’s contractual investment management fee rate under its investment management agreement (the “Investment Management Agreement”) with BAAM is 1.25%;

however, pursuant to its Investment Management Agreement, no investment management fee is payable by the Fund with respect to any period during which the only investment security held by the Fund is that of another registered investment company. As a result, as long as the Fund continues to invest in the Master Fund as part of a master-feeder arrangement, Investors will incur a single fee for investment management services provided by BAAM to the Fund and the Master Fund.

⁽⁴⁾

Advisor Class I Shares pay the Distributor an ongoing fee (the “Distribution and Service Fee”) at an annualized rate of 0.40% of the average net assets of the Fund that are attributable to Advisor Class I Shares. The Distribution and Service Fee consists of compensation at a rate of 0.15% for the sale and marketing of the Advisor Class I Shares and 0.25% for services provided to Investors (such as responding to inquiries from Investors and providing Investors with information about their investments in the Fund). The Distributor may pay all or a portion of the Distribution and Service Fee to the selling agents that sell Advisor Class I Shares of the Fund. The Fund operates pursuant to an exemptive request that it has been granted by the Financial Industry Regulatory Authority (“FINRA”). Pursuant to this exemption, the ongoing Distribution and Service Fee payments made by the Fund are governed by FINRA Rule 2830. This is the rule that governs the receipt of compensation by certain financial intermediaries that sell shares of open-end investment companies. See “Subscription for Shares—Distribution Arrangements” below.

⁽⁵⁾

Advisor Class II Shares pay the Distributor an ongoing fee (the “Service Fee”) at an annualized rate of 0.25% of the average net assets of the Fund for services provided to Investors (such as responding to inquiries from Investors and providing Investors with information about their investments in the Fund). The Distributor may pay all or a portion of the Service Fee to the selling agents that provide personal services to Investors. Pursuant to the exemptive request granted by FINRA, the ongoing Service Fee payments made by the Fund are also governed by FINRA Rule 2830. This is the rule that governs the receipt of compensation by certain financial intermediaries that sell shares of open-end investment companies. See “Subscription for Shares—Distribution Arrangements” below.

⁽⁶⁾

Based upon expenses incurred during the fiscal year ended March 31, 2015. “Other Expenses” include professional fees and other expenses, including, without limitation, administration fees, investor servicing fees, custody fees, trustee fees, insurance costs, financing costs (resulting from credit facilities used as bridge financing for portfolio management purposes, not to leverage investments), fees and expenses relating to the Subsidiary, and other expenses that the Fund bears directly and indirectly through the Master Fund.

⁽⁷⁾

Represents fees and expenses of the Investment Funds in which the Master Fund invested during the year ended March 31, 2015. “Acquired Fund Fees and Expenses” are based on the assets invested in each Investment Fund and the fees and expenses including incentive fees or allocations charged by each Investment Fund. The Investment Funds in which the Master Fund invests generally charge between 10% and 30% of net profits as an incentive fee or allocation. Amounts incurred by the Master Fund may be substantially higher or lower in the future because the performance of the Investment Funds may fluctuate and the Master Fund may invest in different Investment Funds from time to time.

⁽⁸⁾

Through March 31, 2017, BAAM has agreed to waive its fees and/or reimburse expenses of the Fund so that the Fund’s “Specified Expenses” including the Fund’s pro rata share of the Master Fund’s Specified Expenses will not exceed 0.35% (annualized). The Fund has agreed to repay these amounts, when and if requested by BAAM, but only if and to the extent that the estimated annualized Specified Expenses of the Fund (including the Fund’s pro rata share of the Master Fund’s Specified Expenses) for a given month are less than 0.35% within the three year period after BAAM bears the expense. This arrangement cannot be terminated prior to March 31, 2017 without the Board’s consent. “Specified Expenses” is defined to include all expenses incurred by the Fund and the Fund’s pro rata share of all expenses incurred by the Master Fund with the exception of (i) the Management Fee; (ii) the Distribution and/or Service Fee (as applicable), (iii) fees and expenses of the Investment Funds in which the Master Fund invests, (iv) brokerage costs, (v) interest payments (including any interest expenses, commitment fees, or other expenses related to any line of credit of the Fund or Master Fund), (vi) taxes, and (vii) extraordinary expenses (as determined in the sole discretion of BAAM). See “Management of the Fund—Expense Limitation Undertaking” below.

Example:

You would pay the following expenses on a $1,000 investment, assuming a 5% annual return:


	1 year		3 years		5 years		10 years
Advisor Class I Shares	$	91	$	219	$	369	$	700
Advisor Class II Shares	$	89	$	216	$	363	$	692
Advisor Class III Shares	$	87	$	209	$	353	$	679

The purpose of this table is to assist an investor in understanding the various costs and expenses that an investor in the Fund will bear directly or indirectly. The table assumes the reinvestment of all dividends and distributions at net asset value. For a more complete description of the various fees and expenses of the Fund, see “Management of the Fund.”

The “Example” is based on the expenses set forth in the table above and should not be considered a representation of the Fund’s future expenses. The expense reimbursement noted above is only taken into account through March 31, 2017 in the Example. Actual expenses of the Fund may be higher or lower than those shown. Moreover, the annual return may be greater or less than the hypothetical 5% return in the table above; if the annual return were greater, the amount of fees and expenses would increase. Similarly, if the Investment Funds’ actual net rates of return exceed 5%, the dollar amounts could be significantly greater as a result of the Investment Funds’ performance-based fees.

Financial Highlights

The information contained in the table below sets forth selected information derived from the financial statements contained in the Fund’s annual report for the year ended March 31, 2015 (the “Annual Report”), which have been audited by Deloitte & Touche LLP (“Deloitte”). As of March 31, 2015, only Advisor Class II and Advisor Class III Shares were outstanding.

Deloitte’s report, along with the Fund’s financial statements is included in the Annual Report. The information provided below should be read in conjunction with the Annual Report and the semi-annual report and the notes accompanying each report. The Fund’s Annual Report and semi-annual report have been filed with the SEC and are available on the SEC’s website at http://www.sec.gov, and are also available upon request by calling 1-888-386-9490. The Fund’s financial statements for the year ended March 31, 2015 and the six-month period ended September 30, 2014 are incorporated by reference into the Fund’s SAI, dated July [ ], 2015, which is available upon request.

Blackstone Alternative Alpha Fund II

Financial Highlights


	Advisory Class II*
Per Share Operating Performance:
Net Asset Value, September 1, 2014	$	1,000.00
Income from Investment Operations:
Net investment income¹		(1.37	)
Net unrealized gain from investments		65.81

Net income from investment operations		64.44

Distribution to shareholders		(14.53	)

Net Asset Value, end of period	$	1,049.91


	Advisory Class II*
Financial Ratios:²
Distribution and service fees		0.25	%
Other expenses to average net assets for the class before reimbursement from Investment Manager		0.35	%
Reimbursement from Investment Manager³		(0.18	)%

Total expenses to average net assets for the class after reimbursement from Investment Manager⁴		0.42	%

Net investment loss to average net assets for the class		(0.42	)%

Portfolio Turnover⁵		8.68	%

Total Return⁶		6.50	%

Net assets, March 31, 2015 (000s)	$	1,510

₁	Calculated using average Shares outstanding during the period.

₂	Financial ratios have been annualized except for non-recurring costs.

₃	The reimbursement includes expenses incurred by the class and the Master Fund.

₄

In accordance with the Expense Limitation and Reimbursement Agreement, Specified Expenses of the Master Fund are included in the limitation of the Expense Cap. The expenses of the Master Fund represent 1.47%, on an annualized basis, of average net assets for the class for the period ended March 31, 2015. The net expense ratio for the class, including the applicable Master Fund expenses, is 1.89% on an annualized basis, for the period ended March 31, 2015.

₅	The Fund is invested solely in the Master Fund; therefore this ratio reflects the portfolio turnover of the Master Fund.

₆	Total return has not been annualized.

*	Advisor Class II commenced on September 1, 2014.

The financial ratios represent the expenses and net investment loss to average monthly net assets for the period. The computation of such ratios does not reflect the class’s share of the income and expenses of the underlying Investment Funds held by the Master Fund. The individual shareholder’s total return may vary from this total return based on the timing of capital transactions.


	Advisory Class III
	Year Ended March 31, 2015			Year Ended March 31, 2014
Per Share Operating Performance:
Net Asset Value, beginning of year	$	1,072.05		$	1,000.00
Income from Investment Operations:
Net investment loss¹		(1.19	)		(0.66	)
Net change in unrealized gain from investments		110.63			76.54

Net income from investment operations		109.44			75.88

Distribution to shareholders		(14.53	)		(3.83	)

Net Asset Value, end of year	$	1,166.96		$	1,072.05

Financial Ratios²:
Expenses to average net assets for the class before reimbursement from Investment Manager		2.21	%		29.42	%
Reimbursement from Investment Manager³		(2.10	)%		(29.32	)%

Total expenses to average net assets for the class after reimbursement from Investment Manager⁴		0.11	%		0.10	%

Net investment loss to average net assets for the Fund		(0.11	)%		(0.09	)%

Portfolio turnover⁵		8.68	%		10.30	%

Total return		10.26	%		7.59	%⁶

Net assets, end of year (000s)	$	29,189		$	8,682

¹	Calculated using average shares outstanding during the year.

²	Financial ratios have been annualized.

³	The reimbursement includes expenses incurred by the class and the Master Fund.

⁴

In accordance with the Expense Limitation and Reimbursement Agreement, Specified Expenses of the Master Fund are included in the limitation of the Expense Cap. The expenses of the Master Fund represent 1.53% and 1.48%, on an annualized basis, of average net assets for the class for the year ended March 31, 2015 and the period ended March 31, 2014, respectively. The net expense ratio for the class, including the applicable Master Fund expenses, is 1.64% and 1.58%, on an annualized basis, for the year ended March 31, 2015 and the period ended March 31, 2014, respectively.

⁵	The Fund is invested solely in the Master Fund; therefore this ratio reflects the portfolio turnover of the Master Fund.

⁶	Total return has not been annualized.

The financial ratios represent the expenses and net investment loss to average monthly net assets for the year. The computation of such ratios does not reflect the class’s share of the income and expenses of the underlying Investment Funds held by the Master Fund. The individual shareholder’s total return may vary from this total return based on the timing of capital transactions.

Blackstone Alternative Alpha Master Fund and Subsidiary

Consolidated Financial Highlights


	For the Year Ended March 31, 2015			For the Year Ended March 31, 2014			For the Year Ended March 31, 2013
Per Share Operating Performance:
Net asset value, Beginning of Year	$	1,160.74		$	1,077.79		$	1,000.00
Income from investment operations:
Net investment loss¹		(18.30	)		(17.68	)		(23.23	)
Net realized and unrealized gain from investments		136.51			114.37			102.99

Net income from investment operations		118.21			96.69			79.76

Distributions to shareholders		(44.64	)		(13.74	)		(1.97	)
Net asset value, End of Year	$	1,234.31		$	1,160.74		$	1,077.79

Financial Ratios:
Expenses to average net assets		1.53	%		1.57	%		2.28	%

Net investment loss to average net assets		(1.53	)%		(1.56	)%		(2.27	)%

Portfolio turnover		8.68	%		10.30	%		9.01	%

Total return		10.33	%		8.98	%		7.99	%

Net assets, End of Year (000s)	$	815,598		$	533,309		$	196,348

¹	Calculated using average shares outstanding during the year.

The financial ratios represent the expenses and net investment loss to average monthly net assets for the year. The ratios do not reflect the Consolidated Master Fund’s share of the income and expenses of the underlying Investment Funds.

Blackstone Registered Funds Privacy Policy

Rev February, 2015


FACTS		WHAT DO BLACKSTONE REGISTERED FUNDS DO WITH YOUR PERSONAL INFORMATION?

Why?		Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

What?		The types of personal information we collect and share depend on the product or service you have with us. This information can include: n Social Security number and income n Assets and investment experience n Risk tolerance and transaction history

How?		All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Blackstone Registered Funds (as defined below) choose to share; and whether you can limit this sharing.


Reasons we can share your personal information		Do Blackstone Registered Funds share?	Can you limit this sharing?
For our everyday business purposes— such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus		Yes	No
For our marketing purposes— to offer our products and services to you		Yes	No
For joint marketing with other financial companies		No	We don’t share
For our affiliates’ everyday business purposes— information about your transactions and experiences		No	We don’t share
For our affiliates’ everyday business purposes— information about your creditworthiness		No	We don’t share
For our affiliates to market to you		No	We don’t share
For nonaffiliates to market to you		No	We don’t share


Questions?	Email us at GLB.privacy@blackstone.com


Who we are
Who is providing this notice?		Blackstone Registered Funds include Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II, Blackstone Real Estate Income Fund, Blackstone Real Estate Income Fund II, and Blackstone Alternative Investment Funds, on behalf of its series Blackstone Alternative Multi-Manager Fund and Blackstone Alternative Multi-Strategy Fund
What we do
How do Blackstone Registered Funds protect my personal information?		To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
How do Blackstone Registered Funds collect my personal information?		We collect your personal information, for example, when you: n open an account or give us your income information n provide employment information or give us your contact information n tell us about your investment or retirement portfolio We also collect your personal information from others, such as credit bureaus, affiliates, or other companies.
Why can’t I limit all sharing?		Federal law gives you the right to limit only: n sharing for affiliates’ everyday business purposes—information about your creditworthiness n affiliates from using your information to market to you n sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. See below for more on your rights under state law.
What happens when I limit sharing for an account I hold jointly with someone else?		Your choices will apply to everyone on your account—unless you tell us otherwise.
Definitions
Affiliates		Companies related by common ownership or control. They can be financial and nonfinancial companies. n Our affiliates include companies with a Blackstone name and financial companies such as GSO Capital Partners LP and Strategic Partners Fund Solutions.
Nonaffiliates		Companies not related by common ownership or control. They can be financial and nonfinancial companies. n Blackstone Registered Funds do not share with nonaffiliates so they can market to you.
Joint marketing		A formal agreement between nonaffiliated financial companies that together market financial products or services to you. n Our joint marketing partners include financial services companies.
Other important information

California Residents—In accordance with California law, we will not share information we collect about California residents with nonaffiliates except as permitted by law, such as with the consent of the customer or to service the customer’s accounts. We will also limit the sharing of information about you with our affiliates to the extent required by applicable California law.



Vermont Residents—In accordance with Vermont law, we will not share information we collect about Vermont residents with nonaffiliates except as permitted by law, such as with the consent of the customer or to service the customer’s accounts. We will not share creditworthiness information about Vermont residents among Blackstone Registered Funds’ affiliates except with the authorization or consent of the Vermont resident.

Use of Proceeds

The proceeds will be invested in accordance with the Fund’s investment objective and strategies as soon as practicable. The Fund invests substantially all of its assets in the Master Fund.

Although the Fund invests substantially all of its assets in the Master Fund, it may withdraw from the Master Fund and may invest directly in Investment Funds under certain circumstances, including but not limited to circumstances in which investors other than the Fund acquire control of the Master Fund, in which case the Fund would be subject directly to the risks described in this Prospectus. The Master Fund expects to have investors in addition to the Fund (including another registered investment company managed by BAAM). See “Investment Objective and Strategies” and “Risks.”

Pending the investment of the proceeds of any offering in Investment Funds pursuant to the Fund’s and the Master Fund’s investment objective and principal strategies, the Master Fund may invest a portion of the proceeds of the offering, which may be a substantial portion, in short-term, high quality debt securities, money market securities, cash or cash equivalents. In addition, the Fund and the Master Fund may maintain a portion of the proceeds in cash to meet operational needs. The Master Fund may also use derivatives, principally put options and futures contracts, and make direct investments to obtain market exposure during these and other periods. No assurance can be given that the Master Fund will do so or, if it does, that it will do so successfully. Each of the Fund and the Master Fund may be prevented from achieving its objective during any time in which the Master Fund’s assets are not substantially invested in accordance with its principal investment strategies.

Investment Objective and Strategies

Investment Objective

The Fund’s investment objective is to seek to earn long-term risk-adjusted returns that are attractive as compared to those of traditional public equity and fixed income markets. The Fund’s investment objective is not fundamental and can be changed by the Board of Trustees without shareholder approval.

Investment Strategy

The Fund pursues its investment objective by investing substantially all of its assets in the Master Fund, which has the same investment objective as the Fund. The Master Fund generally allocates its investments among a number of Portfolio Managers, Investment Funds, markets, trading styles, and asset categories to seek to produce attractive returns. In addition, the Master Fund may, under limited circumstances, invest or trade directly in securities and financial instruments for hedging purposes. There are no limitations on the amount of the Master Fund’s assets that BAAM may invest in any market, trading style, or asset category. However, the 1940 Act and the Code may impose limits and restrict BAAM’s ability to invest the Master Fund’s assets in any one Portfolio Manager or in any one Investment Fund.

The Master Fund expects under normal circumstances to have exposure predominantly to Investment Funds with equity-based strategies (and, in particular, equity long/short strategies). The Master Fund’s principal investment strategy is to allocate its capital among a select group of independent managers whose investment strategies involve the application of non-traditional methods of investing. BAAM has managed “multi-manager” funds since 1990 and has developed a robust process for evaluating, selecting, and monitoring outside managers. BAAM devotes significant resources to its due diligence and evaluation efforts with the goal of identifying Portfolio Managers with investment styles and strategies that BAAM believes may assist the Master Fund and the Fund achieve their investment objectives. BAAM generally considers the following factors as part of its Portfolio Manager screening process for the Master Fund, although the factors considered from time to time or with respect to any one or more Portfolio Managers may vary and may include only some or none of the factors listed below or other factors that are not listed below.

Attractive Long-Term Risk-Adjusted Investment Performance: BAAM seeks to choose non-traditional Portfolio Managers that it believes will produce attractive long-term risk-adjusted performance returns over a full market cycle.

Skilled Application of Non-Traditional Investment Techniques: BAAM believes that attractive risk adjusted investment returns can sometimes be found outside traditional investment strategies that rely on relative performance against public market equity and fixed income benchmarks. The Master Fund generally invests its funds with Portfolio Managers who use “non-traditional” investment approaches, which often seek to take advantage of market inefficiencies and other factors in order to outperform the underlying markets of their investments.

Opportunistic Approach to Investing: Among the Portfolio Managers sought out by the Master Fund are “opportunistic” managers who are willing to make substantial investments based on the direction the Portfolio Manager anticipates a particular market, markets or individual securities will take. In many cases, these managers make “directional investments” and frequently use substantial leverage to attempt to produce attractive returns. While the Master Fund expects periods when Portfolio Managers using non-traditional techniques will produce returns that greatly exceed the returns from more traditional investment strategies, the Master Fund also expects periods when such managers may produce significant losses and returns that fall short, in some cases significantly short, of those produced by more traditional approaches.

Clearly Defined Investment Philosophy: BAAM’s experience is that understanding a Portfolio Manager’s investment philosophy not only allows a better understanding of that Portfolio Manager’s expected rate of return, but it will also advance the Master Fund’s overall portfolio construction. Generally, the more clearly defined the investment philosophy, the more comfortable BAAM is with its decision to invest the Master Fund’s assets with a given Portfolio Manager.

Management Stability and Committed Investment Professionals: BAAM believes the ability to generate attractive risk-adjusted returns over a full market cycle, especially when the application of sophisticated non-traditional techniques is involved, is dependent upon the performance of committed investment professionals. No matter how appealing the investment concept, attractive risk-adjusted returns can only be generated by committed people operating in a stable environment.

Ongoing Monitoring: Once selected, the performance of each Portfolio Manager is regularly reviewed, and new Portfolio Managers are identified and considered on an on-going basis. In addition, the allocation of the Master Fund’s assets among Portfolio Managers, approaches and styles will be regularly monitored and, when required by performance results or changing economic conditions, adjusted.

The Master Fund invests in Investment Funds that pursue distinct investment strategies. Although the scope of Investment Funds’ strategies is wide and new strategies in which the Master Fund may invest may emerge in the future, the target strategies of the Master Fund presently include, but are not limited to, the following strategies. As noted above, the Master Fund expects under normal circumstances to have exposure predominantly to Investment Funds with equity-based strategies (and in particular, equity long/short strategies).

Equity Long/Short Strategies: “Equity long/short,” also known as “equity hedge,” strategies combine core long and short positions in stocks, stock indices, or derivatives related to the equity markets. Equity long/short Portfolio Managers attempt to generate long term capital appreciation by developing and actively managing equity portfolios that include both long and short positions. Equity long/short strategies may have particular areas of focus, such as, among others, the following:

Diversified Sector: Diversified sector equity long/short Portfolio Managers invest in a number of industry sectors.

Sector Specific: Sector specific equity long/short Portfolio Managers invest in specific industry sectors, such as, among others, technology, healthcare and financial industries.

Activist: Activist equity long/short Portfolio Managers invest in securities of companies which are the subject of company-specific or transaction-specific situations, such as spin-offs, mergers and acquisitions, liquidations, reorganizations, bankruptcies, recapitalizations, and share buybacks.

Additional Strategies: The Master Fund also invests in Investment Funds that may invest in some or all of the equity long/short strategies described above and/or additional strategies such as, among others, one or more trading-oriented, event-driven and relative value strategies:

Trading-Oriented: Trading-oriented Portfolio Managers may use a variety of strategies, such as, among others, the following:

•

Macro: A global macro trading strategy involves investing in equity, fixed-income, foreign exchange or commodity markets around the world. Macro Portfolio Managers focus on underlying macroeconomic fundamentals in developing their investment theses. Monetary policy shifts, fiscal policy shifts, gross domestic product growth or inflation all may be considered in developing a market view. Portfolio Managers establish opportunistic long or short market positions to seek to benefit from anticipated market moves. Macro players tend to make significant use of derivatives and leverage.

•

Discretionary: A discretionary trading strategy is similar to a global macro strategy in that it involves constructing long and short market positions around fundamental macro-economic or technical views. The primary distinction is that this strategy tends to be more focused on one or two subsets of global capital markets. For example, a discretionary Portfolio Manager may focus on foreign exchange and bond trading in the Group of Ten (G10) markets. Other Portfolio Managers in this category may focus on less efficient markets, such as base metals, where they believe that it is possible to maintain an information edge over the market. Discretionary Portfolio Managers tend to make significant use of derivatives and leverage.

•

Systematic: This trading strategy generally involves the trading of listed financial or commodity futures and interbank currencies in markets around the world. Systematic Portfolio Managers tend

to utilize sophisticated technical models to analyze price and market data to identify trends across a broad range of markets. Derivative instruments may be used by systematic Portfolio Managers to leverage their portfolios.

•

Emerging Markets: This trading strategy involves investment in the equity, fixed-income or currency markets of less developed countries. The liquidity and market capitalization of emerging markets is very limited. As a result, financial instruments in these markets tend to be correlated to each other. Short-term capital flows can be volatile and can cause emerging markets to move up together and, when flows reverse, to fall in unison. Governments in some emerging markets have manipulated markets to squeeze out short sellers, and have periodically imposed structural impediments to short selling. This can often make short selling difficult for Portfolio Managers who want to control downside risk in adverse market environments. As a consequence, most emerging market Portfolio Managers tend to have a long bias to equities. Investment Funds in the emerging markets trading category tend to make significant use of derivatives and leverage.

Event Driven: “Event driven” trading strategies seek to earn excess return through the purchase and sale of securities based on anticipated outcomes of company-specific or transaction-specific situations, such as spin-offs, mergers and acquisitions, liquidations, reorganizations, bankruptcies, recapitalizations, and share buybacks. Event driven strategies include, among others, the following:

•

Risk (Merger) Arbitrage: Merger arbitrage Portfolio Managers seek to profit by taking advantage of differences between the current market price of a security and its expected future value based on the anticipated outcome of a potential merger.

•

Distressed Securities: Distressed securities Portfolio Managers generally invest in securities of financially troubled companies (companies involved in bankruptcies, exchange offers, workouts, financial reorganizations, and other special credit event related transactions).

•

High Yield: High yield Portfolio Managers generally invest in bonds and preferred securities of companies involved in anticipated situations offering a higher rate of interest or dividends and which are rated in lower rating categories by various credit rating agencies.

•

Special Situations: Special situations Portfolio Managers seek to profit by capturing discrepancies in valuation between the current market price of a security and its expected future value based on the occurrence of a corporate restructuring, reorganization or a significant alteration in the company’s strategy or product mix.

Relative Value: Relative value includes a range of different investment strategies. These strategies focus on generating profits by exploiting the difference in price between related instruments (for example, a 5-year and a 10-year bond issued by the same company), rather than because of the direction of the market. Generally, relative value Portfolio Managers buy a position in one instrument and sell an equivalent amount of another instrument with the expectation, often based on mathematical analysis, that the prices of the two instruments are not only historically related but also that they have deviated from their historical trading patterns. Profits may be generated if this unusual price deviation diminishes, and the prices of the two related instruments return to their historical trading patterns. The Investment Funds may utilize, among others, the following relative value strategies:

•

Equity Market Neutral/Statistical Arbitrage: Equity market neutral strategies seek to generate profits through the successful selection of equity securities while reducing the effects of market-wide or, in some cases, industry or sector-wide price movements by simultaneously taking long and short positions in or with respect to “matched” equities in approximately equal volumes. Statistical arbitrage is a relative value, “systematic” (meaning largely automated) trading strategy that seeks to exploit short-term and long-term relationships among stock prices and volatility.

•

Long/Short Credit: Long/short credit strategies seek to generate profits through the successful selection of credit securities while reducing the effects of market-wide or, in some cases, industry or sector-wide price movements.

•

Convertible Arbitrage: Convertible arbitrage strategies generally involve the simultaneous purchase and short sale of issues of the same issuer. Often, the arbitrage involves the purchase of a convertible bond issued by the issuer and the short sale of that issuer’s common stock. Convertible bonds are vulnerable to market risk, and, as to the issuers of the bonds selected for investment, there is risk of bankruptcy or significant credit risk. Portfolio Managers may also seek to either hedge out or take on additional credit risk and interest rate risk.

•

Fixed Income Arbitrage: Portfolio Managers using fixed income arbitrage strategies analyze a variety of fixed income securities across several markets. These strategies seek to exploit pricing inefficiencies between related fixed income securities, while neutralizing exposure to interest rate risk. Losses may be incurred from spread positioning due to price differentials. Fixed income arbitrage Portfolio Managers tend to utilize significant amounts of leverage, take both long and short positions, and employ options, futures and other derivative strategies. Portfolio Managers using this strategy also may trade various mortgage securities. These securities and derivatives may further increase the leverage in the Investment Funds.

The descriptions above reflect BAAM’s current expectations regarding the strategies that are used by the Investment Funds in which the Master Fund invests. A Portfolio Manager has significant latitude when managing an Investment Fund it oversees and the Portfolio Manager could make changes to the strategy used by an Investment Fund, or the way the strategy is implemented, while the Master Fund is invested in the Investment Fund.

The Master Fund may invest a portion of its assets (but not more than 25%) in the Subsidiary. The Subsidiary is advised by BAAM and has the same investment objective as the Master Fund. BAAM expects to invest the Subsidiary’s assets in various Investment Funds.

The Master Fund may invest in securities and utilize financial instruments, including, but not limited to, forward contracts, currency options and interest rate swaps, caps, and floors for hedging purposes in order to: (i) protect against possible changes in the market value of portfolio positions resulting from fluctuations in the securities markets and changes in interest rates, (ii) protect the unrealized gains in the value of portfolio positions, (iii) facilitate the sale of any such investments, (iv) enhance or preserve returns, spreads or gains on any investment in a portfolio, (v) hedge the interest rate or currency exchange rate on any liabilities or assets, (vi) protect against any increase in the price of any securities which purchase is anticipated at a later date, or (vii) for any other reason that BAAM deems appropriate. The Master Fund may also use derivatives, principally put options and futures contracts, and make direct investments to obtain market exposure. The Master Fund can use both European-style and American-style options. The Master Fund may purchase and sell both exchange-trade and over-the-counter options.

Non-Fundamental Investment Policy

Under normal circumstances, at least 80% of the Master Fund’s net assets, plus the amount of any borrowings (if any) for investment purposes, will be invested, directly or indirectly through the Subsidiary, or held pending investment in, Investment Funds. The forgoing policy is not a fundamental policy and may be changed by the Board of Trustees of the Master Fund without the approval of any direct shareholders of the Master Fund or the approval of the Investors; however, the Master Fund and the Fund intend to provide Investors with at least 60 days’ written notice of any change to such policy.

Risks

The sources of risk and return may vary from strategy to strategy. If an investment strategy is included in the Master Fund’s portfolio, it may be represented by investments in more than one Investment Fund. The following descriptions of investment strategies and related risks are not intended to be complete explanations of the strategies described and the related risks, and do not include all possible investment strategies or methods that Investment Funds may use.

Investment in the Fund involves a high degree of risk. The Shares are suitable for investment only by sophisticated individuals and institutions for which an investment in the Fund does not represent a complete investment program and who fully understand and are capable of assuming the risks of an investment in Shares. The following considerations should be carefully evaluated before making an investment in Shares.

Investment and Trading Risks in General

All securities and related investments risk the loss of capital. No guarantee or representation is made that the Fund’s program will succeed. The Master Fund’s investment program includes investments in Investment Funds and the selection of Portfolio Managers to manage the Master Fund’s assets. These Portfolio Managers may utilize such investment techniques as short sales, substantial leverage, securities lending, investments in non-marketable securities, uncovered option transactions, forward transactions, futures and options on futures transactions, non-U.S. currency transactions and highly concentrated portfolios, among others, which could under certain circumstances magnify the impact of any negative market or investment developments. More specifically, BAAM seeks out Portfolio Managers who have demonstrated the ability, under certain conditions, to generate returns well in excess of those available from traditional investment opportunities. Many of these Portfolio Managers have also experienced substantial losses in the past over relatively short periods of time. See “Risks Associated with BAAM and the Operation of the Fund—Diversification” below.

General Economic and Market Conditions

The success of the Investment Funds’, and, therefore, the Fund’s, activities are affected by general economic and market conditions, such as interest rates, availability of credit, credit defaults, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation of the Investment Funds’ investments), trade barriers, currency exchange controls, and national and international political circumstances (including wars, terrorist acts or security operations). These factors may affect the level and volatility of financial instruments’ prices and the liquidity of the Investment Funds’ investments. Volatility or illiquidity could impair the Fund’s and the Investment Funds’ profitability or result in losses. The Investment Funds may maintain substantial trading positions that can be adversely affected by the level of volatility in the financial markets—the larger the positions, the greater the potential for loss. The economies of non-U.S. countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, asset reinvestment, resource self-sufficiency and balance of payments position. Further, certain non-U.S. economies are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. The economies of certain non-U.S. countries may be based, predominantly, on only a few industries and may be vulnerable to changes in trade conditions and may have higher levels of debt or inflation.

Systemic Risk

Credit risk may arise through a default by one of several large institutions that are dependent on one another to meet their liquidity or operational needs, so that a default by one institution causes a series of defaults by the other institutions. This is sometimes referred to as a “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which the Fund, the Master Fund and the Investment Funds interact on a daily basis.

Risks Associated with BAAM and the Operation of the Fund

Diversification

The Master Fund is classified as a “non-diversified” investment company. A non-diversified fund may invest a greater percentage of its assets in the securities of fewer issuers than a “diversified” fund, and accordingly may be more vulnerable to changes in the value of those issuers’ securities. There are no limitations on the amount of the Master Fund’s assets that BAAM may invest in any market, trading style or asset category. However, the 1940 Act (as described below) and the Code (see “Tax Considerations” below) may impose limits and restrict BAAM’s ability to invest the Master Fund’s assets in any one Portfolio Manager or in any one Investment Fund. Notwithstanding the requirements of the 1940 Act and the Code, the Master Fund’s assets may have focused exposure to one or more particular Portfolio Managers and/or Investment Funds, asset categories, trading styles, or financial or economic markets. In that event, the Fund’s and the Master Fund’s portfolios will be more susceptible to fluctuations in value resulting from adverse economic conditions affecting the performance of such particular Portfolio Managers, Investment Funds, asset categories, trading styles, or financial or economic markets, than a less focused portfolio would be. For instance, the Master Fund’s expected emphasis on Investment Funds employing equity-based strategies may make the Master Fund (and the Fund) more susceptible to fluctuations in value when economic or market conditions disfavor those strategies.

Although each Investment Fund will typically provide a measure of diversification through its own investment portfolio, to the extent the Master Fund’s assets are focused in a particular Investment Fund, asset category, trading style, or financial or economic market, the Fund’s and the Master Fund’s portfolios will then become more susceptible to fluctuations in value resulting from adverse economic conditions affecting the performance of that particular Investment Fund, asset category, trading style, or financial or economic market.

The Fund and the Master Fund may invest a portion of their assets in cash, money market funds, fixed income securities and similar investments pending investment in Investment Funds or to maintain liquidity. The Fund and the Master Fund may also invest all or a portion of their assets in these types of investments for temporary defensive purposes, although there is no assurance that the Fund or the Master Fund will do so. To the extent the Fund or the Master Fund invests its assets for temporary defensive purposes, the Fund may not achieve its investment objective. As investments in the Investment Funds are generally illiquid, and withdrawals of those investments may be subject to restrictions or suspensions, the Fund or the Master Fund’s ability to invest for temporary defensive purposes may be limited.

Non-Voting Securities; Inability to Vote

Under the 1940 Act, if the Master Fund, together with other discretionary BAAM clients, owns 5% or more of the outstanding voting securities of an Investment Fund, the Investment Fund may be deemed to be an “affiliated person” of the Master Fund. If an Investment Fund is deemed to be an “affiliated person” of the Master Fund for purposes of the 1940 Act, limitations or prohibitions may be imposed on transactions between, on one hand, the Investment Fund and its affiliated persons and, on the other hand, the Master Fund and its affiliated persons, including potentially the Fund, BAAM, and other accounts managed by BAAM.

In order to avoid becoming subject to certain 1940 Act limitations and prohibitions with respect to affiliated transactions, which are designed to prevent over-reaching of a registered investment company, it is the Master Fund’s policy to limit its holdings to less than 5% of the outstanding voting securities of each Investment Fund in which it invests, absent an SEC order (or assurances from the SEC staff) under which the Master Fund’s contribution and withdrawal of capital to and from an Investment Fund in which it holds 5% or more of the outstanding voting securities will not be subject to various 1940 Act prohibitions on affiliated transactions. This limitation on owning voting securities is intended to prevent an Investment Fund from being deemed to be an “affiliated person” of the Master Fund for purposes of the 1940 Act. In accordance with this policy, BAAM will determine whether to invest the Master Fund (and the assets of other BAAM clients) in non-voting securities of an Investment Fund or to enter (on behalf of the Master Fund and other BAAM clients) into contractual arrangements to waive rights (if any) to vote for the election or removal of the Investment Fund’s directors (or rights considered equivalent to this under applicable SEC staff interpretations). The Master Fund’s waiver of

voting rights will be irrevocable. Neither the Master Fund nor BAAM nor any other BAAM clients will receive any consideration in return for entering into a voting waiver arrangement.

The Master Fund intends to waive its voting rights of Investment Funds only pursuant to a negotiated, contractual agreement. BAAM will make the determination to waive voting rights pursuant to policies adopted by the Board. BAAM will report to the Board periodically regarding the implementation of the foregoing policy. BAAM will allocate the acquisition of voting and non-voting securities among its clients in a manner that is fair and equitable to all of its clients.

To the extent the Master Fund holds non-voting securities, it will not be able to vote on matters that require the approval of the interest-holders of the Investment Fund, including potentially matters adverse to the Master Fund’s interests. If the Master Fund’s ability to vote is limited, its ability to influence matters being voted on will be reduced relative to other investors (which may include other investment funds or accounts managed by BAAM). The absence of voting rights potentially could have an adverse impact on the Master Fund (and the Fund), although it is rare for Investment Funds to put matters to a vote of interest-holders and, when they do, the types of matters put to a vote are generally expected not to be important to the Master Fund’s primary purpose of investing in the Investment Fund, which is to gain exposure to the returns offered by that particular Investment Fund’s investment program.

There are statutory tests of affiliation other than owning 5% of the voting securities of an issuer (such as on the basis of control or, under certain circumstances, the aggregate size of investments by the Master Fund and other discretionary BAAM clients in an Investment Fund and/or its affiliates), and, therefore, the limitations and prohibitions of the 1940 Act with respect to affiliated transactions could apply in some situations where the Master Fund owns less than 5% of the voting securities of an Investment Fund. In these circumstances, transactions between the Master Fund and an Investment Fund may, among other things, potentially be subject to the limitations or prohibitions under the 1940 Act notwithstanding that the Master Fund has entered into a voting waiver arrangement.

The Master Fund may determine not to invest in, to limit its investments in, or to withdraw all or a part of its investment in, an Investment Fund in order to comply with applicable statutory limitations or prohibitions, as discussed in the previous paragraph. See “Conflicts of Interest—Other Activities of Blackstone, BAAM and its Affiliates.”

Limited Operating History

As discussed above, BAAM is responsible for managing the Fund’s and the Master Fund’s investment portfolios and has substantial experience in managing investments and private investment funds. In addition, the Master Fund generally invests primarily with Portfolio Managers that have established track records and BAAM may utilize the services of consultants with substantial experience in providing investment research, analytical data and due diligence services relating to investments in private investment funds. However, the Fund and the Master Fund have limited operating history based upon which Investors can evaluate their performance, and the Master Fund may invest in Investment Funds that have no or limited operating history and that may be managed by Portfolio Managers with limited experience or performance records.

Liquidity Risks

Shares are not traded on any securities exchange or other market and are subject to substantial restrictions on transfer. Although the Fund may offer to repurchase Shares from time to time, no assurance can be given that these offers or repurchases will occur and an Investor may not be able to liquidate its Shares for a substantial amount of time. See “Repurchases and Transfers of Shares.” BAAM expects that it will recommend to the Board of Trustees that the Fund offer to repurchase Shares from Investors four times each year, effective at the end of March, June, September and December. (See “Repurchases and Transfers of Shares—Repurchases of Shares.”)

Liquidity Mismatch

The Fund’s liquidity terms may allow shorter repurchase notice periods and more frequent repurchase of Shares than the liquidity terms applicable to certain Investment Funds. For example, the Master Fund may invest in an

Investment Fund that is subject to a commitment period that exceeds the Fund’s liquidity terms, if, at the time the Master Fund made the investment in the Investment Fund, BAAM believes the investment could be managed in the context of the Fund’s anticipated liquidity needs.

Gates, Suspensions, and Withdrawal Fees

Terms applicable to Investment Funds may permit distribution of assets in kind rather than in cash, the suspension of redemptions or the imposition of limiting “gates,” any of which could preclude the Master Fund from liquidating all or a portion of its interest in such Investment Fund as anticipated. Accordingly, an Investor seeking to tender Shares may be subject to the market risks of an Investment Fund until such time as the Investment Fund has established the applicable withdrawal date(s) for fixing the Investment Fund’s net asset value. Moreover, in the event an Investment Fund suspends withdrawals or fails to pay withdrawal proceeds, it may not be possible for the Fund to pay tendering Investors their entire repurchase amount or to reallocate Fund assets as anticipated. An Investment Fund also may charge withdrawal fees which would diminish the proceeds otherwise payable to the Master Fund.

Events in the world financial markets may materially adversely affect the Investment Funds, potentially limiting the Master Fund’s ability to fully exercise its withdrawal rights with regard to Investment Funds due to “gates,” suspensions and distributions in kind. Additionally, in some cases, Portfolio Managers may also suspend the determination of the net asset value of all or a portion of their portfolios. The absence of such valuations will make it more difficult for BAAM to accurately value the Fund’s portfolio.

Repurchase In Kind; Liquidating SPVs

Generally, Investment Funds are permitted to make payments to withdrawing investors in-kind. Thus, upon the Master Fund’s withdrawal of all or a portion of its interests from an Investment Fund, the Master Fund may receive securities that are illiquid or difficult to value. In such circumstances, BAAM would seek to dispose of these securities at a time and in a manner that is in the best interests of the Fund and the Master Fund.

The Fund may, in certain circumstances, pay repurchase proceeds in kind. Such repurchase proceeds may include, without limitation, interests in a special purpose vehicle. Determinations as to what form of repurchase proceeds will be paid will be made by the Board based on what it determines to be equitable under the circumstances. Such determinations may be made at any time, including before or after the effective date of a repurchase. The costs and expenses attributable to such method will be allocated among Investors as determined in good faith by the Board of Trustees . To the extent the Fund meets a repurchase request with a distribution in kind of interests in one or more investments, such Investor will continue to be subject to the investment risks associated with such investments and will be subject to the terms of such investments, which may include (i) limitations or notice requirements on withdrawal or liquidation and/or (ii) limitations on the ability to sell or otherwise transfer interests in such investments. Thus, although the Fund’s obligations to meet an Investor’s tender request are fulfilled on the date the Fund distributes investments with a value as of the repurchase date equal to the repurchase value owed to such Investor, the investments distributed in kind to such Investor will continue to fluctuate in value after repurchase and will be subject to any applicable management or performance fees and expenses of such investment and the Investor’s ability to realize the cash value of such investments may be significantly delayed or limited. Distributions in kind of investments are subject to the valuation risks associated with such investments. Any in-kind distribution of securities is likely to consist of unmarketable securities (valued pursuant to procedures approved by the Board), which would be distributed to all tendering Investors on an equal basis to the extent practicable. Investors may be unable to liquidate such securities in a timely manner, may incur brokerage or other transaction costs in liquidating such securities, and may receive a lower price upon liquidation of such securities than the value assigned to them by the Fund at the time of distribution.

In-kind distributions may be comprised of, among other things, participations or other derivative instruments referring to certain assets of the Master Fund, interests in special purpose vehicles or trading vehicles (each, a “Liquidating SPV”) holding financial instruments (e.g., interests in Investment Funds or in Liquidating SPVs

created by them) also being held or that were held by the Master Fund, or participations or other derivatives instruments referring to such Liquidating SPVs.

Investment Funds may also create Liquidating SPVs which would be subject to similar risks as those described above. In addition, Investment Funds may charge management and/or performance fees as well as other expenses with respect to any such Liquidating SPVs created.

Duplicative Payments and Expenses

The Master Fund bears the Management Fee (see “Management of the Fund—BAAM”) in addition to the asset based fees or performance-based fees or allocations (which may be significant) payable or allocated to the Portfolio Managers with respect to the Master Fund’s investments in the Investment Funds. Each Portfolio Manager generally charges the Master Fund an asset-based fee and receives performance-based allocations or fees. The asset-based fees of the Portfolio Managers generally range from 1% to 3%, and the performance-based allocations or fees of the Portfolio Managers generally range from 10% to 30% of net profit. The Fund’s ongoing operating expenses and organizational expenses are in addition to the investment and other expenses of the Investment Funds borne by the Master Fund.

Decision Making Authority

The Investors have no authority to make decisions or to exercise business discretion on behalf of the Fund, except as set forth in the Declaration of Trust. The authority for all such decisions is generally delegated to the Board of Trustees, which, in turn, has delegated the day-to-day management of the Fund’s investment activities to BAAM, subject to oversight by the Board of Trustees.

To the extent the Master Fund holds non-voting securities of, or contractually foregoes the right to vote in respect of, an Investment Fund (which it intends to do), it will not be able to vote on matters that require the approval of the limited partners of the Investment Fund, including a matter that could adversely affect the Master Fund’s investment in it, such as changes to the Investment Fund’s investment objective or policies or the termination of the Investment Fund.

Dependence on BAAM and the Investment Funds

BAAM generally invests the assets of the Master Fund through Investment Funds. The success of the Fund depends upon the ability of BAAM, the Master Fund and the Investment Funds to develop and implement investment strategies that achieve the Fund’s investment objective. For example, an Investment Fund’s inability to effectively hedge an investment strategy that it utilizes may cause the assets of the Master Fund invested with such Investment Fund to significantly decline in value and could result in substantial losses to the Fund. Moreover, subjective decisions made by BAAM and/or the Investment Funds may cause the Master Fund to incur losses or to miss profit opportunities on which it may otherwise have capitalized.

Borrowing by the Fund; Investments are Leveraged

Under the 1940 Act, the Fund (and the Master Fund) generally is not permitted to engage in borrowings unless immediately after a borrowing the value of the Fund’s (or the Master Fund’s) total assets less liabilities (other than the borrowing and other senior securities) is at least 300% of the principal amount of such borrowing (the “Asset Coverage Requirement”). This Asset Coverage Requirement generally means that the value of total indebtedness may not exceed one-third of the value of the Fund’s (or the Master Fund’s) total assets (including the indebtedness). In addition, the Fund (or the Master Fund) is not permitted to declare any cash dividend or other distribution on Shares unless, at the time of such declaration, the Asset Coverage Requirement is satisfied. The Master Fund currently has a credit facility in place pursuant to which it may borrow subject to the Asset Coverage Requirement and certain other limitations. The Fund and the Master Fund (as applicable) currently intend to limit borrowings to those made (i) on a short-term basis and (ii) for the purpose of (a) repurchasing its Shares in the event that the Fund/Master Fund has no available cash or immediately available liquid investments,

(b) paying fees and expenses, (c) fulfilling any commitments to investments in Investment Funds made prior to the availability of cash or immediately available liquid investments (i.e., bridge financing for portfolio management purposes and not to leverage investments), and/or (d) meeting distribution requirements for eligibility to be treated as a RIC that would otherwise result in the liquidation of investments. The Asset Coverage Requirement applies to the Fund and not to the Investment Funds. Generally, Investment Funds are permitted to borrow. The use of leverage poses a significant degree of risk and enhances the possibility of a significant loss in the value of the investment portfolio. An Investment Fund may borrow money from time to time to purchase or carry securities. The interest expense and other costs incurred in connection with such borrowing may not be recovered by appreciation in the securities purchased or carried, and will be lost in the event of a decline in the market value of such securities. Gains realized with borrowed funds may cause the Investment Fund’s net asset value to increase at a faster rate than would be the case without borrowings. If, however, investment results fail to cover the cost of borrowings, the Investment Fund’s net asset value could also decrease faster than if there had been no borrowings. The use of short-term margin borrowings subjects an investment portfolio to additional risks, including the possibility of a “margin call,” pursuant to which the Investment Fund must either deposit additional funds with the broker or suffer mandatory liquidation of the pledged securities to compensate for the decline in value. In the event of a sudden, precipitous drop in the value of the Investment Fund’s assets, the Investment Fund might not be able to liquidate assets quickly enough to pay off its margin debt. This could result in the forced liquidation of assets of the Investment Fund at substantially depressed prices. A margin call and forced liquidation of assets might also occur during a period where there is an overall decline in the securities market which might reduce overall liquidity in such market and thus further accelerate a decline in the sales price of assets of the Investment Fund.

Increased Regulatory Oversight

The financial services industry generally, and the activities of private investment funds and their managers in particular, have been subject to intense and increasing regulatory scrutiny. Such scrutiny may increase the Fund’s, the Master Fund’s, BAAM’s, the Portfolio Managers’ or the Investment Funds’ exposure to potential liabilities and to legal, compliance and other related costs. Increased regulatory oversight can also impose administrative burdens on BAAM and/or the Portfolio Managers, including, without limitation, responding to investigations and implementing new policies and procedures. Such burdens may divert BAAM’s and/or the Portfolio Managers’ time, attention and resources from portfolio management activities. In addition, it is anticipated that, in the normal course of business, BAAM’s and/or the Portfolio Managers’ officers may have contact with governmental authorities, and/or be subjected to responding to questionnaires or examinations. The Fund, the Master Fund and/or the Investment Funds may also be subject to regulatory inquiries concerning its positions and trading.

Limits on Additional Investments in Investment Funds

Since the Master Fund may make additional investments in the Investment Funds only at certain times pursuant to limitations set forth in the governing agreements of the Investment Funds, the Master Fund from time to time may have to hold some, or in certain cases a substantial amount, of its assets temporarily in short-term, high quality debt securities, money market securities, cash or cash equivalents. In addition, the Fund and the Master Fund may maintain a portion of the proceeds in cash to meet operational needs. The Master Fund may also use derivatives, principally put options and futures contracts, and make direct investments to obtain market exposure during these and other periods. No assurance can be given that the Master Fund will do so or, if it does, that it will do so successfully. Each of the Fund and the Master Fund may be prevented from achieving its objective during any time in which the Master Fund’s assets are not substantially invested in accordance with its principal investment strategies.

Direct Investments by the Fund and the Master Fund

In addition to investing in the Master Fund (in the case of the Fund) and the Investment Funds (in the case of the Master Fund) the Master Fund may also, under limited circumstances, invest or trade directly in securities and

utilize derivatives and other financial instruments including options and futures contracts. To the extent the Master Fund invests directly in such securities and instruments, such investments are subject to the same risks with respect to investment techniques and instruments as those described below in connection with the Master Fund’s investments in the Investment Funds.

Information Technology Systems

Information and technology systems relied upon by the Fund, the Master Fund, BAAM, the Portfolio Managers, the Fund’s other service providers (including, but not limited to, Fund accountants, custodians, transfer agents, and administrators), and/or the issuers of securities in which the Fund invests may be vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons, security breaches, usage errors by their respective professionals, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes, and earthquakes. Although BAAM has implemented measures to manage risks relating to these types of events with respect to its systems, if these systems (or the systems of Portfolio Managers or other service providers) are compromised, become inoperable for extended periods of time, or cease to function properly, significant investment may be required to fix or replace them. The failure of these systems and/or of disaster recovery plans for any reason could cause significant interruptions in the operations of the Fund, BAAM, a Portfolio Manager, a service provider, and/or the issuer of a security in which the Fund invests and may result in a failure to maintain the security, confidentiality, or privacy of sensitive data, including personal information relating to investors (and the beneficial owners of investors). Such a failure could also harm the Fund’s, BAAM’s, a Portfolio Manager’s, service provider’s, and/or issuer’s reputation, subject such entity and their respective affiliates to legal claims, and otherwise affect their business and financial performance.

Activist Investing

The Fund or Master Fund’s portfolio may include securities of a company that is the subject of a proxy contest or which activist investors (including, potentially, a Portfolio Manager or BAAM) are attempting to influence, in the expectation that new management or a change in business strategies will be able to improve the company’s performance or effect a sale or liquidation of its assets so that the price of the company’s securities will increase. If the incumbent management of the company is not defeated or persuaded to take the desired action, or if new management is unable to improve the company’s performance or sell or liquidate the company, the market price of the company’s securities will typically fall, which may cause the Fund to suffer a loss.

In addition, where an acquisition or restructuring transaction or proxy fight is opposed by the subject company’s management, the transaction often becomes the subject of litigation. Such litigation involves substantial uncertainties and may impose substantial cost and expense on the Fund.

Master/Feeder Structure Risk

The Fund’s performance may suffer as a result of large-scale redemptions by other investors in the Master Fund (including another registered investment company managed by BAAM). Also, such other investors in the Master Fund may have a greater ownership interest in the Master Fund than the Fund’s interest, and could have effective voting control over the operation of the Master Fund. The Fund’s ability to maintain a stable NAV and to meet redemption requests is dependent on the Master Fund’s continued ability to do the same. The Fund may not be able to find a suitable alternative if it ceases to invest substantially all of its assets in the Master Fund.

Subsidiary Risk

Tax Risks of Investing in the Fund

The Fund intends to qualify and be eligible to be treated as a RIC under the Code, which generally will relieve the Fund of any liability for federal income tax to the extent its earnings are distributed to Investors. In order to qualify for treatment as a RIC, the Fund must, among other things, satisfy a diversification, 90% gross income and distribution requirement. (See “Tax Considerations” below.) The Fund generally expects to satisfy the requirements to qualify and be eligible to be treated as a RIC, provided that the Master Fund also meets these requirements; the Fund currently expects that the Master Fund will meet these requirements. Nonetheless, there can be no assurance that either the Fund or the Master Fund will so qualify and be eligible.

Because the Fund invests substantially all of its assets in the Master Fund, if the Master Fund were to fail to satisfy the diversification, 90% gross income or distribution requirement for treatment as a RIC and were not to cure that failure (as described below), the Fund itself would be unable to satisfy the diversification requirement.

The application of these RIC requirements to certain of the Master Fund’s investments is uncertain. In particular, among other requirements, in order to qualify as a RIC the Master Fund must derive at least 90% of its gross income each taxable year from sources treated as “qualifying income” under the Code. Investments in U.S. investment partnerships that invest in commodities and certain commodity-linked instruments, as well as certain other assets, generate income that is not qualifying income for purposes of this 90% test. The IRS formerly issued private letter rulings concluding that income derived by a RIC from a wholly-owned subsidiary, such as the Subsidiary, that invests in commodities and commodity-linked derivatives constitutes qualifying income, but each of the private letter rulings it issued applies only to the taxpayer that received it and may not be used by another taxpayer or cited as precedent, and the IRS has suspended the issuance of such rulings and is reviewing its policy in this area. Neither the Fund nor the Master Fund has applied for or received such a ruling from the IRS, and neither has determined whether to seek such a ruling if the IRS were to resume issuing such rulings. It is possible that, as a consequence of its current review of this area, the IRS will reverse its prior position and publish guidance under which it will take the position that these items do or will not constitute qualifying income. The tax treatment of the Master Fund’s investment in the Subsidiary could also be adversely affected by future legislation or Treasury regulations. If income derived by the Master Fund from its investments in the Subsidiary were not to constitute qualifying income, the Master Fund, and therefore the Fund, might well not qualify as a RIC under the Code. As a result, there can be no assurance that the Fund or the Master Fund will be able to maintain its status as a RIC. Failure to satisfy any one of these tests could subject the Fund and the Master Fund to penalties and regular corporate income taxes, as described in more detail below.

Income realized by Investment Funds treated as partnerships for federal income tax purposes are allocated to investors in the partnerships, including (as applicable) the Master Fund, on a gross basis. Further, the character of an investor’s distributive share of items of income, gain and loss of a partnership generally will be determined as if the investor in the partnership had realized such items directly. Because such Investment Funds may generate income that is not qualifying income for purposes of the 90% gross income test, and because the Master Fund may not have complete information concerning the amount and sources of such an Investment Fund’s income until such income has been earned by the Investment Fund, it may be difficult for the Master Fund to satisfy the 90% gross income test.

In addition, it may not always be entirely certain how the asset diversification rules for RIC qualification will apply to the Master Fund’s investments in Investment Funds. The Master Fund and the Fund engage the services of a third-party service provider to collect, aggregate and analyze data on the Master Fund’s direct and indirect investments, in order to ensure that the Master Fund meets the asset diversification test. In the event that the Master Fund believes that it is possible that it will fail the asset diversification requirement at the end of any quarter of a taxable year, it may seek to take certain actions to avert such failure, including by acquiring additional interests to come into compliance with the asset diversification test or by disposing of non-diversified assets. Although the Code affords the Master Fund the opportunity, in certain circumstances, to cure a failure to meet the asset diversification test, including by disposing of non-diversified assets within six months, there may be constraints on the Master Fund’s ability to withdraw its interest in an Investment Fund that limit utilization of this cure period.

Certain of the Master Fund’s investments, including its investments in Investment Funds that constitute PFICs (described below) for federal income tax purposes with respect to which the Master Fund makes a mark-to-market election or qualified electing fund (“QEF”) election (each described below), and Investment Funds treated for federal income tax purposes as partnerships or controlled foreign corporations (described below), may give rise to realization of income or gains by the Master Fund without corresponding cash distributions. Thus, to the extent the Master Fund invests in such Investment Funds, it may be required to sell assets, potentially including such investments, including when it is not advantageous to do so (to the Master Fund, and therefore to the Fund), to generate the cash necessary to make the distributions required in order to maintain its status as a RIC and to avoid the imposition of a federal income tax and/or a nondeductible 4% excise tax. There can be no assurances that the Master Fund will be successful in this regard.

There can be no assurance that the Fund or the Master Fund generally will be able to maintain its qualification and eligibility for treatment as a RIC. If the Fund or the Master Fund were to fail to qualify as a RIC or to satisfy the distribution requirement in any taxable year, that Fund would be taxed as an ordinary corporation on its taxable income even if such income were distributed to its Investors, and all distributions out of earnings and profits (including any distributions of net capital gain) would be taxed to Investors as ordinary dividend income. In addition, that Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges) before requalifying for taxation as a RIC. Disqualification of the Fund or the Master Fund as a RIC could have a material adverse effect on the value of the Fund’s Shares and the amount of the Fund’s distributions to Investors. See “Tax Considerations.”

The Fund’s and the Master Fund’s intention to qualify and be eligible for treatment as a RIC can limit their ability to acquire or continue to hold positions that would otherwise be consistent with their investment strategy or can require them to engage in transactions in which they would otherwise not engage, resulting in additional transaction costs and reducing the Fund’s return to Investors.

Risks Arising from Investment Activities of the Investment Funds

Withdrawals from Investment Funds; Re-Allocation of Investments

In addition to the risks associated with “Liquidity Risks” as described above, the Master Fund may have limited rights pursuant to which it may withdraw, transfer or otherwise liquidate its investments in Investment Funds. Under the terms of the governing documents of the Investment Funds, the ability of the Master Fund to withdraw its investment and obtain any amount invested therein may be subject to certain restrictions and conditions, including restrictions on withdrawals for an initial period, restrictions on the amount of withdrawals and the frequency with which withdrawals can be made, and investment minimums which must be maintained. Additionally, the Investment Funds typically reserve the right to reduce (“gate”) or suspend withdrawals and to satisfy withdrawals by making distributions in-kind, under certain circumstances. The ability of the Master Fund to withdraw all or any portion of its investment may be adversely affected to varying degrees by such restrictions depending on, among other things, the length of any restricted periods imposed by the Investment Funds, the amount and timing of a requested withdrawal in relation to the time remaining of any restricted periods imposed by related Investment Funds, the aggregate amount of withdrawal requests, the next regularly scheduled withdrawal dates of such Investment Funds, the imposition of “gates” or suspensions, the decision by an Investment Fund to satisfy withdrawals in kind, and the satisfaction of other conditions. If the Master Fund is unable to withdraw its investment, this will negatively impact an Investor’s ability to tender such Investor’s Shares to the Fund.

Events in the world financial markets, such as those that occurred in September and October 2008, may materially adversely affect the Investment Funds, potentially limiting the Master Fund’s ability to fully exercise its withdrawal rights with regard to Investment Funds due to “gates,” suspensions and distributions in kind. Additionally, in some cases, Portfolio Managers may also suspend the determination of the net asset value of all or a portion of their portfolios. The absence of such valuations will make it more difficult for BAAM to accurately value the portfolios of the Fund and the Master Fund.

“Style Drift”

BAAM’s investment committee conducts a robust investment allocation process which focuses on selecting Investment Funds with well-defined investment objectives, risk parameters and investment guidelines. Notwithstanding the BAAM allocation process, the Fund and the Master Fund may be affected by “style drift” (i.e., the risk that a Portfolio Manager may deviate from his or her stated or expected investment strategy). BAAM relies primarily on information provided by Portfolio Managers in assessing a Portfolio Manager’s defined investment strategy and, ultimately, determining whether, and to what extent, it will allocate the Master Fund’s assets to particular Investment Funds. Style drift can occur abruptly if, for example, a Portfolio Manager believes it has identified a particular investment opportunity that may produce higher returns than investments within his or her stated strategy or it can occur gradually, if, for instance, a “value”-oriented Portfolio Manager gradually increases an Investment Fund’s investments in “growth” stocks. Style drift poses a particular risk for multiple-manager structures since, as a consequence, the Fund and the Master Fund may be exposed to particular markets or strategies to a greater extent than was anticipated by BAAM due to resulting overlap of investment strategies among various Investment Funds. In addition, “style drift” may affect the investment categorization of an Investment Fund and, as a result, may affect BAAM’s attempts to monitor the Fund’s diversification guidelines. Although BAAM has established policies and procedures that are designed to monitor Portfolio Managers’ compliance with stated strategies and guidelines and to mitigate the likelihood of potential “style drift” situations, there can be no assurance that the Fund and the Master Fund will not be impacted by style drift of a particular Portfolio Manager.

Turnover

Some Investment Funds may invest on the basis of short-term market considerations. Their turnover rate is expected to be significant, potentially involving substantial brokerage commissions and fees and increased realization of taxable income including short-term capital gains. The Master Fund has no direct control over this turnover. Furthermore, if a Portfolio Manager is terminated, it is expected that such portfolio would be liquidated and the cash proceeds would be reinvested with a replacement Investment Fund or invested in another Investment Fund. This policy could create substantial turnover rates and corresponding brokerage commissions and fees.

Risks of Event Driven Investing

The Master Fund will invest in Investment Funds engaged in event driven investing. Event driven investing requires the Portfolio Manager to make predictions about (i) the likelihood that an event will occur and (ii) the impact such event will have on the value of a company’s securities. If the event fails to occur or it does not have the effect foreseen, losses can result. For example, the adoption of new business strategies, a meaningful change in management or the sale of a division or other significant assets by a company may not be valued as highly by the market as the Portfolio Manager had anticipated, resulting in losses. In addition, a company may announce a plan of restructuring which promises to enhance value and fail to implement it, resulting in losses to investors.

Distressed Securities

The Master Fund may invest in Investment Funds that purchase distressed securities of business enterprises involved in workouts, liquidations, reorganizations, bankruptcies and similar situations. Since there is substantial uncertainty concerning the outcome of transactions involving such business enterprises, there is a high degree of risk of loss, including loss of the entire investment.

In bankruptcy, there can be considerable delay in reaching accord on a restructuring plan acceptable to a bankrupt company’s lenders, bondholders and other creditors and then obtaining the approval of the bankruptcy court. Such delays could result in substantial losses to an Investment Fund holding such company’s securities or obligations. Moreover, there is no assurance that a plan favorable to the class of securities held by an Investment Fund will be adopted or that the subject company might not eventually be liquidated rather than reorganized.

In liquidations (both in and out of bankruptcy) and other forms of corporate reorganization, there exists the risk that the reorganization either will be unsuccessful, will be delayed or will result in a distribution of cash or a new

security, the value of which will be less than the purchase price to an Investment Fund of the security in respect of which such distribution is received. It may be difficult to obtain accurate information concerning a company in financial distress, with the result that the analysis and valuation are especially difficult. The market for securities of such companies tends to be illiquid and sales may be possible only at substantial discounts.

Arbitrage Transactions

Investment Funds in which the Master Fund invests may purchase securities at prices often only slightly below the anticipated value to be paid or exchanged for such securities in a merger, exchange offer or cash tender offer which the Investment Fund determines is probable, and substantially above the prices at which such securities traded immediately prior to announcement of the merger, exchange offer or cash tender offer. If the proposed transaction appears likely not to be consummated or in fact is not consummated or is delayed, the market price of the security to be tendered or exchanged may be expected to decline sharply, which would result in a loss to the Investment Fund (and, therefore, the Master Fund). In addition, if a Portfolio Manager determines that the offer is likely to be increased, either by the original bidder or by another party, the Investment Fund may purchase securities above the offer price; such purchases are subject to a high degree of risk. The consummation of mergers and tender and exchange offers can be prevented or delayed by a variety of factors, including opposition by the management or shareholders of the target company, private litigation or litigation involving regulatory agencies, and approval or non-action of regulatory agencies. The likelihood of occurrence of these and other factors can be very difficult to evaluate.

Proxy Contests and Unfriendly Transactions

Investment Funds in which the Master Fund invests may purchase securities of a company which is the subject of a proxy contest in the expectation that new management will be able to improve the company’s performance or effect a sale or liquidation of its assets so that the price of the company’s securities will increase. If the incumbent management of the company is not defeated or if new management is unable to improve the company’s performance or sell or liquidate the company, the market price of the company’s securities will typically fall, which may cause the Investment Fund (and, therefore, the Master Fund) to suffer a loss.

Trading in Securities and Other Investments That May Be Illiquid

Certain investment positions in which Investment Funds and, therefore, the Fund and the Master Fund will have an interest may be illiquid. Investment Funds may invest in restricted or non-publicly traded securities, securities on non-U.S. exchanges, securities that the Investment Funds are contractually prohibited from disposing and securities for which no readily available market exists. These investments could prevent Investment Funds from liquidating unfavorable positions promptly and subject the Fund to substantial losses. Furthermore, the valuation of illiquid investments is complex and uncertain, and there can be no assurance that a Portfolio Manager’s valuation will accurately reflect the value that will be realized by an Investment Fund upon the eventual disposition of such investment. Disposition of such illiquid investments may also result in distributions in kind to the Fund and the Master Fund. Such investments could also impact the Board of Trustees’ decision whether to offer to repurchase Shares from Investors.

Futures, Options, and Derivative Instruments

Investment Funds may invest in certain futures contracts, including stock index futures contracts, futures contracts on government securities, interest rates, non-U.S. currencies, metals and energy products, and such Investment Funds may trade options on such futures contracts, including purchasing call options, writing (selling) naked or covered call options and purchasing or selling put options on such futures contracts. Such

Investment Funds may also purchase or sell options on securities and securities indices. In addition, such Investment Funds may enter into forward contracts, currency transactions and various swap and swap-like arrangements.

Futures contracts markets are highly volatile and are influenced by a variety of factors, including national and international political and economic developments. In addition, because of the low margin deposits normally required in futures trading, a high degree of leverage is typical of a futures trading account. As a result, a relatively small price movement in a futures contract may result in substantial losses to the trader. Moreover, futures positions are marked to market each day and variation margin payment must be paid to or by a trader.

Positions in futures contracts may be closed out only on the exchange on which they were entered into or through a linked exchange, and no secondary market exists for such contracts.

Although the Investment Funds typically enter into futures contracts only if an active market exists for the contracts, no assurance can be given that an active market will exist for the contracts at any particular time. Certain futures exchanges do not permit trading in particular futures contracts at prices that represent a fluctuation in price during a single day’s trading beyond certain set limits. If prices fluctuate during a single day’s trading beyond those limits, an Investment Fund could be prevented from promptly liquidating unfavorable positions and thus be subjected to substantial losses.

In addition, the CFTC and various exchanges impose speculative position limits on the number of positions a person or group may hold or control in particular commodities. For purposes of complying with speculative position limits, an Investment Fund’s outright positions (i.e., those that are not bona fide hedge positions or spread positions specifically exempted from speculative limits) may be aggregated with positions of certain related persons and, as a result, an Investment Fund may be unable to take positions in particular futures contracts or may be forced to liquidate positions in particular futures contracts.

When used for hedging purposes, an imperfect or variable degree of correlation between price movements of the futures contracts and the underlying investment sought to be hedged may prevent an Investment Fund from achieving the intended hedging effect or expose such Investment Fund (and, therefore, the Fund) to the risk of loss.

Unlike trading on domestic futures exchanges, trading on non-U.S. futures exchanges is not regulated by the CFTC and may be subject to greater risks than trading on domestic exchanges. For example, some non-U.S. exchanges are principal markets so that no common clearing facility exists and a trader may look only to the broker for performance of the contract. In addition, unless an Investment Fund hedges against fluctuations in the exchange rate between the U.S. dollar and the currencies in which trading is done on non-U.S. exchanges, any profits that an Investment Fund (and, therefore, the Fund) might realize in trading could be eliminated by adverse changes in the exchange rate, or the Investment Fund (and, therefore, the Fund) could incur losses as a result of those changes.

Use of other derivative instruments presents many of the same risks as those discussed above regarding futures contracts, including those risks relating to volatility, liquidity, hedging and non-U.S. trading.

Options trading involves certain additional risks. Specific market movements of the option and the instruments underlying an option cannot be predicted. No assurance can be given that a liquid offset market will exist for any particular option or at any particular time. If no liquid offset market exists, an Investment Fund (or the Master Fund) might not be able to effect an offsetting transaction in a particular option. To realize any profit in the case of an option, therefore, the option holder would need to exercise the option and comply with margin requirements for the underlying instrument. A writer could not terminate the obligation until the option expired or the writer was assigned an exercise notice. The purchaser of an option is subject to the risk of losing the entire purchase price of the option. The writer of an option is subject to the risk of loss resulting from the difference between the premium received for the option and the price of the futures contract underlying the option that the writer must purchase or deliver upon exercise of the option. The writer of a naked option may have to purchase the underlying contract in the market for substantially more than the exercise price of the option in order to satisfy his delivery obligations. This could result in a large net loss.

Stock or index options that may be purchased or sold by an Investment Fund may include options not traded on a securities exchange. The risk of nonperformance by the obligor on such an option may be greater and the ease with which an Investment Fund can dispose of or enter into closing transactions with respect to such an option may be less than in the case of an exchange traded option.

Non-U.S. Securities

The Master Fund may invest in Investment Funds that in turn invest in non-U.S. securities. Non-U.S. securities involve certain factors not typically associated with investing in U.S. securities including risks relating to (i) currency exchange matters, including fluctuations in the rate of exchange between the U.S. dollar and the various non-U.S. currencies in which an Investment Fund’s portfolio securities will be denominated, and costs associated with conversion of investment principal and income from one currency into another; (ii) differences between the U.S. and non-U.S. securities markets, including potential price volatility in and relative illiquidity of some non-U.S. securities markets, the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements and less government supervision and regulation; (iii) certain economic and political risks, including potential exchange control regulations, economic sanctions, and potential restrictions on non-U.S. investment and repatriation of capital; and (iv) with respect to certain countries, there is a possibility of expropriation, confiscatory taxation, imposition of withholding or other taxes on dividends, interest, capital gains, other income or gross sale or disposition proceeds, limitations on the removal of funds or other assets of the Fund and/or the Master Fund, political or social instability or diplomatic developments that could affect investments in those countries.

Forward Trading

Forward contracts and options thereon, unlike futures contracts, are not traded on exchanges and are not standardized; rather, banks and dealers act as principals in these markets, negotiating each transaction on an individual basis. Forward and “cash” trading is substantially unregulated; there is no limitation on daily price movements and speculative position limits are not applicable. The principals who deal in the forward markets are not required to continue to make markets in the currencies or commodities they trade and these markets can experience periods of illiquidity, sometimes of significant duration. There have been periods during which certain participants in these markets have refused to quote prices for certain currencies or commodities or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. Disruptions can occur in any market traded by the Investment Funds due to unusually high trading volume, political intervention or other factors. The imposition of controls by governmental authorities might also limit such forward (and futures) trading to less than that which the Investment Funds would otherwise recommend, to the possible detriment of the Fund. Market illiquidity or disruption could result in major losses to the Fund and/or the Master Fund. In addition, managed accounts or Investment Funds in which the assets of the Master Fund are invested may be exposed to credit risks with regard to counterparties with whom the Investment Funds trade as well as risks relating to settlement default. Such risks could result in substantial losses to the Fund and/or the Master Fund. To the extent possible, BAAM endeavors to select Investment Funds that it believes will deal only with counterparties that are creditworthy and reputable institutions, but such counterparties may not be rated investment grade.

Currency Trading

A portion of the Master Fund’s assets may be invested by Investment Funds in debt and listed and unlisted equity securities denominated in various currencies and in other financial instruments, the price of which is determined with reference to such currencies. Each of the Fund and the Master Fund, however, values its investments and other assets in U.S. dollars. To the extent unhedged, the value of the Fund’s and the Master Fund’s net assets will fluctuate with U.S. dollar exchange rates as well as with price changes of an Investment Fund’s investments in the various local markets and currencies. Forward currency contracts and options may be utilized on behalf of the Fund and the Master Fund by Investment Funds to hedge against currency fluctuations, but Investment Funds are not required to hedge and there can be no assurance that such hedging transactions, even if undertaken, will be effective.

Risk of Counterparty Default

The stability and liquidity of repurchase agreements, swap transactions, forwards and other over-the-counter derivative transactions depend in large part on the creditworthiness of the parties to the transactions. It is expected that a Portfolio Manager will monitor on an ongoing basis the creditworthiness of firms with which it will enter into repurchase agreements, interest rate swaps, caps, floors, collars or other over-the-counter derivatives. If there is a default by the counterparty to such a transaction, the Portfolio Manager will under most normal circumstances have contractual remedies pursuant to the agreements related to the transaction. However, exercising such contractual rights may involve delays or costs which could result in the net asset value of the Investment Fund being less than if the Investment Fund had not entered into the transaction. Furthermore, there is a risk that any of such counterparties could become insolvent and/or the subject of insolvency proceedings. If one or more of an Investment Fund’s counterparties were to become insolvent or the subject of insolvency proceedings in the United States (either under the Securities Investor Protection Act or the United States Bankruptcy Code), there exists the risk that the recovery of such Investment Fund’s securities and other assets from such prime broker or broker-dealer will be delayed or be of a value less than the value of the securities or assets originally entrusted to such prime broker or broker-dealer.

In addition, the Fund, the Master Fund and the Investment Funds may use counterparties, located in jurisdictions outside the United States. Such local counterparties are subject to the laws and regulations in non-U.S. jurisdictions that are designed to protect their customers in the event of their insolvency. However, the practical effect of these laws and their application to the Fund’s, the Master Fund’s or the Investment Funds’ assets are subject to substantial limitations and uncertainties. Because of the large number of entities and jurisdictions involved and the range of possible factual scenarios involving the insolvency of a counterparty, it is impossible to generalize about the effect of their insolvency on the Fund, the Master Fund or the Investment Funds and their assets. Investors should assume that the insolvency of any counterparty would result in a loss to the Fund (directly or through the Master Fund or the Investment Funds), which could be material.

Highly Volatile Markets

The prices of commodities contracts and derivative instruments, including futures and options prices, are highly volatile. Price movements of forward contracts, futures contracts and other derivative contracts in which the Fund’s assets may be invested are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies. In addition, governments from time to time intervene, directly and by regulation, in certain markets, particularly those in currencies and interest rate related futures and options. Such intervention often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, interest rate fluctuations. Investment Funds also are subject to the risk of the failure of any of the exchanges on which their positions trade or of their clearinghouses.

Emerging Market Investments

The Investment Funds may invest in securities of companies based in emerging countries or issued by the governments of such countries. Investing in securities of certain of such countries and companies involves certain considerations not usually associated with investing in securities of developed countries or of companies located in developed countries, including political and economic considerations, such as greater risks of expropriation, confiscatory taxation, imposition of withholding or other taxes on dividends, interest, capital gains, other income or gross sale or disposition proceeds, limitations on the removal of funds, nationalization and general social, political and economic instability; the small size of the securities markets in such countries and the low volume of trading, resulting in potential lack of liquidity and in price volatility; fluctuations in the rate of exchange between currencies and costs associated with currency conversion; certain government policies that may restrict an Investment Fund’s investment opportunities; and problems that may arise in connection with the clearance and settlement of trades. In addition, accounting and financial reporting standards that prevail in certain of such countries generally are not equivalent to standards in more developed countries and, consequently, less information is available to investors in companies located in these countries than is available to investors in

companies located in more developed countries. There is also less regulation, generally, of the securities markets in emerging countries than there is in more developed countries. Placing securities with a custodian in an emerging country may also present considerable risks.

Short Selling

Investment Funds may engage in short sales. Selling securities short creates the risk of losing an amount greater than the amount invested. Short selling is subject to the theoretically unlimited risk of loss because there is no limit on how much the price of a stock may appreciate before the short position is closed out. A short sale may result in a sudden and substantial loss if, for example, an acquisition proposal is made for the subject company at a substantial premium over the market price. Irrespective of the risk control objectives of the Fund’s multi-asset, multi-manager approach, such a high degree of leverage necessarily entails a high degree of risk. In the event that the Master Fund invests in an Investment Fund that utilizes leverage in its investment program, the Master Fund may be subject to claims by financial intermediaries that extended “margin” loans in respect of such managed account. The risks involved in the use of leverage are increased to the extent that the Fund or the Master Fund itself leverages its capital. An increasing number of jurisdictions are limiting the ability of market participants to engage in short selling in respect of certain securities. In some cases, these rules may also limit the ability of market participants to enter into a short position through a credit default swap or other similar derivatives contract. These rules may limit or preclude one or more Investment Funds from entering into short sales or otherwise taking short positions that the applicable Portfolio Manager believes could be advantageous to the Investment Fund(s).

Bank Debt

Certain Portfolio Managers may invest in bank loans and participations. Risks associated with these obligations include, but are not limited to: inadequate perfection of the security interest granted under the loan documents, the possible invalidation or compromise of a loan transaction as a fraudulent conveyance or preference under relevant creditors’ rights laws; the validity and seniority of bank claims and guarantees; environmental liability that may arise with respect to collateral securing the obligations; adverse consequences resulting from participating in such instruments with other institutions with lower credit quality; long and less certain settlement periods; limitations on the ability of the Portfolio Manager to directly enforce its rights with respect to participations and illiquidity in the market for the resale of such loans.

Project Finance Investments

Certain Portfolio Managers may make investments in securities issued to finance the development of infrastructure in the U.S. and outside of the U.S., including, for example, highways, airports, water and sewerage facilities, and energy distribution and telecommunication networks, schools, universities, hospitals, public housing and prisons. Investments in infrastructure are highly regulated and a failure by a Portfolio Manager to comply with all applicable regulations may result in a substantial loss on investment. Some infrastructure projects may be in unstable political environments, which could impact the efficiency of an operation or prevent the continued operation of an asset in extreme circumstances. Although the liquidity of infrastructure investments varies by project, the market for these assets is generally not liquid and a Portfolio Manager may not be able to readily liquidate an investment. There are varying levels of liability and liability protection incorporated in infrastructure investments. Governmental liability shields may not transfer to new operators.

Hedging Transactions

The Investment Funds may invest in securities and utilize financial instruments, including but not limited to, forward contracts, currency options and interest rate swaps, caps and floors both for investment purposes and hedging purposes in order to: (i) protect against possible changes in the market value of portfolio positions resulting from fluctuations in the securities markets and changes in interest rates, (ii) protect the unrealized gains in the value of portfolio positions, (iii) facilitate the sale of any such investments, (iv) enhance or preserve returns, spreads or gains on any investment in a portfolio, (v) hedge the interest rate or currency exchange rate on

any liabilities or assets, (vi) protect against any increase in the price of any securities which purchase is anticipated at a later date or (vii) for any other reason that such Investment Fund deems appropriate. The Fund and the Master Fund also may utilize such financial instruments for these types of hedging purposes.

