ARES CAPITAL CORP

Previous wording

Since our initial public offering (“IPO”) on October 8, 2004 through June 30, 2024, our exited investments resulted in an asset level realized gross internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $45.5 billion and total proceeds from such exited investments of approximately $58.1 billion). Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized.

Current wording

Since our initial public offering (“IPO”) on October 8, 2004 through September 30, 2024, our exited investments resulted in an asset level realized gross internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $47.2 billion and total proceeds from such exited investments of approximately $60.4 billion). Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized.

Previous wording

Additionally, since our IPO on October 8, 2004 through June 30, 2024, our realized gains have exceeded our realized losses by approximately $0.9 billion (excluding a one-time gain on the acquisition of Allied Capital Corporation in April 2010 (the “Allied Acquisition”) and realized gains/losses from the extinguishment of debt and other transactions). For the same time period, our average annualized net realized gain rate was approximately 0.9% (excluding a one-time gain on the Allied Acquisition and realized gains/losses from the extinguishment of debt and other transactions). Net realized gain/loss rates for a particular period are the amount of net realized gains/losses during such period divided by the average quarterly investments at amortized cost in such period.

Current wording

Additionally, since our IPO on October 8, 2004 through September 30, 2024, our realized gains have exceeded our realized losses by approximately $0.9 billion (excluding a one-time gain on the acquisition of Allied Capital Corporation in April 2010 (the “Allied Acquisition”) and realized gains/losses from the extinguishment of debt and other transactions). For the same time period, our average annualized net realized gain rate was approximately 0.8% (excluding a one-time gain on the Allied Acquisition and realized gains/losses from the extinguishment of debt and other transactions). Net realized gain/loss rates for a particular period are the amount of net realized gains/losses during such period divided by the average quarterly investments at amortized cost in such period.

Previous wording

During the second quarter of 2024, leveraged corporate credit markets posted positive returns, driven by sustained economic growth, a healthy level of corporate earnings and further stability in the capital markets and U.S. banking system. With easing inflationary measures, the Federal Reserve has signaled a willingness to soften its current restrictive monetary policies.

Current wording

During the third quarter of 2024, leveraged corporate credit markets posted positive returns, driven by sustained economic growth, a healthy level of corporate earnings and further stability in the capital markets and U.S. banking system. With easing inflationary measures, the Federal Reserve softened its monetary policies and lowered the federal funds rate in support of its goals of maximum employment and returning inflation to its two percent objective.

Previous wording

(1)New investment commitments include new agreements to fund revolving loans or delayed draw loans. See Note 7 to our consolidated financial statements for the three and six months ended June 30, 2024 for more information on our commitments to fund revolving loans or delayed draw loans.

Current wording

(1)New investment commitments include new agreements to fund revolving loans or delayed draw loans. See Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2024 for more information on our commitments to fund revolving loans or delayed draw loans.

Previous wording

(2)Includes both funded and unfunded commitments. Of these new investment commitments, we funded $2.9 billion and $1.0 billion for the three months ended June 30, 2024 and 2023, respectively.

Current wording

(2)Includes both funded and unfunded commitments. Of these new investment commitments, we funded $2.7 billion and $1.2 billion for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

(3)Includes both funded and unfunded commitments. For the three months ended June 30, 2024 and 2023, investment commitments exited included exits of unfunded commitments of $123 million and $135 million, respectively.

Current wording

(3)Includes both funded and unfunded commitments. For the three months ended September 30, 2024 and 2023, investment commitments exited included exits of unfunded commitments of $333 million and $230 million, respectively.

Previous wording

(4)For the three months ended June 30, 2024 and 2023, net fundings (repayments) of first lien secured revolving loans were $8 million and $(176) million, respectively.

Current wording

(4)For the three months ended September 30, 2024 and 2023, net repayments of first lien secured revolving loans were $55 million and $94 million, respectively.

Previous wording

(5)See “Senior Direct Lending Program” below and Note 4 to our consolidated financial statements for the three and six months ended June 30, 2024 for more information on the SDLP (as defined below).

Current wording

(5)See “Senior Direct Lending Program” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2024 for more information on the SDLP (as defined below).

Previous wording

(6)Includes our subordinated loan and equity investments in IHAM (as defined below), as applicable. See “Ivy Hill Asset Management, L.P.” below and Note 4 to our consolidated financial statements for the three and six months ended June 30, 2024 for more information on IHAM.

Current wording

(6)Includes our subordinated loan and equity investments in IHAM (as defined below), as applicable. See “Ivy Hill Asset Management, L.P.” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2024 for more information on IHAM.

Previous wording

(2)First lien senior secured loans include certain loans that we classify as “unitranche” loans. The total amortized cost and fair value of the loans that we classified as “unitranche” loans were $7.3 billion and $7.2 billion, respectively, as of June 30, 2024, and $5.8 billion and $5.7 billion, respectively, as of December 31, 2023.

Current wording

(2)First lien senior secured loans include certain loans that we classify as “unitranche” loans. The total amortized cost and fair value of the loans that we classified as “unitranche” loans were $8.1 billion and $8.0 billion, respectively, as of September 30, 2024, and $5.8 billion and $5.7 billion, respectively, as of December 31, 2023.

Previous wording

We have commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) our discretion. Our commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions. Generally, the most significant and uncertain term requires the borrower to satisfy a specific use of proceeds covenant. The use of proceeds covenant typically requires the borrower to use the additional loans for the specific purpose of a permitted acquisition or permitted investment, for example. In addition to the use of proceeds covenant, the borrower is generally required to satisfy additional negotiated covenants (including specified leverage levels). We are also party to subscription agreements to fund equity investments. See Note 7 to our consolidated financial statements for the three and six months ended June 30, 2024 for more information on our unfunded commitments, including commitments to issue letters of credit, related to certain of our portfolio companies.

Current wording

We have commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) our discretion. Our commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions. Generally, the most significant and uncertain term requires the borrower to satisfy a specific use of proceeds covenant. The use of proceeds covenant typically requires the borrower to use the additional loans for the specific purpose of a permitted acquisition or permitted investment, for example. In addition to the use of proceeds covenant, the borrower is generally required to satisfy additional negotiated covenants (including specified leverage levels). We are also party to subscription agreements to fund equity investments. See Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2024 for more information on our unfunded commitments, including commitments to issue letters of credit, related to certain of our portfolio companies.

Previous wording

As of June 30, 2024 and December 31, 2023, loans on non-accrual status represented 1.5% of the total investments at amortized cost (or 0.7% at fair value) and 1.3% at amortized cost (or 0.6% at fair value), respectively.

Current wording

As of September 30, 2024 and December 31, 2023, loans on non-accrual status represented 1.3% of the total investments at amortized cost (or 0.6% at fair value) and 1.3% at amortized cost (or 0.6% at fair value), respectively.

Previous wording

Ivy Hill Asset Management, L.P. (“IHAM”), our wholly owned portfolio company, is an asset manager and an SEC-registered investment adviser. As of June 30, 2024, IHAM had assets under management of approximately $13.2 billion. As of June 30, 2024, IHAM managed 21 vehicles (the “IHAM Vehicles”). IHAM earns fee income from managing the IHAM Vehicles and has also invested in certain of these vehicles as part of its business strategy. The amortized cost of IHAM’s total investments as of June 30, 2024 and December 31, 2023 was $2,311 million and $2,288 million, respectively. For the three and six months ended June 30, 2024, IHAM had management and incentive fee income of $14 million and $28 million, respectively, and other investment-related income of $92 million and $191 million, respectively, which included net realized gains or losses on investments and other transactions. For the three and six months ended June 30, 2023, IHAM had management and incentive fee income of $13 million and $27 million, respectively, and investment-related income of $95 million and $156 million, respectively, which included net realized gains or losses on investments and other transactions.

Current wording

Ivy Hill Asset Management, L.P. (“IHAM”), our wholly owned portfolio company, is an asset manager and an SEC-registered investment adviser. As of September 30, 2024, IHAM had assets under management of approximately $13.2 billion. As of September 30, 2024, IHAM managed 21 vehicles (the “IHAM Vehicles”). IHAM earns fee income from managing the IHAM Vehicles and has also invested in certain of these vehicles as part of its business strategy. The amortized cost of IHAM’s total investments as of September 30, 2024 and December 31, 2023 was $2,304 million and $2,288 million, respectively. For the three and nine months ended September 30, 2024, IHAM had management and incentive fee income of $13 million and $41 million, respectively, and other investment-related income of $75 million and $266 million, respectively, which included net realized gains or losses on investments and other transactions. For the three and nine months ended September 30, 2023, IHAM had management and incentive fee income of $15 million and $42 million, respectively, and investment-related income of $80 million and $236 million, respectively, which included net realized gains or losses on investments and other transactions.

Previous wording

The interest income and dividend income that we earned from IHAM for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

The interest income and dividend income that we earned from IHAM for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

From time to time, IHAM or certain IHAM Vehicles may purchase investments from, or sell investments to, us. For any such sales or purchases by the IHAM Vehicles to or from us, the IHAM Vehicle must obtain approval from third parties unaffiliated with us or IHAM, as applicable. During the six months ended June 30, 2024 and 2023, IHAM or certain of the IHAM Vehicles purchased $35 million and $691 million, respectively, of loans from us. For the six months ended June 30, 2024 and 2023, we recognized $1 million and $11 million, respectively, of net realized losses from these sales. During the six months ended June 30, 2024 and 2023, IHAM or certain IHAM Vehicles sold $32 million and $7 million, respectively, of investments to us.

Current wording

From time to time, IHAM or certain IHAM Vehicles may purchase investments from, or sell investments to, us. For any such sales or purchases by the IHAM Vehicles to or from us, the IHAM Vehicle must obtain approval from third parties unaffiliated with us or IHAM, as applicable. During the nine months ended September 30, 2024 and 2023, IHAM or certain of the IHAM Vehicles purchased $301 million and $842 million, respectively, of loans from us. For the nine months ended September 30, 2024 and 2023, we recognized $1 million and $12 million, respectively, of net realized losses from these sales. During the nine months ended September 30, 2024 and 2023, IHAM or certain IHAM Vehicles sold $32 million and $26 million, respectively, of investments to us.

Previous wording

Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of IHAM, in conformity with U.S. generally accepted accounting principles (“GAAP”), as of and for the three and six months ended June 30, 2024 and 2023 are presented below.

Current wording

Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of IHAM, in conformity with U.S. generally accepted accounting principles (“GAAP”), as of and for the three and nine months ended September 30, 2024 and 2023 are presented below.

Previous wording

(2)The determination of such fair value is determined in accordance with IHAM’s valuation process (separate and apart from our valuation process described elsewhere herein). The amortized cost of IHAM’s total investments as of June 30, 2024 and December 31, 2023 was $2,311 million and $2,288 million, respectively. The amortized cost of the total investments of IHAM on a consolidated basis as of June 30, 2024 and December 31, 2023 was $8,792 million and $9,619 million, respectively.

Current wording

(2)The determination of such fair value is determined in accordance with IHAM’s valuation process (separate and apart from our valuation process described elsewhere herein). The amortized cost of IHAM’s total investments as of September 30, 2024 and December 31, 2023 was $2,304 million and $2,288 million, respectively. The amortized cost of the total investments of IHAM on a consolidated basis as of September 30, 2024 and December 31, 2023 was $8,597 million and $9,619 million, respectively.

Previous wording

(4)As of June 30, 2024 and December 31, 2023, net unrealized losses of $43 million and $13 million, respectively, have been eliminated upon consolidation and the elimination is included in “non-controlling interests in Consolidated IHAM Vehicles” in the selected balance sheet information.

Current wording

(4)As of September 30, 2024 and December 31, 2023, net unrealized losses of $53 million and $13 million, respectively, have been eliminated upon consolidation and the elimination is included in “non-controlling interests in Consolidated IHAM Vehicles” in the selected balance sheet information.

Previous wording

(5)Non-controlling interests in Consolidated IHAM Vehicles includes net unrealized depreciation in the Consolidated IHAM Vehicles of $180 million and $221 million as of June 30, 2024 and December 31, 2023, respectively.

Current wording

(5)Non-controlling interests in Consolidated IHAM Vehicles includes net unrealized depreciation in the Consolidated IHAM Vehicles of $139 million and $221 million as of September 30, 2024 and December 31, 2023, respectively.

Previous wording

The interest income from our investment in the SDLP Certificates and capital structuring service and other fees earned for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

The interest income from our investment in the SDLP Certificates and capital structuring service fees and other income earned for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

As of June 30, 2024 and December 31, 2023, the SDLP portfolio was comprised entirely of first lien senior secured loans primarily to U.S. middle-market companies and were in industries similar to the companies in our portfolio. As of June 30, 2024, two of the loans were on non-accrual status. As of December 31, 2023, one of the loans was on non-accrual status. Below is a summary of the SDLP’s portfolio as of June 30, 2024 and December 31, 2023:

Current wording

As of September 30, 2024 and December 31, 2023, the SDLP portfolio was comprised entirely of first lien senior secured loans primarily to U.S. middle-market companies and were in industries similar to the companies in our portfolio. As of September 30, 2024 and December 31, 2023, one of the loans was on non-accrual status. Below is a summary of the SDLP’s portfolio as of September 30, 2024 and December 31, 2023:

Previous wording

(2)First lien senior secured loans include certain loans that the SDLP classifies as “unitranche” loans. As of June 30, 2024 and December 31, 2023, the total principal amount of loans in the SDLP portfolio that the SDLP classified as “unitranche” loans was $4,344 million and $4,558 million, respectively.

Current wording

(2)First lien senior secured loans include certain loans that the SDLP classifies as “unitranche” loans. As of September 30, 2024 and December 31, 2023, the total principal amount of loans in the SDLP portfolio that the SDLP classified as “unitranche” loans was $4,181 million and $4,558 million, respectively.

Previous wording

Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of the SDLP, in conformity with GAAP, as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023 are presented below:

Current wording

Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of the SDLP, in conformity with GAAP, as of September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and 2023 are presented below:

Previous wording

(1)Represents the weighted average annual stated interest rate as of June 30, 2024. All interest rates are payable in cash, except for portions of the stated interest rates which are PIK for investments in Arrowhead Holdco Company and North Haven Falcon Buyer, LLC.

Current wording

(1)Represents the weighted average annual stated interest rate as of September 30, 2024. All interest rates are payable in cash, except for portions of the stated interest rates which are PIK for investments in Arrowhead Holdco Company.

Previous wording

Operating results for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Operating results for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

Interest income from investments for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily as a result of the impact of higher interest rates as well as an increase in the average size of our portfolio. The average size and weighted average yield of our portfolio at amortized cost for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Interest income from investments for the three months ended September 30, 2024 increased from the comparable period in 2023 primarily as a result of the increase in the average size of our portfolio. The weighted average yield on our portfolio for the three months ended September 30, 2024 remained largely consistent with the comparable period in 2023. Interest income from investments for the nine months ended September 30, 2024 increased from the comparable period in 2023 primarily due to the increase in the average size of our portfolio as well as the impact of higher interest rates. The average size and weighted average yield of our portfolio at amortized cost for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

Capital structuring service fees for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily due to an increase in new investment commitments. The lower weighted average capital structuring service fee percentage during the three and six months ended June 30, 2024 and 2023 was primarily due to lower fee opportunities as compared to the comparable periods in 2023. The new investment commitments and weighted average capital structuring service fee percentages for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Capital structuring service fees for the three and nine months ended September 30, 2024 increased from the comparable periods in 2023 primarily due to an increase in new investment commitments. The lower weighted average capital structuring service fee percentage during the three and nine months ended September 30, 2024 was primarily due to a higher percentage of new investment commitments to existing portfolio companies, which generally resulted in lower fee opportunities as compared to the comparable periods in 2023. The new investment commitments and weighted average capital structuring service fee percentages for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

(1)Excludes $34 million and $115 million of new investment commitments sold to third party lenders during the three months ended June 30, 2024 and 2023, respectively, and $1,586 million and $160 million during the six months ended June 30, 2024 and 2023, respectively. Excludes $23 million of investment commitments to IHAM for the three months ended June 30, 2024. There were no investment commitments to IHAM during the three months ended June 30, 2023. Excludes $263 million and $283 million of investment commitments to IHAM for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(1)Excludes $669 million and $129 million of new investment commitments sold to third party lenders during the three months ended September 30, 2024 and 2023, respectively, and $2,255 million and $289 million during the nine months ended September 30, 2024 and 2023, respectively. Excludes $41 million and $304 million of investment commitments sold to IHAM for the three and nine months ended September 30, 2024, respectively, and $122 million and $405 million, respectively, for the comparable periods in 2023.

Previous wording

Dividend income for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Dividend income for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

Dividend income received from IHAM for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily due to the increased earnings from the IHAM Vehicles as a result of higher interest rates. Recurring dividend income for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily due to an increase in yielding preferred equity investments.

Current wording

Dividend income received from IHAM for the three and nine months ended September 30, 2024 increased from the comparable periods in 2023 primarily due to the increased earnings from the IHAM Vehicles as a result of higher interest rates. Recurring dividend income for the three and nine months ended September 30, 2024 increased from the comparable periods in 2023 primarily due to an increase in yielding preferred equity investments.

Previous wording

Interest and credit facility fees for the three and six months ended June 30, 2024 and 2023, were comprised of the following:

Current wording

Interest and credit facility fees for the three and nine months ended September 30, 2024 and 2023, were comprised of the following:

Previous wording

(1)Includes the net interest expense related to the interest rate swaps for the three and six months ended June 30, 2024.

Current wording

(1)Includes the impact of the interest rate swaps for the three and nine months ended September 30, 2024 and 2023.

Previous wording

Stated interest expense for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily due to the increase in the average principal amount of debt outstanding and the impact of higher interest rates on our floating debt obligations. Average debt outstanding and weighted average stated interest rate on our debt outstanding for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Stated interest expense for the three and nine months ended September 30, 2024 increased from the comparable periods in 2023 primarily due to the increase in the average principal amount of debt outstanding and the impact of higher interest rates on our floating debt obligations. Average debt outstanding and weighted average stated interest rate on our debt outstanding for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

(1)The weighted average stated interest rate on our debt outstanding for the three and six months ended June 30, 2024 includes the impact of interest rate swaps. See Note 6 to our consolidated financial statements for the three and six months ended June 30, 2024, for more information on the interest rate swaps.

Current wording

(1)The weighted average stated interest rate on our debt outstanding for the three and nine months ended September 30, 2024 includes the impact of interest rate swaps. See Note 6 to our consolidated financial statements for the three and nine months ended September 30, 2024, for more information on the interest rate swaps.

Previous wording

The base management fee for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily due to the increase in the average size of our portfolio.

Current wording

The base management fee for the three and nine months ended September 30, 2024 increased from the comparable periods in 2023 primarily due to the increase in the average size of our portfolio.

Previous wording

The income based fee for the three and six months ended June 30, 2024 increased from the comparable periods in 2023 primarily due to the pre-incentive fee net investment income, as defined in the investment advisory and management agreement, for the three and six months ended June 30, 2024 being higher than in the comparable periods in 2023.

Current wording

The income based fee for the three and nine months ended September 30, 2024 increased from the comparable periods in 2023 primarily due to the pre-incentive fee net investment income, as defined in the investment advisory and management agreement, for the three and nine months ended September 30, 2024 being higher than in the comparable periods in 2023.

Previous wording

For the three months ended June 30, 2024, the reduction in the capital gains incentive fee calculated in accordance with GAAP was $13 million. For the six months ended June 30, 2024, the capital gains incentive fee calculated in accordance with GAAP was $12 million. For the three months ended June 30, 2023, the capital gains incentive fee calculated in accordance with GAAP was $4 million. For the six months ended June 30, 2023, the reduction in the capital gains incentive fee calculated in accordance with GAAP was $2 million. The capital gains incentive fee accrual for the six months ended June 30, 2024 changed from the comparable period in 2023 primarily due to net gains on investments, foreign currency, other transactions and the extinguishment of debt of $88 million compared to net losses of $23 million for the six months ended June 30, 2023. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, whereas the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of June 30, 2024, there was $100 million of capital gains incentive fee accrued in accordance with GAAP. As of June 30, 2024, there was no capital gains incentive fee actually payable under our investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and six months ended June 30, 2024, for more information on the base management fee, income based fee and capital gains incentive fee.

Current wording

For the three and nine months ended September 30, 2024, the capital gains incentive fee calculated in accordance with GAAP was $7 million and $19 million, respectively, compared to $42 million and $40 million, respectively, in the comparable periods in 2023. The capital gains incentive fee accrual for the nine months ended September 30, 2024 changed from the comparable period in 2023 primarily due to net gains on investments, foreign currency, other transactions and the extinguishment of debt of $121 million compared to net gains of $188 million for the comparable period in 2023. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, whereas the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of September 30, 2024, there was $106 million of capital gains incentive fee accrued in accordance with GAAP. As of September 30, 2024, there was no capital gains incentive fee actually payable under our investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2024, for more information on the base management fee, income based fee and capital gains incentive fee.

Previous wording

Cash payment of any income based fee and capital gains incentive fee otherwise earned by our investment adviser is deferred if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to our stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any income based fee and capital gains incentive fee payable during the period) is less than 7.0% of our net assets (defined as total assets less indebtedness) at the beginning of such period. These calculations will be adjusted for any share issuances or repurchases. Any income based fee and capital gains incentive fee deferred for payment are carried over for payment in subsequent calculation periods to the extent such fees are payable under the terms of the investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and six months ended June 30, 2024, for more information on the related deferral terms.

Current wording

Cash payment of any income based fee and capital gains incentive fee otherwise earned by our investment adviser is deferred if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to our stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any income based fee and capital gains incentive fee payable during the period) is less than 7.0% of our net assets (defined as total assets less indebtedness) at the beginning of such period. These calculations will be adjusted for any share issuances or repurchases. Any income based fee and capital gains incentive fee deferred for payment are carried over for payment in subsequent calculation periods to the extent such fees are payable under the terms of the investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2024, for more information on the related deferral terms.

Previous wording

Administrative and other fees represent fees paid to Ares Operations and our investment adviser for our allocable portion of overhead and other expenses incurred by Ares Operations and our investment adviser in performing their obligations under the administration agreement and the investment advisory and management agreement, respectively, including our allocable portion of the compensation, rent and other expenses of certain of our corporate officers and their respective staffs. See Note 3 to our consolidated financial statements for the three and six months ended June 30, 2024, for more information on the administrative and other fees.

Current wording

Administrative and other fees represent fees paid to Ares Operations and our investment adviser for our allocable portion of overhead and other expenses incurred by Ares Operations and our investment adviser in performing their obligations under the administration agreement and the investment advisory and management agreement, respectively, including our allocable portion of the compensation, rent and other expenses of certain of our corporate officers and their respective staffs. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2024, for more information on the administrative and other fees.

Previous wording

Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, we accrue excise tax, if any, on estimated excess taxable income as such taxable income is earned. For the three and six months ended June 30, 2024, we recorded a net expense of $9 million and $17 million, respectively, for U.S. federal excise tax. For the three and six months ended June 30, 2023, we recorded an expense of $6 million and $15 million, respectively, for U.S. federal excise tax.

Current wording

Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, we accrue excise tax, if any, on estimated excess taxable income as such taxable income is earned. For the three and nine months ended September 30, 2024, we recorded a net expense of $7 million and $24 million, respectively, for U.S. federal excise tax. For the three and nine months ended September 30, 2023, we recorded an expense of $2 million and $17 million, respectively, for U.S. federal excise tax.