As filed with the Securities and Exchange Commission on March 20, 2024
| Securities Act File No. | |
| Investment Company Act File No. | 811-23727 |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ☒
Pre-Effective Amendment No.
Post-Effective Amendment No.
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ☒
Amendment No. 6 ☒
ARES PRIVATE MARKETS FUND
(Exact name of Registrant as specified in Charter)
c/o Ares Capital Management II LLC
245 Park Avenue
44th Floor
New York, NY 10167
(Address of principal executive offices)
(212) 750-7300
(Registrant's telephone number)
Ian Fitzgerald
c/o Ares Capital Management II LLC
245 Park Avenue
44th Floor
New York, NY 10167
(Name and address of agent for service)
Copy to:
Nicole M. Runyan, P.C.
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
(212) 446-4800
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
| ☐ | Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans. |
| ☒ | Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 ("Securities Act"), other than securities offered in connection with a dividend reinvestment plan. |
| ☐ | Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. |
| ☐ | Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
| ☐ | Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
It is proposed that this filing will become effective (check appropriate box)
| ☐ | when declared effective pursuant to section 8(c), or as follows: |
| ☒ | immediately upon filing pursuant to paragraph (b) of Rule 486. |
| ☐ | on (date) pursuant to paragraph (b) of Rule 486. |
| ☐ | 60 days after filing pursuant to paragraph (a) of Rule 486. |
| ☐ | on (date) pursuant to paragraph (a) of Rule 486. |
If appropriate, check the following box:
| ☐ | This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement]. |
| ☐ | This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
| ☐ | This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
| ☐ | This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
Check each box that appropriately characterizes the Registrant:
| ☒ | Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 ("Investment Company Act")). |
| ☐ | Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). |
| ☐ | Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
| ☐ | A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
| Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). | |
| ☐ | Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934). |
| ☐ | If an Emerging Growth Company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. |
| ☐ | New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
EXPLANATORY NOTE
Pursuant to Rule 429 under the Securities Act, the prospectus included herein is a combined prospectus which relates to (i) the Registration Statement File No. 333-275060, dated October 17, 2023, previously filed by Ares Private Markets Fund (the "Registrant") on Form N-2 (the "Prior Registration Statement") and (ii) the registration by the Registrant of additional securities as set forth in this registration statement (the "Registration Statement").
This Registration Statement also constitutes a Post-Effective Amendment to the Prior Registration Statement, and such Post-Effective Amendment shall become effective concurrently with the effectiveness of this Registration Statement. Pursuant to the Prior Registration Statement, a total of $1,000,000,000 shares of beneficial interest were previously registered. This Registration Statement has registered an additional $500,000,000 of shares of beneficial interest, resulting in a total of $1,500,000,000 in registered shares of beneficial interest.
ARES
PRIVATE MARKETS FUND
Class A
Shares (AMSAX)
Class D Shares (AMSDX)
Class I Shares (AMSIX)
Class D Shares (AMSDX)
Class I Shares (AMSIX)
March 20,
2024
Ares
Private Markets Fund (the “Fund”) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended
(the “Investment Company Act”), as a non-diversified, closed-end management investment company. Ares Capital Management II
LLC serves as the Fund’s investment adviser (the “Adviser”) and is responsible for making investment decisions for the
Fund’s portfolio.
The
Fund’s investment objective is to seek attractive long-term capital appreciation. In pursuing its investment objective, the Fund
invests in an actively managed portfolio of private equity and other private assets (collectively, “Private Assets”). The
Fund may gain access to Private Assets through a number of different approaches, including: (i) secondary purchases of interests
in private equity and other private asset funds managed by unaffiliated asset managers (“Portfolio Funds”), including through
privately negotiated transactions, from investors in a Portfolio Fund or directly from the Portfolio Fund (“Secondary Investments”);
(ii) primary investments in Portfolio Funds (“Primary Investments”); and (iii) direct investments in the equity
and/or debt of private companies, including investments alongside private equity firms (“Direct Investments”). The Fund expects
to invest principally in Secondary Investments and, to a lesser degree, in Primary Investments and Direct Investments, although the allocation
among those types of investments may vary from time to time. The Fund also invests a portion of its assets in a portfolio of liquid assets,
including cash and cash equivalents, liquid fixed-income securities and other credit instruments, and other investment companies, including
exchange traded funds.
This
prospectus (the “Prospectus”) applies to the offering of three separate classes of shares of beneficial interest of the Fund
(“Shares”) designated as Class A, Class D and Class I Shares. The Shares are generally offered on the first
business day of each month at the net asset value (“NAV”) per Share on that day. No person who is admitted as a shareholder
of the Fund (a “Shareholder”) will have the right to require the Fund to redeem its Shares.
| | | |
Per Class A Share |
| |
Per Class D Share |
| |
Per Class I Share |
| |
Total |
|
|
Public Offering Price(1) |
| |
Current NAV |
| |
Current NAV |
| |
Current NAV |
| |
$1,500,000,000 |
|
|
Sales Load(2) |
| |
3.50% |
| |
None |
| |
None |
| | | |
|
Proceeds to the Fund(3) |
| |
Current NAV less applicable sales load |
| |
Current NAV |
| |
Current NAV |
| |
Up to $1,500,000,000 |
|
(1)
Generally,
the stated minimum investment by an investor in the Fund is $25,000 with respect to Class A Shares and Class D Shares and $1,000,000
with respect to Class I Shares. The stated minimum investment for Class I Shares may be reduced for certain investors as described
under “Purchasing Shares.”
(2)
Investments
in Class A Shares are sold subject to a sales charge of up to 3.50% of the investment. The table assumes the maximum sales load is
charged. For some investors, the sales charge may be waived or reduced. The full amount of sales charge may be reallowed to brokers or
dealers participating in the offering. Your financial intermediary may impose additional charges when you purchase Shares of the Fund.
While neither the Fund nor the Distributor (as defined herein) impose an initial sales charge on Class I or Class D Shares,
if a Shareholder buys Class D Shares through certain selling agents or financial intermediaries, such selling agent or financial
intermediary may directly charge Shareholders transaction or other fees in such amount as they may determine. Class A Shares and
Class D Shares pay a Distribution and Servicing Fee (as defined herein) to the Distributor at an annual rate of 0.85% and 0.25%,
respectively, based on the aggregate net assets of the Fund attributable to such class, respectively, to be calculated as of
the beginning of the
first calendar day of each applicable month, and payable monthly in arrears. Class I Shares are not subject to a Distribution and
Servicing Fee. See “Summary of Fund Fees and Expenses” and “Plan of Distribution.”
(3)
Assumes
that all Shares currently registered are sold in the continuous offering and the maximum sales load is charged. The proceeds may differ
from that shown if additional Shares are registered. The Fund bears certain ongoing offering costs associated with the Fund’s continuous
offering of Shares.
The Fund
relies on an exemptive order from the U.S. Securities and Exchange Commission (the “SEC”) that permits the Fund to offer more
than one class of Shares, and the Fund may offer additional classes of Shares in the future. Each class of Shares is subject to different
fees and expenses.
Investments
in the Fund may be made only by eligible investors that are both “accredited investors” as defined in Section 501(a)
of Regulation D under the Securities Act of 1933, as amended, and “qualified clients” as defined in Rule 205-3 under
the Investment Advisers Act of 1940, as amended.
An
investment in the Fund is speculative with a substantial risk of loss. The Fund and the Adviser do not guarantee any level of return or
risk on investments and there can be no assurance that the Fund’s investment objective will be achieved. You should carefully consider
these risks together with all of the other information contained in this Prospectus before making a decision to invest in the Fund. See
“Summary of Offering Terms — Risk Factors” and “Risks.”
•
The
Fund has limited operating history.
•
Shares
are not listed on any securities exchange, and it is not anticipated that a secondary market for Shares will develop. Although the Fund
may offer to repurchase Shares from time to time, Shares will not be redeemable at an investor’s option nor will they be exchangeable
for shares of any other fund. As a result, an investor may not be able to sell or otherwise liquidate his or her Shares. The Adviser intends
to recommend that, in normal market circumstances, the Fund’s Board of Trustees conduct quarterly repurchase offers of no more than
5% of the Fund’s net assets.
•
An
investment in the Fund may not be suitable for investors who may need the money they invested in a specified timeframe.
•
Shares
are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted under the
Fund’s agreement and declaration of trust.
•
The
amount of distributions that the Fund may pay, if any, is uncertain.
You
should rely only on the information contained in this Prospectus and the Fund’s Statement of Additional Information. The Fund has
not authorized anyone to provide you with different information. You should not assume that the information provided by this Prospectus
is accurate as of any date other than the date shown below. Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
You should
read this Prospectus, which concisely sets forth information about the Fund, before deciding whether to invest in the Shares and retain
it for future reference. A Statement of Additional Information, dated March 20, 2024, containing additional information about the Fund
(the “SAI”), has been filed with the SEC and, as amended from time to time, is incorporated by reference in its entirety into
this Prospectus. You may request a free copy of the SAI, the table of contents of which is on page 91 of this Prospectus, as well as free
copies of the Fund’s annual and semi-annual reports to Shareholders, and other information about the Fund by calling 1-866-324-7348,
by writing to the Fund at 245 Park Avenue, 44th Floor, New York, New York 10167 or wmsoperations@aresmgmt.com. The Prospectus, the SAI,
and the Fund’s annual and semi-annual reports to Shareholders are also published on the following website www.areswms.com/ares-wealth-management-solutions/investors/apmf.
You can get the same information for free from the SEC’s website, https://www.sec.gov, which contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC.
You
should not construe the contents of this Prospectus as legal, tax or financial advice. You should consult with your own professional advisors
as to the legal, tax, financial or other matters relevant to the suitability of an investment in the Fund.
This
Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, a security in any jurisdiction or to any person
to whom it is unlawful to make such an offer or solicitation in that jurisdiction.
The
Fund’s Shares do not represent a deposit or an obligation of, and are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government
agency.
Ares
Wealth Management Solutions, LLC (the “Distributor”), an affiliate of the Fund and the Adviser, acts as principal underwriter
for the Fund’s Shares and serves in that capacity on a reasonable best efforts basis, subject to various conditions. The principal
business address of the Distributor is 1200 17th Street, Suite 2900, Denver, Colorado 80202.
TABLE OF CONTENTS
| | | | | | 1 | | | |
| | | | | | 19 | | | |
| | | | | | 21 | | | |
| | | | | | 25 | | | |
| | | | | | 25 | | | |
| | | | | | 25 | | | |
| | | | | | 29 | | | |
| | | | | | 32 | | | |
| | | | | | 56 | | | |
| | | | | | 58 | | | |
| | | | | | 60 | | | |
| | | | | | 64 | | | |
| | | | | | 67 | | | |
| | | | | | 67 | | | |
| | | | | | 68 | | | |
| | | | | | 71 | | | |
| | | | | | 71 | | | |
| | | | | | 72 | | | |
| | | | | | 75 | | | |
| | | | | | 75 | | | |
| | | | | | 76 | | | |
| | | | | | 77 | | | |
| | | | | | 79 | | | |
| | | | | | 91 | | | |
| | | | | | 91 | | | |
| | | | | | 91 | | | |
| | | | | | 91 | | | |
| | | | | | 91 | | | |
| | | | | | 91 | | | |
| | | | | | 92 | | |
i
SUMMARY OF OFFERING TERMS
The
following is only a summary and does not contain all of the information that you should consider before investing in Ares Private Markets
Fund (the
“Fund”). Before
investing in the Fund, you should carefully read the more detailed information appearing elsewhere in this Prospectus, the SAI and the
Fund’s Declaration of Trust (as defined herein).
The
Fund
The
Fund is a Delaware statutory trust that is registered under the Investment Company Act of 1940, as amended (the “Investment Company
Act”) as a closed-end, non-diversified, management investment company. The Fund sells its Shares of beneficial interest (“Shares”)
only to eligible investors that are both “accredited investors,” as defined in Section 501(a) of Regulation D under
the Securities Act of 1933, as amended (the “Securities Act”), and “qualified clients” as defined in Rule 205-3
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
The
Fund relies on an exemptive order from the U.S. Securities and Exchange Commission (the “SEC”) that permits the Fund to offer
more than one class of Shares. The Fund currently offers three separate classes of Shares designated as Class A, Class D and
Class I Shares. Each class of Shares is subject to different fees and expenses. The Fund may offer additional classes of Shares in
the future.
The
business operations of the Fund are managed and supervised under the direction of the Fund’s Board of Trustees (the “Board”),
subject to the laws of the State of Delaware and the Fund’s agreement and declaration of trust (the “Declaration of Trust”).
The Board is comprised of eight trustees, a majority of whom are not “interested persons” (as defined in the Investment
Company Act) of the Fund (“Independent Trustees”).
The
Investment Adviser
Ares
Capital Management II LLC (the “Adviser”) serves as the Fund’s investment adviser. The Adviser is registered as an investment
adviser with the SEC under the Advisers Act.
Investment
Objective and
Strategy
Strategy
The
Fund’s investment objective is to seek attractive long-term capital appreciation. In pursuing its investment objective, the Fund
invests in an actively managed portfolio of private equity and other private assets (collectively, “Private Assets”).
The
Fund may gain access to Private Assets through a number of different approaches, including: (i) secondary purchases of interests
in private equity and other private asset funds managed by unaffiliated asset managers (“Portfolio Funds”), including through
privately negotiated transactions, from investors in a Portfolio Fund or directly from the Portfolio Fund (“Secondary Investments”);
(ii) primary investments in Portfolio Funds (“Primary Investments”); and (iii) direct investments in the equity
and/or debt of private companies, including investments alongside private equity firms (“Direct Investments”). The Fund expects
to invest principally in Secondary Investments and, to a lesser degree, in Primary Investments and Direct Investments, although the allocation
among those types of investments may vary from time to time. Typical Secondary Investments generally will include purchases by the Fund
of interests in Portfolio Funds, typically after the end of the Portfolio Fund’s fundraising period, with existing underlying portfolio
companies, whereas typical Primary Investments are investments in
1
newly established
Portfolio Funds where the underlying portfolio companies are not known as of the time of the Fund’s commitment.
Under
normal circumstances, the Fund intends to invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes)
in Private Assets. The Adviser seeks to invest in Private Assets that represent a broad spectrum of types of private equity and other
private asset opportunities (e.g.,
buyout, venture and growth capital, special situations, credit, venture capital, infrastructure, real estate and private credit) and vintage years
(i.e., the year in which a Portfolio
Fund begins investing).
The
Adviser seeks to build a broad portfolio of assets within the Fund. By investing the Fund’s assets across Secondary Investments,
Primary Investments and Direct Illiquid Investments, as well as in Liquid Assets (as defined herein), the Adviser seeks to limit the Fund’s
exposure to uncalled commitments and to shorten the duration of expected cash flows relative to a traditional portfolio consisting substantially
of Primary Investments. This portfolio construction approach is designed to maintain a relatively high level of exposure to Private Assets
while still maintaining appropriate portfolio liquidity to manage redemptions by holders of the Fund’s Shares (“Shareholders”).
The
Fund, either directly through Direct Investments or indirectly through Portfolio Funds, may invest in companies that are organized or
headquartered or have substantial sales or operations outside of the United States, its territories, and possessions, including emerging
market countries. The Fund defines emerging market countries generally to include every nation in the world except developed countries,
that is, the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. The Fund may seek to hedge
all or a portion of the Fund’s foreign currency risk. Depending on market conditions and the views of the Adviser, the Fund may
or may not hedge all or a portion of its currency exposures.
The
Adviser manages the Fund’s asset allocation and investment decisions with a view towards managing liquidity and maintaining a high
level of investment in Private Assets. The Fund’s asset allocation and amount of Private Assets may be based, in part, on anticipated
future capital calls and distributions from such investments. This may result in the Fund making commitments to Private Assets in an aggregate
amount that exceeds the total amounts invested by Shareholders in the Fund at the time of such commitment (i.e.,
to “over-commit”). The Adviser may also take other anticipated cash flows into account, such as those relating to new subscriptions
into the Fund, the repurchase of Shares through periodic tenders by Shareholders and any distributions made to Shareholders. To forecast
portfolio cash flows, the Adviser utilizes quantitative and qualitative factors, including historical private equity data, actual portfolio
observations and qualitative forecasts prepared by the Adviser.
The
Fund is permitted to borrow money or issue debt securities in an amount up to 331∕3%
of its total assets in accordance with the Investment Company Act. The Fund has established a credit line to borrow money for a range
of purposes, including to provide liquidity for capital calls by Portfolio Funds, to satisfy tender requests, to manage timing issues
in connection with the inflows of additional
2
capital and the acquisition
of Fund investments and to otherwise satisfy Fund obligations. There is no assurance, however, that the Fund will be able to timely repay
any borrowings under such credit line, which may result in the Fund incurring leverage on its portfolio investments from time to time.
To enhance the Fund’s liquidity, particularly in times of possible net outflows through the repurchase of Shares by periodic tender
offers to Shareholders, the Adviser may sell certain of the Fund’s assets.
The Fund
also invests a portion of its assets in a portfolio of liquid assets (“Liquid Assets”), including cash and cash equivalents,
liquid fixed income securities and other credit instruments, and other investment companies, including exchange traded funds (“ETFs”).
During normal market conditions, it is generally not expected that the Fund will hold more than 20% of its net assets in Liquid Assets
for extended periods of time. For temporary defensive purposes, liquidity management or in connection with implementing changes in its
asset allocation, the Fund may hold a substantially higher amount of Liquid Assets.
The Fund
may make investments directly or indirectly through one or more wholly-owned subsidiaries (each, a “Subsidiary” and collectively,
the “Subsidiaries”). The Fund may form a Subsidiary in order to pursue its investment objective and strategies in a potentially
tax-efficient manner or for the purpose of facilitating its use of permitted borrowings. Except as otherwise provided, references to the
Fund’s investments also will refer to any Subsidiary’s investments.
There
can be no assurance that the Fund’s investment objective will be achieved or that the Fund’s investment program will be successful.
Principal
Risk Factors
Investment
in the Fund is suitable only for those persons who, either alone or together with their duly designated representative, have such knowledge
and experience in financial and business matters that they are capable of evaluating the merits and risks of their proposed investment,
who can afford to bear the economic risk of their investment, who are able to withstand a total loss of their investment and who have
no need for liquidity in their investment and no need to dispose of their Shares to satisfy current financial needs and contingencies
or existing or contemplated undertakings or indebtedness. Investors should consult with their own financial, legal, investment and tax
advisors prior to investing in the Fund.
The following
are certain principal risk factors that relate to the operations and terms of the Fund. These considerations, which do not purport to
be a complete description of any of the particular risks referred to or a complete list of all risks involved in an investment in the
Fund, should be carefully evaluated before determining whether to invest in the Fund. The Fund’s investment program is speculative
and entails substantial risks. In considering participation in the Fund, prospective investors should be aware of certain principal risk
factors, including the following:
General
Risks of Investing in the Fund
General
Investment Risks. There is no assurance that the investments held by the Fund
will be profitable, that there will be proceeds from such investments available for distribution to
3
Shareholders, or that
the Fund will achieve its investment objective. An investment in the Fund is speculative and involves a high degree of risk.
Limited
Operating History. The Fund is a non-diversified, closed-end management investment
company with limited operating history. The Fund has limited historical financial statements and other meaningful operating or financial
data on which potential investors may evaluate the Fund and its performance.
Management
Risk. The Fund is subject to management risk because it is an actively managed
investment portfolio. The Adviser will apply investment techniques and risk analyses in making investment decisions for the Fund, but
there can be no guarantee that these will produce the desired results. The Fund may be subject to a relatively high level of management
risk because the Fund invests in Private Assets. The Fund’s allocation of its investments across Portfolio Funds, Direct Investments
and other portfolio investments representing various strategies, geographic regions, asset classes and sectors may vary significantly
over time based on the Adviser’s analysis and judgment. It is possible that the Fund will focus on an investment that performs poorly
or underperforms other investments under various market conditions.
Dependence
on the Adviser and Key Personnel. The Fund depends on the Adviser’s ability
to select, allocate and reallocate effectively the Fund’s assets. The success of the Fund is thus substantially dependent on the
Adviser and its continued employment of certain key personnel. Similarly, the success of each Portfolio Fund investment in which the Fund
invests is also likely to be substantially dependent on certain key personnel of a Portfolio Fund Manager. There can be no assurance
that these key personnel will continue to be associated with or available to the Adviser or the general partners of the Portfolio Funds
throughout the life of the Fund.
Closed-End
Fund Structure; Liquidity Limited to Periodic Repurchases of Shares. An
investment in the Fund, unlike an investment in a traditional listed closed-end fund, should be considered illiquid. The Shares are appropriate
only for investors who are comfortable with investment in less liquid or illiquid portfolio investments within an illiquid fund. Unlike
open-end funds (commonly known as mutual funds), which generally permit redemptions on a daily basis, the Shares are not redeemable at
a Shareholder’s option. Unlike stocks of listed closed-end funds, the Shares are not listed, and are not expected to be listed,
for trading on any securities exchange, and the Fund does not expect any secondary market to develop for the Shares in the foreseeable
future.
Repurchase
of Shares Risk. Although the Board may, in its sole discretion, cause the Fund
to offer to repurchase outstanding Shares at their net asset value and the Adviser intends to recommend that, in normal market circumstances,
the Board conduct quarterly repurchase offers of no more than 5% of the Fund’s net assets, there can be no assurance that the Fund
will conduct repurchase offers in any particular period and Shareholders may be unable to tender Shares for repurchase for an indefinite
period of time. Offers for repurchases of Shares, if any, may be suspended, postponed or terminated by the Board under certain circumstances.
4
It is possible that
the Fund may be unable to repurchase all of the Shares that a Shareholder tenders due to the illiquidity of the Fund’s investments
or if the Shareholders request the Fund to repurchase more Shares than the Fund is then offering to repurchase. In addition, substantial
requests for the Fund to repurchase Shares could require the Fund to liquidate certain of its investments more rapidly than otherwise
desirable in order to raise cash to fund the repurchases and achieve a market position appropriately reflecting a smaller asset base.
This could have a material adverse effect on the value of the Shares.
There
will be a substantial period of time between the date as of which Shareholders must submit a request to have their Shares repurchased
and the date they can expect to receive payment for their Shares from the Fund. Shareholders whose Shares are accepted for repurchase
bear the risk that the Fund’s net asset value may fluctuate significantly between the time that they submit their repurchase requests
and the date as of which such Shares are valued for purposes of such repurchase. Shareholders will have to decide whether to request that
the Fund repurchase their Shares without the benefit of having current information regarding the value of Shares on a date proximate to
the date on which Shares are valued by the Fund for purposes of effecting such repurchases. See “Repurchase of Shares.”
Payment
In-Kind For Repurchased Shares. The Fund generally expects to distribute to
Shareholders that have their Shares repurchased cash in satisfaction of such repurchase. However, there can be no assurance that the Fund
will have sufficient cash to pay for Shares that are being repurchased or that it will be able to liquidate investments at favorable prices
to pay for repurchased Shares. The Fund has the right to distribute securities as payment for repurchased Shares in unusual circumstances,
including if making a cash payment would result in a material adverse effect on the Fund. In the event that the Fund makes such a distribution
of securities, Shareholders will bear any risks of the distributed securities and may be required to pay a brokerage commission or other
costs in order to dispose of such securities.
Restrictions
on Transfers. Transfers of Shares may be made only with consent of the Fund,
which may be withheld in the Fund’s sole discretion. Notice to the Fund of any proposed transfer must include evidence satisfactory
to the Fund that the proposed transferee, at the time of transfer, meets any requirements imposed by the Fund with respect to investor
eligibility and suitability.
Non-Diversified
Status. The Fund is a “non-diversified” investment company for
purposes of the Investment Company Act, which means it is not subject to percentage limitations under the Investment Company Act
on assets that may be invested in the securities of any one issuer. Having a larger percentage of assets in a smaller number of issuers
makes a non-diversified fund, like the Fund, more susceptible to the risk that one single event or occurrence can have a significant adverse
impact upon the Fund.
Valuation
Risk. The Fund is subject to valuation risk, which is the risk that one or
more of the securities in which the Fund invests are valued at prices that the Fund is unable to obtain upon sale due to factors such
as incomplete data, market instability, human error, or, with respect to securities for which there are no readily available
5
market quotations,
the inherent difficulty in determining the fair value of certain types of investments. The Adviser may, but is not required to, use an
independent pricing service or prices provided by dealers to value securities at their market value. Because the secondary markets for
certain investments may be limited, such instruments may be difficult to value.
A substantial
portion of the Fund’s assets consist of Portfolio Funds and Direct Investments for which there are no readily available market quotations.
The information available in the marketplace for such companies, their securities and the status of their businesses and financial conditions
is often extremely limited, outdated and difficult to confirm. Such securities are valued by the Adviser at fair value as determined pursuant
to the Adviser’s valuation policy and procedures.
The
value at which the Fund’s investments can be liquidated may differ, sometimes significantly, from the valuations assigned by the
Fund. In addition, the timing of liquidations may also affect the values obtained on liquidation. The Fund invests a significant amount
of its assets in Private Assets for which no public market exists. There can be no guarantee that the Fund’s investments could ultimately
be realized at the Fund’s valuation of such investments.
The
Fund’s net asset value is a critical component in several operational matters including computation of the Advisory Fee, the Incentive
Fee and the Distribution and Servicing Fee, and determination of the price at which the Shares will be offered and at which a repurchase
offer will be made. Consequently, variance in the valuation of the Fund’s investments will impact, positively or negatively, the
fees and expenses Shareholders will pay, the price a Shareholder will receive in connection with a repurchase offer and the number of
Shares an investor will receive upon investing in the Fund.
Amount
or Frequency of Distribution. The Fund expects to pay distributions out of
assets legally available for distribution from time to time, at the sole discretion of the Board, and otherwise in a manner to comply
with Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). See “Distributions.” Nevertheless,
the Fund cannot assure Shareholders that the Fund will achieve investment results that will allow the Fund to make a specified level of
cash distributions or year-to-year increases in cash distributions. All distributions will depend on the Fund’s earnings, its net
investment income, its financial condition, and such other factors as the Board may deem relevant from time to time.
Risks
of Investing in Private Assets
Risks
of Private Equity Strategies. The Fund’s investment portfolio will include
Direct Investments in private companies and investments in Portfolio Funds, which hold securities issued primarily by private companies.
Operating results for private companies in a specified period will be difficult to predict. Such investments involve a high degree of
business and financial risk that can result in substantial losses.
Risks
Associated with Private Company Investments. Private companies are generally
not subject to SEC reporting requirements,
6
are not required to
maintain their accounting records in accordance with generally accepted accounting principles, and are not required to maintain effective
internal controls over financial reporting. As a result, there is risk that the Fund may invest on the basis of incomplete or inaccurate
information, which may adversely affect the Fund’s investment performance. Private companies in which the Fund may invest also may
have limited financial resources, shorter operating histories, more asset concentration risk, narrower product lines and smaller market
shares than larger businesses, which tend to render such private companies more vulnerable to competitors’ actions and market conditions,
as well as general economic downturns. These companies generally have less predictable operating results, may from time to time be parties
to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require
substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, investments
in private companies generally are in restricted securities that are not traded in public markets and subject to substantial holding periods.
There can be no assurance that the Fund will be able to realize the value of such investments in a timely manner.
Competition
for Access to Private Equity Investment Opportunities. There can be no assurance that the Adviser
will be able to secure interests on behalf of the Fund in all of the investment opportunities that it identifies for the Fund, or that
the size of the interests available to the Fund will be as large as the Adviser would desire.
In
addition, certain provisions of the Investment Company Act prohibit the Fund from engaging in transactions with the Adviser and its affiliates;
however; unregistered funds also managed by the Adviser are not prohibited from the same transactions. The Investment Company Act also
imposes significant limits on co-investments with affiliates of the Fund. The Adviser and certain other Ares-advised funds (“Other
Managed Funds”) have received an exemptive order from the SEC, which the Fund may also rely on, that permits the Fund to co-invest
alongside its affiliates in privately negotiated investments (the “Co-Investment Exemptive Order”). Co-investments made under
the Co-Investment Exemptive Order are subject to compliance with certain conditions and other requirements, which could limit the Fund’s
ability to participate in a co-investment transaction. An inability to receive the desired allocation to potential investments may affect
the Fund’s ability to achieve the desired investment returns.
Portfolio
Fund Risks. The Fund’s investments in Portfolio Funds are subject
to a number of risks. Portfolio Fund interests are expected to be illiquid, their marketability may be restricted and the realization
of investments from them may take considerable time and/or be costly. Although the Adviser seeks to receive detailed information from
each Portfolio Fund regarding its business strategy and any performance history, in most cases the Adviser will have little or no means
of independently verifying this information. In addition, Portfolio Funds may have little or no near-term cash flow available to distribute
to investors, including the Fund.
Portfolio
Fund interests are ordinarily valued based upon valuations provided by the Portfolio Fund Managers, which may be received on
7
a delayed basis. Certain
securities in which the Portfolio Funds invest may not have a readily ascertainable market price and are fair valued by the Portfolio
Fund Managers. The Adviser reviews and performs due diligence on the valuation procedures used by each Portfolio Fund Manager
and monitor the returns provided by the Portfolio Funds. However, neither the Adviser nor the Board is able to confirm the accuracy of
valuations provided by Portfolio Fund Managers.
The
Fund will pay asset-based fees, and, in most cases, will be subject to performance-based fees in respect of its interests in Portfolio
Funds. Such fees and performance-based compensation are in addition to the Advisory Fee. In addition, performance-based fees charged by
Portfolio Fund Managers may create incentives for the Portfolio Fund Managers to make risky investments, and may be payable
by the Fund to a Portfolio Fund Manager based on a Portfolio Fund’s positive returns even if the Fund’s overall returns
are negative. Moreover, a Shareholder in the Fund will indirectly bear a proportionate share of the fees and expenses of the Portfolio
Funds, in addition to its proportionate share of the expenses of the Fund.
Portfolio
Funds’ Underlying Investments. The investments made by the Portfolio
Funds entail a high degree of risk and in most cases are highly illiquid and difficult to value. The Fund will not obtain or seek to obtain
any control over the management of any portfolio company in which any Portfolio Fund may invest. The success of each investment made by
a Portfolio Fund will largely depend on the ability and success of the management of the portfolio companies in addition to economic and
market factors.
Risks
Associated with Secondary Investments. The Fund may make Secondary Investments
in Portfolio Funds by acquiring the interests in the Portfolio Funds from existing investors in such Portfolio Funds. In such instances,
it is generally not expected that the Fund will have the opportunity to negotiate the terms of the interests being acquired, other than
the purchase price, or other special rights or privileges. Moreover, there is no assurance that the Fund will be able to purchase interests
at attractive discounts to net asset value, or at all. The overall performance of the Fund depends in large part on the acquisition price
paid by the Fund for its Secondary Investments, the structure of such acquisitions and the overall success of the Portfolio Fund.
There
is significant competition for Secondary Investments. No assurance can be given that the Fund will be able to identify Secondary Investments
that satisfy the Fund’s investment objective or, if the Fund is successful in identifying such Secondary Investments, that the Fund
will be permitted to invest, or invest in the amounts desired, in such Secondary Investments.
Regulatory
Changes Affecting Private Equity Funds. The legal, tax and regulatory environment
for private equity funds is evolving, and it is possible that any future changes may materially adversely affect the ability of Portfolio
Funds to pursue their investment strategies. Additionally, the SEC has adopted and enacted, and may continue to propose significant rules
that will impact the business of the Portfolio Funds and the Portfolio Fund Managers. Any regulatory changes that adversely affect
a Portfolio Fund’s ability to implement its investment strategies could have a material adverse impact on the Portfolio Fund’s
performance, and thus on the Fund’s performance.
8
In-Kind
Distributions from Portfolio Funds. The Fund may receive in-kind distributions
of securities from Portfolio Funds. There can be no assurance that securities distributed in kind by Portfolio Funds to the Fund will
be readily marketable or saleable, and the Fund may be required to hold such securities for an indefinite period and/or may incur additional
expense in connection with any disposition of such securities.
Direct
Investments Risks. The Fund’s investment portfolio will include Direct
Investments, which are investments in the equity and/or debt securities of private companies, including alongside private equity funds
and other private equity firms. There can be no assurance that the Fund will be given Direct Investment opportunities, or that any specific
Direct Investment offered to the Fund would be appropriate or attractive to the Fund in the Adviser’s judgment. Due diligence is
conducted on Direct Investment opportunities; however, the Adviser may not have the ability to conduct the same level of due diligence
applied to other investments. In addition, the Adviser may have little to no opportunities to negotiate the terms of such Direct Investments.
The Fund’s ability to dispose of Direct Investments may be severely limited.
Many
entities compete with the Fund in pursuing Direct Investments. Furthermore, many competitors are not subject to the regulatory restrictions
that the Investment Company Act imposes on the Fund. As a result of this competition, the Fund may not be able to pursue attractive Direct
Investment opportunities from time to time.
Direct
Investing Alongside Other Parties Risks. Direct investing alongside one or
more other parties in an investment (i.e., as a co-investor) involves risks that may not be present in investments made by lead or sponsoring
private equity investors. As a co-investor, the Fund may have interests or objectives that are inconsistent with those of the lead private
equity investors that generally have a greater degree of control over such investments. In addition, the Fund may in certain circumstances
be liable for the actions of its third-party co-venturers. Direct Investments made with third parties in joint ventures or other entities
also may involve carried interests and/or other fees payable to such third party partners or co-venturers. There can be no assurance that
appropriate minority shareholder rights will be available to the Fund or that such rights will provide sufficient protection to the Fund’s
interests.
The Fund
is subject to additional risks associated with different investments, including its investments in Liquid Assets. For information about
those risks, see “Other Investment Risks” and “Other Risks” under the “Risks” section starting on
page 31 of the Prospectus.
Distributor
Ares
Wealth Management Solutions, LLC, an affiliate of the Fund and the Adviser, acts as distributor for the Fund’s Shares (the “Distributor”)
and serves in that capacity on a reasonable best efforts basis, subject to various conditions.
The Distributor
may retain additional selling agents or other financial intermediaries to place Shares in the Fund. Such selling agents or other financial
intermediaries may impose terms and conditions on
9
Shareholder accounts
and investments in the Fund that are in addition to the terms and conditions set forth in this Prospectus.
Share
Classes; Minimum Investments
The
Fund offers three separate classes of Shares designated as Class A, Class D and Class I Shares. Each class of Shares has
differing characteristics, particularly in terms of the sales charges that Shareholders in that class may bear, and the Distribution and
Servicing Fee (as defined herein) that each class may be charged. Selling agents typically receive the sales load with respect to Class A
Shares purchased by their clients. While neither the Fund nor the Distributor impose an initial sales charge on Class I or Class D
Shares, if a Shareholder buys Class D Shares through certain selling agents or financial intermediaries, such selling agent or financial
intermediary may directly charge Shareholders transaction or other fees in such amount as they may determine. Shareholders should consult
their financial advisors at such selling agents or financial intermediaries.
The
minimum initial investment in the Fund by any investor is $25,000 with respect to Class A Shares and Class D Shares, and $1,000,000
with respect to Class I Shares. The minimum additional investment in the Fund by any investor is $5,000, except for additional purchases
pursuant to the dividend reinvestment plan.
The
stated minimum investment for Class I Shares may be reduced for certain investors as described under “Purchasing Shares.”
In addition, the Board reserves the right to accept lesser amounts below these minimums for Trustees of the Fund and employees of Ares
Management Corporation and its affiliates (“Ares”) and vehicles controlled by such employees. With respect to Class I
Shares, the Board has approved a minimum initial investment of $25,000 for Trustees of the Fund and employees of Ares and vehicles controlled
by such employees.
The
minimum initial and additional investments may be reduced by either the Fund or the Distributor in the discretion of each for certain
investors based on consideration of various factors, including the investor’s overall relationship with the Adviser or Distributor,
the investor’s holdings in other funds affiliated with the Adviser or Distributor, and such other matters as the Adviser or Distributor
may consider relevant at the time, though Shares will only be sold to investors that satisfy the Fund’s eligibility requirements.
The minimum initial and additional investments may also be reduced by either the Fund or the Distributor in the discretion of each for
clients of certain registered investment advisers, broker dealers and other financial intermediaries based on consideration of various
factors, including the registered investment adviser or other financial intermediaries’ overall relationship with the Adviser or
Distributor, the type of distribution channels offered by the intermediary and such other factors as the Adviser or Distributor may consider
relevant at the time.
In
addition, the Fund may, in the discretion of the Adviser or Distributor, aggregate the accounts of clients of registered investment advisers,
broker dealers and other financial intermediaries whose clients invest in the Fund for purposes of determining satisfaction of minimum
investment amounts. At the discretion of the Adviser or
10
the Distributor, the
Fund may also aggregate the accounts of clients of certain registered investment advisers, broker dealers and other financial intermediaries
across Share classes for purposes of determining satisfaction of minimum investment amounts for a specific Share class. The aggregation
of accounts of clients of registered investment advisers, broker dealers and other financial intermediaries for purposes of determining
satisfaction of minimum investment amounts for the Fund or for a specific Share class may be based on consideration of various factors,
including the registered investment adviser or other financial intermediaries’ overall relationship with the Adviser or Distributor,
the type of distribution channels offered by the intermediary and such other factors as the Adviser or Distributor may consider relevant
at the time.
Exchange
of Shares
Assuming
the exchange meets the eligibility requirements of the class into which such Shareholder seeks to exchange and the Fund has received proper
instruction from the financial intermediary to effect such exchange and consents to such exchange, (i) a financial intermediary may,
in its discretion, determine to exchange a Shareholder’s Shares at such Shareholder’s request and (ii) in certain cases,
where a holder of Class A Shares or Class D Shares is no longer eligible to hold such class of Shares based on the Shareholder’s
arrangements with its financial intermediary, (a) such holder’s Class A Shares may be exchanged into an equivalent net
asset value amount of Class D Shares or Class I Shares and (b) such holder’s Class D Shares may be exchanged
into an equivalent net asset value amount of Class I Shares.
An
investor may be permitted to exchange Shares between classes of Shares of the Fund, provided that, among other things: (1) the investor’s
aggregate investment would have met the minimum initial investment requirements in the applicable class at the time of purchase and continues
to meet those requirements; (2) the Shares are otherwise available for offer and sale; and (3) the investment meets all other
requirements for investing in the applicable class. When an individual investor cannot meet the minimum initial investment requirements
of the applicable class, exchanges of Shares from one class to the applicable class may be permitted if such investor’s investment
is made by an intermediary that has discretion over the account and has invested other clients’ assets in the Fund, which when aggregated
together with such investor’s investment, meet the minimum initial investment requirements for the applicable class. Investors will
not be charged any fees by the Fund for such exchanges. Ongoing fees and expenses incurred by a given class will differ from those of
other Share classes, and an investor receiving new Shares in an exchange may be subject to lower total expenses following such exchange.
Exchange transactions will be effected only into an identically registered account. While exchange transactions will generally not be
treated as a redemption for federal income tax purposes, investors are urged to consult their tax advisors as to the federal, foreign,
state and local tax consequences of an exchange. The Fund also reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange.
Eligible
Investors
Although
the Shares are registered under the Securities Act, the Shares are sold only to persons or entities that are both “accredited
11
investors,” as
defined in Section 501(a) of Regulation D under the Securities Act, and “qualified clients,” as defined in Rule 205-3
under the Advisers Act.
In
addition, Shares are generally being offered only to investors that are U.S. persons for U.S. federal income tax purposes, although the
Fund may offer Shares to non-U.S. persons on a limited basis, subject to appropriate diligence by the Adviser and in compliance with applicable
law. The qualifications required to invest in the Fund are in subscription documents that must be completed by each prospective investor.
Each
prospective investor in the Fund should obtain the advice of his, her or its own legal, accounting, tax and other advisers in reviewing
documents pertaining to an investment in the Fund, including, but not limited to, this Prospectus, the SAI and the Declaration of Trust
before deciding to invest in the Fund.
Purchasing
Shares
Shares
generally are offered for purchase as of the first business day of each calendar month, or at such other times as determined in the discretion
of the Board. The purchase price of the Shares is based on the net asset value per Share as of the date such Shares are purchased. Fractions
of Shares are issued to one one-hundredth of a Share.
Class A
Shares are sold subject to a sales load of up to 3.50% of the purchase amount. For some investors, the sales charge may be waived or reduced.
The full amount of the sales charge may be reallowed to brokers or dealers participating in the offering. Your financial intermediary
may impose additional charges when you purchase Shares of the Fund. While neither the Fund nor the Distributor impose an initial sales
charge on Class I Shares or Class D Shares, if a Shareholder buys Class D Shares through certain selling agents or financial
intermediaries, such selling agent or financial intermediary may directly charge Shareholders transaction or other fees in such amount
as they may determine.
Subscriptions
are generally subject to the receipt of cleared funds on or prior to the acceptance date set by the Fund and notified to prospective investors.
An investor who misses the acceptance date will have the effectiveness of his, her or its investment in the Fund delayed until the following
month.
Pending
any closing, funds received from prospective investors will be placed in an account with DST Asset Manager Solutions, Inc., the Fund’s
transfer agent (the “Transfer Agent”). On the date of any closing, the balance in the account with respect to each investor
whose investment is accepted will be invested in the Fund on behalf of such investor. Prospective investors whose subscriptions to purchase
Shares are accepted by the Fund will become shareholders by being admitted as Shareholders.
A prospective
investor must submit a completed subscription document on or prior to the acceptance date set by the Fund and notified to prospective
investors. An existing Shareholder generally may subscribe for additional Shares by completing an additional subscription agreement by
the acceptance date and funding such amount by the deadline. The Fund reserves the right to accept or reject, in its sole discretion,
any request to purchase Shares at any
12
time. The Fund also
reserves the right to suspend or terminate offerings of Shares at any time. Unless otherwise required by applicable law, any amount received
in advance of a purchase ultimately rejected by the Fund will be returned promptly to the prospective investor without the deduction of
any sales load, fees or expenses.
Prospective
investors who purchase Shares through financial intermediaries will be subject to the procedures of those intermediaries through which
they purchase Shares, which may include charges, investment minimums, cutoff times and other restrictions in addition to, or different
from, those listed herein. Prospective investors purchasing shares of the Fund through financial intermediaries should acquaint themselves
with their financial intermediaries’ procedures and should read this Prospectus in conjunction with any materials and information
provided by their financial intermediaries.
Distributions
The
Fund intends to make distributions on an annual basis in aggregate amounts representing substantially all of the Fund’s investment
company taxable income (including realized short-term capital gains), if any, earned during the year. Distributions may also include net
capital gains, if any.
Because
the Fund intends to qualify annually as a regulated investment company (a “RIC”) under the Code, the Fund intends to distribute
at least 90% of its annual net taxable income to its Shareholders. Nevertheless, there can be no assurance that the Fund will pay distributions
to Shareholders at any particular rate. Each year, a statement on Internal Revenue Service (“IRS”) Form 1099-DIV identifying
the amount and character of the Fund’s distributions will be mailed to Shareholders. See “Taxes, RIC Status” below and
“Material U.S. Federal Income Tax Considerations.”
Dividend
Reinvestment Plan
The
Fund operates under a dividend reinvestment plan (the “DRIP”) administered by DST Systems, Inc., an affiliate of the Transfer
Agent (“DST”). Pursuant to the DRIP, the Fund’s income dividends or capital gains or other distributions, net of any
applicable U.S. withholding tax, are reinvested in the same class of Shares of the Fund.
Shareholders
automatically participate in the DRIP, unless and until an election is made to withdraw from the DRIP on behalf of such participating
Shareholder. A Shareholder who does not wish to have distributions automatically reinvested may terminate participation in the DRIP at
any time by written instructions to that effect to DST. Shareholders who elect not to participate in the DRIP will receive all distributions
in cash paid to the Shareholder of record (or, if the Shares are held in street or other nominee name, then to such nominee). Such written
instructions must be received by DST 30 days prior to the record date of the distribution or the Shareholder will receive such distribution
in Shares through the DRIP. Under the DRIP, the Fund’s distributions to Shareholders are reinvested in full and fractional Shares.
No
Redemption; Restrictions on Transfer
No
Shareholder has the right to require the Fund to redeem Shares. With very limited exceptions, Shares are not transferable, and
13
liquidity for investments
in Shares may be provided only through periodic offers by the Fund to repurchase Shares from Shareholders. See “Repurchase of Shares.”
Repurchase
of Shares
To
provide a limited degree of liquidity to Shareholders, at the sole discretion of the Adviser and subject to the Board’s approval,
the Fund may from time to time offer to repurchase Shares pursuant to written tenders by Shareholders.
Subject
to the Board’s discretion, under normal market circumstances, the Fund intends to conduct repurchase offers of no more than 5% of
the Fund’s net assets on a quarterly basis.
Any
repurchases of Shares will be made at such times and on such terms as may be determined by the Board from time to time in its sole discretion.
In determining whether the Fund should offer to repurchase Shares from Shareholders of the Fund pursuant to repurchase requests, the Board
may consider, among other things, the recommendation of the Adviser as well as a variety of other operational, business and economic factors.
The Fund may repurchase less than the full amount that Shareholders request to be repurchased.
Under
certain circumstances, the Board may offer to repurchase Shares at a discount to their prevailing net asset value. The Board may under
certain circumstances elect to postpone, suspend or terminate an offer to repurchase Shares.
A Shareholder
who tenders some but not all of its Shares for repurchase will be required to maintain a minimum account balance of $10,000. Such minimum
ownership requirement may be waived by the Board, in its sole discretion. If such requirement is not waived by the Board, the Fund may
redeem all of the Shareholder’s Shares. To the extent a Shareholder seeks to tender all of the Shares they own and the Fund repurchases
less than the full amount of Shares that the Shareholder requests to have repurchased, the Shareholder may maintain a balance of Shares
of less than $10,000 following such Share repurchase.
A 2.00%
early repurchase fee will be charged by the Fund with respect to any repurchase of Shares from a Shareholder at any time prior to the
day immediately preceding the one-year anniversary of the Shareholder’s purchase of the Shares. Shares tendered for repurchase will
be treated as having been repurchased on a “first in-first out” basis. An early repurchase fee payable by a Shareholder may
be waived by the Fund in circumstances where the Board determines that doing so is in the best interests of the Fund. To the extent the
Fund determines to waive, impose scheduled variations of, or eliminate an Early Repurchase Fee, it will do so consistently with the requirements
of Rule 22d-1 under the Investment Company Act, and the Fund’s waiver of, scheduled variation in, or elimination of, the Early
Repurchase Fee will apply uniformly to all Shareholders regardless of Share class. See “Repurchase of Shares.”
Fees
and Expenses
On
an ongoing basis, the Fund bears its own operating expenses (including, without limitation, its ongoing offering expenses). A more detailed
discussion of the Fund’s expenses can be found below under “Advisory Fee,” “Incentive Fee,” “Administrator”
and “Distribution and Servicing Fee for Class A and Class D Shares.”
14
Advisory Fee
In
consideration of the advisory services provided by the Adviser, the Fund pays the Adviser a quarterly advisory fee at an annual rate of
1.40% based on the value of the Fund’s Managed Assets (as defined below) calculated and accrued monthly as of the last business
day of each month (the “Advisory Fee”). “Managed Assets” means the total assets of the Fund (including any assets
attributable to any borrowings or other indebtedness or preferred shares that may be issued) minus the Fund’s liabilities other
than liabilities relating to borrowings or other indebtedness.
For
purposes of determining the Advisory Fee payable to the Adviser, the value of the Fund’s Managed Assets will be calculated prior
to the inclusion of the Advisory Fee and Incentive Fee, if any, payable to the Adviser or to any purchases or repurchases of Shares of
the Fund or any distributions by the Fund. The Advisory Fee is payable in arrears within 5 business days after the completion of the net
asset value computation for the quarter. The Advisory Fee is paid to the Adviser out of the Fund’s assets, and therefore decreases
the net profits or increases the net losses of the Fund.
The services
of all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory and management
services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by
the Adviser. The Fund bears all other costs and expenses of its operations and transactions as set forth in its investment advisory and
management agreement with the Adviser (as amended from time to time, the “Investment Advisory and Management Agreement”).
In addition
to the fees and expenses to be paid by the Fund under the Investment Advisory and Management Agreement, the Adviser and its affiliates
are entitled to reimbursement by the Fund of the Adviser’s and its affiliates’ cost of providing the Fund with certain non-advisory
services. If persons associated with the Adviser or any of its affiliates, including persons who are officers of the Fund, provide accounting,
legal, clerical, compliance or administrative and similar oversight services to the Fund at the request of the Fund, the Fund will reimburse
the Adviser and its affiliates for their costs in providing such accounting, legal, clerical, compliance or administrative and similar
oversight services to the Fund (which costs may include an allocation of overhead including rent and the allocable portion of the salaries
and benefits of the relevant persons and their respective staffs, including travel expenses), using a methodology for determining costs
approved by the Board. See “Investment Advisory and Management Agreement.”
Incentive Fee
At
the end of each calendar quarter of the Fund, the Adviser is entitled to receive an incentive fee equal to 12.5% of the difference, if
positive, between (i) the net profits of the Fund for the relevant period and (ii) the balance, if any, of the Loss Recovery
Account (as defined below) at the start of the relevant period (the “Incentive Fee”). For the purposes of the Incentive Fee,
the term “net profits” shall mean (i) the amount by which the net asset value of the Fund on the last day of the relevant
period exceeds the net asset value of the Fund as of the commencement of the same period, including any net change in unrealized appreciation
or depreciation of investments and realized
15
income and gains or
losses and expenses (including offering and organizational expenses) plus (ii) the aggregate distributions accrued during the period.
The
Fund maintains a memorandum account (the “Loss Recovery Account”), which had an initial balance of zero and is (i) increased
upon the close of each calendar quarter of the Fund by the amount of the net losses of the Fund for the quarter, and (ii) decreased
(but not below zero) upon the close of each calendar quarter by the amount of the net profits of the Fund for the quarter. Net losses
are defined as the amount by which the net asset value of the Fund on the last day of the relevant period is less than the net asset value
of the Fund as of the commencement of the same period, including any net change in unrealized appreciation or depreciation of investments
and realized income and gains or losses and expenses (including offering and organizational expenses).
For
the avoidance of doubt, any change in the net asset value of the Fund directly as a result of subscriptions or repurchases during each
measurement period are not included for purposes of the “net profits” or “net losses” calculations. Shareholders
of the Fund will benefit from the Loss Recovery Account in proportion to their holdings of Shares, although such benefit may vary depending
on when a Shareholder purchases or redeems Shares and the balance in the Loss Recovery Account at such time.
The
Adviser does not return to the Fund amounts paid to it on net profits that the Fund has not yet received in cash if such amounts are not
ultimately received by the Fund in cash. If the Fund does not ultimately receive amounts in cash, a loss would be recognized, which would
increase the amount of the Loss Recovery Account and reduce future Incentive Fee payments.
