As
filed with the Securities and Exchange Commission on July 1, 2020
Securities Act File No. 333-225212
1940 Act File No. 811-23352
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
|
| |
Post-Effective Amendment No. 3 |
x |
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
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FlowStone
Opportunity Fund
(Exact Name of Registrant as Specified in
Charter)
55 Nod Road, Ste 120
Avon, CT 06001
(Address of Principal Executive Offices)
(312) 429-2419
(Registrant’s Telephone Number)
Scott Conners
FlowStone Partners, LLC
55 Nod Road, Ste 120
Avon, CT 06001
(Name and Address of Agent for Service)
Copy to:
Joshua D. Deringer, Esq.
Faegre Drinker Biddle & Reath
LLP
One Logan Square, Ste. 2000
Philadelphia, PA 19103-6996
215-988-2700
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.
If
any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under
the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following
box. x
It is proposed that this filing will become effective (check
appropriate box):
x when declared
effective pursuant to section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933
TITLE OF
SECURITIES
BEING
REGISTERED | |
PROPOSED
MAXIMUM
AGGREGATE
OFFERING PRICE(1) | | |
AMOUNT OF
REGISTRATION
FEE | |
| Shares | |
$ | 100,000,000 | | |
$ | 12,120.00 | (2) |
| (1) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933. |
| (2) | $12,120.00 of which has been previously paid. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
Prospectus
Dated
[·],
2020
FlowStone
Opportunity Fund
SHARES
FlowStone
Opportunity 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 non-diversified, closed-end management investment company. The
Fund’s primary investment objective is to generate appropriate risk-adjusted long-term returns by investing in a diversified
portfolio of private equity investments. The Fund’s investments are expected to consist primarily of: (i) secondary
investments in private equity funds managed by third-party managers; (ii) primary investments in private equity funds managed
by third-party managers; and (iii) direct co-investments in the equity and/or debt of operating companies. The Fund cannot
guarantee that it will meet its investment objective. Investing in the Fund involves a high degree of risk. See “
GENERAL RISKS,” “ INVESTMENT RELATED RISKS,” “ BUSINESS AND STRUCTURE RELATED RISKS,”
“ MANAGEMENT RELATED RISKS,” and “ LIMITS OF RISKS DISCLOSURE” beginning on page 15.
| |
|
Per Share |
|
Total |
|
| Public
Offering Price(1) |
|
At current NAV |
|
Amount invested at current NAV |
|
| Sales Load |
|
None |
|
None |
|
| Proceeds
to the Fund (Before Expenses)(2) |
|
At current NAV |
|
Amount invested at current NAV |
|
| (1) | Foreside Financial Services, LLC acts as the principal
underwriter of the Fund’s Shares on a best-efforts basis. Generally, the stated minimum investment by an investor in the
Fund is $100,000, which stated minimum may be reduced for certain investors. Investors purchasing Shares (as defined herein) will
not be charged a sales load. Accordingly, the table assumes that no sales load is charged. |
| (2) | Assumes all shares currently registered are sold in the
offering. Shares will be offered in a continuous offering at the Fund’s then current net asset value, plus any applicable
sales load, as described herein. The Fund will bear its organizational costs of approximately $141,500. The Fund has additionally
incurred offering costs of approximately $307,814. The Fund’s offering costs, whether borne by the Adviser or the Fund,
are being capitalized and amortized over the 12-month period beginning on the Initial Closing Date (as defined below). The Fund
will also bear certain ongoing offering costs associated with the Fund’s continuous offering of Shares. See “FUND
EXPENSES.” |
This
prospectus (the “Prospectus”) applies to the offering of a single class of shares of beneficial interests (“Shares”)
in the Fund. The Fund has received an exemptive order from the U.S. Securities and Exchange Commission (“SEC”) that
would permit the Fund to offer additional classes of Shares. The Fund’s Shares will generally be offered on the first business
day of each calendar quarter 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. This Prospectus is not
an offer to sell Shares and is not soliciting an offer to buy Shares in any state or jurisdiction where such offer or sale is not
permitted. Investments in the Fund may be made only by “Eligible Investors” as defined herein. See “ELIGIBLE
INVESTORS.”
If you purchase Shares of the Fund, you will become
bound by the terms and conditions of the agreement and declaration of trust of the Fund (the “Agreement and Declaration of
Trust”). A copy of the Agreement and Declaration of Trust is attached as Appendix A to this Prospectus.
Shares are speculative and illiquid securities
involving substantial risk of loss.
| · | Shares are not listed on any securities exchange and it is not anticipated that a secondary market for Shares will develop. |
| · | Shares are subject to substantial restrictions on transferability and resale and may not be transferred or resold except
as permitted under the Agreement and Declaration of Trust. Although the Fund may offer to repurchase Shares from time to time,
Shares will not be redeemable at a Shareholder’s option nor will they be exchangeable for Shares or shares of any other fund.
As a result, an investor may not be able to sell or otherwise liquidate his or her Shares. |
| · | Shares are appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment
and for whom an investment in the Fund does not constitute a complete investment program. |
There are risks associated with the Fund’s
distribution sources.
| · | The amount of distributions that the Fund may pay, if any, is uncertain. |
| · | The Fund may pay distributions in significant part from sources that may not be available in the future and that are unrelated
to the Fund’s performance, such as offering proceeds, borrowings, and amounts from the Fund’s affiliates that are subject
to repayment by investors. |
This
Prospectus concisely provides information that you should know about the Fund before investing. You are advised to read this Prospectus
carefully and to retain it for future reference. Additional information about the Fund, including the Fund’s statement of
additional information (the “SAI”), dated [·], 2020, has been
filed with the SEC. You can request a copy of the SAI and annual and semi-annual reports of the Fund without charge by writing
to the Fund, c/o UMB Fund Services, Inc., 235 West Galena Street, Milwaukee, WI 53212, or by calling the Fund toll-free at 1-888-799-0799.
The SAI is incorporated by reference into this Prospectus in its entirety. The table of contents of the SAI appears on page 57
of this Prospectus. You can obtain the SAI, and other information about the Fund, on the SEC’s website (http://www.sec.gov).
The address of the SEC’s internet site is provided solely for the information of prospective investors and is not intended
to be an active link.
You should not construe the contents of this Prospectus
as legal, tax or financial advice. You should consult with your own professional advisers as to legal, tax, financial, or other
matters relevant to the suitability of an investment in the Fund.
You should rely only on the information contained
in this Prospectus and the SAI. 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.
Beginning on January 1, 2021, as permitted by
regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer
be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary,
such as a broker-dealer or bank. Instead, the reports will be made available on the Fund’s website, www.flowstonepartners.com,
and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you elect, or have already elected to receive
shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to
receive shareholder reports and other communications from the Fund or your financial intermediary electronically, by calling the
Fund, c/o UMB Fund Services, at 1-888-799-0799 or by sending an email to flowstone@umb.com, or by contacting your financial intermediary.
You may elect to receive all future reports in paper
free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting
the Fund, c/o UMB Fund Services, by telephone at 1-888-799-0799 or by email to flowstone@umb.com. Your election to receive reports
in paper will apply to all funds held with your financial intermediary.
THE
FUND’S PRINCIPAL UNDERWRITER IS FORESIDE FINANCIAL SERVICES, LLC.
The
date of this Prospectus is [·], 2020
TABLE OF CONTENTS
SUMMARY
This is only a summary and does not contain
all of the information that you should consider before investing in the Fund. Before investing in the Fund, you should carefully
read the more detailed information appearing elsewhere in this Prospectus, the SAI, and the Agreement and Declaration of Trust.
| The Fund |
|
The Fund is a Delaware statutory trust
that is registered under the Investment Company Act as a non-diversified, closed-end management investment company. The Fund was
organized as a Delaware trust on May 23, 2018.
The Fund is an appropriate investment only
for those investors who can tolerate a high degree of risk and do not require a liquid investment.
|
| Investment Objective and Strategies |
|
The Fund’s investment objective is
to generate appropriate risk-adjusted long-term returns by investing in a diversified portfolio of private equity investments.
The Fund’s investments (the “Fund
Investments”) are expected to consist primarily of: (i) secondary investments in private equity funds (“Portfolio
Funds”) managed by third-party managers (“Portfolio Fund Managers”); (ii) primary investments in Portfolio
Funds managed by Portfolio Fund Managers; and (iii) direct co-investments in the equity and/or debt of operating companies
(“Direct Investments”). In addition, the Fund may invest in other alternative investment strategies that are intended
to generate the cash flow, risk and return profiles of traditional private equity investments.
Portfolio Funds acquired on the secondary
market (“Secondary Investments”) are expected to be 50% to 100% of the Fund’s portfolio. The Fund will seek Secondary
Investments that are mature (typically four to eight years old at the time of purchase) and are in or approaching harvest phase.
Secondary Investments are expected to include: (i) leveraged buyout; (ii) venture capital; (iii) mezzanine financing;
(iv) infrastructure; and (v) natural resources. Secondary Investments in leveraged buyout funds may comprise up to 80%
of the Fund’s total assets. In evaluating Secondary Investments, FlowStone Partners, LLC (the “Adviser” or “FlowStone
Partners”) will focus on acquiring quality assets at or below its estimate of intrinsic value, based upon a detailed due
diligence and valuation process.
Primary Investments in Portfolio Funds
(“Primary Investments”) may comprise up to 40% of the Fund’s portfolio. The Adviser intends to make Primary Investments
with high-quality managers that have an established track record of value creation and above-average risk-adjusted rates of return.
The Fund’s Primary Investments are not limited by asset class.
Direct
Investments may comprise up to 20% of the Fund’s portfolio. The Fund intends to co-invest with high-quality private equity-backed
companies in parallel with other top-tier private equity fund managers. The Adviser intends to leverage the due diligence process
and transactional expertise of other private equity fund managers and will also conduct its own due diligence before making an
investment decision. Co-investments are expected to be completed on an unpromoted basis, which may result in lower overall costs
to the Fund versus the cost of investing through a traditional private equity fund structure. The Adviser expects that co-investing
with other private equity managers will generate appropriate risk-adjusted returns that are accretive to the Fund’s Secondary
Investments and Primary Investments. See “ INVESTMENT PROCESS OVERVIEW— Portfolio Planning.”
To enhance the Fund’s liquidity,
particularly in times of possible net outflows through the tender of Shares by investors, the Adviser may sell certain of the Fund’s
assets on the Fund’s behalf.
The Fund is expected to hold liquid assets
to the extent required for purposes of liquidity management and compliance with the Investment Company Act. Over time, during normal
market conditions, it is generally expected that the Fund will not hold more than 20% of its net assets in cash or cash equivalents
for extended periods of time. To the extent permitted by the Investment Company Act, the Fund may borrow for investment purposes.
There
can be no assurance that the investment objective of the Fund will be achieved or that the Fund’s portfolio design and risk
monitoring strategies will be successful. See “ INVESTMENT POLICIES.” |
| |
|
The Fund is expected to hold liquid assets to the extent required for purposes of liquidity management and compliance with the Investment Company Act. Over time, during normal market conditions, it is generally expected that the Fund will not hold more than 20% of its net assets in cash or cash equivalents for extended periods of time. To the extent permitted by the Investment Company Act, the Fund may borrow for investment purposes.
There can be no assurance that the investment objective of the Fund will be achieved or that the Fund’s portfolio design and risk monitoring strategies will be successful. See “ INVESTMENT POLICIES.”
|
| Risk Factors |
|
An investment in the Fund involves substantial risks and special considerations. A discussion of the risks associated with an investment in the Fund can be found under “GENERAL RISKS,” “INVESTMENT RELATED RISKS,” “BUSINESS AND STRUCTURE RELATED RISKS,” “MANAGEMENT RELATED RISKS,” and “LIMITS OF RISKS DISCLOSURE.” |
| Management |
|
The Fund’s Board of Trustees (the “Board”) has overall responsibility for the management and supervision of the business operations of the Fund. See “MANAGEMENT OF THE FUND—The Board of Trustees.” To the extent permitted by applicable law, the Board may delegate any of its rights, powers and authority to, among others, the officers of the Fund, any committee of the Board or the Adviser. |
| The Adviser |
|
Pursuant to an investment management agreement (the “Investment Management Agreement”), FlowStone Partners, LLC, an investment adviser that is registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), serves as the Fund’s investment adviser. The Adviser was organized as a limited liability company under the Laws of the State of Delaware on March 15, 2019. |
| Fund Administration |
|
The Fund has retained UMB Fund Services Inc. (the “Administrator”) to provide it with certain administrative services. The Fund compensates the Administrator for these services and reimburses the Administrator for certain of its out-of-pocket expenses. See “Fees and Expenses” below. |
| Fees and Expenses |
|
The Fund’s expenses incurred in connection
with the Fund’s organization were approximately $141,500. The Fund’s expenses incurred and to be incurred in connection
with the initial offering of Shares will be amortized by the Fund over the 12-month period beginning on the Initial Closing Date
(as defined below) and were approximately $307,814. The Fund will also bear directly certain ongoing offering costs associated
with any periodic offers of Shares, which will be expensed as they are incurred. Offering costs cannot be deducted by the Fund
or the Shareholders.
On
an ongoing basis, the Fund bears its own operating expenses (including, without limitation, its offering expenses). A more detailed
discussion of the Fund’s expenses can be found under “ FUND EXPENSES.”
Investment
Management Fee. The Fund pays the Adviser an investment management fee (the “Investment Management Fee”)
in consideration of the advisory and other services provided by the Adviser to the Fund. The Fund pays the Adviser a quarterly
Investment Management Fee equal to 1.25% on an annualized basis of the greater of (i) the Fund’s net asset value and
(ii) the Fund’s net asset value less cash and cash equivalents plus the total of all commitments made by the Fund that
have not yet been drawn for investment. In no event will the Investment Management Fee payable by the Fund exceed 1.75% as a percentage
of the Fund’s NAV. The Investment Management 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. For purposes of determining the Investment Management Fee payable to
the Adviser for any quarter, NAV is calculated prior to any reduction for any fees and expenses of the Fund for that quarter,
including, without limitation, the Investment Management Fee payable to the Adviser for that quarter. See “ INVESTMENT
MANAGEMENT FEE.” |
| |
|
Incentive Fee. At the end of each calendar quarter (and at certain other times), the Adviser will be entitled to receive an amount (the “Incentive Fee”) equal to 10% of the excess, if any, of (i) the net profits of the Fund for the relevant period over (ii) the then balance, if any, of the Loss Recovery Account (as defined below). For the purposes of the Incentive Fee, the term “net profits” shall mean 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). See “ INCENTIVE FEE.”
The Fund will maintain a memorandum account (the “Loss Recovery Account”), which will have an initial balance of zero and will be (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. Shareholders of the Fund will benefit from the Loss Recovery Account in proportion to their holdings of Shares.
Any Incentive Fee payable by the Fund that relates to an increase in the value of Fund Investments is based, in part, on unrealized appreciation, which could result in the Fund paying an Incentive Fee even if the value of the underlying investment decreases and the gain is never realized.
Administration Fee. The Administrator provides the Fund certain administration and accounting services. In consideration for these services, the Administrator is paid a quarterly fee calculated based upon the average net asset value of the Fund, subject to a minimum quarterly fee (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 and custodian services. See “ ADMINISTRATION.”
|
| Distributions |
|
Subject to the Board’s discretion
and applicable legal restrictions, it is expected that the Fund will authorize and declare annual dividends beginning no later
than the first fiscal year after the one-year anniversary of the Fund’s Initial Closing Date. Nevertheless, the Board may
cause the payment of special interim distributions in cash or in kind to the Shareholders at the sole discretion of the Board.
Because the Fund intends to qualify
annually as a regulated investment company (a “RIC”) under the Internal Revenue Code of 1986, as amended (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
distributed to Shareholders. See “Taxes” below. |
| Eligible Investors |
|
Each prospective investor in the Fund will
be required to certify that it is a “qualified client” within the meaning of Rule 205-3 under the Advisers Act
and an “accredited investor” within the meaning of Rule 501 under the Securities Act of 1933, as amended (the
“Securities Act”). The criteria for qualifying as a “qualified client” and an “accredited investor”
are set forth in the subscription documents that must be completed by each prospective investor.
In addition, Shares are generally being
offered only to investors that are either (i) U.S. persons for U.S. federal income tax purposes or (ii) non-U.S. persons
that meet eligibility standards as defined by the Fund pursuant to applicable law in the relevant jurisdictions. Investors who
meet such qualifications are referred to in this Prospectus as “Eligible Investors.” The qualifications required to
invest in the Fund will appear in subscription documents that must be completed by each prospective investor. Existing Shareholders
who request to purchase additional Shares will be required to qualify as “Eligible Investors” and to complete an additional
investor certification prior to any additional purchase.
Prospective
investors that are non-U.S. persons for U.S. federal income tax purposes must request a copy of supplemental offering materials
without charge by writing to the Fund, c/o UMB Fund Services, 235 West Galena Street, Milwaukee, WI 53212 . See “
CERTAIN TAX CONSIDERATIONS— Taxation of Non-U.S. Shareholders.”
To the extent the Fund identifies any
Shareholder holding Shares that was not an Eligible Investor at the time of acquiring such Shares, the Fund reserves the right
to (i) cause a mandatory redemption of all or some of the Shares of such Shareholder, or any person acquiring Shares from
or through such Shareholder, (ii) retain any unrealized gains or profits associated with Shares held by such Shareholder and/or
(iii) take any other action the Board determines to be appropriate in light of the circumstances.
|
| Purchasing Shares |
|
The minimum initial investment in the Fund
by any investor is $100,000 and the minimum additional investment in the Fund by any investor is $10,000, except for additional
purchases pursuant to the dividend reinvestment plan. However, the Fund, in its sole discretion, may accept investments below these
minimums. Investors subscribing through a given broker/dealer or registered investment adviser may have interests aggregated to
meet these minimums, so long as denominations are not less than $25,000 and incremental contributions to those interests are not
less than $10,000.
Shares will generally be offered for purchase
as of the first business day of each calendar quarter, except that Shares may be offered more or less frequently as determined
by the Board in its sole discretion.
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. Prior to
any acceptance date, funds received from prospective investors will be placed in an account with UMB Fund Services, Inc.,
the Fund’s transfer agent (the “Transfer Agent”). On any acceptance date, 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. Any interest earned with
respect to such account will be paid to the Fund and allocated pro rata among 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. 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. Additional information
regarding the subscription process is set forth under “ PURCHASING SHARES.” |
| The Initial Closing |
|
The Fund commenced operations on August 30, 2019 (the “Initial Closing Date”). The purchase price of Shares is based on the NAV per Share as of the date such Shares are purchased. Fractions of Shares will be issued to one one-thousandth of a Share. |
| Dividend Reinvestment Plan |
|
The Fund has adopted an “opt out” dividend reinvestment plan (the “DRIP”). Investors that wish to participate in the DRIP will not be required to take any action. A participating investor’s distribution amount will purchase Shares at the NAV per Share of the Fund. Investors that wish to receive their distributions in cash may do so by making a written election to not participate in the DRIP on the investor’s subscription agreement or by notifying the Administrator in writing at FlowStone Opportunity Fund, c/o UMB Fund Services, 235 West Galena Street, Milwaukee, WI 53212. Such written notice must be received by the Administrator 60 days prior to the record date of the distribution or the Shareholder will receive such distribution in Shares through the DRIP. |
| Repurchases of Shares |
|
The Fund is not a liquid investment. No
Shareholder will have the right to require the Fund to redeem its Shares. The Fund from time to time may offer to repurchase Shares
pursuant to written tenders by the Shareholders.
The Adviser anticipates recommending to
the Board that, under normal market circumstances, the Fund conduct repurchase offers of no more than 5% of the Fund’s net
assets on or about the first day of the calendar quarter immediately following the first anniversary of the Initial Closing Date
(the “Initial Repurchase Date”), and thereafter quarterly on or about each January 1, April 1, July 1
and October 1.
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. The Fund may also elect
to repurchase less than the full amount that a Shareholder requests to be repurchased. 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.
Under
certain circumstances, the Board may offer to repurchase Shares at a discount to their prevailing net asset value. In addition,
the Board may under certain circumstances elect to postpone, suspend or terminate an offer to repurchase Shares. See “
REPURCHASES 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 $25,000 worth of Shares. Such minimum
ownership requirement may be waived by the Board, in its sole discretion. The Fund reserves the right to reduce the amount to be
repurchased from a Shareholder so that the required capital balance is maintained.
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. See “ REPURCHASES OF SHARES.”
|
| 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 Board (which may be withheld in its sole discretion and
is expected to be granted, if at all, only under extenuating circumstances). Notice to the Fund of any proposed transfer must
include evidence satisfactory to the Board that the proposed transferee, at the time of the transfer, meets any requirements imposed
by the Fund with respect to investor eligibility and suitability. See “ ELIGIBLE INVESTORS.” Such
notice of a proposed transfer of Shares must also be accompanied by properly completed subscription documents 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 attorneys’ and accountants’ fees, incurred by the Fund in connection with the transfer. See “ TRANSFERS OF SHARES.”
|
| Taxes |
|
The Fund has elected to be treated as a
regulated investment company (“RIC”) for U.S. federal income tax purposes and expects each year to qualify as such.
As a RIC, 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 long-term capital gains and
dividends and therefore distributions paid to Shareholders in respect of such income generally will be taxable to Shareholders
who are individuals at the reduced rates of U.S. federal income tax that are applicable to “qualified dividends” and
long-term capital gains.
For
a discussion of certain tax risks and considerations relating to an investment in the Fund see “Tax Reports”
below and “ CERTAIN TAX CONSIDERATIONS.”
Prospective investors should consult their
own 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 investor’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 |
|
Shareholders will receive an unaudited semi-annual and an audited annual report within 60 days after the close of the period for which the report is being made, or as otherwise required by the Investment Company Act. See “ REPORTS TO SHAREHOLDERS.” |
| Fiscal and Tax Year |
|
The Fund’s first fiscal year concluded on March 31, 2020. Thereafter, the Fund’s fiscal year will be the 12-month period ending on March 31. The Fund’s first taxable year concluded on September 30, 2019. Thereafter, the Fund’s taxable year will be the 12-month period ending on September 30. |
| Term |
|
The Fund’s term is perpetual unless the Fund is otherwise terminated under the terms of the Agreement and Declaration of Trust. |
SUMMARY OF FUND EXPENSES
The following table illustrates the expenses and fees that the
Fund expects to incur and that Shareholders can expect to bear directly or indirectly.
| SHAREHOLDER FEES | |
| |
| Maximum Sales Load Imposed
on Purchases (as a percentage of offering price) | |
| None | |
| Maximum Early
Repurchase Fee (as a percentage of repurchased amount) (1) | |
| 2.00 | % |
| | |
| | |
| ANNUAL EXPENSES (as a percentage of net assets
attributable to Shares) | |
| | |
| Investment Management Fee
(2) | |
| 1.75 | % |
| Incentive Fee (3) | |
| 0.87 | % |
| Other Expenses (4) | |
| 3.03 | % |
| Acquired Fund Fees and Expenses
(5) | |
| 2.29 | % |
| Total Annual Expenses (6) | |
| 7.94 | % |
| Fee Waiver and/or Expense
Reimbursement (7) | |
| (2.83 | )% |
| Total Annual Fund Operating
Expenses (after Fee Waiver and/or Expense Reimbursement) | |
| 5.11 | % |
| (1) | A 2.00% early repurchase fee payable to the Fund will be charged with respect to the repurchase
of a Shareholder’s 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
by the Fund, in circumstances where the Board determines that doing so is in the best interests of the Fund and in a manner as
will not discriminate unfairly against any Shareholder. In addition, under certain circumstances the Board may offer to repurchase
Shares at a discount to their prevailing net asset value. See “ REPURCHASES OF SHARES.” |
| (2) | The
Investment Management Fee is equal to 1.25% on an annualized basis of the greater of
(i) the Fund’s net asset value and (ii) the Fund’s net asset value
less cash and cash equivalents plus the total of all commitments made by the Fund that
have not yet been drawn for investment. In no event will the Investment Management Fee
payable by the Fund exceed 1.75% as a percentage of the Fund’s net asset value.
For purposes of determining the Investment Management Fee payable to the Adviser for
any quarter, the NAV will be calculated prior to any reduction for any fees and expenses
of the Fund for that quarter, including, without limitation, the Investment Management
Fee payable to the Adviser for that quarter. See “ INVESTMENT MANAGEMENT
FEE” for additional information. |
| (3) | At the end of each calendar quarter of the Fund (and at certain other times), the Adviser (or,
to the extent permitted by applicable law, an affiliate of the Adviser) will be entitled to receive an Incentive Fee equal to 10%
of the excess, if any, of (i) the net profits of the Fund for the relevant period over (ii) the then balance, if any,
of the Loss Recovery Account. For the purposes of the Incentive Fee, the term “net profits” shall mean 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). See “ INCENTIVE FEE”
for additional information. |
| (4) | Other Expenses are estimated for the Fund’s current fiscal year. |
| (5) | Shareholders
also indirectly bear a portion of the asset-based fees, performance or incentive fees
or allocations and other expenses incurred by the Fund as an investor in the Portfolio
Funds. Generally, asset-based fees payable in connection with Portfolio Fund investments
will range from 1% to 2.5% (annualized) of the commitment amount of the Fund’s
investment, and performance or incentive fees or allocations are typically 20% of a Portfolio
Fund’s net profits annually, although it is possible that such amounts may be exceeded
for certain Portfolio Fund Managers. The “Acquired Fund Fees and Expenses”
disclosed above, however, do 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. Acquired Fund fees and expenses are based on
estimated amounts for the current fiscal year. |
| (6) | Total Annual Expenses will not correlate to the Ratio of gross expenses to average Shareholder
Capital in the Financial Highlights, which do not reflect Acquired Fund Fees and Expenses. |
| (7) | The
Adviser has entered into an expense limitation agreement (the “Expense Limitation
Agreement”) with the Fund, whereby the Adviser has agreed to waive fees that it
would otherwise be paid, and/or to assume expenses of the Fund (a “Waiver”),
if required to ensure the Total Annual Expenses (excluding taxes, interest, brokerage
commissions, certain transaction-related expenses, extraordinary expenses, acquired fund
fees and expenses and the Incentive Fee) do not exceed 1.95% on an annualized basis (the
“Expense Limit”). For a period not to exceed three years from the date on
which a Waiver is made, the Adviser may recoup amounts waived or assumed, provided it
is able to effect such recoupment without causing the Fund’s expense ratio (after
recoupment) to exceed the lesser of (a) the expense limit in effect at the time of the
waiver, and (b) the expense limit in effect at the time of the recoupment. The Expense
Limitation Agreement also provides that, from the Initial Closing Date (August 30, 2019)
until December 31, 2020, the Adviser agrees to waive fees payable to it by the Fund on
assets held in cash or cash equivalents less the total amount of capital committed by
the Fund and not yet drawn for investment. The Expense Limitation Agreement will continue
until at least August 29, 2020, and will automatically renew thereafter for consecutive
twelve-month terms, provided that such continuance is specifically approved at least
annually by a majority of the Trustees. The Expense Limitation Agreement may be terminated
by the Fund’s Board of Trustees upon thirty days’ written notice to the Adviser. |
The
purpose of the table above is to assist prospective investors in understanding the various fees and expenses Shareholders will
bear directly or indirectly. “Other Expenses,” as shown above, includes, among other things, professional fees and
other expenses that the Fund will bear, including initial and ongoing offering costs and fees and expenses of the Administrator,
Transfer Agent and Custodian. For a more complete description of the various fees and expenses of the Fund, see “
INVESTMENT MANAGEMENT FEE,” “ INCENTIVE FEE,” “ ADMINISTRATION,”
“ CUSTODIAN,” “ FUND EXPENSES,” “ REPURCHASES OF SHARES”
and “ PURCHASING SHARES.”
The following example is intended to help
you compare the cost of investing in the Fund with the cost of investing in other funds. The example assumes that all distributions
are reinvested at net asset value and that the percentage amounts listed under annual expenses remain the same in the years shown.
The assumption in the hypothetical example of a 5% annual return is required by regulation of the SEC applicable to all registered
investment companies. The assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance
of Shares.
EXAMPLE
You Would Pay the Following Expenses Based on a $1,000
Investment in the Fund, Assuming a 5% Annual Return: | |
1 Year | | |
3 Years | | |
5 Years | | |
10 Years | |
| | |
$ | 51 | | |
$ | 205 | | |
$ | 350 | | |
$ | 677 | |
The example is based on the annual fees
and expenses set out on the table above and should not be considered a representation of future expenses. Actual expenses may be
greater or less than those shown. Moreover, the rate of return of the Fund may be greater or less than the hypothetical 5% return
used in the example. A greater rate of return than that used in the example 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 information contained in the table
below for the fiscal period from the Intial Closing Date (August 30, 2019) through March 31, 2020 sets forth selected information
derived from the Fund’s financial statements. The Fund’s financial statements for the fiscal period ended March 31,
2020 have been audited by PricewaterhouseCoopers LLP, the Fund’s independent registered public accounting firm. PricewaterhouseCoopers
LLP’s report, along with the Fund’s financial statements and notes thereto, are included in the Fund’s annual
report to shareholders for the fiscal period ended March 31, 2020. The annual report is included in the Fund’s SAI, which
is available upon request from the Fund. The information included below should be read in conjuction with those financial statements
and the notes thereto.
| | |
For the
Period August 30, 2019 (Commencement of Operations) to March 31, 2020 | |
| Net asset value per Share,
beginning of period (1) | |
$ | 10.00 | |
| Net increase in Shareholders’
Capital from operations: | |
| | |
| Net investment loss* | |
| (0.02 | ) |
| Net realized gain and change in unrealized
appreciation/depreciation | |
| 0.56 | |
| Net increase in Shareholders’
Capital from operations: | |
| 0.54 | |
| Total distributions | |
| — | |
| | |
| | |
| Net asset value
per Share, end of period | |
$ | 10.54 | |
| | |
| | |
| Total Return (2)
(3) | |
| 5.40 | % |
| | |
| | |
| Ratios/Supplemental
Data: | |
| | |
| Shareholders’ Capital, end of
period (in thousands) | |
$ | 45,366 | |
| Ratio of net investment income to average
Shareholders’ Capital (4)(8) | |
| 0.35 | % |
| Ratio of gross expenses to average
Shareholders’ Capital (4)(5)(8) | |
| 5.65 | % |
| Ratio of net expenses to average Shareholders’
Capital (4)(6)(7)(8) | |
| 2.82 | % |
| Portfolio Turnover (3) | |
| 0.00 | % |
| * | Per share data is computed using
the average shares method. |
| (1) | The net asset value
per Share as of the beginning of the period, August 30, 2019 (Commencement of Operations)
represents the initial net asset value per Share of $10.00. |
| (2) | Total Return based on
net asset value per Share is the combination of changes in net asset value per Share
and reinvested dividend income at net asset value per Share, if any. |
| (4) | Annualized, except for
incentive fees. |
| (5) | Represents the ratio
of expenses to average Shareholders’ Capital absent fee waivers and/or expense
reimbursement by the Adviser. |
| (6) | The Adviser has entered
into an Expense Limitation and Reimbursement Agreement with the Fund for a one-year term
beginning on the commencement of operations and ending at the end of the Limitation Period
to limit the amount of the Fund’s total annual ordinary operating expenses, excluding
certain “Specified Expenses” as outlined in the Notes to the Financial Statements. |
| (7) | The incentive fee of
$329,102 is exclusive of the 1.95% expense cap. |
| (8) | The income and expense
ratios do not reflect the Fund’s proportionate share of the net income (loss) and
expenses, including incentive fees or allocations, of the Investment Funds. The Investment
Funds’ expense ratios, excluding incentive fees or allocations range from 0.00%
to 32.87% (unaudited). The Investment Funds’ incentive fees or allocations can
be up to 25% of profits earned (unaudited). |
FlowStone
Opportunity FundFinancial HighlightsFor the Period August 30, 2019 (Commencement of Operations)
to March 31, 2020Net asset value per Share, beginning of period (1) .........................................................
$ 10.00 Net increase in Shareholders’ Capital from operations: Net investment loss*
....................................................................................................
... (0.02) Net realized gain and change in unrealized appreciation/depreciation ......................................
0.56 Net increase in Shareholders’ Capital from operations: 0.54 Total distributions
....................................................................................................
........ —Net asset value per Share, end of period ......................................................................
$ 10.54Total Return (2) (3) ....................................................................................................
..... 5.40%Ratios/Supplemental Data: Shareholders’ Capital, end of period (in thousands)
.............................................................. $ 45,366 Ratio of net
investment income to average Shareholders’ Capital (4)(8) .....................................
0.35% Ratio of gross expenses to average Shareholders’ Capital (4)(5)(8) .............................................
5.65% Ratio of net expenses to average Shareholders’ Capital (4)(6)(7)(8) .............................................
2.82% Portfolio Turnover (3) ....................................................................................................
..... 0.00%* Per share data is computed using the average shares method. (1) The net
asset value per Share as of the beginning of the period, August 30, 2019 (Commencement
of Operations) represents the initial net asset value per Share of $10.00. (2) Total
Return based on net asset value per Share is the combination of changes in net asset
value per Share and reinvested dividend income at net asset value per Share, if any.
(3) Not annualized. (4) Annualized, except for incentive fees. (5) Represents the ratio
of expenses to average Shareholders’ Capital absent fee waivers and/or expense
reimbursement by the Adviser. (6) The Adviser has entered into an Expense Limitation
and Reimbursement Agreement with the Fund for a one-year term beginning on the commencement
of operations and ending at the end of the Limitation Period to limit the amount of the
Fund’s total annual ordinary operating expenses, excluding certain “Specified
Expenses” as outlined in the Notes to the Financial Statements. (7) The incentive
fee of $329,102 is exclusive of the 1.95% expense cap. (8) The income and expense ratios
do not reflect the Fund’s proportionate share of the net income (loss) and expenses,
including incentive fees or allocations, of the Investment Funds. The Investment Funds’
expense ratios, excluding incentive fees or allocations range from 0.00% to 32.87% (unaudited).
The Investment Funds’ incentive fees or allocations can be up to 25% of profits
earned (unaudited).See accompanying Notes to the Financial Statements. 9
USE OF PROCEEDS
The
proceeds from the sale of Shares of the Fund, not including the amount of any placement fees 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 as soon as practicable after receipt of such proceeds, consistent with market conditions and the availability
of suitable investments. Such proceeds will be invested together with any interest earned in the Fund’s account with the
Custodian prior to the closing of the applicable offering. See “ PURCHASING SHARES— Purchase
Terms.” Delays in investing the Fund’s assets may occur (i) because of the time typically required to
complete private equity 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 Portfolio
Fund Managers to invest the amounts committed by the Fund.
A portion of the amount of proceeds of
the offering of Shares or any other available funds may be invested in short-term debt securities or money market funds pending
investment pursuant to the Fund’s investment objective and strategies. In addition, subject to applicable law, the Fund may
maintain a portion of its assets in cash or such short-term securities or money market funds to meet operational needs, for temporary
defensive purposes, or to maintain liquidity. The Fund may be prevented from achieving its objective during any period in which
the Fund’s assets are not substantially invested in accordance with its principal investment strategies.
INVESTMENT OBJECTIVE AND STRATEGIES
Investment Objective
The Fund seeks to provide investors with
appropriate risk-adjusted long-term returns by investing in a diversified portfolio of private equity investments. The Fund may
purchase primary or secondary interests in Portfolio Funds managed by Portfolio Fund Managers and make direct co-investments in
the equity of operating companies. In addition, the Fund may invest in other alternative investment strategies that are intended
to generate the cash flow, risk and return profiles of traditional private equity investments. Finally, the Fund will endeavour
to hold Portfolio Funds that have a shorter duration and nearer-term cash flows than investing directly in private equity funds
or a traditional private equity fund-of-funds.
The Fund intends to provide Shareholders
with access to high-quality private equity asset classes that are typically only available to larger institutional investors.
The
Fund may borrow as market conditions permit and at the discretion of the Adviser in order to seek enhancement of the Fund’s
returns. See “ INVESTMENT RELATED RISKS—Borrowing by the Fund” for a discussion
of the risks inherent in borrowing.
The investment objective of the Fund is
not a fundamental policy of the Fund and may be changed by the Board without the vote of a majority (as defined by the Investment
Company Act) of the Fund’s outstanding Shares. The Fund’s fundamental policies, which are listed in the SAI, may only
be changed by the affirmative vote of a majority of the outstanding voting securities of the Fund.
Investment Strategies
The
portfolio construction will consist of: (i) secondary investments in Portfolio Funds managed by Portfolio Fund Managers
(“Secondary Investments”); (ii) primary investments in Portfolio Funds managed by Portfolio Fund Managers (“Primary
Investments”); and (iii) direct co-investments in private-equity backed operating companies (“Direct Investments”).
In addition, the Fund may invest in other alternative investment strategies that the Adviser expects to exhibit cash flow, risk,
and returns profiles similar to traditional private equity investments.
Secondary Investments in Portfolio Funds
are expected to comprise 50% to 100% of the Fund’s portfolio. Secondary Investments are interests in existing private equity
funds that are acquired in privately negotiated transactions, typically after the end of the private equity fund’s fundraising
period. Typically, these funds have portfolios of existing investments, as well as capital available for new or follow-on investments.
The Adviser will acquire interests in private equity limited partnerships that are mature (typically four to eight years old at
the time of purchase) and that are in or approaching the harvest phase.
The “harvest phase” is the
stage in a private equity fund’s life cycle when the fund’s manager begins to liquidate the fund’s assets through
the public and/or private capital markets. This stage typically begins in years 4-6 of a fund’s life, as the investments
have matured, and the investment manager has built value above cost in the individual company investments.
The Adviser will endeavor to construct
a Secondary Investment portfolio highly diversified by investment strategy, global geography, vintage year, industry sector, and
fund manager. Vintage year refers to the year in which a private equity fund was established. This date is typically the year in
which a private equity fund holds the final closing on its fundraising activities. For example, a fund that held its final closing
in December, 2018, after an 18-month fundraising period would be deemed a 2018 Vintage Year Fund. Secondary Investments in which
the Fund may invest include, but are not limited to, Portfolio Funds with the following investment strategies.
| · | Buyout. Control investments in established, cash flow positive companies are generally classified
as buyouts. Buyout investments may focus on small-, mid- or large-capitalization companies, and such investments collectively represent
a majority of the capital deployed in the overall private equity market. The use of debt financings, or leverage, is prevalent
in buyout transactions — particularly in the large-cap segment. |
| · | Venture capital. Investments in new and emerging companies are usually classified as venture
capital. Such investments are often in technology and healthcare related industries. Companies financed by venture capital are
generally not cash flow positive at the time of investment and may require several rounds of financing before the company can be
sold privately or taken public. Venture capital investors may finance companies along the full path of development or focus on
certain sub-stages in partnership with other investors. |
| · | Mezzanine. Mezzanine is a private equity industry term referring to subordinated debt investments
made directly in operating companies. Investee companies are often private-equity backed. Mezzanine debt is junior to most forms
of debt and liabilities in the capital structure but is senior to all forms of equity. In compensation for the risk profile, mezzanine
debt generally requires a higher level of interest payment to the investor, typically in some combination of cash and in-kind payments.
Often, the mezzanine investor will also require equity warrants to be associated with the debt security. |
| · | Infrastructure. Infrastructure is a private equity industry term that refers to investments
made directly in infrastructure projects, such as energy production plans, dams, pipelines, bridges, or other income producing
facilities. These investments may be made in the form of equity, debt, revenue or profit sharing participations, or in some combination. |
| · | Natural resources. Natural resources is a private equity industry term that refers to investments
made directly in assets such as oil and gas exploration and production, oil and gas distribution, or timber. These investments
may be made in the form of equity, debt, revenue or profit sharing participations, or some combination. |
Secondary Investments in Portfolio Funds
in the leveraged buyout private equity asset class are expected to comprise up to 80% of the Fund’s portfolio. Secondary
Investments in other private equity asset classes may comprise up to 20% of the Fund’s portfolio. In evaluating Secondary
Investments, the Adviser will focus on acquiring what it considers to be high-quality assets that are undervalued relative to the
Adviser’s estimate of intrinsic value and/or have significant value creation potential. In addition, the Adviser will prioritize
opportunities involving distressed sellers seeking liquidity, non- or less-competitive opportunities, and situations where innovative
transaction structures may be applied. Through the application of this strategy, Secondary Investments may mitigate or avoid the
traditional private equity J-curve (the “J-curve” is a value development pattern in which the net asset value of a
private-equity fund typically declines moderately during the early years of the private-equity fund’s life as investment
related fees and expenses are incurred before investment gains have been realized. As the fund matures and portfolio companies
are sold, the pattern typically reverses with increasing net asset value and distributions). The Adviser will employ an investment
selection process that involves detailed bottom-up due diligence and valuation methodologies, as well as discounted cash flow modeling
to determine transaction pricing. These methodologies will generally include, but not be limited to: conversations with prospective
Portfolio Fund Managers; a review of available information on Portfolio Fund Managers, Portfolio Funds, and the Portfolio Funds’
underlying assets; comparable company analysis; capital structure analysis; and forward-looking financial performance analysis.Primary
Investments are investments in newly established private equity partnerships where the underlying portfolio companies are not known
as of the time of investment. Primary Investments are characterized by a gradual deployment of capital. Primary Investments in
Portfolio Funds are expected to comprise 0% to 40% of the Fund’s portfolio. In identifying and selecting Primary Investments,
the Fund will seek 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. Primary Investments will be invested across all private equity asset types,
consistent with the Fund’s Secondary Investment objective. In addition, 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 utilize
top-down due diligence processes to evaluate each fund and its manager, including, but not limited to, conversations with the manager,
detailed historical track record evaluation, peer and investor references, and other quantitative and qualitative analyses, as
available.
Direct Investments are private investments
made directly into the equity or debt of selected operating companies in parallel with a Portfolio Fund and/or Portfolio Fund Manager,
often together with the management of the company. Direct Investments are expected to comprise 0% to 20% of the Fund’s portfolio.
The Fund intends to co-invest in high-quality private equity-backed companies in parallel with top-tier private equity fund managers.
The Adviser will prioritize Direct Investments in small and mid-cap companies with strong growth potential, reasonable valuations,
market leading positions, strong margins and cash flow generation, experienced management teams, conservative and sustainable capital
structures, and clearly identified follow-on investment milestones. The Adviser intends to leverage the due diligence process and
transactional expertise of other private equity Fund Managers and will also conduct its own due diligence before making an investment
decision. Direct Investments are expected to be completed on an unpromoted basis, which may result in lower overall costs to the
Fund versus the cost of investing through a traditional private equity fund structure. The Adviser expects that co-investing with
other private equity fund managers will generate appropriate risk-adjusted returns that are accretive to the Fund’s Secondary
Investments and Primary Investments.
The Adviser will not cause the Fund to
engage in co-investments alongside affiliates unless the Fund has received an order granting an exemption from Section 17 of the
Investment Company Act or unless such investments are not prohibited by Section 17(d) of the Investment Company Act or interpretations
of Section 17(d) as expressed in SEC no-action letters or other available guidance.
Other alternative investment strategies
in which the Fund may invest include structured purchases of private equity investment managers. These purchases may include secondary
purchases of existing securities or new securities in such managers. In general, the Fund will look for atypical private investment
opportunities that provide the excess return potential of traditional private equity investments with a risk profile that reduces
the overall risk when introduced into the portfolio. These non-standard private investments are expected to comprise 0% to 20%
of the Fund’s portfolio.
The Fund’s non-U.S. investments are
expected to reside primarily in the United Kingdom and Western Europe and, to a lesser extent, Asia. It is expected that little
to no portfolio exposure will reside in developing or emerging markets. It is expected that no more than 20% of the Fund’s
portfolio will be comprised of non-U.S. investments.
No guarantee or representation is made
that the investment program of the Fund will be successful, that the various Portfolio Funds selected will produce positive returns,
or that the Fund will achieve its investment objective.
PRIVATE EQUITY MARKET OVERVIEW
Private Equity Asset Class
Private equity is a common term for investments
that are typically made in non-public companies through privately negotiated transactions. Private equity investments may be structured
using a range of financial instruments, including common and preferred equity, convertible securities, senior debt, subordinated
debt and warrants or other derivatives, depending on the strategy of the investor and the financing requirements of the company.
Private equity funds, often organized as
limited partnerships, are the most common vehicles for making private equity investments. In such funds, investors usually commit
to contribute up to a certain amount of capital when requested by the fund’s manager or general partner. The general partner
then makes private equity investments on behalf of the fund, typically according to a pre-defined investment strategy and time
horizon. The fund’s investments are usually realized, or “exited” after a two- to six-year holding period through
a private sale, an initial public offering (IPO) or a recapitalization, and the proceeds are distributed to the fund’s investors.
The funds themselves typically have a duration of ten to twelve years.
The private equity market is diverse and
can be divided into several different segments, each of which may exhibit distinct characteristics based on combinations of various
factors. These include the type and financing stage of the investment, the geographic region in which the investment is made and
the vintage year.
Investments in private equity have increased
significantly over the last 35 years, driven principally by large institutional investors seeking increased returns and portfolio
efficiency. It is now common for large pension funds, endowments and other institutional investors to dedicate several percentage
points of their overall portfolios to private equity.
Private Equity Investment Types
| · | Secondary Investments. Secondary Investments are interests in existing private equity funds
that are acquired in privately negotiated transactions, typically after the end of the private equity fund’s fundraising
period. Secondary Investments play an important role in a diversified private equity portfolio. Because Secondary Investments allow
investors to avoid some of the fees charged by private equity fund managers and are often (but not always) purchased at a discount
from a private equity fund’s Net Asset Value, Secondary Investments may exhibit little or none of the “J-curve”
characteristics associated with primary investments. In addition, Secondary Investments typically provide earlier distributions
than Primary Investments, and may also provide valuable arbitrage opportunities for sophisticated investors. The ability to source
and value potential investments is crucial for success in secondary investing, and the nature of the process typically requires
significant resources and expertise. As a result, generally only very large and experienced investors are active secondary market
participants. |
| · | Primary Investments. Primary investments (primaries) are interests or investments in newly
established private equity funds. Most private equity groups raise new funds only every two to four years, and many top-performing
funds may be closed to new investors. Because of the limited windows of opportunity for making primary investments in particular
funds, strong relationships with leading firms are highly important for primary investors. |
Primary investors subscribe for
interests during an initial fundraising period, and their capital commitments are then used to fund investments in several individual
operating companies (typically ten to thirty) during a defined investment period. The investments of the fund are usually unknown
at the time of commitment, and investors typically have little or no ability to influence the investments that are made during
the fund’s life. Because primary investors must rely on the expertise of the fund manager, an accurate assessment of the
manager’s capabilities is essential for investment success.
Primary investments typically
exhibit a value development pattern, commonly known as the “J-curve”, in which the net asset value typically declines
moderately during the early years of the fund’s life as investment related fees and expenses are incurred before investment
gains have been realized. As the fund matures and portfolio companies are sold, the pattern typically reverses with increasing
net asset value and distributions.
| · | Direct Investments. Direct investments generally involve taking an interest in securities
issued by an operating company, whether equity or debt. Direct equity investments generally involve new owners taking a material
stake in the target company, frequently a controlling interest, and exercising significant influence on the growth and development
of the company through work with the company’s management and board of directors. Direct debt investments typically represent
financing for buyout or growth investments and may have various features and covenants designed to protect the lender’s interests.
Direct investments may vary in duration, but usually are exited within two to six years. |
In contrast to private equity
fund investments (which require a commitment to a largely unknown portfolio), direct investments involve specific situations and
particular companies. Accordingly, this style of investing offers the greatest degree of transparency and control in portfolio
construction and most directly reflects the investor’s sourcing, underwriting, negotiation and structuring skills. In addition,
investing directly is generally the most cost-effective way to make private equity investments, by avoiding the fees and expenses
generally associated with investing indirectly through underlying private equity funds.
Private Equity Financing Stages
In the private equity asset class, the
term “financing stage” is used to describe investments (or funds that invest) in companies at a certain stage of development.
The different financing stages have distinct risk, return and correlation characteristics, and play different roles within a diversified
private equity portfolio. Broadly speaking, private equity investments can be broken down into three financing stages: buyout,
venture capital and special situations. These categories may be further subdivided based on the investment strategies that are
employed.
| · | Buyouts. Control investments in established, cash flow positive companies are usually classified
as buyouts. Buyout investments may focus on small-, mid- or large-capitalization companies, and such investments collectively represent
a substantial majority of the capital deployed in the overall private equity market. The use of debt financing, or leverage, is
prevalent in buyout transactions — particularly in the large-cap segment. Overall, debt financing typically makes up 50-70%
of the price paid for a company. |
| · | Venture capital. Investments in new and emerging companies are usually classified as venture
capital. Such investments are often in technology and healthcare related industries. Companies financed by venture capital are
generally not cash flow positive at the time of investment and may require several rounds of financing before the company can be
sold privately or taken public. Venture capital investors may finance companies along the full path of development or focus on
certain sub-stages (usually classified as seed, early and late stage) in partnership with other investors. |
| · | Special situations. A broad range of investments including private debt instruments, infrastructure
investments and distressed debt/turnarounds may be classified as special situations. Many of the Fund’s special situations
investments will be in senior and subordinated direct debt investments, such as mezzanine direct investments, which are typically
comprised of subordinated debt or preferred stock, possibly in combination with warrants on the company’s common stock. The
value drivers and cash flow characteristics of special situations investments are frequently distinct from those of other private
equity investments, complementing a buyout and venture capital portfolio. |
INVESTMENT PROCESS OVERVIEW
Portfolio Planning
The investment process begins with portfolio
planning, which is designed to provide a framework for the Fund’s long-term diversification across various dimensions of
the global private equity market, such as: (i) direct, secondary, and primary; (ii) buyout, venture capital, mezzanine,
energy, infrastructure, distressed investments and other special situations; and (iii) investments focused in North America,
Western Europe, and Foreign or Emerging Markets.
Relative Value Analysis
The
second step of the investment process is to analyze changing market conditions and their effect on the relative attractiveness
of different segments within the overall private equity and/or credit markets. This relative value analysis is based on general
economic developments, such as business cycles, credit spreads, equity multiples, interest rates, IPO opportunities, deregulation,
and changes in tax or securities law. In addition, variables specific to particular industry sectors and the overall private and/or
credit markets are typically evaluated. Based on the outcome of this review, the Adviser will attempt to identify the market segments
that it believes offer the most attractive investment opportunities at the relevant time.
The Adviser’s relative value analysis
is intended to serve as a guide for tactical capital allocation decisions within the framework of the portfolio plan. Due to the
long-term nature and illiquidity of private equity and credit investments, it is generally not practical to dramatically re-allocate
a portfolio over a short period of time. Accordingly, the actual allocation of the Fund Investments may deviate significantly
from the general relative value views of the Adviser at a particular point in time.
