Ares Diversified Strategic Income Fund (“ADSIF”)

Disclaimer

Ares Management

In the United Kingdom, this Communication (and any document to which it is attached or with which it is supplied, together the "Communication") is issued by Ares Management Limited ("AML") of 10 New Burlington Street, 6th Floor, London W1S 3BE, United Kingdom, which is authorized and regulated in the United Kingdom by the Financial Conduct Authority ("FCA") with firm reference numbers 613497 and 455547, respectively.

In the European Economic Area (“EEA”) this Communication is prepared by Ares Management Luxembourg (“AMLux”) of 14-16 Avenue Pasteur, L-2310 Luxembourg, which is authorized in Luxembourg by the Commission de Surveillance du Secteur Financier (“CSSF”) with reference number A00002345 and is issued and made available by an appropriately licenced EEA distributor. AMLux additionally has MiFID permissions under Reg ID S00001060 on the CSSF register.

MPMF Fund Management (Ireland) Limited, an Irish law private company limited by shares (the “AIFM”), has been appointed as the external alternative investment fund manager of AECS. The AIFM is in charge inter alia of the risk management function of Ares European Credit Solutions Fund SICAV (“AECS Feeder SICAV”) and its sub-funds, including Ares Diversified Strategic Income Fund (“ADSIF” or the “Fund”).

Ares Management Limited, (the “Investment Manager”) is an affiliate of Ares (as defined below) and is authorized and regulated by the FCA. The Investment Manager is responsible for initiating, structuring and negotiating ADSIF Feeder’s Investments.

AML and AMLux are wholly owned subsidiaries of Ares Management LLC (together with AML and AMLux, "we", or "Ares Management"). Ares Management is owned by Ares Management Corp ("Ares Corp") (together, "Ares").

Certain Ares funds may be offered through the Ares affiliate Ares Management Capital Markets LLC (a broker dealer registered with the SEC, and a member of FINRA).

Capitalized terms below are as defined in the Prospectus and the ADSIF annex.

Marketing Communication

This is a marketing Communication. Please refer to the legal documentation of the Fund, including the prospectus and PRIIPs KIDs which can be found at https://www.areswms.com/non-us/adsif/literature-resources, before making any final investment decisions. This is not an offer to sell, or a solicitation to purchase, any security or other financial instrument, or a solicitation of interest in any fund, account or investment strategy.

Contents of the Communication

Any offer or solicitation with respect to any securities that may be issued by any investment vehicle managed or sponsored by Ares Management or one of its affiliated entities (each an "Ares Fund") will be made only by means of a definitive Prospectus (as modified or supplemented from time to time, a "Prospectus"). You should refer to the Prospectus and/or articles of incorporation of AECS Feeder SICAV (as amended, restated or otherwise modified from time to time, the “Articles”) and any other subscription documents relating to the relevant Ares Fund before making any investment decision.

The Prospectus, Articles and subscription documents will contain complete information concerning the rights, privileges and obligations of investors in the relevant Ares Fund. The information contained in any such Prospectus, Articles or subscription documents will supersede this Communication and any other marketing materials (in whatever form) issued or communicated by Ares Management.

This Communication contains information about Ares and certain of its personnel and affiliates and the historical performance of certain Ares Funds and/or investment vehicles whose portfolios are managed by Ares. This information is supplied to provide information as to Ares’ general portfolio management experience. Neither Ares nor any third party makes any representation or warranty (express or implied) with respect to the information contained herein (including, without limitation, information obtained from third parties) and Ares expressly disclaims any and all liability based on or relating to the information contained in, or errors or omissions from, this Communication; or based on or relating to your use of the Communication; or any other written or oral communications transmitted to you in the course of your evaluation of Ares or a potential investment in any Ares Fund.

Prospective investors should note that the tax treatment of each investor, and of any investment, depends on individual circumstances and may be subject to change in the future.

The content of this Communication should not be construed as legal, tax, or investment advice. Regarding sustainability-related aspects of the investment included herein, the decision to invest in the Fund should take into account all the characteristics or objectives as described in the legal documentation of the Fund.

Confidentiality

This Communication is intended only for the person(s) to whom it has been sent, is strictly confidential, and must not be forwarded without the prior consent of Ares Management. 