Any
Incentive Fee payable by the Fund that relates to an increase in value of the Fund’s investments may be computed and paid on gain
or income that is unrealized, and the Adviser is not obligated to reimburse the Fund for any part of an Incentive Fee it previously received.
If a Fund investment with an unrealized gain subsequently decreases in value, it is possible that such unrealized gain previously included
in the calculation of an Incentive Fee will never become realized. Thus, the Fund could have paid an Incentive Fee on income or gain the
Fund never received.
Prior
to September 26, 2023, the Loss Recovery Account was permitted to be reset on a trailing four-quarter measurement period, with such
measurement period commencing at the conclusion of the first calendar quarter of the Fund’s operations (i.e., June 30, 2022).
As a result, the only reset of the Loss Recovery Account occurred on June 30, 2023. This reset had no impact on the Loss Recovery
Account, as the Loss Recovery Account had no balance as of June 30, 2023. The Fund’s net losses maintained on its Loss Recovery
Account will not be reset after July 1, 2023.
Distribution and Servicing Fee
Class A
and Class D Shares are subject to an ongoing distribution and shareholder servicing fee (the “Distribution and Servicing Fee”)
to compensate financial industry professionals for distribution-related expenses, if applicable, and providing ongoing services in respect
of Shareholders who own Class A or Class D Shares of the Fund. Under
16
the terms of the SEC
exemptive relief that the Fund relies on to offer multiple classes of Shares, the Fund is subject to Rule 12b-1 under the Investment
Company Act. Accordingly, the Fund has adopted a distribution and servicing plan for its Class A Shares and Class D Shares (the
“Distribution and Servicing Plan”) and pays the Distribution and Servicing Fee with respect to its Class A and Class D
Shares. The Distribution and Servicing Plan operates in a manner consistent with Rule 12b-1 under the Investment Company Act.
Class A
Shares and Class D Shares pay a Distribution and Servicing Fee to the Distributor at an annual rate of 0.85% and 0.25%, respectively,
based on the aggregate net assets of the Fund attributable to such class, respectively, to be calculated as of the beginning of the first
calendar day of each applicable month, and payable monthly in arrears. For purposes of determining the Distribution and Servicing Fee,
net asset value will be calculated prior to any reduction for any fees and expenses, including, without limitation, the Distribution and
Servicing Fee payable.
Class I
Shares are not subject to a Distribution and Servicing Fee.
The
Adviser, or its affiliates, may pay additional compensation out of its own resources (i.e., not Fund assets) to certain selling agents
or financial intermediaries in connection with the sale of the Shares. The additional compensation may differ among brokers or dealers
in amount or in the amount of calculation. Payments of additional compensation may be fixed dollar amounts or, based on the aggregate
value of outstanding Shares held by Shareholders introduced by the broker or dealer, or determined in some other manner. The receipt of
the additional compensation by a selling broker or dealer may create potential conflicts of interest between an investor and its broker
or dealer who is recommending the Fund over other potential investments.
Administrator
The
Fund has retained ALPS Fund Services, Inc. (the “Administrator”) to provide it with certain administration and accounting
services. In consideration for these services, the Fund pays the Administrator tiered fees based on the average monthly value of the Fund’s
Managed Assets, subject to a minimum annual fee, as well as certain other fixed, per-account or transactional fees (the “Administration
Fee”). The Administration Fee is paid to the Administrator out of the assets of the Fund and therefore decreases the net profits
or increases the net losses of the Fund. The Fund also reimburses the Administrator for certain out-of-pocket expenses and pays the Administrator
a fee for transfer agency services. See “Administration and Accounting Services.”
Transfer Restrictions
A Shareholder
may assign, transfer, sell, encumber, pledge or otherwise dispose of (each, a “transfer”) Shares only (i) by operation
of law pursuant to the death, divorce, insolvency, bankruptcy, or adjudicated incompetence of the Shareholder; or (ii) under other
limited circumstances, with the consent of the Fund (which may be withheld in its sole discretion).
Notice
of a proposed transfer of Shares must be accompanied by properly completed transfer information documents in respect of the proposed transferee
and must include evidence satisfactory to the Fund that the proposed transferee, at the time of the transfer, meets
17
any requirements imposed
by the Fund with respect to investor eligibility and suitability. Each transferring Shareholder and transferee may be charged reasonable
expenses, including attorneys’ and accountants’ fees, incurred by the Fund in connection with the transfer.
Taxes; RIC Status
The
Fund has elected to be treated as, and intends to continue to qualify each year to be treated as, a regulated investment company or a
“RIC” under Subchapter M of the Code. As such, the Fund generally will not be subject to U.S. federal corporate income tax,
provided that it distributes all of its net taxable income and gains each year. It is anticipated that the Fund will principally recognize
capital gains and dividends and therefore dividends paid to Shareholders in respect of such income generally will be taxable to Shareholders
at the reduced rates of U.S. federal income tax that are applicable to individuals for “qualified dividends” and long-term
capital gains.
In
addition, because the Fund intends to qualify as a RIC, it is expected to have certain attributes that are not generally found in traditional
unregistered private equity fund of funds. These include providing simpler tax reports to Shareholders on Form 1099-DIV and the avoidance
of unrelated business taxable income for benefit plan investors and other investors that are exempt from payments of U.S. federal income
tax.
For
a discussion of certain tax risks and considerations relating to an investment in the Fund, see “Material U.S. Federal Income Tax
Considerations.”
Prospective
investors are urged to consult their tax advisers with respect to the specific U.S. federal, state, local, U.S. and non-U.S. tax consequences,
including applicable tax reporting requirements.
Tax Reports
The
Fund will distribute to its Shareholders, after the end of each calendar year, IRS Forms 1099-DIV detailing the amounts includible in
such Shareholder’s taxable income for such year as ordinary income, qualified dividend income and long-term capital gains. Dividends
and other taxable distributions are taxable to the Fund’s Shareholders even if they are reinvested in additional Shares pursuant
to the DRIP.
Reports to Shareholders
The
Fund will provide Shareholders with an audited annual report and an unaudited semi-annual report within 60 days after the close of
the reporting period for which the report is being made, or as otherwise required by the Investment Company Act. Shareholders will also
receive quarterly commentary regarding the Fund’s operations and investments.
The
Fund will furnish to Shareholders as soon as practicable after the end of each taxable year information on Form 1099 to assist Shareholders
in preparing their tax returns.
Fiscal and Tax Year
The
Fund’s fiscal year is the 12-month period ending on March 31st. The Fund’s taxable year is the 12-month period ending
on September 30th.
Term
The
Fund’s term is perpetual unless the Fund is otherwise terminated under the terms of the Declaration of Trust.
Custodian and Transfer Agent
UMB
Bank, N.A. serves as the Fund’s custodian, and DST Asset Manager Solutions, Inc. serves as the Fund’s transfer agent.
18
SUMMARY OF FEES AND EXPENSES
The fee
table below is intended to assist Shareholders in understanding the various costs and expenses that the Fund expects to incur, and that
Shareholders can expect to bear, by investing in the Fund.
|
Shareholder Transaction Expenses (fees paid directly from your investment) |
| |
Class A Shares |
| |
Class D Shares |
| |
Class I Shares |
| |||||||||
|
Maximum Sales Load (as
a percentage of purchase amount)(1)
|
| | | | 3.50% | | | | | | None | | | | | | None | | |
|
Maximum Early Repurchase Fee (as a percentage of repurchased amount)(2)
|
| | | | 2.00% | | | | | | 2.00% | | | | | | 2.00% | | |
|
Estimated Annual Operating Expenses (as a percentage of net assets attributable to Shares) |
| |
Class A Shares |
| |
Class D Shares |
| |
Class I Shares |
| |||||||||
|
Advisory Fee(3)(7)
|
| | | | 1.40% | | | | | | 1.40% | | | | | | 1.40% | | |
|
Incentive Fee(4)
|
| | | | 0.62% | | | | | | 0.62% | | | | | | 0.62% | | |
|
Other Expenses(5)
|
| | | | 0.34% | | | | | | 0.34% | | | | | | 0.34% | | |
|
Distribution and Servicing Fee |
| | | | 0.85% | | | | | | 0.25% | | | | | | None | | |
|
Acquired Fund Fees and Expenses(6)
|
| | | | 0.67% | | | | | | 0.67% | | | | | | 0.67% | | |
|
Interest Payments on Borrowed Funds(7)
|
| | | | 0.61% | | | | | | 0.61% | | | | | | 0.61% | | |
|
Total Annual Expenses |
| | | | 4.49% | | | | | | 3.89% | | | | | | 3.64% | | |
|
Fee Waiver and/or Expense Reimbursement(3)(8)
|
| | | | (0.04)% | | | | | | (0.04)% | | | | | | (0.04)% | | |
|
Total Annual Expenses (After Fee Waiver and/or Expense Reimbursement)
|
| | | | 4.45% | | | | | | 3.85% | | | | | | 3.60% | | |
(1) Investors
purchasing Class A Shares may be subject to a sales load of up to 3.50% of the investment amount. While neither the Fund nor the
Distributor impose an initial sales charge on Class I or Class D Shares, if a shareholder buys Class D Shares through certain
selling agents or financial intermediaries, such selling agent or financial intermediary may directly charge Shareholders transaction
or other fees in such amount as they may determine.
(2)
A
2.00% Early Repurchase Fee payable to the Fund will be charged with respect to the repurchase of Shares at any time prior to the day immediately
preceding the one-year anniversary of a Shareholder’s purchase of the Shares (on a “first in — first out”
basis). An Early Repurchase Fee payable by a Shareholder may be waived in circumstances where the Board determines that doing so is in
the best interests of the Fund and in a manner that will not discriminate unfairly against any Shareholder. To the extent the Fund determines
to waive, impose scheduled variations of, or eliminate an Early Repurchase Fee, it will do so consistently with the requirements of Rule 22d-1
under the Investment Company Act, and the Fund’s waiver of, scheduled variation in, or elimination of, the Early Repurchase Fee
will apply uniformly to all Shareholders regardless of Share class. The Early Repurchase Fee will be retained by the Fund for the benefit
of the remaining Shareholders.
(3)
The
Fund pays the Adviser a quarterly Advisory Fee at an annual rate of 1.40% based on value of the Fund’s Managed Assets, calculated
and accrued monthly as of the last business day of each month. For purposes of determining the Advisory Fee payable to the Adviser, the
value of the Fund’s Managed Assets will be calculated prior to the inclusion of the Advisory Fee and Incentive Fee, if any, payable
to the Adviser or to any purchases or repurchases of Shares of the Fund or any distributions by the Fund.
(4)
At
the end of each calendar quarter, the Adviser is entitled to receive an Incentive Fee equal to 12.5% of the difference, if positive, between
(i) the net profits of the Fund for the relevant period and (ii) the then balance, if any, of the Loss Recovery Account. For
the purposes of the Incentive Fee, the term “net profits” shall mean (i) the amount by which the net asset value of the
Fund on the last day of the relevant period exceeds the net asset value of the Fund as of the commencement of the same period, including
any net change in unrealized appreciation or depreciation of investments and realized income and gains or losses and expenses (including
offering and organizational expenses) plus (ii) the aggregate distributions accrued during the period. For the avoidance of doubt,
any change in the net asset value of the Fund directly as a result of subscriptions or repurchases during each measurement period are
not included for purposes of the “net profits” or “net losses” calculations.
19
(5)
Other
Expenses are based on estimated amounts for the current fiscal year and include, among other things, estimated professional fees and other
expenses that the Fund bears, including initial and ongoing offering costs, fees and expenses of the Administrator, transfer agent and
custodian and the reimbursement of costs of personnel associated with the Adviser or its affiliates who provide certain non-advisory services
to the Fund, as permitted under the Investment Advisory and Management Agreement.
(6)
Acquired
Fund Fees and Expenses are based on estimated amounts for the current fiscal year and include the estimated fees and expenses of the Portfolio
Funds in which the Fund is already invested and intends to invest based on the anticipated net proceeds of the offering. Some
of the Portfolio Funds in which the Fund intends to invest generally charge asset-based management fees. The
managers of the Portfolio Funds may also receive performance-based compensation if the Portfolio Funds achieve certain profit levels,
generally in the form of “carried interest” allocations of profits from the Portfolio Funds, which effectively will reduce
the investment returns of the Portfolio Funds. The Portfolio Funds in which the Fund invests generally charge a management fee of 1.00%
to 2.50%, and up to 30% of net profits as a carried interest allocation, subject to a clawback. The
Acquired Fund Fees and Expenses disclosed above are based on historic returns of the Portfolio Funds in which the Fund already invests
and expects to invest, which may change substantially over time. The Acquired Fund Fees and Expenses reflects operating expenses of the
Portfolio Funds (i.e., management fees, administration fees and professional and other direct, fixed fees and expenses of the Portfolio
Funds) and does not reflect any performance-based fees or allocations paid by the Portfolio Funds that are calculated solely on the realization
and/or distribution of gains, or on the sum of such gains and unrealized appreciation of assets distributed in-kind. As such, fees and
allocations for a particular period may be unrelated to the cost of investing in the Portfolio Funds.
(7)
In
addition to interest payments, includes fees payable under the Fund’s current line of credit.
(8)
Pursuant
to an expense limitation agreement (the “Expense Limitation Agreement”) with the Fund, the Adviser has agreed to waive fees
that it would otherwise be paid, and/or to assume expenses of the Fund, if required to ensure that annual operating expenses (excluding
(i) the Advisory Fee; (ii) the Incentive Fee; (iii) any Distribution and Servicing Fee; (iv) all fees and expenses
of Portfolio Funds and Direct Investments in which the Fund invests (including all acquired fund fees and expenses); (v) transactional
costs associated with consummated and unconsummated transactions, including legal costs and brokerage commissions, associated with the
acquisition, disposition and maintenance of investments in Portfolio Funds, Direct Investments, exchange-traded funds and other investments;
(vi) interest; (vii) taxes; (viii) brokerage commissions; (ix) dividend and interest expenses relating to short sales;
and (x) extraordinary expenses (expenses resulting from events and transactions that are distinguished by their unusual nature and
by the infrequency of their occurrence)) do not exceed 0.30% per annum of the average monthly net assets of each class of Shares. With
respect to each class of Shares, the Fund agrees to repay the Adviser any fees waived under the Expense Limitation Agreement or any expenses
the Adviser reimburses in excess of the Expense Limitation Agreement for such class of Shares, provided the repayments do not cause annual
operating expenses for that class of Shares to exceed the expense limitation in place at the time the fees were waived and/or the expenses
were reimbursed, or the expense limitation in place at the time the Fund repays the Adviser, whichever is lower. Any such repayments must
be made within three years after the year in which the Adviser incurred the expense. The Expense Limitation Agreement has a term
ending on July 31, 2025, and the Adviser may extend the term for a period of one year on an annual basis, subject to the approval
of the Board, including a majority of the Independent Trustees.
The
purpose of the table above and the examples below is to assist prospective investors in understanding the various costs and expenses Shareholders
will bear.
The
following examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. The examples
assume that all distributions are reinvested at net asset value and that the percentage amounts listed under Annual Expenses remain
the same (except that the examples incorporate the fee waiver and expense reimbursement arrangements from the Expense Limitation Agreement
for only the one-year example and the first year of the three-, five- and ten-year examples). The one-year example for Class A Shares
includes the maximum sales load set out in the table above. The assumption in the hypothetical example of a 5% annual return is required
by regulation of the SEC and applicable to all registered
20
investment
companies. The assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Fund.
Example
1
| | | |
1 Year |
| |
3 Years |
| |
5 Years |
| |
10 Years |
| ||||||||||||
|
You would pay the following expenses on a $1,000 Class A
Shares investment, assuming a 5% annual return: |
| | | $ | 78 | | | | | $ | 166 | | | | | $ | 254 | | | | | $ | 479 | | |
|
You would pay the following expenses on a $1,000 Class D
Shares investment, assuming a 5% annual return: |
| | | $ | 39 | | | | | $ | 118 | | | | | $ | 200 | | | | | $ | 411 | | |
|
You would pay the following expenses on a $1,000 Class I
Shares investment, assuming a 5% annual return: |
| | | $ | 36 | | | | | $ | 111 | | | | | $ | 188 | | | | | $ | 389 | | |
Example
2
| | | |
1 Year |
| |
3 Years |
| |
5 Years |
| |
10 Years |
| ||||||||||||
|
You would pay the following expenses on a $50,000 Class A
Shares investment, assuming a 5% annual return: |
| | | $ | 3,903 | | | | | $ | 8,281 | | | | | $ | 12,703 | | | | | $ | 23,952 | | |
|
You would pay the following expenses on a $50,000 Class D
Shares investment, assuming a 5% annual return: |
| | | $ | 1,936 | | | | | $ | 5,913 | | | | | $ | 9,978 | | | | | $ | 20,532 | | |
|
You would pay the following expenses on a $50,000 Class I
Shares investment, assuming a 5% annual return: |
| | | $ | 1,813 | | | | | $ | 5,553 | | | | | $ | 9,393 | | | | | $ | 19,425 | | |
The
Examples above are based on the annual fees and expenses set forth on the table above. They should not be considered a representation
of future expenses. Actual expenses may be greater or less than those shown, and the Fund’s actual rate of return may be greater
or less than the hypothetical 5.0% return assumed in the examples. A greater rate of return than that used in the Examples would increase
the dollar amount of the asset-based fees paid by the Fund, as well as the effect of the Incentive Fee.
FINANCIAL
HIGHLIGHTS
The financial
highlights table is intended to help an investor understand the Fund’s financial performance. The information in this table for
the Fund’s fiscal year ended March 31, 2023 has been derived from Fund’s financial statements, which have been audited
by Ernst & Young LLP, an independent registered accounting firm, whose report, along with the Fund’s financial statements, is
included in the Fund’s Annual Report dated March 31, 2023.
The information
for the six months ended September 30, 2023 is unaudited and has been derived from the Fund’s financial statements included
in the Fund’s Semi-Annual Report dated September 30, 2023. In the opinion of management, the unaudited interim financial statements
reflect all adjustments necessary for a fair statement of the results for the interim period presented and are of a normal, recurring
nature. The Fund’s Annual Report and Semi-Annual Report are incorporated by reference in the Statement of Additional Information
and is available, without charge, upon request.
21
Class I
| | | |
For the Period Ended September 30, 2023 (Unaudited) |
| |
For the Period April 1, 2022 (Commencement of operations) to March 31, 2023 |
| ||||||
|
NET ASSET VALUE, BEGINNING OF PERIOD |
| | | $ | 26.93 | | | | | $ | 25.00 | | |
| INCOME FROM INVESTMENT OPERATIONS | | | | | | | | | | | | | |
|
Net investment loss(a) |
| | | | (0.33) | | | | | | (0.32) | | |
|
Net realized and unrealized gain on investments |
| | | | 1.62 | | | | | | 2.61 | | |
|
Total income from investment operations |
| | | | 1.29 | | | | | | 2.29 | | |
| DISTRIBUTIONS | | | | | | | | | | | | | |
|
From net investment income |
| | | | — | | | | | | — | | |
|
From net realized gain on investments |
| | | | — | | | | | | (0.36) | | |
|
Total distributions |
| | | | — | | | | | | (0.36) | | |
|
NET ASSET VALUE, END OF PERIOD |
| | | $ | 28.22 | | | | | $ | 26.93 | | |
|
TOTAL RETURN |
| | | | 4.79%(b) | | | | | | 9.27% | | |
| RATIOS AND SUPPLEMENTAL DATA | | | | | | | | | | | | | |
|
Net assets, end of period (000’s) |
| | | $ | 768,367 | | | | | $ | 313,698 | | |
| RATIOS TO AVERAGE NET ASSETS(c) | | | | | | | | | | | | | |
|
Ratio of gross expenses to average net assets(d) |
| | | | 4.05%(e) | | | | | | 4.66% | | |
|
Ratio of expense waiver/reimbursements to average net assets |
| | | | (0.74)%(e) | | | | | | (2.66)% | | |
|
Ratio of net expenses to average net assets(d) |
| | | | 3.30%(e) | | | | | | 2.00% | | |
|
Ratio of net investment income (loss) to average net assets |
| | | | (2.41)%(e) | | | | | | (1.26)% | | |
| CREDIT FACILITIES | | | | | | | | | | | | | |
|
Aggregate principal amount, end of period (000’s)(f) |
| | | | N/A | | | | | | N/A | | |
|
Asset coverage, end of period per $1,000(f) |
| | | | N/A | | | | | | N/A | | |
| SENIOR SECURITIES | | | | | | | | | | | | | |
|
Liquidation value amount, end of period (000’s)(g) |
| | | | N/A | | | | | | N/A | | |
|
Asset coverage, end of period per $1,000(g) |
| | | | N/A | | | | | | N/A | | |
|
PORTFOLIO TURNOVER RATE |
| | | | 0% | | | | | | 0% | | |
(a)
Per
share numbers have been calculated using the average shares method.
(b)
Total
returns for periods of less than one year are not annualized.
(c)
The
ratios do not include investment income or expenses of the Portfolio Funds (as defined in Note 1) in which the Fund invests. Organizational,
offering expenses and Incentive Fees are not annualized for the period April 1, 2022 to March 31, 2023
(d)
If
Incentive Fees had been excluded, the expense ratios would have decreased by 1.25% and 1.40%, for the period ended September 30,
2023 and the period from April 1, 2022 through March 31, 2023, respectively.
(e)
Annualized.
(f)
For
the periods ended September 30, 2023 and March 31, 2023, the Fund did not utilize the credit facility.
(g)
For
the periods ended September 30, 2023 and March 31, 2023, the Fund did not issue any senior securities.
22
Class D
| | | |
For the Period Ended September 30, 2023 (Unaudited) |
| |
For the Period September 1, 2022 (Commencement of operations) to March 31, 2023 |
| ||||||
|
NET ASSET VALUE, BEGINNING OF PERIOD |
| | | $ | 26.87 | | | | | $ | 25.14 | | |
| INCOME FROM INVESTMENT OPERATIONS | | | | | | | | | | | | | |
|
Net investment loss(a) |
| | | | (0.42) | | | | | | (0.56) | | |
|
Net realized and unrealized gain on investments |
| | | | 1.67 | | | | | | 2.65 | | |
|
Total income from investment operations |
| | | | 1.25 | | | | | | 2.09 | | |
| DISTRIBUTIONS | | | | | | | | | | | | | |
|
From net investment income |
| | | | — | | | | | | — | | |
|
From net realized gain on investments |
| | | | — | | | | | | (0.36) | | |
|
Total distributions |
| | | | — | | | | | | (0.36) | | |
|
NET ASSET VALUE, END OF PERIOD |
| | | $ | 28.12 | | | | | $ | 26.87 | | |
|
TOTAL RETURN(b) |
| | | | 4.65% | | | | | | 8.45% | | |
| RATIOS AND SUPPLEMENTAL DATA | | | | | | | | | | | | | |
|
Net assets, end of period (000’s) |
| | | $ | 9,332 | | | | | $ | 1,631 | | |
| RATIOS TO AVERAGE NET ASSETS(c)(e) | | | | | | | | | | | | | |
|
Ratio of gross expenses to average net assets(d) |
| | | | 4.66% | | | | | | 4.12% | | |
|
Ratio of expense waiver/reimbursements to average net assets |
| | | | (0.68)% | | | | | | (1.49)% | | |
|
Ratio of net expenses to average net assets(d) |
| | | | 3.98% | | | | | | 2.63% | | |
|
Ratio of net investment income (loss) to average net assets |
| | | | (3.06)% | | | | | | (2.16)% | | |
| CREDIT FACILITIES | | | | | | | | | | | | | |
|
Aggregate principal amount, end of period (000’s)(f) |
| | | | N/A | | | | | | N/A | | |
|
Asset coverage, end of period per $1,000(f) |
| | | | N/A | | | | | | N/A | | |
| SENIOR SECURITIES | | | | | | | | | | | | | |
|
Liquidation value amount, end of period (000’s)(g) |
| | | | N/A | | | | | | N/A | | |
|
Asset coverage, end of period per $1,000(g) |
| | | | N/A | | | | | | N/A | | |
|
PORTFOLIO TURNOVER RATE |
| | | | 0% | | | | | | 0% | | |
(a)
Per
share numbers have been calculated using the average shares method.
(b)
Total
returns for periods of less than one year are not annualized.
(c)
The
ratios do not include investment income or expenses of the Portfolio Funds (as defined in Note 1) in which the Fund invests. Organizational,
offering expenses and Incentive Fees are not annualized for the period April 1, 2022 to March 31, 2023
(d)
If
Incentive Fees had been excluded, the expense ratios would have decreased by 1.25% and 1.40%, for the period ended September 30,
2023 and the period from April 1, 2022 through March 31, 2023, respectively.
(e)
Annualized.
(f)
For
the periods ended September 30, 2023 and March 31, 2023, the Fund did not utilize the credit facility.
(g)
For
the periods ended September 30, 2023 and March 31, 2023, the Fund did not issue any senior securities.
23
Class A
| | | |
For the Period August 1, 2023 (Commencement of operations) to September 30, 2023 (Unaudited) |
| |||
|
NET ASSET VALUE, BEGINNING OF PERIOD |
| | | $ | 26.97 | | |
| INCOME FROM INVESTMENT OPERATIONS | | | | | | | |
|
Net investment loss(a) |
| | | | (0.20) | | |
|
Net realized and unrealized gain on investments |
| | | | 1.40 | | |
|
Total income from investment operations |
| | | | 1.20 | | |
| DISTRIBUTIONS | | | | | | | |
|
From net investment income |
| | | | — | | |
|
From net realized gain on investments |
| | | | — | | |
|
Total distributions |
| | | | — | | |
|
NET ASSET VALUE, END OF PERIOD |
| | | $ | 28.17 | | |
|
TOTAL RETURN(b) |
| | | | 4.44% | | |
| RATIOS AND SUPPLEMENTAL DATA | | | | | | | |
|
Net assets, end of period (000’s) |
| | | $ | 204 | | |
| RATIOS TO AVERAGE NET ASSETS(c)(d) | | | | | | | |
|
Ratio of gross expenses to average net assets(e) |
| | | | 6.20% | | |
|
Ratio of expense waiver/reimbursements to average net assets |
| | | | (0.53)% | | |
|
Ratio of net expenses to average net assets(e) |
| | | | 5.67% | | |
|
Ratio of net investment income (loss) to average net assets |
| | | | (4.21)% | | |
| CREDIT FACILITIES | | | | | | | |
|
Aggregate principal amount, end of period (000’s)(f) |
| | | | N/A | | |
|
Asset coverage, end of period per $1,000(f) |
| | | | N/A | | |
| SENIOR SECURITIES | | | | | | | |
|
Liquidation value amount, end of period (000’s)(g) |
| | | | N/A | | |
|
Asset coverage, end of period per $1,000(g) |
| | | | N/A | | |
|
PORTFOLIO TURNOVER RATE |
| | | | 0% | | |
(a)
Per
share numbers have been calculated using the average shares method.
(b)
Total
returns for periods of less than one year are not annualized.
(c)
The
ratios do not include investment income or expenses of the Portfolio Funds (as defined in Note 1) in which the Fund invests.
(d)
Annualized.
(e)
If
Incentive Fees had been excluded, the expense ratios would have decreased by 1.25%.
(f)
For
the periods ended September 30, 2023 and March 31, 2023, the Fund did not utilize the credit facility.
(g)
For
the periods ended September 30, 2023 and March 31, 2023, the Fund did not issue any senior securities.
24
THE FUND
The Fund
is a Delaware statutory trust formed on July 28, 2021 and is registered under the Investment Company Act as a closed-end, non-diversified,
management investment company. The Fund held its initial closing on April 1, 2022.
Investment
advisory services are provided to the Fund by the Adviser pursuant to the Advisory Agreement. Responsibility for monitoring and overseeing
the Fund’s investment program and its management and operation is vested in the Board of Trustees.
USE OF
PROCEEDS
The proceeds
from the sale of Shares of the Fund, not including the amount of any sales loads and the Fund’s fees and expenses (including, without
limitation, offering expenses), will be invested by the Fund in accordance with the Fund’s investment objective and strategies within
three months after receipt of such proceeds, however, the Fund may be delayed up to an additional three months depending on
market conditions, the timing and availability of suitable investments and capital inflows into the Fund. The Fund anticipates that it
will take a longer period of time to allocate proceeds of its continuous offering to certain investments, principally certain Primary
Investments, Secondary Investments and Direct Investments, due to the nature of those investments. Such proceeds will be invested together
with any interest earned in the Fund’s account with the Fund’s custodian prior to the closing of the applicable offering.
See “Purchasing Shares.” Delays in investing the Fund’s assets may occur (i) because of the time typically required
to complete private equity markets transactions (which may be considerable), (ii) because certain Portfolio Funds selected by the
Adviser may provide infrequent opportunities to purchase their securities, and/or (iii) because of the time required for the managers
of the Portfolio Funds (“Portfolio Fund Managers”) to invest the amounts committed by the Fund. Accordingly, during this
period, the Fund may not achieve its investment objective or be able to fully pursue its investment strategies and policies.
Pending
the investment of the proceeds pursuant to the Fund’s investment objective and policies, the Fund may invest a portion of the proceeds
of the offering, which may be a substantial portion, in short-term, high quality debt securities, money market securities, cash or cash
equivalents. In addition, the Fund may maintain a portion of the proceeds of the continuous offering in cash to meet operational needs.
The Fund may not achieve its investment objective, or otherwise fully satisfy its investment policies, during such periods in which the
Fund’s assets are not able to be substantially invested in accordance with its investment strategies.
INVESTMENT
OBJECTIVE AND STRATEGY
The
Fund’s investment objective is to seek attractive long-term capital appreciation. In pursuing its investment objective, the Fund
invests in an actively managed portfolio of Private Assets. The Fund and the Adviser do not guarantee any level of return or risk on investments
and there can be no assurance that the Fund’s investment objective will be achieved or that the Fund’s investment program
will be successful. The Fund’s investment objective is a non-fundamental policy of the Fund and may be changed with the approval
of the Board upon 60 days’ prior written notice to the Fund’s Shareholders.
Under
normal circumstances, the Fund intends to invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes)
in Private Assets. For purposes of this policy, Private Assets include Direct Investments and Primary Investments and Secondary Investments
in Portfolio Funds. This policy may be changed by the Board, upon 60 days’ prior written notice to Shareholders. This test
is applied at the time of investment; later percentage changes caused by a change in the value of the Fund’s assets, including
as a result in the change in the value of the Fund’s investments or due to the issuance or redemption of Shares, will not require
the Fund to dispose of an investment.
The
Fund, either directly through Direct Investments or indirectly through Portfolio Funds, may invest in companies that are organized or
headquartered or have substantial sales or operations outside of the United States, its territories, and possessions, including emerging
market countries. The Fund defines emerging market countries generally to include every nation in the world except developed countries,
that is, the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. The Fund may seek to
25
hedge
all or a portion of the Fund’s foreign currency risk. Depending on market conditions and the views of the Adviser, the Fund may
or may not hedge all or a portion of its currency exposures.
The
Adviser manages the Fund’s asset allocation and investment decisions with a view towards managing liquidity and maintaining a high
level of investment in Private Assets. The Fund’s asset allocation and amount of Private Assets may be based, in part, on anticipated
future capital calls and distributions from such investments. This may result in the Fund making commitments to Private Assets in an aggregate
amount that exceeds the total amounts invested by Shareholders in the Fund at the time of such commitment (i.e., to “over-commit”).
The Adviser may also take other anticipated cash flows into account, such as those relating to new subscriptions into the Fund, the repurchase
of Shares through periodic tenders by Shareholders and any distributions made to Shareholders. To forecast portfolio cash flows, the Adviser
utilizes quantitative and qualitative factors, including historical private equity data, actual portfolio observations and qualitative
forecasts prepared by the Adviser. The Fund maintains cash, cash equivalents, borrowings or other liquid assets in sufficient amounts,
in the Adviser’s judgment, to satisfy capital calls from Portfolio Funds.
The
Fund has established a credit line to borrow money for a range of purposes, including to provide liquidity for capital calls by Portfolio
Funds, to satisfy tender requests, to manage timing issues in connection with the inflows of additional capital and the acquisition of
Fund investments and to otherwise satisfy Fund obligations. There is no assurance, however, that the Fund will be able to timely repay
any borrowings under such credit line, which may result in the Fund incurring leverage on its portfolio investments from time to time.
There can be no assurance that the Fund will be able to renew its credit line on attractive terms. Under the Investment Company Act, the
Fund is not permitted to borrow for any purposes if, immediately after such borrowing, the Fund would have asset coverage (as defined
in the Investment Company Act) of less than 300% with respect to indebtedness. This means that at the time the borrowing is made, the
value of the Fund’s borrowings may not exceed one-third the value of the Fund’s total assets (including such borrowings),
or 50% of the Fund’s net assets. None of the foregoing Investment Company Act requirements apply to Portfolio Funds in which the
Fund invests unless such Portfolio Funds are registered under the Investment Company Act. To enhance the Fund’s liquidity, particularly
in times of possible net outflows through the repurchase of Shares by periodic tender offers to Shareholders, the Adviser may sell certain
of the Fund’s assets.
The
Board may modify the borrowing policies of the Fund, including the purposes for which borrowings may be made, and the length of time that
the Fund may hold portfolio securities purchased with borrowed money. The rights of any lenders to the Fund to receive payments of interest
or repayments of principal will be senior to those of the Shareholders and the terms of any borrowings may contain provisions that limit
certain activities of the Fund. The Fund also may borrow money from banks or other lenders for temporary purposes in an amount not to
exceed 5% of the Fund’s assets. Such temporary borrowings are not subject to the asset coverage requirements discussed above.
During
normal market conditions, it is generally not expected that the Fund will hold more than 20% of its net assets in Liquid Assets for extended
periods of time. For temporary defensive purposes, liquidity management or in connection with implementing changes in its asset allocation,
the Fund may hold a substantially higher amount of Liquid Assets.
The
Fund may make investments directly or indirectly through one or more wholly-owned Subsidiaries. The Fund may form a Subsidiary in order
to pursue its investment objective and strategies in a potentially tax-efficient manner or for the purpose of facilitating its use of
permitted borrowings. Except as otherwise provided, references to the Fund’s investments also will refer to any Subsidiary’s
investments. In determining which investments should be bought and sold for a Subsidiary, the Adviser will treat the assets of the Subsidiary
as if the assets were held directly by the Fund. The financial statements of each Subsidiary will be consolidated with those of the Fund.
If
the Fund’s Subsidiaries, currently Ares Landmark Private Markets Fund-D, LLC, Ares Landmark Private Markets Fund-D Blocker, LLC,
Ares Private Markets Fund Blocker, LLC and Ares Private Markets Fund-ND LLC, make investments, they will bear their respective organizational
and operating fees, costs, expenses and liabilities and, as a result, the Fund will indirectly bear these fees, costs, expenses and liabilities.
As the Subsidiaries are wholly owned, they have the same investment strategies as the Fund. In addition, the Subsidiaries are consolidated
subsidiaries of the Fund and the Fund complies with the provisions of the Investment Company Act governing capital structure and leverage
on an aggregate basis with the Subsidiaries.
26
The
Adviser complies with the provisions of the Investment Company Act relating to investment advisory contracts as an investment adviser
to the Subsidiaries under Section 2(a)(20) of the Investment Company Act. The Subsidiaries comply with the provisions relating to
affiliated transactions and custody of the Investment Company Act. UMB Bank, N.A serves as the custodian to the Subsidiaries. The Fund
does not intend to create or acquire primary control of any entity which engages in investment activities in securities or other assets
other than entities wholly owned by the Fund.
Investment
Strategies
The
Fund is intended to provide Shareholders with asset allocation and access to Private Asset investments that are typically only available
to large institutional investors. In pursuing the Fund’s investment objective, the Adviser seeks to invest in Primary Investments,
Secondary Investments and Direct Investments that represent a broad spectrum of types of private equity and other private asset opportunities
(e.g., buyout, venture and growth capital, special situations, credit, infrastructure, real estate and private credit) and vintage years
(i.e., the year in which a Portfolio Fund begins investing).
Buyouts: Investments
in the equity of established companies where an investor, typically a private equity firm, takes a controlling interest in the company
often involving a combination of equity and debt financing to complete the acquisition.
Venture
and Growth Capital: Venture capital is characterized by equity investments
in early through late stage start-up companies with high potential growth. Growth capital is characterized by investments in companies
that typically have a proven business model, but need capital to help facilitate growth.
Special
Situations: Encompasses a broad range of investments including operational
turnarounds, distressed debt, distressed financial assets, “rescue” financings and high yielding credit-oriented strategies.
Infrastructure: Private
infrastructure investments typically include investments in equity securities of companies that focus on utilities and/or transportation
infrastructure.
Real
Estate: Real estate investments may include indirect investments through Portfolio
Funds, in real estate opportunities or in operating companies with significant real estate portfolios.
Private
Credit: Private credit investments may include direct debt and other yield-oriented
investments, including Direct Investments in the debt issued by private companies, which may include loans and securities of private equity-backed
companies.
With
respect to the Fund’s investments in Portfolio Funds, the Adviser will employ targeted portfolio construction to build a portfolio
diversified by global geography, manager, vintage year exposure, and industry sector. The Adviser will typically utilize top-down and
bottom-up due diligence processes to evaluate each Portfolio Fund and its sponsor, including, but not limited to, conversations with the
sponsor, detailed historical track record evaluation, peer and investor references, and other quantitative and qualitative analyses, as
available.
Types
of Portfolio Investments
The
Fund’s investment exposure to the strategies described above is expected to be implemented through a variety of Primary Investments
and Secondary Investments in Portfolio Funds, as well as Direct Investments and investments in Liquid Assets as described below. The Fund
expects to invest principally in Secondary Investments and, to a lesser degree, in Primary Investments and Direct Investments, although
the allocation among those types of investments may vary from time to time. Typical Secondary Investments generally will include purchases
by the Fund of interests in Portfolio Funds, typically after the end of the Portfolio Fund’s fundraising period, with existing underlying
portfolio companies, whereas typical Primary Investments are investments in newly established Portfolio Funds where the underlying portfolio
companies are not known as of the time of the Fund’s commitment.
Secondary
Investments
Traditional
Secondary Investments generally will include purchases by the Fund of interests in Portfolio Funds, typically after the end of the Portfolio
Fund’s fundraising period (generally three to seven years into
27
the
Portfolio Fund’s operating history), with existing underlying portfolio companies. These Portfolio Funds will tend to be largely
funded depending on age and investment cycle stage. Sales of these Portfolio Fund interests are often driven by an investor’s need
for liquidity or active approach in managing their private equity portfolio. Traditional Secondary Investments typically will be acquired
by the Fund in private negotiated transactions as there is no established market for such investments.
The
Fund also may gain exposure to Portfolio Funds involving Secondary Investments structured as a preferred equity investment (“Structured
Solutions”). Structured Solutions, which may be self-originated or intermediated transactions, are between the Fund and a Portfolio
Fund’s general partner. The Fund will invest cash into an existing Portfolio Fund or newly created vehicle in exchange for newly-issued
interests in the Portfolio Fund or the newly created vehicle (i.e.,
the “preferred equity”). Structured Solutions are intended to provide for strong risk-adjusted return with meaningful downside
protection.
The
Fund also invests in Secondary Investment transactions that are being led by a Portfolio Fund’s general partner, including end-of
life transactions, which seek to partner potential buyers, such as the Fund, with Portfolio Fund Managers to provide structured and
holistic liquidity solutions to all the limited partners in a Portfolio Fund. These Secondary Investments often involve existing investors
in a Portfolio Fund being given the option to sell all or a portion of their Portfolio Fund interests to the Fund during a binding election
period. Investors in a Portfolio Fund generally are given the option to sell their interests or roll into a newly-formed Portfolio Fund
on new terms. That newly-formed Portfolio Fund may own a diversified pool of assets or it may own a concentrated or even single asset
transaction(s).
Primary
Investments
Primary
Investments are investments in newly established Portfolio Funds where the underlying portfolio companies are not known as of the time
of the Fund’s commitment. Primary Investments are characterized by a gradual deployment of capital. In identifying and selecting
Primary Investments, the Fund seeks to invest in Portfolio Funds run by high-quality Portfolio Fund Managers with a track record
of consistent value creation and top-tier risk-adjusted rates of return.
Direct
Investments
Direct
Investments are investments by the Fund in the equity and/or debt securities of U.S. and non-U.S. private companies, including alongside
Portfolio Funds and private equity firms. Direct Investments by the Fund alongside other investors (“Co-Investment Opportunities”)
are sometimes structured so that the lead investor and co-investors collectively hold a controlling interest in the operating company.
In some circumstances, the Fund may lead investments in Co-Investment Opportunities. In Direct Investments, unlike investments in Portfolio
Funds, the Fund likely will not bear an additional layer of fees and expenses generally associated with investing directly in a Portfolio
Fund, although the Fund may still bear transactional expenses.
Liquid
Assets
The
Fund invests a portion of its assets in a portfolio of Liquid Assets, including cash and cash equivalents, liquid fixed-income securities
and other credit instruments, and other investment companies, including ETFs.
The
Fund may invest in investment grade and below investment grade fixed-income securities, including investment grade short term debt obligations,
convertible securities, money market instruments, repurchase agreements and restricted securities. The Fund’s liquid fixed-income
and other credit investments will primarily focus on floating rate senior secured loans issued by U.S. and foreign corporations, partnerships
and other business entities, including private equity backed companies (i.e., borrowers). Floating rate loans are often at the time of
investment below investment grade securities (commonly known as “junk” or “junk bonds”). The Fund considers debt
securities to be below investment grade if, at the time of investment, they are rated below the four highest categories by at least one
independent credit rating agency or, if unrated, are determined by the Adviser to be of comparable quality.
While
the Fund intends to obtain its principal investment exposure to Private Assets by investing in Primary Investments, Secondary Investments
and Direct Investments, it may also gain such exposure by investing in other investment companies, including ETFs.
28
While
this Prospectus contains generalized discussions about the Adviser’s current expectations with respect to the make-up of the portfolio
of the Fund, many factors may contribute to changes in emphasis in the construction of the portfolio, including changes in market or economic
conditions or regulations as they affect various industries and sectors and changes in the political or social situations in particular
jurisdictions. The Adviser may modify the implementation of the Fund’s investment strategies, portfolio allocations, investment
processes and investment techniques based on market conditions, changes in personnel or as the Adviser otherwise deems appropriate.
Significant
Secondaries Acquisition Transactions
From
time to time, the Fund may enter into acquisition transactions to acquire significant amounts of Secondary Investments. For instance,
on September 20, 2023, the Fund entered into two agreements (the “Purchase and Sale Agreements”), pursuant to which the
Fund, subject to the satisfaction of certain closing conditions, would acquire a secondaries portfolio of invested and unfunded private
equity limited partner interests (the “Portfolio”) from a private fund managed by an unaffiliated private equity sponsor (the
“Seller”) for cash consideration (the “Acquisition Transaction”).
As
of the pricing date for the Acquisition Transaction, the Portfolio had a net asset value of approximately $316.1 million and unfunded
commitments of approximately $146.8 million. The Fund expects to acquire the Portfolio through a series of closings anticipated to
be completed prior to June 30, 2024. As of March 1, 2024, the Fund had closed on approximately $176.8 million of the Portfolio.
The Fund, however, cannot assure Shareholders or potential investors that the remainder of the Acquisition Transaction will be consummated
as scheduled, or at all, and any investment decision with respect to the Fund should be made independent of the consummation of the Acquisition
Transaction.
In
the course of its operations, the Fund expects to enter into transactions similar to the Acquisition Transaction, with varying terms and
counterparties. Such transactions may occur over the course of many months or years. The consummation of these types of transactions,
given their size and complexity, is uncertain. Most of these types of transactions will be subject to certain closing conditions, including,
among others, counterparty consent (which may include consent of both the selling general and limited partners) as well as the consents
of the general partners of the limited partnerships comprising the Secondary Investments. See “Risks — Risks Relating
to Significant Secondaries Acquisition Transactions” for a description of the risks relating to the Acquisition Transaction and
similar transactions.
The
Adviser expects to use a combination of available cash and borrowings under the Fund’s credit line to purchase the Portfolio over
time. The Fund is permitted to borrow money in an amount up to 331∕3%
of its total assets in accordance with the Investment Company Act. The Fund is permitted to borrow money for a range of purposes, including
the acquisition of investments, such as the Portfolio and other Secondary Investments through similar transactions. The Adviser will monitor
the use of the Fund’s line of credit in connection with the Acquisition Transaction and similar transactions to maintain compliance
with the asset coverage requirements of the Investment Company Act and seek to increase the size of the Fund’s line of credit, as
needed. There can be no assurance that the Fund will be able to increase or renew its credit line on attractive terms.
In
addition, as the Fund is agreeing to assume certain unfunded commitments as part of the Acquisition Transaction, and may assume certain
unfunded commitments as part of similar transactions, consistent with the requirements of Rule 18f-4 under the Investment Company
Act, the Fund will not purchase any such unfunded commitments unless it reasonably believes, at the time it enters into such an agreement,
that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements,
in each case as they come due.
ARES
PLATFORM
In
June 2021, Ares completed the acquisition of Landmark Partners, LLC (collectively with its subsidiaries, “Landmark Partners”),
which now operates as the Ares Secondaries Group. The Ares Secondaries Group is chaired by Francisco Borges.
29
Ares
Secondaries Group History and Experience
Founded
in 1989, Landmark Partners (now, Ares Secondaries Group) was one of the earliest and most active investors in the secondary private equity
market. Ares Secondaries Group believes that it has the reputation, skill and record of accomplishment in the alternative investment markets
of private equity, real estate and infrastructure and real assets that make it an attractive manager for investors seeking to participate
in these asset classes.
Ares
Secondaries Group invests in secondary markets across a range of alternative asset class strategies, including private equity, real estate,
infrastructure and credit, with $24.7 billion of assets under management in over 75 funds as of December 31, 2023. The team
has extensive experience investing across the secondaries market primarily in North America. Ares has established itself amongst the most
active secondary investors engaged in recapitalizing and restructuring existing limited partnership interests in funds with a focus on
transactions that can address pending fund maturity, strategy change or the need for additional equity capital.
Ares
Secondaries Group has an established track record of providing customized private equity transaction solutions to institutional limited
partners and general partners. As of December 31, 2023, Ares Secondaries Group’s private equity secondaries team of more than
35 investment professionals managed $13.1 billion of assets under management in approximately 35 funds and accounts. Ares Secondaries
Group acquires interests across a range of partnership vehicles, including private equity funds, multi-asset portfolios, as well as single
asset joint ventures. Ares continues to maintain a differentiated investment strategy that utilizes Ares’ skills in fundamental
manager and portfolio analysis, Ares’ quantitative research capabilities and the support and insights from the wider Ares platform
with the aim to generate strong risk-adjusted returns:
•
Immediate
Portfolio Diversification. Ares Secondaries Group offers investors the ability
to invest in private equity funds in a highly diversified and efficient manner, thereby potentially mitigating risk. The firm has consistently
assembled portfolios of limited partner interests in partnerships across a variety of vintages, strategies, industries and geographies.
Over the past 30 years, Ares’ secondary private equity funds have acquired over 1,800 limited partner interests across more
than 500 transactions, with underlying investments in over 19,000 companies.
•
Potential
Rapid Deployment of Capital. Capital commitments in primary private equity
funds may be tied up for considerable periods of time before being drawn down for investment. In contrast, on average, Ares Secondaries
Group’s secondary private equity funds have been fully invested or committed within three years of the relevant fund’s
final closing.
•
Potential
for Higher Rates of Return Due to Early Return of Capital. Ares’ secondary
private equity funds historically have returned capital to investors relatively quickly, as the portfolios of secondary interests contain
funds and investments in all stages of development, some of which are already in liquidation. As a result, Ares’ secondary private
equity funds have the potential to begin generating distributions almost immediately upon the closing of certain transactions, producing
current cash flow to the investor. Investors in Ares’ prior secondary private equity funds have, on average, accumulated distributions
within three months of the initial investment, which decreased the impact of the “J‑curve.” The J-curve refers
to the tendency for private equity funds to deliver negative returns and cash flows in their early years (due to the fund’s
investment-related expenses and fees) and to deliver positive returns and cash flows in later years (as the fund’s portfolio
company investments mature and are sold). On an ongoing basis, these funds have collectively made distributions every quarter since 1991,
thereby producing stable cash flow to investors.
Ares
Secondaries Group’s Investment Program and Processes
The
core investment disciplines of Ares’ private equity secondary program are to seek to purchase high-quality, mature exposure to a
diversified portfolio of private equity assets at a discount to intrinsic value in funds managed by alpha-generating managers.
30
The
Quantitative Research Group (“QRG”) within Ares Global Client Solutions (formerly within Landmark Partners) is utilized to
leverage public and proprietary data, analytics and experience in an effort to give Ares Secondaries Group an information edge in the
marketplace. QRG’s objective is to act as a force multiplier for Ares Secondaries Group’s core sourcing, risk management and
underwriting activities. QRG’s tools include, but are not limited to, white papers and market commentary, cash flow forecasting
and secondary valuation services, manager and investor alpha diagnostic services, and limited partner portfolio and investment strategy
assessment. These activities span asset pricing, risk management, performance measurement, investor relations and business development.
Importantly, they help Ares Secondaries Group source, price and execute on various transactions.
Proactive
Deal Sourcing. Ares Secondaries Group has developed strong deal sourcing competencies
by utilizing QRG tools to assist limited partners and general partners in identifying opportunities to improve investment performance.
These value-add services help Ares Secondaries Group establish close, differentiated relationships with investors who may be looking to
address portfolio management goals. This thought-partner sourcing strategy helps establish Ares Secondaries Group as a problem solver.
Ares Secondaries Group believes that the use of portfolio management tools to build relationships with sellers and create highly customized
and value-added solutions has become a strength and provides a competitive advantage.
Pricing
and Valuation. Ares Secondaries Group has developed a highly analytical and
thorough due diligence process for evaluating potential investments. This process starts with a comprehensive analysis of the subject
portfolio and the track record of the fund manager. Ares Secondaries Group’s track record analysis is buttressed by QRG tools such
as the GP Alpha Analysis, which assesses a sponsor’s outperformance through various economic cycles. For portfolio diligence, Ares
Secondaries Group performs a thorough return analysis of the portfolio assets utilizing a “bottom up” underwriting approach
while sensitizing for multiple return scenarios. This is generally true of each portfolio, regardless of size or complexity. The QRG is
also helpful in allowing Ares Secondaries Group to utilize data and research to bolster market and asset level insights, which in turn
allows it to identify asset mispricing and appropriate valuation during the underwriting process.
Investment
Process
Deal
Sourcing. Ares Secondaries Group seeks to generate proprietary deal flow through
its use of tools generated from the QRG to establish relationships and collaborative discussions with limited and general partners. Ares
Secondaries Group’s extensive network in the private equity community and its ability to complete specialized solutions-based transactions
creates attractive deployment opportunities.
