As filed with the Securities and Exchange Commission on December 27, 2018

Registration No. 333-    

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM N-14

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. ☐  

Post-Effective Amendment No.   ☐

(Check appropriate box or boxes)

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Priority Income Fund, Inc.

(Exact Name of Registrant as Specified in Charter)

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10 East 40 ^th  Street, 42 ^nd  Floor

New York, NY 10016

(Address of Principal Executive Offices)

(212) 448-0702

(Area Code and Telephone Number)

Approximate Date of Proposed Public Offering: As soon as practicable after this registration statement becomes effective and upon completion of the merger described in the enclosed document.  

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Calculation of Registration Fee Under the Securities Act of 1933

 

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, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This document is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where such offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED DECEMBER 27, 2018

 

STIRA ALCENTRA GLOBAL CREDIT FUND

MERGER PROPOSED – YOUR VOTE IS VERY IMPORTANT

PLEASE SUBMIT YOUR PROXY PROMPTLY

Dear Shareholders of Stira Alcentra Global Credit Fund:

You are receiving this joint proxy statement/prospectus in connection with the proposed merger between Stira Alcentra Global Credit Fund, a Delaware statutory trust, or Stira Alcentra, and Priority Income Fund, Inc., a Maryland corporation, or Priority. Priority and Stira Alcentra are proposing a combination of both entities by a merger and related transactions (as described herein), or the Merger, pursuant to the Merger Agreement, dated as of December 21, 2018, by and between Stira Alcentra and Priority, or the Merger Agreement, with Priority being the surviving entity of the Merger. The Merger and the Merger Agreement have each been approved by the Board of Directors of Priority, or the Priority Board, and the Board of Trustees of Stira Alcentra, or the Stira Alcentra Board, and the Stira Alcentra Board recommends that Stira Alcentra shareholders vote "FOR" the Merger and the Merger Agreement, as described in more detail below.

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each holder of Class A, Class T, Class D, Class I and Class C Stira Alcentra shares of beneficial interest, collectively, the Stira Alcentra Shares, that is issued and outstanding immediately prior to the effective time of the Merger, or the Effective Time, will receive, for each Stira Alcentra Share, the number of shares of Priority common stock, or Priority shares, determined by applying an exchange ratio based on the respective net asset values of Stira and Priority, in each case calculated as of two business days prior to the closing of the Merger, or the Merger Consideration.

At a special meeting of Stira Alcentra shareholders, or the Stira Alcentra Special Meeting, Stira Alcentra shareholders will be asked to vote on a proposal to approve the Merger and the Merger Agreement, or the Merger Proposal. The Merger is expected to be a taxable event for Stira Alcentra shareholders. See “Certain Material U.S. Federal Income Tax Consequences of the Merger Agreement and the Merger.”

Completion of the Merger requires the approval by the Stira Alcentra shareholders of the Merger Proposal. If the Merger Proposal is not approved by the Stira Alcentra shareholders, the Merger will not occur. If the Merger is not approved by the Stira Alcentra shareholders, the Stira Alcentra Board will consider other alternatives regarding the future of Stira Alcentra that it determines to be in the best interests of Stira Alcentra shareholders, including, without limitation, a liquidation of Stira Alcentra. The Merger does not require a vote of Priority stockholders.

Priority is an externally managed, non-diversified, closed-end management investment company that is registered as an investment company under the Investment Company Act of 1940, as amended, or the 1940 Act. Priority’s investment objective is to generate current income and, as a secondary objective, long-term capital appreciation. Priority seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its total assets, or net assets plus borrowings, in senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated, or senior secured loans, with an emphasis on current income. These investments, which are often referred to as “junk” or “high yield,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and be illiquid. Priority may invest in senior secured loans either directly or indirectly by investing in securities issued by collateralized loan obligations, or CLOs, which in turn invest in senior secured loans, but has historically invested in senior secured loans primarily by investing in the equity and junior debt tranches of CLOs. Priority refers to such investments, together with direct investments in senior secured loans, collectively as “Target Securities.” Structurally, CLOs are entities that are formed to manage a portfolio of senior secured loans. The senior secured loans within a CLO are limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create an investment portfolio that is diverse by senior secured loan, borrower and industry, with limitations on non-U.S. borrowers. This investment strategy differs from that of Stira Alcentra, which invests, under normal circumstances, at least 80% of its assets directly in floating and fixed rate senior secured loans, second lien loans and subordinated debt, which consist principally of directly originated loans and, to a lesser extent, broadly syndicated loans.

Priority is managed by Priority Senior Secured Income Management, LLC, or the Priority Adviser, a private investment firm that is registered as an investment adviser with the U.S. Securities and Exchange Commission, or the SEC. The Priority Adviser oversees the management of Priority’s activities and is responsible for making investment decisions for its portfolio. Priority’s administrator,

Prospect Administration LLC, or Prospect Administration, provides certain administration services necessary in connection with Priority's operations.

