Post Effective Amendment

ALPHA HEDGED STRATEGIES FUND

BETA HEDGED STRATEGIES FUND

Each a series of AIP Alternative Strategies Funds

Each a no-load, open-end, non-diversified investment company which seeks to achieve consistent absolute returns with low and moderate correlation, respectively to traditional financial market indices by engaging in various relative value and securities arbitrage strategies.

STATEMENT OF ADDITIONAL INFORMATION

April 28, 2006

This Statement of Additional Information is not a prospectus and should be read in conjunction with the prospectus of Alpha Hedged Strategies Fund (“Alpha”) and Beta Hedged Strategies Fund (“Beta”) dated April 28, 2006, a copy of which may be obtained without charge by contacting the Funds’ transfer agent, U.S. Bancorp Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53202-0701 or by calling 1-877-Low-Beta.

Alpha’s financial statements for the fiscal year ended July 31, 2005 are incorporated herein by reference to the Alpha’s Annual Report dated July 31, 2005. A copy of the Annual Report may be obtained without charge by contacting the Alpha’s transfer agent as shown above.

TABLE OF CONTENTS

THE TRUST	1

INVESTMENT RESTRICTIONS	2

INVESTMENT OBJECTIVE AND POLICIES	4

MANAGEMENT	15

CONTROL PERSONS AND PRINCIPAL HOLDERS	20

INVESTMENT ADVISOR, SUB-ADVISORS AND RESEARCH CONSULTANT	21

PROXY VOTING POLICIES AND PROCEDURES	29

THE DISTRIBUTOR	30

ALLOCATION OF PORTFOLIO BROKERAGE	31

PORTFOLIO HOLDINGS INFORMATION	32

PORTFOLIO TURNOVER	33

FUND ADMINISTRATION	33

FUND ACCOUNTING AND TRANSFER AGENT	34

CUSTODIAN	34

DESCRIPTION OF SHARES	34

PURCHASE, REDEMPTION AND PRICING OF SHARES	34

TAX STATUS	37

ANIT-MONEY LAUNDERING PROGRAM	40

PERFORMANCE INFORMATION	40

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	41

LEGAL COUNSEL	41

FINANCIAL STATEMENTS	42

THE TRUST

AIP Alternative Strategies Funds (the “Trust”), an open-end management investment company, was organized as a Delaware statutory trust on April 12, 2002. The Trust currently offers two series of shares to investors, Alpha Hedged Strategies Fund (“Alpha”) (formerly known as the Alpha Strategies I Fund) and Beta Hedged Strategies Fund (“Beta”) (together the “Funds”). Each Fund is classified as a non-diversified series of the Trust and has its own investment objective and policies. The Funds are set up in a fund-of-funds structure whereby each Fund invests all of its investable assets in one or more affiliated portfolios. The Trust may start another series and offer shares of a new fund under the Trust at any time.

The authorized capitalization of the Trust consists of 1 billion shares of beneficial interest of $0.001 par value per share (the “Shares”). Shares of the Funds have equal voting rights and liquidation rights, and are voted in the aggregate and not by Fund except in matters where a separate vote is required by the Investment Company Act of 1940 (the “1940 Act”) or when the matter affects only the interest of a particular Fund. When matters are submitted to shareholders for a vote, each shareholder is entitled to one vote for each full share owned and fractional votes for fractional shares owned. The Trust does not normally hold annual meetings of shareholders. The Trustees shall promptly call and give notice of a meeting of shareholders for proposals when requested to do so in writing by shareholders holding 10% or more of the Trust’s outstanding shares. The Trust will comply with the provisions of Section 16(c) of the 1940 Act in order to facilitate communications among shareholders.

Each share of a Fund represents an equal proportionate interest in the assets and liabilities belonging to that Fund with each other share of that Fund and is entitled to such dividends and distributions out of the income belonging to the Fund as are declared by the Trustees. The shares do not have cumulative voting rights or any preemptive or conversion rights, and the Trustees have the authority from time to time to divide or combine the shares of any Fund into a greater or lesser number of shares of that Fund so long as the proportionate beneficial interests in the assets belonging to that Fund and the rights of shares of any other Fund are in no way affected. In case of any liquidation of a Fund, the holders of shares of the Fund being liquidated will be entitled to receive as a class a distribution out of the assets, net of the liabilities, belonging to that Fund. Expenses attributable to any Fund are borne by that Fund. Any general expenses of the Trust not readily identifiable as belonging to a particular Fund are allocated by or under the direction of the Trustees in such manner as the Trustees allocate such expenses on the basis of relative net assets or number of shareholders. No shareholder is liable to further calls or to assessment by the Trust without his or her express consent.

The assets of each Fund received for the issue or sale of its shares, and all income, earnings, profits and proceeds thereof, subject only to the rights of creditors, shall constitute the underlying assets of that Fund. In the event of the dissolution or liquidation of a Fund, the holders of shares of that Fund are entitled to share pro rata in the net assets of that Fund available for distribution to shareholders.

Election to Invest Fund Assets Pursuant to Master/Feeder Fund Structure

In lieu of investing directly, each Fund is authorized to seek to achieve its investment objective by converting to a Master/Feeder Fund Structure pursuant to which each Fund would invest all or a portion of its investable assets in an investment company having substantially the same investment objective and policies as that Fund. The Master/Feeder Fund Structure is an arrangement that allows several investment companies with different shareholder-related features or distribution channels, but having substantially the same investment objective, policies and restrictions, to combine their investments by investing all of their assets in the same portfolio instead of managing them separately.

Conversion to a Master/Feeder Fund Structure may serve to attract other collective investment vehicles with different shareholder servicing or distribution arrangements and with shareholders that would not have invested in the Funds. In addition, a Master/Feeder Fund Structure may serve as an alternative for large, institutional investors in the Funds who may prefer to offer separate, proprietary investment vehicles and who otherwise might establish such vehicles outside of the Funds’ current operational structure. No assurance can be given, however, that the Master/Feeder Fund Structure will result in the Fund stabilizing its expenses or achieving greater operational efficiencies.

The Funds’ methods of operation and shareholder services would not be materially affected by its investment in another investment company (“Master Portfolio”) having substantially the same investment objective and polices as the Funds, except that the assets of the Funds may be managed as part of a larger pool of assets. If each Fund invested all of its assets in a Master Portfolio, it would hold beneficial interests in the Master Portfolio; the Master Portfolio would directly invest in individual securities of other issuers. The Funds would otherwise continue their normal operation. The Board would retain the right to withdraw each Fund’s investment from a Master Portfolio at any time it determines that it would be in the best interest of shareholders to do so; the Funds would then resume investing directly in individual securities of other issuers or invest in another Master Portfolio.

The Board of Trustees has authorized this fundamental investment policy to facilitate a conversion to a Master/Feeder Fund Structure in the event that the Board of Trustees determines that such a conversion is in the best interest of the Funds’ shareholders. If the Board so determines, it will consider and evaluate specific proposals prior to the implementation of the conversion to a Master/Feeder Fund Structure. Further, the Funds’ Prospectus and Statement of Additional Information would be amended to reflect the implementation of the Funds’ conversion and its shareholders would be notified.

INVESTMENT RESTRICTIONS

The following investment restrictions have been adopted by the Funds as fundamental policies and may be changed only by the affirmative vote of a majority of the outstanding shares of the Funds. As used in this Statement of Additional Information and in the Funds’ prospectus, the term “majority of the outstanding shares of the Fund” means the vote of whichever is less:

(1)	67% or more of a Fund’s shares present at a meeting, if the holders of more than 50% of the outstanding shares of a Fund are present or represented by proxy, or

(2)	more than 50% of a Fund’s outstanding shares.

These investment restrictions provide that:

(1)	A Fund may not issue senior securities other than to evidence indebtedness, borrowings or short sales as permitted.

(2)	A Fund may not borrow money except that it may borrow:

(a)	for leveraging purposes,

(b)	from banks for temporary or emergency purposes, such as to meet unanticipated shareholder redemptions, or

(c)	by entering into reverse repurchase agreements,

if, immediately after any such borrowing, the value of the Fund’s assets, including all borrowings then outstanding less its liabilities, is equal to at least 300% of the aggregate amount of borrowings then outstanding (for the purpose of determining the 300% asset coverage, the Fund’s liabilities will not include amounts borrowed). Any such borrowings may be secured or unsecured. Each Fund may issue securities (including senior securities) appropriate to evidence the indebtedness, including reverse repurchase agreements, which the Fund is permitted to incur.

(3)	A Fund may not underwrite or participate in the marketing of securities issued by other persons except to the extent that a Fund may be deemed to be an underwriter under federal securities laws in connection with the disposition of portfolio securities.

(4)	A Fund may not concentrate its investments in any industry, with the exception of securities issued or guaranteed by the U.S. Government, its agencies, and instrumentalities. For purposes of complying with this restriction, each Fund will look through to the securities of the Underlying Funds.

(5)

A Fund may not purchase or sell real estate or real estate mortgage loans as such, but this restriction shall not prevent a Fund from investing in readily marketable interests in real estate investment trusts, readily marketable securities of companies that invest in real estate, or obligations secured by real estate or interests therein.

(6)	A Fund will not lend any of its assets, except as permitted under the Securities Lending restrictions set forth in the Prospectus.

(7)

A Fund may not pledge, mortgage or hypothecate its assets, except to secure borrowings (as set forth above under Investment Restriction 2(a) above), or with respect to a securities lending program. Notwithstanding anything to the contrary herein, each Fund may pledge collateral in connection with investments in certain derivative transactions permitted in the Prospectus and Statement of Additional Information.

(8)	A Fund may not purchase or sell commodities or commodity contracts.

Non-fundamental investment restrictions may be amended by a majority vote of the Trustees of the Funds without obtaining shareholder approval. Under the non-fundamental investment restrictions, each Fund may not:

(1)

invest more than 15% of the value of its net assets, taken at the time of investment, in illiquid securities. Illiquid securities are those securities without readily available market quotations, including repurchase agreements having a maturity of more than seven days. Illiquid securities may include restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits, over-the-counter options, and repurchase agreements providing for settlement in more than 7 days after notice.

(2)

sell short securities having a total market value in excess of 100% of the value of the net assets of a Fund, and the value of the securities of any one issuer in which a Fund is short may not exceed the lesser of: (x) 10% of the value of a Fund’s net assets or (y) 10% of the securities of any class of any issuer.

(3)

(a) sell covered call options the underlying securities of which have an aggregate value (determined as of the date the calls are sold) exceeding 50% of the value of the net assets of a Fund; or (b) invest in put options to the extent that the premiums on protective put options exceed 25% of the value of its net assets; provided that the provisions of this paragraph shall not prevent the purchase, ownership, holding or sale of forward contracts with respect to foreign securities or currencies.

(4)

purchase securities of other investment companies, except in accordance with the 1940 Act.

If a particular percentage restriction on investment or utilization of assets as set forth above, is adhered to at the time an investment is made, a later change in percentage resulting from a change in values or assets will not constitute a violation. However, if at any time borrowings exceed 33 1/3% of total assets, a Fund must reduce its borrowings within three business days thereafter. The Funds may exchange securities, exercise any conversion rights or exercise warrants or any other rights to purchase common stock or other equity securities and may hold such securities so acquired without regard to the foregoing investment restrictions.

INVESTMENT OBJECTIVE AND POLICIES

The Alpha Hedged Strategies Fund’s investment objective is to achieve consistent absolute returns with low correlation to traditional financial market indices. The Beta Hedged Strategies Fund’s investment objective is to achieve consistent absolute returns with moderate correlation to traditional financial market indices. There is no assurance that either Fund will achieve its objective.

A more detailed discussion of some of the investment strategies and policies described in the Prospectus (see “Investment Objective, Policies and Risks”) appears below:

Merger Arbitrage

Although a variety of strategies may be employed depending upon the nature of the reorganizations selected for investment, the most common merger arbitrage activity involves purchasing the shares of an announced acquisition target at a discount from the expected value of such shares upon completion of the acquisition. The size of the discount, or spread, and whether the potential reward justifies the potential risk are functions of numerous factors affecting the riskiness and timing of the acquisition. Such factors include the status of the negotiations between the two companies (for example, spreads typically narrow as the parties advance from an agreement in principle to a definitive agreement), the complexity of the transaction, the number of regulatory approvals required, the likelihood of government intervention on antitrust or other grounds, the type of consideration to be received and the possibility of competing offers for the target company.

Because the expected gain on an individual arbitrage investment is normally considerably smaller than the possible loss should the transaction be unexpectedly terminated, Fund assets will not be committed unless the proposed acquisition or other reorganization plan appears to the Alternative Investment Partners, LLC (the “Advisor”) to have a substantial probability of success. The expected timing of each transaction is also extremely important since the length of time that a Fund’s capital must be committed to any given reorganization will affect the rate of return realized by the Fund, and delays can substantially reduce such returns. See “Portfolio Turnover.”

Trading to seek short-term capital appreciation can be expected to cause a Fund’s portfolio turnover rate to be substantially higher than that of the average equity-oriented investment company and, as a result, may involve increased brokerage commission costs which will be borne directly by the Fund and ultimately by its investors. See “Allocation of Portfolio Brokerage” and “Portfolio Turnover.” Certain investments of a Fund may, under certain circumstances, be subject to rapid and sizable losses, and there are additional risks associated with a Fund’s overall investment strategy, which may be considered speculative.

Special Risks of Over-the-Counter Options Transactions

As part of its portfolio strategy, the Funds may engage in transactions in options that are traded over-the-counter (“OTC transactions”). OTC transactions differ from exchange-traded transactions in several respects. OTC transactions are transacted directly with dealers and not with a clearing corporation. Without the availability of a clearing corporation, OTC transaction pricing is normally done by reference to information from market makers, which information is carefully monitored by the Advisor and verified in appropriate cases.