Due
Diligence and Evaluation Procedures. As part of its initial due diligence,
Ares Secondaries Group generally performs a detailed review of the following items: (i) the sponsor’s historical investment
track record; (ii) going forward franchise risk for the sponsor (if any); (iii) the sponsor’s investment return expectations
compared to those specified when the fund was initially marketed; (iv) liquidity expectations at a high level by investment; (v) under-performing
investments and strategies for recovery; and (vi) confirmation that there are no significant impediments to an orderly transfer of
partnership interests.
As
this analysis is performed, Ares Secondaries Group generally reviews clients’ secondary portfolios at weekly meetings. If Ares Secondaries
Group believes that the opportunity is sufficiently attractive to merit performing additional due diligence, the following evaluation
procedures are generally conducted. First, if available, Ares Secondaries Group reviews the sponsor’s projections of exit timing
and value, by investment, within the detailed context of (i) current value; (ii) comparable public values; (iii) projected
growth in cash flow; (iv) industry reports; and (v) the partnership’s prior performance. Concurrently, the sponsor’s
projections for returns on unfunded commitments are evaluated, principally within the context of prior performance.
Ares
Secondaries Group then prepares a cash flow model which projects the internal rate of return to investors over the life of the investment
being acquired. The principal components of the model are: (i) the cash required to purchase the portfolio; (ii) projected cash
distributions, year by year from existing and future investments; (iii) the leverage, if any, expected to be incurred in funding
future capital calls and a time table for such funding; (iv) interest on borrowed funds; and (v) partnership working capital
and organizational and operational expenses. Finally, Ares Secondaries Group pays close attention to return sensitivities and each investment’s
implications on portfolio construction to gauge whether the presented opportunity has the potential to be accretive to the relevant client’s
return profile. Upon completion of the due diligence process,
31
the
Investment Committee, which is generally closely involved in the review process since the deal is brought to the attention of the investment
team, votes to approve or reject the deal.
Negotiations
and Closing. Upon reaching agreement on price and terms, Ares Secondaries Group
and the seller execute a letter of intent and negotiate the definitive purchase and sale agreement. Meetings to obtain consent to the
transfer, to address transfer mechanics and to complete due diligence are then scheduled with the general partners of the interests being
acquired.
Post-Acquisition
Activities. Portfolio management requires significant effort and expertise
in data collection and analysis. Ares Secondaries Group performs numerous activities including monitoring fund sponsors and investments
to prepare comprehensive reports that summarize the performance of underlying funds. Other activities include a review of amendments to
partnership agreements to protect the interests of the relevant client as well as management of the distribution of cash and securities
received by such client. Additionally, Ares Secondaries Group’s investment professionals attend annual meetings of the sponsors
in which the relevant client is invested, participate actively on selected advisory boards and maintain ongoing direct relationships with
all fund sponsors.
RISKS
AN
INVESTMENT IN THE FUND INVOLVES A HIGH DEGREE OF RISK AND THEREFORE SHOULD ONLY BE UNDERTAKEN BY QUALIFIED INVESTORS WHOSE FINANCIAL RESOURCES
ARE SUFFICIENT TO ENABLE THEM TO ASSUME THESE RISKS AND TO BEAR THE LOSS OF ALL OR PART OF THEIR INVESTMENT. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY, BUT ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT
IN THE FUND. INVESTORS SHOULD CONSULT WITH THEIR OWN FINANCIAL, LEGAL, INVESTMENT AND TAX ADVISORS PRIOR TO INVESTING IN THE FUND.
Investment
in the Fund is suitable only for those persons who, either alone or together with their duly designated representative, have such knowledge
and experience in financial and business matters that they are capable of evaluating the merits and risks of their proposed investment,
who can afford to bear the economic risk of their investment, who are able to withstand a total loss of their investment and who have
no need for liquidity in their investment and no need to dispose of their Shares to satisfy current financial needs and contingencies
or existing or contemplated undertakings or indebtedness. Potential investors with questions as to the suitability of an investment in
the Fund should consult their professional advisors to assist them in making their own legal, tax, accounting and financial evaluation
of the merits and risks of investment in the Fund in light of their own circumstances and financial condition.
The
Fund’s investment program is speculative and entails substantial risks. In considering participation in the Fund, prospective investors
should be aware of certain risk factors, which include the following:
General
Risks of Investing in the Fund
General
Investment Risks
There
is no assurance that the investments held by the Fund will be profitable, that there will be proceeds from such investments available
for distribution to Shareholders, or that the Fund will achieve its investment objective. An investment in the Fund is speculative and
involves a high degree of risk. Fund performance may be volatile and a Shareholder could incur a total or substantial loss of its investment.
There can be no assurance that projected or targeted returns for the Fund will be achieved.
Limited
Operating History
The
Fund is a non-diversified, closed-end management investment company with limited operating history. The Fund has limited historical financial
statements and other meaningful operating or financial data on which potential investors may evaluate the Fund and its performance.
32
Management
Risk
The
Fund is subject to management risk because it is an actively managed investment portfolio. The Adviser will apply investment techniques
and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
The Fund may be subject to a relatively high level of management risk because the Fund invests in Private Assets, which are highly specialized
instruments that require investment techniques and risk analyses different from those associated with investing in public equities and
bonds. The Fund’s allocation of its investments across Portfolio Funds, Direct Investments and other portfolio investments representing
various strategies, geographic regions, asset classes and sectors may vary significantly over time based on the Adviser’s analysis
and judgment. As a result, the particular risks most relevant to an investment in the Fund, as well as the overall risk profile of the
Fund’s portfolio, may vary over time. It is possible that the Fund will focus on an investment that performs poorly or underperforms
other investments under various market conditions.
Dependence
on the Adviser and Key Personnel
The
Fund depends on the Adviser’s ability to select, allocate and reallocate effectively the Fund’s assets. The success of the
Fund is thus substantially dependent on the Adviser and its continued employment of certain key personnel. Similarly, the success of each
Portfolio Fund investment in which the Fund invests is also likely to be substantially dependent on certain key personnel of a Portfolio
Fund Manager. Should one or more of the key personnel of the Adviser or of a Portfolio Fund Manager become incapacitated or
in some other way cease to participate in management activities, the Fund’s performance could be adversely affected. There can be
no assurance that these key personnel will continue to be associated with or available to the Adviser or the general partners of the Portfolio
Funds throughout the life of the Fund.
Closed-End
Fund Structure; Liquidity Limited to Periodic Repurchases of Shares
The
Fund is designed primarily for long-term investors. An investment in the Fund, unlike an investment in a traditional listed closed-end
fund, should be considered illiquid. The Shares are appropriate only for investors who are comfortable with investment in less liquid
or illiquid portfolio investments within an illiquid fund. An investment in the Shares is not suitable for investors who need access to
the money they invest. Unlike open-end funds (commonly known as mutual funds), which generally permit redemptions on a daily basis, the
Shares are not redeemable at a Shareholder’s option. Unlike stocks of listed closed-end funds, the Shares are not listed, and are
not expected to be listed, for trading on any securities exchange, and the Fund does not expect any secondary market to develop for the
Shares in the foreseeable future. The Fund’s investments in Private Assets are illiquid and typically cannot be transferred or redeemed
for a substantial period of time. The Shares are designed for long-term investors, and the Fund should not be treated as a trading vehicle.
Repurchase
of Shares Risk
Although
the Board may, in its sole discretion, cause the Fund to offer to repurchase outstanding Shares at their net asset value and the Adviser
intends to recommend that, in normal market circumstances, the Board conduct quarterly repurchase offers of no more than 5% of the Fund’s
net assets. Shares are considerably less liquid than shares of funds that trade on a stock exchange, or shares of open-end registered
investment companies. It is possible that the Fund may be unable to repurchase all of the Shares that a Shareholder tenders due to the
illiquidity of the Fund investments or if the Shareholders request the Fund to repurchase more Shares than the Fund is then offering to
repurchase. In addition, substantial requests for the Fund to repurchase Shares could require the Fund to liquidate certain of its investments
more rapidly than otherwise desirable in order to raise cash to fund the repurchases and achieve a market position appropriately reflecting
a smaller asset base. This could have a material adverse effect on the value of the Shares.
There
can be no assurance that the Fund will conduct repurchase offers in any particular period and Shareholders may be unable to tender Shares
for repurchase for an indefinite period of time.
There
will be a substantial period of time between the date as of which Shareholders must submit a request to have their Shares repurchased
and the date they can expect to receive payment for their Shares from the Fund. Shareholders whose Shares are accepted for repurchase
bear the risk that the Fund’s net asset value
33
may
fluctuate significantly between the time that they submit their repurchase requests and the date as of which such Shares are valued for
purposes of such repurchase. Shareholders will have to decide whether to request that the Fund repurchase their Shares without the benefit
of having current information regarding the value of Shares on a date proximate to the date on which Shares are valued by the Fund for
purposes of effecting such repurchases. See “Repurchase of Shares.”
Offers
for repurchases of Shares, if any, may be suspended, postponed or terminated by the Board under certain circumstances. An investment in
the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of Shares and the underlying investments
of the Fund. Additionally, because Shares are not listed on any securities exchange, the Fund is not required, and does not intend, to
hold annual meetings of its Shareholders unless called for under the provisions of the Investment Company Act.
Payment
In-Kind For Repurchased Shares
The
Fund generally expects to distribute to the holder of Shares that are repurchased cash in satisfaction of such repurchase. See “Repurchases
of Shares — Periodic Repurchases.” However, there can be no assurance that the Fund will have sufficient cash
to pay for Shares that are being repurchased or that it will be able to liquidate investments at favorable prices to pay for repurchased
Shares. The Fund has the right to distribute securities as payment for repurchased Shares in unusual circumstances, including if making
a cash payment would result in a material adverse effect on the Fund. For example, it is possible that the Fund may receive securities
from a Portfolio Fund that are illiquid or difficult to value. In such circumstances, the Adviser would seek to dispose of these securities
in a manner that is in the best interests of the Fund, which may include a distribution in-kind to Shareholders. In the event that the
Fund makes such a distribution of securities, Shareholders will bear any risks of the distributed securities and may be required to pay
a brokerage commission or other costs in order to dispose of such securities.
Restrictions
on Transfers
Transfers
of Shares may be made only with the consent of the Fund, which may be withheld in the Fund’s sole discretion. Notice to the Fund
of any proposed transfer must include evidence satisfactory to the Fund that the proposed transferee, at the time of transfer, meets any
requirements imposed by the Fund with respect to investor eligibility and suitability.
Non-Diversified
Status
The
Fund is a “non-diversified” investment company for purposes of the Investment Company Act, which means it is not subject to percentage
limitations under the Investment Company Act on assets that may be invested in the securities of any one issuer. Having a larger percentage
of assets in a smaller number of issuers makes a non-diversified fund, like the Fund, more susceptible to the risk that one single event
or occurrence can have a significant adverse impact upon the Fund.
Valuation
Risk
The
Fund is subject to valuation risk, which is the risk that one or more of the securities in which the Fund invests are valued at prices
that the Fund is unable to obtain upon sale due to factors such as incomplete data, market instability, human error, or, with respect
to securities for which there are no readily available market quotations, the inherent difficulty in determining the fair value of certain
types of investments. The Adviser may, but is not required to, use an independent pricing service or prices provided by dealers to value
securities at their market value. Because the secondary markets for certain investments may be limited, such instruments may be difficult
to value.
A
substantial portion of the Fund’s assets consist of Portfolio Funds and Direct Investments for which there are no readily available
market quotations. Accordingly, because there is not a readily available market value for most of the investments in the Fund’s
portfolio, substantially all of the Fund’s portfolio investments are valued at fair value as determined in good faith by the Adviser,
as the valuation designee, in accordance with the Adviser’s valuation policies and procedures and subject to the oversight of the
Board. The information available in the marketplace for such companies, their securities and the status of their businesses and financial
conditions is often extremely limited, outdated and difficult to confirm. In determining fair value, the Adviser
34
is
required to consider all appropriate factors relevant to value and all indicators of value available to the Fund. The determination of
fair value necessarily involves judgment in evaluating this information in order to determine the price that the Fund might reasonably
expect to receive for the security upon its current sale. The most relevant information may often be provided by the issuer of the securities.
Given the nature, timeliness, amount and reliability of information provided by the issuer, fair valuations may become more difficult
and uncertain as such information is unavailable or becomes outdated.
The
value at which the Fund’s investments can be liquidated may differ, sometimes significantly, from the valuations assigned by the
Fund. In addition, the timing of liquidations may also affect the values obtained on liquidation. The Fund invests a significant amount
of its assets in Private Assets for which no public market exists. There can be no guarantee that the Fund’s investments could ultimately
be realized at the Fund’s valuation of such investments. In addition, the Fund’s compliance with the asset diversification
tests under the Code depends on the fair market values of the Fund’s assets, and, accordingly, a challenge to the valuations ascribed
by the Fund could affect its ability to comply with those tests or require it to pay penalty taxes in order to cure a violation thereof.
The
Fund’s net asset value is a critical component in several operational matters including computation of the Advisory Fee, the Incentive
Fee and the Distribution and Servicing Fee, and determination of the price at which the Shares will be offered and at which a repurchase
offer will be made. Consequently, variance in the valuation of the Fund’s investments will impact, positively or negatively, the
fees and expenses Shareholders will pay, the price a Shareholder will receive in connection with a repurchase offer and the number of
Shares an investor will receive upon investing in the Fund. The Fund accepts purchases of Shares as of the first business day of each
month. The number of Shares a Shareholder will receive will be based on the Fund’s most recent net asset value, which will be calculated
for the last business day of the preceding month (i.e.,
one business day prior to date on which the Fund will accept purchases). For more information regarding the Fund’s subscription
process, see “Purchasing Shares.”
The
Adviser generally expects to receive information for the Fund’s investments in Private Assets, including Portfolio Funds and Direct
Investments, on which it will base the Fund’s net asset value only as of each calendar quarter end and on a significant delay. The
Adviser generally does not expect to receive updated information intra quarter for such investments. As a result, the Fund’s net
asset value for periods other than calendar quarter end will likely be based on information from the prior quarter. The Fund may need
to liquidate certain investments, including its investments in Private Assets, in order to repurchase Shares in connection with a repurchase
offer. A subsequent decrease in the valuation of the Fund’s investments after a repurchase offer could potentially disadvantage
remaining Shareholders to the benefit of Shareholders whose Shares were accepted for repurchase. Alternatively, a subsequent increase
in the valuation of the Fund’s investments could potentially disadvantage Shareholders whose Shares were accepted for repurchase
to the benefit of remaining Shareholders. Similarly, a subsequent decrease in the valuation of the Fund’s investments after a subscription
could potentially disadvantage subscribing investors to the benefit of pre-existing Shareholders, and a subsequent increase in the valuation
of the Fund’s investments after a subscription could potentially disadvantage pre-existing Shareholders to the benefit of subscribing
investors. For more information regarding the Fund’s calculation of its net asset value, see “Net Asset Valuation.”
Amount
or Frequency of Distribution
The
amount of distributions that the Fund may pay is uncertain. The Fund expects to pay distributions out of assets legally available for
distribution from time to time, at the sole discretion of the Board, and otherwise in a manner to comply with Subchapter M of the Code.
See “Distributions.” Nevertheless, the Fund cannot assure Shareholders that the Fund will achieve investment results that
will allow the Fund to make a specified level of cash distributions or year-to-year increases in cash distributions. The Fund’s
ability to pay distributions may be adversely affected by the impact of the risks described in this Prospectus. All distributions will
depend on the Fund’s earnings, its net investment income, its financial condition, and such other factors as the Board may deem
relevant from time to time.
Risks
of Investing in Private Assets
Risks
of Private Equity Strategies
The
Fund’s investment portfolio will include Direct Investments in private companies and investments in Portfolio Funds, which hold
securities issued primarily by private companies. Operating results for private
35
companies
in a specified period will be difficult to predict. Such investments involve a high degree of business and financial risk that can result
in substantial losses.
•
Buyout
Investment Risks. Buyout transactions may result in new enterprises that are
subject to extreme volatility, require time for maturity and may require additional capital. In addition, they frequently rely on borrowing
significant amounts of capital, which can increase profit potential but at the same time increase the risk of loss. Leveraged companies
may be subject to restrictive financial and operating covenants. The leverage may impair the ability of these companies to finance their
future operations and capital needs. Also, their flexibility to respond to changing business and economic conditions and to business opportunities
may be limited. A leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed
money was not used. Although these investments may offer the opportunity for significant gains, such buyout investments involve a high
degree of risk that can result in substantial losses, which risks generally are greater than the risks of investing in public companies
that may not be as leveraged.
•
Venture
Capital Risks. Venture capital investments are in private companies that have
limited operating history, are attempting to develop or commercialize unproven technologies or to implement novel business plans or are
not otherwise developed sufficiently to be self-sustaining financially or to become public. Although these investments may offer the opportunity
for significant gains, such investments involve a high degree of risk that can result in substantial losses, which risks generally are
greater than the risks of investing in public or private companies that may be at a later stage of development.
•
Special
Situations Risks. The special situations strategies invest in companies that
may be in transition, out of favor, financially leveraged, stressed or distressed, or potentially troubled and may be or have recently
been involved in major strategic actions, restructurings, bankruptcy, reorganization, or liquidation. These companies may be experiencing,
or are expected to experience, financial difficulties that may never be able to overcome. The securities of such companies are likely
to be particularly risky investments although they also may offer the potential for correspondingly high returns. Such companies’
securities may be considered speculative, and the ability of such companies to pay their debts on schedule could be affected by adverse
interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments
within such companies. Such investments could, in certain circumstances, subject a Portfolio Fund or the Fund to certain additional potential
liabilities. Numerous other risks also arise in the workout and bankruptcy contexts. In addition, there is no minimum credit standard
that is a prerequisite to an investment in any instrument and a significant portion of the obligations and preferred stock acquired in
special situations investments may be rated below investment grade or unrated.
•
Infrastructure
Risks. Some Portfolio Funds may concentrate, and a Direct Investment may be
made, in the infrastructure sector. Infrastructure companies may be susceptible to reduced investment in public and private infrastructure
projects, and a slowdown in new infrastructure projects in developing or developed markets may constrain the abilities of infrastructure
companies to grow in global markets. Other developments, such as significant changes in population levels or changes in the urbanization
and industrialization of developing countries, may reduce demand for products or services provided by infrastructure companies.
•
Real
Estate Risks. Portfolio Funds that invest in real estate are subject to risks
associated with the ownership of real estate, including: (i) changes in interest rates and other general economic conditions; (ii) local
real estate conditions, such as changes in demand for space; (iii) the quality and investment approach of management; (iv) market
competition and the availability of financing; (v) specific features of properties; (vi) financial condition of tenants, buyers,
and sellers of properties; (vii) quality of maintenance, insurance and management services; (viii) changes in operating costs;
(ix) government regulations, including those governing usage, improvements, zoning and taxes; and (x) potential liability under
environmental and other applicable laws. Some real estate-focused Portfolio Funds may invest in a limited number of properties, in a narrow
geographic area, or in a single property type, which increases the risk that such Portfolio Fund could be unfavorably affected by the
poor performance of a single investment or investment type. In addition, borrowers could default on or sell investments that a real estate-focused
Portfolio Fund holds, which could reduce the cash flow needed to make distributions
36
to
investors, such as the Fund. In addition, real estate-focused Portfolio Funds also may be affected by tax and regulatory requirements
impacting the real estate fund’s ability to qualify for preferential tax treatments or exemptions.
Risks
Associated with Private Company Investments
Private
companies are generally not subject to SEC reporting requirements, are not required to maintain their accounting records in accordance
with generally accepted accounting principles, and are not required to maintain effective internal controls over financial reporting.
As a result, the Adviser may not have timely or accurate information about the business, financial condition and results of operations
of the private companies in which the Fund invests. There is risk that the Fund may invest on the basis of incomplete or inaccurate information,
which may adversely affect the Fund’s investment performance. Private companies in which the Fund may invest may have limited financial
resources, shorter operating histories, more asset concentration risk, narrower product lines and smaller market shares than larger businesses,
which tend to render such private companies more vulnerable to competitors’ actions and market conditions, as well as general economic
downturns. These companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged
in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital
to support their operations, finance expansion or maintain their competitive position. These companies may have difficulty accessing the
capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.
Typically,
investments in private companies are in restricted securities that are not traded in public markets and subject to substantial holding
periods, so that the Fund may not be able to resell some of its holdings for extended periods, which may be several years. There
can be no assurance that the Fund will be able to realize the value of private company investments in a timely manner.
Competition
for Access to Private Equity Investment Opportunities
There
can be no assurance that the Adviser will be able to secure interests on behalf of the Fund in all of the investment opportunities that
it identifies for the Fund, or that the size of the interests available to the Fund will be as large as the Adviser would desire. Moreover,
as a registered investment company, the Fund will be required to make certain public disclosures and regulatory filings regarding its
operations, financial status, portfolio holdings, etc. While these filings are designed to enhance investor protections, Portfolio Fund Managers
and certain private companies may view such filings as contrary to their business interests and deny access to the Fund; but may permit
other, non-registered funds or accounts, managed by the Adviser or its affiliates, to invest. As a result, the Fund may not be invested
in certain Direct Investments or Portfolio Funds that are held by other unregistered funds or accounts managed by the Adviser or its affiliates,
even though those investments would be consistent with the Fund’s investment objective.
In
addition, certain provisions of the Investment Company Act prohibit the Fund from engaging in transactions with the Adviser and its affiliates;
however; unregistered funds also managed by the Adviser are not prohibited from the same transactions. The Investment Company Act also
imposes significant limits on co-investments with affiliates of the Fund. The Adviser and certain Other Managed Funds have received the
Co-Investment Exemptive Order, which the Fund may also rely on, that permits the Fund to co-invest alongside its affiliates in privately
negotiated investments. Co-Investments made under the Co-Investment Exemptive Order are subject to compliance with certain conditions
and other requirements, which could limit the Fund’s ability to participate in a co-investment transaction. An inability to receive
the desired allocation to potential investments may affect the Fund’s ability to achieve the desired investment returns.
Portfolio
Fund Risks
The
Fund’s investments in Portfolio Funds are subject to a number of risks. Portfolio Fund interests are expected to be illiquid, their
marketability may be restricted and the realization of investments from them may take considerable time and/or be costly. Some of the
Portfolio Funds in which the Fund invests may have only limited operating histories. Although the Adviser seeks to receive detailed information
from each Portfolio Fund regarding its business strategy and any performance history, in most cases the Adviser will have little or no
means of independently verifying this information. In addition, Portfolio Funds may have little or no
37
near-term
cash flow available to distribute to investors, including the Fund. Due to the pattern of cash flows in Portfolio Funds and the illiquid
nature of their investments, investors typically will see negative returns in the early stages of Portfolio Funds. Then as investments
are able to realize liquidity events, such as a sale or initial public offering, positive returns will be realized if the Portfolio Fund’s
investments are successful.
Portfolio
Fund interests are ordinarily valued based upon valuations provided by the Portfolio Fund Managers, which may be received on a delayed
basis. Certain securities in which the Portfolio Funds invest may not have a readily ascertainable market price and are fair valued by
the Portfolio Fund Managers. A Portfolio Fund Manager may face a conflict of interest in valuing such securities because their
values may have an impact on the Portfolio Fund Manager’s compensation. The Adviser reviews and performs due diligence on the
valuation procedures used by each Portfolio Fund Manager and monitor the returns provided by the Portfolio Funds. However, neither
the Adviser nor the Board is able to confirm the accuracy of valuations provided by Portfolio Fund Managers. Inaccurate valuations
provided by Portfolio Funds could materially adversely affect the value of Shares.
The
Fund will pay asset-based fees, and, in most cases, will be subject to performance-based fees in respect of its interests in Portfolio
Funds. Such fees and performance-based compensation are in addition to the Advisory Fee. In addition, performance-based fees charged by
Portfolio Fund Managers may create incentives for the Portfolio Fund Managers to make risky investments, and may be payable
by the Fund to a Portfolio Fund Manager based on a Portfolio Fund’s positive returns even if the Fund’s overall returns
are negative.
Moreover,
a Shareholder in the Fund will indirectly bear a proportionate share of the fees and expenses of the Portfolio Funds, in addition to its
proportionate share of the expenses of the Fund. Thus, a Shareholder in the Fund may be subject to higher operating expenses than if the
Shareholder invested in the Portfolio Funds directly. In addition, because of the deduction of the fees payable by the Fund to the Adviser
and other expenses payable directly by the Fund from amounts distributed to the Fund by the Portfolio Funds, the returns to a Shareholder
in the Fund will be lower than the returns to a direct investor in the Portfolio Funds. Fees and expenses of the Fund and the Portfolio
Funds generally are paid regardless of whether the Fund or Portfolio Funds produce positive investment returns. Shareholders could avoid
the additional level of fees and expenses of the Fund by investing directly with the Portfolio Funds, although access to many Portfolio
Funds may be limited or unavailable, and may not be permitted for investors who do not meet the substantial minimum net worth and other
criteria for direct investment in Portfolio Funds.
There
is a risk that the Fund may be precluded from acquiring an interest in certain Portfolio Funds due to regulatory implications under the
Investment Company Act or other laws, rules and regulations or may be limited in the amount it can invest in voting securities of Portfolio
Funds. The Adviser also may refrain from including a Portfolio Fund in the Fund’s portfolio in order to address adverse regulatory
implications that would arise under the Investment Company Act for the Fund if such an investment was made. Rule 18f-4 under the
Investment Company Act, among other things, may impact the ability of the Fund to enter into unfunded commitment agreements, such as a
capital commitment to a Portfolio Fund or as part of a Direct Investment. Under Rule 18f-4, the Fund may enter into an unfunded commitment
agreement that is not a derivatives transaction, such as a capital commitment to a Portfolio Fund, if the Fund reasonably believes, at
the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect
to all of its unfunded commitment agreements, in each case as they come due. The Fund currently operates as a “limited derivatives
user”, which may limit its ability to use and/or enter into certain other financial contracts. In addition, the Fund’s ability
to invest may be affected by considerations under other laws, rules or regulations. Such regulatory restrictions, including those arising
under the Investment Company Act, may cause the Fund to invest in different Portfolio Funds or Direct Investments than other clients of
the Adviser.
If
the Fund fails to satisfy capital calls to a Portfolio Fund in a timely manner then, generally, it will be subject to significant penalties,
including the complete forfeiture of the Fund’s investment in the Portfolio Fund. Any failure by the Fund to make timely capital
contributions may impair the ability of the Fund to pursue its investment program, cause the Fund to be subject to certain penalties from
the Portfolio Funds or otherwise impair the value of the Fund’s investments.
38
The
governing documents of a Portfolio Fund generally are expected to include provisions that would enable the general partner, the manager,
or a majority in interest (or higher percentage) of its limited partners or members, under certain circumstances, to terminate the
Portfolio Fund prior to the end of its stated term. Early termination of a Portfolio Fund in which the Fund is invested may result in
the Fund having distributed to it a portfolio of immature and illiquid securities, or the Fund’s inability to invest all of its
capital as anticipated, either of which could have a material adverse effect on the performance of the Fund.
Although
the Fund will be an investor in a Portfolio Fund, Shareholders will not themselves be equity holders of that Portfolio Fund and will not
be entitled to enforce any rights directly against the Portfolio Fund or the Portfolio Fund Manager or assert claims directly against
any Portfolio Funds, the Portfolio Fund Managers or their respective affiliates. Shareholders will have no right to receive the information
issued by the Portfolio Funds that may be available to the Fund as an investor in the Portfolio Funds. In addition, Portfolio Funds generally
are not registered as investment companies under the Investment Company Act; therefore, the Fund, as an investor in Portfolio Funds, does
not have the benefit of the protections afforded by the Investment Company Act. Portfolio Fund Managers may not be registered as
investment advisers under the Advisers Act, in which case the Fund, as an investor in Portfolio Funds managed by such Portfolio Fund Managers,
does not have the benefit of certain of the protections afforded by the Advisers Act.
Commitments
to Portfolio Funds generally are not immediately invested. Instead, committed amounts are drawn down by Portfolio Funds and invested over
time, as underlying investments are identified — a process that may take a period of several years, with limited
ability to predict with precision the timing and amount of each Portfolio Fund’s drawdowns. During this period, investments made
early in a Portfolio Fund’s life are often realized (generating distributions) even before the committed capital has been fully
drawn. In addition, many Portfolio Funds do not draw down 100% of committed capital, and historic trends and practices can inform the
Adviser as to when it can expect to no longer need to fund capital calls for a particular Portfolio Fund. Accordingly, the Adviser may
make investments and commitments based, in part, on anticipated future capital calls and distributions from Portfolio Funds. This may
result in the Fund making commitments to Portfolio Funds in an aggregate amount that exceeds the total amounts invested by Shareholders
in the Fund at the time of such commitment (i.e., to “over-commit”). To the extent that the Fund engages in an “over-commitment”
strategy, the risk associated with the Fund defaulting on a commitment to a Portfolio Fund will increase. The Fund maintains cash, cash
equivalents, borrowings or other liquid assets in sufficient amounts, in the Adviser’s judgment, to satisfy capital calls from Portfolio
Funds.
Portfolio
Funds’ Underlying Investments
The
investments made by the Portfolio Funds entail a high degree of risk and in most cases are highly illiquid and difficult to value. Unless
and until those investments are sold or mature into marketable securities they will remain illiquid. As a general matter, companies in
which the Portfolio Fund invests may face intense competition, including competition from companies with far greater financial resources;
more extensive research, development, technological, marketing and other capabilities; and a larger number of qualified managerial and
technical personnel.
A
Portfolio Fund Manager may focus on a particular industry or sector, which may subject the Portfolio Fund, and thus the Fund, to
greater risk and volatility than if investments had been made in issuers in a broader range of industries. Likewise, a Portfolio Fund Manager
may focus on a particular country or geographic region, which may subject the Portfolio Fund, and thus the Fund, to greater risk and volatility
than if investments had been made in issuers in a broader range of geographic regions. In addition, Portfolio Funds may establish positions
in different geographic regions or industries that, depending on market conditions, could experience offsetting returns.
The
Fund will not obtain or seek to obtain any control over the management of any portfolio company in which any Portfolio Fund may invest.
The success of each investment made by a Portfolio Fund will largely depend on the ability and success of the management of the portfolio
companies in addition to economic and market factors.
39
Risks
Associated with Secondary Investments
The
Fund may make Secondary Investments in Portfolio Funds by acquiring the interests in the Portfolio Funds from existing investors in such
Portfolio Funds (and not from the Portfolio Fund itself). In such instances, as the Fund will not be acquiring such interests directly
from the Portfolio Fund, it is generally not expected that the Fund will have the opportunity to negotiate the terms of the interests
being acquired, other than the purchase price, or other special rights or privileges. There can be no assurance as to the number of Secondary
Investment opportunities that will be presented to the Fund.
In
addition, valuation of Secondary Investments in Portfolio Funds may be difficult, as there generally will be no established market for
such investments or for the privately-held portfolio companies in which such Portfolio Funds may own securities. Moreover, the purchase
price of Secondary Investments in such Portfolio Funds generally will be subject to negotiation with the sellers of the interests and
there is no assurance that the Fund will be able to purchase interests at attractive discounts to net asset value, or at all. The overall
performance of the Fund will depend in large part on the acquisition price paid by the Fund for its Secondary Investments, the structure
of such acquisitions and the overall success of the Portfolio Fund.
There
is significant competition for Secondary Investments. Many institutional investors, including fund-of-funds entities, as well as existing
investors of Portfolio Funds may seek to purchase Secondary Investments of the same Portfolio Fund which the Fund may also seek to purchase.
In addition, some Portfolio Fund Managers have become more selective by adopting policies or practices that exclude certain types
of investors, such as fund-of-funds. These Portfolio Fund Managers also may be partial to Secondary Investments being purchased by
existing investors of their Portfolio Funds. In addition, some secondary opportunities may be conducted pursuant to a specified methodology
(such as a right of first refusal granted to existing investors or a so-called “Dutch auction,” where the price of the investment
is lowered until a bidder bids and that first bidder purchases the investment, thereby limiting a bidder’s ability to compete for
price) which can restrict the availability of those opportunities for the Fund. No assurance can be given that the Fund will be able to
identify Secondary Investments that satisfy the Fund’s investment objective or, if the Fund is successful in identifying such Secondary
Investments, that the Fund will be permitted to invest, or invest in the amounts desired, in such Secondary Investments.
At
times, the Fund may have the opportunity to acquire a portfolio of Portfolio Fund interests from a seller, on an “all or nothing”
basis. In some such cases, certain of the Portfolio Fund interests may be less attractive than others, and certain of the Portfolio Fund Managers
may be more familiar to the Adviser than others or may be more experienced or highly regarded than others. In such cases, it may not be
possible for the Fund to carve out from such purchases those Secondary Investments which the Adviser considers (for commercial, tax legal
or other reasons) less attractive.
In
the cases where the Fund acquires an interest in a Portfolio Fund through a Secondary Investment, the Fund may acquire contingent liabilities
of the seller of such interest. More specifically, where the seller has received distributions from the Portfolio Fund and, subsequently,
that Portfolio Fund recalls one or more of these distributions, the Fund (as the purchaser of the interest to which such distributions
are attributable and not the seller) may be obligated to return the monies equivalent to such distribution to the Portfolio Fund. While
the Fund may, in turn, make a claim against the seller for any such monies so paid, there can be no assurances that the Fund would prevail
on such claim.
Regulatory
Changes Affecting Private Equity Funds
The
legal, tax and regulatory environment for private equity funds is evolving, and it is possible that any future changes may materially
adversely affect the ability of Portfolio Funds to pursue their investment strategies. In recent years, there has been increased
scrutiny of the private equity industry by regulators, self-regulatory bodies and legislatures, and it is possible that in the future
such groups both in the U.S. and in non-U.S. jurisdictions may consider changes to the regulations applicable to private equity funds.
It is impossible to predict what, if any, changes might be made in the future to the regulations affecting: private equity funds generally;
the Portfolio Funds; the Portfolio Fund Managers; the markets in which they operate and invest; and/or the counterparties with which
they do business. It is also impossible to predict what the effect of any such legislative or regulatory changes might be.
40
Additionally,
the SEC has adopted and enacted, and may continue to propose significant rules that will impact the business of the Portfolio Funds and
the Portfolio Fund Managers. In particular, the SEC has adopted a number of new rules that impose significant changes on private
fund advisers and their management of private funds, and the SEC is expected to propose and/or adopt additional rules in the future. Such
current and future rulemaking is expected to materially impact the Portfolio Fund Managers, their affiliates and the Portfolio Funds.
In addition, the Portfolio Funds are expected to bear increased and significant costs as a result of such enacted and proposed rules,
including costs related to limited partner reporting and disclosures to investors. Significant time and resources are expected to be required
to comply with the new regulations, which potentially will detract from the time and resources dedicated to the Portfolio Funds. In addition,
following the applicable compliance date, such regulations will require the general partner of each Portfolio Fund to disclose to prospective
investors and/or limited partners certain preferential investment terms that the respective general partner provides to any limited partner
in connection with its investment in the applicable Portfolio Fund, which could cause the general partner of each Portfolio Fund to deny
certain preferential terms to limited partners.
Any
regulatory changes that adversely affect a Portfolio Fund’s ability to implement its investment strategies could have a material
adverse impact on the Portfolio Fund’s performance, and thus on the Fund’s performance.
In-Kind
Distributions from Portfolio Funds
The
Fund may receive in-kind distributions of securities from Portfolio Funds. There can be no assurance that securities distributed in kind
by Portfolio Funds to the Fund will be readily marketable or saleable, and the Fund may be required to hold such securities for an indefinite
period and/or may incur additional expense in connection with any disposition of such securities.
Direct
Investments Risks
The
Fund’s investment portfolio will include Direct Investments, which are investments in the equity and/or debt securities of private
companies, including alongside private equity funds and other private equity firms. The Fund’s ability to realize a profit on such
Direct Investments will be particularly reliant on the expertise of the lead investor in the transaction. There can be no assurance that
the Fund will be given Direct Investment opportunities, or that any specific Direct Investment offered to the Fund would be appropriate
or attractive to the Fund in the Adviser’s judgment. The market for Direct Investment opportunities is competitive and may be limited,
and the Direct Investment opportunities to which the Fund wishes to allocate assets may not be available at any given time. Due diligence
is conducted on Direct Investment opportunities; however, the Adviser may not have the ability to conduct the same level of due diligence
applied to other investments. In addition, the Adviser may have little to no opportunities to negotiate the terms of such Direct Investments.
The Fund generally relies on the Portfolio Fund Manager or sponsor offering such Direct Investment opportunity to perform most of
the due diligence on the relevant portfolio company and to negotiate terms of the Direct Investment.
Many
entities compete with the Fund in pursuing Direct Investments. These competitors may have considerably greater financial, technical and
marketing resources than the Fund. Some competitors may have a lower cost of funds and access to funding sources that are not available
to the Fund. In addition, some competitors may have higher risk tolerances or different risk assessments, which could allow them to consider
a wider variety of, or different structures for, private investments than the Fund. Furthermore, many competitors are not subject to the
regulatory restrictions that the Investment Company Act imposes on the Fund. As a result of this competition, the Fund may not be able
to pursue attractive Direct Investment opportunities from time to time.
The
Fund’s ability to dispose of Direct Investments may be severely limited, both by the fact that the securities are expected to be
unregistered and illiquid and by contractual restrictions that may limit, preclude or require certain approvals for the Fund to sell such
investment. Direct Investments may be heavily negotiated and, therefore, the Fund may incur additional legal and transaction costs in
connection therewith.
41
Direct
Investing Alongside Other Parties Risks
Direct
investing alongside one or more other parties in an investment (i.e., as a co-investor) involves risks that may not be present in investments
made by lead or sponsoring private equity investors. As a co-investor, the Fund may have interests or objectives that are inconsistent
with those of the lead private equity investors that generally have a greater degree of control over such investments.
In
addition, in order to take advantage of Direct Investment opportunities as a co-investor, the Fund generally will be required to hold
a non-controlling interest, for example, by becoming a limited partner in a partnership that is controlled by the general partner or manager
of the private equity fund offering the Direct Investment, on a co-investor basis, to the Fund. In this event, the Fund would have less
control over the investment and may be adversely affected by actions taken by such general partner or manager with respect to the portfolio
company and the Fund’s investment in it. The Fund may not have the opportunity to participate in structuring investments or to determine
the terms under which such investments will be made.
In
addition, the Fund may in certain circumstances be liable for the actions of its third-party co-venturers. Direct Investments made with
third parties in joint ventures or other entities also may involve carried interests and/or other fees payable to such third party partners
or co-venturers. There can be no assurance that appropriate minority shareholder rights will be available to the Fund or that such rights
will provide sufficient protection to the Fund’s interests.
Fixed-Income
Securities Risks
Fixed-income
securities in which the Fund may invest are generally subject to the following risks:
Interest
Rate Risk. The market value of bonds and other fixed-income securities changes
in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities
will increase as interest rates fall and decrease as interest rates rise. Recently, the United States has experienced a rising interest
rate environment, which may increase the Fund’s exposure to risks associated with rising interest rates. There is a risk that interest
rates will rise further, which will likely drive down prices of bonds and other fixed-income securities. The magnitude of these fluctuations
in the market price of bonds and other fixed-income securities is generally greater for those securities with longer maturities. Fluctuations
in the market price of the Fund’s investments will not affect interest income derived from instruments already owned by the Fund,
but will be reflected in the Fund’s net asset value. The Fund may lose money if short-term or long-term interest rates rise sharply
in a manner not anticipated by the Adviser. Moreover, because rates on certain floating rate debt securities typically reset only periodically,
changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the
net asset value of the Fund to the extent that it invests in floating rate debt securities.
The
Fund may invest in variable and floating rate debt instruments, which generally are less sensitive to interest rate changes than longer
duration fixed rate instruments, but may decline in value in response to rising interest rates if, for example, the rates at which they
pay interest do not rise as much, or as quickly, as market interest rates in general. Conversely, variable and floating rate instruments
generally will not increase in value if interest rates decline. To the extent the Fund holds variable or floating rate instruments, a
decrease in market interest rates will adversely affect the income received from such securities, which may adversely affect the net asset
value of the Fund’s Shares.
Issuer
and Spread Risk. The value of fixed-income securities may decline for a number
of reasons which directly relate to the issuer, such as management performance, financial leverage, reduced demand for the issuer’s
goods and services, historical and prospective earnings of the issuer and the value of the assets of the issuer. In addition, wider credit
spreads and decreasing market values typically represent a deterioration of a debt security’s credit soundness and a perceived greater
likelihood of risk or default by the issuer.
Credit
Risk. Credit risk is the risk that one or more fixed-income securities in the
Fund’s portfolio will decline in price or fail to pay interest or principal when due because the issuer of the security experiences
a decline in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness
of the issuer deteriorates. To the extent the Fund invests in below investment grade securities, it will be exposed to a greater amount
of credit risk than a fund that only invests in investment grade securities. In addition, to the extent the Fund uses credit derivatives,
such use will expose it to additional risk in the event
42
that
the bonds underlying the derivatives default. The degree of credit risk depends on the issuer’s financial condition and on the terms
of the securities.
Prepayment
or “Call” Risk. During periods of declining interest rates, borrowers
may exercise their option to prepay principal earlier than scheduled. For fixed rate securities, such payments often occur during periods
of declining interest rates, forcing the Fund to reinvest in lower yielding securities, resulting in a possible decline in the Fund’s
income and distributions to shareholders. This is known as prepayment or “call” risk. Below investment grade securities frequently
have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified price (typically
greater than par) only if certain prescribed conditions are met (i.e., “call protection”). For premium bonds (bonds acquired
at prices that exceed their par or principal value) purchased by the Fund, prepayment risk may be increased.
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio
will decline if the Fund invests the proceeds from matured, traded or called fixed-income securities at market interest rates that are
below the Fund portfolio’s current earnings rate.
Duration
and Maturity Risk. The Fund has no set policy regarding the duration or maturity
of the fixed-income securities it may hold. In general, the longer the duration of any fixed-income securities in the Fund’s portfolio,
the more exposure the Fund will have to the interest rate risks described above. The Adviser may seek to adjust the portfolio’s
duration or maturity based on its assessment of current and projected market conditions and any other factors that the Adviser deems relevant.
There can be no assurance that the Adviser’s assessment of current and projected market conditions will be correct or that any strategy
to adjust the portfolio’s duration or maturity will be successful at any given time.
Risks
Relating to Significant Secondaries Acquisition Transactions
Failure
to Consummate Significant Secondaries Acquisition Transactions
From
time to time, the Fund may enter into acquisition transactions, such as the Acquisition Transaction, to acquire significant amounts of
Secondary Investments. The consummation of significant secondaries acquisition transactions, such as the Acquisition Transaction, is subject
to certain conditions, including, among others, consent of the general and limited partners of the sellers. The Fund intends to consummate
such transactions as soon as possible; however, the Fund cannot assure that the conditions required to consummate the transactions will
be satisfied or waived on the anticipated schedule, or at all. If such transactions are not completed, the Fund will have incurred substantial
expenses for which no ultimate benefit will have been received. While there can be no assurances as to the exact timing, or that
the Acquisition Transaction will be completed at all, the Fund is working to complete the Acquisition Transaction by the end of the second
quarter of 2024. See “Significant Secondaries Acquisition Transaction Expense Risk.”
Failure
to Realize Anticipated Benefits of Significant Secondaries Acquisition Transactions
The
Fund may be unable to realize the benefits anticipated by the significant secondaries acquisition transactions, such as the Acquisition
Transaction, or it may take longer than anticipated to achieve such benefits.
The
realization of certain benefits anticipated as a result of significant secondaries acquisition transactions, such as the Acquisition Transaction,
will depend in part on the integration of the acquired portfolios with the Fund’s investment portfolio. There can be no assurance
that the acquired portfolios can be integrated successfully into the Fund’s investment portfolio in a timely fashion, or at all.
The dedication of management resources to such integration may detract attention from the Fund’s day-to-day business and there can
be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse
effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in
connection with such integration and failure of the acquired portfolio to perform as expected, could have a material adverse effect on
the Fund’s financial results.
The
Fund also anticipates that Shareholders may benefit from a lower Fund expense ratio when acquired portfolios have fully integrated into
the Fund’s portfolio, as Fund expenses will be spread across a larger pool of assets. It is possible that estimates of the potential
savings and synergies could turn out to be incorrect, the
43
anticipated
cost savings and synergies may not be fully realized, or realized at all, or may take longer to realize than expected. In addition, the
Adviser expects that the Fund may borrow under its credit line to purchase some of the acquired portfolios. As the Advisory Fee payable
by the Fund is based on Managed Assets, Shareholders indirectly may bear higher fees during the period where the Fund has outstanding
borrowings.
Inability
to Obtain Approvals
The
inability to obtain certain approvals and consents could delay or prevent the completion of the Acquisition Transaction or similar transactions.
For instance, under the Purchase and Sale Agreements, the obligation to complete the Acquisition Transaction is subject to the receipt
of consents required to be obtained from certain parties, including the general and limited partners of the Seller. The Fund expects that
similar consents would be required in connection with similar transactions to acquire portfolios of Secondary Investments.
If
all approvals and consents, and conditions to such approvals and consents, are not satisfied, the closing of significant secondaries acquisition
transactions, such as the Acquisition Transaction, could be significantly delayed, or the transaction may not occur at all.
Significant
Secondaries Acquisition Transaction Expense Risk
If
significant secondaries acquisition transactions, such as the Acquisition Transaction, are not completed, the Fund will have incurred
substantial expenses in its pursuit for which no ultimate benefit will have been received. The Fund has incurred out-of-pocket expenses
in connection with the Acquisition Transaction for legal and accounting expenses and other related charges, much of which will be incurred
even if the Acquisition Transaction is not fully completed.
Other
Investment Risks
Non-U.S.
Investments Risk
The
Fund, either directly through Direct Investments or indirectly through Portfolio Funds, may invest in companies that are organized or
headquartered or have substantial sales or operations outside of the United States, its territories, and possessions. Such investments
may be subject to certain additional risk due to, among other things, potentially unsettled points of applicable governing law, the risks
associated with fluctuating currency exchange rates, capital repatriation regulations (as such regulations may be given effect during
the term of the Fund or client portfolio), the application of complex U.S. and non-U.S. tax rules to cross-border investments, possible
imposition of non-U.S. taxes on investors with respect to the income, and possible non-U.S. tax return filing requirements. The foregoing
factors may increase transaction costs and adversely affect the value of the Fund’s portfolio investments.
Additional
risks of non-U.S. investments include but are not limited to: (a) economic dislocations in the host country; (b) less publicly
available information; (c) less well-developed regulatory institutions; and (d) greater difficulty of enforcing legal rights
in a non-U.S. jurisdiction. Moreover, non-U.S. portfolio investments and companies may not be subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to those that apply to U.S. portfolio investments and companies.
In addition, laws and regulations of foreign countries may impose restrictions that would not exist in the United States and may require
financing and structuring alternatives that differ significantly from those customarily used in the United States. No assurance can be
given that a change in political or economic climate, or particular legal or regulatory risks, including changes in regulations regarding
foreign ownership of assets or repatriation of funds or changes in taxation might not adversely affect an investment by the Fund.
Emerging
Markets Investments Risk
The
Fund may invest in non-U.S. securities of issuers in so-called “emerging markets” (or lesser developed countries, including
countries that may be considered “frontier” markets). Such investments are particularly speculative and entail all of the
risks of investing in Non-U.S. Securities but to a heightened degree. “Emerging market” countries generally include every
nation in the world except developed countries, that is, the United States, Canada, Japan, Australia, New Zealand and most countries located
in Western Europe. Investments in
44
the
securities of issuers domiciled in countries with emerging capital markets involve certain additional risks that do not generally apply
to investments in securities of issuers in more developed capital markets, such as (i) low or non-existent trading volume, resulting
in a lack of liquidity and increased volatility in prices for such securities, as compared to securities of comparable issuers in more
developed capital markets; (ii) uncertain national policies and social, political and economic instability, increasing the potential
for expropriation of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic developments; (iii) possible
fluctuations in exchange rates, differing legal systems and the existence or possible imposition of exchange controls, custodial restrictions
or other foreign or U.S. Governmental laws or restrictions applicable to such investments; (iv) national policies that may limit
the Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests;
and (v) the lack or relatively early development of legal structures governing private and foreign investments and private property.
Foreign
investment in certain emerging market countries may be restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging market issuers and increase the costs and expenses of the Fund. Certain
emerging market countries require governmental approval prior to investments by foreign persons in a particular issuer, limit the amount
of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities
of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.
Emerging
markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition,
many emerging markets have far lower trading volumes and less liquidity than developed markets. Since these markets are often small, they
may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions
or the actions of a few large investors. In addition, traditional measures of investment value used in the United States, such as price
to earnings ratios, may not apply to certain small markets. Also, there may be less publicly available information about issuers in emerging
markets than would be available about issuers in more developed capital markets, and such issuers may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those to which U.S. companies are subject. In certain countries with
emerging capital markets, reporting standards vary widely.
Many
emerging markets have histories of political instability and abrupt changes in policies and these countries may lack the social, political
and economic stability characteristic of more developed countries. As a result, their governments are more likely to take actions that
are hostile or detrimental to private enterprise or foreign investment than those of more developed countries, including expropriation
of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic developments. In the past, governments of such nations
have expropriated substantial amounts of private property, and most claims of the property owners have never been fully settled. There
is no assurance that such expropriations will not reoccur. In such an event, it is possible that the Fund could lose the entire value
of its investments in the affected market. Some countries have pervasiveness of corruption and crime that may hinder investments. Certain
emerging markets may also face other significant internal or external risks, including the risk of war, and ethnic, religious and racial
conflicts. In addition, governments in many emerging market countries participate to a significant degree in their economies and securities
markets, which may impair investment and economic growth. National policies that may limit the Fund’s investment opportunities include
restrictions on investment in issuers or industries deemed sensitive to national interests. In such a dynamic environment, there can be
no assurances that any or all of these capital markets will continue to present viable investment opportunities for the Fund.
Emerging
markets may also have differing legal systems and the existence or possible imposition of exchange controls, custodial restrictions or
other foreign or U.S. Governmental laws or restrictions applicable to such investments. Sometimes, they may lack or be in the relatively
early development of legal structures governing private and foreign investments and private property. In addition to withholding taxes
on investment income, some countries with emerging markets may impose differential capital gains taxes on foreign investors.
Practices
in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part
because the Fund will need to use brokers and counterparties that are less well capitalized, and custody and registration of assets in
some countries may be unreliable. The possibility of fraud, negligence, undue influence being exerted by the issuer or refusal to recognize
ownership exists in some emerging markets, and, along with other factors, could result in ownership registration being completely lost.
45
The
Fund would absorb any loss resulting from such registration problems and may have no successful claim for compensation. In addition, communications
between the United States and emerging market countries may be unreliable, increasing the risk of delayed settlements or losses of security
certificates.