By acceptance of this Communication (whether received directly from Ares Management or otherwise) you hereby acknowledge and agree that:

• its content includes confidential and proprietary information (“Confidential Information”) that is not publicly available or otherwise prepared for public dissemination;
• Confidential Information may include information received and held in confidence by Ares Management from third parties (for example, Ares Fund portfolio companies) (a "Third-Party"); and
• you must hold all Confidential Information in the strictest confidence, and will not use it or disclose it other than in accordance with this disclaimer.

You further acknowledge and agree that:

• your obligations under this confidentiality requirement (and any other confidentiality requirement which otherwise applies to the communication) are owed to Ares Management and any Third-Party;
• damages would not be an adequate remedy for breach of such obligations; and
• in the event of a breach, Ares Management, the relevant Ares Fund and any Third-Party shall be entitled to seek the remedies of injunctive relief, specific performance and any other equitable relief.

Recipient

For recipients in the United Kingdom, this Communication is directed solely at recipients who fall into both of the following categories:

• "Professional Clients" as defined in the Glossary to the FCA Handbook;
• one or more of: (a) investment professionals falling within Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (the “CIS Promotion Order”) and/or (as applicable) article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”); (b) persons who are high net worth companies, unincorporated associations, partnerships or trusts falling within any of the categories of persons described in Article 22 of the CIS Promotion Order and/or (as applicable) Article 49 of the Financial Promotion Order; or (c) any other person to whom it may otherwise be lawfully directed in accordance with the CIS Promotion Order, the General Promotion Order or COBS 4 of the FCA Handbook of Rules and Guidance.

For recipients within the EEA, this Communication is only made to (i) persons who are “Professional Clients” for the purposes of the European Union Markets in Financial Instruments Directive (Directive 2014/65/EU) or (ii) certain non-professional investors who meet the thresholds and/or conditions as applicable in a given member state.

Investment in any related fund will be restricted accordingly.

Persons of any other description may not receive and should not rely on these materials or any other materials relating to an Ares Fund.

These materials are not intended for distribution to, or use by, any person in any jurisdiction or country where such distribution or use would be contrary to law or regulation.

Forward-looking statements

This Communication may contain “forward-looking” statements that are not purely historical in nature. Any such statements are based upon estimates, projections, plans and assumptions about future events or conditions (not all of which will be specified herein). They are intended only as illustrations and by their nature are uncertain. No representations are made as to the accuracy of such statements. Not all relevant events or conditions may have been considered in developing such statements and assumptions. The achievement of results and objectives is dependent upon a multitude of factors, many of which are beyond the control of Ares and/or any referenced portfolio company. The statements may not consider or address all aspects of a referenced portfolio investment, including aspects that might be material or important. You must not rely upon any forward-looking statement contained in this Communication, and you acknowledge and agree that you shall have no claim at law or in equity by virtue of anything contained in or omitted from any such statement. Past performance is not indicative of future results. There is no assurance that an Ares Fund will be able to generate returns for its investors (as stated herein or otherwise).

Third-party information

Certain information contained in this Communication has been obtained from sources outside Ares, which in certain cases have not been updated through the date hereof. While such information is believed to be reliable for purposes used herein, no representations are made as to the accuracy or completeness thereof and none of Ares, its funds, nor any of their affiliates takes any responsibility for, and has not independently verified, any such information.

Summary Risk Factors

An investment in ADSIF Feeder entails a significant degree of risk and, therefore, should be undertaken only by investors capable of evaluating the risks of the Fund and bearing the risks it represents. Returns of ADSIF Feeder are unpredictable and there can be no assurance that an investor will receive a return on its capital, and therefore, an investor should only invest in ADSIF Feeder if such investor is able to withstand a total loss of its investment. Prospective investors in AECS should carefully consider the following risk factors in connection with an investment in AECS Feeder SICAV and its sub-funds, including ADSIF Feeder. As a result of these factors, as well as other risks set forth elsewhere in the Prospectus, there can be no assurance that ADSIF Feeder will meet its investment objectives or otherwise be able to successfully carry out its investment program. The Prospectus provides a non-exhaustive list of risk factors and conflicts of interest that should be considered in evaluating an investment in AECS Feeder SICAV and ADSIF Feeder. As a result of ADSIF’s investments into AESIF and ASIF, ADSIF will also be indirectly exposed the risks associated with an investment in AESIF and ASIF. The following list is a summary of certain selected risks in relation to ADSIF Feeder and is not a complete list of all risks described in the Prospectus or involved in connection with an investment in ADSIF Feeder, and prospective investors should carefully review the Prospectus and the relevant annex thereof in relation to ADSIF Feeder (the “ADSIF Feeder Annex”) for additional information about these and other risks associated with an investment in ADSIF Feeder, including the sections entitled “Risk Factors and Other Considerations”.