As the OTC transactions are transacted directly with dealers, there is a risk of nonperformance by the dealer as a result of the insolvency of such dealer or otherwise, in which event a Fund may experience a loss. An OTC transaction may only be terminated voluntarily by entering into a closing transaction with the dealer with whom the Fund originally dealt. Any such cancellation, if agreed to, may require a Fund to pay a premium to that dealer. In those cases in which a Fund has entered into a covered transaction and cannot voluntarily terminate the transaction, the Fund will not be able to sell the underlying security until the investment instrument expires or is exercised or different cover is substituted. In such cases, a Fund may not be able to sell an underlying security even though it might otherwise be advantageous to do so.

It is each Fund’s intention to enter into OTC transactions only with dealers which agree to, and which are expected to be capable of, entering into closing transactions with the Funds, although there is no assurance that a dealer will voluntarily agree to terminate the transaction. There is also no assurance that a Fund will be able to liquidate an OTC transaction at any time prior to expiration. OTC transactions for which there is no adequate secondary market will be considered illiquid.

Additional Information on Investment Securities

Each Fund may invest in the following types of securities including those discussed in the Prospectus:

EQUITY SECURITIES: Each Fund will invest in equity securities consistent with the Fund’s investment objective and strategies. An equity security, or stock, represents a proportionate share of the ownership of a company; its value is based on the success of the company’s business, any income paid to stockholders, the value of its assets, and general market conditions. Common stocks and preferred stocks are examples of equity securities. Equity securities, such as common stocks, represent shares of ownership of a corporation. Preferred stocks are equity securities that often pay dividends at a specific rate and have a preference over common stocks in dividend payments and liquidation of assets. Please see “Preferred Stock” below. Some preferred stocks may be convertible into common stock. Convertible securities are securities (such as debt securities or preferred stock) that may be converted into or exchanged for a specified amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. Please see “Convertible Securities” below.

To the extent a Fund invests in the equity securities of small or medium-size companies, it will be exposed to the risks of smaller sized companies. Small and medium-size companies often have narrower markets for their goods and/or services and more limited managerial and financial resources than larger, more established companies. Furthermore, those companies often have limited product lines, or services, markets, or financial resources, or are dependent on a small management group. In addition, because these stocks are not well-known to the investing public, do not have significant institutional ownership, and are followed by relatively few security analysts, there will normally be less publicly available information concerning these securities compared to what is available for the securities of larger companies. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, can decrease the value and liquidity of securities held by a Fund. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of a Fund’s portfolio.

PREFERRED STOCK: Each Fund may invest in preferred stocks. A preferred stock is a blend of the characteristics of a bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and, unlike common stock, its participation in the issuer’s growth may be limited. Preferred stock has preference over common stock in the receipt of dividends and in any residual assets after payment to creditors should the issuer by dissolved. Although the dividend is set at a fixed annual rate, in some circumstances it can be changed or omitted by the issuer.

CONVERTIBLE SECURITIES: Each Fund may invest in convertible securities. A convertible security is a fixed-income security (a debt instrument or a preferred stock) which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or a different issuer. Convertible securities are senior to common stocks in an issuer’s capital structure, but are usually subordinated to similar non-convertible securities. While providing a fixed-income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar nonconvertible security), a convertible security also gives an investor the opportunity, through its conversion feature, to participate in the capital appreciation of the issuing company depending upon a market price advance in the convertible security’s underlying common stock.

INVESTMENT COMPANY SECURITIES: Each Fund may invest up to 25% of its assets in shares of other investment companies. A Fund may also invest in money market mutual funds in connection with its management of daily cash positions. Each Fund currently intends to limit its investments in securities issued by other investment companies so that not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund, or its affiliated persons, as a whole. In addition to the advisory and operational fees each Fund bears directly in connection with its own operation, each Fund would also bear its pro rata portions of each other investment company’s advisory and operational expenses.

A Fund’s investment in other investment companies may consist of shares of Exchange-Traded Funds (“ETFs”). ETFs are derivative securities whose value tracks a well-known securities index or basket of securities. A Fund’s investments in ETFs are subject to its limitations on investments in other investment companies. The shares of an ETF may be assembled in a block (typically 50,000 shares) known as a creation unit and redeemed in kind for a portfolio of the underlying securities (based on the ETF’s net asset value) together with a cash payment generally equal to accumulated dividends as of the date of redemption. Conversely, a creation unit may be purchased from the ETF by depositing a specified portfolio of the ETF’s underlying securities, as well as a cash payment generally equal to accumulated dividends of the securities (net of expenses) up to the time of deposit. A Fund’s ability to redeem creation units may be limited by the 1940 Act, which provides that the ETFs will not be obligated to redeem shares held by the Fund in an amount exceeding one percent of their total outstanding securities during any period of less than 30 days.

COMMERCIAL PAPER: Commercial paper consists of short-term unsecured promissory notes issued by corporations in order to finance their current operations. A Fund will only invest in commercial paper rated A-1 by Standard & Poor’s Ratings Group (“Standard & Poor’s”) or Prime-1 by Moody’s Investors Service, Inc. (“Moody’s”) or unrated paper of issuers who have outstanding unsecured debt rated AA or better by Standard & Poor’s or Aa or better by Moody’s. Certain notes may have floating or variable rates. Variable and floating rate notes with a demand notice period exceeding seven days will be subject to each Fund’s policy with respect to illiquid investments unless, in the judgment of the Advisor, such note is liquid.

The rating of Prime-1 is the highest commercial paper rating assigned by Moody’s. Among the factors considered by Moody’s in assigning ratings are the following: valuation of the management of the issuer; economic evaluation of the issuer’s industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; evaluation of the issuer’s products in relation to competition and customer acceptance; liquidity; amount and quality of long-term debt; trend of earnings over a period of 10 years; financial strength of the issuer’s parent company and the relationships which exist with the issuer; and recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. These factors are all considered in determining whether the commercial paper is rated Prime-1. Issuers of commercial paper rated A (highest quality) by Standard & Poor’s have the following characteristics: liquidity ratios are adequate to meet cash requirements; long-term senior debt is rated “A” or better, although in some cases “BBB” credits may be allowed; the issuer has access to at least two additional channels of borrowing; basic earnings and cash flow have an upward trend with allowance made for unusual circumstances; typically, the issuer’s industry is well established and the issuer has a strong position within the industry; and the reliability and quality of management are unquestioned. The relative strength or weakness of the above factors determines whether the issuer’s commercial paper is rated A-1.

REPURCHASE AGREEMENTS: Repurchase agreements are agreements by which a person purchases a security and simultaneously commits to resell that security to the seller (a member bank of the Federal Reserve System or recognized securities dealer) at an agreed upon price on an agreed upon date within a number of days (usually not more than seven) from the date of purchase. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or maturity of the purchased security. A repurchase agreement involves the obligation of the seller to repurchase the securities at the agreed upon price, which obligation is in effect secured by the value of the underlying security. A Fund may enter into repurchase agreements with respect to obligations in which the Fund is authorized to invest.

WARRANTS: A Fund may invest a portion of its assets in warrants. A warrant gives the holder a right to purchase at any time during a specified period a predetermined number of shares of common stock at a fixed price. Unlike convertible debt securities or preferred stock, warrants do not pay a fixed coupon or dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for resale of the warrants, potential price fluctuations as a result of speculation or other factors, and failure of the price of the underlying security to reach or have reasonable prospects of reaching a level at which the warrant can be prudently exercised (in which event the warrant may expire without being exercised, resulting in a loss of a Fund’s entire investment therein).

INITIAL PUBLIC OFFERINGS: A Fund may purchase shares in initial public offerings (IPOs). Because IPO shares frequently are volatile in price, the Fund may hold IPO shares for a very short period of time. This may increase the turnover of a Fund’s portfolio and may lead to increased expenses to the Fund, such as commissions and transaction costs. By selling shares, a Fund may realize taxable capital gains that it will subsequently distribute to shareholders. Investing in IPOs have added risks because their shares are frequently volatile in price. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of a Fund’s portfolio.

FOREIGN SECURITIES: Subject to each Fund’s investment policies and quality standards, a Fund may invest in the securities of foreign issuers listed on foreign securities exchanges or over-the-counter markets, or which are represented by American Depository Receipts and listed on domestic securities exchange or traded in the United States on over-the-counter markets.

Because the Funds may invest in foreign securities, an investment in a Fund involves risks that are different in some respects from an investment in a fund that invests only in securities of U.S. domestic issuers. Foreign investments may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. There may be less governmental supervision of securities markets, brokers and issuers of securities. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Settlement practices may include delays and may differ from those customary in United States markets. Investments in foreign securities may also be subject to other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets, restrictions on foreign investment and repatriation of capital, imposition of withholding taxes on dividend or interest payments, currency blockage (which would prevent cash from being brought back to the United States), and difficulty in enforcing legal rights outside the United States. Finally, there are many differences in government regulation and supervision of foreign securities exchanges, brokers, listed companies and banks compared to the United States. These differences could negatively impact foreign securities in which a Fund invests.

WRITING COVERED CALL OPTIONS: A Fund may write covered call options on equity securities to earn premium income, to assure a definite price for a security that the Fund has considered selling, or to close out options previously purchased. A call option gives the holder (buyer) the right to purchase a security at a specified price (the exercise price) at any time until a certain date (the expiration date). A call option is “covered” if a Fund owns the underlying security subject to the call option at all times during the option period.

When writing call options on securities, a Fund may cover its position by owning the underlying security on which the option is written. Alternatively, a Fund may cover its position by owning a call option on the underlying security, on a share for share basis, which is deliverable under the option contract at a price no higher than the exercise price of the call option written by the Fund or, if higher, by owning such call option and depositing and maintaining cash or liquid securities equal in value to the difference between the two exercise prices. In addition, a Fund may cover its position by depositing and maintaining cash or liquid securities equal in value to the exercise price of the call option written by the Fund. The principal reason for a Fund to write call options on securities held by the Fund is to attempt to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone.

There is no assurance that a closing transaction can be effected at a favorable price. During the option period, the covered call writer has, in return for the premium received, given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline.

WRITING COVERED PUT OPTIONS: A Fund may write covered put options on equity securities to assure a definite price for a security if they are considering acquiring the security at a lower price than the current market price or to close out options previously purchased. A put option gives the holder of the option the right to sell, and the writer has the obligation to buy, the underlying security at the exercise price at any time during the option period. The operation of put options in other respects is substantially identical to that of call options.

When writing put options on securities, a Fund may cover its position by owning a put option on the underlying security, on a share for share basis, which is deliverable under the option contract at a price no lower than the exercise price of the put option written by the Fund or, if lower, by owning such put option and depositing and maintaining cash or liquid securities equal in value between the two exercise prices. In addition, a Fund may cover its position by depositing and maintaining cash or liquid securities equal in value to the exercise price of the put option written by the Fund.

The risks involved in writing put options include the risk that a closing transaction cannot be effected at a favorable price and the possibility that the price of the underlying security may fall below the exercise price, in which case a Fund may be required to purchase the underlying security at a higher price than the market price of the security at the time the option is exercised.

OPTIONS TRANSACTIONS GENERALLY: A Fund may write both covered and uncovered options. Option transactions in which a Fund may engage involve the specific risks described above as well as the following risks:

·	the writer of an option may be assigned an exercise at any time during the option period;

·	disruptions in the markets for underlying instruments could result in losses for options investors;

·	imperfect or no correlation between the option and the securities being hedged;

·	the insolvency of a broker could present risks for the broker’s customers; and

·	market imposed restrictions may prohibit the exercise of certain options.

In addition, the option activities of a Fund may affect its portfolio turnover rate and the amount of brokerage commissions paid by the Fund. The success of a Fund in using the option strategies described above depends, among other things, on the Advisor’s ability to predict the direction and volatility of price movements in the options and securities markets and the Advisor’s ability to select the proper time, type and duration of the options.

By writing call options, a Fund forgoes the opportunity to profit from an increase in the market price of the underlying security above the exercise price except insofar as the premium represents such a profit. A Fund may also seek to earn additional income through receipt of premiums by writing covered put options. The risk involved in writing such options is that there could be a decrease in the market value of the underlying security. If this occurred, the option could be exercised and the underlying security would then be sold to a Fund at a higher price than its then current market value.

A Fund may purchase put and call options to attempt to provide protection against adverse price effects from anticipated changes in prevailing prices of securities. The purchase of a put option generally protects the value of portfolio holdings in a falling market, while the purchase of a call option generally protects cash reserves from a failure to participate in a rising market. In purchasing a call option, a Fund would be in a position to realize a gain if, during the option period, the price of the security increased by an amount greater than the premium paid. A Fund would realize a loss if the price of the security decreased or remained the same or did not increase during the period by more than the amount of the premium. If a put or call option purchased by a Fund were permitted to expire without being sold or exercised, its premium would represent a realized loss to the Fund.

The imperfect correlation in price movement between an option and the underlying financial instrument and/or the costs of implementing such an option may limit the effectiveness of the strategy. A Fund’s ability to establish and close out options positions will be subject to the existence of a liquid secondary market. Although a Fund generally will purchase or sell only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option or at any particular time. If an option purchased by a Fund expires unexercised, the Fund will lose the premium it paid. In addition, a Fund could suffer a loss if the premium paid by the Fund in a closing transaction exceeds the premium income it received. When a Fund writes a call option, its ability to participate in the capital appreciation of the underlying obligation is limited.