Foreign
Currency Risk
Because
the Fund may have exposure to securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities held by the Fund and the unrealized appreciation or depreciation of investments. Currencies of
certain countries may be volatile and therefore may affect the value of securities denominated in such currencies, which means that the
Fund’s net asset value could decline as a result of changes in the exchange rates between foreign currencies and the U.S. dollar.
The Adviser may, but is not required to, elect for the Fund to seek to protect itself from changes in currency exchange rates through
hedging transactions depending on market conditions. In addition, certain countries, particularly emerging market countries, may impose
foreign currency exchange controls or other restrictions on the transferability, repatriation or convertibility of currency.
Yield
and Ratings Risk
The
yields on debt obligations are dependent on a variety of factors, including general market conditions, conditions in the particular market
for the obligation, the financial condition of the issuer, the size of the offering, the maturity of the obligation and the ratings of
the issue. The ratings of Moody’s, S&P and Fitch, which are described in Appendix A to the SAI, represent their respective
opinions as to the quality of the obligations they undertake to rate. Ratings, however, are general and are not absolute standards of
quality. Consequently, obligations with the same rating, maturity and interest rate may have different market prices. Subsequent to its
purchase by the Fund, a rated security may cease to be rated. The Adviser will consider such an event in determining whether the Fund
should continue to hold the security.
U.S.
Debt Securities Risk
U.S.
debt securities generally involve lower levels of credit risk than other types of fixed income securities of similar maturities, although,
as a result, the yields available from U.S. debt securities are generally lower than the yields available from such other securities.
Like other fixed income securities, the values of U.S. debt securities change as interest rates fluctuate. On August 5, 2011, S&P
lowered its long-term sovereign credit rating on U.S. debt securities to AA+ from AAA. The downgrade by S&P and any future downgrades
by other rating agencies could increase volatility in both stock and bond markets, result in higher interest rates and higher Treasury
yields and increase borrowing costs generally. These events could have significant adverse effects on the economy generally and could
result in significant adverse impacts on securities issuers and the Fund. The Adviser cannot predict the effects of these or similar events
in the future on the U.S. economy and securities markets or on the Fund’s portfolio.
Corporate
Bonds Risk
The
market value of a corporate bond generally may be expected to rise and fall inversely with interest rates. The market value of intermediate
and longer term corporate bonds is generally more sensitive to changes in interest rates than is the market value of shorter term corporate
bonds. The market value of a corporate bond also may be affected by factors directly related to the issuer, such as investors’ perceptions
of the creditworthiness of the issuer, the issuer’s financial performance, perceptions of the issuer in the market place, performance
of management of the issuer, the issuer’s capital structure and use of financial leverage and demand for the issuer’s goods
and services. Certain risks associated with investments in corporate bonds are described elsewhere in this Prospectus in further detail,
including under “— Fixed-Income Securities Risks — Credit Risk,” “— Fixed-Income Securities
Risks — Interest Rate Risk,” and “— Fixed-Income Securities Risks — Prepayment Risk.”
There is a risk that the issuers of corporate bonds may not be able to meet their obligations on interest or principal payments at the
time called for by an instrument. Corporate bonds of below investment grade quality are often high risk and have speculative characteristics
and may be particularly susceptible to adverse issuer-specific developments. Corporate bonds of below investment grade quality are subject
to the risks described herein under “— Below Investment Grade Securities Risk.”
46
Below
Investment Grade Securities Risk
The
Fund may invest in securities that are rated, at the time of investment, below investment grade quality (rated Ba/BB or below, or judged
to be of comparable quality by the Adviser), which are commonly referred to as “high yield” or “junk” bonds and
are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due. The
value of high yield, lower quality bonds is affected by the creditworthiness of the issuers of the securities and by general economic
and specific industry conditions. Issuers of high yield bonds are not perceived to be as strong financially as those with higher credit
ratings. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers, which may impair their
ability to make interest and principal payments. Lower grade securities may be particularly susceptible to economic downturns. It is likely
that an economic recession could severely disrupt the market for such securities and may have an adverse impact on the value of such securities.
In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for such securities.
Lower
grade securities, though often high yielding, are characterized by high risk. They may be subject to certain risks with respect to the
issuing entity and to greater market fluctuations than certain lower yielding, higher rated securities. The secondary market for lower
grade securities may be less liquid than that for higher rated securities. Adverse conditions could make it difficult at times for the
Fund to sell certain securities or could result in lower prices than those used in calculating the Fund’s net asset value. Because
of the substantial risks associated with investments in lower grade securities, you could lose money on your investment in the Fund, both
in the short-term and the long-term.
The
prices of fixed-income securities generally are inversely related to interest rate changes; however, below investment grade securities
historically have been somewhat less sensitive to interest rate changes than higher quality securities of comparable maturity because
credit quality is also a significant factor in the valuation of lower grade securities. On the other hand, an increased rate environment
results in increased borrowing costs generally, which may impair the credit quality of low-grade issuers and thus have a more significant
effect on the value of some lower grade securities. In addition, the current low rate environment has expanded the historic universe of
buyers of lower grade securities as traditional investment grade oriented investors have been forced to accept more risk in order to maintain
income. As rates rise, these recent entrants to the low-grade securities market may exit the market and reduce demand for lower grade
securities, potentially resulting in greater price volatility.
The
ratings of Moody’s, S&P, Fitch and other rating agencies represent their opinions as to the quality of the obligations which
they undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such obligations. Although these ratings may be an initial criterion
for selection of portfolio investments, the Adviser also will independently evaluate these securities and the ability of the issuers of
such securities to pay interest and principal. To the extent that the Fund invests in lower grade securities that have not been rated
by a rating agency, the Fund’s ability to achieve its investment objective will be more dependent on the Adviser’s credit
analysis than would be the case when the Fund invests in rated securities.
The
Fund may invest in securities rated in the lower rating categories (rated as low as D, or unrated but judged to be of comparable quality
by the Adviser). For these securities, the risks associated with below investment grade instruments are more pronounced.
Senior
Loan Risk
The
Fund may invest in senior floating rate and fixed rate loans or debt (“Senior Loans”). Senior Loans typically hold the most
senior position in the capital structure of the issuing entity, are typically secured with specific collateral and typically have a claim
on the assets and/or stock of the borrower that is senior to that held by subordinated debt holders and stockholders of the borrower.
The Fund’s investments in Senior Loans are typically below investment grade and are considered speculative because of the credit
risk of their issuer. The risks associated with Senior Loans are similar to the risks of below investment grade fixed income securities,
although Senior Loans are typically senior and secured in contrast to other below investment grade fixed income securities, which are
often subordinated and unsecured. Senior Loans’ higher standing has historically resulted in generally higher recoveries in the
event of a corporate reorganization. In addition,
47
because their
interest payments are typically adjusted for changes in short-term interest rates, investments in Senior Loans generally have less interest
rate risk than other below investment grade fixed income securities, which may have fixed interest rates.
There
is less readily available, reliable information about most Senior Loans than is the case for many other types of securities. In addition,
there is no minimum rating or other independent evaluation of a borrower or its securities limiting the Fund’s investments, and
the Adviser relies primarily on its own evaluation of a borrower’s credit quality rather than on any available independent sources.
As a result, the Fund is particularly dependent on the analytical ability of the Adviser.
The
Fund may invest in Senior Loans rated below investment grade, which are considered speculative because of the credit risk of their issuers.
Such companies are more likely to default on their payments of interest and principal owed to the Fund, and such defaults could reduce
the Fund’s net asset value and income distributions. An economic downturn generally leads to a higher non-payment rate and a Senior
Loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a Senior Loan may decline in
value or become illiquid, which would adversely affect the Senior Loan’s value.
No
active trading market may exist for certain Senior Loans, which may impair the ability of the Fund to realize full value in the event
of the need to sell a Senior Loan and may make it difficult to value Senior Loans. Adverse market conditions may impair the liquidity
of some actively traded Senior Loans, meaning that the Fund may not be able to sell them quickly at a fair price. To the extent that a
secondary market does exist for certain Senior Loans, the market may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods. Illiquid investments are also difficult to value.
Although
the Senior Loans in which the Fund may invest generally will be secured by specific collateral, there can be no assurances that liquidation
of such collateral would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal or that
such collateral could be readily liquidated. In the event of the bankruptcy of a borrower, the Fund could experience delays or limitations
with respect to its ability to realize the benefits of the collateral securing a Senior Loan. If the terms of a Senior Loan do not require
the borrower to pledge additional collateral in the event of a decline in the value of the already pledged collateral, the Fund will be
exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the borrower’s obligations
under the Senior Loans. To the extent that a Senior Loan is collateralized by stock in the borrower or its subsidiaries, such stock may
lose all of its value in the event of the bankruptcy of the borrower. Uncollateralized Senior Loans involve a greater risk of loss. Some
Senior Loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate the Senior
Loans to presently existing or future indebtedness of the borrower or take other action detrimental to lenders, including the Fund. Such
court action could under certain circumstances include invalidation of Senior Loans.
Senior
Loans are subject to legislative risk. If legislation or state or federal regulations impose additional requirements or restrictions on
the ability of financial institutions to make loans, the availability of Senior Loans for investment by the Fund may be adversely affected.
In addition, such requirements or restrictions could reduce or eliminate sources of financing for certain borrowers. This would increase
the risk of default. If legislation or federal or state regulations require financial institutions to increase their capital requirements
this may cause financial institutions to dispose of Senior Loans that are considered highly levered transactions. Such sales could result
in prices that, in the opinion of the Adviser, do not represent fair value. If the Fund attempts to sell a Senior Loan at a time when
a financial institution is engaging in such a sale, the price the Fund could receive for the Senior Loan may be adversely affected.
The
Fund may acquire Senior Loan assignments or participations. The purchaser of an assignment typically succeeds to all the rights and obligations
of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the purchaser’s
rights can be more restricted than those of the assigning institution, and, in any event, the Fund may not be able to unilaterally enforce
all rights and remedies under the loan and with regard to any associated collateral. A participation typically results in a contractual
relationship only with the institution participating out the interest, not with the borrower. In purchasing participations, the Fund generally
will have no right to enforce compliance by the borrower with the terms of the loan agreement against the borrower and the Fund may not
directly benefit
48
from
the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will be exposed to the
credit risk of both the borrower and the institution selling the participation.
The
Fund’s investments in Senior Loans may be subject to lender liability risk. Lender liability refers to a variety of legal theories
generally founded on the premise that a lender has violated a duty of good faith, commercial reasonableness and fair dealing or a similar
duty owed to the borrower, or has assumed an excessive degree of control over the borrower resulting in the creation of a fiduciary duty
owed to the borrower or its other creditors or shareholders. Because of the nature of its investments, the Fund may be subject to allegations
of lender liability. In addition, under common law principles that in some cases form the basis for lender liability claims, a court may
elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors.
Other
Registered Investment Companies Risk
The
Fund may invest in the securities of other registered investment companies to the extent that such investments are consistent with the
Fund’s investment objective and permissible under the Investment Company Act. Under Section 12(d)(1) of the Investment Company
Act, unless an exemption is available, the Fund may not acquire the securities of other registered investment companies if, as a result:
(i) more than 10% of the Fund’s total assets would be invested in securities of other registered investment companies; (ii) such
purchase would result in more than 3% of the total outstanding voting securities of any one registered investment company being held by
the Fund; or (iii) more than 5% of the Fund’s total assets would be invested in any one registered investment company. Rule 12d1-4
under the Investment Company Act provides an exemption, subject to certain conditions, to permit acquiring funds to invest in the securities
of other registered investment companies in excess of the limits of Section 12(d)(1). Rule 12d1-4 also modifies certain existing
exemptive rules and will rescind exemptive orders previously granted by the SEC. As a result, certain registered funds and private funds
may be more limited in their ability to invest in the Fund under Rule 12d1-4 than they otherwise would be. The Fund, as a holder
of the securities of other investment companies, will bear its pro rata portion of the other investment companies’ expenses,
including advisory fees. These expenses will be in addition to the direct expenses incurred by the Fund.
ETF
Risk
The
risks of investment in an ETF typically reflect the risks of the types of instruments in which the ETF invests. If the Fund invests in
ETFs, Shareholders will bear indirectly their proportionate share of the ETF’s fees and expenses, as well as their share of the
Fund’s fees and expenses. As a result, an investment by the Fund in an ETF could cause the Fund’s total operating expenses
(taking into account indirect expenses such as the fees and expenses of the ETF) to be higher and, in turn, performance to be lower than
if it were to invest directly in the instruments underlying the ETF. The trading in an ETF may be halted if the trading in one or more
of the ETF’s underlying securities is halted. In addition, ETFs are susceptible to market trading risks (i.e., the ETF faces market
trading risks, including losses from trading in secondary markets and disruption in the creation/redemption process of the ETF).
Other
Risks
Recent
Bank Failures
The
financial markets recently have encountered volatility associated with concerns about the balance sheets of banks, especially small and
regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits
and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks
have already been impacted and others may be materially and adversely impacted. The Fund’s business is dependent on bank relationships
and the Adviser is proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may
adversely impact the Fund’s business, financial condition and results of operations.
Recent
Markets Fluctuations and Changes
General
fluctuations in the market prices of securities may affect the value of the Fund’s investments. Instability in the securities markets
also may increase the risks inherent in the Fund’s investments. Stresses
49
associated
with the 2008 financial crisis in the United States and global economies peaked approximately a decade ago, but periods of unusually high
volatility in the financial markets and restrictive credit conditions, sometimes limited to a particular sector or a geography, continue
to recur. Some countries, including the United States, have adopted and/or are considering the adoption of more protectionist trade policies,
a move away from the tighter financial industry regulations that followed the financial crisis, and/or substantially reducing corporate
taxes. The exact shape of these policies is still being considered, but the equity and debt markets may react strongly to expectations
of change, which could increase volatility, especially if the market’s expectations are not borne out. A rise in protectionist trade
policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that
cannot necessarily be foreseen at the present time. In addition, geopolitical and other risks, including environmental and public health,
may add to instability in world economies and markets generally. Economies and financial markets throughout the world are becoming increasingly
interconnected. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to countries
experiencing economic, political and/or financial difficulties, the value and liquidity of the Fund’s investments may be negatively
affected by such events.
Outbreaks
of Infectious or Contagious Diseases and Public Health Emergencies
Certain
of the Fund’s investments’ businesses could be adversely affected by the effects of health pandemics or epidemics. Another
severe outbreak of COVID-19 or another pandemic can disrupt the Fund’s and the Fund’s investments’ businesses and materially
and adversely impact the Fund’s and/or their financial results. The COVID-19 pandemic contributed to certain conditions associated
with the current macroeconomic environment and caused significant disruptions and instabilities in the global and U.S. financial markets
or deteriorations in credit and financing conditions. A resurgence of COVID-19 or another pandemic with effects similar to those of COVID-19
may adversely affect the Fund’s and the Fund’s investments’ liquidity positions.
Market
Disruption and Geopolitical Risk
Concerns
over the United States’ debt ceiling and budget-deficit have driven downgrades by rating agencies to the U.S. government’s
credit rating. Downgrades by rating agencies to the U.S. government’s credit rating or concerns about its credit and deficit levels
in general could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated
with the Fund’s debt portfolio and the Fund’s ability to access the debt markets on favorable terms. In addition, a decreased
U.S. government credit rating, any default by the U.S. government on its obligations, or any prolonged U.S. government shutdown, could
create broader financial turmoil and uncertainty, which may weigh heavily on the Fund’s financial performance and the value of the
Fund’s Shares. U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades
and economic slowdowns or a recession in the United States.
Deterioration
in the economic conditions in the Eurozone and other regions or countries globally and the resulting instability in global financial markets
may pose a risk to the Fund’s business. Financial markets have been affected at times by a number of global macroeconomic events,
including the following: large sovereign debts and fiscal deficits of several countries in Europe and in emerging markets jurisdictions,
levels of non-performing loans on the balance sheets of European banks, instability in the Chinese capital markets and the COVID-19 pandemic.
Global market and economic disruptions have affected, and may in the future affect, the U.S. capital markets, which could adversely affect
the Fund’s business, financial condition or results of operations. It cannot be assured that market disruptions in Europe and other
regions or countries, including the increased cost of funding for certain governments and financial institutions, will not impact the
global economy, and it cannot be assured that assistance packages will be available, or if available, be sufficient to stabilize countries
and markets in Europe or elsewhere affected by a financial crisis. To the extent uncertainty regarding any economic recovery in Europe
or elsewhere negatively impacts consumer confidence and consumer credit factors, the Fund’s business, financial condition and results
of operations could be significantly and adversely affected. Moreover, there is a risk of both sector-specific and broad-based corrections
and/or downturns in the equity and credit markets. Any of the foregoing could have a significant impact on the markets in which the Fund
operates and could have a material adverse impact on the Fund’s business prospects and financial condition.
50
Various
social and political circumstances in the U.S. and around the world (including wars and other forms of conflict, terrorist acts, security
operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics or outbreaks
of infectious diseases), may also contribute to increased market volatility and economic uncertainties or deterioration in the U.S. and
worldwide. Such events, including trade tensions between the United States and China, other uncertainties regarding actual and potential
shifts in U.S. and foreign, trade, economic and other policies with other countries, the Russia-Ukraine war and the Israel-Hamas war,
and health epidemics and pandemics, could adversely affect the Fund’s business, financial condition or results of operations. These
market and economic disruptions could negatively impact the operating results of the Fund’s investments.
Advancements
in Artificial Intelligence and Machine Learning
The
ongoing evolution in artificial intelligence and machine learning technologies (hereinafter, “Machine Learning Technologies”),
encompassing initiatives like OpenAI’s deployment of its ChatGPT application, may instigate risks that impact the Fund and the Portfolio
Funds. Regardless of existing policies, there exists potential for the Adviser, the Fund’s portfolio companies and Portfolio Funds,
and all associated affiliates, partners, members, shareholders, officers, directors, and employees to deploy Machine Learning Technologies
in violation of such policies, knowingly or otherwise. The risk exposure for the Fund and the Portfolio Funds may be exacerbated if third-party
service providers or any known or unknown counterparts also incorporate Machine Learning Technologies in their business operations. The
Fund cannot ensure absolute control over the development or maintenance of third-party products or the manner in which third-party services
are rendered.
The
utilization of Machine Learning Technologies may inadvertently involve the integration of confidential data, including sensitive non-public
information, by either third parties in breach of non-disclosure agreements, or by employees of the Adviser or the related affiliates
and partners in breach of the Fund’s policies. This may result in the confidential information becoming accessible within a dataset
by other third-party Machine Learning Technology applications and users. For comprehensive details on risks related to information security,
refer to the section titled “— Cyber Security Risk”
herein.
Machine
Learning Technologies inherently depend on the aggregation and examination of vast quantities of data. However, due to practical limitations,
it is infeasible to incorporate all pertinent data into the model that Machine Learning Technologies leverage for operation. Consequently,
these models will inevitably harbor some degree of inaccuracy and error, potentially significant, or could be otherwise deficient or flawed,
thereby compromising the effectiveness of Machine Learning Technologies. To the extent that the Adviser, the Fund and the Portfolio Funds
are susceptible to the risks associated with Machine Learning Technologies, any inaccuracies or errors may precipitate adverse impacts.
Machine
Learning Technologies and their applications, particularly within the private investment and financial sectors, continue to undergo rapid
evolution. Therefore, it remains impossible to accurately foresee future risks that may emerge from such technological advancements.
Cyber
Security Risk
The
efficient operation of the Fund’s business is dependent on computer hardware and software systems, as well as data processing systems
and the secure processing, storage and transmission of information, all of which are potentially vulnerable to security breaches and cyber-attacks
or other security breaches, which may include intentional attacks or accidental losses, either of which may result in unauthorized access
to, or corruption of, the Fund’s hardware, software, or data processing systems, or to the Fund’s confidential, personal,
or other sensitive information. In addition, the Fund, the Adviser, the Administrator, or their employees may be the target of fraudulent
emails or other targeted attempts to gain unauthorized access to confidential, personal, or other sensitive information. The result of
any cyber-attack or other security incidents may include disrupted operations, misstated or unreliable financial data, fraudulent transfers
or requests for transfers of money, liability for stolen assets or information (including personal information), fines or penalties, investigations,
increased cybersecurity protection and insurance costs, litigation, or damage to the Fund’s business relationships and reputation,
in each case, causing the Fund’s business and results of operations to suffer. The rapid evolution and increasing prevalence of
artificial intelligence technologies may also increase the Fund’s cybersecurity risks.
51
Although
the Fund is not currently aware of any cyber-attacks or other incidents that, individually or in the aggregate, have materially affected,
or would reasonably be expected to materially affect, the Fund’s operations or financial condition, there has been an increase in
the frequency and sophistication of the cyber and security threats that the Fund faces, with attacks ranging from those common to businesses
generally to more advanced and persistent attacks. Cyber-attacks and other security threats could originate from a wide variety of sources,
including cyber criminals, nation state hackers, hacktivists and other outside or inside parties. The Fund or its third-party providers
may face a heightened risk of a security breach or disruption with respect to confidential, personal or other sensitive information resulting
from an attack by foreign governments or cyber terrorists. The Fund may be a target for attacks because, as a registered investment company,
the Fund holds confidential and other sensitive information, including price information, about existing and potential investments. Further,
the Fund is dependent on third-party vendors for hosting hardware, software and data processing systems that the Fund does not control.
The Fund also relies on third-party service providers for certain aspects of its businesses, including for certain information systems,
technology and administration of the Fund’s funds and compliance matters. While the Fund relies on the cybersecurity strategy and
policies implemented by Ares, which includes the performance of risk assessments on third-party providers, the Fund’s reliance on
them and their potential reliance on third-party providers removes certain cybersecurity functions from outside of the Fund’s immediate
control, and cyber-attacks on Ares, on the Fund or on the Fund’s third-party service providers could adversely affect the Fund,
the Fund’s business and its reputation. The costs related to cyber-attacks or other security threats or disruptions may not be fully
insured or indemnified by others, including by the Fund’s third-party providers.
As
the Fund’s reliance on computer hardware and software systems, data processing systems, and other technology has increased, so have
the risks posed to such systems, both those the Fund or Ares control and those provided by third-party vendors. Cyber-attacks may originate
from a wide variety of sources, and while Ares has implemented processes, procedures and internal controls designed to mitigate cybersecurity
risks and cyber-attacks, these measures do not guarantee that a cyber-attack will not occur or that the Fund’s financial results,
operations or confidential information, personal or other sensitive information will not be negatively impacted by such an incident, especially
because the techniques of threat actors change frequently and are often not recognized until launched. Ares relies on industry accepted
security measures and technology to securely maintain confidential and proprietary information maintained on their information systems,
as well as on policies and procedures to protect against the unauthorized or unlawful disclosure of confidential, personal or other sensitive
information. Although Ares takes protective measures and endeavors to strengthen its computer systems, software, technology assets and
networks to prevent and address potential cyber-attacks, there can be no assurance that any of these measures prove effective. Ares expects
to be required to devote increasing levels of funding and resources, which may in part be allocated to the Fund, to comply with evolving
cybersecurity and privacy laws and regulations and to continually monitor and enhance its cybersecurity procedures and controls.
Cybersecurity
risks are exacerbated by the rapidly increasing volume of highly sensitive data, including the Fund’s proprietary business information
and intellectual property, personal information of the Adviser’s and the Administrator’s employees, Shareholders and others
and other sensitive information that Ares collects, processes and stores in its data centers and on its networks or those of its third-party
service providers. The secure processing, maintenance and transmission of this information are critical to the Fund’s operations.
A significant actual or potential theft, loss, corruption, exposure, fraudulent use or misuse of investor, employee or other personal
information, proprietary business data or other sensitive information, whether by third parties or as a result of employee malfeasance
or otherwise, non-compliance with applicable contractual or other legal obligations regarding such data or intellectual property or a
violation of applicable privacy and security policies with respect to such data could result in significant investigation, remediation
and other costs, fines, penalties, litigation or regulatory actions against the Fund and significant reputational harm, any of which could
harm the Fund’s business and results of operations.
The
Portfolio Funds also rely on similar systems and face similar risks. A disruption or compromise of these systems could have a material
adverse effect on the value of these funds.
In
addition, the Fund operates in businesses that are highly dependent on information systems and technology. The costs related to cyber
or other security threats or disruptions may not be fully insured or indemnified by other means. Cybersecurity has become a priority for
regulators in the U.S. and around the
52
world.
In the latter half of 2021, the SEC brought three charges, sanctioning eight companies, all of which were registered as broker dealers,
investment advisory firms or both, for deficient cybersecurity policies and procedures, and settled charges in two separate actions against
public companies for deficient disclosure controls and procedures violations related to a cybersecurity vulnerability that exposed sensitive
customer information. More recently, the SEC proposed new rules related to cybersecurity risk management for registered investment advisers,
registered investment companies and business development companies, as well as amendments to certain rules that govern investment adviser
and fund disclosures. With the SEC particularly focused on cybersecurity, the Fund expects increased scrutiny of the Fund’s and
Ares’ policies and systems designed to manage cybersecurity risks and related disclosures. The Fund also may face increased costs
to comply with the new SEC rules, including Ares’ increased costs for cybersecurity training and management, a portion of which
may be allocated to the Fund. Many jurisdictions in which the Fund operates have laws and regulations relating to data privacy, cybersecurity
and protection of personal information, including, the CCPA, the New York SHIELD Act, the General Data Protection Regulation (“GDPR”)
and the U.K. GDPR. In addition, the SEC has indicated in recent periods that one of its examination priorities for the Office of Compliance
Inspections and Examinations is to continue to examine cybersecurity procedures and controls, including testing the implementation of
these procedures and controls.
There
may be substantial financial penalties or fines for breach of privacy laws (which may include insufficient security for personal or other
sensitive information). For example, the maximum penalty for breach of the GDPR is the greater of 20 million Euros and 4% of group
annual worldwide turnover, and fines for each violation of the CCPA are $2,500, or $7,500 per violation for intentional violations. Non-compliance
with any applicable privacy or data security laws represents a serious risk to the Fund’s business. Some jurisdictions have also
enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal information. Breaches
in security could potentially jeopardize the Fund, the Adviser’s or the Administrator’s employees’ or Shareholders’
or counterparties’ confidential or other information processed and stored in, or transmitted through, the Fund or Ares’ computer
systems and networks (or those of the Fund’s third-party service providers), or otherwise cause interruptions or malfunctions in
the Fund’s, the Adviser’s or the Administrator’s employees’, the Shareholders’, the Portfolio Funds, the
Fund’s counterparties’ or third parties’ operations, which could result in significant losses, increased costs, disruption
of the Fund’s business, liability to Shareholders, the Portfolio Funds and other counterparties, fines or penalties, litigation,
regulatory intervention or reputational damage, which could also lead to loss of investors.
Tax
Considerations for the Fund
The
Fund has elected to be treated as, and intends to continue to qualify to be treated as, a RIC under Subchapter M of the Code. As such,
the Fund must satisfy, among other requirements, certain ongoing asset diversification, source-of-income and annual distribution requirements.
If the Fund fails to qualify as a RIC it will become subject to corporate-level income tax, and the resulting corporate taxes could substantially
reduce the Fund’s net assets, the amount of income available for distributions to Shareholders, the amount of distributions and
the amount of funds available for new investments. Such a failure would have a material adverse effect on the Fund and the Shareholders.
See “Material U.S. Federal Income Tax Considerations.”
Each
of the aforementioned ongoing requirements for qualification of the Fund as a RIC requires that the Adviser obtain information from or
about the underlying investments in which the Fund is invested. Portfolio Funds and Portfolio Fund Managers may not provide information
sufficient to ensure that the Fund qualifies as a RIC under the Code. If the Fund does not receive sufficient information from Portfolio
Funds or Portfolio Fund Managers, the Fund risks failing to satisfy the Subchapter M qualification tests and/or incurring an excise
tax on undistributed income.
In
order to meet the 90% Gross Income Test (as defined below in “Material U.S. Federal Income Tax Considerations — Qualification
as a Regulated Investment Company”), the Fund may structure its investments in a way that could increase the taxes imposed thereon
or in respect thereof. For example, the Fund may be required to hold such investments through a subsidiary that is treated as a corporation
for U.S. federal income tax purposes. In such a case, any income from such investments is generally not expected to adversely affect the
Fund’s ability to meet the 90% Gross Income Test, although such income generally would be subject to U.S. corporate federal income
tax (and possibly state and local taxes), which the Fund would
53
indirectly
bear through its ownership of such subsidiary. See “Material U.S. Federal Income Tax Considerations — Qualification
as a Regulated Investment Company.”
If,
before the end of any quarter of its taxable year, the Fund believes that it may fail the Diversification Tests (as defined below in “Material
U.S. Federal Income Tax Considerations — Qualification as a Regulated Investment Company”), the Fund may seek
to take certain actions to avert such a failure. However, the action frequently taken by RICs to avert such a failure, the disposition
of non-diversified assets, may be difficult to pursue because of the limited liquidity of the Fund’s investments. While relevant
tax provisions afford a RIC a 30-day period after the end of the relevant quarter in which to cure a diversification failure by disposing
of non-diversified assets, the constraints on the Fund’s ability to effect a sale of an investment may limit the Fund’s use
of this cure period. In certain cases, the Fund may be afforded a longer cure period under applicable savings provisions, but the Fund
may be subject to a penalty tax in connection with its use of those savings provisions. If the Fund fails to satisfy the Diversification
Tests or other RIC requirements, the Fund may fail to qualify as a RIC under the Code. If the Fund fails to qualify as a RIC, it would
become subject to a corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes) and distributions to the Shareholders
generally would be treated as corporate dividends. See “Material U.S. Federal Income Tax Considerations — Failure
to Qualify as a Regulated Investment Company.” In addition, the Fund is required each December to make certain “excise tax”
calculations based on income and gain information that must be obtained from the Portfolio Funds or Portfolio Fund Managers. If the
Fund does not receive sufficient information from the Portfolio Funds or Portfolio Fund Managers, it risks failing to satisfy the
Subchapter M qualification tests and/or incurring an excise tax on undistributed income (in addition to the corporate income tax). The
Fund may, however, attempt to avoid such outcomes by paying a distribution that is or is considered to be in excess of its current and
accumulated earnings and profits for the relevant period (i.e., a return of capital).
In
addition, the Fund may directly or indirectly invest in Portfolio Funds located outside the United States. Such Portfolio Funds may be
subject to withholding taxes and other taxes in such jurisdictions with respect to their investments. In general, a U.S. person will not
be able to claim a foreign tax credit or deduction for foreign taxes paid by the Fund. Further, adverse United States tax consequences
can be associated with certain foreign investments, including potential United States withholding taxes on foreign investment entities
with respect to their United States investments and potential adverse tax consequences associated with investments in any foreign corporations
that are characterized for U.S. federal income tax purposes as “controlled foreign corporations” or “passive foreign
investment companies.”
The
Fund may retain some income and capital gains in the future, including for purposes of providing the Fund with additional liquidity, which
amounts would be subject to the 4% U.S. federal excise tax to the extent they exceed the Excise Tax Distribution Requirement (as defined
below), in addition to the corporate income tax. In that event, the Fund will be liable for the tax on the amount by which the Fund does
not meet the foregoing distribution requirement. See “Material U.S. Federal Income Tax Considerations — Qualification as a
Regulated Investment Company.”
Tax
Laws Subject to Change
It
is possible that the current U.S. federal, state, local, or foreign income tax treatment accorded an investment in the Fund will be modified
by legislative, administrative, or judicial action in the future. The nature of additional changes in U.S. federal or non-U.S. income
tax law, if any, cannot be determined prior to enactment of any new tax legislation. However, such legislation could significantly alter
the tax consequences and decrease the after tax rate of return of an investment in the Fund, including with retroactive effect. Potential
investors therefore should seek, and must rely on, the advice of their tax advisers with respect to the possible impact on their investments
of recent legislation, as well as any future proposed tax legislation or administrative or judicial action.
Incentive
Fee
The
Incentive Fee payable by the Fund to the Adviser may create an incentive for the Adviser to make investments on the Fund’s behalf
that are risky or more speculative than would be the case in the absence of such compensation arrangement.
54
Any
Incentive Fee payable by the Fund that relates to an increase in value of the Fund’s investments may be computed and paid on gain
or income that is unrealized, and the Adviser is not obligated to reimburse the Fund for any part of an Incentive Fee it previously received.
If a Fund investment with an unrealized gain subsequently decreases in value, it is possible that such unrealized gain previously included
in the calculation of an Incentive Fee will never become realized. Thus, the Fund could have paid an Incentive Fee on income or gain the
Fund never received. See “Investment Advisory and Management Agreement — Incentive Fee” and “— Incentive
Fee Examples.”
The
Incentive Fee is computed and paid on net profits that may include interest that has been accrued but not yet received in cash, such as
market discount, debt instruments with payment in kind (“PIK”) interest, preferred stock with PIK dividends and zero coupon
securities, in addition to amounts related to unrealized capital appreciation. If there is a default on an investment by the obligor or
such capital appreciation is not ultimately realized, it is possible that amounts previously used in the calculation of the Incentive
Fee will become uncollectible, and the Adviser will have no obligation to refund any fees it received in respect of such accrued income.
In addition, since in certain cases the Fund may recognize net profits before or without receiving cash representing such net profits
and have a corresponding obligation to make an Incentive Fee payment, the Fund may have to sell some of its investments at times it would
not consider advantageous, raise additional debt or equity capital or reduce new investments to meet its payment obligations.
Indemnification
Obligations and Limited Liability of Trustees and Adviser
None
of the Trustees, the Adviser or any of their respective affiliates, principals, members, shareholders, partners, officers, directors,
employees, agents and representatives (each an “Indemnified Person”) shall have any liability, responsibility or accountability
in damages or otherwise to any Shareholder or the Fund for, and the Fund agrees, to the fullest extent permitted by law, to indemnify,
pay, protect and hold harmless each Indemnified Person from and against, any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, proceedings, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation,
all reasonable costs and expenses of attorneys, defense, appeal and settlement of any and all suits, actions or proceedings instituted
or threatened against the Indemnified Persons or the Fund) and all costs of investigation in connection therewith which may be imposed
on, incurred by, or asserted against the Indemnified Persons or the Fund in any way relating to or arising out of, or alleged to relate
to or arise out of, any action or inaction on the part of the Fund, on the part of the Indemnified Persons when acting on behalf of the
Fund or otherwise in connection with the business or affairs of the Fund, or on the part of any agents when acting on behalf of the Fund
(collectively, the “Indemnified Liabilities”); provided that the Fund shall not be liable to any Indemnified Person for any
portion of any Indemnified Liabilities which results from such Indemnified Person’s willful misfeasance, bad faith, gross negligence
or reckless disregard in the performance of his, her or its duties or by reason of his, her or its reckless disregard of his, her or its
obligations and duties. Notwithstanding the foregoing, no waiver or release of personal liability of any Indemnified Person will be effective
to waive any liabilities of such Indemnified Persons under the U.S. federal securities laws to the extent any such waiver or release is
void under Section 14 of the Securities Act.
Regulatory
Scrutiny and Reporting
The
Fund and the Adviser may be subject to increased scrutiny by government regulators, investigators, auditors and law enforcement officials
regarding the identities and sources of funds of investors. In that connection, in the future the Fund may become subject to additional
obligations that may affect its investment program, the manner in which it operates and, reporting requirements regarding its investments
and investors. Each Shareholder will be required to provide to the Fund such information as may be required to enable the Fund to comply
with all applicable legal or regulatory requirements, and each Shareholder will be required to acknowledge and agree that the Fund may
disclose such information to governmental and/or regulatory or self-regulatory authorities to the extent required by applicable law or
regulation and may file such reports with such authorities as may be required by applicable law or regulation.
Best-Efforts
Offering Risk
This
offering is being made on a reasonable best efforts basis, whereby the Distributor is only required to use its reasonable best efforts
to sell the Shares and neither it nor any selling agent has a firm commitment or
55
obligation
to purchase any of the Shares. To the extent that less than the maximum number of Shares is subscribed for, the opportunity for the allocation
of the Fund’s investments among various issuers and industries may be decreased, and the returns achieved on those investments may
be reduced as a result of allocating all of the Fund’s expenses over a smaller capital base. As a result, the Fund may be unable
to achieve its investment objective and a Shareholder could lose some or all of the value of his, her or its investment in the Shares.
The Distributor is an affiliate of the Fund and the Adviser. As a result, the Distributor’s due diligence review and investigation
of the Fund and this Prospectus cannot be considered to be an independent review.
POTENTIAL
CONFLICTS OF INTEREST
The Adviser
is accountable to the Fund as a fiduciary, and, consequently, must operate the Fund prudently, in good faith and in the interest of and
for the benefit of the Shareholders. As discussed below, prospective investors should be aware of potential conflicts of interest before
investing. By purchasing Shares, each Shareholder will be deemed to have acknowledged the existence of such actual and potential conflicts
of interest and to have waived any claim with respect to the existence of such actual and potential conflicts of interest.
Management
of Similar Accounts. Certain of the Fund’s executive officers and Trustees,
and the employees of the Adviser or its affiliates, serve or may serve as officers, trustees or principals of entities that operate in
the same or a related line of business as the Fund or of Other Managed Funds. As a result, they have obligations to investors in those
entities, the fulfilment of which might not be in the best interests of the Fund or its Shareholders. Moreover, notwithstanding the difference
in principal investment objectives between the Fund and the Other Managed Funds, such other funds, including potential new pooled investment
vehicles or managed accounts not yet established (whether managed or sponsored by affiliates or the Adviser), have, and may from time
to time have, overlapping investment objectives with the Fund and, accordingly, invest in, whether principally or secondarily, asset classes
similar to those targeted by the Fund. To the extent the Other Managed Funds have overlapping investment objectives, the scope of opportunities
otherwise available to the Fund may be adversely affected and/or reduced. Additionally, certain employees of the Adviser and their management
face conflicts in their time management and commitments as well as in the allocation of investment opportunities to other Ares funds.
Transactions
with Other Managed Funds, the Adviser and its Affiliates. The Investment Company
Act imposes significant limits on co-investments with affiliates of the Fund. The Co-Investment Exemptive Order permits the Fund to co-invest
alongside Other Managed Funds in privately negotiated transactions. Co-investments made under the Co-Investment Exemptive Order are subject
to compliance with certain conditions and other requirements, which could limit the Fund’s ability to participate in a co-investment
transaction. These co-investment transactions may give rise to conflicts of interest or perceived conflicts of interest among the Fund
and the participating Other Managed Funds. An inability to receive the desired allocation to potential investments may affect the Fund’s
ability to achieve the desired investment returns.
In the
event investment opportunities are allocated among the Fund and Other Managed Funds, the Fund may not be able to structure its investment
portfolio in the manner desired. Although the Adviser endeavors to allocate investment opportunities in a fair and equitable manner, the
Fund is not generally permitted to co-invest in any issuer in which a fund managed by Ares, including Other Managed Funds, or any of its
downstream affiliates (other than the Fund and its downstream affiliates) currently has an investment. However, the Fund may co-invest
with funds managed by Ares or any of its downstream affiliates, subject to compliance with existing regulatory guidance, applicable regulations
and its allocation procedures.
The Fund
may invest in Portfolio Funds in which the Adviser and/or its affiliates (including, to the extent permitted by applicable law, Other
Managed Funds) has an investment, and the Adviser and/or its affiliates may invest in Portfolio Funds in which the Fund has made an investment.
From time to time, the Fund and Other Managed Funds may make investments at different levels of an issuer’s capital structure or
otherwise in different classes of an issuer’s securities. Such investments inherently give rise to conflicts of interest or perceived
conflicts of interest between or among the various classes of securities that may be held by such entities. The Adviser has adopted procedures
governing the co-investment in securities acquired in private placements with certain clients of the Adviser.
56
Adviser
Affiliates May Engage in Adverse Activities. The Fund may invest in Portfolio
Funds or Direct Investments that have relationships with affiliates of the Adviser or other funds or clients of the Adviser. Such affiliates
may take actions that are detrimental to the interests of the Fund in such Portfolio Funds or portfolio companies.
The
Adviser, its affiliates and their clients may pursue or enforce rights with respect to an issuer in which the Fund has invested, and those
activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of the Fund’s investments
may be negatively impacted by the activities of the Adviser and its affiliates or their clients, and transactions for the Fund may be
impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The
Adviser may enter into transactions and invest in securities, instruments and currencies on behalf of the Fund in which customers of its
affiliates, to the extent permitted by applicable law, serve as the counterparty, principal or issuer. In such cases, such party’s
interests in the transaction would generally be adverse to the interests of the Fund, and such party would have no incentive to assure
that the Fund obtains the best possible prices or terms in connection with the transaction. In addition, the purchase, holding and sale
of such investments by the Fund may enhance the profitability of the Adviser or its affiliates. The Fund may, subject to applicable law,
purchase investments that are the subject of an underwriting or other distribution by one or more Adviser affiliates and may also enter
into transactions with other clients of an affiliate where such other clients have interests adverse to those of the Fund.
By reason
of the various activities of the Adviser and its affiliates, the Adviser and such affiliates may acquire confidential or material non-public
information or otherwise be restricted from purchasing certain potential Fund investments that otherwise might have been purchased or
be restricted from selling certain Fund investments that might otherwise have been sold at the time.
Advisory
Fee and Incentive Fee Arrangements. The Adviser is paid a fee based on a percentage
of the Fund’s net assets. The participation of the Adviser’s investment professionals in the valuation process therefore results
in a conflict of interest. The Adviser also has a conflict of interest in deciding whether to cause the Fund to invest in more speculative
investments or financial instruments, which increase the assets or profits of the Fund and, accordingly, the Advisory Fee or Incentive
Fee payable by the Fund to the Adviser. Certain Other Managed Funds pay the Adviser or its affiliates performance-based compensation,
which could create an incentive for the Adviser or its affiliate to favor such investment fund or account over the Fund.
Conflicts
Associated with Fee Arrangements with Portfolio Funds. In certain cases, the
Adviser or its affiliates may enter into arrangements with a Portfolio Fund Manager under which the Portfolio Fund Manager agrees
to rebate a portion of its management fee or make other fee payments in connection with an investment in the Portfolio Fund by an investment
vehicle managed or sponsored by the Adviser or its affiliates. To the extent any such rebates or payments relate to the Fund’s investment
in a Portfolio Fund, the Fund will receive the economic benefit of such rebate or payment. However, to the extent the Adviser, in its
sole discretion, determines that such an arrangement is not permissible or appropriate for the Fund, other vehicles managed by the Adviser
or its affiliates may nonetheless participate in the rebate or repayment. Affiliates of the Adviser may receive and retain these payments
with respect to other investment vehicles in consideration of, or to defray the cost of, services provided by such affiliates. The receipt
of such payments by affiliates of the Adviser could incentivize the Adviser to participate in Portfolio Funds whose managers agree to
make such payments or could enhance the likelihood that Portfolio Fund Managers will agree to make such payments.
Portfolio
Fund Valuation May be Affected by Compensation Arrangements. If a Portfolio
Fund calculates its compensation on the value of the Portfolio Fund’s assets, the Portfolio Fund’s manager may exercise discretion
in assigning values to the Portfolio Fund’s investments. These factors can create a conflict of interest because the value assigned
to an investment may affect the advisory fee at the Portfolio Fund level. If there is a difference in the advisory fee required to be
paid, the Portfolio Fund’s documents generally do not require the Portfolio Fund’s manager to return past advisory fees, although
claw-back provisions in a Portfolio Fund’s documents may permit the recovery of excess carried interest distributions.
Potential
Conflicts of Interest at the Portfolio Fund Level. Each Portfolio Fund
may become involved in activities in which there is a potential conflict between the interests of Portfolio Fund investors, like the Fund,
57
and the Portfolio Fund’s management.
Typically, Portfolio Funds will have an investor’s committee with some degree of supervision over potential conflicts, although
there can be no assurance that such committee, or other conflict of interest provisions of a Portfolio Fund’s governing documents,
will be effective.
Proxy
Voting. The Adviser has adopted policies and procedures designed to prevent
conflicts of interest from influencing proxy voting decisions made on behalf of advisory clients, including the Fund, and to help ensure
that such decisions are made in accordance with its fiduciary obligations to clients. Nevertheless, notwithstanding such proxy voting
policies and procedures, actual proxy voting decisions may have the effect of favoring the interests of other clients, provided that the
Adviser believes such voting decisions to be in accordance with its fiduciary obligations.
MANAGEMENT
OF THE FUND
Board of Trustees
The Role of the Board
The
Board is responsible for the overall management of the Fund, including supervision of the duties performed by the Adviser. As is the case
with virtually all investment companies (as distinguished from operating companies), service providers to the Fund, primarily the Adviser,
have responsibility for the day-to-day management and operation of the Fund. The Board does not have responsibility for the day-to-day
management of the Fund, and its oversight role does not make the Board a guarantor of the Fund’s investments or activities. The
Board has appointed various individuals of the Adviser as officers of the Fund with responsibility to monitor and report to the Board
on the Fund’s operations. In conducting its oversight, the Board receives regular reports from these officers and from other senior
officers of the Adviser regarding the Fund’s operations.
Board Structure and Committees
As required
by the Investment Company Act, a majority of the Fund’s Trustees are Independent Trustees and are not affiliated with the Adviser.
The Independent Trustees exercise their informed business judgment to appoint an individual of their choosing to serve as Chair of the
Board, regardless of whether the Trustee happens to be independent or a member of management. The appointment of Mr. Borges as Chair
reflects the Independent Trustees’ belief that the Board’s leadership structure, in which the Chair is an interested person
of the Fund, is appropriate because the Independent Trustees believe that an interested Chair has a personal and professional stake in
the quality and continuity of services provided by the Adviser to the Fund. The Independent Trustees believe that they can act independently
and effectively without having an Independent Trustee serve as Chair and that a key factor for assuring that they are in a position to
do so is for the Trustees who are independent of the Adviser to constitute a majority of the Board. The Board has established two standing
committees: an Audit Committee and a Nominating Committee. During the period ended March 31, 2023, the Audit Committee met three
times and the Nominating Committee met one time.
The
Board has formed an Audit Committee composed of all of the Independent Trustees, the functions of which are: (i) to oversee the Fund’s
accounting and financial reporting policies and practices, its internal controls and, as the Audit Committee may deem necessary or appropriate,
the internal controls of certain of the Fund’s service providers; (ii) to oversee the quality and objectivity of the Fund’s
financial statements and the independent audit of those statements; (iii) to assist the Board in selecting the Fund’s independent
registered public accounting firm, to directly supervise the compensation and performance of such independent registered public accountants
and generally to act as a liaison between the independent registered public accountants and the Board; and (iv) to review and, as
appropriate, approve in advance non-audit services provided by such independent registered public accountants to the Fund, the Adviser,
and, in certain cases, other affiliates of the Fund.
The
Board has formed a Nominating Committee composed of all of the Independent Trustees, whose function, subject to the oversight of the Board,
is to select and nominate persons for elections or appointment by the Board as Trustees of the Fund. The Nominating Committee will act
in accordance with the Fund’s nominating committee charter. The Nominating Committee may consider nominees recommended by Shareholders.
58
Board Oversight of Risk Management
As part
of its oversight function, the Board receives and reviews various reports relating to risk management. Because risk management is a broad
concept comprised of many different elements (including, among other things, investment risk, valuation risk, credit risk, compliance
and regulatory risk, business continuity risk and operational risk), Board oversight of different types of risks is handled in different
ways. For example, the full Board could receive and review reports from senior personnel of the Adviser (including senior compliance,
financial reporting and investment personnel) or their affiliates regarding various types of risks, such as operational, compliance and
investment risk, and how they are being managed. The Audit Committee may participate in the oversight of risk management in certain areas,
including meeting with the Fund’s financial officers and with the Fund’s independent public auditors to discuss, among other
things, annual audits of the Fund’s financial statements and the auditor’s report thereon and the auditor’s annual report
on internal control.
Board of Trustees and Officers
Any
vacancy on the Board of Trustees may be filled by the remaining Trustees, except to the extent the Investment Company Act requires the
election of Trustees by Shareholders. The Fund’s officers are appointed by the Trustees and oversee the management of the day-to-day
operations of the Fund under the supervision of the Board. All of the officers of the Fund are directors, officers or employees of the
Adviser or its affiliates. Certain of the Trustees and officers of the Fund are also directors and officers of other investment companies
managed or advised by the Adviser or its affiliates. To the fullest extent allowed by applicable law, including the Investment Company
Act, the Declaration of Trust indemnifies the Trustees and officers for all costs, liabilities and expenses that they may experience as
a result of their service as such.
The
name and business address of the Trustees and officers of the Fund and their principal occupations and other affiliations during the past
five years are set forth under “Management of the Fund” in the SAI.
Portfolio Management
Adviser
Ares
Capital Management II LLC, 245 Park Avenue, 44th Floor, New York, New York 10167, serves as the investment adviser to the Fund. The Adviser
is registered as investment advisers under the Advisers Act, and is an indirect, wholly-owned subsidiary of Ares.
Primary Portfolio Managers
and Investment Committee
The
personnel of the Adviser who have primary responsibility for management of the Fund are Francisco Borges and Barry Miller. The Fund’s
primary portfolio managers, along with other members of Ares Secondaries Group’s private equity team, serve on the Investment Committee
of the Adviser responsible for overseeing the Fund, which formulates investment guidelines for the Fund and approves all acquisitions,
dispositions and financing decisions. The current members of that Investment Committee have an average of 26 years of investing and
operating experience, across numerous investment cycles and have worked together for an average of 15 years.
Francisco
Borges is a Partner and Chairman of the Ares Secondaries Group. Prior to the acquisition of Landmark Partners by Ares in 2021, Mr. Borges
served as Chairman and Managing Partner of Landmark Partners, where he also was a member of the private equity, infrastructure and real
estate investment committees. Prior to joining Landmark in 1999, Mr. Borges was a managing director of GE Capital’s Financial
Guaranty Insurance Company and capital markets subsidiaries, before which he was treasurer of the State of Connecticut, deputy mayor of
the City of Hartford, and legal counsel for the Travelers Insurance Companies. Mr. Borges serves on a number of boards including
The Knight Foundation, Hartford Healthcare Corporation, Millbrook School, Jefferies Financial Corp., Davis Selected Funds, and Assured
Guaranty. Mr. Borges is a member of the Connecticut and New Jersey bars. He received a J.D. from the University of Connecticut — School
of Law, and a B.A. from Trinity College in Hartford, Connecticut.
Barry
Miller is a Partner in the Ares Secondaries Group. Prior to the acquisition of Landmark Partners by Ares in 2021, Mr. Miller was
a Partner in Landmark Partners’ private equity group, where he also served as
59
a member of the private equity and infrastructure
investment committees. Prior to joining Landmark in 2013, Mr. Miller was head of private equity at the New York City Retirement Systems
(NYCRS), where he served on the limited partner advisory boards of more than 40 private equity funds. Earlier in his career, he was a
partner at Pomona Capital where he focused on sourcing and executing secondary transactions and was a member of the Pomona Capital Investment
Committee. Prior to joining Pomona, he was a senior investment manager at AXA Private Equity, where he was also head of the New York office
and served on the Global Investment Committee. Mr. Miller currently serves on the Board of Directors for the Robert Toigo Foundation,
an organization devoted to diversity in the investment management business, and is a member of the Tulane School of Liberal Arts Deans’
Advisory Council. Mr. Miller previously served as a member of the Sponsors for Educational Opportunity Limited Partner Advisory Council.