Hedging against a decline in the value of a portfolio position does not eliminate fluctuations in the values of portfolio positions or prevent losses if the values of such positions decline, but establishes other positions designed to gain from those same developments, thus moderating the decline in the portfolio positions’ value. Such hedging transactions also limit the opportunity for gain if the value of the portfolio position should increase. Moreover, it may not be possible for the Fund, the Master Fund or such Investment Funds (each, a “Hedging Party” and, collectively, the “Hedging Parties”) to hedge against an exchange rate, interest rate or security price fluctuation that is so generally anticipated that such Hedging Party is not able to enter into a hedging transaction at a price sufficient to protect its assets from the decline in value of the portfolio positions anticipated as a result of such fluctuations.

The Hedging Parties are not required to attempt to hedge portfolio positions and, for various reasons, may determine not to do so. Furthermore, a Hedging Party may not anticipate a particular risk so as to hedge against it. While a Hedging Party may enter into hedging transactions to seek to reduce risk, such transactions may result in a poorer overall performance for such Hedging Party than if such Hedging Party had not engaged in any such hedging transaction. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio position being hedged may vary. For a variety of reasons, a Hedging Party may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent such Hedging Party from achieving the intended hedge or expose such Hedging Party to risk of loss. The successful utilization of hedging and risk management transactions requires skills complementary to those needed in the selection of the Investment Funds’ and Master Fund’s portfolio holdings. Moreover, it should be noted that a portfolio will always be exposed to certain risks that cannot be hedged, such as credit risk (relating both to particular securities and counterparties), “liquidity risk” and “widening” risk.

Currency Exposure

The base currency of the Fund and the Master Fund is the U.S. dollar. Certain of the assets of the Master Fund may, however, be invested in Investment Funds which are denominated in other currencies. Accordingly, the value of such assets may be affected favorably or unfavorably by fluctuations in currency rates. BAAM may, but is not obligated to, seek to hedge such non-U.S. currency exposure but the Fund and the Master Fund will necessarily be subject to foreign exchange risks.

Corporate Debt Obligations

Certain Investment Funds may invest in corporate debt obligations and other forms of indebtedness, including commercial paper. Corporate debt obligations are subject to the risk of an issuer’s inability to meet principal and interest payments on the obligations (credit risk).

Lower-Rated Securities

Certain Investment Funds may invest and transact in lower-rated fixed income securities and other instruments, sometimes referred to as “high yield” or “junk” bonds. Lower-rated securities may include securities that have the lowest rating or are in default. Investing in lower-rated securities involves special risks in addition to the risks associated with investments in higher-rated fixed income securities, including a high degree of credit risk. Lower-rated securities may be regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers/issues of lower-rated securities may be more complex than for issuers/issues of higher quality debt securities. Lower-rated securities may be more susceptible to losses and real or perceived adverse economic and competitive industry conditions than higher-grade securities. Securities that are in the lowest rating category are considered to have extremely poor prospects of ever attaining any real investment standing, to have a current identifiable vulnerability to

default, and to be unlikely to have the capacity to pay interest and repay principal. The secondary markets on which lower-rated securities are traded may be less liquid than the market for higher-grade securities. Less liquidity in the secondary trading markets could adversely affect and cause large fluctuations in the value of such investments. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of lower-rated securities, especially in a thinly traded market. Furthermore, with respect to certain residential and commercial mortgage-backed securities, it is difficult to obtain current reliable information regarding delinquency rates, prepayment rates, servicing records, as well as updated cash flows. The use of credit ratings as the sole method of evaluating lower-rated securities can involve certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of lower-rated securities. In addition, credit rating agencies may fail to change credit ratings in a timely fashion to reflect events since the security was rated.

U.S. Government Securities

Certain Investment Funds may invest in U.S. government securities. Generally, these securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or sponsored enterprises. U.S. government securities also include Treasury receipts and other stripped U.S. government securities, where the interest and principal components of stripped U.S. government securities are traded independently. These securities are subject to market and interest rate risk. A Portfolio Manager may also invest in zero coupon U.S. Treasury securities and in zero coupon securities issued by financial institutions, which represent a proportionate interest in underlying U.S. Treasury securities. A zero coupon security pays no interest to its holder during its life, and its value consists of the difference between its face value at maturity and its cost. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically.

Use of Swap Agreements

The Investment Funds may use equity, interest rate, index and currency swap agreements. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than a year. In a standard swap transaction, two parties agree to exchange the returns earned on specified assets, such as the return on, or increase in value of, a particular dollar amount invested at a particular interest rate, in a particular non-U.S. currency, or in a “basket” of securities representing a particular index. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary securities transactions. Interest rate swaps, for example, do not typically involve the delivery of securities, other underlying assets or principal. Accordingly, the market risk of loss with respect to an interest rate swap is often limited to the amount of interest payments that the Portfolio Manager is contractually obligated to make on a net basis.

Significant Positions

Portfolio companies in which an Investment Fund may invest could have a relatively small aggregate number of outstanding shares, so that the Investment Fund may acquire (i) more than 5% of a class of securities of a single issuer which would require the filing of a Schedule 13D or 13G statement with the SEC or (ii) more than 10% of a class of securities of a single issuer (which would impose certain limitations on the Investment Fund’s ability to trade in such securities, including the restrictions of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The accumulation of such a significant position in the shares of a single issuer could lead to litigation or disputes in the event the Investment Fund desires to influence the issuer. The Portfolio Manager may also seek to challenge the management of a portfolio company through a proxy contest. Such litigation or proxy contest may result in substantial expense to the Investment Fund, thus reducing the value of the Master Fund’s investment in that Investment Fund. In addition, the Portfolio Manager may serve on the board of directors of one or more portfolio companies. As a result, the Portfolio Manager would become an insider and may have access to material nonpublic information affecting the portfolio company, which may preclude the Investment Fund from selling its position (or acquiring additional shares) at any time when the Portfolio Manager otherwise believes it would be appropriate to do so.

Moreover, an Investment Fund’s ability to realize value from certain of its investments may depend upon the ability of the Portfolio Manager to influence the management of a portfolio company to take certain actions, including, for example, a recapitalization, restructuring, spin- off, sale of the business or change in management. If the Portfolio Manager is incorrect in its assessment of the impact such action will have on the value of a portfolio company, or if it is unsuccessful in persuading the portfolio company’s management to take the desired action, the Investment Fund may sustain a loss on its investment in the portfolio company, resulting in a reduction of the value of the Master Fund’s investment in the Investment Fund.

Performance Payments

A Portfolio Manager is typically paid or allocated amounts based upon a Share of the appreciation of the Investment Fund (“performance compensation”). An Investment Fund’s performance compensation arrangements may result in substantially higher compensation to its Portfolio Manager than alternative arrangements. The existence of the performance compensation arrangements may create an incentive for a Portfolio Manager to make riskier or more speculative investments on behalf of the Investment Fund than it would otherwise make in the absence of such performance-based compensation. A Portfolio Manager may receive performance compensation with respect to unrealized appreciation of the Investment Fund’s investment portfolio.

Independent Investment Funds

The Investment Funds invest wholly independently of one another and may at times hold economically offsetting positions. To the extent that the Investment Funds do, in fact, hold such positions, the Fund and the Master Fund, considered as a whole, cannot achieve any gain or loss despite incurring expenses.

Portfolio Valuation

Interests in Investment Funds are generally valued in accordance with the methods, policies and procedures established by the Board of Trustees, as modified from time to time, and based on information provided by the Portfolio Managers to the Master Fund based on the interim unaudited financial records of the Investment Funds, and, therefore, are subject to adjustment (upward or downward) upon the receipt of new or revised information by the Portfolio Manager. If the Board of Trustees determines that the Fund will repurchase an Investor’s Shares, subsequent adjustments to valuations of one or more Investment Funds may occur and there is a risk that such Investor may receive an amount upon repurchase which is greater or less than the amount such Investor would have been entitled to receive on the basis of the adjusted valuation.

In some cases, Portfolio Managers will not endeavor to assess the value of each position held by an Investment Fund, but will instead carry such positions at cost. For example, where an investment is carried at cost by an Investment Fund and a participating investor, such as the Master Fund, withdraws its investment in the Investment Fund before the investment has been sold or a “fair value” has otherwise been established, the investor will generally receive its pro rata share of the investment’s cost, rather than its pro rata share of the current fair value of that investment. Furthermore, the net asset values received by the Master Fund from Portfolio Managers typically are estimates only, subject to revision at any time until each underlying Investment Fund completes its annual audit. Accordingly, the net asset value of a Share reported by the Fund cannot be considered final until the annual audits of the underlying Investment Funds are completed. Investors should be aware that the situations involving uncertainties as to the valuation of the investments of the Fund and the Master Fund could have an adverse effect on the net asset value of the Fund and the Master Fund if the judgments of the Portfolio Managers regarding appropriate valuations should prove incorrect. Absent bad faith or manifest error, such net asset value determinations are conclusive and binding on all Investors. See “Determination of Net Asset Value.”

Risk of Exposure to “Side Pockets”

Some Investment Funds may invest a portion of their assets in investments that the Portfolio Managers believe are illiquid, lack a readily assessable market value or should be held until the resolution of a special event or

circumstance (“Special Investments”). The Portfolio Managers may “side pocket” such “Special Investments.” This means that the Investment Fund will treat the Special Investment as being separate from other investments of the Investment Fund, and an investor, such as the Master Fund, is generally not able to redeem the portion of its interest in the Investment Fund that is side-pocketed until that investment is realized. Typically, only investors in an Investment Fund at the time a Special Investment is side-pocketed are entitled to share in the proceeds of that investment. Those investors will receive a share of the side-pocketed investment once it is realized, even if they have left the Investment Fund. Management fees, performance fees and other expenses of an Investment Fund will typically continue to accrue until the Special Investment is realized or deemed realized.

As noted above, those Special Investments that are side-pocketed may be more illiquid and more difficult to value than other investments of the Investment Funds, and the Master Fund will generally not be able to determine how long investments will remain side-pocketed. As a general matter, the Master Fund bases its net asset value on valuations of its interests in the Investment Funds provided by the Portfolio Managers and their agents, including their administrators, in accordance with the Investment Fund’s valuation policies and reported at the time of the Master Fund’s valuation. Typically, the fair value of the Master Fund’s interest in an Investment Fund represents the amount that the Master Fund could reasonably expect to receive from an Investment Fund were the Master Fund to withdraw its interest at the time of valuation, based on information reasonably available at the time the valuation is made and that the Master Fund believes to be reliable. Where a portion of the Investment Fund’s assets are side-pocketed, the current fair value of the Master Fund’s interest in that Investment Fund may not be accurately reflected in the Master Fund’s net asset value, as the Master Fund may not be able to redeem an interest that is side-pocketed. Because the Fund continuously offers Shares, continued sales of Shares in the Fund will have the effect of diluting the participation and reducing the benefit derived from profits, if any, allocable to the Master Fund upon the realization of side-pocketed investments. Upon a full repurchase of an Investor’s Shares by the Fund, the redeeming Investor will have no further interest in the profits allocable to the Master Fund with respect to side-pocketed investments. If the Fund experiences significant net repurchases or the Master Fund elects to withdraw investments in Investment Funds that have “side pockets,” the percentage of the Fund’s assets that are exposed to “side pockets” will increase. Accordingly, the remaining Investors’ exposure to “side pockets” will also increase as the Fund experiences net repurchases.

The Fund may, in certain circumstances, pay repurchase proceeds in-kind. In-kind repurchase proceeds may include, without limitation, Special Investments, which would be difficult for an Investor to value or to dispose of.

Proprietary Investment Strategies

Investment Funds may use proprietary investment strategies that are based on considerations and factors that are not fully disclosed to the Board of Trustees, BAAM, the Fund or the Master Fund. These strategies may involve risks under some market conditions that are not anticipated by BAAM, the Fund or the Master Fund. The Investment Funds generally use investment strategies that are different than those typically employed by traditional managers of portfolios of stocks and bonds. The investment niche, arbitrage opportunity or market inefficiency exploited by an Investment Fund may become less profitable over time as the Investment Fund and competing asset managers or investors manage a larger group of assets in the same or similar manner (tending to arbitrage away the profit opportunities), or market conditions change. The strategies employed by the Investment Funds may involve significantly more risk and higher transaction costs than more traditional investment methods. The Master Fund seeks to reduce these risks by spreading the investments of the Master Fund among a variety of different Investment Funds using investment strategies with returns that are not highly correlated with one another so that the volatility of different strategies (the profits from one Investment Fund and the losses from another) tends to reduce the overall fluctuation in value of the Master Fund’s assets. It is possible that the performance of the Investment Funds may be closely correlated in some market conditions, resulting (if those returns are negative) in significant losses to the Fund and its investors.

Risk Management Activities

BAAM attempts to measure and monitor risks of the portfolio and Investment Funds. The amount and quality of risk due diligence, measurement and monitoring is dependent on access to the portfolios and risk management

systems (if any) of the Investment Funds. There is no assurance that the Investment Funds will give access to this data. When this information is unavailable, estimates of risk will be made. Efforts to measure and reduce risk may not be successful. Any Fund or Master Fund hedging activities designed to reduce risk may also be unsuccessful.

Business and Regulatory Risks of Investment Funds

Legal, tax, and regulatory developments could occur that may adversely affect the Fund, the Master Fund or the Investment Funds. Securities and futures markets are subject to comprehensive statutes, regulations, and margin requirements enforced by the SEC, other regulators and self-regulatory organizations and exchanges authorized to take extraordinary actions in the event of market emergencies. The regulation of derivatives transactions and funds that engage in such transactions is an evolving area of law and is expected to be subject to modification by government and judicial actions. The regulatory environment for private funds and capital markets is evolving, and changes in the regulation of private funds, their managers, and their trading activities and capital markets may adversely affect the ability of the Fund or the Master Fund to pursue its investment strategy, its ability to obtain leverage and financing and the value of investments held by the Fund or the Master Fund. There has been an increase in governmental, as well as self-regulatory, scrutiny of the alternative investment industry in general. It is impossible to predict what, if any, changes in regulations may occur, but any regulations which restrict the ability of the Investment Funds to trade in securities or the ability of the Fund, the Master Fund or the Investment Funds to employ, or brokers and other counterparties to extend, credit in their trading (as well as other regulatory changes that result) could have a material adverse impact on the Fund’s, the Master Fund’s or the Investment Funds’ performance and, consequently, on the Fund’s portfolio.

The Fund, Master Fund, Investment Funds and Portfolio Managers may also be subject to regulation in jurisdictions in which the Investment Funds engage in business, which, in turn, could have a material adverse impact on the value of the investments of the Fund. Investors should understand that the Fund’s, the Master Fund’s and the Investment Funds’ business is dynamic and is expected to change over time. Therefore, the Fund, the Master Fund and the Investment Funds may be subject to new or additional regulatory constraints in the future. This Prospectus cannot address or anticipate every possible current or future regulation that may affect the Board of Trustees, BAAM, the Fund, the Master Fund, the Investment Funds or their businesses. Such regulations may have a significant impact on the Investors or the operations of the Fund, the Master Fund and the Investment Funds, including, without limitation, restricting the types of investments the Investment Funds, the Fund, and/or the Master Fund may make, preventing the Investment Funds from exercising their voting rights with regard to certain financial instruments, requiring the Investment Funds, the Fund or the Master Fund to disclose the identity of their investors or otherwise. The Board of Trustees may, in its sole discretion, cause the Fund to be subject to such regulations if it believes that an investment or business activity is in the Fund’s interest, even if such regulations may have a detrimental effect on one or more Investors. Prospective Investors are encouraged to consult their own advisors regarding an investment in the Fund.

Regulatory Changes

The financial services industry generally, and the activities of private equity and alternative investment firms and their investment managers and advisers in particular, have been subject to intense and increasing regulatory scrutiny. Such scrutiny may increase the Fund’s, the Master Fund’s and the Investment Funds’ exposure to potential liabilities and to legal, compliance and other related costs. Increased regulatory oversight may also impose additional administrative burdens on BAAM and the Portfolio Managers, including, without limitation, responding to investigations, implementing new policies and procedures and complying with reporting obligations. Such burdens may divert BAAM’s and the Portfolio Managers’ time, attention and resources from portfolio management activities.

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), there has been extensive rulemaking and regulatory changes that affect private fund managers, the funds that they manage and the financial industry as a whole. In particular, Portfolio Managers may be required to register as an investment adviser under the Advisers Act. Additionally, under the Dodd-Frank Act, recordkeeping and reporting requirements for investment advisers may add costs to the legal, operations and compliance obligations of BAAM, the Portfolio Managers, the Investment Funds, the Fund and the Master Fund and increase the amount of

time that BAAM and the Portfolio Managers spend on non-investment related activities. Until all of the new requirements of the Dodd-Frank Act are implemented, it is unknown how burdensome such requirements will be. The Dodd-Frank Act has affected and will continue to affect a broad range of market participants with whom the Fund, the Master Fund and the Investment Funds interact or may interact, including commercial banks, investment banks, other non-bank financial institutions, rating agencies, mortgage brokers, credit unions, insurance companies and broker-dealers. Regulatory changes that will affect other market participants are likely to change the way in which BAAM and the Portfolio Managers conduct business with their counterparties. Parts of the Dodd-Frank Act, such as the “Volcker Rule” (regarding banks’ investment, sponsorship and management of private investment funds) and the “Push-Out Provision” (regarding restrictions on banks’ derivatives trading activities) may change the landscape of the financial industry. It is difficult to anticipate the impact on BAAM, the Portfolio Managers, the Investment Funds, the Fund and the Master Fund of such regulatory changes. It may take years to understand the impact of the Dodd-Frank Act on the financial industry as a whole, and therefore, such continued uncertainty may make markets more volatile, and it may be more difficult for BAAM, and the Portfolio Managers to execute the investment strategies of the Fund, the Master Fund and the Investment Funds.

The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Fund. Prospective investors should read this entire Prospectus and consult with their own advisers before deciding whether to invest in the Fund. No assurance can be made that profits will be achieved or that substantial losses will not be incurred.

Conflicts of Interest

The Fund and the Master Fund may be subject to a number of actual and potential conflicts of interest.

Allocation of Investment Opportunities

If an investment opportunity is appropriate for the Fund, the Master Fund and one or more BAAM Multi- Manager Funds (as defined below), BAAM affiliates or their clients (collectively, “Other BAAM Clients”), BAAM intends to allocate such opportunity in a fair and equitable manner, taking into account various investment criteria, such as the relative amounts of capital available for investments, relative exposure to market trends, investment objectives, liquidity, diversification, contractual restrictions and similar factors. “BAAM Multi-Manager Funds” is defined as multi-manager funds or accounts (i) for which BAAM, or any of its affiliates within Blackstone’s Hedge Fund Solutions Group, acts as an investment manager, managing member, general partner, or in a similar capacity and (ii) in which underlying investments generally are made with or through third-party portfolio managers (and also, in certain cases, directly).

Capacity

To the extent that BAAM Multi-Manager Funds as well as entities affiliated with BAAM invest in private investment funds and managed accounts through third-party investment managers that limit the amount of assets and the number of accounts that they manage, BAAM may be required to choose among the Fund, the Master Fund, other BAAM Multi-Manager Funds and affiliated entities in allocating assets to such third-party investment managers. Similarly, to the extent that BAAM Multi-Manager Funds and other entities affiliated with BAAM wish to invest in specific opportunities (e.g., co-investments) directly or through third-party managers, where such opportunities also are of interest to the Fund and the Master Fund and are limited in capacity, BAAM may be required to choose among the Fund, the Master Fund, other BAAM Multi-Manager Funds and affiliated entities in allocating assets to such opportunities. In both of these scenarios, BAAM intends to allocate such opportunities in a fair and equitable manner and in accordance with BAAM’s written allocation procedures, taking into account various investment criteria, such as the relative amounts of capital available for investments, relative exposure to market trends, investment objectives, liquidity, diversification, contractual restrictions and similar factors.

Financial Interests in Underlying Managers

BAAM and its affiliates have financial interests in investment vehicles and asset managers, which interests may give rise to conflicts of interest between the Fund, the Master Fund and such other investment vehicles managed by such other asset managers. BAAM and its affiliates will endeavor to manage these potential conflicts in a fair and equitable manner, subject to legal, regulatory, contractual or other applicable considerations. These potential conflicts principally relate to the following:

Blackstone-Owned Managers

Affiliates of BAAM currently (or in the future may) hold ownership interests in, or are (and in the future may be) otherwise affiliated with, various investment managers (each fund managed by such an investment manager, a “Blackstone Affiliated Fund”). Such ownership interests range from minority to 100%. Blackstone may receive a substantial portion of the revenues attributable to Blackstone Affiliated Funds. The nature of BAAM’s or its affiliates’ relationship with the Blackstone Affiliated Funds means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund may not be able to invest in the Blackstone Affiliated Funds, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders. If an investment in a Blackstone Affiliated Fund is not prohibited under the 1940 Act, BAAM may have an incentive to allocate the Fund’s or the Master Fund’s assets to such Blackstone Affiliated Fund since affiliates of BAAM have a direct or indirect financial interest in the success of such fund.

Strategic Alliance Fund

Blackstone Strategic Alliance Advisors L.L.C. (“BSAA”), an affiliate of BAAM, manages certain funds (each, a “Strategic Alliance Fund”) that make seed investments in investment vehicles (“Emerging Manager Vehicles”) managed by emerging fund managers (“Emerging Managers”). In connection with such seed investment, the Strategic Alliance Fund generally receives economic participation from the Emerging Manager Vehicles in the form of profit sharing or equity interests, or other contractual means of participating in the business of the Emerging Manager Vehicle. The nature of BAAM’s or its affiliates’ relationship with the Emerging Manager Vehicles means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund typically will not be able to invest in the Emerging Manager Vehicles, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders.

To the extent that an investment by the Fund or the Master Fund in an Emerging Manager Vehicle would not be prohibited under the 1940 Act, such investment generally would benefit the Strategic Alliance Fund and a withdrawal/redemption by the Fund or the Master Fund from such fund generally would be detrimental to the Strategic Alliance Fund. In particular, to the extent that a BAAM Multi-Manager Fund (including the Fund or the Master Fund) invests with an Emerging Manager, the Strategic Alliance Fund will receive a portion of the revenue the Emerging Manager receives in respect of the BAAM Multi-Manager Fund’s investment. Accordingly, there may be a conflict between BAAM’s fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAM’s interest in the success of the Strategic Alliance Funds, on the other hand. In order to mitigate the potential conflict, BSAA and the Strategic Alliance Funds’ general partner will waive their share of any management or performance-based allocations or fees derived from the BAAM Multi-Manager Fund’s investment with an Emerging Manager. This pass through/rebate generally also applies in the case of investments with an Emerging Manager outside of its commingled vehicle. The BAAM Multi-Manager Funds (including the Fund and the Master Fund) will not otherwise participate in any of the economic arrangements related to any Emerging Manager with which they invest.

There is significant overlap between BAAM’s and BSAA’s investment committees.

Blackstone Strategic Capital Advisors L.L.C.

Blackstone Strategic Capital Advisors L.L.C. (“BSCA”), an affiliate of BAAM, manages certain funds (the “BSCA Funds”) that make investments typically in the from of equity interests or revenue shares in established alternative asset managers (the “Strategic Capital Managers”). The nature of BAAM’s or its affiliates’ relationship with the Strategic Capital Managers means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund may not be able to invest in funds managed by a Strategic Capital Manager, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders. To the extent that an investment by the Fund or the Master Fund in a fund managed by a Strategic Capital Manager would not be prohibited under the 1940 Act, such investment generally would benefit the BSCA Funds and a withdrawal/redemption by the Fund or the Master Fund from such fund generally would be detrimental to the BSCA Funds. Accordingly, there may be a conflict between BAAM’s fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAM’s interest in the success of the BSCA Funds, on the other hand.

In particular, to the extent that a BAAM Multi-Manager Fund (including the Fund or the Master Fund) invests with a Strategic Capital Manager, the BSCA Funds will receive a portion of the revenue the Strategic Capital Manager receives in respect of the BAAM Multi-Manager Fund’s investment. Accordingly, there may be a conflict between BAAM’s fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAM’s interest in the success of the BSCA Funds, on the other hand. With respect to assets of a BAAM Multi-Manager

Fund which are treated as “plan assets” for purposes of ERISA, and as otherwise determined by BSCA, BSCA and the BSCA Funds’ general partner will waive their share of any management or performance-based allocations or fees derived from such fund’s investment with that Strategic Capital Manager. Those amounts will be passed through or rebated to the BAAM Multi-Manager Fund. This pass through/rebate generally also applies in the case of investments with a Strategic Capital Manager outside of its commingled vehicles. The BAAM Multi-Manager Funds (including the Fund and the Master Fund) will not otherwise participate in any of the economic arrangements related to any Strategic Capital Manager with which they invest.

There is significant overlap between BAAM’s and BSCA’s investment committees.

Blackstone Senfina Advisors L.L.C.

Blackstone Senfina Advisors L.L.C. (“BSA”), an affiliate of BAAM, manages certain funds (each, a “BSA Fund”) that allocate capital among unaffiliated portfolio managers (“BSA Managers”) and invest capital directly. Initially, all BSA Managers will be exclusive to the BSA Funds, but, in the future, they may develop their own investment management businesses. BSA expects to have a revenue share or other economic interest in such businesses. The nature of BAAM’s or its affiliates’ relationship with the BSA Managers means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund typically will not be able to invest in the investment vehicles managed by the BSA Managers, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders.

To the extent that an investment by the Fund or the Master Fund in a fund managed by a BSA Manager would not be prohibited under the 1940 Act, such investment generally would benefit BSA and a withdrawal/redemption by the Fund or the Master Fund from such fund generally would be detrimental to BSA. In particular, to the extent that a BAAM Multi-Manager Fund (including the Fund or the Master Fund) invests directly with a BSA Manager, BSA will receive a portion of the revenue the BSA Manager receives in respect of the BAAM Multi-Manager Fund’s investment. Accordingly, there may be a conflict between BAAM’s fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAM’s interest in the success of BSA, the BSA Managers and the BSA Funds, on the other hand. In order to mitigate the potential conflict, BSA will waive its share of any management or performance-based allocations or fees derived from the BAAM Multi-Manager Fund’s investment with the BSA Manager. Those amounts will be passed through or rebated to the BAAM Multi-Manager Fund. This pass through/rebate generally also applies in the case of co-investments or other investments with a BSA Manager outside of its commingled vehicle. The BAAM Multi-Manager Funds (including the Fund and the Master Fund) will not otherwise participate in any of the economic arrangements related to any BSA Manager with which they invest.

There is significant overlap between BAAM’s and BSA’s investment committees.

Blackstone Policies and Procedures

Specified policies and procedures implemented by Blackstone to mitigate potential conflicts of interest and address certain regulatory requirements and contractual restrictions may reduce the synergies across Blackstone’s various businesses that the Fund and the Master Fund expect to draw on for purposes of pursuing attractive investment opportunities. Because Blackstone has many different asset management and advisory businesses, it is subject to a number of actual and potential conflicts of interest, greater regulatory oversight and subject to more legal and contractual restrictions than that to which it would otherwise be subject if it had just one line of business. In addressing these conflicts and regulatory, legal and contractual requirements across its various businesses, Blackstone has implemented certain policies and procedures (e.g., information walls) that may reduce the positive synergies that the Fund and the Master Fund expect to utilize for purposes of finding attractive investments. For example, Blackstone may come into possession of material non-public information with respect to companies in which its private equity business may be considering making an investment or companies that

are Blackstone advisory clients. As a consequence, that information, which could be of benefit to the Fund or the Master Fund, might become restricted to those respective businesses and be unavailable to the Fund and the Master Fund.

Blackstone Proprietary Funds

From time to time, Blackstone may hire or enter into a partnership or other arrangement with one or more investment professionals to form and manage private investment funds or separately managed accounts pursuing alternative investment strategies (“Proprietary Funds”). Blackstone generally receives a substantial portion of the revenues attributable to these Proprietary Funds, in most instances greater than the portion of the revenues it would receive from the Fund or the Master Fund. Blackstone has formed several Proprietary Funds and expects to form additional Proprietary Funds in the future. The nature of BAAM’s or its affiliates’ relationship with the Proprietary Funds means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund will not be able to invest in the Proprietary Funds, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders.

Middle- and Back-Office Services

BAAM owns a non-controlling, minority equity interest in Arcesium LLC (“Arcesium”) and the President of the Fund and the Master Fund serves on the board of Arcesium. To the extent permitted by the 1940 Act, Arcesium may provide certain middle- and back-office services and technology to one or more underlying managers and Investment Funds. The services and technology provided to the applicable Investment Funds by Arcesium are expected to support various post-trade activities, including trade capture, cash and position reconciliations, asset servicing, margin and collateral monitoring, pricing-related services, portfolio data warehousing, and other services and technology as agreed between the applicable underlying manager and Arcesium. BAAM may recommend Arcesium’s services to certain underlying managers. BAAM will not require any underlying managers to hire Arcesium as a condition to investing in the Investment Funds of said underlying managers nor will it favor underlying managers who use Arcesium over underlying managers who use other qualified middle- and back-office services providers when selecting underlying managers for the Fund’s portfolio.

In return for such services, Arcesium typically will receive from the applicable Investment Fund a one-time upfront implementation fee, an annual software fee (based on the Investment Fund’s net asset value), and an annual operations services fee (also based on the Investment Fund’s net asset value) (such fees in the aggregate, the “Arcesium Fees”). The Arcesium Fees will be negotiated directly by Arcesium and the underlying managers. Because the Arcesium Fees are based, in part, on the net asset value of a fund, which, in the case of the Fund, is generally determined by the Administrator under the supervision of BAAM, there may be conflicts with respect to calculation of the fees. Additional information regarding the Arcesium Fees is available from BAAM upon request.

In connection with BAAM’s minority equity ownership interest in Arcesium, BAAM is expected to receive cash distributions from Arcesium from time to time. In accordance with applicable law, such cash distributions are expected to be used to reimburse BAAM for the operating expenses of Arcesium for which BAAM has previously paid. Following such expected reimbursement, cash received by BAAM from Arcesium will be applied to reimburse funds/accounts that are managed by BAAM and its affiliates for the amount of Arcesium Fees paid by such entities to Arcesium. In the event that cash distributions received by BAAM from Arcesium with respect to these funds’/accounts’ use of Arcesium exceed the Arcesium Fees paid by the funds/accounts, any excess amounts will be retained by BAAM. In addition, in the event that Arcesium is sold to a third-party, there is no guarantee that BAAM will continue to receive such cash distributions and that the funds/accounts will be reimbursed for any portion of the Arcesium Fees paid by it.

Other Activities of Blackstone, BAAM and its Affiliates

BAAM devotes to the Fund and the Master Fund as much time as is necessary or appropriate, in its judgment, to manage the Fund’s and the Master Fund’s activities. Certain inherent conflicts of interest arise from the fact that BAAM, Blackstone and their affiliates act on behalf of the Fund and the Master Fund and may also carry on investment activities for a significant number of other clients (including registered investment companies and other investment funds sponsored by BAAM, Blackstone or their affiliates) in which the Fund or the Master Fund has no interest. In certain instances, the investment strategies and objectives of these other clients are similar to, or overlap with, the investment objective and strategy of the Fund or the Master Fund. These activities could be viewed as creating a conflict of interest in that BAAM’s time will not be devoted exclusively to the business of the Fund or the Master Fund but such time will be allocated among the Fund, the Master Fund and BAAM’s other clients.

BAAM’s future investment activities, including the establishment of registered investment companies and other investment funds, may give rise to additional conflicts of interest. In addition, the activities in which Blackstone and its affiliates are involved may limit or preclude the flexibility that the Fund or the Master Fund may otherwise have to participate in investments. The Fund or the Master Fund may be forced to waive voting rights or sell or hold existing investments as a result of investment banking relationships or other relationships that Blackstone may have or transactions or investments Blackstone and its affiliates may make or have made. In addition, BAAM may determine not to invest the Fund’s or the Master Fund’s assets in an Investment Fund, or may withdraw/redeem all or a portion of an existing Fund or Master Fund investment in an Investment Fund, subject to applicable law, in order to address adverse regulatory implications that would arise under the 1940 Act for the Fund, the Master Fund and BAAM’s other clients if that investment was made or maintained. To the extent that the adverse regulatory implications are attributable to the Fund’s or Master Fund’s investment, BAAM may cause the Fund or Master Fund to withdraw/redeem prior to other BAAM clients.

BAAM’s investment activities, including the establishment of other investment funds and providing advisory services to discretionary or non-discretionary clients (see “Non-Discretionary/Advisory Clients” below), may give rise to additional conflicts of interest. BAAM has no obligation to purchase or sell, or recommend for purchase or sale for the Fund or the Master Fund, any investment that BAAM or its affiliates may purchase or sell, or recommend for purchase or sale for their own accounts or for the account of any other client or investment fund. Situations may arise in which private investment funds or accounts managed by BAAM or its affiliates have made investments which would have been suitable for investment by the Fund or the Master Fund but, for various reasons, were not pursued by, or available to, the Fund or the Master Fund. BAAM, Blackstone and their affiliates may also engage in business activities unrelated to the Fund and the Master Fund that create conflicts of interest. BAAM, Blackstone, their affiliates and any of their respective officers, directors, partners, members or employees, may invest for their own account in various investment opportunities, including in investment funds, in which the Fund or the Master Fund have no interest. BAAM may determine that an investment opportunity in a particular investment is appropriate for a particular account, or for itself, but not for the Fund or the Master Fund.

Blackstone employees, including employees of BAAM, may invest in hedge funds or other investment entities, including potential competitors of the Fund. Investors will not receive any benefit from any such investments.

Non-Discretionary/Advisory Clients

BAAM provides advisory services, typically on a non-discretionary basis, regarding the hedge fund portfolios of certain clients. BAAM may communicate investment recommendations to such clients prior to the full implementation of such recommendations by BAAM for the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary clients. Accordingly, the Fund, the Master Fund, BAAM Multi-Manager Funds and BAAM’s other discretionary clients may be seeking to obtain limited capacity from Investment Funds at the same time as such non-discretionary clients. Similarly, to the extent that an Investment Fund imposes redemption limitations, actions taken by non-discretionary clients may be adverse to the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary accounts. In addition, non-discretionary clients may from time to time have access to or have the right to obtain information about investment decisions made for the Fund, the

Master Fund, BAAM Multi-Manager Funds or other discretionary clients. Based on such information, the non-discretionary clients may take actions that are adverse to the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary BAAM clients.

Placement Agent Arrangements

The Distributor is an affiliate of BAAM. In addition, certain broker-dealer affiliates of BAAM may enter into placement agent agreements or otherwise be retained as placement agent by a Portfolio Manager. Under these placement agent agreements, to the extent permitted by applicable law, the Portfolio Manager may compensate BAAM’s affiliates for referring investors (including the Fund or the Master Fund) to the Portfolio Manager and such fees will not be shared with the Fund or the Master Fund or the Investors.

Service Providers and Financial Institutions as Investors

From time to time, Blackstone personnel may speak at conferences and programs for potential investors interested in investing in hedge funds, which are sponsored by investment firms that either provide services to the Fund or the Master Fund or have a relationship with BAAM and/or Blackstone. Through such “capital introduction” events, prospective investors in the Fund have the opportunity to meet with BAAM. Neither BAAM nor the Fund compensates the sponsors for organizing such events or for investments ultimately made by prospective investors attending such events. However, such events and other services (including, without limitation, capital introduction services) may influence Blackstone and BAAM in deciding whether to do business with or employ the services of such investment firms consistent with their obligations to the Fund and the Master Fund.

Investment banks or other financial institutions, as well as Blackstone employees, may also be investors in the Fund. These institutions and employees are a potential source of information and ideas that could benefit the Fund or the Master Fund. BAAM has procedures in place designed to prevent the inappropriate use of such information by the Fund or the Master Fund.

Transactions Between the Fund and Other BAAM Clients

BAAM, to the extent permitted by applicable law, including the 1940 Act, may cause the Fund or the Master Fund to purchase investments from, to sell investments to or to exchange investments with any of its or Blackstone’s affiliates. Any such purchases, sales or exchanges generally will be effected based upon the net asset value of the investment.

Management of the Fund

Board of Trustees

The Fund has a Board of Trustees, currently consisting of John M. Brown, Frank J. Coates, Paul J. Lawler, Kristen M. Leopold, and Peter Koffler. The Board of Trustees supervises the conduct of the Fund’s affairs and BAAM’s overall management of the Fund. A majority of the Board of Trustees is comprised of persons (the “Independent Trustees”) who are not “interested persons” (as defined in the 1940 Act) of the Fund. Each of the Trustees has substantial experience in issues relating to investment companies such as the Fund. The Fund’s Trustees and officers are subject to removal or replacement in accordance with Massachusetts law and the Fund’s Declaration of Trust. The initial Trustees serving on the Board of Trustees were elected by the organizational shareholder of the Fund. The Fund’s Board of Trustees also serves as the board of trustees of the Master Fund. References herein to the “Board” or the “Board of Trustees” refer to the Board of Trustees of the Fund or of the Master Fund, as appropriate.

BAAM

Overview

BAAM, the hedge fund solutions group within Blackstone, was founded in 1990 to manage the internal assets of the firm by creating a diversified portfolio of hedge fund investments to offset the equity exposure of the firm’s other businesses. BAAM, a registered investment adviser located at 345 Park Avenue, 28th Floor, New York, New York 10154, serves as the investment manager to the Fund and the Master Fund. BAAM has been retained to provide investment advice, and, in general, to conduct the management and investment program of the Fund and the Master Fund under the overall supervision and control of the Board of Trustees of the Fund and the Master Fund. BAAM is a wholly-owned subsidiary of Blackstone, a publicly traded limited partnership that has units which trade on the New York Stock Exchange under the symbol “BX.” Information about Blackstone, including certain ownership, governance, and financial information, is disclosed in the firm’s periodic filings with the SEC, which can be obtained from the firm’s website at http://ir.blackstone.com/ or the SEC’s website at http://www.sec.gov.

BAAM advises many of the world’s largest and most sophisticated investors including corporate, public and union pension funds, as well as sovereign wealth funds, central banks, insurance companies, high net worth individuals, family trusts and other institutional investors. These investors look to BAAM to create unique investment solutions across multiple asset classes and strategies while protecting capital through robust risk and portfolio management processes. BAAM’s core strategies include commingled, customized, long-only replacement and its Strategic Alliance Funds (as defined herein).

With offices in New York, London, Hong Kong, and Sydney, BAAM is led by J. Tomilson Hill, President and CEO of BAAM and Vice Chairman of Blackstone. As of April 1, 2015, BAAM employs 264 people in these locations. The New York office serves as BAAM’s headquarters and the central location from which all of BAAM’s investment activities and operations are directed. The London office is involved in investment research, monitoring underlying managers, strategy development and client service. The Hong Kong office is primarily focused on Asian hedge fund research. The Sydney office is primarily focused on Australian business development and client service.

BAAM is comprised of experienced professionals with diverse financial backgrounds across its teams: Senior Management, Manager Research, Risk Management, Business & Financial Evaluation (“BFE”), Legal & Product Structuring (which includes all BAAM Compliance personnel), Technology, Business Analysis Team (“BAT”), Investor Relations & Business Development (“IR/BD”) and BAAM Finance.

BAAM’s business is built on long-term, value-added relationships with clients around the globe. As of April 1, 2015, BAAM had approximately $66.7 billion (unaudited) in assets under management.

BAAM’s interests are strongly aligned with those of its investors, many of whom invest in other Blackstone products. Blackstone and its employees have approximately $435 million (as of April 1, 2015; unaudited) invested in BAAM-advised portfolios.

Investment Process

Each investment with a hedge fund manager is the culmination of BAAM’s investment decision-making process. Integrating a top-down perspective with bottom-up expertise, strategy-focused research teams seek to identify hedge fund investment opportunities that are consistent with BAAM’s macroeconomic view.

As part of its investment research process, BAAM meets with hundreds of managers each year. Peer groups are created, ranked, and re-ranked on both quantitative and qualitative criteria on an ongoing basis. This assists BAAM in sourcing new managers for review, prioritizing workflow, identifying trends in investment strategies, and monitoring existing managers.

On an ongoing basis, BAAM’s Manager Research Team discusses potential new managers. Generally, once a manager is deemed a formal prospect after due diligence by the Manager Research Team, all BAAM Teams involved in the due diligence process commence their detailed due diligence procedures. On a bi-weekly basis, BAAM reviews the status of all prospective managers strongly considered for funding in preparation for evaluation by BAAM’s investment committee.

Deeming a manager a proper investment for a BAAM-advised portfolio involves both manager-specific considerations as well as strategic asset allocation considerations.

Asset allocation decisions are guided by a top-down assessment of opportunities across market sectors and refined to satisfy investment goals and restrictions. In addition to ongoing identification of investment opportunities, BAAM performs ongoing analysis of short- and medium-term risk and expected returns by sector to help form asset allocation decisions and guide research efforts. On a monthly basis, BAAM holds its Allocation Strategy Meeting, which is a formal synthesis of BAAM’s top-down asset allocation perspective. Beyond this, BAAM maintains a dialogue with other investment personnel across Blackstone, subject to information walls and other policies and procedures designed to prevent the dissemination of material non-public information, which enables it to leverage the resources and talent throughout the organization as BAAM formulates its macroeconomic perspective and asset allocation decisions.

A bottom-up approach is used to determine the optimal combination of underlying hedge fund managers that will reflect the strategy’s objectives. Managers are evaluated with respect to their individual performance, as well as their ability to add diversification value to the portfolio, where applicable. Beta testing as well as portfolio construction and asset allocation models are used to facilitate the process. BAAM also performs scenario analysis and stress testing to help understand possible portfolio reactions in periods of market dislocation.

By the conclusion of the process, a portfolio is designed that targets the strategy’s specific objectives and that reflects BAAM’s macro outlook. Following the launch of a BAAM-advised portfolio, periodic adjustments are made to its composition based on underlying manager performance and changes in market conditions and opportunities. Allocations to strategies and specific managers are continually reviewed and adjusted based upon available opportunities.

Due Diligence

BAAM employs a multi-disciplinary approach to manager due diligence, with four independent teams involved in the initial vetting and ongoing monitoring of every active investment. Its organization and infrastructure emphasize risk management as well as checks and balances at every stage of the process. Manager due diligence, a process that incorporates quantitative and qualitative analysis and operational and legal review, is conducted by four due diligence teams: Manager Research, Risk Management, BFE and Legal & Product Structuring. Each team has veto authority over any proposed investment. The goal is to create a pool of “best-in-class” managers to which BAAM-advised investors can allocate capital.

A key aspect of using the multi-disciplinary approach to manager due diligence is the sharing of information amongst the various due diligence teams. While each team has a different focus during its reviews, issues often overlap and the teams can compare responses received from portfolio managers, risk managers, internal and

external counsel, service providers, references and back office professionals to seek consistency and completeness of information. Additionally, synergies are created when multiple teams have reviewed different materials and offer complementary yet varying perspectives regarding the overall investment. Having a forum to share information is key to BAAM’s process.

Ongoing Monitoring

On a monthly basis, BAAM performs a review of all portfolios it advises that incorporates ongoing monitoring of existing investments, as well as the potential integration of newly approved managers. Negotiated transparency and frequent manager contact, including annual on-site visits, allow BAAM to employ a variety of analytical approaches throughout the year to monitor and manage risk levels. This includes, but is not limited to, peer group analysis, scenario modeling, stress testing, and beta analysis.

Upon completion of BAAM’s multi-faceted and comprehensive due diligence process, which takes into consideration, among other areas, the macro-economic environment, a manager’s strategy/style, track record, operational ability, and business plan, the manager will be sized appropriately according to its risk/return profile and proposed objective within appropriate BAAM-advised portfolios.

All managers with whom BAAM allocates capital, regardless of their location or jurisdiction, are subject to the same level of due diligence and ongoing manager monitoring: in other words, the same standards of front office, operational/back office, legal and risk due diligence are applied to all prospective and funded hedge fund investments.

Management Agreement

The Master Fund pays BAAM an aggregate fixed management fee (the “Management Fee”), payable quarterly in arrears on the last Business Day of each quarter. The Management Fee accrues monthly at an annual rate of 1.25% of the Master Fund’s net asset value at the end of such month before giving effect to the Management Fee payment being calculated or any purchases or repurchases of Master Fund shares or any distributions by the Master Fund. The Management Fee reduces the net asset value of Master Fund (and indirectly, of the Fund) as of the end of the accounting period in which it is payable and after the calculation of the Management Fee. BAAM will charge a pro rata portion of the Management Fee in the event of contributions or repurchases taking place during a given calendar quarter.

The contractual fee rate and related terms of the Fund’s and the Subsidiary’s separate Investment Management Agreements with BAAM are substantially the same as the terms of the Master Fund’s investment management agreement with BAAM, except that pursuant to the Fund’s Investment Management Agreement, no investment management fee is payable by the Fund with respect to any period during which the only investment security held by the Fund is that of another registered investment company, and no investment management fee is payable by the Subsidiary at any time. For purposes of the Fund’s Investment Management Agreement, the term “investment security” has the same meaning as under Section 12(d)(1)(E) of the 1940 Act. As a result, as long as the Fund continues to invest in the Master Fund as part of a master-feeder arrangement, Investors will incur a single fee for investment management services provided by BAAM to the Fund and the Master Fund. A discussion regarding the basis for the Board of Trustees’ approval of the continuance of the Fund’s, Master Fund’s, and the Subsidiary’s Investment Management Agreements with BAAM is available in the Fund’s Annual Report for the fiscal period ended March 31, 2015.

The Investment Management Agreements between BAAM and each of the Fund, Master Fund, and Subsidiary provide that BAAM shall not be liable for any loss arising out of any investment or for any act or omission in carrying out its duties as adviser in the absence of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or reckless disregard of its obligations and duties.

Portfolio Managers

The portfolio managers of the Fund and the Master Fund (including the Subsidiary) have day-to-day management responsibilities for the Fund and the Master Fund. BAAM’s investment committee reviews and approves

investments made by the Fund and the Master Fund but is not primarily responsible for the day-to-day management of the Fund’s and the Master Fund’s portfolios. Information regarding the portfolio managers is set forth below.


Name	Since		Title and Recent Biography
Alberto Santulin (Portfolio Manager)		2013	Managing Director of BAAM since 2005.
Richard Scarinci (Portfolio Manager)		2015	Managing Director of BAAM since 2013; Vice President of BAAM from 2010-2012.

Mr. Santulin has served as portfolio manager of the Master Fund since 2012. Mr. Scarinci has served as portfolio manager of the Master Fund since 2015.

Further information regarding the portfolio managers, including compensation, other accounts they manage and their ownership of securities in the Fund, is available in the SAI.

Expense Limitation Undertaking

BAAM has voluntarily entered into an “Expense Limitation and Reimbursement Agreement” with the Fund to limit the amount of the Fund’s “Specified Expenses” (as described below and including the Fund’s pro rata share of the Master Fund’s Specified Expenses) to an amount not to exceed 0.35% per annum of the Fund’s net assets (the “Expense Cap”) (computed and applied on a monthly basis). “Specified Expenses” is defined to include all expenses incurred by the Fund and the Fund’s pro rata share of all expenses incurred by the Master Fund with the exception of: (i) the Management Fee, (ii) the Distribution and/or Service Fee (as applicable), (iii) fees and expenses of the Investment Funds in which the Master Fund invests, (iv) brokerage costs, (v) interest payments (including any interest expenses, commitment fees, or other expenses related to any line of credit of the Fund or Master Fund), (vi) taxes, and (vii) extraordinary expenses (as determined in the sole discretion of BAAM). To the extent that Specified Expenses for the Fund (including the Fund’s pro rata share of the Master Fund’s Specified Expenses) for any month exceed the Expense Cap, BAAM will waive its fees and/or reimburse the Fund for expenses to the extent necessary to eliminate such excess. BAAM may discontinue its obligations under the Expense Limitation and Reimbursement Agreement at any time in its sole discretion after March 31, 2017 upon appropriate notice to the Fund. This arrangement cannot be terminated prior to March 31, 2017 without the Board’s consent.

The Fund has agreed to repay the amounts borne by BAAM under the Expense Limitation and Reimbursement Agreement within the three year period after BAAM bears the expense, when and if requested by BAAM, but only if and to the extent that the estimated annualized Specified Expenses of the Fund (including the Fund’s pro rata share of the Master Fund’s Specified Expenses) for a given month are less than the lower of the Expense Cap and any expense limitation agreement then in effect with respect to the Specified Expenses. BAAM is permitted to receive such repayment from the Fund provided that the reimbursement amount does not raise the level of Specified Expenses of the Fund (including the Fund’s pro rata share of the Master Fund’s Specified Expenses) in the month the repayment is being made to a level that exceeds the Expense Cap or any other expense limitation agreement then in effect with respect to the Specified Expenses.

Pass-Through Voting

Whenever the Fund as an investor in the Master Fund is requested to vote on matters pertaining to the Master Fund, the Fund will seek voting instructions from Investors and will vote its interest in the Master Fund for or against such matters proportionately to the instructions to vote for or against such matters received from the Investors. The Fund shall vote shares of the Master Fund for which it receives no voting instructions in the same proportion as the shares of the Master Fund for which it receives voting instructions.

Other Service Providers to the Fund and Master Fund

The Distributor

Blackstone Advisory Partners L.P., an affiliate of BAAM, a limited partnership under the laws of Delaware and an affiliate of the Investment Manager, serves as the principal underwriter of the Fund. The Distributor’s principal business address is 345 Park Avenue, New York, NY 10154.

Pursuant to the distribution agreement (the “Distribution Agreement”), the Distributor is solely responsible for the costs and expenses incurred in connection with (i) its qualification as a broker-dealer under state or federal laws, and (ii) the advertising or promotion of the offering of the Shares. The Distribution Agreement also provides that the Fund will indemnify the Distributor and its affiliates and certain other persons against certain liabilities, including certain liabilities arising under the Securities Act.

The Administrator

Each of the Fund and Master Fund has appointed State Street Bank and Trust Company (“State Street”) to serve as its administrator pursuant to an agreement among the Fund, the Master Fund, Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Sub Fund I Ltd., and State Street (the “Administration Agreement”). State Street’s principal business address is 100 Huntington Avenue, Copley Place Tower 2, Floor 3, Mail Code: CPH0255, Boston, Massachusetts 02116. Under the Administration Agreement, State Street performs certain general administrative tasks for the Fund and the Master Fund, including, but not limited to, keeping financial books and records of the Fund and the Master Fund.

The Master Fund compensates State Street according to a fee schedule, under which the following amounts are aggregated and paid monthly: 4.5 basis points on the first $250 million in aggregate net assets of the Master Fund, 3.5 basis points on the next $250 million in aggregate net assets of the Master Fund, 3.0 basis points on the next $500 million in aggregate net assets of the Master Fund, and 3.0 basis points on the aggregate net assets of the Master Fund in excess of $1 billion (the “Asset-Based Fees”). The Asset-Based Fees are subject to a monthly minimum fee.

State Street is referred to herein as the “Administrator.”

Custodian

Citibank, N.A., through its offices in New York, serves as the Custodian of the assets of the Fund and the Master Fund, and may maintain custody of such assets with U.S. subcustodians and foreign custody managers (which may be banks, trust companies, securities depositories and clearing agencies), subject to policies and procedures approved by the Board of Trustees. Assets of the Fund and the Master Fund are not held by BAAM or commingled with the assets of other accounts, except to the extent that securities may be held in the name of the Custodian, subcustodian or foreign custody manager in a securities depository, clearing agency or omnibus customer account. The Custodian’s principal business address is 388 Greenwich Street, New York, NY 10013.

Transfer Agent

State Street serves as the transfer agent and dividend disbursing agent for the Fund and the Master Fund. State Street’s principal business address for the provision of transfer agency services is 100 Huntington Avenue, Copley Place Tower 2, Floor 3, Mail Code: CPH0255, Boston, Massachusetts 02116. State Street is referred to herein as the “Transfer Agent.” The Transfer Agent will hold subscription monies received from prospective Investors in advance of dates when Shares may be subscribed for and monies may be transmitted to the Fund in a non-interest bearing account pending the admission of Investors to the Fund. If an Investor’s subscription is not accepted, the Transfer Agent will return the subscription monies to the Investor.

Independent Registered Public Accounting Firm

The Board has selected Deloitte & Touche LLP as the Independent Registered Public Accounting Firm of the Fund and the Master Fund. Deloitte & Touche LLP’s principal business address is 30 Rockefeller Plaza, New York, NY 10112.

Legal Counsel

The law firm of Ropes & Gray LLP serves as legal counsel to the Fund and the Master Fund.

Subscription for Shares

The Offering

The Fund offers multiple classes of Shares. All Shares are being offered on a continuous basis at their net asset value per share and may be purchased as of the first Business Day of any month, or at such other times as the Board may determine. Shares may be purchased only from selected broker-dealers or through the Distributor. The continuous offering may be discontinued at any time. The Distributor has the sole right to accept orders to purchase Shares and reserves the right to reject any order in whole or in part.

Shares are being offered only to “Eligible Investors” as defined below. The minimum initial investment in the Fund by an investor is $25,000. Subsequent investment must be at least $5,000. These minimums may be waived by BAAM from time to time for certain investors, including officers and employees of BAAM and its affiliates. Financial intermediaries may impose additional minimum initial and subsequent investment amounts, which may be higher than those imposed by the Fund. Contact your financial intermediary for further information.

The full subscription amount is payable in federal funds, which must be received by the Distributor not later than three Business Days before the date as of which Shares are to be issued (the “Effective Date”). Notice of each Share transaction will be furnished to Investors (or their financial representatives) as soon as practicable but not later than seven days after the Fund’s net asset value is distributed and shareholder transactions are settled, together with information relevant for personal and tax records. The net asset value applicable to a purchase of Shares generally will be available within 30 days after the Effective Date; at that time, the number of Shares based on that net asset value and each Investor’s subscription amount will be determined and credited to the Investor’s account.

Each prospective Investor must complete the subscription documents, in which the prospective Investor must certify, among other things, that he or she is an “Eligible Investor” and meets other requirements for investment. In order for a subscription to be accepted, the Transfer Agent must receive the executed subscription documents at least five Business Days before the date as of which Shares are to be issued. However in the Fund’s or BAAM’s discretion, subscription documents received after this deadline may be accepted.

Eligible Investors

Unless otherwise agreed by the Board, Shares will be sold only to persons who qualify as “accredited investors,” as defined in Regulation D under the Securities Act. Such persons are referred to in this Prospectus as “Eligible Investors.” Qualifications that must be met in becoming an Investor are set out in the subscription agreement that must be completed by each prospective Investor. Investors who subscribe for additional Shares will be required to qualify as Eligible Investors at the time of each additional subscription. Any transferee of Shares must qualify as Eligible Investors at the time of transfer.

Suitability of Investment

An investment in the Fund involves a considerable amount of risk. It is possible that a prospective Investor may lose some or all of his or her investment. Before making an investment decision, a prospective Investor should consider, among other things: (1) the suitability of the investment with respect to such investor’s investment objectives and personal situation; and (2) other factors, including such investor’s personal net worth, income, age, risk tolerance, tax situation and liquidity needs. Prospective Investors should be aware of how the Fund’s and the Master Fund’s investment objective and strategies fit into their overall investment portfolio, as the Fund is not designed to be, by itself, a well-balanced investment for any particular investor.

Distribution Arrangements

The Distributor acts as the distributor of the Shares and serves in that capacity on a best efforts basis, subject to various conditions. The Shares are not subject to a sales load. The Shares may be offered through other brokers or dealers (each a “Selling Agent” and together the “Selling Agents”) that have entered into selling agreements with the Distributor. The Fund is not obligated to sell any Shares that have not been placed with Investors that meet all applicable requirements to invest in the Fund. Investors should consult with their financial intermediaries about any additional fees or charge they might impose.

Neither the Distributor nor any other broker-dealer is obligated to buy from the Fund any of the Shares. There is no minimum number of Shares (by all Investors in aggregate) required to be purchased in the continuous offering. The Distributor does not intend to make a market in the Shares. To the extent consistent with applicable law, the Fund has agreed to indemnify the Distributor against certain liabilities under the Securities Act.

The Fund pays the Distributor an ongoing Distribution and Service Fee at an annualized rate of 0.40% of the average net assets of the Fund attributable to Advisor Class I Shares. This Distribution and Service Fee consists of compensation at a rate of 0.15% for the sale and marketing of Advisor Class I Shares (the “Distribution Component”) and 0.25% for personal services provided to Investors in Advisor Class I Shares and/or the maintenance of Investor accounts (such as personal services including, among others, responding to Investor inquiries and providing information on their investments in the Fund). The Fund pays the Distributor an ongoing Service Fee at an annualized rate of 0.25% of the average net assets of the Fund attributable to Advisor Class II Shares for personal services like those provided to Advisory Class I Shares. The Fund does not pay the Distributor an ongoing Distribution and/or Service Fee with respect to the Advisor Class III Shares of the Fund. Because of the differences in distribution and service fees, over time the performance of Advisor Class III Shares is expected to exceed that of Advisor Class II Shares, which is expected to exceed that of Advisor Class I Shares.

As noted above, the Fund operates pursuant to an exemptive request that it has been granted by FINRA so that the ongoing payments of the Distribution and/or Service Fee (as applicable) made by the Fund and any additional compensation to Selling Agents made by BAAM and/or its affiliates are governed by FINRA Rule 2830. Pursuant to this granted exemption and in accordance with Rule 2830, payment of the Distribution and/or Service Fee (as applicable) could continue for an extended period of time (including, in either case, during the entire life of the Fund). In addition, with respect to Advisor Class I Shares, the aggregate amount of the Distribution Component paid by the Fund and indirectly borne by long-term Investors over time ultimately could exceed the maximum front-end sales charge permitted by FINRA. The Distributor intends to comply with FINRA Rule 2830 in connection with the distribution of the Shares.

The Fund operates pursuant to an exemptive order that has been granted by the SEC to permit the Fund to offer multiple classes of Shares. Pursuant to the terms of the SEC exemptive order the Fund is required to adhere to Rule 12b-1 under the 1940 Act as if the Fund was a registered open-end investment company. With respect to each of the Advisor Class I Shares and Advisor Class II Shares, the Fund pays the applicable fee pursuant to its Distribution and Service Plan or Service Plan, respectively (together, the “Plans”), which it voluntarily adopted and implemented in conformity with Rule 12b-1. By adopting the Plans in accordance with Rule 12b-1, the Fund is permitted to pay fees that are intended to result in the sale and distribution of its Shares, to the extent that a portion of the Distribution and/or Service Fee payments are characterized as such. In conformity with

Rule 12b-1, when the Plans were adopted, the Trustees, including the Independent Trustees who have no direct or indirect financial interest in the operation of the Plans, concluded that there is a reasonable likelihood that the Plans would benefit the Fund and its Investors. In further conformity with Rule 12b-1, each of the Plans contains the following provisions, among others: (i) quarterly reports are to be provided to the Board regarding the amounts expended under each Plan and the purposes for which such expenditures were made; (ii) each Plan will continue only as long as its continuance is approved at least annually by the Board and the Independent Trustees who have no direct or indirect financial interest in the operation of the Plan or any agreement related to such Plan, acting in person at a meeting called for the purpose of voting on the Plan; (iii) any material amendment to the Plan must be approved by the Board and the Independent Trustees who have no direct or indirect financial interest in the operation of the Plan, acting in person at a meeting called for said purpose and (iv) any amendment to increase materially the costs which the Shares of a class may bear for distribution services pursuant to the Plan shall be effective only upon approval by a vote of a majority of the outstanding Shares of such class and by a majority of the Independent Trustees who have no direct or indirect financial interest in the operation of the Plan. Each Plan is terminable without penalty at any time by a vote of a majority of the Independent Trustees who have no direct or indirect financial interest in the operation of the Plan, or by a vote of the holders of a majority of the outstanding Shares of the Fund.

BAAM and/or its affiliates may pay additional compensation, out of its own assets and not as an additional charge, to the Fund or the Master Fund, to selling agents in connection with the sale and/or distribution of Shares or the retention and/or servicing of Investor accounts. The level of such payments may be substantial and may be different for different selling agents. These payments may create incentives on the part of a selling agent to view the Fund favorably compared with investment funds that do not make these payments, or that make smaller payments. As of the date of this Prospectus, the following Selling Agent is receiving such payments: Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”). The level of payments made to Merrill Lynch will not exceed 0.125% of the average daily net assets of Shares held by investors that purchase their Shares through Merrill Lynch (for as long as such Shares are held by those investors through accounts at Merrill Lynch or its affiliates and Merrill Lynch continues to provide the investor servicing activities).

Determination of Net Asset Value

The net asset value of the Master Fund and of each class of the Fund is equivalent to the assets attributable to the Master Fund or class, as applicable, less the liabilities attributable to the Master Fund or class, including accrued fees and expenses, as of any date of determination. Because of the differences in distribution and service fees and class-specific expenses, the per share net asset value of each class may differ. Because the Fund invests substantially all of its assets in the Master Fund, the value of the Fund’s assets will depend on the value of its investment in the Master Fund and, thus, the value of the Master Fund’s investments in Investment Funds. The net asset value of the Master Fund and of each class of the Fund and the net asset value per share of the Fund and the Master Fund generally will be calculated by the Administrator as of the end of each calendar 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 Boards of the Fund and the Master Fund. The Board of the Master Fund has approved procedures pursuant to which the Master Fund will value its investments in Investment Funds in accordance with GAAP. The Administrator, in consultation with BAAM, calculates the net asset value of the Master Fund in accordance with GAAP and the Master Fund’s procedures as adopted by the Board. As a general matter, the Master Fund bases its net asset value on valuations of its interests in the Investment Funds provided by the Portfolio Managers and their agents, including their administrators, in accordance with the Investment Fund’s valuation policies and reported at the time of the Master Fund’s valuation. Typically, the fair value of the Master Fund’s interest in an Investment Fund represents the amount that the Master Fund could reasonably expect to receive from an Investment Fund were the Master Fund to withdraw its interest at the time of valuation, based on information reasonably available at the time the valuation is made and that the Master Fund believes to be reliable. Portfolio Managers typically have discretion to determine whether market prices or quotations fairly represent the value of particular assets held by the Investment Funds, and also typically are authorized to assign a value to these assets that differs from the market prices or quotations for such assets. As a result, information available to the Master Fund concerning the value of its interests in Investment Funds may not reflect market prices or quotations for the underlying assets held by such Investment Funds. In the unlikely event that an

Investment Fund does not report a value to the Master Fund on a timely basis, the Master Fund would determine the fair value of the Investment Fund based on the most recent value reported by the Investment Fund, as well as any other relevant information available at the time the Master Fund values its portfolio.

Because of the important role that Investment Funds’ valuation reporting plays in the valuation of the Master Fund’s and Fund’s net assets, before investing in any Investment Fund, BAAM will conduct a due diligence review of the valuation methodology used for the Investment Fund. These valuation methodologies generally use market values when available, and otherwise utilize principles of fair value that BAAM reasonably believes to be consistent with (but not necessarily the same as) those used by the Master Fund and Fund for valuing their own investments. After investing in an Investment Fund, BAAM will monitor the valuation methodology used by the Investment Fund. Although the procedures approved by the Board provide that the Administrator will review the valuations provided by the Portfolio Managers, none of BAAM, the Administrator or the Board will be able to confirm independently the accuracy of valuations provided by such Portfolio Managers (which are typically unaudited, except for year-end valuations).

For each date for which the net asset value of the Master Fund is calculated, BAAM will perform an independent valuation of the Master Fund’s portfolio. BAAM will consider all relevant information and the reliability of pricing information provided by the Portfolio Managers and/or the administrators of the Investment Funds. BAAM may conclude in certain circumstances that the information provided by a Portfolio Manager does not represent the fair value of the Master Fund’s interests in the Investment Fund. In those circumstances, the Master Fund might value its interests in the Investment Fund at a discount or a premium to the value it receives from the Investment Fund. Following procedures adopted by the Board, in the absence of specific transaction activity in interests in a particular Investment Fund, the Master Fund would consider whether it was appropriate, in light of all relevant circumstances, to value such a position at its net asset value as reported at the time of valuation, or whether to adjust such value to reflect a premium or discount to net asset value. Any such decision would be made in good faith, and subject to the review and supervision of the Board.

The valuations reported by the Portfolio Managers, upon which the Master Fund calculates its own net asset value, may be subject to later adjustment, based on information reasonably available at such later time. For example, fiscal year-end net asset value calculations of the Investment Funds typically would be audited by their independent auditors and may be revised as a result of such audits. Other adjustments may occur from time to time. Adjustments or revisions, whether increasing or decreasing the net asset value of the Master Fund and the Fund at the time they occur, because they relate to information available only at the time of the adjustment or revision, will not affect the amounts received from the Fund by Investors who tendered their Shares before such adjustments and received their proceeds from such tenders. As a result, to the extent that subsequently adjusted valuations from the Portfolio Managers or revisions to net asset value of an Investment Fund adversely affect the Master Fund’s and Fund’s net asset values, the outstanding Shares will be adversely affected by previous tenders to the benefit of Investors who tendered their Shares at a net asset value higher than the adjusted amount. Conversely, any increases in the net asset value resulting from such subsequently adjusted valuations will be entirely for the benefit of the then-outstanding Shares and to the detriment of Investors who previously tendered their Shares at a net asset value lower than the adjusted amount. The same principles apply to the purchase of Shares.

Assets of the Fund or Master Fund held directly and for which market quotations are readily available are valued at their current market value.

Assets for which no market quotations are readily available are valued in any fair and reasonable manner the Board or its delegate may determine.

In general, fair value represents a good faith approximation of the current value of an asset and will be used when there is no public market or possibly no market at all for the asset. The fair values of one or more assets may not be the prices at which those assets are ultimately sold. In these circumstances, BAAM and/or the Board of the Master Fund and Fund will reevaluate their fair value methodology to determine what, if any, adjustments should be made to the methodology.

BAAM acts as investment adviser to other clients that may invest in securities for which no public market price exists. BAAM may use other acceptable methods of valuation in these contexts that may result in differences in the value ascribed to the same security owned by the Master Fund or Fund and other clients. Consequently, the fees charged to the Fund and the Master Fund and other clients may be different, since the method of calculating the fees takes the value of all assets, including assets carried at different valuations, into consideration. Expenses of the Fund and the Master Fund, including the Management Fee and the costs of any borrowings, are accrued on a monthly basis on the day net asset value is calculated and taken into account for the purpose of determining net asset value.

Prospective Investors should be aware that situations involving uncertainties as to the value of portfolio positions could have an adverse effect on the net assets of the Fund and Master Fund if the judgments of the Board of the Fund and Master Fund, BAAM, or Portfolio Managers should prove incorrect. Also, Portfolio Managers typically only provide determinations of the net asset value of Investment Funds on a weekly or monthly basis, in which event it will not be possible to determine the net asset value of the Fund more frequently. The Fund’s current net asset value per share is available on the Fund’s website at http://www.blackstone.com/blackstonealternative-alpha-funds.

Repurchases and Transfers of Shares

No Right of Redemption

The Fund is a closed-end investment company, and therefore no Investor will have the right to require the Fund to redeem its Shares. No public market for Shares exists, and none is expected to develop in the future. Consequently, Investors generally are not able to liquidate their investment other than as a result of repurchases of their Shares by the Fund.

Repurchases of Shares

The Fund from time to time may offer to repurchase a portion (generally, 5–25%) of its outstanding Shares pursuant to written tenders by Investors. Repurchases will be made only at such times and on such terms as may be determined by the Board, in its complete and exclusive discretion. Investors who tender Shares within the 12 month period following acquisition may be subject to an early withdrawal fee, as described below under “Early Withdrawal Fee.” In determining whether the Fund should repurchase Shares from Investors pursuant to written tenders, the Fund’s Board will consider BAAM’s recommendation. BAAM expects that it will recommend to the Fund’s Board that the Fund conduct quarterly repurchases.

The Fund’s assets will consist primarily of its investment in the Master Fund. Therefore, in order to finance the repurchase of Shares pursuant to tender offers, the Fund may find it necessary to liquidate all or a portion of its investment in the Master Fund. Shares of the Master Fund are subject to significant transfer restrictions. The Master Fund is a closed-end investment company and the Fund does not have the right to require the Master Fund to redeem the shares of the Master Fund held by the Fund. Therefore, the Fund typically may withdraw all or a portion of its investment in the Master Fund only pursuant to repurchase offers by the Master Fund. The Fund ordinarily will not offer to repurchase Shares unless the Master Fund conducts a repurchase offer for the Master Fund’s shares at approximately the same time. The Master Fund’s Board expects that the Master Fund will conduct repurchase offers on a quarterly basis in order to permit the Fund to undertake quarterly repurchase offers following procedures that are substantially similar to those employed by the Fund. However, there are no assurances that the Master Fund’s Board will, in fact, decide to conduct repurchase offers on this or any other schedule. The Fund generally cannot make a repurchase offer larger than the repurchase offer made by the Master Fund to the Fund. Moreover, the Master Fund has investors other than the Fund and if a repurchase offer by the Master Fund is fully or oversubscribed, the Fund only would have access to a pro rata portion of the offer by the Master Fund based on the size of its investment in the Master Fund relative to the size of the investments in the Master Fund by other investors. It is anticipated that each repurchase offer made by the Master Fund will extend only to a specified portion of the Master Fund’s net assets, based upon, among other things, the liquidity of the Master Fund’s assets. Because the Master Fund’s assets are expected to be illiquid, it is anticipated that repurchase offers of the Master Fund, and consequently those of the Fund, will be accordingly limited. The Master Fund will typically make repurchase offers, if any, to all of its investors, including the Fund, on the same terms, which practice may also affect the size of the Master Fund’s offers.

In addition to considering BAAM’s recommendation, the Fund’s Board also will consider the following factors, among others, in determining the timing and terms of any offers to repurchase Shares:

•

Whether any Investors have requested that the Fund repurchase their Shares;

•

The liquidity of the Master Fund’s assets;

•

The investment plans and working capital requirements of the Fund and Master Fund;

•

The relative economies of scale with respect to the size of the Fund;

•

The history of the Fund in repurchasing Shares;

•

The condition of the securities markets; and

•

The anticipated tax and/or regulatory consequences of any proposed repurchases of Shares.

The Board will determine that the Fund repurchase Shares from Investors pursuant to written tenders only on terms it determines to be fair to the Fund and to all Investors or persons holding Shares acquired from Investors, as applicable. When the Board determines that the Fund will repurchase Shares, notice will be prepared describing the terms of such repurchase, and containing information Investors should consider in deciding whether and how to participate in such repurchase opportunity. Investors who are deciding whether to tender Shares during the period that a repurchase offer is open may ascertain the net asset value of their Shares from the Transfer Agent.

Unless the Board permits revocation, repurchases will be irrevocable after receipt and acceptance by the Fund of eligible written tenders of Shares from Investors by the applicable repurchase offer deadline. If a repurchase offer is oversubscribed by Investors who tender Shares, the Fund may extend the repurchase offer period, repurchase a pro rata portion of the Shares tendered or take any other action permitted by applicable law.

In light of liquidity constraints associated with the Master Fund’s investments in Investment Funds and the fact that the Master Fund may have to effect withdrawals from Investment Funds in order to pay for Shares being repurchased, the Fund expects that repurchase offers generally will be conducted according to the following procedures; however, the timing, terms and conditions of any particular repurchase offer may vary at the sole discretion of the Board. Repurchase offers will generally commence approximately 95 calendar days prior to the last day of March, June, September and December each year (each such date is referred to as a “Tender Valuation Date”) and remain open for approximately 30 calendar days.

Payment for repurchased Shares may be made in cash or by the distribution of securities in kind, or partly in cash and partly in-kind. However, the Fund does not expect to distribute securities in kind except in the unlikely event that making a cash payment is not feasible or would result in a material adverse effect to the Master Fund, the Fund, or Investors not tendering Shares for repurchase. Any in-kind distribution of securities is likely to consist of unmarketable securities (valued pursuant to procedures approved by the Board), which would be distributed to all tendering Investors on an equal basis to the extent practicable. Investors may be unable to liquidate such securities in a timely manner, may incur brokerage or other transaction costs in liquidating such securities, and may receive a lower price upon liquidation of such securities than the value assigned to them by the Fund at the time of distribution.

If an Investor tenders Shares and the Fund purchases those Shares, the Fund will ordinarily effect payment for those Shares by issuing the Investor a non-interest-bearing, non-transferable promissory note entitling the Investor to the payment(s) described in (A) or (B) below, as applicable:

Payment Schedule for Purchases of Greater than or Equal to 90% of an Investor’s Shares:

•

an initial payment equal to 90% of the unaudited net asset value of the Shares tendered and purchased, determined as of the Tender Valuation Date (the “Initial Payment”), which, unless the existence of changes in tax or other laws or regulations or unusual market conditions result in a delay, will be paid to the Investor on or before the later of (a) 30 days after the Tender Valuation Date or, (b) if the Fund has requested the repurchase of all or a portion of its investment in the Master Fund in order to fund its purchase of Shares, ten Business Days after the Fund has received at least 90% of the aggregate purchase amount from the Master Fund; and

•

a contingent payment (the “Contingent Payment”) equal to the excess, if any, of (1) the net asset value of the Shares tendered and purchased as of the Tender Valuation Date (as may or may not be adjusted based upon subsequent revisions to the net asset values of the Investment Funds) over (2) the Initial Payment, which will be paid to the Investor promptly after completion of the Fund’s next annual audit.

•

The 2% early withdrawal fee described below (if applicable) will reduce the repurchase proceeds by reducing the Initial Payment by the amount of the fee.

Payment Schedule for Purchases of Less than 90% of an Investor’s Shares:

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a single payment (the “Single Payment”) equal to 100% of the unaudited net asset value of the Shares tendered and purchased, determined as of the Tender Valuation Date, which, unless the existence of changes in tax or other laws or regulations or unusual market conditions result in a delay, will be paid to the Investor on or before the later of (a) 30 days after the Tender Valuation Date or, (b) if the Fund has requested the repurchase of all or a portion of its investment in the Master Fund in order to fund its purchase of Shares, ten Business Days after the Fund has received at least 90% of the aggregate purchase amount from the Master Fund.

•

The 2% early withdrawal fee described below (if applicable) will reduce the repurchase proceeds by reducing the Single Payment by the amount of the fee.

The Fund may make multiple audit adjustments to repurchase payment amounts in the event that additional relevant information becomes available following the Fund’s annual audit. Although the Fund has the option to pay all or a portion of the Initial Payment, Contingent Payment and/or Single Payment by distributing securities, such amounts are expected to be paid entirely in cash. Other than the early withdrawal fee described below (if applicable), the Fund does not expect to impose any charges on repurchases of Shares in the Fund.

The Master Fund may be subject to initial lock-up periods of certain Investment Funds beginning at the time of the Master Fund’s initial investment in an Investment Fund. During this period, the Master Fund may not be permitted to withdraw its investment or only may be able to do so with payment of a fee. In addition, some Investment Funds may, from time to time, suspend completely or restrict withdrawal rights for an indefinite period of time in response to market unrest or other adverse conditions (such as those experienced by many hedge funds since late 2008). During such times, the Master Fund may not be able to liquidate its holdings in such Investment Funds to allow the Fund to meet repurchase requests. As a result, the Fund is not able to guarantee liquidity to Investors through repurchase offers. Furthermore, if the Master Fund seeks to liquidate its investment in an Investment Fund that maintains a “side pocket,” establishes a liquidating account mechanism or pays illiquid securities in kind, the Master Fund may not be able to fully liquidate its investment without delay and such delay could be substantial. Accordingly, the Fund may need to suspend or postpone repurchase offers if the Master Fund is not able to dispose of its interests in Investment Funds in a timely manner.

An Investor tendering for repurchase less than all of his or her Shares must maintain a minimum account balance after the repurchase is effected, the amount of which will be established by the Fund from time to time and is currently $25,000. If an Investor tenders a number of Shares that would cause the aggregate net asset value of the Investor’s Share holdings to fall below the required minimum, the Fund reserves the right to reduce the amount to be repurchased from the Investor so that the required minimum balance is maintained. The Fund may also repurchase all of such an Investor’s Shares in the Fund. BAAM may waive the minimum account balance from time to time in its sole discretion.

The Fund’s, and a Share’s, net asset value may change materially from the date a tender offer is mailed to the Tender Valuation Date (or any later valuation date if the tender offer is extended), and to the effective date of repurchase, and it also may change materially shortly after a tender is completed. The method by which the Fund calculates its net asset value is discussed under the caption “Determination of Net Asset Value” and additional risks are discussed under “Risks Associated with BAAM and the Operation of the Fund—Liquidity Risks.”

BAAM and its affiliates may tender for repurchase in connection with any repurchase offer made by the Fund any Share that it holds in its capacity as an Investor.

Consequences of Repurchase Offers

The Fund believes that repurchase offers generally will be beneficial to the Fund’s Investors, and typically will be funded from available cash or sales of portfolio securities of the Fund or the Master Fund. However, payment for repurchased Shares may require the Master Fund to liquidate portfolio holdings earlier than BAAM otherwise would liquidate such holdings, potentially resulting in losses, and may increase the Master Fund’s portfolio

turnover. BAAM intends to take measures to attempt to avoid or minimize such potential losses and turnover, and instead of liquidating portfolio holdings, may borrow money to finance repurchases of Shares. If the Fund borrows to finance repurchases, interest on that borrowing will negatively affect Investors who do not tender their Shares in a repurchase offer by increasing the Fund’s expenses and reducing any net investment income. To the extent the Fund or the Master Fund finances repurchase proceeds by selling Fund or Master Fund investments, the Fund or the Master Fund may hold a larger proportion of its total assets in less liquid securities. Accordingly, non-tendering Investors will own a proportionally greater amount of illiquid investments which may adversely affect their ability to tender their Shares for repurchase in subsequent tender offers, as well as the Fund’s ability to conduct future tender offers at all. Also, the sale of securities to fund repurchases could reduce the market price of those securities, which in turn would reduce the Fund’s net asset value. In addition, the repurchase of Shares by the Fund may be a taxable event to tendering Investors.