Investment Selection
In
the final step of the investment process, the Adviser seeks to invest the Fund’s capital allocated to each segment in the
highest quality investments available at the relevant time. Opportunities are typically sourced through a network of existing relationships
with private equity sponsors, private lenders, and other investors across the globe, and then individually evaluated by the Adviser’s
and its affiliates’ investment professionals using a structured selection process. See “ DUE DILIGENCE
AND SELECTION OF INVESTMENTS.” As investment opportunities are analyzed, investment professionals seek to evaluate
them in relation to historical benchmarks, current information from the Adviser’s and its affiliates’ existing private
equity portfolios, and against each other. This comparative analysis can provide insight into the specific investments that offer
the greatest value at different points in time in the various segments of the private equity market.
DUE DILIGENCE AND SELECTION OF INVESTMENTS
The
Adviser follows a structured process to source, evaluate, select and monitor investments for the Fund. The Adviser’s investment
professionals are involved throughout the process and draw on the significant investment resources and insight available through
the Adviser’s affiliates. See “ MANAGEMENT OF THE FUND— The Adviser.”
The Adviser’s investment committee is responsible for the portfolio plan and for final investment decisions.
(1) Deal generation.
The Adviser typically identifies prospective investments from multiple sources, the most important of which is a global network
of relationships across the private equity and private credit industries. Built through the investment activities of the Adviser,
its senior members, and its affiliated companies, this network has a historically proven track record of generating high volumes
of deal flow.
(2) Pre-selection.
The initial screening process for investment opportunities is typically based on a confidential information memorandum, investment
banker’s presentation, existing Adviser knowledge of the assets included in the investment opportunity, and/or an introductory
meeting with the seller, Portfolio Fund Manager, or co-investors in Direct Investments (“Co-Investors”). Investment
screens include, but are not limited to: transaction size, asset quality, asset type, industry sector representation, asset geography,
initial estimates of intrinsic value, transaction type, and level of transaction competition. For opportunities that pass the Adviser
and its affiliates’ minimum requirements, a due diligence deal team is assigned to evaluate the opportunity in detail.
(3) Due
diligence. The due diligence process involves a detailed analysis of various aspects of each opportunity, including both qualitative
and quantitative assessments. Various proprietary tools and databases are used to better understand market trends, potential return
scenarios and/or the historical or anticipated sources of value creation for an investment and its anticipated holding term. Evaluations
are generally based on information such as conversations with Portfolio Fund Managers, Co-Investors and/or peers; industry dynamics;
competitive positioning; financial analysis and modeling; comparable analysis; precedent transaction analysis; asset performance
forecasting; sensitivity analysis; interviews with key personnel; on-site visits; reference calls; third-party consultant reports;
and/or track record analysis. The investment committee reviews the conclusions of the due diligence analysis and may decline
the opportunity, request additional information, or approve subject to tax and legal due diligence.
(4) Tax
and legal assessment. In conjunction with the commercial due diligence process, the tax treatment and legal terms of the investment
are considered. Based on this analysis and the findings of external professional advisers, the Adviser’s and/or its
affiliates’ internal legal and investment teams seek to negotiate the terms and conditions of the investment. After resolving
all open issues and negotiating terms, a final “investment recommendation” is prepared and presented to the investment
committee, which finally approves or declines the investment.
(5) Portfolio
monitoring. Post-investment, the Adviser seeks to monitor the Fund’s portfolio through regular interaction with
the Portfolio Fund Managers, Co-Investors, and, where relevant, the management of Direct Investments represented in the portfolio.
This interaction facilitates on-going portfolio analysis and a proactive approach to addressing any new opportunities or issues
that may arise.
INVESTMENT POLICIES
Portfolio and Liquidity Management
The Adviser intends to use a range of techniques
to reduce the risk associated with the Fund’s investment strategy. These techniques may include, without limitation:
| · | Diversifying investments across funds, investment managers, investment types and strategies, geographies,
industries, sectors, capital structures, vintage years and maturity dates; and |
| · | Actively managing cash and liquid assets. |
The
Adviser intends to manage the Fund’s portfolio with a view towards managing liquidity and maintaining a high investment level.
Accordingly, the Adviser may make investments based, in part, on anticipated future distributions from Fund Investments. The Adviser
also takes other anticipated cash flows into account, such as those relating to new subscriptions, the tender of Shares by Shareholders
and any distributions made to Shareholders. To forecast portfolio cash flows, the Adviser utilizes quantitative and qualitative
factors, including historical private equity and private credit data, actual portfolio observations and qualitative forecasts by
the Adviser’s and its affiliates’ investment professionals. See “ INVESTMENT PROCESS OVERVIEW—Portfolio
Planning.”
The Adviser intends to use a range of techniques
to reduce the risk associated with the Fund’s investment strategy. These techniques may include, without limitation:
| · | Diversifying investments and commitments across several vintage years; |
| · | Actively managing cash and liquid assets; and |
| · | Establishing a credit line to provide liquidity for drawdowns by underlying Portfolio Funds, to
satisfy tender requests and to satisfy the requirements of the Investment Company Act. |
The Fund is expected to hold liquid assets
to the extent required for purposes of liquidity management and compliance with the Investment Company Act. Over time, during normal
market conditions, it is generally not expected that the Fund will hold more than 20% of its net assets in cash or cash equivalents
for extended periods of time. To enhance the Fund’s liquidity, particularly in times of possible net outflows through the
tender of Shares by Shareholders, the Adviser may sell certain of the Fund’s assets on the Fund’s behalf.
There
can be no assurance that the objectives of the Fund with respect to liquidity management will be achieved or that the Fund’s
portfolio design and risk management strategies will be successful. Prospective investors should refer to the discussion of the
risks associated with the investment strategy and structure of the Fund found under “ GENERAL RISKS,”
“ INVESTMENT RELATED RISKS,” and “ LIMITS OF RISKS DISCLOSURE.”
Borrowing by the Fund
The
Fund may borrow money to pay operating expenses, including, without limitation, investment management fees, or to purchase portfolio
securities, to fund repurchase of Shares or for other portfolio management purposes. Such borrowing may be accomplished
through credit facilities or derivative instruments or by other means. The use of borrowings for investment purposes involves a
high degree of risk. 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 or less than 200% with respect to preferred stock. The Investment Company Act also provides that the Fund may not
declare distributions or purchase its Shares (including through repurchase offers) if, immediately after doing so, it will have
an asset coverage of less than 300% or 200%, as applicable. The foregoing requirements do not apply to Portfolio Funds in which
the Fund invests unless such Portfolio Funds are registered under the Investment Company Act. 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.
Hedging Techniques
From time to time in its sole discretion,
the Adviser may employ various hedging techniques in an attempt to reduce certain potential risks to which the Fund’s portfolio
may be exposed. These hedging techniques may involve the use of derivative instruments, including swaps and other arrangements
such as exchange-listed and over-the-counter put and call options, rate caps, floors and collars, and futures and forward contracts.
The Fund may also purchase and write (sell) options contracts on swaps, commonly referred to as swaptions.
To the extent that the Fund’s potential
exposure in a transaction involving options, rate caps, floors or collars, or futures or forward contracts is covered by the segregation
of cash or liquid assets or otherwise, the Fund believes that such instruments do not constitute senior securities under the Investment
Company Act and, accordingly, will not treat them as being subject to the borrowing restrictions of the Fund.
There
are certain risks associated with the use of such hedging techniques. See “ INVESTMENT RELATED RISKS—
Derivative Instruments” and “ INVESTMENT RELATED RISKS— Currency Risk.”
Temporary and Defensive Strategies
The
Fund may, from time to time in its sole discretion, take temporary or defensive positions in cash, cash equivalents, other short-term
securities or money market funds to attempt to reduce volatility caused by adverse market, economic, or other conditions. Any such
temporary or defensive positions could prevent the Fund from achieving its investment objective. In addition, subject to applicable
law, the Fund may, in the Adviser’s sole discretion, hold cash, cash equivalents, other short-term securities or investments
in money market funds pending investment, in order to fund anticipated repurchases, expenses of the Fund or other operational needs,
or otherwise in the sole discretion of the Adviser. See “ USE OF PROCEEDS.”
GENERAL RISKS
The following are certain 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 Shares are speculative and illiquid
securities involving substantial risk of loss. An investment in the Fund is appropriate only for those investors who do not require
a liquid investment, for whom an investment in the Fund does not constitute a complete investment program, and who fully understand
and can assume the risks of an investment in the Fund.
Limited Operating History
The Fund was formed on May 23, 2018 and commenced operations
on the Initial Closing Date (August 30, 2019). The Fund is subject to all of the business risks and uncertainties associated with
any new business, including the risk that the Fund will not achieve its investment objectives and that the value of Shares could
decline substantially.
Closed-End Fund; Liquidity Limited to Periodic Repurchases
of Shares
The Fund has been organized as a non-diversified,
closed-end management investment company and designed primarily for long-term investors. An investor should not invest in the Fund
if the investor needs a liquid investment. Closed-end funds differ from open-end management investment companies (commonly known
as mutual funds) in that investors in a closed-end fund do not have the right to redeem their shares on a daily basis. Unlike most
closed-end funds, which typically list their shares on a securities exchange, the Fund does not intend to list the Shares for trading
on any securities exchange, and the Fund does not expect any secondary market to develop for the Shares. Although the Board may,
in its sole discretion, cause the Fund to offer to repurchase outstanding Shares at their net asset value (after all applicable
fees), or, in certain circumstances, at a discount, and the Adviser intends to recommend that, in normal market circumstances,
the Board conduct repurchase offers of no more than 5% of the Fund’s net assets on or about the Initial Repurchase Date,
and thereafter quarterly on or about each January 1, April 1, July 1 and October 1, 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 an investor 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. 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 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.
In
considering whether to repurchase Shares during periods of financial market stress, the Board may offer to repurchase Shares at
a discount to their prevailing net asset value that appropriately reflects market conditions, subject to applicable law. Further,
repurchases of Shares, if any, may be suspended, postponed or terminated by the Board under certain circumstances. See “
REPURCHASES OF SHARES— Periodic Repurchases.” 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. Also, 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 a promissory note entitling such holder to the
payment of 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 Fund Investment 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 the Fund’s 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.
Non-Diversified Status
The
Fund is a “non-diversified” management investment company. Thus, there are no percentage limitations imposed by the
Investment Company Act on the Fund’s assets that may be invested, directly or indirectly, in the securities of any one issuer.
Consequently, if one or more Fund Investments are allocated a relatively large percentage of the Fund’s assets, losses suffered
by such Fund Investments could result in a higher reduction in the Fund’s capital than if such capital had been more proportionately
allocated among a larger number of investments. The Fund may also be more susceptible to any single economic or regulatory occurrence
than a diversified investment company. However, the Fund will be subject to diversification requirements applicable to RICs under
the Code. See “CERTAIN TAX CONSIDERATIONS.”
Legal, Tax and Regulatory Risks
Legal, tax and regulatory changes could
occur during the term of the Fund which may materially adversely affect the Fund. For example, the regulatory and tax environment
for leveraged investors and for private equity funds generally is evolving, and changes in the direct or indirect regulation or
taxation of leveraged investors or private equity funds may materially adversely affect the ability of the Fund to pursue its investment
strategies or achieve its investment objective. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) was signed into law on July 21, 2010 and significantly revises and expands the rulemaking, supervisory and enforcement
authority of U.S. federal bank, securities and commodities regulators. The implementation of the Dodd-Frank Act requires the adoption
of various regulations and the preparation of reports by various agencies over a period of time. It is unclear how these regulators
will exercise these revised and expanded powers and whether they will undertake rulemaking, supervisory or enforcement actions
that would adversely affect the Fund or investments made by the Fund. There can be no assurance that future regulatory actions
authorized by the Dodd-Frank Act will not significantly reduce the profitability of the Fund. The implementation of the Dodd-Frank
Act could adversely affect the Fund by increasing transaction and/or regulatory compliance costs. On December 11, 2015, the
SEC proposed a regulation that, if adopted, would change the regulation of the use of derivatives and financial commitment transactions
by registered investment companies. The nature of any final regulations is uncertain at this time, but the Fund may have difficulty
adjusting its investment portfolio and strategy in order to comply with such regulations. In addition, greater regulatory scrutiny
may increase the Fund’s and the Adviser’s exposure to potential liabilities. Increased regulatory oversight can also
impose administrative burdens on the Fund and the Adviser, including, without limitation, responding to examinations or investigations
and implementing new policies and procedures.
Certain
tax risks associated with an investment in the Fund are discussed in “ CERTAIN TAX CONSIDERATIONS.”
Substantial Repurchases
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. See “ GENERAL RISKS— Closed-End
Fund; Liquidity Limited to Periodic Repurchases of Shares.”
Temporary Investments
Delays in investing the proceeds of the
offering of Shares may impair the Fund’s performance. The Fund cannot assure you it will be able to identify any investments
that meet its investment objective or that any investment that the Fund makes will produce a positive return. The Fund may be unable
to invest proceeds on acceptable terms within the time period that the Fund anticipates or at all, which could harm the Fund’s
financial condition and operating results.
Before making investments, the Fund may
invest proceeds to the Fund in cash, cash equivalents, U.S. government securities, money market funds, repurchase agreements, and
other high-quality debt instruments maturing in one year or less from the time of investment (“Temporary Investments”).
This will produce returns that are significantly lower than the returns which the Fund expects to achieve when the Fund’s
portfolio is fully invested in securities meeting the Fund’s investment objective. As a result, any distributions that the
Fund pays while the Fund’s portfolio is not fully invested in securities meeting its investment objective may be lower than
the distributions that the Fund may be able to pay when the Fund portfolio is fully invested in securities meeting the Fund’s
investment objective.
Dilution from Subsequent Offerings
of Shares
The Fund may accept additional subscriptions
for Shares as determined by the Board, in its sole discretion. Additional purchases will dilute the indirect interests of existing
Shareholders in the Fund Investments prior to such purchases, which could have an adverse impact on the existing Shareholders’
interests in the Fund if subsequent Fund Investments underperform the prior investments. Further, in certain cases Portfolio Fund
Managers may structure performance-based compensation similarly to the Fund, with such compensation being paid only if gains exceed
prior losses (i.e., if the value surpasses a previous “high-water mark”). New purchases of Shares will dilute the benefit
of such compensation structures to existing Shareholders.
Valuations Subject to Adjustment
The
valuations reported by the Portfolio Fund Managers, based upon which the Fund determines its quarter-end net asset value and the
net asset value per Share may be subject to later adjustment or revision. For example, fiscal year-end net asset value calculations
of the Portfolio Funds may be revised as a result of audits by their independent auditors. Other adjustments may occur from time
to time. Because such adjustments or revisions, whether increasing or decreasing the net asset value of the Fund at the time they
occur, relate to information available only at the time of the adjustment or revision, the adjustment or revision may not affect
the amount of the repurchase proceeds of the Fund received by Shareholders who had their Shares repurchased prior to such adjustments
and received their repurchase proceeds, subject to the ability of the Fund to adjust or recoup the repurchase proceeds received
by Shareholders under certain circumstances as described in “ REPURCHASES OF SHARES— Periodic Repurchases.”
As a result, to the extent that such subsequently adjusted valuations from the Portfolio Fund Managers or revisions to the net
asset value of a Portfolio Fund or direct private equity investment adversely affect the Fund’s net asset value, the outstanding
Shares may be adversely affected by prior repurchases to the benefit of Shareholders who had their Shares repurchased at a net
asset value higher than the adjusted amount. Conversely, any increases in the net asset value resulting from such subsequently
adjusted valuations may be entirely for the benefit of the outstanding Shares and to the detriment of Shareholders who previously
had their Shares repurchased at a net asset value lower than the adjusted amount. The same principles apply to the purchase of
Shares. New Shareholders may be affected in a similar way.
The valuations of Shares may be significantly
affected by numerous factors, some of which are beyond the Fund’s control and may not be directly related to the Fund’s
operating performance. These factors include:
| · | changes in regulatory policies or tax guidelines; |
| · | changes in earnings or variations in operating results; |
| · | changes in the value of the Fund Investments; |
| · | changes in accounting guidelines governing valuation of the Fund Investments; |
| · | any shortfall in revenue or net income or any increase in losses from levels expected by investors; |
| · | departure of the Adviser or certain of its respective key personnel; |
| · | general economic trends and other external factors; and |
| · | loss of a major funding source. |
Cybersecurity Risk
With the increased use of the Internet
and because information technology (“IT”) systems and digital data underlie many of the Fund’s operations, the
Fund and Adviser, Custodian, Transfer Agent, Distributor and other service providers and the financial intermediaries of each (collectively
“Service Providers”) are exposed to the risk that their operations and data may be compromised as a result of internal
and external cyber-failures, breaches or attacks (“Cyber Risk”). This could occur as a result of malicious or criminal
cyber-attacks. Cyber-attacks include actions taken to: (i) steal or corrupt data maintained online or digitally, (ii) gain unauthorized
access to or release confidential information, (iii) shut down the Fund’s or a Service Provider’s website through denial-of-service
attacks, or (iv) otherwise disrupt normal business operations. However, events arising from human error, faulty or inadequately
implemented policies and procedures or other systems failures unrelated to any external cyber-threat may have effects similar to
those caused by deliberate cyber-attacks.
Successful cyber-attacks or other cyber-failures
or events affecting the Fund or its Service Providers may adversely impact the Fund or its Shareholders. For instance, such attacks,
failures or other events may interfere with the processing of shareholder transactions, impact the Fund’s ability to calculate
its NAV, cause the release of private shareholder information or confidential Fund information, impede investment operations, or
cause reputational damage. Such attacks, failures or other events could also subject the Fund or its Service Providers to regulatory
fines, penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. Insurance
protection and contractual indemnification provisions may be insufficient to cover these losses. The Fund or its Service Providers
may also incur significant costs to manage and control Cyber Risk. While the Fund and its Service Providers have established IT
and data security programs and have in place business continuity plans and other systems designed to prevent losses and mitigate
Cyber Risk, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been
identified or that cyber-attacks may be highly sophisticated.
Cyber Risks are also present for Portfolio
Funds and Portfolio Fund Managers and for issuers of securities or other instruments in which the Fund invests, which could result
in material adverse consequences for such Portfolio Funds, Portfolio Fund Managers, or issuers, and may cause the Fund’s
investment in such Portfolio Funds or issuers to lose value.
Reporting Requirements
Shareholders who beneficially own Shares
that constitute more than 5% or 10% of the Fund’s Shares are subject to certain requirements under the Securities Exchange
Act of 1934, as amended, and the rules promulgated thereunder. These include requirements to file certain reports with the
SEC. The Fund has no obligation to file such reports on behalf of such Shareholders or to notify Shareholders that such reports
are required to be made. Shareholders who may be subject to such requirements should consult with their legal advisers.
BUSINESS AND STRUCTURE RELATED RISKS
Newly Formed Adviser
The Fund is dependent upon the services
and resources provided by the Adviser. The Adviser is a newly formed entity and has not previously served as an investment adviser
to a registered investment company. As a result, the Adviser has been and will be addressing certain operational and compliance
requirements of the Investment Company Act for the first time in connection with the commencement of operations of the Fund.
Reliance on the Adviser
The
Adviser has full discretionary authority to identify, structure, allocate, execute, administer, monitor and liquidate Fund
Investments and, in doing so, has no responsibility to consult with any Shareholder. Accordingly, an investor in the Fund must
rely upon the abilities of the Adviser, and no person should invest in the Fund unless such person is willing to entrust all aspects
of the investment decisions of the Fund to the Adviser.
Reliance on the Key Personnel
The
Fund will depend on the investment expertise, skill and network of business contacts of the Adviser. The Adviser will evaluate,
negotiate, structure, execute, monitor and service Fund Investments. The Fund’s future success will depend to a significant
extent on the continued service and coordination of the Adviser and its investment management team. The departure of certain key
personnel of the Adviser or its affiliates could have a material adverse effect on the Fund’s ability to achieve its investment
objectives.
The
Fund’s ability to achieve its investment objectives depends on the Adviser’s ability to identify, analyze, invest
in, finance and monitor Portfolio Funds and portfolio companies that meet the Fund’s investment criteria. The Adviser’s
capabilities in structuring the investment process, providing competent, attentive and efficient services to the Fund, and facilitating
access to financing on acceptable terms depend on the employment of investment professionals in an adequate number and of adequate
sophistication to match the corresponding flow of transactions. To achieve the Fund’s investment objectives, the Adviser
may need to hire, train, supervise and manage new investment professionals to participate in the Fund’s investment selection
and monitoring process. The Adviser may not be able to find investment professionals in a timely manner or at all. Failure to support
the Fund’s investment process could have a material adverse effect on the Fund’s business, financial condition and
results of operations.
It is anticipated that the Adviser will
depend on the relationships of it and of its affiliates with private equity sponsors, investment banks and commercial banks, and
the Fund will rely to a significant extent upon these relationships to provide the Fund with potential investment opportunities.
If the Adviser or its affiliates fail to maintain their existing relationships or develop new relationships with other sponsors
or sources of investment opportunities, the Fund may not be able to grow its investment portfolio. In addition, individuals with
whom the Adviser and its affiliates have relationships are not obligated to provide the Fund, the Adviser or any of their affiliates
with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities
for the Fund.
Competition for Investment Opportunities
The
Fund will compete for investments with other investment funds (including registered investment companies, private equity
funds, mezzanine funds and collateralized loan obligation (CLO) funds), as well as traditional financial services companies such
as commercial banks, finance companies, business development companies (BDCs), small business investment companies (SBICs) and
other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, have begun to invest in areas in which
they have not traditionally invested, including making investments in private U.S. companies. As a result of these new entrants,
competition for investment opportunities in private U.S. companies may strengthen. Many of the Fund’s competitors are substantially
larger and have considerably greater financial, technical and marketing resources than the Fund. For example, some competitors
may have a lower cost of capital and access to funding sources that are not available to the Fund. In addition, some of the Fund’s
competitors may have higher risk tolerances or different risk assessments than the Fund. These characteristics could allow competitors
to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring
than the Fund is able to do. As a result, the Fund may lose investment opportunities if it does not match its competitors’
pricing, terms and structure.If the Fund is forced to match its competitors’ pricing, terms and structure, it may not be
able to achieve acceptable returns on its investments or may bear substantial risk of capital loss. A significant part of the Fund’s
competitive advantage stems from the fact that the market for investments in privately held companies is underserved by traditional
commercial banks and other financial sources. A significant increase in the number and/or the size of the Fund’s competitors
in this target market could force the Fund to accept less attractive investment terms. Furthermore, many of the Fund’s competitors
are not subject to the source-of-income, asset diversification and distribution requirements the Fund must satisfy to maintain
its qualification as a RIC.
Valuation for Fund Investments
Uncertain
Under the Investment Company Act, the Fund
is required to carry Fund Investments at market value or, if there is no readily available market value, at fair value as determined
by the Adviser, in accordance with the Fund’s valuation procedures, which have been approved by the Board. There is not a
public market or active secondary market for many of the securities of the privately-held companies in which the Fund intends to
invest. Rather, many of the Fund Investments may be traded on a privately negotiated over-the-counter secondary market for institutional
investors. As a result, the Fund will value these securities at fair value as determined in good faith by the Adviser in accordance
with the valuation procedures that have been approved by the Board.
The
determination of fair value, and thus the amount of unrealized losses the Fund may incur in any year, is to a degree subjective,
and the Adviser has a conflict of interest in making the determination. The Fund values these securities monthly at fair value
determined in good faith by the Adviser in accordance with the valuation procedures that have been approved by the Board. Because
such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate
over short periods of time and may be based on estimates, the Fund’s determinations of fair value may differ materially from
the values that would have been used if a ready market for these non-traded securities existed. Due to this uncertainty, the Fund’s
fair value determinations may cause the Fund’s net asset value on a given date to understate or overstate materially the
value that the Fund may ultimately realize upon the sale of one or more Fund Investments. See “ CALCULATION
OF NET ASSET VALUE; VALUATION.”
Amount or Frequency of Distributions
Not Guaranteed
The
Fund expects to pay distributions out of assets legally available for distribution from time to time, at the sole discretion
of the Board. Nevertheless, the Fund cannot assure you 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.
In
the event that the Fund encounters delays in locating suitable investment opportunities, the Fund may return all or a substantial
portion of the proceeds from the offering of Shares in anticipation of future cash flow, which may constitute a return of your
capital and will lower your tax basis in your Shares. 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 proceeds from the offering of Shares, including any fees payable to the Adviser.
Uncertain Source and Quantity of
Funding
Proceeds
from the sale of Shares will be used for the Fund’s investment opportunities, operating expenses and for payment of
various fees and expenses such as the Investment Management Fee and other fees. Any working capital reserves the Fund maintains
may not be sufficient for investment purposes, and it may require debt or equity financing to operate. Accordingly, in the event
that the Fund develops a need for additional capital in the future for investments or for any other reason, these sources of funding
may not be available to the Fund. Consequently, if the Fund cannot obtain debt or equity financing on acceptable terms, the ability
to acquire investments and to expand operations will be adversely affected. As a result, the Fund would be less able to achieve
portfolio diversification and the investment objectives, which may negatively impact the Fund’s results of operations and
reduce the Fund’s ability to make distributions to Shareholders.
Fluctuations in Performance
The Fund could experience fluctuations
in its performance due to a number of factors, including, but not limited to, the Fund’s ability or inability to make investments
in companies that meet the Fund’s investment criteria, the interest rate payable on the debt securities the Fund acquires,
the level of the Fund’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses,
the degree to which the Fund encounters competition in its markets and general economic conditions. As a result of these factors,
results for any previous period should not be relied upon as being indicative of performance in future periods.
MANAGEMENT RELATED RISKS
Incentive Fee and Investment Management Fee
Any Incentive Fee payable by the Fund that
relates to an increase in value of Fund Investments may be computed and paid on gain or income that is unrealized. If a Fund Investment
decreases in value, it is possible that the unrealized gain previously included in the calculation of the Incentive Fee will never
become realized. The Adviser is not obligated to reimburse the Fund for any part of the Incentive Fee it received that was based
on unrealized gain never realized as a result of a sale or other disposition of a Fund Investment at a lower valuation in the future,
and such circumstances would result in the Fund paying an Incentive Fee on income or gain the Fund never received.
For U.S. federal income tax purposes, the
Fund is required to recognize taxable income (such as deferred interest that is accrued as original issue discount) in some circumstances
in which the Fund does not receive a corresponding payment in cash and to make distributions with respect to such income to maintain
its qualification as a RIC. Under such circumstances, the Fund may have difficulty meeting the annual distribution requirement
necessary to maintain its qualification as a RIC. As a result, the Fund may have to sell some of its investments at times and/or
at prices that the Adviser would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities.
If the Fund is not able to obtain cash from other sources, the Fund may fail to qualify as a RIC and thus become subject to corporate-level
income tax.
In addition, 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. The way in which the Incentive Fee
payable to the Adviser is determined may encourage the Adviser to use leverage to increase the return on Fund Investments. Under
certain circumstances, the use of borrowing may increase the likelihood of default, which would disfavor the Fund and Shareholders.
Such a practice could result in the Fund investing in more speculative securities than would otherwise be in the Fund’s best
interests, which could result in higher investment losses, particularly during cyclical economic downturns.
Divergence of Resources
Neither
the Adviser nor its affiliates, including individuals employed by the Adviser or its affiliates, are prohibited from raising
money for and managing another investment entity that makes the same types of investments as those the Fund will target. As a result,
the time and resources that these individuals may devote to the Fund may be diverted. In addition, the Fund may compete with any
such investment entity for the same investors and investment opportunities. Affiliates of the Adviser, whose primary businesses
include the origination of investments, engage in investment advisory business with accounts that compete with the Fund. Affiliates
of the Adviser have no obligation to make their originated investment opportunities available to the Adviser or to the Fund.
Transactions with Affiliates
Affiliates
of the Adviser engage in financial advisory activities that are independent from, and may from time to time conflict with, those
of the Fund or Fund Investments. In the future, there might arise instances where the interests of such affiliates conflict with
the interests of the Fund or Fund Investments. Affiliates of the Adviser may provide services to, invest in, advise, sponsor and/or
act as investment manager to investment vehicles and other persons or entities (including prospective investors in the Fund Investments)
which (i) may have structures, investment objectives and/or policies that are similar to (or different than) those of the
Fund, (ii) may compete with the Fund for investment opportunities, and (iii) may co-invest with the Fund in certain
transactions that are in compliance with Section 17 of the Investment Company Act. In addition, affiliates of the Adviser
and their respective clients may themselves invest in securities that would be appropriate for the Fund’s investments and
may compete with the Fund Investments for investment opportunities. The Fund may invest in entities that are affiliates of or
are managed by the Adviser, including in respect of which it or its affiliates may receive investment management, Advisory or
other fees, in addition to those payable by the Fund. The Adviser or its affiliates may earn fees from Fund Investments or the
Fund for the provision of advice on mergers, acquisitions, add-on acquisitions, re-financings, public offerings, sales and similar
transactions.
INVESTMENT RELATED RISKS
This section discusses the types of investments
that may be made, directly or indirectly, by the Fund, and some of the risks associated with such investments. It is possible that
the Fund will make an investment that is not described below, and any such investment will be subject to its own particular risks.
Limited Operating History of Fund
Investments
Fund Investments may have limited operating
histories and the information the Fund will obtain about such investments may be limited. As such, the ability of the Adviser to
evaluate past performance or to validate the investment strategies of such Fund Investment will be limited. Moreover, even to the
extent a Fund Investment has a longer operating history, the past investment performance of any of the Fund Investments should
not be construed as an indication of the future results of such investments or the Fund, particularly as the investment professionals
responsible for the performance of such investments may change over time. This risk is related to, and enhanced by, the risks created
by the fact that the Adviser relies upon information provided to it by the issuer of the securities that is not, and cannot be,
independently verified. Further, the results of other funds or accounts managed by the Adviser, which have or have had an investment
objective similar to or different from that of the Fund, may not be indicative of the results that the Fund achieves.
Unspecified Investments; Dependence
on the Adviser
The
Adviser has complete discretion to select the Fund Investments as opportunities arise. The Fund, and, accordingly, Shareholders,
must rely upon the ability of the Adviser to identify and implement Fund Investments consistent with the Fund’s investment
objective. Shareholders will not receive or otherwise be privy to due diligence or risk information prepared by or for the Adviser
in respect of the Fund Investments. The Adviser has the authority and responsibility for asset allocation, the selection of Fund
Investments and all other investment decisions for the Fund. The success of the Fund depends upon the ability of the Adviser to
develop and implement investment strategies that achieve the investment objective of the Fund. Shareholders will have no right
or power to participate in the management or control of the Fund or the Fund Investments, or the terms of any such investments.
There can be no assurance that the Adviser will be able to select or implement successful strategies or achieve their respective
investment objectives. See also “ BUSINESS AND STRUCTURE RELATED RISKS- Newly Formed Adviser.”
Failure to Qualify as a RIC or
Satisfy Distribution, Income and Asset Requirements
To
qualify for and maintain RIC qualification under the Code, the Fund must meet the following annual distribution, source-of-income
and asset diversification requirements. See “ CERTAIN TAX CONSIDERATIONS.”
| · | The annual distribution requirement for a RIC will be satisfied if the Fund distributes to Shareholders
on an annual basis at least 90% of the Fund’s net ordinary income and realized net short-term capital gains in excess of
realized net long-term capital losses, if any. Because the Fund may borrow, it is subject to an asset coverage ratio requirement
under the Investment Company Act and may in the future become subject to certain financial covenants under loan and credit agreements
that could, under certain circumstances, restrict the Fund from making distributions necessary to satisfy the distribution requirement.
If the Fund is unable to obtain cash from other sources, it could fail to qualify for RIC tax treatment and thus become subject
to corporate-level income tax. |
| · | The source-of-income requirement will be satisfied if the Fund obtains at least 90% of its gross
income for each taxable year from dividends, interest, certain payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies, other income derived with respect to its business of investing
in such stock, securities, or currencies, or net income derived from interests in qualified publicly traded partnerships. Generally,
the Portfolio Funds in which the Fund invests will be pass-through entities for federal income tax purposes, and the character
of the gross income earned by such Portfolio Funds will flow out to the Fund. If the source-of-income requirement is not met the
Fund may fail to qualify for RIC tax treatment and be subject to corporate income tax. |
| · | The asset diversification requirement will be satisfied if the Fund meets certain asset diversification
requirements at the end of each quarter of the Fund’s tax year. To satisfy this requirement, (i) at least 50% of the
value of the Fund’s gross assets must consist of cash, cash equivalents, U.S. government securities, securities of other
RICs and other securities if such other securities of any one 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 such issuer, and (ii) no more than 25% of the value of the
Fund’s gross assets can be invested in the securities, other than U.S. government securities or securities of other RICs,
of one issuer, of two or more issuers that are controlled, as determined under the Code and its applicable regulations, by the
Fund and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded
partnerships.” Here, again, the character of the gross assets of Portolio Funds in which the Fund invests will generally
flow out to the Fund because those Portfoio Funds are pass-through entities. Failure to meet these requirements may result in the
Fund having to dispose of certain investments quickly in order to prevent the loss of its qualification as a RIC. Because most
of the Fund’s investments will be in private companies, and therefore will be relatively illiquid, any such dispositions
could be made at disadvantageous prices and could result in substantial losses. |
If the Fund fails to qualify for or maintain
RIC tax treatment for any reason and is subject to corporate income tax, the resulting corporate taxes could substantially reduce
the Fund’s net assets, the amount of income available for distribution and the amount of the Fund’s distributions.
Difficulty Meeting RIC Distribution, Income and Asset
Requirements
Each of the above ongoing requirements
for qualification for the favorable income tax treatment available to RICs requires that the Adviser obtain information from or
about the Portfolio Funds in which the Fund is invested. However, Portfolio Funds generally are not obligated to disclose the contents
of their portfolios. This lack of transparency may make it difficult for the Adviser to monitor the sources of the Fund’s
income and the diversification of its assets, and otherwise to comply with Subchapter M of the Code. Ultimately this may limit
the universe of Portfolio Funds in which the Fund can invest.
Portfolio Funds classified as partnerships
for U.S. federal income tax purposes may generate income allocable to the Fund that is not qualifying income for purposes of the
source-of-income requirement, described above. In order to meet the source-of-income requirement, the Fund may structure its investments
in a way potentially increasing the taxes imposed thereon or in respect thereof. Because the Fund may not have timely or complete
information concerning the amount and sources of such a Portfolio Fund’s income until such income has been earned by the
Portfolio Fund or until a substantial amount of time thereafter, it may be difficult for the Fund to satisfy the source-of-income
requirement.
In the event that the Fund believes that
it is possible that it will fail the asset diversification requirement at the end of any quarter of a taxable year, it may seek
to take certain actions to avert such failure, including by acquiring additional investments to come into compliance with the asset
diversification tests or by disposing of non-diversified assets. Although the Code affords the Fund the opportunity, in certain
circumstances, to cure a failure to meet the asset diversification test, including by disposing of non-diversified assets within
six months, there may be constraints on the Fund’s ability to dispose of its interest in a Portfolio Fund that limit utilization
of this cure period.
Because
the Fund’s allocable portion of a Portfolio Fund’s taxable income will generally be included in the Fund’s
investment company taxable income for the year of the accrual, the Fund may be required to make a distribution to Shareholders
in order to satisfy the annual distribution requirement, even though the Fund will not have received any corresponding cash amount.
As a result, the Fund may have difficulty meeting the annual distribution requirement necessary to qualify for and maintain its
qualification as a RIC under the Code. The Fund may have to sell some of its investments at times and/or at prices the Fund would
not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If the
Fund is not able to obtain cash from other sources, the Fund may fail to qualify for or maintain RIC tax treatment and thus become
subject to corporate-level income tax.
For
additional discussion regarding the tax implications of a RIC, see “ CERTAIN TAX CONSIDERATIONS.”
Restrictions on Raising Capital
and Borrowing
The Fund may borrow money to pay operating
expenses, including, without limitation, investment management fees, or to purchase portfolio securities or for other portfolio
management purposes. Such borrowing may be accomplished through credit facilities or derivative instruments or by other means.
The use of borrowings for investment purposes involves a high degree of risk. 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 or less than 200% with respect to preferred stock. The Investment
Company Act also provides that the Fund may not declare distributions or purchase its Shares (including through repurchase offers)
if, immediately after doing so, it will have an asset coverage of less than 300% or 200%, as applicable. 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.
Concentration of Investments
There
are no limitations imposed by the Adviser as to the amount of Fund assets that may be invested in (i) any one Portfolio Fund,
(ii) in Portfolio Funds managed by a particular Portfolio Fund Manager or its affiliates, (iii) indirectly in any single
industry or (iv) in any issuer. In addition, a Portfolio Fund’s investment portfolio may consist of a limited number
of companies and may be concentrated in a particular industry area or group. Accordingly, the Fund’s investment portfolio
may at times be significantly concentrated, both as to managers, industries and individual companies. Such concentration could
offer a greater potential for capital appreciation as well as increased risk of loss. Such concentration may also be expected to
increase the volatility of the Fund’s investment portfolio. The Fund is, however, subject to the asset diversification requirements
applicable to RICs. See “ CERTAIN TAX CONSIDERATIONS.”
Nature of Portfolio Companies
The Fund Investments will include direct
and indirect investments in various companies, ventures and businesses (“Portfolio Companies”). This may include Portfolio
Companies in the early phases of development, which can be highly risky due to the lack of a significant operating history, fully
developed product lines, experienced management, or a proven market for their products. The Fund Investments may also include Portfolio
Companies that are in a state of distress or which have a poor record, and which are undergoing restructuring or changes in management,
and there can be no assurances that such restructuring or changes will be successful. The management of such Portfolio Companies
may depend on one or two key individuals, and the loss of the services of any of such individuals may adversely affect the performance
of such Portfolio Companies.
Defaulted Debt Securities and Other
Securities of Distressed Companies
The Fund Investments may include low grade
or unrated debt securities (“high yield” or “junk” bonds or leveraged loans) or investments in securities
of distressed companies. Such investments involve substantial, highly significant risks. For example, high yield bonds are regarded
as being predominantly speculative as to the issuer’s ability to make payments of principal and interest. Issuers of high
yield debt may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater than is the case with higher rated securities. In
addition, the risk of loss due to default by the issuer is significantly greater for the holders of high yield bonds because such
securities may be unsecured and may be subordinated to other creditors of the issuer. Similar risks apply to other private debt
securities. Successful investing in distressed companies involves substantial time, effort and expertise, as compared to other
types of investments. Information necessary to properly evaluate a distress situation may be difficult to obtain or be unavailable
and the risks attendant to a restructuring or reorganization may not necessarily be identifiable or susceptible to considered analysis
at the time of investment.
Mezzanine Investments
The Fund may invest in mezzanine debt instruments,
which are expected to be unsecured and made in companies with capital structures having significant indebtedness ranking ahead
of the investments, all or a significant portion of which may be secured. While the investments may benefit from the same or similar
financial and other covenants as those applicable to the indebtedness ranking ahead of the investments and may benefit from cross-default
provisions and security over the company’s assets, some or all of such terms may not be part of particular investments and
the mezzanine debt will be subordinated in recovery to senior classes of debt in the event of a default. Mezzanine investments
generally are subject to various risks, including: (i) a subsequent characterization of an investment as a “fraudulent
conveyance;” (ii) the recovery as a “preference” of liens perfected or payments made on account of a debt
in the 90 days before a bankruptcy filing; (iii) equitable subordination claims by other creditors; (iv) so-called “lender
liability” claims by the issuer of the obligations; and (v) environmental liabilities that may arise with respect to
any collateral securing the obligations.
Prepayment
The Fund is subject to the risk that the
investments it makes in Portfolio Companies may be repaid prior to maturity (e.g., “prepayment risk”). When this occurs,
the Fund will generally reinvest these proceeds in Temporary Investments, pending their future investment in new Portfolio Companies.
These Temporary Investments will typically have substantially lower yields than the debt being prepaid and the Fund could experience
significant delays in reinvesting these amounts. Any future investment in a new Portfolio Company may also be at lower yields than
the debt that was repaid. As a result, the Fund’s results of operations could be materially adversely affected if one or
more of the Fund’s Portfolio Companies elect to prepay amounts owed to the Fund. Additionally, prepayments, net of prepayment
fees, could negatively impact the Fund’s return on equity.
Follow-on Investments
The Fund may not have the funds or ability
to make additional investments in Portfolio Companies. After the Fund’s initial investment in a Portfolio Company, the Fund
may be called upon from time to time to provide additional funds to such Portfolio Company or have the opportunity to increase
its investment through the exercise of a warrant to purchase common stock. There is no assurance that the Fund will make, or will
have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on the
Fund’s part to make such an investment may have a negative impact on a Portfolio Company in need of such an investment, may
result in a missed opportunity for the Fund to increase its participation in a successful operation or may reduce the expected
return on the investment.
Control Positions
The Fund (in the case of direct investments)
and the Portfolio Funds may take control positions in Portfolio Companies. The exercise of control over a company imposes additional
risks of liability for environmental damage, product defects, failure to supervise management, violation of governmental regulations
and other types of liability in which the limited liability characteristic of a corporation may be ignored, which would increase
the Fund’s possibility of incurring losses.
Leverage
The Portfolio Fund Managers and (subject
to applicable law) the Fund may employ leverage through borrowings or derivative instruments and are likely to directly or indirectly
acquire interests in companies with highly leveraged capital structures. If income and appreciation on investments made with borrowed
funds are less than the cost of the leverage, the value of the relevant portfolio or investment will decrease. Accordingly, any
event that adversely affects the value of a Fund Investment will be magnified to the extent leverage is employed. The cumulative
effect of the use of leverage by the Fund or the Portfolio Funds in a market that moves adversely to the relevant investments could
result in substantial losses, exceeding those that would have been incurred if leverage had not been employed.
Derivative Instruments
Some
or all of the Portfolio Fund Managers (subject to applicable law) and the Fund may use options, swaps, futures contracts, forward
agreements and other derivatives contracts. Transactions in derivative instruments present risks arising from the use of leverage
(which increases the magnitude of losses), volatility, the possibility of default by a counterparty, and illiquidity. Use of derivative
instruments for hedging or speculative purposes by the Fund or the Portfolio Fund Managers could present significant risks, including
the risk of losses in excess of the amounts invested. See “ INVESTMENT RELATED RISKS— Hedging.”
Economic, Political and Legal Risks
The Fund Investments will include investments
in a number of countries, including less developed countries, exposing investors to a range of potential economic, political and
legal risks, which could have an adverse effect on the Fund. These may include but are not limited to declines in economic growth,
inflation, deflation, currency revaluation, nationalization, expropriation, confiscatory taxation, governmental restrictions, adverse
regulation, social or political instability, negative diplomatic developments, military conflicts and terrorist attacks.
Prospective
investors should note that the capital markets in countries where Fund Investments are made may be significantly less developed
than those in the United States. Certain investments may be subject to extensive regulation by national governments and/or
political subdivisions thereof, which could prevent the Fund or the Portfolio Funds from making investments they otherwise would
make or cause them to incur substantial additional costs or delays that they otherwise would not suffer. Such countries may have
different regulatory standards with respect to insider trading rules, restrictions on market manipulation, shareholder proxy requirements
and/or disclosure of information. In addition, the laws of various countries governing business organizations, bankruptcy and insolvency
may make legal action difficult and provide little, if any, legal protection for investors, including the Fund and the Portfolio
Funds. Any such laws or regulations may change unpredictably based on political, economic, social and/or market developments.
Natural Resources Risk
The Fund may invest in companies principally
engaged in owning or developing non-energy natural resources (including timber and minerals) and industrial materials or supplying
goods or services to such companies. The Fund’s investments in natural resources issuers will be subject to the risk that
prices of these investments may fluctuate widely in response to the level and volatility of commodity prices; exchange rates; import
controls; domestic and global competition; environmental regulation and liability for environmental damage; mandated expenditures
for safety or pollution control; the success of exploration projects; depletion of resources; tax policies; and other governmental
regulation. Investments in natural resources issuers can be significantly affected by changes in the supply of or demand for natural
resources. The value of investments in natural resources issuers may be adversely affected by a change in inflation.
Interest Rate Risk
The Fund is subject to financial market
risks, including changes in interest rates. General interest rate fluctuations may have a substantial negative impact on Fund Investments
and the investment opportunities and, accordingly, have a material adverse effect on the Fund’s investment objectives and
their respective rates of return on invested capital. To mitigate such interest rate exposure, the Fund may invest a portion of
its portfolio in investments with floating interest rates. In addition, an increase in interest rates would make it more expensive
to use debt for the Fund and the Fund’s financing needs, if any.
In addition, in the event of a significant
rising interest rate environment, the Fund’s Portfolio Companies with floating interest rate loans could see their payments
increase and there may be a significant increase in the number of the Fund’s Portfolio Companies who are unable or unwilling
to repay their loans. Fund Investments in companies with adjustable-rate loans may also decline in value in response to rising
interest rates if the rates at which they pay interest do not rise as much, or as quickly, as market interest rates in general.
Similarly, during periods of rising interest rates, Fund Investments with fixed rates may decline in value because they are locked
in at below market yield.
The Fund may use interest rate risk management
techniques in an effort to limit its exposure to interest rate fluctuations. These techniques may include various interest rate
hedging activities and may limit the Fund’s ability to participate in the benefits of lower interest rates with respect to
the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material
adverse effect on the Fund’s business, financial condition and results of operations.
LIBOR Risk
The Fund’s investments and related
payment obligations and financing terms may be based on floating rates, such as LIBOR, Euro Interbank Offered Rate and other similar
types of reference rates (each, a “Reference Rate”). On July 27, 2017, the Chief Executive of the U.K. FCA, which regulates
LIBOR, announced that the FCA will no longer persuade nor compel banks to submit rates for the calculation of LIBOR and certain
other Reference Rates after 2021. Such announcement indicates that the continuation of LIBOR and other Reference Rates on the current
basis cannot and will not be guaranteed after 2021. This announcement and any additional regulatory or market changes may have
an adverse impact on the Fund’s investments, performance or financial condition. Until then, the Fund may continue to invest
in instruments that reference such rates or otherwise use such Reference Rates due to favorable liquidity or pricing.
In advance of 2021, regulators and market
participants will work together to identify or develop successor Reference Rates and how the calculation of associated spreads
(if any) should be adjusted. Additionally, prior to 2021, it is expected that industry trade associations and participants will
focus on the transition mechanisms by which the Reference Rates and spreads (if any) in existing contracts or instruments may be
amended, whether through market-wide protocols, fallback contractual provisions, bespoke negotiations or amendments or otherwise.
Nonetheless, the termination of certain Reference Rates presents risks to the Fund. At this time, it is not possible to exhaustively
identify or predict the effect of any such changes, any establishment of alternative Reference Rates or any other reforms to Reference
Rates that may be enacted in the United Kingdom or elsewhere. The elimination of a Reference Rate or any other changes or reforms
to the determination or supervision of Reference Rates may affect the value, liquidity or return on certain Fund Investments and
may result in costs incurred in connection with closing out positions and entering into new investments or trades, adversely impacting
the Fund’s overall financial condition or results of operations. The impact of any successor or substitute Reference Rate,
if any, will vary on an investment-by-investment basis, and any differences may be material and/or create material economic mismatches,
especially if investments are used for hedging or similar purposes. In addition, although certain Fund Investments may provide
for a successor or substitute Reference Rate (or terms governing how to determine a successor or substitute Reference Rate) if
the Reference Rate becomes unavailable, certain Fund Investments may not provide such a successor or substitute Reference Rate
(or terms governing how to determine a successor or substitute Reference Rate). Accordingly, there may be disputes as to: (i) any
successor or substitute Reference Rate; or (ii) the enforceability of any Fund Investment that does not provide such a successor
or substitute Reference Rate (or terms governing how to determine a successor or substitute Reference Rate). The Adviser or its
affiliates may have discretion to determine a successor or substitute Reference Rate, including any price or other adjustments
to account for differences between the successor or substitute Reference Rate and the previous rate. The successor or substitute
Reference Rate and any adjustments selected may negatively impact Fund Investments, performance or financial condition, including
in ways unforeseen by the Adviser or its affiliates. In addition, any successor or substitute Reference Rate and any pricing adjustments
imposed by a regulator or by counterparties or otherwise may adversely affect the Fund’s performance and/or NAV, and may
expose the Fund to additional tax, accounting and regulatory risks.
Currency Risk
Although the Fund intends to invest predominantly
in the United States, the Fund’s portfolio is anticipated to include investments in a number of different currencies. Any
returns on, and the value of such investments may, therefore, be materially affected by exchange rate fluctuations, local exchange
control, limited liquidity of the relevant foreign exchange markets, the convertibility of the currencies in question and/or other
factors. A decline in the value of the currencies in which the Fund Investments are denominated against the U.S. Dollar may result
in a decrease the Fund’s net asset value. The Adviser may or may not elect to hedge the value of investments made by the
Fund against currency fluctuations, and even if the Adviser deems hedging appropriate, it may not be possible or practicable to
hedge currency risk exposure. Accordingly, the performance of the Fund could be adversely affected by such currency fluctuations.
Eurozone Risk
The Fund may invest directly or indirectly
from time to time in European companies and assets and companies and assets that may be affected by the Eurozone economy. Ongoing
concerns regarding the sovereign debt of various Eurozone countries, including the potential for investors to incur substantial
write-downs, reductions in the face value of sovereign debt and/or sovereign defaults, as well as the possibility that one or more
countries might leave the European Union (“EU”) or the Eurozone create risks that could materially and adversely affect
the Fund Investments. Sovereign debt defaults and EU and/or Eurozone exits could have material adverse effects on the Fund’s
investments in European companies and assets, including, but not limited to, the availability of credit to support such companies’
financing needs, uncertainty and disruption in relation to financing, increased currency risk in relation to contracts denominated
in Euros and wider economic disruption in markets served by those companies, while austerity and/or other measures introduced to
limit or contain these issues may themselves lead to economic contraction and resulting adverse effects for the Fund. Legal uncertainty
about the funding of Euro-denominated obligations following any breakup or exits from the Eurozone, particularly in the case of
investments in companies and assets in affected countries, could also have material adverse effects on the Fund.