No assurance of investment return or return of capital contributions

None of AECS Feeder SICAV, the AIFM, the Investment Manager, any of their respective affiliates or any other person can provide any assurance that ADSIF Feeder will be able to choose, make or realize any particular investment or the investment strategy of ADSIF Feeder in general. Further, there can be no assurance that ADSIF Feeder will be able to generate returns for the investors or that such returns will be commensurate with the risks of investing in the types of companies and transactions described herein or that such returns will be comparable to ADSIF Feeder’s targeted returns. The marketability and value of any such investment will depend upon many factors beyond the control of AECS Feeder SICAV, the Investment Manager and the AIFM. ADSIF Feeder will bear the expenses of transactions that are not consummated, including any break-up fees. As a result, ADSIF Feeder could incur a substantial cost with no opportunity for a return. Currency fluctuations may have an adverse effect on the value price or income of the product which may increase or decrease as a result of changes in exchange rates.

Past Performance

The past performance of the Investment Manager, its affiliates and their respective investment professionals with respect to other portfolios, investment vehicles or accounts is not indicative of the results that ADSIF Feeder will achieve. The Investment Manager (and not any of its affiliates or their respective investment professionals) will be responsible for its obligations under the alternative investment management agreement in relation to ADSIF Feeder and, thus, the results obtained by such affiliates or investment professionals with respect to other portfolios, investment vehicles or accounts is not relevant to the value of the Shares. Similarly, the past performance of the Investment Manager, its affiliates and their respective investment professionals over a particular period is not indicative of the results that may be expected in future periods.

ADSIF’s assets will generally be illiquid

An investment in ADSIF Feeder should be viewed as an illiquid investment. ADSIF Feeder’s assets will generally have no, or only a limited, trading market. ADSIF Feeder’s investment in illiquid assets may restrict its ability to dispose of investments in a timely fashion or for a fair price. Illiquid assets may trade at a discount from comparable, more liquid assets.

The secondary market for middle-market loans is smaller and less liquid than the market for broadly-syndicated loans made to larger obligors. In addition, ADSIF Feeder may invest in assets that may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions. The prices realized from the sale of any of ADSIF Feeder’s assets could be less than the cost of such assets to ADSIF Feeder or less than what may be considered the fair value of such assets.

Shares in ADSIF will have reduced liquidity

There is no current public trading market for the Shares, and the Sponsor does not expect that such a market will ever develop. Therefore, redemption of Shares by ADSIF Feeder will likely be the only way for investors to dispose of their Shares. ADSIF Feeder expects to redeem Shares at a price equal to the applicable NAV as of the Redemption Date and not based on the price at which investors initially purchased their Shares. Subject to limited exceptions, the Shares of certain Share Classes may be subject to an Early Redemption Deduction and/or a Redemption Fee calculated on the basis of the applicable NAV as of the Redemption Date. As a result, an investor may receive less than the price he/she paid for his/her Shares when he/she sells them to ADSIF Feeder pursuant to ADSIF’s redemption program.

The aggregate NAV of total redemptions (on an aggregate basis (without duplication) across ADSIF, including redemptions at all Parallel Entities and the ADSIF Aggregator, but excluding any Early Redemption Deduction or any Redemption Fee applicable to the redeemed Shares) is generally limited to 5% of aggregate NAV per calendar quarter of all Parallel Entities and the ADSIF Aggregator (measured as of the end of the previous calendar quarter), except in the event of exceptional circumstances set out in the Prospectus and the ADSIF Feeder Annex. In the event that, pursuant to the limitation above, not all of the Shares submitted for redemption during a given quarter are to be accepted for redemption by ADSIF Feeder, Shares submitted for redemption during such quarter will be redeemed on a pro rata basis (measured on an aggregate basis (without duplication) across ADSIF if applicable). Unsatisfied Redemption Requests will be automatically resubmitted for the next available Redemption Date in the manner as described in the Prospectus.