Mr. Miller received a B.A. from Tulane University.
The
SAI provides additional information about the Fund’s primary portfolio managers’ compensation, other accounts managed by them
and their ownership of any Shares of the Fund.
INVESTMENT
ADVISORY AND MANAGEMENT AGREEMENT
The
Adviser, subject to supervision by the Board, provides certain investment advisory, management and administrative services to the Fund
pursuant to an Investment Advisory and Management Agreement between the Fund and the Adviser.
Advisory Fee
In consideration
of the advisory services provided by the Adviser, the Fund pays the Adviser a quarterly Advisory Fee at an annual rate of 1.40% based
on the value of the Fund’s Managed Assets calculated and accrued monthly as of the last business day of each month. For purposes
of determining the Advisory Fee payable to the Adviser, the value of the Fund’s Managed Assets will be calculated prior to the inclusion
of the Advisory Fee and Incentive Fee payable to the Adviser or to any purchases or repurchases of Shares of the Fund, except as noted
below, or any distributions by the Fund. “Managed Assets” means the total assets of the Fund (including any assets attributable
to any borrowings or other indebtedness or preferred shares that may be issued) minus the Fund’s liabilities other than liabilities
relating to borrowings or other indebtedness.
The
Advisory Fee is payable in arrears within 5 business days after the completion of the net asset value computation for the quarter. Purchased
shares are incorporated into the beginning of month net asset value and included in the computation of the Advisory Fee payable. Share
repurchases are included in the computation of the Advisory Fee and Incentive Fee payable through the Valuation Date as described in “Repurchase
of Shares.” The Advisory Fee and Incentive Fee, if any, is paid to the Adviser out of the Fund’s assets, and therefore decreases
the net profits or increases the net losses of the Fund. This Advisory Fee is separate from the Incentive Fee that the Adviser receives
in the event that specified investment returns are achieved by the Fund. For the period ended March 31, 2023, the Fund incurred Advisory
Fees of $3,794,864, of which $3,117,209 were waived.
Incentive Fee
At the
end of each calendar quarter of the Fund, the Adviser is entitled to receive an Incentive Fee equal to 12.5% of the difference, if positive,
between (i) the net profits of the Fund for the relevant period and (ii) the balance, if any, of the Loss Recovery Account at
the start of the relevant period. For the purposes of the Incentive Fee, the term “net profits” shall mean (i) the amount
by which the net asset value of the Fund on the last day of the relevant period exceeds the net asset value of the Fund as of the commencement
of the same period, including any net change in unrealized appreciation or depreciation of investments and realized income and gains or
losses and expenses (including offering and organizational expenses) plus (ii) the aggregate distributions accrued during the period.
For the period ended March 31, 2023, the Fund incurred Incentive Fees of $3,803,397, none of which were waived.
The
Fund maintains a Loss Recovery Account, which had an initial balance of zero and is (i) increased upon the close of each calendar
quarter of the Fund by the amount of the net losses of the Fund for the quarter, and (ii) decreased (but not below zero) upon the
close of each calendar quarter by the amount of the net profits of the Fund for the quarter. Net losses are defined as the amount by which
the net asset value of the
60
Fund on the last day of the relevant
period is less than the net asset value of the Fund as of the commencement of the same period, including any net change in unrealized
appreciation or depreciation of investments and realized income and gains or losses and expenses (including offering and organizational
expenses).
For
the avoidance of doubt, any change in the net asset value of the Fund directly as a result of subscriptions or repurchases during each
measurement period are not included for purposes of the “net profits” or “net losses” calculations. Shareholders
of the Fund will benefit from the Loss Recovery Account in proportion to their holdings of Shares, although such benefit may vary depending
on when a Shareholder purchases or redeems Shares and the balance in the Loss Recovery Account at such time.
The
Adviser does not return to the Fund amounts paid to it on net profits that the Fund has not yet received in cash if such amounts are not
ultimately received by the Fund in cash. If the Fund does not ultimately receive amounts in cash, a loss would be recognized, which would
increase the amount of the Loss Recovery Account and reduce future Incentive Fee payments.
Any
Incentive Fee payable by the Fund that relates to an increase in value of the Fund’s investments may be computed and paid on gain
or income that is unrealized, and the Adviser is not obligated to reimburse the Fund for any part of an Incentive Fee it previously received.
If a Fund investment with an unrealized gain subsequently decreases in value, it is possible that such unrealized gain previously included
in the calculation of an Incentive Fee will never become realized. Thus, the Fund could have paid an Incentive Fee on income or gain the
Fund never received.
Prior
to September 26, 2023, the Loss Recovery Account was permitted to be reset on a trailing four-quarter measurement period, with such
measurement period commencing at the conclusion of the first calendar quarter of the Fund’s operations (i.e., June 30, 2022).
This reset had no impact on the Loss Recovery Account, as the Loss Recovery Account had no balance as of June 30, 2023. As a result,
the only reset of the Loss Recovery Account occurred on June 30, 2023. The Fund’s net losses maintained on its Loss Recovery
Account will not be reset after July 1, 2023.
Incentive Fee Examples
A high-water
mark is a common mechanism used to determine whether a fund’s investment adviser is eligible for performance-based fee compensation.
For the Fund, this metric is tracked using the Loss Recovery Account. As the Incentive Fee is charged to the Fund, the calculation of
the Loss Recovery Account may result in different Shareholder-level fee experiences for the same gross return depending on the date on
which a Shareholder purchases and redeems their Shares and the Loss Recovery Account balances at those times.
The
following is an example for a hypothetical fund of the calculation of an incentive fee with a Loss Recovery Account, with hypothetical
investors purchasing shares and redeeming their shares at different times. For simplicity, it is assumed that these investors can redeem
their positions in full without restrictions and that both subscriptions and redemptions occur at quarterly intervals. These examples
are not a prediction of, and do not represent, the projected or actual performance of the Fund nor the Incentive Fees that the Fund (and,
indirectly, Shareholders) may be subject to over time.
In this
example, the hypothetical fund follows a high-water mark measured at the fund-level with a Loss Recovery Account. Investor A invests $100
at the inception of the fund and holds for one year before selling its entire position at the end of Quarter 4 for $80. During this time,
the fund has declined in value by 20%. In this example, no incentive fees were collected due to the negative fund performance, and at
the end of Year 1, the fund has a positive Loss Recovery Account balance.
61
At
the end of Year 1 (beginning of Quarter 5), Investor B subscribes to the fund with an $80 investment (i.e., the fund’s net asset
value at the time Investor A redeemed). In effect, Investor B has purchased the position of Investor A and has inherited a positive Loss
Recovery Account. Investor B also holds for a one-year period and redeems its position in full at the end of Year 2. During this time,
the fund grows at an annual rate of 20%. Despite this positive performance, Investor B does not pay an incentive fee due to the positive
Loss Recovery Account balance that was accumulated at the fund-level during the first year of operation.
At
the end of Year 2 (beginning of Quarter 9), Investor C subscribes to the fund with a $96 investment (i.e., the fund’s net asset
value at the time Investor B redeemed). Similar to the trade between Investor A and B, Investor C has effectively purchased Investor B’s
position and inherited the Loss Recovery Account balance at that time. Investor C also holds this position for one year, ultimately
redeeming its stake in full at the end of Year 3. During this time, the fund grows at an identical rate of 20% as it did in Year 2. However,
starting in Quarter 10, the fund has grown enough to clear its initial high-water mark and is eligible to pay an incentive fee. This means
that Investor B and C, despite having identical gross returns and hold periods, indirectly bear different fee amounts due to differing
Loss Recovery Account balances inherited at the time of their respective investments.
62
Reimbursement Arrangements
The
services of all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory and
management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and
paid for by the Adviser. The Fund bears all other costs and expenses of its operations and transactions as set forth in the Investment
Advisory and Management Agreement.
In addition
to the fees and expenses to be paid by the Fund under the Investment Advisory and Management Agreement, the Adviser and its affiliates
are entitled to reimbursement by the Fund of the Adviser’s and its affiliates’ cost of providing the Fund with certain non-advisory
services. If persons associated with the Adviser or any of its affiliates, including persons who are officers of the Fund, provide accounting,
legal, clerical, compliance or administrative and similar oversight services to the Fund at the request of the Fund, the Fund reimburses
the Adviser and its affiliates for their costs in providing such accounting, legal, clerical, compliance or administrative and similar
oversight services to the Fund (which costs may include an allocation of overhead including rent and the allocable portion of the salaries
and benefits of the relevant persons and their respective staffs, including travel expenses), using a methodology for determining costs
approved by the Board. If the Adviser or its affiliates seek reimbursements of such costs, such action may cause the Fund’s expenses
to be higher than the expenses shown herein, perhaps by a material amount. The Adviser may, in its sole discretion, waive or not seek
reimbursement for accounting, legal, clerical or administrative services to the Fund.
The
Investment Advisory and Management Agreement was initially approved by the Board (including a majority of the Independent Trustees) at
the Fund’s organizational meeting held on February 24, 2022. An amended Investment Advisory and Management Agreement was approved
by the Board (including a majority of the Independent Trustees) at a meeting held on September 26, 2023. The Investment Advisory
and Management Agreement is terminable without penalty, on 60 days’ prior written notice: by a majority vote of the entire
Board; by vote of a majority (as defined by the Investment Company Act) of the outstanding voting securities of the Fund; or by the Adviser.
After the initial term of two years, the Investment Advisory and Management Agreement may continue in effect from year to year if
such continuance is approved annually by either the Board or the vote of a majority (as defined by the Investment Company Act) of the
outstanding voting securities of the Fund; provided that in either event the continuance is also approved by a majority of the Independent
Trustees by vote cast in person (or as otherwise permitted by the SEC) at a meeting called for the purpose of voting on such approval.
The Investment Advisory and Management Agreement also provides that it will terminate automatically in the event of its “assignment,”
as defined by the Investment Company Act and the rules thereunder.
The
Investment Advisory and Management Agreement provides that, in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties to the Fund, the Adviser, its directors, officers or employees and its affiliates, successors or other legal representatives
will not be liable to the Fund for any error of judgment, for any mistake of law or for any act or omission by such person or any sub-adviser
in connection with the performance of services to the Fund. The Investment Advisory and Management Agreement also provides that the Fund
will indemnify, to the fullest extent permitted by law, the Adviser and its directors, officers or employees and their respective affiliates,
executors, heirs, assigns, successors or other
63
legal representatives, against any liability
or expense to which such person may be liable which arise in connection with the performance of services to the Fund, provided that the
liability or expense is not incurred by reason of the person’s willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties to the Fund.
Pursuant
to the Expense Limitation Agreement, the Adviser has agreed to waive fees that it would otherwise be paid, and/or to assume expenses of
the Fund, if required to ensure annual operating expenses do not exceed 0.30% per annum of the average monthly net assets of each class
of Shares, excluding (i) the Advisory Fee; (ii) the Incentive Fee; (iii) any Distribution and Servicing Fee; (iv) all
fees and expenses of Portfolio Funds and Direct Investments in which the Fund invests (including all acquired fund fees and expenses);
(v) transactional costs associated with consummated and unconsummated transactions, including legal costs and brokerage commissions,
associated with the acquisition, disposition and maintenance of investments in Portfolio Funds, Direct Investments, exchange-traded funds
and other investments; (vi) interest; (vii) taxes; (viii) brokerage commissions; (ix) dividend and interest expenses
relating to short sales; and (x) extraordinary expenses (expenses resulting from events and transactions that are distinguished by
their unusual nature and by the infrequency of their occurrence). With respect to each class of Shares, the Fund agrees to repay the Adviser
any fees waived under the Expense Limitation Agreement or any expenses the Adviser reimburses in excess of the Expense Limitation Agreement
for such class of Shares, provided the repayments do not cause the Fund’s annual operating for that class of Shares to exceed the
expense limitation in place at the time the fees were waived and/or the expenses were reimbursed, or the expense limitation in place at
the time the Fund repays the Adviser, whichever is lower. Any such repayments must be made within three years after the year in which
the Adviser incurred the expense. The Expense Limitation Agreement has a term ending on July 31, 2025, and the Adviser may extend
the term for a period of one year on an annual basis, subject to the approval of the Board, including a majority of the Independent Trustees.
A discussion
regarding the basis for the most recent renewal by the Board of the Investment Advisory and Management Agreement will be available in
the Fund’s annual report for the fiscal year ending March 31, 2024.
NET ASSET
VALUATION
The
Fund calculates the net asset value of each class of Shares as of the close of business on the last business day of each calendar month
and in connection with the Fund’s offer to purchase Shares, on each date that Shares are to be repurchased, as of the date of any
distribution and at such other times as the Board shall determine (each, a “Determination Date”). Pursuant to Rule 2a-5
under the Investment Company Act, the Board has designated the Adviser as its “valuation designee” to perform fair value determinations
in good faith for investments held by the Fund without readily available market quotations, subject to the oversight of the Board and
in accordance with the Adviser’s valuation policy and procedures. In determining its net asset value, the Fund will value its investments
as of the relevant Determination Date. The net asset value of the Fund will equal, unless otherwise noted, the value of the total assets
of the Fund (including the net asset value of each class of Shares, including interest accrued but not yet received), less all of its
liabilities (including accrued fees and expenses, dividends payable and any borrowings of the Fund), each determined as of the relevant
Determination Date. The net asset values of Class A Shares, Class D Shares and Class I Shares will be calculated separately
based on the fees and expenses applicable to each class. It is expected that the net asset value of Class A Shares, Class D
Shares and Class I Shares will vary over time as a result of the differing fees and expenses applicable to each class.
The
value of the Fund’s assets will be based on information reasonably available at the time the valuation is made and that the Adviser
believes to be reliable. The Adviser generally will value the Fund’s investments in accordance with Certification Topic ASC 820
of the Financial Accounting Standards Board (“ASC 820”).
Private Equity Investments
The
Adviser generally values the Fund’s investment in Portfolio Funds and certain Direct Investments using the “practical expedient”
in accordance with ASC 820. Portfolio Funds are generally valued based on the latest net asset value reported by a Portfolio Fund Manager
or general partner. Similarly, many Direct Investments are generally valued based on the valuation information provided by the lead or
sponsoring private investors. In general, it is anticipated that such valuation information from these Portfolio Fund Managers or
64
from lead or sponsoring private investors
will generally not be available until 60 days or more after each quarter-end, especially pending receipt of audited financial information.
Therefore, the most recently provided valuation information about these Direct Investments and Portfolio Funds for purposes of calculating
the Fund’s monthly net asset value are typically adjusted by the Adviser pursuant to the Adviser’s valuation procedures to
estimate the fair value, on a monthly basis, of the interests in such Portfolio Funds, as described below. To the extent the Adviser is
either unable to utilize the practical expedient under ASC 820, or where the Adviser determines that use of the practical expedient is
not appropriate as it will not result in a price that represents the current value of an investment, the Adviser will make a fair value
determination of the value of the investment.
In making
a fair valuation determination, the Adviser considers the most recent reported value by the Portfolio Fund or lead or sponsoring private
investors as well as any other factors of which it has knowledge and that it believes may be relevant, which may include one or more of
the following: (i) the type of investment, including the types of investments held by a Portfolio Fund, and whether there may be
known factors not reflected in the valuations supplied by a Portfolio Fund or lead or sponsoring private investors, such as material changes
in the business or operations of the issuer, including the discontinuance of operations or an important component of operations or the
commencement of insolvency or reorganization proceedings of a portfolio company owned by the Fund, or any market for its securities; (ii) any
relevant operational or non-investment issues that may affect the investment or the Portfolio Fund; (iii) the value of publicly traded
securities, if any, held by a Portfolio Fund; (iv) the valuation of the same investments held by different Portfolio Funds, different
private investors or third parties independent of the Adviser; and (v) any other information, factor or set of factors that may affect
the valuation of the Fund’s investment in the Direct Investment or Portfolio Fund. Other adjustments may occur from time to time.
In addition, the Adviser conducts a due diligence review of the valuation methodology used by each Portfolio Fund or lead or sponsoring
private equity investors, as applicable. To keep abreast of each Portfolio Fund’s activities, the Adviser reviews their periodic
reports as well as the reports of the underlying portfolio companies in which the Portfolio Funds invest, to the extent which such underlying
company reports are made available. The Adviser monitors the continuing appropriateness of the valuation methodology being used for the
Fund’s investments.
Prospective
investors should be aware that there can be no assurance that the valuation of interests in Portfolio Funds or Direct Investments as determined
under the procedures described above will in all cases be accurate to the extent that the Fund and the Adviser do not generally have access
to all necessary financial and other information relating to the Portfolio Funds or Direct Investments to determine independently the
net asset value of the Fund’s interests in those Portfolio Funds or Direct Investments. The results of the Adviser’s fair
valuation of securities whose market value is not readily ascertainable are based upon the Adviser’s assessment of the fair value
of such securities.
Investments
valued at fair value by the Adviser are subject to a new valuation determination upon the next monthly valuation of the Fund. The Adviser
periodically reviews its valuation determinations with the Fund’s auditor and respond to any inquiries by such auditor regarding
the Adviser’s valuation methodologies.
Liquid Assets
Fund investments
in Liquid Assets generally are valued according to the following procedures:
Senior
Loans are valued by using readily available market quotations or another commercially reasonable method selected by an independent, third
party pricing service that has been approved by the Board, or, if such independent, third-party valuations are not available, by using
broker quotations. Corporate bonds and certain other domestic debt securities, are valued at the last reported bid prices supplied by
an independent, third party pricing service that has been approved by the Board, in accordance with the Adviser’s valuation policy
and procedures. If the last reported bid price is not readily available or is otherwise deemed to be unreliable by the Adviser’s
valuation committee, then such securities are valued at fair value pursuant to the Adviser’s valuation policy and procedures. The
Adviser monitors the reasonableness of valuations provided by third-party pricing services. Debt securities with remaining maturities
of 60 days or less will be valued on the basis of amortized cost, unless other factors indicate that amortized cost is not an accurate
estimate of the security’s value.
65
If they are traded
on a Determination Date, equity securities that are listed or traded on a national exchange will be valued at the last quoted sale price.
Likewise, equity securities that are traded on NASDAQ will be valued at the NASDAQ official closing price if the securities are traded
on the Determination Date. If securities are listed on more than one exchange, and if the securities are traded on the Determination Date,
they will be valued at the last quoted sale price on the exchange on which the security is principally traded. If there is no sale of
the security on the Determination Date, the Fund will value the securities at the last reported sale price, unless the Adviser’s
valuation committee believes such price no longer represents the fair market value and elects to value the security at fair value pursuant
to the Adviser’s valuation policy and procedures. If the validity of such quoted prices appears to be questionable or if such quoted
prices are not readily available, then the securities will be valued at fair value pursuant to the Adviser’s valuation policy and
procedures. Market quotations may be deemed not to represent fair value in certain circumstances where the Adviser reasonably believes
that facts and circumstances applicable to an issuer, seller or purchaser or to the market for a particular security cause current market
quotations not to reflect the fair value of the security. Examples of these events could include situations in which material events are
announced after the close of the market on which a security is primarily traded, a security trades infrequently causing a quoted purchase
or sale price to become stale, or a security’s trading has been halted or suspended.
Generally,
trading in U.S. Government securities and money market instruments is substantially completed each day at various times prior to the close
of business on the NYSE. The values of such securities used in computing the Fund’s net asset value are determined as of such times.
Private Assets and Other
Fair Value Considerations
On a
monthly basis, for Private Assets for which no market quotations are available (other than interests in Portfolio Funds and certain Direct
Investments, as described above) and for which independent appraisals of current value can readily be obtained, valuations will be based
on such appraisals. Otherwise, valuation of Private Assets (other than interests in Portfolio Funds and certain Direct Investments, as
described above) will remain at cost except that original cost valuation will be adjusted based on a determination of such investment’s
fair value.
In instances
where there is reason to believe that the valuation of a security or other investment valued pursuant to the procedures described above
does not represent the current value of such security or investment, or when a security or investment cannot be valued pursuant to the
procedures described above, the fair value of the investment will be determined by the Adviser taking into account various factors, as
relevant, as provided for in the Adviser’s valuation procedures, which may include: (i) the nature and price (if any) of the
investment and the nature and expected duration of the event, if any, giving rise to the valuation issue; (ii) whether market quotations
for the investment are available, pricing history of the security and trading volumes on markets, exchanges or among dealers; (iii) information
as to any transactions or offers with respect to the security; (iv) volatility of the security or a related index; (v) possible
valuation methodologies that could be used to determine the fair value of the investment, including valuation by reference to other financial
instruments, including trading in similar securities, depository receipts, derivative instruments, including options pricing models, closed-end
or exchange-traded fund trading or exchange- traded baskets of securities; (vi) cost of the investment and, for restricted securities,
any discount from the market value of unrestricted securities of the same class at the time of purchase and the existence of a shelf registration
for restricted securities; (vii) changes in interest rates; (viii) government actions or pronouncements or other news events;
(ix) analyst reports; (x) fundamental analytical data and internal models; (xi) whether other portfolios managed by the
Adviser or its affiliates hold the same or similar investments and the method used to value the investments in those portfolios; (xii) whether
the issuer of the investment has other securities outstanding and, if so, how those securities are valued; (xiii) recent and pending
corporate developments; and (xiv) the liquidity or illiquidity of the market for the investment.
Prospective
investors should be aware that fair value represents a good faith approximation of the value of an asset or liability. The fair value
of one or more assets or liabilities may not, in retrospect, be the price at which those assets or liabilities could have been sold during
the period in which the particular fair values were used in determining the Fund’s net asset value. As a result, the Fund’s
issuance (including through dividend or distribution reinvestment) or repurchase of Shares through repurchase offers at net asset value
at a time when it owns investments that are valued at fair value may have the effect of diluting or increasing the economic interest of
existing Shareholders.
66
ELIGIBLE INVESTORS
Although
the Shares are registered under the Securities Act, the Shares are sold only to persons or entities that are both “accredited investors,”
as defined in Section 501(a) of Regulation D under the Securities Act, and “qualified clients,” as defined in Rule 205-3
under the Advisers Act.
In addition,
Shares are generally being offered pursuant to this Prospectus only to investors that are U.S. persons for U.S. federal income tax purposes.
The qualifications required to invest in the Fund are in subscription documents that must be completed by each prospective investor.
Each
prospective investor in the Fund should obtain the advice of his, her or its own legal, accounting, tax and other advisers in reviewing
documents pertaining to an investment in the Fund, including, but not limited to, this Prospectus and the Declaration of Trust before
deciding to invest in the Fund.
PLAN
OF DISTRIBUTION
Distributor
Ares
Wealth Management Solutions, LLC, with its principal place of business at 1200 17th Street, Suite 2900, Denver, Colorado 80202, acts as
the distributor of the Fund’s Shares, pursuant to the Distribution Agreement, on a reasonable best efforts basis, subject to various
conditions. Neither the Distributor nor any other party is obligated to purchase any Shares from the Fund. There is no minimum aggregate
number of Shares required to be purchased. Pursuant to the Distribution Agreement, the Distributor shall pay its own costs and expenses
connected with the offering of Shares. The Distribution Agreement also provides that the Fund will indemnify the Distributor and its affiliates
and certain other persons against certain liabilities.
After
the initial term of two years, the Distribution Agreement will continue in effect with respect to the Fund for successive one-year
periods, provided that each such continuance is specifically approved by a majority of the entire Board cast in person at a meeting called
for that purpose or by a majority of the outstanding voting securities of the Fund and, in either case, also by a majority of the Independent
Trustees.
The
Distributor may retain additional selling agents or other financial intermediaries to place Shares. Such selling agents or other financial
intermediaries may impose terms and conditions on investor accounts and investments in the Fund that are in addition to the terms and
conditions set forth in this Prospectus. See “Purchasing Shares.” Selling agents typically receive the sales load with respect
to Class A Shares purchased by their clients. While neither the Fund nor the Distributor impose an initial sales charge on Class I
or Class D Shares, if a Shareholder buys Class D Shares through certain selling agents or financial intermediaries, such selling
agent or financial intermediary may directly charge Shareholders transaction or other fees in such amount as they may determine. Investors
should consult their financial advisors at such selling agents or financial intermediaries.
The
Adviser, or its affiliates, including the Distributor, may pay additional compensation out of its own resources (i.e., not Fund assets)
to certain selling agents or financial intermediaries in connection with the sale of Shares. The additional compensation may differ among
selling agents or financial intermediaries in amount or in the amount of calculation. Payments of additional compensation may be fixed
dollar amounts or, based on the aggregate value of outstanding Shares held by Shareholders introduced by the broker or dealer, or determined
in some other manner. Payments may be one-time payments or may be ongoing payments. As a result of the various payments that financial
intermediaries may receive from the Adviser or its affiliates, the amount of compensation that a financial intermediary may receive in
connection with the sale of Shares may be greater than the compensation it may receive for the distribution of other investment products.
The receipt of the additional compensation by a selling broker or dealer may create potential conflicts of interest between an investor
and its broker or dealer who is recommending the Fund over other potential investments.
Distribution and Servicing
Plan
The
Fund has adopted a Distribution and Servicing Plan for its Class A Shares and Class D Shares to pay to the Distributor a Distribution
and Servicing Fee to compensate financial industry professionals for distribution-related expenses, if applicable, and providing ongoing
services in respect of Shareholders who own such Shares. These activities include marketing and other activities primarily intended to
result in the sale
67
of Class A Shares and Class D
Shares and activities related to administration and servicing of Class A or Class D accounts. The Distribution and Servicing
Plan operates in a manner consistent with Rule 12b-1 under the Investment Company Act, which regulates the manner in which an open-end
investment company may directly or indirectly bear the expenses of distributing its shares. Although the Fund is not an open-end investment
company, it has undertaken to comply with the terms of Rule 12b-1, as required by its exemptive relief, permitting the Fund to, among
other things, issue multiple classes of Shares.
Under
the Distribution Plan, Class A and Class D Shares pay a Distribution and Servicing Fee to the Distributor at an annual rate
of 0.85% and 0.25%, respectively, based on the aggregate net assets of the Fund attributable to such class, respectively, to be calculated
as of the beginning of the first calendar day of each applicable month, and payable monthly in arrears. The Distribution and Servicing
Fee is paid out of the relevant class’s assets and decreases the net profits or increases the net losses of the Fund solely with
respect to such class. Because the Distribution and Servicing Fee is paid out of the Fund’s assets on an on-going basis, over time
these fees will increase the cost of a Shareholder’s investment and may cost the Shareholder more than paying other types of sales
charges, if applicable.
Class I
Shares are not subject to any Distribution and Servicing Fee and do not bear any expenses associated therewith. For the period ended March 31,
2023, Class D Shares incurred Distribution and Servicing Fees of $996. No Class A Shares were issued and outstanding for the
period ended March 31, 2023.
PURCHASING
SHARES
The
following section provides basic information about how to purchase Shares of the Fund. The Distributor acts as the distributor of the
Shares of the Fund on a reasonable best efforts basis, subject to various conditions, pursuant to the terms of the Distribution Agreement.
The Distributor is not obligated to sell any specific amount of Shares of the Fund. The Shares will be continuously offered through the
Distributor. Prospective investors who purchase Shares through financial intermediaries will be subject to the procedures of those intermediaries
through which they purchase Shares, which may include charges, investment minimums, cutoff times and other restrictions in addition to,
or different from, those listed herein. Information concerning any charges or services will be provided to customers by the financial
intermediary through which they purchase Shares. Prospective investors purchasing Shares of the Fund through financial intermediaries
should acquaint themselves with their financial intermediaries’ procedures and should read this Prospectus in conjunction with any
materials and information provided by their financial intermediary.
General Purchase Terms
The
minimum initial investment in the Fund by any investor is $25,000 with respect to Class A Shares and Class D Shares, and $1,000,000
with respect to Class I Shares. The minimum additional investment in the Fund by any investor is $5,000, except for additional purchases
pursuant to the dividend reinvestment plan.
The
Board reserves the right to accept lesser amounts below these minimums for Trustees of the Fund and employees of Ares and vehicles controlled
by such employees. With respect to Class I Shares, the Board has approved a minimum initial investment of $25,000 for Trustees of
the Fund and employees of Ares and vehicles controlled by such employees. The purchase price of the Shares is based on the net asset value
as of the date such Shares are purchased.
The
minimum initial and additional investments may be reduced by either the Fund or the Distributor in the discretion of each for certain
investors based on consideration of various factors, including the investor’s overall relationship with the Adviser or Distributor,
the investor’s holdings in other funds affiliated with the Adviser or Distributor, and such other matters as the Adviser or Distributor
may consider relevant at the time, though Shares will only be sold to investors that satisfy the Fund’s eligibility requirements.
The minimum initial and additional investments may also be reduced by either the Fund or the Distributor in the discretion of each for
clients of certain registered investment advisers, broker dealers and other financial intermediaries based on consideration of various
factors, including the registered investment adviser or other financial intermediaries’ overall relationship with the Adviser or
Distributor, the type of distribution channels offered by the intermediary and such other factors as the Adviser or Distributor may consider
relevant at the time.
In addition,
the Fund may, in the discretion of the Adviser or Distributor, aggregate the accounts of clients of registered investment advisers, broker
dealers and other financial intermediaries whose clients invest
68
in the Fund for purposes of determining
satisfaction of minimum investment amounts. At the discretion of the Adviser or the Distributor, the Fund may also aggregate the accounts
of clients of certain registered investment advisers, broker dealers and other financial intermediaries across Share classes for purposes
of determining satisfaction of minimum investment amounts for a specific Share class. The aggregation of accounts of clients of registered
investment advisers, broker dealers and other financial intermediaries for purposes of determining satisfaction of minimum investment
amounts for the Fund or for a specific Share class may be based on consideration of various factors, including the registered investment
adviser or other financial intermediaries’ overall relationship with the Adviser or Distributor, the type of distribution channels
offered by the intermediary and such other factors as the Adviser or Distributor may consider relevant at the time.
Class A
Shares are sold at the public offering price, which is the net asset value of a Class A Share plus an initial maximum 3.50% sales
charge. Class D Shares and Class I Shares are not subject to any initial sales charge.
Shares
are generally be offered for purchase as of the first business day of each calendar month, except that Shares may be offered more or less
frequently as determined by the Board in its sole discretion. For purposes of this Prospectus, a “business day” means any
day other than a Saturday, Sunday or any other day on which banks in New York, New York are required by law to be closed. Subscriptions
are generally subject to the receipt of cleared funds on or prior to the acceptance date set by the Fund and notified to prospective investors.
An investor who misses the acceptance date will have the acceptance of its investment in the Fund delayed until the following month. Except
as otherwise permitted by the Board, initial and subsequent purchases of Shares will be payable in United States dollars.
Each initial
or subsequent purchase of Shares will be payable in one installment which will generally be due 3 business days prior to the date of the
proposed acceptance of the purchase set by the Fund, which is expected to be the last day of each calendar month, where funds are remitted
by wire transfer.
A prospective
investor is required to review, complete, and execute a subscription document. The subscription document is designed to provide the Fund
with important information about the prospective investor. A prospective investor must submit a completed subscription document at least
5 business days before the acceptance date. The Fund reserves the right to accept or reject, in its sole discretion, any request to purchase
Shares at any time. The Fund also reserves the right to suspend or terminate offerings of Shares at any time. Unless otherwise required
by applicable law, any amount received in advance of a purchase ultimately rejected by the Fund will be returned promptly to the prospective
investor without the deduction of any sales load, fees or expenses. Although the Fund may, in its sole discretion, elect to accept a subscription
prior to receipt of cleared funds, a prospective investor will not become a Shareholder until cleared funds have been received. In the
event that cleared funds and/or a properly completed subscription document are not received from a prospective investor prior to the cut-off
dates pertaining to a particular offering, the Fund may hold the relevant funds and subscription document for processing in the next offering.
Pending
any closing, funds received from prospective investors will be placed in an account with the Transfer Agent. On the date of any closing,
the balance in the account with respect to each investor whose investment is accepted will be invested in the Fund on behalf of such investor.
Prospective
investors whose subscriptions to purchase Shares are accepted by the Fund will become Shareholders by being admitted as Shareholders.
An existing Shareholder generally may subscribe for additional Shares by completing an additional subscription agreement by the acceptance
date and funding such amount by the deadline.
Share Class Considerations
When selecting
a share class, you should consider the following:
•
which
share classes are available to you;
•
how
much you intend to invest;
•
how
long you expect to own the shares; and
69
•
total costs and expenses associated
with a particular share class.
Each investor’s
financial considerations are different. You should speak with your financial advisor to help you decide which class of Shares of the Fund
is best for you. Not all financial intermediaries offer all classes of Shares. In addition, financial intermediaries may vary the actual
sale charged, if applicable, as well as impose additional fees and charges on each class of Shares. If your financial intermediary offers
more than one class of Shares, you should carefully consider which class of Shares to purchase.
Class A Shares
Class A
Shares are available to any eligible investor. Unless eligible for a sales load waiver, investors purchasing Class A Shares will
pay a sales load based on the amount of their investment in the Fund. The sales load payable by each Shareholder may be up to 3.50%. The
sales load for Class A Shares will be deducted out of the Shareholder’s purchase amount, and will not constitute part of Shareholder’s
capital contribution to the Fund or part of the assets of the Fund. No sales load may be charged without the consent of the Distributor.
Investors
may be able to buy Class A Shares without a sales load, if applicable (i.e., “load-waived”), when they are: (i) reinvesting
distributions; (ii) a current or former Trustee of the Fund; or (iii) purchasing Class A Shares through a financial intermediary
that has a special arrangement with the Fund. It is the investor’s responsibility to determine whether a reduced sales load would
apply. The Fund is not responsible for making such determination. As the Fund has not commenced operations as of the date of the Prospectus,
there are no financial intermediaries that have special arrangements with the Fund. To receive a reduced sales load, notification must
be provided at the time of subscription. Notice should be provided to the financial intermediary through whom the subscription is made
so it can notify the Fund.
As Class A
Shares were not operational as of March 31, 2023, the Distributor did not receive any sales charges for Class A Shares for the
period ended March 31, 2023.
Class D Shares
Class D
Shares are sold at the prevailing net asset value per Class D Share and are not subject to any upfront sales charge. Class D
Shares, however, are subject to a Distribution and Servicing Fee at an annual rate of 0.25% of the net assets of the Fund attributable
to Class D Shares.
Class D
Shares are generally available for purchase only (i) through fee-based programs, also known as wrap accounts, that provide access
to Class D Shares, (ii) through participating broker dealers that have alternative fee arrangements with their clients to provide
access to Class D shares, (iii) through investment advisers that are registered under the Investment Advisers Act of 1940 or
applicable state law and direct clients to trade with a broker dealer that offers Class D shares and (iv) through bank trust
departments or any other organization or person authorized to act in a fiduciary capacity for its clients or customers.
Class I Shares
Class I
Shares are sold at the prevailing net asset value per Class I Share and are not subject to any upfront sales charge. Class I
Shares also are not subject to any Distribution and Servicing Fee.
Class I
Shares are available for purchase only (i) through fee-based programs, also known as wrap accounts, that provide access to Class I
Shares, (ii) by institutional accounts as defined by FINRA Rule 4512(c), (iii) through bank-sponsored collective trusts
and bank-sponsored common trusts, (iv) by retirement plans (including a trustee or custodian under any deferred compensation or pension
or profit sharing plan or payroll deduction IRA established for the benefit of the employees of any company), foundations or endowments,
(v) through certain financial intermediaries that are not otherwise registered with or as a broker dealer and that direct clients
to trade with a broker dealer that offers Class I Shares, (vi) through investment advisers registered under the Investment Advisers
Act of 1940 or applicable state law that are also registered with or as a broker dealer, whose broker dealer does not receive any ongoing
compensation from the Fund or from the Distributor, (vii) by the Fund’s officers and Trustees and their immediate family members,
as well as officers and employees of Ares and their immediate family members,
70
(viii) by participating broker
dealers and their affiliates, including their officers, directors, employees, and registered representatives, as well as the immediate
family members of such persons, as defined by FINRA Rule 5130, and (ix) through bank trust departments or any other organization
or person authorized to act as a fiduciary for its clients or customers. Before making your investment decision, please consult with your
investment advisor regarding your account type and the classes of Shares of the Fund you may be eligible to purchase.
If you
are eligible to purchase all three classes of Shares, then you should consider that Class I Shares have no upfront sales charges
and no Distribution and Servicing Fees. Such expenses are applicable to Class A and Class D Shares and will reduce the net asset
value or distributions of the other share classes. If you are eligible to purchase Class A and Class D Shares but not Class I
Shares, then you should consider that Class D shares have no upfront sales charges and lower annual Distribution and Servicing Fees.
Investors should also inquire with their broker dealer or financial representative about what additional fees may be charged with respect
to the Share class under consideration or with respect to the type of account in which the Shares will be held.
Exchange of Shares Between
Classes
Assuming
the exchange meets the eligibility requirements of the class into which such Shareholder seeks to exchange and the Fund has received proper
instruction from the financial intermediary to effect such exchange and consents to such exchange, (i) a financial intermediary may,
in its discretion, determine to exchange a Shareholder’s Shares at such Shareholder’s request and (ii) in certain cases,
where a holder of Class A Shares or Class D Shares is no longer eligible to hold such class of Shares based on the Shareholder’s
arrangements with its financial intermediary, (a) such holder’s Class A Shares may be exchanged into an equivalent net
asset value amount of Class D Shares or Class I Shares and (b) such holder’s Class D Shares may be exchanged
into an equivalent net asset value amount of Class I Shares.
An investor
may be permitted to exchange Shares between classes on an elective basis, provided that, among other things: (1) the investor’s
aggregate investment would have met the minimum initial investment requirements in the applicable class at the time of purchase and continues
to meet those requirements; (2) the Shares are otherwise available for offer and sale; and (3) the investment meets all other
requirements for investing in the applicable class. When an individual investor cannot meet the minimum initial investment requirements
of the applicable class, exchanges of Shares from one class to the applicable class may be permitted if such investor’s investment
is made by an intermediary that has discretion over the account and has invested other clients’ assets in the Fund, which when aggregated
together with such investor’s investment, meet the minimum initial investment requirements for the applicable class. Investors will
not be charged any fees by the Fund for such exchanges. Ongoing fees and expenses incurred by a given class will differ from those of
other share classes, and an investor receiving new Shares in an exchange may be subject to lower total expenses following such exchange.
Exchange transactions will be effected only into an identically registered account. While exchange transactions will generally not be
treated as a redemption for federal income tax purposes, investors are urged to consult their tax advisors as to the federal, foreign,
state and local tax consequences of an exchange. The Fund also reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange.
CLOSED-END
FUND STRUCTURE; NO RIGHT OF REDEMPTION
The
Fund is a non-diversified, closed-end management investment company. Closed-end funds differ from open-end funds in that closed-end funds
do not redeem their shares at the request of an investor. No Shareholder has the right to require the Fund to redeem his, her or its Shares.
No public market for the Shares exists, and none is expected to develop in the future. As a result, Shareholders may not be able to liquidate
their investment other than through repurchases of Shares by the Fund, as described below. Accordingly, Shareholders should consider that
they may not have access to the funds they invested in the Fund for an indefinite period of time.
TRANSFER
RESTRICTIONS
No person
shall become a substituted Shareholder of the Fund without the consent of the Fund, which consent may be withheld in its sole discretion.
Shares held by Shareholders may be transferred only: (i) by
71
operation of law in connection with the
death, divorce, bankruptcy, insolvency, or adjudicated incompetence of the Shareholder; or (ii) under other limited circumstances,
with the consent of the Fund (which may be withheld in its sole discretion).
Notice
to the Fund of any proposed transfer must include evidence satisfactory to the Fund that the proposed transferee, at the time of transfer,
meets any requirements imposed by the Fund with respect to investor eligibility and suitability. Notice of a proposed transfer of Shares
must also be accompanied by a properly completed subscription document in respect of the proposed transferee. In connection with any request
to transfer Shares, the Fund may require the Shareholder requesting the transfer to obtain, at the Shareholder’s expense, an opinion
of counsel selected by the Fund as to such matters as the Fund may reasonably request. Each transferring Shareholder and transferee may
be charged reasonable expenses, including, but not limited to, attorneys’ and accountants’ fees, incurred by the Fund in connection
with the transfer.
Any transferee
acquiring Shares by operation of law in connection with the death, divorce, bankruptcy, insolvency, or adjudicated incompetence of the
Shareholder, will be entitled to the allocations and distributions allocable to the Shares so acquired, to transfer the Shares in accordance
with the terms of the Declaration of Trust and to tender the Shares for repurchase by the Fund, but will not be entitled to the other
rights of a Shareholder unless and until the transferee becomes a substituted Shareholder as specified in the Declaration of Trust. If
a Shareholder transfers Shares with the approval of the Board, the Fund shall as promptly as practicable take all necessary actions so
that each transferee or successor to whom the Shares are transferred is admitted to the Fund as a Shareholder.
By subscribing
for Shares, each Shareholder agrees to indemnify and hold harmless the Fund, the Board, the Adviser, and each other Shareholder, and any
affiliate of the foregoing and any of their employees, officers or directors against all losses, claims, damages, liabilities, costs,
and expenses (including legal or other expenses incurred in investigating or defending against any losses, claims, damages, liabilities,
costs, and expenses or any judgments, fines, and amounts paid in settlement), joint or several, to which such persons may become subject
by reason of or arising from any transfer made by that Shareholder in violation of the Declaration of Trust or any misrepresentation made
by that Shareholder in connection with any such transfer.
REPURCHASE
OF SHARES
At the
sole discretion of the Board, the Fund may from time to time provide Shareholders with a limited degree of liquidity by offering to repurchase
Shares pursuant to written tenders by Shareholders. Repurchase offers, if any, will be made to all holders of Shares.
Subject
to the Board’s discretion, under normal market circumstances, the Fund intends to conduct repurchase offers of no more than 5% of
the Fund’s net assets on a quarterly basis.
Subject
to the considerations described above, the aggregate value of Shares to be repurchased at any time will be determined by the Board in
its sole discretion, and such amount may be stated as a percentage of the value of the Fund’s outstanding Shares. Therefore,
the Fund may determine not to conduct a repurchase offer at a time that the Fund normally conducts a repurchase offer. The Fund may also
elect to repurchase less than the full amount that a Shareholder requests to be repurchased. If a repurchase offer is oversubscribed by
Shareholders, the Fund will repurchase only a pro rata portion of the Shares tendered by each Shareholder.
In certain
circumstances the Board may determine not to conduct a repurchase offer, or to conduct a repurchase offer of less than 5% of the Fund’s
net assets. In particular, during periods of financial market stress, the Board may determine that some or all of the Fund’s investments
cannot be liquidated at their fair value, making a determination not to conduct repurchase offers more likely.
There
will be a substantial period of time between the date as of which Shareholders must submit a request to have their Shares repurchased
and the date they can expect to receive payment for their Shares from the Fund. The Fund will provide payment with respect to at least
95% of the repurchase offer proceeds within 65 days of the Expiration Date (as defined below) of each repurchase offer, and may hold
back up to 5% of repurchase offer proceeds until after the Fund’s year-end audit. Any such proceeds that are held back will be paid
no later than 5 business days after the completion of such audit. Shareholders whose Shares are accepted
72
for repurchase bear the risk that the
Fund’s net asset value may fluctuate significantly between the time that they submit their repurchase requests and the date as of
which such Shares are valued for purposes of such repurchase.
Repurchase of Shares Process
The following
is a summary of the process expected to be employed by the Fund in connection with the repurchase of Shares. Additional information with
respect to such process will be included in the materials provided by the Fund to Shareholders in connection with each repurchase offer.
If the Board determines that the Fund will offer to repurchase Shares, written notice will be provided to Shareholders that describes
the commencement date of the repurchase offer, specifies the date on which repurchase requests must be received by the Fund, and contains
other terms and information that Shareholders should consider in deciding whether and how to participate in such repurchase opportunity.
The Fund
will repurchase Shares from Shareholders pursuant to written tenders on terms and conditions that the Board determines to be fair to the
Fund and to all Shareholders. When the Board determines that the Fund will repurchase Shares, notice will be provided to Shareholders
describing the terms of the offer, containing information Shareholders should consider in deciding whether to participate in the repurchase
opportunity and containing information on how to participate. The amount due to any Shareholder whose Shares are repurchased will be equal
to the value of the Shareholder’s Shares being repurchased, based on the Fund’s net asset value, as of the Valuation Date
(as defined below), after reduction for all fees and expenses of the Fund for all periods through the Valuation Date (including, without
limitation, the Advisory Fee, any Incentive Fee and any Early Repurchase Fee), any required U.S. federal tax withholding and other liabilities
of the Fund to the extent accrued or otherwise attributable to the Shares being repurchased.
Each repurchase
offer generally is expected to commence approximately 30 days prior to the last business day of each calendar quarter, or on such
other day as determined by the Board, in its sole discretion (the last business day of each such calendar quarter or such other day being
a “Valuation Date”). The expiration date of a repurchase offer (the “Expiration Date”) will be a date set by the
Board occurring no sooner than 20 business days after the commencement date of the repurchase offer, provided that such Expiration Date
may be extended by the Board in its sole discretion. The Fund generally will not accept any repurchase request received by it or its designated
agent after the Expiration Date. Fund Shares are expected to be repurchased within 60 days following the relevant Valuation
Date (such date, the “Repurchase Date”), and will be effected as of such Valuation Date. The Valuation Date and the Expiration
Date are generally expected to be the same date. As such, the Repurchase Date for each repurchase offer should occur within 65 calendar
days after the Expiration Date of such offer.
The Fund
generally expects to repurchase its Shares with cash, although it reserves the ability to issue payment for the repurchase of Shares through
a distribution of portfolio securities. The Fund does not generally expect to distribute securities as payment for repurchased Shares
except in unusual circumstances, including if making a cash payment would result in a material adverse effect on the Fund or the Shareholders,
or if the Fund has received distributions and/or proceeds from its investments in the form of securities that are transferable to Shareholders.
Securities which are distributed in-kind in connection with a repurchase of Shares may be illiquid. Any in-kind distribution of securities
will be valued in accordance with the Adviser’s valuation procedures and will be distributed to all tendering Shareholders on a
proportional basis.
Each Shareholder
whose Shares have been accepted for repurchase will continue to be a Shareholder of the Fund until the Repurchase Date (and thereafter
if the Shareholder retains Shares following such repurchase) and may exercise its voting rights with respect to the repurchased Shares
until the Repurchase Date. Moreover, the account maintained in respect of a Shareholder whose Shares have been accepted for repurchase
will be adjusted for the net profits or net losses of the Fund through the Valuation Date, and such Shareholder’s account shall
not be adjusted for the amount withdrawn, as a result of the repurchase, prior to the Repurchase Date.
Payments
in cash for repurchased Shares may require the Fund to liquidate certain Fund investments earlier than the Adviser otherwise would liquidate
such holdings, potentially resulting in losses, and may increase the Fund’s portfolio turnover. The Fund also may need to maintain
higher levels of cash or borrow
73
money to pay repurchase requests in cash.
Such a practice could increase the Fund’s operating expenses and impact the ability of the Fund to achieve its investment objective.
Following
the commencement of an offer to repurchase Shares, the Fund may suspend, postpone or terminate such offer in certain circumstances upon
the determination of a majority of the Board, including a majority of the Independent Trustees, that such suspension, postponement or
termination is advisable for the Fund and its Shareholders, including, without limitation, circumstances as a result of which it is not
reasonably practicable for the Fund to dispose of its investments or to determine its net asset value, and other unusual circumstances.
Shareholders have the right to withdraw their written tenders after the expiration of forty business days from the commencement of the
offer, if not yet accepted by the Fund for payment.
The Board
has discretion to hold back a portion of the amount due to tendering Shareholders, which shall not exceed 5% of the total amount due to
such Shareholders. The second and final payment for the balance due shall be paid no later than 5 business days after the completion of
the annual audit of the Fund’s financial statements for the fiscal year in which the applicable repurchase is effected, with such
balance being subject to adjustment as a result of the Fund’s annual audit or as a result of any other corrections to the Fund’s
net asset value as of the Valuation Date for the repurchase. If, based upon the results of the annual audit of the financial statements
of the Fund for the fiscal year in which the Valuation Date of such repurchase occurred, it is determined that the value at which the
Shares were repurchased was incorrect, the Fund shall decrease such Shareholder’s account balance by the amount of any overpayment
and redeem for no additional consideration a number of Shares having a value equal to such amount, or increase such Shareholder’s
account balance by the amount of any underpayment and issue for no additional consideration a number of Shares having an aggregate value
equal to such amount, as applicable, in each case as promptly as practicable following the completion of such audits.
A 2.00%
Early Repurchase Fee will be charged by the Fund with respect to any repurchase of Shares from a Shareholder at any time prior to the
day immediately preceding the one-year anniversary of the Shareholder’s purchase of the Shares. Shares tendered for repurchase will
be treated as having been repurchased on a “first in — first out” basis. Therefore, Shares repurchased will
be deemed to have been taken from the earliest purchase of Shares by such Shareholder (adjusted for subsequent net profits and net losses)
until all such Shares have been repurchased, and then from each subsequent purchase of Shares by such Shareholder (adjusted for subsequent
net profits and net losses) until such Shares are repurchased. An Early Repurchase Fee payable by a Shareholder may be waived by the Fund
in circumstances where the Board determines that doing so is in the best interest of the Fund. To the extent the Fund determines to waive,
impose scheduled variations of, or eliminate an Early Repurchase Fee, it will do so consistently with the requirements of Rule 22d-1
under the Investment Company Act, and the Fund’s waiver of, scheduled variation in, or elimination of, the Early Repurchase Fee
will apply uniformly to all Shareholders regardless of Share class. Other than the Early Repurchase Fee, the Fund does not presently intend
to impose any charges on the repurchase of Shares.
A Shareholder
who tenders some but not all of its Shares for repurchase will be required to maintain a minimum account balance of $10,000. Such minimum
ownership requirement may be waived by the Board, in its sole discretion. If such requirement is not waived by the Board, the Fund may
redeem all of the Shareholder’s Shares. To the extent a Shareholder seeks to tender all of the Shares they own and the Fund repurchases
less than the full amount of Shares that the Shareholder requests to have repurchased, the Shareholder may maintain a balance of Shares
of less than $10,000 following such Share repurchase.
In the
event that the Adviser or any of its affiliates holds Shares in its capacity as a Shareholder, such Shares may be tendered for repurchase
in connection with any repurchase offer made by the Fund, without notice to the other Shareholders.