Brexit Risk
The Fund may invest directly or indirectly
from time to time in European companies and assets, including investments located in the United Kingdom (“UK”). In
June 2016, voters in the UK approved a referendum to leave the EU. The UK gave notice in March 2017 of its withdrawal
from the EU and commenced negotiations on the terms of withdrawal. An agreement was reached, and the UK left the EU on January 31,
2020, with a transition period during which the parties will negotiate their future relationship currently set to end on December 31,
2020. There is significant market uncertainty regarding Brexit’s ramifications, and the range and potential implications
of possible political, regulatory, economic, and market outcomes are difficult to predict. Moreover, the uncertainty about the
ramifications of Brexit may cause significant volatility and/or declines in the value of the Euro and British pound. Brexit (and
in particular a hard Brexit, i.e., an exit in which the UK leaves not only the EU, but also the EU single market and the EU customs
union, and without agreements on trade, finance and other key elements) may cause significant market volatility and illiquidity,
currency fluctuations, deterioration in economic activity, a decrease in business confidence, and increased likelihood of a recession
in the UK. This may cause the value of the Fund’s securities that are economically tied to the UK or EU to decline. Additionally,
it is possible that measures could be taken to revote on the issue of Brexit, or that portions of the UK could seek to separate
and remain a part of the EU. Market factors, such as the demand for particular portfolio securities, may cause the price of certain
portfolio securities to fall while the price of other securities rise or remain unchanged.
Recent Market Events Risk
Periods of unusually high financial market
volatility and restrictive credit conditions, at times limited to a particular sector or geographic area, have occurred in the
past and may be expected to recur in the future. Some countries, including the United States, have adopted or have signaled protectionist
trade measures, relaxation of the financial industry regulations that followed the financial crisis, and/or reductions to corporate
taxes. The scope of these policy changes is still developing, but the equity and debt markets may react strongly to expectations
of change, which could increase volatility, particularly if a resulting policy runs counter to the market’s expectations.
The outcome of such changes cannot be foreseen at the present time. In addition, geopolitical and other risks, including environmental
and public health risks, may add to instability in the world economy and markets generally. As a result of increasingly interconnected
global economies and financial markets, the value and liquidity of the Fund’s investments may be negatively affected by events
impacting a country or region, regardless of whether the Fund invests in issuers located in or with significant exposure to such
country or region.
Recent events are impacting the securities
markets. A recent outbreak of respiratory disease caused by a novel coronavirus was first detected in December 2019 and has
spread internationally. The outbreak and efforts to contain its spread have resulted in closing borders and quarantines, restricting
international and domestic travel, enhanced health screenings, cancellations, disrupted supply chains and customer activity, responses
by businesses (including changes to operations and reducing staff), and have produced general concern and uncertainty.
The impact of the coronavirus pandemic,
and other epidemics and pandemics that may arise in the future, could adversely affect national and global economies, individual
companies and the market in general in a manner and for a period of time that cannot be foreseen at the present time. Health crises
caused by the recent outbreak may heighten other preexisting political, social and economic risks in a country or region. Governmental
authorities and regulators throughout the world, such as the U.S. Federal Reserve, have in the past responded to major economic
disruptions with changes to fiscal and monetary policy, including but not limited to, direct capital infusions, new monetary programs,
and dramatically lower interest rates. Certain of those policy changes are being implemented or considered in response to the coronavirus
outbreak. Such policy changes may adversely affect the value, volatility and liquidity of dividend and interest paying securities.
In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market,
which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or to
accurately price its investments. In the event of a pandemic or an outbreak, there can be no assurance that the Fund and its service
providers will be able to maintain normal business operations for an extended period of time or will not lose the services of key
personnel on a temporary or long-term basis due to illness or other reasons. A pandemic or disease could also impair the information
technology and other operational systems upon which the Fund’s investment adviser rely, and could otherwise disrupt the ability
of the Fund’s service providers to perform essential tasks. Although multiple asset classes may be affected by a market disruption,
the duration and effects may not be the same for all types of assets. To the extent the Fund may overweight its investments in
certain countries, companies, industries or market sectors, such position will increase the Fund’s exposure to risk of loss
from adverse developments affecting those countries, companies, industries or sectors. These conditions could result in the Fund’s
inability to achieve its investment objectives, adversely affect the prices and liquidity of the securities and other instruments
in which the Fund invests, negatively impact the Fund’s performance, and cause losses on your investment in the Fund.
Hedging
The
Fund may seek to hedge against interest rate and currency exchange rate fluctuations and credit risk by using structured
financial instruments such as futures, options, swaps and forward contracts, subject to the requirements of the Investment Company
Act. Use of structured financial instruments for hedging purposes may present significant risks, including the risk of loss of
the amounts invested. Defaults by the other party to a hedging transaction can result in losses in the hedging transaction. Hedging
activities also involve the risk of an imperfect correlation between the hedging instrument and the asset being hedged, which could
result in losses both on the hedging transaction and on the instrument being hedged. Use of hedging activities may not prevent
significant losses and could increase losses. Further, hedging transactions may reduce cash available to pay distributions to Shareholders.
See “ INVESTMENT RELATED RISKS— Derivative Instruments.”
Risks Relating to Accounting, Auditing
and Financial Reporting, etc.
The legal, regulatory, disclosure, accounting,
auditing and reporting standards in certain of the countries in which the Fund Investments may be made may be less stringent and
may not provide the same degree of protection or information to investors as would generally apply in the United States. Although
the Fund will be using U.S. GAAP, the assets, liabilities, profits and losses appearing in published financial statements of the
Fund Investments may not reflect their financial position or operating results as they would be reflected under U.S. GAAP. Accordingly,
the net asset value of the Fund published from time to time may not accurately reflect a realistic value for any or all of the
investments.
In addition, privately held companies may
not have third-party debt ratings or audited financial statements. As a result, the Fund must rely on the ability of the Adviser
to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in a
privately held company. These companies and their financial information will generally not be subject to the Sarbanes-Oxley Act
of 2002 (the “Sarbanes-Oxley Act”) and other rules and regulations that govern public companies. If the Fund is
unable to uncover all material information about these companies, it may not make a fully informed investment decision, and the
Fund may lose money on Fund Investments.
Finally,
certain Fund Investments may be in Portfolio Companies that do not maintain internal management accounts or adopt financial
budgeting, internal audit or internal control procedures to standards normally expected of companies in the United States. Accordingly,
information supplied to the Fund and the Portfolio Funds may be incomplete, inaccurate and/or significantly delayed. The Fund and
the Portfolio Funds may therefore be unable to take or influence timely actions necessary to rectify management deficiencies in
such Portfolio Companies, which may ultimately have an adverse impact on the net asset value of the Fund.
Special Risks Pertaining to Investments in Portfolio
Funds
This section discusses certain risks related to the fact that
the Fund invests in Portfolio Funds.
Investments in the Portfolio Funds Generally;
Dependence on the Portfolio Fund Managers
Because
the Fund invests in Portfolio Funds, a Shareholder’s investment in the Fund will be affected by the investment policies
and decisions of the Portfolio Fund Manager of each Portfolio Fund in direct proportion to the amount of Fund assets that are invested
in each Portfolio Fund. The Fund’s net asset value may fluctuate in response to, among other things, various market and economic
factors related to the markets in which the Portfolio Funds invest and the financial condition and prospects of issuers in which
the Portfolio Funds invest. Certain risks related to the investment strategies and techniques utilized by the Portfolio Fund Managers
are described under “ INVESTMENT RELATED RISKS” above. The success of the Fund depends upon the ability
of the Portfolio Fund Managers to develop and implement strategies that achieve their investment objectives. Shareholders will
not have an opportunity to evaluate the specific investments made by the Portfolio Funds or the Portfolio Fund Managers, or the
terms of any such investments. In addition, the Portfolio Fund Managers could materially alter their investment strategies from
time to time without notice to the Fund. There can be no assurance that the Portfolio Fund Managers will be able to select or implement
successful strategies or achieve their respective investment objectives.
Portfolio Funds Not
Registered
The Fund is registered as an investment
company under the Investment Company Act. The Investment Company Act is designed to afford various protections to investors in
pooled investment vehicles. For example, the Investment Company Act imposes limits on the amount of leverage that a registered
investment company can assume, restricts layering of costs and fees, restricts transactions with affiliated persons and requires
that the investment company’s operations be supervised by a board of managers, a majority of whose members are independent
of management. However, most of the Portfolio Funds in which the Fund invests are not subject to the provisions of the Investment
Company Act. Many Portfolio Fund Managers may not be registered as investment advisers under the Advisers Act. As an indirect investor
in the Portfolio Funds managed by Portfolio Fund Managers that are not registered as investment advisers, the Fund will not have
the benefit of certain of the protections of the Advisers Act.
The Portfolio Funds generally are exempted
from regulation under the Investment Company Act because they permit investment only by investors who meet very high thresholds
of investment experience and sophistication, as measured by net worth. The Fund’s investment qualification thresholds are
generally lower. As a result, the Fund provides an avenue for investing in Portfolio Funds that would not otherwise be available
to certain investors. This means that investors who would not otherwise qualify to invest in largely unregulated vehicles will
have the opportunity to make such an investment through the Fund.
In addition, the Portfolio Funds typically
do not maintain their securities and other assets in the custody of a bank or a member of a securities exchange, as generally required
of registered investment companies, in accordance with certain SEC rules. A registered investment company which places its securities
in the custody of a member of a securities exchange is required to have a written custodian agreement, which provides that securities
held in custody will be at all times individually segregated from the securities of any other person and marked to clearly identify
such securities as the property of such investment company and which contains other provisions designed to protect the assets of
such investment company. The Portfolio Funds in which the Fund will invest may maintain custody of their assets with brokerage
firms which do not separately segregate such customer assets as would be required in the case of registered investment companies,
or may not use a custodian to hold their assets. Under the provisions of the Securities Investor Protection Act of 1970, as amended,
the bankruptcy of any brokerage firm used to hold Portfolio Fund assets could have a greater adverse effect on the Fund than would
be the case if custody of assets were maintained in accordance with the requirements applicable to registered investment companies.
There is also a risk that a Portfolio Fund Manager could convert assets committed to it by the Fund to its own use or that a custodian
could convert assets committed to it by a Portfolio Fund Manager to its own use. There can be no assurance that the Portfolio Fund
Managers or the entities they manage will comply with all applicable laws and that assets entrusted to the Portfolio Fund Managers
will be protected.
Prospective investors should understand
that the Fund is an appropriate investment only for investors who can tolerate a high degree of risk, including lesser regulatory
protections in connection with the Fund’s investments in Portfolio Funds than might normally be available through investments
in registered investment company vehicles.
Portfolio Funds are
Generally Non-diversified
While there are no regulatory requirements
that the investments of the Portfolio Funds be diversified, some Portfolio Funds may undertake to comply with certain investment
concentration limits. Portfolio Funds may at certain times hold large positions in a relatively limited number of investments.
Portfolio Funds may target or concentrate their investments in particular markets, sectors or industries. Those Portfolio Funds
that concentrate in a specific industry or target a specific sector will also be subject to the risks of that industry or sector,
which may include, but are not limited to, rapid obsolescence of technology, sensitivity to regulatory changes, minimal barriers
to entry and sensitivity to overall market swings. As a result, the net asset values of such Portfolio Funds may be subject to
greater volatility than those of investment companies that are subject to diversification requirements and this may negatively
impact the net asset value of the Fund.
Portfolio Funds’
Securities are Generally Illiquid
The securities of the Portfolio Funds in
which the Fund invests or plans to invest will generally be illiquid. Subscriptions to purchase the securities of Portfolio Funds
are generally subject to restrictions or delays. Similarly, the Fund may not be able to dispose of Portfolio Fund interests that
it has purchased in a timely manner and, if adverse market conditions were to develop during any period in which the Fund is unable
to sell Portfolio Fund interests, the Fund might obtain a less favorable price than that which prevailed when it acquired or subscribed
for such interests, and this may negatively impact the net asset values of the Fund.
Portfolio Fund Operations
Not Transparent
The Adviser does not control the investments
or operations of the Portfolio Funds. A Portfolio Fund Manager may employ investment strategies that differ from its past practices
and are not fully disclosed to the Adviser and that involve risks that are not anticipated by the Adviser. Some Portfolio Fund
Managers may have a limited operating history, and some may have limited experience in executing one or more investment strategies
to be employed for a Portfolio Fund. Furthermore, there is no guarantee that the information given to the Administrator and reports
given to the Adviser with respect to the Fund Investments will not be fraudulent, inaccurate or incomplete.
Valuation of the Fund’s
Interests in Portfolio Funds
The
valuation of the Fund’s investments in Portfolio Funds is ordinarily determined based upon valuations provided by the Portfolio
Fund Managers of such Portfolio Funds which valuations are generally not audited. A majority of the securities in which the Portfolio
Funds invest will not have a readily ascertainable market price and will be valued by the Portfolio Fund Managers. In this regard,
a Portfolio Fund Manager may face a conflict of interest in valuing the securities, as their value may affect the Portfolio Fund
Manager’s compensation or its ability to raise additional funds. No assurances can be given regarding the valuation methodology
or the sufficiency of systems utilized by any Portfolio Fund, the accuracy of the valuations provided by the Portfolio Funds, that
the Portfolio Funds will comply with their own internal policies or procedures for keeping records or making valuations, or that
the Portfolio Funds’ policies and procedures and systems will not change without notice to the Fund. As a result, valuations
of the securities may be subjective and could prove in hindsight to have been wrong, potentially by significant amounts. The Board
has appointed a committee (the “Valuation Committee”) to oversee the valuation of the Fund Investments pursuant to
procedures adopted by the Board. The members of the Valuation Committee may face conflicts of interest in overseeing the valuation
of the Fund Investments, as the value of the Fund Investments will affect the Adviser’s compensation. Moreover, although
the Adviser will periodically review Portfolio Fund Managers’ valuation methods and inputs, including at initial purchase,
neither the Valuation Committee nor the Adviser will generally have sufficient information in order to be able to confirm or review
the accuracy of valuations provided by Portfolio Fund Managers.
A Portfolio Fund Manager’s information
could be inaccurate due to fraudulent activity, misvaluation or inadvertent error. In any case, the Fund may not uncover errors
for a significant period of time. Even if the Adviser elects to cause the Fund to sell its interests in such a Portfolio Fund,
the Fund may be unable to sell such interests quickly, if at all, and could therefore be obligated to continue to hold such interests
for an extended period of time. In such a case, the Portfolio Fund Manager’s valuations of such interests could remain subject
to such fraud or error, and the Valuation Committee may, in its sole discretion, determine to discount the value of the interests
or value them at zero.
Shareholders
should be aware that situations involving uncertainties as to the valuations by Portfolio Fund Managers could have a material adverse
effect on the Fund if the Portfolio Fund Manager’s, the Adviser’s or the Fund’s judgments regarding valuations
should prove incorrect. Prospective investors who are unwilling to assume such risks should not make an investment in the Fund.
Multiple Levels of Fees
and Expenses
Although in many cases investor access
to the Portfolio Funds may be limited or unavailable, an investor who meets the conditions imposed by a Portfolio Fund may be able
to invest directly with the Portfolio Fund. By investing in Portfolio Funds indirectly through the Fund, the investor bears asset-based
and performance-based fees charged by the Fund, in addition to any asset-based fees and performance-based fees and allocations
at the Portfolio Fund level. Moreover, an investor in the Fund bears a proportionate share of the fees and expenses of the Fund
(including, among other things and as applicable, offering expenses, operating costs, sales charges, brokerage transaction expenses,
management fees, distribution fees, administrative and custody fees, and tender offer expenses) and, indirectly, similar expenses
of the Portfolio Funds. Thus, an investor in the Fund may be subject to higher operating expenses than if he or she invested in
a Portfolio Fund directly or in a closed-end fund which did not invest through Portfolio Funds.
Each
Portfolio Fund generally will be subject to a performance-based fee or allocation irrespective of the performance of other Portfolio
Funds and the Fund generally. Accordingly, a Portfolio Fund Manager to a Portfolio Fund with positive performance may receive performance-based
compensation from the Portfolio Fund, and thus indirectly from the Fund and its Shareholders, even if the overall performance
of the Fund is negative. Generally, asset-based fees payable to Portfolio Fund Managers of the Portfolio Funds will range from
1% to 2.5% (annualized) of the commitment amount of the Fund’s investment, and performance-based fees or allocations are
typically 20%, although it is possible that such amounts may be exceeded for certain Portfolio Fund Managers. The performance-based
compensation received by a Portfolio Fund Manager also may create an incentive for that Portfolio Fund Manager to make investments
that are riskier or more speculative than those that it might have made in the absence of such performance-based compensation.
Investors that invest in the Fund through
financial advisers or intermediaries may also be subject to account fees or charges levied by such parties. Prospective investors
should consult with their respective financial advisers or intermediaries for information regarding any fees or charges that may
be associated with the services provided by such parties.
Inability to Vote
To the extent that the Fund owns less than
5% of the voting securities of each Portfolio Fund, it may be able to avoid that any such Portfolio Fund is deemed an “affiliated
person” of the Fund for purposes of the Investment Company Act (which designation could, among other things, potentially
impose limits on transactions with the Portfolio Funds, both by the Fund and other clients of the Adviser). To limit its voting
interest in certain Portfolio Funds, the Fund may enter into contractual arrangements under which the Fund irrevocably waives its
rights (if any) to vote its interests in a Portfolio Fund. These voting waiver arrangements may increase the ability of the Fund
and other clients of the Adviser to invest in certain Portfolio Funds. However, to the extent the Fund contractually forgoes the
right to vote the securities of a Portfolio Fund, the Fund will not be able to vote on matters that require the approval of such
Portfolio Fund’s investors, including matters which may be adverse to the Fund’s interests.
There are, however, other statutory tests
of affiliation (such as on the basis of control), and, therefore, the prohibitions of the Investment Company Act with respect to
affiliated transactions could apply in certain situations where the Fund owns less than 5% of the voting securities of a Portfolio
Fund. If the Fund is considered to be affiliated with a Portfolio Fund, transactions between the Fund and such Portfolio Fund may,
among other things, potentially be subject to the prohibitions of Section 17 of the Investment Company Act notwithstanding
that the Fund has entered into a voting waiver arrangement.
Consortium or Offsetting
Investments
The Portfolio Fund Managers may invest
in consortia, which could result in increased concentration risk where multiple Portfolio Funds in the Fund’s portfolio each
invest in a particular underlying company. In other situations, Portfolio Funds may hold economically offsetting positions. To
the extent that the Portfolio Fund Managers do, in fact, hold such offsetting positions, the Fund’s portfolio, considered
as a whole, may not achieve any gain or loss despite incurring fees and expenses in connection with such positions. In addition,
Portfolio Fund Managers are compensated based on the performance of their portfolios. Accordingly, there often may be times when
a particular Portfolio Fund Manager may receive incentive compensation in respect of its portfolio for a period even though the
Fund’s net asset values may have decreased during such period. Furthermore, it is possible that from time to time, various
Portfolio Fund Managers selected by the Adviser may be competing with each other for investments in one or more markets.
Limitations on Ability
to Invest in Portfolio Funds
Certain
Portfolio Fund Managers’ investment approaches can accommodate only a certain amount of capital. Portfolio Fund Managers
typically endeavor not to undertake to manage more capital than such Portfolio Fund Manager’s approach can accommodate without
risking a potential deterioration in returns. Accordingly, each Portfolio Fund Manager has the right to refuse to manage some or
all of the Fund’s assets that the Adviser may wish to allocate to such Portfolio Fund Manager. Further, continued sales of
Shares would dilute the indirect participation of existing Shareholders with such Portfolio Fund Manager.
In addition, it is expected that the Fund
will be able to make investments in particular Portfolio Funds only at certain times, and commitments to Portfolio Funds may not
be accepted (in part or in their entirety). As a result, the Fund may hold cash or invest any portion of its assets that is not
invested in Portfolio Funds in cash equivalents, short-term securities or money market securities pending investment in Portfolio
Funds. To the extent that the Fund’s assets are not invested in Portfolio Funds, the Fund may be unable to meet its investment
objective.
Indemnification of Portfolio
Funds and Portfolio Fund Managers
The Fund may agree to indemnify certain
of the Portfolio Funds and the Portfolio Fund Managers and their respective officers, directors, and affiliates from any liability,
damage, cost, or expense arising out of, among other things, acts or omissions undertaken in connection with the management of
Portfolio Funds or direct investments. If the Fund were required to make payments (or return distributions received from such Portfolio
Funds or direct investments) in respect of any such indemnity, the Fund could be materially adversely affected.
Termination of the Fund’s
Interest in a Portfolio Fund
A Portfolio Fund may, among other things,
terminate the Fund’s interest in that Portfolio Fund (causing a forfeiture of all or a portion of such interest) if the Fund
fails to satisfy any capital call by that Portfolio Fund or if the continued participation of the Fund in the Portfolio Fund would
have a material adverse effect on the Portfolio Fund or its assets.
Risks Specific to Secondary Investments
General Risks of Secondary Investments
The overall performance of the Fund’s
secondary investments will depend in large part on the acquisition price paid, which may be negotiated based on incomplete or imperfect
information. Certain secondary investments may be purchased as a portfolio, and in such cases the Fund may not be able to exclude
from such purchases those investments that the Adviser considers (for commercial, tax, legal or other reasons) less attractive.
Where the Fund acquires a Portfolio Fund interest as a secondary investment, the Fund will generally not have the ability to modify
or amend such Portfolio Fund’s constituent documents (e.g., limited partnership agreements) or otherwise negotiate the economic
terms of the interests being acquired. In addition, the costs and resources required to investigate the commercial, tax and legal
issues relating to secondary investments may be greater than those relating to primary investments.
Contingent Liabilities Associated with Secondary
Investments
Where the Fund acquires a Portfolio Fund
interest as a secondary investment, the Fund may acquire contingent liabilities associated with such interest. Specifically, where
the seller has received distributions from the relevant Portfolio Fund and, subsequently, that Portfolio Fund recalls any portion
of such distributions, the Fund (as the purchaser of the interest to which such distributions are attributable) may be obligated
to pay an amount equivalent to such distributions to such Portfolio Fund. While the Fund may be able, in turn, to make a claim
against the seller of the interest for any monies so paid to the Portfolio Fund, there can be no assurance that the Fund would
have such right or prevail in any such claim.
Risks Relating to Secondary Investments Involving
Syndicates
The Fund may acquire secondary investments
as a member of a purchasing syndicate, in which case the Fund may be exposed to additional risks including (among other things):
(i) counterparty risk, (ii) reputation risk, (iii) breach of confidentiality by a syndicate member and (iv) execution
risk.
LIMITS OF RISKS DISCLOSURE
The above discussions and the discussions
in the SAI relating to various risks associated with the Fund, Fund Investments, and Shares are not, and are not intended to be,
a complete enumeration or explanation of the risks involved in an investment in the Fund. Prospective investors should read this
entire Prospectus, the SAI, and the Agreement and Declaration of Trust and should consult with their own advisers before deciding
whether to invest in the Fund. In addition, as the Fund’s investment program or market conditions change or develop over
time, an investment in the Fund may be subject to risk factors not currently contemplated or described in this Prospectus.
In view of the risks noted above, the
Fund should be considered a speculative investment and prospective investors should invest in the Fund only if they can sustain
a complete loss of their investment.
No guarantee or representation is made
that the investment program of the Fund will be successful, that the various Portfolio Funds or Fund Investments selected will
produce positive returns, or that the Fund will achieve its investment objective.
MANAGEMENT OF THE FUND
The Board of Trustees
The Board has overall responsibility for
the management and supervision of the business operations of the Fund on behalf of the Shareholders. A majority of Trustees of
the Board are and will be persons who are not “interested persons,” as defined in Section 2(a)(19) of the Investment
Company Act (the “Independent Trustees”). To the extent permitted by the Investment Company Act and other applicable
law, the Board may delegate any of its rights, powers and authority to, among others, the officers of the Fund, any committee of
the Board, service providers or the Adviser. See “BOARD OF TRUSTEES AND OFFICERS” in the Fund’s
SAI for the identities of the Trustees and executive officers of the Fund, brief biographical information regarding each of them,
and other information regarding the election and membership of the Board.
The Adviser
Pursuant to the Investment Management Agreement,
FlowStone Partners, LLC, an investment adviser that is registered under the Advisers Act, serves as the Fund’s Adviser. In
connection with a rebranding on April 8, 2019, Cresset SPG, LLC assigned its responsibilities under the Investment Management Agreement
to FlowStone Partners, and FlowStone Partners assumed Cresset SPG, LLC’s responsibilities under the Investment Management
Agreement (the “Transaction”). The Transaction did not result in a change in actual control or actual management of
the Fund’s investment adviser, nor did it result in a reduction in the nature or quality of services provided to the Fund.
The
Adviser and its affiliates may in the future serve as an investment adviser or otherwise manage or direct the investment activities
of other registered and/or private investment companies with investment programs similar to the investment program of the Fund.
See “ CONFLICTS OF INTEREST.”
FlowStone Partners
The
Adviser is an affiliate of Cresset Asset Management, LLC (“CAM”) an investment Adviser registered with the U.S.
Securities and Exchange Commission, and which is organized as a limited liability company under the Laws of the State of Delaware.
CAM was founded in March 2017 and is organized as a limited liability company under the laws of the State of Delaware. CAM is a
majority owned subsidiary of Cresset Intermediate Holdco LLC (“Cresset Holdco”). Cresset Holdco is a majority- owned
subsidiary of Cresset Capital Management LLC (“CCM”), which was founded by Avy Stein and Eric Becker. CCM is 34% owned
by Avy Stein, 31% owned by Loggerhead Investment Three LLC (“Loggerhead”), and 6% owned by Eric Becker. Loggerhead
is 50% owned by Eric Becker. As of February 29, 2020, the Adviser and its affiliates had approximately $6.5 billion of assets under
management.
FlowStone Partners Investment Team
Scott P. Conners, CFA – Managing
Director and President, FlowStone Partners
Scott joined FlowStone Partners’s
predecessor, Cresset SPG, LLC, in 2017 and leads FlowStone Partners. He is responsible for product development, fundraising,
transaction origination, due diligence, structuring, and closing of secondary and primary transactions. Since 1993, he has
been directly involved with the fundraising or investment of nearly $10 billion in private equity secondary and primary capital.
Prior to joining FlowStone, Scott spent 22 years at Landmark Partners, the oldest and one of the leading private equity and real
estate secondary purchasers. He joined Landmark in 1993 in the very early days of the private equity secondary market’s
development. Scott participated in the market’s growth from less than $500 million per year in transaction volume to
over $40 billion a year. He specialized in developing unique transaction structures and was an early-mover in asset lift-outs
and fund restructurings. He retired in 2015 as a Partner with responsibility for co-managing Landmark’s private equity secondary
activities, with over $11 billion in committed capital. Scott received his B.A. in Business Economics from the University of Maine
at Farmington and his M.B.A. from The Pennsylvania State University. He has been a Chartered Financial Analyst since 1996
and is a member of the Hartford Society of Financial Analysts. He holds the FINRA Series 7 and Series 63 licenses.
Andreas Münderlein – Managing
Director, FlowStone Partners
Andreas joined FlowStone Partners in March 2019.
He has twelve years of private equity secondary, primary, and co-investment experience with Partners Group, a global private markets
firm with approximately $80 billion of capital under management. As investment manager in Partners Group’s New York office
and member of the Global Private Equity Investment Committee, Andreas contributed to the annual deployment of approximately $5.0
billion across private equity integrated strategies globally, with a focus on secondary transactions. His responsibilities included
the sourcing of investment opportunities, due diligence, transaction structuring, negotiations, and commercial execution. He has
closed over 25 transactions representing over $4.0 billion of invested capital. Prior to Partners Group, Andreas worked at a private
equity secondary direct firm, namely smac Partners GmbH, and Siemens Venture Capital in Munich, Germany. Andreas earned his Master
Degree in Economics from the Ludwig-Maximilians University in Munich, Germany.
Michael A. Carrano – Managing Director,
FlowStone Partners
Mike joined FlowStone Partners in 2019.
Mike has 17 years of secondary and direct private equity investment experience. Prior to joining FlowStone, he was a Managing Director
at Landmark Partners. Mike was active in all facets of Landmark’s secondary private equity activities including transaction
origination, negotiation, due diligence, legal closing and capital raising. He had a leadership role in in investing over $3.5
billion across various transaction types including portfolio acquisitions, fund recapitalizations, structured joint venture transactions
and primary commitments. Prior to Landmark, Mike was an Analyst at Conning Capital Partners, where he focused on direct investments
in private companies in the healthcare and financial services sectors. He began his career as an Investment Analyst within GE Capital’s
Commercial Finance business unit. Mike graduated from the University of Connecticut and received his M.B.A. from the Tuck School
of Business at Dartmouth. He holds the FINRA Series 7 and Series 63 licenses.
Portfolio Managers of the Fund
The persons who currently have primary
responsibility for the day-to-day management of the Fund are:
Scott P. Conners, CFA – Managing
Director and President, FlowStone Partners
Scott
joined Cresset SPG, LLC, FlowStone’s predecessor, in 2017 and leads FlowStone Partners. He is responsible for
product development, fundraising, transaction origination, due diligence, structuring, and closing of secondary and primary transactions.
Since 1993, he has been directly involved with the fundraising or investment of nearly $10 billion in private equity secondary
and primary capital. Prior to joining FlowStone, Scott spent 22 years at Landmark Partners, the oldest and one of the leading private
equity and real estate secondary purchasers. He joined Landmark in 1993 in the very early days of the private equity secondary
market’s development. Scott participated in the market’s growth from less than $500 million per year in transaction
volume to over $40 billion a year. He specialized in developing unique transaction structures and was an early-mover in asset
lift-outs and fund restructurings. He retired in 2015 as a Partner with responsibility for co-managing Landmark’s private
equity secondary activities, with over $11 billion in committed capital. Scott received his B.A. in Business Economics from the
University of Maine at Farmington and his M.B.A. from The Pennsylvania State University. He has been a Chartered Financial
Analyst since 1996 and is a member of the Hartford Society of Financial Analysts. He holds the FINRA Series 7 and Series 63 licenses.
Andreas Münderlein – Managing
Director, FlowStone Partners
Andreas joined FlowStone in March 2019.
He has twelve years of private equity secondary, primary, and co-investment experience with Partners Group, a global private markets
firm with approximately $80 billion of capital under management. As investment manager in Partners Group’s New York office
and member of the Global Private Equity Investment Committee, Andreas contributed to the annual deployment of approximately $5.0
billion across private equity integrated strategies globally, with a focus on secondary transactions. His responsibilities included
the sourcing of investment opportunities, due diligence, transaction structuring, negotiations, and commercial execution. He has
closed over 25 transactions representing over $4.0 billion of invested capital. Prior to Partners Group, Andreas worked at a private
equity secondary direct firm, namely smac Partners GmbH, and Siemens Venture Capital in Munich, Germany. Andreas earned his Master
Degree in Economics from the Ludwig-Maximilians University in Munich, Germany.
Michael A. Carrano – Managing Director,
FlowStone Partners
Mike joined FlowStone Partners in 2019.
Mike has 17 years of secondary and direct private equity investment experience. Prior to joining FlowStone Partners, he was a Managing
Director at Landmark Partners. Mike was active in all facets of Landmark’s secondary private equity activities including
transaction origination, negotiation, due diligence, legal closing and capital raising. He had a leadership role in in investing
over $3.5 billion across various transaction types including portfolio acquisitions, fund recapitalizations, structured joint venture
transactions and primary commitments. Prior to Landmark, Mike was an Analyst at Conning Capital Partners, where he focused on direct
investments in private companies in the healthcare and financial services sectors. He began his career as an Investment Analyst
within GE Capital’s Commercial Finance business unit. Mike graduated from the University of Connecticut and received his
M.B.A. from the Tuck School of Business at Dartmouth. He holds the FINRA Series 7 and Series 63 licenses.
The SAI provides additional information
about the Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers’
ownership of securities in the Fund.
Investment Management Agreement
The
Investment Management Agreement became effective as of the Initial Closing Date, and will continue in effect for an initial
two-year term. Thereafter, the Investment Management Agreement will continue in effect from year to year provided such continuance
is specifically approved at least annually by (i) the vote of a majority of the outstanding voting securities of the Fund,
or a majority of the Board, and (ii) the vote of a majority of the Independent Trustees of the Fund, cast in person at a meeting
called for the purpose of voting on such approval. See “ VOTING.” The Investment Management Agreement
will terminate automatically if assigned (as defined in the Investment Company Act) and is terminable at any time without penalty
upon 60 days’ written notice to the Fund by either the Board or the Adviser. A discussion regarding the basis for the Board’s
approval of the Investment Management Agreement will be available in the Fund’s unaudited semi-annual report to shareholders
for the period ended September 30, 2019. As noted above, in connection with a rebranding, Cresset SPG, LLC assigned its responsibilities
under the Investment Management Agreement to FlowStone. See “ MANAGEMENT OF THE FUND– The Adviser”.
The Investment Management Agreement provides
that, in the absence of willful misfeasance, bad faith, reckless disregard or gross negligence of its obligations to the Fund,
the Adviser and any partner, director, officer or employee of the Adviser, or any of their affiliates, executors, heirs, assigns,
successors or other legal representatives, will not be liable for any error of judgment, for any mistake of law or for any act
or omission by the person in connection with the performance of services to the Fund. The Investment Management Agreement also
provides for indemnification, to the fullest extent permitted by law, by the Fund, of the Adviser, or any partner, director, officer
or employee of the Adviser, and any of their affiliates, executors, heirs, assigns, successors or other legal representatives,
against any liability or expense to which the person may be liable that arises in connection with the performance of services to
the Fund, so long as the liability or expense is not incurred by reason of the person’s willful misfeasance or gross negligence
of its obligations to the Fund. Such indemnification includes losses sustained by the Adviser or its affiliates as an indemnitor
under any sub-servicing or other agreement entered into by the Adviser for the benefit of the Fund to the extent that such losses
relate to the Fund and the indemnity giving rise to the losses is not broader than that granted by the Fund to the Adviser or its
affiliates pursuant to the Investment Management Agreement. The Fund has the right to consent before the Adviser settles or consents
to the settlement of a claim involving such indemnitor losses (but such consent right will not affect the Adviser’s entitlement
to indemnification).
INVESTMENT MANAGEMENT FEE
The
Fund pays the Adviser an investment management fee (the “Investment Management Fee”) in consideration of the Advisory
and other services provided by the Adviser to the Fund. Pursuant to the Investment Management Agreement, the Fund will pay the
Adviser a monthly Investment Management Fee equal to 1.25% on an annualized basis of the greater of (i) the Fund’s net
asset value or (ii) the Fund’s net asset value less cash and cash equivalents plus the total of all commitments made
by the Fund that have not yet been drawn for investment. In no event will the Investment Management Fee payable by the Fund exceed
1.75% as a percentage of the Fund’s net asset value. For purposes of calculating the Investment Management Fee, a commitment
is defined as a contractual obligation to acquire an interest in, or provide the total commitment amount over time to, a Portfolio
Fund, when called by the Portfolio Fund. The Investment Management Fee is paid to the Adviser out of the Fund’s assets and
decreases the net profits or increases the net losses of the Fund. “Net asset value” means the total value of all assets
of the Fund, less an amount equal to all accrued debts, liabilities and obligations of the Fund; provided that, for purposes of
determining the Investment Management Fee payable to the Adviser for any month, the net asset value will be calculated prior to
any reduction for any fees and expenses of the Fund for that month, including, without limitation, the Investment Management Fee
payable to the Adviser for that month. The Investment Management Fee will be computed as of the last day of each month and will
be due and payable in arrears within fifteen business days after the end of the month. The Adviser has agreed, from the
Initial Closing Date (August 30, 2019) until December 31, 2020, to waive fees payable to it by the Fund on Fund assets held in
cash or cash equivalents less the total amount of capital committed by the Fund and not yet drawn for investment.
During the current fiscal year, the
basis for the Investment Management Fee could be larger than using the Fund’s NAV as a basis for the fee calculation due
to unfunded commitments to invest in Fund Investments. Investors are advised that the actual amount of unfunded commitments will
be disclosed in the Fund’s published financial statements.
A portion of the Investment Management
Fee may be paid to brokers or dealers that assist in the distribution of Shares, including brokers or dealers that may be affiliated
with the Adviser.
INCENTIVE FEE
At the end of each calendar quarter of
the Fund (and at certain other times), the Adviser (or, to the extent permitted by applicable law, an affiliate of the Adviser)
will be entitled to receive an Incentive Fee equal to 10% of the excess, if any, of (i) the net profits of the Fund for the
relevant period over (ii) the then balance, if any, of the Loss Recovery Account. For the purposes of the Incentive Fee, the
term “net profits” shall mean 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).
The Fund will maintain a memorandum account (the “Loss Recovery Account”), which will have an initial balance of zero
and will be (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. Shareholders will benefit from the Loss Recovery Account in proportion to their holdings of
Shares.
DISTRIBUTOR
Foreside Financial Services, LLC (the “Distributor”),
whose principal business address is Three Canal Plaza, Portland, Maine 041014, acts as Distributor to the Fund on a best-efforts
basis, subject to various conditions, pursuant to a Distribution Agreement (the “Distribution Agreement”) between the
Fund and the Distributor.
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.
The Distributor may enter into agreements
with selected broker-dealers, banks or other financial intermediaries for distribution of shares of the Fund. The Adviser and/or
its affiliates may make payments to selected affiliated or unaffiliated third parties (including the parties who have entered into
sub-distribution agreements with the Distributor) from time to time in connection with the sale of Shares and/or the services provided
to Shareholders. These payments will be made out of the Adviser’s and/or its affiliates’ own assets and will not represent
an additional charge to the Fund. The amount of such payments may be significant in amount and the prospect of receiving any such
payments may provide such third parties or their employees with an incentive to favor sales of Shares over other investment options.
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.
Investors purchasing shares of the Fund through financial intermediaries should acquaint themselves with their financial intermediary’s
procedures and should read the Prospectus in conjunction with any materials and information provided by their financial intermediary.
The Distributor does not receive compensation from the Fund for its distribution services, but may receive compensation for its
distribution services from the Adviser.
The following table summarizes the compensation
payable to the Distributor in connection with this offering.
| Agreement | |
Fees | |
Maximum Fee | |
| Distribution Services Agreement | |
Distribution
Services (1) | |
$ | 70,000 | (3) |
| Securities Activities and Services Agreement | |
Registered
Representative Services (2) | |
$ | 135,000 | (3) |
(1) The
Distributor is compensated by the Fund’s investment adviser (and not the Fund) for providing certain distribution services,
including out-of-pocket expenses. The maximum fee to be received by the Distributor for the initial three-year period of
the offering shall not exceed $45,000 and total out-of-pocket expenses pursuant to the Distribution Services Agreement shall not
exceed $25,000 over the initial three-year period of the offering.
(2) The
Distributor is compensated by the Fund’s investment adviser (and not the Fund) for providing registered representative registration
services to the Fund’s investment adviser. The maximum fee to be received by the Distributor for the initial three-year
period of the offering shall not exceed $45,000, and the total out-of-pocket expenses shall not exceed $90,000 over the initial
three-year period of the offering.
(3) Paid
by the Adviser and not the Fund.
The maximum amount of compensation to be
received by the participating members from any source in connection with this offering will not exceed 7.5% of the Fund’s
offering proceeds.
Pursuant to the Distribution Agreement,
the Distributor is solely responsible for the costs and expenses incurred in connection with its qualification as a broker-dealer
under state or federal laws. The Distribution Agreement also provides that the Fund will indemnify the Distributor and its affiliates
and certain other persons against certain liabilities. The indemnification will not apply to actions of the Distributor, its officers,
or employees in cases of their an willful misconduct, bad faith, reckless disregard or gross negligence in the performance of their
duties.
ADMINISTRATION
The Fund has retained the Administrator,
UMB Fund Services Inc., whose principal business address is 223 Wilmington West Chester Pike, Suite 303, Chadds Ford, PA 19317,
to provide administrative services, and to assist with operational needs. The Administrator provides such services to the Fund
pursuant to an administration agreement between the Fund and the Administrator (the “Administration Agreement”). The
Administrator is responsible directly or through its agents for, among other things, providing the following services to the Fund,
as applicable; (1) maintaining a list of Shareholders and generally performing all actions related to the issuance and repurchase
of Shares, if any, including delivery of trade confirmations and capital statements; (2) providing certain administrative,
clerical and bookkeeping services; (3) providing transfer agency services, services related to the payment of distributions,
and accounting services; (4) computing the net asset value of the Fund in accordance with U.S. GAAP and procedures defined
in consultation with the Adviser; (5) assisting in the preparation of semi-annual and annual financial statements of the Fund
in accordance with U.S. GAAP, quarterly reports of the operations of the Fund and information required for U.S. federal and applicable
state and local income tax returns; (6) supervising regulatory compliance matters and preparing certain regulatory filings;
and (7) performing additional services, as agreed upon, in connection with the administration of the Fund. The Administrator
may from time to time delegate its responsibilities under the Administration Agreement to one or more parties selected by the Administrator,
including its affiliates or affiliates of the Adviser.
In consideration for these services, the
Administrator is paid a monthly fee calculated based upon the average net asset value of the Fund, subject to a minimum monthly
fee (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 Administrator is also reimbursed by the Fund for
out-of-pocket expenses relating to services provided to the Fund and receives a fee for transfer agency services. The Administration
Fee and the other terms of the Administration Agreement may change from time to time as may be agreed to by the Fund and the Administrator.
The Administration Agreement provides that
the Administrator’s cumulative liability to the Fund for a calendar year will be limited in relation to the fees and expenses
charged by the Administrator in the relevant calendar year. In addition, the Administrator shall have no liability for any error
of judgment or mistake of law or for any loss or damage resulting from the performance or nonperformance of its duties unless solely
caused by or resulting from the willful misconduct or gross negligence of the Administrator, its officers or employees. In addition,
the Administrator will not be liable for any special, indirect, incidental, punitive or consequential damages, including lost profits,
of any kind whatsoever (including, without limitation, attorneys’ fees) under any provision of the Administration Agreement
or for any such damages arising out of any act or failure to act thereunder.
The Administration Agreement also provides
that the Fund shall indemnify and hold the Administrator and its directors, officers, agents, and employees harmless from all loss,
cost, damage and expense, including reasonable fees and expenses for counsel, incurred by the Administrator resulting from any
claim, demand, action or suit in connection with the Administrator’s acceptance of the Administration Agreement, any action
or omission by the Administrator in the performance of its duties as administrator of the Fund, or as a result of acting upon instructions
reasonably believed by it to have been duly authorized by the Fund or upon reasonable reliance on information or records given
or made by the Fund or the Adviser. The indemnification will not apply to actions of the Administrator, its officers, or employees
in cases of their own willful misconduct bad faith, reckless disregard or gross negligence in the performance of their duties.
CUSTODIAN
UMB Bank, N.A. (the “Custodian”)
serves as the primary 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 1010 Grand Boulevard, Kansas City, Missouri 64106.
FUND EXPENSES
The
Fund will pay all of its expenses and/or reimburse the Adviser or its affiliates to the extent they have previously paid such expenses
on behalf of the Fund. The expenses of the Fund include, but are not limited to, any fees and expenses in connection with the offering
and issuance of Shares; all fees and expenses reasonably incurred in connection with the operation of the Fund such as direct and
indirect expenses related to the assessment of prospective investments (whether or not such investments are consummated), investment
structuring, corporate actions, travel associated with due diligence and monitoring activities and enforcing the Fund’s rights
in respect of the Fund Investments; quotation or valuation expenses; the Investment Management Fee, the Incentive Fee and the
Administration Fee; brokerage commissions; interest and fees on any borrowings by the Fund; professional fees (including, without
limitation, expenses of consultants, experts and specialists); research expenses; fees and expenses of outside tax or legal counsel
(including fees and expenses associated with the review of documentation for prospective investments by the Fund), including foreign
counsel; accounting, auditing and tax preparation expenses; fees and expenses in connection with repurchase offers and any repurchases
or redemptions of Shares; taxes and governmental fees (including tax preparation fees); fees and expenses of any custodian, sub-custodian,
transfer agent, and registrar, and any other agent of the Fund; all costs and charges for equipment or services used in communicating
information regarding the Fund’s transactions with any custodian or other agent engaged by the Fund, as applicable; bank
service fees; costs and expenses relating to any amendment of the Agreement and Declaration of Trust or other organizational documents
of the Fund; expenses of preparing, amending, printing, and distributing the Prospectus, SAI, and any other sales material (and
any supplements or amendments thereto), reports, notices, websites, other communications to Shareholders, and proxy materials;
expenses of preparing, printing, and filing reports and other documents with government agencies; expenses of Shareholders’
meetings, including the solicitation of proxies in connection therewith; expenses of corporate data processing and related services;
Shareholder recordkeeping and account services, fees, and disbursements; expenses relating to investor and public relations; fees
and expenses of the members of the Board who are not employees of the Adviser or its affiliates; insurance premiums; Extraordinary
Expenses (as defined below); and all costs and expenses incurred as a result of dissolution, winding-up and termination of the
Fund. The Fund may need to sell portfolio securities to pay fees and expenses, which could cause the Fund to realize taxable gains.
“Extraordinary
Expenses” means all expenses incurred by the Fund, as applicable, outside of the ordinary course of its business, including,
without limitation, costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or
dispute and the amount of any judgment or settlement paid in connection therewith, or the enforcement of the rights against any
person or entity; costs and expenses for indemnification or contribution payable to any person or entity (including, without limitation,
pursuant to the indemnification obligations described under “ SUMMARY OF THE AGREEMENT AND DECLARATION OF TRUST—
Limitation of Liability; Indemnification”); expenses of a reorganization, restructuring or merger, as applicable;
expenses of holding, or soliciting proxies for, a meeting of Shareholders (except to the extent relating to items customarily addressed
at an annual meeting of a registered closed-end management investment company); and the expenses of engaging a new administrator,
custodian, transfer agent or escrow agent.
The Adviser will bear all of its own routine
overhead expenses, including rent, utilities, salaries, office equipment and communications expenses. In addition, the Adviser
is responsible for the payment of the compensation and expenses of those members of the Board and officers of the Fund affiliated
with the Adviser, and making available, without expense to the Fund, the services of such individuals, subject to their individual
consent to serve and to any limitations imposed by law.
The Adviser and its affiliates may be entitled
to receive topping, break-up, monitoring, directors’ organizational, set-up, Advisory, investment banking, syndication and
other similar fees in connection with the purchase, monitoring or disposition of Fund Investments or from unconsummated transactions.
Any such fees earned in respect of the Fund Investments shall be for the benefit of the Fund.
The
Adviser has entered into an expense limitation agreement (the “Expense Limitation Agreement”) with the Fund, whereby
the Adviser has agreed to waive fees that it would otherwise be paid, and/or to assume expenses of the Fund (a “Waiver”),
if required to ensure the Total Annual Expenses (excluding taxes, interest, brokerage commissions, certain transaction-related
expenses, extraordinary expenses, the Incentive Fee and any acquired fund fees and expenses) do not exceed 1.95% on an annualized
basis (the “Expense Limit”). For a period not to exceed three years from the date on which a Waiver is made, the Adviser
may recoup amounts waived or assumed, provided it is able to effect such recoupment without causing the Fund’s expense ratio
(after recoupment) to exceed the lesser of (a) the expense limit in effect at the time of the waiver, and (b) the expense
limit in effect at the time of the recoupment. The Expense Limitation Agreement also provides that, from the Initial Closing Date
(August 30, 2019) until December 31, 2020, the Adviser agrees to waive fees payable to it by the Fund on assets held in
cash or cash equivalents less the total amount of capital committed by the Fund and not yet drawn for investment. The waiver on
assets held in cash or cash equivalents less the total amount of capital committed by the Fund and not yet drawn for investment
will be in effect until December 31, 2020. The Expense Limitation Agreement will continue until at least August 29, 2020, and
will automatically renew thereafter for consecutive twelve-month terms, provided that such continuance is specifically approved
at least annually by a majority of the Trustees. The Expense Limitation Agreement may be terminated by the Fund’s Board
of Trustees upon thirty days’ written notice to the Adviser. The Expense Limitation Agreement may not be terminated by the
Adviser without the consent of the Fund’s Board of Trustees.
The Portfolio Funds will bear various fees
and expenses in connection with their operations. These fees and expenses are similar to those incurred by the Fund. In addition,
the Portfolio Funds will pay asset-based fees to their Portfolio Fund Managers and generally may pay performance-based fees or
allocations to their Portfolio Fund Managers, which effectively reduce the investment returns of the Portfolio Funds. These expenses,
fees, and allocations are in addition to those incurred by the Fund directly. As an investor in the Portfolio Funds, the Fund will
bear a portion of the expenses and fees of the Portfolio Funds. Such indirect fees and expenses are borne by the Fund.
The
Fund’s expenses incurred and to be incurred in connection with the Fund’s organization are not expected to exceed $141,500.
The Fund’s expenses incurred and to be incurred in connection with the initial offering of Shares will be amortized
by the Fund over the 12-month period beginning on the Initial Closing Date and are not expected to exceed $307,814. The Fund will
also bear directly certain ongoing offering costs associated with any periodic offers of Shares, which will be expensed as they
are incurred. Offering costs cannot be deducted by the Fund or the Shareholders for U.S. federal income tax purposes.
The Fund’s fees and expenses will decrease the net profits
or increase the net losses of the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS
OF SECURITIES
A control person generally is a person who beneficially owns
25% or more of the outstanding voting securities of a company or has the power to exercise control over the management and policies
of such company. As of March 31, 2020, no person owned 25% or greater of the Fund’s Shares outstanding.
VOTING
Each Shareholder will have the right to
cast a number of votes, based on the value of such Shareholder’s Shares, at any meeting of Shareholders called by the (i) Board
or (ii) Shareholders holding at least a majority of the total number of votes eligible to be cast by all Shareholders. Except
for the exercise of such voting privileges, Shareholders will not be entitled to participate in the management or control of the
Fund’s business and may not act for or bind the Fund.
CONFLICTS OF INTEREST
The Fund may be subject to a number of
actual and potential conflicts of interest, including, but not limited to, those set forth in further detail below.
Affiliates
The Adviser and its affiliates engage in
financial Advisory activities that are independent from, and may from time to time conflict with, those of the Fund. In the future,
there might arise instances where the interests of such affiliates conflict with the interests of the Fund. The Adviser and its
affiliates may provide services to, invest in, advise, sponsor and/or act as investment manager to investment vehicles and other
persons or entities (including prospective investors in the Fund) which may have structures, investment objectives and/or policies
that are similar to (or different than) those of the Fund; and which may compete with the Fund for investment opportunities. In
addition, the Adviser, its affiliates and their respective clients may themselves invest in securities that would be appropriate
for the Fund or the Portfolio Funds and may compete with the Portfolio Funds for investment opportunities. By acquiring Shares
of the Fund, each Shareholder will be deemed to have acknowledged the existence of any such actual and potential conflicts of interest
and to have waived any claim with respect to any liability arising from the existence of any such conflict of interest, except
as may otherwise be provided under the provisions of applicable state law or Federal securities law which cannot be waived or modified.