Effect of Redemption Requests

Economic events affecting the European economy could cause Shareholders to seek to sell their Shares to ADSIF pursuant to ADSIF’s redemption program at a time when such events are adversely affecting the performance of ADSIF’s assets. Even if the Investment Manager decides to satisfy all resulting Redemption Requests, ADSIF’s cash flow could be materially adversely affected. ADSIF’s ability to satisfy Redemption Requests of its Shareholders is also determined by the Intermediary Funds’ abilities and the abilities of the Other Ares Funds in which ADSIF invests (including ASIF and AESIF) to also fulfil redemption requests by their own unitholders, partners or shareholders, applicable. In addition, if ADSIF determines to sell assets to satisfy Redemption Requests, it may not be able to realize the return on such assets that it may have been able to achieve had it sold at a more favorable time, and ADSIF’s results of operations and financial condition, including, without limitation, breadth of its portfolio by property type and location, could be materially adversely affected.

Portfolio Concentration

The ADSIF Feeder Annex contains specific diversification and single investment restrictions. ADSIF Feeder is subject to restrictions on the size of Investments such that it will not at any one time invest more than 20% of the NAV at the time of acquisition in any single investment; provided, that such diversification will be assessed on a look-through basis and no remedial action will be required if such restriction is exceeded for any reason other than the acquisition of a new Investment (including the exercise of rights attached to an Investment). This 20% diversification requirement will not apply during a ramp-up period of up to four years after the initial subscription is received. However, ADSIF Feeder’s portfolio may include a small number of large positions or may be concentrated in a small number of industries, countries and sectors. If ADSIF Feeder’s investments are concentrated in a few issuers or industries, any adverse change in one or more of such issuers or industries could have a material adverse effect on ADSIF Feeder’s investments. Therefore, while this portfolio concentration may enhance total returns to Shareholders, if any large position has a material loss, returns to the Shareholders may be lower than if they had invested in a more diversified portfolio.

Portfolio Risk Factors

It is expected that a portion of the underlying investments will be rated below investment grade, and will have greater credit and liquidity risk than debt with an investment grade rating. The risks of debt instruments include (among others): (a) limited liquidity and secondary market support, (b) the possibility that earnings of the relevant obligor may be insufficient to meet its debt service, (c) the declining creditworthiness and potential for (or actual) insolvency of the relevant obligor of such debt during periods of economic downturn, (d) that the relevant obligor is often a small or mid-size company serving only local or regional interests, (e) spread compression over the reference interest rate available for reinvestment during any period in which prepayments are received and (f) if subordinated, subordination to the prior claims of other debt or senior lenders. Debt instruments are generally subject to market value volatility that may not be apparent from historical volatility studies and that could be significant at times. An economic downturn could severely disrupt the market for debt instruments and adversely affect the value of outstanding debt and the ability of the borrowers thereof to repay principal and interest. Moreover, the default history for debt instruments is limited, actual defaults may be greater than indicated by historical data and the timing of defaults may vary significantly from historical observations.

Credit Risk and Interest Rate Risks of Debt Securities

Debt instruments are subject to general market and credit and interest rate risks. Credit risk refers to the likelihood that an obligor will default on the payment of principal, interest or other amounts owed on an instrument. Certain investments may have an interest-only payment schedule with the principal amount remaining outstanding and at risk until the maturity of the investment. Financial strength and solvency of an obligor are the primary factors influencing credit risk, but other factors, including, but not limited to, an obligor’s failure to meet its business plan, a downturn in its industry or negative economic conditions may also contribute to credit risk. In addition, lack of, inadequacy of, or a deterioration in value of, collateral or other assets expected to be the source of repayment or credit enhancement for a debt instrument may affect its credit risk. Although ADSIF Feeder will seek to be the senior, secured lender to an obligor in most instances, some of ADSIF Feeder’s loans and other investments in an obligor (including potential equity investments) may be subordinated to a senior lender, and ADSIF Feeder’s interest in any collateral would, accordingly, likely be subordinate to another lender’s security interest. Credit risk may change over the life of an instrument and debt instruments that are rated by rating agencies are subject to downgrade at a later date. There can be no assurance that the AIFM will be successful in assessing the credit risk of the different portfolio investments or mitigating the impact of credit risk changes on ADSIF Feeder.