An investment in Priority shares may be considered speculative and involves a high degree of risk, including the risk of a substantial loss of investment. See “Risk Factors” beginning on page 12 of this joint proxy statement/prospectus to read about the risks you should consider when voting on the Merger Proposal, including the risk of leverage.

The risks to Stira Alcentra shareholders in connection with the Merger include, but are not limited to, the following:

This joint proxy statement/prospectus concisely describes the Stira Alcentra Special Meeting, the Merger, the documents related to the Merger (including the Merger Agreement) and other related matters that the management of Stira Alcentra believes Stira Alcentra shareholders should know before voting on the Merger Proposal. These materials should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 12, for a discussion of the risks relating to the Merger and an investment in Priority shares. You also can obtain information about Priority and Stira Alcentra from documents that each has filed with the SEC. See “Where You Can Find More Information” for instructions on how to obtain such information.

After careful consideration, the board of trustees of Stira Alcentra recommends that its shareholders vote “ FOR ” the proposal to approve the Merger and the Merger Agreement and “ FOR ” the proposal to adjourn the Stira Alcentra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Stira Alcentra Special Meeting to approve the foregoing proposals.

Sincerely,

Christopher Hilbert

Chief Executive Officer

Neither the SEC nor any state securities commission has approved or disapproved of the Priority shares to be issued to Stira Alcentra shareholders in connection with the Merger described in this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated [•], 2019 and is first being mailed or otherwise delivered to Stira Alcentra shareholders on or about [•], 2019.

 

STIRA ALCENTRA GLOBAL CREDIT FUND

18100 Von Karman Avenue
Suite 500
Irvine, CA 92612

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of Stira Alcentra Global Credit Fund:

Notice is hereby given that Stira Alcentra Global Credit Fund, a Delaware statutory trust (“Stira Alcentra”), will hold a special meeting (the “Stira Alcentra Special Meeting”) of the shareholders of Stira Alcentra on [●], 2019 at [●] a.m., Pacific Time, at 18100 Von Karman Avenue, Suite 500, Irvine CA 92612, to consider and vote on the following matters:

Completion of the Merger requires the approval by the Stira Alcentra shareholders of the Merger Proposal. If the Merger Proposal is not approved by the Stira Alcentra shareholders, the Merger will not occur. The Merger does not require a vote of Priority stockholders.

You have the right to receive notice of, and to vote at, the Stira Alcentra Special Meeting if you were a shareholder of record at the close of business on [●], 2019. Whether or not you expect to be present in person at the Stira Alcentra Special Meeting, we urge you to promptly fill out, sign and date the enclosed proxy card and return it to Stira Alcentra promptly in the envelope provided or vote by telephone or through the Internet. Instructions are provided on the proxy card.

You have the option to revoke your proxy at any time prior to the Stira Alcentra Special Meeting or to vote your Stira Alcentra shares of beneficial interest in person if you attend the Stira Alcentra Special Meeting.

The Stira Alcentra board of trustees has unanimously approved the Merger Proposal and the Adjournment Proposal and unanimously recommends that Stira Alcentra shareholders vote “FOR” approval of the Merger Proposal and “FOR” approval of the Adjournment Proposal.

Enclosed is a copy of the joint proxy statement/prospectus and the proxy card. The joint proxy statement/prospectus, the Notice of Special Meeting of Shareholders and the proxy card are available at [•] .

If you plan to attend the Stira Alcentra Special Meeting and vote your Stira Alcentra Shares in person, you will need to bring photo identification in order to be admitted to the Stira Alcentra Special Meeting.

To obtain directions to the Stira Alcentra Special Meeting, please call Stira Alcentra at (877) 567-7264.

 

By Order of the Board of Trustees,

TABLE OF CONTENTS

 

 

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form N-14 filed with the SEC, by Priority (File No. 333- ), constitutes a prospectus of Priority under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the Priority shares to be issued to Stira Alcentra shareholders in connection with the Merger under the Merger Agreement.

This document also constitutes the proxy statement of Stira Alcentra under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. It also constitutes a notice of meeting with respect to the Stira Alcentra Special Meeting, at which Stira Alcentra shareholders will be asked to vote on the Merger Proposal and the Adjournment Proposal.

You should rely only on the information contained in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [•], 2019. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. Neither the mailing of this joint proxy statement/prospectus to Stira Alcentra shareholders nor the issuance of Priority shares in connection with the Merger will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Except where the context otherwise indicates, information contained in this joint proxy statement/prospectus regarding Priority has been provided by Priority and information contained in this joint proxy statement/prospectus regarding Stira Alcentra has been provided by Stira Alcentra.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The questions and answers below highlight only selected information from this joint proxy statement/prospectus. They do not contain all of the information that may be important to you. You should read carefully this entire document to fully understand the Merger Agreement and the transactions contemplated thereby (including the Merger) and the voting procedures for the Stira Alcentra Special Meeting.