Although the Adviser and its affiliates
will seek to allocate investment opportunities among the Fund and their other clients in a fair and reasonable manner, there can
be no assurance that an investment opportunity which comes to the attention of the Adviser or its affiliates will be appropriate
for the Fund or will be referred to the Fund. The Adviser and its affiliates are not obligated to refer any investment opportunity
to the Fund.
The directors, partners, trustees, managers,
members, officers and employees of the Adviser and their affiliates may buy and sell securities or other investments for their
own accounts (including through funds managed by the Adviser or its affiliates). As a result of differing trading and investment
strategies or constraints, investments may be made by directors, partners, trustees, managers, members, officers and employees
that are the same, different from or made at different times than investments made for the Fund. To reduce the possibility that
the Fund will be materially adversely affected by the personal trading described above, each of the Fund and the Adviser have adopted
codes of ethics (collectively, the “Codes of Ethics”) in compliance with Section 17(j) of the Investment
Company Act that restricts securities trading in the personal accounts of investment professionals and others who normally come
into possession of information regarding the portfolio transactions of the Fund. The Codes of Ethics are available on the EDGAR
Database on the SEC’s Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by
email at publicinfo@sec.gov.
Affiliates of the Adviser may in the future
have other clients with investment objectives that are similar to or compete with the Fund’s investment objectives, including
private funds and managed accounts. The Fund will not engage in co-investments alongside affiliates unless the Fund has received
an order granting exemption from Section 17 of the Investment Company Act or unless such investments are not prohibited by Section
17(d) of the Investment Company Act or interpretations of Section 17(d) as expressed in SEC no-action letters or other available
guidance.
Allocation of the Adviser’s
and its Affiliates’ Time
The Fund substantially relies on the Adviser
to manage the day-to-day activities of the Fund and to implement the Fund’s investment strategy. The Adviser and certain
of its affiliates are presently, and plan in the future to continue to be, involved with activities which are unrelated to the
Fund. For example, the Adviser and its affiliates are not restricted from forming additional investment funds, from entering into
other investment Advisory relationships or from engaging in other business activities, even though such activities may be in competition
with the Fund and/or may involve substantial time and resources of the Adviser. These activities could be viewed as creating a
conflict of interest in that the time and effort of the Adviser, its affiliates and each of their officers and employees will not
be devoted exclusively to the Fund’s business but will be allocated between the Fund and the management of the assets of
other advisees of the Adviser and its affiliates. The Adviser and its employees will devote only as much of their time to the Fund’s
business as the Adviser and its employees, in their judgment, determine is reasonably required, which may be substantially less
than their full time. Therefore, the Adviser, its employees and certain affiliates may experience conflicts of interest in allocating
management time, services and functions among the Fund and any other business ventures in which they or any of their key personnel,
as applicable, are or may become involved. This could result in actions that are more favorable to other affiliated entities than
to the Fund.
Nevertheless, the Fund believes that the
members of the Adviser’s senior management and the other key professionals have sufficient time to fully discharge their
responsibilities to the Fund and to the other businesses in which they are involved. The Fund believes that its affiliates and
executive officers will devote the time required to manage the business and expect that the amount of time a particular executive
officer or affiliate devotes to the Fund will vary during the course of the year and depend on the Fund’s business activities
at the given time.
Compensation Arrangements
The Adviser will receive substantial fees
from the Fund in return for its services, and these fees could influence the advice provided by the Adviser. Among other matters,
the compensation arrangements could affect the Adviser’s judgment with respect to offerings of equity by the Fund, which
allow the Adviser to earn increased Investment Management Fees.
Cresset Asset Management, LLC, a Delaware
limited liability company, is an affiliate of the Adviser. Wealth management and family office clients of CAM who are considering
investing in the Fund are hereby advised that certain principals, officers, wealth advisers and others associated with CAM may
have an indirect ownership interest in the Adviser and thus may benefit from the income received by the Adviser in its capacity
as investment manager of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Subject to the Board’s discretion
and applicable legal restrictions, the Fund intends to authorize and declare dividends beginning no later than the first calendar
year after the one-year anniversary of the Fund’s Initial Closing Date. The Fund will then 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. Unless Shareholders elect to receive distributions
in the form of cash, the Fund intends to make its ordinary distributions in the form of additional Shares under the DRIP. Any distributions
reinvested under the DRIP will nevertheless remain subject to U.S. federal (and applicable state and local) taxation to Shareholders.
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 Companies 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 distributed 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 “ CERTAIN TAX CONSIDERATIONS.” There can be
no assurance that the Fund will be able to pay distributions at a specific rate or at all.
The Fund elected to be treated, beginning
with the taxable year ended September 30, 2019, and intends to qualify annually, as a RIC under the Internal Revenue Code of 1986,
as amended (the “Code”). To qualify for and maintain RIC tax treatment, the Fund must, among other things, distribute
at least 90% of its net ordinary income (including, but not limited to, qualified dividend income) and realized net short-term
capital gains in excess of realized net long-term capital losses, if any. A RIC may satisfy the 90% distribution requirement by
distributing dividends (other than capital gain dividends) during the taxable year or after the close of such taxable year but
before filing the RIC’s federal income tax return for that year under the “spillover dividend” provisions of
the Code. If a RIC makes a spillover dividend, the amounts will generally be included in IRS Forms 1099-DIV for the calendar
year in which the spillover distribution is actually paid to the RIC shareholders even if though it may relate to a RIC taxable
year that ends with or within the preceding calendar year.
The
Fund can offer no assurance that it will achieve results that will permit the Fund to pay any cash distributions. If the Fund issues
senior securities, the Fund will be prohibited from making distributions if doing so causes the Fund to fail to maintain the asset
coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of the Fund’s
borrowings. See “ CERTAIN TAX CONSIDERATIONS.”
The
Fund has adopted an “opt out” dividend reinvestment plan for Shareholders. As a result, if the Fund makes a distribution,
then Shareholders have their distributions reinvested in additional Shares unless they specifically “opt out” of the
DRIP so as to have their distributions paid in cash. See “ CERTAIN TAX CONSIDERATIONS.”
DIVIDEND REINVESTMENT PLAN
The Fund has adopted an “opt-out”
dividend reinvestment plan pursuant to which all Shareholders will have the full amount of their cash distributions reinvested
in additional Shares unless a Shareholder elects otherwise. Any distributions of the Fund’s Shares pursuant to the DRIP are
dependent on the continued registration of the Fund’s securities or the availability of an exemption from registration in
the recipient’s home state. Participants in the DRIP are free to elect to participate or terminate participation in the DRIP
within a reasonable time as specified below.
If you elect not to participate in the
DRIP, you will receive any distributions the Fund declares in cash. For example, if the Board authorizes, and the Fund declares,
a distribution, then unless you have “opted-out” of the DRIP, you will have your cash distributions reinvested in additional
Shares, rather than receiving the cash distributions. 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.
If
you wish to participate in the DRIP and receive your distribution in additional Shares, no action will be required on your part
to do so. Investors that wish to receive their distributions in cash may do so by making a written election to not participate
in the DRIP on the investor’s application or by notifying the Administrator in writing at 235 West Galena Street,
Milwaukee, WI 53212. Such written notice must be received by the Administrator 60 days prior to the record date of the distribution
or the Shareholder will receive such distribution in shares through the DRIP. If Shares are held by a broker or other financial
intermediary, in some circumstances a Shareholder may “opt out” of the DRIP by notifying its broker or other financial
intermediary of such election. Please check with your broker or other financial intermediary for more details.
There are no selling commissions, dealer
manager fees or other sales charges to you as a result of your participation in the DRIP. The Fund pays the Administrator’s
fees under the DRIP. If you receive your ordinary cash distributions in the form of Shares as part of the DRIP, you generally are
subject to the same U.S. federal, state and local tax consequences as you would be had you elected to receive your distributions
in cash.
Your
basis for determining gain or loss upon the sale of Shares received in a distribution from the Fund will be equal to the total
dollar amount of the distribution payable in cash. Any Shares received in a distribution will have a holding period for tax purposes
commencing on the day following the day on which the Shares are credited to your account. The Fund reserves the right to amend,
suspend or terminate the DRIP. You may terminate your account under the DRIP by notifying the Administrator at 235 West
Galena Street, Milwaukee, WI 53212, or by calling the Administrator at 1-888-799-0799.
All
correspondence concerning the DRIP should be directed to the Administrator by mail at FlowStone Opportunity Fund, c/o UMB
Fund Services, 235 West Galena Street, Milwaukee, WI 53212, or by calling the Administrator at 1-888-799-0799.
OUTSTANDING SECURITIES
As of the date March 31, 2020, there were
4,304,937.791 Shares of the Fund outstanding.
REPURCHASES OF SHARES
No Right of Redemption
The
Fund is not a liquid investment. No Shareholder (or other person holding Shares acquired from a Shareholder) will have
the right to require the Fund to redeem or repurchase its Shares. No public market exists for Shares, and none is expected to develop.
Consequently, Shareholders may not be able to liquidate their investment other than as a result of repurchases of Shares by the
Fund, as described below.
Periodic Repurchases
The Board, from time to time and in its
sole discretion, may determine to cause the Fund to offer to repurchase Shares from Shareholders, including the Adviser and its
affiliates, pursuant to written tenders by Shareholders.
The Adviser anticipates recommending to
the Board that, under normal market circumstances, the Fund conduct repurchase offers of no more than 5% of the Fund’s net
assets on or about the Initial Repurchase Date, and thereafter quarterly on or about each January 1, April 1, July 1
and October 1.
The
Fund will make repurchase offers, if any, to all holders 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 $25,000 worth of Shares. Such minimum ownership requirement
may be waived by the Board, in its sole discretion. The Fund reserves the right to reduce the amount to be repurchased from a Shareholder
so that the required capital balance is maintained.
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.
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. 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 determining whether the Fund should
offer to repurchase Shares thereof from its Shareholders pursuant to written requests, the Board will consider the recommendation
of the Adviser. The Board also may consider the following factors, among others, in determining whether to repurchase Shares and
the number of Shares to be repurchased:
| · | whether any Shareholders of the Fund have requested to tender interests to the Fund; |
| · | the working capital and liquidity requirements of the Fund; |
| · | the relative sizes of the repurchase requests and the Fund; |
| · | the past practice of the Fund in repurchasing Shares in the Fund; |
| · | the condition of the securities markets and the economy generally, as well as political, national
or international developments or current affairs; |
| · | the anticipated U.S. federal income tax consequences of any proposed repurchases of Shares in the
Fund; and |
| · | the Fund’s investment plans, the liquidity of its assets (including fees and costs associated
with liquidating Fund Investments), and the availability of information as to the value of its interests in underlying Portfolio
Companies, Portfolio Funds and other Fund Investments. |
As described above, 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 Investments
cannot be liquidated at their fair value, making a determination not to conduct repurchase offers more likely.
As an alternative, during such periods
the Board may offer to repurchase Shares at a discount to their prevailing net asset value that appropriately reflects market conditions,
subject to applicable law (a “Discount Repurchase Offer”). The benefit of any Shares repurchased at a discount will
be for the account of the Fund.
Procedures for Repurchase of Shares
The following is a summary of the procedures
expected to be employed by the Fund in connection with the repurchase of Shares.
The Board will determine that the Fund
will offer to repurchase Shares pursuant to written tenders only on terms that the Board determines to be fair to the Fund and
Shareholders. 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 Investment
Management Fee, Administration Fee, any Incentive Fee and any Early Repurchase Fee (as defined below), 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
(including pursuant to a Discount Repurchase Offer, if applicable). 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 Shareholders should
consider in deciding whether and how to participate in such repurchase opportunity. The expiration date of the 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.
Payment
by the Fund upon a repurchase of Shares will be made in the form of the Promissory Note (as defined below). The Fund does not generally
expect to distribute securities (other than the Promissory Note) 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 from Portfolio Companies in the form of securities that are transferable to the Fund’s 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 Agreement and Declaration of Trust and will be distributed to all tendering Shareholders
on a proportional basis. See “CALCULATION OF NET ASSET VALUE; VALUATION.”
In light of liquidity constraints associated
with many of the Fund Investments and the fact that the Fund may have to liquidate interests in such investments to fund the repurchase
of Shares and due to other considerations applicable to the Fund, the Fund expects to employ the following additional repurchase
procedures:
| · | The value of Shares being repurchased will be determined as of a date, determined by the Board,
in its sole discretion, which is approximately 65 days, but in no event earlier than 60 days, after the Expiration Date (the “Valuation
Date”), and any such repurchase will be effected as of the day after the Valuation Date (the “Repurchase Date”).
As discussed above, and subject to the considerations described above, it is expected that there will be a Repurchase Date on or
about the Initial Repurchase Date, and thereafter on or about each January 1, April 1, July 1 and October 1. |
| · | As promptly as practicable after the Expiration Date, the Fund will give to each Shareholder whose
Shares have been accepted for repurchase a promissory note (the “Promissory Note”) entitling the Shareholder to be
paid an amount equal to the value, determined as of the Valuation Date in the manner specified above, of the repurchased Shares.
The Promissory Notes will be held by the Administrator on behalf of each such Shareholder. The determination of the value of Shares
as of the Valuation Date is subject to adjustment based upon the results of the annual audit of the financial statements of the
Fund for the fiscal year in which such Valuation Date occurred. |
| · | The
Promissory Note, which will be non-interest bearing and non-transferable, is expected
to contain terms providing for, among other things, the following payments. The initial
payment in respect of the Promissory Note (the “Initial Payment”) will be
in an amount equal to at least 90% of the estimated aggregate value of the repurchased
Shares, determined as of the Valuation Date in the manner specified above. The Initial
Payment will be made no later than 50 business days business day after the Repurchase
Date; provided that, if the Fund elects to liquidate Fund Investments in order to finance
the repurchase of Shares, the Fund is entitled to postpone the payment in respect of
any Promissory Note delivered thereto until ten business days after the Fund has received
at least 90% of the aggregate amount anticipated to be received through pending liquidations
of Fund Investments in order to finance repurchases of Shares. |
| · | The second and final payment in respect of the Promissory Note (the “Final Payment”)
is expected to be in an amount equal to the excess, if any, of (i) the aggregate value of the repurchased Shares, determined
as of the Valuation Date in the manner specified above 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, over (ii) the Initial Payment. It is
anticipated that the annual audit of the financial statements of the Fund will be completed within 60 days after the end of each
fiscal year of the Fund and that the Final Payment will be made as promptly as practicable after the completion of such audit. |
| · | Notwithstanding anything in the foregoing to the contrary, if a Shareholder, after giving effect
to the repurchase, would continue to hold at least 5% of the aggregate value of its Shares as of the Valuation Date, the Final
Payment in respect of such repurchase shall be made on or before the 60th day after the Repurchase Date. Such payment shall be
in an amount equal to the excess, if any, of (i) the aggregate value of the repurchased Shares, determined as of the Valuation
Date in the manner specified above, based upon information known to the Fund as of the date of the Final Payment, over (ii) the
Initial Payment. 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. |
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. 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.
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.
Upon its acceptance of tendered Shares
for repurchase, the Fund will maintain daily on its books a segregated account consisting of cash, liquid securities or, to the
extent applicable, interests in Portfolio Funds that the Fund (i) has requested be withdrawn or (ii) is in the process
of liquidating (or any combination of them), in an amount equal to the aggregate estimated unpaid dollar amount of the Promissory
Notes issued to Shareholders tendering Shares.
Payments for repurchased Shares may require
the Fund to liquidate Fund Investments earlier than the Adviser otherwise would liquidate such holdings, potentially resulting
in losses, and may increase the Fund’s portfolio turnover; provided, however, that where the Board determines to make Discount
Repurchase Offers as described above, the consequences of such premature liquidation may be wholly or partially mitigated. The
Fund may, but need not, maintain cash or borrow money to meet repurchase requests. Such a practice could increase the Fund’s
operating expenses and impact the ability of the Fund to achieve its investment objective.
A 2.00% early repurchase fee (the “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 interests of the Fund.
Other than the Early Repurchase Fee, the
Fund does not currently intend to impose any charges on the repurchase of Shares. However, the Fund is permitted to allocate Shareholders,
whose Shares are repurchased, costs and charges imposed by the Portfolio Fund in connection with Fund Investments, if the Adviser
determines to liquidate such interests as a result of repurchase tenders by Shareholders and such charges are imposed on the Fund.
In the event that any such charges are allocated to the Fund, and subject to applicable law, the Fund may allocate such charges
to the Shareholders whose repurchase tenders resulted in the repurchase of a portion of the Shares that resulted in such charges.
Additionally, as described above, the Board may offer to repurchase at a discount to net asset value under certain circumstances.
A
Shareholder who tenders some but not all of its Shares for repurchase will be required to maintain a minimum account balance of
$25,000 worth of Shares. Such minimum account balance requirement may be waived by the Fund, in its sole discretion. The
Fund reserves the right to reduce the amount to be repurchased from a Shareholder so that the required account balance is maintained.
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.
Mandatory Redemption by the Fund
In accordance with the terms and conditions
of the Agreement and Declaration of Trust, the Fund may cause a mandatory redemption of all or some of the Shares of a Shareholder,
or any person acquiring Shares from or through a Shareholder, in the event that the Board determines or has reason to believe,
in its sole discretion, that: (i) that Shareholder or person’s Shares have been transferred to, or has vested in, any
person, by operation of law in connection with the death, divorce, bankruptcy, insolvency, or adjudicated incompetence of a Shareholder;
(ii) ownership of the Shares by such Shareholder or other person will cause the Fund to be in violation of, or subject the
Fund or the Adviser to additional registration or regulation under the securities, commodities, or other laws of the United States
or any other jurisdiction; (iii) continued ownership of the Shares by such Shareholder may be harmful or injurious to the
business or reputation of the Fund or the Adviser, or may subject the Fund or any Shareholders or to an undue risk of adverse tax
or other fiscal consequences; (iv) any representation or warranty made by a Shareholder in connection with the acquisition
of Shares was not true when made or has ceased to be true, or the Shareholder has breached any covenant made by it in connection
with the acquisition of Shares; or (v) it would be in the best interests of the Fund for the Fund to cause a mandatory redemption
of such Shares in circumstances where the Board determines that doing so is in the best interests of the Fund in a manner as will
not discriminate unfairly against any Shareholder.
TRANSFERS OF SHARES
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 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 Board (which may be withheld
in its sole discretion and is expected to be granted, if at all, only under extenuating circumstances).
Notice to the Fund of any proposed transfer
must include evidence satisfactory to the Board that the proposed transferee, at the time of transfer, meets any requirements imposed
by the Fund with respect to investor eligibility and suitability. See “ELIGIBLE INVESTORS.” 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.
The Board generally will not consent to a transfer of Shares by a Shareholder (i) unless such transfer is to a single transferee,
or (ii) if, after the transfer of the Shares, each of the transferee and transferor own less than $25,000 worth of Shares.
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 Agreement and 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 Agreement and 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
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 Agreement and Declaration of Trust or any misrepresentation made by that Shareholder in connection
with any such transfer.
CALCULATION OF NET ASSET VALUE;
VALUATION
The Fund will calculate its net asset value
as of the close of business on the last business day of each calendar quarter, each date that a Share is offered or repurchased,
as of the date of any distribution and at such other times as the Board shall determine (each, a “Determination Date”).
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, less all of its liabilities, including
accrued fees and expenses, each determined as of the relevant Determination Date.
The Board has approved valuation procedures
for the Fund (the “Valuation Procedures”), and has appointed a separate valuation committee (the “Valuation Committee”)
and delegated to the Valuation Committee the responsibility to determine the fair value of the Fund’s investments. The Valuation
Committee oversees the implementation of the Valuation Procedures, and may consult with representatives from the Fund’s outside
legal counsel or other third-party consultants in their discussions and deliberations. The Committee is comprised of the following
members of the Adviser and the Board: Eric Liss, Kenny Lower and Scott Conners. The Valuation Committee is also comprised of employees
of Foreside Fund Officer Services, LLC that serve as officers of the Fund and employees of the Administrator who serve as senior
accounting and financial reporting contacts for the Fund.
The
Adviser will assist the Valuation Committee in making valuation determinations, provide primary day-to-day oversight of
valuation of the Fund’s investments and act in accordance with the Valuation Procedures as developed and approved by the
Board. The valuation of the Fund’s investments is performed in accordance with Financial Accounting Standards Board’s
Accounting Standards Codification 820 — Fair Value Measurements and Disclosures.
The Valuation Procedures provide that the
Fund will value its Fund Investments at fair value.
Securities traded on one or more of the
U.S. national securities exchanges, the Nasdaq Stock Market or any foreign stock exchange will be valued based on their respective
market price.
Short-term investments represent an investment
in a money market fund. Short-term investments are recorded at fair value, which is their published net asset value.
Debt instruments for which market quotations
are readily available are typically valued based on such market quotations. In validating market quotations, the Valuation Committee
considers different factors such as the source and the nature of the quotation in order to determine whether the quotation represents
fair value. The Valuation Committee makes use of reputable financial information providers in order to obtain the relevant quotations.
For
debt and equity securities which are not publicly traded or for which market prices are not readily available (unquoted investments)
the fair value is determined in good faith. In determining the fair values of these investments, the Committee will typically apply
widely recognized market and income valuation methodologies including, but not limited to, earnings and multiple analysis, discounted
cash flow method and third-party valuations. In order to determine a fair value, these methods are applied to the latest information
provided by the underlying portfolio companies or other business counterparties.
Due to the inherent uncertainty in determining
the fair value of investments for which market values are not readily available the fair values of these investments may fluctuate
from period to period. In addition, such fair value may differ materially from the values that may have been used had a ready market
existed for such investments and may significantly differ from the value ultimately realized by the Fund.
Assets and liabilities initially expressed
in foreign currencies will be converted into U.S. Dollars using foreign exchange rates provided by a recognized pricing service.
Primary and secondary investments in private
equity funds are generally valued based on the latest net asset value reported by the third-party fund manager.
If the net asset value of an investment
in a private equity fund is not available at the time the Fund is calculating its net asset value, the Fund will review any cash
flows since the reference date of the last net asset value for a private equity fund received by the Fund from a third-party manager
until the Determination Date are recognized by (i) adding the nominal amount of the investment related capital calls and (ii) deducting
the nominal amount of investment related distributions from the net asset value as reported by the Portfolio Fund Manager.
In addition to tracking the net asset value
plus related cash flows of such Portfolio Funds, the Valuation Committee also intends to track relevant broad-based and issuer
(or fund) specific valuation information relating to the assets held by each private equity fund which is reasonably available
at the time the Fund values its investments.. The Valuation Committee will consider such information and may conclude in certain
circumstances that the information provided by the Portfolio Fund Manager does not represent the fair value of a particular asset
held by a Portfolio Fund. If the Valuation Committee concludes in good faith that the latest net asset value reported by a Portfolio
Fund Manager does not represent fair value (e.g., there is more current information regarding a portfolio asset which significantly
changes its fair value) the Valuation Committee will make a corresponding adjustment to reflect the current fair value of such
asset within such Portfolio Fund. In determining the fair value of assets held Portfolio Funds, the Valuation Committee applies
valuation methodologies as outlined above.
Determining fair value involves subjective
judgments, and it is possible that the fair value determined by the Valuation Committee for an investment may differ materially
from the value that could be realized upon the ultimate sale of the investment. There is no single standard for determining fair
value of an investment. Rather, in determining the fair value of an investment for which there are no readily available market
quotations, the Valuation Committee may consider pre-acquisition and annual financial reporting summaries from a Portfolio Fund,
comparable company multiple and several factors, including fundamental analytical data relating to the investment, the nature and
duration of any restriction on the disposition of the investment, the cost of the investment at the date of purchase, the liquidity
of the market for the investment, the price of such investment in a meaningful private or public investment or merger or acquisition
of the issuer subsequent to the Fund’s investment therein, or the per share price of the investment to be valued in recent
verifiable transactions. Fair value prices are estimates, and there is no assurance that such a price will be at or close to the
price at which the investment is next quoted or next trades.
Notwithstanding the above, Portfolio Fund
Managers may adopt a variety of valuation bases and provide differing levels of information concerning Portfolio Funds and there
will generally be no liquid markets for such investments. Consequently, there are inherent difficulties in determining the fair
value that cannot be eliminated. None of the Valuation Committee, the Board or the Adviser will be able to confirm independently
the accuracy of valuations provided by the Portfolio Fund Managers (which are generally unaudited).
Due to the inherent uncertainty in determining
the fair value of investments for which market values are not readily available the fair value of these investments may fluctuate
from period to period. In addition, such fair value may differ materially from the values that may have been used had a ready market
existed for such investments and may significantly differ from the value ultimately realized by the Fund.
The Adviser and its affiliates act as investment
advisers to other clients that invest in securities for which no public market price exists. Valuation determinations by the Adviser
or its affiliates for other clients may result in different values than those ascribed to the same security owned by the Fund.
Consequently, the fees charged to the Fund may be different than those charged to other clients, since the method of calculating
the fees takes the value of all assets, including assets carried at different valuations, into consideration.
Expenses of the Fund, including the Investment
Management Fee, are accrued on a quarterly basis on the Determination Date and taken into account for the purpose of determining
the Fund’s net asset value.
Prospective investors should be aware that
situations involving uncertainties as to the value of portfolio positions could have an adverse effect on the Fund’s net
asset value and the Fund if the judgments of the Board or the Valuation Committee regarding appropriate valuations should prove
incorrect.
CERTAIN TAX CONSIDERATIONS
The
following is a general summary of certain material U.S. federal income tax consequences applicable to the Fund and to an investment
in Shares by a Shareholder. This summary does not discuss all of the tax consequences that may be relevant to a particular investor,
including an investor who holds Shares as part of a hedging, straddle, conversion, constructive sale or other integrated transaction,
or to certain investors (e.g., investors subject to the alternative minimum tax, tax-exempt organizations, dealers in securities,
pension plans and trusts, financial institutions, certain foreign investors and insurance companies) subject to special treatment
under U.S. federal income tax laws. In addition, this summary does not specifically address the special tax consequences
that may be applicable to persons who hold interests in partnerships, grantor trusts and other pass-through entities that hold
Shares. This summary assumes that investors hold Shares as capital assets (generally, property held for investment).
THIS SUMMARY IS NECESSARILY GENERAL, AND
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL, AND FOREIGN INCOME
AND OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSAL OF SHARES, INCLUDING APPLICABLE TAX REPORTING REQUIREMENTS.
This summary is based on the Code as in
effect on the date of this Prospectus, the Treasury Regulations, rulings of the U.S. Internal Revenue Service (the “IRS”),
and court decisions in existence on the date hereof, all of which are subject to change, possibly with retroactive effect. The
Fund has not sought a ruling from the IRS or any other federal, state or local agency with respect to any of the tax issues affecting
the Fund. This summary does not discuss any aspects of the U.S. federal estate or gift tax or any state or local or non-U.S. tax.
It does not discuss the special treatment under U.S. federal income tax laws that could result if the Fund invested in tax-exempt
securities or certain other investment assets.
If a partnership (including an entity treated
as a partnership for U.S. federal income tax purposes) holds Shares, the tax treatment of a partner in the partnership with respect
to the Shares generally will depend upon the status of the partner and the activities of the partnership. Partners in partnerships
considering an acquisition of Shares should consult their tax advisers with respect to the partnership’s purchase, ownership
and disposition of Shares.
Taxation as a RIC
As a RIC, in any taxable year with respect
to which the Fund distributes at least 90% of the sum of the Fund’s: (i) “investment company taxable income,”
which includes, among other items, dividends, interest, the excess of any net realized short-term capital gains over net realized
long-term capital losses, and other taxable income (other than any net capital gain), reduced by deductible expenses, determined
without regard to the deduction for dividends and distributions paid and (ii) net tax-exempt interest income (which is the
excess of the Fund’s gross tax-exempt interest income over certain disallowed deductions) (the “Annual Distribution
Requirement”), the Fund generally will not be subject to U.S. federal income tax on investment company taxable income and
net capital gains that the Fund distributes to its Shareholders. The Fund intends to distribute, in its Shares and/or cash, annually,
all or substantially all of such income. To the extent that the Fund retains its net capital gains for investment or any investment
company taxable income, the Fund will be subject to U.S. federal income tax. The Fund may choose to retain its net capital gains
for investment or any investment company taxable income, and pay the associated U.S. federal corporate income tax, including the
U.S. federal excise tax (described below).
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 tax on the retained amount,
each Shareholder will be required to include the Shareholder’s allocable share of the deemed distribution in income as if
it had been actually distributed to the Shareholder, and the Shareholder will be entitled to claim a refundable credit equal to
the Shareholder’s 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 tax basis in the Shares owned by the Shareholder.
The refundable credit generally may be claimed as a credit against the Shareholder’s overall U.S. federal income tax obligations
and may be refunded to the extent, if any, that it exceeds those obligations. A 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. 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 of the Fund. 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.
The
Fund will be subject to a 4% nondeductible U.S. federal excise tax (the “Excise Tax”) on certain undistributed income
unless the Fund distributes in a timely manner an amount at least equal to the sum of (i) 98% of the Fund’s net ordinary
income for each calendar year, (ii) 98.2% of the Fund’s capital gain net income for the one-year period ending October 31
in that calendar year and (iii) any income recognized, but not distributed, in preceding years and on which the Fund paid
no U.S. federal income tax (the “Excise Tax Avoidance Requirement”). For purposes of the required Excise Tax
distribution, the income and gains of Portfolio Funds will be treated as arising in the hands of the Fund at the time realized
and recognized by the Portfolio Funds. While the Fund intends to distribute any income and capital gains in the manner necessary
to minimize imposition of the Excise Tax, sufficient amounts of the Fund’s taxable income and capital gains may not be distributed
to avoid entirely the imposition of the Excise Tax. In that event, the Fund will be liable for the Excise Tax only on the amount
by which the Fund does not meet the Excise Tax Avoidance Requirement.
Given the difficulty of estimating Fund
income and gains in a timely fashion, each year the Fund is likely to be liable for a 4% excise tax on the portion of underdistributed
income and gains of the Fund.
In order to qualify as a RIC for U.S. federal
income tax purposes, the Fund must, among other things:
| · | derive in each taxable year at least 90% of the Fund’s gross income from dividends, interest,
payments with respect to certain securities loans, gains from the sale or other disposition of stock or securities or foreign currencies,
other income derived with respect to its business of investing in such stock, securities or currencies or net income from certain
“qualified publicly traded partnerships” (the “Source of Income Test”); and |
· diversify
the Fund’s holdings so that at the end of each quarter of the taxable year:
| · | at least 50% of the value of the Fund’s assets consists of cash, cash equivalents, U.S. government
securities, securities of other RICs, and other securities if such other securities of any one 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 such issuer; and |
| · | no more than 25% of the value of the Fund’s assets are invested in the securities, other
than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined
under applicable Code rules, by the Fund and that are engaged in the same or similar or related trades or businesses or of certain
“qualified publicly traded partnerships” (the “Diversification Tests”). |
In
the event the Fund owns equity interests in operating businesses conducted in “pass-through” form (i.e., as a partnership
for U.S. federal income tax purposes), income from such equity interests may not qualify for purposes of the Source of Income Test
and, as a result, the Fund may be required to hold such interests through a subsidiary corporation. In such a case, any income
from such equity interests should not adversely affect the Fund’s ability to meet the Source of Income Test, although
such income generally would be subject to U.S. federal income tax, which the Fund would indirectly bear through its ownership of
such subsidiary corporation.
The Fund is authorized to borrow funds
and to sell assets in order to satisfy distribution requirements. However, under the Investment Company Act, the Fund is not permitted
to make distributions to its Shareholders while its debt obligations and other senior securities are outstanding unless certain
“asset coverage” tests are met. Moreover, the Fund’s ability to dispose of assets to meet the Fund’s distribution
requirements may be limited by (i) the illiquid nature of the Fund’s portfolio and/or (ii) other requirements relating
to the Fund’s qualification as a RIC, including the Diversification Tests. If the Fund disposes of assets in order to meet
the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, the Fund may make such dispositions at times that,
from an investment standpoint, are not advantageous.
Fund Investments
The Fund will invest up to substantially
all its assets in Portfolio Funds that are classified as partnerships for U.S. federal income tax purposes.
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 federal
income tax. Instead, each partner of the partnership must take into account its allocable 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. Accordingly, the Fund may be required
to recognize items of taxable income and gain prior to the time that the Fund receives corresponding cash distributions from a
Portfolio Fund. In such case, the Fund might have to borrow money or dispose of investments, including interests in Portfolio Funds,
and the Fund might have to sell shares of the Fund, in each case including when it is disadvantageous to do so, in order to make
the distributions required in order to maintain its status as a RIC and to avoid the imposition of a federal income or excise tax.
In
addition, the character of a partner’s allocable share of items of partnership income, gain and loss generally will be determined
as if the partner had realized such items directly. Portfolio Funds classified as partnerships for U.S. federal income tax purposes
may generate income allocable to the Fund that is not qualifying income for purposes of the Source of Income Test. In order
to meet the Source of Income Test, the Fund may structure its investments in a way potentially increasing the taxes imposed thereon
or in respect thereof. Because the Fund may not have timely or complete information concerning the amount and sources of such a
Portfolio Fund’s income until such income has been earned by the Portfolio Fund or until a substantial amount of time thereafter,
it may insome instances be difficult for the Fund to satisfy the Source of Income Test.
Furthermore, it may not always be entirely
clear how the asset diversification rules for RIC qualification will apply to the Fund’s investments in Portfolio Funds that
are classified as partnerships for U.S. federal income tax purposes. The Fund has engaged the services of a third-party service
provider to collect, aggregate and analyze data on the Fund’s direct and indirect investments in order to ensure that the
Fund meets the asset diversification test. In the event that the Fund believes that it is possible that it will fail the asset
diversification requirement at the end of any quarter of a taxable year, it may seek to take certain actions to avert such failure,
including by acquiring additional investments to come into compliance with the asset diversification test or by disposing of non-diversified
assets. Although the Code affords the Fund the opportunity, in certain circumstances, to cure a failure to meet the asset diversification
test, including by disposing of non-diversified assets within six months, there may be constraints on the Fund’s ability
to dispose of its interest in a Portfolio Fund that limit utilization of this cure period.
As a result of the considerations described
in the preceding paragraphs, the Fund’s intention to qualify and be eligible for treatment as a RIC can limit its ability
to acquire or continue to hold positions in Portfolio Funds that would otherwise be consistent with its investment strategy or
can require it to engage in transactions in which it would otherwise not engage, resulting in additional transaction costs and
reducing the Fund’s return to Shareholders.
Unless otherwise indicated, references
in this discussion to the Fund’s investments, activities, income, gain, and loss include the direct investments, activities,
income, gain, and loss of the Fund, as well as those indirectly attributable to the Fund as 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).
Certain of the Fund’s investment
practices are subject to special and complex U.S. federal income tax provisions that may: (i) disallow, suspend, or otherwise
limit the allowance of certain losses or deductions, including the dividends received deduction, (ii) convert lower taxed
long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (iii) convert
ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (iv) cause the Fund to recognize
income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock
or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions and
(vii) produce income that will not qualify as good income for purposes of the Sources of Income Test described above. The
Fund will monitor its transactions and may decide to make certain tax elections, may be required to borrow money, or may be required
to dispose of securities to mitigate the effect of these rules and prevent disqualification of the Fund as a RIC.
Investments the Fund makes in securities
issued at a discount or providing for deferred interest or paid-in-kind interest are subject to special tax rules that will
affect the amount, timing, and character of distributions to the Fund’s Shareholders. For example, with respect to securities
issued at a discount, the Fund will generally be required to accrue daily, as income, a portion of the discount and to distribute
such income each year to maintain the Fund’s qualification as a RIC and to avoid U.S. federal income and the Excise Tax.
Since in certain circumstances the Fund may recognize income before or without receiving cash representing such income, the Fund
may have difficulty making distributions in the amounts necessary to satisfy the Annual Distribution Requirement and for avoiding
U.S. federal income and the Excise Tax. Accordingly, the Fund may have to sell some of its investments at times the Fund would
not consider advantageous, raise additional debt or equity capital, or reduce new investment originations to meet these distribution
requirements. If the Fund is not able to obtain cash from other sources, the Fund may fail to qualify as a RIC and thereby be subject
to corporate-level U.S. federal income tax.
In the event the Fund invests in foreign
securities, the Fund may be subject to withholding and other foreign taxes with respect to those securities. The Fund does not
expect to satisfy the requirement to pass through to the Fund’s Shareholders their share of the foreign taxes paid by the
Fund.
The Fund may invest in non-U.S. corporations
(or other non-U.S. entities treated as corporations for U.S. federal income tax purposes). Thus, it is possible that one or more
such entities in which the Fund invests could be treated under the Code and Treasury Regulations as a “passive foreign investment
company” or a “controlled foreign corporation.” The rules relating to investments in these types of non-U.S.
entities are designed to ensure that U.S. taxpayers are either, in effect, taxed currently (or on an accelerated basis with respect
to corporate level events) or taxed at increased tax rates at distribution or disposition. In certain circumstances this could
require the Fund to recognize income where the Fund does not receive a corresponding payment in cash and make distributions with
respect to such income in order to maintain the Fund’s qualification as a RIC. Under such circumstances, the Fund may have
difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. Under certain circumstances
an investment in a passive foreign investment company could result in a tax to the Fund and/or an increase in the amount of taxable
distributions by the Fund.
Failure to Qualify as a RIC
If the Fund failed to satisfy the annual
Source of Income Test or the Diversification Tests for any quarter of a taxable year, the Fund might nevertheless continue to qualify
as a RIC for such year if certain relief provisions of the Code applied (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 failed to qualify for treatment as a RIC
and such relief provisions did not apply, the Fund would be subject to U.S. federal income tax on all of its net taxable income
at regular corporate U.S. federal income tax rates (and the Fund also would be subject to any applicable state and local taxes),
regardless of whether the Fund made any distributions to Shareholders. The Fund would not be able to deduct distributions to its
Shareholders, nor would the Fund be required to make distributions to its Shareholders for U.S. federal income tax purposes. Any
distributions the Fund made generally would be taxable to its U.S. Shareholders as dividend income and, subject to certain requirements
and limitations under the Code, would be eligible to be taxed at the U.S. federal long-term capital gain tax rates applicable to
individuals and other non-corporate U.S. Shareholders, to the extent of the Fund’s current or accumulated earnings and profits.
The maximum long-term capital gain rate applicable to individuals, estates, and trusts is currently 20%. 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 Shareholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. 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.
Subject to a limited exception applicable
to RICs that qualified as such under Subchapter M of Subtitle A, Chapter 1, of the Code for at least one year prior to disqualification
and that re-qualify as a RIC no later than the second year following the non-qualifying year, the Fund could be subject to U.S.
federal income tax on any unrealized net built-in gains in the assets held by it during the period in which it failed to qualify
as a RIC that are recognized during the 5-year period after its requalification as a RIC, unless it made a special election to
pay corporate-level U.S. federal income tax on such net built-in gains at the time of its requalification as a RIC. The Fund may
decide to be taxed as a regular corporation (thereby becoming subject to U.S. federal income and other taxes as set forth above)
even if it would otherwise qualify as a RIC if it determines that treatment as a corporation for a particular year would be in
its best interests.
Taxation of U.S. Shareholders
A “U.S. Shareholder” generally
is a beneficial owner of Shares which is for U.S. federal income tax purposes:
| · | a citizen or individual 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, any state or the District of Columbia; |
| · | a trust, if a court in the United States has primary supervision over its administration and one
or more U.S. persons have the authority to control all decisions of the trust, or the trust has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person; or |
| · | an estate, the income of which is subject to U.S. federal income taxation regardless of its source. |
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” (which is, generally, the Fund’s net ordinary income plus realized net short-term capital gains in excess of
realized net long-term capital losses) 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
paid by the Fund to non-corporate U.S. Shareholders (including individuals) are attributable to dividends from U.S. corporations
and certain qualified foreign corporations, such “qualifying dividends” may be eligible to be taxable at long-term
capital gain tax rates, as long as certain requirements are met. Distributions of the Fund’s net capital gains (which is
generally the Fund’s realized net long-term capital gains in excess of realized net short-term capital losses) properly reported
by the Fund as “capital gain dividends” in written statements furnished to Shareholders will be taxable to a U.S. Shareholder
as long-term capital gains that are currently taxable at a maximum U.S. federal income tax rate of 20% in the case of individuals,
trusts or estates, regardless of the U.S. Shareholder’s holding period for 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 Shareholder’s common stock and, after the adjusted basis is reduced to zero, will constitute capital
gains to such U.S. Shareholder.
In the event that the Fund retains any
net capital gains, the Fund may designate the retained amounts as undistributed capital gains in a notice to the Fund’s Shareholders.
If a designation is made, Shareholders would include in income, as long-term capital gains, their proportionate share of the undistributed
amounts, but would be allowed a credit or refund, as the case may be, for their proportionate share of the corporate U.S. federal
income tax paid by the Fund. In addition, the tax basis of Shares owned by a U.S. Shareholder would be increased by an amount equal
to the difference between (i) the amount included in the U.S. Shareholder’s income as long-term capital gains and (ii) the
U.S. Shareholder’s proportionate share of the corporate U.S. federal income tax paid by the Fund.
For purposes of determining (i) whether
the Annual Distribution Requirement is satisfied for any year and (ii) the amount of distributions paid for that year, the
Fund may, under certain circumstances, elect to treat a distribution 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, the U.S. Shareholder will still be treated as
receiving the distribution in the taxable year in which the distribution is made. However, any distribution 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 paid by the Fund and received
by the Fund’s U.S. Shareholders on December 31 of the year in which the distribution was declared.
A U.S. Shareholder participating in the
DRIP will be taxed on the amount of such distribution in the same manner as if such Shareholder had received such distribution
in cash. Any stock received in a purchase under the DRIP will have a holding period for tax purposes commencing on the day following
the day on which Shares are credited to a U.S. Shareholder’s account.
A U.S. Shareholder generally will recognize
taxable gain or loss if the U.S. Shareholder sells or otherwise disposes of its Shares. The amount of gain or loss will be measured
by the difference between such U.S. Shareholder’s adjusted tax basis in the Shares sold and the amount of the proceeds received
in exchange. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the
U.S. Shareholder has held its Shares for more than twelve months. Otherwise, it will be classified as short-term capital gain or
loss. However, any capital loss arising from the sale or disposition of 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 Shares may be disallowed if
other Shares are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition.
In general, individual U.S. Shareholders
currently are subject to a maximum U.S. federal income tax rate of 20% on their net capital gain (i.e., the excess of realized
net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an
investment in Shares. Such rate is 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 at the maximum 21% rate also applied to ordinary
income. Non-corporate U.S. Shareholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally
may deduct up to $3,000 of such losses against their 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, subject to the limitations provided in the Code.
The
Code requires the Fund to report U.S. Shareholders’ cost basis, gain/loss, and holding period to the IRS on IRS Form 1099s
when “covered” securities are sold. For purposes of these reporting requirements, all of the Fund’s Shares acquired
by non-tax exempt Shareholders, including those acquired through DRIP, will be considered “covered” securities. The
Fund intends to choose FIFO (“first-in, first-out”) as the Fund’s default tax lot identification method for all
Shareholders. A tax lot identification method is the way the Fund will determine which specific Shares are deemed to be sold when
there are multiple purchases on different dates at differing transaction prices, and the entire position is not sold at one time.
The Fund’s default tax lot identification method is the method “covered” securities will be reported on your
IRS Form 1099 if you do not select a specific tax lot identification method. You may choose a method different than the Fund’s
default method and will be able to do so from the time you are admitted as a Shareholder up through and until the sale of the “covered”
securities. For those securities defined as “covered” under current IRS cost basis tax reporting regulations, the Fund
is responsible for maintaining accurate cost basis and tax lot information for tax reporting purposes. The Fund is not responsible
for the reliability or accuracy of the information for those securities that are not “covered.” You are encouraged
to refer to the appropriate Treasury Regulations or consult your tax adviser with regard to your personal circumstances
and any decisions you may make with respect to choosing a tax lot identification method.
The Fund may be required to withhold U.S.
federal income tax, or backup withholding, currently at a rate of 24%, from all distributions to any non-corporate U.S. Shareholder
(i) who fails to furnish the Fund with a correct taxpayer identification number or a certificate that such Shareholder is
exempt from backup withholding or (ii) with respect to whom the IRS notifies the Fund that such Shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s
taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as
a credit against the U.S. Shareholder’s U.S. federal income tax liability, provided that proper information is provided to
the IRS.
A U.S. Shareholder that is an individual
or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will generally be subject
to a 3.8% tax on, for individuals, the lesser of (i) the individual U.S. Shareholder’s “net investment income”
for a taxable year and (ii) the excess of the individual U.S. Shareholder’s modified adjusted gross income for such
taxable year over $200,000 ($250,000 in the case of joint filers), and for estates and trusts, the lesser of (x) the undistributed
net investment income for a taxable year and (y) the excess of the adjusted gross income of the estate or trust over a certain
dollar amount provided in the Code. For these purposes, “net investment income” will generally include taxable distributions
and deemed distributions paid with respect to the Shares, and net gain attributable to the disposition of Shares (in each case,
unless such Shares are held in connection with certain trades or businesses), but will be reduced by any deductions properly allocable
to such distributions or net gain.
U.S. Shareholders should consult their
tax advisers with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition
of Shares, including applicable tax reporting obligations.
Taxation of Tax-Exempt Investors
Under current law, the Fund serves to prevent
the attribution to Shareholders of unrelated business taxable income (“UBTI”) from being realized by its tax-exempt
Shareholders (including, among 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.
Taxation of Non-U.S. Shareholders
A
“Non-U.S. Shareholder” generally is a beneficial owner of Shares that is not a U.S. Shareholder or an entity treated
as a partnership for U.S. federal income tax purposes. This includes nonresident alien individuals, foreign trusts or estates and
foreign corporations. Whether an investment in Shares is appropriate for a Non-U.S. Shareholder will depend upon that person’s
particular circumstances. An investment in Shares may have adverse tax consequences as compared to a direct investment in the assets
in which the Fund will invest. Non-U.S. Shareholders should consult their tax advisers with respect to the U.S. federal income
tax and withholding tax, and state, local and foreign tax consequences of an investment in Shares, including applicable tax reporting
requirements.
Distributions of “investment company
taxable income” to Non-U.S. Shareholders (other than certain interest income and realized net short-term capital gains in
excess of realized long-term capital losses, as described in the following paragraph) will be subject to withholding of U.S. federal
tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of the Fund’s current and accumulated earnings
and profits unless the distributions are effectively connected with a U.S. trade or business of a Non-U.S. Shareholder. If the
distributions are effectively connected with a U.S. trade or business of a Non-U.S. Shareholder, and, if required by an applicable
income tax treaty, attributable to a permanent establishment in the United States, the distributions will be subject to U.S. federal
income tax at the rates applicable to U.S. Shareholders, and the Fund will not be required to withhold U.S. federal tax if the
Non-U.S. Shareholder complies with applicable certification and disclosure requirements. Special certification requirements apply
to a Non-U.S. Shareholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their tax advisers.
Certain dividends that are reported by
the Fund in written statements furnished to Non-U.S. Shareholder are generally exempt from U.S. federal withholding tax when they
(i) are paid in respect of the Fund’s “qualified net interest income” (generally, the Fund’s U.S.-source
interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which
the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income), or (ii) are paid in connection
with the Fund’s “qualified short-term gains” (generally, the excess of the Fund’s net short-term capital
gain over its net long-term capital loss for such taxable year). In order to qualify for this exemption from withholding, a Non-U.S.
Shareholder must comply with applicable certification requirements relating to its Non-U.S. status (including, in general, furnishing
an IRS Form W-8BEN (for individuals), IRS Form W-8BEN-E (for entities) or an acceptable substitute or successor
form). In the case of Shares held through an intermediary, the intermediary may withhold even if the Fund designates the payment
as qualified net interest income or qualified short-term gain. Non-U.S. Shareholders should contact their intermediaries with respect
to the application of these rules to their accounts.
Actual or deemed distributions of the Fund’s
net capital gains to a Non-U.S. Shareholder, and gains realized by a Non-U.S. Shareholder upon the sale or redemption of Shares,
will not be subject to U.S. federal income tax unless the distributions or gains, as the case may be, are effectively connected
with a U.S. trade or business of the Non-U.S. Shareholder (and, if an income tax treaty applies, are attributable to a permanent
establishment maintained by the Non-U.S. Shareholder in the United States,) or, in the case of an individual, the Non-U.S. Shareholder
was present in the United States for 183 days or more during the taxable year and certain other conditions are met.
If the Fund distributes its net capital
gains in the form of deemed rather than actual distributions, a Non-U.S. Shareholder will be entitled to a U.S. federal income
tax credit or tax refund equal to the non-U.S. Shareholder’s allocable share of the corporate-level tax the Fund pays on
the capital gains deemed to have been distributed; however, in order to obtain the refund, the Non-U.S. Shareholder must obtain
a U.S. taxpayer identification number and file a U.S. federal income tax return even if the Non-U.S. Shareholder would not otherwise
be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return.
For corporate Non-U.S. Shareholders, distributions
(both cash and in Shares), and gains realized upon the sale or redemption of Shares that are effectively connected to a U.S. trade
or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at
a lower rate if provided for by an applicable treaty).
A Non-U.S. Shareholder who is a non-resident
alien individual may be subject to information reporting and backup withholding of U.S. federal income tax on dividends unless
the Non-U.S. Shareholder provides the Fund or the Administrator with an IRS Form W-8BEN or an acceptable substitute form or
otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. Shareholder or otherwise establishes an
exemption from backup withholding.
Pursuant to U.S. withholding provisions
commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”), payments of most types of income from sources
within the United States (as determined under applicable U.S. federal income tax principles), such as interest and dividends, to
a foreign financial institution, investment funds and other non-U.S. persons generally will be subject to a 30% U.S. federal withholding
tax, unless certain information reporting and other applicable requirements are satisfied. Any Non-U.S. Shareholder that either
does not provide the relevant information or is otherwise not compliant with FATCA may be subject to this withholding tax on certain
distributions from the Fund. Any taxes required to be withheld under these rules must be withheld even if the relevant income
is otherwise exempt (in whole or in part) from withholding of U.S. federal income tax, including under an income tax treaty between
the United States and the beneficial owner’s country of tax residence. Each Non-U.S. Shareholder should consult its tax advisers
regarding the possible implications of this withholding tax (and the reporting obligations that will apply to such Non-U.S. Shareholder,
which may include providing certain information in respect of such Non-U.S. Shareholder’s beneficial owners).