Interest rate risk refers to the risks associated with market changes in interest rates. Interest rate changes may affect the value of a debt instrument indirectly (especially in the case of fixed rate obligations) or directly (especially in the case of instruments whose rates are adjustable). In general, rising interest rates will negatively affect the price of a fixed rate debt instrument and falling interest rates will have a positive effect on the price of a fixed rate debt instrument. Adjustable rate instruments also react to interest rate changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including the index chosen, frequency of reset and reset caps or floors, among other factors). Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules. In addition, interest rate increases generally will increase the interest carrying cost to ADSIF Feeder of borrowed securities.

Volatility of leveraged loan and credit markets

Significant risks for ADSIF Feeder and the Shareholders exist as a result of the potential for disruptions in the credit markets and uncertain economic conditions. These risks include, among others, (i) the likelihood that ADSIF Feeder may find it more difficult to sell any of its assets in the secondary market, thus rendering it more difficult to dispose of such assets if and when it desires to sell them, (ii) the possibility that the price at which assets can be sold by ADSIF Feeder will have deteriorated from the cost of such investment to ADSIF Feeder, (iii) the possibility of accelerated prepayments of attractively priced (i.e. the all-in yield), structured or performing assets of ADSIF Feeder as a result of increased liquidity and competition in the middle-market private debt asset class driven by economic conditions, relative performance, monetary policy or other governmental action or other factors and (iv) the impact of adverse economic conditions on the obligors of ADSIF Feeder’s assets. These risks may affect the returns, if any, to the Shareholders or the ability of ADSIF Feeder to return any or all of the Shareholders’ investments.

Disruptions in the credit markets may reduce opportunities for ADSIF Feeder to make investments, and may also heighten refinancing risk in respect of maturing assets of ADSIF Feeder. Any events that slow, delay or reverse economic recovery or cause a deterioration in loan performance generally may affect the returns, if any, to the Shareholders or the ability of ADSIF Feeder to return any or all of the Shareholders’ contributions.

Negative macroeconomic conditions may adversely affect the credit rating (if any), performance and the realization value of ADSIF Feeder’s assets. It is possible that ADSIF Feeder’s assets will experience higher default rates and lower recovery rates than anticipated and that performance will be materially worse than expected.

The bankruptcy or insolvency of a major financial institution may have a material adverse effect on ADSIF Feeder, particularly if such financial institution is the administrative agent of an asset of ADSIF Feeder or is otherwise the counterparty to a contract with ADSIF Feeder (including a hedging-related contract). In addition, the bankruptcy, insolvency or financial distress of one or more additional financial institutions, or one or more sovereigns, could trigger additional disruptions in the global credit markets or the global economy which could have a material adverse effect on ADSIF Feeder and its assets.

Macroeconomic factors

The performance of ADSIF Feeder’s investments and the underlying business activities of its Underlying Issuers could be adversely affected by macroeconomic factors, including general economic conditions affecting capital markets and participants therein. Such macroeconomic factors include but are not limited to the continuing uncertainties affecting economies and capital markets worldwide; incidents arising from natural disasters, extreme weather conditions, global warming endemics, epidemics, pandemics, military conflicts, political or social unrest and similar events; concerns about financial performance, accounting and other issues relating to various companies including recent and proposed changes to laws and regulations affecting the financial industry, including banking, credit default swaps and other derivatives, mortgage lending, accounting and reporting standards.

Inflation and Deflation

Inflation risk is the risk that the value of certain investments or income thereon will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of ADSIF Feeder’s investments can decline. Deflation risk is the risk that prices decline over time – the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of any companies underlying ADSIF Feeder’s investments and may make defaults more likely, which may result in a decline in the value of ADSIF Feeder’s investments.