Repurchase of the Fund’s Shares will reduce the amount of outstanding Shares and its net assets. A reduction in the Fund’s net assets will tend to increase the Fund’s expense ratio.

Early Withdrawal Fee

Any Investor that sells Shares to the Fund in a repurchase offer that has a Tender Valuation Date within the 12 month period following the original issue date of the Shares will be subject to a repurchase fee at a rate of 2% of the aggregate net asset value of the Shares repurchased by the Fund (an “early withdrawal fee”). For illustrative purposes, an Investor that acquires Shares on the first Business Day of April would not incur an early withdrawal fee for participating in a repurchase offer that has a Tender Valuation Date of March 31 of the following year. Payment of the early withdrawal fee will be made by netting the fee against the repurchase proceeds. The early withdrawal fee will be retained by the Fund for the benefit of remaining Investors. The Fund may, in its sole discretion, waive the early withdrawal fee in certain cases (e.g. in case of a repurchase request by an Investor following a transfer by operation of law). Any such waiver does not imply that the early withdrawal fee will be waived at any time in the future. If an Investor has made multiple subscriptions and tenders a portion of its Shares, the early withdrawal fee will be calculated on a first-in/first-out basis. If the aggregate Shares tendered by Investors in response to the Fund’s repurchase offer exceed the amount of the Fund’s repurchase offer, tendering Investors will generally participate on a pro rata basis.

Forced Redemption

The Fund may (i) repurchase all or any portion of the Shares of an Investor or any person acquiring Shares or portion of the Shares from or through an Investor without consent or other action by the Investor or other person or (ii) cause an Investor to sell all or a portion of its Shares to another Investor, at the most recently calculated net asset value of such Investor’s Shares, for any reason deemed advisable by the Board and to the extent consistent with applicable law, including but not limited to situations in which:

•

the Shares (or a portion of the Shares) have been transferred without BAAM’s approval or the Shares (or a portion of the Shares) has vested in any person other than by operation of law as the result of the death, disability, dissolution, bankruptcy or incompetence of an Investor;

•

ownership of the Shares (or portion of the Shares) by an Investor or other person is likely to cause the Fund to be in violation of, or subject the Fund to additional registration or regulation under, the securities, commodities or other laws of the United States or any other relevant jurisdiction, or may in the judgment of the Board or BAAM subject the Fund or any Investor to an undue risk of adverse tax (such as the Fund no longer being treated as a regulated investment company) or other fiscal or regulatory consequences;

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continued ownership of the Shares (or portion of the Shares) by the Investor or other person may be harmful or injurious to the business of the Fund, the Master Fund, the Board of the Fund or the Master Fund, BAAM, or prevent BAAM from receiving any fees in respect of the Fund or such Investor;

•

any of the representations and warranties made by an Investor in connection with the acquisition of the Shares (or portion of the Shares) was not true when made or has ceased to be true;

•

the value of an Investor’s Shares is less than an amount that the Board determines to be a minimum investment in the Fund, or more than an amount that the Board determines to be a maximum investment in the Fund; or

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an Investor ceases to be eligible, due to changes in the Investor’s circumstances, changes initiated by the Selling Agent, or otherwise, to hold Shares through an account with a Selling Agent.

Transfer of Shares

Shares are not traded on any securities exchange or other market. Shares may not be assigned, transferred, pledged, mortgaged, hypothecated, sold or otherwise disposed of, encumbered or conveyed (each a “Transfer”), except (i) by operation of law resulting from an Investor’s death, disability, dissolution, bankruptcy or incompetence or (ii) with the written consent of an officer of the Fund, which consent may be withheld in his or her sole discretion and shall not be subject to challenge by any potential assignor or assignee. Unless waived by an officer of the Fund, Shares may not be transferred unless the Fund has received a written opinion of its counsel (at the expense of the transferor) that such transfer qualifies for an exemption from such registration under the Securities Act or the regulations thereunder.

Any transferee acquiring Shares by operation of law as a result of the death, disability, dissolution, bankruptcy or incompetence of an Investor or otherwise will be entitled to (i) the distributions paid on the Shares so acquired, (ii) to Transfer all or any portion of the Shares in accordance with the terms of the Declaration of Trust and (iii) to tender all or any portion of the Shares for repurchase by the Fund. Notice to the Fund of any proposed transfer must include evidence satisfactory to the Fund that the proposed transferee meets any requirements imposed by the Fund with respect to Investor eligibility and suitability, including the requirement that any Investor, or the Investor’s equity owners in certain circumstances, at the time of purchase meets the standard for an “accredited investor” as defined in Regulation D under the Securities Act. If an Investor transfers its Shares with the approval of the Board or BAAM (as applicable), the Fund will promptly take all necessary actions so that each transferee or successor to whom the Shares are transferred is admitted to the Fund as an Investor. Each Investor and transferee is required to pay all expenses, including attorneys and accountants fees, incurred by the fund in connection with such transfer.

In subscribing for Shares, an Investor agrees to indemnify and hold harmless the Fund, the Board, BAAM, each other Investor and their affiliates against all losses, claims, damages, liabilities, costs and expenses (including legal or other expenses incurred in investigating or defending against any losses, claims, damages, liabilities, costs and expenses or any judgments, fines and amounts paid in settlement), joint or several, to which those persons may become subject by reason of or arising from any Transfer made by that Investor in violation of these provisions or any misrepresentation made by that Investor in connection with any Transfer.

Automatic Dividend Reinvestment Plan

Pursuant to the Fund’s Automatic Dividend Reinvestment Plan (the “DRIP”), unless an Investor is ineligible or otherwise elects, all distributions of dividends (including capital gain dividends) will be automatically reinvested by the Fund in additional Shares. Election not to participate in the DRIP and to receive all dividends and capital gain distributions in cash may be made by indicating that choice on the subscription documents or by contacting the Administrator at 100 Huntington Avenue, Copley Place Tower 2, Floor 3, Mail Code: CPH0255, Boston, Massachusetts 02116 or at 1-855-890-7725.

After the Fund declares a dividend (including a capital gain dividend) or determines to make a capital gain distribution, participants will be issued additional Shares at their then net asset value. Notice of each such Share transaction will be furnished as soon as practicable but not later than seven days after the Fund’s NAV is distributed and shareholder transactions are settled, together with information relevant for personal and tax records.

In the case of persons, such as banks, brokers or nominees, who hold Shares for others who are the beneficial owners, the DRIP will be administered on the basis of the number of Shares certified from time to time by the

record holders as representing the total amount registered in the record holder’s name and held for the account of beneficial owners who are participants in the DRIP. Investors who intend to hold their Shares through a broker or nominee should contact such broker or nominee to determine whether or how they may participate in the DRIP.

Investors who choose to redeem Shares in connection with the Fund’s offer to repurchase Shares (as described above under “Repurchases of Shares”) will be automatically terminated from the DRIP with respect to such Shares as of the applicable Tender Valuation Date of the offer and any distributions due but not yet paid as of such date with respect to such Shares will be paid in cash on the scheduled dividend payment date.

The automatic reinvestment of dividends and distributions will not relieve participants of any U.S. federal income tax that may be payable on such dividends or distributions. (See “Tax Considerations” below.)

Description of Shares

The Fund is a business trust organized under the laws of The Commonwealth of Massachusetts on January 10, 2013. The Fund is authorized to issue an unlimited number of Shares of beneficial interest and may divide the Shares into one or more classes (each, a “Class”). The Shares are currently offered in three Classes. Each Class has a separate distribution fee arrangement but otherwise has the same rights and privileges as the other Classes. Each Share has one vote at all meetings of shareholders.

All Shares of each Class are equal as to dividends, assets and voting privileges and have no conversion, preemptive or other subscription rights. No Investor has the right to require redemption or repurchase of any Shares by the Fund or to tender Shares to the Fund for repurchase. Investors are not liable for further calls or assessments. The Fund does not intend to hold annual meetings of shareholders.

Under the Declaration of Trust, Investors have limited voting rights. Investors only have the right to vote (i) on the election or removal of Trustees, only to the extent provided in the Declaration of Trust or as required under the 1940 Act; (ii) with respect to certain amendments to the Declaration of Trust, (iii) in some circumstances, on Change of Control Transactions (as described below), (iv) on the termination of the Fund, in limited circumstances (as described below) and (v) on such additional matters as required by law or as considered necessary or desirable by the Trustees.

Under the Declaration of Trust, a Trustee may be removed only for cause and only (1) by action of at least 75% of the outstanding Shares of the classes or series of Shares entitled to vote for the election of such Trustee, at a meeting called for the purpose of voting on such removal, or (ii) by at least 75% of the remaining Trustees.

The following actions may be authorized only by the affirmative vote or consent of at least seventy-five percent (75%) of the Trustees and at least seventy-five percent (75%) of the Shares outstanding and entitled to vote thereon, unless any such action has been approved by both a majority of the Trustees and at least 75% of the “continuing Trustees,” in which case no shareholder vote or consent is necessary (unless required under the Fund’s bylaws, as amended (the “Bylaws”), or under the 1940 Act or other applicable law): (i) the merger or consolidation of the Fund with or into any other person or company or of any such person or company with or into the Fund; (ii) a sale, lease, exchange, mortgage, pledge, transfer or other disposition by the Fund (in one or a series of transactions in any twelve-month period) to or with any person of any assets of the Fund having an aggregate fair market value of $1,000,000 or more, except for transactions in securities effected by the Fund in the ordinary course of business; (iii) any Investor proposal as to specific investment decisions made or to be made with respect to the assets of the Fund and (iv) the issuance or transfer by the Fund of any securities issued by the Fund to any other person or entity for cash, securities or other property (or combination thereof), excluding (a) sales of any securities of the Fund in connection with a public offering thereof and (b) issuance of securities of the Fund pursuant to a dividend reinvestment plan adopted by the Trustees (transactions described in (i) through (iv) collectively referred to as “Change of Control Transactions”). (The Fund issues securities in compliance with Section 23(a) of the 1940 Act, which states that a registered closed-end investment company may, for an issuance of securities, only receive cash or securities as consideration, except in connection with a reorganization.) A “continuing Trustee” is a Trustee who is (A) not a person or an “affiliated person” (as defined in the 1940 Act) of a person who enters or proposes to enter into a Change of Control Transaction with the Fund and has been a Trustee for a period of at least twelve months, (B) is a successor to a continuing Trustee who is not a person or an “affiliated person” (as defined in the 1940 Act) of a person who enters or proposes to enter into a Change of Control Transaction with the Fund and is recommended to succeed a continuing Trustee by a majority of the continuing Trustees then in office, (C) is elected to the Board by the Trustees and is elected to be a continuing Trustee by a majority of the continuing Trustees then in office or (D) who serving as a Trustee prior to the first sale of Shares pursuant to an initial registered public offering only. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control of the Fund by a third party, which may have the effect of depriving Investors of an opportunity to sell their Shares at a premium over market prices. They provide, however, the advantage of potentially requiring persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Fund’s investment objective and policies. The provisions of the Declaration of Trust described above could have the

effect of discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The Board of Trustees of the Fund has considered the foregoing anti-takeover provisions and concluded that they are in the best interests of the Fund.

The Fund’s Declaration of Trust provides that Board will call a meeting of Investors for the purpose of determining whether the Fund should be dissolved in the event that the Fund does not at least once during any 24-month period beginning after January 1, 2014, offer to repurchase Shares tendered in accordance with the procedures determined by the Board from time to time.

The Fund may be terminated at any time without Investor vote or consent by the action of a majority of the Trustees and at least 75% of the continuing Trustees, or else by the vote or consent of Investors holding at least 75% of the outstanding Shares of the Fund. Upon termination of the Fund, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Fund as may be determined by the Trustees, Investors are entitled to share ratably in all remaining assets of the Fund (except to the extent otherwise required or permitted by the preferences and special or relative rights and privileges of the Shares).

The foregoing is intended only as a summary and is qualified in its entirety by reference to the full text of the Declaration of Trust and the Bylaws, each as amended, both of which as of the date of this Prospectus are on file with the Securities and Exchange Commission.

Under the Declaration of Trust, the Fund has agreed to indemnify each member of its Board of Trustees and its officers (including such persons who serve at the Fund’s request as directors, officers, members, partners, or trustees of another organization in which the Fund has any interest as a shareholder, creditor or otherwise) (each such person hereinafter referred to as a “Fund Covered Person”) against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Fund Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Fund Covered Person may be or may have been involved as a party or otherwise or with which such Fund Covered Person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Fund Covered Person, except with respect to any matter as to which such Fund Covered Person shall have been finally adjudicated in a decision on the merits in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Fund Covered Person’s action was in the best interests of the Fund or was at least not opposed to the best interests of the Fund and except that no Fund Covered Person shall be indemnified against any liability to the Fund or its Investors to which such Fund Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Fund Covered Person’s office (“Disabling Conduct”). The Board will use reasonable and fair means in accordance with SEC policy to determine whether Disabling Conduct occurred, including (i) a final decision on the merits by a court or other body before whom the proceeding was brought that Fund Covered Person was not liable by reason of Disabling Conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the Fund Covered Person was not liable by reason of Disabling Conduct, by an independent legal counsel in a written opinion. Consistent with SEC policy, the Fund shall advance expenses incurred by any Fund Covered Person in advance of the final disposition of any such action, suit or proceeding, provided that such advance is subject to certain conditions, including that the indemnitee agrees to repay the advance unless it is ultimately determined that he or she is entitled to indemnification.

Under Massachusetts law, shareholders could, in certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration of Trust contains an express disclaimer of shareholder liability for debts or obligations of the Fund and requires that notice of such limited liability be given in each agreement, obligation or instrument entered into or executed by the Fund or the Trustees. The Declaration of Trust further provides for indemnification out of the assets and property of the Fund for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The Fund believes that the likelihood of such circumstances is remote.

Portfolio Transactions

Portfolio transactions are allocated to brokers by each Portfolio Manager. Portfolio Managers have authority to, and may, select brokers in consideration of such brokers’ provision or payment of the costs of property and services which are generally of benefit to clients of the Portfolio Managers, including the Fund, although such services may not directly relate to any transactions for the benefit of the Fund. Portfolio Managers may use “soft dollars” generated on transactions outside of the safe harbor of Section 28(e) of the Exchange Act to obtain non-research products and services.

In view of the fact that the investment program of certain of the Portfolio Managers may include trading as well as investment, short-term market considerations are frequently involved, and the portfolio turnover in certain of the Investment Funds may be substantially greater than the turnover rates of other types of investment funds.

Tax Considerations

The following discussion offers only a brief outline of the U.S. federal income tax consequences of investing in the Fund and is based on the U.S. federal tax laws in effect on the date hereof. Such tax laws are subject to change by legislative, judicial or administrative action, possibly with retroactive effect. For more detailed information regarding tax considerations, see the SAI. There may be other tax considerations applicable to particular Investors, including foreign Investors (as defined below). Investors should consult their own tax advisers for more detailed information and for information regarding the impact of state, local and foreign taxes on an investment in the Fund.

The Fund invests substantially all of its assets in the Master Fund, and so substantially all of the Fund’s income will result from distributions or deemed distributions from the Master Fund. Therefore, as applicable, references to the U.S. federal income tax treatment of the Fund, including to the assets owned and the income earned by the Fund, will be to or will include such treatment of the Master Fund, and, as applicable, the assets owned and the income earned by the Master Fund.

The Fund has elected to be treated and intends to qualify annually for treatment as a RIC under Subchapter M of the Code. In order for the Fund to so qualify, it must meet an income and asset diversification test each year. To satisfy the income test, the Fund must derive at least 90% of its gross income for each taxable year from (i) dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies and (ii) net income derived from interests in “qualified publicly traded partnerships” (as defined in the Code). To satisfy the asset diversification test, the Fund must diversify its holdings so that at the end of each fiscal quarter, (a) at least 50% of the value of its total assets consists of cash and cash items (including receivables), U.S. government securities, securities of other RICs, and other securities limited, with respect to any one issuer, to no more than 5% of the value of the Fund’s total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Fund’s total assets is invested in the securities (other than those of the U.S. government or other RICs) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades or businesses, or in the securities of one or more “qualified publicly traded partnerships” (as defined in the Code—see the SAI). For these purposes, the Fund will be considered to control any corporation of which the Fund owns 20% or more of the voting power.

In general, for purposes of the 90% gross income test described above, income derived from an entity treated as a partnership for U.S. federal income tax purposes will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership that would be qualifying income if realized directly by the Fund.

For each taxable year that the Fund otherwise qualifies as a RIC, it will not be subject to U.S. federal income tax on that part of its investment company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short term capital loss) that it distributes to its Investors, if it distributes at least 90% of the sum of its investment company taxable income (without regard to the deduction for dividends paid) and any net tax-exempt interest income for that year in the form of dividends (the “distribution requirement”). The Fund intends to make sufficient distributions of its investment company taxable income and net tax-exempt interest income, if any, each taxable year to meet the distribution requirement.

The Fund currently intends to distribute all realized net capital gain each year. If, however, the Fund’s Board determines for any taxable year to retain all or a portion of the Fund’s net capital gain, that decision will not affect the Fund’s ability to qualify for treatment as a RIC, but will subject the Fund to a maximum tax rate of 35% of the amount retained. In that event, the Fund expects to designate the retained amount as undistributed capital gains in a notice to its Investors, who (i) will be required to include their proportionate Shares of the undistributed amount in their gross income as long-term capital gain, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund against their U.S. federal income tax liabilities. For U.S. federal income tax purposes, the tax basis of Shares owned by an Investor will be increased by an amount equal to the amount described in clause (i), above, minus the amount described in clause (ii), above.

The Fund seeks to achieve its investment objective by investing substantially all of its investable assets in the Master Fund, which itself has elected to be treated and currently intends to qualify and be eligible to be treated as a RIC. Whether the Fund meets the asset diversification test described above will depend on whether the Master Fund meets such test. If the Master Fund were to fail to meet the income, diversification or distribution test and were ineligible to or otherwise were not to cure such failure, the Fund would or may as a result itself fail to meet the asset diversification test and may be ineligible to or may otherwise not cure such failure.

The Master Fund intends to gain exposure to Investment Funds in part through investments in the Subsidiary. As described above, in order to qualify as a RIC, the Master Fund must derive at least 90% of its gross income each taxable year from sources treated as “qualifying income” under the Code. Investments in U.S. investment partnerships that invest in commodities and certain commodity-linked instruments, as well as certain other assets, generate income that is not “qualifying income” for purposes of meeting this 90% test. Although the Internal Revenue Service (the “IRS”) previously issued a number of private letter rulings that indicate that certain income from a RIC’s investment in a controlled foreign corporation (see discussion below) will constitute “qualifying income” for purposes of the 90% gross income test, each of the private letter rulings it issued applies only to the taxpayer that received it and may not be used by another taxpayer or cited as precedent, and the IRS suspended issuance of further such rulings pending a review of its position on the matter. If the IRS were to change its position with respect to the conclusions reached in these rulings, which change in position may be applied retroactively to the Master Fund, all or a portion of the income from the Master Fund’s investment in the Subsidiary might not be “qualifying income” and the Master Fund might not qualify as a RIC for one or more years, which would adversely affect the value of an investment in the Master Fund and likely affect the Fund’s qualification as a RIC. The Master Fund intends to take the position that income from its investments in the Subsidiary will constitute qualifying income for purposes of RIC qualification, and may take certain measures to ensure that income from the Subsidiary so qualifies. Under current law and in the absence of an IRS ruling or other guidance, this result is uncertain. It is possible that the IRS will take the position that all or a portion of such income does not constitute qualifying income, including retroactively; if the IRS were successful in this position the Master Fund might well not meet the 90% gross income requirement. As a result, there can be no assurance that the Fund or the Master Fund will be able to qualify or maintain its status as a RIC.

Subsidiary and the Subsidiary is a CFC. As a “U.S. Shareholder,” the Master Fund is required to include in gross income for U.S. federal income tax purposes all of the Subsidiary’s “subpart F income” (defined below), whether or not such income is distributed by the Subsidiary. It is expected that all of the Subsidiary’s income will be “subpart F income.” “Subpart F income” generally includes interest, original issue discount, dividends, net gains from the disposition of stocks or securities, receipts with respect to securities loans, net gains from transactions (including futures, forward and similar transactions) in commodities, and net payments received with respect to equity swaps and similar derivatives. The Master Fund’s recognition of the Subsidiary’s “subpart F income” will increase the Master Fund’s tax basis in the Subsidiary. Distributions by the Subsidiary to the Master Fund will be tax-free, to the extent of the Subsidiary’s previously undistributed “subpart F income,” and will correspondingly reduce the Master Fund’s tax basis in the Subsidiary. “Subpart F income” is generally treated as ordinary income, regardless of the character of the Subsidiary’s underlying income. Net losses incurred by the Subsidiary during a tax year do not flow through to the Master Fund and thus will not be available to offset income or capital gain generated from the Master Fund’s other investments. In addition, net losses incurred by the Subsidiary during a tax year generally cannot be carried forward by the Subsidiary to offset gains realized by it in subsequent tax years.

Failure of the Fund to qualify and be eligible to be treated as a RIC would likely materially reduce the investment return to the Fund’s Investors. If the Fund were to fail to meet the income, diversification or distribution test described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax or interest, making additional distributions, or disposing of certain assets. If the Fund were ineligible to or otherwise were not to cure such failure for any year, or if the Fund were otherwise to fail to qualify as a RIC accorded special tax treatment for such year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to Investors as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a RIC that is accorded special tax treatment. As stated above, this discussion of the U.S. federal income tax treatment of the Fund includes the Master Fund. If the Master Fund were to fail to qualify and be eligible to be treated as a RIC, the Fund would also most likely fail to qualify as a RIC.

Gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues income or receivables or expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on the disposition of debt securities denominated in a foreign currency, foreign currency forward contracts and certain other positions in foreign currency, to the extent attributable to fluctuations in exchange rates generally between the acquisition and disposition dates, are also treated as ordinary income or loss. Such fluctuations may affect the timing, amount and character of distributions to Investors.

Income from or the proceeds of dispositions of the Fund’s investment in non-U.S. securities may be subject to withholding and other taxes imposed by countries outside the United States. In that case, the Fund’s yield on those securities would be decreased. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of a RIC’s assets at year-end consists of the stock or securities of foreign corporations, the RIC may elect to permit Investors to claim a credit or deduction on their income tax returns for their pro rata portion of qualified taxes paid by the RIC to foreign countries in respect of foreign stock or securities the RIC has held for at least the minimum period specified in the Code. In such a case, investors will include in gross income from foreign sources their pro rata shares of such taxes. There are special rules for passing through such credits or deductions in the case of a RIC that invests more than 50% of its assets in other RICs. (See the SAI.) Generally, as a result of these rules, if the Master Fund is eligible to elect and does elect to permit its Investors to claim a credit or deduction on their income tax returns for their pro rata portion of qualified foreign taxes paid by the Master Fund, the Fund will in turn be eligible to elect to permit its Investors to claim a corresponding credit or deduction.

The Fund will be subject to a nondeductible 4% excise tax to the extent it fails to distribute by the end of any calendar year an amount at least equal to the sum of (i) 98% of its ordinary income for that calendar year (ii) 98.2% of its capital gain net income for the one-year period ending on October 31 of that calendar year and

(iii) any ordinary income and capital gains from previous years that were not distributed during those years and on which the Fund paid no U.S. federal income tax. For this and other purposes, a distribution will be treated as paid by the Fund and received by the Investors on December 31 if it is declared by the Fund in October, November or December of such year, made payable to Investors of record on a date in such a month and paid by the Fund during January of the following year. Any such distribution thus will be taxable to Investors whose taxable year is the calendar year in the year the distribution is declared, rather than the year in which the distribution is received. To prevent application of the excise tax, the Fund intends to seek to ensure that it makes its distributions in accordance with the calendar year distribution requirement. Given the difficulty of estimating Master Fund income and gains in a timely fashion, each year the Master Fund is likely to be and it is possible that the Fund will be liable for a 4% excise tax.

If a portion of the Fund’s income consists of qualifying dividends paid by U.S. corporations, a portion of the dividends paid by the Fund to corporate Investors, if properly reported, may qualify for the dividends-received deduction, provided holding period and other requirements are met by both the Fund and the Investor. In addition, distributions of investment company taxable income reported by the Fund as derived from “qualified dividend income” (defined below) will be taxed in the hands of individuals at the rates applicable to long-term capital gain, provided holding period and other requirements are met by both the Fund and the Investor, although such income will not be considered long-term capital gains for other federal income tax purposes. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain “qualified foreign corporations” (generally, foreign corporations incorporated in a possession of the United States or in certain countries with a qualifying comprehensive tax treaty with the United States, or the stock of which and with respect to which such dividend is paid is readily tradable on an established securities market in the United States), but not including a foreign corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a “passive foreign investment company,” as defined in the Code. There can be no assurance of what portion, if any, of the Fund’s distributions will qualify for the dividends-received deduction or as qualified dividend income. Generally, if the Fund receives distributions from the Master Fund that have been properly reported by the Master Fund as qualifying for the dividends-received deduction or as having been derived from qualified dividend income, the Fund will be able to make corresponding distributions that it may itself report as qualifying for the dividends-received deduction or derived from qualified dividend income, as the case may be.

The Fund will invest in Investment Funds that are classified as “passive foreign investment companies” (“PFICs”) for U.S. federal income tax purposes. Investments in PFICs could potentially subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company. This tax cannot be eliminated by making distributions to Investors. However, an election is generally available to avoid the imposition of that tax. For example, an election to treat a PFIC as a QEF will require the Fund to include its share of the PFIC’s income and net capital gains annually, regardless of whether it receives any distribution from the PFIC. Another election would require the Fund to mark the gains (and to a limited extent losses) in PFIC holdings “to the market” as though such holdings had been sold (and, solely for purposes of this mark-to-market election, repurchased) on the last day of the Fund’s taxable year. Such gains and losses are treated as ordinary income and loss. If the Fund realizes a loss with respect to a PFIC, whether by virtue of selling all or part of the Fund’s interest in the PFIC or because of the “mark to market” adjustment described above, the loss will be ordinary to the extent of the excess of the sum of the mark-to-market gains over the mark-to-market losses previously recognized with respect to the PFIC. To the extent that the Fund’s mark-to-market loss with respect to a PFIC exceeds that limitation, the loss will effectively be taken into account in offsetting future mark-to-market gains from the PFIC, and any remaining loss will generally be deferred until the PFIC interests are sold, at which point the loss will be treated as a capital loss.

If neither a “mark-to-market” nor a QEF election is made with respect to an interest in a PFIC, the ownership of the PFIC interest may have significantly adverse tax consequences for the Fund. In such a case, the holder would be subject to an interest charge (at the rate applicable to tax underpayments) on its tax liability treated as having been deferred with respect to certain distributions and on gain from the disposition of the interests in a PFIC (collectively referred to as “excess distributions”), even if, in the case where the holder is a RIC, those excess distributions are paid by the RIC as a dividend to its shareholders.

The Fund may be required to recognize income (which generally must be distributed to the Fund’s Investors) in excess of the distributions that it receives in respect of a PFIC with respect to which a mark-to-market election is made. Accordingly, the Fund may need to borrow money or to dispose of investments, potentially including its interests in the PFIC, in order to make the distributions required in order to maintain its status as a RIC and to avoid the imposition of a federal income tax and/or the nondeductible 4% excise tax described above. There can be no assurances, however, that the Fund will be successful in this regard, and the Fund may not be able to maintain its status as a RIC.

Distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss, in each case determined with reference to any capital loss carryforwards) that are reported by the Fund as capital gain dividends (“capital gain dividends”) will be taxable to Investors as long-term capital gains includible in net capital gain and taxed to individuals at reduced rates, regardless of the Investors’ respective holding periods for their Shares. Distributions of net short-term capital gain (as reduced by any net long-term capital loss for the taxable year) will be taxable to Investors as ordinary income. Distributions, if any, in excess of the Fund’s current and accumulated earnings and profits will first reduce the adjusted tax basis of an Investor’s Shares and, after that basis has been reduced to zero, will constitute a capital gain to the Investor (assuming the Shares are held as a capital asset).

Distributions are taxable in the same manner, whether Investors receive cash or reinvest the distributions in additional Shares through the DRIP (described above). Investors will be notified annually as to the U.S. federal tax status of distributions. Investors subject to U.S. federal income tax generally will be required to recognize the full amount of the dividend (including the portion payable in Shares) as ordinary dividend income (and, to the extent applicable, as a capital gain dividend) to the extent of the Fund’s current and accumulated earnings and profits for U.S. federal income tax purposes.

The sale or other disposition of Shares generally will be a taxable transaction for U.S. federal income tax purposes. Selling holders of Shares generally will recognize gain or loss in an amount equal to the difference between the amount of cash and the fair market value of any property received in exchange therefore and their respective bases in such Shares. If the Shares are held as a capital asset, the gain or loss generally will be a capital gain or loss. A redemption (including a redemption resulting from a tender offer or liquidation of the Fund), if any, of Shares by the Fund generally will give rise to capital gain or loss if, after the redemption, the Investor does not own (and is not regarded under certain tax law rules of constructive ownership as owning) any Shares in the Fund and provided that the redemption proceeds do not represent declared but unpaid dividends.

Generally, a holder’s gain or loss will be a long-term gain or loss if the Shares have been held for more than one year. However, any loss realized upon a taxable disposition of Shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received by the holder (or amounts credited to the holder as undistributed capital gains) with respect to such Shares. Also, any loss realized upon a taxable disposition of Shares may be disallowed if other substantially identical Shares are acquired (including through the reinvestment of distributions, which could occur, for example, if the Investor is a participant in the DRIP) within a 61-day period beginning 30 days before and ending 30 days after the date the original Shares are disposed of. If disallowed, the loss will be reflected by an upward adjustment to the basis of the Shares acquired. Capital losses may be subject to other limitations imposed by the Code.

From time to time, the Fund intends to make a tender offer for its Shares (as described above). Investors who tender all Shares held, or considered to be held, by them, and all of whose Shares are repurchased, will be treated as having sold their Shares and generally will realize a capital gain or loss. If an Investor tenders fewer than all of its Shares or fewer than all Shares tendered are repurchased, such Investor may be treated as having received a so-called “Section 301 distribution,” taxable in whole or in part as a dividend, upon the tender of its Shares. In such a case, there is a risk that non-tendering Investors, and Investors who tender some but not all of their Shares or fewer than all of whose Shares are repurchased, in each case whose percentage interests in the Fund increase as a result of such tender will be treated as having received a taxable dividend distribution from the Fund. The extent of such risk will vary depending upon the particular circumstances of the tender offer, and in particular whether such offer is a single and isolated event or is part of a plan for periodically redeeming Shares of the Fund.

When the Master Fund makes a tender offer for its shares (as described above), there is a risk that non-tendering shareholders in the Master Fund, and other shareholders of the Master Fund who tender some but not all of their shares therein or not all of whose shares therein are repurchased, in each case whose percentage interests in the Master Fund increase as a result of such tender, will be treated as having received a taxable dividend distribution from the Master Fund. The extent of this risk will vary depending upon the particular circumstances of the tender offer, and in particular whether such offer is a single and isolated event or is part of a plan for periodically redeeming shares of the Master Fund. As a result, there is a risk that the Fund may be treated as having received a taxable dividend from the Master Fund in such instances.

The Fund may be required to withhold, for U.S. federal income taxes, a portion of all taxable dividends and redemption proceeds payable to Investors who fail to provide the Fund with their correct taxpayer identification numbers or who otherwise fail to make required certifications, or if the Fund or an Investor has been notified by the U.S. Internal Revenue Service (the “IRS”) that such Investor is subject to backup withholding. Certain Investors specified in the Code and the Treasury regulations promulgated thereunder are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld will be allowed as a refund or a credit against the Investor’s federal income tax liability if the appropriate information is provided to the IRS.

Absent a specific statutory exemption, dividends other than capital gain dividends paid to an Investor that is not a “U.S. person” within the meaning of the Code (a “foreign Investor”) are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate). Capital gain dividends and any amounts retained by the Fund which are designated as undistributed capital gains will not be subject to U.S. tax at the rate of 30% (or lower treaty rate) unless the foreign Investor is a nonresident alien individual and is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements. However, this 30% tax on capital gains of nonresident alien individuals who are physically present in the United States for more than the 182-day period only applies in exceptional cases because any individual present in the United States for more than 182 days during the taxable year is generally treated as a resident for U.S. income tax purposes; in that case, he or she would be subject to U.S. income tax on his or her worldwide income at the graduated rates applicable to U.S. citizens, rather than the 30% tax. In the case of a foreign Investor, the Fund may be required to withhold U.S. income tax on distributions of net capital gain unless the foreign Investor certifies his or her non-U.S. status under penalties of perjury or otherwise establishes an exemption (generally by providing an IRS Form W-8BEN). Effective for distributions with respect to taxable years of the Fund beginning before January 1, 2015, the Fund is not required to withhold any amounts with respect to distributions of (i) U.S.-source interest income that would not have been subject to U.S. federal income tax if earned directly by an individual foreign Investor, and (ii) net short-term capital gains in excess of net long-term capital losses, in each case to the extent the Fund properly reports such distributions in a written notice to Investors. These exemptions from withholding have expired for distributions with respect to taxable years of the Fund beginning on or after January 1, 2015. It is currently unclear whether Congress will extend these exemptions for distributions with respect to taxable years of the Fund beginning on or after January 1, 2015, or what the terms of such an extension would be, including whether such extension would have retroactive effect.

If any distributions received by a foreign Investor from the Fund (or amounts which are designated as undistributed capital gains) are effectively connected to a trade or business within the United States, the rules described in the preceding paragraph would not apply, and such foreign Investor would generally be taxed on such amounts at the same rates applicable to U.S. Investors. Also, such distributions (or undistributed capital gains) may be subject to a 30% branch profits tax in the hands of a foreign Investor that is a corporation.

Very generally, special tax rules apply if the Fund holds “U.S. real property interests” (“USRPIs”) (or if the Fund holds assets that would be treated as USRPIs but for certain exceptions applicable to RICs) the fair market value of which equals or exceeds 50% of the sum of the fair market values of the Fund’s USRPIs, interests in real property located outside the United States, and other assets used or held for use in a trade or business. Such rules could result in U.S. tax withholding from certain distributions to a foreign Investor. Furthermore, the foreign Investor may be required to file a U.S. tax return and pay tax on such distributions—and, in certain cases, gain realized on sale of Fund Shares—at regular U.S. federal income tax rates. The Fund does not expect to invest in a

significant percentage of USRPIs, so these special tax rules are not likely to apply. Tax-exempt entities, including tax-advantaged retirement plans (see “ERISA Considerations” below), may purchase Shares if they are accredited investors. Under current law, the Fund serves to “block” (that is, prevent the attribution to Investors of) unrelated business taxable income (“UBTI”) from being realized by its tax-exempt Investors. Notwithstanding the foregoing, a tax-exempt Investor could realize UBTI by virtue of its investment in Shares of the Fund if those Shares constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Section 514(b) of the Code. A tax-exempt Investor may also recognize UBTI if the Fund were to recognize “excess inclusion income.” See the SAI.

Investors are advised to consult their own tax advisers with respect to the application to their own circumstances of the above-described general taxation rules and with respect to the state, local, foreign and other tax consequences to them of an investment in the Shares.

The SAI summarizes further federal income tax considerations that may apply to the Fund and its Investors and may qualify the considerations discussed herein. Fund distributions also may be subject to state and local taxes. You should consult with your own tax adviser regarding the particular consequences of investing in the Fund.

ERISA Considerations

Employee benefit plans and other plans subject to ERISA or Section 4975 of the Code, including 401(k) plans, IRAs and Keogh Plans may purchase Shares, provided that they are accredited investors. Because the Fund is an investment company registered under the 1940 Act, the underlying assets of the Fund will not be considered to be “plan assets” for purposes of the fiduciary responsibility and prohibited transaction rules under Title I of ERISA or Section 4975 of the Code. Thus, BAAM will not be a fiduciary within the meaning of ERISA or Section 4975 of the Code with respect to the assets of any such Investor solely as a result of its investment in the Fund. Prospective Investors should consult their advisors to determine the suitability of Shares as an investment through such plans.

General Information

Securities Outstanding

(1)
Title of Class

(2)
Amount
Authorized

(3)
Amount
held by
Registrant
or for its
Account

(4)
Amount
Outstanding
Exclusive of
Amount
Shown
Under (3)

Advisor Class I Shares

Unlimited

N/A

Advisor Class II Shares

Unlimited

N/A

1,653

Advisor Class III Shares

Unlimited

N/A

27,166

Legal Proceedings

None of the Fund, the Master Fund, BAAM or the Distributor is a party to any material pending legal proceeding, nor is any of them subject to any proceeding instituted, or any proceeding known to be contemplated, by a governmental authority.

Reports; Fiscal Year

The Fund’s fiscal year ends on March 31. The Fund sends Investors an unaudited semi-annual and an audited annual report within 60 days after the close of the period for which the report is being made, or as otherwise required by the 1940 Act.

The Fund’s tax year will end on October 31. At the beginning of each calendar year following the end of each tax year of the Fund, each Investor will receive a Form 1099 reporting income or gain.

Anti-Money Laundering

As part of the Fund’s effort to prevent money laundering and terrorist financing, the Fund has implemented an anti-money laundering program and has designated an Anti-Money Laundering Officer. The Fund, or its delegate, may require a detailed verification of an Investor’s identity, any beneficial owner underlying the account and the source of the payment.

The Board of Trustees and/or BAAM reserves the right to request such information as is necessary to verify the identity of a subscriber and the underlying beneficial owner of a subscriber’s or Investor’s Shares in the Fund. In the event of delay or failure by the subscriber or Investor to produce any information required for verification purposes, the Fund may refuse to accept or delay the acceptance of a subscription or may require the repurchase of any such Investor’s Shares in the Fund. The Fund may suspend the payment of repurchase proceeds of an Investor if the Fund reasonably deems it necessary to do so to comply with applicable anti-money laundering laws or the laws, regulations, and Executive Orders administered by the U.S. Department of Treasury’s Office of

Foreign Assets Control (“OFAC”), or other laws or regulations by any person in any relevant jurisdiction (collectively, “AML/OFAC obligations”). The Fund may take one or more of the foregoing actions through a service provider that has agreed to provide anti-money laundering services to the Fund.

Each subscriber and Investor shall be required to make such representations to the Fund as the Fund shall require in connection with the Fund’s AML/OFAC program, including, without limitation, representations to the Fund that the subscriber or Investor (or any person controlling or controlled by the subscriber or Investor; if the subscriber or Investor is a privately held entity, any person having a beneficial interest in the subscriber or Investor; or any person for whom the subscriber or Investor is acting as agent or nominee in connection with the investment) is not (i) an individual or entity named on any available lists of known or suspected terrorists, terrorist organizations or of other sanctioned persons issued by the United States government and the government(s) of any jurisdiction(s) in which the Fund is doing business, including the List of Specially Designated Nationals and Blocked Persons administered by OFAC as such list may be amended from time to time; (ii) an individual or entity otherwise prohibited by the OFAC sanctions programs; or (iii) a current or former senior foreign political figure¹ or politically exposed person,² or an immediate family member or close associate of such an individual. Further, such subscriber or Investor must represent to the Fund that it is not a prohibited foreign shell bank.³

Such subscriber or Investor will also be required to represent to the Fund that amounts contributed by it to the Fund were not directly or indirectly derived from activities that may contravene U.S. federal, state or international laws and regulations, including, without limitation, any applicable anti-money laundering laws and regulations.

Each subscriber or Investor agrees to notify the Fund promptly in writing should it become aware of any change in the information set forth in its representations. The subscriber or Investor is advised that, by law, the Fund may be obligated to “freeze the account” of such subscriber or Investor, either by prohibiting additional investments from the subscriber or Investor, declining to repurchase Shares from the subscriber or Investor, suspending the payment of repurchase proceeds payable to the subscriber or Investor and/or segregating the assets in the account in compliance with governmental regulations. The Fund may also be required to report such action and to disclose the subscriber’s or Investor’s identity to OFAC or other applicable governmental and regulatory authorities.

A “senior foreign political figure” is defined as (a) a current or former senior official in the executive, legislative, administrative, military or judicial branches of a non-U.S. government (whether elected or not), a current or former senior official of a major non-U.S. political party, or a current or former senior executive of a non-U.S. government-owned commercial enterprise; (b) a corporation, business, or other entity that has been formed by, or for the benefit of, any such individual; (c) an immediate family member of any such individual; and (d) a person who is widely and publicly known (or is actually known) to be a close associate of such individual. For purposes of this definition, a “senior official” or “senior executive” means an individual with substantial authority over policy, operations, or the use of government-owned resources; and “immediate family member” means a spouse, parents, siblings, children and spouse’s parents or siblings.

A “politically exposed person” (“PEP”) is a term used for individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. FATF 40 Recommendations Glossary at: http://www.fatf-gafi.org/glossary/0,2586,en_32250379_32236889_35433764_1_1_1_1,00.html#34285860.

A “prohibited foreign shell bank” is a foreign bank that does not have a physical presence in any country, and is not a “regulated affiliate,” i.e., an affiliate of a depository institution, credit union, or foreign bank that (i) maintains a physical presence in the U.S. or a foreign country, and (ii) is subject to banking supervision in the country regulating the affiliated depository institution, credit union, or foreign bank.

Table of Contents of the SAI


INVESTMENT POLICIES			1
FUNDAMENTAL INVESTMENT POLICIES			1
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES OF INVESTMENT FUNDS AND RELATED RISKS			4
Portfolio Turnover			4
Non-Diversified Portfolio			4
Organization and Management of the Wholly-Owned Subsidiary			4
Accelerated Transactions			5
Risks of Foreign Investments			5
Securities Lending			6
Depositary Receipts			6
Convertible Securities			7
Preferred Stocks			7
Warrants and Rights			8
Options and Futures			8
Swap Contracts and Other Two-Party Contracts			16
Foreign Currency Transactions			19
Repurchase Agreements			20
Debt and Other Fixed Income Securities Generally			20
Cash and Other High Quality Investments			21
U.S. Government Securities and Foreign Government Securities			21
Municipal Securities			22
Auction Rate Securities			23
Real Estate Investment Trusts and Other Real Estate-Related Investments			23
Asset-Backed and Related Securities			24
Adjustable Rate Securities			27
Below Investment Grade Securities			27
Distressed or Defaulted Instruments			28
Merger Arbitrage Transactions			29
Brady Bonds			30
Euro Bonds			30
Zero Coupon Securities			30
Indexed Investments			31
Structured Notes			32
Firm Commitments and When-Issued Securities			32
Loans (Including Bank Loans), Loan Participations, and Assignments			33
Reverse Repurchase Agreements and Dollar Roll Agreements			35
Commodity-Related Investments			35
Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited Opportunities			36
Investments in Investment Companies or Other Pooled Investments			37
Short Sales			37
Noncash Income			38
Lack of Correlation Risk; Hedging			38
Legal and Regulatory Risk			38
Limited Operating History			40
MANAGEMENT			41
Board’s Oversight Role in Management			41
Board Composition and Fund Leadership Structure			41
Compensation of Trustees and Officers			44
Trustee Qualifications			45
Board Leadership Structure and Risk Oversight			45


Standing Committees			46
Other Accounts Managed by Master Fund Portfolio Managers			47
Portfolio Manager Ownership of Securities			47
Compensation of Portfolio Managers			47
CODES OF ETHICS			48
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES			48
INVESTMENT MANAGEMENT AND OTHER SERVICES			48
The Investment Manager			48
Administrator			48
Custodian			49
Independent Registered Public Accounting Firm			49
Legal Counsel			49
PROXY VOTING POLICIES AND PROCEDURES			50
BROKERAGE ALLOCATION AND OTHER PRACTICES			50
Investment Funds			50
TAXES			51
Taxation of the Fund			51
Taxation of Investors			54
Other Reporting and Withholding Requirements			65
General Considerations			66
FINANCIAL STATEMENTS			67
APPENDIX A – Proxy Voting Policies and Procedures			A-1

Appendix A:

Supplemental Performance Information of Similar Funds

Blackstone Alternative Alpha Fund II (the “Fund”) and Blackstone Alternative Alpha Master Fund (the “Master Fund”) have limited performance records of their own. This limited performance record is presented below along with the performance information for funds managed by Blackstone Alternative Asset Management L.P. (“BAAM”), the investment adviser to the Fund and the Master Fund, that have an investment program substantially the same as the Fund and the Master Fund (“Similar Funds Performance Information”). The Similar Funds Performance Information is not the performance record of the Fund or the Master Fund and should not be considered a substitute for the Fund’s or the Master Fund’s own performance. Past returns are not indicative of future performance.

BAAM acts as investment adviser to other funds that have investment objectives, policies and strategies that are substantially similar to those of the Fund and Master Fund. The Similar Funds Performance Information is provided to illustrate the past performance of BAAM in managing substantially similar funds; it does not represent the performance of the Fund or of the Master Fund. We have stated below the average annual total return information over the one-, five-, and ten-year period ended March 31, 2015 for the other funds, which represents all substantially similar funds managed by BAAM (including the Master Fund and Blackstone Alternative Alpha Fund (“BAAF”), another registered investment company that invests in the Master Fund) (“Similar Funds”), as well as calendar year returns, monthly returns, and certain historical statistics. The average performance information of the Similar Funds is presented as a composite that represents an average of the total returns of each fee-paying share class of each Similar Fund, calculated by asset weighting individual share class Similar Fund returns, using beginning of month values. Annual and annualized returns are calculated by geometrically linking the monthly returns. A Similar Fund’s returns are included in the composite following one full calendar month of operation.

The returns of share classes of the Similar Funds that do not pay any fees have been excluded from the composite, which results in lower performance being shown in the composite than if those share classes’ returns were included. The returns of fee-paying share classes of the Similar Funds are shown net of the actual fees and expenses incurred by the Similar Funds. The fees and expenses of the Fund and the Master Fund may be higher than those of the other Similar Funds’ share classes reflected in the composite; had all of the Similar Funds’ performance records reflected the fees and expenses of the Fund and the Master Fund, the Similar Funds’ performance may have been lower. Returns are calculated on a total return basis and include all dividends and interest, accrued income, and realized and unrealized gains and losses.

The Similar Funds (with the exception of the Master Fund and BAAF) are not registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and, therefore, are not subject to certain investment restrictions, diversification requirements, and other regulatory requirements imposed by the 1940 Act and the Internal Revenue Code of 1986, as amended. If all of the Similar Funds had been registered under the 1940 Act, their returns might have been lower. Although the Fund, the Master Fund, and the other Similar Funds have substantially the same investment programs, as is discussed in Conflicts of Interest, the Fund and the Master Fund will not necessarily make the same investments as the other Similar Funds, so that the investment performance of the Fund, the Master Fund, and the other Similar Funds will differ in the future.

Annualized Returns (Ending March 31, 2015)


	1 Year		5 Year		10 Year
Advisor Class III		10.2%		N/A		N/A
Similar Funds		10.0%		8.5%		7.4%
HFRI Fund of Funds Composite Index		5.3%		3.5%		3.2%
HFRI Equity Hedged Index		2.7%		4.7%		4.8%
S&P 500 Total Return		12.7%		14.5%		8.0%

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Calendar Year Returns


	2005		2006		2007		2008		2009		2010		2011		2012		2013		2014
Similar Funds		12.5%		9.2%		19.2%		-20.2%		15.1%		9.1%		-0.1%		10.9%		15.3%		6.8%
HFRI Fund of Funds Composite Index		7.5%		10.4%		10.3%		-21.4%		11.5%		5.7%		-5.7%		4.8%		9.0%		3.4%
HFRI Equity Hedged Index		10.6%		11.7%		10.5%		-26.7%		24.6%		10.5%		-8.4%		7.4%		14.3%		1.8%
S&P 500 Total Return		4.9%		15.8%		5.5%		-37.0%		26.5%		15.6%		2.1%		16.0%		32.4%		13.7%

Historical Statistics (For the ten year period ended March 31, 2015)


	Annualized Performance		Standard Deviation		Sharpe Ratio		Maximum Drawdown
Similar Funds		7.4%		6.6%		0.90		-21.3%
HFRI Fund of Funds Composite Index		3.2%		5.5%		0.33		-22.2%
HFRI Equity Hedged Index		4.8%		8.6%		0.39		-30.6%
S&P 500 Total Return		8.0%		14.7%		0.44		-51.0%

Monthly Returns of the Similar Funds (Ending March 31, 2015)


	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec		YTD
2005		0.2%		1.6%		-0.5%		-1.1%		2.4%		1.8%		2.8%		1.0%		1.3%		-2.1%		3.3%		1.3%		12.5%
2006		3.4%		0.4%		1.8%		1.5%		-3.6%		-1.3%		-0.5%		1.6%		1.0%		1.6%		2.5%		0.6%		9.2%
2007		1.8%		0.8%		1.8%		1.9%		2.8%		0.7%		1.7%		-0.2%		2.1%		3.1%		0.0%		1.2%		19.2%
2008		-2.2%		1.9%		-2.4%		2.1%		2.1%		-1.6%		-2.5%		-0.8%		-9.1%		-5.9%		-2.1%		-1.3%		-20.2%
2009		1.6%		0.6%		0.2%		0.3%		3.5%		0.8%		1.5%		1.1%		1.7%		-0.2%		1.9%		1.1%		15.0%
2010		-0.5%		1.0%		1.9%		0.2%		-2.3%		-1.5%		2.0%		0.0%		3.5%		1.9%		0.3%		2.3%		9.1%
2011		-0.1%		1.4%		0.6%		1.3%		0.1%		-0.4%		-0.4%		-3.0%		-3.2%		4.3%		-0.1%		-0.4%		-0.1%
2012		3.1%		2.3%		1.3%		0.0%		-1.6%		0.1%		0.9%		1.4%		1.3%		-0.2%		1.0%		0.9%		10.9%
2013		3.1%		0.3%		2.1%		0.2%		1.9%		-0.5%		1.3%		-0.7%		2.0%		1.8%		1.4%		1.6%		15.4%
2014		-0.2%		2.6%		-1.8%		-1.2%		3.0%		1.6%		-0.9%		1.7%		-0.4%		0.2%		1.9%		0.2%		6.8%
2015		-0.7%		3.8%		0.6%																				3.6%

HFRI Fund of Funds Composite Index is an unmanaged equal-weighted index representing funds of hedge funds that invest with multiple managers focused on absolute return strategies. The Index includes funds of hedge funds tracked by Hedge Fund Research, Inc. and is revised several times each month to reflect updated fund of hedge fund return information. The Index is a proxy for the performance of the universe of funds of hedge funds focused on absolute return strategies. There are no asset-size or track record length minimum requirements for inclusion in the Index. The Index reflects actual fees and expenses charged by the hedge funds included in the index.

HFRI Equity Hedge Index is an unmanaged equal-weighted index representing hedge funds tracked by Hedge Fund Research, Inc. that have an equity hedge strategy. Equity hedge strategies invest in both long and short positions in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. The Index is revised several times each month to reflect updated hedge fund return information. The Index is a proxy for the performance of the universe of funds of hedge funds focused on equity hedged strategies. There are no asset-size or track record length minimum requirements for inclusion in the Index. The Index reflects actual fees and expenses charged by the hedge funds included in the index.

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The S&P 500 Total Return Index is an unmanaged capitalization-weighted index of common stock performance that includes 500 U.S. stocks representing all major industries. Returns are denominated in USD and include dividends. The index returns are provided by Bloomberg.

The volatility of the indices presented may be materially different from that of the performance of the Fund and the Similar Funds. In addition, the indices employ different investment guidelines and criteria than the Fund and the Similar Funds; as a result, the holdings in the Fund and the Similar Funds may differ significantly from the securities that comprise the indices. The indices allow for comparison of the Fund’s and the Similar Funds’ performance with that of well-known, appropriate, and widely recognized market indices; the market indices are not intended to be reflective or indicative of the Similar Funds’, the Fund’s or the Master Fund’s performance. A summary of the investment guidelines for the indices presented are available upon request.

Maximum Drawdown: Reflects the maximum amount that a fund has lost from its peak. A fund is said to be “underwater” when the net asset value (NAV) is less than peak NAV. A peak occurs when the NAV reaches a new high and a drawdown ends when the NAV stops declining (reaches a trough). The size of a drawdown is one indication of an investment’s financial risk and is usually quoted as a percentage of performance between NAV peak and trough.

Sharpe Ratio: Measures risk-adjusted return as a ratio of returns to risk. The Sharpe ratio (i) is used to express how much return is achieved for the amount of risk taken in an investment and (ii) may be used to compare hedge funds with similar return characteristics. The higher a Sharpe ratio, the less risk is taken per unit return. The Sharpe ratio formula is the (investment return less the risk free return) divided by the standard deviation of the investment.

Standard Deviation: Standard deviation is a measure of volatility, or how far returns stray from the mean. It is a historical measure of the variability of return earned by an investment. The higher the standard deviation, the larger the variance of returns and the greater the financial risk. Low volatility means the returns are tightly clustered around the mean return and higher volatility means the returns are dispersed at greater distances from the mean.

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The information in this Statement of Additional Information is not complete and may be changed. No person may sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated July 22, 2015.

STATEMENT OF ADDITIONAL INFORMATION

July [ ], 2015

BLACKSTONE ALTERNATIVE ALPHA FUND II

345 Park Avenue

28^th Floor

New York, New York 10154

212-583-5000

The prospectus of Blackstone Alternative Alpha Fund II (the “Fund”), dated July [ ], 2015 (the “Prospectus”), provides the basic information investors should know before investing. This Statement of Additional Information (“SAI”), which is not a prospectus, is intended to provide additional information regarding the activities and operations of the Fund and should be read in conjunction with the Prospectus. You may request a copy of the Prospectus or this SAI free of charge by contacting State Street Bank and Trust Company at 1-855-890-7725. Capitalized terms not otherwise defined in this SAI have meanings accorded to them in the Fund’s Prospectus.

TABLE OF CONTENTS


	Page
INVESTMENT POLICIES		1
FUNDAMENTAL INVESTMENT POLICIES		1
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES OF INVESTMENT FUNDS AND RELATED RISKS		4
Portfolio Turnover		4
Non-Diversified Portfolio		4
Organization and Management of the Wholly-Owned Subsidiary		4
Accelerated Transactions		5
Risks of Foreign Investments		5
Securities Lending		6
Depositary Receipts		6
Convertible Securities		7
Preferred Stocks		7
Warrants and Rights		8
Options and Futures		8
Swap Contracts and Other Two-Party Contracts		16
Foreign Currency Transactions		19
Repurchase Agreements		20
Debt and Other Fixed Income Securities Generally		20
Cash and Other High Quality Investments		21
U.S. Government Securities and Foreign Government Securities		21
Municipal Securities		22
Auction Rate Securities		23
Real Estate Investment Trusts and Other Real Estate-Related Investments		23
Asset-Backed and Related Securities		24
Adjustable Rate Securities		27
Below Investment Grade Securities		27
Distressed or Defaulted Instruments		28
Merger Arbitrage Transactions		29
Brady Bonds		30
Euro Bonds		30
Zero Coupon Securities		30
Indexed Investments		31
Structured Notes		32
Firm Commitments and When-Issued Securities		32
Loans (Including Bank Loans), Loan Participations, and Assignments		33
Reverse Repurchase Agreements and Dollar Roll Agreements		35
Commodity-Related Investments		35
Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited Opportunities		36
Investments in Investment Companies or Other Pooled Investments		37
Short Sales		37
Noncash Income		38
Lack of Correlation Risk; Hedging		38
Legal and Regulatory Risk		38
Limited Operating History		40
MANAGEMENT		41
Board’s Oversight Role in Management		41
Board Composition and Fund Leadership Structure		41
Compensation of Trustees and Officers		44
Trustee Qualifications		45


	Page
Board Leadership Structure and Risk Oversight		45
Standing Committees		46
Other Accounts Managed by Master Fund Portfolio Managers		47
Portfolio Manager Ownership of Securities		47
Compensation of Portfolio Managers		47
CODES OF ETHICS		48
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES		48
INVESTMENT MANAGEMENT AND OTHER SERVICES		48
The Investment Manager		48
Administrator		48
Custodian		49
Independent Registered Public Accounting Firm		49
Legal Counsel		49
PROXY VOTING POLICIES AND PROCEDURES		50
BROKERAGE ALLOCATION AND OTHER PRACTICES		50
Investment Funds		50
TAXES		51
Taxation of the Fund		51
Taxation of Investors		54
Other Reporting and Withholding Requirements		65
General Considerations		66
FINANCIAL STATEMENTS		67
Appendix A – Proxy Voting Policies and Procedures		A-1

INVESTMENT POLICIES

The investment objective and principal investment strategies of the Fund and Blackstone Alternative Alpha Master Fund (the “Master Fund”), as well as the principal risks associated with the Fund’s and the Master Fund’s investment strategies, are set forth in the Prospectus. Certain additional related information is provided below. The various private investment funds (“Investment Funds”) in which the Master Fund invests are not subject to the investment policies of the Fund and the Master Fund and may have different or contrary investment policies.

FUNDAMENTAL INVESTMENT POLICIES

The Fund and the Master Fund may (except as noted below):

(1)

Borrow money, make loans or issue senior securities to the fullest extent permitted by the Investment Company Act of 1940, as amended (the “1940 Act”), the rules or regulations thereunder or applicable orders of the Securities and Exchange Commission (the “SEC”), as such statute, rules, regulations or orders may be amended from time to time.

(2)

Not invest 25% or more of its total assets in a particular industry or group of industries. Securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities are not considered to represent an industry.

(3)

Underwrite securities to the fullest extent permitted by the 1940 Act, the rules or regulations thereunder or applicable orders of the SEC, as such statute, rules, regulations or orders may be amended from time to time.

(4)

Purchase or sell commodities, commodities contracts, futures contracts and related options, options, forward contracts or real estate to the fullest extent permitted by the 1940 Act, the rules or regulations thereunder or applicable orders of the SEC, as such statute, rules, regulations or orders may be amended from time to time.

The fundamental investment limitations set forth above restrict the ability of the Fund and the Master Fund to engage in certain practices and purchase securities and other instruments other than as permitted by, or consistent with, the 1940 Act. Relevant limitations of the 1940 Act as they presently exist are described below. These limitations are based either on the 1940 Act itself, the rules or regulations thereunder or applicable orders of the SEC. In addition, interpretations and guidance provided by the SEC staff may be taken into account, where deemed appropriate by the Fund, to determine if a certain practice or the purchase of securities or other instruments is permitted by the 1940 Act, the rules or regulations thereunder or applicable orders of the SEC. As a result, the foregoing fundamental investment policies may be interpreted differently over time as the statute, rules, regulations or orders (or, if applicable, interpretations) that relate to the meaning and effect of these policies change, and no shareholder vote will be required or sought.

Fundamental Investment Restriction (1). Under the 1940 Act, the Fund and Master Fund each may only borrow up to one-third of the value of its total assets less liabilities (other than liabilities representing senior securities). For more information on leverage and the risks relating thereto, see “Risks Associated with BAAM and the Operation of the Fund—Borrowing by the Fund; Investments are Leveraged” in the Prospectus.

The 1940 Act also restricts the ability of any closed-end fund to lend. Under the 1940 Act, the Fund and Master Fund each may only make loans if expressly permitted to do so by its investment policies, and the Fund and Master Fund each may not make loans to persons who control or are under common control with the Fund and Master Fund, respectively. Thus, the 1940 Act effectively prohibits the Fund and Master Fund from making loans to certain persons when conflicts of interest or undue influence are most likely present. The Fund and Master Fund each may, however, make other loans which, if made, would expose shareholders to additional risks, such as the failure of the other party to repay the loan. The Fund and Master Fund each retains the flexibility to make loans to the extent permitted by its investment policies, other than loans of securities, which will be limited to 33¹⁄₃% of the Fund’s or the Master Fund’s, as applicable, total assets.

The ability of a closed-end fund to issue senior securities is severely circumscribed by complex regulatory constraints under the 1940 Act that restrict, for instance, the amount, timing, and form of senior securities that may be issued. Certain portfolio management techniques, such as reverse repurchase agreements, credit default swaps, futures contracts, dollar rolls, the purchase of securities on margin, short sales, or the writing of puts on portfolio securities, may be considered senior securities unless appropriate steps are taken to segregate the Fund’s assets or otherwise cover its obligations. To the extent the Fund or Master Fund covers its commitment under these transactions, including by the segregation of liquid assets, such instrument will not be considered a “senior security” by the Fund or Master Fund, respectively, and therefore will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the Fund or Master Fund (or, as the case may be, the 200% asset coverage requirement applicable to preferred shares).

Neither the Fund nor the Master Fund anticipates issuing any class of senior security that is a stock. Under the 1940 Act, the issuance of any other type of senior security by the Fund or Master Fund is subject to a requirement that provision is made that, (i) if on the last business day of each of 12 consecutive calendar months the asset coverage with respect to the senior security is less than 100%, the holders of such securities voting as a class shall be entitled to elect at least a majority of the Board of Trustees (of the Fund or Master Fund, respectively), with such voting right to continue until the asset coverage for such class of senior security is at least 110% on the last business day of each of 3 consecutive calendar months or, (ii) if on the last business day of each of 24 consecutive calendar months the asset coverage for such class of senior security is less than 100%, an event of default shall be deemed to have occurred.

Under the 1940 Act, a “senior security” does not include (i) any promissory note or other evidence of indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other person and privately arranged, and not intended to be publicly distributed or (ii) any promissory note or evidence of indebtedness where such loan is for temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time the loan is made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed.

Fundamental Investment Restriction (2). If the Fund or Master Fund were to invest 25% or more of its total assets in a particular industry or group of industries, investors would be exposed to greater risks because the performance of the Fund or Master Fund (as applicable) would be largely dependent on the performance of that industry or industries. For purposes of this fundamental investment policy, Investment Funds are not considered part of any industry or group of industries. Notwithstanding anything herein to the contrary, nothing in Fundamental Investment Restriction (2) will prohibit the Fund from investing in the Master Fund. For purposes of determining compliance with Fundamental Investment Restriction (2), neither the Fund nor the Master Fund will consider portfolio investments held by the Investment Funds.

Fundamental Investment Restriction (4). This restriction would permit investment in commodities, commodities contracts (e.g., futures contracts or related options), options, forward contracts or real estate to the extent permitted under the 1940 Act. Commodities, as opposed to commodity futures, represent the actual underlying bulk goods, such as grains, metals and foodstuffs. Real estate-related instruments include real estate investment trusts, commercial and residential mortgage-backed securities, and real estate financings, and such instruments are generally sensitive to factors such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, overbuilding, and the management skill and creditworthiness of the issuer.

The restrictions listed above are fundamental policies of the Fund and Master Fund. Except as described herein, the Fund and Master Fund, as a fundamental policy, may not alter these policies without the approval of the holders of a majority of its outstanding shares. For purposes of the foregoing, “a majority of the outstanding shares” means (i) 67% or more of such shares present at a meeting, if the holders of more than 50% of such shares are present or represented by proxy, or (ii) more than 50% of such shares, whichever is less.

Unless otherwise indicated, all limitations applicable to the investments (as stated above and elsewhere in this Statement of Additional Information and the Prospectus) of the Fund or Master Fund apply only at the time a transaction is entered into. Any subsequent change in a rating assigned by any rating service to a security (or, if

unrated, deemed by the Investment Manager to be of comparable quality), or change in the percentage of the Fund’s or Master Fund’s assets invested in certain securities or other instruments, or change in the average maturity or duration of the Fund’s or Master Fund’s investment portfolio, resulting from market fluctuations or other changes in the Fund’s or Master Fund’s total assets, will not require the Fund or Master Fund (as applicable) to dispose of an investment. In the event that rating agencies assign different ratings to the same security, the Investment Manager will determine which rating it believes best reflects the security’s quality and risk at that time, which may be the higher of the several assigned ratings.

ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES OF INVESTMENT

FUNDS AND RELATED RISKS

As discussed in the Prospectus, the Fund pursues its investment objective by investing substantially all of its assets in the Master Fund, which in turn invests its assets in Investment Funds, which pursue a variety of investment strategies. Through its investment in the Master Fund, the Fund is indirectly exposed to the investment practices of the Investment Funds and the related risks. Blackstone Alternative Asset Management L.P., the investment adviser to the Fund and the Master Fund (the “Investment Manager” or “BAAM”), oversees the investment management services provided to the Fund and the Master Fund. Additional information regarding the types of securities and financial instruments in which the managers of the Investment Funds (“Portfolio Managers”) may invest the assets of Investment Funds, and certain of the investment techniques that may be used by Portfolio Managers, are set forth below. As there is no limit on the types of investments the Investment Funds may make, however, this cannot be a comprehensive description. Any decision to invest in the Fund should take into account the possibility that the Investment Funds may make virtually any kind of investment, and be subject to related risks, which can be substantial. The Master Fund’s investments in Investment Funds will likely give rise to taxable income in excess of the cash distributed to it by those Investment Funds. In order to make distributions of its income, it is possible the Master Fund will borrow or dispose of certain of its investments, including when it is not otherwise advantageous to do so. See “Taxes” below for further discussion of distributions by the Fund and the Master Fund.

Portfolio Turnover

A Portfolio Manager may trade an Investment Fund’s investments more frequently at some times than at others, resulting in a higher portfolio turnover rate. Increased portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne indirectly by the Fund and the Master Fund, and which may adversely affect the Fund’s and the Master Fund’s performance. It also may give rise to income that is taxed earlier and/or at higher rates for Investors than would be the case in the absence of such turnover, including through the realization of capital gains or other types of income that are taxable to Investors when distributed by the Fund to them, unless those Investors are themselves exempt from taxation or otherwise investing in the Fund through a tax-advantaged account. The after-tax impact of portfolio turnover is generally not considered when making investment decisions for an Investment Fund. See “Tax Considerations” in the Prospectus and “Taxes” in this Statement of Additional Information for more information.

Non-Diversified Portfolio

The Fund is a non-diversified fund under the 1940 Act and is not required to satisfy the requirements for diversified funds. The Fund is permitted to invest a higher percentage of its assets in the securities of fewer issuers. The flexibility to focus on particular investments could increase the risk of loss to the Fund resulting from a decline in the market value of particular portfolio securities. Investment in a non-diversified fund may entail greater risks than investment in a diversified fund.

The Fund must meet a diversification test to qualify as a “regulated investment company” (a “RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). See “Taxes” below for a description of these diversification standards.

Organization and Management of the Wholly-Owned Subsidiary

A portion of the Master Fund’s assets (up to 25%) may be invested in a wholly-owned and controlled subsidiary (the “Subsidiary”) of the Master Fund, which is an exempted company with limited liability formed under the laws of the Cayman Islands. The Subsidiary is advised by BAAM and has the same investment objective as the Master Fund. The Subsidiary has a board of directors. BAAM expects to invest the Subsidiary’s assets in various Investment Funds. The Master Fund does not intend to sell or transfer shares of the Subsidiary to any third party. The Master Fund looks through the Subsidiary for purposes of compliance with its investment policies and the applicable provisions of the 1940 Act relating to capital structure, affiliated transactions, and custody.

Accelerated Transactions

In order to take advantage of certain available investment opportunities, the Investment Manager and/or Portfolio Managers may need to make investment decisions on an expedited basis. In such cases, the information available to the Investment Manager and/or the Portfolio Manager at the time of an investment decision may be limited. The Investment Manager and/or the Portfolio Manager may not, therefore, have access to the detailed information necessary for a full analysis and evaluation of the investment opportunity.

Risks of Foreign Investments

General. Investment in foreign issuers or securities principally traded outside the United States may involve special risks due to foreign economic, political, and legal developments, including favorable or unfavorable changes in currency exchange rates, exchange control regulations (including currency blockage), expropriation, nationalization or confiscatory taxation of assets, and possible difficulty in obtaining and enforcing judgments against foreign entities. The Fund, the Master Fund and/or an Investment Fund may be subject to foreign taxation on realized capital gains, dividends or interest payable on foreign securities, on transactions in those securities and on the repatriation of proceeds generated from those securities. Transaction-based charges are generally calculated as a percentage of the transaction amount and are paid upon the sale or transfer of portfolio securities subject to such taxes. Any taxes or other charges paid or incurred by the Fund, the Master Fund and/or an Investment Fund in respect of its foreign securities will reduce the Fund’s yield. See “Taxes” below for more information about these and other special tax considerations applicable to investments in securities of foreign issuers and securities principally traded outside the United States.

In addition, the tax laws of some foreign jurisdictions in which an Investment Fund may invest are unclear and interpretations of such laws can change over time. As a result, in order to comply with guidance related to the accounting and disclosure of uncertain tax positions under U.S. generally accepted accounting principles (“GAAP”), an Investment Fund may be required to accrue for book purposes certain foreign taxes in respect of its foreign securities or other foreign investments that it may or may not ultimately pay. Such tax accruals will reduce an Investment Fund’s net asset value at the time accrued, even though, in some cases, the Investment Fund ultimately will not pay the related tax liabilities. Conversely, an Investment Fund’s net asset value will be increased by any tax accruals that are ultimately reversed.

Issuers of foreign securities are subject to different, often less comprehensive, accounting, custody, reporting, and disclosure requirements than U.S. issuers. The securities of some foreign governments, companies, and securities markets are less liquid, and at times more volatile, than comparable U.S. securities and securities markets. Foreign brokerage commissions and related fees also are generally higher than in the United States. Investment Funds that invest in foreign securities also may be affected by different custody and/or settlement practices or delayed settlements in some foreign markets. The laws of some foreign countries may limit an Investment Fund’s ability to invest in securities of certain issuers located in those countries. Foreign countries may have reporting requirements with respect to the ownership of securities, and those reporting requirements may be subject to interpretation or change without prior notice to investors. No assurance can be given that the Investment Funds will satisfy applicable foreign reporting requirements at all times.

Emerging Countries. The risks described above apply to an even greater extent to investments in emerging countries. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the United States and developed foreign countries, and disclosure and regulatory standards in many respects are less stringent. In addition, the securities markets of emerging countries are typically subject to a lower level of monitoring and regulation. Government enforcement of existing securities regulations is limited, and any such enforcement may be arbitrary and the results may be difficult to predict. In addition, reporting requirements of emerging countries with respect to the ownership of securities are more likely to be subject to interpretation or changes without prior notice to investors than more developed countries.

Many emerging countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on such countries’ economies and securities markets.

Economies of emerging countries generally are heavily dependent on international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. Economies of emerging countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The economies of emerging countries may be predominantly based on only a few industries or dependent on revenues from particular commodities. In many cases, governments of emerging countries continue to exercise significant control over their economies, and government actions relative to the economy, as well as economic developments generally, may affect the capacity of creditors in those countries to make payments on their debt obligations, regardless of their financial condition.

Custodial services are often more expensive and other investment-related costs higher in emerging countries than in developed countries, which could reduce an Investment Fund’s income from investments in securities or debt instruments of emerging country issuers.

Emerging countries are more likely than developed countries to experience political uncertainty and instability, including the risk of war, terrorism, nationalization, limitations on the removal of funds or other assets, or diplomatic developments that affect U.S. investments in these countries. No assurance can be given that adverse political changes will not cause an Investment Fund to suffer a loss of any or all of its investments (or, in the case of fixed-income securities, interest) in emerging countries.

Securities Lending

An Investment Fund may make secured loans of its portfolio securities. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially, including possible impairment of the Investment Fund’s ability to vote the securities. If a loan is collateralized by cash, the Investment Fund typically invests the cash collateral for its own account and may pay a fee to the borrower that normally represents a portion of the Investment Fund’s earnings on the collateral. As with other extensions of credit, the Investment Fund bears the risk of delay in the recovery of loaned securities and of loss of rights in the collateral should the borrower fail financially. The Investment Fund also bears the risk that the value of investments made with collateral may decline. The Investment Fund bears the risk of total loss with respect to the investment of collateral.

Voting rights or rights to consent with respect to the loaned securities pass to the borrower. The Investment Fund may have the right to call loans at any time on reasonable notice. However, the Investment Fund bears the risk of delay in the return of the security, impairing the Investment Fund’s ability to vote on such matters. A Portfolio Manager may retain lending agents on behalf of an Investment Fund that are compensated based on a percentage of the Investment Fund’s return on its securities lending. The Investment Funds may also pay various fees in connection with securities loans, including shipping fees and custodian fees.

Depositary Receipts

Investment Funds may invest in American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”), and European Depositary Receipts (“EDRs”) or other similar securities representing ownership of foreign securities (collectively, “Depositary Receipts”). Depositary Receipts generally evidence an ownership interest in a corresponding foreign security on deposit with a financial institution. Transactions in Depositary Receipts usually do not settle in the same currency as the underlying foreign securities are denominated or traded. Generally, ADRs are designed for use in the U.S. securities markets and EDRs are designed for use in European securities markets. GDRs may be traded in any public or private securities market and may represent securities held by institutions located anywhere in the world. GDRs and other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they may be issued by U.S. financial institutions, and evidence ownership interests in a security or pool of securities issued by either a foreign or a domestic corporation.

Because the value of a Depositary Receipt is dependent upon the market price of an underlying foreign security, Depositary Receipts are subject to most of the risks associated with investing in foreign securities directly. Depositary Receipts may be issued as sponsored or unsponsored programs. See “Risks Arising from Investment Activities of the Investment Funds—Non-U.S. Securities.” Depositary Receipts also may be subject to liquidity risk.

Convertible Securities

A convertible security is a security (a bond or preferred stock) that may be converted at a stated price within a specified period into a specified number of shares of common stock of the same or a different issuer. Convertible securities are senior to common stock in a corporation’s capital structure, but are usually subordinated to senior debt obligations of the issuer. Convertible securities provide holders, through their conversion feature, an opportunity to participate in increases in the market price of their underlying securities. The price of a convertible security is influenced by the market price of the underlying security, and tends to increase as the market price rises and decrease as the market price declines.

The value of a convertible security is a function of its “investment value” (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its “conversion value” (the security’s worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also have an effect on the convertible security’s investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, as in the case of “broken” or “busted” convertibles, the price of the convertible security is governed principally by its investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Generally, the amount of the premium decreases as the convertible security approaches maturity.

A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security held by an Investment Fund is called for redemption, the Investment Fund will be required to permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third-party.

Preferred Stocks

Preferred stocks include convertible and non-convertible preferred and preference stocks that are senior to common stock. Preferred stocks are equity securities that are senior to common stock with respect to the right to receive dividends and a fixed share of the proceeds resulting from the issuer’s liquidation. Some preferred stocks also entitle their holders to receive additional liquidation proceeds on the same basis as holders of the issuer’s common stock, and thus represent an ownership interest in the issuer. Depending on the features of the particular security, holders of preferred stock may bear the risks disclosed in the Prospectus or this Statement of Additional Information regarding equity or fixed income securities.

Investment in preferred stocks involves certain risks. Preferred stocks often are subject to legal provisions that allow for redemption in the event of certain tax or legal changes or at the issuer’s call. In the event of redemption, an Investment Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred stocks are subordinated to bonds and other debt securities in an issuer’s capital structure in terms of priority for corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt securities. Preferred stocks may trade less frequently and in a more limited volume and may be subject to more abrupt or erratic price movements than many other securities, such as common stocks, corporate debt securities and U.S. government securities.

Warrants and Rights

Investment Funds may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Investment Funds typically use warrants and rights in a manner similar to their use of options on securities, as described in “Options and Futures” below. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of options. Unlike most options, however, warrants and rights are issued in specific amounts, and warrants generally have longer terms than options. Warrants and rights are not likely to be as liquid as exchange- traded options backed by a recognized clearing agency. In addition, the terms of warrants or rights may limit an Investment Fund’s ability to exercise the warrants or rights at such time, or in such quantities, as the Investment Fund would otherwise wish.

Non-Standard Warrants. Investment Funds may use non-standard warrants, including low exercise price warrants or low exercise price options (“LEPOs”) and participatory notes (“P-Notes”), to gain exposure to issuers in certain countries. LEPOs are different from standard warrants in that they do not give their holders the right to receive a security of the issuer upon exercise. Rather, LEPOs pay the holder the difference in price of the underlying security between the date the LEPO was purchased and the date it is sold. P-Notes are a type of equity-linked derivative that generally are traded over-the-counter and constitute general unsecured contractual obligations of the banks or broker-dealers that issue them. Generally, banks and broker-dealers associated with non-U.S.-based brokerage firms buy securities listed on certain foreign exchanges and then issue P-Notes which are designed to replicate the performance of certain issuers and markets. The performance results of P-Notes will not replicate exactly the performance of the issuers or markets that the notes seek to replicate due to transaction costs and other expenses. The return on a P-Note that is linked to a particular underlying security generally is increased to the extent of any dividends paid in connection with the underlying security. However, the holder of a P-Note typically does not receive voting or other rights as it would if it directly owned the underlying security, and P-Notes present similar risks to investing directly in the underlying security. Additionally, LEPOs and P-Notes entail the same risks as other over-the-counter derivatives. These include the risk that the counterparty or issuer of the LEPO or P-Note may not be able to fulfill its obligations, that the holder and counterparty or issuer may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected. See “Risks Arising from Investment Activities of the Investment Funds—Futures, Options and Derivative Instruments” and “—Risk of Counterparty Default” in the Prospectus. Additionally, while LEPOs or P-Notes may be listed on an exchange, there is no guarantee that a liquid market will exist or that the counterparty or issuer of a LEPO or P-Note will be willing to repurchase such instrument when the Investment Fund wishes to sell it.