Questions and Answers about the Stira Alcentra Special Meeting

 

Important notice regarding the availability of proxy materials for the Stira Alcentra Special Meeting . This joint proxy statement/prospectus and the proxy card are available at [•].

 

 

broker vote my shares for me?

Meeting?

    

 

Proxy solicitation expenses are among the Stira Alcentra transaction expenses relating to the Merger, which we refer to as the “Stira Alcentra Transaction Expenses,” for which Stira Alcentra is entitled, under the Merger Agreement, to be reimbursed by Priority, up to $500,000. See “—Who is responsible for paying the expenses relating to completing the Merger?” Any Stira Alcentra transaction expenses relating to the Merger in excess of $500,000, including such proxy solicitation expenses, will be borne by Stira Alcentra and, indirectly, by the shareholders of Stira Alcentra.

    

Stira Alcentra has requested that brokers, nominees, fiduciaries and other persons holding Stira Alcentra Shares, in their names, or in the name of their nominees, which are beneficially owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners. Stira Alcentra will reimburse such persons for their reasonable expenses in doing so.

    

Proxies may be solicited by mail, in person or by telephone or facsimile transmission by Stira Alcentra, its affiliates and their respective trustees, officers and employees (without special compensation therefor).

    

This joint proxy statement/prospectus, the Notice of Special Meeting of Shareholders and the proxy

card are available at [•] .

Pursuant to the rules adopted by the SEC, Stira Alcentra will furnish proxy materials by email to those shareholders who have elected to receive their proxy materials electronically. While Stira Alcentra encourages shareholders to take advantage of electronic delivery of proxy materials, which helps to reduce the environmental impact of shareholder meetings and the cost associated with the physical printing and mailing of materials, shareholders who have elected to receive proxy materials electronically by email, as well as beneficial owners of Stira Alcentra Shares held by a broker or custodian, may request a printed set of proxy materials.

[•]

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  Questions and Answers about the Merger

If the aggregate number of Priority shares otherwise receivable by a Stira Alcentra shareholder in connection with the Merger as a result of applying the applicable exchange ratio would include a fraction of a Priority share, such aggregate number of Priority shares shall be rounded up to the next greater number of whole Priority shares and such Stira Alcentra shareholder will instead receive that number of whole Priority shares.

The exchange ratio that determines the number of Priority shares that Stira Alcentra shareholders will receive in exchange for their Stira Alcentra Shares in the Merger will only be subsequently adjusted if, between the NAV measurement date (i.e., two business days prior to the effective time of the Merger) and the effective time of the Merger, the respective outstanding Stira Alcentra Shares or Priority shares are increased or decreased or changed into or exchanged for a different number or kind of shares or securities as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or a stock dividend or dividend payable in any other securities is declared with a record date within such period, which is not expected to occur.

Except to the extent covered by Priority as described above, any Stira Alcentra transaction expenses relating to the Merger will be reflected in the respective per-share NAVs of each class of the Stira Alcentra Shares and will therefore reduce the number of Priority shares received with respect to such Stira Alcentra Shares in the Merger.

The expense deposits paid by Priority to Stira Alcentra described above are required to be returned by Stira Alcentra to Priority upon termination of the Merger Agreement in certain circumstances as described therein. In addition, in certain circumstances relating to the termination of the Merger Agreement prior to completion of the Merger, Stira Alcentra is required to bear Priority's transaction expenses incurred in connection with the Merger and vice versa.

It is estimated that Priority will incur transaction expenses of approximately $[•] in connection with the Merger and Stira Alcentra will incur transaction expenses of approximately $[•] in connection with the Merger, in each case after giving effect to Priority’s payment of up to $500,000 of the Stira Alcentra's transaction expenses in connection with the Merger as noted above.

Although Priority and Stira Alcentra are bearing such transaction expenses, they will be indirectly borne by their respective shareholders.

Priority stockholders may elect to have any dividends and distributions that they receive from Priority reinvested in additional Priority shares. See “Priority Income Fund, Inc. Distribution Reinvestment Plan,” for additional information regarding Priority’s dividend and distribution reinvestment plan.

No dividends or other distributions will be paid to the holder of any unsurrendered Stira Alcentra Shares with respect to the Priority shares into which such unsurrendered Stira Alcentra Shares was converted in the Merger, unless and until such Stira Alcentra Shares are surrendered in accordance with the procedures under the Merger Agreement. Following the surrender of any such Stira Alcentra Shares, the record holder of such Stira Alcentra Shares will be entitled to receive, without interest, the amount of dividends and other distributions, if any, that are payable by Priority to holders of Priority shares from time to time as of a record date after the effective time under the Merger Agreement with respect to the Priority shares into which such Stira Alcentra Shares were converted in the Merger, to the extent not previously paid to such record holder.