CREDIT DERIVATIVES: A Fund may enter into credit default swaps, as a buyer or a seller. The buyer in a credit default contract is obligated to pay the seller a periodic stream of payments over the term of the contract provided no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value (“par value”) of the underlying reference obligation in exchange for the underlying reference obligation. If a Fund is a buyer and no event of default occurs, the Fund will have made a stream of payments to the seller without having benefited from the default protection it purchased. However, if an event of default occurs, the Fund, as buyer, will receive the full notional value of the underlying reference obligation that may have little or no value following default. As a seller, a Fund receives a fixed rate of income throughout the term of the contract, provided there is no default. If an event of default occurs, the Fund would be obligated to pay the notional value of the underlying reference obligation in return for the receipt of the underlying reference obligation. The value of the underlying reference obligation received by a Fund coupled with the periodic payments previously received may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. Credit default swaps involve different risks than if a Fund invests in the underlying directly.

BORROWING: A Fund may borrow to increase its portfolio holdings of securities. Such borrowings may be on a secured or unsecured basis at fixed or variable rates of interest. The 1940 Act requires a Fund to maintain continuous asset coverage of not less than 300% with respect to all borrowings. This allows a Fund to borrow for such purposes an amount (when taken together with any borrowings for temporary or emergency purposes as described below) equal to as much as 50% of the value of its net assets (not including such borrowings). If such asset coverage should decline to less than 300% due to market fluctuations or other reasons, a Fund may be required to dispose of some of its portfolio holdings within three days in order to reduce the Fund’s debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to dispose of assets at that time.

A Fund may also be deemed to be borrowing when entering into certain derivative transactions such as certain options, forwards or swap transactions. This type of borrowing is generally referred to as economic leverage.

The use of borrowing by a Fund involves special risk considerations that may not be associated with other funds having similar policies. Since substantially all of a Fund’s assets fluctuate in value, whereas the interest obligation resulting from a borrowing will be fixed by the terms of the Fund’s agreement with their lender, the asset value per share of the Fund will tend to increase more when its portfolio securities increase in value and decrease more when its portfolio securities decrease in value than would otherwise be the case if the Fund did not borrow funds. In addition, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds. Under adverse market conditions, a Fund might have to sell portfolio securities to meet interest or principal payments at a time when fundamental investment considerations would not favor such sales. The interest which a Fund must pay on borrowed money, together with any additional fees to maintain a line of credit or any minimum average balances required to be maintained, are additional costs which will reduce or eliminate any net investment income and may also offset any potential capital gains. Unless the appreciation and income, if any, on assets acquired with borrowed funds exceed the costs of borrowing, the use of leverage will diminish the investment performance of a Fund compared with what it would have been without leverage.

ILLIQUID SECURITIES: Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933 (the “Securities Act”). Securities which are otherwise not readily marketable and securities such as repurchase agreements having a maturity of longer than seven days. Securities which have not been registered under the Securities Act are referred to as private placements or restricted securities and are purchased directly from the issuer or in the secondary market. In recent years, however, a large institutional market has developed for certain securities that are not registered under the Securities Act including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer’s ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of such investments. The Board of Trustees may determine that such securities are not illiquid securities notwithstanding their legal or contractual restrictions on resale. In all other cases, however, securities subject to restrictions on resale will be deemed illiquid. A Fund will not knowingly invest more than 15% of the value of its net assets, taken at the time of investment, in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, non negotiable fixed time deposits with maturates over seven days, over-the-counter options and certain restricted securities not determined by the Trustee to be liquid.

RESTRICTED SECURITIES: A Fund may invest in securities that are subject to restrictions on resale because they have not been registered under the Securities Act. These securities are sometimes referred to as private placements. Although securities which may be resold only to “qualified institutional buyers” in accordance with the provisions of Rule 144A under the Securities Act are technically considered “restricted securities,” a Fund may purchase Rule 144A securities without regard to the limitation on investments in illiquid securities described above in the “Illiquid Securities” section, provided that a determination is made that such securities have a readily available trading market. A Fund may also purchase certain commercial paper issued in reliance on the exemption from regulations in Section 4(2) of the Securities Act (“4(2) Paper”). The Advisor will determine the liquidity of Rule 144A securities and 4(2) Paper under the supervision of the Board of Trustees. The liquidity of Rule 144A securities and 4(2) Paper will be monitored by the Advisor, and if as a result of changed conditions it is determined that a Rule 144A security or 4(2) Paper is no longer liquid, a Fund’s holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities.

Limitations on the resale of restricted securities may have an adverse effect on the marketability of portfolio securities and a Fund might be unable to dispose of restricted securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemption requirements. A Fund might also have to register such restricted securities in order to dispose of them, resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities.

SHORT SALES: A Fund may employ various hedging techniques, such as short selling in an effort to reduce the risks associated with certain of its investments. For example, when the terms of a proposed acquisition call for the exchange of common stock and/or other securities, the common stock of the company to be acquired may be purchased and, at approximately the same time, the amount of the acquiring company’s common stock and/or other securities to be received may be sold short. The Advisor will make any such short sale with the intention of later closing out (or covering) the short position with the securities of the acquiring company received once the acquisition is consummated. The purpose of the short sale is to protect against a decline in the market value of the acquiring company’s securities prior to the acquisition’s completion. However, should the acquisition be called off or otherwise not completed, a Fund may realize losses on both its long position in the target company’s shares and its short position in the acquirer’s securities. At all times when a Fund does not own securities which are sold short, the Fund will maintain long securities available for collateral consisting of cash, cash equivalents and liquid securities equal in value on a daily marked-to-market basis to the securities sold short.

INVESTMENT IN PRIVATELY NEGOTIATED OPTIONS: A Fund may also invest in privately negotiated option contracts (each a "Private Option"). Generally, an option buyer negotiates with a bank or investment bank to buy a Private Option with contract terms that are more flexible than standardized exchange traded options. Under a Private Option contract, the buyer generally controls the length of the contract, the notional amount, and the asset or basket of securities comprising the reference portfolio that determines the value of the Private Option.

Private Options will generally have a term ranging from 12 to 60 months. A Fund may buy Private Options that will be based on an asset or a basket of securities (the "Basket") selected by the Advisor in accord with a Fund’s Investment Objective and approved by the counterparty (the "Counterparty"). The Basket may be comprised of securities that include common and preferred stock, government and private issuer debt (including convertible and non-convertible debt), options and futures contracts, limited partnership interests (including so-called "hedge funds") and shares of registered investment companies. During the term of a Private Option, the Advisor expects to have a limited right to modify the notional amount of the Private Option and the assets that comprise the Basket.

As with more traditional options, a Private Option will allow for the use of economic leverage without incurring risk beyond the amount of premium and related fees (the "Premium") paid for the Private Option. The Private Option will be structured so that it allows a Fund to benefit from an increase in the value of the Basket without owning the assets that comprise the Basket. Upon a decline in the value of the Basket, a Fund may lose all or a portion of the Premium paid for the Private Option. A Fund’s gain or loss may be magnified by writing the Private Option with reference to a much larger notional amount of the Basket than the Premium being paid by the Fund. At no time will a Fund or its shareholders be exposed to a risk of loss in excess of the Premium.

Upon the termination or expiration of a Private Option, a Fund will be entitled to receive from the Counterparty a cash payment (the "Settlement Price"), which is based on the change in value of the Basket serving as a benchmark for that Private Option. In no event will a Fund have the right to acquire the assets that comprise the Basket. The Settlement Price may reflect deductions for fees and an interest-equivalent amount payable to the Counterparty for establishing the Private Option. The Settlement Price will typically be payable to a Fund within a specified number of business days after termination or expiration of the Private Option. Any Private Option that does not require payment of the Settlement Price within seven calendar days after termination or expiration or that cannot be terminated by a Fund at any time will be treated as an illiquid asset.

The Counterparty will generally have the right to terminate a Private Option at any time prior to maturity. If the Basket does not sufficiently increase in value prior to termination or expiration, a Fund may still suffer losses even though the Basket increased in value because of fees and interest-equivalent amounts payable to the Counterparty or because the increase in value of the Basket has been insufficient to trigger a position settlement value.

The Counterparty to each Private Option will be a bank, financial institution, or an entity that is affiliated with either a bank or a financial institution with significant experience in the field of alternative investments. Each Counterparty will be one determined by the Advisor to be creditworthy and approved by the Funds’ Board, including a majority of the Independent Directors. Neither the Advisor nor the Funds will have any control over any hedging or similar techniques used by the Counterparty to attempt to ensure the Counterparty’s ability to perform under each Private Option. Likewise, neither the Advisor nor the Funds will have any claim on securities or other property, if any, which may be purchased by the Counterparty in connection with the Private Option. Should the Counterparty be unable to perform its obligations under a Private Option, then the Company could lose all or a portion of the Premium and the gain, if any, relating to such Private Option.

The following examples are intended to illustrate the basic structure and the gain or loss that a Fund might realize on Private Options. Certain details of a typical Private Option have been simplified for purposes of these examples.

Example A - Hypothetical Gain

The Advisor decides to acquire an interest in the increase (or decrease) in the value of securities that reflect a Fund’s investment objective (the "Securities"). On behalf of a Fund, the Advisor purchases a Private Option from a Counterparty using a Basket established under the Private Option that is comprised of the Securities. For example, a Fund may choose a notional amount of $150,000 and pay to the Counterparty a $50,000 up-front premium for the Private Option with the Fund entitled to any increase in value of the Basket in excess of $150,000. The Counterparty may or may not decide to purchase the notional value, $150,000, of the Securities that comprise the Basket in order to hedge its obligations under the Private Option. The Private Option is terminated after one year, at which time the value of the Index has increased to $180,000 and a Fund has paid $5,000 in fees and interest-equivalent payments. The Settlement Price would be calculated as $180,000 (the current notional amount), less $100,000 in economic leverage, and a Fund would have a net gain of $25,000 ($180,000 less $100,000 less $50,000 less $5,000).

Example B - Hypothetical Loss

The Advisor purchases a Private Option under the terms described above. However, upon termination of the Private Option the value of the Basket has declined to $120,000. The Settlement Price would be calculated as $120,000, less $100,000 in economic leverage, and a Fund would have a net loss of $35,000 ($120,000 less $100,000 less $50,000 less $5,000).

EQUITY SWAP AGREEMENTS: A Fund may also enter into equity swap agreements for the purpose of attempting to obtain a desired return or exposure to certain equity securities or equity indices in an expedited manner or at a lower cost to the Fund than if the Fund had invested directly in such securities.

Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on, or increase in value of a particular dollar amount invested in a “basket” of particular securities or securities representing a particular index.

Forms of swap agreements include:

(1)	equity or index caps, under which, in return for a premium, one party agrees to make payment to the other to the extent that the return on securities exceeds a specified rate, or “cap”;

(2)	equity or index floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that the return on securities fall below a specified level, or “floor”; and

(3)	equity or index collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against movements exceeding given minimum or maximum levels.

Parties may also enter into bilateral swap agreements, which obligate one party to pay the amount of any net appreciation in a basket or index of securities while the counterparty is obligated to pay the amount of any net depreciation.

The “notional amount” of the swap agreement is only a fictive basis on which to calculate the obligations that the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by a Fund would calculate the obligations of the parties to the agreement on a “net basis.” Consequently, a Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). A Fund’s current obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of liquid assets. A Fund will not enter into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 10% of the Fund’s net assets.

Whether a Fund’s use of swap agreements will be successful in furthering its investment objective will depend on the Advisor’s ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Advisor will cause a Fund to enter into swap agreements only with counterparties that would be eligible for consideration as repurchase agreement counterparties under the Fund’s repurchase agreement guidelines. Certain restrictions imposed on a Fund by the Internal Revenue Code may limit the Fund’s ability to use swap agreements. The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

TEMPORARY INVESTMENTS: A Fund may adopt temporary defensive positions by investing up to 100% of its net assets in positions that are inconsistent with the Fund’s principal investment strategies in attempting to respond to adverse market, economic, political, or other conditions. Depending upon the level of merger activity and other economic and market conditions, a Fund may invest temporarily a substantial portion of its assets in:

§	cash or cash equivalents, including money market instruments such as Treasury bills and other short-term obligations of the United States Government, its agencies or instrumentalities;

commercial paper rated A-1 by S&P or Prime-1 by Moody’s. In the case where commercial paper has received different ratings from different rating services, such commercial paper is acceptable so long as at least one rating is in the highest categories of the nationally recognized rating organizations described above; obligations of the U.S. government or its agencies or instrumentalities; and

§	repurchase agreements;

To the extent a Fund invests in these temporary investments, the Fund may not reach its investment objective.

MANAGEMENT

The business of the Trust is managed under the direction of the Board of Trustees in accordance with the Declaration of Trust of the Trust, which has been filed with the Securities and Exchange Commission and is available upon request. The Board of Trustees consists of five individuals, four of whom are not “interested persons” (as defined under the 1940 Act) of the Trust and the Advisor (“Independent Trustees”). Pursuant to the Declaration of Trust, the Trustees shall elect officers including a president, secretary and treasurer. The Board of Trustees retains the power to conduct, operate and carry on the business of the Trust and has the power to incur and pay any expenses that, in the opinion of the Board of Trustees, are necessary or incidental to carry out any of the Trust’s purposes. The Trustees, officers, employees and agents of the Trust, when acting in such capacities, shall not be subject to any personal liability except for his or her own bad faith, willful misfeasance, gross negligence or reckless disregard of his or her duties. Following is a list of the Trustees and executive officers of the Trust and their principal occupation over the last five years.