Options and Futures

Investment Funds may use options and futures for various purposes, including for investment purposes and as a means to hedge other investments. The use of options contracts, futures contracts, and options on futures contracts involves risk. Thus, while an Investment Fund may benefit from the use of options, futures, and options on futures, unanticipated changes in interest rates, securities prices, currency exchange rates, or other underlying assets or reference rates may adversely affect the Investment Fund’s performance. The Fund (and the Master Fund) is a commodity pool under the Commodity Exchange Act (“CEA”) and BAAM is registered as a “commodity pool operator” and “commodity trading advisor” under the CEA with respect to the Fund (and the Master Fund). As a result, additional Commodity Futures Trading Commission (“CFTC”)-mandated disclosure, reporting and recordkeeping obligations apply with respect to the Fund. Compliance with the CFTC’s regulatory requirements could increase Fund expenses, adversely affecting the Fund’s total return.

Options on Securities and Indices. Investment Funds may purchase and sell put and call options on equity, fixed income, or other securities or indices in standardized exchange-traded contracts. An option on a security or index is a contract that gives the holder of the option, in return for a premium, the right (but not the obligation) to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option (or the cash value of the index underlying the option) at a specified price. Upon exercise, the writer of an option on a security has the obligation to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. Upon exercise, the writer of an option on an

index is required to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option.

Purchasing Options on Securities and Indices. Among other reasons, an Investment Fund may purchase a put option to hedge against a decline in the value of a portfolio security. If such a decline occurs, the put option will permit the Investment Fund to sell the security at the higher exercise price or to close out the option at a profit.

By using put options in this manner, the Investment Fund will reduce any profit it might otherwise have realized in the underlying security by the amount of the premium paid for the put option and by its transaction costs. In order for a put option purchased by an Investment Fund to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium paid by the Investment Fund and transaction costs.

Among other reasons, an Investment Fund may purchase call options to hedge against an increase in the price of securities the Investment Fund anticipates purchasing in the future. If such a price increase occurs, a call option will permit the Investment Fund to purchase the securities at the exercise price or to close out the option at a profit. The premium paid for the call option, plus any transaction costs, will reduce the benefit, if any, that the Investment Fund realizes upon exercise of the option and, unless the price of the underlying security rises sufficiently, the option may expire worthless to the Investment Fund. Thus, for a call option purchased by an Investment Fund to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium paid by the Investment Fund to the writer and transaction costs.

In the case of both call and put options, the purchaser of an option risks losing the premium paid for the option plus related transaction costs if the option expires worthless.

Writing Options on Securities and Indices. Because an Investment Fund receives a premium for writing a put or call option, an Investment Fund may seek to increase its return by writing call or put options on securities or indices. The premium an Investment Fund receives for writing an option will increase the Investment Fund’s return in the event the option expires unexercised or is closed out at a profit. The size of the premium an Investment Fund receives reflects, among other things, the relationship of the market price and volatility of the underlying security or index to the exercise price of the option, the remaining term of the option, supply and demand, and interest rates.

An Investment Fund may write a call option on a security or other instrument held by the Investment Fund (commonly known as “writing a covered call option”). In such case, the Investment Fund limits its opportunity to profit from an increase in the market price of the underlying security above the exercise price of the option. Alternatively, an Investment Fund may write a call option on securities in which it may invest but that are not currently held by the Investment Fund (commonly known as “writing a naked call option”). During periods of declining securities prices or when prices are stable, writing these types of call options can be a profitable strategy to increase an Investment Fund’s income with minimal capital risk. However, when securities prices increase, the Investment Fund is exposed to an increased risk of loss, because if the price of the underlying security or instrument exceeds the option’s exercise price, the Investment Fund will suffer a loss equal to the amount by which the market price exceeds the exercise price at the time the call option is exercised, minus the premium received. Calls written on securities that the Investment Fund does not own are riskier than calls written on securities owned by the Investment Fund because there is no underlying security held by the Investment Fund that can act as a partial hedge. When such a call is exercised, the Investment Fund must purchase the underlying security to meet its call obligation or make a payment equal to the value of its obligation in order to close out the option. Calls written on securities that the Investment Fund does not own have speculative characteristics and the potential for loss is unlimited. There is also a risk, especially with less liquid preferred and debt securities, that the securities may not be available for purchase.

An Investment Fund also may write a put option on a security. In so doing, the Investment Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market price, resulting in a loss on exercise equal to the amount by which the market price of the security is below the exercise price minus the premium received.

OTC Options. An Investment Fund may also invest in over-the-counter (“OTC”) options. OTC options differ from exchange-traded options in that they are two-party contracts, with price and other terms negotiated between the buyer and seller, and generally do not have as much market liquidity as exchange-traded options.

Closing Options Transactions. The holder of an option may terminate its position in a put or call option it has purchased by allowing it to expire or by exercising the option. If an option is American style, it may be exercised on any day up to its expiration date. In contrast, a European-style option may be exercised only on its expiration date.

In addition, a holder of an option may terminate its obligation prior to the option’s expiration by effecting an offsetting closing transaction. In the case of exchange-traded options, an Investment Fund, as a holder of an option, may effect an offsetting closing sale transaction by selling an option of the same series as the option previously purchased. An Investment Fund realizes a loss from a closing sale transaction if the premium received from the sale of the option is less than the premium paid to purchase the option (plus transaction costs). Similarly, an Investment Fund that has written an option may effect an offsetting closing purchase transaction by buying an option of the same series as the option previously written. An Investment Fund realizes a loss from a closing purchase transaction if the cost of the closing purchase transaction (option premium plus transaction costs) is greater than the premium received from writing the option. If an Investment Fund desires to sell a security on which it has written a call option, it will effect a closing purchase prior to or concurrently with the sale of the security. There can be no assurance, however, that a closing purchase or sale can be effected when an Investment Fund desires to do so.

No guarantee exists that an Investment Fund will be able to effect a closing purchase or a closing sale with respect to a specific option at any particular time.

Risk Factors in Options Transactions. There are various risks associated with transactions in exchange-traded and OTC options. The value of options written by an Investment Fund will be affected by many factors, including changes in the value of underlying securities or indices, changes in the dividend rates of underlying securities (or in the case of indices, the securities comprising such indices), changes in interest rates, changes in the actual or perceived volatility of the stock market and underlying securities, and the remaining time to an option’s expiration. The value of an option also may be adversely affected if the market for the option is reduced or becomes less liquid. In addition, since an American-style option allows the holder to exercise its rights any time prior to expiration of the option, the writer of an American-style option has no control over the time when it may be required to fulfill its obligations as a writer of the option. This risk is not present when writing a European-style option since the holder may only exercise the option on its expiration date.

The Investment Funds’ ability to use options as part of their investment programs depends on the liquidity of the markets in those instruments. In addition, there can be no assurance that a liquid market will exist when an Investment Fund seeks to close out an option position. If an Investment Fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option may expire worthless. As the writer of a call option on a portfolio security, during the option’s life, the Investment Fund foregoes the opportunity to profit from increases in the market value of the security underlying the call option above the sum of the premium and the strike price of the call, but retains the risk of loss (net of premiums received) should the price of the underlying security decline. Similarly, as the writer of a call option on a securities index, an Investment Fund foregoes the opportunity to profit from increases in the index over the strike price of the option, though it retains the risk of loss (net of premiums received) should the price of the Investment Fund’s portfolio securities decline. If an Investment Fund writes a call option and does not hold the underlying security or instrument, the amount of the Investment Fund’s potential loss is theoretically unlimited.

An exchange-traded option may be closed out by means of an offsetting transaction only on a national securities exchange (“Exchange”), which provides a secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, an Investment Fund might not be able to effect an

offsetting closing transaction for a particular option. Reasons for the absence of a liquid secondary market on an Exchange include the following: (i) insufficient trading interest in some options; (ii) restrictions by an Exchange on opening or closing transactions, or both; (iii) trading halts, suspensions, or other restrictions on particular classes or series of options or underlying securities; (iv) unusual or unforeseen interruptions in normal operations on an Exchange; (v) inability to handle current trading volume; or (vi) discontinuance of options trading (or trading in a particular class or series of options) (although outstanding options on an Exchange that were issued by the Options Clearing Corporation should continue to be exercisable in accordance with their terms). In addition, the hours of trading for options on an Exchange may not conform to the hours during which the securities held by an Investment Fund are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that may not be reflected in the options markets.

The Exchanges generally have established limits on the maximum number of options an investor or group of investors acting in concert may write. The Investment Funds, the Fund, the Master Fund, the Investment Manager, Portfolio Manager(s) and other clients of the Investment Manager or Portfolio Manager(s) may constitute such a group. These limits could restrict an Investment Fund’s ability to purchase or sell options on a particular security.

An OTC option may be closed only with the counterparty, although either party may engage in an offsetting transaction that puts that party in the same economic position as if it had closed out the option with the counterparty; however, the exposure to counterparty risk may differ. See “Swap Contracts and Other Two-Party Contracts—Risk Factors in Swap Contracts, OTC Options, and Other Two-Party Contracts” below for a discussion of counterparty risk and other risks associated with investing in OTC options.

The view of the SEC staff is that generally OTC options and assets used to cover such OTC options are considered illiquid. However, to the extent the Master Fund invests in OTC options, certain OTC options and assets used to cover such OTC options may be considered liquid (for example, OTC options purchased from a creditworthy counterparty under which the Master Fund has the contractual right to terminate the option within seven days).

Currency Options. Investment Funds may purchase and sell options on currencies. Options on currencies possess many of the same characteristics as options on securities and generally operate in a similar manner. (See “Foreign Currency Transactions” below for more information on the Investment Funds’ use of currency options.)

Futures. Investment Funds may invest in futures contracts on, among other things, financial instruments (such as a U.S. government security or other fixed income security), individual equity securities (“single stock futures”), securities indices, interest rates, currencies, inflation indices, and commodities or commodities indices. Futures contracts on securities indices are referred to herein as “Index Futures.” The purchase and sale of futures contracts may be used for speculative purposes.

Certain futures contracts are physically settled (i.e., involve the making and taking of delivery of a specified amount of an underlying security or other asset). For instance, the sale of futures contracts on foreign currencies or financial instruments creates an obligation of the seller to deliver a specified quantity of an underlying foreign currency or financial instrument called for in the contract for a stated price at a specified time. Conversely, the purchase of such futures contracts creates an obligation of the purchaser to pay for and take delivery of the underlying foreign currency or financial instrument called for in the contract for a stated price at a specified time. In some cases, the specific instruments delivered or taken, respectively, on the settlement date are not determined until on or near that date. That determination is made in accordance with the rules of the exchange on which the sale or purchase was made. Some futures contracts are cash settled (rather than physically settled), which means that the purchase price is subtracted from the current market value of the instrument and the net amount, if positive, is paid to the purchaser by the seller of the futures contract and, if negative, is paid by the purchaser to the seller of the futures contract. In particular, Index Futures are agreements pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of a securities index at the close of the last trading day of the contract and the price at which the index contract was originally written.

Although the value of a securities index might be a function of the value of certain specified securities, no physical delivery of these securities is made.

The purchase or sale of a futures contract differs from the purchase or sale of a security or option in that no price or premium is paid or received. Instead, an amount of cash, U.S. government securities, or other liquid assets equal in value to a percentage of the face amount of the futures contract must be deposited with the broker. This amount is known as initial margin. The amount of the initial margin is generally set by the market on which the contract is traded (margin requirements on foreign exchanges may be different than those on U.S. exchanges). Subsequent payments to and from the broker, known as variation margin, are made on a daily basis as the price of the underlying futures contract fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as “marking to the market.” Prior to the settlement date of the futures contract, the position may be closed by taking an opposite position. A final determination of variation margin is then made, additional cash is required to be paid to or released by the broker, and the purchaser realizes a loss or gain. In addition, a commission is paid to the broker on each completed purchase and sale.

Although some futures contracts call for making or taking delivery of the underlying securities, currencies, commodities, or other underlying instrument, in most cases, futures contracts are closed before the settlement date without the making or taking of delivery by offsetting purchases or sales of matching futures contracts (i.e., with the same exchange, underlying financial instrument, currency, commodity, or index, and delivery month). If the price of the initial sale exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, a purchase of a futures contract is closed out by selling a corresponding futures contract. If the offsetting sale price exceeds the original purchase price, the purchaser realizes a gain, and, if the original purchase price exceeds the offsetting sale price, the purchaser realizes a loss. Any transaction costs must also be included in these calculations.

In the United States, futures contracts are traded only on commodity exchanges or boards of trade—known as “contract markets”—approved by the CFTC, and must be executed through a futures commission merchant or brokerage firm that is a member of the relevant market. Investment Funds may also purchase futures contracts on foreign exchanges or similar entities, which are not regulated by the CFTC and may not be subject to the same degree of regulation as the U.S. contract markets. (See “Additional Risks of Options on Securities, Futures Contracts, and Options on Futures Contracts Traded on Foreign Exchanges” below.)

Index Futures. An Investment Fund may close open positions on an exchange on which Index Futures are traded at any time up to and including the expiration day. In general, all positions that remain open at the close of business on that day must be settled on the next business day (based on the value of the relevant index on the expiration day). Additional or different margin requirements as well as settlement procedures may apply to foreign stock Index Futures.

Interest Rate Futures. Investment Funds may engage in transactions involving the use of futures on interest rates. These transactions may be in connection with investments in U.S. government securities and other fixed income securities.

Inflation Linked Futures. Investment Funds may engage in transactions involving inflation linked futures, including Consumer Price Index (“CPI”) futures, which are exchange-traded futures contracts that represent the inflation on a notional value of $1,000,000 for a period of three months, as implied by the CPI. Inflation linked futures may be used by an Investment Fund to hedge the inflation risk in nominal bonds (i.e., non-inflation indexed bonds) thereby creating “synthetic” inflation indexed bonds. The Investment Funds also may combine inflation linked futures with U.S. Treasury futures contracts to create “synthetic” inflation indexed bonds issued by the U.S. Treasury. See “Indexed Investments—Inflation Indexed Bonds” below for a discussion of inflation indexed bonds.

Currency Futures. Investment Funds may buy and sell futures contracts on currencies. (See “Foreign Currency Transactions” below for a description of Investment Funds’ use of currency futures.)

Options on Futures Contracts. Options on futures contracts give the purchaser the right in return for the premium paid to assume a long position (in the case of a call option) or a short position (in the case of a put option) in a futures contract at the option exercise price at any time during the period of the option (in the case of an American-style option) or on the expiration date (in the case of European-style option). Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the holder acquires a short position and the writer is assigned the opposite long position in the futures contract. Accordingly, in the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of initial and variation margin deposits.

Investment Funds may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, an Investment Fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, an Investment Fund may hedge against a possible increase in the price of securities the Investment Fund expects to purchase by purchasing call options or writing put options on futures contracts rather than purchasing futures contracts. In addition, an Investment Fund may purchase and sell interest rate options on U.S. Treasury or Eurodollar futures to take a long or short position on interest rate fluctuations. Options on futures contracts generally operate in the same manner as options purchased or written directly on the underlying investments. (See “Foreign Currency Transactions” below for a description of some Investment Funds’ use of options on currency futures.)

An Investment Fund also typically will be required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits may vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Investment Fund.

A position in an option on a futures contract may be terminated by the purchaser or seller prior to expiration by effecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same type (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the Investment Fund’s profit or loss on the transaction.

Commodity Futures and Options on Commodity Futures. Investment Funds may have exposure to futures contracts on various commodities or commodities indices (“commodity futures”) and options on commodity futures. A futures contract on a commodity is an agreement between two parties in which one party agrees to purchase a commodity, such as an energy, agricultural, or metal commodity, from the other party at a later date at a price and quantity agreed upon when the contract is made. Futures contracts on commodities indices operate in a manner similar to Index Futures.

Risk Factors in Futures and Futures Options Transactions. Investment in futures contracts involves risk. A purchase or sale of futures contracts may result in losses in excess of the amount invested in the futures contract. If a futures contract is used for hedging, an imperfect correlation between movements in the price of the futures contract and the price of the security, currency, or other investment being hedged creates risk. Correlation is higher when the investment being hedged underlies the futures contract. Correlation is lower when the investment being hedged is different than the security, currency, or other investment underlying the futures contract, such as when a futures contract on an index of securities or commodities is used to hedge a single security or commodity, a futures contract on one security (e.g., U.S. Treasury bonds) or commodity (e.g., gold) is used to hedge a different security (e.g., a mortgage-backed security) or commodity (e.g., copper), or when a futures contract in one currency is used to hedge a security denominated in another currency. In the case of Index Futures and futures on commodity indices, changes in the price of those futures contracts may not correlate perfectly with price movements in the relevant index due to market distortions. In the event of an imperfect correlation between a futures position and the portfolio position (or anticipated position) intended to be hedged, an Investment Fund may realize a loss on the futures contract at the same time the Investment Fund is realizing a loss on the portfolio position intended to be hedged. To compensate for imperfect correlations, an Investment

Fund may purchase or sell futures contracts in a greater amount than the hedged investments if the volatility of the price of the hedged investments is historically greater than the volatility of the futures contracts. Conversely, an Investment Fund may purchase or sell fewer futures contracts if the volatility of the price of the hedged investments is historically less than that of the futures contract. The successful use of transactions in futures and related options for hedging also depends on the direction and extent of exchange rate, interest rate and asset price movements within a given time frame. For example, to the extent equity prices remain stable during the period in which a futures contract or option is held by an Investment Fund investing in equity securities (or such prices move in a direction opposite to that anticipated), the Investment Fund may realize a loss on the futures transaction, which is not fully or partially offset by an increase in the value of its portfolio securities. As a result, the Investment Fund’s total return for such period may be less than if it had not engaged in the hedging transaction.

All participants in the futures market are subject to margin deposit and maintenance requirements. Instead of meeting margin calls, investors may close futures contracts through offsetting transactions, which could distort normal correlations. The margin deposit requirements in the futures market are less onerous than margin requirements in the securities market, allowing for more speculators who may cause temporary price distortions. Trading hours for foreign stock Index Futures may not correspond perfectly to the trading hours of the foreign exchange to which a particular foreign stock Index Future relates. As a result, the lack of continuous arbitrage may cause a disparity between the price of foreign stock Index Futures and the value of the relevant index.

An Investment Fund may purchase futures contracts (or options on them) as an anticipatory hedge against a possible increase in the price of a currency in which securities the Investment Fund anticipates purchasing is denominated. In such instances, the currency may instead decline. If the Investment Fund does not then invest in those securities, the Investment Fund may realize a loss on the futures contract that is not offset by a reduction in the price of the securities purchased.

The Investment Funds’ ability to engage in the futures and options on futures strategies described above depends on the liquidity of the markets in those instruments. Trading interest in various types of futures and options on futures cannot be predicted. Therefore, no assurance can be given that an Investment Fund will be able to utilize these instruments at all or that their use will be effective. In addition, there can be no assurance that a liquid market will exist at a time when an Investment Fund seeks to close out a futures or option on a futures contract position, and that Investment Fund would remain obligated to meet margin requirements until the position is closed. The liquidity of a secondary market in a futures contract may be adversely affected by “daily price fluctuation limits” established by commodity exchanges to limit the amount of fluctuation in a futures contract price during a single trading day. Once the daily limit has been reached, no trades of the contract may be entered at a price beyond the limit, thus preventing the liquidation of open futures positions. In the past, prices have exceeded the daily limit on several consecutive trading days. Short (and long) positions in Index Futures or futures on commodities indices may be closed only by purchasing (or selling) a futures contract on the exchange on which the Index Futures or commodity futures, as applicable, are traded.

As discussed above, an Investment Fund that purchases or sells a futures contract is only required to deposit initial and variation margin as required by relevant CFTC regulations and the rules of the contract market. The Investment Fund’s net assets will generally fluctuate with the value of the security or other instrument underlying a futures contract as if it were already in the Investment Fund’s portfolio. Futures transactions can have the effect of investment leverage. Furthermore, if an Investment Fund combines short and long positions, in addition to possible declines in the values of its investment securities, the Investment Fund will incur losses if the index underlying the long futures position underperforms the index underlying the short futures position.

In addition, if an Investment Fund’s futures brokers become bankrupt or insolvent, or otherwise default on their obligations to the Investment Fund, the Investment Fund may not receive all amounts owing to it in respect of its trading, despite the futures clearinghouse fully discharging all of its obligations. Furthermore, in the event of the bankruptcy of a futures broker, an Investment Fund could be limited to recovering only a pro rata share of all available funds segregated on behalf of the futures broker’s combined customer accounts, even though certain property specifically traceable to the Investment Fund was held by the futures broker.

An Investment Fund’s futures and options on futures transactions may bear adversely on the Fund’s ability to qualify as a RIC.

Additional Risk Associated with Commodity Futures Transactions. Several additional risks are associated with transactions in commodity futures contracts.

Storage Costs. The price of a commodity futures contract reflects the storage costs of purchasing the underlying commodity, including the time value of money invested in the commodity. To the extent that the storage costs change, the value of the futures contracts may change correspondingly.

Reinvestment Risk. In the commodity futures markets, producers of an underlying commodity may sell futures contracts to lock in the price of the commodity at delivery. To induce speculators to purchase the other side (the long side) of the contract, the commodity producer generally must sell the contract at a lower price than the expected futures spot price. Conversely, if most purchasers of the underlying commodity purchase futures contracts to hedge against a rise in commodity prices, then speculators will only sell the contract at a higher price than the expected future spot price of the commodity. The changing nature of the hedgers and speculators in the commodity markets will influence whether futures prices are above or below the expected futures spot price. As a result, when the Portfolio Manager reinvests the proceeds from a maturing contract, it may purchase a new futures contract at a higher or lower price than the expected futures spot prices of the maturing contract or choose to pursue other investments.

Additional Economic Factors. The value of the commodities underlying commodity futures contracts may be subject to additional economic and non-economic factors, such as drought, floods or other weather conditions, livestock disease, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, tariffs, and international economic, political, and regulatory developments.

See also “Commodity-Related Investments” below for more discussion of the special risks of investing in commodity futures, options on commodity futures, and related types of derivatives.

Additional Risks of Options on Securities, Futures Contracts, and Options on Futures Contracts Traded on Foreign Exchanges. Options on securities, futures contracts, options on futures contracts, and options on currencies may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States (which are regulated by the CFTC) and may be subject to greater risks than trading on domestic exchanges. For example, some foreign exchanges may be principal markets so that no common clearing facility exists and a trader may look only to the broker for performance of the contract. The lack of a common clearing facility creates counterparty risk. If a counterparty defaults, an Investment Fund normally will have contractual remedies against that counterparty, but may be unsuccessful in enforcing those remedies. When seeking to enforce a contractual remedy, an Investment Fund also is subject to the risk that the parties may interpret contractual terms (e.g., the definition of default) differently. Counterparty risk is greater for derivatives with longer maturities where events may intervene to prevent settlement. Counterparty risk is also greater when an Investment Fund has concentrated its derivatives with a single or small group of counterparties as it sometimes does as a result of its use of swaps and other OTC derivatives. To the extent an Investment Fund has significant exposure to a single counterparty, this risk will be particularly pronounced for the Investment Fund. If a dispute occurs, the cost and unpredictability of the legal proceedings required for the Investment Fund to enforce its contractual rights may lead the Investment Fund to decide not to pursue its claims against the counterparty. An Investment Fund thus assumes the risk that it may be unable to obtain payments owed under foreign futures contracts or that those payments may be delayed or made only after the Investment Fund has incurred the costs of litigation. In addition, unless an Investment Fund hedges against fluctuations in the exchange rate between the currencies in which trading is done on foreign exchanges and other currencies, any profits that an Investment Fund might realize in trading could be offset (or worse) by adverse changes in the exchange rate. The value of foreign options and futures may also be adversely affected by other factors unique to foreign investing (see “Risks of Foreign Investments” above).

Swap Contracts and Other Two-Party Contracts

Investment Funds may use swap contracts (or “swaps”) and other two-party contracts for the same or similar purposes as options and futures.

Swap Contracts. Investment Funds may directly or indirectly use various different types of swaps, such as swaps on securities and securities indices, total return swaps, interest rate swaps, currency swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps, and other types of available swap agreements. Swap contracts are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to a number of years. Under a typical swap, one party may agree to pay a fixed rate or a floating rate determined by reference to a specified instrument, rate, or index, multiplied in each case by a specified amount (“notional amount”), while the other party agrees to pay an amount equal to a different floating rate multiplied by the same notional amount. On each payment date, the parties’ obligations are netted, with only the net amount paid by one party to the other.

Swap contracts are typically individually negotiated and structured to provide exposure to a variety of different types of investments or market factors. Swap contracts may be entered into for hedging or non-hedging purposes and therefore may increase or decrease an Investment Fund’s exposure to the underlying instrument, rate, asset or index. Swaps can take many different forms and are known by a variety of names.

An Investment Fund may enter into swaps on securities, baskets of securities or securities indices. For example, the parties to a swap contract may agree to exchange returns calculated on a notional amount of a security, basket of securities, or securities index (e.g., S&P 500 Index). Additionally, an Investment Fund may use total return swaps, which typically involve commitments to pay amounts computed in the same manner as interest in exchange for a market-linked return, both based on notional amounts. An Investment Fund may use such swaps to gain investment exposure to the underlying security or securities where direct ownership is either not legally possible or is economically unattractive. To the extent the total return of the security, basket of securities, or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, an Investment Fund will receive a payment from or make a payment to the counterparty, respectively.

In addition, an Investment Fund may enter into an interest rate swap in order to protect against declines in the value of fixed income securities held by the Investment Fund. In such an instance, the Investment Fund may agree with a counterparty to pay a fixed rate (multiplied by a notional amount) and the counterparty pay a floating rate multiplied by the same notional amount. If interest rates rise, resulting in a diminution in the value of the Investment Fund’s portfolio, the Investment Fund would receive payments under the swap that would offset, in whole or in part, such diminution in value. An Investment Fund may also enter into swaps to modify its exposure to particular currencies using currency swaps. For instance, an Investment Fund may enter into a currency swap between the U.S. dollar and the Japanese Yen in order to increase or decrease its exposure to each such currency.

An Investment Fund may use inflation swaps (including inflation swaps tied to the CPI), which involve commitments to pay a regular stream of inflation indexed cash payments in exchange for receiving a stream of nominal interest payments (or vice versa), where both payment streams are based on a notional amount. The nominal interest payments may be based on either a fixed interest rate or variable interest rate, such as LIBOR. Inflation swaps may be used to hedge the inflation risk in nominal bonds (i.e., non-inflation indexed bonds), thereby creating synthetic inflation indexed bonds, or combined with U.S. Treasury futures contracts to create synthetic inflation indexed bonds issued by the U.S. Treasury. See “Indexed Investments—Inflation Indexed Bonds” below.

In addition, an Investment Fund may directly or indirectly use credit default swaps to take an active long or short position with respect to the likelihood of default by a corporate or sovereign issuer of fixed income securities (including asset-backed securities). In a credit default swap, one party pays, in effect, an insurance premium through a stream of payments to another party in exchange for the right to receive a specified return in the event of default (or similar events) by one or more third parties on their obligations. For example, in purchasing a credit default swap, an Investment Fund may pay a premium in return for the right to put specified bonds or loans

to the counterparty, such as a U.S. or foreign issuer or basket of such issuers, upon issuer default (or similar events) at their par (or other agreed-upon) value. An Investment Fund, as the purchaser in a credit default swap, bears the risk that the investment might expire worthless. It also would be subject to counterparty risk—the risk that the counterparty may fail to satisfy its payment obligations to the Investment Fund in the event of a default (or similar event) (see “Risk Factors in Swap Contracts, OTC Options, and Other Two-Party Contracts” below). In addition, as a purchaser in a credit default swap, the Investment Fund’s investment would only generate income in the event of an actual default (or similar event) by the issuer of the underlying obligation. An Investment Fund may also invest in credit default indices, which are indices that reflect the performance of a basket of credit default swaps.

An Investment Fund also may use credit default swaps for investment purposes by selling a credit default swap, in which case the Investment Fund will receive a premium from its counterparty in return for the Investment Fund’s taking on the obligation to pay the par (or other agreed-upon) value to the counterparty upon issuer default (or similar events). As the seller in a credit default swap, an Investment Fund effectively adds economic leverage to its portfolio because, in addition to its total net assets, the Investment Fund is subject to investment exposure on the notional amount of the swap. If no event of default (or similar event) occurs, the Investment Fund would keep the premium received from the counterparty and would have no payment obligations. For credit default swap agreements on asset-backed securities, an event of default may result from various events, which may include an issuer’s failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, an event of default may result from such events as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/ moratorium or restructuring.

An Investment Fund may use variance swap agreements, which involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a “fixed rate” or strike price payment for the “floating rate” or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount paid by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would receive a payment when the realized price variance of the underlying asset is greater than the strike price and would make a payment when that variance is less than the strike price. A payer of the realized price variance would make a payment when the realized price variance of the underlying asset is greater than the strike price and would receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

Investment Funds may have indirect exposure to commodity swaps on one or more broad-based commodities indices (e.g., the Dow Jones-UBS Commodity Index), as well as commodity swaps on individual commodities or baskets of commodities. See “Commodity-Related Investments” below for more discussion of the Investment Funds’ use of commodity swap contracts and other related types of derivatives.

Contracts for Differences. Contracts for differences are swap arrangements in which the parties agree that their return (or loss) will be based on the relative performance of two different groups or baskets of securities. Often, one or both baskets will be an established securities index. An Investment Fund’s return will be based on changes in value of theoretical long futures positions in the securities comprising one basket (with an aggregate face value equal to the notional amount of the contract for differences) and theoretical short futures positions in the securities comprising the other basket. An Investment Fund also may use actual long and short futures positions and achieve similar market exposure by netting the payment obligations of the two contracts. If the short basket outperforms the long basket, the Investment Fund will realize a loss – even in circumstances when the securities in both the long and short baskets appreciate in value. In addition, Investment Funds may use contracts for differences that are based on the relative performance of two different groups or baskets of commodities. Often, one or both baskets is a commodities index. Contracts for differences on commodities operate in a similar manner to contracts for differences on securities described above.

Interest Rate Caps, Floors, and Collars. Investment Funds may use interest rate caps, floors, and collars for the same or similar purposes as they use interest rate futures contracts and related options and, as a result, will be subject to similar risks. See “Options and Futures—Risk Factors in Options Transactions” and “—Risk Factors in Futures and Futures Options Transactions” above. Like interest rate swap contracts, interest rate caps, floors, and collars are two-party agreements in which the parties agree to pay or receive interest on a notional principal amount and are generally individually negotiated with a specific counterparty. The purchaser of an interest rate cap receives interest payments from the seller to the extent that the return on a specified index exceeds a specified interest rate. The purchaser of an interest rate floor receives interest payments from the seller to the extent that the return on a specified index falls below a specified interest rate. The purchaser of an interest rate collar receives interest payments from the seller to the extent that the return on a specified index falls outside the range of two specified interest rates.

Swaptions. An option on a swap agreement, also called a “swaption,” is an OTC option that gives the buyer the right, but not the obligation, to enter into a swap on a specified future date in exchange for paying a market-based premium. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index (such as a call option on a bond). A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index (such as a put option on a bond). Swaptions also include options that allow one of the counterparties to terminate or extend an existing swap.

Risk Factors in Swap Contracts, OTC Options, and Other Two-Party Contracts. An Investment Fund may only close out a swap, contract for differences, cap, floor, collar, or OTC option (including swaption) with its particular counterparty, and may only transfer a position with the consent of that counterparty. If a counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a business interruption, the Investment Fund could miss investment opportunities or otherwise hold investments it would prefer to sell, resulting in losses for the Investment Fund. If the counterparty defaults, an Investment Fund will have contractual remedies, but there can be no assurance that the counterparty will be able to meet its contractual obligations or that the Investment Fund will be able to enforce its rights. For example, because the contract for each OTC derivatives transaction is individually negotiated with a specific counterparty, an Investment Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Investment Fund. The cost and unpredictability of the legal proceedings required for the Investment Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. Counterparty risk is greater with longer maturities where events may intervene to prevent settlement. Counterparty risk is also greater when an Investment Fund has concentrated its derivatives with a single or small group of counterparties as it sometimes does as a result of its use of swaps and other OTC derivatives. To the extent an Investment Fund has significant exposure to a single counterparty, this risk will be particularly pronounced for the Investment Fund. The Investment Fund, therefore, assumes the risk that it may be unable to obtain payments the Portfolio Manager believes are owed under an OTC derivatives contract or that those payments may be delayed or made only after the Investment Fund has incurred the costs of litigation. In addition, counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those experienced recently) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions.

The credit rating of a counterparty may be adversely affected by greater-than-average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital.

Counterparty risk with respect to OTC derivatives may be further complicated by recently enacted U.S. financial reform legislation. See “Legal and Regulatory Risk” below for more information.

An Investment Fund’s futures and options on futures transactions may bear adversely on the Fund’s ability to qualify as a RIC.

Additional Risk Factors in OTC Derivatives Transactions. Participants in OTC derivatives markets typically are not subject to the same level of credit evaluation and regulatory oversight as are members of exchange-based markets and, therefore, OTC derivatives generally expose an Investment Fund to greater counterparty risk than

exchange-traded derivatives. Among other trading agreements, Investment Funds may be party to International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Agreements”) or other similar types of agreements with select counterparties that generally govern over-the-counter derivative transactions entered into by such Investment Funds. The ISDA Agreements typically include representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other provisions. Termination events may include the decline in the net assets of an Investment Fund below a certain level over a specified period of time and entitle a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on an Investment Fund’s operations.

Foreign Currency Transactions

Currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the currency exchange markets, trade balances, the relative merits of investments in different countries, actual or perceived changes in interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and other complex factors. Currency exchange rates also can be affected unpredictably as a result of intervention (or the failure to intervene) by the U.S. or foreign governments, central banks, or supranational agencies such as the International Monetary Fund, or by currency or exchange controls or political and economic developments in the U.S. or abroad. Currencies in which an Investment Fund’s assets are denominated, or in which an Investment Fund has taken a long position, may be devalued against other currencies, resulting in a loss to the Investment Fund. Similarly, currencies in which an Investment Fund has taken a short position may increase in value relative to other currencies, resulting in a loss to the Investment Fund.

In addition, some currencies are illiquid (e.g., emerging country currencies), and an Investment Fund may not be able to convert these currencies into U.S. dollars, in which case the Portfolio Manager may decide to purchase U.S. dollars in a parallel market where the exchange rate is materially and adversely different. Exchange rates for many currencies (e.g., emerging country currencies) are particularly affected by exchange control regulations.

Investment Funds may buy or sell foreign currencies or deal in forward foreign currency contracts, currency futures contracts and related options, and options on currencies. Investment Funds may use such currency instruments for hedging, investment, and/or currency risk management. Currency risk management may include taking overweighted or underweighted currency positions relative to both the securities portfolio of an Investment Fund and the Investment Fund’s performance benchmark or index. Investment Funds also may purchase forward foreign exchange contracts in conjunction with U.S. dollar-denominated securities in order to create a synthetic foreign currency-denominated security that approximates desired risk and return characteristics when the non-synthetic securities either are not available in foreign markets or possess undesirable characteristics.

Forward foreign currency contracts are contracts between two parties to purchase and sell a specified quantity of a particular currency at a specified price, with delivery and settlement to take place on a specified future date. A forward foreign currency contract can reduce an Investment Fund’s exposure to changes in the value of the currency it will deliver and can increase its exposure to changes in the value of the currency it will receive for the duration of the contract. The effect on the value of an Investment Fund is similar to the effect of selling securities denominated in one currency and purchasing securities denominated in another currency. Contracts to sell a particular foreign currency would limit any potential gain that might be realized by an Investment Fund if the value of the hedged currency increases. In addition, it is not always possible to hedge fully or perfectly against currency fluctuations affecting the value of the securities denominated in foreign currencies because the value of such securities also is likely to fluctuate because of independent factors not related to currency fluctuations. If a forward foreign currency contract is used for hedging, an imperfect correlation between movements in the price of the forward foreign currency contract and the price of the currency or other investment being hedged creates risk.

Forward foreign currency contracts involve a number of the same characteristics and risks as currency futures contracts (discussed below) but there also are several differences. Forward foreign currency contracts are not

market traded, and are not necessarily marked to market on a daily basis. They settle only at the pre-determined settlement date. This can result in deviations between forward foreign currency prices and currency futures prices, especially in circumstances where interest rates and currency futures prices are positively correlated. Second, in the absence of exchange trading and involvement of clearing houses, there are no standardized terms for forward currency contracts. Accordingly, the parties are free to establish such settlement times and underlying amounts of a currency as desirable, which may vary from the standardized provisions available through any currency futures contract. Finally, forward foreign currency contracts, as two party obligations for which there is no secondary market, involve counterparty risk not present with currency futures contracts, discussed below.

An Investment Fund also may purchase or sell currency futures contracts and related options. Currency futures contracts are contracts to buy or sell a standard quantity of a particular currency at a specified future date and price. However, currency futures can be and often are closed out prior to delivery and settlement. In addition, an Investment Fund may use options on currency futures contracts, which give their holders the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) a specified currency futures contract at a fixed price during a specified period. (See “Options and Futures—Futures” above for more information on futures contracts and options on futures contracts.)

An Investment Fund also may purchase or sell options on currencies. These give their holders the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) a specified quantity of a particular currency at a fixed price during a specified period. Options on currencies possess many of the same characteristics as options on securities and generally operate in a similar manner. They may be traded on an exchange or in the OTC markets. Options on currencies traded on U.S. or other exchanges may be subject to position limits, which may limit the ability of an Investment Fund to reduce foreign currency risk using options. (See “Options and Futures—Currency Options” above for more information on currency options.)

Repurchase Agreements

An Investment Fund may enter into repurchase agreements with banks and broker-dealers. A repurchase agreement is a contract under which the Investment Fund acquires a security (usually an obligation of the government in the jurisdiction where the transaction is initiated or in whose currency the agreement is denominated or a security backed by the full faith and credit of the U.S. government, such as a U.S. Treasury bill, bond or note) for a relatively short period (usually less than a week) for cash and subject to the commitment of the seller to repurchase the security for an agreed-upon price on a specified date. The repurchase price exceeds the acquisition price and reflects an agreed-upon market rate unrelated to the coupon rate on the purchased security. Repurchase agreements afford an Investment Fund the opportunity to earn a return on temporarily available cash without market risk, although the Investment Fund bears the risk of a seller’s failure to meet its obligation to pay the repurchase price when it is required to do so. Such a default may subject the Investment Fund to expenses, delays, and risks of loss including: (i) possible declines in the value of the underlying security while the Investment Fund seeks to enforce its rights thereto, (ii) possible reduced levels of income and lack of access to income during this period, and (iii) the inability to enforce its rights and the expenses involved in attempted enforcement. Entering into repurchase agreements entails certain risks, which include the risk that the counterparty to the repurchase agreement may not be able to fulfill its obligations, as discussed above, that the parties may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected. See “Risks Arising from Investment Activities of the Investment Funds—Risk of Counterparty Default” in the Prospectus.

Debt and Other Fixed Income Securities Generally

Debt and other fixed income securities include fixed and floating rate securities of any maturity. Fixed rate securities pay a specified rate of interest or dividends. Floating rate securities pay a rate that is adjusted periodically by reference to a specified index or market rate. Fixed and floating rate securities include securities issued by federal, state, local, and foreign governments and related agencies, and by a wide range of private issuers, and generally are referred to in this Statement of Additional Information as “fixed income securities.”

Indexed bonds are a type of fixed income security whose principal value and/or interest rate is adjusted periodically according to a specified instrument, index, or other statistic (e.g., another security, inflation index, currency, or commodity). See “Adjustable Rate Securities” and “Indexed Investments” below. In addition, the Investment Funds may create “synthetic” bonds which approximate desired risk and return profiles. This may be done where a “non-synthetic” security having the desired risk/return profile either is unavailable (e.g., short-term securities of certain foreign governments) or possesses undesirable characteristics (e.g., interest payments on the security would be subject to foreign withholding taxes). See, for example, “Options and Futures—Inflation- Linked Futures” above.

Holders of fixed income securities are exposed to both market and credit risk. Market risk (or “interest rate risk”) relates to changes in a security’s value as a result of changes in interest rates. In general, the values of fixed income securities increase when interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of an issuer to make payments of principal and interest. Obligations of issuers are subject to bankruptcy, insolvency and other laws that affect the rights and remedies of creditors. Fixed income securities denominated in foreign currencies also are subject to the risk of a decline in the value of the denominating currency.

Because interest rates vary, the future income of an Investment Fund that invests in floating rate fixed income securities cannot be predicted with certainty. The future income of an Investment Fund that invests in indexed securities also will be affected by changes in those securities’ indices over time (e.g., changes in inflation rates, currency rates, or commodity prices).

The Investment Funds may invest in a wide range of debt and fixed income instruments, including, but not limited to, Brady bonds, Euro bonds and zero coupon securities, described below. Some of these investments may be treated as having been issued originally at a discount or as having “market discount” or “acquisition discount.” See “Taxes—Taxation of Investors—Special Rules for Debt Obligations.” In effect, Investment Funds holding these types of instruments may be subject to heightened credit risk as a result of the effective deferral of payments on these instruments. The Investment Fund may potentially not ultimately receive cash equal to the income recognized by the Investment Fund as a result of the obligor’s default. There may be a risk that Portfolio Managers will have received fees from Investment Funds in respect of income recognized but not ultimately received by the Investment Fund. Such instruments may also prove challenging to value in the event that judgments about the collectability of deferral payments must be made.

Cash and Other High Quality Investments

The Investment Funds may temporarily invest a portion of their assets in cash or cash items pending other investments or to maintain liquid assets required in connection with some of the Investment Funds’ investments. These cash items and other high quality debt securities may include money market instruments, such as securities issued by the United States Government and its agencies, bankers’ acceptances, commercial paper, and bank certificates of deposit. If a custodian holds cash on behalf of an Investment Fund, the Investment Fund may be an unsecured creditor in the event of the insolvency of the custodian. In addition, the Investment Fund will be subject to credit risk with respect to such a custodian, which may be heightened to the extent the Investment Fund takes a temporary defensive position.

U.S. Government Securities and Foreign Government Securities

U.S. government securities include securities issued or guaranteed by the U.S. government or its authorities, agencies, or instrumentalities. Foreign government securities include securities issued or guaranteed by foreign governments (including political subdivisions) or their authorities, agencies, or instrumentalities or by supra- national agencies. Different kinds of U.S. government securities and foreign government securities have different kinds of government support. For example, some U.S. government securities (e.g., U.S. Treasury bonds) are supported by the full faith and credit of the United States. Other U.S. government securities are issued or guaranteed by federal agencies or government-chartered or -sponsored enterprises but are neither guaranteed nor insured by the U.S. government (e.g., debt securities issued by the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Banks

(“FHLBs”)). Similarly, some foreign government securities are supported by the full faith and credit of a foreign national government or political subdivision and some are not. Foreign government securities of some countries may involve varying degrees of credit risk as a result of financial or political instability in those countries or the possible inability of an Investment Fund to enforce its rights against the foreign government. As with issuers of other fixed income securities, sovereign issuers may be unable or unwilling to satisfy their obligations to pay principal or interest payments.

Supra-national agencies are agencies whose member nations make capital contributions to support the agencies’ activities. Examples include the International Bank for Reconstruction and Development (the World Bank), the Asian Development Bank, and the Inter-American Development Bank.

As with other fixed income securities, U.S. government securities and foreign government securities expose their holders to market risk because their values typically change as interest rates fluctuate. For example, the value of U.S. government securities or foreign government securities may fall during times of rising interest rates. Yields on U.S. government securities and foreign government securities tend to be lower than those of corporate securities of comparable maturities.

In addition to investing directly in U.S. government securities and foreign government securities, an Investment Fund may purchase certificates of accrual or similar instruments evidencing undivided ownership interests in interest payments and/or principal payments of U.S. government securities and foreign government securities. An Investment Fund may also invest in Separately Traded Registered Interest and Principal Securities (“STRIPS”), which are interests in separately traded interest and principal component parts of U.S. Treasury obligations that represent future interest payments, principal payments, or both, are direct obligations of the U.S. government, and are transferable through the federal reserve book-entry system. Certificates of accrual and similar instruments may be more volatile than other government securities.

Municipal Securities

Municipal obligations are issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities and the District of Columbia to obtain funds for various public purposes. Municipal obligations are subject to more credit risk than U.S. government securities that are supported by the full faith and credit of the United States. The ability of municipalities to meet their obligations will depend on the availability of tax and other revenues, economic, political and other conditions within the state and municipality, and the underlying fiscal condition of the state and municipality. As with other fixed income securities, municipal securities also expose their holders to market risk because their values typically change as interest rates fluctuate. The two principal classifications of municipal obligations are “notes” and “bonds.”

Municipal notes are generally used to provide for short-term capital needs, such as to finance working capital needs of municipalities or to provide various interim or construction financing, and generally have maturities of one year or less. They are generally payable from specific revenues expected to be received at a future date or are issued in anticipation of long-term financing to be obtained in the market to provide for the repayment of the note.

Municipal bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued, have two principal classifications: “general obligation” bonds and “revenue” bonds. Issuers of general obligation bonds, the proceeds of which are used to fund a wide range of public projects including the construction or improvement of schools, highways and roads, water and sewer systems and a variety of other public purposes, include states, counties, cities, towns and regional districts. The basic security behind general obligation bonds is the issuer’s pledge of its full faith, credit, and taxing power for the payment of principal and interest.

Revenue bonds have been issued to fund a wide variety of capital projects including: electric, gas, water and sewer systems; highways, bridges and tunnels; port and airport facilities; colleges and universities; and hospitals.

The principal security for a revenue bond is generally the net revenues derived from a particular facility or group of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source. Although the principal security behind these bonds varies widely, many provide additional security in the form of a debt service reserve fund whose monies may also be used to make principal and interest payments on the issuer’s obligations. In addition to a debt service reserve fund, some authorities provide further security in the form of a state’s ability (without obligation) to make up deficiencies in the debt reserve fund.

Securities purchased for an Investment Fund may include variable/floating rate instruments, variable mode instruments, put bonds, and other obligations that have a specified maturity date but also are payable before maturity after notice by the holder. There are, in addition, a variety of hybrid and special types of municipal obligations as well as numerous differences in the security of municipal obligations both within and between the two principal classifications (i.e., notes and bonds). An Investment Fund may also invest in credit default swaps on municipal securities. See “Swap Contracts and Other Two-Party Contracts—Swap Contracts” above.

Auction Rate Securities

Auction rate securities consist of auction rate municipal securities and auction rate preferred securities sold through an auction process issued by closed-end investment companies, municipalities and governmental agencies. Provided that the auction mechanism is successful, auction rate securities usually permit the holder to sell the securities in an auction at par value at specified intervals. The dividend is reset by “Dutch” auction in which bids are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be traded at par value, there is the risk that an auction will fail due to insufficient demand for the securities.

Real Estate Investment Trusts and Other Real Estate-Related Investments

Investment Funds may invest in pooled real estate investment funds (so-called “real estate investment trusts” or “REITs”) and other real estate-related investments such as securities of companies principally engaged in the real estate industry. In addition to REITs, companies in the real estate industry and real estate-related investments may include, for example, entities that either own properties or make construction or mortgage loans, real estate developers, and companies with substantial real estate holdings. Each of these types of investments is subject to risks similar to those associated with direct ownership of real estate. Factors affecting real estate values include the supply of real property in particular markets, overbuilding, changes in zoning laws, casualty or condemnation losses, delays in completion of construction, changes in real estate values, changes in operations costs and property taxes, levels of occupancy, adequacy of rent to cover operating expenses, possible environmental liabilities, regulatory limitations on rent, fluctuations in rental income, increased competition and other risks related to local and regional market conditions. The value of real-estate related investments also may be affected by changes in interest rates, macroeconomic developments, and social and economic trends. For instance, during periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by those REITs. Some REITs have relatively small market capitalizations, which can tend to increase the volatility of the market price of their securities.

REITs are pooled investment funds that invest in real estate or real estate-related companies. Investment Funds may invest in different types of REITs, including equity REITs, which own real estate directly; mortgage REITs, which make construction, development, or long-term mortgage loans; and hybrid REITs, which share characteristics of equity REITs and mortgage REITs. In general, the value of a REIT’s shares changes in light of factors affecting the real estate industry. REITs are also subject to the risk of fluctuations in income from underlying real estate assets, poor performance by the REIT’s manager and the manager’s inability to manage cash flows generated by the REIT’s assets, prepayments and defaults by borrowers, self-liquidation, adverse changes in the tax laws, and, with regard to U.S. REITs (as defined in “Taxes” below), the risk of failing to qualify for tax-free pass-through of income under the Code and/or to maintain exempt status under the 1940 Act. See “Taxes” below for a discussion of special tax considerations relating to an Investment Fund’s investment in U.S. REITs.

By investing in REITs indirectly through an Investment Fund, investors will bear not only their proportionate share of the expenses of the Investment Fund, but also, indirectly, similar expenses of REITs. In addition, REITs depend generally on their ability to generate cash flow to make distributions to investors. Investments in REITs are subject to risks associated with the direct ownership of real estate.

Asset-Backed and Related Securities

An asset-backed security is a fixed income security that predominantly derives its creditworthiness from cash flows relating to a pool of assets. There are a number of different types of asset-backed and related securities, including mortgage-backed securities, securities backed by other pools of collateral (such as automobile loans, student loans, sub-prime mortgages, and credit-card receivables), collateralized mortgage obligations, and collateralized debt obligations, each of which is described in more detail below. Investments in asset-backed securities are subject to all of the market risks for fixed-income securities described in the Prospectus under “Risks Arising from Investment Activities of the Investment Funds” and elsewhere in this SAI.

Mortgage-Backed Securities. Mortgage-backed securities are asset-backed securities backed by pools of residential and commercial mortgages, which may include sub-prime mortgages. Mortgage-backed securities may be issued by agencies or instrumentalities of the U.S. government (including those whose securities are neither guaranteed nor insured by the U.S. government, such as Freddie Mac, Fannie Mae, and FHLBs), foreign governments (or their agencies or instrumentalities), or non-governmental issuers. Interest and principal payments (including prepayments) on the mortgage loans underlying mortgage-backed securities pass through to the holders of the mortgage-backed securities. Prepayments occur when the mortgagor on an individual mortgage loan prepays the remaining principal before the loan’s scheduled maturity date. Unscheduled prepayments of the underlying mortgage loans may result in early payment of the applicable mortgage-backed securities held by an Investment Fund. The Investment Fund may be unable to invest prepayments in an investment that provides as high a yield as the mortgage-backed securities. Consequently, early payment associated with mortgage-backed securities may cause these securities to experience significantly greater price and yield volatility than traditional fixed income securities. Many factors affect the rate of mortgage loan prepayments, including changes in interest rates, general economic conditions, further deterioration of worldwide economic and liquidity conditions, the location of the property underlying the mortgage, the age of the mortgage loan, governmental action, including legal impairment of underlying home loans, changes in demand for products financed by those loans, the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages), and social and demographic conditions. During periods of falling interest rates, the rate of mortgage loan prepayments usually increases, which tends to decrease the life of mortgage-backed securities. During periods of rising interest rates, the rate of mortgage loan prepayments usually decreases, which tends to increase the life of mortgage-backed securities.

Mortgage-backed securities are subject to varying degrees of credit risk, depending on whether they are issued by agencies or instrumentalities of the U.S. government (including those whose securities are neither guaranteed nor insured by the U.S. government) or by non-governmental issuers. Securities issued by private organizations may not be readily marketable, and since the deterioration of worldwide economic and liquidity conditions that became acute in 2008, mortgage-backed securities have been subject to greater liquidity risk. These conditions may occur again. Also, government actions and proposals affecting the terms of underlying home loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., subprime mortgages), have had, and may continue to have, adverse valuation and liquidity effects on mortgage-backed securities. Although liquidity of mortgage-backed securities has improved recently, there can be no assurance that in the future the market for mortgage-backed securities will continue to improve and become more liquid. In addition, mortgage-backed securities are subject to the risk of loss of principal if the obligors of the underlying obligations default in their payment obligations, and to certain other risks described in “Other Asset-Backed Securities” below. The risk of defaults associated with mortgage-backed securities is generally higher in the case of mortgage-backed investments that include sub-prime mortgages.

Mortgage-backed securities may include Adjustable Rate Securities as such term is defined in “Adjustable Rate Securities” below.

Other Asset-Backed Securities. Similar to mortgage-backed securities, other types of asset-backed securities may be issued by agencies or instrumentalities of the U.S. government (including those whose securities are

neither guaranteed nor insured by the U.S. government), foreign governments (or their agencies or instrumentalities), or non-governmental issuers. These securities include securities backed by pools of automobile loans, educational loans, home equity loans, and credit-card receivables. The underlying pools of assets are securitized through the use of trusts and special purpose entities. These securities may be subject to risks associated with changes in interest rates and prepayment of underlying obligations similar to the risks of investment in mortgage-backed securities described immediately above. Additionally, since the deterioration of worldwide economic and liquidity conditions that became acute in 2008, asset-backed securities have been subject to greater liquidity risk. These conditions may occur again. Also, government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., subprime mortgages), have had, and may continue to have, adverse valuation and liquidity effects on asset-backed securities. Although liquidity of asset-backed securities has improved recently, there can be no assurance that in the future the market for asset-backed securities will continue to improve and become more liquid. The risk of investing in asset-backed securities has increased because performance of the various sectors in which the assets underlying asset-backed securities are concentrated (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) has become more highly correlated since the deterioration in worldwide economic and liquidity conditions referred to above.

Payment of interest on asset-backed securities and repayment of principal largely depends on the cash flows generated by the underlying assets backing the securities and, in certain cases, may be supported by letters of credit, surety bonds, or other credit enhancements. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (i.e., determination as to the amount of underlying assets or other support needed to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if obligors of the underlying obligations default in payment of the obligations and the defaulted obligations exceed the securities’ credit support. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. In addition, the existence of insurance on an asset-backed security does not guarantee that principal and/or interest will be paid because the insurer could default on its obligations. In recent years, a significant number of asset-backed security insurers have defaulted on their obligations.

The market value of an asset-backed security may be affected by the factors described above and other factors, such as the availability of information concerning the pool and its structure, the creditworthiness of the servicing agent for the pool, the originator of the underlying assets, or the entities providing the credit enhancement. The market value of asset-backed securities also can depend on the ability of their servicers to service the underlying collateral and is, therefore, subject to risks associated with servicers’ performance. In some circumstances, a servicer’s or originator’s mishandling of documentation related to the underlying collateral (e.g., failure to properly document a security interest in the underlying collateral) may affect the rights of the security holders in and to the underlying collateral. In addition, the insolvency of entities that generate receivables or that utilize the underlying assets may result in a decline in the value of the underlying assets as well as costs and delays.

Certain types of asset-backed securities present additional risks that are not presented by mortgage-backed securities. In particular, certain types of asset-backed securities may not have the benefit of a security interest in the related assets. For example, many securities backed by credit-card receivables are unsecured. In addition, an Investment Fund may invest in securities backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans, many of which may be unsecured (commonly referred to as “collateralized debt obligations” or “collateralized loan obligations” ) (see “Collateralized Debt Obligations” (“CDOs”) below). Even when security interests are present, the ability of an issuer of certain types of asset-backed securities to enforce those interests may be more limited than that of an issuer of mortgage- backed securities. For instance, automobile receivables generally are secured, but by automobiles rather than by real property. Most issuers of automobile receivables permit loan servicers to retain possession of the underlying assets. In addition, because of the large number of underlying vehicles involved in a typical issue of asset-backed securities and technical requirements under state law, the trustee for the holders of the automobile receivables

may not have a proper security interest in all of the automobiles. Therefore, recoveries on repossessed automobiles may not be available to support payments on these securities.

In addition, certain types of asset-backed securities may experience losses on the underlying assets as a result of certain rights provided to consumer debtors under federal and state law. In the case of certain consumer debt, such as credit-card debt, debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on their credit-cards (or other debt), thereby reducing their balances due. For instance, a debtor may be able to offset certain damages for which a court has determined that the creditor is liable to the debtor against amounts owed to the creditor by the debtor on his or her credit-card.

Collateralized Mortgage Obligations (“CMOs”); Strips and Residuals. A CMO is a debt obligation backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. The issuer of a CMO generally pays interest and prepaid principal on a monthly basis. These payments are secured by the underlying portfolio, which typically includes mortgage pass-through securities guaranteed by Freddie Mac, Fannie Mae, or the Government National Mortgage Association (“Ginnie Mae”) and their income streams, and which also may include whole mortgage loans and private mortgage bonds.

CMOs are issued in multiple classes, often referred to as “tranches.” Each class has a different maturity and is entitled to a different schedule for payments of principal and interest, including pre-payments.

In a typical CMO transaction, the issuer of the CMO bonds uses proceeds from the CMO offering to buy mortgages or mortgage pass-through certificates (the “Collateral”). The issuer then pledges the Collateral to a third party trustee as security for the CMOs. The issuer uses principal and interest payments from the Collateral to pay principal on the CMOs, paying the tranche with the earliest maturity first. Thus, the issuer pays no principal on a tranche until all other tranches with earlier maturities are paid in full. The early retirement of a particular class or series has the same effect as the prepayment of mortgage loans underlying a mortgage-backed pass-through security.

CMOs may be less liquid and may exhibit greater price volatility than other types of mortgage- or other asset-backed securities.

Investment Funds also may invest in CMO residuals, which are issued by agencies or instrumentalities of the U.S. government or by private lenders of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, and investment banks. A CMO residual represents excess cash flow generated by the Collateral after the issuer of the CMO makes all required principal and interest payments and after the issuer’s management fees and administrative expenses have been paid. Thus, CMO residuals have value only to the extent income from the Collateral exceeds the amount necessary to satisfy the issuer’s debt obligations on all other outstanding CMOs. The amount of residual cash flow resulting from a CMO will depend on, among other things, the characterization of the mortgage assets, the coupon rate of each class of CMO, prevailing interest rates, the amount of administrative expenses, and the pre-payment experience on the mortgage assets.

CMOs also include certificates representing undivided interests in payments of interest-only or principal-only (“IO/PO Strips”) on the underlying mortgages.

IO/PO Strips and CMO residuals tend to be more volatile than other types of securities. If the underlying securities are prepaid, holders of IO/PO Strips and CMO residuals may lose a substantial portion or the entire value of their investment. In addition, if a CMO pays interest at an adjustable rate, the cash flows on the related CMO residual will be extremely sensitive to rate adjustments.

Collateralized Debt Obligations (“CDOs”). Investment Funds may invest in CDOs, which include collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), and other similarly structured securities. CBOs and CLOs are asset-backed securities. A CBO is an obligation of a trust or other special purpose vehicle

backed by a pool of fixed income securities. A CLO is an obligation of a trust or other special purpose vehicle typically collateralized by a pool of loans, which may include domestic and foreign senior secured and unsecured loans, and subordinate corporate loans, including loans that may be rated below investment-grade, or equivalent unrated loans.

For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called tranches, which vary in risk and yield. The riskier portions are the residual, equity, and subordinate tranches, which bear some or all of the risk of default by the bonds or loans in the trust, and therefore protect the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust typically has higher ratings and lower yields than its underlying securities, and can be rated investment grade. Despite the protection from the riskier tranches, senior CBO or CLO tranches can experience substantial losses due to actual defaults (including collateral default), the total loss of the riskier tranches due to losses in the collateral, market anticipation of defaults, fraud by the trust, and the illiquidity of CBO or CLO securities.

The risks of an investment in a CDO largely depend on the type of underlying collateral securities and the tranche in which an Investment Fund invests. Investment Funds may invest in any tranche of a CBO or CLO. Typically, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered under the securities laws. As a result, an Investment Fund may characterize its investments in CDOs as illiquid, unless an active dealer market for a particular CDO allows the CDO to be purchased and sold in Rule 144A transactions. CDOs are subject to the typical risks associated with debt instruments discussed elsewhere in this Statement of Additional Information and the Prospectus, including interest rate risk (which may be exacerbated if the interest rate payable on a structured financing changes based on multiples of changes in interest rates or inversely to changes in interest rates), default risk, prepayment risk, credit risk, liquidity risk, market risk, structural risk, and legal risk. Additional risks of CDOs include: (i) the possibility that distributions from collateral securities will be insufficient to make interest or other payments, (ii) the possibility that the quality of the collateral may decline in value or default, due to factors such as the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets, (iii) market and liquidity risks affecting the price of a structured finance investment, if required to be sold, at the time of sale, and (iv) if the particular structured product is invested in a security in which an Investment Fund is also invested, this would tend to increase the Investment Fund’s overall exposure to the credit of the issuer of such securities, at least on an absolute, if not on a relative basis. In addition, due to the complex nature of a CDO, an investment in a CDO may not perform as expected. An investment in a CDO also is subject to the risk that the issuer and the investors may interpret the terms of the instrument differently, giving rise to disputes.

Adjustable Rate Securities

Adjustable rate securities are securities that have interest rates that reset at periodic intervals, usually by reference to an interest rate index or market interest rate. Adjustable rate securities include U.S. government securities and securities of other issuers. Some adjustable rate securities are backed by pools of mortgage loans. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, changes in market interest rates or changes in the issuer’s creditworthiness may still affect their value. Because the interest rate is reset only periodically, changes in the interest rates on adjustable rate securities may lag changes in prevailing market interest rates. Also, some adjustable rate securities (or, in the case of securities backed by mortgage loans, the underlying mortgages) are subject to caps or floors that limit the maximum change in interest rate during a specified period or over the life of the security. Because of the rate adjustments, adjustable rate securities are less likely than non-adjustable rate securities of comparable quality and maturity to increase significantly in value when market interest rates fall.

Below Investment Grade Securities

Investment Funds may invest some or all of their assets in securities or instruments rated below investment grade (that is, rated below Baa3/P-2 by Moody’s Investors Service, Inc. (“Moody’s”) or below BBB-/A-2 by

Standard & Poor’s (“S&P”) for a particular security/commercial paper, or securities unrated by Moody’s or S&P that are determined by the Portfolio Manager to be of comparable quality to securities so rated) at the time of purchase, including securities in the lowest rating categories and comparable unrated securities (“Below Investment Grade Securities”) (commonly referred to as “junk bonds”). In addition, Investment Funds may hold securities that are downgraded to below-investment-grade status after the time of purchase by the Investment Fund. Many issuers of high yield debt are highly leveraged, and their relatively high debt-to-equity ratios create increased risks that their operations might not generate sufficient cash flow to service their debt obligations. In addition, many issuers of high yield debt may be (i) in poor financial condition, (ii) experiencing poor operating results, (iii) having substantial capital needs or negative net worth or (iv) facing special competitive or product obsolescence problems, and may include companies involved in bankruptcy or other reorganizations or liquidation proceedings. Compared to higher quality fixed income securities, Below Investment Grade Securities offer the potential for higher investment returns but subject holders to greater credit and market risk. The ability of an issuer of Below Investment Grade Securities to meet principal and interest payments is considered speculative. An Investment Fund’s investments in Below Investment Grade Securities may be more dependent on the Portfolio Manager’s own credit analysis than its investments in higher quality bonds. Certain of these securities may not be publicly traded, and therefore it may be difficult to obtain information as to the true condition of the issuers. The market for Below Investment Grade Securities may be more severely affected than other financial markets by economic recession or substantial interest rate increases, changing public perceptions, or legislation that limits the ability of certain categories of financial institutions to invest in Below Investment Grade Securities. In addition, the market may be less liquid for Below Investment Grade Securities than for other types of securities. Reduced liquidity can affect the values of Below Investment Grade Securities, make their valuation and sale more difficult, and result in greater volatility. Because Below Investment Grade Securities are difficult to value and are more likely to be fair valued (see “Determination of Net Asset Value” in the Prospectus), particularly during erratic markets, the values realized on their sale may differ from the values at which they are carried on the books of an Investment Fund. Some Below Investment Grade Securities in which an Investment Fund invests may be in poor standing or in default.

Securities in the lowest investment-grade category (BBB or Baa) also have some speculative characteristics.

Distressed or Defaulted Instruments

Investment Funds may invest in securities, claims and obligations of U.S. and non-U.S. issuers which are experiencing significant financial or business difficulties (including companies involved in bankruptcy or other reorganization and liquidation proceedings). An Investment Fund may purchase distressed securities and instruments of all kinds, subject to tax considerations, including equity and debt instruments and, in particular, loans, loan participations, claims held by trade or other creditors, bonds, notes, non-performing and sub- performing mortgage loans, beneficial interests in liquidating trusts or other similar types of trusts, fee interests and financial interests in real estate, partnership interests and similar financial instruments, executory contracts and participations therein, many of which are not publicly traded and which may involve a substantial degree of risk.

Investments in distressed or defaulted instruments generally are considered speculative and may involve substantial risks not normally associated with investments in healthier companies, including adverse business, financial or economic conditions that can lead to defaulted payments and insolvency proceedings.

In particular, defaulted obligations might be repaid, if at all, only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. The amount of any recovery may be adversely affected by the relative priority of the Investment Fund’s investment in the issuer’s capital structure. The ability to enforce obligations may be adversely affected by actions or omissions of predecessors in interest that give rise to counterclaims or defenses, including causes of action for equitable subordination or debt recharacterization. In addition, such investments, collateral securing such investments, and payments made in respect of such investments may be challenged as fraudulent conveyances or to be subject to avoidance as preferences under certain circumstances.

Investments in distressed securities inherently have more credit risk than do investments in similar securities and instruments of non-distressed companies, and the degree of risk associated with any particular distressed securities may be difficult or impossible for the Portfolio Manager to determine within reasonable standards of predictability. The level of analytical sophistication, both financial and legal, necessary for successful investment in distressed securities is unusually high.

If the Portfolio Manager’s evaluation of the eventual recovery value of a defaulted instrument should prove incorrect, an Investment Fund may lose a substantial portion or all of its investment or it may be required to accept cash or instruments with a value less than the Investment Fund’s original investment.

Investments in financially distressed companies domiciled outside the United States involve additional risks. Bankruptcy law and creditor reorganization processes may differ substantially from those in the United States, resulting in greater uncertainty as to the rights of creditors, the enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. In certain developing countries, although bankruptcy laws have been enacted, the process for reorganization remains highly uncertain.

In addition, investments in distressed or defaulted instruments can present special tax issues for an Investment Fund. See “Taxes” below for more information.

Investment Funds’ Exposure to Lehman Brothers Bankruptcy and Its Affiliates’ Insolvency. On or about September 15, 2008, Lehman Brothers Holdings Inc. (“Lehman Holdings”) filed for protection under Chapter 11 of the United States Bankruptcy Code, Lehman Brothers International (Europe) Ltd. (“LBIE”) was placed into administration in the United Kingdom, Lehman Brothers Inc., a U.S. broker-dealer (“LBI”), became subject to protection of and possible sale or liquidation by the U.S. Securities Investor Protection Corporation, and other affiliates of Lehman Holdings suspended operations (the foregoing entities, collectively, “Lehman”). Some of the Investment Funds may have engaged in business with Lehman and/or have counterparty exposure to Lehman that such Investment Funds have not yet been able to recover. It is currently unknown whether or when such Investment Funds will ultimately be able to recover any assets that are in Lehman’s possession or subject to Lehman’s control, although it is expected that any such recovery may take months or years. Such Investment Funds may write down the value of their exposure to Lehman or may take steps to segregate their exposure to Lehman so that only existing investors will participate in the recovery and bear any costs related to such Investment Funds’ exposure to Lehman. To the extent the Fund and the Master indirectly participate in such Lehman exposure, they will be subject to the valuation uncertainties surrounding the Lehman claims. In some cases, Investment Funds with significant Lehman claims may be unable to value their portfolios.

Merger Arbitrage Transactions

Investment Funds may engage in merger arbitrage transactions, where an Investment Fund will purchase securities at prices below the Portfolio Manager’s anticipated value of the cash, securities or other consideration to be paid or exchanged for such securities in a proposed merger, exchange offer, tender offer or other similar transaction. Such purchase price may be substantially in excess of the market price of the securities prior to the announcement of the merger, exchange offer, tender offer or other similar transaction. If the proposed merger, exchange offer, tender offer or other similar transaction later appears likely not to be consummated or in fact is not consummated or is delayed, the market price of the security purchased by the Investment Fund may decline sharply and result in losses to the Investment Fund if such securities are sold, transferred or exchanged for securities or cash, the value of which is less than the purchase price. There is typically asymmetry in the risk/ reward payout of mergers—the losses that can occur in the event of deal break-ups can far exceed the gains to be had if deals close successfully. For instance, mark-to-market losses can occur intra-month even if a particular deal is not breaking-up and such losses may or may not be recouped upon successful consummation of such deal. Further, the consummation of mergers, tender offers and exchange offers can be prevented or delayed by a variety of factors, including: (i) regulatory and antitrust restrictions; (ii) political motivations; (iii) industry weakness; (iv) stock specific events; (v) failed financings and (vi) general market declines. Also, in certain transactions, an Investment Fund may not hedge against market fluctuations. This can result in losses even if the proposed transaction is consummated. In addition, a security to be issued in a merger or exchange offer may be

sold short by an Investment Fund in the expectation that the short position will be covered by delivery of such security when issued. If the merger or exchange offer is not consummated, the Investment Fund may be forced to cover its short position at a higher price than its short sale price, resulting in a loss.

Merger arbitrage strategies also depend for success on the overall volume of merger activity, which has historically been cyclical in nature. During periods when merger activity is low, it may be difficult or impossible to identify opportunities for profit or to identify a sufficient number of such opportunities to provide diversification among potential merger transactions.

Merger arbitrage strategies are also subject to the risk of overall market movements. To the extent that a general increase or decline in equity values affects the stocks involved in a merger arbitrage position differently, the position may be exposed to loss. At any given time, arbitrageurs can become improperly hedged by accident or in an effort to maximize risk-adjusted returns. This can lead to inadvertent market-related losses.

Brady Bonds

Brady bonds are securities created through the restructuring of commercial bank loans to public and private entities under a debt restructuring plan introduced by former U.S. Secretary of the Treasury Nicholas F. Brady (the “Brady Plan”). Brady Plan debt restructurings have been implemented in Mexico, Uruguay, Venezuela, Costa Rica, Argentina, Nigeria, the Philippines, and other emerging countries.

Brady bonds may be collateralized, are issued in various currencies (but primarily the U.S. dollar), and are actively traded in OTC secondary markets. U.S. dollar-denominated, collateralized Brady bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the bonds.

The valuation of a Brady bond typically depends on an evaluation of: (i) any collateralized repayments of principal at final maturity; (ii) any collateralized interest payments; (iii) the uncollateralized interest payments; and (iv) any uncollateralized repayments of principal at maturity (the uncollateralized amounts constitute the “residual risk”). In light of the residual risk of Brady bonds and the history of prior defaults by the issuers of Brady bonds, investments in Brady bonds may be viewed as speculative.

Euro Bonds

Euro bonds are securities denominated in U.S. dollars or another currency and sold to investors outside of the country whose currency is used. Euro bonds may be issued by government or corporate issuers, and are typically underwritten by banks and brokerage firms in numerous countries. While Euro bonds often pay principal and interest in Eurodollars (i.e., U.S. dollars held in banks outside of the United States), some Euro bonds may pay principal and interest in other currencies. Euro bonds are subject to the same risks as other fixed income securities. See “Debt and Other Fixed Income Securities Generally” above.

Zero Coupon Securities

An Investment Fund investing in “zero coupon” fixed income securities accrues interest income at a fixed rate based on initial purchase price and length to maturity, but the securities do not pay interest in cash on a current basis. The Investment Fund may be required to distribute the accrued income to its shareholders, even though the Investment Fund is not receiving the income in cash on a current basis. Thus, an Investment Fund may have to sell other investments to obtain cash to make income distributions (including at a time when it may not be advantageous to do so). The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. Zero coupon securities include IO/PO Strips and STRIPS.

Indexed Investments

Investment Funds may invest in various transactions and instruments that are designed to track the performance of an index (including, but not limited to, securities indices and credit default indices). Indexed securities are securities the redemption values and/or coupons of which are indexed to a specific instrument, group of instruments, index, or other statistic. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to other securities, securities or inflation indices, currencies, precious metals or other commodities, or other financial indicators. For example, the maturity value of gold-indexed securities depends on the price of gold and, therefore, their price tends to rise and fall with gold prices.

While investments that track the performance of an index may increase the number, and thus the diversity, of the underlying assets to which the Investment Fund is exposed, such investments are subject to many of the same risks of investing in the underlying assets that comprise the index discussed elsewhere in this section, as well as certain additional risks that are not typically associated with investments in such underlying assets. An investment that is designed to track the performance of an index may not replicate and maintain exactly the same composition and relative weightings of the assets in the index. Additionally, the liquidity of the market for such investments may be subject to the same conditions affecting liquidity in the underlying assets and markets and could be relatively less liquid in certain circumstances. The performance of indexed securities depends on the performance of the security, security index, inflation index, currency, or other instrument to which they are indexed. Interest rate changes in the U.S. and abroad also may influence performance. Indexed securities also are subject to the credit risks of the issuer, and their values are adversely affected by declines in the issuer’s creditworthiness.

Currency-Indexed Securities. Currency-indexed securities have maturity values or interest rates determined by reference to the values of one or more foreign currencies. Currency-indexed securities also may have maturity values or interest rates that depend on the values of a number of different foreign currencies relative to each other.

Inverse Floating Obligations. Indexed securities in which an Investment Fund may invest include so-called “inverse floating obligations” or “residual interest bonds” on which the interest rates typically decline as the index or reference rates, typically short-term interest rates, increase and increase as index or reference rates decline. An inverse floating obligation may have the effect of investment leverage to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index or reference rate of interest. Generally, leverage will result in greater price volatility.

Inflation Indexed Bonds. Investment Funds may invest in inflation indexed bonds. Investment Funds may also invest in futures contracts on inflation indexed bonds. See “Options and Futures—Inflation Linked Futures” above for a discussion of inflation linked futures. Inflation indexed bonds are fixed income securities whose principal value is adjusted periodically according to the rate of inflation. Two structures are common. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. Most other issuers pay out the CPI accruals as part of a semiannual coupon.

Inflation indexed securities issued by the U.S. Treasury (or “TIPS”) have maturities of approximately five, ten or twenty years (thirty year TIPS are no longer offered), although it is possible that securities that have other maturities will be issued in the future. U.S. Treasury securities pay interest on a semi-annual basis equal to a fixed percentage of the inflation-adjusted principal amount. For example, if an Investment Fund purchased an inflation indexed bond with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5% semi- annually), and the rate of inflation over the first six months was 1%, the mid-year par value of the bond would be $1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second half of the year resulted in the whole year’s inflation equaling 3%, the end-of-year par value of the bond would be $1,030 and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).

If the periodic adjustment rate measuring inflation falls, the principal value of inflation indexed bonds will be adjusted downward and, consequently, the interest they pay (calculated with respect to a smaller principal

amount) will be reduced. The U.S. government guarantees the repayment of the original bond principal upon maturity (as adjusted for inflation) in the case of a TIPS, even during a period of deflation, although the inflation- adjusted principal received could be less than the inflation-adjusted principal that had accrued to the bond at the time of purchase. However, the current market value of the bonds is not guaranteed and will fluctuate. An Investment Fund also may invest in other inflation-related bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

The value of inflation indexed bonds normally changes when real interest rates change. Real interest rates, in turn, are tied to the relationship between nominal interest rates (i.e., stated interest rates) and the rate of inflation. Therefore, if the rate of inflation rises at a faster rate than nominal interest rates, real interest rates (i.e., nominal interest rate minus inflation) might decline, leading to an increase in value of inflation indexed bonds. In contrast, if nominal interest rates increase at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation indexed bonds. There can be no assurance, however, that the value of inflation indexed bonds will change in the same proportion as changes in nominal interest rates, and short term increases in inflation may lead to a decline in their value.

Although inflation indexed bonds protect their holders from long-term inflationary trends, short-term increases in inflation may result in a decline in value. In addition, inflation indexed bonds do not protect holders from increases in interest rates due to reasons other than inflation (such as changes in currency exchange rates).

The periodic adjustment of U.S. inflation indexed bonds is tied to the Consumer Price Index for Urban Consumers (“CPI-U”), which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation, and energy. Inflation indexed bonds issued by a foreign government are generally adjusted to reflect changes in a comparable inflation index calculated by the foreign government. No assurance can be given that the CPI-U or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. In addition, no assurance can be given that the rate of inflation in a foreign country will correlate to the rate of inflation in the United States.

Coupon payments received by an Investment Fund from inflation indexed bonds are included in the Investment Fund’s gross income for the period in which they accrue. In addition, any increase in the principal amount of an inflation indexed bond constitutes taxable ordinary income to investors in the Investment Fund, even though principal is not paid until maturity.

Structured Notes

Similar to indexed securities, structured notes are derivative debt securities, the interest rate or principal of which is determined by reference to changes in the value of a specific asset, reference rate, or index (the “reference”) or the relative change in two or more references. The interest rate or the principal amount payable upon maturity or redemption may increase or decrease, depending upon changes in the reference. The terms of a structured note may provide that, in certain circumstances, no principal is due at maturity and, therefore, may result in a loss of invested capital. Structured notes may be indexed positively or negatively, so that appreciation of the reference may produce an increase or decrease in the interest rate or value of the principal at maturity. In addition, changes in the interest rate or the value of the principal at maturity may be fixed at a specified multiple of the change in the value of the reference, making the value of the note particularly volatile.

Structured notes may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the reference. Structured notes also may be more volatile, less liquid, and more difficult to price accurately than less complex securities or more traditional debt securities.

Firm Commitments and When-Issued Securities

Investment Funds may enter into firm commitments and similar agreements with banks or broker-dealers for the purchase or sale of securities at an agreed-upon price on a specified future date. For example, an Investment

Fund that invests in fixed-income securities may enter into a firm commitment agreement if the Portfolio Manager anticipates a decline in interest rates and believes it is able to obtain a more advantageous future yield by committing currently to purchase securities to be issued later. An Investment Fund generally does not earn income on the securities it has committed to purchase until after delivery. An Investment Fund may take delivery of the securities or, if deemed advisable as a matter of investment strategy, may sell the securities before the settlement date. When payment is due on when-issued or delayed-delivery securities, the Investment Fund makes payment from then-available cash flow or the sale of securities, or from the sale of the when-issued or delayed- delivery securities themselves (which may have a value greater or less than what the Investment Fund paid for them).