Priority and Stira Alcentra have agreed in the Merger Agreement to cooperate with each other and use their commercially reasonable efforts to take, or cause to be taken, in good faith, all actions, and to do, or cause to be done, all things necessary, including to obtain as promptly as practicable all consents, approvals, confirmations and authorizations of all third parties, in each case, that are necessary or advisable, to consummate the transactions contemplated by the Merger Agreement, including the Merger. However, there can be no assurance that any consents, approvals, confirmations or authorizations will be obtained or that such consents, approvals, confirmations or authorizations will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of the combined entity following completion of the Merger.

Prior to closing of the Merger, Stira Alcentra will cause substantially all of its investment securities to be liquidated and thereby converted into cash and cash equivalents. Following the Merger, Priority will invest such cash and cash equivalents in accordance with its investment objective and strategy, as described above. Priority expects that it may take up to three months to invest such cash and cash equivalents.

Neither Priority nor Stira Alcentra offers exchange rights with respect to its common stock. Priority will maintain the distribution, purchase and redemption procedures of Priority following the closing of the Merger.

Following the Merger, the Priority Adviser will continue to be the investment adviser of Priority pursuant to the existing Investment Advisory Agreement by and between Priority and the Priority Adviser, sometimes referred to herein as the "Priority Investment Advisory Agreement," and the Priority Administrator will continue to be the investment administrator to Priority pursuant to the existing Investment Administration Agreement between Priority and Prospect Administration. The Investment Advisory Agreement, Investment Administration Agreement and all other contracts between Stira Alcentra, on the one hand, and the Stira Adviser and other affiliates of Stira Alcentra, on the other hand, will be terminated in connection with the Merger.

the Merger, the holder's holding period with respect to the Stira Alcentra Shares is greater than one year. The deductibility of capital losses is subject to limitations. U.S. federal backup withholding tax may be imposed on the Priority shares received by a Stira Alcentra shareholder in connection with the Merger. However, Stira Alcentra believes that, in most cases, Stira Alcentra shareholders will not have any taxable gain as a result of the Merger. See “Certain Material U.S. Federal Income Tax Consequences of the Merger,” for additional information concerning the federal income tax implications of the Merger. Stira Alcentra shareholders should consult with their own tax advisors to determine the tax consequences of the Merger to them.

SUMMARY OF THE MERGER

This summary highlights selected information contained elsewhere in this joint proxy statement/prospectus and may not contain all of the information that is important to you. You should carefully read this entire joint proxy statement/prospectus, including the other documents to which this joint proxy statement/prospectus refers for a more complete understanding of the Merger. In particular, you should read the Merger Agreement attached hereto as Annex A, as it is the legal document that governs the Merger. See “Where You Can Find More Information.” For a discussion of the risk factors you should carefully consider, see the section entitled “Risk Factors” beginning on page  [•] .

Merger Structure

In accordance with the terms of the Merger Agreement, Stira Alcentra will be merged with and into Priority, with Priority being the surviving entity of the Merger. The separate corporate existence of Stira Alcentra will cease upon completion of the Merger. Priority Adviser will continue to serve as the investment adviser to the surviving entity following completion of the Merger.

Based on the number of Priority shares issued and outstanding as of the date hereof, the net asset value per share of Priority shares and the net asset value per share for each class of shares of Stira Alcentra, each as of June 30, 2018, it is expected Priority stockholders will own approximately [•]% of the outstanding Priority shares and Stira Alcentra shareholders will own approximately [•]% of the outstanding Priority shares on the date of the closing of the Merger, or the Closing Date.

The Merger Agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. Stira Alcentra encourages its shareholders to read the Merger Agreement carefully and in its entirety, as it is the principal legal document governing the Merger.

Consideration

If the Merger is completed, the shareholders of (i) Stira Alcentra Class A Shares will have the right to receive the number of Priority shares equal to the result of (A) the Stira Alcentra Class A per-share NAV divided by (B) the Priority per-share NAV, (ii) Stira Alcentra Class C Shares will have a right to receive the number of Priority shares equal to the result of (A) the Stira Alcentra Class C per-share NAV divided by (B) the Priority per-share NAV, (iii) Stira Alcentra Class D Shares will have a right to receive the number of Priority shares equal to the result of (A) the Stira Alcentra Class D per-share NAV divided by (B) the Priority per-share NAV, (iv) Stira Alcentra Class I Shares will have a right to receive the number of Priority shares equal to the result of (A) the Stira Alcentra Class I per-share NAV divided by (B) the Priority per-share NAV and (v) Stira Alcentra Class T Shares will have a right to receive the number of Priority shares equal to the result of (A) the Stira Alcentra Class T per-share NAV divided by (B) the Priority per-share NAV, in each case, determined in accordance with the Merger Agreement. Until the Merger is completed, the value of the Priority shares to be issued in the Merger and the number of Priority shares to be issued to Stira Alcentra shareholders may fluctuate or change.