Independent Trustees


Name, Address and Age	Position*	Term of Office and Length of Time Served	Principal Occupation During the Past Five Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships held by Trustee
Joseph E. Breslin (51) 701 Westchester Avenue, Suite 312-W, White Plains, NY 10604	Trustee and Chairman	Indefinite Term since 2004	Chief Operating Officer, Aladdin Capital Management LLC (February 2005 to Present); Independent Investment Management Services Consultant, Whitehall Asset Management (May 2003 to January 2005); Senior Managing Director, Marketing & Sales, Whitehall Asset Management, a financial services company (September 1999 to March 2003); President, J.E. Breslin & Co., an investment management consulting firm (1994 to 1999).	Two	Andrx Corporation; Kinetics Mutual Funds, Inc. (mutual fund) from 2000 - Present; Kinetics Portfolios Trust (mutual fund) from 2000 - Present.
Robert Anderson (65) 701 Westchester Avenue, Suite 312-W White Plains, NY 10604	Trustee	Indefinite Term since 2002	Senior Vice President Aquila Management Corp. since 1998; From 1995 to 1998 Consultant for The Wadsworth Group.	Two	None
Joyce P. Montgomery Rocklin (55) 701 Westchester Avenue, Suite 312-W White Plains, NY 10604	Trustee	Indefinite Term since 2002	Vice President, JES Promotions (2003 to Present); Retired; Bank and Investment Company Consultant; Retired Financial Services Marketing Executive (2000 - 2003).	Two	None


Name, Address and Age	Position*	Term of Office and Length of Time Served	Principal Occupation During the Past Five Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships held by Trustee
Thomas Mann (55) 701 Westchester Avenue, Suite 312-W White Plains, NY 10604	Trustee	Indefinite Term since 2002	Managing Director, SG Constellation (1994 to Present); Managing Principal, Constellation Financial Management Company LLC.	Two	None

Interested Trustee


Name, Address and Age	Position*	Term of Office and Length of Time Served	Principal Occupation During the Past Five Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships held by Trustee
Stephen G. Bondi (47) 800 Third Avenue, 22^nd Floor New York, NY 10022	Interested Trustee, Treasurer and Chief Financial Officer	Indefinite Term since 2004	Chief Financial Officer and Senior Vice President of Asset Alliance Corporation (an investment holding company) and certain related entities (2000- present).	Two	None

*Mr. Bondi is an “interested” Trustee because of his affiliation with Asset Alliance, which owns a controlling interest in AIP.

Officers


Name, Address and Age	Position	Term of Office and Length of Time Served	Principal Occupation During the Past Five Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships held by Trustee
Lee Schultheis (49) 701 Westchester Avenue, Suite 312-W White Plains, NY 10604	President	Indefinite Term since 2004	Chief Executive Officer of the Advisor (2004 - Present); Managing Member and Chief Investment Officer of the Advisor (2002 to Present); Chief Operating Officer of Kinetics Asset Management, Inc. and President of Kinetics Funds Distributor, Inc. (1999 to 2002)	N/A	N/A
	President			N/A	N/A
Stephen G. Bondi (47) 800 Third Avenue, 22^nd Floor New York, NY 10022	Treasurer and Chief Financial Officer	Indefinite Term since 2004	See above.	See above.	See above.
Kristina Labermeier (26) 701 Westchester Avenue, Suite 312-W White Plains, NY 10604	Secretary and Chief Compliance Officer	Indefinite Term since 2005	Chief Compliance Officer of the Advisor (April 2005 to Present); Compliance Officer of U.S. Bancorp Fund Services, LLC (2002 to 2005); Student prior to 2002.	N/A	N/A

Board Committees

Audit Committee

The members of the Audit Committee of the Board of Trustees are Mr. Breslin, Mr. Anderson, Mr. Mann and Ms. Montgomery Rocklin, each an Independent Trustee. Mr. Anderson is the chairperson of the Audit Committee. The Audit Committee oversees the Funds’ financial reporting process, reviews audit results and recommends annually to the Trust a firm of independent certified public accountants and plans to meet at least once annually. The Audit Committee met twice during the last fiscal year.

Nominating Committee

The members of the Nominating Committee of the Board of Trustees are all Independent Trustees and are Mr. Breslin, Ms. Montgomery Rocklin, Mr. Mann and Mr. Anderson. Ms. Montgomery Rocklin is the chairperson of the Nominating Committee. The Nominating Committee is responsible for seeking and reviewing candidates for consideration as nominees for Trustees as is from time to time considered necessary or appropriate. The Nominating Committee does not accept shareholder nominations for candidates for the Board. The Nominating Committee met once during the last fiscal year.

Valuation Committee

The members of the Valuation Committee of the Board of Trustees are Mr. Breslin, Mr. Mann, Ms. Montgomery Rocklin and Mr. Anderson, each an Independent Trustee. Mr. Anderson is the chairperson of the Valuation Committee. The Valuation Committee is responsible for monitoring the valuation of portfolio securities and other investments, and, as required by the Trust’s valuation policies, when the full Board is not in session, determining the fair value of illiquid and other holdings after consideration of all relevant factors. The Valuation Committee met four times during the last fiscal year.

Qualified Legal Compliance Committee

The members of the Qualified Legal Compliance Committee (“QLCC”) of the Board of Trustees are Mr. Breslin, Mr. Mann, Ms. Montgomery Rocklin and Mr. Anderson, each an Independent Trustee. The Qualified Legal Compliance Committee is responsible for compliance with Rules 205.2(k) and 205.3(c) of the Code of Federal Regulations, regarding alternative reporting procedures for attorneys retained or employed by the issuer who appear and practice before the Securities and Exchange Commission on behalf of the issuer (the issuer attorneys). An issuer attorney who becomes aware of evidence of a material violation by the Trust, or by any officer, director, employee, or agent of the Trust, may report evidence to the QLCC as an alternative to the reporting requirements of Rule 205.3(b) (which requires reporting to the chief legal officer and potentially “up the ladder” to other entities). The QLCC did not have reason to meet during the past fiscal year.

Compensation

Each Trustee who is not affiliated with the Trust or the Advisor will receive an annual salary in the amount of $10,000 per year and shall receive a fee of $1,000 per regular or special meeting attended, as well as reimbursement for any reasonable expenses incurred attending the meetings. “Interested persons” who serve as Trustees of the Trust receive no compensation for their services as Trustees. None of the executive officers receive compensation from the Trust.

The table below details the amount of compensation the Trustees will receive from the Trust during a fiscal year and assumes that the Funds are fully operational and the Trustees have attended all quarterly meetings. Currently, the Trust does not have a bonus, profit sharing, pension or retirement plan.

Name of Person/Position	Aggregate Compensation From the Trust¹	Pension or Retirement Benefits Accrued as Part of Fund Expenses	Estimated Annual Benefits Upon Retirement	Total Compensation from Trust Paid to Trustees^1,
Stephen Bondi, Trustee	$0	$0	$0	$0
Joseph Breslin, Trustee	$14,000	$0	$0	$14,000

Name of Person/Position	Aggregate Compensation From the Trust¹	Pension or Retirement Benefits Accrued as Part of Fund Expenses	Estimated Annual Benefits Upon Retirement	Total Compensation from Trust Paid to Trustees^1,
Robert Anderson, Trustee	$14,000	$0	$0	$14,000
Joyce Montgomery Rocklin, Trustee	$14,000	$0	$0	$14,000
Thomas Mann, Trustee	$14,000	$0	$0	$14,000

¹ Under the Operating Services Agreement, the Advisor pays the Board of Trustees expenses. These amounts represent payment by the Advisor to each Trustee.

Management Ownership

As of March 31, 2006 the officers and Trustees, as a group, owned .43% of the Fund’s outstanding shares. The following table shows the dollar range of shares beneficially owned by each the officers and Trustee in Alpha as of March 31, 2006:

Name of Person/Position	Aggregate Dollar Range of Equity Securities Beneficially Owned
Stephen Bondi	$0
Joseph Breslin	$0
Robert Anderson	$10,001 - $50,000
Joyce Montgomery Rocklin	$50,001 - $100,000
Thomas Mann	$10,001 - $50,000
Lee Schultheis	$500,001 - $1,000,000
Kristina Labermeir	$1- 10,001

Furthermore, as of March 31, 2006 neither the Independent Trustees nor members of their immediate family owned securities beneficially or of record in the Advisor, the Funds’ principal underwriter, or an affiliate of the Advisor or principal underwriter. Accordingly, neither the Independent Trustees nor members of their immediate family have direct or indirect interest, the value of which exceeds $60,000, in the Advisor, the Funds’ principal underwriter or any of their affiliates. In addition, during the most recently completed calendar year, neither the Independent Trustees nor members of their immediate families have conducted any transactions (or series of transactions) in which the amount involved exceeds $60,000 and to which the Advisor, the Funds’ principal underwriter or any affiliate thereof was a party.

CONTROL PERSONS AND PRINCIPAL HOLDERS

A principal shareholder is any person who owns of record or beneficially 5% or more of the outstanding shares of a Fund. A control person is one who owns beneficially or through controlled companies more than 25% of the voting securities of a company or acknowledges the existence of control. As of March 31, 2006, the following shareholders were considered to be either a control person or principal shareholder of the Funds:

Alpha Hedged Strategies Fund


Name and Address	Number of Shares	% Ownership	Type of Ownership
Charles Schwab & Co., Inc. 101 Montgomery St. San Francisco, CA 94104-4122	7,908,176	52.09%	R

National Financial Services LLC 200 Liberty Street New York, NY 10281-1003	2,551,512	16.81%	R

National Investor Services 55 Water St., 32^nd Floor New York, NY 10041	2,535,763	16.70%	R

Beta Hedged Strategies Fund


Name and Address	Number of Shares	% Ownership	Type of Ownership
None noted

INVESTMENT ADVISOR, SUB-ADVISORS AND RESEARCH CONSULTANT

Investment Advisor, Advisory Agreement and Operating Services Contract

Alternative Investment Partners, LLC, 701 Westchester Avenue, Suite 312-W, White Plains, New York 10604, the Funds’ Investment Advisor (the “Advisor”), is registered as an investment advisor with the Securities and Exchange Commission under the Investment Advisors Act of 1940. Lee W. Schultheis is the Chief Executive Officer, Chief Investment Officer and Managing Member of the Advisor. The Advisor is owned jointly by Mr. Schultheis and Asset Alliance Corporation, 800 Third Avenue, 22^nd Floor, New York, NY 10022 (“Asset Alliance”). Mr. Schultheis and Asset Alliance each own a controlling interest (as defined in the 1940 Act) in the Advisor. Asset Alliance is also affiliated with the Research Consultant used by the Advisor to assist in selecting Sub-Advisors. Asset Alliance is a Delaware corporation established on February 1, 1996 as a multi-faceted investment management firm, specializing in alternative investment management - specifically hedge funds and hedge fund products. As of March 31, 2006, Asset Alliance and its affiliated managers managed approximately $3.3 billion through various alternative investment products. Through its wholly owned subsidiary, Asset Alliance Advisors, Inc., a Delaware corporation established in 1997 (“Asset Alliance Advisors”), Asset Alliance manages investment products for high net worth and institutional investors, and provides advisory services to organizations worldwide. Asset Alliance Advisors is registered with the U.S. Securities and Exchange Commission as a registered investment advisor under the Investment Advisors Act of 1940, as amended and is registered with the U.S. Commodity Futures Commission and the National Futures Association as a commodity pool operator and a commodity trading advisor.

Under the terms of the Investment Advisory Agreement (the “Advisory Agreement”) between the Trust and the Advisor, the Advisor:

(1)	manages the investment operations of the Funds and the composition of its portfolio, including the purchase, retention and disposition of securities in accordance with each Fund’s investment objective,

(2)	provides all statistical, economic and financial information reasonably required by the Funds and reasonably available to the Advisor,

(3)	provides the Custodian of the Funds’ securities on each business day with a list of trades for that day, and

(4)	provides persons satisfactory to the Trust’s Board of Trustees to act as officers and employees of the Trust.

Under the terms of the Operating Services Agreement (the “Services Contract”) between the Trust and the Advisor, the Advisor pays the following Fund expenses, including, without limitation:

(1)	the costs incurred in connection with registration and maintenance of its registration under the Securities Act, as amended, the 1940 Act, as amended, and state securities laws and regulations,

(2)	preparation of and printing and mailing reports, notices and prospectuses to current shareholders,

(3)	transfer taxes on the sales of Fund shares

(4)	custodial, shareholder transfer charges and fees of the Funds’ distributor,

(5)	legal (excluding litigation to which the Funds may be a party), auditing and accounting expenses,

(6)	expenses of servicing shareholder accounts,

(7)	insurance expenses for fidelity and other coverage,

(8)	fees and expenses of Trustees who are not “interested persons” within the meaning of the 1940 Act, and

(9)	expenses of Trustee and shareholder meetings.

The Services Contract provides that the Funds pay the following Fund expenses, including, without limitation,

(1)

transfer taxes on the sales of portfolio securities,

(2)

brokerage commissions,

(3)

taxes owed to Federal and State jurisdictions by the Funds,

(4)

Interest expense on Fund borrowing, and

(5)

Dividends paid out on short sales.

The Funds are also liable for such nonrecurring expenses as may arise, including litigation to which the Funds may be a party. The Funds have an obligation to indemnify each of its officers and Trustees with respect to such litigation but not against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.

The Advisor receives an advisory fee, payable monthly, for the performance of its services at an annual rate of 2.50% of the average daily net assets of the Underlying Funds. The fee will be accrued daily for the purpose of determining the offering and redemption price of the Underlying Funds’ shares.