Loans (Including Bank Loans), Loan Participations, and Assignments

Investment Funds may invest in direct debt instruments, which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (loans, including bank loans, promissory notes, and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Such instruments may include term loans and revolving loans, may pay interest at a fixed or floating rate and may be senior or subordinated. The Investment Funds may acquire interests in loans either directly (by way of sale or assignment) or indirectly (by way of participation).

Purchases of loans and other forms of direct indebtedness, including promissory notes, depend primarily upon the creditworthiness of the borrower for payment of principal and interest, and adverse changes in the creditworthiness of the borrower may affect its ability to pay principal and interest. Direct debt instruments may not be rated by any rating agency. In the event of non-payment of interest or principal, loans that are secured offer an Investment Fund more protection than comparable unsecured loans. However, no assurance can be given that the collateral for a secured loan can be liquidated or that the proceeds will satisfy the borrower’s obligation. Investment in the indebtedness of borrowers with low creditworthiness involves substantially greater risks, and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Investments in sovereign debt similarly involve the risk that the governmental entities responsible for repayment of the debt may be unable or unwilling to pay interest and repay principal when due. The bank loans acquired by an Investment Fund may be below investment grade.

When investing in a loan participation, an Investment Fund typically purchases participation interests in a portion of a lender’s or participant’s interest in a loan but has no direct contractual relationship with the borrower. Participation interests in a portion of a debt obligation typically result in a contractual relationship only with the institution participating in the interest, not with the borrower. The Investment Fund must rely on the seller of the participation interest not only for the enforcement of the Investment Fund’s rights against the borrower but also for the receipt and processing of principal, interest, or other payments due under the loan. This may subject the Investment Fund to greater delays, expenses, and risks than if the Investment Fund could enforce its rights directly against the borrower. In addition, the Investment Fund generally will have no rights of set-off against the borrower, and the Investment Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. A participation agreement also may limit the rights of the Investment Fund to vote on changes that may be made to the underlying loan agreement, such as waiving a breach of a covenant. In addition, under the terms of a participation agreement, the Investment Fund may be treated as a creditor of the seller of the participation interest (rather than of the borrower), thus exposing the Investment Fund to the credit risk of the seller in addition to the credit risk of the borrower. Additional risks include inadequate perfection of a loan’s security interest, the possible invalidation or compromise of an investment transaction as a fraudulent conveyance or preference under relevant creditors’ rights laws, the validity and seniority of bank claims and guarantees, environmental liabilities that may arise with respect to collateral securing the obligations, and adverse consequences resulting from participating in such instruments through other institutions with lower credit quality.

Bank loans and participation interests may not be readily marketable and may be subject to restrictions on resale. There can be no assurance that future levels of supply and demand in loan or loan participation trading will

provide an adequate degree of liquidity and no assurance that the market will not experience periods of significant illiquidity in the future.

Investments in loans through direct assignment of a lender’s interests may involve additional risks to an Investment Fund. For example, if a secured loan is foreclosed, the Investment Fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, under legal theories of lender liability, the Investment Fund potentially might be held liable as a co- lender.

A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness an Investment Fund has direct recourse against the borrower, it may have to rely on the agent to enforce its rights against the borrower.

A Portfolio Manager may, with respect to its management of investments in certain loans for an Investment Fund, seek to remain flexible to purchase and sell other securities in the borrower’s capital structure, by remaining “public.” In such cases, the Portfolio Manager may seek to avoid receiving material, non-public information about the borrowers to which the Investment Fund may lend (through assignments, participations or otherwise). A Portfolio Manager’s decision not to use material, non-public information about borrowers may place the Portfolio Manager at an information disadvantage relative to other lenders. Also, in instances where lenders are asked to grant amendments, waivers or consents in favor of the borrower, a Portfolio Manager’s ability to assess the significance of the amendment, waiver or consent or its desirability from an Investment Fund’s point of view may be materially and adversely affected.

When a Portfolio Manager’s personnel do come into possession of material, non-public information about the issuers of loans that may be held by an Investment Fund or other accounts managed by the Portfolio Manager (either intentionally or inadvertently), the Portfolio Manager’s ability to trade in other securities of the issuers of these loans for the account of the Portfolio Manager will be limited pursuant to applicable securities laws. Such limitations on the Portfolio Manager’s ability to trade could have an adverse effect on an Investment Fund. In many instances, these trading restrictions could continue in effect for a substantial period of time.

Direct indebtedness purchased by an Investment Fund may include letters of credit, revolving credit facilities, or other standby financing commitments obligating the Investment Fund to pay additional cash on demand. These commitments may have the effect of requiring the Investment Fund to increase its investment in a borrower at a time when it would not otherwise have done so.

Trade Claims. Investment Funds may purchase trade claims against companies, including companies in bankruptcy or reorganization proceedings. Trade claims generally include claims of suppliers for goods delivered and not paid, claims for unpaid services rendered, claims for contract rejection damages and claims related to litigation. An investment in trade claims is very speculative and carries a high degree of risk. Trade claims are illiquid instruments which generally do not pay interest and there can be no guarantee that the debtor will ever be able to satisfy the obligation on the trade claim. Additionally, there can be restrictions on the purchase, sale, and/ or transferability of trade claims during all or part of a bankruptcy proceeding. The markets in trade claims are not regulated by U.S. federal securities laws or the SEC.

Trade claims are typically unsecured and may be subordinated to other unsecured obligations of a debtor, and generally are subject to defenses of the debtor with respect to the underlying transaction giving rise to the trade claim. Trade claims are subject to risks not generally associated with standardized securities and instruments due to the idiosyncratic nature of the claims purchased. These risks include the risk that the debtor may contest the allowance of the claim due to disputes the debtor has with the original claimant or the inequitable conduct of the original claimant, or due to administrative errors in connection with the transfer of the claim. Recovery on allowed trade claims may also be impaired if the anticipated dividend payable on unsecured claims in the bankruptcy is not realized or if the timing of the bankruptcy distribution is delayed. As a result of the foregoing factors, trade claims are also subject to the risk that if an Investment Fund does receive payment, it may be in an amount less than what the Investment Fund paid for or otherwise expects to receive in respect of the claim.

In addition, because they are not negotiable instruments, trade claims are typically less liquid than negotiable instruments. Given these factors, trade claims often trade at a discount to other pari passu instruments.

Reverse Repurchase Agreements and Dollar Roll Agreements

Investment Funds may enter into reverse repurchase agreements and dollar roll agreements with banks and brokers to enhance return. Reverse repurchase agreements involve sales by an Investment Fund of portfolio securities concurrently with an agreement by the Investment Fund to repurchase the same securities at a later date at a fixed price. During the reverse repurchase agreement period, the Investment Fund continues to receive principal and interest payments on the securities and also has the opportunity to earn a return on the collateral furnished by the counterparty to secure its obligation to redeliver the securities.

Dollar rolls are transactions in which an Investment Fund sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Investment Fund foregoes principal and interest paid on the securities. The Investment Fund is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale.

If the buyer in a reverse repurchase agreement or dollar roll agreement files for bankruptcy or becomes insolvent, an Investment Fund’s use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Investment Fund’s right to repurchase the securities. Furthermore, in that situation an Investment Fund may be unable to recover the securities it sold in connection with a reverse repurchase agreement and as a result would realize a loss equal to the difference between the value of the securities and the payment it received for them. This loss would be greater to the extent the buyer paid less than the value of the securities the Investment Fund sold to it (e.g., a buyer may only be willing to pay $95 for a bond with a market value of $100). An Investment Fund’s use of reverse repurchase agreements also subjects the Investment Fund to interest costs based on the difference between the sale and repurchase price of a security involved in such a transaction. Additionally, reverse repurchase agreements entail the same risks as over-the- counter derivatives. These include the risk that the counterparty to the reverse repurchase agreement may not be able to fulfill its obligations, as discussed above, that the parties may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected. See “Risks Arising from Investment Activities of the Investment Funds—Futures, Options and Derivative Instruments” and “—Risk of Counterparty Default” in the Prospectus.

Commodity-Related Investments

Investment Funds may invest in a range of markets, including the commodity markets, which include a range of assets with tangible properties, such as oil, natural gas, agricultural products (e.g., wheat, corn, and livestock), precious metals (e.g., gold and silver), industrial metals (e.g., copper), and softs (e.g., cocoa, coffee, and sugar). Investment Funds may obtain such exposure by investing in commodity-related derivatives (as defined below).

Commodity prices can be extremely volatile and may be directly or indirectly affected by many factors, including changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, and factors affecting a particular industry or commodity, such as drought, floods, or other weather conditions, livestock disease, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, tariffs, and international regulatory, political, and economic developments (e.g., regime changes and changes in economic activity levels). In addition, some commodities are subject to limited pricing flexibility because of supply and demand factors, and others are subject to broad price fluctuations as a result of the volatility of prices for certain raw materials and the instability of supplies of other materials.

Actions of and changes in governments, and political and economic instability, in commodity-producing and-exporting countries may affect the production and marketing of commodities. In addition, commodity-related

industries throughout the world are subject to greater political, environmental, and other governmental regulation than many other industries. Changes in government policies and the need for regulatory approvals may adversely affect the products and services of companies in the commodities industries. For example, the exploration, development, and distribution of coal, oil, and gas in the United States are subject to significant federal and state regulation, which may affect rates of return on coal, oil, and gas and the kinds of services that the federal and state governments may offer to companies in those industries. In addition, compliance with environmental and other safety regulations has caused many companies in commodity-related industries to incur production delays and significant costs. Government regulation may also impede the development of new technologies. The effect of future regulations affecting commodity-related industries cannot be predicted.

Investment Funds may invest in derivatives whose values are based on the value of a commodity, commodity index, or other readily-measurable economic variables dependent upon changes in the value of commodities or the commodities markets (“commodity-related derivatives”). The value of commodity-related derivatives fluctuates based on changes in the values of the underlying commodity, commodity index, futures contract, or other economic variable to which they are related. Additionally, economic leverage will increase the volatility of these instruments as they may increase or decrease in value more quickly than the underlying commodity or other relevant economic variable.

Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited Opportunities

Investment Funds may invest in illiquid securities.

A Portfolio Manager also may deem certain securities to be illiquid as a result of the Portfolio Manager’s receipt from time to time of material, non-public information about an issuer, which may limit the Portfolio Manager’s ability to trade such securities for the account of any of its clients, including the Investment Funds. In some instances, these trading restrictions could continue in effect for a substantial period of time.

Private Placements and Restricted Investments. Illiquid securities include securities of private issuers, securities traded in unregulated or shallow markets, securities issued by entities deemed to be affiliates of an Investment Fund, and securities that are purchased in private placements and are subject to legal or contractual restrictions on resale. Because relatively few purchasers of these securities may exist, especially in the event of adverse economic and liquidity conditions or adverse changes in the issuer’s financial condition, an Investment Fund may not be able to initiate a transaction or liquidate a position in such investments at a desirable price. Disposing of illiquid securities may involve time-consuming negotiation and legal expenses, and selling them promptly at an acceptable price may be difficult or impossible.

While private placements may offer attractive opportunities not otherwise available in the open market, the securities purchased are usually “restricted securities” or are “not readily marketable.” Restricted securities cannot be sold without being registered under the 1933 Act, unless they are sold pursuant to an exemption from registration (such as Rules 144 or 144A). Securities that are not readily marketable are subject to other legal or contractual restrictions on resale. An Investment Fund may have to bear the expense of registering restricted securities for resale and the risk of substantial delay in effecting registration. An Investment Fund selling its securities in a registered offering may be deemed to be an “underwriter” for purposes of Section 11 of the 1933 Act. In such event, the Investment Fund may be liable to purchasers of the securities under Section 11 if the registration statement prepared by the issuer, or the prospectus forming a part of it, is materially inaccurate or misleading, although the Investment Fund may have a due diligence defense.

At times, the inability to sell illiquid securities can make it more difficult to determine their fair value for purposes of computing an Investment Fund’s net assets. The judgment of the Portfolio Manager normally plays a greater role in valuing these securities than in valuing publicly traded securities.

IPOs and Other Limited Opportunities. Investment Funds may purchase securities of companies that are offered pursuant to an initial public offering (“IPO”) or other similar limited opportunities. Although companies can be any age or size at the time of their IPO, they are often smaller and have a limited operating history, which

involves a greater potential for the value of their securities to be impaired following the IPO. The price of a company’s securities may be highly unstable at the time of its IPO and for a period thereafter due to factors such as market psychology prevailing at the time of the IPO, the absence of a prior public market, the small number of shares available, and limited availability of investor information. Securities purchased in IPOs have a tendency to fluctuate in value significantly shortly after the IPO relative to the price at which they were purchased. These fluctuations could impact the net asset value and return earned on an Investment Fund’s shares. Investors in IPOs can be adversely affected by substantial dilution in the value of their shares, by sales of additional shares, and by concentration of control in existing management and principal shareholders. In addition, all of the factors that affect the performance of an economy or equity markets may have a greater impact on the shares of IPO companies. IPO securities tend to involve greater risk due, in part, to public perception and the lack of publicly available information and trading history.

Investments in Investment Companies or Other Pooled Investments

Subject to applicable regulatory requirements, an Investment Fund may invest in shares of both open- and closed-end investment companies (including money market funds, and exchange-traded funds (“ETFs”)). Investing in another investment company exposes an Investment Fund to all the risks of that investment company and, in general, subjects it to a pro rata portion of the other investment company’s fees and expenses. Investment Funds also may invest in private investment funds, vehicles, or structures.

ETFs are hybrid investment companies that are registered as open-end investment companies or unit investment trusts (“UITs”) but possess some of the characteristics of closed-end funds. ETFs in which an Investment Fund may invest typically hold a portfolio of common stocks that is intended to track the price and dividend performance of a particular index. Investment Funds may also invest in actively-managed ETFs. Common examples of ETFs include S&P Depositary Receipts (“SPDRs”), Vanguard ETFs, and iShares, which may be purchased from the UIT or investment company issuing the securities or in the secondary market (SPDRs, Vanguard ETFs, and iShares are predominantly listed on the NYSE Arca). The market price for ETF shares may be higher or lower than the ETF’s net asset value. The sale and redemption prices of ETF shares purchased from the issuer are based on the issuer’s net asset value.

Short Sales

Investment Funds may seek to hedge investments or realize additional gains through short sales. An Investment Fund may make short sales “against the box,” meaning the Investment Fund may make short sales where the Investment Fund owns, or has the right to acquire at no added cost, securities or currencies identical to those sold short. If an Investment Fund makes a short sale against the box, the Investment Fund will not immediately deliver the securities or currencies sold and will not immediately receive the proceeds from the sale. Once the Investment Fund closes out its short position by delivering the securities or currencies sold short, it will receive the proceeds of the sale. An Investment Fund will incur transaction costs, including interest, in connection with opening, maintaining, and closing short sales against the box.

An Investment Fund may make short sales of securities or currencies it does not own (i.e., short sales that are not against the box), in anticipation of a decline in the market value of that security or currency. To complete such a transaction, the Investment Fund must borrow the security or currency (e.g., shares of an ETF) to make delivery to the buyer. The Investment Fund then is obligated to replace the security or currency borrowed by purchasing it at the market price at or prior to termination of the loan. The price at such time may be more or less than the price at which the security or currency was sold by the Investment Fund, and purchasing such security or currency to close out a short position can itself cause the price of the security or currency to rise further, thereby exacerbating any losses. Until the security or currency is replaced, the Investment Fund is required to repay the lender any dividends or interest which accrue during the period of the loan. To borrow the security or currency, the Investment Fund also may be required to pay a premium, which would increase the cost of the security or currency sold. The net proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. An Investment Fund also will incur transaction costs in effecting short sales that are not against the box.

An Investment Fund will incur a loss as a result of a short sale if the price of the security or index or currency increases between the date of the short sale and the date on which the Investment Fund replaces the borrowed security or currency. An Investment Fund will realize a gain if the price of the security or currency declines between those dates. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium, dividends or interest an Investment Fund may be required to pay in connection with a short sale. Short sales that are not against the box involve a form of investment leverage, and the amount of an Investment Fund’s loss on such a short sale is theoretically unlimited. Under adverse market conditions, an Investment Fund may have difficulty purchasing securities or currencies to meet its short sale delivery obligations, and may have to sell portfolio securities or currencies to raise the capital necessary to meet its short sale obligations at a time when it would be unfavorable to do so. If a request for return of borrowed securities and/or currencies occurs at a time when other short sellers of the securities and/or currencies are receiving similar requests, a “short squeeze” can occur, and the Investment Fund may be compelled to replace borrowed securities and/or currencies previously sold short with purchases on the open market at the most disadvantageous time, possibly at prices significantly in excess of the proceeds received in originally selling the securities and/or currencies short. In addition, an Investment Fund may have difficulty purchasing securities and/or currencies to meet its delivery obligations in the case of less liquid securities and/or currencies sold short by the Investment Fund such as certain emerging market country securities or securities of companies with smaller market capitalizations. An Investment Fund may also take short positions in securities through various derivative products. These derivative products will typically expose the Investment Fund to economic risks similar to those associated with shorting securities directly.

Noncash Income

Certain investments made by Investment Funds may give rise to taxable income in excess of the cash received by Investment Funds from those investments. In order to make distributions of its income, it is possible that the Investment Funds will dispose of certain of their investments, including when it is not otherwise advantageous to do so. See “Taxes” below for further discussion of investments that may result in noncash income.

Lack of Correlation Risk; Hedging

There can be no assurance that the short positions that an Investment Fund holds will act as an effective hedge against its long positions. Any decrease in negative correlation or increase in positive correlation between the positions the Portfolio Manager anticipated would be offsetting (such as short and long positions in securities or currencies held by an Investment Fund) could result in significant losses for the Investment Fund.

To the extent the Portfolio Manager employs a hedging strategy for an Investment Fund, the success of any such hedging strategy will depend, in part, upon the Portfolio Manager’s ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments being hedged.

Legal and Regulatory Risk

Legal, tax and regulatory changes could occur that may adversely affect the Fund, the Master Fund or the Investment Funds. New (or revised) laws or regulations may be imposed by the CFTC, the SEC, the U.S. Federal Reserve or other banking regulators, other governmental regulatory authorities, self-regulatory organizations, or non-U.S. regulatory authorities that supervise the financial markets that could adversely affect the Investment Manager, the Fund, the Master Fund or the Investment Funds. In particular, these agencies are empowered to promulgate a variety of new rules pursuant to financial reform legislation in the United States and the European Union. The Investment Manager, the Fund, the Master Fund or the Investment Funds also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental regulatory authorities or self-regulatory organizations. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators, and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. The regulation of derivatives transactions and funds

that engage in such transactions is an evolving area of law and is subject to modification by government and judicial action.

The U.S. government has enacted legislation that provides for new regulation of the derivatives market, including clearing, margin, reporting and registration requirements. Because the legislation leaves much to rule making, its ultimate impact remains unclear. New regulations could, among other things, restrict the Fund’s, the Master Fund’s and/or an Investment Fund’s ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to the Fund, the Master Fund and/or an Investment Fund) and/or increase the costs of such derivatives transactions, and the Fund, the Master Fund or the Investment Funds may be unable to execute its investment strategy as a result. It is unclear how the regulatory changes will affect counterparty risk.

The European Union (and some other countries) are implementing similar requirements, which will affect an Investment Fund when it enters into derivatives transactions with a counterparty organized in that country or otherwise subject to that country’s derivatives regulations. The U.S. government and the European Union have proposed mandatory minimum margin requirements for uncleared derivatives. Such requirements could increase the amount of margin required to be provided by an Investment Fund in connection with its derivatives transactions and, therefore, make derivatives transactions more expensive.

The CFTC and certain futures exchanges have established limits, referred to as “position limits,” on the maximum net long or net short positions which any person may hold or control in particular options and futures contracts. All positions owned or controlled by the same person or entity, even if in different accounts, may be aggregated for purposes of determining whether the applicable position limits have been exceeded. Thus, even if an Investment Fund does not intend to exceed applicable position limits, it is possible that different clients managed by the Portfolio Manager and its affiliates may be aggregated for this purpose. The trading decisions of the Portfolio Manager may have to be modified and positions held by the Investment Funds may have to be liquidated in order to avoid exceeding such limits. The modification of investment decisions or the elimination of open positions, if it occurs, may adversely affect the profitability of an Investment Fund.

The SEC has in the past adopted interim rules requiring reporting of all short positions above a certain de minimis threshold and is expected to adopt rules requiring monthly public disclosure in the future. In addition, other non-U.S. jurisdictions where an Investment Fund may trade have adopted reporting requirements. If an Investment Fund’s short positions or its strategy become generally known, it could have a significant effect on the Portfolio Manager’s ability to implement its investment strategy. In particular, it would make it more likely that other investors could cause a “short squeeze” in the securities held short by an Investment Fund forcing the Investment Fund to cover its positions at a loss. Such reporting requirements may also limit the Portfolio Manager’s ability to access management and other personnel at certain companies where the Portfolio Manager seeks to take a short position. In addition, if other investors engage in copycat behavior by taking positions in the same issuers as an Investment Fund, the cost of borrowing securities to sell short could increase drastically and the availability of such securities to the Investment Fund could decrease drastically. Such events could make an Investment Fund unable to execute its investment strategy. In addition, the SEC recently proposed additional restrictions on short sales. If the SEC were to adopt additional restrictions regarding short sales, they could restrict an Investment Fund’s ability to engage in short sales in certain circumstances, and the Investment Fund may be unable to execute its investment strategy as a result.

The SEC and regulatory authorities in other jurisdictions may adopt (and in certain cases, have adopted) bans on short sales of certain securities in response to market events. Bans on short selling may make it impossible for an Investment Fund to execute certain investment strategies and may have a material adverse effect on the Investment Fund’s ability to generate returns.

Recently adopted rules implementing credit risk retention requirements for asset-backed securities require the sponsor of certain securitization vehicles to retain, and to refrain from transferring, selling, conveying to a third party or hedging 5% of the credit risk in assets transferred, sold or conveyed through the issuance of such vehicle, subject to certain exceptions. These requirements may increase the costs to originators, securitizers and,

in certain cases, collateral managers of securitization vehicles in which an Investment Fund may invest, which costs could be passed along to such Investment Fund as an investor in such transactions.

Limited Operating History

The Portfolio Managers, in some cases, may be newly organized and/or have only limited operating histories upon which their performance may be evaluated. Although BAAM has substantial experience in the selection, evaluation and monitoring of Investment Funds, the Fund and the Master Fund have only limited operating histories upon which their performance may be evaluated. The past performance of other investment funds managed by the Investment Manager cannot be relied upon as an indicator of the Fund’s or the Master Fund’s success, in part because of the unique nature of the Fund’s and the Master Fund’s investment strategy. An Investor in the Fund must rely upon the ability of the Investment Manager in identifying and implementing investments for the Master Fund. There can be no assurance that such personnel will be successful in identifying and implementing investment opportunities for the Master Fund.

MANAGEMENT

Board’s Oversight Role in Management

The Board provides broad oversight over the operations and affairs of the Fund and has overall responsibility to manage and control the business affairs of the Fund, including the complete and exclusive authority to establish policies regarding the management, conduct, and operation of the Fund’s business. The Board exercises the same powers, authority and responsibilities on behalf of the Fund as are customarily exercised by the board of directors of a registered investment company organized as a corporation. The Fund’s Board also serves as the board of trustees of the Master Fund. References hereinto the “Board” or the “Board of Trustees” refer to the board of trustees of the Fund or of the Master Fund, as appropriate.

The trustees of the Board (the “Trustees”) are not required to contribute to the capital of the Fund or the Master Fund or to hold Shares of the Fund or the Master Fund. A majority of the Trustees of the Board are persons who are not “interested persons” (as defined in the 1940 Act) of the Fund and the Master Fund, respectively (collectively, the “Independent Trustees”). The Independent Trustees perform the same functions for the Fund and the Master Fund as are customarily exercised by the non-interested directors of a registered investment company organized as a corporation.

Board Composition and Fund Leadership Structure

The identity of the Trustees and officers of each of the Fund and the Master Fund and brief biographical information regarding each Trustee and officer during the past five years is set forth below. Unless otherwise noted, the business address of each officer and Trustee is c/o Blackstone Alternative Asset Management L.P., 345 Park Avenue, 28th Floor, New York, New York 10154.


Name and Year of Birth of Independent Trustees	Position(s) Held with Fund	Term of Office¹ and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex² Overseen by Trustee	Other Trusteeships Held by Trustee During the Past 5 Years
John M. Brown (1959)	Trustee	January 2012 to Present	Retired (2012 - Present) Independent Consultant (2010 - 2012) Principal, Aquiline Holdings (Private Equity) (2006 - 2010)	5	None

Frank J. Coates (1964)	Trustee	January 2012 to Present	CEO, Wheelhouse Analytics, LLC (2010 - Present) (Technology Solutions) CEO, Coates Analytics, LP (PNC Bank) (2005 - 2010) (Technology Solutions)	5	Member of the Board of Managers of Evermore Global Advisors, LLC


Name and Year of Birth of Independent Trustees	Position(s) Held with Fund	Term of Office¹ and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex² Overseen by Trustee	Other Trusteeships Held by Trustee During the Past 5 Years
Paul J. Lawler (1948)	Trustee	January 2012 to Present	Retired (2010 - Present) VP Investments & Chief Investment Officer, W.K. Kellogg Foundation and W.K. Kellogg Foundation Trust (1998 - 2010)	5	Trustee, First Eagle Variable Funds (1 portfolio); Trustee, First Eagle Funds (8 portfolios); Trustee (Audit Committee and Finance Committee Member), American University in Cairo

Kristen Leopold (1967)	Trustee	January 2012 to Present	CFO, KL Associates LLC (CFO Consulting) (2007 - Present) CFO, WFL Real Estate Services, LLC (2007 - Present)	5	Trustee, Central Park Group Multi-Event Fund; Trustee, CPG JP Morgan Alternative Strategies Fund, LLC; Trustee, CPG Carlyle Private Equity Fund, LLC; Trustee, CPG Carlyle Private Equity Master Fund, LLC

Peter Koffler³ (1956)	Trustee	December 2012 to Present	Senior Managing Director,⁴ Blackstone Alternative Asset Management L.P. (“BAAM”) (2012 - Present) Chief Compliance Officer, The Blackstone Group L.P. (2013 - Present) General Counsel, BAAM (2010 - Present) Managing Director,⁴ BAAM (2006 - 2012) Chief Compliance Officer, BAAM (2008 - 2012)	5	None

¹	Term of office of each Trustee is indefinite until his or her resignation, removal, or death. Any Trustee of the Fund or the Master Fund may be removed from office in accordance with the provisions of each of the Fund’s and the Master Fund’s Agreement and Declaration of Trust and By-Laws.

²	The “Fund Complex” consists of the Fund, Blackstone Alternative Alpha Fund, the Master Fund, Blackstone Alternative Multi-Manager Fund, and Blackstone Alternative Multi-Strategy Fund.

³	Peter Koffler is an “interested person” of the Fund and the Master Fund, as defined in the 1940 Act, due to his position with BAAM and its affiliates.

⁴	Executive title, not a board directorship.


Name and Year of Birth of Officers	Position(s) Held with each of the Fund and the Master Fund	Term of Office¹ and Length of Time Served	Principal Occupation(s) During Past 5 Years
Stephen Buehler (1977)	Secretary	November 2011 to present	Managing Director,² BAAM (2014 - Present) Vice President, BAAM (2012 - 2013) Associate, BAAM (2010 - 2011) Associate, Merrill Lynch and Bank of America Merrill Lynch (2008 - 2010)

Brian F. Gavin (1969)	President (Principal Executive Officer)	November 2011 to present	Chief Operating Officer & Senior Managing Director,² BAAM (2007 - Present)

Hayley Stein (1977)	Chief Compliance Officer and Anti-Money Laundering Officer	December 2012 to present	Managing Director,² BAAM (2011 - Present) Chief Compliance Officer, BAIA and BAAM (2013 - Present) Vice President, BAAM (2006 - 2011)

Arthur Liao (1972)	Treasurer (Principal Financial and Accounting Officer)	November 2011 to present	Chief Financial Officer & Managing Director,² BAAM (2007 - Present)

James Hannigan (1983)	Chief Legal Officer	March 2015 to present	Vice President, BAAM (2014 - Present) Associate, BAAM (2012 - 2013) Assistant Vice President, FRM Americas, LLC (2011 - 2012) Associate, Willkie, Farr & Gallagher LLP (2008 - 2011)

¹	Term of office of each officer is indefinite until his or her death, resignation, removal or disqualification.

²	Executive title, not a board directorship.

For each Trustee, the following table discloses the dollar range of equity securities beneficially owned by the Trustee in the Fund, the Master Fund, and, on an aggregate basis, in any registered investment companies overseen by the Trustee within the Fund Complex as of March 31, 2015:


Name of Trustee	Dollar Range of Equity Securities in the Fund	Dollar Range of Equity Securities in the Master Fund	Aggregate Dollar Range of Equity Securities in All Funds Overseen by Trustee in Fund Complex
John M. Brown	None	None	Over $100,000
Frank J. Coates	None	None	Over $100,000
Paul J. Lawler	None	None	Over $100,000
Kristen M. Leopold	None	None	None
Peter Koffler	None	None	None

For Independent Trustees and their immediate family members, the following table provides information regarding each class of securities owned beneficially in an investment adviser or principal underwriter of the Fund or the Master Fund, or a person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund or the Master Fund as of March 31, 2015:


Name of Independent Trustee	Name of Owners and Relationships to Trustee	Company	Title of Class	Value of Securities	Percent of Class
John M. Brown	N/A	N/A	N/A	N/A	N/A
Frank J. Coates	N/A	N/A	N/A	N/A	N/A
Paul J. Lawler	N/A	N/A	N/A	N/A	N/A
Kristen M. Leopold	N/A	N/A	N/A	N/A	N/A

Compensation of Trustees and Officers

Each of the Fund, Blackstone Alternative Alpha Fund (a second “feeder fund” that invests substantially all of its assets with the Master Fund) (“BAAF”) and the Master Fund (together with the Fund and BAAF, the “BAAF Funds”) pays no compensation to any of its officers or to the Trustees listed above who are interested persons of the BAAF Funds. The Independent Trustees are each paid by the BAAF Funds $30,000 per fiscal year in aggregate for their services to the BAAF Funds, for which the Independent Trustees serve as trustees, and the Trustees are reimbursed by the BAAF Funds for their travel expenses related to Board meetings. The Trustees do not receive any pension or retirement benefits from the BAAF Funds. The following table sets forth information covering the total compensation payable by the BAAF Funds during its fiscal year ended March 31, 2015 to the persons who serve, and who are expected to continue serving, as Trustees of the BAAF Funds during such period:


Name of Independent Trustee	Aggregate Compensation From the BAAF Funds			Total Compensation From the BAAF Fund and Fund Complex
John M. Brown		$	32,000		$	80,000
Frank J. Coates		$	30,000		$	75,000
Paul J. Lawler		$	30,000		$	75,000
Kristen M. Leopold		$	32,000		$	80,000

Trustee Qualifications

Information About Each Trustee’s Experience, Attributes, Skills, or Qualifications for Board Membership

The Board has considered the following factors, among others, in concluding that the Trustees possess the requisite experience, qualifications, attributes and/or skills to serve as Board members: his or her character and integrity; his or her professional experience; his or her willingness to serve and willingness and ability to commit the time necessary to perform the duties of a Trustee; and as to each Trustee other than Mr. Koffler, his or her status as not being an “interested person” (as defined in the 1940 Act) of the Fund. The Board believes that the Trustees’ ability to review, critically evaluate, question and discuss information provided to them, to interact effectively with BAAM, other service providers, counsel and independent auditors, and to exercise effective business judgment in the performance of their duties, support its conclusion. In addition, the Board has considered the following particular attributes as to the various individual Trustees:

Mr. Brown, investment management experience and experience as a board member and/or executive officer of various businesses and other organizations.

Mr. Coates, business and finance expertise and training as a Chartered Financial Analyst and experience as a chief executive officer, board member and/or executive officer of various registered investment companies and other businesses within the asset management industry.

Mr. Lawler, business, finance and investment management expertise, training as a Chartered Financial Analyst, and experience as a chief investment officer, board member and/or executive officer of various large independent universities, foundations, registered investment companies, businesses and other organizations.

Ms. Leopold, business, finance and accounting expertise and training as a Certified Public Accountant and experience as a chief financial officer and/or auditor and manager at an alternative asset management company and a multi-national accounting firm.

Mr. Koffler, professional training and experience as a business lawyer focusing on the investment management industry and his perspective on Board matters as a senior executive of BAAM.

References to the qualifications, attributes and skills of Trustees are pursuant to requirements of the Securities and Exchange Commission, do not constitute holding out of the Board or any Trustee as having any special expertise or experience, and do not impose any greater responsibility or liability on any such person or on the Board by reason thereof.

Board Leadership Structure and Risk Oversight

The Board of Trustees is responsible for the general oversight of the Fund’s affairs and for ensuring that the Fund is managed in the best interests of its shareholders. The Board will regularly review the Fund’s investment performance as well as the quality of services provided to the Fund and its shareholders by BAAM and its affiliates and by the Fund’s other service providers. At least annually the Board reviews and evaluates the fees and operating expenses paid by each Fund for these services. In carrying out these responsibilities, the Board is assisted by the Fund’s auditors, independent counsel to the Independent Trustees, and other persons as appropriate, who are selected by and responsible to the Board. In addition, the Fund’s Chief Compliance Officer reports directly to the Board.

Currently, all but one of the Trustees are Independent Trustees. The Independent Trustees must vote separately to approve all financial arrangements and other agreements with the Fund’s investment adviser, BAAM, and other affiliated parties. The Independent Trustees will meet regularly as a group in executive session without representatives of BAAM present. An Independent Trustee currently serves as Chairman of the Board of Trustees of the Fund.

Taking into account the number and complexity of the registered investment companies overseen by the Board of Trustees within the Fund Complex and the amount of assets under management in the Fund, the Board has

determined that the efficient conduct of its affairs makes it desirable to delegate responsibility for certain specific matters to committees of the Board. These committees, which are described in more detail below, review and evaluate matters specified in their charters and make recommendations to the Board as they deem appropriate. Each committee may utilize the resources of the Fund’s counsel and auditors as well as other persons. The committees meet from time to time, either in conjunction with regular meetings of the Board or otherwise. The membership and chair of each committee consists exclusively of Independent Trustees.

The Board of Trustees has determined that this committee structure also allows the Board to focus more effectively on the oversight of risk as part of its broader oversight of Fund’s affairs. While risk management is primarily the responsibility of the Fund’s investment adviser, BAAM, the Board will regularly receive reports, including reports from BAAM and the Fund’s Chief Compliance Officer, regarding investment risks, compliance risks, and certain other risks applicable to the Fund. The Board’s committee structure allows separate committees to focus on different aspects of these risks within the scope of the committee’s authority and their potential impact on some or all of the funds, and to discuss with BAAM the ways in which BAAM monitors and controls such risks.

The Board recognizes that not all risks that may affect the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals, that reports received by the Trustees with respect to risk management matters typically will be summaries of the relevant information, and that the processes, procedures and controls employed to address risks may be limited in their effectiveness. As a result of the foregoing and other factors, risk management oversight by the Board and by the committees is subject to substantial limitations.

Standing Committees

The Board of Trustees has the authority to establish committees, which may exercise the power and authority of the Trustees to the extent the Board determines. The committees assist the Board of Trustees in performing its functions and duties under the 1940 Act and Massachusetts law. The Board of Trustees currently has established two standing committees: the Audit Committee and the Nominating Committee.

Audit Committees.

The Audit Committees of the Fund and Master Fund, which each consists of Ms. Leopold and Messrs. Coates and Lawler, provide oversight with respect to the accounting and financial reporting policies and practices of the Fund and the Master Fund and, among other things, consider the selection of an independent registered public accounting firm for the Fund and the scope of the audit, and approve all services proposed to be performed by the independent registered public accounting firm on behalf of the Fund and, under certain circumstances, BAAM and certain affiliates. The Audit Committee met three times during the most recent fiscal year.

Nominating Committees.

The Nominating Committees of the Fund and Master Fund, which each consists of Messrs. Brown, Coates and Lawler, meet to select nominees for election as Trustees of the Fund and the Master Fund, respectively, and consider other matters of Board policy, including reviewing and making recommendations to the Board with respect to the compensation of the Independent Trustees. It is the policy of the Nominating Committees to consider nominees properly submitted by Investors. In accordance with the terms of the Nominating Committee Charter, Investors who wish to recommend a nominee should send a nomination to the Secretary of the Fund which includes biographical information and sets forth the qualifications of a proposed nominee. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Nominating Committee and to serve if elected by Investors. The Nominating Committee did not meet during the most recent fiscal year.

Other Accounts Managed by Master Fund Portfolio Managers

The table below identifies, for each named portfolio manager of the Master Fund (a “Master Fund Portfolio Manager”), the number of accounts (other than the Fund and BAAF) for which the Master Fund Portfolio Manager has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment funds and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance are also indicated.

Data for other investment companies is shown based on the specific portfolio managers that are named in the disclosure documents for other investment companies. Data for private pooled investment funds and other separate accounts is reported based on the Investment Manager’s practice of naming a particular individual to maintain oversight responsibility for each account. Where the named individual has been assigned primary responsibility for oversight of a private pooled investment fund or separate account, that account has been allocated to that individual for disclosure purposes, but not other portfolio managers that may be involved in managing that account.


Portfolio Manager	Type of Account	Number of Accounts Managed		Total Assets Managed			Number of Accounts for which Advisory Fee is Performance Based		Assets Managed for which Advisory Fee is Performance Based
Alberto Santulin	Registered Investment Companies		2		$	2.5 billion		0		$	0
	Other Pooled Investment Vehicles		0			$0		0		$	0
	Other Accounts		0			$0		0		$	0
Richard Scarinci	Registered Investment Companies		2			$2.5 billion		0		$	0
	Other Pooled Investment Vehicles		0			$0		0		$	0
	Other Accounts		0			$0		0		$	0

*	Information is provided as of March 31, 2015.

Portfolio Manager Ownership of Securities

Neither of the portfolio managers beneficially owned any equity securities in the Fund as of March 31, 2015.

Compensation of Portfolio Managers

The Master Fund Portfolio Managers’ compensation is comprised primarily of a fixed salary and a discretionary bonus paid by the Investment Manager or its affiliates and not by the Fund, BAAF or the Master Fund. A portion of the discretionary bonus may be paid in shares of stock or stock options of Blackstone, the parent company of the Investment Manager, which stock options may be subject to certain vesting periods. The amount of the Master Fund Portfolio Managers’ discretionary bonus, and the portion to be paid in shares or stock options of Blackstone, is determined by senior officers of the Investment Manager and/or Blackstone. In general, the amount of the bonus will be based on a combination of factors, none of which is necessarily weighted more than any other factor. These factors may include: the overall performance of the Investment Manager; the overall performance of Blackstone and its affiliates and subsidiaries; the profitability to the Investment Manager derived from the management of the Fund, BAAF, the Master Fund and the other accounts managed by the Investment Manager; the absolute performance of the Fund, BAAF, the Master Fund and such other accounts for the preceding year; contributions by the Master Fund Portfolio Manager in assisting with managing the assets of the Investment Manager; and execution of managerial responsibilities, client interactions and support of colleagues. The bonus is not based on a precise formula, benchmark or other metric.

CODES OF ETHICS

The Fund, the Master Fund, the Investment Manager and the Distributor have each adopted a code of ethics (collectively, the “Codes of Ethics”) pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes of Ethics to invest in securities, including securities that may be purchased or held by the Master Fund, subject to a number of restrictions and controls.

Each of these Codes of Ethics is included as an exhibit to the Fund’s and the Master Fund’s registration statements filed with the SEC and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. These Codes of Ethics are also available on the EDGAR database on the SEC’s Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

No Investor owns beneficially more than 5% of the outstanding shares of the Fund as of the date of this SAI.

INVESTMENT MANAGEMENT AND OTHER SERVICES

The Investment Manager

As detailed in the Prospectus, Blackstone Alternative Asset Management L.P. (the “Investment Manager” or “BAAM”) is the investment adviser of the Fund, BAAF, and the Master Fund, and as such, has responsibility for the management of the BAAF Funds’ affairs, under the supervision of the Board of Trustees. BAAM is an indirect, wholly-owned subsidiary of The Blackstone Group L.P. (“Blackstone”). Blackstone founded in 1985, is one of the world’s leading investment and advisory firms. BAAM, the hedge fund solutions group within Blackstone, was founded in 1990 to manage the internal assets of the firm by creating a diversified portfolio of hedge fund investments to offset the equity exposure of the firm’s other businesses. Blackstone is a publicly traded limited partnership that has common units which trade on the New York Stock Exchange under the symbol “BX.” BAAM’s business is built on long-term, value-added relationships with clients around the globe. As of April 1, 2015, BAAM had approximately $66.7 billion (unaudited) in assets under management.

The Investment Manager does not charge the Fund or BAAF a management fee, but charges the Master Fund a management fee, of which the Fund indirectly bears a pro rata share. The management fee accrues at an annual rate of 1.25% of the Master Fund’s net asset value at the end of such month before giving effect to the management fee payment being calculated or any purchases or repurchases of Master Fund shares or distributions by the Master Fund. The method of calculating the management fees payable by the Master Fund is described more thoroughly in the Prospectus under “Management of the Fund—BAAM—Management Agreement.” For the fiscal years ended March 31, 2015 and March 31, 2014, the Master Fund paid BAAM $8,870,438 and $4,663,702, respectively, under the Investment Management Agreement.

Administrator

State Street Bank and Trust Company (“State Street”), located at 100 Huntington Avenue, Copley Place Tower 2, Floor 3, Mail Code: CPH0255, Boston, Massachusetts 02116, serves as administrator to the Fund and the Master Fund pursuant to an administration agreement among the Fund, the Master Fund, Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Sub Fund I Ltd., and State Street (the “Administration Agreement”). State Street provides certain administrative, accounting and investor services to the Fund and Master Fund, as set forth in the Prospectus, and furnishes at its own expense the personnel necessary to perform its obligations under the

Administration Agreement. State Street is not required to pay the compensation of any employees of the Fund retained by the Boards of the Fund or the Master Fund to perform services on behalf of the Fund or the Master Fund.

Custodian

Citibank, N.A. (the “Custodian”), located at 388 Greenwich Street, New York, NY 10013, serves as the custodian of the Fund’s assets and the Master Fund’s assets pursuant to a Custodian Services Agreement between the Fund and the Custodian and a separate Custodian Services Agreement between the Master Fund and the Custodian. See the section entitled “Management of the Fund—The Custodian” in the Prospectus.

Independent Registered Public Accounting Firm

The Fund’s and the Master Fund’s independent registered public accounting firm is Deloitte & Touche LLP, 30 Rockefeller Plaza, New York, NY 10112. Deloitte & Touche LLP conducts an annual audit of the Fund’s and Master Fund’s financial statements.

Legal Counsel

Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, Massachusetts 02199-3600, serves as counsel to the Fund and the Master Fund.

PROXY VOTING POLICIES AND PROCEDURES

The Fund and the Master Fund have delegated proxy voting responsibilities to the Investment Manager, subject to the Board’s general oversight. The proxy voting policies and procedures of the Investment Manager are attached as Appendix A. Information regarding how the Fund and the Master Fund voted proxies relating to portfolio securities during the 12-month period ended June 30 is available (1) without charge, upon request, by calling toll free, 1-888-386-9490 and (2) on the SEC’s website at http://www.sec.gov.

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Fund anticipates investing substantially all of its assets in the Master Fund in private transactions that will not involve brokerage commissions or markups. In most instances, the Master Fund will purchase securities directly from an Investment Fund, and such purchases by the Master Fund may be, but generally are not, subject to transaction expenses. Nevertheless, the Master Fund anticipates that some of its portfolio transactions may be subject to expenses. It is the policy of the Master Fund and Fund to obtain best results in connection with effecting its portfolio transactions taking into certain factors set forth below.

The Master Fund and Fund will bear any commissions or spreads in connection with its portfolio transactions, if any. In placing orders, it is the policy of the Master Fund and Fund to obtain the best results, taking into account the broker-dealer’s general execution and operational facilities, the type of transaction involved, and other factors such as the broker-dealer’s risk in positioning the securities involved. While the Investment Manager generally seeks reasonably competitive spreads or commissions, the Master Fund and Fund will not necessarily be paying the lowest spread or commission available. In executing portfolio transactions and selecting brokers or dealers, the Investment Manager seeks to obtain the best overall terms available for the Master Fund and Fund. In assessing the best overall terms available for any transaction, the Investment Manager considers factors deemed 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.

In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Investment Manager may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Consistent with any guidelines established by the Board of the Master Fund or Fund, as applicable, and Section 28(e) of the Exchange Act, the Investment Manager is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Investment Manager determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of that particular transaction or in terms of the overall responsibilities of the Investment Manager to its discretionary clients, including the Master Fund and the Fund. Research services provided by broker-dealers may be used by the Investment Manager in servicing other accounts advised by the Investment Manager and not all the research services may be used by the Investment Manager in connection with the Master Fund and the Fund. In addition, the Investment Manager is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Investment Manager or the Fund’s principal underwriter) and to take into account the sale of shares of the Fund if the Investment Manager believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. For the fiscal years ended March 31, 2015 and March 31, 2014, the Fund and the Master Fund each did not pay brokerage commissions.

Investment Funds

Investment Funds will incur transaction expenses in the management of their portfolios, which will decrease the value of the Master Fund’s investment in the Investment Funds. In view of the fact that the investment program

of certain of the Investment Funds may include trading as well as investments, short-term market considerations will frequently be involved, and it is anticipated that the turnover rates of the Investment Funds may be substantially greater than the turnover rates of other types of investment funds. In addition, the order execution practices of the Investment Funds may not be transparent to the Master Fund. Each Investment Fund is responsible for placing orders for the execution of its portfolio transactions and for the allocation of its brokerage. The Investment Manager will have no direct or indirect control over the brokerage or portfolio trading policies employed by the Portfolio Managers. The Investment Manager expects that each Investment Fund will generally select broker-dealers to effect transactions on the Investment Fund’s behalf substantially in the manner set forth below.

Each Investment Fund generally will seek reasonably competitive commission rates. However, Investment Funds will not necessarily pay the lowest commission available on each transaction, and may engage in transactions with broker-dealers based on different criteria than those that the Master Fund or Fund would consider. Investment Funds may not be subject to the same regulatory restrictions as the Master Fund on principal and agency transactions. The Master Fund and Fund will indirectly bear the commissions or spreads in connection with the portfolio transactions of the Investment Funds.

No guarantee or assurance can be made that an Investment Fund’s brokerage transaction practices will be transparent or that the Investment Fund will establish, adhere to, or comply with its stated practices. Investment Funds may select brokers on a basis other than that outlined above and may receive benefits other than research or that benefit the Portfolio Manager or its affiliates rather than the Investment Fund.

TAXES

The following discussion of U.S. federal income tax consequences of investment in the Fund is based on the Code, U.S. Treasury regulations, and other applicable authority, as of the date of this SAI. These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following discussion is only a summary of some of the important U.S. federal tax considerations generally applicable to investments in the Fund. There may be other tax considerations applicable to particular Investors. Investors should consult their own tax advisors regarding their particular situation and the possible application of foreign, state and local tax laws.

Special tax rules apply to investments through defined contribution plans and other tax-qualified plans. Investors should consult their tax advisers to determine the suitability of shares of the Fund as an investment through such plans and the precise effect of an investment on their particular tax situation.

The Fund invests substantially all of its assets in the Master Fund, and so substantially all of the Fund’s income will be as a result of distributions or deemed distributions from the Master Fund. Therefore, as applicable, references to the U.S. federal income tax treatment of the Fund, including to the assets owned, income earned by or decisions made by or on behalf of the Fund, will be to or will include the Master Fund, and, as applicable, the assets owned, income earned by or decisions made by or on behalf of the Master Fund.

Taxation of the Fund

Qualification for and Treatment as a Regulated Investment Company.

The Fund has elected to be treated as a RIC under Subchapter M of the Code and intends each year to qualify and to be eligible to be treated as such. In order to qualify for the special tax treatment accorded RICs and their Investors, the Fund must, among other things: (a) derive at least 90% of its gross income for each taxable year from (i) dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies and (ii) net income derived from interests in “qualified publicly traded partnerships” (as defined below); (b) diversify its holdings so that, at the end of each quarter of the Fund’s taxable year, (i) at least 50% of

the market value of the Fund’s total assets consists of cash and cash items, U.S. government securities, securities of other RICs, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund’s total assets is invested (x) in the securities (other than those of the U.S. government or other RICs) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar, or related trades or businesses, or (y) in the securities of one or more qualified publicly traded partnerships (as defined below); and (c) distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid—generally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt income, for such year.

In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized directly by the RIC. However, 100% of the net income derived from an interest in a “qualified publicly traded partnership” (a partnership (a) the interests in which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof, and (b) that derives less than 90% of its income from the qualifying income described in paragraph (a)(i) above) will be treated as qualifying income. In general, such entities will be treated as partnerships for federal income tax purposes because they meet the passive income requirement under Code section 7704(c)(2). In addition, although in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly traded partnership.

For purposes of the diversification test in (b) above, the term “outstanding voting securities of such issuer” will include the equity securities of a qualified publicly traded partnership. Also, for purposes of the diversification test in (b) above, the identification of the issuer (or, in some cases, issuers) of a particular Fund investment can depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance by the Internal Revenue Service (“IRS”) with respect to issuer identification for a particular type of investment may adversely affect the Fund’s ability to meet the diversification test in (b) above.

If the Fund qualifies as a RIC that is accorded special tax treatment, the Fund will not be subject to U.S. federal income tax on income distributed in a timely manner to its Investors in the form of dividends (including capital gain dividends, as defined below) that qualify for the dividends-paid deduction.

The Fund seeks to achieve its investment objective by investing substantially all of its investable assets in the Master Fund, which itself has elected to be treated and currently intends to qualify and be eligible to be treated as a RIC. Whether the Fund meets the asset diversification test described above will depend on whether the Master Fund qualifies as a RIC. If the Master Fund were to fail to qualify as a RIC and were ineligible to or otherwise were not to cure such failure, the Fund may as a result itself fail to meet the asset diversification test and may be ineligible to or may otherwise not cure such failure.

If the Fund were to fail to meet the income, diversification or distribution test described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax or interest, making additional distributions, or disposing of certain assets. If the Fund were ineligible to or otherwise did not cure such failure for any year, or if the Fund were otherwise to fail to qualify as a RIC accorded special tax treatment for such year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to Investors as ordinary income. Some portions of such distributions may be eligible for the dividends-received deduction in the case of corporate Investors and may be eligible to be treated as “qualified dividend income” in the case of Investors taxed as individuals, provided, in both cases, the Investor meets certain holding period and other requirements in respect of the Fund’s shares (as described below). In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before re- qualifying as a RIC that is accorded special tax treatment. As stated above, this discussion of the U.S. federal income tax treatment of the Fund includes the Master Fund. If the Master Fund were to fail to qualify to be treated as a RIC, the Fund would also most likely fail to qualify as a RIC.

The Fund intends to distribute at least annually to its Investors all or substantially all of its investment company taxable income (computed without regard to the dividends-paid deduction), its net tax-exempt income (if any) and its net capital gain. Any taxable income, including any net capital gain, retained by the Fund will be subject to tax at the Fund level at regular corporate rates. In the case of net capital gain, the Fund is permitted to designate the retained amount as undistributed capital gain in a timely notice to its Investors (or the Fund, in the case of the Master Fund making such designation) who would then, in turn, be (i) required to include in income for U.S. federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, and (ii) entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds on a properly filed U.S. tax return to the extent the credit exceeds such liabilities. If the Fund makes this designation, for U.S. federal income tax purposes, the tax basis of shares owned by an Investor of the Fund (or the Fund, in the case of the Master Fund making such designation) would be increased by an amount equal under current law to the difference between the amount of undistributed capital gains included in the Investor’s gross income under clause (i) of the preceding sentence and the tax deemed paid by the Investor under clause (ii) of the preceding sentence. The Fund is not required to, and there can be no assurance the Fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.

In determining its taxable income and its earnings and profits, the Fund generally may elect to treat part or all of any net ordinary loss attributable to the portion of the taxable year after December 31 as if it were incurred in the succeeding taxable year.

Excise Tax.

If the Fund were to fail to distribute in a calendar year at least an amount generally equal to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the one-year period ending October 31 of such year, plus any such amounts retained from the prior year, the Fund would be subject to a nondeductible 4% excise tax on the undistributed amounts. For purposes of the required excise tax distribution, a RIC’s ordinary gains and losses from the sale, exchange or other taxable disposition of property that would otherwise be taken into account after October 31 of a calendar year generally are treated as arising on January 1 of the following calendar year. Also, for these purposes, the Fund will be treated as having distributed any amount on which it is subject to corporate income tax for the taxable year ending within the calendar year. The Fund intends generally to seek to ensure that it makes distributions sufficient to avoid the imposition of the 4% excise tax, although there can be no assurance that it will be able to do so. Given the difficulty of estimating Master Fund income and gains in a timely fashion, each year the Master Fund is likely to be and it is possible that the Fund will be liable for a 4% excise tax.

Capital Loss Carryforwards.

Capital losses in excess of capital gains (“net capital losses”) are not permitted to be deducted against the Fund’s net investment income. Instead, potentially subject to certain limitations, a RIC may carry net capital losses from any taxable year forward to subsequent taxable years to offset capital gains, if any, realized during such subsequent taxable years. Distributions from capital gains are generally made after applying any available capital loss carryforwards. Capital loss carryforwards are reduced to the extent they offset current-year net realized capital gains, whether a RIC retains or distributes such gains. A RIC may carry net capital losses forward to one or more subsequent taxable years without expiration. The Fund must apply long-term capital loss carryforwards first against long–term capital gains, and short-term capital loss carry forwards first against short-term capital gains. The Fund’s available capital loss carryforwards, if any, will be set forth in its annual Investor report for each fiscal year.

Because a RIC cannot “pass through” its losses to its investors, and thus the Master Fund cannot pass through losses to the Fund, any capital losses the Master Fund recognizes for U.S. federal income tax purposes will remain at the Master Fund level until the Master Fund can use them to reduce future capital gains. Accordingly, the Fund generally does not expect to realize any net capital losses, except possibly in the case that it disposes of a certain portion of its investment in the Master Fund at a loss as part of a tender offer by the Master Fund. For

further discussion of the effect on the Fund of net capital losses realized by the Master Fund and of the consequences of a redemption by the Fund of a portion of its investment in the Master Fund, see “Investment in Master Fund” below.

Taxation of Investors

Distributions by the Fund.

For U.S. federal income tax purposes, distributions of investment income are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long an Investor has owned his or her shares. In general, the Fund will recognize long-term capital gain or loss on investments it has owned (or is deemed to have owned) for more than one year, and short-term capital gain or loss on investments it has owned (or is deemed to have owned) for one year or less. Distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss, in each case determined with reference to any loss carryforwards) that are properly reported by the Fund as capital gain dividends (“capital gain dividends”) will be taxable to Investors as long-term capital gains includible in net capital gain and taxed to individuals at reduced rates. Distributions from capital gains are generally made after applying any available capital loss carryovers. Distributions of net short-term capital gain (as reduced by any net long-term capital loss for the taxable year) will be taxable to Investors as ordinary income. Distributions of investment income reported by the Fund as derived from “qualified dividend income” will be taxed in the hands of individuals at the rates applicable to long-term capital gain, provided holding period and other requirements are met at both the Investor and Fund level.

As required by federal law, detailed federal tax information with respect to each calendar year will be furnished to each Investor early in the succeeding year.

If the Fund makes a distribution to an Investor in excess of the Fund’s current and accumulated earnings and profits in any taxable year, the excess distribution will be treated as a return of capital to the extent of such Investor’s tax basis in its shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces an Investor’s tax basis in its shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the Investor of its shares. A return of capital will be reduced by the Fund’s fees and expenses, as well as any applicable sales load.

Distributions are taxable as described herein whether Investors receive them in cash or reinvest them in additional shares. An Investor whose distributions are reinvested in shares under the Automatic Dividend Reinvestment Plan generally will be treated as having received a dividend equal to either (i) if the shares are trading below net asset value, the amount of cash allocated to the Investor for the purchase of shares on its behalf in the open market, or (ii) if shares are trading at or above net asset value, generally the fair market value of the new shares issued to the Investor.

A dividend paid to Investors in January generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to Investors of record on a date in October, November or December of that preceding year.

Distributions on the Fund’s shares are generally subject to U.S. federal income tax as described herein to the extent they do not exceed the Fund’s realized income and gains, even though such distributions may economically represent a return of a particular Investor’s investment. Such distributions are likely to occur in respect of shares purchased at a time when the Fund’s net asset value reflects either unrealized gains, or realized but undistributed income or gains, that were therefore included in the price the Investor paid. Such distributions may reduce the fair market value of the Fund’s shares below the Investor’s cost basis in those shares. As described above, the Fund is required to distribute realized income and gains regardless of whether the Fund’s net asset value also reflects unrealized losses.

Qualified Dividend Income.

In order for some portion of the dividends received by a Fund Investor to be “qualified dividend income” that is eligible for taxation at long-term capital gain rates, the Fund must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the Investor must meet holding period and other requirements with respect to the Fund’s shares. A dividend will not be treated as qualified dividend income (at either the Fund or Investor level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company.

In general, distributions of investment income reported by the Fund as derived from qualified dividend income will be treated as qualified dividend income in the hands of an Investor taxed as an individual, provided the Investor meets the holding period and other requirements described above with respect to the Fund’s shares. For information regarding qualified dividend income received by the Fund from the Master Fund, see “Investment in Master Fund,” below.

If the aggregate qualified dividends received by the Fund during a taxable year are 95% or more of its gross income (excluding net long-term capital gain over net short-term capital loss), then 100% of the Fund’s dividends (other than dividends properly reported as capital gain dividends) will be eligible to be treated as qualified dividend income.

Dividends-Received Deduction.

In general, dividends of net investment income received by corporate Investors of the Fund will qualify for the 70% dividends-received deduction generally available to corporations to the extent of the amount of eligible dividends received by the Fund from domestic corporations for the taxable year. A dividend received by the Fund will not be treated as a dividend eligible for the dividends-received deduction (1) if it has been received with respect to any share of stock that the Fund has held for less than 46 days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days before such date in the case of certain preferred stock) or (2) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends received deduction may otherwise be disallowed or reduced (1) if the corporate Investor fails to satisfy the foregoing requirements with respect to its shares of the Fund or (2) by application of various provisions of the Code (for instance, the dividends-received deduction is reduced in the case of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). For information regarding eligibility for the dividends-received deduction of dividends received by the Fund from the Master Fund, see “Investment in Master Fund,” below.

Any distribution of income that is attributable to (i) income received by the Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction or (ii) dividend income received by the Fund on securities it temporarily purchased from a counterparty pursuant to a repurchase agreement that is treated for U.S. federal income tax purposes as a loan by the Fund, will not constitute qualified dividend income to individual Investors and will not be eligible for the dividends-received deduction for corporate Investors.

Special Rules for Debt Obligations.

Some debt obligations with a fixed maturity date of more than one year from the date of issuance (and zero- coupon debt obligations with a fixed maturity date of more than one year from the date of issuance) will be treated as debt obligations that are issued originally at a discount. Generally, the original issue discount (“OID”) is treated as interest income and is included in the Fund’s income (and required to be distributed by the Fund) over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. In addition, payment-in-kind securities will give rise to income which is required to be distributed and is taxable even though the Fund holding the security receives no interest payment in cash on the security during the year.

Some debt obligations with a fixed maturity date of more than one year from the date of issuance that are acquired by the Fund in the secondary market may be treated as having “market discount.” Very generally, market discount is the excess of the stated redemption price of a debt obligation (or in the case of an obligation issued with OID, its “revised issue price”) over the purchase price of such obligation. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the “accrued market discount” on such debt security. Alternatively, an Investment Fund or, if applicable, the Fund may elect to accrue market discount currently, in which case the Fund will be required to include the accrued market discount in the Fund’s income (as ordinary income) and thus distribute it over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. The rate at which the market discount accrues, and thus is included in the Fund’s income, will depend upon which of the permitted accrual methods the Fund elects.

Some debt obligations with a fixed maturity date of one year or less from the date of issuance that are acquired by the Fund may be treated as having OID or, in certain cases, “acquisition discount” (very generally, the excess of the stated redemption price over the purchase price). The Fund will be required to include the OID or acquisition discount in income (as ordinary income) and thus distribute it over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. The rate at which OID or acquisition discount accrues, and thus is included in the Fund’s income, will depend upon which of the permitted accrual methods the Fund elects.

If the Fund holds the foregoing kinds of securities, it may be required to pay out as an income distribution each year an amount which is greater than the total amount of cash interest the Fund actually received. Such distributions may be made from the cash assets of the Fund or, if necessary, by disposition of portfolio securities including at a time when it may not be advantageous to do so. These dispositions may cause a Fund to realize higher amounts of short-term capital gains (generally taxed to Investors at ordinary income tax rates) and, in the event the Fund realizes net capital gains from such transactions, its Investors may receive a larger capital gain dividend than if the Fund had not held such securities.

A portion of the OID accrued on certain high yield discount obligations may not be deductible to the issuer and will instead be treated as a dividend paid by the issuer for purposes of the dividends received deduction. In such cases, if the issuer of the high yield discount obligations is a domestic corporation, dividend payments by the Fund may be eligible for the dividends received deduction to the extent attributable to the deemed dividend portion of such OID.

Securities Purchased at a Premium.

Very generally, where the Fund purchases a bond at a price that exceeds the redemption price at maturity—that is, at a premium—the premium is amortizable over the remaining term of the bond. In the case of a taxable bond, if the Fund makes an election applicable to all such bonds it purchases, which election is irrevocable without consent of the IRS, the Fund reduces the current taxable income from the bond by the amortized premium and reduces its tax basis in the bond by the amount of such offset; upon the disposition or maturity of such bonds, the Fund is permitted to deduct any remaining premium allocable to a prior period. In the case of a tax-exempt bond, tax rules require the Fund to reduce its tax basis by the amount of amortized premium.

At-Risk or Defaulted Securities.

Investments in debt obligations that are at risk of or in default present special tax issues for the Fund. Tax rules are not entirely clear about issues such as whether or to what extent the Fund should recognize market discount on a debt obligation, when the Fund may cease to accrue interest, OID or market discount, when and to what extent the Fund may take deductions for bad debts or worthless securities and how the Fund should allocate payments received on obligations in default between principal and income. These and other related issues will be addressed by the Fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and does not become subject to U.S. federal income or excise tax.

Certain Investments in REITs.

Any investment by the Fund in equity securities of real estate investment trusts qualifying as such under Subchapter M of the Code (“U.S. REITs”) may result in the Fund’s receipt of cash in excess of the U.S. REIT’s earnings; if the Fund distributes these amounts, these distributions could constitute a return of capital to Fund Investors for U.S. federal income tax purposes. Investments in U.S. REIT equity securities also may require the Fund to accrue and distribute income not yet received. To generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. Dividends received by the Fund from a U.S. REIT will not qualify for the corporate dividends-received deduction and generally will not constitute qualified dividend income.

The Fund may invest directly or indirectly in residual interests in real estate mortgage investment conduits (“REMICs”) (including by investing in residual interests in collateralized mortgage obligations (“CMOs”) with respect to which an election to be treated as a REMIC is in effect) or equity interests in taxable mortgage pools (“TMPs”). Under a notice issued by the IRS in October 2006 and Treasury regulations that have yet to be issued but may apply retroactively, a portion of the Fund’s income (including income allocated to the Fund from a U.S. REIT or other pass-through entity) that is attributable to a residual interest in a REMIC or an equity interest in a TMP (referred to in the Code as an “excess inclusion”) will be subject to U.S. federal income tax in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a RIC will be allocated to Investors of the RIC in proportion to the dividends received by such Investors, with the same consequences as if the Investors held the related interest directly. As a result, a RIC investing in such interests may not be a suitable investment for charitable remainder trusts, as noted below.

In general, excess inclusion income allocated to Investors (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign Investor, will not qualify for any reduction in U.S. federal withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such income tax otherwise available under the Code.

Foreign Currency Transactions.

Any transaction by the Fund in foreign currencies, foreign currency-denominated debt obligations or certain foreign currency options, futures contracts or forward contracts (or similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. Any such net gains could require a larger dividend toward the end of the calendar year. Any such net losses will generally reduce and potentially require the recharacterization of prior ordinary income distributions. Such ordinary income treatment may accelerate Fund distributions to Investors and increase the distributions taxed to Investors as ordinary income. Any net ordinary losses so created cannot be carried forward by the Fund to offset income or gains earned in subsequent taxable years.

Passive Foreign Investment Companies.

The Fund will invest in Investment Funds that are classified as PFICs for U.S. federal income tax purposes, and Investment Funds themselves may invest in entities that are classified as PFICs. Investments in PFICs could potentially subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company. This tax cannot be eliminated by making distributions to Fund Investors. However, the Fund (or, as applicable, the Investment Fund or another entity) generally may elect to avoid the imposition of that tax. For example, the Fund may elect to treat a PFIC in which it holds an interest as “qualified electing fund” (i.e., make a “QEF election”), in which case the Fund will be required to include its share of the PFIC’s income and net capital gains annually, regardless of whether it receives any distribution from the PFIC. The Fund also may make an election to mark the gains (and to a limited extent losses) in such PFIC holdings “to the market” as though it had sold (and, solely for purposes of this mark-to-market election, repurchased) such holdings on the last day of the Fund’s taxable year. Such gains and losses are treated as ordinary income and loss. If the Fund realizes a loss with respect to a PFIC, whether by virtue of selling all or part of the Fund’s interest in the PFIC or because of the “mark to market” adjustment described above, the loss will be ordinary to the extent of the excess of the sum of the mark-to-market gains over the mark-to-market losses previously recognized with respect to the PFIC. To the extent that the Fund’s mark-to-market loss with respect to a PFIC exceeds that limitation, the loss will effectively be taken into account in offsetting future mark-to-market gains from the PFIC, and any remaining loss will generally be deferred until the PFIC interests are sold, at which point the loss will be treated as a capital loss.

If neither a “mark-to-market” nor a QEF election is made with respect to an interest in a PFIC, the ownership of the PFIC interest may have significantly adverse tax consequences for the Fund. In such a case, the holder of the PFIC interest would be subject to an interest charge (at the rate applicable to tax underpayments) on tax liability treated as having been deferred with respect to certain distributions and on gain from the disposition of the interests in a PFIC (collectively referred to as “excess distributions”), even if, in the case where the holder is a RIC, those excess distributions are paid by the RIC as a dividend to its shareholders.

Where the mark-to-market election is made, the Fund may be required to recognize income (which generally must be distributed to the Fund’s Investors) in excess of the distributions that it receives in respect of an interest in a PFIC. Accordingly, the Fund may need to borrow money or to dispose of investments, potentially including its interests in the PFIC, in order to make the distributions required in order to maintain its status as a RIC and to avoid the imposition of a federal income tax and/or the nondeductible 4% excise tax. There can be no assurances, however, that the Fund will be successful in this regard, and the Fund may not be able to maintain its status as a RIC.

Because it is not always possible to identify a foreign corporation as a PFIC, the Fund may incur the tax and interest charges described above in some instances.

Options and Futures.

In general, option premiums received by the Fund are not immediately included in the income of the Fund. Instead, the premiums are recognized when the option contract expires, the option is exercised by the holder, or the Fund transfers or otherwise terminates the option (e.g., through a closing transaction). If a call option written by a Fund is exercised and the Fund sells or delivers the underlying stock, the Fund generally will recognize capital gain or loss equal to (a) sum of the strike price and the option premium received by the Fund minus (b) the Fund’s basis in the stock. Such gain or loss generally will be short-term or long-term depending upon the holding period of the underlying stock. If securities are purchased by the Fund pursuant to the exercise of a put option written by it, the Fund generally will subtract the premium received for purposes of computing its cost basis in the securities purchased. Gain or loss arising in respect of a termination of the Fund’s obligation under an option other than through the exercise of the option will be short-term gain or loss depending on whether the premium income received by the Fund is greater or less than the amount paid by the Fund (if any) in terminating the transaction. Thus, for example, if an option written by the Fund expires unexercised, the Fund generally will recognize short-term gain equal to the premium received.

Certain covered call writing activities of the Fund may trigger the U.S. federal income tax straddle rules of Section 1092 of the Code, requiring that losses be deferred and holding periods be tolled on offsetting positions in options and stocks deemed to constitute substantially similar or related property. Options on single stocks that are not “deep in the money” may constitute qualified covered calls, which generally are not subject to the straddle rules; the holding period on stock underlying qualified covered calls that are “in the money” although not “deep in the money” will be suspended during the period that such calls are outstanding. Thus, the straddle rules and the rules governing qualified covered calls could cause gains that would otherwise constitute long-term capital gains to be treated as short-term capital gains, and distributions that would otherwise constitute “qualified dividend income” or qualify for the dividends-received deduction to fail to satisfy the holding period requirements and therefore to be taxed as ordinary income or to fail to qualify for the 70% dividends-received deduction, as the case may be.

The tax treatment of certain futures contracts entered into by a Fund as well as listed non-equity options written or purchased by a Fund on U.S. exchanges (including options on futures contracts, equity indices and debt securities) will be governed by section 1256 of the Code (“section 1256 contracts”). Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses (“60/40”), although certain foreign currency gains and losses from such contracts may be treated as ordinary in character. Also, section 1256 contracts held by a Fund at the end of each taxable year (and, for purposes of the 4% excise tax, on certain other dates as prescribed under the Code) are “marked to market” with the result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as ordinary or 60/40 gain or loss, as applicable.

Other Derivatives, Hedging, and Related Transactions.

In addition to the special rules described above in respect of futures and options transactions, the Fund’s transactions in other derivative instruments (e.g., forward contracts and swap agreements), as well as any of its hedging, short sale, securities loan or similar transactions, may be subject to one or more special tax rules (e.g., notional principal contract, straddle, constructive sale, wash sale and short sale rules). These rules may affect whether gains and losses recognized by the Fund are treated as ordinary or capital, accelerate the recognition of income or gains to the Fund, defer losses to the Fund, and cause adjustments in the holding periods of the Fund’s securities, thereby affecting whether capital gains and losses are treated as short-term or long-term. These rules could therefore affect the amount, timing and/or character of distributions to Investors.

Because these and other tax rules applicable to these types of transactions are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether the Fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a RIC and avoid a Fund-level tax.

Commodity-Linked Derivatives.

The Fund’s use of commodity-linked derivatives can bear on or be limited by the Fund’s intention to qualify as a RIC. Income and gains from certain commodity-linked derivatives does not constitute qualifying income to a RIC for purposes of the 90% gross income test described above. The tax treatment of certain other commodity- linked derivative instruments in which the Fund might invest is not certain, in particular with respect to whether income or gains from such instruments constitute qualifying income to a RIC. If the Fund were to treat income or gain from a particular instrument as qualifying income and the income or gain were later determined not to constitute qualifying income and, together with any other non-qualifying income, caused the Fund’s non- qualifying income to exceed 10% of its gross income in any taxable year, the Fund would fail to qualify as a RIC unless it is eligible to and does pay a tax at the Fund level.

Book-Tax Differences.

Certain of the Fund’s investments in derivative instruments and foreign currency-denominated instruments, and any of the Fund’s transactions in foreign currencies and hedging activities, are likely to produce a difference

between its book income and its taxable income. If such a difference arises, and the Fund’s book income is less than its taxable income, the Fund could be required to make distributions exceeding book income to qualify as a RIC that is accorded special tax treatment. In the alternative, if the Fund’s book income exceeds its taxable income (including realized capital gains), the distribution (if any) of such excess generally will be treated as (i) a dividend to the extent of the Fund’s remaining earnings and profits, (ii) thereafter, as a return of capital to the extent of the recipient’s basis in its shares, and (iii) thereafter as gain from the sale or exchange of a capital asset.

Investment in Master Fund.

Because the Fund will invest all or substantially all of its assets in the Master Fund, its distributable income and gains will normally consist entirely of distributions (or deemed distributions) from the Master Fund and gains and losses on the disposition of shares of the Master Fund. To the extent that the Master Fund realizes net losses on its investments for a given taxable year, the Fund will not be able to benefit from those losses unless (i) the losses are capital losses and the Master Fund realizes subsequent capital gains that it can reduce by those losses, or (ii) the Fund is able to recognize its share of the Master Fund’s losses when it disposes of shares of the Master Fund in a transaction qualifying for sale or exchange treatment. Even if the Fund were able to recognize its share of those losses by making such a disposition, a portion of its loss may be recognized as a long-term capital loss, which will not be treated as favorably for U.S. federal income tax purposes as a short-term capital loss or an ordinary deduction. In particular, the Fund will not be able to offset any capital losses from its dispositions of Master Fund shares against its ordinary income (including distributions of any net short-term capital gains realized by the Master Fund).

As a result of the foregoing rules, and certain other special rules, it is possible that the amounts of net investment income and net capital gain that the Fund will be required to distribute to Investors will be greater than such amounts would have been had the Fund invested directly in the securities held by the Master Fund, rather than investing in shares of the Master Fund. For similar reasons, the amount or timing of distributions from the Fund qualifying for treatment as a particular character (e.g., long-term capital gain, exempt interest, eligibility for dividends-received deduction, etc.) will not necessarily be the same as it would have been had the Fund invested directly in the securities held by the Master Fund.

When the Master Fund makes a tender offer for its shares (as described under “Summary of Terms—Repurchases” in the Fund’s Prospectus), there is a risk that non-tendering shareholders in the Master Fund, and other shareholders of the Master Fund who tender some but not all of their shares therein or not all of whose shares therein are repurchased, in each case whose percentage interests in the Master Fund increase as a result of such tender, will be treated as having received a taxable distribution from the Master Fund. The extent of such risk will vary depending upon the particular circumstances of the tender offer, and in particular whether such offer is a single and isolated event or is part of a plan for periodically redeeming shares of the Master Fund. As a result, there is a risk that the Fund may be treated as having received a taxable dividend from the Master Fund in such instances. Dividend treatment of a tender by the Fund would affect the amount and character of income required to be distributed by both the Fund and the Master Fund for the year in which the redemption occurred. It is possible that such a dividend would qualify as “qualified dividend income”; otherwise, it would be taxable as ordinary income.

If the Fund receives dividends from the Master Fund, and the Master Fund reports such dividends as “qualified dividend income,” then the Fund is permitted, in turn, to report a corresponding portion of its distributions as “qualified dividend income,” provided the Fund meets the holding period and other requirements with respect to shares of the Master Fund.

If the Fund receives dividends from the Master Fund, and the Master Fund reports such dividends as eligible for the dividends-received deduction, then the Fund is permitted, in turn, to report a corresponding portion of its distributions as eligible for the dividends-received deduction, provided the Fund meets the holding period and other requirements with respect to shares of the Master Fund.

The Fund expects to be a “qualified fund of funds”—that is, a RIC at least 50% of its total assets of which consists, at the close of each quarter of the RIC’s taxable year, of interests in other RICs (here, the Master Fund).

As a result, the Fund expects to be permitted to elect to pass through to its Investors foreign income taxes and other similar taxes paid by the Fund in respect of foreign securities held directly by the Fund or by the Master Fund, if the Master Fund itself elected to pass such taxes through to Investors, so that Investors of the Fund will be eligible to claim a tax credit or deduction for such taxes. However, even if the Fund or the Master Fund qualifies to make such election for any year, it may determine not to do so. See “Foreign Taxation” below for more information.

Investment in the Subsidiary.

The Master Fund intends to gain exposure to Investment Funds in part through investments in the Subsidiary. As described above, in order to qualify as a RIC, the Master Fund must derive at least 90% of its gross income each taxable year from sources treated as “qualifying income” under the Code. Investments in U.S. investment partnerships that invest in commodities and certain commodity-linked instruments, as well as certain other assets, generate income that is not qualifying income for purposes of meeting this 90% test. Although the IRS previously issued a number of private letter rulings that indicate that certain income from a RIC’s investment in a controlled foreign corporation (see discussion below) will constitute qualifying income for purposes of the 90% gross income test, each of the private letter rulings it issued applies only to the taxpayer that received it and may not be used or cited as precedent by another taxpayer, and the IRS suspended issuance of further such rulings pending a review of its position on the matter. If the IRS were to change its position with respect to the conclusions reached in these rulings, which change in position may be applied retroactively to the Master Fund, all or a portion of the income from the Master Fund’s investment in the Subsidiary might not be “qualifying income” and the Master Fund might not qualify as a RIC for one or more years, which would adversely affect the value of an investment in the Master Fund and likely affect the Fund’s qualification as a RIC. The Master Fund intends to take the position that income from its investments in the Subsidiary will constitute qualifying income for purposes of RIC qualification, and may take certain measures to ensure that income from the Subsidiary so qualifies. However, under current law and in the absence of an IRS ruling or other guidance, this result is uncertain. It is possible that the IRS will take the position that all or a portion of such income does not constitute qualifying income, including retroactively; if the IRS were successful in this position the Master Fund might well not meet the 90% gross income requirement. As a result, there can be no assurance that the Fund or the Master Fund will be able to qualify for or maintain its status as a RIC.