Conditions That Must Be Satisfied or Waived for the Merger to Occur

As more fully described in the Merger Agreement, the obligations of Stira Alcentra and Priority to complete the Merger are subject to the satisfaction or, where permissible, waiver of certain conditions including the following:  

See “Description of the Merger Agreement—Closing Conditions” for more information.

Termination of the Merger Agreement

As more fully described in the Merger Agreement, the Merger Agreement contains certain termination rights for Stira Alcentra or Priority, as applicable, including the following:

See “Description of the Merger Agreement—Termination” for more information.

Fees and Expense Reimbursements Upon Termination

The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, Stira Alcentra may be required to pay Priority:

If the Merger Agreement is terminated under certain circumstances, Stira Alcentra may also be required to return to Priority certain of the Stira Alcentra Transaction Expenses funded by Priority.

The Merger Agreement also provides that, in connection with the termination of the Merger Agreement under specified circumstances, Priority may be required to pay Stira Alcentra all transaction expenses incurred by Stira Alcentra in connection with the transactions contemplated by the Merger Agreement, or the Stira Termination Expense Reimbursement.

See “Description of the Merger Agreement—Effect of Termination and Expense Reimbursement” for a discussion of the circumstances that could result in the payment of any such amounts.

RISK FACTORS

In addition to the other information included in this document, Stira Alcentra shareholders should carefully consider the matters described below in determining whether to approve the Merger Proposal. Although Priority and Stira Alcentra have historically described their risk factors somewhat differently, the risks associated with an investment in Priority and Stira Alcentra are similar, and differ with respect to each fund’s respective investment adviser, investment objectives and investment strategies. The risks described below are not the only risks that Priority and Stira Alcentra and, following the Merger, the combined entity, face. Additional risks and uncertainties not currently known to Priority or Stira Alcentra or that they currently deem to be immaterial also may materially adversely affect their or, following the Merger, the combined entity's, business, financial condition or operating results. If any of the following events occur, Priority or Stira Alcentra or, following the Merger, the combined entity's, business, financial condition or results of operations, could be materially adversely affected .

Risks Relating to the Merger  

Stira Alcentra shareholders and Priority stockholders will experience a reduction in percentage ownership and voting power in the combined entity as a result of the Merger.

Since Priority is a much larger fund than Stira Alcentra, Stira Alcentra shareholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined entity, relative to their respective percentage ownership interests in Stira Alcentra prior to the Merger. Consequently, former Stira Alcentra shareholders should expect to exercise less influence over the management and policies of the combined entity following the Merger than they currently exercise over the management and policies of Stira Alcentra. Priority stockholders will also experience a reduction in their respective percentage ownership interests and effective voting power in respect of the combined entity, relative to their respective ownership interests in Priority prior to the Merger, although that reduction will be lesser in magnitude than the reduction that will be experienced by former Stira Alcentra shareholders. Consequently, Priority stockholders should expect to exercise less influence over the management and policies of the combined entity following the Merger than they currently exercise over the management and policies of Priority, although again that reduction will be lesser in magnitude than the reduction that will be experienced by former Stira Alcentra shareholders.

Based on the respective per share NAVs for each class of Stira Alcentra Shares, as compared to the per share NAV of Priority shares, in each case as of [•], it is currently estimated that current Stira Alcentra stockholders would own approximately [•]% of the outstanding Priority shares upon completion of the Merger and current Priority shareholders would own approximately [•]% of the outstanding Priority shares as of the Closing Date, although that is subject to change in response to changes in the respective NAVs of Stira Alcentra Shares and Priority shares occurring after such date and prior to the NAV measurement date under the Merger Agreement, which is two business days prior to the Merger. In addition, both prior to and after completion of the Merger, Priority may issue additional Priority shares, which would reduce the percentage ownership of the combined entity held by former Stira Alcentra shareholders and current Priority stockholders.

Priority may be unable to realize the benefits anticipated by the Merger, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.

The realization of certain benefits anticipated as a result of the Merger will depend on the ability of the Priority Adviser to effectively reinvest the cash and cash equivalents resulting from liquidation of Stira Alcentra's investment portfolio following the Merger. There can be no assurance that the Priority Adviser will be able to reinvest that capital in accordance with Priority’s investment objective and strategies in a timely fashion. If the Priority Adviser is unable to effectively reinvest that capital, it could have a material adverse effect on the financial results of the combined entity.

 

Priority expects to be able to operate at a more efficient scale as a result of the Merger because the administrative and other costs associated with operating the combined entity would be spread over a larger asset base, resulting in cost savings on a per share basis. However, it is possible that such expectation of cost savings could ultimately be incorrect. The cost savings expectation also assumes that Priority will be able to effectively reinvest the cash and cash equivalents resulting from liquidation of Stira Alcentra's investment portfolio in a manner that permits those

cost savings to be fully realized. If those expectations turn out to be incorrect or if Priority is not able to successfully reinvest such capital consistent with its investment objective and strategy, the anticipated cost savings may not be realized, either in whole or in part, or it may take longer for them to be realize than expected.