The repurchase
of Shares is subject to regulatory requirements imposed by the SEC. The Fund’s repurchase procedures are intended to comply with
such requirements. However, in the event that the Board determines that modification of the repurchase procedures described above is required
or appropriate, the Board will adopt revised repurchase procedures as necessary to ensure the Fund’s compliance with applicable
regulations or as the Board in its sole discretion deems appropriate.
74
DISTRIBUTIONS
The
Fund has elected to be treated as, and intends to continue to qualify annually as, a RIC under the Code and intends to distribute at least
90% of its annual net taxable income to its Shareholders. For any distribution, the Fund will calculate each Shareholder’s specific
distribution amount for the period using record and declaration dates. From time to time, the Fund may also pay special interim distributions
in the form of cash or Shares at the discretion of the Board.
The
Fund may finance its cash distributions to Shareholders from any sources of funds available to the Fund, including offering proceeds,
borrowings, net investment income from operations, capital gains proceeds from the sale of assets (including fund investments), non-capital
gains proceeds from the sale of assets (including fund investments), dividends or other distributions paid to the Fund on account of preferred
and common equity investments by the Fund in Portfolio Funds and/or Direct Investments and expense reimbursements from the Adviser. The
Fund has not established limits on the amount of funds the Fund may use from available sources to make distributions.
Each
year a statement on IRS Form 1099-DIV (or successor form), identifying the character (e.g., as ordinary income, qualified dividend income
or long-term capital gain) of the distributions, will be mailed to Shareholders. The Fund’s distributions may exceed the Fund’s
earnings, especially during the period before the Fund has substantially invested the proceeds from this offering. As a result, a portion
of the distributions the Fund makes may represent a return of capital for U.S. federal tax purposes. A return of capital generally is
a return of your investment rather than a return of earnings or gains derived from the Fund’s investment activities and will be
made after deduction of the fees and expenses payable in connection with the offering, including any fees payable to the Adviser. See
“Material U.S. Federal Income Tax Considerations” for more information. There
can be no assurance that the Fund will be able to pay distributions at a specific rate or at all.
Shareholders
will automatically have all distributions reinvested in Shares of the Fund issued by the Fund in accordance with the Fund’s dividend
reinvestment plan unless an election is made to receive cash. See “Dividend Reinvestment Plan.”
DIVIDEND
REINVESTMENT PLAN
The
Fund operates under a DRIP administered by DST. Pursuant to the DRIP, the Fund’s distributions, net of any applicable U.S. withholding
tax, are reinvested in the same class of Shares of the Fund. The Fund expects to coordinate distribution payment dates so that the same
net asset value that is used for the monthly closing date immediately preceding such distribution payment date will be used to calculate
the purchase net asset value for purchasers under the DRIP. Shares issued pursuant to the DRIP will have the same voting rights as the
Fund’s Shares acquired by subscription to the Fund.
Shareholders
automatically participate in the DRIP, unless and until an election is made to withdraw from the plan on behalf of such participating
Shareholder. A Shareholder who does not wish to have distributions automatically reinvested may terminate participation in the DRIP at
any time by written instructions to that effect to DST. Shareholders who elect not to participate in the DRIP will receive all distributions
in cash paid to the Shareholder of record (or, if the Shares are held in street or other nominee name, then to such nominee). Such written
instructions must be received by DST 30 days prior to the record date of the distribution or the Shareholder will receive such distribution
in Shares through the DRIP. Under the DRIP, the Fund’s distributions to Shareholders are automatically reinvested in full and fractional
Shares as described below.
When
the Fund declares a distribution, DST, on the Shareholder’s behalf, will receive additional authorized Shares from the Fund either
newly issued or repurchased from Shareholders by the Fund and held as treasury stock. The number of Shares to be received when distributions
are reinvested will be determined by dividing the amount of the distribution by the Fund’s net asset value per Share for the relevant
class of Shares.
DST
will maintain all Shareholder accounts and furnish written confirmations of all transactions in the accounts, including information needed
by Shareholders for personal and tax records. DST will hold Shares in the account of the Shareholders in non-certificated form in the
name of the participant, and each shareholder’s proxy, if any, will include those Shares purchased pursuant to the DRIP. DST will
distribute all proxy solicitation materials, if any, to participating Shareholders.
75
In the case of Shareholders,
such as banks, brokers or nominees, that hold Shares for others who are beneficial owners participating under the DRIP, DST will administer
the DRIP on the basis of the number of Shares certified from time to time by the record Shareholder as representing the total amount of
Shares registered in the Shareholder’s name and held for the account of beneficial owners participating under the DRIP.
Neither
DST nor the Fund shall have any responsibility or liability beyond the exercise of ordinary care for any action taken or omitted pursuant
to the DRIP, nor shall they have any duties, responsibilities or liabilities except such as expressly set forth herein. Neither shall
they be liable hereunder for any act done in good faith or for any good faith omissions to act, including, without limitation, failure
to terminate a participant’s account prior to receipt of written notice of his or her death or with respect to prices at which Shares
are purchased or sold for the participants account and the terms on which such purchases and sales are made, subject to applicable provisions
of the federal securities laws.
The automatic
reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to
be withheld) on such dividends. The Fund may elect to make non-cash distributions to Shareholders. Such distributions are not subject
to the DRIP, and all Shareholders, regardless of whether or not they are participants in the DRIP, will receive such distributions in
additional Shares of the Fund.
The Fund
reserves the right to amend or terminate the DRIP. There is no direct service charge to participants with regard to purchases under the
DRIP; however, the Fund reserves the right to amend the DRIP to include a service charge payable by the participants.
All correspondence
concerning the DRIP should be directed to Ares Private Markets Fund c/o DST at 430 W 7th
Street, Suite 219079, Kansas City, Missouri 64105 (direct overnight mail) or c/o DST at P.O. Box 219079, Kansas City, Missouri
64121-0979. Certain transactions can be performed by calling the toll free number 1-866-324-7348.
DESCRIPTION
OF SHARES
The
Fund is a Delaware statutory trust formed on July 28, 2021. The Fund currently offers three classes of Shares: Class A Shares,
Class D Shares and Class I Shares. The Fund relies on an exemptive order from the SEC that allows it to issue multiple classes
of Shares and to impose asset-based distribution fees and early-withdrawal fees as applicable. An investment in any Share class of the
Fund represents an investment in the same assets of the Fund. However, the minimum investment amounts, sales loads, if applicable, and
ongoing fees and expenses for each Share class are expected to be different. The estimated fees and expenses for each class of Shares
of the Fund are set forth in “Summary of Fees and Expenses.”
Shares
of each class of the Fund represent an equal pro rata interest in the Fund and, generally, have identical voting, distribution, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each
class has a different designation; (b) each class of Shares bears any class-specific expenses; and (c) each
class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests
of any other class, and shall have exclusive voting rights on any matter submitted to shareholders that relates solely to that class.
Any
additional offerings of classes of Shares will require approval by the Board. Any additional offering of classes of Shares will also be
subject to the requirements of the Investment Company Act, which provides that such Shares may not be issued at a price below the then-current
net asset value, exclusive of the sales load, except in connection with an offering to existing holders of Shares or with the consent
of a majority of the Fund’s common shareholders.
76
The
following table shows the amounts of Shares that have been authorized and outstanding as of February 29, 2024:
|
Share
Class |
| |
Amount Authorized |
| |
Amount
Held by the Fund for its Account |
| |
Amount Outstanding |
| |||||||||
|
Class
A Shares |
| | | | Unlimited | | | | | | None | | | | | | 9,670,411 | | |
|
Class
D Shares |
| | | | Unlimited | | | | | | None | | | | | | 307,607 | | |
|
Class
I Shares |
| | | | Unlimited | | | | | | None | | | | | | 18,440,155 | | |
There
is currently no market for the Shares, and the Fund does not expect that a market for the Shares will develop in the foreseeable future.
CERTAIN
PROVISIONS IN THE DECLARATION OF TRUST
An
investor in the Fund will be a Shareholder of the Fund and his or her rights in the Fund will be established and governed by the Declaration
of Trust. A prospective investor and his or her advisors should carefully review the Declaration of Trust as each Shareholder will agree
to be bound by its terms and conditions. The following is a summary description of additional items and of select provisions of the Declaration
of Trust that may not be described elsewhere in this Prospectus. The description of such items and provisions is not definitive and reference
should be made to the complete text of the Declaration of Trust.
Shareholders;
Additional Classes of Shares
Persons
who purchase Shares will be Shareholders of the Fund. The Adviser may invest in the Fund as a Shareholder.
In
addition, to the extent permitted by the Investment Company Act and subject to the Fund’s exemptive relief from the SEC, the Fund
reserves the right to issue additional classes of shares in the future subject to fees, charges, repurchase rights, and other characteristics
different from those of the Shares offered in this Prospectus.
Liability
of Shareholders
Under
Delaware law and the Declaration of Trust, each Shareholder will be liable for the debts and obligations of the Fund only to the extent
of any contributions to the capital of the Fund (plus any accretions in value thereto prior to withdrawal) and a Shareholder, in the sole
discretion of the Board, may be obligated to return to the Fund amounts distributed to the Shareholder, or the Board may reduce any amount
payable by the Fund to a Shareholder in respect of a redemption of Shares, in accordance with the Declaration of Trust in certain circumstances.
Anti-Takeover
Provisions
The
Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of the Board. These provisions may have the effect of discouraging attempts to acquire control
of the Fund, which attempts could have the effect of increasing the expenses of the Fund and interfering with the normal operation of
the Fund. The Trustees are elected for indefinite terms and do not stand for reelection. A Trustee may be removed from office (i) with
cause only by a written instrument signed or adopted by two-thirds of the remaining Trustees; or (ii) without cause only by a written
instrument signed or adopted by all of the remaining Trustees. The Declaration of Trust does not contain any other specific inhibiting
provisions that would operate only with respect to an extraordinary transaction such as a merger, reorganization, tender offer, sale or
transfer of substantially all of the Fund’s assets, or liquidation.
Limitation
of Liability; Indemnification
The
Declaration of Trust provides that the Trustees and former Trustees of the Board and officers and former officers of the Fund shall not
be liable to the Fund or any of the Shareholders for any loss or damage occasioned by any act or omission in the performance of their
services as such in the absence of willful
77
misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office or as otherwise required by applicable
law. The Declaration of Trust also contains provisions for the indemnification, to the extent permitted by law, of the Trustees and former
Trustees of the Board and officers and former officers of the Fund (as well as certain other related parties) by the Fund (but not by
the Shareholders individually) against any liability and expense to which any of them may be liable that arise in connection with the
performance of their activities on behalf of the Fund. None of these persons shall be personally liable to any Shareholder for the repayment
of any positive balance in the Shareholder’s capital account or for contributions by the Shareholder to the capital of the Fund
or by reason of any change in the federal or state income tax laws applicable to the Fund or its investors. The rights of indemnification
and exculpation provided under the Declaration of Trust shall not be construed so as to limit liability or provide for indemnification
of the Trustees and former Trustees of the Board, officers and former officers of the Fund, and the other persons entitled to such indemnification
for any liability (including liability under applicable federal or state securities laws which, under certain circumstances, impose liability
even on persons that act in good faith), to the extent (but only to the extent) that such indemnification or limitation on liability would
be in violation of applicable law, but shall be construed so as to effectuate the applicable provisions of the Declaration of Trust to
the fullest extent permitted by law.
Derivative
Actions and Exclusive Jurisdiction
The
Declaration of Trust provides that a Shareholder may not bring a derivative action on behalf of the Trust unless: (a) the Shareholder
makes a pre-suit demand upon the Trustees to bring the subject action (unless an effort to cause the Trustees to bring such an action
is not likely to succeed as determined under the terms of the Declaration of Trust); (b) Shareholders eligible to bring such derivative
action who collectively hold Shares representing ten percent (10%) or more of the total combined net asset value of all Shares issued
and outstanding join in the request for the Trustees to commence such action (the “10% Threshold”); and (c) the Trustees
are afforded a reasonable amount of time to consider such Shareholder request and to investigate the basis of such claim. The Trustees
shall be entitled to retain counsel or other advisers in considering the merits of the request and may require an undertaking by the Shareholders
making such request to reimburse the Trust for the expense of any such advisors in the event that the Trustees determine not to bring
such action (the “Shareholder Undertaking”). The provisions of the Declaration of Trust regarding the 10% Threshold and the
Shareholder Undertaking do not apply to claims arising under the federal securities laws.
Under
the Declaration of Trust, actions by Shareholders against the Fund asserting a claim governed by Delaware law or the Fund’s organizational
documents must be brought in the Court of Chancery of the State of Delaware or any other court in the State of Delaware with subject matter
jurisdiction. Shareholders also waive the right to jury trial to the fullest extent permitted by law. This exclusive jurisdiction provision
may make it more expensive for a Shareholder to bring a suit but does not apply to claims arising under the federal securities laws.
Amendment
of the Declaration of Trust
The
Declaration of Trust may generally be amended, in whole or in part, with the approval of a majority of the Board (including a majority
of the Independent Trustees, if required by the Investment Company Act) and without the approval of the Shareholders unless the approval
of Shareholders is required under the Investment Company Act. However, certain amendments to the Declaration of Trust involving capital
accounts and allocations thereto may not be made without the written consent of each Shareholder materially adversely affected thereby
or unless each Shareholder has received written notice of the amendment and any Shareholder objecting to the amendment has been allowed
a reasonable opportunity (pursuant to any procedures as may be prescribed by the Board) to have all of its Shares repurchased by the Fund.
Term,
Dissolution, and Liquidation
The
Fund shall be dissolved: (i) upon the affirmative vote to dissolve the Fund by a majority of the Trustees of the Board; or (ii) as
required by operation of law.
Upon
the occurrence of any event of dissolution, one or more Trustees of the Board or the Adviser, acting as liquidator under appointment by
the Board (or another liquidator, if the Board does not appoint
78
one
or more Trustees of the Board or the Adviser to act as liquidator or is unable to perform this function) is charged with winding up the
affairs of the Fund and liquidating its assets. Upon the liquidation of the Fund, after establishment of appropriate reserves for contingencies
in such amounts as the Board or the liquidator, as applicable, deems appropriate in its sole discretion, the Fund’s assets will
be distributed: (i) first to satisfy the debts, liabilities, and obligations of the Fund (other than debts to Shareholders) including
actual or anticipated liquidation expenses; (ii) next to repay debts, liabilities and obligations owing to the Shareholders; and
(iii) finally to the Shareholders (including the Adviser) proportionately in accordance with the balances in their respective capital
accounts. Assets may be distributed in kind on a pro rata basis if the Board or liquidator determines that such a distribution would
be in the interests of the Shareholders in facilitating an orderly liquidation.
The
Board may, in its sole discretion, and if determined to be in the best interests of the Shareholders, distribute the assets of the Fund
into and through a liquidating trust to effect the liquidation of the Fund. The use of a liquidating trust would be subject to the regulatory
requirements of the Investment Company Act and applicable Delaware law, and could result in additional expenses to the Shareholders.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion is a general summary of certain material U.S. federal income tax considerations applicable to the Fund, to its qualification
and taxation as a RIC for U.S. federal income tax purposes under Subchapter M of the Code and to an investment in the Fund’s Shares,
and to the acquisition, ownership, and disposition of the Fund’s Shares. This discussion applies only to beneficial owners that
acquire the Fund’s Shares in this initial offering at the offering price.
This discussion
does not purport to be a complete description of the tax considerations applicable to the Fund or its Shareholders. In particular, this
discussion does not address certain considerations that may be relevant to certain types of holders subject to special treatment under
U.S. federal income tax laws, including Shareholders that are not U.S. Shareholders (as defined below), Shareholders subject to the alternative
minimum tax, tax-exempt organizations, insurance companies, Shareholders that are treated as partnerships for U.S. federal income tax
purposes, dealers in securities, traders in securities that elect to use a mark-to-market method of accounting for securities holdings,
pension plans and trusts, financial institutions, a person that holds the Fund’s Shares as part of a straddle or a hedging or conversion
transaction, real estate investment trusts (“REITs”), RICs, U.S. persons with a functional currency other than the U.S. dollar,
Shareholders that are not U.S. Shareholders (as defined below) engaged in a trade or business in the United States or entitled to claim
the benefits of an applicable income tax treaty, persons who have ceased to be U.S. citizens or to be taxed as residents of the United
States, controlled foreign corporations (“CFCs”), and passive foreign investment companies (“PFICs”). This discussion
does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax nor does it discuss the special treatment under
U.S. federal income tax laws that could result if the Fund invests in tax-exempt securities or certain other investment assets or realizes
such income through investments in Portfolio Funds that are treated as partnerships for U.S. federal income tax purposes (other than certain
publicly traded partnerships), or are otherwise treated as disregarded from the Fund for U.S. federal income tax purposes. This discussion
is limited to Shareholders that hold the Fund’s Shares as capital assets (within the meaning of the Code), and does not address
owners of a Shareholder. This discussion is based upon the Code, its legislative history, existing and proposed U.S. Treasury regulations,
published rulings and court decisions, each as of the date of this Prospectus and all of which are subject to change or differing interpretations,
possibly retroactively, which could affect the continuing validity of this discussion. The Fund has not sought, and will not seek any
ruling from the IRS regarding any matter discussed herein, and this discussion is not binding on the IRS. Accordingly, there can be no
assurance that the IRS would not assert, and that a court would not sustain, a position contrary to any of the tax consequences discussed
herein.
For purposes
of this discussion, a “U.S. Shareholder” is a beneficial owner of the Fund’s Shares that is for U.S. federal income
tax purposes:
•
an
individual who is a citizen or resident of the United States;
•
a
corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws
of the United States or any state thereof or the District of Columbia;
79
•
a trust, if a court within the United
States has primary supervision over its administration and one or more U.S. persons (as defined in the Code) have the authority to control
all of its substantial decisions, or if the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a domestic trust for U.S. federal income tax purposes; or
•
an
estate, the income of which is subject to U.S. federal income taxation regardless of its source.
If a
partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds the Fund’s Shares, the tax
treatment of a partner in the partnership generally will depend upon the status of the partner, the activities of the partner and the
partnership and certain determinations made at the partner level. Prospective beneficial owners of the Fund’s Shares that are partnerships
or partners in such partnerships are urged to consult their tax advisers with respect to the purchase, ownership and disposition of the
Fund’s Shares.
Tax matters
are complicated and the tax consequences to a Shareholder of an investment in the Fund’s Shares will depend on the facts of such
Shareholder’s particular situation. Shareholders are strongly encouraged to consult their tax advisor regarding the U.S. federal
income tax consequences of the acquisition, ownership and disposition (including by reason of a repurchase) of the Fund’s Shares,
as well as the effect of state, local and foreign tax laws, and the effect of any possible changes in tax laws.
Election to be Taxed as
a Regulated Investment Company
The Fund
has elected to be treated, and intends to operate in a manner so as to continuously qualify annually thereafter, as a RIC under the Code.
The Fund intends to make a timely election to be treated as a corporation for U.S. federal income tax purposes in order to make a valid
RIC election. As a RIC, the Fund generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital
gains that the Fund timely distributes (or is deemed to timely distribute) to its Shareholders as dividends. Instead, dividends the Fund
distributes (or is deemed to timely distribute) to Shareholders generally will be taxable to Shareholders, and any net operating losses,
foreign tax credits and most other tax attributes generally will not pass through to Shareholders. The Fund will be subject to U.S. federal
corporate-level income tax on any undistributed income and gains. To qualify as a RIC, the Fund must, among other things, meet certain
source-of-income and asset diversification requirements (as described below). In addition, the Fund must distribute to its Shareholders,
for each taxable year, at least 90% of its investment company taxable income (which generally is the Fund’s net ordinary taxable
income and realized net short-term capital gains in excess of realized net long-term capital losses, determined without regard to the
dividends paid deduction) (the “Annual Distribution Requirement”) for any taxable year. The following discussion assumes that
the Fund qualifies as a RIC.
The Fund’s
qualification and taxation as a RIC depends upon its ability to satisfy on a continuing basis, through actual, annual operating results,
distribution, income and asset, and other requirements imposed under the Code. However, no assurance can be given that the Fund will be
able to meet the complex and varied tests required to qualify as a RIC or to avoid corporate level tax. In addition, because the relevant
laws may change, compliance with one or more of the RIC requirements may be impossible or impracticable.
Qualification and Taxation
as a Regulated Investment Company
If the
Fund (1) qualifies as a RIC and (2) satisfies the Annual Distribution Requirement, then the Fund will not be subject to U.S.
federal income tax on the portion of its investment company taxable income and net capital gain (realized net long-term capital gain in
excess of realized net short term capital loss) that the Fund timely distributes (or is deemed to timely distribute) to Shareholders.
The Fund will be subject to U.S. federal income tax at the regular corporate rate on any of its income or capital gains not distributed
(or deemed distributed) to its Shareholders.
If the
Fund fails to distribute in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for the calendar
year, (2) 98.2% of its net capital gain income (both long-term and short-term) for the one-year period ending October 31 in
that calendar year (or November 30 or December 31 of that year if the Fund is permitted to elect or so elects) and (3) any
income realized, but not distributed, in the preceding years (to the extent that income tax was not imposed on such amounts) less
certain
80
over-distributions in prior years
(together, the “Excise Tax Distribution Requirements”), the Fund will be subject to a 4% nondeductible federal excise tax
on the portion of the undistributed amounts of such income that are less than the amounts required to be distributed based on the Excise
Tax Distribution Requirements. For this purpose, however, any ordinary income or capital gain net income retained by the Fund that is
subject to corporate income tax for the tax year ending in that calendar year will be considered to have been distributed by year end
(or earlier if estimated taxes are paid). In order to meet the Excise Tax Distribution Requirement for a particular year, the Fund will
need to receive certain information from the Portfolio Funds, which it may not timely receive, in which case the Fund will need to estimate
the amount of distributions it needs to make to meet the Excise Tax Distribution Requirement. If the Fund underestimates that amount,
it will be subject to the excise tax. In addition, the Fund may choose to retain its net capital gains or any investment company taxable
income, and pay the associated U.S. federal corporate income tax, including the U.S. federal excise tax, thereon. In either event described
in the preceding two sentences, the Fund will only pay the excise tax on the amount by which the Fund does not meet the Excise Tax Distribution
Requirements.
To qualify
as a RIC for U.S. federal income tax purposes, the Fund generally must, among other things:
•
Elect
to be treated and qualify as a registered management company under the Investment Company Act at all times during each taxable year;
•
derive
in each taxable year at least 90% of its gross income from (a) dividends, interest, payments with respect to certain securities loans,
gains from the sale of stock, securities, or foreign currencies (including certain deemed inclusions) derived with respect to the Fund’s
business of investing in such stock, securities, foreign currencies or other income, or (b) net income derived from an interest in
a qualified publicly traded partnership (“QPTP”) (collectively, the “90% Gross Income Test”); and
•
diversify
its holdings so that at the end of each quarter of the taxable year:
•
at
least 50% of the value of its assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other
securities that, with respect to any issuer, do not represent more than 5% of the value of the Fund’s assets or more than 10% of
the outstanding voting securities of that issuer; and
•
no
more than 25% of the value of its assets is invested in the securities, other than U.S. government securities or securities of other RICs,
of (i) one issuer, (ii) or of two or more issuers that are controlled, as determined under the Code, by the Fund and that are
engaged in the same or similar or related trades or businesses or (iii) securities of one or more QPTPs (collectively, the “Diversification
Tests”).
The
Fund has an opt-out DRIP. The tax consequences to Shareholders of participating in the DRIP are discussed below — “Taxation
of U.S. Shareholders.”
The
Fund may have investments, either directly or through the Portfolio Funds, that require income to be included in investment company taxable
income in a year prior to the year in which the Fund (or the Portfolio Funds) actually receives a corresponding amount of cash in respect
of such income. For example, if the Portfolio Funds hold, directly or indirectly, corporate stock with respect to which Section 305
of the Code requires inclusion in income of amounts of deemed dividends even if no cash distribution is made, the Fund must include in
its taxable income in each year the full amount of its applicable share of these deemed dividends. Additionally, if the Fund holds, directly
or indirectly through the Portfolio Funds, debt obligations that are treated under applicable U.S. federal income tax rules as having
original issue discount (“OID”) (such as debt instruments with “payment in kind” interest or, in certain cases,
that have increasing interest rates or are issued with warrants), the Fund must include in its taxable income in each year a portion of
the OID that accrues over the life of the obligation, regardless of whether the Fund receives cash representing such income in the same
taxable year. The Fund may also have to include in its taxable income other amounts that it has not yet received in cash but has been
allocated by the Portfolio Funds.
A RIC
is limited in its ability to deduct expenses in excess of its investment company taxable income. If the Fund’s deductible expenses
in a given year exceed its investment company taxable income, the Fund will have a net operating loss for that year. A RIC is not able
to offset its investment company taxable income with net operating losses on either a carryforward or carryback basis, and net operating
losses generally will not pass through to Shareholders. In addition, expenses may be used only to offset investment company taxable
81
income, and may not be used to offset
net capital gain. A RIC may not use any net capital losses (i.e., realized capital losses in excess of realized capital gains) to
offset its investment company taxable income, but may carry forward those losses, and use them to offset future capital gains, indefinitely.
Further, a RIC’s deduction of net business interest expense is limited to 30% of its “adjusted taxable income” plus
“floor plan financing interest expense.” It is not expected that any portion of any underwriting or similar fee will be deductible
for U.S. federal income tax purposes to the Fund or the Shareholders. Due to these limits on the deductibility of expenses, net capital
losses and business interest expenses, the Fund may, for U.S. federal income tax purposes, have aggregate taxable income for several years
that the Fund is required to distribute and that is taxable to Shareholders even if this income is greater than the aggregate net income
the Fund actually earned during those years.
In order
to enable the Fund to make distributions to Shareholders that will be sufficient to enable the Fund to satisfy the Annual Distribution
Requirement or the Excise Tax Distribution Requirements in the event that the circumstances described in the preceding two paragraphs
apply, the Fund may need to liquidate or sell some of its assets at times or at prices that the Fund would not consider advantageous,
the Fund may need to raise additional equity or debt capital, the Fund may need to take out loans, or the Fund may need to forego new
investment opportunities or otherwise take actions that are disadvantageous to the Fund’s business (or be unable to take actions
that are advantageous to its business). Even if the Fund is authorized to borrow and to sell assets in order to satisfy the Annual Distribution
Requirement or the Excise Tax Distribution Requirements, under the Investment Company Act, the Fund generally is not permitted to make
distributions to its Shareholders while its debt obligations and senior securities are outstanding unless certain “asset coverage”
tests or other financial covenants are met.
If the
Fund is unable to obtain cash from other sources to enable the Fund to satisfy the Annual Distribution Requirement, the Fund may fail
to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income
tax (and any applicable state and local taxes). Although the Fund expects to operate in a manner so as to qualify continuously as a RIC,
the Fund may decide in the future to be taxed as a “C” corporation, even if the Fund would otherwise qualify as a RIC, if
the Fund determines that such treatment as a C corporation for a particular year would be in the Fund’s best interest.
An entity
that is properly classified as a partnership, rather than an association or publicly traded partnership taxable as a corporation, is not
itself subject to U.S. federal income tax. Instead, each partner of the partnership must take into account its distributive share of the
partnership’s income, gains, losses, deductions and credits (including all such items allocable to that partnership from investments
in other partnerships) for each taxable year of the partnership ending with or within the partner’s taxable year, without regard
to whether such partner has received or will receive corresponding cash distributions from the partnership. For the purpose of determining
whether the Fund satisfies the 90% Gross Income Test and the Diversification Tests, the character of the Fund’s distributive share
of items of income, gain, losses, deductions and credits derived through any investments in companies that are treated as partnerships
for U.S. federal income tax purposes (other than certain publicly traded partnerships), such as the Portfolio Funds, or are otherwise
treated as disregarded from the Fund for U.S. federal income tax purposes, generally will be determined as if the Fund realized these
tax items directly. In order to meet the 90% Gross Income Test, the Fund may structure its investments in a way that could increase the
taxes imposed thereon or in respect thereof. For example, the Fund may be required to hold such investments through a subsidiary that
is treated as a corporation for U.S. federal income tax purposes. In such a case, any income from such investments is generally not expected
to adversely affect the Fund’s ability to meet the 90% Gross Income Test, although such income generally would be subject to U.S.
corporate federal income tax (and possibly state and local taxes), which the Fund would indirectly bear through its ownership of such
subsidiary.
Further,
for purposes of calculating the value of the Fund’s investment in the securities of an issuer for purposes of determining the 25%
requirement of the Diversification Tests, the Fund’s proper proportion of any investment in the securities of that issuer that are
held by a member of the Fund’s “controlled group” must be aggregated with the Fund’s investment in that issuer.
A controlled group is one or more chains of corporations connected through stock ownership with the Fund if (a) at least 20% of the
total combined voting power of all classes of voting stock of each of the corporations is owned directly by one or more of the other corporations,
and (b) the Fund directly owns at least 20% or more of the combined voting stock of at least one of the other corporations.
82
Failure to Qualify as a Regulated Investment
Company
If the
Fund, otherwise qualifying as a RIC, fails to satisfy the 90% Gross Income Test for any taxable year or the Diversification Tests for
any quarter of a taxable year, the Fund may continue to be taxed as a RIC for the relevant taxable year if certain relief provisions of
the Code apply (which might, among other things, require the Fund to pay certain corporate-level U.S. federal taxes or to dispose of certain
assets). If the Fund fails to qualify as a RIC for more than two consecutive taxable years and then seeks to re-qualify as a RIC,
the Fund would generally be required to recognize gain to the extent of any unrealized appreciation in its assets unless the Fund elects
to pay U.S. corporate income tax on any such unrealized appreciation during the succeeding 5-year period.
If the
Fund were to fail to met the income, diversification, or distribution tests described above, the Fund could in some cases cure such failure,
including by paying a fund-level tax, paying interest, making additional distributions, or disposing of certain assets.
If the
Fund fails to qualify for treatment as a RIC in any taxable year and is not eligible for relief provisions, the Fund would be subject
to U.S. federal income tax on all of its taxable income at the regular corporate U.S. federal income tax rate and would be subject to
any applicable state and local taxes, regardless of whether the Fund makes any distributions to Shareholders. Additionally, the Fund would
not be able to deduct distributions to its Shareholders, nor would distributions to Shareholders be required to be made for U.S. federal
income tax purposes. Any distributions the Fund makes generally would be taxable to Shareholders as ordinary dividend income and, subject
to certain limitations under the Code, would be eligible for the current maximum rate applicable to qualifying dividend income of individuals
and other non-corporate U.S. Shareholders, to the extent of the Fund’s current or accumulated earnings and profits. Subject to certain
limitations under the Code, U.S. Shareholders that are corporations for U.S. federal income tax purposes would be eligible for the dividends-received
deduction. Distributions in excess of the Fund’s current and accumulated earnings and profits would be treated first as a return
of capital to the extent of the holder’s adjusted tax basis in the Fund’s Shares, and any remaining distributions would be
treated as capital gain.
The
remainder of this discussion assumes that the Fund will continuously qualify as a RIC for each taxable year.
The Fund’s Investments — General
Certain
of the Fund’s investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other
things, (1) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (2) disallow,
suspend or otherwise limit the allowance of certain losses or deductions, (3) convert long-term capital gain (currently taxed at
lower rates for non-corporate taxpayers) into higher-taxed short-term capital gain or ordinary income, (4) convert an ordinary loss
or a deduction into a capital loss (the deductibility of which is more limited), (5) cause it to recognize income or gain without
receipt of a corresponding cash payment, (6) adversely affect the time as to when a purchase or sale of stock or securities is deemed
to occur, (7) adversely alter the characterization of certain complex financial transactions and (8) produce income that will
not be qualifying income for purposes of the 90% Gross Income Test. The Fund intends to monitor its transactions and may make certain
tax elections in order to mitigate the effects of these provisions; however, no assurance can be given that the Fund will be eligible
for any such tax elections or that any elections it makes will fully mitigate the effects of these provisions.
Unless
otherwise indicated, references in this discussion to the Fund’s investments, activities, income, gain and loss, include both the
direct investments, activities, income, gain and loss of the Fund, as well as those indirectly attributable to the Fund as a result of
the Fund’s investment in any Portfolio Fund (or other entity) that is properly classified as a partnership or disregarded entity
for U.S. federal income tax purposes (and not an association or publicly traded partnership taxable as a corporation for U.S. federal
income tax purposes).
A Portfolio
Fund in which the Fund invests may face financial difficulties that require the Fund to work-out, modify or otherwise restructure its
investment in Portfolio Fund. Any such transaction could, depending upon the specific terms of the transaction, cause the Fund to recognize
taxable income without a corresponding receipt of cash, which could affect its ability to satisfy the Annual Distribution Requirement
or
83
the Excise Tax Distribution Requirements
or result in unusable capital losses and future non-cash income. Any such transaction could also result in the Fund receiving assets that
give rise to non-qualifying income for purposes of the 90% Gross Income Test.
Securities and other Financial
Assets
Gain
or loss recognized by the Fund from securities and other financial assets acquired by it, as well as any loss attributable to the lapse
of options, warrants, or other financial assets taxed as options generally will be treated as capital gain or loss. Such gain or loss
generally will be long-term or short-term depending on how long the Fund held a particular security or other financial asset.
Non-U.S. Investments, including
PFICs and CFCs
The
Fund’s investment in non-U.S. securities may be subject to non-U.S. income, withholding and other taxes. Shareholders generally
will not be entitled to claim a U.S. foreign tax credit or deduction with respect to non-U.S. taxes paid by the Fund.
If the
Fund purchases shares in a PFIC, the Fund may be subject to U.S. federal income tax on a portion of any “excess distribution”
received on, or any gain from the disposition of, such shares even if the Fund distributes such income as a taxable dividend to Shareholders.
Additional charges in the nature of interest generally will be imposed on the Fund in respect of deferred taxes arising from any such
excess distribution or gain. If the Fund invests in a PFIC and elects to treat the PFIC as a “qualified electing fund” under
the Code (a “QEF”), in lieu of the foregoing requirements, the Fund will be required to include in gross income each year
a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed by the QEF. Any inclusions
in the Fund’s gross income resulting from the QEF election will be considered qualifying income for the purposes of the 90% Gross
Income Test. Alternatively, the Fund may elect to mark-to-market at the end of each taxable year its shares in such PFIC, in which case,
the Fund will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to
the extent it does not exceed prior increases included in its income. The Fund’s ability to make either election will depend on
factors beyond the Fund’s control, and is subject to restrictions which may limit the availability of the benefit of these elections.
Under either election, the Fund may be required to recognize in any year income in excess of its distributions from PFICs and its proceeds
from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement
and will be taken into account for purposes of determining whether the Fund satisfies the Excise Tax Distribution Requirements. See “— Qualification
as a Regulated Investment Company” above.
If the
Fund holds more than 10% of the shares in a foreign corporation that is treated as a CFC, the Fund may be treated as receiving a deemed
distribution (taxable as ordinary income or, if eligible, the preferential rates that apply to “qualified dividend income”)
each year from such foreign corporation in an amount equal to its pro rata share of the foreign corporation’s income for the
tax year (including both ordinary earnings and capital gains), whether or not the foreign corporation makes an actual distribution during
such year. This deemed distribution is required to be included in the income of a U.S. shareholder of a CFC regardless of whether the
shareholder has made a QEF election with respect to such CFC (as discussed above). In general, a foreign corporation will be classified
as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly,
indirectly or by attribution) by U.S. shareholders. A “U.S. shareholder,” for this purpose, is any U.S. person that possesses
(actually or constructively) 10% or more of the combined value or voting power of all classes of shares of a corporation. If the Fund
is treated as receiving a deemed distribution from a CFC, the Fund will be required to include such distribution in its investment company
taxable income regardless of whether the Fund receives any actual distributions from such CFC, and the Fund must distribute such income
to satisfy the Annual Distribution Requirement and the Excise Tax Distribution Requirement. Income inclusions from a foreign corporation
that is a CFC are “good income” for purposes of the 90% Gross Income Test regardless of whether the Fund receives timely distributions
of such income from the foreign corporation.
Non-U.S. Currency
The
Fund’s functional currency is the U.S. dollar for U.S. federal income tax purposes. Under Section 988 of the Code, gains or
losses attributable to fluctuations in exchange rates between the time the Fund accrues
84
income, expenses or other liabilities
denominated in a currency other than the U.S. dollar and the time it actually collects such income or pay such expenses or liabilities
may be treated as ordinary income or loss by the Fund. Similarly, gains or losses on foreign currency forward contracts, the disposition
of debt denominated in a foreign currency and other financial transactions denominated in foreign currency, to the extent attributable
to fluctuations in exchange rates between the acquisition and disposition dates, may also be treated as ordinary income or loss.
Hedging and Derivative
Transactions
In connection
with its primary investment strategies, the Fund may choose to enter into certain hedging and derivative transactions, including through
the use of certain options, futures contracts, forward contracts (including forward currency contracts), straddles and foreign currencies.
Such transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale and short sale
rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods
of the Fund’s securities, convert long-term capital gains into short-term capital gains and convert short-term capital losses into
long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to Shareholders.
Taxation of U.S. Shareholders
The
following discussion generally describes certain material U.S. federal income tax consequences of an investment in the Fund’s Shares
beneficially owned by U.S. Shareholders (as defined above). If you are not a U.S. Shareholder this section does not apply to you. Whether
an investment in the Fund is appropriate for a U.S. Shareholder will depend upon that person’s particular circumstances. An investment
in the Fund by a U.S. Shareholder may have adverse tax consequences. U.S. Shareholders are urged to consult their tax advisors about the
U.S. tax consequences of investing in the Fund.
The
Fund will ordinarily declare and pay dividends from its net investment income and distribute net realized capital gains, if any, once
a year. The Fund, however, may make distributions on a more frequent basis to comply with the distribution requirements of the Code, in
all events in a manner consistent with the provisions of the Investment Company Act.
Distributions on, and Sale
or Other Disposition of, the Fund’s Shares
Distributions
by the Fund generally are taxable to U.S. Shareholders as ordinary income or capital gains. Distributions of the Fund’s investment
company taxable income, determined without regard to the deduction for dividends paid, will be taxable as ordinary income to U.S. Shareholders
to the extent of the Fund’s current or accumulated earnings and profits, whether paid in cash or reinvested in additional Shares.
To the extent such distributions the Fund pays to non-corporate U.S. Shareholders (including individuals) are attributable to dividends
from U.S. corporations and certain qualified foreign corporations and if certain holding period requirements are met, such distributions
generally are taxable to U.S. Shareholders at the preferential rates applicable to long-term capital gains. Distributions of the Fund’s
net capital gains (which generally are the Fund’s realized net long-term capital gains in excess of realized net short-term capital
losses) that are properly reported by the Fund as “capital gain dividends” will be taxable to a U.S. Shareholder as long-term
capital gains that are currently taxable at reduced rates in the case of non-corporate taxpayers, regardless of the U.S. Shareholder’s
holding period for his, her or its Shares and regardless of whether paid in cash or reinvested in additional Shares. Distributions in
excess of the Fund’s earnings and profits first will reduce a U.S. Shareholder’s adjusted tax basis in such U.S. Shareholder’s
Shares and, after the adjusted tax basis is reduced to zero, will constitute capital gains to such U.S. Shareholder.
The
Fund generally expects to make distributions in cash but retains the discretionary ability to make distributions of in-kind of securities.
Shareholders are urged to consult their tax advisors as to the possibility of the Fund distributing securities in-kind, as well as the
specific tax consequences of owning and disposing any securities actually distributed in-kind by the Fund.
The
Fund may retain some or all of its realized net long-term capital gains in excess of realized net short-term capital losses and designate
the retained net capital gains as a “deemed distribution.” In that case, among other consequences, the Fund will pay U.S.
federal corporate income tax on the retained amount and
85
each Shareholder will be required to
include its share of the deemed distribution in income as if it had been actually distributed to the Shareholder, and such Shareholder
will be entitled to claim a credit equal to its allocable share of the tax paid thereon by the Fund for U.S. federal income tax purposes.
The amount of the deemed distribution net of such tax will be added to the Shareholder’s cost basis for its Shares. The amount of
tax that individual Shareholders will be treated as having paid and for which they will receive a credit may exceed the tax they owe on
the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. Shareholder’s other U.S. federal
income tax obligations or may be refunded to the extent it exceeds a U.S. Shareholder’s liability for U.S. federal income tax. A
U.S. Shareholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be
required to file a U.S. federal income tax return on the appropriate form to claim a refund with respect to the allocable share of the
taxes that the Fund has paid. For U.S. federal income tax purposes, the tax basis of Shares owned by a Shareholder will be increased by
an amount equal to the excess of the amount of undistributed capital gains included in the Shareholder’s gross income over the tax
deemed paid by the Shareholder as described in this paragraph. To utilize the deemed distribution approach, the Fund must provide written
notice to Shareholders prior to the expiration of 60 days after the close of the relevant taxable year. The Fund cannot treat any
of its investment company taxable income as a “deemed distribution.” The Fund may also make actual distributions to its Shareholders
of some or all of realized net long-term capital gains in excess of realized net short-term capital losses.
A portion
of the Fund’s ordinary income dividends paid to corporate U.S. Shareholders may, if the distributions consist of qualifying distributions
received by the Fund and certain other conditions are met, qualify for the 50% dividends received deduction to the extent that the Fund
has received dividends from certain corporations during the taxable year, but only to the extent these ordinary income dividends are treated
as paid out of earnings and profits of the Fund. The Fund expects only a small portion of the Fund’s dividends to qualify for this
deduction. A corporate U.S. Shareholder may be required to reduce its basis in its Shares with respect to certain “extraordinary
dividends,” as defined in Section 1059 of the Code. Corporate U.S. Shareholders are urged to consult their tax advisors in
determining the application of these rules in their particular circumstances.
U.S. Shareholders
who have not “opted-out” of the Fund’s DRIP will have their cash dividends and distributions automatically reinvested
in additional Shares, rather than receiving cash dividends and distributions. Any dividends or distributions reinvested under the plan
will nevertheless remain taxable to U.S. Shareholders. A U.S. Shareholder will have an adjusted basis in the additional Shares purchased
through the DRIP equal to the dollar amount that would have been received if the U.S. Shareholder had received the dividend or distribution
in cash, unless the Fund were to issue new Shares that are trading at or above net asset value, in which case, the U.S. Shareholder’s
basis in the new Shares would generally be equal to their fair market value. The additional Shares will have a new holding period commencing
on the day following the day on which the Shares are credited to the U.S. Shareholder’s account.
The Fund
expects to be treated as a “publicly offered regulated investment company.” As a “publicly offered regulated investment
company,” in addition to the Fund’s DRIP, the Fund may choose to pay a majority of a required dividend in Shares rather than
cash. In order for the distribution to qualify for the Annual Distribution Requirement, the dividend must be payable at the election of
each Shareholder in cash or Shares (or a combination of the two), but may have a “cash cap” that limits the total amount of
cash paid to not less than 20% of the entire distribution. If Shareholders in the aggregate elect to receive an amount of cash greater
than the Fund’s cash cap, then each Shareholder who elected to receive cash will receive a pro rata share of the cash and the
rest of their distribution in Shares of the Fund. The value of the portion of the distribution made in Shares will be equal to the amount
of cash for which the Shares is substituted, and the Fund’s U.S. Shareholders will be subject to tax on such amount as though they
had received cash.
The Fund
may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate-level tax rates on the amount retained,
and therefore designate the retained amount as a “deemed dividend.” In this case, the Fund may report the retained amount
as undistributed capital gains to its U.S. Shareholders, who will be treated as if each U.S. Shareholder received a distribution of its
pro rata share of this gain, with the result that each U.S. Shareholder will (i) be required to report its pro rata share
of this gain on its tax return as long-term capital gain, (ii) receive a refundable tax credit for its pro rata share of tax
paid by the Fund on the gain, and (iii) increase the tax basis for its Shares by an amount equal to the deemed
86
distribution less the tax credit. In order
to utilize the deemed distribution approach, the Fund must provide written notice to its Shareholders prior to the expiration of 60 days
after the close of the relevant taxable year. The Fund cannot treat any of its investment company taxable income as a “deemed distribution.”
For purposes
of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gains
dividends paid for that year, the Fund may, under certain circumstances, elect to treat a dividend that is paid during the following taxable
year as if it had been paid during the taxable year in question. If the Fund makes such an election, a U.S. Shareholder will still be
treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by the Fund in
October, November or December of any calendar year, payable to Shareholders of record on a specified date in such a month and actually
paid during January of the following year, will be treated as if it had been received by the Fund’s Shareholders on December 31
of the year in which the dividend was declared.
If a U.S.
Shareholder receives Shares in the Fund shortly before the record date of a distribution, the value of the Shares will include the value
of the distribution and such U.S. Shareholder will be subject to tax on the distribution even though it economically represents a return
of its investment.
A U.S.
Shareholder generally will recognize taxable gain or loss if the U.S. Shareholder redeems, sells or otherwise disposes of its Shares in
the Fund. The amount of gain or loss will be measured by the difference between a U.S. Shareholder’s adjusted tax basis in the Shares
sold, redeemed or otherwise disposed of and the amount of the proceeds received in exchange. Any gain or loss arising from such sale,
redemption or other disposition generally will be treated as long-term capital gain or loss if the U.S. Shareholder has held his, her
or its Shares for more than one year. Otherwise, such gain or loss will be classified as short-term capital gain or loss. However, any
capital loss arising from the sale, redemption or other disposition of the Fund’s Shares held for six months or less will be
treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed
received, with respect to such Shares. In addition, all or a portion of any loss recognized upon a disposition of the Fund’s Shares
may be disallowed if substantially identical stock or securities are purchased (whether through reinvestment of distributions or otherwise)
within 30 days before or after the disposition. In such case, any disallowed loss is generally added to the U.S. Shareholder’s
adjusted tax basis of the acquired Shares.
In general,
U.S. Shareholders that are individuals, trusts or estates are taxed at preferential rates on their net capital gain. Such rates are lower
than the maximum rate on ordinary income currently payable by individuals. Corporate U.S. Shareholders currently are subject to U.S. federal
income tax on net capital gain and ordinary income at the same maximum rate. A non-corporate U.S. Shareholders with net capital losses
for a year (i.e., capital loss in excess of capital gain) generally may deduct up to $3,000 of such losses against its ordinary income
each year; any net capital losses of a non-corporate U.S. Shareholder in excess of $3,000 generally may be carried forward and used in
subsequent years as provided in the Code. Corporate U.S. Shareholders generally may not deduct any net capital losses for a year,
but may carry back such losses for three years or carry forward such losses for five years.
The
Fund will furnish to its Shareholders as soon as practicable after the end of each taxable year information on Form 1099-DIV to assist
Shareholders in preparing their tax returns. In addition, the U.S. federal tax status of each year’s distributions generally will
be reported to the IRS (including the amount of dividends, if any, eligible for the preferential rates applicable to long-term capital
gains). Distributions by the Fund out of current or accumulated earnings and profits also generally will not be eligible for the 20% pass
through deduction under Section 199A of the Code, although under recently released U.S. Treasury regulations, qualified REIT dividends
earned by the Fund may qualify for the Section 199A deduction. Distributions may also be subject to additional state, local and non-U.S.
taxes depending on a U.S. Shareholder’s particular situation.
Legislation
requires reporting of adjusted cost basis information for covered securities, which generally include shares of a RIC, to the Internal
Revenue Service and to taxpayers. U.S. Shareholders are urged to consult their own tax advisers to determine the applicability of these
regulations in light of their individual circumstances.
Income from Repurchases
of Shares
In
General. A U.S. Shareholder who participates in a repurchase of Shares will,
depending on such U.S. Shareholder’s particular circumstances, and as set forth further under “Sale or Exchange Treatment”
and
87
“Distribution Treatment,”
be treated either as recognizing gain or loss from the disposition of its Shares or as receiving a distribution from the Fund with respect
to its Shares. Under each of these approaches, a U.S. Shareholder’s realized income and gain (if any) would be calculated differently.
Under the “sale or exchange” approach, a U.S. Shareholder generally would be allowed to recognize a taxable loss (if the repurchase
proceeds are less than the U.S. Shareholder’s adjusted tax basis in the Shares tendered and repurchased).
Sale
or Exchange Treatment. In general, the tender and repurchase of the Fund’s
Shares should be treated as a sale or exchange of the Shares by a U.S. Shareholder if the receipt of cash:
•
results
in a “complete termination” of such U.S. Shareholder’s ownership of Shares in the Fund;
•
results
in a “substantially disproportionate” redemption with respect to such U.S. Shareholder; or
•
is
“not essentially equivalent to a dividend” with respect to the U.S. Shareholder.
In applying
each of the tests described above, a U.S. Shareholder must take account of Shares that such U.S. Shareholder constructively owns under
detailed attribution rules set forth in the Code, which generally treat the U.S. Shareholder as owning Shares owned by certain related
individuals and entities, and Shares that the U.S. Shareholder has the right to acquire by exercise of an option, warrant or right of
conversion. U.S. Shareholders are urged to consult their tax advisors regarding the application of the constructive ownership rules to
their particular circumstances.
A sale
of Shares pursuant to a repurchase of Shares by the Fund generally will result in a “complete termination” if either (i) the
U.S. Shareholder owns none of the Fund’s Shares, either actually or constructively, after the Shares are sold pursuant to a repurchase,
or (ii) the U.S. Shareholder does not actually own any of the Fund’s Shares immediately after the sale of Shares pursuant to
a repurchase and, with respect to Shares constructively owned, is eligible to waive, and effectively waives, constructive ownership of
all such Shares. U.S. Shareholders wishing to satisfy the “complete termination” test through waiver of attribution are urged
to consult their tax advisors.
A sale
of Shares pursuant to a repurchase of Shares by the Fund will result in a “substantially disproportionate” redemption with
respect to a U.S. Shareholder if the percentage of the then outstanding Shares actually and constructively owned by such U.S. Shareholder
immediately after the sale is less than 80% of the percentage of the Shares actually and constructively owned by such U.S. Shareholder
immediately before the sale. If a sale of Shares pursuant to a repurchase fails to satisfy the “substantially disproportionate”
test, the U.S. Shareholder may nonetheless satisfy the “not essentially equivalent to a dividend” test.
A sale
of Shares pursuant to a repurchase of Shares by the Fund will satisfy the “not essentially equivalent to a dividend” test
if it results in a “meaningful reduction” of the U.S. Shareholder’s proportionate interest in the Fund. A sale of Shares
that actually reduces the percentage of the Fund’s outstanding Shares owned, including constructively, by such Shareholder
would likely be treated as a “meaningful reduction” even if the percentage reduction is relatively minor, provided that
the U.S. Shareholder’s relative interest in Shares of the Fund is minimal (e.g., less than 1%) and the U.S. Shareholder does not
exercise any control over or participate in the management of the Fund’s corporate affairs. Any person that has an ownership position
that allows some exercise of control over or participation in the management of corporate affairs will not satisfy the meaningful reduction
test unless that person’s ability to exercise control over or participate in management of corporate affairs is materially reduced
or eliminated.