Deployment of Capital

In light of the nature of ADSIF’s continuous offering in relation to ADSIF’s investment strategy and the need to be able to deploy potentially large amounts of capital quickly to capitalize on potential investment opportunities, if ADSIF has difficulty identifying and purchasing suitable investments on attractive terms, there could be a delay between the time it receives net proceeds from the sale of Shares in this offering or any private offering and the time ADSIF invests the net proceeds. ADSIF may also from time to time hold cash pending deployment into Investments or have less than its targeted leverage, which cash or shortfall in target leverage may at times be significant, particularly at times when ADSIF is receiving high amounts of offering proceeds and/or times when there are few attractive investment opportunities. Such cash may be held in an account for the benefit of Shareholders that may be invested in money market accounts or other similar temporary investments, each of which are subject to the Management Fee.

In the event ADSIF is unable to find suitable Investments such cash may be maintained for longer periods which would be dilutive to overall investment returns. This could cause a substantial delay in the time it takes for your investment to realize its full potential return and could adversely affect ADSIF’s ability to pay regular distributions of cash flow from operations to you. It is not anticipated that the temporary investment of such cash into money market accounts or other similar temporary investments pending deployment into Investments will generate significant interest, and Shareholders should understand that such low interest payments on the temporarily invested cash may adversely affect overall returns. In the event ADSIF fails to timely invest the net proceeds of sales of Shares or does not deploy sufficient capital to meet its targeted leverage, ADSIF’s results of operations and financial condition may be adversely affected.

Use of Leverage

ADSIF intends to utilize leverage to finance the operations of ADSIF, and which may be structured as a securitization or otherwise. The use of leverage involves a high degree of financial risk and will increase ADSIF’s exposure to adverse economic factors such as rising interest rates, downturns in the economy or deteriorations in the condition of the Investments. Although borrowings by ADSIF and its subsidiaries and Portfolio Entities have the potential to enhance overall returns, they will further diminish returns (or increase losses on capital) to the extent overall returns on Investments are less than ADSIF’s cost of funds. This leverage may also subject ADSIF and its Investments to restrictive financial and operating covenants, which may limit flexibility in responding to changing business and economic conditions. For example, leveraged entities may be subject to restrictions on making interest payments and other distributions. In addition, the amount of leverage used to finance an Investment may fluctuate over the life of an Investment.

The use of leverage by a portfolio company imposes restrictive financial and operating covenants on a company, in addition to the burden of debt service, and may impair its ability to operate its business as desired and/or finance future operations and capital needs. The leveraged capital structure of portfolio companies will increase the exposure of the Fund’s investments to any deterioration in a company’s condition or industry, competitive pressures, an adverse economic environment or rising interest rates and could accelerate and magnify declines in the value of the Fund’s investments in the leveraged portfolio companies in a down market. In the event any portfolio company cannot generate adequate cash flow to meet its debt service, the Fund may suffer a partial or total loss of capital invested in the portfolio company, which could adversely affect the returns of the Fund.

Nature of ADSIF Investments

Whilst ADSIF Feeder is being formed principally to gain exposure through Other Ares Funds (including ASIF and AESIF) to private loans to underlying issuers, it may also have indirect exposure to syndicated loans, high-yield bonds, CLOs, and to a more limited extent, CMBS and rated private ABS. Such securities and instruments may be below “investment grade” or non-rated and may face ongoing uncertainties and exposure to adverse business, financial or economic conditions which could lead to the obligor’s inability to meet timely interest and principal payments. ADSIF may lose a substantial portion or all of its investment in a distressed environment or may be required to accept cash or securities with a value less than ADSIF’s investment. Among the risks inherent in investments (direct or indirect) in entities experiencing significant financial or business difficulties is the fact that it frequently may be difficult to obtain information as to the true condition of such issuers. Such investments also may be adversely affected by state and federal laws relating to, among other things, fraudulent conveyances, voidable preferences, lender liability and the bankruptcy court’s discretionary power to disallow, subordinate or disenfranchise particular claims. The market prices of such instruments are also subject to abrupt and erratic market movements and above-average price volatility, and the spread between the bid and asked prices of such instruments may be greater than normally expected due to a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, which may significantly affect the results of ADSIF’s activities. While such investments offer the opportunity for significant capital gains, they also involve a high degree of risk that may result in substantial losses. There can be no assurance that the Investment Manager will correctly evaluate the nature and magnitude of the various factors that could affect the value of ADSIF’s investments. As a result, ADSIF’s performance over a particular period may not be indicative of the results that may be expected in future periods.