The Merger may trigger certain “change of control” provisions and other restrictions in contracts of Stira Alcentra or its affiliates and the failure to obtain any required consents or waivers could adversely impact the combined company.

Certain agreements of Stira Alcentra or its affiliates may require the consent or waiver of one or more counterparties in connection with the Merger. The failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or Stira Alcentra’s obligations under, any such agreement because the Merger or other transactions contemplated by the Merger Agreement may violate an anti-assignment, change of control or similar provision contained in such agreement. If that occurs, Priority may have to seek to replace that agreement with a new agreement or try to obtain the consent of the counterparty to an amendment to that agreement. Priority and Stira Alcentra cannot assure you that Priority will be able to replace or amend any such agreement, either on comparable terms or at all.

In addition, the Merger may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain agreements of Stira Alcentra. Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following completion of the Merger.

 

If the Merger is not completed, neither Priority nor Stira Alcentra will receive any benefit from the expenses incurred by them in pursuing the Merger and could be adversely impacted by such expenses.

Priority and Stira Alcentra have each incurred, and each will continue to incur during the time period up to completion or termination of the Merger, substantial out-of-pocket expenses for legal, accounting and other professional fees and other expenses. If the Merger is not completed, Priority and Stira Alcentra will have each incurred substantial expenses for which no benefit may be received and which could adversely impact their investment performance.

The termination of the Merger Agreement could adversely impact Stira Alcentra and Priority.

If the Merger Agreement is terminated, there may be various adverse consequences to the parties, including:

 

No assurance can be given that the Merger will be completed. The Merger Agreement provides for payment by Stira Alcentra to Priority of a termination fee of $1,260,000 and/or reimbursement of Priority's transaction expenses relating to the Merger, as well as repayment of the $250,000 of expense deposits to be paid by Priority to Stira Alcentra, if the Merger Agreement is terminated by Stira Alcentra under certain circumstances. Conversely, the Merger Agreement also provides for payment by Priority of Stira Alcentra's transaction expenses relating to the Merger if the Merger Agreement is terminated by Stira Alcentra under certain circumstances. See “Description of the Merger Agreement—Termination of the Merger Agreement,” below, for a discussion of the circumstances that would result in such termination payment and expense reimbursement obligations. The Stira Alcentra Board and the Priority Board have each approved such termination fee and expense reimbursement obligations.

The Merger Agreement limits Stira Alcentra’s ability to pursue alternatives to the Merger.

The Merger Agreement contains provisions that limit Stira Alcentra’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of Stira Alcentra. These provisions, which are typical for transactions of this type, and include a termination fee payable under certain circumstances, could discourage a potential competing acquiror for all or a significant part of Stira Alcentra from considering or proposing such an acquisition, even if it was prepared to provide greater acquisition consideration to Stira Alcentra shareholders than the merger consideration to be provided by Priority in the Merger, or could result in a potential competing acquiror proposing to provide a smaller amount of acquisition consideration to acquire Stira Alcentra than it might otherwise have been willing to provide to Stira Alcentra shareholders.

The Merger is subject to closing conditions, including approval by Stira Alcentra shareholders, that, if not satisfied or waived, will result in the Merger not being completed, which may result in material adverse consequences to Stira Alcentra’s and Priority’s business and operations.

The Merger is subject to closing conditions, including the approval of Stira Alcentra shareholders that, if not satisfied, will prevent the Merger from being completed. The closing condition requiring that Stira Alcentra shareholders have approved the Merger and the Merger Agreement may not be waived under applicable law and must be satisfied for the Merger to be completed. Stira Alcentra currently expects that all trustees and executive officers of Stira Alcentra will vote any Stira Alcentra Shares held by them in favor of the Merger Proposal at the Stira Alcentra Special Meeting. If Stira Alcentra’s shareholders do not approve the Merger Proposal and the Merger is not completed, the resulting failure of the Merger to be completed could have a material adverse impact on Stira Alcentra’s business and operations. In addition to the required approval of Stira Alcentra’s shareholders, the Merger is subject to a number of other conditions beyond the control of Stira Alcentra and Priority that may prevent, delay or otherwise materially adversely affect its completion. Neither Stira Alcentra nor Priority can predict whether and when these other conditions will be satisfied.