Substantially
contemporaneous dispositions or acquisitions of Shares by a U.S. Shareholder or a related person that are part of a plan viewed as an
integrated transaction with a repurchase of Shares may be taken into account in determining whether any of the tests described above are
satisfied.
If a U.S.
Shareholder satisfies any of the tests described above, the U.S. Shareholder will recognize gain or loss in an amount equal to the difference,
if any, between the amount of cash received and such U.S. Shareholder’s tax basis in the repurchased Shares. Any such gain or loss
will be capital gain or loss and will be long-term capital gain or loss if the holding period of the Shares exceeds one year as of the
date of the repurchase. Specified limitations apply to the deductibility of capital losses by U.S. Shareholders. However, if a U.S. Shareholder’s
tendered and repurchased Shares have previously paid a long-term capital gain distribution (including, for this purpose, amounts credited
as an undistributed capital gain) and such Shares
88
were held for six months or less,
any loss realized will be treated as a long-term capital loss to the extent that it offsets the long-term capital gain distribution.
Any
loss realized on a sale or exchange will be disallowed to the extent the Shares disposed of are replaced within a 61-day period beginning
30 days before and ending 30 days after the disposition of the Shares. In such a case, the basis of the Shares acquired will
be increased to reflect the disallowed loss.
Distribution
Treatment. If a U.S. Shareholder does not satisfy any of the tests described
above, and therefore does not qualify for sale or exchange treatment, the U.S. Shareholder may be treated as having received, in whole
or in part, a taxable dividend, a tax-free return of capital or taxable capital gain, depending on (i) whether the Fund has sufficient
earnings and profits to support a dividend and (ii) the U.S. Shareholder’s tax basis in the relevant Shares. The amount of
any distribution in excess of the Fund’s current and accumulated earnings and profits, if any, would be treated as a non-taxable
return of investment to the extent, generally, of the U.S. Shareholder’s basis in the Shares remaining. If the portion not treated
as a dividend exceeds the U.S. Shareholder’s basis in the Shares remaining, any such excess will be treated as capital gain from
the sale or exchange of the remaining Shares. Any such gain will be capital gain and will be long-term capital gain if the holding period
of the Shares exceeds one year as of the date of the exchange. If the tendering U.S. Shareholder’s tax basis in the Shares tendered
and repurchased exceeds the total of any dividend and return of capital distribution with respect to those Shares, the excess amount of
basis from the tendered and repurchased Shares will be reallocated pro rata among the bases of such U.S. Shareholder’s remaining
Shares.
Provided
certain holding period and other requirements are satisfied, certain non-corporate U.S. Shareholders generally will be subject to U.S.
federal income tax at a maximum rate of 20% on amounts treated as a dividend. This reduced rate will apply to: (i) 100% of the dividend
if 95% or more of the Fund’s gross income (ignoring gains attributable to the sale of stocks and securities except to the extent
net short-term capital gain from such sales exceeds net long-term capital loss from such sales) in that taxable year is attributable to
qualified dividend income; or (ii) the portion of the dividends paid by the Fund to an individual in a particular taxable year that
is attributable to qualified dividend income received by the Fund this year if such qualified dividend income accounts for less than 95%
of the Fund’s gross income (ignoring gains attributable to the sale of stocks and securities except to the extent net short-term
capital gains from such sales exceeds net long-term capital loss from such sales) for that taxable year. Such a dividend will be taxed
in its entirety, without reduction for the U.S. Shareholder’s tax basis of the repurchased Shares. To the extent that a tender and
repurchase of a U.S. Shareholder’s Shares is treated as the receipt by the U.S. Shareholder of a dividend, the U.S. Shareholder’s
remaining adjusted basis (reduced by the amount, if any, treated as a return of capital) in the tendered and repurchased Shares will be
added to any Shares retained by the U.S. Shareholder.
To the
extent that cash received in exchange for Shares is treated as a dividend to a corporate U.S. Shareholder, (i) it may be eligible
for a dividends-received deduction to the extent attributable to dividends received by the Fund from domestic corporations, and (ii) it
may be subject to the “extraordinary dividend” provisions of the Code. Corporate U.S. Shareholders are urged to consult their
tax advisors concerning the availability of the dividends-received deduction and the application of the “extraordinary dividend”
provisions of the Code in their particular circumstances. No portion of any dividend is expected to be eligible for the dividends received
deduction.
If the
sale of Shares pursuant to a repurchase of Shares by the Fund is treated as a dividend to a U.S. Shareholder rather than as an exchange,
the other Shareholders, including any non-tendering Shareholders, could be deemed to have received a taxable stock distribution if such
Shareholder’s interest in the Fund increases as a result of the repurchase. This deemed dividend would be treated as a dividend
to the extent of current or accumulated earnings and profits allocable to it. A proportionate increase in a U.S. Shareholder’s interest
in the Fund will not be treated as a taxable distribution of Shares if the distribution qualifies as an isolated redemption of Shares
as described in Treasury regulations. All Shareholders are urged to consult their tax advisors about the possibility of deemed distributions
resulting from a repurchase of Shares by the Fund.
Taxation of Tax-Exempt
Investors
Under
current law, the Fund generally serves to prevent the attribution to Shareholders of unrelated business taxable income (“UBTI”)
from being realized by its tax-exempt Shareholders (including, among
89
others, individual retirement accounts,
401(k) accounts, Keogh plans, pension plans and certain charitable entities). Notwithstanding the foregoing, a tax-exempt Shareholder
could realize UBTI by virtue of its investment in Shares if such tax-exempt Shareholder borrows to acquire its Shares.
Tax Shelter Reporting Regulations
Under
U.S. Treasury regulations, if a U.S. Shareholder recognizes a loss with respect to Shares of the Fund in excess of $2 million or
more for a non-corporate U.S. Shareholder or $10 million or more for a corporate U.S. Shareholder in any single taxable year, such
Shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of “portfolio securities” in many
cases are excepted from this reporting requirement, but, under current guidance, equity owners of a RIC are not excepted. The fact that
a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the
loss is proper. Significant monetary penalties apply to a failure to comply with this reporting requirement. States may also have a similar
reporting requirement. U.S. Shareholders are urged to consult their tax advisors to determine the applicability of these regulations in
light of their individual circumstances.
Net Investment Income Tax
An additional
3.8% surtax applies to the net investment income of non-corporate U.S. Shareholders (other than certain trusts) on the lesser of (i) the
U.S. Shareholder’s “net investment income” for a taxable year and (ii) the excess of the U.S. Shareholder’s
modified adjusted gross income for the taxable year over $200,000 ($250,000 in the case of joint filers). For these purposes, “net
investment income” generally includes interest and taxable distributions and deemed distributions paid with respect to Shares, and
net gain attributable to the disposition of Shares (in each case, unless the Shares are held in connection with certain trades or businesses),
but will be reduced by any deductions properly allocable to these distributions or this net gain.
Information Reporting and
Backup Withholding
The
Fund may be required to withhold, for U.S. federal income taxes, a portion of all taxable distributions payable U.S. Shareholders (a) who
fail to provide the Fund with their correct taxpayer identification numbers (TINs) or who otherwise fail to make required certifications
or (b) with respect to whom the IRS notifies the Fund that this U.S. Shareholder is subject to backup withholding. Certain U.S. Shareholders
specified in the Code and the Treasury regulations promulgated thereunder are exempt from backup withholding but may be required to provide
documentation to establish their exempt status. Backup withholding is not an additional tax. Any amounts withheld will be allowed as a
refund or a credit against the U.S. Shareholder’s U.S. federal income tax liability if the appropriate information is timely provided
to the IRS. Failure by a U.S. Shareholder to furnish a certified TIN to the Fund could subject the U.S. Shareholder to a penalty imposed
by the IRS.
Sections 1471-1474
of the Code and the U.S. Treasury and IRS guidance issued thereunder (collectively, “FATCA”) generally require that the Fund
obtains information sufficient to identify the status of each Shareholder under FATCA or under an applicable intergovernmental agreement
(an “IGA”) between the United States and a foreign government. If a Shareholder fails to provide the requested information
or otherwise fails to comply with FATCA or an IGA, the Fund may be required to withhold under FATCA at a rate of 30% with respect to that
Shareholder on ordinary dividends it pays. The IRS and the Department of Treasury have issued proposed regulations providing that these
withholding rules will not apply to the gross proceeds of share redemptions or capital gain dividends the Fund pays. If a payment is subject
to FATCA withholding, the Fund is required to withhold even if such payment would otherwise be exempt from withholding under the rules
applicable to foreign Shareholders.
Other Taxation
Shareholders
may be subject to state, local and foreign taxes on their distributions from the Shares. Shareholders are urged to consult their own tax
advisors with respect to the particular tax consequences to them of an investment in the Shares.
ALL
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE U.S. FEDERAL INCOME AND WITHHOLDING TAX CONSEQUENCES, AND STATE,
LOCAL AND NON-U.S. TAX CONSEQUENCES, OF AN INVESTMENT IN THE FUND’S SHARES.
90
CUSTODIAN
UMB Bank,
N.A. serves as the custodian of the assets of the Fund and may maintain custody of such assets with U.S. and non-U.S. sub-custodians (which
may be banks and trust companies), securities depositories and clearing agencies in accordance with the requirements of Section 17(f)
of the Investment Company Act and the rules thereunder. Assets of the Fund are not held by the Adviser or commingled with the assets of
other accounts other than to the extent that securities are held in the name of the Custodian or U.S. or non-U.S. sub-custodians in a
securities depository, clearing agency or omnibus customer account of such custodian. The Custodian’s principal business address
is 928 Grand Blvd., 28th
Floor, Kansas City, MO 64106.
ADMINISTRATION
AND ACCOUNTING SERVICES
The Fund
has entered into an Administration and Fund Accounting Agreement with ALPS Fund Services, Inc. under which the Administrator
performs certain administration and accounting services for the Fund, including, among other things: customary fund accounting services,
including computing the Fund’s net asset values and maintaining books, records and other documents relating to the Fund’s
financial and portfolio transactions, and customary fund administration services, including assisting the Fund with regulatory filings,
tax compliance and other oversight activities. In consideration for these services, the Fund pays the Administrator tiered fees based
on the average monthly net asset value of the Fund, subject to a minimum annual fee, as well as certain other fixed, per-account or transactional
fees. The Administration Fee is paid to the Administrator out of the assets of the Fund and therefore decreases the net profits or increases
the net losses of the Fund. The Fund also reimburses the Administrator for certain out-of-pocket expenses and pays the Administrator a
fee for transfer agency services.
The Administrator’s
principal business address is 1290 Broadway, Suite 1000, Denver, CO 80203.
TRANSFER
AGENT AND DIVIDEND PAYING AGENT
DST Asset
Manager Solutions, Inc., whose principal business address is 1055 Broadway, Kansas City, MO 64105, serves as the Fund’s transfer
agent with respect to the Shares.
DST Systems,
Inc. serves as the Fund’s dividend paying agent.
FISCAL
YEAR; REPORTS TO SHAREHOLDERS
The Fund’s
fiscal year is the 12-month period ending on March 31st. The Fund’s taxable year is the 12-month period ending on September 30th.
The Fund
will provide Shareholders with an audited annual report and an unaudited semi-annual report within 60 days after the close of the
reporting period for which the report is being made, or as otherwise required by the Investment Company Act. Shareholders will also receive
quarterly commentary regarding the Fund’s operations and investments.
The Fund
will furnish to Shareholders as soon as practicable after the end of each taxable year information on Form 1099 to assist Shareholders
in preparing their tax returns.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst
& Young LLP serves as the independent registered public accounting firm of the Fund. Its principal business address is One Manhattan
West, New York, New York 10001.
LEGAL
COUNSEL
Kirkland
& Ellis LLP, 601 Lexington Avenue, New York, New York 10022, serves as legal counsel to the Fund. No attorney-client relationship
exists, however, between Kirkland & Ellis LLP and any other person solely by reason of such other person investing in the Fund.
91
92
ARES
PRIVATE MARKETS FUND
Class A
Shares (AMSAX)
Class D Shares (AMSDX)
Class I Shares (AMSIX)
Class D Shares (AMSDX)
Class I Shares (AMSIX)
PROSPECTUS
March 20,
2024
All
dealers that effect transactions in these Shares, whether or not participating in this offering, may be required to deliver a Prospectus.
ARES PRIVATE MARKETS FUND
Class A Shares (AMSAX)
Class D Shares (AMSDX)
Class I Shares (AMSIX)
Class D Shares (AMSDX)
Class I Shares (AMSIX)
March 20, 2024
Ares Private Markets Fund (the “Fund”) is a non-diversified, closed-end management investment company. This Statement of Additional Information (“SAI”) relating to the Shares does not constitute a prospectus, but should be read in conjunction with the Prospectus relating thereto dated March 20, 2024. This SAI, which is not a prospectus, does not include all information that a prospective investor should consider before purchasing Shares, and investors should obtain and read the Prospectus prior to purchasing such Shares. A copy of the Prospectus may be obtained without charge by calling 1-866-324-7348, by writing to the Fund at 245 Park Avenue, 44th Floor, New York, New York 10167 or wmsoperations@aresmgmt.com, or by visiting www.areswms.com/ares-wealth-management-solutions/investors/apmf. You may also obtain a copy of the Prospectus on the SEC’s website at http://www.sec.gov. Capitalized terms used but not defined in this SAI have the meanings ascribed to them in the Prospectus.
References to the Investment Company Act, or other applicable law, will include any rules promulgated thereunder and any guidance, interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, including court interpretations, and exemptive, no-action or other relief or permission from the SEC, SEC staff or other authority.
Table of Contents
| | | | | | 1 | | | |
| | | | | | 2 | | | |
| | | | | | 11 | | | |
| | | | | | 18 | | | |
| | | | | | 19 | | | |
| | | | | | 20 | | | |
| | | | | | 21 | | | |
| | | | | | A-1 | | | |
| | | | | | B-1 | | |
i
ADDITIONAL INVESTMENT POLICIES
The investment objective and the principal investment strategies of the Fund, as well as the principal risks associated with such investment strategies, are set forth in the Prospectus. The following disclosure supplements the disclosure set forth under the captions “Investment Objective and Strategy” and “Risks” in the Prospectus and does not, by itself, present a complete or accurate explanation of the matters discussed. Prospective investors also should refer to “Investment Objective and Strategy” and “Risks” in the Prospectus for a complete presentation of the matters disclosed below.
Fundamental Policies
The Fund has adopted restrictions and policies relating to the investment of the Fund’s assets and its activities. Certain of the restrictions are fundamental policies of the Fund and may not be changed without the approval of a majority of the Fund’s outstanding voting securities (as defined by the Investment Company Act). For this purpose, under the Investment Company Act, the vote of a “majority of the outstanding voting securities of the Fund” means the vote, at an annual or special meeting of the Shareholders duly called, (i) of 67% or more of the Shares represented at such meeting, if the holders of more than 50% of the outstanding Shares are present in person or represented by proxy or (ii) of more than 50% of the outstanding Shares, whichever is less. No other policy is a fundamental policy of the Fund, except as expressly stated.
The Fund’s fundamental investment restrictions are as follows:
1.
The Fund will not invest 25% or more of the value of its total assets in the securities (other than U.S. Government securities) of issuers engaged in any single industry or groups of industries. For the avoidance of doubt, this 25% limitation on investment in a single industry or groups of industries does not restrict or limit: (i) the Fund’s authority to invest 25% or more of the value of its total assets in Portfolio Funds; or (ii) the Fund’s ability to invest in U.S. Government securities or such other securities as may be excluded for this purpose under the Investment Company Act.
2.
The Fund will not issue senior securities or borrow money, except to the extent permitted by the Investment Company Act.
3.
The Fund will not underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act in selling its own securities or portfolio securities.
4.
The Fund will not make loans of money or securities to other persons, except that (i) the Fund will not be deemed to be making a loan to the extent that the Fund makes investments in fixed-income securities or enters into repurchase agreements in a manner consistent with its stated investment policies; (ii) the Fund may take short positions in any security or financial instrument; and (iii) the Fund may lend its portfolio securities in an amount not in excess of 331∕3% of its total assets, taken at market value, provided that such loans shall be made in accordance with applicable law.
5.
The Fund will not purchase or sell physical commodities or commodity contracts, except to the extent permitted under the Investment Company Act, the rules and regulations thereunder and any applicable exemptive relief or unless otherwise acquired as a result of the ownership of securities or instruments, but this restriction shall not prohibit the Fund from purchasing and selling foreign currency, options, swaps, futures and forward contracts and other financial instruments and contracts, including those related to indexes, and options on indices, and may invest in commodity pools and other entities that purchase and sell commodities and commodity contracts. For purposes of the limitation on commodities, the Fund does not consider foreign currencies or forward contracts to be physical commodities.
6.
The Fund will not purchase, hold or deal in real estate, except the Fund may purchase and hold securities or other instruments that are secured by, or linked to, real estate or interests therein, securities of real estate investment trusts, mortgage-related securities and securities of issuers engaged in the real estate business, and the Fund may purchase and hold real estate as a result of the ownership of securities or other instruments (including interests in Portfolio Funds).
With respect to the fundamental policy relating to concentration set forth in (1) above, the Investment Company Act does not define what constitutes “concentration” in an industry or groups of industries. The
1
SEC staff has taken the position that investment of 25% or more of a fund’s total assets in one or more issuers conducting their principal activities in the same industry or group of industries constitutes concentration. It is possible that interpretations of concentration could change in the future. The policy in (1) above will be interpreted to refer to concentration as that term may be interpreted from time to time. The policy also will be interpreted to permit investment without limit in the following: securities of the U.S. Government and its agencies or instrumentalities; tax exempt securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions; and repurchase agreements collateralized by any such obligations. Accordingly, issuers of the foregoing securities will not be considered to be members of any industry. There also will be no limit on investment in issuers domiciled in a single jurisdiction or country. Finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents. Each foreign government will be considered to be a member of a separate industry. With respect to the Fund’s industry classifications, the Fund currently utilizes any one or more of the industry sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by Ares Capital Management II LLC, the Fund’s investment adviser (the “Adviser”). The policy also will be interpreted to give broad authority to the Fund as to how to classify issuers within or among industries.
The investment restrictions and other policies described herein do not apply to Portfolio Funds. The Fund will, however, consider the investments held by Portfolio Funds, to the extent known, in determining whether its investments are concentrated in any particular industry or groups of industries.
Unless otherwise indicated, all limitations under the Fund’s investment restrictions apply only at the time that a transaction is undertaken. Any change in the percentage of the Fund’s assets invested in certain securities or other instruments resulting from market fluctuations or other changes in the Fund’s total assets, including changes resulting from the Fund having a smaller base of assets after a repurchase offer, will not require the Fund to dispose of an investment until the Adviser determines that such disposition is in the Fund’s best interest.
The fundamental investment limitations set forth above restrict the ability of the Fund to engage in certain practices and purchase securities and other instruments other than as permitted by, or consistent with, applicable law, including the Investment Company Act. These limitations are based either on the Investment Company Act itself, the rules or regulations thereunder or applicable orders of the SEC. In addition, interpretations and guidance provided by the SEC staff may be taken into account to determine if a certain practice or the purchase of securities or other instruments is permitted by the Investment Company Act, the rules or regulations thereunder or applicable orders of the SEC. As a result, the foregoing fundamental investment policies may be interpreted differently over time as the statute, rules, regulations or orders (or, if applicable, interpretations) that relate to the meaning and effect of these policies change, and no vote of Shareholders, as applicable, will be required or sought.
The Fund’s investment objective is non-fundamental and may be changed with the approval of the Fund’s Board upon 60 days’ prior written notice to Shareholders.
INVESTMENT PRACTICES, TECHNIQUES AND RISKS
The following information supplements the discussion of the Fund’s investment objective, policies, techniques and risks that are described in the Prospectus. The Fund may invest in the following instruments and use the following investment techniques, subject to any limitations set forth in the Prospectus. There is no guarantee the Fund will buy all of the types of securities or use any or all of the investment techniques described herein.
Cash Equivalents and Short-Term Debt Securities. For temporary defensive purposes, the Fund may invest up to 100% of its assets in cash equivalents and short-term debt securities. Short-term debt securities are defined to include, without limitation, the following:
•
U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government securities include securities issued by: (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association, the securities of which are
2
supported by the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks and Tennessee Valley Authority, the securities of which are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association, the securities of which are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing Association, the securities of which are supported only by its credit. While the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate.
•
Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Certificates of deposit purchased by the Fund may not be fully insured by the Federal Deposit Insurance Corporation.
•
Repurchase agreements, which involve purchases of debt securities.
•
Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Fund at any time. The Adviser will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporation’s ability to meet all of its financial obligations, because the Fund’s liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the highest categories by a major rating agency and which mature within one year of the date of purchase or carry a variable or floating rate of interest.
Derivatives. A derivative is generally a financial contract the value of which depends on, or is derived from, changes in the value of one or more “reference instruments,” such as underlying assets (including securities), reference rates, indices or events. Derivatives may relate to stocks, bonds, credit, interest rates, commodities, currencies or currency exchange rates, or related indices. A derivative may also contain leverage to magnify the exposure to the reference instrument. Derivatives may be traded on organized exchanges and/or through clearing organizations, or in private transactions with other parties in the over-the-counter (“OTC”) market with a single dealer or a prime broker acting as an intermediary with respect to an executing dealer. Derivatives may be used for hedging purposes and non-hedging (or speculative) purposes. Some derivatives require one or more parties to post “margin,” which means that a party must deposit assets with, or for the benefit of, a third party, such as a futures commission merchant, in order to initiate and maintain the derivatives position.
Use of derivatives is a highly specialized activity that can involve investment techniques and risks different from, and in some respects greater than, those associated with investing in more traditional investments, such as stocks and bonds. Derivatives can be highly complex and highly volatile and may perform in unanticipated ways. Derivatives can create leverage, which can magnify the impact of a decline in the value of the reference instrument underlying the derivative, and the Fund could lose more than the amount it invests. Derivatives can have the potential for unlimited losses, for example, where the Fund may be called upon to deliver a security it does not own. Derivatives may at times be highly illiquid, and the Fund may not be able to close out or sell a derivative at a particular time or at an anticipated price. Derivatives can be difficult to value and valuation may be more difficult in times of market turmoil. Derivatives may involve risks different from, and possibly greater than, the risks associated with investing directly in the reference instrument. Suitable derivatives may not be available in all circumstances, and there can be no assurance that the Fund will use derivatives to reduce exposure to other risks when that might have been beneficial. Derivatives may involve fees, commissions, or other costs that may reduce the Fund’s gains or exacerbate losses from the derivatives. Certain aspects of the regulatory treatment of derivative instruments, including federal income tax, are currently unclear and may be affected by changes in legislation, regulations, or other legally binding authority.
Derivatives involve counterparty risk, which is the risk that the other party to the derivative will fail to make required payments or otherwise comply with the terms of the derivative. Counterparty risk may arise because
3
of market activities and developments, the counterparty’s financial condition (including financial difficulties, bankruptcy, or insolvency), or other reasons. Not all derivative transactions require a counterparty to post collateral, which may expose the Fund to greater losses in the event of a default by a counterparty. Counterparty risk is generally thought to be greater with OTC derivatives than with derivatives that are exchange traded or centrally cleared. However, derivatives that are traded on organized exchanges and/or through clearing organizations involve the possibility that the futures commission merchant or clearing organization will default in the performance of its obligations.
When the Fund uses derivatives, it will likely be required to provide margin or collateral and/or segregate cash or other liquid assets; these practices are intended to satisfy contractual undertakings and regulatory requirements and will not prevent the Fund from incurring losses on derivatives. The need to provide margin or collateral and/or segregate assets could limit the Fund’s ability to pursue other opportunities as they arise. Segregated assets are not available to meet redemptions. The amount of assets required to be segregated will depend on the type of derivative the Fund uses and the nature of the contractual arrangement. If the Fund is required to segregate assets equal to only the current market value of its obligation under a derivative, the Fund may be able to use derivatives to a greater extent, which would increase the degree of leverage the Fund could undertake through derivatives and otherwise, than if it were required to segregate assets equal to the full notional value of such derivative. Derivatives that have margin requirements involve the risk that if the Fund has insufficient cash or eligible margin securities to meet daily variation margin requirements, it may have to sell securities or other instruments from its portfolio at a time when it may be disadvantageous to do so. The Fund normally will remain obligated to meet margin requirements until a derivatives position is closed.
Rule 18f-4 under the Investment Company Act regulates and limits the Fund’s use of derivatives. The Fund is a “limited derivatives user,” as defined in Rule 18f-4, and has adopted policies and procedures to monitor compliance with such qualification. In the event the Fund were not able to qualify as a limited derivatives user, the rule would, among other things, require the Fund to establish a comprehensive derivatives risk management program, to comply with certain value-at-risk based leverage limits, to appoint a derivatives risk manager and to provide additional disclosure both publicly and to the SEC regarding its derivatives positions.
Options. The Fund may purchase put and call options on currencies or securities. A put option gives the purchaser the right to compel the writer of the option to purchase from the option holder an underlying currency or security or its equivalent at a specified price at any time during the option period. In contrast, a call option gives the purchaser the right to buy the underlying currency or security covered by the option or its equivalent from the writer of the option at the stated exercise price. As a holder of a put option, the Fund will have the right to sell the currencies or securities underlying the option and as the holder of a call option, the Fund will have the right to purchase the currencies or securities underlying the option, in each case at their exercise price at any time prior to the option’s expiration date. The Fund may seek to terminate its option positions prior to their expiration by entering into closing transactions. The ability of the Fund to enter into a closing sale transaction depends on the existence of a liquid secondary market. There can be no assurance that a closing purchase or sale transaction can be effected when the Fund so desires.
The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of options involves the risk that the premium and transaction costs paid by the Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities on which the option is based. Imperfect correlation between the options and securities markets may detract from the effectiveness of attempted hedging. Options transactions may result in significantly higher transaction costs and portfolio turnover for the Fund.
Some, but not all, of the Fund’s options may be traded and listed on an exchange. There is no assurance that a liquid secondary market on an options exchange will exist for any particular option at any particular time, and for some options no secondary market on an exchange or elsewhere may exist. If the Fund is unable to effect a closing sale transaction with respect to options on securities that it has purchased, it would have to exercise the option to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities.
4
Futures Contracts. The Fund may enter into securities-related futures contracts, including security futures contracts. The Fund will not enter into futures contracts that are prohibited under the Commodity Exchange Act, as amended (the “CEA”), and will, to the extent required by regulatory authorities, enter only into futures contracts that are traded on exchanges and are standardized as to maturity date and underlying financial instrument. A security futures contract is a legally binding agreement between two parties to purchase or sell in the future a specific quantity of a security or of the component securities of a narrow-based security index, at a certain price. A person who buys a security futures contract enters into a contract to purchase an underlying security and is said to be “long” the contract. A person who sells a security futures contract enters into a contract to sell the underlying security and is said to be “short” the contract. The price at which the contract trades (the “contract price”) is determined by relative buying and selling interest on a regulated exchange.
An open position, either a long or short position, is typically closed or liquidated by entering into an offsetting transaction (i.e., an equal and opposite transaction to the one that opened the position) prior to the contract expiration. Traditionally, most futures contracts are liquidated prior to expiration through an offsetting transaction and, thus, holders do not incur a settlement obligation. If the offsetting purchase price is less than the original sale price, a gain will be realized; if it is more, a loss will be realized. Conversely, if the offsetting sale price is more than the original purchase price, a gain will be realized; if it is less, a loss will be realized. The transaction costs must also be included in these calculations. However, there can be no assurance that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract and the Fund may not be able to realize a gain in the value of its future position or prevent losses from mounting. This inability to liquidate could occur, for example, if trading is halted due to unusual trading activity in either the security futures contract or the underlying security; if trading is halted due to recent news events involving the issuer of the underlying security; if systems failures occur on an exchange or at the firm carrying the position; or, if the position is on an illiquid market. Even if the Fund can liquidate its position, it may be forced to do so at a price that involves a large loss. Because of the low margin deposits required, futures contracts trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in an immediate and substantial loss or gain to the investor.
There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures contract position. The Fund would continue to be required to meet margin requirements until the position is closed, possibly resulting in a decline in the Fund’s net asset value. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist.
Security futures contracts that are not liquidated prior to expiration must be settled in accordance with the terms of the contract. Depending on the terms of the contract, some security futures contracts are settled by physical delivery of the underlying security. Settlement with physical delivery may involve additional costs. Depending on the terms of the contract, other security futures contracts are settled through cash settlement. In this case, the underlying security is not delivered. Instead, any positions in such security futures contracts that are open at the end of the last trading day are settled through a final cash payment based on a final settlement price determined by the exchange or clearing organization. Once this payment is made, neither party has any further obligations on the contract.
In addition, the value of a position in security futures contracts could be affected if trading is halted in either the security futures contract or the underlying security. In certain circumstances, regulated exchanges are required by law to halt trading in security futures contracts. The regulated exchanges may also have discretion under their rules to halt trading in other circumstances, such as when the exchange determines that the halt would be advisable in maintaining a fair and orderly market. A trading halt, either by a regulated exchange that trades security futures or an exchange trading the underlying security or instrument, could prevent the Fund from liquidating a position in security futures contracts in a timely manner, which could expose the Fund to a loss.
Each regulated exchange trading a security futures contract may also open and close for trading at different times than other regulated exchanges trading security futures contracts or markets trading the underlying
5
security or securities. Trading in security futures contracts prior to the opening or after the close of the primary market for the underlying security may be less liquid than trading during regular market hours.
Swap Agreements. The Fund may enter into swap agreements. In a standard “swap” transaction, two parties agree to exchange the returns, differentials in rates of return or some other amount earned or realized on the “notional amount” of predetermined investments or instruments, which may be adjusted for an interest factor. Some swaps are structured to include exposure to a variety of different types of investments or market factors, such as interest rates, commodity prices, non-U.S. currency rates, mortgage securities, corporate borrowing rates, security prices, indexes or inflation rates. Swap agreements may be negotiated bilaterally and traded OTC between two parties or, in some instances, must be transacted through a futures commission merchant and cleared through a clearinghouse that serves as a central counterparty. Certain risks are reduced (but not eliminated) if a fund invests in cleared swaps. Certain standardized swaps, including certain credit default swaps, are subject to mandatory clearing, and more are expected to be in the future. The counterparty risk for cleared derivatives is generally lower than for uncleared derivatives, but cleared contracts are not risk-free.
Swap agreements may increase or decrease the overall volatility of the Fund’s investments and the price of its Shares. The performance of swap agreements may be affected by a change in the specific interest rate, currency or other factors that determine the amounts of payments due to and from the Fund. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, if the counterparty’s creditworthiness declines, the value of a swap agreement would likely decline, potentially resulting in losses.
Generally, swap agreements have fixed maturity dates that are agreed upon by the parties to the swap. The agreement can be terminated before the maturity date only under limited circumstances, such as default by or insolvency of one of the parties and can be transferred by a party only with the prior written consent of the other party. The Fund may be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counterparty is unable to meet its obligations under the contract, declares bankruptcy, defaults or becomes insolvent, it is possible that the Fund may not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund’s gains or losses. To reduce the risk associated with leveraging, the Fund will segregate assets equal to the full notional value of the swap agreements, unless future SEC staff guidance permits asset segregation to a lesser extent. The use of swaps can cause the Fund to be subject to additional regulatory requirements, which may generate additional Fund expenses. The Fund monitors any swaps with a view towards ensuring that the Fund remains in compliance with all applicable regulatory, investment and tax requirements.
General Limitations on Certain Futures, Options and Swap Transactions. The Adviser with respect to the Fund has filed a notice of eligibility for an exclusion from the definition of the term “commodity pool operator” with the U.S. Commodity Futures Trading Commission (the “CFTC”) and the National Futures Association (the “NFA”), which regulate trading in the futures markets. Pursuant to CFTC Regulation 4.5, the Adviser and the Fund are not subject to regulation as a commodity pool or commodity pool operator under the CEA. If the Adviser or the Fund becomes subject to these requirements, as well as related NFA rules, the Fund may incur additional compliance and other expenses.
The Fund will comply with the current regulatory requirements of the SEC and the CFTC with respect to coverage of options and futures positions by registered investment companies and, if the guidelines so require, will segregate cash, U.S. government securities, high-grade liquid debt securities and/or other liquid assets permitted by the SEC and CFTC on the Fund’s records in the amount prescribed. Securities segregated on the Fund’s records cannot be sold while the futures or options position is outstanding, unless replaced with other permissible assets, and will be marked-to-market daily.
Convertible Securities. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted into or exchanged for a specified amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles its holder to receive interest that is generally paid or accrued on debt or a dividend that is paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before
6
conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities. The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument.
Many convertible securities have credit ratings that are below investment grade and are subject to the same risks as an investment in lower-rated debt securities (commonly known as “junk bonds”). Lower-rated debt securities involve greater risks than investment grade debt securities. Lower-rated debt securities may fluctuate more widely in price and yield and may fall in price during times when the economy is weak or is expected to become weak. The credit rating of a company’s convertible securities is generally lower than that of its non-convertible debt securities. Convertible securities are normally considered “junior” securities — that is, the company usually must pay interest on its non-convertible debt securities before it can make payments on its convertible securities. If the issuer stops paying interest or principal, convertible securities may become worthless and the Fund could lose its entire investment.
Zero Coupon and Paid-In-Kind (“PIK”) Bonds. The Fund may invest in zero coupon or PIK bonds. Because investors in zero coupon or PIK bonds receive no cash prior to the maturity or cash payment date applicable thereto, an investment in such securities generally has a greater potential for complete loss of principal and/or return than an investment in debt securities that make periodic interest payments. Such investments are more vulnerable to the creditworthiness of the issuer and any other parties upon which performance relies.
Stressed and Distressed Investments. The Fund may invest in securities and other obligations of companies that involve significant financial or business distress, including companies involved in bankruptcy or other reorganization and liquidation proceedings. These securities may present a substantial risk of default, including the loss of the entire investment, or may be in default. Distressed securities include loans, bonds and notes, many of which are not publicly traded, and may involve a substantial degree of risk. In certain periods, there may be little or no liquidity in the markets for distressed securities meaning that the Fund may be unable to exit its position.
The Fund may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal of or interest on its portfolio holdings. In any investment opportunity involving any such type, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or new securities, the value of which may be less than the purchase price paid by the Fund for the securities or other financial instruments in respect of which such distribution is received. Similarly, if an anticipated transaction does not in fact occur, the Fund may be required to sell its investment at a loss. The consummation of such transactions can be prevented or delayed by a variety of factors, including, but not limited to: (i) intervention of a regulatory agency; (ii) market conditions resulting in material changes in securities prices; (iii) compliance with any applicable bankruptcy, insolvency or securities laws; and/or (iv) the inability to obtain adequate financing. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies in which the Fund invests, there is a potential risk of loss by the Fund of its entire investment in such companies.
Equity Securities. Equity securities in which the Fund may invest include common stocks, preferred stocks, convertible securities and warrants. This may include the equity securities of private equity sponsors. Common stocks and preferred stocks represent shares of ownership in a corporation. Preferred stocks usually have specific dividends and rank after bonds and before common stock in claims on assets of the corporation should it be dissolved. Increases and decreases in earnings are usually reflected in a corporation’s stock price. Convertible securities are debt or preferred equity securities convertible into common stock. Usually, convertible securities pay dividends or interest at rates higher than common stock, but lower than other securities. Convertible securities usually participate to some extent in the appreciation or depreciation of the underlying stock into which they are convertible.
7
Preferred securities, which are a form of hybrid security (i.e., a security with both debt and equity characteristics), may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities, however, unlike common stocks, participation in the growth of an issuer may be limited. Distributions on preferred securities are generally payable at the discretion of the issuer’s board and after the company makes required payments to holders of its bonds and other debt securities. For this reason, the value of preferred securities will usually react more strongly than bonds and other debt securities to actual or perceived changes in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable to adverse developments than preferred securities of larger companies. Preferred securities may be less liquid than common stocks. Preferred securities may include provisions that permit the issuer, at its discretion, to defer or omit distributions for a stated period without any adverse consequences to the issuer. Preferred shareholders may have certain rights if distributions are not paid but generally have no legal recourse against the issuer and may suffer a loss of value if distributions are not paid. Generally, preferred shareholders have no voting rights with respect to the issuer unless distributions to preferred shareholders have not been paid for a stated period, at which time the preferred shareholders may elect a number of Trustees to the issuer’s board. Generally, once all the distributions have been paid to preferred shareholders, the preferred shareholders no longer have voting rights.
Warrants are options to buy a stated number of shares of common stock at a specified price anytime during the life of the warrants. Warrants and rights do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holder to purchase, and they do not represent any rights in the assets of the issuer. As a result, warrants and rights may be considered more speculative than certain other types of investments. In addition, the value of a warrant or right does not necessarily change with the value of the underlying securities. The Fund could lose the value of a warrant or right if the right to subscribe to additional shares is not exercised prior to the warrant’s or right’s expiration date. The market for warrants and rights may be very limited and there may at times not be a liquid secondary market for warrants and rights.
Securities of other Investment Companies. The Fund may invest, subject to applicable regulatory limits, in the securities of other investment companies, including open-end management companies, closed-end management companies (including business development companies or “BDCs”) and unit investment trusts. The Fund also may invest in ETFs, as described in additional detail under “ETFs and Other Exchange-Traded Investment Vehicles” below. Under the Investment Company Act, subject to the Fund’s own more restrictive limitations, if any, the Fund’s investment in securities issued by other investment companies, subject to certain exceptions, currently is limited to: (1) 3% of the total voting stock of any one investment company; (2) 5% of the Fund’s total assets with respect to any one investment company; and (3) 10% of the Fund’s total assets in the aggregate (such limits do not apply to investments in money market funds). Exemptions in the Investment Company Act or the rules thereunder may allow the Fund to invest in another investment company in excess of these limits. In particular, Rule 12d1-4 under the Investment Company Act allows the Fund to acquire the securities of another investment company, including ETFs, in excess of the limitations imposed by Section 12 of the Investment Company Act, subject to certain limitations and conditions on the Fund and the Adviser, including limits on control and voting of acquired funds’ shares, evaluations and findings by the Adviser and limits on most three-tier fund structures.
When investing in the securities of other investment companies, the Fund will be indirectly exposed to all the risks of such investment companies’ portfolio securities. In addition, as a shareholder in an investment company, the Fund would indirectly bear its pro rata share of that investment company’s advisory fees and other operating expenses. Fees and expenses incurred indirectly by the Fund as a result of its investment in shares of one or more other investment companies generally are referred to as “acquired fund fees and expenses” and may appear as a separate line item in the Fund’s prospectus fee table. For certain investment companies, such as BDCs, these expenses may be significant. In addition, the shares of closed-end management companies may involve the payment of substantial premiums above, while the sale of such securities may be made at substantial discounts from, the value of such issuer’s portfolio securities. Historically, shares of closed-end funds, including BDCs, have frequently traded at a discount to their net asset value, which discounts have, on occasion, been substantial and lasted for sustained periods of time.
Certain money market funds that operate in accordance with Rule 2a-7 under the Investment Company Act float their NAV while others seek to reserve the value of investments at a stable NAV (typically $1.00 per share). An investment in a money market fund, even an investment in a fund seeking to maintain a stable NAV
8
per share, is not guaranteed, and it is possible for the Fund to lose money by investing in these and other types of money market funds. If the liquidity of a money market fund’s portfolio deteriorates below certain levels, the money market fund may suspend redemptions (i.e., impose a redemption gate) and thereby prevent the Fund from selling its investment in the money market fund or impose a fee of up to 2% on amounts the Fund redeems from the money market fund (i.e., impose a liquidity fee).
ETFs and Other Exchange-Traded Investment Vehicles. The Fund may invest, subject to applicable regulatory limits, in the securities of ETFs and other pooled investment vehicles that are traded on an exchange and that hold a portfolio of securities or other financial instruments (collectively, “exchange-traded investment vehicles”). When investing in the securities of exchange-traded investment vehicles, the Fund will be indirectly exposed to all the risks of the portfolio securities or other financial instruments they hold. The performance of an exchange-traded investment vehicle will be reduced by transaction and other expenses, including fees paid by the exchange-traded investment vehicle to service providers. ETFs are investment companies that are registered as open-end management companies or unit investment trusts. The limits that apply to the Fund’s investment in securities of other investment companies generally apply also to the Fund’s investment in securities of ETFs.
Shares of exchange-traded investment vehicles are listed and traded in the secondary market. Many exchange-traded investment vehicles are passively managed and seek to provide returns that track the price and yield performance of a particular index or otherwise provide exposure to an asset class (e.g., currencies or commodities). Although such exchange-traded investment vehicles may invest in other instruments, they largely hold the securities (e.g., common stocks) of the relevant index or financial instruments that provide exposure to the relevant asset class. The share price of an exchange-traded investment vehicle may not track its specified market index, if any, and may trade below its net asset value. An active secondary market in the shares of an exchange-traded investment vehicle may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual market conditions, or other reasons. There can be no assurance that the shares of an exchange-traded investment vehicle will continue to be listed on an active exchange.
Repurchase Agreements. The Fund may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield during the Fund’s holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. The Fund will only enter into repurchase agreements with registered securities dealers or domestic banks that, in the opinion of the Adviser, present minimal credit risk. The risk to the Fund is limited to the ability of the issuer to pay the agreed-upon repurchase price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of both principal and interest. In the event of default, the collateral may be sold but the Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Fund may be delayed or limited. The Adviser will monitor the value of the collateral at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the collateral declines below the repurchase price, the Adviser will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest.
Reverse Repurchase Agreements. In a reverse repurchase agreement, the Fund sells portfolio securities to another party and agrees to repurchase the securities at an agreed-upon price and date, which reflects an interest payment. Reverse repurchase agreements involve the risk that the other party will fail to return the securities in a timely manner, or at all, which may result in losses to the Fund. The Fund could lose money if it is unable to recover the securities and the value of the collateral held by the Fund is less than the value of the securities. These events could also trigger adverse tax consequences to the Fund. Reverse repurchase agreements also involve the risk that the market value of the securities sold will decline below the price at which the Fund is obligated to repurchase them. When the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities transferred to another party or the securities in
9
which the proceeds may be invested would affect the market value of the Fund’s assets. During the term of the agreement, the Fund may also be obligated to pledge additional cash and/or securities in the event of a decline in the fair value of the transferred security. The Adviser monitors the creditworthiness of counterparties to reverse repurchase agreements. With respect to reverse repurchase agreements or other similar financing transactions in particular, Rule 18f-4 under the Investment Company Act permits the Fund to enter into such transactions if the Fund either (i) complies with the asset coverage requirements of Section 18 of the Investment Company Act (that is, the value of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, “total net assets”) is at least 300% of the senior securities representing indebtedness) or (ii) treats all such transactions as derivatives transactions for all purposes under Rule 18f-4.
Restricted Securities and Rule 144A Securities. The Fund may invest in “restricted securities,” which generally are securities that may be resold to the public only pursuant to an effective registration statement under the Securities Act or an exemption from registration. Regulation S under the Securities Act is an exemption from registration that permits, under certain circumstances, the resale of restricted securities in offshore transactions, subject to certain conditions, and Rule 144A under the Securities Act is an exemption that permits the resale of certain restricted securities to qualified institutional buyers. Since its adoption by the SEC in 1990, Rule 144A has facilitated trading of restricted securities among qualified institutional investors. To the extent restricted securities held by the Fund qualify under Rule 144A and an institutional market develops for those securities, the Fund expects that it will be able to dispose of the securities without registering the resale of such securities under the Securities Act. However, to the extent that a robust market for such 144A securities does not develop, or a market develops but experiences periods of illiquidity, investments in Rule 144A securities could increase the level of the Fund’s illiquidity.
Where an exemption from registration under the Securities Act is unavailable, or where an institutional market is limited, the Fund may, in certain circumstances, be permitted to require the issuer of restricted securities held by the Fund to file a registration statement to register the resale of such securities under the Securities Act. In such case, the Fund will typically be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the decision to sell and the time the Fund may be permitted to resell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, or the value of the security were to decline, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities for which no market exists are priced by a method that the Portfolio Fund Managers believe accurately reflects fair value.
Special Purpose Acquisition Companies. The Fund may invest in stock, warrants or other securities of special purpose acquisition companies (“SPACs”) or similar special purpose entities that pool funds to seek potential acquisition opportunities. Unless and until an acquisition is completed, a SPAC or similar entity generally maintains assets (less a portion retained to cover expenses) in a trust account comprised of U.S. Government securities, money market securities, and cash. If an acquisition is not completed within a pre-established period of time, the invested funds are returned to the entity’s shareholders.
Because SPACs and similar entities are essentially blank-check companies without an operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the entity’s management to identify and complete a profitable acquisition. SPACs may allow shareholders to redeem their pro rata investment immediately after the SPAC announces a proposed acquisition, which may prevent the entity’s management from completing the transaction. Some SPACs may pursue acquisitions only within certain industries or regions, which may increase the volatility of their prices. In addition, SPACs may trade in the over-the-counter market and, accordingly, may be considered illiquid and/or be subject to restrictions on resale.
Private Investments in Public Equity. The Fund may invest in securities issued in private investments in public equity transactions, commonly referred to as “PIPEs.” A PIPE investment involves the sale of equity securities, or securities convertible into equity securities, in a private placement transaction by an issuer that already has outstanding, publicly traded equity securities of the same class.
Shares acquired in PIPEs are commonly sold at a discount to the current market value per share of the issuer’s publicly traded securities. Securities acquired in PIPEs generally are not registered with the SEC until after a certain period of time from the date the private sale is completed, which may be months and perhaps longer.
10
PIPEs may contain provisions that require the issuer to pay penalties to the holder if the securities are not registered within a specified period. Until the public registration process is completed, securities acquired in PIPEs are restricted and, like investments in other types of restricted securities, may be illiquid. Any number of factors may prevent or delay a proposed registration. Prior to or in the absence of registration, it may be possible for securities acquired in PIPEs to be resold in transactions exempt from registration under the Securities Act. There is no guarantee, however, that an active trading market for such securities will exist at the time of disposition, and the lack of such a market could hurt the market value of the Fund’s investments. Even if the securities acquired in PIPEs become registered, or the Fund is able to sell the securities through an exempt transaction, the Fund may not be able to sell all the securities it holds on short notice and the sale could impact the market price of the securities.
MANAGEMENT OF THE FUND
Further Information Regarding Management of the Fund
Information regarding the Trustees and officers of the Fund, including brief biographical information, is set forth below.
Board of Trustees
The Trustees of the Fund, their ages, addresses, positions held, lengths of time served, their principal business occupations during the past five years, the number of portfolios in the Fund Complex overseen by each Trustee and other Trusteeships, if any, held by the Trustees, are shown below. The Trustees have been divided into two groups — Interested Trustees and Independent Trustees. As set forth in the Fund’s Declaration of Trust, each Trustee’s term of office shall continue until his or her death, resignation or removal. The address of each Trustee is care of the Secretary of the Fund at 245 Park Avenue, 44th Floor, New York, New York 10167.
|
Name, Position(s)
Held with Registrant and Year of Birth* |
| |
Length of
Time Served |
| |
Principal Occupation
During Past 5 Years |
| |
Number of
Funds in Fund Complex Overseen by Trustee** |
| |
Other Directorships Held by
Trustee During Past 5 Years |
|
| Independent Trustees | | ||||||||||||
|
Patrick Dooley
(1962) |
| |
Since inception
|
| | Private investor since 2012. | | |
1
|
| | N/A | |
|
Edward Lewis
(1952) |
| |
Since inception
|
| | Senior Managing Director and Head of Alternative Investments, CIGNA Investment Management. | | |
1
|
| | N/A | |
|
Paola Sapienza
(1965) |
| |
Since inception
|
| | Professor, Kellogg School of Management | | |
1
|
| | TIM Group (telecommuniations); | |
| | | | | | | Northwestern University since 1998. | | |
1
|
| | Assicurazioni Generali SpA (financial services) since 2021. | |
|
Lawrence M. Schloss
(1954) |
| | Since May 25, 2023 | | | Senior Advisor, Marathon Asset Management, L.P. since 2018. | | |
1
|
| | N/A | |
11
|
Name, Position(s)
Held with Registrant and Year of Birth* |
| |
Length of
Time Served |
| |
Principal Occupation
During Past 5 Years |
| |
Number of
Funds in Fund Complex Overseen by Trustee** |
| |
Other Directorships Held by
Trustee During Past 5 Years |
|
|
Kent Weldon
(1967) |
| |
Since inception
|
| |
Advisory Partner, Thomas H. Lee
Partners since 2021; previously, Managing Director since 1991. |
| |
1
|
| | OmniLit Acquisition Corp. (optics and photonics focused-SPAC) since; Federal Street Acquisition Corp. (healthcare focused-SPAC) from 2017 to 2019. | |
| Interested Trustees*** | | ||||||||||||
|
Francisco Borges
(1951) Chair of the Board |
| |
Since inception
|
| | Partner, Chairman of the Ares Secondaries Group since 2021; Chairman and Managing Partner of Landmark Partners from 1989 to 2021. | | |
1
|
| | Assured Guaranty Ltd. (financial guaranty insurance business); Director, Jefferies Financial Group (holding company); Director, Selected Funds (consisting of two portfolios); Director, Hartford Healthcare (healthcare network); Trustee, Clipper Fund; Director, Interactive Brokers Group, Inc. | |
|
Rajat Dhanda
(1968) |
| |
Since inception
|
| | Partner, Ares since 2021; Chief Executive Officer at Black Creek Group from 2018 to 2021, President from 2016 to 2018. | | |
1
|
| | N/A | |
|
David Sachs
(1959) |
| |
Since inception
|
| |
Partner, Ares since 1997.
|
| |
3
|
| | Terex Corporation (global manufacturing); CION Ares Diversified Credit Fund and Ares Dynamic Credit Allocation Fund, Inc. | |
*
Each of the Independent Trustees serves on the Board’s Audit and Nominating and Governance Committees.
**
“Fund Complex” comprises registered investment companies for which the Adviser or an affiliate of the Adviser serves as investment adviser.
***
“Interested person,” as defined in the Investment Company Act, of the Fund. Francisco Borges, Rajat Dhanda and David Sachs are interested persons of the Fund due to their affiliation with the Adviser.