The Advisor receives an operating services fee, payable monthly, for the performance of its services at an annual rate of 0.74% of the average daily net assets of each Fund. Additionally, the Underlying Funds have entered into a similar Operating Services Agreement, under which, each Underlying Fund pays the Advisor 0.50% of such Fund’s average daily net assets. In addition, the Advisor receives 0.25% for services performed under the Shareholder Services Agreement. These shareholder services may be performed by the Advisor directly or by others on behalf of the Advisor, and may include, among other things, assisting shareholders in processing their purchase, exchange, or redemption requests, processing dividend and distribution payments, or other administrative overhead associated with servicing the Funds’ shareholders. The operating services fee and the shareholder services fee will be accrued daily for the purpose of determining the offering and redemption price of the Funds’ shares.

The combined effect of the Advisory Agreement, Services Contract and Shareholder Servicing Agreement is to place a cap or ceiling on the Funds’ ordinary annual operating expenses at 0.99% of the average daily net assets of each Funds, excepting brokerage commissions and portfolio trading transfer tax, interest on Fund borrowing, dividends paid on short sales, taxes, litigation and other extraordinary expenses.

During the fiscal year ending July 31, 2005, the Advisor accrued: (a) $1,511,398 in fees for its advisory services performed on behalf of Alpha; (b) $749,654 in fees for its services performed under the Services Contract with Alpha; and (c) $151,140 in shareholder services fees. During the fiscal year ending July 31, 2004, the Advisor accrued: (a) $ 320,150 in fees for its advisory services performed on behalf of Alpha; (b) $ 158,794 in fees for its services performed under the Services Contract with Alpha; and (c) $ 32,015 in shareholder services fees. During the fiscal period September 23, 2002 through July 31, 2003, the Advisor accrued: (a) $252,607 in fees for its advisory services performed on behalf of Alpha; (b) $125,293 in fees for its services performed under the Services Contract with Alpha; and (c) $25,261 in shareholder services fees.

The Advisory Agreement, Services Contract and Shareholder Servicing Agreement will each continue in effect for two (2) years initially and thereafter shall continue from year to year provided such continuance is approved at least annually by (a) a vote of the majority of the Funds’ Independent Trustees, cast in person at a meeting specifically called for the purpose of voting on such approval and by (b) the majority vote of either all of the Funds’ Trustees or the vote of a majority of the outstanding shares of the Funds. The Advisory Contract, Services Contract and Shareholder Servicing Agreement may be terminated without penalty on 60 days’ written notice by a vote of a majority of the Funds’ Trustees or by the Advisor, or by holders of a majority of the Funds’ outstanding shares. The Advisory Contract, Services Contract and Shareholder Servicing Agreement shall terminate automatically in the event of its assignment.

Research Consultant

The Advisor has decided to retain the services of a research consultant to aid with the selection of sub-advisors to the Underlying Funds. Trust Advisors, LLC (the “Research Consultant”), an investment advisor registered with the Securities and Exchange Commission, located at 501 Kings Highway East, Suite 304, Fairfield, CT 06825 will provide the Advisor with background information and other such research on Sub-Advisors and prospective sub-advisors. The Advisor utilizes the services of the Research Consultant to conduct a comprehensive review of each Sub-Advisor, its investment process and organization. The Research Consultant shall provide the Advisor with research on a wide range of factors on each Sub-Advisor including, but not limited to, past investment performance during various market conditions, investment strategies and processes used, structures of portfolios and risk management procedures, reputation, experience and training of key personnel, correlation of results with other Sub-Advisors and assets under management and number of clients. The Advisor and/or Research Consultant will conduct interviews of each Sub-Advisors’ personnel as well as interviews with third party references and industry sources. The Advisor will allocate the assets of each Underlying Fund among the Sub-Advisors based on the research conducted by the Research Consultant. The Advisor and Research Consultant are affiliated entities and the fees payable with respect to the services provided by the Research Consultant are paid by the Advisor. For the fiscal period September 23, 2002 through July 31, 2003, the Research Consultant received from the Advisor $25,261 for its services on behalf of alpha. For the fiscal year ending July 31, 2004, the Research Consultant received from the Advisor $32,102 on behalf of Alpha. For the fiscal year ending July 31, 2005, the Research Consultant received from the Advisor $151,140 on behalf of Alpha.

Sub-Advisors

In order to facilitate the efficient supervision and management of the Sub-Advisors by the Advisor and the Trustees, the Trust and the Advisor applied for, and the SEC approved, an exemptive order, which is also applicable to the Underlying Funds in the Underlying Funds Trust, that permits the Advisor, subject to certain conditions and approval by the Board of Trustees, but without shareholder approval, to hire new Sub-Advisors, change the terms of particular agreements with Sub-Advisors or continue the employment of existing Sub-Advisors after events that would otherwise cause an automatic termination of a sub-advisory agreement. Within 60 days of employing a new Sub-Advisor, shareholders will receive notification of the change. The Trust currently engages the following Sub-Advisors to conduct the investment programs of the Underlying Funds pursuant to separate sub-advisory agreements with the Advisor (“Sub-Advisor Agreements”):

Alpha Equity Management LLC

The Advisor has entered into a sub-advisory agreement with Alpha Equity Management LLC (“Alpha Equity”), to manage a portion of the Funds’ assets. Alpha Equity is located at Alpha Equity Management LLC, 19A Ensign Drive, Avon, Connecticut 06001, and is a registered investment advisor. Alpha Equity provides investment advice and portfolio management services to individually managed accounts for high net worth and institutional investors. As of March 31, 2006, Alpha Equity managed approximately $90 million in assets.

Apis Capital Advisers, LLC

The Advisor has entered into a sub-advisory agreement with Apis Capital Advisers, LLC (“Apis”), to manage a portion of the Funds’ assets. Apis is located at Apis Capital Advisers, LLC, 1445 East Putnam Avenue, Old Greenwich, Connecticut 06870, and is a registered investment advisor. Apis provides investment advice and portfolio management services to individually managed accounts for high net worth investors. As of March 31, 2006, Apis managed approximately $124 million in assets.

CapitalWorks Investment Partners, LLC

The Advisor has entered into a sub-advisory agreement with CapitalWorks Investment Partners, LLC (“CapitalWorks”), to manage a portion of the Funds’ assets. CapitalWorks is located at 402 West Broadway, 25^th Floor, San Diego, California 92101, and is a registered investment advisor. CapitalWorks provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pension and profit sharing plans, pooled investment vehicles, and charitable organizations. As of March 31, 2006, CapitalWorks managed approximately $758 million in assets.

Gabelli Asset Management Company

The Advisor has entered into a sub-advisory agreement with Gabelli Asset Management Company (“Gabelli”), to manage a portion of the Funds’ assets. Gabelli is located at Gabelli Asset Management Company, One Corporate Center, Rye, New York 10580, and is a registered investment advisor, Gabelli provides investment advice, management services and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pension and profit sharing plans, pooled investment vehicles, other corporate entities, and state and municipal governments. As of March 31, 2006, Gabelli and its affiliates managed approximately $27 billion in assets.

G2 Capital Management, LLC

The Advisor has entered into a sub-advisory agreement with G2 Capital Management, LLC (“G2”), to manage a portion of the Funds’ assets. G2 is located at G2 Capital Management, LLC, 7777 Girard Avenue, Suite 200, La Jolla, California 92037, and is a registered investment advisor. G2 provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, family offices, and institutional fund of funds. As of March 31, 2006, G2 managed approximately $22 million in assets.

Quattro Global Capital, LLC

The Advisor has entered into a sub-advisory agreement with Quattro Global Capital, LLC (“Quattro”), to manage a portion of the Funds’ assets. Quattro is located at 546 Fifth Avenue, 19^th Floor, New York, New York 10036, and is a registered investment advisor. Quattro provides investment advice and portfolio management services to individually managed accounts for high net worth individual and institutional investors. As of March 31, 2006, Quattro managed approximately $1 billion in assets.

Schultze Asset Management, LLC

The Advisor has entered into a sub-advisory agreement with Schultze Asset Management, LLC (“Schultze”), to manage a portion of the Funds’ assets. Schultze is located at 3000 Westchester Avenue, Purchase, New York 10577, and is a registered investment advisor. Schultze provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pension and profit sharing plans, and charitable organizations. As of March 31, 2006, Schultze managed approximately $406 million in assets.

Seagate Global Advisors, LLC

The Advisor has entered into a sub-advisory agreement with Seagate Global Advisors, LLC (“Seagate”), to manage a portion of the Funds’ assets. Seagate is located at 119 W. Torrance Boulevard, Suite 2, Redondo Beach, California 90277, and is a registered investment advisor. Seagate provides investment advice and portfolio management services to individually managed accounts for high net worth individuals, family offices and institutional investors. As of March 31, 2006, Seagate managed approximately $112 million in assets.

Smith Breeden Associates, Inc.

The Advisor has entered into a sub-advisory agreement with Smith Breeden Associates, Inc. (“Smith Breeden”) to manage a portion of the Funds’ assets. Smith Breeden is located at 100 Europa Drive, Suite 200, Chapel Hill, North Carolina 27517, and is a registered investment advisor. Smith Breeden provides investment advice, management services and portfolio management services to individually managed accounts for high net worth individuals, banking and thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organizations, other corporate entities, state and municipal governments, and other endowments and foundations. As of March 31, 2006, Smith Breeden managed approximately $28 billion in assets.

Twin Capital Management, Inc.

The Advisor has entered into a sub-advisory agreement with Twin Capital Management, Inc. (“Twin Capital”), to manage a portion of the Funds’ assets. Twin Capital is located at 3244 Washington Road, Suite 202, McMurray, Pennsylvania 15317, and is a registered investment advisor. Twin Capital provides investment advice, management services and portfolio management services to individually managed accounts for high net worth individuals, investment companies, pension and profit sharing plans, pooled investment vehicles, other corporate entities, and state and municipal governments. As of March 31, 2006, Twin Capital managed approximately $496 million in assets.

Weiss, Peck & Greer Investments

The Advisor has entered into a sub-advisory agreement with Weiss, Peck & Greer Investments (“WPG”), to manage a portion of the Funds’ assets. WPG is located at 909 Third Avenue, 32^nd Floor, New York, New York 10022, and is a registered investment advisor. WPG provides investment advice and portfolio management services to individually managed accounts for high net worth individual and institutional investors. As of March 31, 2006, WPG managed approximately $14 billion in assets.

Zacks Investment Management, Inc.

The Advisor has entered into a sub-advisory agreement with Zacks Investment Management, Inc. (“Zacks”), to manage a portion of the Funds’ assets. Zacks is located at 155 North Wacker Drive, Suite 250, Chicago, Illnois 60606, and is a registered investment advisor. Zacks provides investment advice, management services and portfolio management services to individually managed accounts for individuals, high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, and pooled investment vehicles. As of March 31, 2006, Zacks managed approximately $551 million in assets.

The Advisor pays the Sub-Advisors an annual fee out of its advisory fee based on the average daily net assets of the Fund allocated to, and managed, by each Sub-Advisor.

Sub-Advisor Agreements

Each of the Sub-Advisor Agreements provide that the Sub-Advisor will formulate and implement a continuous investment program for a Fund in accordance with the Fund’s objective, policies and limitations and any investment guidelines established by the Advisor. Each Sub-Advisor will, subject to the supervision and control of the Advisor, determine in its discretion which issuers and securities will be purchased, held, sold or exchanged by a Fund, and will place orders with and give instruction to brokers and dealers to cause the execution of such transactions. The Sub-Advisors are required to furnish at its own expense all investment facilities necessary to perform its obligations under the Sub-Advisor Agreements.

Each Sub-Advisor Agreement will continue in effect from year to year, provided it is approved at least annually by a vote of the majority of the Trustees, where applicable, who are not parties to the agreement or interested persons of any such party, cast in person at a meeting specifically called for the purpose of voting on such approval. Each Sub-Advisor Agreement may be terminated without penalty at any time by the Advisor or the Sub-Advisor on 60 days’ written notice, and will automatically terminate in the event of its “assignment” (as that term is defined in the 1940 Act).

Portfolio Managers

The following section provides information regarding each portfolio managers' compensation, other accounts managed, material conflicts of interests, and any ownership of securities in the Funds. Each portfolio manager or team member is referred to as a portfolio manager below. The portfolio managers are shown together in this section only for ease in presenting the information and should not be viewed for purposes of comparing the portfolio managers or their firms against one another. Each firm is a separate entity that may employ different compensation structures, may have different management requirements, and each portfolio manager may be affected by different conflicts of interest.

Other Accounts Managed by Portfolio Managers

The table below identifies, for each portfolio manager of the Funds, the number of accounts managed (excluding the Funds) and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. To the extent that any of these accounts are based on account performance, this information is reflected in separate tables below. Information in all tables is shown as of December 31, 2005. Asset amounts are approximate and have been rounded.

Portfolio Manager (Firm)	Registered Investment Companies (excluding the Funds)		Other Pooled Investment Vehicles		Other Accounts
Portfolio Manager (Firm)	Number of Accounts	Total Assets in the Accounts	Number of Accounts	Total Assets in the Accounts	Number of Accounts	Total Assets in the Accounts
Lee Schultheis (AIP)	0	$0.00	0	$0.00	0	$0.00
Mark Tonucci (Trust Advisors LLC)	0	$0.00	1	$112 million	0	$0.00
Michael E. Portnoy (Trust Advisors LLC)	0	$0.00	1	$112 million	0	$0.00

The following table reflects information regarding accounts for which the portfolio manager has day-to-day management responsibilities and with respect to which the advisory fee is based on account performance. Information is shown as of December 31, 2005. Asset amounts are approximate and have been rounded.