Investing in Other Ares Funds (including ASIF and AESIF)

ADSIF intends to directly or indirectly invest into Other Ares Funds (including ASIF and AESIF). Conflicts of interest may arise in respect of the Investment Manager’s management of ADSIF and the Investment Manager’s, or an affiliate of the Investment Manager’s, management of the relevant Other Ares Funds in which ADSIF invests, as the case may be. While the Investment Manager is required to act in the best interest of ADSIF, it will also be required to act in the best interest of the relevant Other Ares Funds as a whole, in which ADSIF is expected to be a passive, minority investor. ADSIF expects to be a passive investor in such Other Ares Funds and as such, will generally not be able to engage in their management activities. As a result, ADSIF (and therefore, indirectly the Shareholders), will be wholly reliant on the skills, judgement, methods and management of the general partner(s), manager(s), board of directors, board of trustees and/or operator(s) of the Other Ares Funds in which ADSIF directly or indirectly invests and their respective advisors, and the ability of the same to successfully implement the investment strategy and objectives for the relevant Other Ares Funds.

While the interests of investors in an Other Ares Fund in which ADSIF invests are generally expected to align, there can be no guarantees of this, and investors may vote or exercise consent rights with respect to their interests in an Other Ares Fund according to their own respective interest. Shareholders should note therefore, that the exercise of votes and/or consent rights by other investors in a relevant Other Ares Fund may not necessarily align with the interests of ADSIF (and indirectly its Shareholders) as an investor in the Other Ares Fund, and as a result decisions may made with respect to the operations and activities of the relevant Other Ares Fund in a manner disadvantageous to the interests of ADSIF (and, indirectly, its Shareholders).

Capacity of Portfolio Funds to Raise Substantial Funds

If the Intermediary Funds and Other Ares Funds in which ADSIF invests (including ASIF and AESIF) are unable to raise substantial funds, then such portfolio funds will be more limited in the number and type of investments they may make, their respective expenses may be higher relative to their total assets, and the value of the direct or indirect investment of ADSIF in such portfolio fund may be reduced in the event underlying assets under-perform. Amounts that the portfolio fund raise may not be sufficient for us to purchase a broad portfolio of investments. To the extent that the Intermediary Funds and Other Ares Funds in which ADSIF invests (including ASIF and AESIF) are unable to raise all the capital they seek, the opportunity for such portfolio funds to purchase a broad portfolio of investments may be decreased and the returns achieved on those investments may be reduced as a result of allocating all of their expenses among a smaller capital base. If the portfolio funds are unable to raise substantial funds, they may not achieve certain economies of scale and their respective expenses may represent a larger proportion of their total assets.

Investments in Portfolio Funds Generally

The risks associated with ADSIF’s investments into the Intermediary Funds and Other Ares Funds in which ADSIF invests (including ASIF and AESIF) are generally related to, among other things, (i) the ability of each of such portfolio fund sponsors to select and manage successful investment opportunities; (ii) the quality of the management of each portfolio fund sponsor and each portfolio company in which the portfolio funds invest; (iii) the ability of the portfolio funds to liquidate their investments; and (iv) general economic conditions. There can be no assurance that the investments made by the Intermediary Funds and Other Ares Funds in which ADSIF invests (including ASIF and AESIF) will result in attractive rates of return to ADSIF. ADSIF will not be able to participate in the management and control of the Intermediary Funds and Other Ares Funds in which ADSIF invests (including ASIF and AESIF) nor of the portfolio companies in which they have invested. Consequently, ADSIF will not be able to control the amount or timing of distributions from such portfolio fund, which may affect Shareholders’ returns.

In addition, the returns of ADSIF’s investments in the Intermediary Funds and Other Ares Funds in which ADSIF invests (including ASIF and AESIF) will depend largely on the performance of their respective managers, operators and/or advisers (as applicable) and could be substantially adversely affected by the unfavourable performance and/or practices and policies of such managers, operators and/or advisers (as applicable). The performance of a manager, operator and/or adviser (as applicable) may also rely on the services of a limited number of key individuals, the loss of whom could significantly adversely affect such manager’s, operator’s and/or adviser’s (as applicable) performance.