* * * * *
THE TAX AND OTHER MATTERS DESCRIBED
IN THIS PROSPECTUS DO NOT CONSTITUTE, AND SHOULD NOT BE CONSIDERED AS, LEGAL OR TAX ADVICE TO PROSPECTIVE INVESTORS. EACH INVESTOR
SHOULD CONSULT ITS TAX ADVISER AS TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP
AND DISPOSITION OF SHARES, INCLUDING APPLICABLE TAX REPORTING OBLIGATIONS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security
Act of 1974, as amended (“ERISA”) and the Code impose certain requirements on employee benefit plans to which ERISA
applies, and on those persons who are fiduciaries with respect to such plans. The Code imposes certain requirements on certain
other plans (such as individual retirement accounts and Keogh plans (and their fiduciaries)) that, although not subject to ERISA,
are subject to certain similar rules of the Code (such employee benefit plans subject to ERISA and such other plans, collectively,
“Plans.”) In accordance with ERISA’s general fiduciary standards, before investing in the Fund, a Plan fiduciary
should determine whether such an investment is permitted under the governing Plan instruments and is appropriate for the Plan in
view of its overall investment policy and the composition and diversification of its portfolio. Moreover, ERISA and the Code require
that certain reporting and disclosure be made with respect to Plan assets, that Plan assets generally be held in trust, and that
the indicia of ownership of Plan assets be maintained within the jurisdiction of district courts of the United States. Thus, a
Plan fiduciary considering an investment in the Fund should consult with its legal counsel concerning all the legal implications
of investing in the Fund, especially the issues discussed in the following paragraphs.
Unless statutory or administrative exemptions
are available, Section 406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions involving Plan
assets and persons who have certain specified relationships to a Plan (“parties in interest” within the meaning of
ERISA and “disqualified persons” within the meaning of the Code) and impose additional prohibitions on parties in interest
and disqualified persons who are Plan fiduciaries. These prohibitions also apply with respect to any entity whose assets consist
of Plan assets by reason of Plans’ investment in the entity. Certain prospective Plan investors may currently maintain relationships
with the Adviser and/or entities that are affiliated with the Fund, and, as a result, one or more of such entities may be deemed
to be a “party in interest” or “disqualified person” with respect to (including a fiduciary of) any such
prospective Plan investor.
Because the Fund is registered as an investment
company under the Investment Company Act, the assets of the Fund will not be deemed to constitute Plan assets.
Employee benefit plans that are governmental
plans (as defined in Section 3(32) of ERISA) are not subject to requirements of ERISA and the Code discussed above but may
be subject to materially similar provisions of other applicable federal or state law or may be subject to other legal restrictions
on their ability to invest in the Fund. Accordingly, any such governmental plans and the fiduciaries of such plans should consult
with their legal counsel concerning all the legal implications of investing in the Fund.
THE FUND’S SALE OF SHARES TO PLANS
IS IN NO RESPECT A REPRESENTATION OR WARRANTY BY THE FUND, THE ADVISER OR ANY OF THEIR AFFILIATES, OR BY ANY OTHER PERSON ASSOCIATED
WITH THE SALE OF THE SHARES, THAT SUCH INVESTMENT BY PLANS MEETS ALL RELEVANT LEGAL REQUIREMENTS APPLICABLE TO PLANS GENERALLY
OR TO ANY PARTICULAR PLAN, OR THAT SUCH INVESTMENT IS OTHERWISE APPROPRIATE FOR PLANS GENERALLY OR FOR ANY PARTICULAR PLAN.
ELIGIBLE INVESTORS
Each prospective investor in the Fund will
be required to certify that it is an “accredited investor” within the meaning of Rule 501 under the Securities
Act and a “qualified client” within the meaning of Rule 205-3 under the Advisers Act. The criteria for qualifying
as a “qualified client” and “accredited investor” are set forth in the subscription document that must
be completed by each prospective investor.
In addition, Shares are generally being
offered only to investors that are either (i) U.S. persons for U.S. federal income tax purposes or (ii) non-U.S. persons
that meet additional eligibility standards as defined by the Fund in its sole discretion. Investors who meet such qualifications
are referred to in this Prospectus as “Eligible Investors.” The qualifications required to invest in the Fund will
appear in subscription documents that must be completed by each prospective investor. Existing Shareholders who request to purchase
additional Shares will be required to qualify as “Eligible Investors” and to complete an additional investor certification
prior to any additional purchase.
Prospective investors that are non-U.S.
persons under the Securities Act or for U.S. federal income tax purposes must request a copy of supplemental offering materials
without charge by writing to FlowStone Opportunity Fund, c/o UMB Fund Services, 235 West Galena Street, Milwaukee, WI 53212, or
by calling the Fund toll-free at 1-888-799-0799. See “CERTAIN TAX CONSIDERATIONS—Taxation of Non-U.S. Shareholders.”
PURCHASING SHARES
Purchase Terms
The
minimum initial investment in the Fund by any investor is $100,000, and the minimum additional investment in the Fund by any Shareholder
is $10,000. However, the Fund, in its sole discretion, may accept investments below these minimums. Investors subscribing through
a given broker/dealer or registered investment adviser may have interests aggregated to meet these minimums, so long as denominations
are not less than $25,000 and incremental contributions to those interests are not less than $10,000. The purchase price of the
Shares on the Initial Closing Date will be $10.00 per Share, and thereafter the purchase price for Shares is based on the
net asset value per Share as of the date such Shares are purchased. Fractions of Shares will be issued to one one-thousandth of
a Share.
Shares will generally be offered for purchase
as of the first business day of each calendar quarter, except that Shares may be offered more or less frequently as determined
by the Board in its sole discretion. The Board may also suspend or terminate offerings of Shares at any time.
Except as otherwise permitted by the Board,
initial and subsequent purchases of Shares will be payable in cash. Each initial or subsequent purchase of Shares will be payable
in one installment which will generally be due (i) four 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 quarter (the “Acceptance Date”), where
funds are remitted by wire transfer, or (ii) ten business days prior to the Acceptance Date, where funds are remitted by check.
A prospective investor must also submit a completed subscription document (including investor certifications) at least five business
days before the Acceptance Date. The Fund reserves the right, in its sole discretion, to accept or reject any subscription to purchase
Shares in the Fund at any time. Although the Fund may, in its sole discretion, elect to accept a subscription prior to receipt
of cleared funds, an 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 (including investor certifications) 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 offering, 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. Any interest
earned with respect to such account will be paid to the Fund and allocated pro rata among Shareholders.
ADDITIONAL INFORMATION
Futures Transactions
The Fund has claimed an exclusion from
the definition of the term “commodity pool operator” under the Commodity Exchange Act of 1974, as amended (the “CEA”),
and, therefore, is not subject to registration or regulation as a commodity pool operator under the CEA. In February 2012,
the Commodity Futures Trading Commission (the “CFTC”) adopted certain regulatory changes that will subject the adviser
of an investment company to registration as a Commodity Pool Operator (“CPO”) if the investment company is unable to
comply with certain trading and marketing limitations.
With respect to investments in swap transactions,
commodity futures, commodity options or certain other derivatives used for purposes other than bona fide hedging purposes, an investment
company must meet one of the following tests under the amended regulations in order to claim an exemption from being considered
a “commodity pool” or a CPO. First, the aggregate initial margin and premiums required to establish an investment company’s
position in such investments may not exceed 5% of the liquidation value of the investment company’s portfolio (after accounting
for unrealized profits and unrealized losses on any such investments). Alternatively, the aggregate net notional value of those
positions, as determined at the time the most recent position was established, may not exceed 100% of the net asset value of the
investment company’s portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In
addition to meeting one of the foregoing trading limitations, the investment company may not market itself as a commodity pool
or otherwise as a vehicle for trading in the commodity futures, commodity options or swaps and derivatives markets. In the event
that the Adviser was required to register as a CPO, the disclosure and operations of the Fund would need to comply with all applicable
CFTC regulations. Compliance with these additional registration and regulatory requirements would increase operational expenses.
Other potentially adverse regulatory initiatives could also develop. A related CFTC proposal to harmonize applicable CFTC and SEC
regulations could, if adopted, mitigate certain disclosure and operational burdens if CPO registration were required.
On December 11, 2015, the SEC proposed
a regulation that, if adopted, would change the regulation of the use of derivatives and financial commitment transactions by registered
investment companies. The nature of any final regulations is uncertain at this time, but, if adopted, the Fund may be required
to segregate cash or liquid securities in connection with its futures transactions in an amount generally equal to the entire value
of the underlying security.
Subsidiaries
The Fund may make investments through wholly-owned
subsidiaries (“Subsidiaries”). Such Subsidiaries will not be registered under the Investment Company Act. However,
the Fund will wholly own and control any Subsidiaries. The Board has oversight responsibility for the investment activities of
the Fund, including its investment in any Subsidiary, and the Fund’s role as sole member or shareholder of any Subsidiary.
To the extent applicable to the investment activities of a Subsidiary, the Subsidiary will follow the same compliance policies
and procedures as the Fund. The Fund would “look through” any such Subsidiary to determine compliance with its investment
policies.
SUMMARY OF THE AGREEMENT AND 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 Agreement and Declaration of Trust that is
included as Appendix A to this Prospectus. A prospective investor and his or her Advisers should carefully review the Agreement
and 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 Agreement and 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 Agreement and 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 receipt of 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 Agreement and 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 Agreement and Declaration of Trust in certain circumstances. See “ REPURCHASES OF SHARES— Periodic
Repurchases.”
Limitation of Liability; Indemnification
The Agreement and 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 misfeasance or gross negligence of the duties involved in the conduct of their office or as otherwise
required by applicable law. The Agreement and 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 Agreement and 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 Agreement and Declaration
of Trust to the fullest extent permitted by law.
Amendment of the Agreement and
Declaration of Trust
The Agreement and 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 Agreement and 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:
(1) upon
the affirmative vote to dissolve the Fund by either (i) a majority of the Trustees of the Board, or (ii) Shareholders holding
at least three-quarters (3/4) of the total number of votes eligible to be cast by all Shareholders; or
(2) 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 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.
REPORTS TO SHAREHOLDERS
The Fund will furnish to Shareholders as
soon as practicable after the end of each of its taxable years such information as is necessary for them to complete U.S. federal
and state income tax or information returns, along with any other tax information required by law. The Fund anticipates sending
Shareholders an unaudited semi-annual and an audited annual report within 60 days after the close of the period for which the report
is being made, or as otherwise required by the Investment Company Act.
FISCAL YEAR
The Fund's fiscal year end is March
31. The Fund's tax year end is September 30.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM; LEGAL COUNSEL
PricewaterhouseCoopers LLP (“PwC”),
One North Wacker Drive, Chicago, IL 60606, has been selected as independent registered public accounting firm for the Fund and
in such capacity will audit the Fund’s annual financial statements. PwC also provides certain tax compliance, advice and
planning services to the Fund.
Faegre Drinker Biddle & Reath LLP, One Logan Square, Suite 2000, Philadelphia, PA 19103-6996, serves as counsel to
the Fund and the Independent Trustees of the Fund.
INQUIRIES
Inquiries concerning the Fund and the Shares
(including procedures for purchasing Shares) should be directed to: FlowStone Partners, LLC at 55 Nod Road, Ste. 120, Avon, CT
06001.
TABLE
OF CONTENTS OF SAI
Appendix A to the Prospectus
FLOWSTONE OPPORTUNITY FUND
AMENDED AND RESTATED AGREEMENT AND DECLARATION
OF TRUST
Dated: April 8, 2019
TABLE OF CONTENTS
| |
|
|
Page |
| ARTICLE I |
|
NAME AND DEFINITIONS |
1 |
| |
|
|
|
| Section 1.1 |
Name |
1 |
| Section 1.2 |
Definitions |
1 |
| |
|
|
|
| ARTICLE II |
|
BENEFICIAL INTEREST |
2 |
| |
|
|
|
| Section 2.1 |
Shares of Beneficial Interest |
2 |
| Section 2.2 |
Issuance of Shares |
2 |
| Section 2.3 |
Register of Shares and Share Certificates |
2 |
| Section 2.4 |
Transfer of Shares |
2 |
| Section 2.5 |
Treasury Shares |
2 |
| Section 2.6 |
Establishment of Classes |
3 |
| Section 2.7 |
Investment in the Trust |
3 |
| Section 2.8 |
No Preemptive Rights |
3 |
| Section 2.9 |
Conversion Rights |
3 |
| Section 2.10 |
Legal Proceedings |
3 |
| Section 2.11 |
Status of Shares |
4 |
| |
|
|
|
| ARTICLE III |
|
THE TRUSTEES |
4 |
| |
|
|
|
| Section 3.1 |
Management of the Trust |
4 |
| Section 3.2 |
Term of Office of Trustees |
4 |
| Section 3.3 |
Vacancies and Appointment of Trustees |
4 |
| Section 3.4 |
Temporary Absence of Trustee |
4 |
| Section 3.5 |
Number of Trustees |
5 |
| Section 3.6 |
Effect of Death, Resignation, Etc. of a Trustee |
5 |
| Section 3.7 |
Ownership of Assets of the Trust |
5 |
| Section 3.8 |
No Accounting |
5 |
| |
|
|
|
| ARTICLE IV |
|
POWERS OF THE TRUSTEES |
5 |
| |
|
|
|
| Section 4.1 |
Powers |
5 |
| Section 4.2 |
Issuance and Repurchase of Shares |
7 |
| Section 4.3 |
Trustees and Officers as Shareholders |
8 |
| Section 4.4 |
Action by the Trustees and Committees |
8 |
| Section 4.5 |
Chairman of the Trustees |
8 |
| Section 4.6 |
Principal Transactions |
8 |
| |
|
|
|
| ARTICLE V |
|
INVESTMENT ADVISER, INVESTMENT SUB-ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR, TRANSFER AGENT, CUSTODIAN AND OTHER CONTRACTORS |
8 |
| |
|
|
|
| Section 5.1 |
Certain Contracts |
8 |
| |
|
|
|
| ARTICLE VI |
|
SHAREHOLDER VOTING POWERS AND MEETINGS |
9 |
| |
|
|
|
| Section 6.1 |
Voting |
9 |
| Section 6.2 |
Meetings |
10 |
| Section 6.3 |
Quorum and Required Vote |
10 |
| Section 6.4 |
Action by Written Consent |
10 |
| |
|
|
|
| ARTICLE VII |
|
DISTRIBUTIONS AND REPURCHASES |
10 |
| |
|
|
|
| Section 7.1 |
Distributions |
10 |
| Section 7.2 |
Transfer of Shares |
11 |
| Section 7.3 |
Repurchases |
11 |
| Section 7.4 |
Redemptions at the Option of the Trust |
11 |
| Section 7.5 |
Suspension of the Right of Repurchase |
12 |
| Section 7.6 |
Redemption of Shares to Qualify as a Regulated Investment Company |
12 |
| Section 7.7 |
Net Asset Value |
12 |
| |
|
|
| ARTICLE VIII |
LIMITATION OF LIABILITY AND INDEMNIFICATION |
12 |
| |
|
|
|
| Section 8.1 |
Limitation of Liability |
12 |
| Section 8.2 |
Indemnification |
12 |
| Section 8.3 |
Indemnification Determinations |
12 |
| Section 8.4 |
Indemnification Not Exclusive |
13 |
| Section 8.5 |
Shareholders |
13 |
| |
|
|
| ARTICLE IX |
MISCELLANEOUS |
13 |
| |
|
|
| Section 9.1 |
Trust Not a Partnership |
13 |
| Section 9.2 |
Trustees’ Good Faith Action, Expert Advice, No Bond or Surety |
13 |
| Section 9.3 |
Establishment of Record Dates |
13 |
| Section 9.4 |
Dissolution and Termination of Trust |
14 |
| Section 9.5 |
Merger, Consolidation, Incorporation |
14 |
| Section 9.6 |
Filing of Copies, References, Headings |
14 |
| Section 9.7 |
Applicable Law |
15 |
| Section 9.8 |
Amendments |
15 |
| Section 9.9 |
Fiscal Year |
15 |
| Section 9.10 |
Provisions in Conflict with Law |
15 |
| Section 9.11 |
Allocation of Certain Expenses |
15 |
| |
|
|
|
|
|
FLOWSTONE OPPORTUNITY FUND
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
This AMENDED AND RESTATED AGREEMENT AND
DECLARATION OF TRUST of FlowStone Opportunity Fund, a Delaware statutory trust, is made as of April 8, 2019 by the undersigned
Trustee (together with all other persons from time to time duly elected, qualified and serving as Trustees in accordance with the
provisions of Article III hereof, the “Trustees”);
WHEREAS, the Trustees have heretofore formed
a statutory trust under the laws of Delaware for the investment and reinvestment of its assets, by the execution of the Agreement
and Declaration of Trust of Cresset Private Equity Opportunity Fund on May 23, 2018;
WHEREAS, the Trustees desire to amend and
restate such Declaration of Trust in its entirety; and
WHEREAS, the Trustee desires that the beneficial
interest in the trust assets be divided into transferable shares of beneficial interest, as hereinafter provided;
WHEREAS, the Trustee declares that all money
and property contributed to the trust established hereunder shall be held and managed in trust for the benefit of the holders of
the shares of beneficial interest issued hereunder and subject to the provisions hereof;
NOW, THEREFORE, in consideration of the
foregoing, the undersigned Trustee hereby declares that all money and property contributed to the trust hereunder shall be held
and managed in trust under this Amended and Restated Agreement and Declaration of Trust (“Trust Instrument”) as herein
set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name.
The name of the trust established hereby is “FlowStone Opportunity Fund.”
Section 1.2 Definitions.
Wherever used herein, unless otherwise required by the context or specifically provided:
(a) “Act”
means the Delaware Statutory Trust Act, 12 Del. C. §§ 3801 et seq., as from time to time amended;
(b) “By-laws”
means the By-laws referred to in Section 4.1(e) hereof, as from time to time amended;
(c) The
terms “Affiliated Person,” “Assignment,” “Commission,” “Interested Person” and
“Principal Underwriter” shall have the meanings given them in the 1940 Act. “Majority Shareholder Vote”
shall have the same meaning as the term “vote of a majority of the outstanding voting securities” is given in the 1940
Act;
(d) “Class”
means any division of Shares of the Trust, which Class is or has been established in accordance with the provisions of Article II
hereof;
(e) “Net
Asset Value” means the net asset value of each Class of the Trust determined in the manner provided in Section 7.7
hereof;
(f) “Outstanding
Shares” means those Shares recorded from time to time in the books of the Trust or its transfer agent as then issued and
outstanding, but shall not include Shares which have been redeemed or repurchased by the Trust and which are at the time held in
the treasury of the Trust;
(g) “Shareholder”
means a record owner of Outstanding Shares of the Trust;
(h) “Shares”
means the transferable units of beneficial interest into which the beneficial interest of the Trust or Class thereof shall
be divided and may include fractions of Shares as well as whole Shares;
(i) “Trust”
refers to FlowStone Opportunity Fund;
(j) “Trustee”
or “Trustees” means the person or persons who has or have signed this Trust Instrument, so long as such person or persons
shall continue in office in accordance with the terms hereof, and all other persons who may from time to time be duly qualified
and serving as Trustees in accordance with the provisions of Article III hereof, and reference herein to a Trustee or to the
Trustees shall refer to the individual Trustees in their capacity as Trustees hereunder;
(k) “Trust
Property” means any and all property, real or personal, tangible or intangible, which is owned or held by or for the account
of the Trust, or the Trustees on behalf of the Trust;
(l) “Valuation
Date” means the date on which the value of Shares being repurchased will be determined by the Trustees in their sole discretion;
(m) The
“1940 Act” refers to the Investment Company Act of 1940 and the rules and regulations thereunder and exemptions
granted therefrom, all as may be amended from time to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.1 Shares
of Beneficial Interest. The beneficial interest in the Trust shall be divided into such transferable Shares of one or more
separate and distinct Classes as the Trustees shall from time to time create and establish. The number of Shares of each Class authorized
hereunder is unlimited. Each Share shall have a par value of $0.001, unless otherwise determined by the Trustees in connection
with the creation and establishment of a Class. All Shares issued hereunder, including without limitation, Shares issued in connection
with a dividend in Shares or a split or reverse split of Shares, shall be fully paid and non-assessable.
Section 2.2 Issuance
of Shares. The Trustees in their discretion may, from time to time, without vote of the Shareholders, issue Shares of each
Class to such party or parties and for such amount and type of consideration (or for no consideration if pursuant to a Share
dividend or split-up), subject to applicable law, including cash or securities (including Shares of a different Class), at such
time or times and on such terms as the Trustees may deem appropriate, and may in such manner acquire other assets (including the
acquisitions of assets subject to, and in connection with, the assumption of liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares and Shares held in the treasury. The Trustees may from time to time
divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial interests in
the Trust. The Trustees may classify and reclassify any unissued Shares or any Shares previously issued and reacquired of any Class into
one or more Classes that may be established and designated from time to time.
Any Trustee, officer or other agent of the
Trust, and any organization in which any such person is interested, may acquire, own, hold and dispose of Shares of any Class of
the Trust to the same extent as if such person were not a Trustee, officer or other agent of the Trust; and the Trust may issue
and sell or cause to be issued and sold and may repurchase Shares of any Class from any such person or any such organization
subject only to the general limitations, restrictions or other provisions applicable to the sale or purchase of Shares of such
Class generally.
Section 2.3 Register
of Shares and Share Certificates. A register shall be kept at the principal office of the Trust or an office of the Trust’s
transfer agent which shall contain the names and addresses of the Shareholders of each Class, the number of Shares of that Class held
by each of them respectively and a record of all transfers thereof. As to Shares for which no certificate has been issued, such
register shall be conclusive as to who are the holders of the Shares and who shall be entitled to receive dividends or other distributions
or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend
or other distribution, nor to have notice given to him as herein or in the By-laws provided, until he has given his address to
the transfer agent or such other officer or agent of the Trust as shall keep the said register for entry thereon. The Trustees,
in their discretion, may authorize the issuance of share certificates and promulgate appropriate rules and regulations as
to their use. In the event that one or more certificates are issued, whether in the name of a Shareholder or a nominee, such certificate
or certificates shall constitute evidence of ownership of Shares for all purposes, including transfer, assignment or sale of such
Shares, subject to such limitations as the Trustees may, in their discretion, prescribe.
Section 2.4 Transfer
of Shares. Except as otherwise provided by the Trustees, Shares shall be transferable on the records of the Trust only in accordance
with Section 7.2 herein and only by the record holder thereof or by his agent thereunto duly authorized in writing, upon delivery
to the Trustees or the Trust’s transfer agent of a duly executed instrument of transfer, together with a Share certificate,
if one is outstanding, and such evidence of the genuineness of each such execution and authorization and of such other matters
as may be required by the Trustees. Upon such delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor the Trust, nor any transfer agent or registrar nor any officer, employee or agent of the Trust shall be affected
by any notice of the proposed transfer.
Section 2.5 Treasury
Shares. Shares held in the treasury shall, until reissued pursuant to Section 2.2 hereof, not confer any voting rights
on the Trustees, nor shall such Shares be entitled to any dividends or other distributions declared with respect to the Shares.
Section 2.6 Establishment
of Classes. The Trustees may from time to time authorize the division of Shares of the Trust into one or more Classes. Separate
and distinct records shall be maintained by the Trust for each Class. The Trustees shall have full power and authority, in their
sole discretion, and without obtaining any prior authorization or vote of Shareholders of any Class, to establish and designate
and to change in any manner any initial or additional Classes and to fix such preferences, voting powers, rights and privileges
of such Classes as the Trustees may from time to time determine, to divide or combine the Shares or any Classes into a greater
or lesser number, to classify or reclassify any issued Shares or any Classes into one or more Classes, and to take such other action
with respect to the Shares as the Trustees may deem desirable.
Unless another time is specified by the
Trustees, the establishment and designation of any Class shall be effective upon the adoption of a resolution by the Trustees
setting forth such establishment and designation and the preferences, powers, rights and privileges of the Shares of such Class,
whether directly in such resolution or by reference to, or approval of, another document that sets forth such relative rights and
preferences of such Class including, without limitation, any registration statement of the Trust, or as otherwise provided
in such resolution. The Trust may issue any number of Shares of each Class and need not issue certificates for any Shares.
All references to Shares in this Trust Instrument
shall be deemed to be Shares of any or all Classes as the context may require. All provisions herein relating to the Trust shall
apply equally to each Class of the Trust except as the context otherwise requires.
All Shares of each Class shall represent
an equal proportionate interest in the assets belonging to the Trust (subject to the liabilities belonging to that Class), and
each Share of any Class shall be equal to each other Share of that Class; but the provisions of this sentence shall not restrict
any distinctions permissible under this Section 2.6.
Section 2.7 Investment
in the Trust. The Trustees shall accept investments in any Class from such persons and on such terms as they may from
time to time authorize. At the Trustees’ discretion, such investments, subject to applicable law, may be in the form of cash
or securities in which the Trust is authorized to invest, valued as provided in Section 7.7 hereof. Unless the Trustees otherwise
determine, investments shall be credited to each Shareholder’s account in the form of full Shares at the Net Asset Value
per Share next determined after the investment is received. Without limiting the generality of the foregoing, the Trustees may,
in their sole discretion, (a) fix the Net Asset Value per Share of the initial capital contribution, (b) impose sales
or other charges upon investments in the Trust or (c) issue fractional Shares.
Section 2.8 No
Preemptive Rights. Shareholders shall have no preemptive or other similar rights to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or another Class.
Section 2.9 Conversion
Rights. The Trustees shall have the authority to provide from time to time that the holders of Shares of any Class shall
have the right to convert or exchange said Shares for or into Shares of one or more other Classes in accordance with such requirements
and procedures as may be established from time to time by the Trustees.
Section 2.10 Legal
Proceedings. No person, other than a Trustee, who is not a Shareholder of the Trust or of a particular Class shall be
entitled to bring any derivative action, suit or other proceeding on behalf of or with respect to the Trust or such Class. No Shareholder
may maintain a derivative action with respect to the Trust or any Class of the Trust unless holders of at least 10% of the
outstanding Shares of the Trust, or 10% of the outstanding Shares of the Class to which such action relates, join in the bringing
of such action. Except as otherwise provided in Section 3816 of the Act and the foregoing provisions of this Section 2.10,
all matters relating to the bringing of derivative actions in the right of the Trust shall be governed by the General Corporation
Law of the State of Delaware relating to derivative actions, and judicial interpretations thereunder, as if the Trust were a Delaware
corporation and the Shareholders were shareholders of a Delaware corporation.
In addition to the requirements set forth
in Section 3816 of the Act, a Shareholder may bring a derivative action on behalf of the Trust or any Class of the Trust
only if the following conditions are met: (a) the Shareholder or Shareholders must make 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; and a demand
on the Trustees shall only be deemed not likely to succeed and therefore excused if a majority of the Trustees, or a majority of
any committee established to consider the merits of such action, has a personal financial interest in the transaction at issue,
and a Trustee shall not be deemed interested in a transaction or otherwise disqualified from ruling on the merits of a Shareholder
demand by virtue of the fact that such Trustee receives remuneration for his service as a Trustee of the Trust or as a trustee
or director of one or more investment companies that are under common management with or otherwise affiliated with the Trust; and
(b) unless a demand is not required under clause (a) of this paragraph, the Trustees must be afforded a reasonable amount
of time to consider such Shareholder request and to investigate the basis of such claim; and the Trustees shall be entitled to
retain counsel or other advisers in considering the merits of the request and shall require an undertaking by the Shareholders
making such request to reimburse the Trust for the expense of any such advisers in the event that the Trustees determine not to
bring such action. For purposes of this Section 2.10, the Trustees may designate a committee of one Trustee to consider a
Shareholder demand if necessary to create a committee with a majority of Trustees who do not have a personal financial interest
in the transaction at issue.
Section 2.11 Status
of Shares. Shares shall be deemed to be personal property giving only the rights provided in this Trust Instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof. The death of
a Shareholder during the continuance of the Trust shall not operate to terminate the Trust nor entitle the representative of any
deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to
the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole
or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners.
ARTICLE III
THE TRUSTEES
Section 3.1 Management
of the Trust. The Trustees shall have exclusive and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property and business in their own right, but with such
powers of delegation as may be permitted by this Trust Instrument. The Trustees shall have power to conduct the business of the
Trust and carry on its operations in any and all of its branches and maintain offices both within and without the State of Delaware,
in any and all states of the United States of America, in the District of Columbia, in any and all commonwealths, territories,
dependencies, colonies, or possessions of the United States of America, and in any foreign jurisdiction and to do all such other
things and execute all such instruments as they deem necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions of this Trust Instrument, the presumption shall
be in favor of a grant of power to the Trustees.
The enumeration of any specific power in
this Trust Instrument shall not be construed as limiting the aforesaid power. The powers of the Trustees may be exercised without
order of or resort to any court.
Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 3.3 hereof, the Trustees shall be elected by the Shareholders owning of record
a plurality of the Shares voting at a meeting of Shareholders. The initial Trustee of the Trust shall be Scott P. Conners.
Section 3.2 Term
of Office of Trustees. Subject to any limitations on the term of service imposed by the By-laws or any retirement policy adopted
by the Trustees, each Trustee shall hold office during the existence of this Trust, and until its termination as herein provided;
except: (a) that any Trustee may resign his trust by written instrument signed by him and delivered to the Chairman, President,
Secretary, or other Trustee of the Trust, which shall take effect upon such delivery or upon such later date as is specified therein;
(b) that any Trustee may be removed, with or without cause, at any time by written instrument, signed by a majority of the
Trustees prior to such removal, specifying the date when such removal shall become effective; (c) that any Trustee who requests
in writing to be retired or who has died, become physically or mentally incapacitated by reason of disease or otherwise, or is
otherwise unable to serve, may be retired by written instrument signed by a majority of the other Trustees, specifying the date
of his retirement; and (d) that a Trustee may be removed, with or without cause, at any meeting of the Shareholders of the
Trust by a vote of Shareholders owning at least two-thirds of the outstanding Shares of the Trust.
Section 3.3 Vacancies
and Appointment of Trustees. In the case of the declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise of a Trustee, or a Trustee is otherwise unable to serve, or an increase in
the number of Trustees, a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is filled,
the other Trustees shall have all the powers hereunder and the certificate of the other Trustees of such vacancy shall be conclusive.
In the case of an existing vacancy, the remaining Trustee or Trustees shall fill such vacancy by appointing such other person as
such Trustee or Trustees in their discretion shall see fit consistent with the limitations under the 1940 Act, unless such Trustee
or Trustees determine, in accordance with Section 3.5, to decrease the size of the Board to the number of remaining Trustees.
An appointment of a Trustee may be made
by the Trustees then in office in anticipation of a vacancy to occur by reason of retirement, resignation or increase in number
of Trustees effective at a later date, provided that said appointment shall become effective only at or after the effective date
of said retirement, resignation or increase in number of Trustees.
An appointment of a Trustee shall be effective
upon the acceptance of the person so appointed to serve as Trustee, except that any such appointment in anticipation of a vacancy
shall become effective at or after the date such vacancy occurs.
Section 3.4 Temporary
Absence of Trustee. Any Trustee may, by power of attorney, delegate his power for a period not exceeding six months at any
one time to any other Trustee or Trustees, provided that in no case shall less than two Trustees personally exercise the other
powers hereunder except as herein otherwise expressly provided or unless there is only one or two Trustees.
Section 3.5 Number
of Trustees. The number of Trustees shall be one, or such other number as shall be fixed from time to time by the Trustees.
Section 3.6 Effect
of Death, Resignation, Etc. of a Trustee. The declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate the Trust or to revoke any existing agency created
pursuant to the terms of this Trust Instrument.
Section 3.7 Ownership
of Assets of the Trust. Legal title in and beneficial ownership of all of the assets of the Trust shall at all times be considered
as vested in the Trust, except that the Trustees may cause legal title in and beneficial ownership of any Trust Property to be
held by, or in the name of one or more of the Trustees acting for and on behalf of the Trust, or in the name of any person as nominee
acting for and on behalf of the Trust. No Shareholder shall be deemed to have a severable ownership interest in any individual
asset of the Trust, or any right of partition or possession thereof, but each Shareholder shall have, except as otherwise provided
for herein, a proportionate undivided beneficial interest in the Trust. The Shares shall be personal property giving only the rights
specifically set forth in this Trust Instrument. The Trust, or at the determination of the Trustees, one or more of the Trustees
or a nominee acting for and on behalf of the Trust, shall be deemed to hold legal title and beneficial ownership of any income
earned on securities of the Trust issued by any business entities formed, organized, or existing under the laws of any jurisdiction,
including the laws of any foreign country.
Section 3.8 No
Accounting. Except to the extent required by the 1940 Act or, if determined to be necessary or appropriate by the other Trustees
under circumstances which would justify his or her removal for cause, no person ceasing to be a Trustee for reasons including,
but not limited to, death, resignation, retirement, removal or incapacity (nor the estate of any such person) shall be required
to make an accounting to the Shareholders or remaining Trustees upon such cessation.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.1 Powers.
The Trustees in all instances shall act as principals, and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and execute any and all contracts and instruments that they
may consider necessary or appropriate in connection with the management of the Trust. The Trustees shall have full authority and
power to make any and all investments which they, in their sole discretion, shall deem proper to accomplish the purpose of this
Trust. Subject to any applicable limitation in this Trust Instrument, the Trustees shall have power and authority:
(a) To
invest and reinvest cash and other property, and to hold cash or other property uninvested, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the assets of the Trust;
(b) To
operate as and carry on the business of an investment company, and exercise all the powers necessary and appropriate to the conduct
of such operations, including the power to invest all or any part of its assets in the securities of another investment company;
(c) To
borrow money and in this connection issue notes or other evidence of indebtedness; to secure borrowings by mortgaging, pledging
or otherwise subjecting as security the Trust Property; to endorse, guarantee, or undertake the performance of an obligation, liability
or engagement of any person and to lend Trust Property;
(d) To
provide for the distribution of interests of the Trust either through a Principal Underwriter in the manner hereinafter provided
for or by the Trust itself, or both, or otherwise pursuant to a plan of distribution of any kind;
(e) To
adopt By-laws not inconsistent with this Trust Instrument providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the Shareholders, which By-laws shall be deemed a part of this
Trust Instrument and are incorporated herein by reference;
(f) To
elect and remove such officers and appoint and terminate such agents and contractors as they consider appropriate, any of whom
may be a Trustee, and may provide for the compensation of all of the foregoing;
(g) To
establish separate Classes having such relative rights, powers and duties as they may provide, consistent with applicable law;
(h) To
employ one or more banks, trust companies or companies that are members of a national securities exchange or such other entities
as custodians of any assets of the Trust, subject to the 1940 Act and to any conditions set forth in this Trust Instrument;
(i) To
retain one or more transfer agents and shareholder servicing agents, or both;
(j) To
set record dates in the manner provided herein or in the By-laws;
(k) To
delegate such authority (which delegation may include the power to subdelegate) as they consider desirable to any officers of the
Trust and to any investment adviser, manager, administrator, custodian, underwriter or other agent or independent contractor;
(l) To
join with other holders of any securities or debt instruments in acting through a committee, depository, voting trustee or otherwise,
and in that connection to deposit any security or debt instrument with, or transfer any security or debt instrument to, any such
committee, depository or trustee, and to delegate to them such power and authority with relation to any security or debt instrument
(whether or not so deposited or transferred) as the Trustees shall deem proper and to agree to pay, and to pay, such portion of
the expenses and compensation of such committee, depository or trustee as the Trustees shall deem proper;
(m) To
enter into joint ventures, general or limited partnerships and any other combinations or associations;
(n) To
pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including
the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all
of the Trustees, officers, employees and agents of the Trust;
(o) To
the extent permitted by law, indemnify any person with whom the Trust has dealings;
(p) To
engage in and to prosecute, defend, compromise, abandon, or adjust by arbitration, or otherwise, any actions, suits, proceedings,
disputes, claims and demands relating to the Trust, and out of the assets of the Trust to pay or to satisfy any debts, claims or
expenses incurred in connection therewith, including those of litigation, and such power shall include without limitation the power
of the Trustees or any appropriate committee thereof, in the exercise of their or its good faith business judgment, to dismiss
any action, suit, proceeding, dispute, claim or demand, derivative or otherwise, brought by any person, including a Shareholder
in its own name or the name of the Trust, whether or not the Trust or any of the Trustees may be named individually therein or
the subject matter arises by reason of business for or on behalf of the Trust;
(q) To
purchase and pay for entirely out of Trust Property such insurance as they may deem necessary or appropriate for the conduct of
the business of the Trust, including, without limitation, insurance policies insuring the Trust Property and payment of distributions
and principal on its investments, and insurance policies insuring the Shareholders, Trustees, officers, representatives, employees,
agents, investment advisers, managers, administrators, custodians, underwriters, or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such person in such capacity, including any action taken
or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person
against such liability;
(r) To
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust, subject
to the provisions of Section 9.4(b) hereof;
(s) To
vote or give assent, or exercise any rights of ownership, with respect to stock or other securities, debt instruments or property;
and to execute and deliver powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person
or persons such power and discretion with relation to securities, debt instruments or property as the Trustees shall deem proper;
(t) To
exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities or debt instruments;
(u) To
hold any security or property in a form not indicating any trust, whether in bearer, book entry, unregistered or other negotiable
form; or either in the name of the Trustees or of the Trust or in the name of a custodian, subcustodian or other depository or
a nominee or nominees or otherwise;
(v) To
consent to or participate in any plan for the reorganization, consolidation or merger of any corporation, issuer or concern, any
security or debt instrument of which is held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property
by such corporation, issuer or concern, and to pay calls or subscriptions with respect to any security or debt instrument held
in the Trust;
(w) To
litigate, compromise, arbitrate, or otherwise adjust claims in favor of or against the Trust or any matter in controversy including,
but not limited to, claims for taxes;
(x) To
make distributions of income and of capital gains to Shareholders in the manner herein provided;
(y) To
establish, from time to time, a minimum investment for Shareholders in the Trust or in one or more Classes thereof, and to require
the repurchase of the Shares of any Shareholders whose investment is less than such minimum upon giving notice to such Shareholder;
(z) To
cause each Shareholder, or each Shareholder of any particular Class, to pay directly, in advance or arrears, for charges of the
Trust’s custodian or transfer, shareholder servicing or similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from declared but unpaid dividends owed such Shareholder and/or by reducing
the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding
amount of such charges due from such Shareholder;
(aa) To
establish one or more committees comprised of one or more of the Trustees, and to delegate any of the powers of the Trustees to
said committees;
(bb) To
interpret the investment policies, practices or limitations of the Trust
(cc) To
establish a registered office and have a registered agent in the State of Delaware;
(dd) To
compensate or provide for the compensation of the Trustees, officers, advisers, administrators, custodians, other agents, consultants,
contractors and employees of the Trust or the Trustees on such terms as they deem appropriate;
(ee) To
invest part or all of the Trust Property, or to dispose of part or all of the Trust Property and invest the proceeds of such disposition,
in interests issued by one or more other investment companies or pooled portfolios (including investment by means of transfer
of part or all of the Trust Property in exchange for an interest or interests in such one or more investment companies or pooled
portfolios) all without any requirement of approval by Shareholders. Any such other investment company or pooled portfolio may
(but need not) be a trust (formed under the laws of any state or jurisdiction) which is classified as a partnership for federal
income tax purposes; and
(ff) In
general, to carry on any other business in connection with or incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power herein
set forth, either alone or in association with others, and to do every other act or thing incidental or appurtenant to or growing
out of or connected with the aforesaid business or purposes, objects or powers.
The foregoing clauses shall be construed
both as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner
the general powers of the Trustees. Any action by one or more of the Trustees in their capacity as such hereunder shall be deemed
an action on behalf of the Trust, and not an action in an individual capacity.
No one dealing with the Trustees shall be
under any obligation to make any inquiry concerning the authority of the Trustees, or to see to the application of any payments
made or property transferred to the Trustees or upon their order.
Section 4.2 Issuance
and Repurchase of Shares. The Trustees shall have the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, exchange, and otherwise deal in Shares; to suspend or terminate the sales of Shares of any Class for
any period of time; to establish terms and conditions, including any fees or expenses, regarding the issuance, sale, repurchase,
redemption, cancellation, retirement, acquisition, holding, resale, reissuance, disposition or exchange of or dealing in Shares
of any Class; and subject to the provisions set forth in Article II and Article VII, to apply to any such repurchase,
retirement, cancellation or acquisition of Shares any funds or property of the Trust, or a particular Class of the Trust,
with respect to which such Shares are issued.
Section 4.3 Trustees
and Officers as Shareholders. Any Trustee, officer or other agent of the Trust may acquire, own and dispose of Shares to the
same extent as if such person were not a Trustee, officer or agent; and the Trustees may issue and sell or cause to be issued and
sold Shares to and buy such Shares from any such person or any firm or company in which such person invested, subject to the general
limitations herein contained as to the sale and purchase of such Shares.
Section 4.4 Action
by the Trustees and Committees. The Trustees (and any committee thereof) may act at a meeting held in person or in whole or
in part by conference telecommunications equipment. One-third, but not less than two, of the Trustees shall constitute a quorum
at any meeting unless there is only one Trustee. Except as the Trustees may otherwise determine, one-third of the members of any
committee shall constitute a quorum at any meeting. The vote of a majority of the Trustees (or committee members) present at a
meeting at which a quorum is present shall be the act of the Trustees (or any committee thereof). The Trustees (and any committee
thereof) may also act by written consent signed by a majority of the Trustees (or committee members). Regular meetings of the Trustees
may be held at such places and at such times as the Trustees may from time to time determine. Special meetings of the Trustees
(and meetings of any committee thereof) may be called orally or in writing by the Chairman of the Board of Trustees (or the chairman
of any committee thereof) or by any two other Trustees. Notice of the time, date and place of all meetings of the Trustees (or
any committee thereof) shall be given by the party calling the meeting to each Trustee (or committee member) by telephone, telefax,
telegram or other electronic means sent to the person’s home or business address at least twenty-four hours in advance of
the meeting or by written notice mailed to the person’s home or business address at least seventy-two hours in advance of
the meeting. Notice of all proposed written consents of Trustees (or committees thereof) shall be given to each Trustee (or committee
member) by telephone, telefax, telegram, or first class mail sent to the person’s home or business address. Notice need not
be given to any person who attends a meeting without objecting to the lack of notice or who executes a written consent or a written
waiver of notice with respect to a meeting. Written consents or waivers may be executed in one or more counterparts. Execution
of a written consent or waiver and delivery thereof may be accomplished by telefax or other electronic means approved by the Trustees.
Section 4.5 Chairman
of the Trustees. The Trustees may appoint one of their number to be Chairman of the Board of Trustees. The Chairman shall preside
at all meetings of the Trustees at which he is present and may be (but is not required to be) the chief executive officer of the
Trust.
Section 4.6 Principal
Transactions. Except to the extent prohibited by applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such dealings with any Affiliated Person of the Trust, investment
adviser, investment sub-adviser, distributor or transfer agent for the Trust or with any Interested Person of such Affiliated Person
or other person; and the Trust may employ any such Affiliated Person or other person, or firm or company in which such Affiliated
Person or other person is an Interested Person, as broker, legal counsel, registrar, investment adviser, investment sub-adviser,
distributor, transfer agent, dividend disbursing agent, custodian or in any other capacity upon customary terms.
ARTICLE V
INVESTMENT ADVISER, INVESTMENT SUB-ADVISER,
PRINCIPAL UNDERWRITER, ADMINISTRATOR,
TRANSFER AGENT,
CUSTODIAN AND OTHER CONTRACTORS
Section 5.1 Certain
Contracts. Subject to compliance with the provisions of the 1940 Act, but notwithstanding any limitations of present and future
law or custom in regard to delegation of powers by trustees generally, the Trustees may, at any time and from time to time and
without limiting the generality of their powers and authority otherwise set forth herein, enter into one or more contracts with
any one or more corporations, trusts, associations, partnerships, limited partnerships, other type of organizations, or individuals
to provide for the performance and assumption of some or all of the following services, duties and responsibilities to, for or
of the Trust and/or the Trustees, and to provide for the performance and assumption of such other services, duties and responsibilities
in addition to those set forth below as the Trustees may determine to be appropriate:
(a) Investment
Adviser and Investment Sub-Adviser. The Trustees may in their discretion, from time to time, enter into an investment advisory
or management contract or contracts with respect to the Trust whereby the other party or parties to such contract or contracts
shall undertake to furnish the Trust with such management, investment advisory, statistical and research facilities and services
and such other facilities and services, if any, and all upon such terms and conditions, as the Trustees may in their discretion
determine. Notwithstanding any other provision of this Trust Instrument, the Trustees may authorize any investment adviser (subject
to such general or specific instructions as the Trustees may from time to time adopt) to effect purchases, sales or exchanges of
portfolio securities, other investment instruments of the Trust, or other Trust Property on behalf of the Trustees, or may authorize
any officer, agent, or Trustee to effect such purchases, sales or exchanges pursuant to recommendations of the investment adviser
(and all without further action by the Trustees). Any such purchases, sales and exchanges shall be deemed to have been authorized
by the Trustees.
The Trustees may authorize, subject to applicable
requirements of the 1940 Act, the investment adviser to employ, from time to time, one or more sub-advisers to perform such of
the acts and services of the investment adviser, and upon such terms and conditions, as may be agreed upon between the investment
adviser and sub-adviser. Any reference in this Trust Instrument to the investment adviser shall be deemed to include such sub-advisers,
unless the context otherwise requires.
(b) Principal
Underwriter. The Trustees may in their discretion from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of Shares, whereby the Trust may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such Shares. In either case, the contract or contracts shall be on such terms and
conditions as the Trustees may in their discretion determine and may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust.
(c) Administrator.
The Trustees may in their discretion from time to time enter into one or more contracts whereby the other party or parties shall
undertake to furnish the Trust with administrative services. The contract or contracts shall be on such terms and conditions as
the Trustees may in their discretion determine.
(d) Transfer
Agent. The Trustees may in their discretion from time to time enter into one or more transfer agency and Shareholder service
contracts whereby the other party or parties shall undertake to furnish the Trust with transfer agency and Shareholder services.
The contract or contracts shall be on such terms and conditions as the Trustees may in their discretion determine.
(e) Servicing
Agent. The Trustees may in their discretion from time to time enter into one or more contracts whereby the other party or parties
shall undertake to furnish the Trust with Trust and/or Shareholder services. The contract or contracts shall be on such terms and
conditions as the Trustees may in their discretion determine.
(f) Fund
Accounting. The Trustees may in their discretion from time to time enter into one or more contracts whereby the other party
or parties undertakes to handle all or any part of the Trust’s accounting responsibilities, whether with respect to the Trust’s
properties, Shareholders or otherwise. The contract or contracts shall be on such terms and conditions as the Trustees may in their
discretion determine.
(g) Custodian
and Depository. The Trustees may in their discretion from time to time enter into one or more contracts whereby the other party
or parties undertakes to act as depository for and to maintain custody of the property of the Trust or any Class and accounting
records in connection therewith. The contract or contracts shall be on such terms and conditions as the Trustees may in their discretion
determine.
(h) Parties
to Contract. Any contract described in this Article V hereof may be entered into with any corporation, firm, partnership,
trust or association, although one or more of the Trustees or officers of the Trust may be an officer, director, trustee, shareholder,
or member of such other party to the contract, and no such contract shall be invalidated or rendered void or voidable by reason
of the existence of any relationship, nor shall any person holding such relationship be disqualified from voting on or executing
the same in his capacity as Shareholder and/or Trustee, nor shall any person holding such relationship be liable merely by reason
of such relationship for any loss or expense to the Trust under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into was not inconsistent with the provisions of this
Article V. The same person (including a firm, corporation, partnership, trust, or association) may be the other party to contracts
entered into pursuant to this Article V, and any individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 5.1.
ARTICLE VI
SHAREHOLDER VOTING POWERS AND MEETINGS
Section 6.1 Voting.
The Shareholders shall have power to vote only: (a) for the election of one or more Trustees in order to comply with the provisions
of the 1940 Act (including Section 16(a) thereof); (b) with respect to any contract entered into pursuant to Article V
to the extent required by the 1940 Act; (c) with respect to termination of the Trust or a Class thereof to the extent
required by applicable law; and (d) with respect to such additional matters relating to the Trust as may be required by this
Trust Instrument, the By-laws or any registration of the Trust as an investment company under the 1940 Act with the Commission
(or any successor agency) or as the Trustees may consider necessary or desirable.
Notwithstanding any other provision of this
declaration, on any matter submitted to a vote of Shareholders, unless the Trustees determine otherwise, all Shares of all Classes
then entitled to vote shall be voted in aggregate, provided, however, that: (a) as to any matter with respect to which a separate
vote of any Class is required by the 1940 Act or other applicable law or is required by attributes applicable to any Class,
such requirements as to a separate vote by that Class shall apply; (b) unless the Trustees determine that this clause
(b) shall not apply in a particular case, to the extent that a matter referred to in clause (a) above affects more than
one Class and the interests of each such Class in the matter are identical, then the Shares of all such affected Classes
shall vote as a single class; and (c) as to any matter which does not affect the interests of a particular Class, only the
holders of Shares of the one or more affected Classes shall be entitled to vote. A Shareholder of each Class shall be entitled
to one vote for each Share of such Class on any matter on which such Shareholder is entitled to vote. A Shareholder of each
Class shall be entitled to a proportionate fractional vote for each fractional Share of such Class on any matter on which
such Shareholder is entitled to vote. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person
or by proxy or in any manner provided for in the By-laws. A proxy may be given in writing, by telefax, other electronic means or
in any other manner provided for in the By-laws. Anything in this Trust Instrument to the contrary notwithstanding, in the event
a proposal by anyone other than the officers or Trustees of the Trust is submitted to a vote of the Shareholders of the Trust or
one or more Classes thereof, or in the event of any proxy contest or proxy solicitation or proposal in opposition to any proposal
by the officers or Trustees of the Trust, Shares may be voted only in person or by written proxy. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action required or permitted by law, this Trust Instrument or
any of the By-laws of the Trust to be taken by Shareholders.
Section 6.2 Meetings.
Meetings of Shareholders (including meetings involving only the holders of Shares of one or more but less than all the Classes)
may be called by the Trustees from time to time to be held at such place within or without the State of Delaware, and on such date
as may be designated in the call thereof for the purpose of taking action upon any matter as to which the vote or authority of
the Shareholders of any Class or of the Trust is required or permitted as provided in Section 6.1. Special meetings of
the Shareholders may be called by the Trustees. To the extent required by the 1940 Act, special meetings of the Shareholders for
the purpose of removing one or more Trustees shall be called by the Trustees upon the written request of Shareholders owning at
least 10 percent (10%) of the Outstanding Shares of all Classes entitled to vote. Notice shall be sent, postage prepaid, by mail
or such other means determined by the Trustees, at least 7 days prior to any such meeting.