Other Accounts That Pay Performance-Based Advisory Fees Managed by Portfolio Managers

Portfolio Manager (Firm)	Registered Investment Companies		Other Pooled Investment Vehicles		Other Accounts
Portfolio Manager (Firm)	Number of Accounts	Total Assets in the Accounts	Number of Accounts	Total Assets in the Accounts	Number of Accounts	Total Assets in the Accounts
Lee Schultheis (AIP)	0	$0.00	0	$0.00	0	$0.00
Mark Tonucci (Trust Advisors LLC)	0	$0.00	0	$0.00	0	$0.00
Michael E. Portnoy (Trust Advisors LLC)	0	$0.00	0	$0.00	0	$0.00

Material Conflicts of Interest

Actual or apparent material conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one investment account or in other circumstances. Each sub-advisor may manage other accounts that have similar investment objectives or strategies. Portfolio managers of each of the sub-advisors who manage other investment accounts in addition to the Funds may be presented with the potential conflicts.

Any material conflicts of interest which may arise in connection with a sub-advisor’s management of a Fund's investments and the management of the investments of other accounts are addressed primarily through each sub-advisor’s allocation policies. The sub-advisors attempt to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities for a Fund and another advisory account.

Compensation Structure and Methods

The following section describes the structure of, and the methods used to determine the different types of compensation (e.g., salary, bonus, deferred compensation, retirement plans and arrangements) for each of the Fund’s portfolio managers as of December 31, 2005.

Securities Owned in the Fund by Portfolio Managers.

As of December 31, 2005, the portfolio managers owned the following equity securities in the Fund:


Name of Portfolio Manager	Dollar Range of Equity Securities in the Fund (None, $1 - $10,000, $10,001 - $50,000, $50,001 - $100,000, $100,001 - $500,000, $500,001 - $1,000,000, Over $1,000,000	Aggregate Dollar Range of Equity Securities in all Registered Investment Companies overseen by Portfolio Manager in Family of Investment Companies
Lee Schultheis	$500,001 - $1,000,000	$500,001 - $1,000,000
Mark Tonucci	$100,001 - $500,000	$100,001 - $500,000
Michael E. Portnoy	$100,001 - $500,000	$100,001 - $500,000

Codes of Ethics

The Funds, the Advisor, the Sub-Advisors and the Distributor each have adopted codes of ethics under Rule 17j-1 under the 1940 Act that governs the personal securities transactions of their board members, officers and employees who may have access to current trading information of the Trust. Under the code of ethics, the Trustees are permitted to invest in securities that may also be purchased by the Funds.

PROXY VOTING POLICIES AND PROCEDURES

The Advisor provides a voice on behalf of shareholders of the Funds. The Advisor views the proxy voting process as an integral part of the relationship with the Funds. The Advisor is also in a better position to monitor corporate actions, analyze proxy proposals, make voting decisions and ensure that proxies are submitted promptly. Therefore, the Funds delegate authority to vote proxies to the Advisor, subject to the supervision of the Board of Trustees. The Funds, through the Chief Investment Strategist or designated Sub-Advisor, will conduct a thorough review of and analysis of the underlying company’s proxy statements and vote proxies in accordance with the Funds’ Proxy Voting Policies and Procedures (“Policies and Procedures”), as summarized below. The Funds also have a designated Proxy Administrator who is responsible for ensuring that all Fund proxy matters are communicated to the Chief Investment Strategist or designated Sub-Advisor. The fundamental purpose of the Policies and Procedures is to ensure that each vote will be in a manner that reflects the best interest of the Funds and their shareholders, and that maximizes the value of the Fund’s investment.

Policies and Procedures

The Policies and Procedures recognize that a company’s management is entrusted with the day-to-day operations of the company, as well as its long-term strategic direction, subject to the oversight of the company’s board of directors. Accordingly, the Funds believe that the recommendation of management on most issues deserves weight in determining how proxy issues should be voted. The company’s position, however, will not be supported in any situation where the Chief Investment Strategist reasonably believes that it is not in the best interest of the Funds or a particular company. It is anticipated that most votes will be consistent with the guidelines set forth in the Policies and Procedures; however, the Chief Investment Strategist, or designated Sub-Advisor, may occasionally take an independent view on certain issues and vote differently. Votes inconsistent with the Policies and Procedures are reviewed for reasonableness.

Certain of the Funds’ proxy voting guidelines as set forth in the Policies and Procedures are summarized below:

·	vote AGAINST proposals to require supermajority shareholder vote,

·	vote FOR shareholder proposals to ask a company to submit its poison pill for shareholder ratification,

·	vote AGAINST proposals to eliminate entirely directors’ and officers’ liability for monetary damages for violating their duty of care.

Although many proxy proposals can be voted in accordance with the Funds’ Policies and Procedures, some proposals (such as votes on proposals regarding director nominees or votes on compensation plans for directors) will require special consideration, and the Chief Investment Strategist will make a decision on a case-by-case basis in these situations.

Conflicts of Interest

Occasionally, the Advisor, or a Sub-Advisor or an affiliate, may be subject to conflicts of interest in the voting of Fund proxies due to business or personal relationships. In most cases, to the extent that there is little or no discretion to deviate from the Funds’ Policies and Procedures on the proposal in question, proxies will be voted in accordance with such pre-determined guidelines. In other situations, the Chief Investment Strategist or designated Sub-Advisor may defer to the voting recommendation of either the Funds’ Audit Committee, a non-conflicted party, an independent third party proxy voting service provider; or in consultation with legal counsel, to determine the appropriate method to resolve the conflict of interest.

More Information

The actual voting records relating to portfolio securities during the most recent 12-month period ended June 30 (starting with the year ending June 30, 2006) is available without charge, upon request by calling toll-free, 1-877-Low-Beta or by accessing the SEC’s website at www.sec.gov. In addition, a copy of the Funds’ proxy voting policies and procedures are also available by calling 1-877-Low-Beta and will be sent within three business days of receipt of a request.

THE DISTRIBUTOR

Quasar Distributors, LLC (the “Distributor”) serves as the principal underwriter and national distributor for the shares of the Funds pursuant to a Distribution Agreement with the Trust dated as of July 30, 2002, amended March 27, 2006 (the “Distribution Agreement”). The Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934 and each state’s securities laws and is a member of the NASD. The offering of the Funds’ shares is continuous. The Distribution Agreement provides that the Distributor, as agent in connection with the distribution of Fund shares, will use its best efforts to distribute the Funds’ shares. No affiliated persons of the Funds are affiliated persons of the Distributor.

The Distribution Agreement provides that, unless sooner terminated, it will continue in effect for two years initially and thereafter shall continue from year to year, subject to annual approval by (a) the Board of Trustees or a vote of a majority of the outstanding shares, and (b) by a majority of the Trustees who are not interested persons of the Trust or of the Distributor by vote cast in person at a meeting called for the purpose of voting on such approval.

The Distributor Agreement may be terminated by the Trust at any time, without the payment of any penalty, by vote of a majority of the entire Board of Trustees of the Trust or by vote of a majority of the outstanding shares of the Funds on 60 days’ written notice to the Distributor, or by the Distributor at any time, without the payment of any penalty, on 60 days’ written notice to the Trust. The Distributor Agreement will automatically terminate in the event of its assignment.

ALLOCATION OF PORTFOLIO BROKERAGE

Subject to the supervision of the Trustees, decisions to buy and sell securities for the Funds are made by the Advisor and the Sub-Advisors for the Underlying Funds that they manage for the Funds directly. The Advisor and their appointed Sub-Advisors are authorized by the Trustees to allocate the orders placed by them on behalf of the Funds to brokers or dealers who may, but need not, provide research or statistical material or other services to the Funds or the Advisor for the Funds’ use. Such allocation is to be in such amounts and proportions as the Advisor and Sub-Advisor may determine.

In selecting a broker or dealer to execute each particular transaction, the Advisor or Sub-Advisor will take the following into consideration:

·	the best net price available;

·	the reliability, integrity and financial condition of the broker or dealer;

·	the size of and difficulty in executing the order; and

·	the value of the expected contribution of the broker or dealer to the investment performance of the Funds on a continuing basis.

Brokers or dealers executing a portfolio transaction on behalf of the Funds may receive a commission in excess of the amount of commission another broker or dealer would have charged for executing the transaction if the Advisor or Sub-Advisor determines in good faith that such commission is reasonable in relation to the value of brokerage, research and other services provided to the Funds.

In allocating portfolio brokerage, the Advisor or Sub-Advisor may select brokers or dealers who also provide brokerage, research and other services to other accounts over which the Advisor or Sub-Advisor exercises investment discretion. Some of the services received as the result of Fund transactions may primarily benefit accounts other than the Funds, while services received as the result of portfolio transactions effected on behalf of those other accounts may primarily benefit the Funds.

The total broker commissions paid by Alpha during the fiscal year ended July 31, 2005 were $283,221. The total broker commissions paid by Alpha during the fiscal year ended July 31, 2004 were $133,985. The total broker commissions paid by Alpha during the fiscal period September 23, 2002 through July 31, 2003 were $100,355.

The table below indicates the portion of Alpha’s aggregate brokerage for fiscal year ended July 31, 2005 (from the paragraph above) that was directed to brokers who, in addition to providing trade execution, also supplied Alpha with research services.


Fiscal Year Ended July 31, 2005
Dollar Value of Securities Traded	Related Soft Dollar Brokerage Commissions
$13,479	$3,066

The SEC requires the Trust to provide certain information if Alpha held securities of their regular brokers or dealers (or their parents) during the Trust’s most recent fiscal year. As of the fiscal year ended July 31, 2005, Alpha owned securities of Bear Stearns & Co., Inc. The value of Alpha’s aggregate holdings of the securities is $4,695,000.

PORTFOLIO HOLDINGS INFORMATION

The Board of Trustees of the Trust has adopted policies to ensure that any disclosure of information about a Fund’s portfolio holdings is in the best interest of Fund shareholders. The portfolio holdings disclosure policies govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by the Funds. These portfolio holdings disclosure policies have been approved by the Board of Trustees of the Trust. Disclosure of a Fund’s complete holdings is required to be made quarterly within 60 days of the end of each fiscal quarter in the Annual Report and Semi-Annual Report to Fund shareholders and in the quarterly holdings report on Form N-Q. A Fund’s portfolio holdings information will be dated as of the end of each fiscal quarter and will be available with a lag time of up to 60 days from the end of each fiscal quarter. These reports are available, free of charge, on the EDGAR database on the SEC’s website at www.sec.gov. A complete list of a Fund’s portfolio holdings as of each calendar quarter-end is also available on the Funds’ website at www.aipfunds.com within five to ten business days after the calendar quarter-end.

From time to time rating and ranking organizations such as Standard & Poor’s and Morningstar, Inc. may request complete portfolio holdings information in connection with rating a Fund. Similarly, pension plan sponsors and/or their consultants may request a complete list of portfolio holdings in order to assess the risks of a Fund’s portfolio along with related performance attribution statistics. The Funds believe that these third parties have legitimate objectives in requesting such portfolio holdings information. To prevent such parties from potentially misusing portfolio holdings information, the Funds will generally only disclose such information as of the end of the most recent calendar quarter, with a lag of at least sixty days, as described above. The disclosure is made with the authorization of either the Trust’s Chief Compliance Officer or his or her designee. In addition, the Funds’ Chief Compliance Officer, or a designated officer of the Trust, may grant exceptions to permit additional disclosure of portfolio holdings information at differing times and with differing lag times, possibly no lag time, to rating agencies and to pension plan sponsors and/or their consultants, provided that (1) the recipient is subject to a confidentiality agreement, (2) the recipient will utilize the information to reach certain conclusions about the investment management characteristics of a Fund and will not use the information to facilitate or assist in any investment program, and (3) the recipient will not provide access to third parties to this information. Rating and ranking organizations, the Funds’ service providers and pension plan sponsors and/or their consultants are subject to these restrictions.

In addition, the Funds’ service providers, such as custodian and transfer agent, may receive portfolio holdings information in connection with their services to the Funds. In no event shall the Advisor or a Sub-Advisor, its affiliates or employees, or the Funds receive any direct or indirect compensation in connection with the disclosure of information about a Fund’s portfolio holdings.

The furnishing of nonpublic portfolio holdings information to any third party (other than authorized governmental and regulatory personnel) requires the approval of the Advisor. The Advisor will approve the furnishing of non-public portfolio holdings to a third party only if they consider the furnishing of such information to be in the best interest of a Fund and its shareholders. The Board receives and reviews annually a list of the persons who receive nonpublic portfolio holdings information and the purpose for which it is furnished.

PORTFOLIO TURNOVER

A Fund’s portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year. The calculation excludes from both the numerator and the denominator (1) securities with maturities at the time of acquisition of one year or less and (2) positions held less than a year. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by a Fund. A 100% turnover rate would occur if all of a Fund’s portfolio securities were replaced once within a one-year period.

A Fund will invest portions of its assets to seek short-term capital appreciation. A Fund’s investment objective and corresponding investment policies can be expected to cause the portfolio turnover rate to be substantially higher than that of the average equity-oriented investment company.

Absolute return and arbitrage investment strategies are characterized by a high turnover rate because, in general, many of the opportunities for capital appreciation are of a relatively short time in duration. As an example, in merger arbitrage, the majority of mergers and acquisitions are consummated in less than six months, while tender offers are normally completed in less than two months. Liquidations and certain other types of corporate reorganizations usually require more than six months to complete. A Fund will generally benefit from the timely realization of the opportunity for which it has invested, and a correspondingly high portfolio turnover rate would be consistent with, although it would not necessarily ensure, the achievement of a Fund’s investment objective. Short-term trading involves increased brokerage commissions, which expense is ultimately borne by the shareholders.