Such managers, operators and/or advisers (as applicable) may enter into new lines of business not anticipated by ADSIF at the time ADSIF invests in the Intermediary Funds or Other Ares Funds in which ADSIF invests (including ASIF and AESIF). The managers, operators and/or advisers (as applicable) of the Intermediary Funds or such Other Ares Funds in which ADSIF invests (including ASIF and AESIF), may also have the ability to change their investment objectives and strategies and economic and other terms after ADSIF has made its investments and such change in the investment objectives and strategies may be different from the objectives expected at the relevant time by the Investment Manager. ADSIF would likely not have the ability to prevent such fund managers, operators and/or advisers (as applicable) from taking such action and these decisions may negatively impact the performance of ADSIF.

Reliance on Reporting from Portfolio Funds and Underlying Issuers

ADSIF’s ability to deliver accurate and timely reports to its investors, is dependent upon the accuracy and timeliness of the reports received from the Intermediary Funds, the Other Ares Funds in which ADSIF invests (including ASIF and AESIF) and their respective managers, as well as from Underlying Issuers. The position of investors in ADSIF may depend on the amount of information ADSIF receives from the Intermediary Funds, such Other Ares Funds in which ADSIF invests (including ASIF and AESIF) and the Underlying Issuers. If ADSIF does not have the right to access particular information, investors’ positions, including their tax position, may be prejudiced. The managers of the Intermediary Funds and such Other Ares Funds in which ADSIF invests may utilize divergent reporting standards that may make it difficult for Ares to accurately assess the prior performance of the Intermediary Funds and such Other Ares Funds in which ADSIF invests. In addition, such reporting variances may affect the ability of Ares to accurately value and monitor underlying investments.

Multiple Levels of Fees and Expense

In addition to the direct expenses and management costs borne by ADSIF, it may also bear its pro rata share of certain expenses and management costs incurred directly or indirectly by Other Ares Funds (including ASIF and AESIF) in which ADSIF invests. This would result in more expenses being borne (indirectly) by Shareholders in ADSIF than if such Shareholders were able to invest directly in the Other Ares Funds (including ASIF and AESIF). With respect to ADSIF’s primary commitments to Other Ares Funds (including ASIF and AESIF) only, ADSIF is not expected to pay or otherwise bear carried interest, management fees or other incentive compensation in connection with such Other Ares Fund (including ASIF and AESIF) except in limited circumstances, in which case such carried interest, management fees or other incentive compensation paid will be rebated dollar-for-dollar. ADSIF will indirectly bear other expenses in connection with an Investment in or alongside an Other Ares Fund (including ASIF and AESIF), including any investment related expenses and expenses paid to affiliates of the Sponsor, administrative expenses and other expenses included in the definition of Operating Expenses above as applicable to such Other Ares Fund (to the extent applicable). Notwithstanding anything herein to the contrary, in certain limited circumstances ADSIF will bear carried interest, management fees or other incentive compensation, including in connection with interests in Other Ares Funds (including ASIF and AESIF) purchased on the secondary market as part of a portfolio transaction and equity interests in certain structured investments (e.g., CLOs). These various levels of costs and expenses will be charged whether or not the performance of ADSIF generates positive returns. As a result, ADSIF, and indirectly the Shareholders, may bear multiple levels of expenses, which in the aggregate would exceed the expenses which would typically be incurred by an investment in a single fund investment, and which would offset ADSIF’s profits. In addition, because of the fees and expenses payable by ADSIF pursuant to such Investments, its returns on such Investments will be lower than the returns to a direct investor in the Other Ares Funds (including ASIF and AESIF). Such returns will be further diminished to the extent ADSIF is also charged management fees and/or bears carried interest or other similar performance-based compensation in connection with its secondary commitments in Other Ares Funds (including ASIF and AESIF).

Past performance does not predict future returns

Indirect Investment

This Communication concerns the acquisition of shares in ADSIF, and not in the underlying investment which is owned by ADSIF, which my include interests in Other Ares Funds.

Information on Costs

Not all costs are presented in this Communication. Further information can be found in the Prospectus.

REF: CP-02474