Section 6.3 Quorum
and Required Vote. Unless a larger percentage is required by law, by any provision of this Trust Instrument or by the Trustees,
one-third of the Shares entitled to vote in person or by proxy on a particular matter shall be a quorum for the transaction of
business at a Shareholders’ meeting with respect to that matter. Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held without the necessity of further notice. Except when a larger vote is required by
law, by any provision of this Trust Instrument or by the Trustees, a majority of the Shares voted in person or by proxy on a particular
matter at a meeting at which a quorum is present shall decide any questions with respect to that matter and a plurality shall elect
a Trustee.
Section 6.4 Action
by Written Consent. Subject to the provisions of the 1940 Act and other applicable law, any action taken by Shareholders may
be taken without a meeting if a majority of the Shares entitled to vote on the matter (or such larger proportion thereof as shall
be required by law, by any provision of this Trust Instrument or by the Trustees) consent to the action in writing. Such consent
shall be treated for all purposes as a vote taken at a meeting of Shareholders. The Trustees may adopt additional rules and
procedures regarding the taking of Shareholder action by written consents.
ARTICLE VII
DISTRIBUTIONS AND REPURCHASES
Section 7.1 Distributions.
(a) The
Trustees may from time to time declare and pay dividends or other distributions with respect to any Class. The amount of such dividends
or distributions and the payment of them and whether they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends
and other distributions may be paid or made to the Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times as the Trustees shall determine, which dividends
or distributions, at the election of the Trustees, may be paid pursuant to a standing resolution or resolutions adopted only once
or with such frequency as the Trustees may determine. All dividends and other distributions on Shares of a particular Class shall
be distributed pro rata to the Shareholders of that Class in proportion to the number of Shares of that Class they held
on the record date established for such payment, except that in connection with any dividend or distribution program or procedures
the Trustees may determine that no dividend or distribution shall be payable on Shares as to which the Shareholder’s purchase
order and/or payment in the prescribed form has not been received by the time or times established by the Trustees under such program
or procedure. The Trustees may adopt and offer to Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate.
(c) Anything
in this Trust Instrument to the contrary notwithstanding, the Trustees may at any time declare and distribute a stock dividend
pro rata among the Shareholders of a particular Class, as of the record date of that Class fixed as provided in Section (b) hereof.
The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated
as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders.
Section 7.2 Transfer
of Shares.
(a) Any
Shares held by a Shareholder may be transferred only (1) by operation of law pursuant to the death, bankruptcy, insolvency,
adjudicated incompetence, or dissolution of the Shareholder or (2) with the consent of the Trustees (which may be withheld
in the Trustees’ sole and absolute discretion). If a Shareholder transfers Shares with the approval of the Trustees, the
Trustees will as promptly as practicable take all necessary actions so that each transferee or successor to whom or to which the
Shares are transferred is admitted to the Trust as a Shareholder. The admission of any transferee as a substituted Shareholder
will be effective upon the execution and delivery by, or on behalf of, the substituted Shareholder of an investor application form.
Each Shareholder and transferee agrees to pay all expenses, including attorneys’ and accountants’ fees, incurred by
the Trust in connection with any transfer. In connection with any request to transfer Shares, the Trust may require the Shareholder
requesting the transfer to obtain, at the Shareholder’s expense, an opinion of counsel selected by the Trustees as to such
matters as the Trustees may reasonably request. If a Shareholder transfers all of its Shares, it will not cease to be a Shareholder
unless and until the transferee is admitted to the Trust as a substituted Shareholder in accordance with this Section 7.2(a).
Any transfer of Shares permitted under this Section 7.2(a) will be effected in accordance with the provisions of Section 2.4
hereof. Pursuant to Section 4.1(k) hereof, the Trustees hereby delegate to the officers of the Trust all power and authority
to approve and effect transfers of Shares pursuant to this Section 7.2(a).
(b) Each
Shareholder will indemnify and hold harmless the Trust, the Trustees, each other Shareholder and any Affiliated Person of the Trust,
the Trustees, the investment adviser, any sub-adviser and each of the other Shareholders 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 these Persons
may become subject by reason of or arising from (1) any transfer made by the Shareholder in violation of this Section 7.2
and (2) any misrepresentation by the transferring Shareholder or substituted Shareholder in connection with the transfer.
A Shareholder transferring Shares may be charged reasonable expenses, including attorneys’ and accountants’ fees, incurred
by the Trust in connection with the transfer, by setting off such charges due from such Shareholder from declared but unpaid dividends
or distributions owed such Shareholder and/or by reducing the number of shares in the account of such Shareholder by that number
of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder.
Section 7.3 Repurchases.
Unless the Trustees otherwise determine with respect to a particular Class at the time of establishing and designating the
same, each Shareholder of a particular Class shall have the right at such times as may be permitted by the Trustees to require
the Trust to repurchase (out of the assets belonging to the applicable Class) all or any part of his
Shares at the net asset value thereof as of the repurchase pricing
date established by the Trustees, less any repurchase fee established by the Trustees in their discretion, and subject to such
conditions as the Trustees may determine, which may include establishing a maximum amount of Shares that may be repurchased and
prorating Shares tendered for repurchase if the repurchase is oversubscribed. Payment for said Shares shall be made by the Trust
to the Shareholder within seven days after the repurchase pricing date established by the Trustees. The repurchase price may in
any case or cases be paid in cash or wholly or partly in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders. Subject to the foregoing, the fair value, selection and quantity of securities or other property
so paid or delivered as all or part of the repurchase price shall be determined by or under authority of the Trustees. In no case
shall the Trust be liable for any delay of any corporation or other Person in transferring securities selected for delivery as
all or part of any payment in kind.
Section 7.4 Redemptions
at the Option of the Trust. The Trust shall have the right at its option and at any time to redeem Shares of any Shareholder
at the net asset value thereof, unless otherwise permitted by the 1940 Act, for any reason under the terms established by the Trustees
from time to time including but not limited to: (i) if at such time such Shareholder owns Shares having an aggregate net asset
value of less than an amount determined from time to time by the Trustees; (ii) to the extent that such Shareholder owns Shares
equal to or in excess of a percentage of the outstanding Shares determined from time to time by the Trustees; (iii) the failure
of a Shareholder to supply a tax identification number or other identification or if the Trust is unable to verify a Shareholder’s
identity; (iv) the failure of a Shareholder to pay when due the purchase price of Shares; (v) when the Trust is requested
or compelled to do so by governmental authority; or (vi) the determination by the Trustees or pursuant to policies and procedures
adopted by the Trustees that ownership of Shares is not in the best interest of the remaining Shareholders of the Trust or applicable
Class.
Section 7.5 Suspension
of the Right of Repurchase. The Trustees may declare a suspension of the right of repurchase or postpone the date of payment
as permitted under the 1940 Act. Such suspension shall take effect at such time as the Trustees shall specify and thereafter there
shall be no right of repurchase or payment until the Trustees shall declare the suspension at an end. In the event that the Trust
is divided into Classes, the provisions of this Section 4, to the extent applicable as determined in the discretion of the
Trustees and consistent with the 1940 Act, may be equally applied to each such Class.
Section 7.6 Redemption
of Shares to Qualify as a Regulated Investment Company. If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares has or may become concentrated in any Person to an extent that would disqualify the
Trust as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”), then the
Trustees shall have the power (but not the obligation) by lot or other means deemed equitable by them (i) to call for redemption
by any such Person of a number, or principal amount, of Shares sufficient to maintain or bring the direct or indirect ownership
of Shares into conformity with the requirements for such qualification and (ii) to refuse to transfer or issue Shares to any
Person whose acquisition of Shares in question would result in such disqualification. The redemption shall be effected at the redemption
price and in the manner provided herein. The holders of Shares shall upon demand disclose to the Trustees in writing such information
with respect to direct and indirect ownership of Shares as the Trustees deem necessary to comply with the requirements of any taxing
authority.
Section 7.7 Net
Asset Value. The Net Asset Value of each outstanding Share of any Class shall be the quotient obtained by dividing (a) the
value of the net assets belonging to that Class less the liabilities belonging to such Class by (b) the total number
of Shares of that Class outstanding, all determined in accordance with the methods and procedures, including without limitation
those with respect to rounding, established by the Trustees from time to time.
ARTICLE VIII
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 8.1 Limitation
of Liability. Neither a Trustee nor an officer of the Trust, when acting in such capacity, shall be personally liable to any
person other than the Trust or a beneficial owner for any act, omission or obligation of the Trust, any Trustee or any officer
of the Trust. Neither a Trustee nor an officer of the Trust shall be liable for any act or omission in his capacity as Trustee
or as an officer of the Trust, or for any act or omission of any other officer or any employee of the Trust or of any other person
or party, provided that nothing contained herein or in the Act shall protect any Trustee or officer against any liability to the
Trust or to Shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of Trustee or the duties of such officer hereunder.
Section 8.2 Indemnification.
The Trust shall indemnify each of its Trustees and officers and persons who serve at the Trust’s request as directors, officers
or trustees of another organization in which the Trust has any interest as a shareholder, creditor, or otherwise, and may indemnify
any trustee, director or officer of a predecessor organization (each a “Covered Person”), against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties, and expenses including reasonable
accountants’ and counsel fees) reasonably incurred in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or legislative body, in which he may be involved or with
which he may be threatened, while as a Covered Person or thereafter, by reason of being or having been such a Covered Person, except
that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person
would otherwise be subject by reason of bad faith, willful misfeasance, gross negligence or reckless disregard of his duties involved
in the conduct of such Covered Person’s office (such willful misfeasance, bad faith, gross negligence or reckless disregard
being referred to herein as “Disabling Conduct”). Expenses, including accountants’ and counsel fees so incurred
by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), may
be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt
of (a) an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined
that indemnification of such expenses is not authorized under this Article VIII and either (b) such Covered Person provides
security for such undertaking, (c) the Trust is insured against losses arising by reason of such payment, or (d) a majority
of a quorum of disinterested, non-party Trustees, or independent legal counsel in a written opinion, determines, based on a review
of readily available facts, that there is reason to believe that such Covered Person ultimately will be found entitled to indemnification.
Section 8.3 Indemnification
Determinations. Indemnification of a Covered Person pursuant to Section 8.2 shall be made if (a) the court or body
before whom the proceeding is brought determines, in a final decision on the merits, that such Covered Person was not liable by
reason of Disabling Conduct or (b) in the absence of such a determination, a majority of a quorum of disinterested, non-party
Trustees or independent legal counsel in a written opinion make a reasonable determination, based upon a review of the facts, that
such Covered Person was not liable by reason of Disabling Conduct.
Section 8.4 Indemnification
Not Exclusive. The right of indemnification provided by this Article VIII shall not be exclusive of or affect any other
rights to which any such Covered Person may be entitled. As used in this Article VIII, “Covered Person” shall
include such person’s heirs, executors and administrators, and a “disinterested, non-party Trustee” is a Trustee
who is neither an Interested Person of the Trust nor a party to the proceeding in question.
Section 8.5 Shareholders.
Each Shareholder of the Trust and each Class shall not be personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or by or on behalf of any Class. The Trustees shall
have no power to bind any Shareholder personally or to call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree to pay pursuant to terms hereof or by way of subscription
for any Shares or otherwise.
In case any Shareholder or former Shareholder
of any Class shall be held to be personally liable solely by reason of his being or having been a Shareholder of such Class and
not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the applicable Class to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, on behalf of the affected Class, shall, upon request by the
Shareholder, assume the defense of any claim made against the Shareholder for any act or obligation of the Class and satisfy
any judgment thereon from the assets of the Class. The indemnification and reimbursement required by the preceding sentence shall
be made only out of assets of the one or more Classes whose Shares were held by said Shareholder at the time the act or event occurred
that gave rise to the claim against or liability of said Shareholder. The rights accruing to a Shareholder under this Section shall
not impair any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the
right of the Trust or any Class thereof to indemnify or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Trust
Not a Partnership. It is hereby expressly declared that a trust and not a partnership is created hereby. All persons extending
credit to, contracting with or having any claim against the Trust or any Class shall look only to the assets of the Trust
or such Class for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of
the Trust’s officers, employees or agents, whether past, present or future, shall be personally liable therefor. Every note,
bond, contract or other undertaking issued by or on behalf of the Trust or the Trustees relating to the Trust or any Class shall
include a recitation limiting the obligations represented thereby to the Trust or such Class, as applicable, and its assets (but
the omission of such a recitation shall not operate to bind any Shareholder, Trustee, officer, employee or agent of the Trust).
Section 9.2 Trustees’
Good Faith Action, Expert Advice, No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of Article VIII: (i) the Trustees shall not be responsible
or liable in any event for any neglect or wrongdoing of any officer, agent, employee, consultant, adviser, administrator, distributor
or principal underwriter, custodian or transfer, dividend disbursing, Shareholder servicing or accounting agent of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee; (ii) the Trustees may take advice of counsel
or other experts with respect to the meaning and operation of this Trust Instrument and their duties as Trustees, and shall be
under no liability for any act or omission in accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be entitled to rely upon the books of account of the Trust
and upon written reports made to the Trustees by any officer appointed by them, any independent public accountant, and (with respect
to the subject matter of the contract involved) any officer, partner or responsible employee of a contracting party appointed by
the Trustees. The Trustees as such shall not be required to give any bond or surety or any other security for the performance of
their duties.
Section 9.3 Establishment
of Record Dates. The Trustees may close the Share transfer books of the Trust for a period not exceeding one hundred twenty
(120) days preceding the date of any meeting of Shareholders, or the date for the payment of any dividends or other distributions,
or the date for the allotment of rights, or the date when any change or conversion or exchange of Shares shall go into effect;
or in lieu of closing the stock transfer books as aforesaid, the Trustees may fix in advance a date, not exceeding one hundred
twenty (120) days preceding the date of any meeting of Shareholders, or the date for payment of any dividend or other distribution,
or the date for the allotment of rights, or the date when any change or conversion or exchange of Shares shall go into effect,
as a record date for the determination of the Shareholders entitled to notice of, and to vote at, any such meeting, or entitled
to receive payment of any such dividend or other distribution, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of Shares, and in such case such Shareholders and only such Shareholders as
shall be Shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend or other distribution, or to receive such allotment or rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any Shares on the books of the Trust after any such record date fixed as aforesaid.
Section 9.4 Dissolution
and Termination of Trust.
(a) This
Trust shall continue without limitation of time but subject to the provisions of sub-sections (b) and (c) of this Section 9.4.
(b) Notwithstanding
anything in Section 9.5 to the contrary, the Trustees may without Shareholder approval (unless such approval is required by
the 1940 Act) in dissolution of the Trust or any Class, liquidate, reorganize or dissolve the Trust or any Class in any manner
or fashion not inconsistent with applicable law, including, without limitation,
| (i) | sell and convey all or substantially all of the assets of the Trust or any Class to another trust, partnership, limited
liability company, association or corporation, or to a separate series or class of shares thereof, organized under the laws of
any state or jurisdiction, for adequate consideration which may include the assumption of all outstanding obligations, taxes and
other liabilities, accrued or contingent, of the Trust or any Class, and which may include shares of beneficial interest, stock
or other ownership interests of such trust, partnership, limited liability company, association or corporation or of a series thereof;
or |
| (ii) | at any time sell and convert into money all of the assets of the Trust or any Class. |
Following a sale or conversion in accordance
with the foregoing sub-section 9.4(b)(i) or (ii), and upon making reasonable provision, in the determination of the Trustees,
for the payment of all liabilities of the Trust or the affected Class as required by applicable law, by such assumption or
otherwise, the Shareholders of each Class involved in such sale or conversion shall be entitled to receive, as a Class, when
and as declared by the Trustees, the excess of the assets allocated to that Class over the liabilities allocated to such Class.
The assets so distributable to the Shareholders of any particular Class shall be distributed among such Shareholders in proportion
to the number of Shares of that Class held by them and recorded on the books of the Trust.
(c) Upon
completion of the distribution of the remaining proceeds or the remaining assets as provided in sub-section (b), the Trust (in
the case of a sale or conversion with respect to the Trust) or any affected Class shall terminate and the Trustees and the
Trust or any affected Class shall be discharged of any and all further liabilities and duties hereunder and the right, title
and interest of all parties with respect to the Trust or such affected Class shall be cancelled and discharged.
Upon termination of the Trust, following
completion of winding up of its business, the Trustees shall cause a certificate of cancellation of the Trust’s certificate
of trust to be filed in accordance with the Act, which certificate of cancellation may be signed by any one Trustee.
Section 9.5 Merger,
Consolidation, Incorporation. Anything in this Trust Instrument to the contrary notwithstanding, the Trustees, in order
to change the form of organization and/or domicile of the Trust, may, without prior Shareholder approval, (i) cause the Trust
to merge or consolidate with or into one or more trusts, partnerships, limited liability companies, associations or corporations
which is or are formed, organized or existing under the laws of a state, commonwealth possession or colony of the United States,
or (ii) cause the Trust to incorporate under the laws of Delaware. Any agreement of merger or consolidation or certificate
of merger may be signed by a majority of the Trustees. Pursuant to and in accordance with the provisions of Section 3815(f) of
the Act, and notwithstanding anything to the contrary contained in this Trust Instrument, an agreement of any merger or consolidation
approved in accordance with this Section 9.5 may effect any amendment to the Trust Instrument or effect the adoption of a
new trust instrument of the Trust if it is the surviving or resulting trust in the merger or consolidation. Any merger or consolidation
of the Trust other than as described in the foregoing provisions of this Section 9.5 shall, in addition to the approval of
the Trustees, require a Majority Shareholder Vote. Nothing in this Section 9.5 shall require, however, Shareholder approval
of any transaction whereby the Trust or any Class thereof acquires or assumes all or any part of the assets and liabilities
of any other entity.
Section 9.6 Filing
of Copies, References, Headings. The original or a copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer or Trustee of the Trust as to whether or not any such amendments or supplements
have been made and as to any matters in connection with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy of this Trust Instrument or of any such amendment
or supplemental Trust Instrument. In this Trust Instrument or in any such amendment or supplemental Trust Instrument, references
to this Trust Instrument, and all expressions like “herein,” “hereof” and “hereunder,” shall
be deemed to refer to this Trust Instrument as amended or affected by any such supplemental Trust Instrument. All expressions like
“his,” “he” and “him,” shall be deemed to include the feminine and neuter, as well as masculine,
genders. Headings are placed herein for convenience of reference only and in case of any conflict, the text of this Trust Instrument
rather than the headings, shall control. This Trust Instrument may be executed in any number of counterparts each of which shall
be deemed an original.
Section 9.7 Applicable
Law. The trust set forth in this instrument is made in the State of Delaware, and the Trust and this Trust Instrument, and
the rights and obligations of the Trustees and Shareholders hereunder, are to be governed by and construed and administered according
to the Act and the laws of said State; provided, however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware Code or (b) any provisions of the
laws (statutory or common) of the State of Delaware (other than the Act) pertaining to trusts which relate to or regulate: (i) the
filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court
or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees
or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments
or requirements relating to the titling, storage or other manner of holding of trust assets, or (vii) the establishment of
fiduciary or other standards or responsibilities or limitations on the acts or powers of trustees, which are inconsistent with
the limitations or liabilities or authorities and powers of the Trustees set forth or referenced in this Trust Instrument. The
Trust shall be of the type commonly called a “statutory trust,” and without limiting the provisions hereof, the Trust
may exercise all powers which are ordinarily exercised by such a trust under Delaware law. The Trust specifically reserves the
right to exercise any of the powers or privileges afforded to trusts or actions that may be engaged in by trusts under the Act,
and the absence of a specific reference herein to any such power, privilege or action shall not imply that the Trust may not exercise
such power or privilege or take such actions.
Section 9.8 Amendments.
Except as specifically provided herein, the Trustees may, without Shareholder vote, amend or otherwise supplement this Trust Instrument
by making an amendment, a Trust Instrument supplemental hereto or an amended and restated trust instrument. Shareholders shall
have the right to vote: (i) on any amendment which would affect their right to vote granted in Section 6.1, (ii) on
any amendment to this Section 9.8, (iii) on any amendment for which such vote is required by law and (iv) on any
amendment submitted to them by the Trustees. Any amendment required or permitted to be submitted to Shareholders which, as the
Trustees determine, shall affect the Shareholders of one or more Classes shall be authorized by vote of the Shareholders of each
Class affected and no vote of shareholders of a Class not affected shall be required. Anything in this Trust Instrument
to the contrary notwithstanding, any amendment to Article VIII hereof shall not limit the rights to indemnification or insurance
provided therein with respect to action or omission of any persons protected thereby prior to such amendment.
Section 9.9 Fiscal
Year. The fiscal year of the Trust shall end on a specified date as determined from time to time by the Trustees.
Section 9.10 Provisions in Conflict with Law. The provisions of this Trust Instrument are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Code or with other applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Trust Instrument; provided, however, that such determination shall not affect any of the
remaining provisions of this Trust Instrument or render invalid or improper any action taken or omitted prior to such
determination. If any provision of this Trust Instrument shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect
such provisions in any other jurisdiction or any other provision of this Trust Instrument in any jurisdiction.
Section 9.11
Allocation of Certain Expenses. Each Shareholder will, at the discretion of the
Trustees, indemnify the Trust against all expenses and losses resulting from indebtedness incurred in connection with
facilitating (i) requests pending receipt of the collected funds from investments sold on the date of such
Shareholder’s redemption request; (ii) redemption requests from such Shareholder who has also notified the Trust
of its intention to deposit funds in its accounts on the date of said redemption request; or (iii) the purchase of
investments pending receipt of collected funds from such Shareholder who has notified the Trust of its intention to deposit
funds in its accounts on the date of the purchase of the investments.
IN WITNESS WHEREOF, the undersigned, being
the initial Trustee of the Trust, has executed this Declaration of Trust as of the 8th day of April, 2019.
| |
By: |
/s/ Scott P. Conners |
| |
|
Scott P. Conners, as Trustee and not individually |
STATEMENT OF ADDITIONAL INFORMATION
Dated
[·], 2020
FlowStone Opportunity Fund
c/o FlowStone Partners, LLC
55 Nod Road, Ste 120
Avon, CT 06001
(312) 429-2419
This
Statement of Additional Information (“SAI”) is not an offering memorandum. This SAI relates to and should be read
in conjunction with the prospectus (the “Prospectus”) of FlowStone Opportunity Fund (the “Fund”) dated
[·], 2020, as it may be further amended or supplemented from time to time.
A copy of the Prospectus may be obtained without charge by writing to the Fund, c/o UMB Fund Services, Inc., 235 West Galena Street,
Milwaukee, WI 53212, or by calling the Fund toll-free at 1-888-799-0799.
This SAI is not an
offer to sell shares of the Fund (“Shares”) and is not soliciting an offer to buy the Shares in any state where the
offer or sale is not permitted.
Capitalized terms not
otherwise defined herein have the same meaning set forth in the Prospectus.
TABLE OF CONTENTS
INVESTMENT POLICIES AND PRACTICES
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. Certain additional information regarding the investment program of the Fund is set forth below.
FUNDAMENTAL POLICIES
The Fund’s fundamental
policies, which are listed below, may only be changed by the affirmative vote of a majority of the outstanding voting securities
of the Fund. At the present time the Shares are the only outstanding voting securities of the Fund. As defined by the Investment
Company Act of 1940, as amended (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 of the Fund (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. Within the limits of the fundamental policies
of the Fund, the management of the Fund has reserved freedom of action. The Fund may not:
| (1) | Issue any senior security, except to the extent permitted by Section 18 of the Investment
Company Act, as interpreted, modified, or otherwise permitted by the Securities and Exchange Commission (the “SEC”)
or any other applicable authority. |
| (2) | Borrow money, except to the extent permitted by Section 18 of the Investment Company Act,
as interpreted, modified, or otherwise permitted by the SEC or any other applicable authority. This investment restriction does
not apply to borrowings from affiliated investment companies or other affiliated persons of the Fund to the extent permitted by
the Investment Company Act, the SEC or any other applicable authority. |
| (3) | Underwrite securities of other issuers, except insofar as the Fund may be deemed to be an underwriter
under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the disposition of its portfolio
securities. |
| (4) | Make loans, except through purchasing fixed-income securities (including whole loans, whether senior
or subordinated, “Payment-In-Kind” or “PIK” securities, other mezzanine securities or participations in
any of the foregoing), lending portfolio securities, or entering into repurchase agreements in a manner consistent with the investment
policies of the Fund, or as otherwise permitted under the Investment Company Act. This investment restriction does not apply to
loans to affiliated investment companies or other affiliated persons of the Fund to the extent permitted by the Investment Company
Act, the SEC or any other applicable authority. |
| (5) | Purchase, hold or deal in real estate, except that the Fund may invest in securities that are secured
by real estate, including, without limitation, mortgage-related securities, or that are issued by companies or partnerships that
invest or deal in real estate or real estate investment trusts, and may hold and dispose of real estate acquired by the Fund as
a result of the ownership of securities or other permitted investments. |
| (6) | Invest in commodities and commodity contracts, except that the Fund (i) may purchase and sell
non-U.S. currencies, options, swaps, futures and forward contracts, including those related to indexes, options and options on
indexes, as well as other financial instruments and contracts that are commodities or commodity contracts, (ii) may also purchase
or sell commodities if acquired as a result of ownership of securities or other instruments, (iii) may invest in commodity
pools and other entities that purchase and sell commodities and commodity contracts, and (iv) may make such investments as
otherwise permitted by the Investment Company Act. |
| (7) | Invest 25% or more of the value of its total assets in the securities of issuers that the Adviser
determines are engaged in any single industry, except that U.S. government securities and repurchase agreements collateralized
by U.S. government securities may be purchased without limitation. This investment restriction does not apply to investments by
the Fund in Portfolio Funds (or in another comparable investment pool). The Fund may invest in Portfolio Funds that may concentrate
their assets in one or more industries. The Fund will not invest 25% or more of its assets in a Portfolio Fund or Funds, in aggregate,
that it knows concentrates its assets in a single industry. |
With respect to these
investment restrictions and other policies described in this SAI or the Prospectus, if a percentage restriction is adhered to at
the time of an investment or transaction, a later change in percentage resulting from a change in the values of investments or
the value of the Fund’s total assets, unless otherwise stated, will not constitute a violation of such restriction or policy.
The Fund’s investment policies and restrictions do not apply to the activities and the transactions of the Portfolio Funds,
but will apply to investments made by the Fund directly (or any account consisting solely of the Fund’s assets).
The investment objective
of the Fund is not a fundamental policy of the Fund and may be changed by the Board of Trustees of the Fund (the “Board”)
without the vote of a majority (as defined by the Investment Company Act) of the Fund’s outstanding Shares.
ADDITIONAL INFORMATION ON INVESTMENT
TECHNIQUES OF THE FUND AND THE RELATED RISKS
As
discussed in the Prospectus, the Fund’s investments consist primarily of: (i) secondary investments in private equity
funds (“Portfolio Funds”) managed by third-party managers (“Portfolio Fund Managers”); (ii) primary
investments in Portfolio Funds managed by Portfolio Fund Managers; and (iii) direct co-investments in the equity and/or debt
of private equity-backed operating companies. This section provides additional information about various types of investments and
investment techniques that may be employed by the Fund or by Portfolio Funds in which the Fund invests. Many of the investments
and techniques described in this section may be based in part on the existence of a public market for the relevant securities.
To that extent, such investments and techniques are not expected to represent the principal investments or techniques of the majority
of the Fund or of the Portfolio Funds; however, there is no limit on the types of investments the Portfolio Funds may make and
certain Portfolio Funds may use such investments or techniques extensively. Similarly, there are few limits on the types of investments
the Fund may make. Accordingly, the descriptions in this section cannot be comprehensive. Any decision to invest in the Fund should
take into account (i) the possibility that the Portfolio Funds may make virtually any kind of investment, (ii) that the
Fund has similarly broad latitude in the kinds of investments it may make (subject to the fundamental policies described
above) and (iii) that all such investments will be subject to related risks, which can be substantial.
Equity Securities
The Fund’s and/or
a Portfolio Fund’s portfolio may include investments in common stocks, preferred stocks, and convertible securities of U.S.
and foreign issuers. The Fund and/or a Portfolio Fund also may invest in depositary receipts relating to foreign securities. Equity
securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities. Given the private
equity focus of the Fund, there is expected to be no liquid market for a majority of such investments.
Common Stock
Common stock or other
common equity issued by a corporation or other entity generally entitles the holder to a pro rata share of the profits, if any,
of the entity without preference over any other shareholder or claims of shareholders, after making required payments to holders
of the entity’s preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently
an exclusive right to do so.
Preferred Stock
Preferred stock or
other preferred equity generally has a preference as to dividends and, in the event of liquidation, to an issuer’s assets,
over the issuer’s common stock or other common equity, but it ranks junior to debt securities in an issuer’s capital
structure. Preferred stock generally pays dividends in cash or additional shares of preferred stock at a defined rate but, unlike
interest payments on debt securities, preferred stock dividends are generally payable only if declared by the issuer’s board
of directors. Dividends on preferred stock may be cumulative, meaning that, in the event the issuer fails to make one or more dividend
payments on the preferred stock, no dividends may be paid on the issuer’s common stock until all unpaid preferred stock dividends
have been paid. Preferred stock may also be subject to optional or mandatory redemption provisions.
Convertible Securities
Convertible securities
are bonds, debentures, notes, preferred stock, or other securities that may be converted into or exchanged for a specified amount
of common equity of the same or different issuer within a specified period of time at a specified price or based on a specified
formula. In many cases, a convertible security entitles the holder to receive interest or a dividend that is generally paid or
accrued until the convertible security matures or is redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields (i.e., rates of interest or dividends) than common stocks, but
lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying
common stock into which they are convertible due to their fixed-income characteristics and (iii) provide the potential for
capital appreciation if the market price of the underlying common stock increases. The Fund’s and/or the Portfolio Funds’
investments in convertible securities are expected to primarily be in private convertible securities, but may be in public convertible
securities.
The value of a convertible
security is primarily a function of its “investment value” (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a conversion privilege) and its “conversion value”
(determined by reference to the security’s anticipated worth, at market value, if converted into the underlying common stock).
The investment value of a convertible security is influenced by changes in interest rates, with investment value typically declining
as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also
increase or decrease the convertible security’s value. If the conversion value is low relative to the investment value, the
convertible security is valued principally by reference to its investment value. To the extent the value of the underlying common
stock approaches or exceeds the conversion value, the convertible security will be valued increasingly by reference to its conversion
value. Generally, the conversion value decreases as the convertible security approaches maturity. Where no market exists for a
convertible security and/or the underlying common stock, such investments may be difficult to value. A public convertible security
generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed-income security.
A convertible security
may in some cases be subject to redemption at the option of the issuer at a price established in the convertible security’s
governing instrument. If a convertible security is called for redemption, the holder will generally have a choice of tendering
the security for redemption, converting it into common stock prior to redemption, or selling it to a third party. Any of these
actions could have a material adverse effect and result in losses to the Fund.
Derivative Instruments
Although not a principal
investment strategy, the Fund or the Portfolio Funds may use financial instruments known as derivatives. A derivative is generally
defined as an instrument whose value is derived from, or based upon, some underlying index, reference rate (such as interest rates
or currency exchange rates), security, commodity or other asset. Following are descriptions of certain derivatives that the Portfolio
Funds may use. The same descriptions apply to the Fund, mutatis mutandis, to the extent that it engages in derivatives transactions.
Certain risks associated with derivatives are described under “INVESTMENT RELATED RISKS—Derivative Instruments”
in the Prospectus.
Options and Futures
A Portfolio Fund may
utilize options contracts, futures contracts, and options on futures contracts. It also may use so-called “synthetic”
options or other derivative instruments written by broker-dealers or other financial intermediaries. Options transactions may be
effected on securities exchanges or in the over-the-counter market. When options are purchased over-the-counter, the Portfolio
Fund’s portfolio bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations
under the option contract. Such options may also be illiquid, and, in such cases, a Portfolio Fund may have difficulty closing
out its position. Over-the-counter options purchased and sold by the Portfolio Fund also may include options on baskets of specific
securities.
A Portfolio Fund may
purchase call and put options on specific securities or currencies and may write and sell covered or uncovered call and put options
for hedging purposes and non-hedging purposes to pursue its investment objective. A put option gives the purchaser of the option
the right to sell, and obligates the writer to buy, the underlying security at a stated exercise price at any time prior to the
expiration of the option. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security at a stated exercise price at any time prior to the expiration of the option.
A covered call option
is a call option with respect to which a Portfolio Fund owns the underlying security. The sale of such an option exposes the Portfolio
Fund, during the term of the option, to possible loss of opportunity to realize appreciation in the market price of the underlying
security and to the possibility that it might hold the underlying security in order to protect against depreciation in the market
price of the security during a period when it might have otherwise sold the security. The seller of a covered call option assumes
the risk of a decline in the market price of the underlying security below the purchase price of the underlying security less the
premium received and gives up the opportunity for gain on the underlying security above the exercise price of the option. The seller
of an uncovered call option assumes the risk of a theoretically unlimited increase in the market price of the underlying security
above the exercise price of the option.
A covered put option
is a put option with respect to which the seller has a short position in the underlying security. The seller of a covered put option
assumes the risk of an increase in the market price of the underlying security above the sales price (in establishing the short
position) of the underlying security plus the premium received and gives up the opportunity for gain on the underlying security
below the exercise price of the option. If the seller of the put option owns a put option covering an equivalent number of shares
with an exercise price equal to or greater than the exercise price of the put written, the position is “fully hedged”
if the option owned expires at the same time or later than the option written. The seller of an uncovered put option assumes the
risk of a decline in the market price of the underlying security below the exercise price of the option. The seller of a put option
may also be required to place cash or liquid securities in a segregated account to ensure compliance with its obligation to purchase
the underlying security. The sale of such an option exposes the Portfolio Fund during the term of the option to a decline in price
of the underlying security while depriving the Portfolio Fund of the opportunity to invest the segregated assets.
A Portfolio Fund may
close out a position when writing options by purchasing an option on the same security with the same exercise price and expiration
date as the option that it has previously written on the security. The Portfolio Fund will realize a profit or loss if the amount
paid to purchase an option is less or more, as the case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Portfolio Fund would generally make a similar “closing sale transaction,”
which involves liquidating its position by selling the option previously purchased. However, if deemed advantageous, the Portfolio
Fund would be entitled to exercise the option.
A Portfolio Fund may
enter into stock futures contracts, interest rate futures contracts, and currency futures contracts in U.S. domestic markets or
on exchanges located outside the United States. Foreign markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may have greater risk potential than domestic markets.
For example, some foreign exchanges are principal markets so that no common clearing facility exists, and an investor may look
only to the broker for performance of the contract. Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and those that are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the U.S. Commodity Futures Trading Commission (the “CFTC”). Therefore, the CFTC does not have the
power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or
regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, the Portfolio Funds
may not be afforded certain of the protections that apply to domestic transactions, including the right to use domestic alternative
dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided
the same protections as funds received to margin futures transactions on domestic exchanges. In addition, the price of any foreign
futures or option contract and, therefore, the potential profit and loss resulting from that contract, may be affected by any fluctuation
in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign
option contract is liquidated or exercised.
In addition to futures
contracts traded on U.S. domestic markets or exchanges that are regulated by the CFTC or on foreign exchanges, Portfolio Funds
may also trade certain futures either over-the-counter or on trading facilities such as derivatives transaction execution facilities,
exempt boards of trade or electronic trading facilities that are licensed and/or regulated to varying degrees by the CFTC. In addition,
certain single stock futures and narrow-based security index futures may be traded over-the-counter or on trading facilities such
as contract markets, derivatives transaction execution facilities and electronic trading facilities that are licensed and/or regulated
to varying degrees by both the CFTC and the SEC or on foreign exchanges.
Trading
in futures involves risk of loss to the Portfolio Fund that could materially adversely affect the net asset value of the Fund.
No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day
by regulations referred to as “daily price fluctuation limits” or “daily limits.” Once the daily limit
has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended
for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the Portfolio
Fund to substantial losses, which may result in losses to the Fund. In addition, the CFTC and various exchanges impose speculative
position limits on the number of positions that each Portfolio Fund may indirectly hold or control in certain particular futures
or options contracts. Many of the major U.S. exchanges have eliminated speculative position limits and have substituted position
accountability rules that would permit the Portfolio Funds to trade without restriction as long as such Portfolio Funds
can demonstrate the positions acquired were not acquired for the purpose of manipulating the market.
Successful use of futures
by a Portfolio Fund depends on its ability to correctly predict movements in the direction of the relevant market, and, to the
extent the transaction is entered into for hedging purposes, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract.
The prices of all derivative
instruments, including futures and options prices, are highly volatile. Price movements of forward contracts, futures contracts,
and other derivative contracts in which a Portfolio Fund may invest are influenced by, among other things: interest rates; changing
supply and demand relationships; trade, fiscal, monetary, and exchange control programs and policies of governments; and national
and international political and economic events and policies. In addition, governments from time to time intervene, directly and
by regulation, in certain markets, particularly those currencies and interest rate-related futures and options. Such intervention
often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly
in the same direction because of, among other things, interest rate fluctuations. Portfolio Funds are also subject to the risk
of the failure of any of the exchanges on which their positions trade or of their clearinghouses.A stock index future obligates
a Portfolio Fund to pay, or entitles it to receive, an amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the contract’s last trading day and the value
of the index based on the stock prices of the securities that comprise it at the opening of trading in such securities on the next
business day. An interest rate future obligates a Portfolio Fund to purchase or sell an amount of a specific debt security at a
future date at a specific price. A currency future obligates a Portfolio Fund to purchase or sell an amount of a specific currency
at a future date at a specific price.
Call and Put Options
on Securities Indexes
A Portfolio Fund may
purchase and sell call and put options on stock indexes listed on national securities exchanges or traded in the over-the-counter
market for hedging and non-hedging purposes to pursue its investment objectives. A stock index fluctuates with changes in the market
values of the stocks included in the index. Accordingly, successful use by a Portfolio Fund of options on stock indexes will be
subject to the ability to correctly predict movements in the direction of the stock market generally or of a particular industry
or market segment. This requires different skills and techniques than predicting changes in the price of individual stocks.
Yield Curve Options
A Portfolio Fund may
enter into options on the yield “spread” or differential between two securities. Such transactions are referred to
as “yield curve” options. In contrast to other types of options, a yield curve option is based on the difference between
the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in
the case of a put), regardless of whether the yields of the underlying securities increase or decrease. The trading of yield curve
options is subject to all of the risks associated with the trading of other types of options. In addition, such options present
a risk of loss even if the yield of one of the underlying securities remains constant, or if the spread moves in a direction or
to an extent which was not anticipated.
Rights and Warrants
A Portfolio Fund may
invest in rights and warrants. Rights (sometimes referred to as “subscription rights”) and warrants may be purchased
separately or may be received as part of a distribution in respect of, or may be attached to, other securities that a Portfolio
Fund has purchased. Rights and warrants are securities that give the holder the right, but not the obligation, to purchase equity
securities of the company issuing the rights or warrants, or a related company, at a fixed price either on a date certain or during
a set period. Typically, rights have a relatively short term (e.g., two to four weeks), whereas warrants can have much longer terms.
At the time of issue, the cost of a right or warrant is substantially less than the cost of the underlying security itself.
Particularly
in the case of warrants, price movements in the underlying security are generally magnified in the price movements of the warrant.
This effect would enable a Portfolio Fund to gain exposure to the underlying security with a relatively low capital investment
but increases the Portfolio Fund’s risk in the event of a decline in the value of the underlying security and can result
in a complete loss of the amount invested in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If the market price of the underlying security is
below the exercise price of the warrant on its expiration date, the warrant will generally expire without value. The equity security
underlying a warrant is authorized at the time the warrant is issued or is issued together with the warrant, which may result in
losses to the Fund. Investing in warrants can provide a greater potential for profit or loss than an equivalent investment in the
underlying security, and, thus, can be a speculative investment. The value of a warrant may decline because of a decline in the
value of the underlying security, the passage of time, changes in interest rates or in the dividend or other policies of the company
whose equity underlies the warrant or a change in the perception as to the future price of the underlying security, or any combination
thereof. Warrants and rights do not carry with them the right to dividends or voting rights with respect to the securities that
they entitle the holder to purchase, and they do not represent any rights in the assets of the issuer.
Swaps
A Portfolio Fund may
enter into equity, interest rate, index, currency rate, total return and/or other types of swap agreements. These transactions
are entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly at a lower cost
than if a Portfolio Fund had invested directly in the asset that yielded the desired return. Swap agreements are two-party contracts
entered into primarily by institutional investors for periods ranging from a few weeks to more than a year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped”
between the parties are generally calculated with respect to a “notional amount” (i.e., the return on or increase in
value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket”
of securities representing a particular index).
Interest Rate, Mortgage
and Credit Swaps
A Portfolio Fund may
enter into interest rate swaps. Forms of swap agreements include interest rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent interest rates exceed a specified rate or “cap”; interest
rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates
fall below a specified level or “floor”; and interest rate collars, under which a party sells a cap and purchases a
floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
Mortgage swaps are similar to interest rate swaps in that they represent commitments to pay and receive interest. The notional
principal amount, however, is tied to a reference pool or pools of mortgages. Credit swaps involve the receipt of floating or fixed
note payments in exchange for assuming potential credit losses on an underlying security. Credit swaps give one party to a transaction
the right to dispose of or acquire an asset (or group of assets), or the right to receive a payment from the other party, upon
the occurrence of specified credit events.
Equity Index Swaps
A Portfolio Fund may
enter into equity index swaps. Equity index swaps involve the exchange by a Portfolio Fund with another party of cash flows based
upon the performance of an index or a portion of an index of securities that usually includes dividends. A Portfolio Fund may purchase
cash-settled options on equity index swaps. A cash-settled option on a swap gives the purchaser the right, but not the obligation,
in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date.
These options typically are purchased in privately negotiated transactions from financial institutions, including securities brokerage
firms.
Currency Swaps
A Portfolio Fund may
enter into currency swaps for both hedging and non-hedging purposes. Currency swaps involve the exchange of rights to make or receive
payments in specified foreign currencies. Currency swaps usually involve the delivery of the entire principal value of one designated
currency in exchange for another designated currency. Therefore, the entire principal value of a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly
specialized activity that involves special investment techniques and risks. Incorrect forecasts of market values and currency exchange
rates can materially adversely affect the Portfolio Fund’s performance. If there is a default by the other party to such
a transaction, the Portfolio Fund will have contractual remedies pursuant to the agreements related to the transaction.
Total Return Swaps
A Portfolio Fund may
enter into total return swaps. In a total return swap, one party pays a rate of interest in exchange for the total rate of return
on another investment. For example, if a Portfolio Fund wished to invest in a senior loan, it could instead enter into a total
return swap and receive the total return of the senior loan, less the “funding cost,” which would be a floating interest
rate payment to the counterparty.
Swaptions
A Portfolio Fund may
also purchase and write (sell) options contracts on swaps, commonly referred to as “swaptions.” A swaption is an option
to enter into a swap agreement. Like other types of options, the buyer of a swaption pays a non-refundable premium for the option
and obtains the right, but not the obligation, to enter into an underlying swap on agreed-upon terms. The seller of a swaption,
in exchange for the premium, becomes obligated (if the option is exercised) to enter into an underlying swap on agreed-upon terms.
Certain swap agreements
into which a Portfolio Fund enters may require the calculation of the obligations of the parties to the agreements on a “net
basis.” Consequently, the Portfolio Fund’s current obligations (or rights) under such swap agreements generally will
be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by
each party to the agreement (the “net amount”). The risk of loss with respect to swaps consists of the net amount of
the payments that the Portfolio Fund is contractually obligated to make. If the other party to a swap defaults, the Portfolio Fund’s
risk of loss consists of the net amount of the payments that the Portfolio Fund contractually is entitled to receive.
Distressed Securities
The Fund or a Portfolio
Fund may invest in debt or equity securities of domestic and foreign issuers in weak financial condition, experiencing poor operating
results, having substantial capital needs or negative net worth, facing special competitive or product obsolescence problems, or
that are involved in bankruptcy or reorganization proceedings. Investments of this type may involve substantial financial and business
risks that can result in substantial or at times even total losses. Among the risks inherent in investments in troubled entities
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 transfers and other voidable
transfers or payments, lender liability, and a bankruptcy court’s power to disallow, reduce, subordinate, or disenfranchise
particular claims. The market prices of such securities are also subject to abrupt and erratic market movements and above-average
price volatility, and the spread between the bid and ask prices of such securities may be greater than those prevailing in other
securities markets. It may take a number of years for the market price of such securities to reflect their intrinsic value. In
liquidation (both in and out of bankruptcy) and other forms of corporate reorganization, there exists the risk that the reorganization
either will be unsuccessful (due to, for example, failure to obtain requisite approvals), will be delayed (for example, until various
liabilities, actual or contingent, have been satisfied), or will result in a distribution of cash or a new security the value of
which will be less than the purchase price to the Portfolio Fund of the security in respect to which such distribution was made.
Additional Method of Investing
in a Portfolio Fund
The Fund will typically
invest directly in a Portfolio Fund by purchasing an interest in such Portfolio Fund. There may be situations, however, where a
Portfolio Fund is not open or available for direct investment by the Fund or where the Adviser elects for other reasons to invest
indirectly in a Portfolio Fund (including, without limitation, restrictions of the Investment Company Act). On occasions where
the Adviser determines that an indirect investment is the most effective or efficient means of gaining exposure to a Portfolio
Fund, the Fund may invest in a Portfolio Fund indirectly, such as by purchasing a structured note or entering into a swap or other
contract paying a return tied to the return of a Portfolio Fund. In the case of a structured note or a swap, a counterparty would
agree to pay to the Fund a return based on the return of the Portfolio Fund, in exchange for consideration paid by the Fund equivalent
to the cost of purchasing an ownership interest in the Portfolio Fund. Indirect investment through a swap or similar contract in
a Portfolio Fund carries with it the credit risk associated with the counterparty. Indirect investments will generally be subject
to transaction and other fees, which will reduce the value of the Fund’s investment. There can be no assurance that the Fund’s
indirect investment in a Portfolio Fund will have the same or similar results as a direct investment in the Portfolio Fund, and
the Fund’s value may decrease as a result of such indirect investment. When the Fund makes an indirect investment in a Portfolio
Fund by investing in a structured note, swap, or other contract intended to pay a return equal to the total return of such Portfolio
Fund, such investment by the Fund may be subject to additional regulations.
Cyber Security Risk
The Fund and its service
providers may be prone to operational and information security risks resulting from breaches in cyber security. A breach in cyber
security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information, suffer data
corruption, or lose operational capacity. Breaches in cyber security include, among other behaviors, stealing or corrupting data
maintained online or digitally, denial of service attacks on websites, the unauthorized release of confidential information or
various other forms of cyber-attacks. Cyber security breaches affecting the Fund, the Adviser, financial intermediaries and other
third-party service providers may adversely impact the Fund. For instance, cyber security breaches may interfere with the processing
of Shareholder transactions, impact the Fund’s ability to calculate its net asset value, cause the release of private Shareholder
information or confidential business information, impede investment activities, subject the Fund to regulatory fines or financial
losses and/or cause reputational damage. The Fund may also incur additional costs for cyber security risk management purposes.
Similar types of cyber security risks are also present for the issuers of securities in which the Fund may invest, which could
result in material adverse consequences for such issuers and may cause the Fund to lose value.
BOARD OF TRUSTEES AND OFFICERS
The business operations
of the Fund are managed and supervised under the direction of the Board, subject to the laws of the State of Delaware and the Fund’s
agreement and declaration of trust (“Declaration of Trust”). The Board has overall responsibility for the management
and supervision of the business affairs of the Fund on behalf of its Shareholders, including the authority to establish policies
regarding the management, conduct and operation of its business. The Board exercises the same powers, authority and responsibilities
on behalf of the Fund as are customarily exercised by the board of directors of a registered investment company organized as a
corporation. The officers of the Fund conduct and supervise the daily business operations of the Fund.
The trustees of the
Board (each, a “Trustee”) are not required to contribute to the capital of the Fund or to hold interests therein. A
majority of Trustees of the Board are not “interested persons” (as defined in the Investment Company Act) of the Fund
(collectively, the “Independent Trustees”).
The identity of Trustees
of the Board and officers of the Fund, and their brief biographical information, including their addresses, their year of birth
and descriptions of their principal occupations during the past five years is set forth below.
The Trustees serve
on the Board for terms of indefinite duration. A Trustee’s position in that capacity will terminate if the Trustee is removed
or resigns or, among other events, upon the Trustee’s death, incapacity, retirement or bankruptcy. A Trustee may resign upon
written notice to the other Trustees of the Fund, and may be removed either by (i) the vote of at least two-thirds of the
Trustees of the Fund not subject to the removal vote or (ii) the vote of Shareholders holding not less than two-thirds of
the total number of votes eligible to be cast by all Shareholders of the Fund. In the event of any vacancy in the position of a
Trustee, the remaining Trustees of the Fund may appoint an individual to serve as a Trustee so long as immediately after the appointment
at least two-thirds of the Trustees of the Fund then serving have been elected by the Shareholders of the Fund. The Board may call
a meeting of the Shareholders to fill any vacancy in the position of a Trustee of the Fund, and must do so if the Trustees who
were elected by the Shareholders cease to constitute a majority of the Trustees then serving on the Board.
The
Board believes that each of the Trustees’ experience, qualifications, attributes and skills on an individual basis and in
combination with those of the other Trustees lead to the conclusion that each Trustee should serve in such capacity. Among the
attributes common to all Trustees is the ability to review critically, evaluate, question and discuss information provided to them,
to interact effectively with the other Trustees, the Adviser, other service providers, counsel and the independent registered
public accounting firm, and to exercise effective business judgment in the performance of their duties as Trustees. A Trustee’s
ability to perform his or her duties effectively may have been attained through the Trustee’s business, consulting, and public
service work; experience as a board member of non-profit entities or other organizations; education or professional training; and/or
other life experiences. In addition to these shared characteristics, set forth below is a brief discussion of the specific experience,
qualifications, attributes or skills of each Trustee. Specific details regarding each Trustee’s principal occupations during
the past five years are included in the tables below. See “Board of Trustees and Officers—Independent Trustees”
and “Board of Trustees and Officers—Interested Trustees and Officers.”
Jason S. Gull
Mr. Gull has been a
Trustee of the Fund since the Fund’s inception. Mr. Gull has more than 10 years of industry experience.
Michael H. Moskow
Mr. Moskow has been
a Trustee of the Fund since the Fund’s inception. Mr. Moskow served as president and chief executive officer of the Federal
Reserve Bank of Chicago from 1994 to 2007. Prior to his service at the Federal Reserve, Mr. Moskow had experience in the private
sector, academia and the federal government. He currently serves as a director on public operating company boards, including Discover
Financial. He also serves as a director of Commonwealth Edison. Mr. Moskow also has served as a member of public company audit
committees, and he serves on other private operating company and not-for-profit boards of directors. As a result of these positions,
Mr. Moskow has experience with financial matters and securities markets. He is also generally familiar with board functions
and processes as a result of his many board positions.