The Subsidiary is wholly owned by the Master Fund. A U.S. person who owns (directly, indirectly or constructively) 10% or more of the total combined voting power of all classes of stock of a foreign corporation is a “U.S. Shareholder” for purposes of the controlled foreign corporation (“CFC”) provisions of the Code. A foreign corporation is a CFC if, on any day of its taxable year, more than 50% of the voting power or value of its stock is owned (directly, indirectly or constructively) by “U.S. Shareholders.” Because the Master Fund is a U.S. person that owns all of the stock of the Subsidiary, the Master Fund is a “U.S. Shareholder” with respect to the Subsidiary and the Subsidiary is a CFC. As a “U.S. Shareholder,” the Master Fund is required to include in gross income for U.S. federal income tax purposes all of the Subsidiary’s “subpart F income” (defined below), whether or not such income is distributed by the Subsidiary. It is expected that all of the Subsidiary’s income will be “subpart F income.” “Subpart F income” generally includes interest, original issue discount, dividends, net gains from the disposition of stocks or securities, receipts with respect to securities loans, net gains from transactions (including futures, forward and similar transactions) in commodities, and net payments received with respect to equity swaps and similar derivatives. The Master Fund’s recognition of the Subsidiary’s “subpart F income” will increase the Master Fund’s tax basis in the Subsidiary. Distributions by the Subsidiary to the Master Fund will be tax-free, to the extent of the Subsidiary’s previously undistributed “subpart F income,” and will correspondingly reduce the Master Fund’s tax basis in the Subsidiary. “Subpart F income” is generally treated as ordinary income, regardless of the character of the Subsidiary’s underlying income. Net losses incurred by the Subsidiary during a tax year do not flow through to the Master Fund and thus will not be available to offset income or capital gain generated from the Master Fund’s other investments. In addition, net losses incurred by the Subsidiary during a tax year generally cannot be carried forward by the Subsidiary to offset gains realized by it in subsequent tax years.

Failure of the Master Fund or the Fund to qualify and be eligible to be treated as a RIC would likely materially reduce the investment return to the Fund’s Investors.

Backup Withholding.

The Fund generally is required to withhold and remit to the U.S. Treasury 28% of the taxable distributions and redemption proceeds paid to any individual Investor who fails to properly furnish the Fund with a correct taxpayer identification number, who has under-reported dividend or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding.

Backup withholding is not an additional tax. Any amounts withheld may be credited against the Investor’s U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.

Tax-Exempt Investors.

Income of a RIC that would be UBTI if earned directly by a tax-exempt entity will not generally be attributed as UBTI to a tax-exempt Investor of the RIC. Notwithstanding this “blocking” effect, a tax-exempt Investor could realize UBTI by virtue of its investment in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt Investor within the meaning of Code Section 514(b).

A tax-exempt Investor may also recognize UBTI if the Fund recognizes “excess inclusion income” derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs as described above, if the amount of such income recognized by the Fund exceeds the Fund’s investment company taxable income (after taking into account deductions for dividends paid by the Fund).

In addition, special tax consequences apply to charitable remainder trusts (“CRTs”) that invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted in December 2006, a CRT (as defined in section 664 of the Code) that realizes any UBTI for a taxable year must pay an excise tax annually of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI as a result of investing in a Fund that recognizes “excess inclusion income.” Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt Investors, such as the United States, a state or political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a Fund that recognizes “excess inclusion income,” then the Fund will be subject to a tax on that portion of its “excess inclusion income” for the taxable year that is allocable to such Investors at the highest federal corporate income tax rate. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. To the extent permitted under the 1940 Act, each Fund may elect to specially allocate any such tax to the applicable CRT, or other Investor, and thus reduce such Investor’s distributions for the year by the amount of the tax that relates to such Investor’s interest in the Fund.

CRTs and other tax-exempt investors are urged to consult their tax advisors concerning the consequences of investing in the Fund.

Sale or Exchange of Shares.

The sale, redemption or other taxable disposition of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of Fund shares held by an Investor for six months or less will be treated as long-term, rather than short-term, to the extent of any capital gain dividends received (or deemed received) by the Investor with respect to the shares. Further, all or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed under the Code’s “wash-sale” rule if other substantially identical shares are purchased, including by means of dividend reinvestment, within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.

From time to time, the Fund intends to make a tender offer for its Shares (as described under “Repurchases and Transfers of Shares” in the Fund’s Prospectus). Investors who tender all Shares held, or considered to be held, by them, and all of whose Shares are repurchased, will be treated as having sold their shares and generally will

realize a capital gain or loss. If an Investor tenders fewer than all of its Shares or fewer than all Shares tendered are repurchased, such Investor may be treated as having received a so-called “Section 301 distribution,” taxable in whole or in part as a dividend upon the tender of its Shares. In such a case, there is a risk that non-tendering Investors and Investors who tender some but not all of their Shares or fewer than all of whose Shares are repurchased, in each case whose percentage interests in the Fund increase as a result of such tender, will be treated as having received a taxable dividend distribution from the Fund. The extent of such risk will vary depending upon the particular circumstances of the tender offer, and in particular whether such offer is a single and isolated event or is part of a plan for periodically redeeming Shares of the Fund.

To the extent that the Fund recognizes net gains on the liquidation of portfolio securities to meet such tenders or otherwise repurchases Fund shares, the Fund will be required to make additional distributions to its Investors.

The Master Fund will not be considered to be a “publicly offered” RIC if it does not have at least 500 Investors at all times during a taxable year. The Master Fund does not expect to be considered a “publicly offered” RIC. Very generally, pursuant to Treasury Department regulations, expenses of nonpublicly offered RICs, except those specific to their status as a RIC or separate entity (e.g., registration fees or transfer agency fees), are subject to special “pass- through” rules. These affected expenses (which include management fees) are treated as additional dividends to certain Master Fund Investors (generally including individuals and entities that compute their taxable income in the same manner as an individual), and are deductible by those Investors, subject to the 2% “floor” on miscellaneous itemized deductions and other significant limitations on itemized deductions set forth in the Code.

Tax Shelter Reporting Regulations.

Under Treasury regulations, if an Investor recognizes a loss of $2 million or more for an individual Investor or $10 million or more for a corporate Investor, the Investor must file with the IRS a disclosure statement on Form 8886. Direct holders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, Investors of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to Investors of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Investors should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.

Foreign Taxation.

Income received by the Fund from sources within foreign countries, and proceeds from the sale or other disposition of portfolio securities, may be subject to withholding and other taxes imposed by such countries. Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the Master Fund’s assets at year end consists of the securities of foreign corporations, the Master Fund may elect to permit investors to claim a credit or deduction on their income tax returns for their pro rata portions of qualified taxes paid by the Master Fund to foreign countries in respect of foreign securities that the Master Fund has held for at least the minimum period specified in the Code. In such a case, investors will include in gross income from foreign sources their pro rata shares of such taxes paid by the Master Fund. If the Fund is a qualified fund of funds, it also may elect to pass through to its Investors foreign taxes it has paid or foreign taxes passed through to it by any underlying fund that itself was eligible to elect and did elect to pass through such taxes to Investors (see “Investment in Master Fund” above). Even if the Fund were eligible to make such an election for a given year, it may determine not to do so. An Investor’s ability to claim an offsetting foreign tax credit or deduction in respect of foreign taxes paid by the Fund or the Master Fund is subject to certain limitations imposed by the Code, which may result in the Investor’s not receiving a full credit or deduction (if any) for the amount of such taxes. Investors who do not itemize on their U.S. federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.

Foreign Investors.

Absent a specific statutory exemption, dividends other than capital gain dividends paid (or deemed paid) by the Fund to an Investor that is not a “U.S. person” within the meaning of the Code (a “foreign Investor”) are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign Investor directly, would not be subject to withholding. Distributions properly reported as capital gain dividends generally are not subject to withholding of U.S. federal income tax.

For distributions with respect to taxable years of the Fund beginning before January 1, 2015, the Fund is not required to withhold any amounts (i) with respect to distributions from U.S.-source interest income of types similar to those not subject to U.S. federal income tax if earned directly by an individual foreign Investor, to the extent such distributions are properly reported as such by the Fund in a written notice to Investors (“interest- related dividends”), and (ii) with respect to distributions of net short-term capital gains in excess of net long-term capital losses to the extent such distributions are properly reported as such by the Fund in a written notice to Investors (“short-term capital gain dividends”). This exception to withholding for interest-related dividends does not apply to distributions to a foreign Investor (A) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (B) to the extent that the dividend is attributable to certain interest on an obligation if the foreign Investor is the issuer or is a 10% Investor of the issuer, (C) that is within certain foreign countries that have inadequate information exchange with the United States, or (D) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign Investor and the foreign Investor is a controlled foreign corporation. The exception to withholding for short-term capital gain dividends does not apply to (A) distributions to an individual foreign Investor who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (B) distributions subject to special rules regarding the disposition of U.S. real property interests as described below. If the Fund invests in a RIC that paid such distributions to the Fund, such distributions retain their character as not subject to withholding if properly reported when paid by the Fund to foreign persons. The Fund is permitted to report such part of its dividends as interest-related and/or short-term capital gain dividends as are eligible, but is not required to do so. The exemption from withholding for interest-related and short-term capital gain dividends has expired for distributions with respect to taxable years of the Fund beginning on or after January 1, 2015. It is currently unclear whether Congress will extend the exemption or what the terms of such an extension would be, including whether such extension would have retroactive effect.

In the case of shares held through an intermediary, the intermediary may withhold even if the Fund reports all or a portion of a payment as an interest-related or short-term capital gain dividend to Investors. Foreign Investors should contact their intermediaries regarding the application of these rules to their accounts. Except as described in “Other Reporting and Withholding Requirements” below, a foreign Investor is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on capital gain dividends unless (i) such gain or dividend is effectively connected with the conduct by the foreign Investor of a trade or business within the United States, (ii) in the case of a foreign Investor that is an individual, the Investor is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or the receipt of the capital gain dividend and certain other conditions are met, or (iii) the special rules relating to gain attributable to the sale or exchange of “U.S. real property interests” (“USRPIs”) apply to the foreign Investor’s sale of shares of the Fund or to the capital gain dividend the foreign Investor received (as described below).

USRPHC Rules

Special rules would apply if the Fund were either a “U.S. real property holding corporation” (“USRPHC”) or would be a USRPHC but for the operation of certain exceptions to the definition thereof. Very generally, a USRPHC is a domestic corporation that holds USRPIs the fair market value of which equals or exceeds 50% of the sum of the fair market values of the corporation’s USRPIs, interests in real property located outside the United States, and other trade or business assets. USRPIs are generally defined as any interest in U.S. real property and any interest (other than solely as a creditor) in a USRPHC or former USRPHC.

If the Fund were a USRPHC or would be a USRPHC but for the exceptions referred to above, under a special “look-through” rule, any distributions by the Fund to a foreign Investor attributable directly or indirectly to distributions received by the Fund from a lower-tier U.S. REIT that the Fund is required to treat as USRPI gain in its hands, generally would be subject to U.S. tax withholding. In addition, such distributions could result in the foreign Investor being required to file a U.S. tax return and pay tax on the distributions at regular U.S. federal income tax rates. The consequences to a foreign Investor, including the rate of such withholding and character of such distributions (e.g., as ordinary income or USRPI gain), would vary depending upon the extent of the foreign Investor’s current and past ownership of the Fund. Prior to January 1, 2015, the “look-through” USRPI treatment described above for distributions by the Fund to a foreign Investor also applied to distributions attributable to (i) gains realized on the disposition of USRPIs by the Fund and (ii) distributions received by the Fund from a lower- tier RIC that the Fund was required to treat as USRPI gain in its hands. It is currently unclear whether Congress will extend these former “look-through” provisions to distributions made on or after January 1, 2015, and what the terms of any such extension would be, including whether any such extension would have retroactive effect.

In addition, if the Fund were a USRPHC or former USRPHC, a greater-than-5% foreign Investor generally would be required to file a U.S. tax return in connection with the sale of its Fund shares, and pay related taxes due on any gain realized on the sale.

The Fund generally does not expect that it will be a USRPHC or would be a USRPHC but for the operation of certain of the special exceptions referred to above.

Foreign Investors should consult their tax advisers and, if holding shares through intermediaries, their intermediaries, concerning the application of these rules to their investment in the Fund.

Foreign Investors with respect to whom income from a Fund is effectively connected with a trade or business conducted by the foreign Investor within the United States will in general be subject to U.S. federal income tax on the income derived from the Fund at the graduated rates applicable to U.S. citizens, residents or domestic corporations, whether such income is received in cash or reinvested in shares of the Fund and, in the case of a foreign corporation, may also be subject to a branch profits tax. If a foreign Investor is eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained by the Investor in the United States. More generally, foreign Investors who are residents in a country with an income tax treaty with the United States may obtain different tax results than those described herein, and are urged to consult their tax advisors.

In order to qualify for any exemptions from withholding described above or for lower withholding tax rates under income tax treaties, or to establish an exemption from backup withholding, a foreign Investor must comply with special certification and filing requirements relating to its non-US status (including, in general, furnishing an IRS Form W-8BEN, W-8BEN-E, or substitute form). Foreign Investors should consult their tax advisers in this regard.

Special rules (including withholding and reporting requirements) apply to foreign partnerships and those holding Fund shares through foreign partnerships. Additional considerations may apply to foreign trusts and estates. Investors holding Fund shares through foreign entities should consult their tax advisers about their particular situation.

A foreign Investor may be subject to state and local tax and to the U.S. federal estate tax in addition to the U.S. federal income tax referred to above.

Other Reporting and Withholding Requirements

Sections 1471-1474 of the Code and the U.S. Treasury and IRS guidance issued thereunder (collectively, “FATCA”) generally require a Fund to obtain information sufficient to identify the status of each of its shareholders under FATCA or under an applicable intergovernmental agreement (an “IGA”) between the

United States and a foreign government. If a shareholder fails to provide the requested information or otherwise fails to comply with FATCA or an IGA, the Fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on ordinary dividends it pays after June 30, 2014 (or, in certain cases, after later dates), and 30% of the gross proceeds of share redemptions or exchanges and certain capital gain dividends it pays after December 31, 2016. If a payment by the Fund is subject to FATCA withholding, the Fund is required to withhold even if such payment would otherwise be exempt from withholding under the rules applicable to foreign shareholders described above (e.g., capital gain dividends). Each prospective investor is urged to consult its tax advisor regarding the applicability of FATCA and any other reporting requirements with respect to the prospective investor’s own situation, including investments through an intermediary.

Each prospective Investor is urged to consult its tax adviser regarding the applicability of FATCA and any other reporting requirements with respect to the prospective Investor’s own situation, including investments through an intermediary.

General Considerations

The U.S. federal income tax discussion set forth above is for general information only. Prospective Investors should consult their tax advisers regarding the specific federal tax consequences of purchasing, holding, and disposing of shares of the Fund, as well as the effects of state, local, foreign, and other tax law and any proposed tax law changes.

FINANCIAL STATEMENTS

The audited financial statements and related report of Deloitte & Touche LLP, independent registered public accounting firm for the Fund, Master Fund, and Subsidiary contained in the Fund’s Annual Report are hereby incorporated by reference. A copy of the Annual Report may be obtained upon request and without charge by writing State Street Bank and Trust Company, 100 Huntington Avenue, Copley Place Tower 2, Floor 3, Mail Code: CPH0255, Boston, Massachusetts 02116, or by calling 1-855-890-7725. No other portions of the Fund’s Annual Report are incorporated herein by reference.

Appendix A

Blackstone Alternative Asset Management L.P. (“BAAM”)

Blackstone Strategic Alliance Advisors L.L.C. (“BSAA”)

Blackstone Alternative Solutions L.L.C. (“BAS”)

Blackstone Strategic Capital Advisors L.L.C. (“BSCA”)^*

Blackstone Senfina Advisors L.L.C. (“BSA”)

Proxy Voting Policies and Procedures

January 2015

This information contained herein is NOT intended to provide a summary of the proxy voting policies and procedures for any publicly offered funds of Blackstone Alternative Investment Advisors LLC (i.e., Blackstone Alternative Multi-Manager Fund, Blackstone Alternative Multi-Strategy Fund, Blackstone Diversified Multi-Strategy Fund, etc.). Please refer to the Compliance Manuals for these funds for a summary of their proxy voting policies and procedures.

I.	Policy

When BAAM, BSAA, BAS, BSCA, or BSA (each an “Advisor”) has discretion to vote the proxies of its clients, including, without limitation, the private investment funds managed by the Advisor (the “Clients”), the Advisor will vote these proxies in the best interest of the Clients and in accordance with these policies and procedures.

These policies and procedures are a supplement to, and form a part of, the Advisor’s Supplemental Policies and Procedures Manual.

II.

Proxy Voting Procedures

For the Advisor, proxies typically arise in the context of requests for consent or other votes requested by underlying hedge fund managers. All proxies received by the Advisor will be sent to the Legal and Product Structuring (“LaPS”) Team, which is responsible for monitoring and documenting the proxy voting process. The LaPS Team will:

(1)	Deliver a summary of the proposed changes to the relevant Manager Team members, who will determine the appropriate course of action.

(2)	Provide the relevant Manager Team members with a list of Clients that invest in the underlying fund in question and the date by which the Advisor must vote the proxy.

(3)	Complete the consent form provided by the underlying manager and prepare it for execution by the appropriate authorized signatory. All proxies will be returned by the LaPS Team either to the custodian, if the Client utilizes a custodian, or directly to the underlying manager.

(4)	Update HedgeHog (proprietary software) with the appropriate information.

(5)

Maintain records relating to each proxy, including (i) a copy of the proxy; (ii) the voting decision with regard to the proxy; (iii) any documents created by the Advisor, or others, that were material to the voting decision; (iv) a record of each written request from an investor for proxy voting information; and (v) the Advisor’s written response to any such request (oral or written). Such records shall be maintained by the LaPS Team in its offices for two years and for an additional three years in an easily accessible place.

(6)	Maintain a copy of these policies and procedures and all amendments thereto.

^*	Includes relying adviser BSCA Advisors L.L.C. (“BSCAA”).

A-1

Where a Client holds publicly traded securities, the Client’s securities may be borrowed, hypothecated, rehypothecated or pledged by the Client’s custodian on the record date for determining eligibility to vote a proxy. In such case, the Client typically will not be eligible to vote the securities. The Advisor does not believe it is necessary or practical to insist that the custodians “lock up” the Client’s securities at all times (i.e., not allow the Client’s securities to be borrowed, hypothecated, rehypothecated or pledged). However, the Advisor will request that the custodian “lock up” the Client’s securities on a record date if the vote in question is material to the Client’s investments.

III.

Voting Guidelines

In the absence of specific voting guidelines from a Client, the Advisor will vote proxies in the best interests of the Client as determined in the Advisor’s reasonable discretion. The Advisor may elect not to vote certain routine proxies where the Advisor determines that doing so would be unduly burdensome.

IV.

Conflicts of Interest

The LaPS Team will identify any conflicts that exist between the interests of the Advisor and its Clients. This examination will include a review of the relationship of the Advisor and its affiliates with the underlying manager or the issuer of the security to determine if the manager or issuer has any relationship with the Advisor or an affiliate of the Advisor. If a material conflict exists, the Advisor will determine the appropriate course of action.

V.	Disclosure

The Advisor will disclose in each Client’s Confidential Offering Memorandum (or other applicable offering document) that investors, by written request, may obtain a copy of these policies and procedures and may review in the Advisor’s offices information on how the Advisor voted proxies relating to the Client’s portfolio. Such information will include, with respect to each voted proxy, (1) the name of the issuer; (2) the proposal voted upon; and (3) how the Advisor voted the proxy. Similar disclosures and practices will be followed for Clients which are not funds.

VI.

Class Actions

When a recovery is achieved in a class action, investors who owned shares in the company subject to the action have the option to either: (1) opt out of the class action and pursue their own remedy; or (2) participate in the recovery achieved via the class action. If class action documents are received by the Advisor on behalf of a Client, the LaPS Team and relevant Manager Team members together will determine if it is in the best interests of the Client to participate in, or opt out of, the class action. The LaPS Team will maintain appropriate documentation.

VII.

BSA

BSA has engaged the services of Institutional Shareholder Services, Inc. (“ISS”) to make recommendations to BSA on the voting of proxies related to securities held by BSA Clients. The third-party portfolio managers retained by BSA generally also will retain ISS. ISS provides voting recommendations based on established guidelines and practices.

BSA will review ISS recommendations and generally will vote proxies in accordance with such recommendations. However, BSA may decide not vote in accordance with the ISS recommendations if it believes that the specific ISS recommendation is not in the best interests of the BSA Clients. In addition, if a conflict of interest arises between ISS and a company subject to a proxy vote, the Adviser generally will vote the proxy without considering the analyses of ISS and will consider the recommendation of the company and what the Adviser believes to be in the best interests of the Client.

A-2

BSA will rely upon ISS to maintain records of the following with respect to each proxy vote:

•

The Issuer’s name;

•

The security’s ticker symbol or CUSIP, as applicable;

•

The shareholder meeting date;

•

The number of shares that XYZ voted;

•

A brief identification of the matter voted on;

•

Whether the matter was proposed by the Issuer or a security-holder;

•

Whether BSA cast a vote;

•

How BSA cast its vote (for the proposal, against the proposal, or abstain); and

•

Whether BSA cast its vote with or against management.

A-3

Part C. Other Information

Item 25. Financial Statements and Exhibits

1.	Financial statements:

Included in Part A: Not applicable.

Included in Part B: Audited financial statements and related report of Deloitte & Touche LLP.

Exhibits

a.1

Agreement and Declaration of Trust of Blackstone Alternative Alpha Fund II (the “Registrant”), dated January 10, 2013.¹

a.2

Amendment No. 1 to the Agreement and Declaration of Trust of the Registrant, dated September 18, 2013.⁴

Bylaws of the Registrant, effective as of January 10, 2013.²

None

See Article III (Shares), Article IV (Trustees), Article V (Shareholders’ Voting Powers and Meetings), Article VIII (Indemnification) and Article IX (Miscellaneous) of the Declaration of Trust of the Registrant¹ and Article 10 (Shareholders’ Powers and Meetings) of the Bylaws of the Registrant.²

Dividend Reinvestment Plan, adopted March 12, 2013.²

None

Form of Investment Management Agreement between Registrant and Blackstone Alternative Asset Management L.P. (“BAAM”).²

h.1

Form of Distribution Agreement between Registrant and Blackstone Advisory Partners L.P.²

h.2

Form of Dealer Agreement between Blackstone Advisory Partners L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated August 14, 2013.³

h.3

Form of Dealer Agreement between Blackstone Advisory Partners L.P. and UBS Financial Services Inc., dated November 11, 2013.³

h.4

Form of Distribution and Service Plan for Advisor Class I Shares, dated March 12, 2013.²

h.5

Form of Distribution and Service Plan for Advisor Class II Shares, dated March 12, 2013.²

h.6

Participation Agreement between Blackstone Advisory Partners L.P. and Citigroup Global Markets Inc., dated March 20, 2014.³

(a)

Form of First Amended and Restated Participation Agreement between Blackstone Advisory Partners L.P. and Citigroup Global Markets Inc., dated June 3, 2014.³

h.7

Form of Platform Agreement between Blackstone Advisory Partners L.P. and Charles Schwab & Co., Inc. –
Exhibit (h)(7).

h.8

Form of Dealer Agreement between Blackstone Advisory Partners L.P. and Hightower Securities, LLC – Exhibit (h)(8).

h.9

Form of Dealer Agreement between Blackstone Advisory Partners L.P. and Robert W. Baird & Co. Incorporated –
Exhibit (h)(9).

None

Form of Joinder to Master Global Custodial Services Agreement between Registrant and Citibank, N.A.²

k.1

Form of Joinder to Master Services Agreement between Registrant and Citi Fund Services Ohio, Inc.²

(a)

Form of Amendment to Master Services Agreement among Registrant, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Fund, Blackstone Alternative Sub Fund I Ltd., and Citi Fund Services Ohio, Inc. – Exhibit (k)(1)(a).

k.2

Form of Expense Limitation and Reimbursement Agreement.²

k.3

Form of Administration Agreement among Registrant, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Fund II, Blackstone Alternative Sub Fund I Ltd., and State Street Bank and Trust Company – Exhibit (k)(3).

k.4

Form of Transfer Agency and Service Agreement among Registrant, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Fund II, Blackstone Alternative Sub Fund I Ltd., and State Street Bank and Trust Company –
Exhibit (k)(4).

Opinion and Consent of Ropes & Gray LLP as to the Registrant’s Shares.²

None

Consent of Deloitte & Touche LLP – Exhibit (n).

None

Subscription Agreement of BAAM dated March 6, 2013.²

None

r.1

Code of Ethics of Registrant.²

r.2

Code of Ethics of BAAM – Exhibit (r)(2).

r.3

Code of Ethics of Distributor.²

s.1

Power of Attorney for Blackstone Alternative Alpha Fund II and Blackstone Alternative Alpha Master Fund.²

s.2

Power of Attorney for Blackstone Alternative Alpha Sub Fund I Ltd.²

1.	Previously filed with the SEC as part of the Registration Statement under the Securities Act of 1933, as amended (the “1933 Act”), and the Investment Company Act of 1940, as amended (the “1940 Act”), on January 15, 2013, and hereby incorporated by reference.

2.	Previously filed with the SEC as part of Pre-Effective Amendment No. 2 to the Registration Statement under the 1933 Act and Amendment No. 2 to the Registration Statement under the1940 Act on June 19, 2013, and hereby incorporated by reference.

3.	Previously filed with the SEC as part of Post-Effective Amendment No. 1 to the Registration Statement under the 1933 Act and Amendment No. 3 to the Registration Statement under the1940 Act on June 13, 2014, and hereby incorporated by reference.

4.	Previously filed with the SEC as part of Post-Effective Amendment No. 1 to the Registration Statement under the 1933 Act and Amendment No. 4 to the Registration Statement under the 1940 Act on May 22, 2015, and hereby incorporated by reference.

Item 26. Marketing Arrangements

Not applicable.

Item 27. Other Expenses of Issuance and Distribution

Not applicable.

Item 28. Persons Controlled by or Under Common Control

None.

Item 29. Number of Holders of Securities

At May 31, 2015:


Title of Class		Number of Record Holders
Adviser Class II Shares		2,252.606
Adviser Class III Shares		27,740.183

Item 30. Indemnification

Reference is made to Article VIII (Indemnification) of the Registrant’s Agreement and Declaration of Trust, as amended, which is incorporated by reference herein

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “1933 Act”), may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Registrant’s Agreement and Declaration of Trust, its By-Laws or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, officers or controlling persons of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustees, officers or controlling persons in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.

Item 31. Business and Other Connections of Investment Adviser

BAAM is the investment adviser to the Fund, and its business is summarized in Part A and Part B of this Registration Statement under the sections entitled “Management of the Fund” and “Investment Management and Other Services,” respectively. Information as to any other businesses, professions, vocations or employments of a substantial nature engaged in by officers of BAAM during the last two fiscal years is incorporated by reference to Form ADV filed by the Adviser with the SEC under the Investment Advisers Act of 1940, as amended (SEC File No. 801-52559).

Item 32. Location of Accounts and Records

The account books and other documents required to be maintained by the Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder will be maintained at the offices of the Investment Manager (345 Park Avenue, 28th Floor, New York, New York 10154), Citibank, N.A., the Custodian (388 Greenwich Street, New York, NY 10013), and/or State Street Bank and Trust Company, the Administrator (100 Huntington Avenue, Copley Place, Tower 2, Floor 3, Mail Stop: CPH0255, Boston, MA 02116).

Item 33. Management Services

None.

Item 34. Undertakings

Not applicable.

The Registrant undertakes:

to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:

(1)

To include any prospectus required by Section 10(a)(3) of the 1933 Act;

(2)

To reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and

(3)

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

that, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof;

to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;

each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the 1933 Act as part of a registration statement relating to an offering, other than prospectuses filed in reliance on Rule 430A under the 1933 Act shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of

the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use;

that for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities:

The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:

(1)

any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the 1933 Act;

(2)

the portion of any advertisement pursuant to Rule 482 under the 1933 Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

(3)

any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

Not applicable.

The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, its Statement of Additional Information.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the “1933 Act”), and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on the 22^nd day of July, 2015.


BLACKSTONE ALTERNATIVE ALPHA FUND II

By:		/s/ Brian F. Gavin
Name:		Brian F. Gavin
Title:		President

Pursuant to the requirements of the 1933 Act, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:


Signature	Title	Date

/s/ John M. Brown* John M. Brown	Trustee	July 22, 2015

/s/ Frank J. Coates* Frank J. Coates	Trustee	July 22, 2015

/s/ Paul J. Lawler* Paul J. Lawler	Trustee	July 22, 2015

/s/ Kristen M. Leopold* Kristen M. Leopold	Trustee	July 22, 2015

/s/ Peter Koffler* Peter Koffler	Trustee	July 22, 2015

/s/ Brian F. Gavin Brian F. Gavin	President (Principal Executive Officer)	July 22, 2015

/s/ Arthur Liao Arthur Liao	Treasurer (Principal Financial and Accounting Officer)	July 22, 2015


*By:		/s/ Brian F. Gavin
		Brian F. Gavin**
Date: July 22, 2015
**Attorney-in-Fact pursuant to a Power of Attorney

SIGNATURES

Blackstone Alternative Alpha Master Fund has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 22^nd day of July, 2015.


BLACKSTONE ALTERNATIVE ALPHA MASTER FUND

By:		/s/ Brian F. Gavin
Name:		Brian F. Gavin
Title:		President

Pursuant to the requirements of the 1933 Act, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:


Signature	Title	Date

/s/ John M. Brown* John M. Brown	Trustee	July 22, 2015

/s/ Frank J. Coates* Frank J. Coates	Trustee	July 22, 2015

/s/ Paul J. Lawler* Paul J. Lawler	Trustee	July 22, 2015

/s/ Kristen M. Leopold* Kristen M. Leopold	Trustee	July 22, 2015

/s/ Peter Koffler* Peter Koffler	Trustee	July 22, 2015

/s/ Brian F. Gavin Brian F. Gavin	President (Principal Executive Officer)	July 22, 2015

/s/ Arthur Liao Arthur Liao	Treasurer (Principal Financial and Accounting Officer)	July 22, 2015


*By:		/s/ Brian F. Gavin
		Brian F. Gavin**
Date: July 22, 2015
**Attorney-in-Fact pursuant to a Power of Attorney

SIGNATURES

Blackstone Alternative Alpha Sub Fund I Ltd. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 22^nd day of July, 2015.


BLACKSTONE ALTERNATIVE ALPHA SUB FUND I LTD.

By:		/s/ Patrick Agemian*
Name:		Patrick Agemian
Title:		Director

Pursuant to the requirements of the 1933 Act, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:


Signature	Title	Date

/s/ Patrick Agemian* Patrick Agemian	Director	July 22, 2015


*By:		/s/ Brian F. Gavin
		Brian F. Gavin**
Date: July 22, 2015
**Attorney-in-Fact pursuant to a Power of Attorney

EXHIBIT INDEX

BLACKSTONE ALTERNATIVE ALPHA FUND II


Exhibit Ref.

(h)(7)		Form of Platform Agreement between Blackstone Advisory Partners L.P. and Charles Schwab & Co., Inc.

(h)(8)		Form of Dealer Agreement between Blackstone Advisory Partners L.P. and Hightower Securities, LLC

(h)(9)		Form of Dealer Agreement between Blackstone Advisory Partners L.P. and Robert W. Baird & Co. Incorporated

(k)(1)(a)		Form of Amendment to Master Services Agreement among Registrant, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Fund, Blackstone Alternative Sub Fund I Ltd., and Citi Fund Services Ohio, Inc.,

(k)(3)		Form of Administration Agreement among Registrant, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Fund II, Blackstone Alternative Sub Fund I Ltd., and State Street Bank and Trust Company

(k)(4)		Form of Transfer Agency and Service Agreement among Registrant, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Fund II, Blackstone Alternative Sub Fund I Ltd., and State Street Bank and Trust Company

(n)		Consent of Deloitte & Touche LLP

(r)(2)		Code of Ethics of BAAM

EX-99.(H)(7) 2 d930056dex99h7.htm FORM OF PLATFORM AGREEMENT Form of Platform Agreement

Exhibit(h)(7)

AIS FUND PLATFORM OPERATING AGREEMENT

This Operating Agreement is made as of [·] between Charles Schwab & Co., Inc. (“Schwab”), a California corporation, Blackstone Advisory Partners L.P., a Delaware limited partnership (“BAP”) and each pooled investment vehicle (each a “Fund” and collectively, the “Funds”), listed on Schedule I hereto, as amended from time to time (“Agreement”).

WHERAS, the Fund has entered into a distribution agreement with BAP, whereby BAP acts as the distributor for the Fund;

WHEREAS, BAP wishes to have the shares of beneficial interest offered by the Fund, listed on Schedule I hereto, as amended from time to time, (“Shares”) made available to investors for purchase and redemption through Schwab’s Alternative Investment Source™ platform (“AIS”);

WHEREAS, certain agreements, policies, procedures and information are necessary to enable the Fund to participate in AIS; and

WHEREAS, Schwab is willing to permit the Fund to participate in AIS pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises set forth below, the parties agree as follows:

1. Schwab’s Services.

(a) Schwab will act as broker/dealer of record for each Schwab customer who invests in Shares, and will also act as custodian of those Shares for the benefit of each such customer (each, a “Schwab customer” or an “investor”). Such Shares will be held in each Schwab customer’s Schwab brokerage account (each, an “Account”). Through the Accounts, Schwab will purchase and redeem Shares, reconcile transactions, obtain pricing information, reinvest distributions, as applicable, and maintain records in accordance with the operating procedures set forth in Exhibit A hereto (the “Operating Procedures”). In addition, Schwab will facilitate communication with Fund investors who are Schwab customers and perform other obligations in accordance with the Operating Procedures.

(b) Schwab will provide Schwab customers that are potential investors in the Fund with information pertaining to AIS, Schwab’s alternative investment process in general, and instructions on how to invest in the Fund through Schwab.

(c) Schwab will be responsible for its compliance and the compliance of each of its Affiliates (as defined below) in all material respects with all applicable laws, rules and regulations in connection with the services performed by Schwab and/or its Affiliates pursuant to this Agreement.

2. Role and Relationship of Schwab. The parties acknowledge and agree that all services provided by Schwab under this Agreement are administrative and related services only,

and are not the services of an underwriter or a principal underwriter of any issuer within the meaning of the Securities Act of 1933 (the “Securities Act”), as amended, or the Investment Company Act of 1940, as amended (the “1940 Act”). This Agreement also does not constitute Schwab a transfer agent or any other agent of the Fund, BAP or any of their Affiliates, and the parties agree that Schwab acts hereunder only as an agent of Schwab’s customers that elect to hold Shares in their respective Accounts, and that neither Schwab nor any of the registered investment advisers that access AIS is acting as a fiduciary or as any other agent of the Fund, BAP or any other person hereunder. For the avoidance of doubt, Schwab shall have no liability, duty or responsibility hereunder for the accuracy or calculation of the net asset value of the Fund or of any asset held by the Fund and, except as described herein, shall have no right to act on behalf of the Fund.

3. Investor Qualification.

(a) The Fund shall sell its Shares only to those Schwab customers that the Fund reasonably determines are eligible to purchase its Shares pursuant to the requirements set forth in the Fund’s prospectus and statement of additional information, as may be amended or supplemented from time to time (collectively, the “Fund Documents”), and in accordance with applicable law. The Fund shall have the sole responsibility in determining whether an investor meets all applicable minimum investment and other qualification and legal requirements necessary to invest in the Fund.

(b) The Fund shall not effect a sale of any Shares to a Schwab customer in any state or jurisdiction where such Shares have not been registered or qualified for offer and sale under applicable laws, rules and regulations, unless such offer or sale is exempt from the registration or qualification requirements of such laws, rules and regulations.

4. Additional Fund Responsibilities. The Fund shall also be solely responsible for:

(a) The compliance of its Fund Documents, annual or other periodic reports, proxy statements and advertising or marketing materials, as may be amended or supplemented from time to time (collectively, “Offering Materials”), with all applicable laws, rules and regulations (for the avoidance of doubt, Schwab shall bear no responsibility for the content of the Offering Materials, the investments or operations of the Fund, the performance of the Fund or any other pooled investment vehicle or person in which the Fund may invest); provided that the Fund shall have no responsibility for any materials prepared by Schwab or Schwab’s Affiliates;

(b) Ensuring that all Offering Materials and all Fund Information Sheets (defined below) are current, accurate and complete and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Fund shall use commercially reasonable efforts to notify Schwab in writing of any forthcoming changes to the Fund Documents a reasonable time prior to the effectiveness of such changes, but in all cases the Fund shall provide Schwab with copies of the updated Fund Documents in advance of or simultaneously with any such changes becoming effective;

(c) The distribution and tabulation of proxies in accordance with all applicable laws, rules and regulations (except for such proxy related services provided by Schwab’s mailing agent with respect to Schwab’s customers);

(d) Obtaining a CUSIP number for the Fund from CUSIP Global Services and enrolling with Schwab’s mailing agent to have certain Fund materials delivered through Schwab’s mailing agent to investors that are Schwab’s customers;

(e) The Fund or BAP becoming a member of the Depository Trust & Clearing Corporation (“DTCC”) Alternative Investment Products (“AIP”) system within nine (9) months of the effective date of this Agreement, and coordinating with Schwab to test and implement the use of DTCC AIP in processing investor data;

(f) The registration or qualification of the offer and sale of Shares under all applicable laws, rules, and regulations; and

(g) The compliance in all material respects by the Fund and each Affiliate of the Fund, with respect to the Fund, with all applicable laws, rules, and regulations, including the rules and regulations of each self-regulatory organization with jurisdiction over the Fund or any Affiliate of the Fund. For purposes of this Agreement, an “Affiliate” of a person means (i) any person directly or indirectly controlling, controlled by, or under common control with, such person, (ii) any officer, director, partner, co-partner, or employee of such person, and (iii) any investment advisor or any member of the advisory board of the Fund.

5. Account Establishment and Maintenance Fees; Suspension of Purchases.

(a) BAP shall pay to Schwab, or cause the Fund to pay to Schwab, such fees as are set forth on Schedule I hereto. The fees shall be paid at the time and in the manner set forth in Schedule II.

(b) The parties understand and agree that the receipt of compensation by Schwab pursuant to this Agreement is not conditioned upon the performance of any distribution activities by Schwab, and that Schwab shall act as broker/dealer of record and agent for its customers only, and not as an agent of the Fund or BAP.

(c) In its sole discretion, Schwab may suspend purchases of Shares by Schwab customers for any period of time upon notice to the Fund.

6. Fund Information Sheets.

(a) The Fund shall deliver or cause to be delivered to Schwab a completed Fund Set-Up Questionnaire and Contacts Directory (collectively, the “Fund Information Sheets”), in forms provided by Schwab, to establish the Fund in AIS. Schwab shall be entitled to rely on the information contained in the Fund Information Sheets, as may be amended by the Fund from time to time, in connection with the purchase and redemption of the Shares and the processing of transactions related to the Fund.

(b) The Fund must promptly amend the Fund Information Sheets in the event of any change to the information contained therein, such amendments to be effective immediately upon receipt of written notice by Schwab.

(c) Any amendment to the Fund Information Sheets must occur in a manner timed to coincide with such change so that Schwab, acting in good faith and a commercially reasonable manner, may have opportunity to object to such change as not operationally feasible for Schwab and, either (i) suspend purchases of Shares of the Fund until such time as such change is operationally feasible for Schwab or (ii) terminate this Agreement.

(d) The Fund shall promptly provide, upon Schwab’s reasonable request, such other information as is necessary to establish and maintain the Fund in AIS.

(e) Schwab will not publish, make available to any of its customers, or otherwise distribute any Fund Information Sheets.

7. Representations, Warranties and Covenants.

(a) BAP represents, warrants and covenants that:

(i) BAP has been duly incorporated and is validly existing as a limited partnership in good standing under the laws of the State of Delaware with all requisite power and authority, all necessary authorizations, approvals, orders, licenses, certificates and permits to conduct its business;

(ii) This Agreement has been duly authorized, executed and delivered by BAP and, assuming the execution hereof by the parties, will constitute a valid and binding agreement of BAP enforceable in accordance with its terms; and

(iii) BAP will maintain all licenses and registrations necessary under applicable federal and state laws, rules and regulations, including the rules and regulation of any self-regulatory organization with competent jurisdiction, to serve as distributor of the Fund.

(iv) If any of the foregoing representations and warranties made by BAP are no longer accurate, then BAP will promptly notify Schwab in writing.

(b) The Fund represents, warrants and covenants that:

(i) The Fund has been duly organized and is validly existing as a business trust in good standing under the laws of The Commonwealth of Massachusetts, with all requisite power and authority, all necessary authorizations, approvals, orders, licenses, certificates and permits to conduct its business as described in the Fund Documents;

(ii) The Offering Materials, the Fund Information Sheets, and all other documents furnished by the Fund to Schwab are current, accurate and complete and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading;

(iii) The Shares have been duly authorized for issuance and sale and, when issued and delivered by the Fund, the Shares will conform to all statements relating thereto contained in the Offering Materials;

(iv) The services performed by Schwab pursuant to this Agreement are not primarily intended to result in the sale of the Fund’s Shares;

(v) The Fund has a legitimate primary reason (i.e., the receipt of administrative and related services) for participating in AIS other than the sale of its Shares;

(vi) The Fund has not and will not solicit any offer to tender or offer to sell Shares in any manner that would be inconsistent with applicable laws and regulations, or with the procedures for solicitations contemplated by the Fund Documents;

(vii) As of the effective date of this Agreement (which shall be the later of the date on which this Agreement is made or the date set forth opposite the name of the Fund on Schedule I), no provision of the Fund Documents conflicts with Schwab’s obligations under this Agreement or imposes any obligation on Schwab not set forth in this Agreement. The Fund shall promptly notify Schwab in writing of any prospective change in its Fund Documents that may conflict with Schwab’s obligations under this Agreement or impose any obligation on Schwab not set forth in this Agreement. In case of any such change, Schwab and the Fund shall (i) work together in good faith to amend this Agreement to reflect such changed or new obligation, and (ii) if the parties cannot reach agreement on amendment prior to the effective date of that obligation, the Fund agrees that Schwab may: (A) suspend purchases of Shares until such time as the parties amend this Agreement, and (B) terminate this Agreement with respect to the Fund;

(viii) If the Fund has a distribution or shareholder servicing plan maintained or adopted pursuant to Rule 12b-1 under the 1940 Act (“Rule 12b-1 Plan”), such Rule 12b-1 Plan does not exceed 40 basis points per annum;

(ix) If applicable, the Fund’s sales charges and member compensation arrangements meet the conditions and qualifications set forth in Rules 2830(d) and 2830(l)(4) of the Conduct Rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”), which enable a member of FINRA to offer or sell shares of the Fund;

(x) The issue and sale of Shares and the execution, delivery and performance of the Fund’s obligations under the Fund Documents will not result in the violation of any applicable federal or state laws, rules or regulations;

(xi) This Agreement has been duly authorized, executed and delivered by the Fund and, assuming execution hereof by the parties, will constitute a valid and binding agreement of the Fund enforceable in accordance with its terms;

(xii) If any of the foregoing representations and warranties made by Fund is no longer accurate, then the Fund shall promptly notify Schwab thereof in writing.

(i) Schwab has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of California with all requisite power and authority, all necessary authorizations, approvals, orders, licenses, certificates and permits to conduct its business;

(ii) This Agreement has been duly authorized, executed and delivered by Schwab and, assuming the execution hereof by the parties, will constitute a valid and binding agreement of Schwab enforceable in accordance with its terms; and

(iii) Schwab will maintain all licenses and registrations necessary under applicable federal and state laws, rules and regulations, including the rules and regulation of any self-regulatory organization with competent jurisdiction, to provide the administrative services required to be provided by Schwab hereunder.

(iv) If any of the foregoing representations and warranties made by Schwab are no longer accurate, then Schwab will promptly notify BAP and the Fund in writing.

8. Use of Parties’ Names; No Publication of Terms.

(a) No party will make public the terms and conditions of this Agreement (including, without limitation, the pricing terms) nor any discussions relating thereto without the consent of the other parties; provided, however, if public disclosure of such information is required by law, such consent shall be deemed granted and the party required to disclose such information shall, if practicable, notify the other parties in writing a reasonable time prior to such disclosure.

(b) Without Schwab’s prior written consent, neither BAP nor the Fund shall acquire a right to use or use, cause or permit use of the names, characters, artwork, designs trade names, copyrighted materials, trademarks, or service marks of Schwab, its related or subsidiary companies, parent, employees, directors, shareholders, assigns, successors or licensees: (i) in any advertising, promotional materials or activities, publicity, press release, client list, or public or private presentation or promotion; (ii) to express or to imply any endorsement of the Fund or any of its Affiliates or their respective offerings or services; or (iii) in any manner other than as expressly permitted in accordance with this Agreement.

(c) The Fund authorizes and permits Schwab to use the name or other identifying marks of the Fund to the extent necessary for Schwab to provide services for the benefit of the Fund pursuant to this Agreement.

9. Confidentiality.

(a) Definition of Confidential Information. The term confidential information shall mean all information that a party discloses (the “Disclosing Party”), whether in writing, electronically, or orally, to another party (the “Receiving Party”), whether in tangible or intangible form, including but not limited to: (i) any information concerning a party’s, its agent’s or licensor’s technology, and (ii) any unpublished information concerning research activities and

plans, customers, marketing or sales plans or results, pricing or pricing strategies, operational techniques, strategic plans, Customer Information (as defined below), and any unpublished financial information will be deemed confidential and proprietary to the Disclosing Party, regardless of whether such information was disclosed intentionally or unintentionally or marked as “confidential” or “proprietary” (“Confidential Information”).

(b) Treatment of Confidential Information. Each party agrees that: (i) the Receiving Party will hold any and all Confidential Information it obtains in strictest confidence and will use and permit use of Confidential Information solely for the purposes of this Agreement; (ii) without limiting the foregoing, the Receiving Party shall use at least the same degree of care, but no less than reasonable care, to avoid disclosure or use of this Confidential Information as the Receiving Party employs with respect to its own Confidential Information; (iii) the Receiving Party may disclose or provide access only to its responsible employees or agents who have a need to know and are under confidentiality agreements at least as restrictive as this Agreement with respect to the Confidential Information, and may make copies of Confidential Information only to the extent reasonably necessary to carry out the obligations hereunder; and (iv) the Receiving Party will notify the Disclosing Party immediately of any unauthorized disclosure or use, and will cooperate with the Disclosing Party to protect all proprietary rights in and ownership of its Confidential Information.

(c) Exceptions. This Section 9 shall not prohibit or limit the Receiving Party’s use, disclosure, reproduction, or dissemination of the Disclosing Party’s Confidential Information which, (i) is or becomes public domain information or material through no fault or breach on the part of the Receiving Party, (ii) was already rightfully known (without restriction on disclosure) to the Receiving Party prior to being disclosed by or obtained from the Disclosing Party, as evidenced by written records kept in the ordinary course of business of, or by proof of actual use by, the Receiving Party, (iii) has been or is hereafter rightfully received by the Receiving Party from a third person (other than the Disclosing Party) without restriction on disclosure and without breach of a duty of confidentiality to the Disclosing Party; (iv) has been independently developed by the Receiving Party without access to Confidential Information of the Disclosing Party; or (v) is required to be disclosed, but only to the extent required, by court order, or pursuant to applicable law, regulation or self-regulatory organization rules, provided that the Receiving Party notifies the Disclosing Party so that the Disclosing Party may have a reasonable opportunity to obtain a protective order or other form of protection against disclosure. Notwithstanding any such compelled disclosure by the Receiving Party, such compelled disclosure will not otherwise affect the Receiving Party’s obligations hereunder with respect to Confidential Information, including Customer Information, so disclosed.

It shall be presumed that any Confidential Information in the Receiving Party’s possession is not within any of the exceptions above, and the burden is upon the Receiving Party to prove otherwise by records and documentation.

(d) Customer Information. As between Schwab, BAP and the Fund, Customer Information (as defined below) will remain the sole and exclusive property of Schwab. “Customer Information” shall mean all disclosed data or information however collected or received pertaining to or identifiable to Schwab’s customer(s) or prospective customers, to investment advisors, third party administrators, or introducing brokers placing transactions

through Schwab, or to the customers of such intermediaries, including, without limitation, name, address, e-mail address, TIN or social security number, account numbers, personal financial information, demographic or securities transactions data, or any other identification data.

(e) Treatment of Customer Information. Each of BAP and the Fund represents, warrants and covenants that at all times during and after the terms of this Agreement, it shall use, handle, collect, maintain and safeguard Customer Information in accordance with: (i) the confidentiality and non-disclosure requirements of this Agreement; (ii) the Gramm-Leach-Bliley Act of 1999 (Public law 106-102, 113 stat. 1138) and its implementing regulations (e.g. Securities and Exchange Commission Regulation S-P and Federal Reserve Board Regulation P) as applicable and as they may be amended from time-to-time; and (iii) such other applicable federal and state privacy, confidentiality, consumer protection, advertising, electronic mail and data security laws and regulations, whether in effect now or in the future. Each of BAP and the Fund will implement appropriate administrative, technical, and physical safeguards reasonably designed to protect the security and confidentiality of Customer Information and protect against unauthorized access to or use of Customer Information. Each of BAP and the Fund will report to Schwab promptly in writing any and all breaches of security or unauthorized access to BAP’s or the Fund’s systems that BAP or the Fund either detects or becomes aware of and which affect the security of Customer Information.

(f) Each party acknowledges that any breach of this Section 9 may result in immediate and irreparable harm for which monetary damages would be inadequate. Accordingly, any party will be entitled to seek equitable relief to remedy any threatened or actual breach of this Section 9 by another party, as well as such other relief as any court of competent jurisdiction deems appropriate.

10. Reliance on Communications. Except as expressly set forth in this Agreement or as otherwise agreed upon in writing by the parties, any communication, instruction or notice made pursuant to this Agreement may be made orally, provided that such oral communication is on a recorded telephone line or is promptly confirmed in writing by email transmission. Each party is entitled to rely on any communications or instructions that it reasonably believes were provided to it by the other party or its authorized agents.

11. Indemnification.

(a) The Fund shall indemnify, defend and hold harmless Schwab and each director, officer, employee and agent of Schwab and any of its Affiliates from and against any and all actual or threatened losses, claims, liabilities and expenses (including, without limitation, reasonable attorney’s fees and costs and by the advancement of defense and other costs and expenses) (“Losses”) incurred by any of them arising out of (i) any violation of any law, rule, or regulation relating to the registration or qualification of Shares of the Fund; (ii) any material breach by the Fund of any representation, warranty or agreement contained in this Agreement; (iii) any willful misconduct or negligence by the Fund in the performance of, or failure to perform, its obligations under this Agreement; or (iv) the Fund’s participation in AIS; except to the extent such Losses are caused by Schwab’s breach of this Agreement or willful misconduct or negligence in the performance of, or failure to perform, its obligations under this Agreement.

(b) BAP shall indemnify and hold harmless Schwab and each director, officer, employee and agent of Schwab and any of its Affiliates from and against any and all Losses incurred by any of them arising out of (i) any untrue statement or misrepresentation of a material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in any Fund Document, Fund Information Sheets, registration statement, annual or other periodic report or proxy statement of the Fund or in any advertising or promotional material published or otherwise provided to Schwab or to Schwab customers by or on behalf of the Fund or any Affiliate of the Fund; (ii) any violation of any law, rule, or regulation by Schwab in the performance of its obligations hereunder, (iii) any breach by BAP of any representation, warranty or agreement contained in this Agreement, or (iv) any willful misconduct or negligence by BAP in the performance of, or failure to perform, its obligations under this Agreement, except to the extent such Losses are caused by Schwab’s breach of this Agreement or willful misconduct or negligence in the performance of, or failure to perform, its obligations under this Agreement.

(c) Schwab shall indemnify and hold harmless BAP and the Fund and any of their Affiliates from and against any and all Losses incurred by any of them arising out of (i) any violation of any, law, rule, or regulation by Schwab in the performance of its obligations hereunder, (ii) any breach by Schwab of any representation, warranty or agreement contained in this Agreement, or (iii) any willful misconduct or negligence by Schwab in the performance of, or failure to perform, its obligations under this Agreement, except to the extent such Losses are caused by BAP’s or the Fund’s breach of this Agreement, or willful misconduct or negligence in the performance of, or failure to perform, their obligations under this Agreement.

(d) Except with respect to a party’s breach of the confidentiality provisions of Section 9 of this Agreement, no party to this Agreement shall be responsible for any incidental, consequential, indirect, exemplary, special or punitive damages suffered by another party in connection with the matters to which this Agreement relates, and each party hereby irrevocably and unconditionally waives any right that it may have to claim and recover any such damages, even if it has informed the other parties hereto of the possibility or likelihood of such damages.

12. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of California applicable to contracts between California residents entered into and to be performed entirely within the State.

13. Arbitration. In the event of a dispute between Fund and Schwab relating to or arising out of this Agreement or the relationship of the parties hereto, the parties will submit the matter to arbitration in accordance with this Section 13.

(a) Arbitration will be held in San Francisco, California, in accordance with the rules and regulations of FINRA, except, (i) in the event that FINRA is unwilling to accept jurisdiction of the matter, such arbitration will be held in San Francisco, California, in accordance with the rules and regulations of the American Arbitration Association, and (ii) in the event that a non-party to this Agreement brings an arbitration against Schwab or the Fund relating to or arising out of this Agreement, then the parties agree to arbitrate in whichever arbitration forum such arbitration is brought. In the event that (i) a non-party initiates a judicial proceeding against Schwab or the Fund relating to, or arising out of, this Agreement, (ii) such

claim can not be compelled to arbitration, and (iii) Schwab or the Fund asserts a claim against the other party in connection with such proceeding, then the parties agree to submit to the jurisdiction of the court in that judicial proceeding.

(b) If arbitration is brought by one of the parties hereto, the number of arbitrators shall be three (3), and they will be selected in accordance with the rules and regulations of the FINRA or American Arbitration Association, as appropriate. The arbitrators shall be attorneys, or retired attorneys, specializing in securities law. Any award of the arbitrators will be limited to compensatory damages and will be conclusive and binding upon the parties. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 to the exclusion of state laws inconsistent therewith, and judgment upon the award may be entered in any court having jurisdiction.

(c) Each party shall bear its own expenses, including legal and accounting fees, if any, with respect to the arbitration. The arbitrator will designate the party to bear the expenses of the arbitration or the respective amounts of such expense to be borne by each party. Any costs, fees or taxes involved in enforcing the award shall be fully assessed against and paid by the party resisting enforcement of the award.

(d) Nothing in this Section 13 will prevent any party from resorting to judicial proceedings for injunctive relief to prevent serious and irreparable harm or injury to the party or to others.

14. Incorporation; Entire Agreement. All Schedules and Exhibits furnished pursuant to this Agreement, as it may be amended from time to time, are by this reference incorporated into and made a part of this Agreement. This Agreement constitutes the entire agreement between the parties as to the subject matter hereof and supersedes any and all agreements, representations and warranties, written or oral, regarding such subject matter made prior to the time at which this Agreement has been executed and delivered by the parties.

15. Amendment.

(a) This Agreement may be amended only by a writing executed by each party hereto that is to be bound by such amendment, except as provided in this Section 15.

(b) Exhibit A and Schedule II may each be amended unilaterally by Schwab on forty (40) days’ written notice to the Fund, unless the parties agree in writing to a shorter notice period for such amendment.

(c) Schedule I may be amended unilaterally by Schwab immediately upon notice to the Fund, except that the services fee required to be paid to Schwab by the Fund (“Fee Term”) may only be amended by a writing executed by each party hereto.

16. Termination.

(a) This Agreement may be terminated by any party upon prior written notice to the other parties. The termination of this Agreement with respect to a specific Fund will not cause the Agreement to terminate with respect to any other Fund.

(b) Upon the termination date, Schwab will no longer make the Fund’s Shares available for purchase by Schwab’s customers through AIS. In addition, the Fund, at Schwab’s request, shall promptly remove Schwab as broker/dealer of record and custodian for any Shares held in the Account(s). If Schwab continues to hold Shares on behalf of Schwab’s customers in the Account(s) after termination, the parties agree to be obligated under, and act in accordance with, the terms and conditions of this Agreement with respect to such Shares.

17. Assignment. This Agreement is not assignable by any party without the other parties’ prior written consent, and any attempted assignment in contravention hereof shall be null and void and not merely voidable; provided, however, that Schwab may, without the consent of BAP or the Fund, assign its rights and obligations under this Agreement to any Affiliate.

18. Force Majeure. Except to the extent otherwise expressly provided in this Agreement, no party assumes any responsibility under this Agreement, and will not be liable to the other, for any damage, loss of data, delay, or any other loss resulting from Acts of God, industrial action, lockouts, riots, acts of war, epidemics, governmental regulations, power outages, fire, communication line failures, or any interruptions caused directly by the local telephone companies, interference with the satellite signal transmission, earthquake, or other disasters and similar acts beyond its reasonable control.

19. Miscellaneous.

(a) Notices. All notices required by this Agreement to be in writing will be delivered personally, sent by overnight express delivery, or sent via email to the address listed in the Fund Information Sheets, if to the Fund or BAP, or the address identified by Schwab in writing, if to Schwab. Such notices will be deemed to have been received as of the earlier of actual physical receipt or three days after deposit with an overnight prepaid express delivery service.

(b) No Waiver. The failure of any party to insist upon exercising any right under this Agreement in any instance or instances shall not to any extent preclude such party from asserting or relying upon such right in any other instance.

(c) Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, and all of which together shall constitute one and the same instrument.

(d) Headings. The headings of the sections or other subdivisions of this Agreement are for convenience of reference only and shall not affect the meaning, construction, operation, or effect of the terms hereof or otherwise be considered in the interpretation of this Agreement.

(e) Severability. If any term of this Agreement is found invalid or unenforceable in any jurisdiction, it will remain enforceable for all other jurisdictions and all other provisions will remain in full force and effect, provided that the basic economic agreement is thereby maintained.

(f) Nonexclusivity. Each party acknowledges that the other parties may enter into agreements similar to this Agreement with other parties for the performance of services similar to those to be provided under this Agreement.

(g) Survival. Each of the representations, warranties, covenants and agreements in Sections 7, 8, 9, 11, 12 and 13 will survive the termination of this Agreement.

20. Massachusetts Business Trust. Schwab agrees that the obligations of Fund Company under this Agreement shall not be binding upon any of its Trustees, officers, employees, agents or nominees, or any shareholder of the Fund. Further, neither the authorization by Fund Company Trustee to enter into this Agreement, nor the execution and delivery of the Agreement by Fund Company officers, shall be deemed to have been made by any of them individually or to impose any liability on any of them personally. The obligations of Fund Company hereunder shall bind only the trust property of Fund Company (and only the property of the applicable Fund) as provided in its Agreement and Declaration of Trust.

IN WITNESS WHEREOF, this Agreement has been executed by a duly authorized representative of the parties hereto.


CHARLES SCHWAB & CO., INC.						BLACKSTONE ALTERNATIVE ALPHA FUND II

By:						By:
Name:						Name:
Title:						Title:

Date:						Date:

						BLACKSTONE ADVISORY PARTNERS L.P.

						By:
						Name:
						Title:

						Date:

SCHEDULE I

TO THE OPERATING AGREEMENT


Fund Name	Share Class		Services Fee (bps)		Effective date
Blackstone Alternative Alpha Fund II		Advisor Class II		25 BPs	[·]

SCHEDULE II

TO THE OPERATING AGREEMENT

1. Establishment Fee. The Establishment Fee for each Fund on AIS shall be $20,000. The Establishment Fee for each Fund is due and payable by BAP within 30 days upon receipt of the invoice setting forth the fee.

2. Service Fee.

(i) With respect to each Fund designated on Schedule I, BAP shall pay to Schwab, or cause the Fund to pay to Schwab, a service fee (the “Service Fee”) as Schwab’s compensation for providing administrative services to such Fund for a minimum of thirty six (36) months following the closing of the offer to new investment (the “Minimum Term”). The Service Fee shall be calculated quarterly by multiplying the average Monthly Value (defined below) of all Shares of a Fund held in the Account(s) for the quarter by the applicable Service Fee set forth on Schedule I. The Service Fee shall be billed quarterly in arrears and paid in accordance with Section (iv) below. If a Fund terminates this Agreement during the thirty six (36) months following the closing of the offer to new investments, the Service Fee for the remaining term shall be immediately due and payable by BAP or the Fund. The Service Fee shall be calculated by multiplying the Monthly Value on the date of termination of all Shares of the Fund held in the Account(s) by the applicable Service Fee and then multiplying the result by the number of months remaining in the thirty six (36) month term. In no event will the aggregate service fee paid to Schwab during the Minimum Term exceed one percent (1%) of the total value of shares of the fund held in accounts on the date of the closing of the fund to new investment. Following the Minimum Term, the Service Fee shall be calculated quarterly by multiplying the average Monthly Value (defined below) of all Shares of a Fund held in the Account(s) for the quarter by the applicable Service Fee set forth on Schedule I.

(ii) For purposes of this Schedule, the Monthly Value of the Shares of each Fund will be the net asset value reported by such Fund to Schwab under Section 4(d) of Exhibit A. No adjustments will be made to the net asset value to correct errors in the net asset value so reported for any month unless such error is corrected and the corrected net asset value per Share is reported to Schwab before 5 o’clock, p.m., San Francisco time, on the first Business Day after the month to which the error relates. A “Business Day” is any day the New York Stock Exchange is open for trading.

(iii) As soon as practicable after the end of the quarter, Schwab shall provide to each Fund an invoice for the amount of the Service Fee due for each Fund. In the calculation of such Service Fee, Schwab’s records shall govern unless an error can be shown.

(iv) The Service Fee is due and payable by BAP within thirty (30) days from the date of receipt of the invoice setting forth such Service Fee. Payment shall be made by wire transfer. Such wire transfer shall be separate from wire transfers of tender or redemption proceeds or distributions under this Agreement.

EXHIBIT A

TO THE OPERATING AGREEMENT

3. The Account.

(a) Schwab will act as custodian and broker/dealer of record for the Fund’s Shares held in each Schwab customer’s Account. The Fund shall register the Fund’s Shares in the name of each Schwab customer and shall designate Schwab as custodian and broker/dealer of record on such registration. Each Account shall be registered under:

For IRA Accounts:

Charles Schwab & Co., Inc. As Custodian For

Client Name IRA

2423 E. Lincoln Drive

Phoenix, AZ 85016

For all other accounts:

Charles Schwab & Co., Inc. FBO

Client Name

2423 E. Lincoln Drive

Phoenix, AZ 85016

(b) The parties agree that all the Fund’s Shares held in the Accounts shall not be subject to any right, charge, security interest, lien or other claim against Schwab in favor of the Fund.

(c) Schwab customer positions shall be kept open on the Fund’s books regardless of a lack of activity or small position size, except to the extent that Schwab takes specific action to close the Account, or to the extent the Fund’s reserves the right to close any such positions in its Fund Documents. In the latter case, the Fund shall give prior written notice to Schwab before closing any positions.

(d) The official transfer agent records of positions in the Account(s) shall be as determined by the Fund. Schwab and the Fund shall each designate liaison personnel to communicate, control and execute any required corrections or reconciliations with respect to any Account.

(e) The Fund shall arrange with its transfer agent for Schwab to have electronic access to the transfer agent’s system for account inquiry capability on all information maintained by the transfer agent with respect to each Account.

(f) The Fund shall notify Schwab promptly in writing if the Fund changes transfer agents.

2. Authorization to Receive Purchase Orders and Repurchase Requests. The Fund designates and authorizes Schwab to receive purchase orders (“Purchase Orders”) and repurchase requests (“Repurchase Requests”) in proper form from Schwab customers on the Fund’s behalf in accordance with the procedures described in the Offering Materials and the Fund’s filings on Schedule TO and the related exhibits under the Securities Exchange Act of 1934, as amended (the “Tender Offer Documentation”). Schwab will deliver Purchase Orders it has received to the Fund, and any Purchase Order received and accepted by the Fund will receive the Share price next computed by the Fund after the time at which the Schwab customer Order is received in good form from Schwab. The Fund typically issues Shares on a monthly basis, and the net asset value applicable to a purchase of Shares generally will be available within 30 days after the date on which Shares are issued (the “Effective Date”); at that time, the number of Shares based on that net asset value and each Shareholder’s subscription amount will be determined and credited to the Shareholder’s account. Schwab may designate and authorize such intermediaries as it deems necessary, appropriate or desirable (“Sub-Designees”), to receive Orders from Schwab customers on the Fund’s behalf for purposes of such rule, so that any such Schwab customer will receive the share price next computed by the Fund after the time at which such Schwab customer places its Order with a Sub-Designee and the Sub-Designee delivers that Order to the Fund. In connection with this Section 2, the Fund represents and warrants to Schwab that all necessary corporate, legal and other actions have been, and in the future will be, taken to authorize Schwab and any Sub-Designee to receive Purchase Orders and Repurchase Requests from Schwab customers on behalf of the Fund for purposes of such rule by each Fund’s board of directors, board of trustees or similar authorized person, as the case may be. The parties acknowledge and agree that a Purchase Order is not in “good form” unless the Purchase Order and all required documentation is complete and received by Schwab and delivered to the Fund‘s distributor not later than three Business Days before the Effective Date, or such other date as may be specified in the Fund Documents from time to time (the “Purchase Deadline”). A “Business Day” is any day the New York Stock Exchange is open for trading, and any other day so designated by the Board of Trustees of the Fund in its sole discretion. The parties acknowledge and agree that a Repurchase Request is not received by Schwab in “good form” unless the Redemption Request and all required documentation is complete and received by Schwab and delivered to the Fund by the applicable repurchase order expiration date specified to Schwab by the Fund in writing (the “Expiration Date”).

3. Processing Transactions in the Accounts. This Section 3 applies to transmission of transaction and registration data of Fund transactions. All transactions between the Fund and any Schwab customer will be processed by Schwab’s AI Custody Services team.

(a) Purchase Orders and Repurchase Requests. For each month, prior to the Purchase Deadline, Schwab shall transmit to the Fund all Purchase Orders placed by Schwab’s customers for Shares of the Fund during any such month. Prior to each Expiration Date, Schwab shall transmit to the Fund all Repurchase Requests submitted by Schwab’s customers for Shares of the Fund that were submitted to Schwab prior to the Expiration Date.

(b) Transmission of Orders.

(i) Schwab will forward, via electronic message, via overnight courier or via facsimile, all client purchase documents and other required Fund documents (collectively, the “Purchase Documents”) to the Fund (or its designee) on the appropriate date for acceptance into the Fund by the Purchase Deadline.

(ii) The Fund (or its designee) shall review and approve all Purchase Documents and promptly notify Schwab of each approval. If the Fund rejects a purchase after Schwab has wired the purchase price of the Order to the Fund (which rejection shall occur no later than seven (7) Business Days after the purchase price has been wired to the Fund), the Fund shall promptly return the purchase price by wire transfer to Schwab and Schwab will deposit such purchase price in the relevant Account(s).

(iii) Schwab will transmit the aggregate purchase price of all the purchase Orders for a given trade date to the Fund by wire transfer by the Purchase Deadline. The aggregate purchase price for all Orders must be received by the Fund via Fed wire.

(iv) The Fund shall send to Schwab the aggregate proceeds of all payments owed to Shareholders in connection with duly accepted Repurchase Requests for the Fund in accordance with the Fund Documents and the Tender Offer Documentation. Such tender proceeds will be sent by wire transfer. Wire transfers of tender or redemption proceeds shall be separate from wire transfers for other purposes. Once the Fund’s Transfer Agent becomes an active member of NSCC AIP and once Schwab begins processing transactions via the NSCC AIP service, the Fund shall use the NSCC AIP settlement process to deliver the proceeds of all tender or redemption Orders to Schwab.

(v) The cost of any wire transfer is the responsibility of the party sending the wire. The interest cost associated with any delayed wire is the responsibility of the party sending the wire and will be charged at the Federal Funds rate.

(vi) Schwab and the Fund will settle trades resulting from tender or redemption Orders in accordance with the terms of the Tender Order Documentation. For purposes of determining the length of settlement, Fund shall treat investors that hold Shares of the Fund through the Accounts the same as it treats investors that hold Fund Shares directly with the Fund.

(c) Fund’s Pricing of Purchase Orders and Repurchase Requests. The net asset value at which Purchase Orders shall be effected generally will be available within 30 days after the effective date of the Share purchase. The net asset value at which Repurchase Requests accepted by the Fund shall be effected shall be as described in the applicable Tender Offer Documentation, which will be provided to Schwab by the Fund. If the required documentation is not received by the Fund in good form by the expiration date specified in the applicable Tender Offer Documentation, the Repurchase Request will be rejected by the Fund.

(d) Account Reconciliation Requirements.

(i) Schwab shall verify with the Fund Purchase Orders placed for the Account of each Schwab customer that invests in the Fund. Any adjustments to the pricing or the number of Shares of the Fund held by a Schwab customer must be reflected in the Account of such customer. Any trade correction activity must be shown with its corresponding trade correction dates.

(ii) The Fund shall provide to Schwab the account balances of each Schwab customer that invests in the Fund before the last Business Day of each month.

(iii) The parties agree promptly to notify each other and correct any error with respect to the Accounts upon discovery. If an error is not corrected by the day following discovery, each party agrees to use reasonable commercial efforts to prevent this from hindering any routine daily operational activity.

(e) Dividends, Distributions and Redemptions.

(i) The Fund shall provide all distribution information to Schwab in a timely manner to enable Schwab to pay distributions to Schwab’s Account holders on or as close to payable date as practicable. The Fund shall provide Schwab with (A) the record date and payable date as soon as practicable after they are announced, but no later than three (3) Business Days prior to record date, (B) the record date Share balance in each Schwab’s customer Account and the distribution rate per Share on the first Business Day after record date, and (C) the repurchase price per Share as set forth in the applicable Tender Offer Documentation. Other distribution information required by Schwab from time to time for payment of distributions to Schwab’s Account holders shall be provided by the Fund on such dates as are agreed upon between Schwab and Fund, but no later than the payable date.

(ii) On the payable date, the Fund shall wire to Schwab the cash distributions, if any, to be paid to Schwab’s Account holders.

(iii) If the Fund holds back a portion of the redemption or tender proceeds, the Fund shall inform Schwab of the expected date by which the final payment will be issued in accordance with the Tender Offer Documentation.

(f) Transfer of Shares. Neither the Fund nor Schwab may effect a transfer of the Fund’s Shares with respect to an Account without first (i) obtaining the Account owner’s written authorization for the transfer, which shall identify the Shares subject to the transfer and the entity to whom such Shares shall be transferred; and (ii) providing written notice to the other party that the effecting party has received the Account owner’s written authorization to effect such transfer. The Fund acknowledges and agrees that Schwab will require a copy of any such written authorization prior to any transfer of Shares in a customer Account, and the Fund will not transfer any Shares until Schwab confirms receipt of such written authorization. In addition to the foregoing, each party agrees to comply with the transfer rules set forth in the Fund Documents when affecting any such transfer and the Fund agrees that it shall be solely responsible for determining whether the transferee meets all applicable qualification requirements necessary to invest in the Fund. Nothing in this section shall limit the Fund’s obligation to remove Schwab as broker-dealer of record and custodian for any Fund Shares held in the Account(s) at Schwab’s request.

4. General.

(a) Record Maintenance.

(i) Schwab will maintain records for each of its customers that hold the Fund’s Shares through the Account(s), which records include:

(1) Number of Shares;

(2) Date, price and amount of purchases and redemptions (including dividend reinvestments) and date and amounts of dividends paid for at least the current year to date;

(3) Name and address of each of its customers, including zip codes and social security numbers or taxpayer identification numbers;

(4) Records of distributions and dividend payments;

(5) Any transfers of Shares; and

(6) Overall control records.

(ii) Schwab will post transactions in the Fund’s Shares to its customers’ Accounts.

(b) Accountholder Communication.

(i) Except as otherwise specifically set forth in this Section 4(b), the Fund is solely responsible for and shall arrange for the timely distribution of all Fund related materials to Fund investors as required by law. The Fund shall distribute the following Fund materials through Schwab’s mailing agent to Schwab’s customers who are investors in the Fund:

(1) All Fund proxy or information statements; and

(2) All annual, semi-annual, quarterly and other periodic reports (including Form 8-Ks, if applicable) required by law to be delivered to Fund investors.

(ii) Schwab shall arrange for the distribution of the following materials to all of Schwab’s customers who are investors in the Fund based on the information provided by, or upon receipt of such materials from, the Fund:

(1) Trade confirmations;

(2) Tax reporting information; and

(3) Shareholder monthly statements.

(iii) Schwab will mail Account statements to its customers on a monthly basis (or no less frequently than quarterly for Accounts in which there has been no activity in a particular month) showing, among other things, the number of Shares of the Fund owned by such customer and the net asset value of such Shares as of a recent date.

(iv) Schwab will respond to customer inquiries regarding, among other things, Share prices, account balances, dividend amounts and dividend payment dates based on the information provided to Schwab by the Fund.

(c) Mergers, Splits and Reorganization Activities. Upon written notice from the Fund, Schwab shall effect mergers, splits and other reorganization activities of the Fund for Schwab’s customers. If the resulting security from the merger, split, or other reorganization is unable to be serviced and held in custody by Schwab, the investor shall have the right to redeem the resulting security with the Fund.

(d) Pricing information. At least once per month, the Fund shall provide to Schwab the Fund’s closing net asset value for the prior month and/or notification of no price for that month. The Fund shall provide such information on a best efforts basis taking into consideration any extraordinary circumstances arising at the Fund (e.g. natural disasters, etc.).

(e) Price, Distribution Rate and Other Errors.

(i) The Fund shall promptly notify Schwab in the event adjustments are required to correct any error in the computation of the net asset value or offering price of the Fund’s Shares, in the distribution rate for the Fund’s Shares, or otherwise. Notification may be made orally, but must be confirmed promptly in writing.

(ii) Schwab and the Fund shall agree promptly and in good faith to a resolution of the error, and no adjustment for the error shall be taken in an Account until such agreement is reached. Following resolution, upon request by Schwab, the Fund shall provide Schwab with written notification of the resolution. The letter shall be written on the Fund’s letterhead and shall state for each day on which an error occurred the incorrect price or rate, the correct price or rate, and the reason for the price or rate change. The Fund agrees that Schwab may send this writing, or derivation thereof, to Schwab’s customers whose Accounts are affected by the price or rate change.

(iii) If a Schwab customer that holds Shares of the Fund has received cash in excess of what he or she is entitled, Schwab will, when requested by the Fund, at Schwab’s sole discretion and as permitted by law, debit the customer’s Account in the amount of such excess, but only to the extent of any cash in the Account, and repay it to the Fund. In no event shall Schwab be liable to the Fund for any such amounts, unless the error was caused by Schwab’s breach of this Agreement or its willful misconduct or negligence in the performance of, or failure to perform, its obligations under this Agreement. If the Schwab customer that holds Shares of the Fund has received such excess cash as a result of the Fund’s pricing error and such pricing error occurred greater than sixty (60) days prior to the Fund providing notice to Schwab of such error, the Fund agrees that the Fund will reimburse Schwab for reasonable costs associated with Schwab’s adjustment of Accounts to correct the pricing error.

(iv) If an adjustment is necessary to correct an error which has caused Schwab’s customers to receive dollars or Shares less than that to which they are entitled, the Fund shall, as appropriate and as mutually agreed by the parties pursuant to Section 5(e)(ii) above, make all necessary adjustments to the number of Share owned in the Account and/or distribute to Schwab any and all amounts of the underpayment. Schwab will credit the appropriate amount of such Shares or payment to each Schwab customer that holds Shares of the Fund.

(v) For purposes of making adjustments, including the collection of overpayments, the Fund shall treat investors that hold the Fund’s Shares through Accounts with Schwab no less favorably than it treats investors that do not hold the Fund’s Shares through Accounts with Schwab.

(f) Redemptions in Kind. If the Fund reserves the right to redeem in kind, and an in-kind redemption results in a security that Schwab is not able to hold in custody or service for its customers, Schwab will work with its customers to ensure the security is delivered to a third-party custodian for the benefit of the customers. The Fund shall cooperate with Schwab and its investors in effecting such delivery.

(g) New Processing Systems. The Fund agrees to reasonably cooperate with Schwab as Schwab develops and seeks to implement new processing systems for AIS.

(h) Transfer Requirements and Tender Process. The Fund agrees to provide Schwab with written notice of any change to the Fund’s transfer requirements or tender/redemption process set forth in the Fund Documents at least ten (10) days prior to the effective date of the change.

EXHIBIT B

TO THE OPERATING AGREEMENT

Charles Schwab & Company Inc.

CERTIFICATION AS TO ANTI-MONEY LAUNDERING POLICIES

Charles Schwab & Co., Inc. (“Schwab”) is a securities broker-dealer registered with and subject to regulation by the U.S. Securities and Exchange Commission (SEC). Schwab is also a member of various self-regulatory organizations, including the Financial Industry Regulatory Authority (FINRA).

As a registered broker-dealer, Schwab is subject to various U.S. anti-money laundering laws and regulations, including applicable provisions of the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq., as amended by Title III of the USA PATRIOT Act¹, and the regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). In addition, as a member of the FINRA, Schwab is subject to FINRA Rule 3310, which require member firms to establish anti-money laundering programs as required by Section 352 of the USA PATRIOT Act.

As part of its anti-money laundering (“AML”) program, Schwab has policies, procedures and internal controls in place reasonably designed to comply with all applicable anti-money laundering laws and regulations. Schwab’s AML program has been approved by its Board of Directors, and Schwab has appointed an AML compliance officer who is responsible for overseeing the implementation and operation of its AML program. Schwab has also established appropriate training programs for its employees and subjects its AML program to periodic independent review.

Schwab’s AML program contains policies and procedures governing, among other things, the following general areas:

•

Customer identification and verification: Section 326 of the USA PATRIOT Act requires registered broker-dealers to establish written Customer Identification Programs (“CIPs”). CIPs must include reasonable policies and procedures for identifying and verifying customers opening new accounts and checking such customers against certain lists of known or suspected terrorists or terrorist organizations provided by the federal government. Schwab has established a CIP and has implemented it in accordance with the requirements of Section 326 and the compliance schedule established therein. Schwab conducts Customer Due Diligence (and, where appropriate, Enhanced Customer Due Diligence) on its clients and, where applicable, the beneficial owners of its clients, and will conduct such verification and due diligence of any new clients, where applicable.