Priority and Stira Alcentra will be subject to uncertainties and Stira Alcentra will be subject to contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger may have an adverse effect on Priority and Stira Alcentra and, consequently, on the combined entity following completion of the Merger. These uncertainties may impair the ability of Priority and Stira Alcentra to motivate key personnel until the Merger is consummated and could cause those that deal with Priority and Stira Alcentra to seek to change their existing business relationships with Priority and Stira Alcentra, respectively. In addition, the Merger Agreement restricts Stira Alcentra from taking actions that it might otherwise consider to be in its best interest. These restrictions may prevent Stira Alcentra from pursuing certain business opportunities that may arise prior to the completion of the Merger. Please see the section entitled “Description of the Merger Agreement—Conduct of Business Pending Completion of the Merger” for a description of the restrictive covenants to which Stira Alcentra is subject.

Priority and Stira Alcentra may waive one or more conditions to the Merger without re-soliciting approval of Stira Alcentra's shareholders.

Certain conditions to the obligations of Priority and Stira Alcentra to complete the Merger may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of Priority and Stira Alcentra. In the event that any such waiver does not require re-solicitation of Stira Alcentra's shareholders, the parties to the Merger Agreement will have the discretion to complete the Merger without seeking such shareholder approval. The conditions to the parties' obligations to complete the Merger requiring the approval of Stira Alcentra's shareholders, however, cannot be waived by the parties under applicable law.

The Priority shares to be received by Stira Alcentra shareholders as a result of the Merger will have different rights associated with them than the Stira Alcentra Shares currently held by them.

The rights associated with Stira Alcentra Shares are different from the rights associated with Priority shares. See “Comparison of Priority and Stira Alcentra Shareholder Rights.”

The Merger is expected to be taxable to Stira Alcentra shareholders.

The Merger is not expected to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Because the Merger is not expected to qualify as a reorganization for such purpose, Stira Alcentra shareholders' receipt of Priority shares in exchange for their Stira Alcentra Shares in the Merger will be a taxable transaction, and each holder of Stira Alcentra Shares will recognize capital gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between (1) the fair market value of the Priority shares (referred to as the amount realized) and (2) such holder’s adjusted tax basis in the Stira Alcentra Shares exchanged in the Merger. Such gain or loss generally will be a capital gain or loss, and will be long-term capital gain or loss if, as of the effective time of the Merger, the holding period for the Stira Alcentra Shares is greater than one year. The deductibility of capital losses is subject to limitations. However, Stira Alcentra believes that the Merger will not result in any taxable gain for most Stira Alcentra shareholders. See “Certain Material U.S. Federal Income Tax Consequences of the Merger,” below, for a more complete discussion of the federal income tax implications to Stira Alcentra shareholders of the Merger. 

Risks Related to Priority’s Business and Structure

The Priority Board may change its investment objective by providing its stockholders with 60 days’ prior notice, or may modify or waive Priority’s current operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

Priority’s investment objective is to generate current income and, as a secondary objective, long-term capital appreciation. Priority seeks to achieve Priority’s investment objective by investing, under normal circumstances, at least 80% of Priority’s total assets, or net assets plus borrowings, in senior secured loans, with an emphasis on current income. Priority’s investments may take the form of the purchase of senior secured loans (either in the primary or secondary markets) or through investments in entities that in turn own a pool of senior secured loans. This investment objective may be changed by the Priority Board if Priority provides its stockholders with at least 60 days’ prior notice. In addition, the Priority Board has the authority to modify or waive Priority’s current operating policies, investment criteria and strategies without prior notice and without stockholder approval. Priority cannot predict the effect any changes to Priority’s investment objective, current operating policies, investment criteria and strategies would have on Priority’s business, net asset value, operating results or the value of Priority shares. However, the effects might be adverse, which could negatively impact Priority’s ability to make dividends and other distributions to holders of Priority shares, including former Stira Alcentra shareholders, and cause them to lose all or part of their investment. Moreover, Priority will have significant flexibility in reinvesting the cash and cash equivalents realized from liquidation of Stira Alcentra's investment portfolio in connection with the Merger in ways with which Stira Alcentra shareholders may not agree. Finally, since Priority shares are not listed on a national securities exchange, Stira Alcentra shareholders will be limited in their ability to sell the Priority shares that they receive in exchange for their Stira Alcentra Shares in the Merger in response to any changes in Priority’s investment objective, operating policies, investment criteria or strategies.

The SEC’s position on certain non-traditional investments, including investments in CLOs, is under review.

The staff of the SEC has undertaken a broad review of the potential risks associated with different asset management activities, focusing on, among other things, liquidity risk and risk from leverage. The staff of the Division of Investment Management has, in correspondence with registered management investment companies, raised questions about the level and special risks of investments in CLOs. While it is not possible to predict what conclusions the staff will reach in these areas, or what recommendations the staff might make to the SEC, the imposition of limitations on investments by registered management investment companies in CLOs could adversely impact Priority’s ability to implement its investment strategy and/or Priority’s ability to raise capital through public offerings, or cause Priority to take certain actions with potential negative impacts on Priority’s financial condition and results of operations. Priority is unable at this time to assess the likelihood or timing of any such regulatory development.

