ALJ Capital

II

Fund Investment Objectives

In pursuing the Fund's objective, the Adviser primarily employs a research intensive, value-driven investment analysis to identify and purchase marketable debt securities of U.S. companies it believes are undervalued. The Adviser believes that favorable investment opportunities may be found in all capitalization ranges and market or industry segments. Consequently, the Adviser will not formally limit the Fund to any one specific criterion and will seek to optimize the risk/reward characteristics for investors. This notwithstanding, the Adviser believes that absolute value, and, selectively, relative value, combined with a favorable catalyst, provides the best long term means to provide capital appreciation and preservation. The Fund typically invests in 40-60 different long positions. The Adviser seeks to limit each position to a maximum of 5%-7%, on a cost basis, of the Fund's portfolio. The Fund will focus on four basic investment scenarios: (a) The deleveraging through bankruptcy or out-of-court restructuring of an issuer's balance sheet involving the exchange of old debt for new debt and/or new equity; (b) The liquidation of assets generating cash proceeds to be distributed pursuant to the Bankruptcy Code or otherwise to holders of the issuer's debt securities; (c) Litigations based on unique provisions of the Bankruptcy Code, focusing on so-called "avoidance actions"; and (d) Inter-capital structure "arbitrage" of stressed high yield credits, based on a legal analysis of complicated corporate and capital structures. Through rigorous analysis, the Adviser intends to purchase securities of issuers in the situations described above at prices that the Adviser believes are less than the intrinsic long-term value of these securities and that are at or near a market bottom for the securities. It is hoped that this investment strategy will yield high investment returns combined with a higher level of downside protection than other investment strategies pursuing similar returns. This advantage is based on a thorough understanding of the restructuring process, which should enable the Fund to exploit the low valuations placed on the investments at the time of the purchase. It is believed that positive returns can be achieved for a number of reasons including the following: (a) Distressed debt is generally priced at a discount to debt of comparable companies that are not in financial distress, providing an investor with the potential for significant appreciation; (b) Holders of high-yield securities in companies that become distressed tend to be less concerned about price as they seek to exit their investments for non-economic reasons (e.g., liquidity requirements due to fund redemptions, lack of experience dealing with restructurings, variance from investment philosophy, lack of patience, and regulatory issues); (c) The size of the Fund's capital will enable it to focus on small to medium-sized opportunities where the supply-demand imbalance and market inefficiencies are even more pronounced; and (d) Successful restructurings that convert debt to equity provide potential appreciation both through improved operations leading to increasing valuations and by increasing the attractiveness of the issuer as an acquisition target as a result of the deleveraged capital structure.