Marek Herchel
Mr. Herchel has been
a Trustee of the Fund since the Fund’s inception. Mr. Herchel has more than 20 years of investment and business leadership
experience.
Scott P. Conners
Scott P. Conners has
been a Trustee of the Fund since the Fund’s inception. Mr. Conners has more than 26 years of industry experience.
Eric Becker
Mr. Becker has been
a Trustee of the Fund since the Fund’s inception. Mr. Becker has more than 35 years of industry experience.
INDEPENDENT TRUSTEES
NAME, ADDRESS^
AND YEAR OF BIRTH |
|
POSITION(S)
WITH THE
FUND |
|
LENGTH OF
TIME SERVED* |
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
AND OTHER
DIRECTORSHIPS** HELD
BY THE TRUSTEE |
|
PORTFOLIOS IN
FUND COMPLEX
OVERSEEN BY TRUSTEE |
|
OTHER
DIRECTORSHIPS
HELD BY
THE TRUSTEE |
|
Jason S. Gull
Birth year: 1970 |
|
Trustee |
|
Since Inception |
|
Partner, Head of Secondary Investments, and Member of the Executive Committee at Adams Street Partners, LLC (2004-2016). |
|
1 |
|
Trustee, Utah School & Institutional Trust Funds Office; Advisory Board Member, Cougar Capital, a Brigham Young University affiliated investment fund; Member of the Brigham Young University Marriott School of Business National Advisory Council. |
|
Michael H. Moskow
Birth year: 1938 |
|
Trustee |
|
Since Inception |
|
Consultant, Board and Advisory Board Member, and Board Member, Taylor Capital Group (since 2008-2014). |
|
1 |
|
CityBase, Board Member; Discover Financial, Inc., Board Member; Educational Corporation of America, Board Member; National Futures Association, Board Member; and Commonwealth Edison, a subsidiary of Exelon, Board Member. |
|
Marek Herchel
Birth year: 1976 |
|
Trustee |
|
Since Inception |
|
Head of Americas, MLC Private Equity, nabSecurities, LLC since June 2017; Managing Director, AlpInvest Partners, The Carlyle Group (from 2011-2017). |
|
1 |
|
None |
|
^
The address for each Independent Trustee is c/o Joshua Deringer, Faegre Drinker Biddle & Reath LLP, One Logan
Square, Suite 2000, Philadelphia, PA 19103-6996.
*Each Trustee serves an indefinite term, until his or her successor
is elected.
**Includes any company with a class of securities registered
pursuant to Section 12 of the Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the requirements
of Section 15(d) of the Exchange Act or any company registered under the Investment Company Act.
INTERESTED TRUSTEES AND OFFICERS
NAME, ADDRESS
AND YEAR OF BIRTH |
|
POSITION(S)
WITH THE
FUND |
|
LENGTH OF
TIME SERVED* |
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
AND OTHER
DIRECTORSHIPS**HELD
BY THE
TRUSTEE OR OFFICER |
|
PORTFOLIOS IN
FUND COMPLEX
OVERSEEN BY TRUSTEE OR
OFFICER |
|
OTHER
DIRECTORSHIPS
HELD BY THE
TRUSTEE |
|
|
Scott P. Conners
Birth year: 1968
29 Lucy Way
Simsbury, CT 06070 |
|
Trustee; President |
|
Since Inception |
|
President and Managing Director, FlowStone Partners, LLC (since March 2019); Managing Director, Cresset SPG, LLC, from 2017 to 2019; Partner and Member of the Private Equity Investment Committee at Landmark Partners, LLC from 2003-2015 (employee since 1993) |
|
1 |
|
Board Chair and Board Member, Hartford Youth Scholars; Board Member, University of Maine at Farmington Board of Visitors; Board Member and Treasurer, Simsbury Little League |
|
|
Eric Becker
Birth year: 1962
c/o Cresset Capital Management, LLC
444 W. Lake Street
Suite 4700
Chicago, IL 60606 |
|
Trustee |
|
Since Inception |
|
Co-Chairman at Cresset Capital Management (since 2017); Chairman at Caretta Group (since 2014); Chairman at Vennpoint Real Estate (since 2014); Senior Managing Director and Co-Founder at Sterling Partners |
|
1 |
|
Board Member, Kuvare Holdings; Advisory Board Member, Chesapeake Spice Company; Advisory Board Member, Dorsar Family Office; Board Member, Roti Modern Mediterranean Restaurants, Board Member, Eastman Egg Company; Board Member, HiTech Corp.; Board Member, Viewpost; Board Member, Living Classrooms Foundation; Board Member, Karma for Cara Foundation; Board Member, Admirals Cove Foundation; Board Member, Chicago Ideas Week |
|
|
Trent Statczar^
Birth year: 1971
690 Taylor Road
Suite 210
Gahana, OH 43230 |
|
Chief Financial Officer; Treasurer |
|
Since Inception |
|
Fund Principal Financial Officer at Foreside Fund Officer Services, LLC (since 2016); Director, PFO Services at Beacon Hill Fund Services (2008-2016) |
|
1 |
|
N/A |
|
Brandon Kipp^
Birth year: 1983
690 Taylor Road
Suite 210
Gahanna,
OH 43230 |
|
Chief Compliance Officer |
|
Since May 2019 |
|
Director, Foreside Financial Group, LLC (since 2019); Senior Fund Compliance Officer, Ultimus Fund Solutions, LLC (from July 2017 to May 2019); Assistant Vice President and Compliance Manager, UMB Fund Services, Inc. (March 2014 to July 2017). |
|
1 |
|
N/A |
|
|
William S. Bertha
Birth year: 1990
520 W. Huron St.
Unit 405
Chicago, IL 60654 |
|
Secretary |
|
Since Inception |
|
Senior Associate at FlowStone Partners, LLC since March 2019; Senior Associate at Cresset SPG, LLC from 2018 to 2019; Associate at Adams Street Partners (2017-2018); Analyst at Northwestern Mutual Capital (2014-2017) |
|
1 |
|
N/A |
|
*Each Trustee serves an indefinite term, until his or her successor
is elected.
**Includes any company with a class of securities registered
pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or
any company registered under the Investment Company Act.
^ Foreside Fund Officer Services, LLC provides chief compliance
officer and chief financial officer services to the Fund under a Fund CCO Agreement and Fund CFO/Treasuer Agreement. Messrs. Statczar
and Kipp are employees of Foreside Fund Officer Services, LLC.
Leadership Structure and Oversight Responsibilities
Overall
responsibility for oversight of the Fund rests with the Board. The Fund has engaged the Adviser to manage the Fund on a day-to-day
basis. The Board is responsible for overseeing the Adviser and other service providers in the operations of the Fund in
accordance with the provisions of the Investment Company Act, applicable provisions of state and other laws and the Declaration
of Trust. The Board is currently composed of 7 members, 4 of whom are Independent Trustees. The Board will meet in-person at regularly
scheduled meetings four times each year. In addition, the Board may hold special in-person or telephonic meetings or informal conference
calls to discuss specific matters that may arise or require action between regular meetings. The Independent Trustees have also
engaged independent legal counsel to assist them in performing their oversight responsibility. The Independent Trustees will meet
with their independent legal counsel in-person prior to and during each quarterly in-person board meeting. As described below,
the Board has established an audit committee (the “Audit Committee”), a qualified legal compliance committee (the “Qualified
Legal Compliance Committee”), a nominating committee (the “Nominating Committee”), and a valuation committee
(the “Valuation Committee”), and may establish ad hoc committees or working groups from time to time to assist the
Board in fulfilling its oversight responsibilities.
The
Board has appointed Scott P. Conners, an Interested Trustee, to serve in the role of Chairman. The Chairman’s role
is to preside at all meetings of the Board and to act as liaison with the Adviser, other service providers, counsel and other Trustees
generally between meetings. The Chairman serves as a key point person for dealings between management and the Trustees. The Chairman
may also perform such other functions as may be delegated by the Board from time to time. The Board has appointed Michael H. Moskow,
an Independent Trustee, to serve in the role of Lead Independent Trustee. The Board has determined that the Board’s leadership
structure is appropriate because it allows the Board to exercise informed and independent judgment over matters under its purview
and it allocates areas of responsibility among committees of Trustees and the full Board in a manner that enhances effective oversight.
The Fund is subject
to a number of risks, including investment, compliance, operational and valuation risks, among others. Risk oversight forms part
of the Board’s general oversight of the Fund and will be addressed as part of various Board and committee activities. Day-to-day
risk management functions are subsumed within the responsibilities of the Adviser and other service providers (depending on the
nature of the risk), which carry out the Fund’s investment management and business affairs. The Adviser and other service
providers employ a variety of processes, procedures and controls to identify various events or circumstances that give rise to
risks, to lessen the probability of their occurrence and/or to mitigate the effects of such events or circumstances if they do
occur. Each of the Adviser and other service providers has their own independent interests in risk management, and their policies
and methods of risk management will depend on their functions and business models. The Board recognizes that it is not possible
to identify all of the risks that may affect the Fund or to develop processes and controls to eliminate or mitigate their occurrence
or effects. The Board will require senior officers of the Fund, including the President, Chief Financial Officer and Chief Compliance
Officer, and the Adviser, to report to the full Board on a variety of matters at regular and special meetings of the Board, including
matters relating to risk management. The Board and the Audit Committee will also receive regular reports from the Fund’s
independent registered public accounting firm on internal control and financial reporting matters. The Board will also receive
reports from certain of the Fund’s other primary service providers on a periodic or regular basis, including the Fund’s
custodian, distributor and administrator. The Board may, at any time and in its discretion, change the manner in which it conducts
risk oversight.
Committees of the Boards of Trustees
Audit Committee
The
Board has formed an Audit Committee that is responsible for overseeing the Fund’s accounting and financial reporting policies
and practices, its internal controls, and, as appropriate, the internal controls of certain service providers; overseeing the quality
and objectivity of the Fund’s financial statements and the independent audit of those financial statements; and acting as
a liaison between the Fund’s independent auditors and the full Board. In performing its responsibilities, the Audit Committee
will select and recommend annually to the entire Board a firm of independent certified public accountants to audit the books and
records of the Fund for the ensuing year, and will review with the firm the scope and results of each audit. The Audit Committee
currently consists of each of the Fund’s Independent Trustees. The Audit Committee has selected Jason S. Gull to serve
in the role as Chairman of the Audit Committee. During the fiscal period from August 30, 2019 (Commencement of Operations) to March
31, 2020, the Audit Committee held two meetings.
Nominating Committee
The Board has formed
a Nominating Committee that is responsible for selecting and nominating persons to serve as Trustees of the Fund. The Nominating
Committee is responsible for both nominating candidates to be appointed by the Board to fill vacancies and for nominating candidates
to be presented to Shareholders for election. In performing its responsibilities, the Nominating Committee will consider candidates
recommended by management of the Fund and by Shareholders and evaluate them both in a similar manner, as long as the recommendation
submitted by a Shareholder includes at a minimum: the name, address and telephone number of the recommending Shareholder and information
concerning the Shareholder’s interests in the Fund in sufficient detail to establish that the Shareholder held Shares on
the relevant record date; and the name, address and telephone number of the recommended nominee and information concerning the
recommended nominee’s education, professional experience, and other information that might assist the Nominating Committee
in evaluating the recommended nominee’s qualifications to serve as a manager. The Nominating Committee may solicit candidates
to serve as trustees from any source it deems appropriate. With the Board’s prior approval, the Nominating Committee may
employ and compensate counsel, consultants or advisers to assist it in discharging its responsibilities. The Nominating Committee
currently consists of each of the Fund’s Independent Trustees. During the fiscal period from August 30, 2019 (Commencement
of Operations) to March 31, 2020, the Nominating Committee did not meet.
Qualified Legal Compliance Committee
The Board has formed
a Qualified Legal Compliance Committee that is responsible for (i) receiving reports of certain material breaches or violations
of certain U.S. laws or regulations or fiduciary duties, (ii) reporting evidence of such breaches or violations to the Fund’s
Chief Executive Officer (“CEO”) (iii) determining whether an investigation of such breaches or violations is required,
(iv) if the Qualified Legal Compliance Committee determines an investigation is required, initiating such investigation, (v) at
the conclusion of such investigation, recommending that the Fund implement an appropriate response to evidence of a breach or violation,
and (vi) informing the CEO and the Board of results of the investigation. The Qualified Legal Compliance Committee currently
consists of the members of the Audit Committee. During the fiscal period from August 30, 2019 (Commencement of Operations) to March
31, 2020, the Qualified Legal Compliance Committee did not meet.
Valuation Committee
The Board has approved
valuation procedures for the Fund (the “Valuation Procedures”), and has appointed a separate Valuation Committee and
delegated to the Valuation Committee the responsibility to determine the fair value of the Fund’s investments. The Valuation
Committee oversees the implementation of the Valuation Procedures, and may consult with representatives from the Fund’s outside
legal counsel or other third-party consultants in their discussions and deliberations. The Committee is comprised of the following
members of the Adviser and the Board: Eric Liss, Kenny Lower and Scott Conners. The Valuation Committee is also comprised of employees
of Foreside Fund Officer Services, LLC that serve as officers of the Fund and employees of the Administrator who serve as senior
accounting and financial reporting contacts for the Fund. During the fiscal period from August 30, 2019 (Commencement of Operations)
to March 31, 2020, the Valuation Committee met two times.
Trustee Ownership of Securities
For each Trustee, the dollar range of equity
securities beneficially owned by the Trustee in the Fund and in the family of investment companies (including all of the registered
investment companies advised by the Adviser) as of December 31, 2019, 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
MANAGER IN FAMILY OF
INVESTMENT COMPANIES | |
| Independent | |
| | | |
| | |
| Jason S. Gull | |
| None | | |
| None | |
| Michael H. Moskow | |
| None | | |
| None | |
| Marek Herchel | |
| None | | |
| None | |
| Interested | |
| | | |
| | |
| Scott P. Conners | |
| Over $100,000 | | |
| Over $100,000 | |
| Eric Becker | |
| Over $100,000 | | |
| Over $100,000 | |
Independent Trustee Ownership of Securities of the Adviser
None of the Independent
Trustees (or their immediate family members) owned securities of the Adviser, or of an entity (other than a registered investment
company) controlling, controlled by or under common control with the Adviser.
Trustee Compensation
In
consideration of the services rendered by the Independent Trustees, the Fund pays each Independent Trustee a retainer of
$5,000 per year. In addition, the Fund pays an additional retainer of $5,000 per year to the Chairman of the Board, Chairman of
the Audit Committee, and to the Chairman of the Valuation Committee. Trustees will also receive $2,500 for each in-person quarterly
meeting. Trustees that are interested persons will not be compensated by the Fund. The Trustees do not receive any pension or retirement
benefits.
The following table
sets forth certain information regarding the compensation of the Funds’ Trustees.
| Name of Trustee | |
Aggregate Compensation
from the Fund(1) | | |
Total Compensation from Funds
and Fund Complex Paid to
Trustees(2) | |
| Jason
S. Gull | |
$ | 20,000 | | |
$ | 20,000 | |
| | |
| | | |
| | |
| Michael
H. Moskow | |
$ | 20,000 | | |
$ | 20,000 | |
| | |
| | | |
| | |
| Marek
Herchel | |
$ | 15,000 | | |
$ | 15,000 | |
(1) The
compensation estimated to be paid by the Fund for the first full fiscal year for services to the Fund.
(2) The
total estimated compensation to be paid from the Fund and Fund Complex for a full calendar year.
CODES OF ETHICS
The
Fund and the Adviser have each adopted a code of ethics pursuant to Rule 17j-1 of the Investment Company Act, which is designed
to prevent affiliated persons of the Fund and the Adviser from engaging in deceptive, manipulative, or fraudulent activities in
connection with securities held or to be acquired by the Fund. The codes of ethics permit persons subject to them to invest in
securities, including securities that may be held or purchased by the Fund, subject to a number of restrictions and controls.
Compliance with the codes of ethics is carefully monitored and enforced.
The codes of ethics
are included as exhibits to the Fund’s registration statement filed with the SEC. The codes of ethics are available on the
EDGAR database on the SEC’s Internet site at http://www.sec.gov, and may be obtained after paying a duplicating fee, by electronic
request at the following E-mail address: publicinfo@sec.gov.
INVESTMENT MANAGEMENT AND OTHER
SERVICES
The Adviser
FlowStone Partners,
LLC (the “Adviser”), a Delaware limited liability company, serves as the investment adviser to the Fund. The Adviser
is registered as an investment adviser with the SEC under the Advisers Act. Subject to the general supervision of the Board, and
in accordance with the investment objective, policies, and restrictions of the Fund, the Adviser is responsible for the management
and operation of the Fund and the investment of the Fund’s assets. The Adviser provides such services to the Fund pursuant
to the investment management agreement (the “Investment Management Agreement”). In connection with a rebranding, on
or about April 8, 2019, Cresset SPG, LLC assigned its responsibilities as the investment adviser of the Fund under the Investment
Management Agreement to the Adviser, and the Adviser assumed Cresset SPG, LLC’s responsibilities under the Investment Management
Agreement. The Transaction did not result in a change in actual control or actual management of the Fund’s investment adviser,
nor did it result in a reduction in the nature or quality of services provided to the Fund.
The Investment Management
Agreement became effective upon the Initial Closing Date, and will continue in effect for an initial two-year term. Thereafter,
the Investment Management Agreement will continue in effect from year to year provided such continuance is specifically approved
at least annually by (i) the vote of a majority of the outstanding voting securities of the Fund, or a majority of the Board,
and (ii) the vote of a majority of the Independent Trustees of the Fund, cast in person at a meeting called for the purpose
of voting on such approval. See “VOTING” in the Prospectus. The Investment Management Agreement will terminate
automatically if assigned (as defined in the Investment Company Act) and is terminable at any time without penalty upon 60 days’
written notice to the Fund by either the Board or the Adviser. A discussion regarding the basis for the Board’s approval
of the Investment Management Agreement is available in the Fund’s semiannual report to shareholders for the period ended
September 30, 2019.
The Investment Management
Agreement provides that, in the absence of willful misfeasance bad faith, reckless disregard or gross negligence of its obligations
to the Fund, the Adviser and any partner, director, officer or employee of the Adviser, or any of their affiliates, executors,
heirs, assigns, successors or other legal representatives, will not be liable for any error of judgment, for any mistake of law
or for any act or omission by the person in connection with the performance of services to the Fund. The Investment Management
Agreement also provides for indemnification, to the fullest extent permitted by law, by the Fund, of the Adviser, or any partner,
director, officer or employee of the Adviser, and any of their affiliates, executors, heirs, assigns, successors or other legal
representatives, against any liability or expense to which the person may be liable that arises in connection with the performance
of services to the Fund, so long as the liability or expense is not incurred by reason of the person’s willful misfeasance
bad faith, reckless disregard or gross negligence of its obligations to the Fund. Such indemnification includes losses sustained
by the Adviser or its affiliates as an indemnitor under any sub-servicing or other agreement entered into by the Adviser for the
benefit of the Fund to the extent that such losses relate to the Fund and the indemnity giving rise to the losses is not broader
than that granted by the Fund to the Adviser or its affiliates pursuant to the Investment Management Agreement. The Fund has the
right to consent before the Adviser settles or consents to the settlement of a claim involving such indemnitor losses (but such
consent right will not affect the Adviser’s entitlement to indemnification).
The
Fund will pay the Adviser the Investment Management Fee in consideration of the Advisory and other services provided by the Adviser
to the Fund. Pursuant to the Investment Management Agreement, the Fund will pay the Adviser a quarterly Investment Management Fee
equal to 1.25% on an annualized basis of the greater of (i) the Fund’s net asset value and (ii) the Fund’s
net asset value less cash and cash equivalents plus the total of all commitments made by the Fund that have not yet been drawn
for investment. In no event will the Investment Management Fee payable by the Fund exceed 1.75% on an annualized basis of the Fund’s
average daily net assets. The Investment Management Fee is paid to the Adviser out of the Fund’s assets and decreases
the net profits or increases the net losses of the Fund. The Investment Management Fee will be computed as of the last day of each
quarter, and will be due and payable in arrears within fifteen business days after the end of the quarter.
During the fiscal period
from August 30, 2019 (Commencement of Operations) to March 31, 2020, the Investment Management Fee paid by the Fund to the Adviser
was $294,634.
A portion of the Investment
Management Fee may be paid to brokers or dealers that assist in the placement of Shares, including brokers or dealers that may
be affiliated with the Adviser.
In addition, the Fund
will pay the Adviser an incentive fee in respect of each calendar quarter of the Fund (the “Incentive Fee”) equal to
10% of the excess, if any, of (i) the net profits of the Fund for the relevant period over (ii) the then balance, if
any, of the Loss Recovery Account (as defined below). The Fund will maintain a memorandum account (the “Loss Recovery Account”),
which will have an initial balance of zero and will be (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. Shareholders will benefit from the Loss Recovery Account
in proportion to their holdings of Shares.
During the fiscal period
from August 30, 2019 (Commencement of Operations) to March 31, 2020, the amount of the Incentive Fee incurred by the Fund was $329,102.
The Adviser has
entered into an expense limitation agreement (the “Expense Limitation Agreement”) with the Fund, whereby the Adviser
has agreed to waive fees that it would otherwise be paid, and/or to assume expenses of the Fund (a “Waiver”), if required
to ensure the Total Annual Expenses (excluding taxes, interest, brokerage commissions, certain transaction-related expenses, extraordinary
expenses, the Incentive Fee and any acquired fund fees and expenses) do not exceed 1.95% on an annualized basis (the “Expense
Limit”). For a period not to exceed three years from the date on which a Waiver is made, the Adviser may recoup amounts
waived or assumed, provided it is able to effect such recoupment without causing the Fund’s expense ratio (after recoupment)
to exceed the lesser of (a) the expense limit in effect at the time of the waiver, and (b) the expense limit in effect
at the time of the recoupment. The Expense Limitation Agreement also provides that, from the Initial Closing Date (August 30,
2019) until December 31, 2020, the Adviser agrees to waive fees payable to it by the Fund on assets held in cash or cash equivalents
less the total amount of capital committed by the Fund and not yet drawn for investment. The waiver on assets held in cash or
cash equivalents less the total amount of capital committed by the Fund and not yet drawn for investment will be in effect until
December 31, 2020. The Expense Limitation Agreement will continue until at least August 29, 2020, and will automatically
renew thereafter for consecutive twelve-month terms, provided that such continuance is specifically approved at least annually
by a majority of the Trustees. The Expense Limitation Agreement may be terminated by the Fund’s Board of Trustees upon thirty
days’ written notice to the Adviser. The Expense Limitation Agreement may not be terminated by the Adviser without the consent
of the Fund’s Board of Trustees.
During the fiscal period
from August 30, 2019 (Commencement of Operations) to March 31, 2020, the amount of the fees waived or expenses reimbursed by the
Adviser was $493,624. During the fiscal period from August 30, 2019 (Commencement of Operations) to March 31, 2020, the amount
of the fees waived on assets held in cash or cash equivalents less the total amount of capital committed by the Fund and not yet
drawn for investment was $114,718.
The Portfolio Managers
The personnel of the
Adviser who currently have primary responsibility for the day-to-day management of the Fund’s portfolio are Scott P. Conners,
CFA, Andreas Münderlein and Michael A. Carrano.
Other Accounts Managed by the Portfolio Manager
| | |
Number of Other Accounts Managed and Total
Value of Assets by Account Type for Which There
is No Performance-Based Fee: | | |
Number of Other Accounts and Total Value of Assets
for Which Advisory Fee is Performance-Based: | |
| | |
Registered
investment
companies | | |
Other
pooled
investment
vehicles | | |
Other
accounts | | |
Registered
investment
companies | | |
Other
pooled
investment
vehicles | | |
Other
accounts | |
| Scott P. Conners,
CFA | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Andreas Münderlein | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Michael A. Carrano | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Conflicts of Interest
The Portfolio Managers
may manage separate accounts or other pooled investment vehicles that may have materially higher or different fee arrangements
than the Fund and may also be subject to performance-based fees. The side-by-side management of these separate accounts and pooled
investment vehicles may raise potential conflicts of interest relating to cross-trading and the allocation of investment opportunities.
The Adviser has a fiduciary responsibility to manage all client accounts in a fair and equitable manner. The Adviser seeks to provide
best execution of all securities transactions and to allocate investments to client accounts in a fair and reasonable manner. To
this end, the Adviser has developed policies and procedures designed to mitigate and manage the potential conflicts of interest
that may arise from side-by-side management.
Compensation of the Portfolio Managers
Total compensation
paid to Messrs. Conners, Münderlein and Carrano includes a base salary fixed from year to year and a variable performance
bonus consisting of cash incentives. The amounts paid to Mr. Conners and Mr. Münderlein as Managing Directors are discretionary
according to both quantitative and qualitative considerations and are based in part on fees earned by the Adviser in consideration
for managing the Fund. The performance bonus reflects individual performance and the performance of the Adviser’s business.
In addition, Messrs. Conners, Münderlein and Carrano participate in a profit sharing scheme based on business unit EBITDA
(consisting of both management fee income and performance-based incentive fee income). Messrs. Conners, Münderlein and Carrano
also participate in a 401K program and receive medical/dental insurance benefits on the same basis as other employees of Cresset
Capital Management and its affiliates.
A competitive base
salary and a performance-based bonus structure are in place for all team members. FlowStone Partners, analysts, and other associates
are paid a competitive base salary and discretionary bonus based on their fiduciary investment responsibilities, performance of
the individual, and performance of the firm. The discretionary bonus structure gives FlowStone Partners the ability to remain competitive
under current market conditions affecting compensation across the industry.
The compensation structure
of key investment professionals is structured to incent appropriate execution of the Adviser’s investment strategy, long-term
client retention, and client service. Employees are permitted to invest in FlowStone Partners funds.
Investment Committee Ownership of Securities in the
Fund
NAME OF INVESTMENT COMMITTEE MEMBER | |
DOLLAR RANGE OF
SECURITIES BENEFICIALLY
OWNED BY INVESTMENT COMMITTEE TEAM MEMBER (AS OF MARCH
31, 2020) |
| Scott P. Conners | |
$100,001-$500,000 |
| Andreas Münderlein | |
$100,001-$500,000 |
| Michael A. Carrano | |
None |
PORTFOLIO TRANSACTIONS AND BROKERAGE
ALLOCATION
The Adviser will generally
select brokers and dealers to effect transactions on behalf of the Fund in substantially the following manner. When the Adviser
is aware that portfolio securities it intends to purchase for the Fund are available from multiple sources, such as multiple alternative
trading systems or placement agents, the Adviser will undertake best efforts to obtain and retain two or more, as it deems appropriate,
alternative quotes for such portfolio securities and document why the Adviser selected a source for any resulting purchase.
In selecting brokers
and dealers to effect transactions on behalf of the Fund, the Adviser will seek to obtain the best price and execution for the
transactions, taking into account factors such as price, size of order, difficulty of execution and operational facilities of a
brokerage firm and the firm’s risk in positioning a block of securities. As described below, the Adviser may place orders
with brokers that provide research services. Such transactions shall comply with the safe harbor (the “Safe Harbor”)
under Section 28(e) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), with respect to the receipt
of such services.
Consistent with the
principle of seeking best price and execution, the Adviser may place brokerage orders with brokers that provide the Fund and the
Adviser with supplemental research, market and statistical information, including advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and
the performance of accounts.
In most instances,
the Fund will purchase interests in a Portfolio Fund directly from the Portfolio Fund, 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. Given the private equity focus of a majority
of the Portfolio Funds, significant brokerage commissions are not anticipated to be paid by such funds. During the fiscal period
from August 30, 2019 (Commencement of Operations) to March 31, 2020, the Fund paid no brokerage commissions.
As of March 31, 2020,
the Fund held no securities of its regular brokers or dealer (or their parents).
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM; LEGAL COUNSEL
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, IL 60606, has been selected as independent registered public
accounting firm for the Fund and in such capacity will audit the Fund’s annual financial statements. PwC also provides
certain tax compliance, advice and planning services to the Fund.
Faegre
Drinker Biddle & Reath LLP, One Logan Square, Suite 2000, Philadelphia, PA 19103-6996, serves as counsel to the
Fund and the Independent Trustees.
CUSTODIAN
UMB Bank, N.A., which
has its principal office at 1010 Grand Blvd., Kansas City, MO 64106 (the “Custodian”) serves as the primary 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, trust
companies, securities depositories and clearing agencies) in accordance with the requirements of Section 17(f) of the
Investment Company Act. 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 is an affiliated of UMB Fund Services, Inc., which
serves as the Fund’s administrator and transfer agent.
PROXY VOTING POLICIES AND PROCEDURES
The Board has delegated
responsibility for decisions regarding proxy voting for securities held by the Fund to the Investment Manager. The Investment Manager
will vote such proxies in accordance with its proxy policies and procedures. Copies of the Investment Manager’s proxy policies
and procedures are included as Appendix B to this SAI. The Board will periodically review the Fund’s proxy voting record.
The Fund will be required
to file Form N-PX, with its complete proxy voting record for the twelve months ended June 30, no later than August 31 of each year.
The Fund’s Form N-PX filing will be available: (i) without charge, upon request, by calling the Fund at (888) 799-0799 or
(ii) by visiting the SEC’s website at www.sec.gov.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
The Adviser’s
affiliates are expected to provide initial capitalization at the Initial Closing Date in this offering. FlowStone and its respective
employees, officers and affiliates therefore may own a significant percentage of the Fund’s outstanding Shares after the
Initial Closing Date and for the foreseeable future. This ownership will fluctuate as other investors subscribe for Shares in this
offering and any other offering the Fund may determine to conduct in the future, and as the Fund repurchases Shares pursuant to
its quarterly repurchase offers. Depending on the size of this ownership at any given point in time, it is expected that these
affiliates will, for the foreseeable future, either control the Fund or be in a position to exercise a significant influence on
the outcome of any matter put to a vote of investors. See “Distribution of Shares” in the Prospectus.
As of June 1, 2020,
the following persons were the only persons who were record owners (or to the knowledge of the Fund, beneficial owners) of 5% or
more of any class of Shares.
| Name and Address | |
Percentage Ownership | |
Barbara Elizabeth Nau
3262 Westheimer Rd #506
Houston, TX 77098 | |
| 11.61 | % |
Elizabeth Nau Stepanian
2455 Pine Valley Ct
Houston, TX 77019 | |
| 5.81 | % |
Rick Malnati Gift Trust
Keith Cantrell
575 Sunset Ridge RD
Northfield, IL 60093 | |
| 5.34 | % |
Beneficial ownership is determined in accordance with the applicable
rules of the SEC.
FINANCIAL STATEMENTS
Appendix A to this SAI provides financial
information regarding the Fund. The Fund’s financial statements as of and for the period ended March 31, 2020 have been
audited by PricewaterhouseCoopers LLP.
ADDITIONAL INFORMATION
A registration statement
on Form N-2, including amendments thereto, relating to the Shares offered hereby, has been filed by the Fund with the SEC.
The Prospectus and this Statement of Additional Information do not contain all of the information set forth in the registration
statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the Shares offered
hereby, reference is made to the registration statement. A copy of the registration statement may be reviewed and copied on the
EDGAR database on the SEC’s website at http://www.sec.gov. Prospective investors can also request copies of these
materials, upon payment of a duplicating fee, by electronic request at the SEC’s e-mail address (publicinfo@sec.gov).
APPENDIX
A: FINANCIAL STATEMENTS
FlowStone
Opportunity Fund
Annual
Report
For the
Period August 30, 2019 (Commencement of Operations) to March 31, 2020
Beginning
on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s
shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund
or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Fund’s
website, www.flowstonepartners.com, and you will be notified by mail each time a report is posted and provided with a website
link to access the report.
If you
elect, or have already elected to receive shareholder reports electronically, you will not be affected by this change and you
need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial
intermediary electronically, by calling the Fund, c/o UMB Fund Services, at 1-888-799-0799 or by sending an email to flowstone@umb.com,
or by contacting your financial intermediary.
You may
elect to receive all future reports in paper free of charge. You can inform the Fund that you wish to continue receiving paper
copies of your shareholder reports by contacting the Fund, c/o UMB Fund Services, by telephone at 1-888-799-0799 or by email to
flowstone@umb.com. Your election to receive reports in paper will apply to all funds held with your financial intermediary.
FlowStone Opportunity
Fund
Table of Contents
FlowStone Opportunity
Fund
Investor Letter
March 31, 2020 (Unaudited)
To All
FlowStone Opportunity Fund investors:
We are
very pleased to present you with the annual report for the FlowStone Opportunity Fund, dated March 31, 2020. From August 30, 2019
(commencement of operations) through March 31, 2020, the Fund has accepted $43.8 million in new subscriptions. The Fund’s
Net Asset Value is $45.4 million, as of March 31, 2020. During the First Quarter, the Fund Net Asset Value decreased 3.15%, which
represents a decline significantly lower than the Fund’s public equity benchmarks (Russell 2000; S&P 500). Since its
August 30, 2019 inception, the Fund has generated a 5.40% total return for its investors. While the Adviser is never pleased to
report a quarterly decrease in the value of the Fund, we are satisfied with the diversification, lower correlation, and long-term
valuation creation characteristics of the Fund’s private equity portfolio relative to the public equity markets.
Through
Q1 2020, the Fund has completed four private equity transactions, the details of which can be found in the Quarterly Snapshot
section of the Adviser’s website (www.flowstonepartners.com). Despite the limited transaction volume during the quarter
resulting from the COVID-19 pandemic, the Adviser is pleased with quality, pricing, and pace of the Fund’s investment activity.
We expect the private equity secondary markets will enjoy increased transaction volume as private equity funds make their first
and second quarter valuations available. We believe that the stabilization of public equity markets supports the case for increased
transaction volume. The Fund has approximately $27 million of uninvested capital available to make secondary purchases and primary
commitments in the private equity market. A potential increase in deal volume combined with a retrenchment in the valuation of
equity securities may create an attractive buying opportunity for the Fund.
Please
don’t hesitate to contact us with any questions or concerns.
Sincerely,
Scott P. Conners, CFA
President
FlowStone Opportunity Fund
Past
performance is not indicative of future results. Investment in this Fund may result in the loss of all principal amounts invested.
Shares are not listed on any securities exchange and it is not anticipated that a secondary market for Shares will develop. Shares
are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted
under the Agreement and Declaration of Trust. Although the Fund may offer to repurchase Shares from time to time, Shares will
not be redeemable at a Shareholder’s option nor will they be exchangeable for Shares or shares of any other fund. As a result,
an investor may not be able to sell or otherwise liquidate his or her Shares. Shares are appropriate only for those investors
who can tolerate a high degree of risk and do not require a liquid investment and for whom an investment in the Fund does not
constitute a complete investment program. The amount of distributions that the Fund may pay, if any, is uncertain. The Fund may
pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Fund’s
performance, such as offering proceeds, borrowings, and amounts from the Fund’s affiliates that are subject to repayment
by investors.
This
is not an offer to sell Shares and is not soliciting an offer to buy Shares in any state or jurisdiction where such offer or sale
is not permitted. You are advised to read the Prospectus carefully prior to investment.
Investments
in the Fund may be made only by “Eligible Investors” defined as a “qualified client” within the meaning
of Rule 205-3 under the Advisers Act and an “accredited investor” within the meaning of Rule 501 under the Securities
Act of 1933, as amended (the “Securities Act”).
This
material represents the manager’s assessment of the Fund and market environment as of March 31, 2020 and should not be relied
upon by the reader as research, tax or investment advice, is subject to change at any time based upon economic, market, or other
conditions and the Advisor undertakes no obligation to update the views expressed herein. The views expressed above (including
any forward-looking statement) may not be relied upon as investment advice or as an indication of the Fund’s trading intent.
The
Fund’s principal underwriter is Foreside Financial Services, LLC.
FlowStone
Opportunity Fund
Schedule of Investments
March 31, 2020
| Investment Funds | |
Geographic
Region | |
Redemptions
Permitted* | |
Redemption
Notice Period* | | |
Investment
Strategy | |
Cost | | |
Fair
Value | | |
%
of
Shareholders’
Capital | | |
Original
Acquisition Date |
| Primary Investments | |
| |
| |
| | | |
| |
| | | |
| | | |
| | | |
|
| Apax X USD, L.P.(a)(b)(c) | |
Guernsey | |
NA | |
| NA | | |
Leveraged Buyout | |
$ | — | | |
$ | (45,435 | ) | |
| -0.10 | % | |
3/3/2020 |
| Liquid Stock
I, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Private Equity Fund | |
| 1,049,622 | | |
| 1,113,614 | | |
| 2.45 | % | |
8/30/2019 |
| Total
Primary Investments (Cost $1,049,622) (2.35%)** | | | |
| 1,068,179 | | |
| | | |
|
| | |
| |
| |
| | | |
| |
| | | |
| | | |
| | | |
|
| Secondary Investments | |
| |
| |
| | | |
| |
| | | |
| | | |
| | | |
|
| AIC Credit Opportunities Partners
Fund II, L.P.(b) | |
North America | |
NA | |
| NA | | |
Private Credit | |
| 6,000,000 | | |
| 4,572,414 | | |
| 10.08 | % | |
10/31/2019 |
| Ampersand 2006, L.P.(b)(d) | |
North America | |
NA | |
| NA | | |
Venture | |
| 1,494,514 | | |
| 1,958,924 | | |
| 4.32 | % | |
12/31/2019 |
| Canaan VII, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 423,760 | | |
| 667,711 | | |
| 1.47 | % | |
12/31/2019 |
| Catterton Partners VI, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Leveraged Buyout | |
| 922,167 | | |
| 1,398,578 | | |
| 3.08 | % | |
12/31/2019 |
| Cortec Group Fund IV, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Leveraged Buyout | |
| 26,946 | | |
| 31,584 | | |
| 0.07 | % | |
12/31/2019 |
| Crosslink Ventures V, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 460,328 | | |
| 698,850 | | |
| 1.54 | % | |
1/1/2020 |
| Dace Ventures I, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 277,117 | | |
| 353,000 | | |
| 0.78 | % | |
12/31/2019 |
| Draper Fisher Jurvetson Growth
2006, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Leveraged Buyout | |
| 1,977,051 | | |
| 2,571,295 | | |
| 5.67 | % | |
12/31/2019 |
See accompanying Notes to the Financial Statements
| Investment Funds | |
Geographic
Region | |
Redemptions
Permitted* | |
Redemption
Notice Period* | | |
Investment
Strategy | |
Cost | | |
Fair
Value | | |
%
of
Shareholders’
Capital | | |
Original
Acquisition Date |
| Emerald Partners
V, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Leveraged Buyout | |
| 5,949 | | |
| 30,300 | | |
| 0.07 | % | |
12/31/2019 |
| EnerTech Capital Partners III,
L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 282,526 | | |
| 295,882 | | |
| 0.65 | % | |
12/31/2019 |
| Institutional Venture Partners
XII, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 563,162 | | |
| 615,236 | | |
| 1.36 | % | |
12/31/2019 |
| JK&B Capital V, L.P.(a)(b)(d)(e) | |
North America | |
NA | |
| NA | | |
Venture | |
| 146,191 | | |
| 198,905 | | |
| 0.44 | % | |
12/31/2019 |
| Parthenon Investors III, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Leveraged Buyout | |
| 1,024,992 | | |
| 1,661,420 | | |
| 3.66 | % | |
12/31/2019 |
| Point 406 Ventures I, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 1,791,010 | | |
| 1,780,129 | | |
| 3.92 | % | |
12/31/2019 |
| Rembrandt Venture Partners Fund
Two, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 878,616 | | |
| 990,201 | | |
| 2.18 | % | |
12/31/2019 |
| Tudor Ventures
III, L.P.(a)(b) | |
North America | |
NA | |
| NA | | |
Venture | |
| 82,622 | | |
| 54,284 | | |
| 0.12 | % | |
12/31/2019 |
| Total
Secondary Investments (Cost $16,356,951) (39.41%)** | | |
| 17,878,713 | | |
| | | |
|
| Total
Investment Funds (Cost $17,406,573) (41.76%)** | | |
$ | 18,946,892 | | |
| | | |
|
See accompanying Notes to the Financial Statements
| Money Market Fund | |
Fair
Value | |
| Short-Term Investment
(59.37%)** | |
| | |
| Money Market Fund | |
| | |
| Morgan
Stanley Institutional Liquidity Fund - Treasury Portfolio (Shares 26,932,041), 0.12% (f) | |
$ | 26,932,041 | |
| Total
Money Market Fund (Cost $26,932,041) (59.37%)** | |
$ | 26,932,041 | |
| | |
| | |
| Total Investments
(Cost $44,338,614) (101.13%)** | |
$ | 45,878,933 | |
| Liabilities less other assets
(-1.13%)** | |
| (512,535 | ) |
| Shareholders’
Capital - 100.00%** | |
$ | 45,366,398 | |
Primary Investments are investments
in newly established private equity partnerships where underlying portfolio companies are not known as of the time of investment.
Secondary Investments are Private Equity Fund Investments generally acquired in the secondary market.
| * | Certain Investment Funds will distribute
proceeds upon realization events and such proceeds are distributed at the discretion
of the Investment Manager, as they become available. |
| ** | As a percentage of total shareholders’
capital. |
| (a) | Non-income producing. |
| (b) | Investment Funds are
issued in private placement transactions and as such are restricted as to resale per
Rule 12-12-8 of Regulation S-X. |
| (c) | As of March 31, 2020,
no capital has been contributed to this Investment Fund and the fair value represents
a liability of a commitment to the Investment Fund. |
| (d) | The Investment Fund
is liquidating its assets and is in the process of returning capital to its limited partners
in a reasonable manner. |
| (e) | Fair valued by the Fair
Value Committee based on policies and procedures established by the Board of Trustees
and considered a Level 3 investment. |
| (f) | The rate quoted is the
annualized seven-day yield of the fund at the period end. |
See accompanying
Notes to the Financial Statements
FlowStone
Opportunity Fund
Statement of Assets,
Liabilities and Shareholders’ Capital
March 31, 2020
| Assets | |
| |
| Investments in Investment
Funds, at fair value (cost $17,406,573) | |
$ | 18,992,327 | |
| Investments in Short-Term Investments,
at fair value (cost $26,932,041) | |
| 26,932,041 | |
| Cash | |
| 280,000 | |
| Due from adviser | |
| 635,123 | |
| Deferred offering costs (See note 7) | |
| 127,835 | |
| Dividends receivable | |
| 15,191 | |
| Total
Assets | |
| 46,982,517 | |
| | |
| | |
| Liabilities | |
| | |
| Due to adviser | |
| 425,514 | |
| Shareholders’ Capital received
in advance | |
| 280,000 | |
| Investment Advisory fee payable | |
| 179,916 | |
| Professional fees payable | |
| 179,830 | |
| Administration & Accounting fees
payable | |
| 45,750 | |
| Investment Fund purchase payable (cost
$0) | |
| 45,435 | |
| Transfer Agent fees payable | |
| 13,333 | |
| Chief Compliance Officer & Chief
Financial Officer fees payable | |
| 14,105 | |
| Trustees fees payable | |
| 37,220 | |
| Incentive fee payable | |
| 329,102 | |
| Other accrued
expenses | |
| 65,914 | |
| Total
Liabilities | |
| 1,616,119 | |
| | |
| | |
| Shareholders’
Capital | |
$ | 45,366,398 | |
| | |
| | |
| Shareholders’
Capital | |
| | |
| Paid-in Capital | |
$ | 43,868,900 | |
| Total distributable
earnings | |
| 1,497,498 | |
| | |
| | |
| Total
Shareholders’ Capital | |
$ | 45,366,398 | |
| | |
| | |
| Shares Outstanding | |
| 4,304,938 | |
| | |
| | |
| Net asset value per Share: | |
$ | 10.54 | |
See
accompanying Notes to the Financial Statements
FlowStone
Opportunity Fund
Statement
of Operations
For the Period Ended March 31, 2020*
| Income | |
| | |
| Dividend income | |
$ | 639,293 | |
| Interest Income | |
| 65,488 | |
| Total Income | |
| 704,781 | |
| | |
| | |
| Expenses | |
| | |
| Incentive Fee (See Note 6) | |
| 329,102 | |
| Professional fees | |
| 299,440 | |
| Investment Advisory fee (See Note 6) | |
| 294,634 | |
| Offering costs (See Note 7) | |
| 179,979 | |
| Chief Compliance Officer & Chief Financial Officer fees | |
| 81,858 | |
| Trustees’ fees | |
| 58,470 | |
| Administration & Accounting fees | |
| 45,750 | |
| Transfer Agent fees | |
| 13,333 | |
| Other expenses | |
| 87,399 | |
| Total Expenses | |
| 1,389,965 | |
| | |
| | |
| Less Waivers (See Note 6): | |
| | |
| Expense waiver | |
| (493,624 | ) |
| Investment Advisory fee waiver** | |
| (114,718 | ) |
| Total Waiver | |
| (608,342 | ) |
| | |
| | |
| Net Expenses | |
| 781,623 | |
| | |
| | |
| Net Investment
Income (Loss) | |
| (76,842 | ) |
| | |
| | |
| Net Realized Gain and Change in Unrealized Appreciation/Depreciation
on Investments in Investment Funds | |
| | |
| Realized gain from investments in Investment Funds | |
| 21,807 | |
| Net change in unrealized appreciation/depreciation on
investments in Investment Funds | |
| 1,540,319 | |
| Total Net Realized Gain and Change
in Unrealized Appreciation/Depreciation in Investment Funds | |
| 1,562,126 | |
| | |
| | |
| Net increase in Shareholders’
Capital from operations | |
$ | 1,485,284 | |
| * | Reflects operations from August 30,
2019 (commencement of operations) to March 31, 2020. Prior to the commencement of operations
date, the Fund was inactive except for matters related to the Fund’s establishment,
designation and planned registration. |
| ** | Investment Advisory Fee Waiver not
subject to recoupment (See note 6). |
See accompanying
Notes to the Financial Statements
FlowStone Opportunity
Fund
Statement
of Changes in Shareholders’ Capital
For the Period Ended March 31, 2020*
| Operations | |
| | |
| Net investment income (loss) | |
$ | (76,842 | ) |
| Realized gain from investments in Investment Funds | |
| 21,807 | |
| Net change in unrealized appreciation/depreciation on
investments in Investment Funds | |
| 1,540,319 | |
| Net increase in Shareholders’
Capital from operations | |
| 1,485,284 | |
| | |
| | |
| Shareholders’ Capital Transactions | |
| | |
| Proceeds from sale of shares | |
| 43,781,114 | |
| Increase in Shareholders’ Capital
from capital transactions | |
| 43,781,114 | |
| | |
| | |
| Shareholders’ Capital | |
| | |
| Beginning of period** | |
| 100,000 | |
| End of period | |
$ | 45,366,398 | |
| | |
| | |
| Shares outstanding at August 30, 2019** | |
| 10,000 | |
| Shares sold | |
| 4,294,938 | |
| Shares outstanding at March 31, 2020 | |
| 4,304,938 | |
| * | Reflects operations from August 30,
2019 (commencement of operations) to March 31, 2020. Prior to the commencement of operations
date, the Fund had been inactive except for matters related to the Fund’s establishment,
designation and planned registration. |
| ** | The initial Trustee purchased 10,000
shares at a NAV of $10.00 per share. |
See accompanying
Notes to the Financial Statements
FlowStone Opportunity
Fund
Statement
of Cash Flows
For the Period August 30, 2019 to March 31, 2020*
| Cash flows from operating activities | |
| | |
| Net increase in Shareholders’ Capital from operations | |
$ | 1,485,284 | |
| Adjustments to reconcile net increase in Shareholders’ Capital from
operations to net cash used in operating activities: | |
| | |
| Purchases of investments in Investment Funds | |
| (10,359,100 | ) |
| Capital calls made to investment funds | |
| (7,049,623 | ) |
| Capital distributions received from Investment Funds | |
| 23,957 | |
| Net realized gain from investments in Investment Funds | |
| (21,807 | ) |
| Net change in unrealized appreciation/depreciation
on investments in Investment Funds | |
| (1,540,319 | ) |
| Net cash paid for purchases, sales, and maturities
of short-term investments | |
| (26,932,041 | ) |
| Changes in operating assets and liabilities: | |
| | |
| (Increase) Decrease in deferred offering costs | |
| (127,835 | ) |
| (Increase) Decrease in dividends receivable | |
| (15,191 | ) |
| (Increase) Decrease in due from adviser | |
| (635,123 | ) |
| Increase (Decrease) in due to adviser | |
| 425,514 | |
| Increase (Decrease) in shareholders’ capital
paid in advance | |
| 280,000 | |
| Increase (Decrease) in investment advisory fees | |
| 179,916 | |
| Increase (Decrease) in administration & accounting
fees payable | |
| 45,750 | |
| Increase (Decrease) in transfer agency fees payable | |
| 13,333 | |
| Increase (Decrease) in chief compliance officer &
chief financial officer fee payable | |
| 14,105 | |
| Increase (Decrease) in professional fees payable | |
| 179,830 | |
| Increase (Decrease) in trustees’ fees payable | |
| 37,220 | |
| Increase (Decrease) in incentive fee payable | |
| 329,102 | |
| Increase (Decrease) in other accrued
expenses | |
| 65,914 | |
| Net cash used in operating activities | |
| (43,601,114 | ) |
| | |
| | |
| Cash flows from financing activities | |
| | |
| Proceeds from sale of shares | |
| 43,781,114 | |
| Net cash provided by financing activities | |
| 43,781,114 | |
| | |
| | |
| Net change in cash | |
| 180,000 | |
| | |
| | |
| Cash at beginning of period | |
| 100,000 | |
| | |
| | |
| Cash at End of Period | |
$ | 280,000 | |
| * | Reflects operations from August 30,
2019 (commencement of operations) to March 31,2020. Prior to the commencement of operations
date, the Fund had been inactive except for matters related to the Fund’s establishment,
designation and planned registration. |
See accompanying
Notes to the Financial Statements
FlowStone Opportunity
Fund
Financial Highlights
| | |
For
the Period
August 30, 2019
(Commencement
of Operations)
to March 31,
2020 | |
| Net asset value per Share, beginning of
period (1) | |
$ | 10.00 | |
| Net increase in Shareholders’ Capital from operations: | |
| | |
| Net investment loss* | |
| (0.02 | ) |
| Net realized gain and change in unrealized appreciation/depreciation | |
| 0.56 | |
| Net increase in Shareholders’ Capital from operations: | |
| 0.54 | |
| Total distributions | |
| — | |
| | |
| | |
| Net asset value per Share, end of period | |
$ | 10.54 | |
| | |
| | |
| Total Return (2) (3) | |
| 5.40 | % |
| | |
| | |
| Ratios/Supplemental Data: | |
| | |
| Shareholders’ Capital, end of period (in thousands) | |
$ | 45,366 | |
| Ratio of net investment income to average Shareholders’ Capital (4)(8) | |
| 0.35 | % |
| Ratio of gross expenses to average Shareholders’ Capital (4)(5)(8) | |
| 5.65 | % |
| Ratio of net expenses to average Shareholders’ Capital (4)(6)(7)(8) | |
| 2.82 | % |
| Portfolio Turnover (3) | |
| 0.00 | % |
| * | Per share data is computed
using the average shares method. |
| (1) | The net asset
value per Share as of the beginning of the period, August 30, 2019 (Commencement of Operations)
represents the initial net asset value per Share of $10.00. |
| (2) | Total Return
based on net asset value per Share is the combination of changes in net asset value per
Share and reinvested dividend income at net asset value per Share, if any. |
| (4) | Annualized, except
for incentive fees. |
| (5) | Represents the
ratio of expenses to average Shareholders’ Capital absent fee waivers and/or expense
reimbursement by the Adviser. |
| (6) | The Adviser has
entered into an Expense Limitation and Reimbursement Agreement with the Fund for a one-year
term beginning on the commencement of operations and ending at the end of the Limitation
Period to limit the amount of the Fund’s total annual ordinary operating expenses,
excluding certain “Specified Expenses” as outlined in the Notes to the Financial
Statements. |
| (7) | The incentive
fee of $329,102 is exclusive of the 1.95% expense cap. |
| (8) | The income and
expense ratios do not reflect the Fund’s proportionate share of the net income
(loss) and expenses, including incentive fees or allocations, of the Investment Funds.