•

Politically Exposed Persons: To the extent that Schwab knows or has a reason to believe that

¹	The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (hereinafter, “the PATRIOT Act”).

a client or beneficial owner is a current or former Politically Exposed Person(s) (“PEP”), an immediate family member of a PEP, or a person who is widely and publicly known (or is actually known to Schwab) to maintain a close personal relationship with any such individual, or a corporation, business or other entity that has been formed by or for the benefit of such individual, Schwab has conducted appropriate due diligence.

•

Monitoring account activity: Schwab has established procedures for monitoring activity in customer accounts in order to detect and report suspicious activity.

•

Filing Suspicious Activity Reports: Under the Bank Secrecy Act, as amended by Section 356 of the USA PATRIOT Act, Schwab is required to file Suspicious Activity Reports (“SARs”) with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Schwab has established policies and procedures designed to comply with these requirements.

•

Foreign shell banks: Schwab has established policies and procedures reasonably designed to prohibit correspondent accounts from being opened or maintained in the U.S. by or on behalf of foreign shell banks, as required by Section 313 of the USA PATRIOT Act.

•

Foreign financial institutions and private banking accounts: Section 312 of the USA PATRIOT Act requires registered broker-dealers to establish special, and where appropriate enhanced, due diligence programs for (i) correspondent accounts maintained by foreign financial institutions and (ii) private banking accounts maintained for or on behalf of non-U.S. individuals. Schwab’s AML program considers the various risks associated with such accounts and has policies and procedures designed to comply with the requirements Section 312.

•

OFAC: Schwab’s AML program includes policies and procedures designed to comply with the various regulations issued by OFAC, including prohibitions on opening or maintaining accounts for persons named on OFAC’s list of Specially Designated Nationals, for residents of countries on any OFAC prohibited country list, or for any citizen of Cuba, unless OFAC’s policies provide for an exception.

EX-99.(H)(8) 3 d930056dex99h8.htm FORM OF DEALER AGREEMENT Form of Dealer Agreement

Exhibit(h)(8)

DEALER AGREEMENT

Blackstone Advisory Partners L.P. (“Distributor”) serves as a principal underwriter for Blackstone Alternative Alpha Fund II (the “Fund”), a closed-end investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”), pursuant to a distribution agreement with the Fund. Hightower Advisors, LLC (“Dealer”) and Distributor hereby agree that Dealer will participate in the distribution of shares of the Fund (“Shares”), subject to the terms of this Agreement (“Agreement”), dated as of [·].

SECTION 1. LICENSING

a. Distributor and Dealer each represent and warrant to each other that: (i) it is a broker-dealer registered with the Securities and Exchange Commission (“SEC”); (ii) it is a member in good standing of the Financial Industry Regulatory Authority (“FINRA”); (iii) it is licensed by the appropriate regulatory agency of each state or other jurisdiction in which it will offer and sell Shares of the Fund; and (iv) each of its principals, directors, officers, employees, and agents who will participate or otherwise be involved in the offer or sale of the Shares or the performance of its duties and activities under this Agreement is either appropriately licensed or exempt from such licensing requirements by the appropriate regulatory agency of each state or other jurisdiction in which it will offer and sell Shares.

b. Distributor and Dealer agree that: (i) termination or suspension of its registration with the SEC; (ii) termination or suspension of its membership with FINRA; or (iii) termination or suspension of its license to do business by any state or other jurisdiction in which the Fund is offered shall cause the termination of this Agreement. Each party further agrees to notify the other party promptly in writing of any such action or event.

c. Distributor and Dealer agree that this Agreement is in all respects subject to the Conduct Rules of FINRA and such Conduct Rules shall control any provision to the contrary in this Agreement. Without limiting the generality of the foregoing, Distributor and Dealer acknowledge that, subject to the indemnification described in Section 9 of this Agreement, neither party has responsibility for the manner of the other party’s performance of, or for acts or omissions in connection with, the duties and activities performed by the other party under this Agreement.

d. Distributor and Dealer agree to be bound by, and to comply with, all applicable federal and state laws and all rules and regulations promulgated thereunder generally affecting the sale or distribution of shares of registered investment companies, including anti-money laundering laws and regulations and applicable guidance issued by the Department of the Treasury, the SEC and FINRA.

SECTION 2. ORDERS

a. Dealer agrees to offer and sell Shares only at the regular public offering price applicable to such Shares and in effect at the time of each transaction. The procedures relating to all orders and the handling of each order (including the manner of computing the net asset value of Shares and the effective time of orders received from Dealer) are subject to: (i) the terms of the then-current prospectus and Statement of Additional Information (in either case, including any supplements, stickers or amendments thereto from time to time) relating to the Fund, as filed with the SEC (collectively, the “Prospectus”); and (ii) the subscription documents for the Fund, as supplemented or amended from time to time; and to the extent that the Prospectus contains provisions that are inconsistent with such terms in this Agreement or any other document, the terms of the Prospectus shall be controlling.

b. Dealer agrees that it will sell Shares only to its customers (“Clients”) reasonably believed to qualify as “accredited investors” as that term is defined by Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”) (such Clients, “Eligible Investors”).

c. In all offers and sales of the Shares to Eligible Investors, Dealer will not act as broker or agent for, or employee of, Distributor or the Fund and Dealer will not represent to any third party that Dealer has such authority or is acting in such capacity.

d. All orders for the purchase and sale of Shares are subject to acceptance by Distributor in its sole discretion and become effective upon written confirmation by Distributor. Distributor reserves the right not to accept any specific order for the purchase or sale of Shares. Notwithstanding the foregoing, the Distributor hereby agrees that it will not unreasonably reject or delay accepting an order submitted by Dealer if the Client otherwise meets the eligibility criteria set forth in the Prospectus, and provided further, that upon any such rejection the Distributor shall promptly advise Dealer of such rejection.

e. Dealer agrees that payment for orders from Dealer Shareholders (defined in 4(b) below) for the purchase of Shares will be made as described in the Prospectus or as otherwise agreed by Distributor and Dealer herein and from time to time. On the date on which payment for Shares is to be received, Dealer will remit to an account designated by Distributor the purchase order amount due the Fund with respect to the issuance of Shares as determined by the Distributor in accordance with the terms of the Prospectus. If payment for any purchase order is not so received, Distributor may cancel the sale without notice.

f. It is understood that the then-current offering price for Shares generally will not be known until approximately 30 days after the effective date of the Share purchase in accordance with the terms of the Prospectus, or as is otherwise disclosed in the Prospectus from time to time. The parties each acknowledge and agree that purchase orders for Shares will generally be made and accepted for a fixed dollar amount, with the number of Shares to be credited to an investor’s account determined upon subsequent finalization of the then-current public offering price of Shares.

g. Distributor reserves the right at any time to suspend the sale of Shares or to withdraw or limit the offering of Shares, and, if Distributor exercises this right, Distributor shall provide to Dealer prompt written notice of such exercise.

h. Dealer acknowledges that the Fund may (but will not necessarily) make tender offers for the repurchase of Shares from time to time as described in the Prospectus. Dealer acknowledges that such tender offers represent the only expected liquidity opportunity for holders of Shares.

i. Dealer agrees that it will not engage a sub-selling agent to assist it in the offer or sale of Shares without the prior written consent of the Distributor. Any approved sub-selling agent shall be required to enter into an agreement with the Dealer which agreement shall be subject to Distributor’s approval.

SECTION 3. DUTIES OF DEALER

a. Dealer agrees to deliver to each of its Clients making purchases, prior to the time of sale, a copy of the Fund’s then current Prospectus, a subscription application (the “Subscription Application”), and a fee disclosure statement.

b. Dealer agrees to record on the order the date on which the order for the purchase or sale of Shares was received by Dealer, and to forward promptly such orders to Distributor in time for processing at the public offering price next determined after receipt of such orders by Dealer, in each case as described in the Prospectus.

c. Dealer agrees not to withhold intentionally the placing of orders by its clients for Shares with Distributor so as to profit itself as a result of such inaction.

d. Dealer agrees to maintain records of all purchases and sales of Shares made through Dealer and upon request from a regulatory authority or as required under applicable law to furnish such regulatory authority with copies of such records.

e. Dealer agrees that it will not make any conditional orders for the purchase or repurchase of Shares and acknowledges that Distributor will not accept conditional orders for Shares.

f. Except as otherwise agreed by Dealer and Distributor, the parties agree that all out-of-pocket expenses incurred by such party in connection with its activities under this Agreement will be borne by such party.

g. Dealer agrees that it will assist with the following Dealer Shareholder (as defined in Section 4(b)) services on an ongoing basis:

(i)

providing administrative, operational and infrastructural support for the selling of Shares and settlement of Fund transactions with Dealer Shareholders, as necessary;

(ii)

handling inquiries regarding the Fund from Dealer Shareholders who own Shares, including but not limited to, questions concerning such Dealer Shareholders’ investments in the Fund, repurchase offers, reports and tax information provided by the Fund;

(iii)

assisting in the enhancement of relations and communications between Dealer Shareholders and the Fund;

(iv)

assisting in the establishment and maintenance of Dealer Shareholders’ accounts with the Fund, including notifying Distributor of any changes in the account information of a Dealer Shareholder;

(v)

assisting in receiving and forwarding purchase and repurchase requests and payments to and from Dealer Shareholders; and

(vi)

providing such other similar services as Distributor may reasonably request to the extent Dealer is permitted to do so under applicable statutes, rules and regulations.

h. If Distributor believes that a Dealer Shareholder’s contact information has changed, Distributor may request such information from Dealer but has no obligation to do so. Dealer agrees that if Dealer or a Dealer Shareholder does not provide to Distributor any changes in Dealer Shareholder account information, or if it or a Dealer Shareholder fails to provide any backup documentation that Distributor reasonably requests to verify changes to a Dealer Shareholder’s account information, then Distributor will continue to rely upon the account information without giving effect to any changes and Distributor will have no liability whatsoever for continuing to rely upon such information.

SECTION 4. DEALER COMPENSATION

a. Sales Charges/Dealer Concessions. There shall be no sales loads on any Dealer Shareholder investments.

b. Distribution and Servicing Fees. Dealer shall also be entitled to receive from Distributor distribution and servicing fees at the annual rates listed in Exhibit C for the aggregate value of Shares per class held by Dealer Shareholders. These fees will be calculated monthly and paid quarterly based on the

value of class of Shares at the end of each month in a calendar quarter, with payment occurring within 30 days after the end of each calendar quarter. It is expected that this distribution and servicing fee will be comprised of the listed breakdown distribution fees and servicing fee paid by the Fund to the Distributor as listed in Exhibit C. Notwithstanding the foregoing, Distributor shall have no obligation to pay any compensation described in the preceding sentence until Distributor receives the related compensation from the Fund in the form of an asset-based distribution and shareholder servicing fee (the “Related Compensation”), and Distributor’s obligation to Dealer for such payments is limited solely to the Related Compensation. For purposes of this Agreement, a “Dealer Shareholder” shall include any person or entity introduced by Dealer to the Fund during the term of this Agreement, which invests in any class of the Fund. Distributor shall pay any compensation described in this Section 4(b) to Dealer in respect of the class of Shares held by Dealer Shareholders for as long as Dealer Shareholders hold those Shares through an account maintained by the Dealer Shareholder at the Dealer, subject to the limitations set forth in Section 4(e).

c. Suspension/Elimination of Compensation. Dealer acknowledges and agrees that the Fund may, upon thirty (30) days’ prior written notice to the Distributor, suspend or eliminate the payment of any compensation or other dealer compensation, by amendment, sticker, or supplement to the Prospectus for the Fund, except that the Fund may, without prior notice to Distributor, suspend or eliminate the payment of any compensation or other dealer compensation, by amendment, sticker, or supplement to the Prospectus for the Fund in cases where such suspension or elimination is required (a) pursuant to the dictates of any relevant regulatory agency with jurisdiction over the Fund, the Distributor, or the Dealer or (b) otherwise by operation of law. Distributor agrees to notify Dealer promptly upon receiving notice of any suspension or elimination of the payment of any compensation to the Distributor or Dealer by the Fund.

d. FINRA Conduct Rules. In accordance with applicable FINRA Conduct Rules, the parties understand and agree that, pursuant to limitations imposed by FINRA, no payments will be made to Dealer under this Agreement to the extent payments made to Dealer and any other FINRA member in respect of distribution or sales services exceed, in the aggregate, (a) with respect to the front-end sales charge (as defined under FINRA Rule 2830) in connection with the sale of Shares pursuant to this Agreement, 3% of the total proceeds received by the Fund in respect of sales of Shares registered under the Fund’s current registration statement on Form N-2 and (b) with respect to any asset-based, front end, and deferred sales charge (as defined under FINRA Rule 2830), 6.25% of the total proceeds received by the Fund in respect of sales of Shares registered under the Fund’s current registration statement on Form N-2; provided, however, that Distributor agrees that it will not take any action that would cause the Dealer to receive, in respect of any Dealer Shareholder, less than the Maximum Compensation in respect of such investor. For purposes hereof, “Maximum Compensation” means, in respect of any Dealer Shareholder, the cumulative amount of asset-based, front end and deferred distribution fees payable hereunder for so long as the Client remains an investor in the Fund, not to exceed in the aggregate the product of 6.25% multiplied by the aggregate offering price of the Shares received by the Fund in respect of such investor, in accordance with FINRA Rule 2830.

e. The Distributor agrees that it will monitor on an ongoing basis the payment of underwriting compensation, if any, set forth in the Prospectus by the Distributor, the Fund and their respective affiliates in connection with the distribution of Shares and the rendering to investors in the Fund of ongoing investor and account maintenance services and will report thereon to the Dealer no less frequently than quarterly. As used herein, “underwriting compensation” means all amounts constituting sales charges under Rule 2830(d) of the FINRA Conduct Rules (other than any front-end sales charges charged in connection with the sale of Shares).

f. Except as noted in this agreement, no portion of the compensation paid to the Dealer by Distributor hereunder shall be remitted or otherwise paid to any third party by the Dealer without the prior written consent of Distributor, which consent may be withheld in Distributor’s sole discretion. Except as

noted in this agreement, Dealer will not accept any direct or indirect compensation from any person or entity other than as set forth in Section 4 hereof in connection with the offer or sale of Shares without the prior written agreement of Distributor.

SECTION 5. REPURCHASES

The Prospectus for the Fund describes the provisions whereby the Fund is expected to be authorized to repurchase Shares held by its shareholders. The Distributor hereby agrees to notify Dealer of the receipt of any repurchase notice from a client of the Dealer upon its receipt by Distributor.

SECTION 6. PROVISION OF MATERIALS AND FUND INFORMATION

a. Dealer agrees that neither it nor any of its affiliates or their principals, directors, officers or employees, is authorized to give any information or make any representations concerning Shares, the Fund, Distributor or Blackstone Alternative Asset Management L.P. (“BAAM”) except as set forth in this Section 6.

b. Offering Materials. Distributor acknowledges and agrees that Dealer may deliver Offering Materials (as defined below) to Clients and/or otherwise use such materials with Clients for marketing or other purposes. At its expense, Distributor will furnish Dealer with reasonable quantities of the Prospectus, the Subscription Application, materials relating to any tender offer, periodic reports to Fund shareholders and marketing and other materials Distributor has prepared related to the Fund (collectively, “Offering Materials”), and if any of the foregoing documents are amended or supplemented, Distributor will promptly notify Dealer in writing and provide Dealer with reasonable quantities of such amended documents or supplements at no cost to the Dealer.

c. Dealer-Supplied Fund Materials. Distributor acknowledges and agrees that Dealer may deliver Dealer-Supplied Fund Materials (as defined below) to Clients and/or otherwise use such materials with Clients for marketing or other purposes. As used herein, the term “Dealer-Supplied Fund Materials” shall include any materials prepared by Dealer or its affiliates that (i) relate to the Fund, (ii) are not Research Reports (as defined in Section 6(d)) and (iii) either only contain the name of the Fund or have been approved in writing by Distributor. For the avoidance of doubt, any description of the Fund contained in Dealer-Supplied Fund Materials beyond just the name of the Fund must be approved in writing by Distributor in advance of its use.

d. Research Reports. Distributor acknowledges that Dealer may prepare research reports relating to the Fund that are not to be used for marketing purposes (“Research Reports”). Distributor hereby authorizes Dealer to use the name of the Fund, Distributor and BAAM in Research Reports.

e. Use of Name. Except as expressly provided herein, nothing herein shall be deemed to constitute a waiver by Distributor of any consent that would otherwise be required under applicable law prior to the use by Dealer of the name or identifying marks of the Fund, Distributor, BAAM or “Blackstone” (or any combination or derivation thereof). Notwithstanding the foregoing, this Section 6(e) shall not prohibit or limit Dealer or its affiliates from making statements required by law or regulation, as determined by Dealer (or such affiliate) in its sole discretion. Distributor will not use any company name, trade name, or service mark or logo of Dealer and/or its affiliates without prior written consent of such Dealer and/or its affiliate.

SECTION 7. REGISTRATION OF SHARES

a. Distributor will be responsible for the registration, qualification or exemption of the Shares under all applicable laws, rules or regulations in all jurisdictions or states in which Shares shall be offered and/or sold.

b. Distributor acknowledges that Dealer intends to offer the Shares in each state within the United States. Distributor shall furnish Dealer, upon request, information identifying the states or jurisdictions in which it is believed that all necessary notice, registration or exemptive filings for Shares have been made under applicable securities laws such that offers and sales of Shares may be made in such states or jurisdictions. If the Shares may not be offered in any particular jurisdiction in the United States, Distributor will promptly so notify Dealer.

c. Dealer agrees not to transact orders for Shares in jurisdictions in which it has been informed in writing by Distributor that Shares may not be sold or in which it and its personnel are not authorized to sell Shares.

SECTION 8. REPRESENTATIONS AND WARRANTIES

a. In addition to the representations and warranties found elsewhere in this Agreement Distributor represents and warrants that:

(i)

It is a limited partnership duly organized and existing and in good standing under the laws of Delaware and is duly registered or exempt from registration as a broker-dealer in all states and jurisdictions in which it provides services as a non-exclusive distributor for the Fund.

(ii)

It is empowered under applicable laws and by Distributor’s organizational documents to enter into this Agreement and perform all activities and services of Distributor provided for herein and that there are no impediments, prior or existing, or regulatory, self-regulatory, administrative, civil or criminal matters affecting Distributor’s ability to perform under this Agreement.

(iii)

The execution, delivery, and performance of this Agreement; the incurrence of the obligations set forth herein; and the consummation of the transactions contemplated herein and in the Prospectus, including the issuance and sale of the Shares, will not constitute a breach of, or default under, any agreement or instrument by which Distributor is bound, or to which any of its assets are subject, or any order, rule, or regulation applicable to it of any court, governmental body, or administrative agency having jurisdiction over it.

(iv)

As of the date hereof and at any time during the term of this Agreement, the Offering Materials do not and will not contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading. However, Distributor makes no representation or warranty whatsoever, with respect to any written information about Dealer that is furnished by Dealer for inclusion in the Offering Materials (“Dealer Supplied Information”) or information omitted from Offering Materials in reliance upon or in conformity with Dealer Supplied Information.

(v)

There is not pending or, to the best knowledge of Distributor, threatened any action, suit, or proceeding before or by an court or other governmental body to which Distributor is a party, or to which any of its assets is subject, which might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), business, or prospects of Distributor. Distributor has not received any notice of an investigation regarding any actual or alleged non-compliance by Distributor with applicable laws, rules, or regulations.

(vi)

The Shares are (or will be, before being authorized for sale) currently registered, qualified, or exempt from registration in each State of the United States, and Distributor will promptly notify Dealer in writing if any such registration, qualification, or exemption ceases to be effective.

(vii)

It shall notify Dealer, promptly in writing, of any claim or complaint or any enforcement action or other proceeding with respect to Shares offered hereunder against the Fund, the Distributor, or the Distributor’s principals, affiliates, officers, directors, employees or agents, or any person who controls Distributor, within the meaning of Section 15 of the Securities Act.

(viii)

If any of the representations set forth in this Section 8 or Section 10 at any time ceases to be true, Distributor shall promptly notify Dealer of this fact in writing. Such notice shall be provided in accordance with Section 19.

b. In addition to the representations and warranties found elsewhere in this Agreement, Dealer represents and warrants that:

(i) It is duly organized and existing and in good standing under the laws of the state, commonwealth or other jurisdiction in which Dealer is organized.

(ii) It is empowered under applicable laws and by Dealer’s organizational documents to enter into this Agreement and perform all activities and services of the Dealer provided for herein and that there are no impediments, prior or existing, or regulatory, self-regulatory, administrative, civil or criminal matters affecting Dealer’s ability to perform under this Agreement.

(iii) The execution, delivery, and performance of this Agreement; the incurrence of the obligations set forth herein; and the consummation of the transactions contemplated herein and in the Prospectus, including the issuance and sale of the Shares, will not constitute a breach of, or default under, any agreement or instrument by which Dealer is bound, or to which any of its assets are subject, or any order, rule, or regulation applicable to it of any court, governmental body, or administrative agency having jurisdiction over it.

(iv) All requisite actions have been taken to authorize Dealer to enter into and perform this Agreement.

(v) All litigation and regulatory actions involving Dealer and its affiliates that are material to Dealer’s provision of the services described herein have been disclosed to Distributor.

(vi) It shall notify Distributor, promptly in writing, of any written claim or complaint or any enforcement action or other proceeding with respect to Shares offered hereunder against Dealer or its principals, affiliates, officers, directors, employees or agents, or any person who controls Dealer, within the meaning of Section 15 of the Securities Act.

(vii) As of the date hereof and at any time during the term of this Agreement, Dealer shall take reasonable steps to ensure that all Dealer Supplied Information and Dealer-Supplied Fund Information do not and will not contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading.

(ix)

If any of the representations set forth in this Section 8 or Section 10 at any time ceases to be true, Dealer shall promptly notify Distributor in writing of this fact. Such notice shall be provided in accordance with Section 19.

SECTION 9. INDEMNIFICATION

a. The Distributor will indemnify, hold harmless, and defend the Dealer, its affiliates and their respective officers, directors, partners, members, shareholders, employees and agents (the “Covered Persons”) from and against any losses, claims, damages or liabilities (or actions in respect thereof) (“Covered Claims”) arising directly out of or relating to (i) any untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in any of the Offering Materials (other than untrue statements or alleged untrue statements in or omissions or alleged omissions from information relating to a Covered Person furnished in writing by or on behalf of such Covered Person for use in materials furnished or made available to a Client, (ii) any material breach by the Distributor of any representation, warranty or agreement contained in this Agreement, or (iii) any willful misconduct, fraud or gross negligence by the Distributor in the performance of, or failure to perform, its obligations under this Agreement; provided that in the case of any of (i)-(iii), the Distributor will not be liable to and will not have any indemnification obligation to any Covered Person for the portion of any Covered Claim that is the result of any Covered Person’s material breach of this Agreement, bad faith, fraud, willful misconduct or gross negligence (the “Disabling Conduct”); provided further that any amounts for reimbursement of expenses advanced to a Covered Person resulting from this Section 9(a) will be repaid to the Distributor in the event that such expenses resulted from Disabling Conduct.

b. Dealer will indemnify, hold harmless, and defend the Fund, the Distributor, their affiliates and their respective officers, directors, partners, members, shareholders, employees and agents (the “Blackstone Covered Persons”) from and against any losses, claims, damages or liabilities (or actions in respect thereof) (“Blackstone Covered Claims”) arising directly out of or relating to (i) any untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading by Dealer or any Representative of Dealer, including, but not limited to, statements in any Research Report or Dealer-Supplied Fund Information (other than untrue statements or alleged untrue statements in, or omissions or alleged omissions from, information related to a Blackstone Covered Person furnished in writing by or on behalf of such Blackstone Covered Person for use in materials furnished or made available to Clients), (ii) any material breach by Dealer or any Representative of Dealer of any representation, warranty or agreement contained in this Agreement, or (iii) any willful misconduct, fraud or gross negligence by Dealer, a Representative of Dealer or any of their respective affiliates in the performance of, or failure to perform, its obligations under this Agreement; provided that in the case of any of (i)-(iii), the Dealer will not be liable to and will not have any indemnification obligation to any Blackstone Covered Person for the portion of any Blackstone Covered Claim that is the result of any Blackstone Covered Person’s material breach of this Agreement, bad faith, fraud, willful misconduct or gross negligence (the “Blackstone Disabling Conduct”); provided further that any amounts for reimbursement of expenses advanced to a Blackstone Covered Person resulting from this Section 9(b) will be repaid to the Dealer in the event that such expenses resulted from Blackstone Disabling Conduct.

c. Promptly after receipt of notice of any claim or complaint or the commencement of any action or proceeding with respect to which an indemnified party is entitled to seek indemnification hereunder, the indemnified party will notify the indemnifying party in writing of such claim or complaint or the commencement of such action or proceeding, but failure to notify the indemnifying party will not relieve the indemnifying party from any liability that it may have hereunder or otherwise, except to the extent that such failure materially prejudices the indemnifying party’s rights with respect to such claim. The indemnifying party will be entitled to participate at its own expense in the defense or, if it so elects within a reasonable time after receipt of such notice, to assume the defense of any suit so brought, which

defense will be conducted by counsel chosen by it and reasonably satisfactory to the indemnified party or parties. The parties hereto agree that if the indemnifying party shall fail to notify the indemnified party that it shall undertake to defend any claim within a reasonable time after its receipt of written notice of such claim, the indemnified party will have the right to undertake the defense of such claim on behalf of, and for the account and at the risk of, the indemnifying party. In the event that the indemnifying party elects to assume the defense of any such suit and retain such counsel, the indemnified party or parties will bear the fees and expenses of any additional counsel thereafter retained by it or them. In the event that (i) the indemnifying party elects to assume the defense of such an action or proceeding and the indemnified party reasonably determines in its judgment that having common counsel would present such counsel with a conflict of interest or (ii) the indemnifying party chooses not to assume the defense of the action or proceeding, then the indemnified party may engage separate counsel reasonably satisfactory to the indemnifying party to represent or defend such indemnified party in any such action or proceeding and the indemnifying party will pay the fees and disbursements of such counsel; provided, however, that the indemnifying party will not be required to pay the fees and disbursements of more than one separate counsel for all indemnified parties in each jurisdiction in any single action or proceeding. Subject to the preceding sentence, in any action or proceeding the defense of which the indemnifying party assumes, the indemnified party will have the right to participate in such litigation and to retain its own counsel at such indemnified party’s own expense.

d. Neither the indemnifying party nor the indemnified party will, without the prior written consent of the other party (which consent will not be unreasonably withheld or delayed), settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (a “Judgment”), whether or not the indemnifying party or the indemnified party is an actual or potential party to such claim, action, suit or proceeding; provided, however, each indemnifying party shall have the right to settle or compromise or consent to the entry of any Judgment if such settlement, compromise or consent (i) shall include an unconditional release of the indemnified party and each other indemnified party hereunder from all liability arising out of such claim, action, suit or proceeding, (ii) shall not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of the indemnified party or any other indemnified party, and (iii) shall not impose any continuing obligations or restrictions on the indemnified party or any other indemnified party. The indemnifying party shall not be liable for any settlement of any action effected without its prior written consent (which consent will not be unreasonably withheld or delayed).

e. The foregoing indemnity will be in addition to any rights that the parties may have at common law or otherwise.

SECTION 10. ANTI-MONEY LAUNDERING & UK BRIBERY ACT RESPONSIBILITIES

a. Dealer and Distributor each represent that it will comply fully with all applicable currency reporting, anti-money laundering, anti-corruption and anti-terrorist laws and regulations, and any other applicable laws, rules, regulations and interpretations of any other applicable regulatory or self-regulatory body.

b. Each party has in place policies and procedures that are reasonably designed to meet the requirements imposed by the Bank Secrecy Act as amended by the USA PATRIOT Act. Each party’s AML program, at a minimum; (1) designates a compliance office to administer and oversee the AML Program; (2) provides ongoing employee training; (3) includes an independent audit function to test the effectiveness of the Program; (4) establishes internal policies, procedures, and controls that are tailored to its particular business; (5) includes a Customer Identification Program (“CIP”) consistent with the rules under Section 326 of the Act; (6) provides for the filing of all necessary anti-money laundering reports including, but not limited to, suspicious activity reports; and (7) provides for screening customers against

the Office of Foreign Asset Control (“OFAC”) list and any other government list that is or becomes required under the Act. Dealer acknowledges and agrees that it (and not the Distributor, Fund or its administrator(s)) is responsible for monitoring and complying with anti-money laundering and CIP requirements applicable to all Dealer Shareholders.

c. Dealer and Distributor represent and warrant that each has policies, procedures and internal controls in place that are reasonably designed to comply with the UK Bribery Act, the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), and, where applicable, legislation enacted by member States and signatories implementing the OECD Convention Combating Bribery of Foreign Officials, or any similar statute, rule or policy applicable in any jurisdiction in which Dealer or Distributor engages in any activity hereunder (collectively, the “Anti-Corruption Laws”). Dealer or Distributor represent and warrant that each has, and will maintain at all times during the term of this Agreement, policies, procedures, and internal controls in place that are reasonably designed to comply with applicable Anti-Corruption Laws, including applicable provisions of the FCPA.

d. Dealer shall each execute an Anti-Corruption Certificate in the form of Exhibit B attached hereto.

e. Dealer and Distributor understand that the SEC and certain U.S. states have adopted or may adopt political contribution limitations, including without limitation, Rule 206(4)-5 (the “Rule”) under the Investment Advisers Act of 1940 (together, all such laws, rules or regulations “Pay-to-Play Regulations”) relating to political contributions of employees who solicit U.S. governments or agencies, and agree to adopt policies and procedures reasonably designed to comply in all material respects with any applicable Pay-to-Play Regulations.

f. Dealer will not solicit as an investor in the Fund any retirement, pension or similar plan or trust (collectively, a “Pension Plan”) which is established by a state, or a municipality of such state, that prohibits the use of placement agents or finders in connection with investments by such state’s or municipality’s Pension Plans.

SECTION 11. CONFIDENTIALITY, COMMUNICATIONS, NON DISPARAGEMENT

a. Each of the parties acknowledges that it is or may become aware of Confidential Information (as defined below) in connection with the performance of this Agreement. For purposes of this Section 11, a party disclosing such Confidential Information is referred to herein as a “Disclosing Party” and a party receiving such Confidential Information is referred to herein as a “Receiving Party.”

b. “Confidential Information” includes any non-public and proprietary information, and, in the case of the Fund, includes, without limitation, information relating to the Fund’s actual or potential portfolio positions and investment and risk management practices and techniques, and, in the case of Dealer, includes, without limitation, all information about a financial advisor of Dealer or its affiliates including but not limited to, production information, customer base, telephone number and address provided by Dealer to the Fund. Notwithstanding the foregoing, Confidential Information does not include information that (i) is independently developed by the Receiving Party or its Representatives (as defined below); (ii) is or becomes publicly known without a breach of this Agreement by the Receiving Party; (iii) is disclosed to the Receiving Party or its Representatives by a third party not under an obligation of confidentiality to the Disclosing Party of which the Receiving Party should reasonably be aware; or (iv) is in the Receiving Party’s possession (or in the possession of its Representatives) prior to the date of this Agreement unless already provided by the Disclosing Party.

c. The Receiving Party agrees to hold, and to cause its employees, officers, directors, partners, service providers, advisors, attorneys or agents (collectively, “Representatives”) to hold, the

Disclosing Party’s Confidential Information in strict confidence. The Receiving Party shall only disclose Confidential Information to its Representatives who are subject to separate confidentiality obligations and only to the extent necessary to perform its obligations under this Agreement.

d. The Receiving Party agrees that it will use any Confidential Information solely in connection with its obligations, duties and undertakings pursuant to this Agreement and for no other purpose whatsoever.

e. The Confidential Information shall be kept confidential in accordance with the terms hereof by the Receiving Party and its Representatives and shall not be disclosed by the Receiving Party or its Representatives except (i) as may be consented to by the Disclosing Party, (ii) as required by law, regulation or legal or judicial process, provided that, where such disclosure is required, the Receiving Party shall provide the Disclosing Party with a reasonable opportunity to review the disclosure, to the extent practicable and not prohibited by applicable law or regulation, before it is made, and to interpose its own objections to, or seek to limit, the disclosure at its own expense, (iii) that Receiving Party may disclose the Confidential Information or portions thereof to its Representatives who need to know the Confidential Information solely in connection with carrying out the terms of this Agreement, but only if such Representatives are advised of the confidential nature of such Confidential Information, and (iv) the Receiving Party may disclose the Confidential Information internally for legal and compliance purposes. The Receiving Party shall be responsible for any breach of this Agreement by its Representatives.

f. Upon the Disclosing Party’s written request, the Receiving Party shall return Confidential Information in its possession; provided, however, that the Receiving Party may maintain copies of Confidential Information as required by law or regulation, or the Receiving Party’s internal recordkeeping policies, and the confidentiality obligations hereunder shall continue to apply to any such copies.

g. Each party agrees to comply with the requirements of applicable law relating to the protection of data and information.

h. Each party hereto agrees that money damages may not be a sufficient remedy for any breach of this Section 11 by either party hereto or their respective Representatives and that the non-breaching party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, in addition to all other remedies available to the non-breaching party at law or in equity.

i. Notwithstanding the foregoing, the Dealer will not be in breach of this Section 13 by distributing to Clients copies of the Offering Materials, Dealer-Supplied Fund Materials, Research Reports, or any other information approved in advance by the Distributor in writing.

j. Dealer and Distributor agree to work together in good faith to (i) respond in a prompt manner to inquiries of Clients as communicated by Dealer and (ii) organize informal forums on an as-needed basis for discussing material events relating to the Fund with Clients.

k. Notwithstanding anything to the contrary provided elsewhere herein, none of the provisions of this Agreement shall in any way limit the activities of The Blackstone Group L.P. and its affiliates in their businesses distinct from activities directly attributable to the Fund or Blackstone Alternative Alpha Master Fund, provided that Confidential Information is not made available to representatives of The Blackstone Group L.P. and its affiliates who are not involved in activities directly attributable to the Fund or Blackstone Alternative Alpha Master Fund. In any event, should Confidential Information be made available to a representative of The Blackstone Group L.P. and its affiliates such representative shall be bound by the obligations set forth in this Agreement.

SECTION 12. PRIVACY

Each of the Distributor and the Dealer agree to comply with SEC Regulation S-P, adopted pursuant to the Gramm-Leach-Bliley Act of 1999, and any other applicable federal and state privacy laws, including those which may be enacted in the future.

SECTION 13. TERMINATION; AMENDMENT

a. This Agreement shall become effective as of the date first written above and shall remain in force until the first anniversary of its effective date and shall thereafter continue in effect from year to year, but only so long as such continuance is specifically approved at least annually by a vote of the Board of Trustees of the Fund, including the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act and the rules thereunder, of the Fund and who have no direct or indirect financial interest in the operation of the Fund’s Distribution and Service Plan (the “Plan”) or any agreements entered into in connection with the Plan (including this Agreement), cast in person at a meeting called for the purpose.

b. In addition to the automatic termination of this Agreement specified in Section 1.b. of this Agreement, each party to this Agreement may unilaterally cancel its participation in this Agreement by giving thirty (30) days prior written notice to the other party. In addition, each party to this Agreement may, in the event of a material breach of this Agreement by the other party, terminate this Agreement immediately by giving written notice to the other party, which notice sets forth in reasonable detail the nature of the breach. Such notice shall be deemed to have been given and to be effective on the date on which it was either delivered personally to the other party or any officer or member thereof, or was sent in accordance with Section 19. Without limiting the generality of the foregoing, this Agreement may be terminated by a vote of a majority of the members of the Board of Trustees of the Fund, including the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act and the rules thereunder, of the Fund and who have no direct or indirect financial interest in the operation of the Plan or any agreements entered into in connection with the Plan or by vote of a majority of the outstanding voting securities of the Fund at any time without penalty upon sixty (60) days’ written notice to Distributor and/or Dealer.

c. This Agreement shall terminate immediately upon the appointment of a trustee under the Securities Investor Protection Act or any other act of insolvency by the Distributor or the Dealer.

d. This Agreement is not assignable or transferable and will terminate automatically in the event of its “assignment,” as defined in the 1940 Act, and the rules, regulations and interpretations thereunder.

e. This Agreement may be amended by the Dealer and Distributor upon mutual written agreement, except that this Agreement may be amended at any time by Distributor or Dealer upon written notice to the other party in cases where such amendment is required (i) pursuant to the dictates of any relevant regulatory agency with jurisdiction over the Fund, the Distributor, or the Dealer or (ii) otherwise by operation of law.

SECTION 14. DISPUTE RESOLUTION; GOVERNING LAW

a. The parties waive their rights to seek remedies in court, including any right to a jury trial. In the event of a dispute concerning any provision of this Agreement, either party may require the dispute to be submitted to binding arbitration in New York, New York under the commercial arbitration rules and procedures of FINRA. The parties agree that, to the extent permitted under such arbitration rules and procedures, the arbitrators selected shall be from the securities industry. Judgment upon any arbitration award may be entered by any state or federal court having jurisdiction.

b. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without reference to the choice-of-law principles thereof.

SECTION 15. INVESTIGATIONS AND PROCEEDINGS

The parties to this Agreement agree to cooperate fully in any securities regulatory investigation or proceeding or any judicial proceeding with respect to each party’s activities under this Agreement and promptly to notify the other party of any such investigation or proceeding.

SECTION 16. CAPTIONS

All captions used in this Agreement are for convenience only and are not to be used in construing or interpreting any aspect hereof.

SECTION 17. SEVERABILITY

Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. If, however, any provision of this Agreement is held, under applicable law, to be invalid, illegal, or unenforceable in any respect, such provision shall be ineffective only to the extent of such invalidity, and the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected or impaired in any way.

SECTION 18. SURVIVAL

Section 9 in this Agreement shall survive any termination of this Agreement. The confidentiality obligations contained in Section 11 hereof shall survive for two (2) years following the termination of this Agreement.

SECTION 19. NOTICES

Every notice required by this Agreement will be in writing and deemed given (i) the next business day if sent by a nationally recognized overnight courier service that provides evidence of receipt, (ii) the same business day if sent by 3:00 p.m. (receiving party’s time) by facsimile transmission and confirmed by a telephone call, or (iii) on the third business day if sent by certified mail, return receipt requested. Unless otherwise notified in writing, all notices required to be given under this Agreement shall be given or sent to a party at the address listed on Exhibit A attached hereto.

SECTION 20. NON-EXCLUSIVITY

Each of the parties acknowledges and agrees that this Agreement and the arrangements described herein are intended to be non-exclusive and that each of the parties is free to enter into similar agreements and arrangements with other entities.

SECTION 21. MISCELLANEOUS

a. This Agreement may be executed in several counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. Facsimiles (including facsimiles of the signature pages of this Agreement) will have the same legal effect hereunder as originals.

b. This Agreement contains the entire agreement between the parties with respect to the subject matter contained herein and supersedes all previous agreements and/or understandings of the parties.

c. If any provision of this Agreement shall be held or made invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the remainder of the Agreement shall not be affected thereby.

d. As used in this Agreement, an “affiliate” of a party means any entity or person controlling, controlled by or under common control with such party.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year set forth below.

BLACKSTONE ADVISORY PARTNERS L.P.


By:
		Name:
		Title:
		Date:

HIGHTOWER ADVISORS, LLC


By:
		Name:
		Title:
		Date:

EXHIBIT A

NOTICES

Notices required by the Agreement should be sent as follows:


If to the Dealer:		Hightower Advisors, LLC
		200 West Madison Street
		Suite 2500
		Chicago, IL 60606

If to the Fund:		Blackstone Alternative Alpha Fund II

		Attn: Peter Koffler
		345 Park Avenue, 28th Floor
		New York, New York 10154

If to the Distributor:		Blackstone Advisory Partners L.P.
		Attn: Peter Koffler
		345 Park Avenue
		New York, New York 10154

EXHIBIT B

Reference is made to the dealer agreement, dated June 30, 2015 (the “Dealer Agreement”), by and among BLACKSTONE ADVISORY PARTNERS L.P. (“Distributor”) and Hightower Advisors, LLC (“Sub-Distribution Agent”).

1. The Sub-Distribution Agent acknowledges and agrees that it is the written and established policy of Distributor to comply fully with all applicable laws and regulations of the United States and all jurisdictions in which it does business. The Sub-Distribution Agent warrants and represents that it will not take any action that would constitute a violation, or implicate Distributor in a violation, of any law of the United States, the United Kingdom or any other jurisdiction in which the Sub-Distribution Agent engages in business, including, without limitation, the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), the UK Bribery Act of 2010 (the “Bribery Act”), the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “U.S.A. Patriot Act”), legislation enacted by member States and signatories implementing the OECD Convention Combating Bribery of Foreign Officials, and any similar statute, rule or policy (collectively, “Anti-Corruption Laws”).

2. In furtherance of the Distributor Global Anti-Corruption Compliance Policy, a copy of which has been provided to the Sub-Distribution Agent, the Sub-Distribution Agent represents, warrants, and agrees that:

(a) The Sub-Distribution Agent is neither a governmental entity nor an instrumentality of a government. If the Sub-Distribution Agent becomes a governmental entity or instrumentality of a government during the term of the Dealer Agreement, the Sub-Distribution Agent shall notify Distributor immediately so Distributor may, and hereby reserves the right to, take whatever precautions and actions may be appropriate to assure compliance with applicable Anti-Corruption Laws.

(b) Neither the Sub-Distribution Agent nor any of its principals, owners, officers, directors, or agents has promised to make, will promise to make, or will cause to be made, in connection with the Dealer Agreement, any Payments¹ (i) to or for the use or benefit of any Government Official; (ii) to any other person either for an advance or reimbursement, if it knows or has reason to know that any part of such Payment will be directly or indirectly given or paid by such other person, or will reimburse such other person for Payments previously made, to any Government Official; or (iii) to any other person or entity to obtain or keep business or to secure some other improper advantage.

(c) The Sub-Distribution Agent as soon as reasonably practicable shall notify Distributor of any violation or potential violation of Anti-Corruption Laws relating to its activities under the Dealer Agreement.

The term “Payments” refers to anything of value, including cash, gifts, travel expenses, entertainment, offers of employment, provision of free services, and business meals. It may also include event sponsorships, consultant contracts, fellowship support, job offers, and charitable contributions made at the request of, or for the benefit of, an individual, his or her family, or other relations, even if made to a legitimate charity.

(d) The Sub-Distribution Agent has effective controls that are sufficient to provide reasonable assurances that violations of applicable Anti-Corruption Laws will be prevented, detected and deterred.


HIGHTOWER ADVISORS, LLC

By:
				Name:
				Title:

				Date:

EXHIBIT C


Class	Distribution Fee			Servicing Fee
Advisor Class III		0.00	%		0.00	%

EX-99.(H)(9) 4 d930056dex99h9.htm FORM OF DEALER AGREEMENT Form of Dealer Agreement

Exhibit(h)(9)

DEALER AGREEMENT

Blackstone Advisory Partners L.P. (“Distributor”) serves as a principal underwriter for Blackstone Alternative Alpha Fund II (the “Fund”), a closed-end investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”), pursuant to a distribution agreement with the Fund. Robert W. Baird & Co. Incorporated (“Dealer”) and Distributor hereby agree that Dealer will participate in the distribution of shares of the Fund (“Shares”), subject to the terms of this Dealer Agreement (“Agreement”), dated as of [●].

SECTION 1. LICENSING

SECTION 2. ORDERS

SECTION 3. DUTIES OF DEALER

c. Dealer agrees not to withhold intentionally the placing of orders by its clients for Shares with Distributor so as to profit itself as a result of such inaction.

e. Dealer agrees that it will not make any conditional orders for the purchase or repurchase of Shares and acknowledges that Distributor will not accept conditional orders for Shares.

g. Dealer agrees that it will assist with the following Dealer Shareholder (as defined in Section 4(b)) services on an ongoing basis:

(i)

providing administrative, operational and infrastructural support for the selling of Shares and settlement of Fund transactions with Dealer Shareholders, as necessary;

(ii)

(iii)

assisting in the enhancement of relations and communications between Dealer Shareholders and the Fund;

(iv)

assisting in the establishment and maintenance of Dealer Shareholders’ accounts with the Fund, including notifying Distributor of any changes in the account information of a Dealer Shareholder;

(v)

assisting in receiving and forwarding purchase and repurchase requests and payments to and from Dealer Shareholders; and

(vi)

providing such other similar services as Distributor may reasonably request to the extent Dealer is permitted to do so under applicable statutes, rules and regulations.

SECTION 4. DEALER COMPENSATION

a. Distribution and Servicing Fees. Dealer shall be entitled to receive from Distributor distribution and servicing fees at the annual rates listed in Exhibit C for the aggregate value of Shares per class held by Dealer Shareholders. These fees will be calculated monthly and paid quarterly based on the value of class of Shares at the end of each month in a calendar quarter, with payment occurring within 30 days after the end of each calendar quarter. It is expected that this distribution and servicing fee will be comprised of the distribution fees and servicing fee paid by the Fund to the Distributor as listed in Exhibit

C. Notwithstanding the foregoing, Distributor shall have no obligation to pay any compensation described in the preceding sentence until Distributor receives the related compensation from the Fund in the form of an asset-based distribution and shareholder servicing fee (the “Related Compensation”), and Distributor’s obligation to Dealer for such payments is limited solely to the Related Compensation. For purposes of this Agreement, a “Dealer Shareholder” shall include any person or entity introduced by Dealer to the Fund during the term of this Agreement, which invests in any class of the Fund. Distributor shall pay any compensation described in this Section 4(b) to Dealer in respect of the class of Shares held by Dealer Shareholders for as long as Dealer Shareholders hold those Shares through an account maintained by the Dealer Shareholder at the Dealer, subject to the limitations set forth in Section 4(e).

b. Suspension/Elimination of Compensation. Dealer acknowledges and agrees that the Fund may, upon ninety (90) days’ prior written notice to the Distributor, suspend or eliminate the payment of any compensation or other dealer compensation, by amendment, sticker, or supplement to the Prospectus for the Fund, except that the Fund may, without prior notice to Distributor, suspend or eliminate the payment of any compensation or other dealer compensation, by amendment, sticker, or supplement to the Prospectus for the Fund in cases where such suspension or elimination is required (a) pursuant to the dictates of any relevant regulatory agency with jurisdiction over the Fund, the Distributor, or the Dealer or (b) otherwise by operation of law. Distributor agrees to notify Dealer promptly upon receiving notice of any suspension or elimination of the payment of any compensation to the Distributor or Dealer by the Fund.

c. FINRA Conduct Rules. In accordance with applicable FINRA Conduct Rules, the parties understand and agree that, pursuant to limitations imposed by FINRA, no payments will be made to Dealer under this Agreement to the extent payments made to Dealer and any other FINRA member in respect of distribution or sales services exceed, in the aggregate, (a) with respect to the front-end sales charge (as defined under FINRA Rule 2830) in connection with the sale of Shares pursuant to this Agreement, 3% of the total proceeds received by the Fund in respect of sales of Shares registered under the Fund’s current registration statement on Form N-2 and (b) with respect to any asset-based, front end, and deferred sales charge (as defined under FINRA Rule 2830), 6.25% of the total proceeds received by the Fund in respect of sales of Shares registered under the Fund’s current registration statement on Form N-2; provided, however, that Distributor agrees that it will not take any action that would cause the Dealer to receive, in respect of any Dealer Shareholder, less than the Maximum Compensation in respect of such investor. For purposes hereof, “Maximum Compensation” means, in respect of any Dealer Shareholder, the cumulative amount of asset-based, front end and deferred distribution fees payable hereunder for so long as the Client remains an investor in the Fund, not to exceed in the aggregate the product of 6.25% multiplied by the aggregate offering price of the Shares received by the Fund in respect of such investor, in accordance with FINRA Rule 2830.

d. The Distributor agrees that it will monitor on an ongoing basis the payment of underwriting compensation, if any, set forth in the Prospectus by the Distributor, the Fund and their respective affiliates in connection with the distribution of Shares and the rendering to investors in the Fund of ongoing investor and account maintenance services and will report thereon to the Dealer no less frequently than quarterly. As used herein, “underwriting compensation” means all amounts constituting sales charges under Rule 2830(d) of the FINRA Conduct Rules (other than any front-end sales charges charged in connection with the sale of Shares).

e. Except as noted in this agreement, no portion of the compensation paid to the Dealer by Distributor hereunder shall be remitted or otherwise paid to any third party by the Dealer without the prior written consent of Distributor, which consent may be withheld in Distributor’s sole discretion. Except as noted in this agreement, Dealer will not accept any direct or indirect compensation from any person or entity other than as set forth in Section 4 hereof in connection with the offer or sale of Shares without the prior written agreement of Distributor.

SECTION 5. REPURCHASES

SECTION 6. PROVISION OF MATERIALS AND FUND INFORMATION

SECTION 7. REGISTRATION OF SHARES

have been made under applicable securities laws such that offers and sales of Shares may be made in such states or jurisdictions. If the Shares may not be offered in any particular jurisdiction in the United States, Distributor will promptly so notify Dealer.

SECTION 8. REPRESENTATIONS AND WARRANTIES

a. In addition to the representations and warranties found elsewhere in this Agreement Distributor represents and warrants that:

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

b. In addition to the representations and warranties found elsewhere in this Agreement, Dealer represents and warrants that:

(i) It is duly organized and existing and in good standing under the laws of the state, commonwealth or other jurisdiction in which Dealer is organized.

(iv) All requisite actions have been taken to authorize Dealer to enter into and perform this Agreement.

(v) All litigation and regulatory actions involving Dealer and its affiliates that are material to Dealer’s provision of the services described herein have been disclosed to Distributor.

(ix)

SECTION 9. INDEMNIFICATION

defense will be conducted by counsel chosen by it and reasonably satisfactory to the indemnified party or parties. The parties hereto agree that if the indemnifying party shall fail to notify the indemnified party that it shall undertake to defend any claim within a reasonable time after its receipt of written notice of such claim, the indemnified party will have the right to undertake the defense of such claim on behalf of, and for the account and at the risk of, the indemnifying party. In the event that the indemnifying party elects to assume the defense of any such suit and retain such counsel, the indemnified party or parties will bear the fees and expenses of any additional counsel thereafter retained by it or them. In the event that (i) the indemnifying party elects to assume the defense of such an action or proceeding and the indemnified party reasonably determines in its judgment that having common counsel would present such counsel with a conflict of interest or (ii) the indemnifying party chooses not to assume the defense of the action or proceeding, then the indemnified party may engage separate counsel reasonably satisfactory to the indemnifying party to represent or defend such indemnified party in any such action or proceeding and the indemnifying party will pay the fees and disbursements of such counsel; provided, however, that the indemnifying party will not be required to pay the fees and disbursements of more than one separate counsel for all indemnified parties in each jurisdiction in any single action or proceeding. Subject to the preceding sentence, in any action or proceeding the defense of which the indemnifying party assumes, the indemnified party will have the right to participate in such litigation and to retain its own counsel at such indemnified party’s own expense.

d. Neither the indemnifying party nor the indemnified party will, without the prior written consent of the other party (which consent will not be unreasonably withheld or delayed), settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (a “Judgment”), whether or not the indemnifying party or the indemnified party is an actual or potential party to such claim, action, suit or proceeding; provided, however, each indemnifying party shall have the right to settle or compromise or consent to the entry of any Judgment if such settlement, compromise or consent (i) shall include an unconditional release of the indemnified party and each other indemnified party hereunder from all liability arising out of such claim, action, suit or proceeding, (ii) shall not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of the indemnified party or any other indemnified party, and (iii) shall not impose any continuing obligations or restrictions on the indemnified party or any other indemnified party. The indemnifying party shall not be liable for any settlement of any action effected without its prior written consent (which consent will not be unreasonably withheld or delayed).

e. The foregoing indemnity will be in addition to any rights that the parties may have at common law or otherwise.

SECTION 10. ANTI-MONEY LAUNDERING & UK BRIBERY ACT RESPONSIBILITIES

d. Dealer shall each execute an Anti-Corruption Certificate in the form of Exhibit B attached hereto.

SECTION 11. CONFIDENTIALITY, COMMUNICATIONS, NON DISPARAGEMENT

f. Upon the Disclosing Party’s written request, the Receiving Party shall return Confidential Information in its possession; provided, however, that the Receiving Party may maintain copies of Confidential Information as required by law or regulation, or the Receiving Party’s internal recordkeeping policies, and the confidentiality obligations hereunder shall continue to apply to any such copies.

g. Each party agrees to comply with the requirements of applicable law relating to the protection of data and information.

SECTION 12. PRIVACY

SECTION 13. TERMINATION; AMENDMENT

c. This Agreement shall terminate immediately upon the appointment of a trustee under the Securities Investor Protection Act or any other act of insolvency by the Distributor or the Dealer.

SECTION 14. DISPUTE RESOLUTION; GOVERNING LAW

b. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without reference to the choice-of-law principles thereof.

SECTION 15. INVESTIGATIONS AND PROCEEDINGS

SECTION 16. CAPTIONS

All captions used in this Agreement are for convenience only and are not to be used in construing or interpreting any aspect hereof.

SECTION 17. SEVERABILITY

SECTION 18. SURVIVAL

SECTION 19. NOTICES

SECTION 20. NON-EXCLUSIVITY

SECTION 21. MISCELLANEOUS

b. This Agreement contains the entire agreement between the parties with respect to the subject matter contained herein and supersedes all previous agreements and/or understandings of the parties.

c. If any provision of this Agreement shall be held or made invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the remainder of the Agreement shall not be affected thereby.

d. As used in this Agreement, an “affiliate” of a party means any entity or person controlling, controlled by or under common control with such party.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first set forth above.

BLACKSTONE ADVISORY PARTNERS L.P.


By:
		Name:
		Title:

ROBERT W. BAIRD & CO. INCORPORATED

By:
		Name:
		Title:

EXHIBIT A

NOTICES

Notices required by the Agreement should be sent as follows:


If to the Dealer:		Robert W. Baird & Co. Incorporated
		777 E. Wisconsin Ave
		Milwaukee, Wisconsin 53202-5391

If to the Fund:		Blackstone Alternative Alpha Fund II

		Attn: Peter Koffler
		345 Park Avenue, 28th Floor
		New York, New York 10154

If to the Distributor:		Blackstone Advisory Partners L.P.
		Attn: Peter Koffler
		345 Park Avenue
		New York, New York 10154

EXHIBIT B

Anti-Corruption Certificate

Reference is made to the dealer agreement, dated July 15, 2015 (the “Dealer Agreement”), by and among BLACKSTONE ADVISORY PARTNERS L.P. (“Distributor”) and Robert W. Baird & Co. Incorporated (“Sub-Distribution Agent”).

(d) The Sub-Distribution Agent has effective controls that are sufficient to provide reasonable assurances that violations of applicable Anti-Corruption Laws will be prevented, detected and deterred.


ROBERT W. BAIRD & CO. INCORPORATED

By:
				Name:
				Title:
				Date:

EXHIBIT C


Class	Distribution Fee			Servicing Fee
Advisor Class III		0.00	%		0.00	%

EX-99.(K)(1)(A) 5 d930056dex99k1a.htm FORM OF AMENDMENT Form of Amendment

Exhibit(k)(1)(a)

AMENDMENT TO SERVICES AGREEMENT

AMENDMENT made as of the , 2014, by and among Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Master Fund, Blackstone Alternative Alpha Sub Fund I Ltd. and Blackstone Alternative Alpha Fund II, each acting on its own behalf separately from the other and not jointly or jointly and severally with the other (each, the “Client”) and Citi Fund Services Ohio, Inc. (“Service Provider”), to that certain Services Agreement, dated as of April 1, 2012, between each Client and Service Provider (as amended and in effect on the date hereof, the “Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.

WHEREAS, pursuant to the Agreement Service Provider performs certain services for each Client;

WHEREAS, Service Provider and the Client wish to enter into this Amendment to the Agreement in order to revise the terms relating to the termination of the Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Service Provider hereby agree as follows:

Section 10(A). Section 10(A) is deleted and replaced with the following:

“This Agreement will begin on the Effective Date and continue in effect until July 31, 2014 (the “Initial Term”). This Agreement may not be extended absent the agreement of the parties.”

Representations and Warranties.

(a)

Each Client represents (i) that it has full power and authority to enter into and perform this amendment (ii) that this Amendment, and all information relating thereto has been presented to and reviewed by the Board of Trustees of the Client (the “Board”), and (iii) that the Board has approved this Amendment.

(b)

Service Provider represents that it has full power and authority to enter into and perform this Amendment.

Miscellaneous.

(a)

This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment.

(b)

Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both patties hereto.

(c)

Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment.

(d)

This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement.

* * * * *

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.

BLACKSTONE ALTERNATIVE ALPHA FUND


By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA FUND II

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA MASTER FUND

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA SUB FUND I LTD.

By:
Name:
Title:

A copy of the Agreement and Declaration of Trust of Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II and Blackstone Alternative Alpha Master Fund is on file with the Secretary of The Commonwealth of The Commonwealth of Massachusetts. Notice is hereby given, and it is expressly agreed, that the obligations under this Amendment of Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II and Blackstone Alternative Alpha Master Fund are not binding upon any of their trustees, shareholders, nominees, officers, agents or employees personally, but bind only the trust property of Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II or Blackstone Alternative Alpha Master Fund, respectively. For each of Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II and Blackstone Alternative Alpha Master Fund, the execution and delivery of this Amendment has been authorized by its trustees, and signed by an authorized officer, in each case acting in such capacity and not individually, and neither such authorization by the trustees nor execution and delivery by an officer shall be deemed to have been made by any of them individually, but shall only find the trust property of each of Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II and Blackstone Alternative Alpha Master Fund, respectively.

Citi Fund Services Ohio, Inc.

By:

Name:

Title:

EX-99.(K)(3) 6 d930056dex99k3.htm FORM OF ADMIN AGREEMENT Form of Admin Agreement

Exhibit(k)(3)

ADMINISTRATION AGREEMENT

This Administration Agreement (“Agreement”) dated and effective as of , 2014 is by and between State Street Bank and Trust Company, a Massachusetts trust company (the “Administrator”), and each management investment company and other fund identified on Schedule A hereto (each such management investment company and other fund shall hereafter be referred to as a “Fund” or the “Funds”).

WHEREAS, each Fund may or may not be authorized to issue shares of beneficial interest in separate series, with each such series representing interests in a separate Portfolio of securities and other assets;

WHEREAS, as applicable, each Fund so authorized intends that this Agreement be applicable to each of its series set forth on Schedule A hereto (such series together with all other series subsequently established by the Fund and made subject to this Agreement, the “Portfolio”);

WHEREAS, each Fund not so authorized intends that this Agreement be applicable to it and all references hereinafter to one or more “Portfolio(s)” shall be deemed to refer to such Fund(s); and

WHEREAS, the Fund desires to retain the Administrator to furnish certain administrative services to each Portfolio, and the Administrator is willing to furnish such services, on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:

1.	APPOINTMENT OF ADMINISTRATOR

Each Fund hereby appoints the Administrator to act as administrator to the Fund for purposes of providing certain administrative services on behalf of each Portfolio on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to render the services stated herein.

The Funds currently include the Portfolios and their respective classes of shares as listed on Schedule A to this Agreement. In the event that a Fund establishes one or more additional Portfolio(s) with respect to which it wishes to retain the Administrator to act as administrator hereunder, the Fund shall notify the Administrator in writing. Upon written acceptance by the Administrator, such Portfolio(s) shall become subject to the provisions of this Agreement to the same extent as the existing Portfolio, except to the extent that such provisions (including those relating to compensation and expenses payable) may be modified with respect to such Portfolio in writing by the Fund and the Administrator at the time of the addition of such Portfolio.

2.	DELIVERY OF DOCUMENTS

If applicable, the Fund will deliver to the Administrator after filed with the Securities and Exchange Commission (“SEC”) following the date hereof, each of the Fund’s or Portfolio’s (as applicable) currently effective Prospectus and Statement of Additional Information (“SAI”), and any supplements thereto. In addition, the Fund will deliver a copy of the following documents concurrent with the execution of this Agreement:

The Fund’s agreement and declaration of trust and by-laws, articles of incorporation or organization, or limited liability company agreement, as applicable (the “Governing Documents”);

Resolutions of the board of trustees, member(s), manager(s), or board of directors, as applicable, authorizing (I) the Fund to enter into this Agreement and (2) certain individuals on behalf of the Fund to (a) give instructions to the Administrator pursuant to this Agreement and (b) sign checks and pay expenses;

A copy of the investment advisory agreement between the Fund and its investment adviser; and

Such other certificates, documents or opinions which the Administrator may, in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties.

3,	REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR

The Administrator represents and warrants to the Fund that:

It is a Massachusetts trust company, duly organized and existing under the laws of The Commonwealth of Massachusetts;

It has the corporate power and authority to carry on its business m The Commonwealth of Massachusetts;

All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement;

No legal or administrative proceedings have been instituted or threatened which would impair the Administrator’s ability to perform its duties and obligations under this Agreement; and

Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Administrator or any law or regulation applicable to it.

4,	REPRESENTATIONS AND WARRANTIES OF THE FUNDS

The Funds represent and warrant to the Administrator that:

Each Fund has the requisite power and authority under applicable laws and by its Governing Documents to enter into and perform this Agreement;

All proceedings required by said Governing Documents have been taken to authorize each Fund to enter into and perform this Agreement;

As applicable, for a Fund registered with the SEC as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund’s registration statement has been filed and will become effective and remain effective during the term of this Agreement. The Fund also warrants to the Administrator that as of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Fund offers or sells its shares have been made;

No legal or administrative proceedings have been instituted or threatened which would impair the Fund’s ability to perform its duties and obligations under this Agreement; and

Its entrance into this Agreement will not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it.

5.	ADMINISTRATION SERVICES

The Administrator shall provide the following services, subject to the authorization and direction of the Fund and, in each case where appropriate, the review and comment by the Fund’s independent accountants and legal counsel and in accordance with procedures which may be established from time to time between the Fund and the Administrator:

Fund Accounting

Record subscriptions/contributions and redemptions/distributions to/from each underlying fund based on trade file provided by the Investment Manager, subject to timely receipt by IFS of necessary information. The trade file from the Fund will include the name of the relevant Fund to which the underlying interests relate, the type of transaction, the name of the relevant underlying hedge fund or other investment, the class of the underlying hedge fund or other investment, if applicable, the trade date, the amount of money to be received or delivered, currency information and any other pertinent information required to process each trade.

Obtain and provide final month-end rates-of-return (“ROR”) and/or Net Asset Value (“NAV”) for each individual underlying fund, timing of delivery to be agreed upon by IFS and the Investment Manager and subject to the timely receipt by IFS of necessary information from third parties.

Reconcile the Fund’s cash holdings with the records of the Fund’s custodian.

Reconcile the Fund’s holdings in underlying funds with information provided by each individual underlying fund, information provided by the administrator of such underlying fund, or otherwise based upon the direction of the Fund. The Fund shall be responsible for the resolution of reconciliation issues.

Prepare and provide monthly calculation of management fees and performance fees (as applicable) and book related accruals as directed by the Fund.

Receive expense budget and book accruals for legal, accounting and any other third party fees and expenses as required and as directed by the Fund.

Calculate monthly final NAV/ROR for the Fund based solely on information provided by each individual underlying fund, the administrator of such underlying fund, or as otherwise directed and based upon information provided by the Fund. The timing of delivery of such calculations will be agreed upon by IFS and the Investment Manager and is subject to the timely receipt by IFS of necessary information from the underlying funds, the administrators of such underlying funds, and the Fund, as applicable.

Maintain accounting books and records for the Fund.

Adhere to U.S. generally accepted accounting principles except as otherwise directed by the Fund.

Calculate expense waiver and maintain recoupment schedule and book related accruals.

Financial Statement Preparation

Prepare and provide semi-annual and year-end draft financial statements and supporting work papers. Prepare and provide supporting work papers for the financial information included in the Form N-Q reports. Assist auditors with the annual audit of the fund, if requested.

Fund Administration Treasury Services

Prepare for the review by designated officer(s) of the Fund financial information regarding the Fund(s) that will be included in each Fund’s semi-annual and annual shareholder reports, proxy statements, Form N-Q reports and other quarterly reports (as mutually agreed upon), including tax footnote disclosures where applicable;

Prepare for the review by designated officer(s) of the Fund’s periodic financial reports required to be filed with the SEC on Form N-SAR, proxy statements and such other reports, forms or filings as may be mutually agreed upon, and, if requested by the Funds, file Form N-SAR, when completed, with the SEC;

Provide periodic (at least monthly) testing of the Fund(s) with respect to compliance with the Internal Revenue Code’s mandatory qualification requirements (including each Fund’s status as a regulated investment company under subchapter M, as applicable), the requirements of the 1940 Act and limitations for the Portfolio(s) contained in the Registration Statement for the Fund(s) as may be mutually agreed upon, including quarterly compliance reporting to the designated officer(s) of the Fund as well as preparation of Board compliance materials;

Prepare and furnish total return performance information for the Fund(s) or Portfolio(s) calculated in accordance with applicable U.S. securities laws and regulations, as may be reasonably requested by Fund management;

Provide sub-certifications in connection with the certification requirements of the Sarbanes-Oxley Act of 2002 with respect to the services provided by the Administrator;

Provide periodic reports and reasonable documentation relating to the Administrator’s operating policies and procedures mid compliance therewith for delivery to each Portfolio’s Chief Compliance Officer in connection with Rule 38a-1 under the 1940 Act;

Maintain certain books and records of the Fund as required under Rule 31a-1(b) of the 1940 Act, as may be mutually agreed upon;

Fund Administration Blue Sky Services

Perform Blue Sky services pursuant to the specific instructions of the Fund’s officers as set forth in Schedule B hereto;

Fund Administration Legal Services

Prepare the agenda and resolutions for all requested Board and committee meetings, make presentations to the Board and committee meetings where appropriate or upon reasonable request, prepare minutes for such Board and committee meetings and attend the Fund’s shareholder meetings and prepare minutes of such meetings;

Organize, attend, and prepare minutes of shareholder meetings;

Prepare and mail quarterly and annual Code of Ethics forms for Trustees who are not “interested persons” of the Fund under the 1940 Act (the “Independent Trustees”);

Prepare and arrange for filing with the SEC the following documents: Form N- CSR, Form N-PX and all amendments to the registration statement, including updates of the Prospectus and SAI for the Portfolio(s) and any sticker supplements to the Prospectus and SAI for the Portfolio(s);

Prepare and arrange for filing with the SEC proxy statements and tender offers and provide consultation on proxy solicitation and tender offer matters;

Maintain general Board calendars and regulatory filings calendars;

Maintain copies of the Fund’s Governing Documents;

aa.

Assist in developing guidelines and procedures to improve overall compliance by the Fund;

bb.

Assist the Fund in the handling of routine regulatory examinations of the Fund and work closely with the Fund’s legal counsel in response to any non-routine regulatory matters;

cc.

Maintain awareness of significant emerging regulatory and legislative developments that may affect the Fund, update the Board and the investment adviser on those developments and provide related planning assistance where requested or appropriate;

dd.

Coordinate with insurance providers, including soliciting bids for Directors & Officers/Errors & Omissions (“D&O/E&O”) insurance and fidelity bond coverage, file fidelity bonds with the SEC and make related Board presentations;

ee.

Prepare and arrange for filing with the SEC proxy and information statements and tender offers and provide consultation on proxy solicitation and tender offer matters.

Fund Administration Tax Services

ff.

Prepare the Fund’s annual income tax provisions, including all tax financial statement disclosure, for review by the Fund’s independent accountants;

gg.

Prepare the Fund’s annual excise tax provision for review by the Fund’s independent accountants;

hh.

Prepare the Funds’ federal, state, and local income tax returns, federal excise tax returns, and extension requests for review by the Fund’s independent accountants and for review, execution, and filing by the Fund’s treasurer;

ii.

Prepare the Fund’s annual Forms 1099-MISC for review by the Fund’s treasurer; mail forms 1099-MISC to recipients; electronically file Forms 1099-MISC with the Internal Revenue Service;

jj.

Preparation of the Fund’s annual shareholder reporting information relating to Form 1099-DIV, including, but not limited to, ICI Primary and Secondary Layouts, Qualified Dividend Income, Dividends Received Deduction, Alternative Minimum Tax, Foreign Tax Credit, and United States Government obligations;

kk.

Prepare annual recommendations as to the Fund’s income and capital gains available for distribution; calculate such distributions for the Fund in accordance with applicable regulations and the distribution policies set forth in the Fund’s registration statement, assist Fund management in making the final determination of distribution amounts; and

ll.

Participate in discussions of potential tax issues within the Fund with Fund management and the Fund’s audit firm.

Tax services, as described in “Fund Administration Tax Services” above and in this Agreement, do not include identification of passive foreign investment companies, qualified interest income securities, Internal Revenue Code Section 1272(a)(6) tax calculations for asset backed securities, or preparation of Form 1120-F (U.S. Income Tax Return of a Foreign Corporation).

The Administrator shall perform such other services for the Fund that are mutually agreed to by the patties from time to time, for which the Fund will pay such fees as may be mutually agreed upon, including the Administrator’s reasonable out-of-pocket expenses. The provision of such services shall be subject to the terms and conditions of this Agreement.

The Administrator shall provide the office facilities and the personnel determined by it to be necessary to perform the services contemplated herein.

6,	FEES; EXPENSES; EXPENSE REIMBURSEMENT

The Administrator shall receive from the Fund such compensation for the Administrator’s services provided pursuant to this Agreement as may be agreed to from time to time in a written Fee Schedule approved by the parties. The fees are accrued daily and billed monthly and shall be due and payable upon receipt of the invoice. Upon the termination of this Agreement before the end of any month, the fee for the pat1 of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of termination of this Agreement. In addition, the Fund shall reimburse the Administrator for its out-of-pocket costs incurred in connection with this Agreement, including reasonable counsel fees. All rights of compensation and expense reimbursement under this Agreement for services performed as of the termination date shall survive the termination of this Agreement.

The Fund agrees promptly to reimburse the Administrator for any equipment and supplies specially ordered by or for the Fund through the Administrator and for any other expenses not contemplated by this Agreement that the Administrator may incur on the Fund’s behalf at the Fund’s request or with the Fund’s consent.

The Fund will bear all expenses that are incurred in its operation and not specifically assumed by the Administrator. Expenses to be borne by the Fund, include, but are not limited to: organizational expenses; cost of services of independent accountants and outside legal and tax counsel (including such counsel’s review of the registration statement, Form N-CSR, Form N-Q, Form N-PX, Form N-SAR, tender offer materials, proxy materials, federal and state tax qualification as a regulated investment company and other notices, registrations, reports, filings and materials prepared by the Administrator under this Agreement); cost of any services contracted for by the Fund directly from parties other than the Administrator; cost of trading operations and brokerage fees, commissions and transfer taxes in connection with the purchase and sale of securities for the Fund; investment advisory fees; taxes, insurance premiums and other fees and expenses applicable to its operation; costs incidental to any meetings of shareholders including, but not limited to, legal and accounting fees, tender offer and proxy filing fees and the costs of preparation (e.g., typesetting, XBRL-tagging, page changes and all other print vendor and EDGAR charges, collectively referred to herein as “Preparation”), printing, distribution and mailing of any tender offer or proxy materials; costs incidental to Board meetings, including fees and expenses of Board members; the salary and expenses of any officer, director\trustee or employee of the Fund; costs of Preparation, printing, distribution and mailing, as applicable, of the Fund’s registration statements and any amendments and supplements thereto and shareholder repo11s; cost of Preparation and filing of the Fund’s tax returns, Form N-2, Form N-CSR, Form N-Q, Form N-PX and Form N-SAR, and all notices, registrations and amendments associated with applicable federal and state tax and securities laws; all applicable registration fees and filing fees required under federal and state securities laws; the cost of fidelity bond and D&O/E&O liability insurance; and the cost of independent pricing services used in computing the Fund(s)’ or Portfolio(s)’ net asset value.

The Administrator is authorized to and may employ, associate or contract with such person or persons as the Administrator may deem desirable to assist it in performing its duties under this Agreement; provided, however, that the compensation of such person or persons shall be paid by the Administrator and that the Administrator shall be as folly responsible to the Fund for the acts and omissions of any such person or persons as it is for its own acts and omissions.

7.	INSTRUCTIONS AND ADVICE

At any time, the Administrator may apply to any officer of the Fund or his or her designee for instructions or the independent accounts for the Fund and may consult with its own legal counsel or, in consultation with the Fund, outside counsel for the Fund at the expense of the Fund, with respect to any matter arising in connection with the services to be performed by the Administrator under this Agreement.

Concurrently with the execution of this Agreement, and from time to time thereafter, as appropriate, the Fund shall deliver to the Administrator, duly certified by the Secretary of the Fund, a certificate setting forth the names, titles, signatures and scope of authority of all persons authorized to give instructions or any other notice, request, direction, certificate or instrument on behalf of the Fund (an “Authorized Person”). Such certificate may be accepted and relied upon by the Administrator as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until receipt by the Administrator of notice to the contrary. If the Administrator is in doubt as to any action it should or should not take, the Administrator may request directions or advice from an Authorized Person.

The Administrator shall not be liable, and shall be indemnified by the Fund, for any action taken or omitted by it in good faith in reliance upon any such instructions or advice or upon any paper or document believed by it to be genuine and to have been signed by an Authorized Person. The Administrator shall not be held to have notice of any change of authority of any Authorized Person until receipt of written notice thereof from the Fund(s). Nothing in this section shall be construed as imposing upon the Administrator any obligation to seek such instructions or advice, or to act in accordance with such advice when received.

8.	STANDARD OF CARE, LIMITATION OF LIABILITY AND INDEMNIFICATION

The Administrator shall be held to the exercise of reasonable care and good faith m carrying out the provisions of this Agreement (the “Standard of Care”).

The Administrator shall be responsible for the performance only of such duties as are set forth in this Agreement and, except as otherwise provided under Section 6, shall have no responsibility for the actions or activities of any other party, including other service providers. The Administrator shall have no liability in respect of any loss, damage or expense suffered by any Portfolio insofar as such loss, damage or expense arises from the performance of the Administrator’s duties hereunder in reliance upon records that were maintained for each Portfolio by entities other than the Administrator prior to the Administrator’s appointment as administrator for each Portfolio. The Administrator shall have no liability for any error of judgment or mistake of law or for any loss or damage resulting from the performance or nonperformance of its duties hereunder unless such loss or damage arises directly from, and then only to the extent of, the negligence, willful misconduct or bad faith of the Administrator, its officers, employees or agents. The Administrator shall not be liable for any special, indirect, incidental, punitive or consequential damages, including lost profits, of any kind whatsoever (including, without limitation, attorneys’ fees) under any provision of this Agreement or for any such damages arising out of any act or failure to act hereunder, each of which is hereby excluded by agreement of the parties regardless of whether such damages were foreseeable or whether either party or any entity had been advised of the possibility of such damages. In any event, the Administrator’s cumulative liability for each calendar year (a “Liability Period”) with respect to the Fund under this Agreement regardless of the form of action or legal theory shall be limited to its total annual compensation earned and fees payable hereunder during the preceding Compensation Period, as defined herein, for any liability or loss suffered by the Fund including, but not limited to, any liability relating to qualification of the Fund as a regulated investment company or any liability relating to the Fund’s compliance with any federal or state tax or securities statute, regulation or ruling during such Liability Period. “Compensation Period” shall mean the calendar year ending immediately prior to each Liability Period in which the event(s) giving rise to the Administrator’s liability for that period have occurred. Notwithstanding the foregoing, the Compensation Period for purposes of calculating the annual cumulative liability of the Administrator for the Liability Period commencing on the date of this Agreement and terminating on December 31, 2014 shall be the date of this Agreement through December 31, 2014, calculated on an annualized basis, and the Compensation Period for the Liability Period commencing January 1, 2015 and terminating on December 31, 2015 shall be the date of this Agreement through December 31, 2014, calculated on an annualized basis.

The Administrator shall not be responsible or liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control, including without limitation, work stoppage, power or other mechanical failure, computer virus, natural disaster, governmental action or communication disruption.

Each Portfolio, separately, shall indemnify and hold the Administrator and its directors, officers, employees and agents harmless from all loss, cost, damage and expense, including reasonable fees and expenses for counsel, incurred by the Administrator resulting from any claim, demand, action or suit in connection with the Administrator’s acceptance of this Agreement, any action or omission by it in the performance of its duties hereunder, or as a result of acting upon any instructions reasonably believed by it to have been duly authorized by each Portfolio or upon reasonable reliance on information or records given or made by each Portfolio or its investment adviser, provided that this indemnification shall not apply to actions or omissions of the Administrator, its officers or employees in cases of its or their own negligence, bad faith or willful misconduct.

The limitation of liability and indemnification contained herein shall survive the termination of this Agreement.

9.	CONFIDENTIALITY

The parties hereto agree that each shall treat confidentially all information provided by, or on behalf of, each party to the other party regarding its business and operations (including, without limitation, data relating to its investments). All confidential information provided by, or on behalf of, a party hereto shall be used by the other party hereto solely for the purpose of rendering or receiving services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party. Neither party will use or disclose confidential information for purposes other than the activities contemplated by this Agreement or except as required by law, court process or pursuant to the lawful requirement of a governmental agency, or if the party is advised by counsel that it may incur liability for failure to make a disclosure, or except at the request or with the written consent of the other party. Notwithstanding the foregoing, each party acknowledges that the other party may provide access to and use of confidential information relating to the other party to the disclosing party’s

employees, contractors, agents, professional advisors, auditors or persons performing similar functions in relation to services provided under this Agreement; provided, however, that the Administrator shall only transfer or disclose any information related to the Fund to an employee, contractor, agent, professional advisor, auditor, or person performing similar functions for the purpose of rendering services pursuant to this Agreement (each, a “Recipient”) after taking steps reasonably designed to ensure that (i) the Recipient of the information relating to the Fund will treat, and will maintain reasonable controls for the purpose of treating, all information related to the Fund as confidential and (ii) such Recipient maintains policies and procedures reasonably designed to ensure that such information will be further transferred or disclosed only to Recipients that have agreed to treat, and maintain reasonable controls for the purpose of treating, all information related to the Fund as confidential. The Administrator shall be liable for any violation of this provision by any such Recipient.