Portfolio turnover for Alpha during the fiscal year ended July 31, 2005 was 112%. Portfolio turnover for Alpha during the fiscal year ended July 31, 2004 was 146%. Portfolio turnover for Alpha during the fiscal period from September 23, 2002 through July 31, 2003 was 186%.

FUND ADMINISTRATION

U.S. Bancorp Fund Services, LLC (“U.S. Bancorp”) serves as Fund Administrator pursuant to a Fund Administration Servicing Agreement with the Advisor and the Funds. As such, U.S. Bancorp provides all necessary bookkeeping, shareholder recordkeeping services and share transfer services to the Funds. For the fiscal year ended July 31, 2005, U.S. Bancorp received $71,982 for administrative services for Alpha, all of which was paid by the Advisor. For the fiscal year ended July 31, 2004, U.S. Bancorp received $33,750 for administrative services for Alpha, all of which was paid by the Advisor. For the fiscal period September 23, 2002 through July 31, 2003, U.S. Bancorp received $20,104 for administrative services for Alpha, all of which was paid by the Advisor.

FUND ACCOUNTING AND TRANSFER AGENT

U.S. Bancorp serves as Fund Accountant and Transfer Agent to the Funds pursuant to a Fund Accounting Servicing Agreement and a Transfer Agent Servicing Agreement with the Advisor. Under the Fund Accounting Servicing Agreement, U.S. Bancorp will provide portfolio accounting services, expense accrual and payment services, fund valuation and financial reporting services, tax accounting services and compliance control services. U.S. Bancorp will receive a fund accountant fee for the Funds, which will be billed to the Advisor on a monthly basis.

Under the Transfer Agent Servicing Agreement, U.S. Bancorp will provide all of the customary services of a transfer agent and dividend disbursing agent including, but not limited to: (1) receiving and processing orders to purchase or redeem shares; (2) mailing shareholder reports and prospectuses to current shareholders; and (3) providing blue sky services to monitor the number of Fund shares sold in each state. U.S. Bancorp will receive a transfer agent fee, which will be billed to the Advisor on a monthly basis.

CUSTODIAN

The Custodian for the Trust and the Funds is Custodial Trust Company, an affiliate of Bear Stearns & Co. Inc., located at 101 Carnegie Center, Princeton, NJ 08540. As Custodian, Custodial Trust Company holds all of securities and cash owned by the Funds. All of the custodian fees will be paid by the Advisor.

DESCRIPTION OF SHARES

Each share of a Fund has one vote in the election of Trustees. Cumulative voting is not authorized for the Funds. This means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so, and, in that event, the holders of the remaining shares will be unable to elect any Trustees.

Shareholders of the Funds and any other future series of the Trust will vote in the aggregate and not by series except as otherwise required by law or when the Board of Trustees determines that the matter to be voted upon affects only the interest of the shareholders of a particular series. Matters such as ratification of the independent public accountants and election of Trustees are not subject to separate voting requirements and may be acted upon by shareholders of the Trust voting without regard to series.

The authorized capitalization of AIP Alternative Strategies Funds consists of 1 billion shares of beneficial interest of $0.001 par value per share. Each share has equal dividend, distribution and liquidation rights. There are no conversion or preemptive rights applicable to any shares of the Funds. All shares issued are fully paid and non-assessable.

PURCHASE, REDEMPTION AND PRICING OF SHARES

Calculation of Share Price

The net asset value (“NAV”) per share of a Fund will be determined on each day when the New York Stock Exchange (“NYSE”) is open for business and will be computed by taking the aggregate market value of all assets of a Fund less its liabilities, and dividing by the total number of shares outstanding. Each determination will be made:

(1)	by valuing portfolio securities, including open short positions, which are traded on the NYSE and on the American Stock Exchange, at the last reported sales price on that exchange;

(2)

by valuing portfolio securities traded in the NASDAQ National Market System for which market quotations are readily available using the NASDAQ Official Closing Price (“NOCP”), or, if the NOCP is not available, at the last sale price on the day of valuation, or if there has been no sale on such day, at the mean between the bid and asked prices;

(3)	by valuing put and call options which are listed on an exchange, but which are not traded on the valuation date are valued at the mean of the last bid and asked prices.;

(4)	by valuing listed securities and put and call options for which no sale was reported on a particular day and securities traded on the over-the-counter market at the mean between the last bid and asked prices; and

(5)	by valuing any securities or other assets for which market quotations are not readily available at fair value in good faith and under the supervision of the Trustees, although others may do the actual calculation.

The Advisor reserves the right to value options at prices other than last sale prices when such last sale prices are believed unrepresentative of fair market value as determined in good faith by the Advisor.

The share price (net asset value) of the shares of a Fund is determined as of the close of the regular session of trading on the NYSE (currently 4:00 p.m., Eastern Time), on each day the NYSE is open for business. The NYSE is open for business on every day except Saturdays, Sundays and the following holidays: New Year’s Day, Martin Luther King, Jr. Day, President’s Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.

The net asset value per share is computed by dividing the value of the securities held by a Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares in the Fund outstanding at such time. An example of how Alpha calculates its net asset value per share as of the fiscal period ended July 31, 2005 is as follows:

Net Assets	=	Net Asset Value Per Share
Shares Outstanding

$123,035,197	=	$12.10
10,171,166

Trading in Foreign Securities

Trading in foreign securities may be completed at times that vary from the closing of the NYSE. In computing the net asset value, a Fund values foreign securities at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Some foreign currency exchange rates may also be determined at the latest rate prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar, as provided by an approved pricing service. Occasionally, events that affect these values and exchange rates may occur between the times at which they are determined and the closing of the NYSE. If these events materially affect the value of portfolio securities, these securities may be valued at their fair value as determined in good faith by the Funds’ Board of Trustees.

Purchase of Shares

Orders for shares received by the Trust in good order prior to the close of business on the NYSE on each day during such periods that the NYSE is open for trading are priced at net asset value per share computed as of the close of the regular session of trading on the NYSE. Orders received in good order after the close of the NYSE, or on a day it is not open for trading, are priced at the close of such NYSE on the next day on which it is open for trading at the next determined net asset value per share.

Exchange Privilege

Shareholders may exchange shares within the Trust. Exercising the exchange privilege is treated as a sale for federal income tax purposes and you may realize short or long term capital gains or losses on the exchange. An exchange of Fund shares held for less than 90 days may be subject to a 2.00% redemption fee.

Shareholders may exchange shares by telephone or in writing as follows:

By Telephone:

You may exchange shares by telephone only if the shareholders registered on your account are the same shareholders registered on the account into which you are exchanging. Exchange requests must be received before 4:00 p.m. Eastern time to be processed that day.

In Writing:

You may send you exchange request in writing. Please provide the Fund name and account number for each of the Funds involved in the exchange and make sure the letter of instruction is signed by all shareholders on the account.

The Trust may modify or terminate the exchange privilege at any time upon 60 days prior notice to shareholders. Investors may have difficulty making exchanges by telephone through brokers or banks during times of drastic market changes. If you cannot contact your broker or bank by telephone, you should send your request in writing via overnight mail.

Redemption of Shares

The Funds are designed for long-term investors willing to accept the risks associated with a long-term investment. The Funds are not designed for short-term traders whose frequent purchases and redemptions can generate substantial cash flow. These cash flows can unnecessarily disrupt a Fund’s investment program. Short-term traders often redeem when the market is most turbulent, thereby forcing the sale of underlying securities held by the Funds at the worst possible time as far as long-term investors are concerned. Additionally, short-term trading drives up a Fund’s transaction costs, measured by both commissions and bid/ask spreads, which are borne by the remaining long-term investors. For these reasons, the Funds assess a 2.00% fee on the redemption of the Fund shares held for less than 90 days. Redemption fees will be paid to the Funds to help offset transaction costs. The fee does not apply to any shares purchased through reinvested distributions (dividends and capital gains), or to redemptions made under the Funds’ Systematic Withdrawal Plan, as these transactions are typically de minimis. This fee will also not be assessed to participants in employer-sponsored retirement plans that are held at the Funds in an omnibus account (such as 401(k), 403(b), 457, Keogh, Profit Sharing Plans, and Money Purchase Pensions Plans) or to accounts held under trust agreements at a trust institution held at the Funds in an omnibus account, as the Redemption fee will be assessed to these types of accounts at the omnibus account level if the account is held at the Funds for less than 90 days. The Redemption fee will also not be assessed to accounts of the Advisor or its affiliates used to capitalize the Funds, as such accounts will be used specifically to control the volatility of shareholder subscriptions and redemption to avoid adverse effects to the Funds. The Redemption fee will also not be assessed to certain accounts under investment programs administered by financial intermediaries that represent to the Funds at the time of purchase that the shares are being purchased for an asset allocation program and that all short term trading will be limited to periodic rebalancing of the program.

The Funds will use the first-in, first-out (FIFO) method to determine the 90-day holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares held in the account. If this holding period is less than 90 days, the Redemption fee will be assessed. The Redemption fee will be applied on redemptions of each investment made by a shareholder that does not remain in a Fund for a 90-day period from the date of purchase.

The Trust will redeem all or any portion of a shareholder’s shares of a Fund when requested in accordance with the procedures set forth in the “Redemptions” section of the Prospectus. Under the Investment Company Act of 1940, a shareholder’s right to redeem shares and to receive payment therefore may be suspended at times:

(a)	when the NYSE is closed, other than customary weekend and holiday closings;

(b)	when trading on that exchange is restricted for any reason;

(c)

when an emergency exists as a result of which disposal by a Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, provided that applicable rules and regulations of the Securities and Exchange Commission (or any succeeding governmental authority) will govern as to whether the conditions prescribed in (b) or (c) exist; or

(d)	when the Securities and Exchange Commission by order permits a suspension of the right to redemption or a postponement of the date of payment on redemption.

In case of suspension of the right of redemption, payment of a redemption request will be made based on the net asset value next determined after the termination of the suspension.

Supporting documents in addition to those listed under “Redemptions” in the Funds’ prospectus will be required from executors, administrators, trustees, or if redemption is requested by someone other than the shareholder of record. Such documents include, but are not restricted to, stock powers, trust instruments, certificates of death, appointments as executor, certificates of corporate authority and waiver of tax required in some states when settling estates.

TAX STATUS

Each Fund has qualified and elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and intends to continue to so qualify, which requires compliance with certain requirements concerning the sources of its income, diversification of its assets, and the amount and timing of its distributions to shareholders. Such qualification does not involve supervision of management or investment practices or policies by any government agency or bureau. By so qualifying, each Fund should not be subject to federal income or excise tax on its net investment income or net capital gain which are distributed to shareholders in accordance with the applicable timing requirements. Net investment income and net capital gain of each Fund will be computed in accordance with Section 852 of the Code.

Each Fund intends to distribute all of its net investment income, any excess of net short-term capital gains over net long-term capital losses, and any excess of net long-term capital gains over net short-term capital losses in accordance with the timing requirements imposed by the Code and therefore should not be required to pay any federal income or excise taxes. Distributions of net investment income and net capital gain will be made after July 31, the end of each fiscal year, and no later than December 31 of each year. Both types of distributions will be in shares of each Fund unless a shareholder elects to receive cash. Net investment income is made up of dividends and interest less expenses. Net capital gain for a fiscal year is computed by taking into account any capital loss carryover of each Fund.

To be treated as a regulated investment company under Subchapter M of the code, each Fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of each Fund’s assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of each Fund’s assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities of (other than U.S. government securities or the securities of other regulated investment companies) any one issuer, two or more issuers which each Fund controls and which are determined to be engaged in the same or similar trades or businesses, or the securities of certain publicly traded partnerships.

If a Fund fails to qualify as a regulated investment company under Subchapter M in any fiscal year, it will be treated as a corporation for federal income tax purposes. As such the Fund would be required to pay income taxes on its net investment income and net realized capital gains, if any, at the rates generally applicable to corporations. Shareholders of a Fund generally would not be liable for income tax on the Fund’s net investment income or net realized capital gains in their individual capacities. Distributions to shareholders, whether from a Fund’s net investment income or net realized capital gains, would be treated as taxable dividends to the extent of current or accumulated earnings and profits of the Fund.

Each Fund is subject to a 4% nondeductible excise tax on certain undistributed amounts of ordinary income and capital gain under a prescribed formula contained in Section 4982 of the Code. The formula requires payment to shareholders during a calendar year of distributions representing at least 98% of each Fund’s ordinary income for the calendar year and at least 98% of its capital gain net income (i.e., the excess of its capital gains over capital losses) realized during the one-year period ending October 31 during such year plus 100% of any income that was neither distributed nor taxed to each Fund during the preceding calendar year. Under ordinary circumstances, the Fund expects to time its distributions so as to avoid liability for this tax.

The following discussion of tax consequences is for the general information of shareholders that are subject to tax. Shareholders that are IRAs or other qualified retirement plans are exempt from income taxation under the Code.

Distributions of taxable net investment income and the excess of net short-term capital gain over net long-term capital loss are taxable to shareholders as ordinary income.

Distributions of net capital gain (“capital gain dividends”) are taxable to shareholders as long-term capital gain, regardless of the length of time the shares of the Fund have been held by such shareholders.

A redemption of Fund shares by a shareholder will result in the recognition of taxable gain or loss in an amount equal to the difference between the amount realized and the shareholder’s tax basis in Fund shares. Such gain or loss is treated as a capital gain or loss if the shares are held as capital assets. However, any loss realized upon the redemption of shares within six months from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as capital gain dividends during such six-month period. All or a portion of any loss realized upon the redemption of shares may be disallowed to the extent shares are purchased (including shares acquired by means of reinvested dividends) within 30 days before or after such redemption.