12
Executive Officers
Certain biographical and other information relating to the officers of the Fund who are not Trustees, is set forth below, including their ages, addresses, positions held, lengths of time served and their principal business occupations during the past five years.
|
Name, Position(s) held with
Registrant, Year of Birth and Address* |
| |
Length of Time Served
|
| |
Principal Occupation During Past 5 Years
|
|
|
Barry Miller
Chief Executive Officer and President (1969) |
| | Since August 11, 2022 and May 25, 2023 respectively | | | Partner in the Ares Secondaries Group since 2021; Partner in the Landmark Partners Private Equity Group from 2013 to 2021. | |
|
Tina St. Pierre
Chief Financial Officer, Principal Accounting Officer and Treasurer (1970) |
| | Since inception | | | Partner in the Ares Secondaries Group since 2021 and Chief Operating Officer of the Ares Secondaries Group since 2023; Partner and the Chief Administrative Officer at Landmark Partners from 1995 to 2021. | |
|
Ian Fitzgerald
Chief Legal Officer, General Counsel and Secretary (1975) |
| | Since inception | | | Managing Director and Associate General Counsel (Credit) in the Ares Legal Group at Ares since 2010. | |
|
Lisa Morgan
Chief Compliance Officer and Anti-Money Laundering Officer (1976) |
| | Since inception | | | Partner and Chief Compliance Officer, Registered Products at Ares since 2023. Chief Compliance Officer of Ares Capital Corporation and Ares Dynamic Credit Allocation Fund since 2019. Chief Compliance Officer of CION Ares Diversified Credit Fund since 2021. Chief Compliance Officer at Ares Strategic Income Fund since 2022. Previously Managing Director and Head of Regulatory Compliance in the Ares Compliance Group at Ares since 2017 | |
|
Scott Humber
Vice President (1973) |
| | Since inception | | | Partner in the Ares Secondaries Group since 2021; Partner in the Private Equity Group at Landmark Partners from 2003 to 2021. | |
|
Matthew Jill
Vice President and Assistant Secretary (1978) |
| | Since inception | | | Partner and General Counsel, Fund Formation in the Ares Legal Group at Ares since 2014. | |
|
Joel Kress
Vice President (1972) |
| | Since May 25, 2023 | | | Managing Director in the Ares Secondaries Group since 2022; previously, Chief Operating Officer and Treasurer, Pomona Investment Fund from 2015 – 2022 and Senior Advisor to Diamond Ventures, LLC from 2013 – 2022. | |
13
|
Name, Position(s) held with
Registrant, Year of Birth and Address* |
| |
Length of Time Served
|
| |
Principal Occupation During Past 5 Years
|
|
|
Antoinette Lazarus
Vice President (1963) |
| | Since inception | | | Managing Director and Head of Ares Corporate Compliance since 2023. Head of Secondaries Compliance in the Ares Compliance Group from 2021 to 2023; Chief Compliance and Risk Officer at Landmark Partners from 2006 to 2021. | |
|
Peter Ogilvie
Vice President (1984) |
| | Since inception | | | Partner and Head of the Ares Corporate Strategy Group since 2007; Executive Vice President for Ares Acquisition Corporation, a special purpose acquisition company sponsored by Ares, since 2021. | |
|
Kathryn Regan
Vice President (1977) |
| | Since inception | | | Partner in the Ares Secondaries Group since 2021; Partner in the Landmark Partners Private Equity Group from 2019 to 2021; previously, Managing Director from 2017 to 2018. | |
|
Naseem Sagati Aghili
Vice President and Assistant Secretary (1981) |
| | Since inception | | | General Counsel and Secretary of Ares since 2020 and Partner since 2023; previously, Co-General Counsel, Deputy General Counsel and General Counsel of Private Equity since 2009. | |
|
Nathan Walton
Vice President (1978) |
| | Since May 25, 2023 | | | Partner, Head of Private Equity Secondaries in the Ares Secondaries Group since 2023; previously, Partner, Ares Private Equity Group from 2006 to 2023. | |
|
Christina Oh
Assistant Treasurer (1980) |
| | Since May 25, 2023 | | | Chief Financial Officer of Ares Secondaries Group since 2023. Partner, Chief Financial Officer, Infrastructure and Deputy Chief Financial Officer and Treasurer in the Ares Finance and Accounting Department since 2016. | |
*
The address of each officer is care of the Secretary of the Fund at 245 Park Avenue, 44th Floor, New York, New York 10167.
Biographical Information and Discussion of Experience and Qualifications of Trustees
The following is a summary of the experience, qualifications, attributes and skills of each Trustee that support the conclusion, as of the date of this SAI, that each Trustee should serve as a Trustee of the Fund.
Independent Trustees
Patrick Dooley. Mr. Dooley has over two decades of experience in investment management. He previously served as Senior Portfolio Manager and Director of Research at Canyon Capital Advisors, a Los Angeles based hedge fund. Prior to joining Canyon in 1991, Mr. Dooley was an Investment Analyst at Executive Life Insurance Company. He holds a B.A. from Wesleyan University in Economics and an M.B.A from the Anderson School of Management at the University of California, Los Angeles.
Edward Lewis. Mr. Lewis is a Senior Managing Director and Head of Alternative Investments at Cigna Investment Management. Prior to joining Cigna in 1987, Mr. Lewis worked at Continental Illinois National Bank and Trust Company (now part of Bank of America) where he oversaw a $160 million commercial loan
14
portfolio. Mr. Lewis has served on a number of charitable boards including the National Conference for Community and Justice, Connecticut Children’s Medical Center, Girl Scouts of Connecticut, Connecticut Forum, The Village for Families and Children and the Connecticut Women’s Hall of Fame. He holds a B.A. from Fordham University in Accounting and Economics and an M.B.A. from Columbia Graduate School of Business.
Paola Sapienza. Ms. Sapienza is the Donald C. Clark/HSBC Chair in Consumer Finance Professor at the Kellogg School of Management at Northwestern University. She also serves as a faculty research fellow in the National Bureau of Economic Research’s program on corporate finance and political economy and a research affiliate of the Center for Economic Policy Research. She is a Fellow of the European Corporate Governance Institute (ECGI) and she was elected director of the American Finance Association in 2011 for a three year term. She served on the board of the Academic Female Finance Committee (AFFECT) of the American Finance Association from 2015 to 2019. Professor Sapienza currently serves as an independent director in TIM Group and previously was an independent board member of Assicurazioni Generali SpA. She holds a bachelor’s degree in Economics from Bocconi University and an M.A. and Ph.D. in Economics from Harvard University.
Lawrence Schloss. Mr. Schloss has served as a Senior Advisor at Marathon Asset Management, L.P. since 2018. Previously, he was the President of Angelo, Gordon & Co., L.P., a $26 billion alternative asset investment manager, from November 2013 to March 2016. Before joining Angelo, Gordon, Mr. Schloss was the New York City Deputy Comptroller for Asset Management and Chief Investment Officer for the $145 billion New York City Retirement Systems. As a representative of the New York City Comptroller, he was appointed a trustee of The Teachers’ Retirement System of the City of New York, The New York City Employees’ Retirement System, New York City Police Pension Fund and New York City Fire Pension Fund. In 2004, Mr. Schloss was Chairman, Chief Executive Officer and co-founder of Diamond Castle Holdings, a $1.8 billion middle market private equity firm. Prior to Diamond Castle, he was Global Head of CSFB Private Equity, where he was responsible for $32 billion of alternative assets under management, and a member of the Credit Suisse First Boston Executive Board. Mr. Schloss is the Vice Chairman of the New York Police & Fire Widows’ and Children’s Benefit Fund. He currently serves on the board of Girls Who Invest and, until 2022, served as a member of the Board of Trustees of Tulane University. Until early 2014, he served as a member of the Federal Reserve Bank of New York Investors Advisory Committee on Financial Markets. He received a B.A. from Tulane University and an M.B.A. from The Wharton School of the University of Pennsylvania.
Kent Weldon. Mr. Weldon has three decades of experience in finding, structuring, and acquiring companies. He is an advisory partner to Thomas H. Lee Partners, previously serving as a Managing Director, starting at the firm in 1991. Prior to joining Thomas H. Lee Partners, Mr. Weldon worked at Morgan Stanley & Co. Incorporated in the Financial Institutions Group, and at Wellington Management Company, an institutional money management firm. Mr. Weldon’s prior directorships include Acosta Sales and Marketing, Bargain Hunt, CTI Foods, Give and Go Prepared Foods Corp., iHeartMedia, Inc., CMP Susquehanna Corp., FairPoint Communications, Inc., Fisher Scientific International Inc., Michael Foods, Nortek, Inc., Phillips Pet Food & Supplies and Progressive Moulded Products. Mr. Weldon holds a B.A., summa cum laude, in Economics and Arts and Letters Program for Administrators from the University of Notre Dame and an M.B.A. from Harvard Business School.
Interested Trustees
Francisco Borges. Mr. Borges is a Partner and Chairman of the Ares Secondaries Group. Prior to the acquisition of Landmark Partners by Ares in 2021, Mr. Borges served as Chairman and Managing Partner of Landmark Partners, where he also was a member of the private equity, infrastructure and real estate investment committees. Prior to joining Landmark in 1999, Mr. Borges was a managing director of GE Capital’s Financial Guaranty Insurance Company and capital markets subsidiaries, before which he was treasurer of the State of Connecticut, deputy mayor of the City of Hartford, and legal counsel for the Travelers Insurance Companies. Mr. Borges serves on a number of boards including The Knight Foundation, Hartford Healthcare Corporation, Millbrook School, Jefferies Financial Corp., Davis Selected Funds and Assured Guaranty. Mr. Borges is a member of the Connecticut and New Jersey bars. He received a J.D. from the University of Connecticut School of Law, and a B.A. from Trinity College in Hartford, Connecticut.
15
Rajat Dhanda. Mr. Dhanda is a Partner and the Chief Operating Officer, Global Real Estate in the Ares Real Estate Group at Ares. He also serves as Global Head of Wealth Management in the Ares Wealth Management Solutions Group, which oversees product development, distribution, marketing, and client management activities across Ares’ investment offerings in the global wealth management channel. Prior to joining Ares in 2021, he was the Chief Executive Officer at Black Creek Group, which he joined in 2016 as President before being named Chief Executive Officer in 2018. Mr. Dhanda also serves on the Board of Directors for Black Creek Diversified Property Fund Inc. and as Co-President of both Black Creek Diversified Property Fund Inc. and Black Creek Industrial REIT IV Inc. Previously, Mr. Dhanda spent 26 years at Morgan Stanley, where he held a variety of leadership roles, including leading key divisions of their institutional and wealth management platforms and served on the executive and operating committees for Morgan Stanley’s wealth management division. Mr. Dhanda serves on the Brown University Real Estate Group Advisory Board. He holds a B.A. from Brown University in Economics and Organizational Behavior & Management.
David Sachs. Mr. Sachs is a Partner in the Ares Strategy and Relationship Management Group at Ares, where he focuses on the Ares Credit Group’s publicly traded funds, strategic growth opportunities for Ares and facilitating the sharing of credit knowledge across the Ares platform. He serves as a board member of Ares Dynamic Credit Allocation Fund, Inc. and CION Ares Diversified Credit Fund. Additionally, Mr. Sachs serves as a member of Ares Credit Group, Private Equity Group and Real Estate Group fund investment committees and the Ares Equity Income Opportunity Strategy Portfolio Review Committee. Prior to joining Ares in 1997, Mr. Sachs was a Principal of Onyx Partners, Inc., where he focused on merchant banking and related capital raising activities in the private equity and mezzanine debt markets. Previously, he also worked with Taylor & Co., an investment manager providing investment advisory and consulting services to members of the Bass Family of Fort Worth, Texas, and Columbia Savings and Loan Association as Executive Vice President, where he was responsible for asset-liability management and running the investment management department. Mr. Sachs serves as the Non-Executive Chairman of Terex Corporation and is on the Board of Trustees and the McCormick Advisory Council at Northwestern University. He holds a B.S. from Northwestern University in Industrial Engineering and Management Science.
Trustee Share Ownership
For each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Fund and in the Family of Investment Companies Overseen by the Trustee as of December 31, 2023, is set forth in the table below.
|
Name of Trustee
|
| |
Dollar Range of
Equity Securities in the Fund |
| |
Aggregate Dollar Range of
Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Investment Companies |
| ||||||
| Independent Trustees: | | | | | | | | | | | | | |
|
Patrick Dooley
|
| | |
|
None
|
| | | |
|
None
|
| |
|
Edward Lewis
|
| | |
|
None
|
| | | |
|
None
|
| |
|
Paola Sapienza
|
| | |
|
None
|
| | | |
|
None
|
| |
|
Lawrence Schloss
|
| | |
|
None
|
| | | |
|
None
|
| |
|
Kent Weldon
|
| | |
|
None
|
| | | |
|
None
|
| |
| Interested Trustees: | | | | | | | | | | | | | |
|
Francisco Borges
|
| | |
|
None
|
| | | |
|
None
|
| |
|
Rajat Dhanda
|
| | |
|
None
|
| | | |
|
None
|
| |
|
David Sachs
|
| | |
|
None
|
| | | |
|
None
|
| |
As of December 31, 2023, the Trustees and officers of the Fund, as a group, owned beneficially or of record less than 1% of the outstanding shares of each class of the Fund.
As to each Independent Trustee and his or her immediate family members, no person owned beneficially or of record securities of an investment adviser or principal underwriter of the Fund, or a person (other than a
16
registered investment company) directly or indirectly controlling, controlled by or under common control with an investment adviser or principal underwriter of the Fund.
Trustee Compensation
The Independent Trustees are each paid an annual retainer of $62,000. In addition, the Fund pays an additional annual fee of $8,000 to the Chairperson of the Audit Committee and an additional annual fee of $5,000 for the Chairperson of the Nominating and Governance Committee. The Independent Trustees are also reimbursed for out-of-pocket expenses in connection with providing services to the Fund. The Trustees who are “interested persons”, as defined in the Investment Company Act, of the Fund and the Fund’s officers do not receive compensation from the Fund. The Fund does not have any retirement plan for the Fund’s Trustees and none of the Independent Trustees serve on the boards of any other funds in the Fund Complex. The Independent Trustees’ compensation for the period ended March 31, 2023 is set forth below.
|
Name of Independent Trustee
|
| |
Aggregate
Compensation from the Fund |
| |
Total Compensation
from the Fund Complex |
| ||||||
|
Patrick Dooley
|
| | | $ | 62,000 | | | | | $ | 62,000 | | |
|
Edward Lewis
|
| | | $ | 70,000 | | | | | $ | 70,000 | | |
|
Paola Sapienza
|
| | | $ | 62,000 | | | | | $ | 62,000 | | |
|
Lawrence Schloss*
|
| | | | None | | | | | | None | | |
|
Kent Weldon
|
| | | $ | 67,000 | | | | | $ | 67,000 | | |
*
Mr. Schloss was appointed to the Board on May 25, 2023 and therefore did not receive any compensation for his service as a Trustee for the period ended March 31, 2023.
Compensation of the Portfolio Managers
The Adviser’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The portfolio managers may receive, all or some combination of, salary, an annual bonus and interests in the carried interest in certain of Ares’ funds.
Base compensation. Generally, when portfolio managers receive base compensation it is based on their individual seniority and their position within the firm.
Discretionary compensation. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation may be based on individual seniority and contribution.
Other Accounts Managed by the Portfolio Managers
The following table lists the number and types of accounts, other than the Fund, managed by the Fund’s primary portfolio managers and assets under management in those accounts, as of March 31, 2023.
|
Type of Account
|
| |
Number of
Accounts Managed |
| |
Total Assets
Managed |
| |
Number of
Accounts Managed for which Advisory Fee is Performance- Based |
| |
Assets
Managed for which Advisory Fee is Performance- Based |
| ||||||||||||
| Francisco Borges | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Registered Investment Companies
|
| | | | 0 | | | | | $ | 0 | | | | | | 0 | | | | | $ | 0 | | |
|
Other Pooled Investment Vehicles
|
| | | | 20 | | | | | $ | 21.7B | | | | | | 17 | | | | | $ | 20.3B | | |
|
Other Accounts
|
| | | | 38 | | | | | $ | 8.4B | | | | | | 25 | | | | | $ | 5.4B | | |
17
|
Type of Account
|
| |
Number of
Accounts Managed |
| |
Total Assets
Managed |
| |
Number of
Accounts Managed for which Advisory Fee is Performance- Based |
| |
Assets
Managed for which Advisory Fee is Performance- Based |
| ||||||||||||
| Barry Miller | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Registered Investment Companies
|
| | | | 0 | | | | | $ | 0 | | | | | | 0 | | | | | $ | 0 | | |
|
Other Pooled Investment Vehicles
|
| | | | 12 | | | | | $ | 13.4B | | | | | | 9 | | | | | $ | 12.0B | | |
|
Other Accounts
|
| | | | 28 | | | | | $ | 5.8B | | | | | | 21 | | | | | $ | 4.1B | | |
As of March 31, 2023, none of the Fund’s primary portfolio managers owned Shares.
Codes of Ethics
The Fund, the Adviser and Ares Wealth Management Solutions, LLC (the “Distributor”), have each adopted a code of ethics pursuant to Rule 17j-1 under the Investment Company Act that establishes procedures for personal investments and restrict certain personal securities transactions. Personnel subject to these codes may invest in securities for their personal investment accounts, including securities that may be purchased or held by the Fund, so long as such investments are made in accordance with the applicable code’s requirements. The codes of ethics are included as exhibits to the registration statement of which this Statement of Additional Information forms a part. In addition, the codes of ethics are available on the EDGAR database on the SEC’s website at http://www.sec.gov. Shareholders may also obtain copies of each code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
Proxy Voting Policies
The Fund’s investments do not typically convey traditional voting rights, and the occurrence of corporate governance or other consent or voting matters for this type of investment is substantially less than that encountered in connection with registered equity securities. On occasion, however, the Fund may receive notices or proposals from a Portfolio Fund or a portfolio company held through a Direct Investment seeking the consent of or voting by holders, and may also vote on matters relating to the other private equity investments. The Board has delegated the voting of proxies for to the securities held in the Fund’s portfolio to the Adviser pursuant to the Adviser’s proxy voting policies and procedures. Under these policies, the Adviser will vote proxies, amendments, consents or resolutions related to Fund securities in the best interests of the Fund and its Shareholders. The Adviser’s proxy voting procedures are included in Appendix B of this SAI. Information regarding how the Adviser voted proxies related to the Fund’s portfolio holdings during the 12-month period ending June 30 will be available, without charge, upon request by calling collect (212) 476-8800, and on the SEC’s website at www.sec.gov.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for decisions to buy and sell securities for the Fund, the selection of brokers and dealers to effect the transactions and the negotiation of prices and any brokerage commissions. In effecting securities transactions, the Fund seeks to obtain the best price and execution of orders. The Adviser is responsible for arranging for the execution of the Fund’s portfolio transactions and will do so in a manner deemed fair and reasonable to the Fund and in accordance with the Adviser’s conflicts policy. The primary consideration in all portfolio transactions is prompt execution of orders in an effective manner at the most favorable price. In selecting broker-dealers and in negotiating prices and any brokerage commissions on such transactions, the Adviser considers the firm’s reliability, integrity and financial condition and the firm’s execution capability, the size and breadth of the market for the security, the size of and difficulty in executing the order, and the best net price. There may be instances when, in the judgment of the Adviser, more than one firm can offer comparable execution services. A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same transaction, provided that the Adviser determines in good faith that such commission is reasonable in terms either of the transaction or the overall responsibility of the Adviser to the Fund and its other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long-term. The Advisory Fee that
18
the Fund pays to the Adviser will not be reduced if the Adviser receives brokerage and research services. Commission rates for brokerage transactions on foreign stock exchanges are generally fixed.
With respect to other types of securities, the Fund may purchase certain money market instruments directly from an issuer, in which case no commissions or discounts are paid, may purchase securities in the over-the-counter market from an underwriter or dealer serving as market maker for the securities, in which case the price includes a fixed amount of compensation to the underwriter or dealer, and may purchase and sell listed securities on an exchange, which are effected through brokers who charge a commission for their services.
Purchases and sales of certain debt securities generally are transacted with issuers, underwriters, or dealers that serve as primary market-makers, who act as principals for the securities on a net basis. Most of these transactions will be principal transactions at net prices for which the Fund will generally incur little or no brokerage costs. The Fund may be required to pay fees, or forgo a portion of interest and any fees payable to the Fund, to a lender selling assignment or participations to the Fund. The Adviser will determine the lenders from whom the Fund will purchase assignments and participations by considering their professional ability, level of service, relationship with the borrower, financial condition, credit standards and quality of management. Affiliates of the Adviser may participate in the primary and secondary market for certain debt securities, including loans. Because of certain limitations imposed by the Investment Company Act, this may restrict the Fund’s ability to acquire certain loans. The Advisors do not believe that this will have a material effect on the Fund’s ability to acquire those loans consistent with its investment policies. Sales to dealers are effected at bid prices.
In some instances, the Fund will purchase interests in a Portfolio Fund directly from the Portfolio Fund, and in other instances the Fund will purchase interests in a Portfolio Fund from a third party, and such purchases by the Fund may be, but are generally not, subject to transaction expenses. Nevertheless, the Fund anticipates that some of its portfolio transactions (including investments in Portfolio Funds by the Fund) may be subject to expenses.
During the period ended March 31, 2023, the Fund paid $0 in brokerage commissions. No brokerage commissions were paid to a broker that is an affiliated person of the Fund, is an affiliated person of an affiliated person of the Fund, or has an affiliated person that is an affiliated person of the Fund, the Adviser or the Distributor.
CERTAIN ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan or other arrangements or entities subject to the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (an “ERISA Plan”), and persons who are fiduciaries with respect to an “individual retirement account” (an “IRA”), Keogh Plan or another arrangement or entity which is not subject to ERISA but is subject to the prohibited transaction rules of Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (together with ERISA Plans, “Benefit Plans”) should consider, among other things, the matters described below before determining whether to invest in the Fund.
ERISA imposes certain general and specific responsibilities on persons who are fiduciaries with respect to an ERISA Plan, including prudence, diversification, an obligation not to engage in a prohibited transaction and other standards. In determining whether a particular investment is appropriate for an ERISA Plan, U.S. Department of Labor (“DOL”) regulations provide that a fiduciary of an ERISA Plan must give appropriate consideration to, among other things, the role that the investment plays in the ERISA Plan’s portfolio, taking into consideration whether the investment is designed reasonably to further the ERISA Plan’s purposes, an examination of the risk and return factors, the portfolio’s composition with regard to diversification, the liquidity and current return of the total portfolio relative to the anticipated cash flow needs of the ERISA Plan, the income tax consequences of the investment and the projected return of the total portfolio relative to the ERISA Plan’s funding objectives. Before investing the assets of an ERISA Plan in the Fund, a fiduciary should determine whether such an investment is consistent with its fiduciary responsibilities and the foregoing regulations. For example, a fiduciary should consider whether an investment in the Fund may be too illiquid or too speculative for a particular ERISA Plan, and whether the assets of the ERISA Plan would be sufficiently diversified. Fiduciaries of such plans or arrangements also should confirm that investment in the Fund is consistent, and complies, with the governing provisions of the plan or arrangement, including any eligibility
19
and nondiscrimination requirements that may be applicable under law with respect to any “benefit, right or feature” affecting the qualified status of the plan or arrangement, which may be of particular importance for participant-directed plans given that the Fund sells Shares only to Eligible Investors, as described herein. If a fiduciary with respect to any such ERISA Plan breaches its responsibilities with regard to selecting an investment or an investment course of action for such ERISA Plan, the fiduciary itself may be held liable for losses incurred by the ERISA Plan as a result of such breach. Fiduciaries of Benefit Plans that are not subject to Title I of ERISA but that are subject to Section 4975 of the Code (such as IRAs and Keogh Plans) should consider carefully these same factors.
The DOL has adopted regulations, which, along with Section 3(42) of ERISA (collectively, the “Plan Assets Rules”), treat the assets of certain pooled investment vehicles as “plan assets” for purposes of, and subject to, Title I of ERISA and Section 4975 of the Code (“Plan Assets”). The Plan Assets Rules provide, however, that, in general, funds registered as investment companies under the Investment Company Act are not deemed to be subject to the fiduciary responsibility provisions of ERISA or Section 4975 of the Code merely because of investments made in the fund by Benefit Plans. Accordingly, the underlying assets of the Fund should not be considered to be the Plan Assets of the Benefit Plans investing in the Fund for purposes of ERISA’s (or the Code’s) fiduciary responsibility and prohibited transaction rules. Thus, the Adviser should not be considered a fiduciary within the meaning of ERISA or the Code by reason of its authority with respect to the Fund.
The Fund will require a Benefit Plan (and each person causing such Benefit Plan to invest in the Fund) to represent that it, and any such fiduciaries responsible for such Benefit Plan’s investments (including in its individual or corporate capacity, as may be applicable), are aware of and understand the Fund’s investment objective, policies and strategies, that the decision to invest Plan Assets in the Fund was made with appropriate consideration of relevant investment factors with regard to the Benefit Plan and is consistent with the duties and responsibilities imposed upon fiduciaries with regard to their investment decisions under ERISA and/or the Code.
Benefit Plans may be required to report certain compensation paid by the Fund (or by third parties) to the Fund’s service providers as “reportable indirect compensation” on Schedule C to IRS Form 5500 (“Form 5500”). To the extent that any compensation arrangements described herein constitute reportable indirect compensation, any such descriptions are intended to satisfy the disclosure requirements for the alternative reporting option for “eligible indirect compensation,” as defined for purposes of Schedule C to Form 5500.
The provisions of ERISA and the Code are subject to extensive and continuing administrative and judicial interpretation and review. The discussion of ERISA and the Code contained in this SAI is general, does not purport to be a thorough analysis of ERISA or the Code, may be affected by future publication of regulations and rulings and should not be considered legal advice. Potential investors that are Benefit Plans and their fiduciaries should consult their legal advisers regarding the consequences under ERISA and the Code of the acquisition and ownership of Shares. Employee benefit plans that are not subject to the requirements of ERISA or Section 4975 of the Code (such as governmental plans, non-U.S. plans and certain church plans) may be subject to similar rules under other applicable laws or documents, and also should consult their own advisers as to the propriety of an investment in the Fund.
By acquiring Shares of the Fund, a Shareholder acknowledges and agrees that any information provided by the Fund, the Adviser or any of their respective affiliates (including information set forth in the Prospectus and this SAI) is not a recommendation to invest in the Fund and that none of the Fund, the Adviser or any of their respective affiliates is undertaking to provide any investment advice to the Shareholder (impartial or otherwise), or to give advice to the Shareholder in a fiduciary capacity in connection with an investment in the Fund and, accordingly, no part of any compensation received by the Adviser or any of its affiliates is for the provision of investment advice to the Shareholder.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 29, 2024, information with respect to the beneficial ownership of our Shares by each person known to the Fund to beneficially own more than 5% of the outstanding Shares.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as otherwise noted below, each shareholder named in the following
20
table has sole voting and investment power with respect to all Shares that it beneficially owns. Each of the record holders of 5% or more of Shares may be deemed not to beneficially own (or may be deemed to have disclaimed beneficial ownership of) some or all of its Shares to the extent it does not have voting and/or dispositive power over such Shares. Percentage of beneficial ownership is based on 28,418,173 Shares outstanding as of February 29, 2024.
|
Name
|
| |
Address
|
| |
Class
|
| |
Number
of Shares Held |
| |
Percentage
of Shares Held |
| ||||||
|
Liberty Mutual Investment Holdings
|
| |
175 Berkeley Street
Boston, MA 02116 |
| |
Class I
|
| | | | 3,477,324 | | | | | | 18.86% | | |
|
Ares Holdings LP
|
| |
245 Park Avenue, 44th Floor,
New York, NY 10167 |
| |
Class I
|
| | | | 3,000,000 | | | | | | 16.27% | | |
|
Sumitomo Mitsui Banking Corporation
|
| |
1-2, Marunouchi 1-Chome,
Chiyoda-Ku, Tokyo 100-0005 |
| |
Class I
|
| | | | 3,000,000 | | | | | | 16.27% | | |
|
David Kelly
|
| | Lutherville Timonium, MD | | |
Class D
|
| | | | 15,389 | | | | | | 5.0% | | |
Shareholders who beneficially own 25% or more of the outstanding Shares of the Fund may be deemed to be a “control person” of the Fund for purposes of the Investment Company Act.
FINANCIAL STATEMENTS
The Fund’s audited financial statements and financial highlights for the period ended March 31, 2023 appearing in the Fund’s Annual Report, filed with the SEC on June 6, 2023, are incorporated by reference into this Statement of Additional Information. Those financial statements and financial highlights have been audited by Ernst & Young LLP, independent registered public accounting firm, as indicated in its report thereon, and are incorporated herein by reference in reliance upon such report, given on the authority of Ernst & Young LLP as experts in accounting and auditing.
The Fund’s unaudited financial statements and financial highlights for the period ended September 30, 2023 appearing in the Fund’s Semi-Annual Report, filed with the SEC on December 6, 2023, are incorporated by reference into this Statement of Additional Information. In the opinion of management, the unaudited interim financial statements reflect all adjustments necessary to a fair statement of the results for the interim period presented and are of a normal, recurring nature.
21
APPENDIX A — SECURITIES RATING DESCRIPTIONS
Long-Term and Short-Term Debt Securities Rating Descriptions
S&P Global Ratings — Long-Term Issue Credit Ratings*:
The following descriptions have been published by Standard & Poor’s Financial Services LLC.
AAA — An obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA — An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A — An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB — An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB; B; CCC; CC; and C — Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB — An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B — An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
CCC — An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC — An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred, but S&P Global Ratings expects default to be a virtual certainty, regardless of the anticipated time to default.
C — An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to obligations that are rated higher.
D — An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
NR — This indicates that no rating has been requested, or that there is insufficient information on which to base a rating, or that S&P Global Ratings does not rate a particular obligation as a matter of policy.
*
The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
A-1
Moody’s Investors Service, Inc. (“Moody’s”) — Global Long-Term Rating Scale:
The following descriptions have been published by Moody’s Investors Service, Inc.
Aaa — Obligations rated Aaa are judged to be of the highest quality, with minimal risk.
Aa — Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A — Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa — Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative characteristics.
Ba — Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B — Obligations rated B are considered speculative and are subject to high credit risk.
Caa — Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca — Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery in principal and interest.
C — Obligations rated C are the lowest-rated class of bonds and are typically in default, with little prospect for recovery of principal and interest.
Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms.*
Fitch Ratings (“Fitch”) — Corporate Finance Obligations — Long-Term Rating Scale:
The following descriptions have been published by Fitch, Inc. and Fitch Ratings Ltd. and its subsidiaries.
AAA — Highest credit quality. ‘AAA’ ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA — Very high credit quality. ‘AA’ ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A — High credit quality. ‘A’ ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB — Good credit quality. ‘BBB’ ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate. but adverse business or economic conditions are more likely to impair this capacity.
BB — Speculative. ‘BB’ ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
*
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
A-2
B — Highly speculative. ‘B’ ratings indicate that material credit risk is present.
CCC — Substantial credit risk. ‘CCC’ ratings indicate that substantial credit risk is present.
CC — Very high levels of credit risk. ‘CC’ ratings indicate very high levels of credit risk.
C — Exceptionally high levels of credit risk. ‘C’ indicates exceptionally high levels of credit risk.
Defaulted obligations typically are not assigned ‘RD’ or ‘D’ ratings, but are instead rated in the ‘B’ to ‘C’ rating categories, depending upon their recovery prospects and other relevant characteristics. This approach better aligns obligations that have comparable overall expected loss but varying vulnerability to default and loss.
Note: The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ obligation rating category, or to corporate finance obligation ratings in the categories below ‘CCC’.
DBRS — Long Term Obligations Rating Scale:
The following descriptions have been published by Dominion Bond Rating Service.
AAA — Highest credit quality. The capacity for the payment of financial obligations is exceptionally high and unlikely to be adversely affected by future events.
AA — Superior credit quality. The capacity for the payment of financial obligations is considered high. Credit quality differs from AAA only to a small degree. Unlikely to be significantly vulnerable to future events.
A — Good credit quality. The capacity for the payment of financial obligations is substantial, but of lesser credit quality than AA. May be vulnerable to future events, but qualifying negative factors are considered manageable.
BBB — Adequate credit quality. The capacity for the payment of financial obligations is considered acceptable. May be vulnerable to future events.
BB — Speculative, non-investment-grade credit quality. The capacity for the payment of financial obligations is uncertain. Vulnerable to future events.
B — Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet financial obligations.
CCC/CC/C — Very highly speculative credit quality. In danger of defaulting on financial obligations. There is little difference between these three categories, although CC and C ratings are normally applied to obligations that are seen as highly likely to default or subordinated to obligations rated in the CCC to B range. Obligations in respect of which default has not technically taken place, but is considered inevitable, may be rated in the C category.
D — When the issuer has filed under any applicable bankruptcy, insolvency, or winding-up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods, a downgrade to D may occur. Morningstar DBRS may also use SD (Selective Default) in cases where only some Morningstar DBRS Product Guide securities are impacted, such as the case of a “distressed exchange.”
All rating categories other than AAA and D also contain subcategories “(high)” and “(low)”. The absence of either a “(high)” or “(low)” designation indicates the rating is in the middle of the category.
S&P Global Ratings — Short-Term Issue Credit Ratings:
The following descriptions have been published by Standard & Poor’s Financial Services LLC.
A-1 — A short-term obligation rated ‘A-1’ is rated in the highest category by S&P Global Ratings. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain
A-3
obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2 — A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3 — A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B — A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
C — A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D — A short-term obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
Dual ratings may be assigned to debt issues that have a put option or demand feature. The first component of the rating addresses the likelihood of repayment of principal and interest as due, and the second component of the rating addresses only the demand feature. The first component of the rating can relate to either a short-term or long-term transaction and accordingly use either short- term or long-term rating symbols. The second component of the rating relates to the put option and is assigned a short-term rating symbol (for example, ‘AAA/A-1+’ or ‘A-1+/A-1’). With U.S. municipal short-term demand debt, the U.S. municipal short-term note rating symbols are used for the first component of the rating (for example, ‘SP-1+/A-1+’).
Moody’s — Global Short-Term Rating Scale:
The following descriptions have been published by Moody’s Investors Service, Inc.
P-1 — Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2 — Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3 — Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP — Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Fitch — Short-Term Ratings Assigned to Issuers or Obligations in Corporate, Public and Structured Finance:
The following descriptions have been published by Fitch Inc. and Fitch Ratings Ltd. and its subsidiaries.
F1 — Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency’s National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country or monetary union. Where the liquidity profile is particularly strong, a “+” is added to the assigned rating.
A-4
F2 — Indicates a good capacity for timely payment of financial commitments relative to other issuers or obligations in the same country or monetary union. However, the margin of safety is not as great as in the case of the higher ratings.
F3 — Indicates an adequate capacity for timely payment of financial commitments relative to other issuers or obligations in the same country or monetary union.
B — Indicates an uncertain capacity for timely payment of financial commitments relative to other issuers or obligations in the same country or monetary union.
C — Indicates a highly uncertain capacity for timely payment of financial commitments relative to other issuers or obligations in the same country or monetary union.
RD — Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
D –Indicates a broad-based default event for an entity, or the default of a short-term obligation.
DBRS—Commercial Paper and Short-Term Debt Rating Scale:
The following descriptions have been published by Dominion Bond Rating Service.
R-1 (high) — Highest credit quality. The capacity for the payment of short-term financial obligations as they fall due is exceptionally high. Unlikely to be adversely affected by future events.
R-1 (middle) — Superior credit quality. The capacity for the payment of short-term financial obligations as they fall due is very high. Differs from R-1 (high) by a relatively modest degree. Unlikely to be significantly vulnerable to future events.
R-1 (low) — Good credit quality. The capacity for the payment of short-term financial obligations as they fall due is substantial. Overall strength is not as favourable as higher rating categories. May be vulnerable to future events, but qualifying negative factors are considered manageable.
R-2 (high) — Upper end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events.
R-2 (middle) — Adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events or may be exposed to other factors that could reduce credit quality.
R-2 (low) — Lower end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events. A number of challenges are present that could affect the issuer’s ability to meet such obligations.
R-3 — Lowest end of adequate credit quality. There is capacity for the payment of short-term financial obligations as they fall due. May be vulnerable to future events, and the certainty of meeting such obligations could be impacted by a variety of developments.
R-4 — Speculative credit quality. The capacity for the payment of short-term financial obligations as they fall due is uncertain.
R-5 — Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet short-term financial obligations as they fall due.
D — When the issuer has filed under any applicable bankruptcy, insolvency, or winding-up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods, a downgrade to D may occur. Morningstar DBRS may also use SD (Selective Default) in cases where only some Morningstar DBRS Product Guide securities are impacted, such as the case of a “distressed exchange.”
A-5
APPENDIX B — PROXY VOTING POLICIES AND PROCEDURES
Fund Proxy Voting Policy
It is the policy of the Fund to delegate the responsibility for voting proxies relating to portfolio securities held by the Fund to the Adviser as a part of the Adviser’s general management of the Fund’s portfolio, subject to the continuing oversight of the Board. The Board has directed the Adviser to vote proxies relating to portfolio securities held by the Fund consistent with the duties and procedures set forth below. The Adviser may retain one or more vendors to review, monitor and recommend how to vote proxies in a manner consistent with the duties and procedures set forth below, to ensure that such proxies are voted on a timely basis and to provide reporting and/or record retention services in connection with proxy voting for the Fund.
The right to vote a proxy with respect to portfolio securities held by the Fund is an asset of the Fund. The Adviser, to which authority to vote on behalf of the Fund is delegated, acts as a fiduciary of the Fund and must vote proxies in a manner consistent with the best interest of the Fund and its shareholders. In discharging this fiduciary duty, the Adviser must maintain and adhere to its policies and procedures for addressing conflicts of interest and must vote proxies in a manner substantially consistent with its policies, procedures and guidelines, as presented to the Board.
Any actual or potential conflicts of interest between the Distributor or the Adviser and the Fund’s shareholders arising from the proxy voting process will be addressed by the Adviser and the Adviser’s application of its proxy voting procedures pursuant to the delegation of proxy voting responsibilities to the Adviser. In the event that the Adviser notifies the officer(s) of the Fund that a conflict of interest cannot be resolved under the Adviser’s proxy voting procedures, such officer(s) are responsible for notifying the Board of such irreconcilable conflict of interest and assisting the Board with any actions it determines are necessary.
Adviser Proxy Voting Policy and Procedures
Where the Adviser has been granted discretion by a client, such as the Fund (“Client”) to exercise by proxy the voting rights of securities beneficially owned by such Client (the “Client Securities”), the Adviser will exercise all voting rights delegated to it by the Client with respect to Client Securities, except as provided herein.
In determining how to vote, investment professionals of the Adviser will consult with each other, taking into account the interests of each Client as well as any potential conflicts of interest. In general, the Adviser will vote proxies in accordance with the guidelines set out below, which are designed to maximize the value of Client Securities (the “Guidelines”), unless any of the following is true:
•
the Adviser’s agreement with the Client requires it to vote proxies in a certain way;
•
the Adviser has determined otherwise due to the specific and unusual facts and circumstances with respect to a particular vote;
•
the subject matter of the vote is not covered by the Guidelines;
•
a material conflict of interest is present; or
•
the Adviser finds it necessary to vote contrary to the Guidelines to maximize the best interests of the Client.
In the absence of Guidelines with respect to a particular matter, the Adviser will vote proxies so as to maximize the economic value of the Client Securities and otherwise serve the best interests of the Client. Subject to the policies stated above, the Adviser will generally use the following guidelines in reviewing proxy issues:
Elections of Directors. In general, the Adviser will vote in favor of the management-proposed slate of directors. If there is a proxy fight for seats on the board of directors of an issuer of Client Securities (an “Issuer”) or the Adviser determines that there are other compelling reasons for withholding the Client’s vote, it will determine the appropriate vote on the matter. Among other reasons, the Adviser may withhold votes for directors when any of the following are true:
•
the Adviser believes a direct conflict of interest exists between the interests of a director and the stockholders;
B-1
•
the Adviser concludes that the actions of a director are unlawful, unethical, or negligent;
•
the Adviser believes a director is entrenched or dealing inadequately with performance problems or is acting with insufficient independence between the board and management; or
•
the Adviser believes that, with respect to directors of non-US Issuers, there is insufficient information about the nominees disclosed in the proxy statement.
Appointment of Auditors. As the Adviser believes that an Issuer remains in the best position to choose its independent auditors, the Adviser will generally support management’s recommendation in this regard.
Changes in Capital Structure. Changes in the charter or bylaws of an Issuer may be required by state or federal regulation. In general, the Adviser will cast a Client’s votes in accordance with the management on such proposals. However, the Adviser will consider carefully any proposal regarding a change in corporate structure that is not required by state or federal regulation.
Corporate Restructurings; Mergers and Acquisitions. As the Adviser believes that proxy votes dealing with corporate reorganizations are an extension of the investment decision, the Adviser will analyze such proposals on a case-by-case basis and vote in accordance with its perception of each Client’s interests.
Proposals Affecting Shareholder Rights. The Adviser will generally cast a Client’s votes in favor of proposals that give shareholders a greater voice in the affairs of an Issuer and oppose any measure that seeks to limit such rights. However, when analyzing such proposals, the Adviser will balance the financial impact of the proposal against any impairment of shareholder rights as well as of the client’s investment in the Issuer.
Corporate Governance. As the Adviser recognizes the importance of good corporate governance, the Adviser will generally favor proposals that promote transparency and accountability within an Issuer.
Anti-Takeover Measures. The Adviser will evaluate, on a case-by-case basis, any proposals regarding anti-takeover measures to determine the measure’s likely effect on shareholder value dilution.
Stock Splits. The Adviser will generally vote with management on stock split matters.
Limited Liability of Directors. The Adviser will generally vote with management on matters that could adversely affect the limited liability of directors.
Social and Corporate Responsibility. The Adviser will review proposals related to social, political, and environmental issues to determine whether they may adversely affect shareholder value. The Adviser may abstain from voting on such proposals where they do not have a readily determinable financial impact on shareholder value.
Executive and Directors Compensation. The Adviser will evaluate, on a case-by-case basis, any proposals regarding stock option and compensation plans. The Adviser will generally vote against any proposed plans that may result in excessive transfer of shareholder value, that permit the repricing of underwater options, or that include an option exercise price that is below the market price on the day of the grant. The Adviser will generally vote for proposals requiring top executive and director compensation for “golden parachutes” to be submitted for shareholder approval.
The Adviser will inform each Client of the proxy voting policies and procedures described here. The Adviser will inform each client of any changes in its proxy voting policies and procedures and, upon request, the Adviser will promptly provide to a Client a copy of its proxy voting policies and procedures as then in effect.
If a potential conflict of interest exists, the Adviser may choose to resolve the conflict by following the recommendation of a disinterested third party, by seeking the direction of each affected Client or, in extreme cases, by abstaining from voting. In any event, the Adviser will not delegate its voting authority to any third party, although it may retain an outside service to provide voting recommendations and to assist in analyzing votes. Some examples of potential conflicts of interest include:
•
the Adviser or an affiliate provides investment advice to an officer or director of an Issuer and the Adviser or such affiliate receives a proxy solicitation from that Issuer, or a competitor of that Issuer;
B-2
•
an Issuer or some other third party offers the Adviser or an affiliate compensation in exchange for voting a proxy in a particular way;
•
an affiliate or an member of an affiliate’s household has a personal or business relationship with an Issuer;
•
an affiliate has a beneficial interest contrary to the position held by the Adviser on behalf of its Clients;
•
the Adviser holds various classes and types of equity and debt securities of the same Issuer contemporaneously in different Client portfolios; and
•
any other circumstance where the Adviser’s duty to service its Clients’ interest could be compromised.
The Adviser will retain records pertaining to these proxy voting policies and procedures in accordance with Rule 204-2 under the Investment Advisers Act of 1940, as amended.
B-3
PART C: OTHER INFORMATION
Item 25. Financial Statements and Exhibits
| (n) | Consent of Independent Registered Public Accounting Firm(1) | ||
| (o) | Not applicable | ||
| (p) | (1) | Initial Subscription Agreement(5) | |
| (2) | Forms of Investor Subscription Agreement(7) | ||
| (q) | Not applicable | ||
| (r) | (1) | Code of Ethics of the Registrant(5) | |
| (2) | Code of Ethics of Adviser and Distributor(6) | ||
| (s) | Filing Fee Table(1) | ||
| (t) | Power of Attorney(1) | ||
| (1) | Filed herewith. |
| (2) | Incorporated by reference to the Registrant's Annual Report for the period ended March 31, 2023 (File No. 811-23727) as filed with the SEC on Form N-CSR on June 6, 2023. |
| (3) | Incorporated by reference to the Registrant's Semi-Annual Report for the period ended September 30, 2023 (File No. 811-23727) as filed with the SEC on Form N-CSR on December 6, 2023. |
| (4) | Incorporated by reference to the corresponding exhibit of the Registrant's Registration Statement on Form N-2 (File Nos. 811-23727 and 333-258821) (the "Initial Registration Statement"), filed on August 13, 2021. |
| (5) | Incorporated by reference to the corresponding exhibit of Pre-Effective Amendment No. 3 to the Initial Registration Statement, filed on March 23, 2022 ("Pre-Effective Amendment No. 3"), filed on March 23, 2022. |
| (6) | Incorporated by reference to the corresponding exhibit of Post-Effective Amendment No. 1 to the Initial Registration Statement, filed on June 30, 2023 ("Post-Effective Amendment No. 1"), filed on June 30, 2023. |
| (7) | Incorporated by reference to the corresponding exhibit of the Registrant's Registration Statement on Form N-2 (File Nos. 811-23727 and 333-275060) filed on October 17, 2023. |
Item 26. Marketing Arrangements
See the Distribution Agreement, a form of which is filed as Exhibit (h)(1) to the Initial Registration Statement and the Form of Selected Dealer Agreement, a form of which is filed as Exhibit (h)(2) to Post-Effective Amendment No. 1.
Item 27. Other Expenses of Issuance and Distribution
Not applicable.
Item 28. Persons Controlled by or Under Common Control with the Registrant
Each of Ares Landmark Private Markets Fund-D, LLC, Ares Landmark Private Markets Fund-D Blocker, LLC, Ares Private Markets Fund Blocker, LLC and Ares Private Markets Fund-ND LLC, each a Delaware limited liability company, is a wholly-owned subsidiary of the Registrant and is consolidated for financial reporting purposes. In addition, the Registrant, Ares Landmark Private Markets Fund-D, LLC, Ares Landmark Private Markets Fund-D Blocker, LLC, Ares Private Markets Fund Blocker, LLC and Ares Private Markets Fund-ND LLC may be deemed to be controlled by Ares Capital Management II LLC ("ACM II"), the investment adviser of the Registrant. Information regarding the ownership of ACM II is set forth in its Form ADV as filed with the SEC (File No. 801-72399), and is incorporated herein by reference.
Item 29. Number of Holders of Securities
The following table sets forth the number of record holders of shares of beneficial ownership of the Registrant as of February 29, 2024:
| Title of Class | Number of Record Holders |
|||
| Shares of Beneficial Ownership for Class A | 1,343 | |||
| Shares of Beneficial Ownership for Class D | 116 | |||
| Shares of Beneficial Ownership for Class I | 993 | |||
Item 30. Indemnification
Reference is made to Article V of Registrant's Amended and Restated Declaration of Trust (the "Declaration of Trust") filed as Exhibit (a)(4) to Pre-Effective Amendment No. 3.
Reference is also made to:
| ● | Section 8 of the Registrant's Amended and Restated Investment Advisory and Management Agreement, which is filed hereto as Exhibit (g); and |
| ● | Section 8 of the Registrant's Distribution Agreement, which is filed as Exhibit (h)(1) to Pre-Effective Amendment No. 3. |
The Registrant maintains insurance on behalf of any person who is or was an independent trustee, officer, employee or agent of the Registrant against certain liability asserted against and incurred by, or arising out of, his or her position. However, in no event will the Registrant pay that portion of the premium, if any, for insurance to indemnify any such person for any act for which the Registrant itself is not permitted to indemnify.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to the trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by the trustees, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by the trustees, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of Investment Adviser
ACM II serves as the investment adviser to the Registrant. ACM II is engaged in the investment advisory business. For information as to the business, profession, vocation or employment of a substantial nature in which ACM II and each of its executive officers and directors is or has been, during the last two fiscal years, engaged for his or her own account or in the capacity of director, officer, employee, partner or trustee, reference is made to the information set forth in ACM's Form ADV (File No. 801-72399), as filed with the SEC and incorporated herein by reference.
Item 32. Location of Accounts and Records
The Declaration of Trust, Bylaws and minute books of the Registrant and certain investment adviser records are in the physical possession of ACM II at 245 Park Avenue, 44th Floor, New York, NY 10167. All other accounts, books and other documents required to be maintained under Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are in the physical possession of the Fund's custodian at 928 Grand Blvd., 10th Floor, Kansas City, MO 64106 and the Fund's administrator, ALPS Fund Services, Inc., 1290 Broadway, Suite 1000, Denver, CO 80203, except for certain transfer agency records which are maintained by DST Asset Manager Solutions, Inc., 333 West 11th Street, 5th Floor, Kansas City, MO 64105.
Item 33. Management Services
Not applicable.
Item 34. Undertakings
| 1. | Not applicable. |
| 2. | Not applicable. |
| 3. | The Registrant hereby undertakes: |
| (a) | to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement: |
| (1) | to include any prospectus required by Section 10(a)(3) of the Securities Act; |
| (2) | to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and |
| (3) | to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (b) | that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; |
| (c) | to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; |
| (d) | that, for the purpose of determining liability under the Securities Act to any purchaser: |
| (1) | Not applicable. |
| (2) | each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (e) | that for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of securities: |
| The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser: |
| (1) | any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act; |
| (2) | free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; |
| (3) | the portion of any other free writing prospectus or advertisement pursuant to Rule 482 under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and |
| (4) | any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
| 4. | Not applicable. |
| 5. | Not applicable. |
| 6. | Not applicable. |
| 7. | The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any prospectus or Statement of Additional Information. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "Securities Act") and the Investment Company Act of 1940, the Registrant represents that this Registration Statement meets all the requirements for effectiveness pursuant to Rule 486(b) under the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York, on the 20th day of March, 2024.
| ARES PRIVATE MARKETS FUND | ||
| By: | /s/ Barry Miller | |
| Name: | Barry Miller | |
| Title: | President and Chief Executive Officer | |
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on the 20th day of March, 2024.
| /s/ Barry Miller | President and Chief Executive Officer | |
| Barry Miller | ||
| /s/ Tina St. Pierre | Chief Financial Officer, Principal Accounting Officer | |
| Tina St. Pierre | and Treasurer | |
| /s/ Francisco L. Borges* | Trustee | |
| Francisco L. Borges | ||
| /s/ Rajat Dhanda* | Trustee | |
| Rajat Dhanda | ||
| /s/ Patrick Dooley* | Trustee | |
| Patrick Dooley | ||
| /s/ Edward Lewis* | Trustee | |
| Edward Lewis | ||
| /s/ David Sachs* | Trustee | |
| David Sachs | ||
| /s/ Paola Sapienza* | Trustee | |
| Paola Sapienza | ||
| /s/ Lawrence Schloss* | Trustee | |
| Lawrence Schloss | ||
| /s/ Kent Weldon* | Trustee | |
| Kent Weldon |
| *By: | /s/ Barry Miller | |
| Barry Miller | ||
| as Attorney-in-Fact |