The Investment Funds’ expense ratios, excluding incentive fees or allocations range
from 0.00% to 32.87% (unaudited). The Investment Funds’ incentive fees or allocations
can be up to 25% of profits earned (unaudited). |
See accompanying
Notes to the Financial Statements
FlowStone Opportunity Fund
Notes to the Financial Statements
March 31, 2020
1. Organization
FlowStone Opportunity Fund (the “Fund”)
was organized as a Delaware statutory trust on May 23, 2018 and commenced operations on August 30, 2019. The Fund is registered
under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management
investment company. FlowStone Partners, LLC, an investment adviser registered under the Investment Advisers Act of 1940, as amended,
serves as the Fund’s investment adviser (the “Adviser”).
The Fund’s primary investment
objective is to generate appropriate risk-adjusted long-term returns by investing in a diversified portfolio of private equity
investments. The Fund’s investments are expected to consist primarily of: (i) secondary investments in private equity funds
managed by third-party managers; (ii) primary investments in private equity funds managed by third-party managers; and (iii) direct
co-investments in the equity and/or debt of operating companies.
The Board of Trustees (the “Board”)
of the Fund has overall responsibility for the management and supervision of the business operations of the Fund. As permitted
by applicable law, the Board may delegate any of its rights, powers and authority to, among others, the officers of the Fund,
any committee of the Board, or the Adviser.
2. Summary of Significant Accounting Policies
The Fund is an investment company and
as a result, maintains its accounting records and has presented these financial statements in accordance with the reporting requirements
under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946,
Financial Services — Investment Companies (“ASC 946”).
A) Valuation of Investment - Pursuant
to Fund’s valuation policies, the Board has delegated to the Adviser, the general responsibility for valuation of the investments
subject to oversight by the Board. The Board has approved procedures pursuant to which the Fund values its investments in Investment
Funds at fair value, generally at an amount equal to the Net Asset Value (“NAV”) of the Fund’s investment in
the Investment Funds as determined by the Investment Fund’s general partner or Investment Manager. This is commonly referred
to as using NAV as the practical expedient which allows for estimation of the fair value of an investment in an investment entity
based on NAV or its equivalent if the NAV of the investment entity is calculated in a manner consistent with ASC 946. Because
of the inherent uncertainty of valuations of the investments in the Investment Funds, their estimated values may differ significantly
from the values that would have been used had a ready market for the Investment Funds existed, and the differences could be material.
In accordance with its valuation policies, if no such information is available, or if such information is deemed to not be reflective
of fair value by the Adviser, an estimated fair value is determined in good faith by the Adviser pursuant to the Fund’s
valuation procedures. All adjustments to fair value made by the Adviser are reviewed and approved by the Fund’s Valuation
Committee, subject to Board approval. Investments in open-end investment companies are valued at their reported NAV per share.
B) Use of Estimates - The preparation
of the financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of increases and decreases
in net assets from operations during the reporting period. Actual results could differ from these estimates.
C) Income Recognition and Expenses
Income is recognized on an accrual basis as earned. Expenses are recognized on an accrual basis as incurred. The Fund
bears all expenses incurred in the course of its operations, including, but not limited to, the following: all costs and expenses
related to portfolio transactions and positions for the Fund’s account; professional fees; costs of insurance; registration
expenses; and expenses of meetings of the Board. Expenses are subject to the Fund’s Expense Limitation Agreement (see Note
6).
D) Organizational and Offering Costs
Organizational expenses consist of costs incurred to establish the Fund and enable it to legally to do business. These expenses
are paid by the Fund and charged to expenses as incurred. Offering costs include registration fees and fees regarding the preparation
and printing of the initial registration statement. Offering costs are accounted for as deferred costs until operations begin
and are then amortized over twelve months on a straight-line basis.
3. Risk Associated with Investments in Investment Funds
A) Dependence on the Investment Fund
Managers - Because the Fund invests in Investment Funds, a Shareholder’s investment in the Fund will be affected by the
investment policies and decisions of the Investment Fund Manager of each Investment Fund in direct proportion to the amount of
Fund assets that are invested in each Investment Fund. The Fund’s net asset value may fluctuate in response to, among other
things, various market and economic factors related to the markets in which the Investment Funds invest and the financial condition
and prospects of issuers in which the Investment Funds invest. The success of the Fund depends upon the ability of the Investment
Fund Managers to develop and implement strategies that achieve their investment objectives. Shareholders will not have an opportunity
to evaluate the specific investments made by the Investment Funds or the Investment Fund Managers, or the terms of any such investments.
In addition, the Investment Fund Managers could materially alter their investment strategies from time to time without notice
to the Fund. There can be no assurance that the Investment Fund Managers will be able to select or implement successful strategies
or achieve their respective investment objectives.
B) Investment Funds Not Registered
The Fund is registered as an investment company under the Investment Company Act. The Investment Company Act is designed to
afford various protections to investors in pooled investment vehicles. For example, the Investment Company Act imposes limits
on the amount of leverage that a registered investment company can assume, restricts layering of costs and fees, restricts transactions
with affiliated persons and requires that the investment company’s operations be supervised by a board of managers, a majority
of whose members are independent of management. However, most of the Investment Funds in which the Fund invests are not subject
to the provisions of the Investment Company Act. Many Investment Fund Managers may not be registered as investment advisers under
the Advisers Act. As an indirect investor in the Investment Funds managed by Investment Fund Managers that are not registered
as investment advisers, the Fund will not have the benefit of certain of the protections of the Advisers Act. The Investment Funds
generally are exempted from regulation under the Investment Company Act because they permit investment only by investors who meet
very high thresholds of investment experience and sophistication, as measured by net worth. The Fund’s investment qualification
thresholds are generally lower. As a result, the Fund provides an avenue for investing in Investment Funds that would not otherwise
be available to certain investors. This means that investors who would not otherwise qualify to invest in largely unregulated
vehicles will have the opportunity to make such an investment through the Fund.
C) Maintenance of securities and other
assets in the custody of a bank - The Investment Funds typically do not maintain their securities and other assets in the custody
of a bank or a member of a securities exchange, as generally required of registered investment companies, in accordance with certain
SEC rules. A registered investment company which places its securities in the custody of a member of a securities exchange is
required to have a written custodian agreement, which provides that securities held in custody will be at all times individually
segregated from the securities of any other person and marked to clearly identify such securities as the property of such investment
company and which contains other provisions designed to protect the assets of such investment company. The Investment Funds in
which the Fund will invest may maintain custody of their assets with brokerage firms which do not separately segregate such customer
assets as would be required in the case of registered investment companies, or may not use a custodian to hold their assets. Under
the provisions of the Securities Investor Protection Act of 1970, as amended, the bankruptcy of any brokerage firm used to hold
Investment Fund assets could have a greater adverse effect on the Fund than would be the case if custody of assets were maintained
in accordance with the requirements applicable to registered investment companies. There is also a risk that an Investment Fund
Manager could convert assets committed to it by the Fund to its own use or that a custodian could convert assets committed to
it by a Investment Fund Manager to its own use. There can be no assurance that the Investment Fund Managers or the entities they
manage will comply with all applicable laws and that assets entrusted to the Investment Fund Managers will be protected.
D) Investment Funds are Generally Non-diversified
While there are no regulatory requirements that the investments of the Investment Funds be diversified, some Investment Funds
may undertake to comply with certain investment concentration limits. Investment Funds may at certain times hold large positions
in a relatively limited number of investments. Investment Funds may target or concentrate their investments in particular markets,
sectors or industries. Those Investment Funds that concentrate in a specific industry or target a specific sector will also be
subject to the risks of that industry or sector, which may include, but are not limited to, rapid obsolescence of technology,
sensitivity to regulatory changes, minimal barriers to entry and sensitivity to overall market swings. As a result, the net asset
values of such Investment Funds may be subject to greater volatility than those of investment companies that are subject to diversification
requirements and this may negatively impact the net asset value of the Fund.
E) Investment Funds’ Securities
are Generally Illiquid - The securities of the Investment Funds in which the Fund invests or plans to invest will generally be
illiquid. Subscriptions to purchase the securities of Investment Funds are generally subject to restrictions or delays. Similarly,
the Fund may not be able to dispose of Investment Fund interests that it has purchased in a timely manner and, if adverse market
conditions were to develop during any period in which the Fund is unable to sell Investment Fund interests, the Fund might obtain
a less favorable price than that which prevailed when it acquired or subscribed for such interests, and this may negatively impact
the net asset values of the Fund.
F) Investment Fund Operations Not Transparent
The Adviser does not control the investments or operations of the Investment Funds. An Investment Fund Manager may employ investment
strategies that differ from its past practices and are not fully disclosed to the Adviser and that involve risks that are not
anticipated by the Adviser. Some Investment Fund Managers may have a limited operating history, and some may have limited experience
in executing one or more investment strategies to be employed for a Investment Fund. Furthermore, there is no guarantee that the
information given to the Administrator and reports given to the Adviser with respect to the Fund Investments will not be fraudulent,
inaccurate or incomplete.
4. Capital Share Transactions
The offering of shares of beneficial
interest in the Fund (the “Shares”) is registered under the Securities Act of 1933, as amended. The initial offering
of Shares was made at the initial NAV per Share of $10.00 on August 30, 2019, and thereafter Shares are expected to be offered
quarterly thereafter at the NAV per Share as of the date such Shares are purchased.
The Board may, from time to time and
in its sole discretion, cause the Fund to repurchase Shares from Shareholders pursuant to written tenders by Shareholders at such
times and on such terms and conditions as established by the Board. In determining whether the Fund should offer to repurchase
Shares, the Board considers the recommendation of the Adviser, as well as a variety of other operational, business and economic
factors. The Adviser anticipates recommending to the Board that, under normal market circumstances, the Fund conduct repurchase
offers of no more than 5% of the Fund’s net assets beginning on or about the first day of the calendar quarter immediately
following the first anniversary of commencement of operations, and thereafter quarterly on or about each January 1, April 1, July
1 and October 1. 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 first anniversary of the Shareholder’s purchase of such Shares.
5. Fair Value Disclosures
In accordance with the authoritative
guidance on fair value measurements and disclosures under GAAP, the Fund discloses the fair value of its investments in a hierarchy
that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to
valuations based on unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the
lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurement). The
guidance establishes three levels of fair value as listed below.
| • | Level 1 - Inputs
that reflect unadjusted quoted prices in active markets for identical assets and liabilities
that the Fund has the ability to access at the measurement date |
| • | Level 2 - Inputs
other than quoted prices that are observable for the asset or liability, either directly
or indirectly, including inputs in markets that are not considered to be active |
| • | Level 3 - Inputs
that are unobservable |
The notion of unobservable inputs is
intended to allow for situations in which there is little, if any, market activity for the asset or liability at the measurement
date. Under Level 3, the owner of an asset must determine fair value based on its own assumptions about what market participants
would take into account in determining the fair value of the asset, using the best information available.
The inputs or methodology for valuing
securities are not necessarily an indication of the risk associated with investing in those securities.
A financial instrument’s level
within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement;
however, the determination of what constitutes “observable” requires significant judgment by the Valuation Committee.
The Valuation Committee considers observable data to be market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
Private equity funds are generally restricted securities that are subject to substantial holding periods and restrictions on resale
and are not traded in public markets. Accordingly, the Fund may not be able to resell such investments for extended periods, if
at all.
As the Fund uses the NAV as a practical
expedient to determine the fair value of certain Private Equity Investments, these investments have not been classified in the
U.S. GAAP fair value hierarchy. As of March 31, 2020, $18,747,987 was fair valued utilizing NAV as practical expedient.
The following table is a summary of
information about the levels within the fair value hierarchy at which the Fund’s investments are measured as of March 31,
2020:
| Investments | |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
| Investment Funds | |
$ | — | | |
$ | — | | |
$ | 198,905 | | |
$ | 198,905 | |
| Short-Term Investments | |
| 26,932,041 | | |
| — | | |
| — | | |
| 26,932,041 | |
| NAV as a practical expedient | |
| — | | |
| — | | |
| — | | |
| 18,747,987 | |
| Total | |
$ | 26,932,041 | | |
$ | — | | |
$ | 198,905 | | |
$ | 45,878,933 | |
During the period ended March 31, 2020,
the Fund did not have any transfers between any of the levels of the fair value hierarchy. The Fund records all transfers at the
end of each reporting period.
6. Investment Management Fee and Other Expenses
A) Investment Advisory Fee - The Fund
has entered into an investment management fee (the “Investment Management Fee”) with the Adviser. In consideration
of services provided, the Fund pays the Adviser a quarterly Investment Management Fee equal to 1.25% on an annualized basis of
the greater of (i) the Fund’s net asset value and (ii) the Fund’s net asset value less cash and cash equivalents plus
the total of all commitments made by the Fund that have not yet been drawn for investment. In no event will the Investment Management
Fee payable by the Fund exceed 1.75% as a percentage of the Fund’s net asset value. For purposes of determining the Investment
Management Fee payable to the Adviser for any quarter, net asset value is calculated prior to any reduction for any fees and expenses
of the Fund for that quarter, including, without limitation, the Investment Management Fee payable to the Adviser for that quarter.
The Adviser has agreed, from the commencement of operations until August 29, 2020, to contractually waive fees payable to it by
the Fund on Fund assets held in cash or cash equivalents less the total amount of capital committed by the Fund and not yet drawn
for investment. For the period ended March 31, 2020, the Fund incurred $294,634 in investment management fees.
In addition, at the end of each calendar
quarter of the Fund, the Adviser will be entitled to receive an Incentive Fee equal to 10% of the excess, if any, of (i) the net
profits of the Fund for the relevant period over (ii) the then balance, if any, of the Loss Recovery Account (as defined below).
For the purposes of the Incentive Fee, the term “net profits” shall mean 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). The Fund will maintain a memorandum account (the “Loss Recovery
Account”), which will have an initial balance of zero and will be (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. Shareholders will benefit from the Loss
Recovery Account in proportion to their holdings of Shares. For the period ended March 31, 2020, the Fund incurred $329,102 in
incentive fees.
The Adviser has entered into an expense
limitation agreement (the “Expense Limitation Agreement”) with the Fund, whereby the Adviser has agreed to waive fees
that it would otherwise be paid, and/or to assume expenses of the Fund (a “Waiver”), if required to ensure the Total
Annual Expenses (excluding taxes, interest, brokerage commissions, certain transaction-related expenses, extraordinary expenses,
and the Incentive Fee) do not exceed 1.95% on an annualized basis (the “Expense Limit”). For a period not to exceed
three years from the date on which a Waiver is made, the Adviser may recoup amounts waived or assumed, provided it is able to
effect such recoupment without causing the Fund’s expense ratio (after recoupment) to exceed the lesser of (a) the expense
limit in effect at the time of the waiver, and (b) the expense limit in effect at the time of recoupment. The Expense Limitation
Agreement also provides that, from the commencement of operations until the first anniversary of the commencement of operations
(August 30, 2019), the Adviser agrees to waive fees payable to it by the Fund on assets held in cash or cash equivalents less
the total amount of capital committed by the Fund and not yet drawn for investment. The Expense Limitation Agreement will continue
until at least August 29, 2020, and will automatically renew thereafter for consecutive twelve-month terms, provided that such
continuance is specifically approved at least annually by a majority of the Trustees. The Expense Limitation Agreement may be
terminated by the Fund’s Board of Trustees upon thirty days’ written notice to the Adviser.
For the period ended March 31, 2020,
the Adviser waived fees in the amount of $608,342, of which $493,624 is subject to recoupment. Of the $493,624 waived fees eligible
for recoupment, $60,667 expires on September 30, 2022, $171,815 expires on December 31, 2022 and $261,142 expires on March 31,
2023.
The waiver of $114,718 is not eligible
for recoupment. Previously waived organizational fees of $141,500 are subject to recoupment which expires on August 29, 2022.
B) Administration, Accounting, and
Transfer Agent Fees - Pursuant to an agreement between the Fund and UMB Fund Services (“Administrator”), the Administrator
provides administration, fund accounting, and assists with compliance services to the Fund. The Fund pays the Administrator a
basis point fee, subject to fee minimums, for various administration, fund accounting, investor accounting and taxation services,
to the Fund as well as certain out of pocket expenses.
C) Distribution - Foreside Fund Services,
LLC (the “Distributor”) serves as the distributor of the Fund’s shares of beneficial interest on a best effort
basis, subject to various conditions. The Distributor may retain additional unaffiliated broker-dealers to assist in the distribution
of Fund shares.
D) Chief Compliance Officer and Chief
Financial Officer Fees - Forside Fund Officer Services, LLC provides chief compliance officer and chief financial officer services
to the Fund under a Fund CCO Agreement and a Fund CFO Agreement.
E) Custodian Fees - UMB Bank N.A. serves
as the custodian for the Fund’s assets and is responsible for maintaining custody of the Fund’s cash.
7. Offering Costs
Offering costs include registration
fees and fees regarding the preparation and printing of the initial registration statement. Offering costs are accounted for as
deferred costs until operations begin and are then amortized over twelve months on a straight-line basis. As of March 31, 2020,
$127,835 of offering costs remains as an unamortized deferred asset, while $179,979 has been expensed subject to the Fund’s
Expense Limitation Agreement.
8. Federal Income Taxes
It is the Fund’s intention to
meet the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), that are applicable
to a regulated investment company (“RIC”). The Fund intends to continue to operate so as to qualify to be taxed as
a RIC under the Code and, as such, to not be subject to federal income tax on the portion of its taxable income and gains distributed
to stockholders. To qualify for RIC tax treatment, among other requirements, the Fund is required to distribute at least 90% of
its investment company taxable income, as defined by the Code. Accordingly, the Fund intends to distribute its taxable income
and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. While the Fund intends
to distribute substantially all of its taxable net investment income and capital gains, if any, in a manner necessary to minimize
the imposition of a 4% excise tax, there can be no assurance that it will avoid any or all of the excise tax. In such event, the
Fund will be liable only for the amount by which it does not meet the foregoing distribution requirements. The Fund has adopted
September 30 as its tax year end.
If the Fund were to fail to meet the
requirements of Subchapter M to qualify as a RIC, and if the Fund were ineligible to or otherwise were not to cure such failure,
the Fund would be subject to tax on its taxable income at corporate rates, whether or not distributed to Shareholders, and all
distributions out of earnings and profits would be taxable to Shareholders as ordinary income. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying
as a RIC that is accorded special tax treatment under Subchapter M.
In accounting for income taxes, the
Fund follows the guidance in FASB ASC Codification 740, as amended by ASU 2009-06, “Accounting for Uncertainty in Income
Taxes” (“ASC 740”). ASC 740 prescribes the minimum recognition threshold a tax position must meet in connection
with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and
recognized in the financial statements. Management has concluded, there were no uncertain tax positions as of March 31, 2020 for
federal income tax purposes or in, the Fund’s major state and local tax jurisdiction of Delaware.
Because U.S. federal income tax regulations
differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains
recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified
among capital accounts in the financial statements to reflect the applicable tax characterization. Temporary differences arise
when certain items of income, expense, gain or loss are recognized at some time in the future. The tax basis components of distributable
earnings may differ from the amounts reflected in the Statement of Assets, Liabilities and Shareholders’ Capital due to
temporary book/tax differences arising primarily from partnership investments. These amounts will be finalized before filing the
Fund’s federal tax return.
At March 31, 2020, gross unrealized
appreciation and depreciation of investments and short-term investments, based on cost for federal income tax purposes based on
cost for federal income tax purposes, as of September 30, 2019 were as follows:
| Cost of investments | |
$ | 44,338,614 | |
| Gross unrealized appreciation | |
$ | 3,052,559 | |
| Gross unrealized depreciation | |
| (1,512,240 | ) |
| Net unrealized appreciation on investments | |
$ | 1,540,319 | |
The difference between cost amounts
for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and
losses in security transactions.
Accounting principles generally accepted
in the United States require that certain components of net assets be reclassified between financial and tax reporting. These
reclassifications have no effect on net assets or net asset value per share. For the year ended September 30, 2019, permanent
differences in book and tax accounting have been reclassified to paid-in capital, undistributed net investment income (loss) and
accumulated realized gain (loss) as follows:
Increase
(Decrease) |
Paid-In
Capital |
|
Total
Distributable
Earnings |
$(12,214) |
|
$12,214 |
As of September 30, 2019 the components
of accumulated earnings (deficit) on a tax basis were as follows:
| Undistributed ordinary income | |
$ | 9,362 | |
| Undistributed long-term gains | |
| — | |
| Tax accumulated earnings | |
| 9,362 | |
| Accumulated capital and other losses | |
| — | |
| Unrealized appreciation | |
| — | |
| Total accumulated earnings | |
$ | 9,362 | |
The tax character of the distribution
paid during the fiscal year ended September 30, 2019 were as follows:
| Distributions
paid from: | |
| 2019 | |
| Ordinary income | |
$ | — | |
| Net long term capital gains | |
| — | |
| Total distributions paid | |
$ | — | |
9. Investment Transactions
Purchases and sales of investments,
excluding short-term investments, for the period ended March 31, 2020 were $17,408,723 and $0, respectively.
10. Indemnification
Under the Fund’s organizational
documents, its officers and Board of Trustees are indemnified against certain liabilities arising out of the performance of their
services to the Fund. In addition, in the normal course of business, the Fund may enter into contracts and agreements that provide
for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future
claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.
11. Commitments
As of March 31, 2020, the Fund had
outstanding investment commitments to Investment Funds totaling approximately $9,545,199.
12. Recent events impacting the securities markets
A recent outbreak of respiratory disease
caused by a novel coronavirus was first detected in December 2019 and has spread internationally. The outbreak and efforts to
contain its spread have resulted in closing borders and quarantines, restricting international and domestic travel, enhanced health
screenings, cancellations, disrupted supply chains and customer activity, responses by businesses (including changes to operations
and reducing staff), and have produced general concern and uncertainty.
The impact of the coronavirus pandemic,
and other epidemics and pandemics that may arise in the future, could adversely affect national and global economies, individual
companies and the market in general in a manner and for a period of time that cannot be foreseen at the present time. Health crises
caused by the recent outbreak may heighten other preexisting political, social and economic risks in a country or region. Governmental
authorities and regulators throughout the world, such as the U.S. Federal Reserve, have in the past responded to major economic
disruptions with changes to fiscal and monetary policy, including but not limited to, direct capital infusions, new monetary programs,
and dramatically lower interest rates. Certain of those policy changes are being implemented or considered in response to the
coronavirus outbreak. Such policy changes may adversely affect the value, volatility and liquidity of dividend and interest paying
securities. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the
entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments
or to accurately price its investments. In the event of a pandemic or an outbreak, there can be no assurance that the Fund and
its service providers will be able to maintain normal business operations for an extended period of time or will not lose the
services of key personnel on a temporary or long-term basis due to illness or other reasons. A pandemic or disease could also
impair the information technology and other operational systems upon which the Fund’s investment adviser rely, and could
otherwise disrupt the ability of the Fund’s service providers to perform essential tasks. Although multiple asset classes
may be affected by a market disruption, the duration and effects may not be the same for all types of assets. To the extent the
Fund may overweight its investments in certain countries, companies, industries or market sectors, such position will increase
the Fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.
These conditions could result in the Fund’s inability to achieve its investment objectives, adversely affect the prices
and liquidity of the securities and other instruments in which the Fund invests, negatively impact the Fund’s performance,
and cause losses on your investment in the Fund.
13. Subsequent Events
The Fund has evaluated subsequent events
through the date the financial statements were issued, and has determined that there were no other subsequent events that require
disclosure in or adjustment to the financial statements.
FlowStone
Opportunity Fund
Report of Independent
Registered Public Accounting Firm
March 31, 2020
To the Board of Trustees and Shareholders
of FlowStone Opportunity Fund
Opinion on the Financial
Statements
We have audited the accompanying statement
of assets, liabilities, and shareholders’ capital, including the schedule of investments, of FlowStone Opportunity Fund
(the “Fund”) as of March 31, 2020, and the related statements of operations, changes in shareholders’ capital,
and cash flows, including the related notes, and the financial highlights for the period August 30, 2019 (commencement of operations)
through March 31, 2020 (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Fund as of March 31, 2020, and the results of its operations,
changes in its shareholders’ capital, its cash flows and the financial highlights for the period August 30, 2019 (commencement
of operations) through March 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements
based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial
statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation
of securities owned as of March 31, 2020 by correspondence with the custodian and underlying investment fund managers; when replies
were not received from the underlying investment fund managers, we performed other auditing procedures. We believe that our audit
provides a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
May 29, 2020
We have served as the Fund’s
auditor since 2018.
FlowStone
Opportunity Fund
Other Information
March 31, 2020 (Unaudited)
Proxy Voting
The Fund is required to file Form N-PX,
with its complete proxy voting record for the twelve months ended June 30, no later than August 31. The Fund’s Form N-PX
filing is available: (i) without charge, upon request, by calling the Fund c/o UMB Fund Services, by telephone at 1-888-799-0799
or (ii) by visiting the SEC’s website at www.sec.gov.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule
of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Form
N-PORT is available, without charge and upon request, on the SEC’s website at www.sec.gov.
Tax Information
For the year ended September 30, 2019,
0% of the dividends to be paid from net investment income, including short-term capital gains from the Fund (if any), are designated
as qualified dividend income.
For the year ended September 30, 2019,
0% of the dividends to be paid from net investment income, including short-term capital gains from the Fund (if any), are designated
as dividends received deduction available to corporate shareholders.
For the year ended September 30, 2019,
the Fund designates $0 as long-term capital gain distributions.
FlowStone
Opportunity Fund
Fund Management
March 31, 2020 (Unaudited)
INDEPENDENT TRUSTEES
|
NAME,
ADDRESS^ AND YEAR OF BIRTH |
|
POSITION(S)
WITH THE FUND |
|
LENGTH
OF TIME SERVICED* |
|
PRINCIPAL
OCCUPATION(S) DURING PAST 5 YEARS AND OTHER DIRECTORSHIPS** HELD BY THE TRUSTEE |
|
PORTFOLIOS
IN FUND COMPLEX OVERSEEN BY TRUSTEE OR OFFICER |
|
OTHER
DIRECTORSHIPS HELD BY THE TRUSTEE |
Jason S. Gull
Birth year: 1970 |
|
Trustee |
|
Since Inception |
|
Partner, Head of Secondary Investments, and Member of the Executive Committee at Adams Street Partners, LLC (2004-2016). |
|
1 |
|
Trustee, Utah School & Institutional Trust Funds Office; Advisory Board Member, Cougar Capital, a Brigham Young
University affiliated investment fund; Member of the Brigham Young University Marriott School of Business National Advisory
Council. |
| |
|
|
|
|
|
|
|
|
|
|
Craige L. Stout
Birth year: 1962 |
|
Trustee |
|
Since Inception |
|
CEO, Stout Risius Ross, LLC (since 1991). |
|
1 |
|
None |
| |
|
|
|
|
|
|
|
|
|
|
Michael H. Moskow
Birth year: 1938 |
|
Trustee |
|
Since Inception |
|
Consultant, Board and Advisory Board Member, and Board Member, Taylor Capital Group (since 2008-2014). |
|
1 |
|
CityBase, Board Member; Discover Financial, Inc., Board Member; Educational Corporation of America, Board Member; National
Futures Association, Board Member; and Commonwealth Edison, a subsidiary of Exelon, Board Member. |
| |
|
|
|
|
|
|
|
|
|
|
Marek Herchel
Birth year: 1976 |
|
Trustee |
|
Since Inception |
|
Head of Americas, MLC Private Equity, nabSecurities, LLC since June 2017; Managing Director, AlpInvest Partners, The
Carlyle Group (from 2011-2017). |
|
1 |
|
None |
| ^ | The address for
each Independent Trustee is c/o Joshua Deringer, Faegre Drinker Biddle & Reath LLP,
One Logan Square, Suite 2000, Philadelphia, PA 19103-6996. |
| * | Each Trustee serves an indefinite
term, until his or her successor is elected. |
| * | Each Trustee who is not an “interested
person” of the Trust (“Independent Trustee”) receives an annual retainer
of $5,000 per year. In addition, the Fund pays an additional retainer of $5,000 per year
to the Chairman of the Board, Chairman of the Audit Committee, and to the Chairman of
the Valuation Committee. Trustees will also receive $2,500 for each in-person quarterly
meeting. Trustees that are interested persons will not be compensated by the Fund. The
Trustees do not receive any pension or retirement benefits. Collectively, the Independent
Trustees were paid $58,470 in retainer and meeting fees during the fiscal period year
ended March 31, 2020. |
| ** | Includes any company with a class
of securities registered pursuant to Section 12 of the Exchange Act of 1934, as amended
(the “Exchange Act”), or subject to the requirements of Section 15(d) of
the Exchange Act or any company registered under the Investment Company Act. |
| INTERESTED TRUSTEES AND OFFICERS |
| |
NAME,
ADDRESS
AND YEAR OF BIRTH |
|
POSITION(S)
WITH THE
FUND |
|
LENGTH OF
TIME SERVICED* |
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS AND
OTHER
DIRECTORSHIPS**
HELD BY THE
TRUSTEE |
|
PORTFOLIOS
IN FUND
COMPLEX OVERSEEN
BY TRUSTEE
OR OFFICER |
|
OTHER
DIRECTORSHIPS
HELD BY THE
TRUSTEE DURING
THE PAST 5 YEARS |
Scott P. Conners
Birth year: 1968
29 Lucy Way
Simsbury, CT 06070
|
|
Trustee; President |
|
Since Inception |
|
Managing Director, FlowStone Partners, LLC (since March 2019); Managing Director, Cresset SPG, LLC, from 2017 to 2019;
Partner and Member of the Private Equity Investment Committee at Landmark Partners, LLC from 2003-2015 (employee since 1993) |
|
1 |
|
Board Chair and Board Member, Hartford Youth Scholars; Board Member, University of Maine at Farmington Board of Visitors;
Board Member and Treasurer, Simsbury Little League |
| |
|
|
|
|
|
|
|
|
|
|
Avy Stein
Birth year: 1955
c/o Cresset Capital Management, LLC
444 W. Lake Street
Suite 4700
Chicago, IL 60606
|
|
Trustee |
|
Since Inception |
|
Co-Chairman at Cresset Capital Management (since 2017); Chief Executive Officer at Willis Stein and Partners (1994-2017);
Co-Founder at Lincoln Clean Energy (through 2016) |
|
1 |
|
Board Member, HilCo Global; Trustee, Treasurer, and Chairman of the Investment Committee, Ravinia Festival; Member,
Harvard Law School Leadership Council; Director, Western Golf Association; Lead Director, Interval Leisure Group |
| |
|
|
|
|
|
|
|
|
|
|
Eric Becker
Birth year: 1962
c/o Cresset Capital Management, LLC
444 W. Lake Street
Suite 4700
Chicago, IL 60606
|
|
Trustee |
|
Since Inception |
|
Co-Chairman at Cresset Capital Management (since 2017); Chairman at Caretta Group (since 2014); Chairman at Vennpoint
Real Estate (since 2014); Senior Managing Director and Co-Founder at Sterling Partners |
|
1 |
|
Board Member, Kuvare Holdings; Advisory Board Member, Chesapeake Spice Company; Advisory Board Member, Dorsar Family
Office; Board Member, Roti Modern Mediterranean Restaurants, Board Member, Eastman Egg Company; Board Member, HiTech Corp.;
Board Member, Viewpost; Board Member, Living Classrooms Foundation; Board Member, Karma for Cara Foundation; Board Member,
Admirals Cove Foundation; Board Member, Chicago Ideas Week |
| INTERESTED TRUSTEES AND OFFICERS (CONTINUED) |
| |
NAME, ADDRESS AND YEAR
OF BIRTH |
|
POSITION(S) WITH THE FUND |
|
LENGTH OF TIME SERVICED* |
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5
YEARS AND OTHER
DIRECTORSHIPS**
HELD BY THE
TRUSTEE |
|
PORTFOLIOS IN FUND COMPLEX
OVERSEEN BY TRUSTEE OR OFFICER |
|
OTHER DIRECTORSHIPS HELD
BY THE TRUSTEE DURING THE PAST 5 YEARS |
Trent Statczar^
Birth year: 1971
690 Taylor Road
Suite 210
Gahana, OH 43230
|
|
Chief Financial Officer; Treasurer |
|
Since Inception |
|
Fund Principal Financial Officer at Foreside Fund Officer Services, LLC (since 2016); Director, PFO Services at Beacon
Hill Fund Services (2008-2016) |
|
1 |
|
N/A |
Brandon Kipp^
Birth year: 1983
690 Taylor Road
Suite 210
Gahanna, OH 43230
|
|
Chief Compliance Officer |
|
Since May 2019 |
|
Director, Foreside Financial Group, LLC (since 2019); Senior Fund Compliance Officer, Ultimus Fund Solutions, LLC (from
July 2017 to May 2019); Assistant Vice President and Compliance Manager, UMB Fund Services, Inc. (March 2014 to July 2017). |
|
1 |
|
N/A |
William S. Bertha
Birth year: 1990
520 W. Huron St.
Unit 405
Chicago, IL 60654
|
|
Secretary |
|
Since Inception |
|
Senior Associate at FlowStone Partners, LLC since March 2019; Senior Associate at Cresset SPG, LLC from 2018 to 2019;
Associate at Adams Street Partners (2017-2018); Analyst at Northwestern Mutual Capital (2014-2017) |
|
1 |
|
N/A |
| * | Each Trustee/Officer serves an indefinite
term, until his or her successor is elected. |
| ** | Includes any company with a class
of securities registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any company registered under the
Investment Company Act. |
| ^ | Foreside Fund
Officer Services, LLC provides chief compliance officer and chief financial officer services
to the Fund under a Fund CCO Agreement and Fund CFO/Treasuer Agreement. Messrs. Statczar
and Kipp are employees of Foreside Fund Officer Services, LLC.
|
FlowStone
Opportunity Fund
Privacy Notice
March 31, 2020 (Unaudited)
PRIVACY NOTICE
| FACTS |
WHAT DOES FLOWSTONE OPPORTUNITY FUND (“FLOWSTONE”) DO
WITH YOUR PERSONAL INFORMATION? |
| Why? |
Financial companies choose how they share your personal information.
Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect,
share and protect your personal information. Please read this notice carefully to understand what we do. |
| What? |
The types of personal information
we collect and share depend on the product or service you have with us. This information can include:
•Social Security number and name
•Address, phone number and e-mail address
•Transactions and account balances
When you are no longer
our customer, we may continue to share your information as described in this notice.
|
| How? |
All financial companies need to share personal information to
run their everyday business. In the section below, we list the reasons financial companies can share their personal information;
the reasons we choose to share; and whether you can limit this sharing. |
| Reasons we can share your
personal information |
Does FlowStone share? |
Can you limit this sharing? |
| For our everyday business purposes — such as to process
your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes |
No |
| For our marketing purposes — to offer our products and
services to you |
Yes |
No |
| For joint marketing with other financial companies |
No |
No |
| For our affiliates’ everyday business purposes —
information about your transactions and experiences |
Yes |
No |
| For our affiliates’ everyday business purposes —
information about your creditworthiness |
No |
No |
| For non-affiliates to market to you |
No |
No |
| Questions? |
Call 1-888-799-0799 or go to www.flowstonepartners.com |
| Who We Are |
| Who is providing this notice? |
FlowStone Opportunity Fund (“FlowStone”) |
| What We Do |
| How does FlowStone protect my personal information? |
To protect your personal
information from unauthorized access and use, we use security measures that comply with federal law. These measures include
computer safeguards and secured fi les and buildings.
We restrict access to information
about you to those employees we determine need to know that information to provide products and services to you. We maintain
physical, electronic and procedural safeguards to protect this information.
We continuously assess
new technology for protecting information and upgrade our systems where appropriate.
|
| How does FlowStone collect my personal information? |
We collect your personal information, for example, when you
establish your investment or give us contact information. |
| Why can’t I limit all sharing? |
Federal law gives you the right to limit only
•sharing for affiliates’
everyday business purposes — information about your creditworthiness
•affiliates from using your information
to market to you
•sharing for non-affiliates to market to
you
State laws and individual
companies may give you additional rights to limit sharing.
|
| Definitions |
| Affiliates |
Companies related by common ownership or control. They can be
financial and nonfinancial companies. |
| Non-affiliates |
Companies not related by common ownership or control. They can
be financial and nonfinancial companies. |
| Joint marketing |
A formal agreement between nonaffiliated financial companies
that together market financial products or services to you. |
| For Other Important Information |
| For helpful information about identity theft, visit
the Federal Trade Commission’s (FTC) consumer website at www.ftc.gov/idtheft. |
APPENDIX B: PROXY VOTING POLICIES
AND PROCEDURES
Proxy Voting Policies and Procedures
Background
Currently the Adviser’s only Client
is a Fund that invests primarily in private equity direct co-investment, primary fund investments, and secondary fund investments;
the need to vote proxies is negligible. However, in the event that the Adviser invests in securities that require proxy voting,
the Adviser has established this Proxy Voting Policy (“Proxy Policy”) in accordance with its fiduciary duty owed to
Clients, which are believed to be reasonably designed to ensure that proxies are voted in the best interests of Clients.
The Firm has established procedures for
exercising voting rights and has implemented proxy voting procedures to ensure that proxies are voted in a reasonable and timely
fashion.
In accordance with Rule 206(4)-6 under
the Advisers Act, the Firm’s Proxy Policy: (i) ensures that proxies that the Adviser votes on behalf of our Clients
are voted to maximize the long term economic value of Client holdings; (ii) establishes a mechanism to address any conflicts
of interests between the Adviser and our Clients; and (iii) provides record keeping requirements and the criteria for delivering
such information. The Adviser’s general policy is to vote proxy proposals, amendments, consents or resolutions in a manner
that reasonably furthers the best interests of our Clients and is consistent with the Clients’ investment objectives and
strategy.
If the Adviser determines the existence
of a potential conflict of interest when voting a proxy, it will address matters involving conflicts of interest in the manner
set forth in our Proxy Policy.
Proxy Voting
Rule 206(4)-6 under the Investment
Advisers Act of 1940 (the “Advisers Act”) requires that every registered investment adviser adopt and implement written
policies and procedures that are reasonably designed to ensure that the adviser votes proxies in the best interest of its clients.
Such policies and procedures also must address material conflicts that may arise between the adviser’s interest and that
of its clients; additionally, the Rule requires that the adviser describe its proxy voting policies and procedures to its
clients and, when requested, furnish a copy of such policies and procedures and/or the adviser’s voting record to the requested
client.
The Adviser principally invests in private
equity holdings that typically do not require proxy voting. However, if the Adviser does receive proxy votes, the votes will be
voted with the aim of furthering the best economic interest of the Adviser’s Clients. This Proxy Policy contains guidelines,
but each vote is ultimately cast on a case-by case basis, taking into consideration the Firm’s contractual obligations under
the management agreement and all other relevant facts and circumstances at the time of the vote.
Procedures
Process for Voting
Upon receiving notice of an upcoming meeting,
the investment team will review the proxy statement, official agenda and/other background material and make the voting decision.
The Adviser will cast votes in accordance with this policy via electronic voting service, or, where necessary, by faxing written
voting instructions to the custodian. The Adviser will retain copies of all records of votes cast at each meeting. In the event
that the investment team has any questions regarding the application of this policy to the voting of a particular proxy, they will
discuss the matter prior to casting the vote.
Conflicts
of Interest
The CCO will determine what constitutes
a conflict of interest for proxy-voting purposes. If the any member of the investment team believes that there is, or may be, a
material conflict of interest involving a proxy voting matter, he/she will immediately refer the matter to the CCO for resolution.
The CCO will deem a conflict to exist whenever the Adviser has a personal or business interest in the outcome of a particular matter
before shareholders. A conflict would arise, for example, in the case where the Adviser had a business or financial relationship
with a company whose management or shareholders were soliciting proxies. Another example of a conflict of interest would be where
a Supervised Person of the Adviser is related to an incumbent director or candidate seeking a seat on the board. Conflicts deemed
by the CCO to be immaterial to a shareholder vote will not prohibit the Adviser from voting a particular proxy. the CCO will presume
the existence of a conflict of interest for proxy-voting purposes under the following circumstances: A current Client of the Adviser
is affiliated with a company soliciting proxies and has communicated its view to the Adviser on a pending proxy vote; The Adviser
has identified a personal interest either in a company soliciting proxies or in the outcome of a shareholder vote; or; A third-party
with an interest in the outcome of a shareholder vote has attempted to influence the Adviser.
The CCO may choose among the following options
to address the conflict or apparent conflict: (1) vote in accordance with this Proxy Policy if it involves a matter with little
or no discretion; (2) vote in accordance with the third party voting service recommendation, if applicable; (3) “echo
vote” or “mirror vote” the proxies in the same proportion as the votes of other proxy holders that are not Clients
of the Firm; (4) if possible, erect information barriers around the investment team sufficient to insulate the decision from
the conflict; (5) if practical, notify affected Clients of the conflict and seek a waiver of the conflict; or (6) if
agreed upon in writing with the Client, forward the proxies to affected Clients allowing them to vote their own proxies.
Availability of Policy; Disclosure of Proxy Voting Record
Any request for proxy information, whether
written (including e-mail communications) or oral, received by an employee of the Adviser is to be promptly reported to the CCO.
Upon request from an investor for the Adviser’s proxy voting record, the CCO may elect to distribute to the requesting investor
the complete proxy voting record of the Adviser. Any such cumulative report disseminated to a requesting investor will contain
the following legend:
“This report contains the full proxy
voting record of FlowStone Partners. If securities of a particular issuer were held in your account on the date of the shareholder
meeting indicated, your proxy was voted in the direction indicated absent your expressed written direction otherwise.”
All requests will be fulfilled free of charge
to the requesting investor in a timely manner (within 10 business days). The CCO will retain a copy of the material provided to
the investor along with a copy of the written request, if applicable, for the period indicated in the Adviser’s required
Books and Records.
PART C:
OTHER INFORMATION
FlowStone Opportunity Fund (the “Registrant”)
Item 25. Financial Statements and Exhibits
Financial Statements are included as an appendix to
the Statement of Additional Information filed herewith.
| (a)(4) | Amended and Restated Declaration of Trust is included as an appendix to the Prospectus filed herewith. |
| (d) | Refer to Exhibits (a)(1) and (b). |
Item 26. Marketing Arrangements
Not applicable.
Item 27. Other Expenses of Issuance and Distribution of Securities
Being Registered
All figures are estimates:
| Registration fees |
$ | 30,987 | |
| Legal fees |
$ | 216,425 | |
| Printing fees |
$ | 31,649 | |
| Blue Sky fees |
$ | 28,571 | |
| Accounting fees |
| — | |
| Miscellaneous Fees |
$ | 182 | |
| Total |
$ | 307,814 | |
Item 28. Persons Controlled by or Under Common Control With
Registrant
Not applicable.
Item 29. Number of Holders of Securities
| Title of Class | | |
Number of Shareholders* | |
| Shares | | |
| 92 | |
* As of March 31, 2020.
Item 30. Indemnification
Sections 8.1-8.4 of Article VIII
of the Registrant’s Agreement and Declaration of Trust states:
| Section 8.1 |
Limitation of Liability. Neither a Trustee nor an officer of the Trust, when acting in such capacity, shall be personally
liable to any person other than the Trust or a beneficial owner for any act, omission or obligation of the Trust, any Trustee
or any officer of the Trust. Neither a Trustee nor an officer of the Trust shall be liable for any act or omission in his capacity
as Trustee or as an officer of the Trust, or for any act or omission of any other officer or any employee of the Trust or of any
other person or party, provided that nothing contained herein or in the Act shall protect any Trustee or officer against any liability
to the Trust or to Shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of the office of Trustee or the duties of such officer hereunder. |
| Section 8.2 |
Indemnification. The Trust shall indemnify each of its Trustees and officers and persons who serve at the Trust’s
request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor,
or otherwise, and may indemnify any trustee, director or officer of a predecessor organization (each a “Covered Person”),
against all liabilities and expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties,
and expenses including reasonable accountants’ and counsel fees) reasonably incurred in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in
which he may be involved or with which he may be threatened, while as a Covered Person or thereafter, by reason of being or having
been such a Covered Person, except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject by reason of bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties involved in the conduct of such Covered Person’s office (such willful misfeasance, bad faith, gross
negligence or reckless disregard being referred to herein as “Disabling Conduct”). Expenses, including accountants’
and counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise
or as fines or penalties), may be paid from time to time by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of (a) an undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article VIII
and either (b) such Covered Person provides security for such undertaking, (c) the Trust is insured against losses arising
by reason of such payment, or (d) a majority of a quorum of disinterested, non-party Trustees, or independent legal counsel
in a written opinion, determines, based on a review of readily available facts, that there is reason to believe that such Covered
Person ultimately will be found entitled to indemnification. |
| Section 8.3 |
Indemnification Determinations. Indemnification of a Covered Person pursuant to Section 8.2 shall be made if (a) the
court or body before whom the proceeding is brought determines, in a final decision on the merits, that such Covered Person was
not liable by reason of Disabling Conduct or (b) in the absence of such a determination, a majority of a quorum of disinterested,
non-party Trustees or independent legal counsel in a written opinion make a reasonable determination, based upon a review of the
facts, that such Covered Person was not liable by reason of Disabling Conduct. |
| Section 8.4 |
Indemnification Not Exclusive. The right of indemnification provided by this Article VIII shall not be exclusive of
or affect any other rights to which any such Covered Person may be entitled. As used in this Article VIII, “Covered
Person” shall include such person’s heirs, executors and administrators, and a “disinterested, non-party Trustee”
is a Trustee who is neither an Interested Person of the Trust nor a party to the proceeding in question. |
Additionally, the Registrant’s various
agreements with its service providers contain indemnification provisions.
Item 31. Business and Other Connections of Investment Adviser
FlowStone Partners, LLC is a newly formed
adviser. FlowStone’s sole client is the Fund. FlowStone has three Managing Directors, and information as to their business,
profession, vocation or employment during the past two fiscal years is included above in the Prospectus under “Management
of the Fund—Portfolio Managers.”
Item 32. Location of Accounts and Records
All accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained at the offices of (1) the Registrant’s Administrator, (2) the Investment Manager, (3) and/or
the Registrant’s counsel. The address of each is as follows:
| |
1. |
UMB Fund Services, Inc. |
| |
|
235 West Galena Street |
| |
|
Milwaukee, WI 53212 |
| |
2. |
FlowStone Partners, LLC |
| |
|
55 Nod Road, Ste. 120 |
| |
|
Avon, CT 06001 |
| |
3. |
Faegre Drinker Biddle & Reath LLP |
| |
|
One Logan Square, Ste. 2000 |
| |
|
Philadelphia, PA 19103 |
Item 33. Management Services
Not applicable.
Item 34. Undertakings
1. Not
applicable.
2. Not
applicable.
3. Not
applicable.
4. The
Registrant undertakes (a) to file, during any period in which offers or sales are being made, a post-effective amendment to
this Registration Statement:
(1) to
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(2) to
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(3) to
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(b) that
for the purpose of determining any liability under the Securities Act of 1933, 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 of 1933 to any purchaser, if the Registrant is subject to Rule 430C;
each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the Securities Act of 1933, shall be deemed
to be part of and included in this Registration Statement as of the date it is first used after effectiveness. Provided, however,
that no statement made in this Registration Statement or prospectus that is part of this registration statement or made in a document
incorporated or deemed incorporated by reference into this registration statement or prospectus that is art of this 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 this registration statement or prospectus that was part of this 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 of 1933 to any purchaser in the initial distribution
of securities:
The undersigned Registrant undertakes that
in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of
the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell
such securities to the purchaser:
(1) any
preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497
under the Securities Act of 1933;
(2) the
portion of any advertisement pursuant to Rule 482 under the Securities Act of 1933 relating to the offering containing material
information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(3) any
other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
5. Not
applicable.
6. 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 Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago in the State of Illinois
on the 1st day of July, 2020.
| |
FlowStone Opportunity Fund |
| |
|
| |
By: |
/s/ Scott P. Conners |
| |
Name: Scott P. Conners |
| |
Title: President |
Pursuant to the requirements of the Securities
Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the
dates indicated.
| /s/ Scott
P. Conners |
|
President |
|
July 1, 2020 |
| Scott
P. Conners |
|
|
|
|
| |
|
|
|
|
| /s/ Trent
Statczar |
|
Treasurer |
|
July 1, 2020 |
| Trent
Statczar |
|
|
|
|
| |
|
|
|
|
| *Eric
Becker |
|
Trustee |
|
July 1, 2020 |
| Eric
Becker |
|
|
|
|
| |
|
|
|
|
| *Michael
H. Moskow |
|
Trustee |
|
July 1, 2020 |
| Michael
H. Moskow |
|
|
|
|
| |
|
|
|
|
| *Marek
Herchel |
|
Trustee |
|
July 1 , 2020 |
| Marek
Herchel |
|
|
|
|
| |
|
|
|
|
| *Jason
S. Gull |
|
Trustee |
|
July 1, 2020 |
| Jason
S. Gull |
|
|
|
|
| *By: |
/s/ Scott P. Conners |
|
| |
Scott P. Conners |
|
| |
Attorney-In-Fact (Pursuant to Power of Attorney) |
|
Exhibit Index