Distributions of taxable net investment income and net capital gain will be taxable as described above, whether received in additional cash or shares. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of a share on the reinvestment date.

All distributions of taxable net investment income and net capital gain, whether received in shares or in cash, must be reported by each taxable shareholder on his or her federal income tax return. Dividends or distributions declared in October, November or December as of a record date in such a month, if any, will be deemed to have been received by shareholders on December 31, if paid during January of the following year. Redemptions of shares may result in tax consequences (gain or loss) to the shareholder and are also subject to these reporting requirements.

Under the Code, the Funds will be required to report to the Internal Revenue Service all distributions of taxable income and capital gains as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of taxable net investment income and net capital gain and proceeds from the redemption or exchange of the shares of a regulated investment company may be subject to withholding of federal income tax in the case of non-exempt shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law, or if a Fund is notified by the IRS or a broker that withholding is required due to an incorrect TIN or a previous failure to report taxable interest or dividends. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld.

Shareholders of the Funds may be subject to state and local taxes on distributions received from the Funds and on redemptions of Fund shares.

A brief explanation of the form and character of the distribution accompany each distribution. In January of each year the Funds issue to each shareholder a statement of the federal income tax status of all distributions.

The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. Persons (i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates). Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the Funds, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by a shareholder.

Shareholders should consult their tax advisors about the application of federal, state and local and foreign tax law in light of their particular situation.

ANTI-MONEY LAUNDERING PROGRAM

The Trust has established an Anti-Money Laundering Compliance Program (the “Program”) as required by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”). In order to ensure compliance with this law, the Trust’s Program provides for the development of internal practices, procedures and controls, designation of anti-money laundering compliance officers, an ongoing training program and an independent audit function to determine the effectiveness of the Program.

Procedures to implement the Program include, but are not limited to, determining that the Funds’ distributor and transfer agent have established proper anti-money laundering procedures, reporting suspicious and/or fraudulent activity, checking shareholder names against designated government lists, including Office of Foreign Asset Control (“OFAC”), and a complete and thorough review of all new opening account applications. The Trust will not transact business with any person or entity whose identity cannot be adequately verified under the provisions of the USA PATRIOT Act.

PERFORMANCE INFORMATION

Average Annual Total Return

Average annual total return quotations for the Funds are calculated according to the following formulas:

P(1+T)ⁿ = ERV

Where:

a hypothetical initial payment of $1,000

average annual total return

number of years

ERV

ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period.

Under the foregoing formula, the time periods will be based on rolling calendar quarters, updated to the last day of the most recent quarter. Average annual total return, or “T” in the above formula, is computed by finding the average annual compounded rates of return over the period that would equate the initial amount invested to the ending redeemable value. Average annual total return assumes the reinvestment of all dividends and distributions.

The calculation assumes an initial $1,000 payment and assumes all dividends and distributions by the Funds are reinvested at the price stated in the Prospectus on the reinvestment dates during the period, and includes all recurring fees that are charged to all shareholder accounts.

Average Annual Total Return (After Taxes on Distribution)

The following formula is used to calculate average annual returns after taxes before liquidations:

P(1+T)ⁿ = ATV_D

Where:

hypothetical initial payment of $1,000.

average annual total return.

number of years in the base period.

ATV_D

ending value of a hypothetical $1,000 payment made at the beginning of the base period at the end of the base period, after

taxes on Fund distributions but not after taxes on redemption.

Average Annual Total Return (After Taxes on Distribution and Redemptions)

The following formula is used to calculate average annual returns after taxes after liquidations:

P(1+T)ⁿ = ATV_DR

Where: P = a hypothetical initial payment of $1,000.

Where:

hypothetical initial payment of $1,000.

average annual total return.

number of years in the base period.

ATV_DR

ending value of a hypothetical $1,000 payment made at the beginning of the base period at the end of the base period, after

taxes on Fund distributions and redemption.

Total Return

The Funds may also calculate total return on a cumulative basis that reflects the cumulative percentage change in value over the measuring period. The formula for calculating cumulative total return can be expressed as follows:

Cumulative Total Return = [ (ERV) - 1 ]

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Funds have selected PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1800, Milwaukee, WI 53202, as their independent registered public accounting firm.

LEGAL COUNSEL

Blank Rome, LLP, 405 Lexington Avenue, New York, NY 10174, serves as the Trust’s legal counsel.

FINANCIAL STATEMENTS

The annual report for Alpha for the fiscal year ended July 31, 2005 is a separate document supplied with this statement of additional information and the financial statements and accompanying notes appearing therein are incorporated by reference in this SAI.

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933	x
Pre-Effective Amendment No. ____	¨
Post-Effective Amendment No. 9	x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940	x
Amendment No. 11	x

x	immediately upon filing pursuant to paragraph (b)
o	on _____________ pursuant to paragraph (b)
o	60 days after filing pursuant to paragraph (a)(1)
o	on _____________ pursuant to paragraph (a)(1)
o	75 days after filing pursuant to paragraph (a)(2)
o	on _____________ pursuant to paragraph (a)(2) of Rule 485.

Web	www.aipfunds.com
Ticker Symbol Ticker Symbol	ALPHX BETAX
Call	1.877.LOW.BETA

RISK/RETURN SUMMARY	1

PERFORMANCE	6

FEES AND EXPENSES	8

IMPORTANT INFORMATION REGARDING DIVIDENDS ON SHORT SALES AND INTEREST ON FUND BORROWING	9

INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES, POLICIES AND PRINCIPAL RISKS	11

FUND OF FUNDS STRUCTURE	16

MASTER/FEEDER FUND STRUCTURE	17

PORTFOLIO HOLDINGS INFORMATION	17

INVESTMENT ADVISOR	17

PORTFOLIO RESEARCH CONSULTANT	20

INVESTMENT SUB-ADVISORS	20

PORTFOLIO MANAGERS	23

NET ASSET VALUE	23

HOW TO PURCHASE SHARES	24

REDEMPTIONS	28

TOOLS TO COMBAT FREQUENT TRANSACTIONS	31

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS	33


	Date	Return
Best Quarter	December 31, 2004	6.76%
Worst Quarter	June 30, 2003	-1.00%


PROSPECTUS April 28, 2006	INVESTMENT ADVISOR Alternative Investment Partners, LLC The mutual fund advisor dedicated exclusively to alternative investment strategies^SM PORTFOLIO RESEARCH CONSULTANT Trust Advisors LLC Style Management and Portfolio Analytics

	One Year	Three Year	Since Inception (September 23, 2002)
Alpha Hedged Strategies Fund
Return Before Taxes	2.80%	7.54%	6.20%
Return After Taxes on Distributions⁽¹⁾	2.75%	7.52%	6.19%
Return After Taxes on Distributions and Sale of Fund Shares⁽¹⁾	1.89%	6.48%	5.33%
S & P 500 Index	4.89%	14.38%	14.68%
90-day T-bill	3.27%	1.88%	1.83%
HFRI Conservative Fund of Funds Index	4.86%	6.54%	6.73%

	Alpha Hedged	Beta Hedged
	Strategies Fund	Strategies Fund
Shareholder Fees⁽¹⁾ (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)	None	None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price)	None	None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions	None	None
Redemption Fee⁽²⁾ (as a percentage of amount redeemed)	2.00%	2.00%
Exchange Fee	None	None
Maximum Account Fee⁽³⁾	None	None

Annual Fund Operating Expenses⁽⁴⁾ (expenses that are deducted from Fund assets)
Management Fees	None	None
Distribution (12b-1) Fees	None	None
Other Expenses
Shareholder Servicing Fee	0.25%	0.25%
Remaining Other Expenses⁽⁵⁾	0.74%	0.74%
Total Operating Expenses⁽⁶⁾	0.99%	0.99%
Annualized Indirect Expense Ratio⁽⁵⁾⁽⁶⁾	3.97%	3.97%

	1 Year	3 Years	5 Years	10 Years
Fund Total Operating Expenses, and pro-rata share of Underlying Funds expenses, including interest expense and dividends on short positions	$496	$992	$2,482	$4,970

*Regular Mail*	*Express/Overnight Mail*
AIP Alternative Strategies Funds (Alpha Series or Beta Series) c/o U.S. Bancorp Fund Services, LLC P.O. Box 701 Milwaukee, Wisconsin 53202-0701	AIP Alternative Strategies Funds (Alpha Series or Beta Series) c/o U.S. Bancorp Fund Services, LLC 615 East Michigan Street Milwaukee, Wisconsin 53202-0701

Advisor	Alternative Investment Partners, LLC 701 Westchester Avenue, Suite 312-W White Plains, NY 10604
Distributor	Quasar Distributors, LLC 615 East Michigan Street Milwaukee, WI 53202
Legal Counsel	Blank Rome LLP 405 Lexington Avenue New York, NY 10174
Transfer Agent	U.S. Bancorp Fund Services, LLC 615 East Michigan Street, 3^rd Floor Milwaukee, WI 53202
Custodian	Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540
Independent Registered Public Accounting Firm	PricewaterhouseCoopers, LLP 100 E. Wisconsin Avenue, Suite 1800 Milwaukee, WI 53202

Advisors Series Trust	Jacob Internet Fund Inc.
AIP Alternative Strategies Funds	The Jensen Portfolio, Inc.
Allied Asset Advisors Funds	Julius Baer Investment Funds
Alpine Equity Trust	The Kensington Funds
Alpine Income Trust	Kirr, Marbach Partners Funds, Inc.
Alpine Series Trust	LKCM Funds
Brandes Investment Trust	Masters’ Select Funds
Brandywine Blue Fund, Inc.	Matrix Advisors Value Fund, Inc.
Brazos Mutual Funds	MDT Funds
Bridges Investment Fund, Inc.	Monetta Fund, Inc.
Buffalo Funds	Monetta Trust
Buffalo Balanced Fund, Inc.	The MP 63 Fund, Inc.
Buffalo High Yield Fund, Inc.	MUTUALS.com
Buffalo Large Cap Fund, Inc.	Nicholas Equity Income Fund, Inc.
Buffalo Small Cap Fund, Inc.	Nicholas Family of Funds, Inc.
Buffalo USA Global Fund, Inc.	Nicholas Fund, Inc.
Country Mutual Funds Trust	Nicholas High Income Fund, Inc.
Cullen Funds Trust	Nicholas II, Inc.
Everest Funds	Nicholas Limited Edition, Inc.
FFTW Funds, Inc.	Nicholas Money Market Fund, Inc.
First American Funds, Inc.	NorCap Funds
First American Investment Funds, Inc.	Permanent Portfolio Funds
First American Strategy Funds, Inc.	PRIMECAP Odyssey Funds
Fort Pitt Capital Funds	Professionally Managed Portfolios
The Glenmede Fund, Inc.	Prudent Bear Funds, Inc.
The Glenmede Portfolios	The Purisima Funds
Guinness Atkinson Funds	Rainier Investment Management Mutual Funds
Harding, Loevner Funds, Inc.	Summit Mutual Funds, Inc.
The Hennessy Funds, Inc.	Thompson Plumb Funds, Inc.
Hennessy Mutual Funds, Inc.	TIFF Investment Program, Inc.
Hotchkis and Wiley Funds	Trust For Professional Managers
Intrepid Capital Management Funds Trust	Wexford Trust

Name and Principal Business Address	Position and Offices with Quasar Distributors, LLC	Positions and Offices with Registrant
James R. Schoenike	President, Board Member	None
Donna J. Berth	Treasurer	None
Joe Redwine	Board Member	None
Bob Kern	Board Member	None
Eric W. Falkeis	Board Member	None
Teresa Cowan	Assistant Secretary	None
The address of each of the foregoing is 615 East Michigan Street, Milwaukee, Wisconsin, 53202.

Records Relating to:	Are located at:
Registrant’s Transfer Agent, Fund Administrator and Fund Accountant	U.S. Bancorp Fund Services, LLC 615 East Michigan Street Milwaukee, WI 53202
Registrant’s Custodian	Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540
Registrant’s Investment Adviser	Alternative Investment Partners, LLC 701 Westchester Avenue, Suite 205-W White Plains, New York 10604

Signature	Title

/s/ Lee Schultheis* Lee Schultheis	President
/s/ Robert Anderson* Robert Anderson	Independent Trustee
/s/ Joyce P Montgomery-Rocklin* Joyce P Montgomery-Rocklin	Independent Trustee
/s/ Thomas Mann* Thomas Mann	Independent Trustee
/s/ Joseph Breslin* Joseph Breslin	Independent Trustee and Chairperson
/s/ Stephen G. Bondi* Stephen G. Bondi	Interested Trustee, Treasurer & Chief Financial Officer
By: /s/ Lee Schultheis Lee Schultheis, President
Attorney-in-Fact pursuant to Power of Attorney filed herewith.

Exhibit	Exhibit No.

Amended Investment Advisory Agreement	EX.99.d.ii.
Amendment No. 1 to Custody Agreement Amendment No. 1 to Loan and Pledge Agreement Amended Transfer Agent Servicing Agreement Form of Administration Servicing Agreement Form of Fund Accounting Services Agreement Power of Attorney- is filed herewith. Amended Research Consultant Agreement Amended Operating Services Agreement- is filed herewith.	EX.99.g.ii EX.99.g.iv EX.99.h.ii EX.99.h.iii EX.99.h.iv EX.99.h.v EX.99.h.vii EX.99.h.ix
Consent of Independent Registered Public Accounting Firm	EX.99.j.