The foregoing shall not be applicable to any information (i) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, (ii) that is independently derived by a party hereto without the use of any information provided by the other party hereto in connection with this Agreement, (iii) that is required in any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or by operation of law or regulation, or (iv) where the party seeking to disclose has received the prior written consent of the party providing the information.

The undertakings and obligations contained in this Section shall survive the termination or expiration of this Agreement for a period of three (3) years.

10,	COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS

The Fund, on behalf of its Portfolio(s), assumes full responsibility for complying with all securities, tax, commodities and other laws, rules and regulations applicable to it.

In compliance with the requirements of Rule 3 la-3 under the 1940 Act, the Administrator agrees that all records which it maintains for each Portfolio shall at all times remain the prope1ty of each Portfolio, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. The Administrator further agrees that all records that it maintains for each Portfolio pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier surrendered as provided above. Records may be surrendered in either written or machine-readable form, at the option of the Administrator.

11.	SERVICES NOT EXCLUSIVE

The services of the Administrator are not to be deemed exclusive, and the Administrator shall be free to render similar services to others. The Administrator shall be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Fund from time to time, have no authority to act or represent the Fund in any way or otherwise be deemed an agent of the Fund.

12.

EFFECTIVE PERIOD AND TERMINATION

This Agreement shall remain in full force and effect for an initial term ending June 30, 2017 (the “Initial Term”). After the expiration of the Initial Term, this Agreement shall automatically renew for successive one-year terms (each, a “Renewal Term”) unless a written notice of non-renewal is delivered by the non-renewing party no later than ninety (90) days prior to the expiration of the Initial Term or any Renewal Term, as the case may be. During the Initial Term and thereafter, either party may terminate this Agreement: (i) in the event of the other party’s material breach of a material provision of this Agreement that the other party has either (a) failed to cure or (b) failed to establish a remedial plan to cure that is reasonably acceptable, within 60 days’ written notice of such breach, or (ii) in the event of the appointment of a conservator or receiver for the other party or upon the happening of a like event to the other party at the direction of an appropriate agency or court of competent jurisdiction. Upon termination of this Agreement pursuant to this paragraph with respect to the Fund or any Portfolio, the Fund or applicable Portfolio shall pay Administrator its compensation due and shall reimburse Administrator for its costs, expenses and disbursements.

In the event of: (i) the Fund’s termination of this Agreement with respect to the Fund or its Portfolio(s) for any reason other than as set forth in the immediately preceding paragraph or (ii) a transaction not in the ordinary course of business pursuant to which the Administrator is not retained to continue providing services hereunder to the Fund or a Portfolio (or its respective successor), the Fund or applicable Portfolio shall pay the Administrator its compensation due through the end of the then-current term (based upon the average monthly compensation previously earned by the Administrator with respect to the Fund or such Portfolio) and shall reimburse the Administrator for its costs, expenses and disbursements. Upon receipt of such payment and reimbursement, the Administrator will deliver the Fund’s or such Fund’s records as set forth herein. For the avoidance of doubt, no payment will be required pursuant to clause (ii) of this paragraph in the event of any transaction such (a) the liquidation or dissolution of the Fund or a Portfolio and distribution of the Fund’s or such Fund’s assets as a result of the Board’s determination in its reasonable business judgment that the Fund or such Portfolio is no longer viable (b) a merger of the Fund or a Portfolio into, or the consolidation of the Fund or a Portfolio with, another entity, or (c) the sale by the Fund or a Portfolio of all, or substantially all, of the Fund’s or Fund’s assets to another entity, in each of (b) and (c) where the Administrator is retained to continue providing services to the Fund or such Portfolio (or its respective successor) on substantially the same terms as this Agreement.

Termination of this Agreement with respect to any one particular Fund or Portfolio shall in no way affect the rights and duties under this Agreement with respect to any other Fund or Portfolio.

13.

NOTICES

Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, by overnight delivery through a commercial courier service, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other):

If to the Fund:

Blackstone Alternative Alpha Fund Blackstone

Alternative Alpha Fund II Blackstone Alternative

Alpha Master Fund Blackstone Alternative Alpha

Sub Fund I Ltd. 345 Park Avenue, Floor 29

New York, New York 10154

Attention: Paul Lim

Telephone: 212-583-5550

Facsimile: 212-583-5282

If to the Administrator:

State Street Bank and Trust Company

P.O. Box 5049

Boston, MA 02206-5049

Attn: Senior Vice President and Senior Counsel

Facsimile: 617-662-2702

14.

AMENDMENT

This Agreement may be amended at any time in writing by mutual agreement of the parties hereto.

15.	ASSIGNMENT

This Agreement shall not be assigned by either party hereto without the prior consent in writing of the other party.

16.	SUCCESSORS

This Agreement shall be binding on and shall inure to the benefit of each Fund and the Administrator and their respective successors and permitted assigns.

17.	BUSINESS CONTINUITY/DISASTER RECOVERY

In the event of equipment failure, work stoppage, governmental action, communication disruption or other impossibility of performance beyond the Administrator’s control, the Administrator shall take reasonable steps to minimize service interruptions. The Administrator shall enter into and shall maintain in effect at all times during the term of this Agreement with appropriate parties one or more agreements making reasonable provision for (i) periodic back-up of the computer files and data with respect to the Funds; and (ii) emergency use of electronic data processing equipment to provide services under this Agreement. Upon reasonable request, the Administrator shall discuss with senior management of the Funds any business continuity/disaster recovery plan of the Administrator and/or provide a high-level presentation summarizing such plan.

18,	DATA PROTECTION

The Administrator shall implement and maintain a comprehensive written information security program, in compliance with the laws of The Commonwealth of Massachusetts and any applicable U.S. laws and regulations, that contains appropriate security measures to safeguard the personal information of the Fund’s shareholders, employees, directors and/or officers that the Administrator receives, stores, maintains, processes or otherwise accesses in connection with the provision of services hereunder. For these purposes, “personal information” shall mean ( i) an individual’s name (first initial and last name or first name and last name), address or telephone number plus (a) social security number, (b) driver’s license number, (c) state identification card number, (d) debit or credit card number, (e) financial account number or (f) personal identification number or password that would permit access to a person’s account or (ii) any combination of the foregoing that would allow a person to log onto or access an individual’s account. This provision will survive termination or expiration of the Agreement for so long as the Administrator continues to possess or have access to personal information related to the Fund. Notwithstanding the foregoing “personal information” shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.

19,	ENTIRE AGREEMENT

This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all previous representations, warranties or commitments regarding the services to be performed hereunder whether oral or in writing.

20.

WAIVER

The failure of a patty to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such patty of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving patty.

21.	SEVERABILITY

If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances.

22.	GOVERNING LAW

This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts, without regard to its conflicts of laws provisions.

23.	REPRODUCTION OF DOCUMENTS

This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, xerographic, photographic, microfilm, micro-card, miniature photographic or other similar process. The patties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a patty in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

24.	MASSACHUSETTS BUSINESS TRUST

This Agreement shall for all purposes be and is construed to be a separate agreement between the Administrator and each Portfolio, as if the Administrator and such Portfolio had entered into a separate agreement, and under no circumstances will any Portfolio have any liability arising from or relating to the Administrator’s provision of services to any other Portfolio (whether or not a series of the same Fund), or the arrangements contemplated by this Agreement between the Administrator and any other Portfolio. Any reference in this Agreement to “the patties” shall mean the Administrator and such individual Portfolio as to which the matter pertains.

A copy of the Agreement and Declaration of Trust of Blackstone Alternative Investment Funds and each other Fund formed as a Massachusetts business trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement has been executed on behalf of such Fund by an officer of the Fund in his or her capacity as an officer and not individually. The obligations under this Agreement of the Fund or any Portfolio thereof shall not be binding upon any of the trustees, shareholders, nominees, officers, agents, or employees of the Fund or Portfolio individually, but shall bind only the trust property of the Fund or Portfolio, as applicable.

25,	COUNTERPARTS

This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

[Remainder of page intentionally left blank.}

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.


STATE STREET BANK AND TRUST COMPANY

By:
Name:
Title:

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.


BLACKSTONE ALTERNATIVE ALPHA FUND

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA FUND II

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA MASTER FUND

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA SUB FUND I LTD.

By:
Name:
Title:

STATE STREET BANK & TRUST COMPANY

By:
Name:
Title:

ADMINISTRATION AGREEMENT

SCHEDULE A

Listing of Funds, Portfolios, and Classes of Shares

Funds noted with a * are registered under the 1940 Act.


Funds		Classes
Blackstone Alternative Alpha Fund*

Blackstone Alternative Alpha Fund II*		I, II, III

Blackstone Alternative Alpha Master Fund*

Blackstone Alternative Alpha Sub Fund I Ltd.

ADMINISTRATION AGREEMENT

SCHEDULE B

Notice Filing with State Securities Administrators

At the specific direction of the Fund, the Administrator will prepare required documentation and make Notice Filings in accordance with the securities laws of each jurisdiction in which Fund shares are to be offered or sold pursuant to instructions given to the Administrator by the Fund.

The Fund shall be solely responsible for the determination (i) of those jurisdictions in which Notice Filings are to be submitted and (ii) the number of Fund or Portfolio shares permitted to be sold in each such jurisdiction. The Administrator will review daily sales data from a Fund’s or Portfolio’s transfer agent and shall report to the Fund (a) the sale of Fund or Portfolio shares in a jurisdiction in which no Notice Filing has been made or (b) the sale of Fund or Portfolio shares in excess of the number of Fund or Portfolio shares permitted to be sold in such jurisdiction. It shall be the Fund’s responsibility to determine appropriate corrective action and instruct the Administrator with respect thereto.

The Blue Sky services shall consist of the following:

1.	Filing of Fund’s Initial Notice Filings, as directed by the Fund;

2.	Filing of Fund’s renewals and amendments as required;

3.	Filing of amendments to the Fund’s registration statement where required;

4.	Monitoring daily the number of Fund or Portfolio shares sold in each jurisdiction;

5.	Filing Fund sales reports where required;

6.	Payment at the expense of all Fund Notice Filing fees;

7.	Filing the Prospectuses and Statements of Additional Information and any amendments or supplements thereto where required;

8.	Filing of annual reports and proxy statements where required; and

9.	The performance of such additional services as the Administrator and the Fund may agree upon in writing.

Unless otherwise specified in writing by the Administrator, Blue Sky services by the Administrator shall not include determining the availability of exemptions under a jurisdiction’s blue sky law or ensuring the proper application of any such exemptions. Any such determinations shall be made by the Fund or its legal counsel.

If the Fund has elected to deliver Fund share sales information to the Administrator via broker- dealer feeds, the Administrator’s processing of any such feeds is subject to the supervision and approval of the Fund and the following shall apply.

1.	Activation of any broker-dealer feeds, including transfer agent codes or broker codes, will commence as soon as practical after written instructions are received from the Fund. The Administrator will assume all sales from such feeds are Blue Sky reportable.

2.	The Administrator will accept and pay Blue Sky fees based on all active and live direct broker-dealer feeds, as instructed by the Fund in writing.

The originating entity, and not the Administrator, is responsible for the accuracy of all broker-dealer feed information. Without limiting the generality of the foregoing, the Administrator will not be responsible for (i) reconciling any direct broker-dealer feeds with the Fund’s accounting records, (ii) ensuring that omnibus suppressions are effected, the accuracy of any files transmitted from the transfer agent or broker-dealer systems or (iv) errors or omissions in sales data. The Administrator will not alter or otherwise manipulate or change the contents of any transfer agent or broker-dealer files routed to the Administrator.

4.	The Fund will be responsible for ensuring that any direct broker-dealer feeds are deactivated from the main omnibus feed at the Fund’s transfer agent as appropriate. The Fund acknowledges that all dropped and dead transfer agent or broker-dealer feeds will automatically be deactivated.

In connection with the services described herein, the Fund shall issue in favor of the Administrator a power of attorney to submit Notice Filings on behalf of the Fund, which power of attorney shall be substantially in the form of Exhibit I attached hereto.

EXHIBIT I

LIMITED POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, as of , 2014, that Blackstone Alternative Alpha Fund (“BAAF”), Blackstone Alternative Alpha Fund II (“BAAF II”), Blackstone Alternative Alpha Master Fund (“BAAMF”) and Blackstone Alternative Alpha Sub Fund I Ltd. (“BAASF” and together with BAAF, BAAF II, BAAMF and BAASF, each a “Fund” and collectively the “Funds”), with principal offices at 345 Park Avenue, 29•h Ave., New York, New York, 10154, makes, constitutes, and appoints BOSTON FINANCIAL DATA SERVICES, INC. (“Boston Financial”) with principal offices at 2000 Crown Colony Drive, Quincy, Massachusetts 02169 its lawful attorney-in-fact for it to do as if it were itself acting, the following:

I. NOTICE FILINGS FOR FUND SHARES. The power to submit (in any format accepted) notice filings for the Funds in each jurisdiction in which the Fund’s shares are offered or sold and in connection therewith the power to prepare, execute, and deliver and file (in any format accepted) any and all of the Fund’s applications including without limitation, applications to provide notice for the Fund’s shares, consents, including consents to service of process, reports, including without limitation, all periodic reports, or other documents and instruments now or hereafter required or appropriate in the judgment of Boston Financial in connection with the notice filings of the Fund’s shares.

2. TRANSMIT FILING FEES. The power to draw, endorse, and deposit checks and/or transmit electronic payments in the name of the Funds in connection with the notice filings of the Fund’s shares with state securities administrators.

3. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney, individuals holding the titles of Managing Director, Vice President, Compliance Officer, Compliance Group Manager, Compliance Manager, or Compliance Fund Administrator at Boston Financial shall have authority to act on behalf of the Funds with respect to items 1 and 2 above.

The execution of this Limited Power of Attorney shall be deemed coupled with an interest and shall be revocable only upon receipt by Boston Financial of such termination of authority. Nothing herein shall be construed to constitute the appointment of Boston Financial as or otherwise authorize Boston Financial to act as an officer, director or employee of the Trust.

IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed in its name and on its behalf by and through its duly authorized officer, as of the date first written above.


BLACKSTONE ALTERNATIVE ALPHA FUND

By:
Name:
Title:


BLACKSTONE ALTERNATIVE ALPHA FUND II

By:
Name:
Title:


BLACKSTONE ALTERNATIVE ALPHA MASTER FUND

By:
Name:
Title:


BLACKSTONE ALTERNATIVE ALPHA SUB FUND I LTD.

By:
Name:
Title:


Subscribed and sworn to before me this day of , 2014.


Notary Public State
of
In and for the County of My Commission Expires

EX-99.(K)(4) 7 d930056dex99k4.htm FORM OF TA AGREEMENT Form of TA Agreement

Exhibit(k)(4)

Execution Version

TRANSFER AGENCY AND SERVICE AGREEMENT

THIS AGREEMENT is made as of , 2014, by and between STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at One Lincoln Street, Boston, Massachusetts 02111 (“State Street” or the “Transfer Agent”), and each management investment company and other fund identified on Schedule A hereto (each such management investment company and other fund shall hereafter be referred to as a “Fund” or the “Funds”).

WHEREAS, each Fund may or may not be authorized to issue shares of beneficial interest (“Shares”) in separate series, with each such series representing interests in a separate portfolio of securities and other assets;

WHEREAS, each Fund not so authorized intends that this Agreement be applicable to it and all references hereinafter to one or more “Portfolio(s)” shall be deemed to refer to such Fund(s); and

WHEREAS, each Fund, on behalf of the Portfolios, as applicable, desires to appoint the Transfer Agent as each Portfolio’s transfer agent, dividend disbursing agent, and agent in connection with certain other activities, and the Transfer Agent desires to accept such appointment;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the patties hereto agree as follows:

1.	TERMS OF APPOINTMENT

1.1

Appointment. Subject to the terms and conditions set forth in this Agreement, the Fund on behalf of its Portfolios hereby employs and appoints the Transfer Agent to act as, and the Transfer Agent agrees to act as, transfer agent for each Portfolio’s authorized and issued Shares, dividend disbursing agent, and agent in collection with any accumulation or similar plans provided to shareholders (“Shareholders”) of each of the respective Portfolios of the Fund, including without limitation any periodic investment plan, dividend reinvestment plan or periodic withdrawal program.

1.2

Transfer Agency Services. In accordance with written procedures established from time to time by agreement between the Fund, on behalf of each of the Portfolios, as applicable, and the Transfer Agent, the Transfer Agent agrees that it will perform the following services:

Receive orders for the purchase of Shares from the Fund, and promptly deliver payment and appropriate documentation thereof to the custodian of a Portfolio as identified by the Fund (the “Custodian”);

ii.

Pursuant to such purchase orders, issue the appropriate number of Shares and book such Share issuance to the appropriate Shareholder account;

iii.

Receive redemption requests and redemption directions from the Fund and deliver the appropriate documentation thereof to the Custodian;

iv.

with respect to the transactions in items (i) and (iii) above, the Transfer Agent shall process transactions received directly from broker-dealers, distributors, sub-transfer agents, or other intermediaries authorized by the Fund who shall thereby be deemed to be acting on behalf of the Fund;

at the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders;

vi.

process transfer of Shares by the Shareholders thereof upon receipt of proper instruction and approval by the Fund;

vii.

process and transmit payments for dividends and distributions declared by the Fund on behalf of the applicable Portfolio;

viii.

maintain the register of Shareholders, record Shareholder account information changes, and provide reports of account activity to each Portfolio, as applicable;

ix.

calculate fees due under distribution plans and provide for payment of commission to intermediaries on shareholder purchases; and

record the issuance of Shares of the applicable Portfolio and maintain pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a record of the total number of Shares which are (1) authorized, based upon data provided to it by the Fund, and (2) issued and outstanding. The Transfer Agent shall also provide the Fund on a regular basis with the total number of Shares of each Portfolio that are authorized which are issued and outstanding. The Transfer Agent shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares, to determine if there are authorized Shares available for issuance or to take cognizance of any laws relating to, or corporate actions required for, the issue or sale of such Shares, which functions shall be the sole responsibility of the Portfolio.

1.3

Additional Services. In addition to, and neither in lieu of nor in contravention of the services set forth in Section 1.2 above, the Transfer Agent shall perform the following services:

(i)

Other Customary Services. Perform certain customary services of a transfer agent and dividend disbursing agent, including, but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing Shareholder reports and statements of additional information, as applicable, to current Shareholders, maintaining on behalf of the Portfolios such bank accounts as the Transfer Agent shall deem necessary for the performance of its duties under this Agreement, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information.

(ii)

State Transaction (“Blue Sky”) Reporting. The Transfer Agent’s responsibility for state transaction reporting is solely limited to providing the Portfolio or the Portfolio’s administrator (which may be State Street Bank and Trust Company) with the total number of Shares sold in each state, together with any other necessary Shareholder information needed by the Portfolio or the Portfolio’s administrator to determine the Portfolio’s state reporting obligations.

(iii)

Depository Trust & Clearing Corporation (“DTCC”)/National Securities Clearing Corporation (“NSCC”). If applicable, the Transfer Agent shall:

(a) accept and effectuate the registration and maintenance of accounts with DTCC/NSCC, and the purchase and redemption of Shares in such accounts, in accordance with instructions transmitted to and received by the Transfer Agent by transmission from DTCC or NSCC (acting on behalf of its members); and (b) issue instructions to a Fund’s banks for the settlement of transactions between the Fund and DTCC or NSCC (acting on behalf of its members and bank participants).

(iv)

Performance of Certain Services by the Fund or Affiliates or Agents. New procedures as to who shall provide certain of these services described in this Section 1 may be established in writing from time to time by agreement between the Fund, on behalf of each Portfolio, and the Transfer Agent. If agreed to in writing by the Fund and the Transfer Agent, the Transfer Agent may at times perform only a portion of these services and the Fund or its agent(s) may perform these services on a Portfolio’s behalf.

(v)

Call Center Services. Upon request of the Fund with respect to each Portfolio, the Transfer Agent shall provide call center services from 9:00 a.m. to 5:00 p.m., Eastern Time, each day on which the New York Stock Exchange (the “NYSE”) is open for trading (a “Business Day”). On such Business Days, the Transfer Agent shall answer and respond to inquiries from existing Shareholders of the Portfolios, advisers and broker-dealers on behalf of such Shareholders, in accordance with the telephone scripts provided by the Fund to the Transfer Agent. Such inquiries may include requests for information on account set-up and maintenance, general questions regarding the operation of the Portfolios, general account information including dates of purchases, redemptions, exchanges and account balances, requests for account access instructions and literature requests. On each Business Day, the Transfer Agent shall receive orders for the purchase of Shares and requests for the exchange or redemption of Shares from existing Shareholders of the Portfolios, advisers and broker-dealers on behalf of such Shareholders, who have been authorized by the Fund for telephone transaction privileges as set forth in the Prospectus. Any such orders and requests will be processed in accordance with subsections (i), (ii) and (iii) of Section 1.2 of this Agreement. Notwithstanding the foregoing, it shall be the sole responsibility of the Fund to ensure that each Shareholder, adviser or broker-dealer placing orders or requests by telephone has agreed to hold the Transfer Agent and any of its affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liabilities (including attorney fees) that may be incurred in connection with the exercise of these privileges.

1.4

Authorized Persons. The Fund, on behalf of each Portfolio, hereby agrees and acknowledges that the Transfer Agent may rely on the current list of authorized persons, as provided or agreed to by the Fund and as may be amended from time to time, in receiving instructions to issue or redeem the Shares. Any order (whether to purchase, sell, or transfer) with respect to the Shares of a Portfolio is made at the net asset value (“NAV”) next determined after the order is accepted by the Portfolio or its designee, or as otherwise required pursuant to the applicable Portfolio’s then-effective prospectus. The Fund, on behalf each Portfolio, agrees and covenants for itself and each of its designees that any order received after the close of regular trading on the New York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, shall be segregated from orders received before the close of the NYSE, and such orders shall be executed at the NAV calculated on the next business day or as otherwise required pursuant to the applicable Portfolio’s then-effective prospectus. The Fund or an authorized person shall instruct the Transfer Agent of the proper effective date of the transaction.

1.5

Anti-Money Laundering and Client Screening. With respect to the Fund’s or any Portfolio’s offering and sale of Shares at any time, and for all subsequent transfers of such interests, the Fund or its delegate shall, directly or indirectly and to the extent required by law: (i) conduct know your customer/client identity due

diligence with respect to potential investors and transferees in the Shares and shall obtain and retain due diligence records for each investor and transferee; (ii) use its best efforts to ensure that each investor’s and any transferee’s funds used to purchase Shares shall not be derived from, nor the product of, any criminal activity; (iii) if requested, provide periodic written verifications that such investors/transferees have been checked against the United States Department of the Treasury Office of Foreign Assets Control database for any non-compliance or exceptions; and (iv) perform its obligations under this Section in accordance with all applicable anti-money laundering laws and regulations. In the event that the Transfer Agent has received advice from counsel that access to underlying due diligence records pertaining to the investors/transferees is necessary to ensure compliance by the Transfer Agent with relevant anti-money laundering (or other applicable) laws or regulations, the Fund shall, upon receipt of written request from the Transfer Agent, provide the Transfer Agent copies of such due diligence records.

1.6

Tax Law. The Transfer Agent shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund, a Portfolio, the Shares, a Shareholder or the Transfer Agent in connection with the services provided by the Transfer Agent hereunder by the tax laws of any country or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Transfer Agent of the obligations imposed on the Fund, a Portfolio, the Shares, a Shareholder or the Transfer Agent in connection with the services provided by the Transfer Agent hereunder by the tax law of countries, states and political subdivisions thereof, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting.

2.	FEES AND EXPENSES

2.1

Fee Schedule. For the performance by the Transfer Agent of services provided pursuant to this Agreement, the Fund agrees on behalf of each of the Portfolios to pay the Transfer Agent the fees and expenses set forth in a fee schedule agreed to in writing by the Fund and the Transfer Agent. Such fees and any out of pocket expenses and advances identified under Section 2.2 below may be changed from time to time, subject to mutual written agreement between the Fund and the Transfer Agent. The parties agree that the fees set forth in the fee schedule shall apply with respect to each Fund and Portfolio thereof set forth on Schedule A hereto as of the date hereof and to any newly created Funds or Portfolios added to this Agreement that have requirements consistent with services then being provided by the Transfer Agent under this Agreement. In the event that a Fund or Portfolio is to become a party to this Agreement as a result of an acquisition or merger, then the parties shall confer diligently and negotiate in good faith, and agree upon fees applicable to such Fund or Portfolio.

2.2

Out of Pocket Expenses. In addition to the fees paid under Section 2.1 above, the Fund agrees on behalf of each of the Portfolios to reimburse the Transfer Agent

for reasonable out of pocket expenses, including but not limited to, confirmation production, postage, forms, telephone, microfilm, microfiche, records storage, or advances incurred by the Transfer Agent for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by the Transfer Agent at the request or with the consent of the Fund or a Portfolio, will be reimbursed by the applicable Portfolio.

2.3

Invoices. The Fund agrees on behalf of each of the Portfolios to pay all fees and out of pocket expenses (including, but not limited to, postage for mailing of dividends, Portfolio reports and other mailings to all shareholder accounts) within thirty (30) days following the receipt of the respective invoice.

3.	REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT The Transfer Agent represents and warrants to the Fund that:

3.1

It is a trust company duly organized and existing and in good standing under the laws of The Commonwealth of Massachusetts.

3.2

It is duly registered as a transfer agent under Section 17A(c)(2) of the Exchange Act, and it will remain so registered for the duration of this Agreement. It will promptly notify the Fund in the event of any material change in its status as a registered transfer agent.

3.3

It is duly qualified to carry on its business in The Commonwealth of Massachusetts.

3.4

It is empowered under applicable laws and by its organizational documents to enter into and perform the services contemplated in this Agreement.

3.5

All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.

3.6

No legal or administrative proceedings have been instituted or threatened which would impair the Transfer Agent’s ability to perform its duties and obligations under this Agreement.

3.7

Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Transfer Agent or any law or regulation applicable to it.

3.8

It has and will continue to have access to the necessary facilities, equipment, and personnel to perform its duties and obligations under this Agreement.

3.9

It shall comply with all laws, rules and regulations, including all provisions of the Exchange Act and the rules thereunder and all state laws, rules and regulations applicable to its transfer agency business.

4.	REPRESENTATIONS AND WARRANTIES OF THE FUND ON BEHALF OF THE PORTFOLIOS

The Fund on behalf of the Portfolios represents and warrants to the Transfer Agent that:

4.1

The Fund has the requisite power and authority under applicable laws and by its agreement and declaration of trust and by-laws, articles of incorporation or organization, or limited liability company agreement, as applicable (the “Governing Documents”), to enter into and perform this Agreement.

4.2

All proceedings required by the Fund’s Governing Documents have been taken to authorize the Fund to enter into and perform this Agreement.

4.3

As applicable, for a Fund registered with the SEC as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund’s registration statement has been filed and will become effective and remain effective during the term of this Agreement. The Fund also warrants to the Transfer Agent that as of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Fund offers or sells its shares have been made.

4.4

No legal or administrative proceedings have been instituted or threatened which would impair the Fund’s ability to perform its duties and obligations under this Agreement.

4.5

Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it.

5.	DATA ACCESS SERVICES

5.1

The Fund acknowledges that the databases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Fund by the Transfer Agent as part of the Fund’s ability to access certain Fund-related data maintained by the Transfer Agent or another third patty on databases under the control and ownership of the Transfer Agent (“Data Access Services”) constitute copyrighted, trade secret, or other proprietary information (collectively, “Proprietary Information”) of substantial value to the Transfer Agent or another third patty. In no event shall Proprietary Information be deemed to be Shareholder information or the confidential information of the Fund. The Fund, on behalf of itself and the Portfolios, agrees to treat all Proprietary Information as proprietary to the Transfer Agent and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder. Without limiting the foregoing, the Fund agrees for itself and its officers, employees and agents, on behalf of the Portfolios and their officers, employees and agents, to:

(i)

use such programs and databases solely on the Fund’s, or such agents’ computers, or solely from equipment at the location(s) agreed to between the Fund and the Transfer Agent, and solely in accordance with the Transfer Agent’s applicable user documentation;

(ii)

refrain from copying or duplicating in any way the Proprietary Information;

(iii)

refrain from obtaining unauthorized access to any portion of the Proprietary Information, and if such access is inadvertently obtained, to inform the Transfer Agent in a timely manner of such fact and dispose of such information in accordance with the Transfer Agent’s instructions;

(iv)

refrain from causing or allowing Proprietary Information transmitted from the Transfer Agent’s computers to the Fund’s, or such agents’ computer to be retransmitted to any other computer facility or other location, except with the prior written consent of the Transfer Agent;

(v)

allow the Fund or such agents to have access only to those authorized transactions agreed upon by the Fund and the Transfer Agent;

(vi)

honor all reasonable written requests made by the Transfer Agent to protect at the Transfer Agent’s expense the rights of the Transfer Agent in Proprietary Information at common law, under federal copyright law and under other federal or state law.

5.2

Proprietary Information shall not include all or any portion of any of the information that is (i) or becomes publicly available without breach of this Agreement; (ii) released for general disclosure by a written release by the Transfer Agent; or (iii) already in the possession of the receiving party at the time of receipt without obligation of confidentiality or breach of this Agreement.

5.3

If the Fund notifies the Transfer Agent that any of the Data Access Services do not operate in material compliance with the most recently issued user documentation for such services, the Transfer Agent shall endeavor in a timely manner to correct such failure. Organizations from which the Transfer Agent may obtain certain data included in the Data Access Services are solely responsible for the contents of such data, and the Fund agrees to make no claim against the Transfer Agent arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN “AS IS, AS AVAILABLE” BASIS. THE TRANSFER AGENT EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

5.4

If the transactions available to the Fund include the ability to originate electronic instructions to the Transfer Agent in order to (i) effect the transfer or movement of cash or Shares or (ii) transmit Shareholder information or other information, then in such event the Transfer Agent shall be entitled to rely in good faith on the validity and authenticity of such instruction without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by the Transfer Agent from time to time.

5.5

Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this Section. The obligations of this Section shall survive any earlier termination of this Agreement.

6.	WIRE TRANSFER OPERATING GUIDELINES

6.1

Obligation of Sender. The Transfer Agent is authorized to promptly debit the appropriate Portfolio account(s) upon the receipt of a payment order in compliance with the selected security procedure (the “Security Procedure”) chosen for funds transfer in the Funds Transfer Addendum to the Custody Agreement between State Street and the Funds and in the amount of money that the Transfer Agent has been instructed to transfer. The Transfer Agent shall execute payment orders in compliance with the Security Procedure and with the Fund’s instructions on the execution date, provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after the customary deadline will be deemed to have been received the next business day.

6.2

Security Procedure. The Fund, on behalf of the Portfolios, acknowledges that the Security Procedure it has designated on the Funds Transfer Addendum was selected by the Fund from security procedures offered. The Fund shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated to the Transfer Agent in writing. The Fund must notify the Transfer Agent immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Fund’s authorized personnel. The Transfer Agent shall verify the authenticity of all instructions received from the Fund according to the Security Procedure.

6.3

Account Numbers. The Transfer Agent shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the account number shall take precedence and govern.

6.4

Rejection. The Transfer Agent reserves the right to decline to process or delay the processing of a payment order which (i) is in excess of the collected balance in the account to be charged at the time of the Transfer Agent’s receipt of such payment order; (ii) if initiating such payment order would cause the Transfer Agent, in the Transfer Agent’s sole judgment, to exceed any volume, aggregate

dollar, network, time, credit or similar limits which are applicable to the Transfer Agent; or (iii) if the Transfer Agent, in good faith is unable to satisfy itself that the transaction has been properly authorized.

6.5

Cancellation Amendment. The Transfer Agent shall use commercially reasonable efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure, provided that such requests are received in a timely manner affording the Transfer Agent reasonable opportunity to act. However, the Transfer Agent assumes no liability if the request for amendment or cancellation cannot be satisfied.

6.6

Errors. The Transfer Agent shall assume no responsibility for failure to detect any erroneous payment order provided that the Transfer Agent complies with the payment order instructions as received and the Transfer Agent complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders.

6.7

Interest. The Transfer Agent shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless the Transfer Agent is notified of the unauthorized payment order within thirty (30) days of notification by the Transfer Agent of the acceptance of such payment order.

6.8

ACH Credit Entries/Provisional Payments. When a Portfolio initiates or receives Automated Clearing House credit and debit entries pursuant to these guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, the Transfer Agent will act as an Originating Depository Financial Institution and/or Receiving Depository Financial Institution, as the case may be, with respect to such entries. Credits given by the Transfer Agent with respect to an ACH credit entry are provisional until the Transfer Agent receives final settlement for such entry from the Federal Reserve Bank. If the Transfer Agent does not receive such final settlement, the Fund agrees that the Transfer Agent shall receive a refund of the amount credited to the applicable Portfolio in connection with such entry, and the party making payment to the Portfolio via such entry shall not be deemed to have paid the amount of the entry.

6.9

Confirmation. Confirmation of the Transfer Agent’s execution of payment orders shall ordinarily be provided within twenty four (24) hours notice of which may be delivered through the Transfer Agent’s proprietary information systems, or by facsimile or call-back. The Fund must report any objections to the execution of an order within thirty (30) calendar days.

7.	STANDARD OF CARE I LIMITATION OF LIABILITY

7.1

The Transfer Agent shall at all times act in good faith and with reasonable care (the “Standard of Care”) in its performance of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors, including encoding and payment processing errors, unless said errors are caused by its negligence, bad faith, or willful misconduct or that of its employees or agents. The parties agree that any encoding or payment processing errors shall be governed by this Standard of Care, and that Section 4-209 of the Uniform Commercial Code is superseded by Section 7 of this Agreement.

7.2

In any event, the Transfer Agent’s cumulative liability for each calendar year (a “Liability Period”) with respect to the Fund under this Agreement regardless of the form of action or legal theory shall be limited to its total annual compensation earned and fees payable hereunder during the preceding Compensation Period, as defined herein, for any liability or loss suffered by the Fund including, but not limited to, any liability relating to qualification of the Fund as a regulated investment company or any liability relating to the Fund’s compliance with any federal or state tax or securities statute, regulation or ruling during such Liability Period. “Compensation Period” shall mean the calendar year ending immediately prior to each Liability Period in which the event(s) giving rise to the Transfer Agent’s liability for that period have occurred. Notwithstanding the foregoing, the Compensation Period for purposes of calculating the annual cumulative liability of the Transfer Agent for the Liability Period commencing on the date of this Agreement and terminating on December 31, 2014 shall be the date of this Agreement through December 31, 2014, calculated on an annualized basis, and the Compensation Period for the Liability Period commencing January 1, 2015 and terminating on December 31, 2015 shall be the date of this Agreement through December 31, 2014, calculated on an annualized basis. In no event shall the Transfer Agent be liable for special, incidental, indirect, punitive or consequential damages, regardless of the form of action and even if the same were foreseeable.

8.	INDEMNIFICATION

8.1

The Transfer Agent shall not be responsible for, and the Fund on behalf of each Portfolio separately (and not jointly nor jointly and severally), shall indemnify and hold the Transfer Agent harmless from and against, any and all losses, damages, costs, charges, reasonable counsel fees (including the defense of any lawsuit in which the Transfer Agent or affiliate is a named party), payments, expenses and liability arising out of or attributable to:

(i)

all actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct;

(ii)

the Fund’s breach of any representation, warranty or covenant of the Fund hereunder;

(iii)

the Fund’s lack of good faith, gross negligence or willful misconduct;

(iv)

reliance upon, and any subsequent use of or action taken or omitted, by the Transfer Agent, or its agents or subcontractors on: (a) any information, records, documents, data, stock certificates or services, which are received by the Transfer Agent or its agents or subcontractors by machine readable input, facsimile, CRT data entry, electronic instructions or other similar means authorized by the Fund, and which have been prepared, maintained or performed by the Fund or any other person or firm on behalf of the Fund, including but not limited to any broker-dealer, third party administrator or previous transfer agent; (b) any instructions or requests of the Fund or its officers, or the Fund’s agents or subcontractors or their officers or employees; (c) any instructions or opinions of legal counsel to the Fund with respect to any matter arising in connection with the services to be performed by the Transfer Agent under this Agreement which are provided to the Transfer Agent after consultation with such legal counsel; or (d) any paper or document, reasonably believed to be genuine, authentic, or signed by the proper person or persons;

(v)

the offer or sale of Shares in violation of any requirement under the federal or state securities laws or regulations requiring that such Shares be registered, or in violation of any stop order or other determination or ruling by any federal or state agency with respect to the offer or sale of such Shares;

(vi)

the negotiation and processing of any checks, wires and ACH transmissions, including without limitation, for deposit into, or credit to, a Portfolio’s demand deposit accounts maintained by the Transfer Agent;

(vii)

all actions relating to the transmission of Fund, Portfolio or Shareholder data through the NSCC clearing systems, if applicable; and

(viii)

any tax obligations under the tax laws of any country or of any state or political subdivision thereof, including taxes, withholding and reporting requirements, claims for exemption and refund, additions for late payment, interest, penalties and other expenses (including legal expenses) that may be assessed, imposed or charged against the Transfer Agent as transfer agent hereunder.

8.2

At any time the Transfer Agent may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Transfer Agent under this Agreement, and the Transfer Agent and its agents or subcontractors shall not be liable and shall be indemnified by the Fund on behalf of the applicable Portfolio for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Transfer Agent, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by

or on behalf of the Fund or the applicable Portfolio, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Transfer Agent or its agents or subcontractors by machine readable input, electronic data entry or other similar means authorized by the Fund on behalf of the Portfolios, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Transfer Agent, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or former registrar, or of a co-transfer agent or co-registrar.

8.3

In order that the indemnification provisions contained in this Section shall apply, upon the assertion of a claim for which the Fund may be required to indemnify the Transfer Agent, the Transfer Agent shall notify the Fund of such assertion, and shall keep the Fund advised with respect to all material developments concerning such claim. The Fund shall have the option to participate with the Transfer Agent in the defense of such claim or to defend against said claim in its own name. The Transfer Agent shall in no case confess any claim or make any compromise in any case in which the Fund may be required to indemnify the Transfer Agent except with the Fund’s prior written consent which shall not be unreasonably withheld.

9.	ADDITIONAL COVENANTS OF THE FUND AND THE TRANSFER AGENT

9.1

Delivery of Documents. The Fund shall, on behalf of each of the Portfolios, promptly furnish to the Transfer Agent the following:

(i)

A certified copy of the resolution of the board of trustees, member(s), manager(s), or board of directors, as applicable, of the Fund authorizing the appointment of the Transfer Agent and the execution and delivery of this Agreement.

(ii)

A copy of the Governing Documents of the Fund and all amendments thereto.

9.2

Certificates, Checks, Facsimile Signature Devices. The Transfer Agent hereby agrees to establish and maintain facilities and procedures for safekeeping of any stock certificates, check forms and facsimile signature imprinting devices; and for the preparation or use, and for keeping account of, such certificates, forms and devices.

9.3

Records. The Transfer Agent shall, with respect to each Portfolio, create and maintain all records relating to its activities and obligations under this Agreement in the form and manner as it may deem advisable to meet the obligations of each Portfolio under the 1940 Act and as may be required by the laws and regulations applicable to its business as a Transfer Agent, with particular attention to

Section 31 of the 1940 Act and Rules 3 la-1 and 3 la-2 thereunder. In compliance with the requirements of Rule 3la-3 under the 1940 Act, the Transfer Agent agrees that all records which it maintains for the Fund shall at all times remain the property of the Fund, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request except as otherwise provided in Section 11. The Transfer Agent further agrees that all records that it maintains for the Fund pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier surrendered as provided above. Records may be surrendered in either written or machine-readable form, at the option of the Transfer Agent.

10.	CONFIDENTIALITY AND PRIVACY

10.1

The Transfer Agent and the Fund, on behalf of itself and the Portfolios, agree that each shall treat confidentially all information provided by each party to the other party regarding its business and operations. All confidential information provided by a party hereto shall be used by the other party hereto solely for the purpose of rendering or receiving services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party. Neither party will use or disclose confidential information for purposes other than the activities contemplated by this Agreement or except: (i) as required by law, court process or pursuant to the lawful requirement of a governmental agency, or if the party is advised by counsel that it may incur liability for failure to make a disclosure or (ii) at the request or with the written consent of the other party. Notwithstanding the foregoing, each party acknowledges that the other party may provide access to and use of confidential information relating to the other party to the disclosing party’s employees, contractors, sub-contractors, agents, professional advisors, auditors or persons performing similar functions in relation to services provided under this Agreement; provided, however, that the Transfer Agent shall only transfer or disclose any information related to the Fund to an employee, contractor, agent, professional advisor, auditor or person performing similar functions in relation to services provided under this Agreement after taking steps reasonably designed to ensure that (i) the recipient of the information relating to the Fund will treat, and will maintain reasonable controls for the purpose of treating, all information related to the Fund as confidential and (ii) such recipient maintains policies and procedures reasonably designed to ensure that such information will be further transferred or disclosed only to parties that have agreed to treat, and maintain reasonable controls for the purpose of treating, all information related to the Fund as confidential.

demand or other similar process, or by operation of law or regulation, or (iv) where the party seeking to disclose has received the prior written consent of the party providing the information, which consent shall not be unreasonably withheld.

The undertakings and obligations contained in this Section 10.1 shall survive the termination or expiration of this Agreement for a period of three (3) years.

10.2

The Transfer Agent affirms that it has, and will continue to have throughout the term of this Agreement, procedures in place that are reasonably designed to protect the privacy of non-public personal consumer/customer financial information to the extent required by applicable laws, rules and regulations. The Transfer Agent is familiar with Regulation S-P and agrees not to disclose or use non-public personal information about a Portfolio’s Shareholders except in accordance with Regulation S-P and the Fund’s applicable privacy policies.

11.	EFFECTIVE PERIOD AND TERMINATION

This Agreement shall remain in full force and effect for an initial term ending June 30, 2017 (the “Initial Term”). After the expiration of the Initial Term, this Agreement shall automatically renew for successive one-year terms (each, a “Renewal Term”) unless a written notice of non-renewal is delivered by the non-renewing patty no later than ninety (90) days prior to the expiration of the Initial Term or any Renewal Term, as the case may be. During the Initial Term and thereafter, either patty may terminate this Agreement: (i) in the event of the other party’s material breach of a material provision of this Agreement that the other party has either (a) failed to cure or (b) failed to establish a remedial plan to cure that is reasonably acceptable, within 60 days’ written notice of such breach, or (ii) in the event of the appointment of a conservator or receiver for the other patty or upon the happening of a like event to the other party at the direction of an appropriate agency or court of competent jurisdiction. Upon termination of this Agreement pursuant to this paragraph with respect to the Fund or any Portfolio, the Fund or applicable Portfolio shall pay Transfer Agent its compensation due and shall reimburse Transfer Agent for its costs, expenses and disbursements.

In the event of: (i) the Fund’s termination of this Agreement with respect to the Fund or its Portfolio (s) for any reason other than as set forth in the immediately preceding paragraph or (ii) a transaction not in the ordinary course of business pursuant to which the Transfer Agent is not retained to continue providing services hereunder to the Fund or a Portfolio (or its respective successor), the Fund or applicable Portfolio shall pay the Transfer Agent its compensation due through the end of the then-current term (based upon the average monthly compensation previously earned by Transfer Agent with respect to the Fund or such Portfolio) and shall reimburse the Transfer Agent for its costs, expenses and disbursements. Upon receipt of such payment and reimbursement, the Transfer Agent will deliver the Fund’s or such Portfolio’s records as set forth herein. For the avoidance of doubt, no payment will be required pursuant to clause (ii) of this paragraph in the event of any transaction such as (a) the liquidation or dissolution of the Fund or a Portfolio and distribution of the Fund’s or such Portfolio’s assets as a result of the Board’s determination in its reasonable business judgment that the Fund or such Portfolio is no longer viable, (b) a merger of the Fund or a Portfolio into, or the consolidation of

the Fund or a Portfolio with, another entity, or (c) the sale by the Fund or a Portfolio of all, or substantially all, of its assets to another entity, in each of (b) and (c) where the Transfer Agent is retained to continue providing services to the Fund such Portfolio (or its respective successor) on substantially the same terms as this Agreement.

Termination of this Agreement with respect to any one particular Po1ifolio shall in no way affect the rights and duties under this Agreement with respect to the Fund or any other Portfolio.

12.	ADDITIONAL FUNDS

In the event that the Fund establishes one or more series in addition to the Portfolios identified on the attached Schedule A, with respect to which the Fund desires to have the Transfer Agent render services as transfer agent under the terms hereof, it shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees in writing to provide such services, such series of Shares shall become a Po1ifolio hereunder.

13.	ASSIGNMENT

13.1

Except as provided in Section 14 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party.

13.2

Except as explicitly stated elsewhere in this Agreement, nothing under this Agreement shall be construed to give any rights or benefits in this Agreement to anyone other than the Transfer Agent and the Fund on behalf of the Portfolios, and the duties and responsibilities undertaken pursuant to this Agreement shall be for the sole and exclusive benefit of the Transfer Agent and the Fund on behalf of the Portfolios. This Agreement shall inure to the benefit of, and be binding upon, the parties and their respective permitted successors and assigns.

13.3

This Agreement does not constitute an agreement for a partnership or joint venture between the Transfer Agent and the Fund. Other than as provided in Section 14, neither party shall make any commitments with third parties that are binding on the other party without the other party’s prior written consent.

14.	SUBCONTRACTORS

The Transfer Agent may, without farther consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation (“BFDS”), which is duly registered as a transfer agent pursuant to Section 17A(c)(2) of the Exchange Act (“Section 17A(c)(2)”) or (ii) a BFDS subsidiary or affiliate duly registered as a transfer agent pursuant to Section 17A(c)(2); provided, however, that the compensation of such subcontractor shall be paid by the Transfer Agent and that the Transfer Agent shall remain liable to the Fund for the acts and omissions of any subcontractor under this Section as it is for its own acts and omissions under this Agreement.

15.	MISCELLANEOUS

15.1

Amendment. This Agreement may be amended or modified by a written agreement executed by both parties.

15.2

Massachusetts Law to Apply. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflict of laws provisions.

15.3

Force Majeure. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.

15.4

Business Continuity/Disaster Recovery. In the event of equipment failure, work stoppage, governmental action, communication disruption or other impossibility of performance beyond the Transfer Agent’s control, the Transfer Agent shall take reasonable steps to minimize service interruptions. The Transfer Agent shall enter into and shall maintain in effect at all times during the term of this Agreement with appropriate parties one or more agreements making reasonable provision for (i) periodic back-up of the computer files and data with respect to the Funds; and (ii) emergency use of electronic data processing equipment to provide services under this Agreement. Upon reasonable request, the Transfer Agent shall discuss with senior management of the Funds any business continuity/disaster recovery plan of the Transfer Agent and/or provide a high- level presentation summarizing such plan.

15.5

Data Protection. State Street will implement and maintain a comprehensive written information security program, in compliance with the laws of the Commonwealth of Massachusetts and any other applicable U.S. laws and regulations, that contains appropriate security measures to safeguard the personal information of the Fund’s shareholders, employees, directors and/or officers that the Transfer Agent receives, stores, maintains, processes or otherwise accesses in connection with the provision of services hereunder. For these purposes, “personal information” shall mean (i) an individual’s name (first initial and last name or first name and last name), address or telephone number plus (a) social security number, (b) drivers license number, (c) state identification card number, (d) debit or credit card number, (e) financial account number or (f) personal identification number or password that would permit access to a person’s account or (ii) any combination of the foregoing that would allow a person to log onto or access an individual’s account. This provision will survive termination or expiration of the Agreement for so long as the Transfer Agent continues to possess or have access to personal information related to a Portfolio. Notwithstanding the foregoing “personal information” shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.

15.6

Survival. All provisions regarding indemnification, warranty, liability, and limits thereon, and confidentiality and/or protections of proprietary rights and trade secrets shall survive the termination of this Agreement.

15.7

Severability. If any provision or provisions of this Agreement shall be held invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired.

15.8

Priorities Clause. In the event of any conflict, discrepancy or ambiguity between the terms and conditions contained in this Agreement and any schedules or attachments hereto, the terms and conditions contained in this Agreement shall take precedence.

15.9

Waiver. No waiver by either party or any breach or default of any of the covenants or conditions herein contained and performed by the other party shall be construed as a waiver of any succeeding breach of the same or of any other covenant or condition.

15.10

Merger of Agreement. This Agreement and any schedules, exhibits, attachments or amendments hereto constitute the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written.

15.11

Counterparts. This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

15.12

Reproduction of Documents. This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photographic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

15.13

Massachusetts Business Trust. This Agreement shall for all purposes be and is construed to be a separate agreement between the Transfer Agent and each Portfolio, as if the Transfer Agent and such Portfolio had entered into a separate agreement, and under no circumstances will any Portfolio have any liability arising from or relating to the Transfer Agent’s provision of services to any other Portfolio (whether or not a series of the same Fund), or the arrangements contemplated by this Agreement between the Transfer Agent and any other Portfolio. Any reference in this Agreement to “the parties” shall mean the Transfer Agent and such individual Portfolio as to which the matter pertains.

15.14

Notices. All notices and other communications as required or permitted hereunder shall be in writing and delivered in person to the offices of the parties as set forth herein during normal business hours or sent by first class mail, postage prepaid, addressed as follows or to such other address or addresses of which the respective party shall have notified the other.

(a)

If to Transfer Agent, to:

State Street Bank and Trust Company 200

Clarendon Street, 16th Floor Boston,

Massachusetts 02116

Attention: Sheila McClorey, Transfer Agent Vice President

Telephone: (617) 662-9681

Facsimile: (617) 956-5648

With a copy to:

State Street Bank and Trust Company

2 Avenue de Lafayette, 2nd Floor (LCC/2) Boston, MA 02110

Attn: Mary Moran Zeven, Esq.

Telephone: (617) 662-1783

Facsimile: (617) 662-2702

(b)

If to a Fund, to:

Blackstone Alternative Alpha Fund Blackstone

Alternative Alpha Fund II Blackstone Alternative

Alpha Master Fund Blackstone Alternative Alpha

Sub Fund I Ltd. 345 Park Avenue, Floor 29

New York, New York 1015

Attention: Paul Lim

Telephone: 212-583-5550

Facsimile: 212-583-5282

Attention: Paul Lim

Telephone: 212-583-5550

Facsimile: 212-583-5282

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.


BLACKSTONE ALTERNATIVE ALPHA FUND

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA FUND II

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA MASTER FUND

By:
Name:
Title:

BLACKSTONE ALTERNATIVE ALPHA SUB FUND I LTD.

By:
Name:
Title:

STATE STREET BANK & TRUST COMPANY

By:
Name:
Title:

Schedule A

LIST OF FUNDS

Blackstone Alternative Alpha Fund

Blackstone Alternative Alpha Fund II

Blackstone Alternative Alpha Master Fund

Blackstone Alternative Alpha Sub Fund I Ltd.

EX-99.(N) 8 d930056dex99n.htm CONSENT OF DELOITTE & TOUCHE LLP Consent of Deloitte & Touche LLP

Exhibit(n)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Post-Effective Amendment No. 3 in Registration Statement 333-186044 on Form N-2 of our reports dated May 22, 2015, relating to the financial statements and financial highlights of Blackstone Alternative Alpha Fund II (the “Fund”) and the consolidated financial statements and consolidated financial highlights of Blackstone Alternative Alpha Master Fund and Subsidiary, appearing in the Annual Report on Form N-CSR of the Fund for the year ended March 31, 2015. We also consent to the references to us under the headings “Financial Highlights” and “Independent Registered Public Accounting Firm” in the Prospectus and “Independent Registered Public Accounting Firm” and “Financial Statements” in the Statement of Additional Information, which are part of such Registration Statement.

/s/ Deloitte & Touche LLP

New York, New York

July 22, 2015

EX-99.(R)(2) 9 d930056dex99r2.htm CODE OF ETHICS OF BAAM Code of Ethics of BAAM

Exhibit(r)(2)

BLACKSTONE ALTERNATIVE ASSET MANAGEMENT L.P.

BLACKSTONE STRATEGIC ALLIANCE ADVISORS L.L.C.

BLACKSTONE ALTERNATIVE SOLUTIONS L.L.C.

BLACKSTONE ALTERNATIVE INVESTMENT ADVISORS LLC

BLACKSTONE STRATEGIC CAPITAL ADVISORS L.L.C. BSCA

ADVISORS L.L.C.

BLACKSTONE SENFINA ADVISORS L.L.C.

Code of Ethics for

Blackstone’s Hedge

Fund Solutions Group

April 2015

Table of Contents


I.	Introduction	2
II.	Definitions	3
III.	General Principles	4
IV.	Persons to Whom This Code Applies	5
V.	Gifts	5
VI.	Political Contributions	5
VII.	Hedge Fund Monitor List	6
VIII.	Pre-Approval Procedures	6
IX.	CEO Review	7
X.	Divestiture	7
XI.	Periodic Position Reporting	8
XII.	Review of Reports Required by This Code of Ethics	8
XIII.	Employee Certifications	8
XIV.	Recordkeeping Requirements	9
XV.	Policy for Reporting Suspicious Activities and Concerns	9
XVI.	Procedures Relating to The Blackstone Group	11

Exhibit A: Gift/Entertainment Disclosure and Approval Form		12

Exhibit B: Hedge Fund Transaction Pre-Approval Form		13

I.	Introduction

This Code of Ethics (the “Code”) has been adopted by Blackstone Alternative Asset Management L.P. (“BAAM”), Blackstone Strategic Alliance Advisors L.L.C. (“BSAA”), Blackstone Alternative Solutions L.L.C. (“BAS”), Blackstone Alternative Investment Advisors LLC (“BAIA”), Blackstone Strategic Capital Advisors L.L.C. (“BSCA”), and BSCA Advisors L.L.C. (“BSCAA”), and Blackstone Senfina Advisors L.L.C. (“BSA”, and together with BAAM, BSAA, BAS, BAIA, BSCA, and BSA the “Registrant”) in accordance with the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The purpose of the Code is to establish guidelines and procedures applicable to all officers, directors and employees of Registrant regarding business ethics, confidentiality and trading in securities. The Code incorporates and supplements the policies and procedures set forth in “The Blackstone Group Code of Ethics.” In the event of any inconsistency between the terms of the Code and “The Blackstone Group Code of Ethics,” the policies and procedures of the Code shall prevail.

Registrant seeks to foster and maintain a reputation for honesty, integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in Registrant are highly valued and must be protected. As a result, Registrant and its Access Persons (defined below) should not act or behave in any manner or engage in any activity that (1) creates the suspicion or appearance of the misuse of material, nonpublic information by Registrant or any Access Person (defined below), (2) gives rise to, or appears to give rise to, any

breach of fiduciary duty owed to any Advisory Client (defined below) or investor, or (3) creates any actual or potential conflict of interest, or the appearance of a conflict of interest, between any Advisory Client or investor, on the one hand, and Registrant or any Access Person, on the other hand.

Access Persons (defined below) are required to report promptly any breaches or lapses in Registrant’s compliance policies and procedures to Registrant’s Chief Compliance Officer (“CCO”) and/or Compliance (defined below). Access Persons (defined below) are also urged to discuss any perceived shortcomings or potential improvements in Registrant’s compliance policies and procedures with Compliance and/or the BX Compliance Department. The Blackstone Group L.P. (“BX” or “Blackstone”) Compliance Department will bring any violations which it deems material to BX’s Chief Legal Officer, who, together with the CCO, will determine what penalties, if any, will be applied.

BAAM and BAIA, in their capacity as investment adviser to certain publicly traded funds, also are subject to the Code of Ethics for such Funds.

If the provisions of this Code should conflict with, or impose different or incremental obligations on an employee from, the provisions of any other agreement to which such employee and Registrant or any of its affiliated entities are parties, the provisions of the stricter document shall take precedence.

II.

Definitions

As used in the Code, the following terms have the following meanings:

An “Access Person” is any of Registrant’s employees or consultants who: (i) has access to nonpublic information regarding any Clients’ purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund⁽¹⁾ or underlying fund or (ii) is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.⁽²⁾

“Advisers Act” shall refer to the Investment Advisers Act of 1940, as amended. “Advisory

Client” or “Client” shall mean a person or entity to which Registrant provides investment advice, including the Funds (defined below).

“Compliance Team” or “Compliance” refers to the Registrant’s compliance professionals who service BAAM, BSAA, BAS, BAIA, BSCA, BSCAA, and BSA.

“Funds” shall refer to the series of Registered Funds (defined below), private funds and/or collective investment vehicles engaged in multi-manager investment programs and/or emerging fund managers for which the Registrant provides investment advisory services.

⁽¹⁾	The Registrant does not issue any “reportable funds” or “reportable securities” as defined in SEC Final Rule: Investment Adviser Code of Ethics, Rel. Nos IA-2256, IC-26492 (July 2, 2004).

⁽²⁾	Advisers Act Rule 204A-1(e)(1).

“Hedge Fund” shall mean any pooled investment vehicle in which the Registrant’s Funds may invest that (i) is allowed to use strategies such as selling short, leverage, program trading, swaps, arbitrage and derivatives in addition to common mutual fund strategies, (ii) does not register its ownership units with the SEC or any U.S. and/or non-U.S. regulatory body, and (iii) utilizes an investment adviser that may or may not be registered with U.S. regulatory authorities. In this Code, the term “Hedge Fund” refers to any investments and/or investment vehicles managed by third party managers in which the Registrant’s Funds may invest and does not include private equity funds.

“Hedge Fund Monitor List” shall refer to a list, compiled by Compliance, of hedge fund managers of which the investment activities of Access Persons generally will be restricted. Reasons to be on this list may include, but are not limited to: (i) managers utilized by any of the existing Funds, and (ii) managers that are scheduled or are being considered for future due diligence and/or allocations.

“Hedge Funds Solutions Group” or “Hedge Funds Solutions” (“HFS”) shall refer to the division of The Blackstone Group L.P., which includes BAAM, BSAA, BAS, BAIA, BSCA, BSCAA, and BSA, each a registered investment adviser.

“Investor” shall refer to an underlying beneficial owner of a Fund and/or Client.

“Related Parties” shall mean members of an individual’s family and any entity or investment account whereby the individual or an individual’s family member has the ability to control investment decisions, control being defined as having 25% or greater voting power.

“Registered Fund” shall mean (1) a management investment company registered under the Investment Company Act of 1940, as amended, or (2) an investment fund established as Undertakings for Collective Investment in Transferable Securities (“UCITS”) pursuant to the European Communities Regulations 2011, as amended.

III.

General Principles

As an investment adviser, Registrant and its Access Persons owe a fiduciary responsibility to all Advisory Clients. A critical component of the fiduciary duty to Advisory Clients is to avoid potential conflicts of interest. As such this Code provides as follows:

•

All Access Persons owe a fiduciary obligation to all Advisory Clients;

•

All Access Persons have the duty at all times to place the interests of all Advisory Clients first and foremost;

•

All Access Persons must comply with all applicable federal securities laws;

•

All Access Persons must execute personal securities transactions in compliance with this Code to avoid any actual or potential conflict of interest or abuses of their position of trust and responsibility (even the appearance of a conflict of interest should, to the extent practicable, be avoided); and

•

No Access Persons should take improper advantage of their positions in relation to Advisory Clients and/or unfair advantage of information that they learn.

IV.

Persons to Whom This Code Applies

Except where otherwise indicated, the requirements of this Code apply directly to all Access Persons.

Gifts

No Access Person is permitted, directly or indirectly, to give any gift of any value to any person where such gift is in relation to the business of the employer of the recipient without Compliance pre-approval. If an Access Person wishes to accept a gift exceeding $100 in value, such Access Person must complete the “Gift/Entertainment Disclosure and Approval Form” and have the appropriate department head approval on the form. The “Gift/Entertainment Disclosure and Approval Form” is attached as Exhibit A. All forms are forwarded to Compliance for review and approval.

Moreover, without the consent of the Registrant’s General Counsel or CCO, employees of the Registrant may not accept any gifts or entertainment⁽³⁾ from a service provider to the Registrant’s Registered Funds, where such gift or entertainment relates specifically to the services provided on behalf of the Registered Funds.

VI.

Political Contributions

Personal political contributions or other political activity could be restricted by law or agreement or could have seriously negative business ramifications to BX as a result of current or prospective business with related governmental bodies. Therefore, all BX employees and senior advisors must obtain prior approval by emailing “Political Contribution Clearance” to make any political contributions or to solicit or coordinate any political contributions, including contributions to political parties or political action committees, and including in-kind contributions (e.g., engaging in volunteer work on behalf of a candidate or party). The requirement to obtain prior approval may be extended to consultants at the discretion of Compliance. The request for clearance must include the name of the recipient of the proposed contribution, the political office which the candidate is seeking and the amount and approximate date of the contribution. In the case of a solicitation or coordination of contributions or other activity, the request should include a description of the relevant event or activity. The employee will receive a reply from BX’s Chief Legal Officer or his designee granting or denying clearance. This requirement applies to contributions made in the name of an employee and his/her spouse, minor children and relatives or other individuals living with the employee or for whose support the employee is wholly or partially responsible. If a contribution or other activity is not completed within thirty days of receiving approval, a new request for approval must be made.

⁽³⁾	Generally, meals provided on-site at counterparty locations will not be included.

VII.

Hedge Fund Monitor List

Subject to being a fund of funds transaction (see below) or an exception approved in writing by BAAM’s CEO (the “CEO”) (see Section IX.), Access Persons and their Related Parties: (i) shall not purchase an interest in a Hedge Fund currently held by any Fund managed by Registrant or listed on the Hedge Fund Monitor List, and (ii) shall divest any ownership of a particular Hedge Fund when so notified by the CEO that the Hedge Fund Monitor List is being updated to include the subject Hedge Fund unless the CEO allows for the continued investment in such Hedge Fund positions.

VIII.

Pre-Approval Procedures

A. Approval Requirements for Personal Hedge Fund Transactions. All transactions in Hedge Funds by Access Persons and their Related Parties shall require pre-approval by the CEO in addition to BX Personal Trade Clearance. Compliance shall maintain a copy of the completed pre-approval forms and the supporting documentation. The “Hedge Fund Transaction Pre-approval Form” is attached as Exhibit B.

Transactions in Hedge Funds by the CEO and his Related Parties shall require pre- approval from Compliance in the manner described below for Access Persons and their Related Parties. The Compliance Team shall make a decision in accordance with the criteria and procedures described below. Compliance shall have the discretion to involve the BX’s Chief Legal Officer in making such decision.

B. Time of Approval. Generally, the request shall be filed with the CEO at least 3 business days prior to the date of the proposed transaction and the decision of the CEO shall be made available no later than 2 business days after the pre-approval request was filed. Any approval given shall be valid for 30 days.

C. Form. Pre-approval must be obtained in writing by completing and signing a Hedge Fund Transaction Pre-Approval Form and submitting it to Compliance (see Exhibit A).

D. Filing. Compliance will retain a copy of all completed Hedge Fund Transaction Pre- Approval and Authorization Forms in the manner contemplated by Section XII.

E. Approval Requirements for Personal Securities Transactions other than Hedge Funds. BX Employees and Registrant Access Persons are required to obtain pre- approval of all personal securities transactions through BX Personal Trade Clearance. In addition to this, Access Persons are also required to pre-clear all personal securities transactions through BAAM Personal Trade Clearance.

IX.

CEO Review

The goal of this review (which may be delegated to a senior member of Compliance) is to ensure that the fiduciary responsibilities owed to the Advisory Clients are not and will not be compromised by a proposed transaction. Therefore, when reviewing a transaction, the following issues, at a minimum, should be addressed:

A. Safe Harbor Transactions. If a transaction is contemplated by an Access Person or a Related Party (the “Investing Party”) whereby the investment vehicle is a fund of funds that invests in at least 10 underlying Hedge Funds, the transaction shall not be deemed to have or potentially have a negative impact on Registrant’s Clients. The review procedures for transactions in this category generally shall be limited to obtaining subscription documents from the Access Person or having conversations with a representative of the fund of funds to (i) confirm the number of underlying Hedge Funds, and (ii) determine if there is a relationship between the Investing Party and the manager of the fund-of-funds vehicle.

B. Issues to Consider for Other Transactions. At a minimum, the following issues should be reviewed with respect transactions not falling under the Safe Harbor rule:

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How did the Investing Party find out about this investment opportunity?

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How does the fee structure of the proposed investment compare with any of the Registrant Funds’ investment into the same Hedge Fund (if applicable)?*

•

Is this Hedge Fund currently being considered by the Registrant for an allocation into any of the Funds?*

•

Is the proposed transaction using capacity that any of the Registrant Funds desire or were previously denied?*

•

Is this a Hedge Fund that was denied approval for allocation by a committee of the Registrant? If so, did the Investing Party have any influence on the Registrant’s decision?

•

If a redemption transaction is proposed, is the Registrant also redeeming some or all of its allocation to the same manager and/or Hedge Fund?*

C. Discretionary Override. Notwithstanding the policies of Section VI, and regardless of whether the transaction meets the Safe Harbor described above, Registrant, after review of all the facts and circumstances, may allow or disallow an investment or redemption at the CEO’s sole discretion. Any such decision contrary to policy shall be documented in writing and such documentation will be maintained by Compliance.

X.	Divestiture

Compliance shall monitor additions to the Hedge Fund Monitor List to determine if any such additions are represented in any existing Hedge Fund positions held by Access Persons and their Related Parties. Upon a match, Compliance shall notify the Access Person of the potential conflict and request that the Access Person and his Related Parties fully redeem all interests in the applicable Hedge Fund at the earliest available redemption date. Access Persons may make a

*	Typically relates only to members of Blackstone’s Management Committee since all Registrant Access Persons are precluded from investing in hedge funds in which a Fund is invested or is on the Hedge Fund Monitor List.

written request to the CEO to allow for the continued investment in such Hedge Fund positions. The CEO will evaluate these requests on a case-by-case basis and in accordance with Section VII.C of this Code. Any decision contrary to the divestiture policy shall be documented in writing and such documentation shall be maintained by Compliance.

XI.

Periodic Position Reporting

All Access Persons and their Related Parties shall prepare and submit an electronic quarterly statement of all personal Hedge Fund holdings online (http://BAAMCompliance/Default.aspx). The report is generally due within 30 days after the end of each calendar quarter.

The CEO shall submit such a quarterly statement of his or her Hedge Fund holdings in the manner described above to Compliance. Compliance shall have the discretion to involve BX’s Chief Legal Officer in the review of such statement and any subsequent actions as a result of the review.

XII.

Review of Reports Required by This Code of Ethics

Each report required to be submitted under the Code will be promptly reviewed by the BX Compliance Department when submitted.

Any violation or potential violation of the Code shall be brought to the attention of the Chief Compliance Officer and Compliance immediately after its discovery. The Chief Compliance Officer and Compliance will investigate any such violation or potential violation and report to the Chief Legal Officer of BX with a recommendation of appropriate action to be taken against any individual whom it is determined has violated the Code, as is necessary to cure the violation and prevent future violations.

Access Persons reporting any violation or potential violation will not be penalized and their status at Registrant will not be jeopardized by communicating with the Chief Compliance Office and/or Compliance. Reports of violations or suspected violations also may be submitted anonymously to the Chief Compliance Officer and/or Compliance. Any retaliatory action taken against any person who reports a violation or a suspected violation of this Code is itself a violation of this Code and cause for appropriate corrective action, including dismissal.

The Chief Compliance Officer will keep a written record of all investigations in connection with any Code violations, including any action taken as a result of the violation in the manner contemplated by Section XII.

XIII.

Employee Certifications

Registrant will provide each Access Person with a copy of the Code and any amendments. Access Persons are required to acknowledge, in writing, including by electronic means, that they received a copy of the Code and any amendments.

On an annual, or other periodic basis determined by Registrant, each Access Person will be required to certify in writing or electronically that (i) he or she has received, reviewed,

understands and reaffirms his agreement to abide by all of Registrant’s policies and procedures regarding the handling and use of confidential information and personal securities trading, including any adopted since the last certification; (ii) to the best of his knowledge, he or she has complied with those policies and procedures; and (iii) he has no reason to believe that a violation of those policies or procedures, or the applicable federal or state securities laws or regulations, has occurred. Please see Exhibit N in the Supplemental Compliance Policies & Procedures for Blackstone’s Hedge Fund Solutions Group for a sample of the annual Compliance Certification form.

XIV.

Recordkeeping Requirements

The following records must be maintained at Registrant’s principal place of business in the manner and to the extent set out below. These records must be made available to the Securities and Exchange Commission or any representative of the Commission at any time and from time to time for reasonable periodic, special or other examination:

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A copy of the Code that is in effect, or at any time within the past five years was in effect, must be maintained in an easily accessible place;

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A record of any violation of the Code, and of any action taken as a result of the violation, must be maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs;

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A copy of each report required to be submitted by Access Persons under the Code, including any information provided on broker transaction confirmations and account statements, must be maintained for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place;

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A record of all Access Persons, currently or within the past five years, who are or were required to make reports under the Code, must be maintained in an easily accessible place;

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A record of all persons, currently or within the past five years, who are or were responsible for reviewing reports of Access Persons, must be maintained in an easily accessible place; and

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A copy of each personal trading form submitted to Compliance (including a record of all approvals to acquire or sell an interest in a Hedge Fund, must be maintained for at least five years after the end of the fiscal year in which the form was submitted or the approval is granted, whichever is later.

XV.

Policy for Reporting Suspicious Activities and Concerns

A. Reporting Responsibility. Blackstone expects its employees to report promptly any violation of law, regulation or any Firm policy. Examples of the types of conduct that should be reported include, but are not limited to: (i) manipulation of financial results,

(ii) irregularities in books and records, (iii) bribery or improper payments, (iv) theft or fraud, (v) violations of systems and controls that provide safeguards for clients/investors, (vi) discrimination or (vii) sexual or other unlawful harassment. For more details on Blackstone’s anti-harassment policies and complaint procedures, please refer to your Employee Handbook and to Blackstone’s “Policy on Reporting of Concerns Regarding Accounting and Other Matters” (also available on Blackstone’s website and intranet).

B. How to Report. Suspected violations may be reported to your direct supervisor or, if for any reason you are uncomfortable making the report to your direct supervisor, to the BX Chief Legal Officer or the Audit Committee of BX’s Board of Directors.⁽⁴⁾ Suspected violations of Human Resources policies and suspected employment-related violations may also be reported to the Global Head of Human Resources. Employees interested in communicating a concern anonymously may call the Employee and Reporting Hotline toll-free, 24 hours a day from any country in which Blackstone has an office. The hotline is hosted by a third party provider, EthicsPoint (also known as NAVEX Global). In the U.S., the hotline can be reached by dialing 1-855-657-8027. Callers from outside the U.S. can find country-specific dialing instructions at www.blackstone.ethicspoint.com by choosing the relevant location from the drop-down menu. Employees may also submit a report online at www.blackstone.ethicspoint.com.

C. Investigation of Suspected Violations. Information about a suspected violation will be promptly brought to the attention of Blackstone’s Chief Legal Officer (or Head of Human Resources for violations of Human Resources policies and employment related violations) and appropriate action will be taken to review, and potentially investigate, the suspected violation. Every affected employee is required to fully cooperate with any inquiry that results from any reported conduct or situation. Employees who make an anonymous report may periodically call the toll-free reporting number to obtain the status of an investigation.

D. Non-Retaliation Policy. Blackstone and its directors, officers and employees are prohibited from, directly or indirectly, discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating or retaliating against an employee because the employee, in good faith, reported information under this policy or under applicable law or assisted in investigating such a report.

Unless necessary to conduct an adequate investigation or compelled by judicial or other legal process, Blackstone shall not (i) reveal the identity of an employee who makes a report and asks that his or her identity remain confidential, or (ii) make any effort, or tolerate any effort made by any other person, to ascertain the identity of an employee who makes a report anonymously.

This policy is intended to create an environment where employees can act without fear of reprisal or retaliation. Any employee who is found to have engaged in retaliation against any employee who has exercised his/her rights under this policy or under applicable laws

⁽⁴⁾	The Audit Committee can be reached at The Blackstone Group L.P., Attn: Audit Committee, 345 Park Avenue, New York, New York 10154.

will be subject to appropriate remedial action, including possible termination. In addition, those individuals who violate applicable law may also be subject to civil and criminal penalties.

XVI.

Procedures Relating to The Blackstone Group

In addition to the requirements described above, Access Persons are subject to any additional policies and procedures set forth in The Blackstone Group Code of Ethics, The Blackstone Group Global Compliance Policies Manual, and The Blackstone Group Investment Adviser Compliance Policies & Procedures, including, but not limited to, policies and procedures addressing: (i) confidential and material, nonpublic information; (ii) BX’s Information Wall; (iii) additional reporting requirements; and (iv) gifts and entertainment. The Registrant also requires a complete report of each Access Person’s securities holdings, at the time the person becomes an Access Person and quarterly thereafter.

Exhibit A

Blackstone Alternative Asset Management L.P., Blackstone Strategic Alliance Advisors L.L.C., Blackstone Alternative Solutions L.L.C., Blackstone Alternative Investment Advisors LLC, Blackstone Strategic Capital Advisors L.L.C., BSCA Advisors L.L.C., and Blackstone Senfina Advisors L.L.C..

Gift/Entertainment Disclosure and Approval Form


BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/ BSA Employee Name:		Date:	The information provided is true and correct to the best of my knowledge and belief. Signature of BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/BSA Employee

Department Head Name:		/ /	Approval of Department Head ¨ I approve ¨ I do not approve of the gift/entertainment Signature of Department Head

Description of Gift/Entertainment	Date of: a) Gift Receipt, b) Gift Expense Incurred, or c) Entertainment Event	Approximate Value (including, but not limited to, lodging, travel, etc. as applicable)	Name of gifting/receiving entity and person(s), as applicable	Relationship of gifting/receiving entity to BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/ BSA

Exhibit B

Hedge Fund Transaction Pre-Approval Form

This form is to be completed for each proposed transaction in a Hedge Fund, as described in the Supplemental Policies and Procedures of Blackstone Alternative Asset Management L.P. (“BAAM”), Blackstone Strategic Alliance Advisors L.L.C. (“BSAA”), Blackstone Alternative Solutions L.L.C. (“BAS”), Blackstone Alternative Investment Advisors LLC (“BAIA”), Blackstone Strategic Capital Advisors L.L.C. (“BSCA”), BSCA Advisors L.L.C. (“BSCAA”), and Blackstone Senfina Advisors L.L.C. (“BSA”).

—TO BE COMPLETED BY INDIVIDUAL REQUESTING TRANSACTION AUTHORIZATION—


Name of Access Person Reporting:

Name of Proposed Owner (if different):

Name of Hedge Fund & Manager:

Hedge Fund Contact/Phone Number:

Type of proposed transaction:

redemption, partial or full

new investment

additional investment

How did you find out about this Hedge Fund (you may check more than one)?

through research completed at BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/BSA

personal knowledge of Manager, friend or otherwise

other (please specify):


Type of investment vehicle (fund-of-funds or other )
If fund-of-funds, approximate number of underlying funds


Approximate total value of the investment in this Hedge Fund


before the proposed transaction:
after the proposed transaction:


Relevant terms of proposed investment for Employee


Management fee:
Incentive fee:
Redemption rights:

The above information is true and correct to the best of my knowledge and belief. I also represent that myself or my investment entity is unrelated to the manager of the proposed Hedge Fund.

Signature of Access Person Reporting

IMPORTANT:

PLEASE SUBMIT A COMPLETE COPY OF THE

PROPOSED INVESTMENT’S OFFERING

MEMORANDUM, SUBSCRIPTION

DOCUMENTS AND ANY SIDE LETTERS

RELATING TO THIS INVESTMENT.

Print Name

Exhibit B

Date

——— TO BE COMPLETED BY MANAGEMENT ———


Safe Harbor: Fund-of-Funds?

1. q Yes q No		Is the investment into a Fund-of-Funds? *If no, skip to questions 4 and 5*.

2. q Yes q No		If question 1 is “Yes”, does the fund invest in at least 10 underlying Hedge Funds (based on review of offering memorandum)?

3. q Yes q No		If question 2 is “Yes”, are the parties to the desired transaction unrelated to the manager of the proposed Hedge Fund (based on review of offering memorandum, personal knowledge and representation)?

Potential Conflicts of Interest?

4. q Yes q No		Is this fund currently being considered by BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/BSA for an allocation? If yes, initial or additional allocation?

5. q Yes q No		Is the employee using capacity that BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/BSA clients desire or were previously denied access to?

6. q Yes q No		Is this a fund that was denied allocation by a committee or board of BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/BSA? If yes, name of committee/board & Date

7. q Yes q No q N/A		If the answer to 6 is “Yes”, did this individual have any influence on the BAAM’s/BSAA’s/BAS’s/BAIA’s/BSCA’s/BSCAA’s/BSA’s decision? If yes, briefly explain
8. q Yes q No q N/A		If a redemption transaction is proposed, is BAAM/BSAA/BAS/BAIA/BSCA/BSCAA/BSA also redeeming some or all of its allocation to the same manager and/or Hedge Fund?


APPROVAL SECTION

Individual Reviewing Form q DENIED q APPROVED CEO Date Compliance Officer		q Check this Box if Decision is CEO Discretionary Override and Document Below: