AB 2020 Form 10-K

reform if certain criteria are met. The amendments in this update are optional and effective from March 12, 2020 through December 31, 2022. Management is currently evaluating whether to employ the optional expedients or exceptions in ASU 2020-04, and have not used the expedients or exceptions for the year ended December 31, 2020. 3. Related Party Transactions Advisory Agreement On November 13, 2019, the Fund entered into the Amended and Restated Advisory Agreement (the “Amended and Restated Advisory Agreement”), replacing the advisory agreement the Fund entered into with the Adviser on July 27, 2017 (the “Advisory Agreement”), pursuant to which the Fund will pay the Adviser, quarterly in arrears, a base management fee calculated at an annual rate of 1.50%. The base management fee is calculated based on a percentage of the average outstanding assets of the Fund (which equals the gross value of equity and debt instruments, including investments made utilizing leverage), excluding cash and cash equivalents, during such fiscal quarter. The average outstanding assets is calculated by taking the average of the amount of assets of the Fund at the beginning and end of each month that occurs during the calculation period. The base management fee is calculated and paid quarterly in arrears but will be accrued monthly by the Fund over the fiscal quarter for which such base management fee is paid. The base management fee for any partial month or quarter is appropriately prorated. For the year ended December 31, 2020, the Fund incurred a management fee of $6,091,338, of which $1,863,539 was voluntarily waived by the Adviser. For the year ended December 31, 2019, the Fund incurred a management fee of $3,688,293, of which $380,701 was voluntarily waived by the Adviser. For the year ended December 31, 2018, the Fund incurred a management fee of $957,992, of which $127,862 was voluntarily waived by the Adviser. As of December 31, 2020, and December 31, 2019, $1,533,338 and $1,053,696, respectively, of accrued management fee remained payable. The Fund will also pay the Adviser an incentive fee that provides the Adviser with a share of the income that the Adviser generates for the Fund. The incentive fee will consist of an income-based incentive fee component and a capital-gains component, which are largely independent of each other, with the result that one component may be payable even if the other is not. Income-Based Incentive Fee: The income-based incentive fee is calculated and payable quarterly in arrears based on the Fund’s net investment income prior to any deductions with respect to such income-based incentive fees and capital gains incentive fees (“Pre-incentive Fee Net Investment Income” or “PIFNII”) for the quarter, as further described below. PIFNII means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial and consulting fees or other fees the Fund receives from portfolio companies) that the Fund accrues during the fiscal quarter, minus the Fund’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement (the “Administration Agreement”) we have entered into with State Street Bank and Trust (the “Administrator”), and any interest expense and dividends paid on any issued and outstanding indebtedness or preferred stock, respectively, but excluding, for avoidance of doubt, the income-based incentive fee accrued under GAAP). PIFNII also includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero-coupon securities), accrued income that the Fund has not yet received in cash. The Adviser is not under any obligation to reimburse the Fund for any part of the income-based incentive fees it received that was based on accrued interest that the Fund never actually received. PIFNII does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the income-based incentive fee, it is possible that the Fund may accrue such income-based incentive fee in a quarter where the Fund incurs a net loss. For example, if the Fund receives PIFNII in excess of a hurdle rate (as defined below) for a quarter, the Fund will accrue the applicable income-based incentive fee even if the Fund has incurred a realized and/or unrealized capital loss in that quarter. However, cash payment of the income- based incentive fee may be deferred in this situation, subject to the restrictions detailed at the end of this section. PIFNII, expressed as a rate of return on the average value of the Fund’s net assets (defined as total assets, less indebtedness and before taking into account any incentive fees payable during the period) as of the first day of each month during the course of the immediately preceding calendar quarter, will be compared to various “hurdle rates,” with the income-based incentive fee rate of return increasing at each hurdle rate. Description of Quarterly Incentive Fee Calculations The Fund pays the Adviser an income-based incentive fee with respect to PIFNII in each calendar quarter as follows: • No income-based incentive fee in any calendar quarter in which PIFNII does not exceed 1.5% per quarter (6% per annum), the “6% Hurdle Rate”; F-25