Price declines in the markets for Target Securities, especially equity and junior tranches of CLOs and senior secured loans, may adversely affect the fair value of Priority’s portfolio, reducing Priority’s net asset value through increased net unrealized depreciation.

Prior to the onset of the financial crisis, CLOs, hedge funds and other investment vehicles comprised the majority of the market for purchasing and holding senior secured loans (both with first liens and second liens). As the secondary

market pricing of the loans underlying these portfolios deteriorated during the fourth quarter of 2008, it is Priority’s understanding that many investors, as a result of their generally high degrees of leverage, were forced to raise cash by selling their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines, with widespread redemption requests and other constraints resulting from the credit crisis generating further selling pressure. The pervasive forced selling and the resultant price declines led to the elimination or significant impairment of many of Priority’s leveraged competitors for investment opportunities, especially those having built their investment portfolios prior to the financial crisis.

While prices appreciated measurably during 2009 and 2010, conditions in the markets for Target Securities may deteriorate again, which may cause pricing levels to decline. As a result, Priority may suffer unrealized depreciation and could incur realized losses in connection with the sale of Priority’s investments, which could have a material adverse impact on Priority’s business, financial condition and results of operations.

Global economic, political and market conditions may adversely affect Priority’s business, results of operations and financial condition, including Priority’s revenue growth and profitability.

The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause economic uncertainties or deterioration in the U.S. and worldwide. The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about the ability of certain nations to continue to service their sovereign debt obligations. Risks resulting from such debt crisis and any future debt crisis in Europe or any similar crisis elsewhere could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally. In July and August 2015, Greece reached agreements with its creditors for bailouts that provide aid in exchange for certain austerity measures. These and similar austerity measures may adversely affect world economic conditions and have an adverse impact on Priority’s business and that of Priority’s portfolio companies. In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued sell-off of shares trading in Chinese markets. In August 2015, Chinese authorities sharply devalued China’s currency. In June 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, which is referred to herein as "Brexit," and, accordingly, on February 1, 2017, the U.K. Parliament voted in favor of allowing the U.K. government to begin the formal process of Brexit. Brexit created political and economic uncertainty and instability in the global markets (including currency and credit markets), and especially in the United Kingdom and the European Union, and this uncertainty and instability may last indefinitely. Because of the election results in the U.K. in June 2017, there is increased uncertainty on the timing of Brexit. There is continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, such as Russia and China, may have a severe impact on the worldwide and U.S. financial markets.

The Republican Party currently controls both the executive branch of the federal government and the U.S. Senate and has a substantial minority of the U.S. House of Representatives, which increases the likelihood that legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve and the Financial Stability Oversight Council. The U.S. may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. Priority cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the U.S. Such actions could have a significant adverse effect on Priority’s business, financial condition and results of operations. Priority cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on Priority’s investments. Although Priority monitors developments and seeks to manage Priority’s investments in a manner consistent with achieving its investment objective, but there can be no assurance that Priority will be successful in doing so.

Legislative or other actions relating to taxes could have a negative effect on Priority.

Legislative or other actions relating to taxes could have a negative effect on Priority or its securityholders. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. At the end of 2017, Congress passed tax reform legislation, which the President then signed into law. This tax reform legislation makes many changes to the Code, including provisions that significantly change the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. Priority cannot predict with certainty how any changes in the tax laws might affect it, its securityholders or its investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect Priority’s ability to qualify for tax treatment as a regulated investment company, or RIC, or the U.S. federal income tax consequences to Priority and its stockholders of such qualification, or could have other adverse consequences. Investors are urged to consult with their tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in Priority’s securities.

Rising interest rates may adversely affect the value of Priority’s portfolio investments which could have an adverse effect on Priority’s business, financial condition and results of operations.

Priority’s debt investments may be based on floating rates, such as London Interbank Offer Rate, or LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on Priority’s investments, the value of Priority’s common stock and Priority’s rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on Priority’s net interest income. An increase in interest rates could decrease the value of any investments Priority hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase Priority’s interest expense, thereby decreasing Priority’s net income. Also, an increase in interest rates available to investors could make investment in Priority shares less attractive if Priority is not able to increase its dividend and distribution rate, which could reduce the value of Priority shares.

Priority has issued shares of preferred stock, par value $0.01, or its Preferred Stock, and may borrow money and may issue additional shares of Preferred Stock to finance investments, Priority’s net investment income may depend, in part, upon the difference between the rate at which Priority borrow funds or pay distributions on its Preferred Stock and the rates that Priority’s investments yield. As a result, Priority can offer no assurance that a significant change in market interest rates will not have a material adverse effect on Priority’s net investment income. In periods of rising interest rates, Priority’s cost of funds would increase except to the extent Priority has issued fixed rate debt or Preferred Stock, which could reduce Priority’s net investment income.

Investors should also be aware that a change in the general level of interest rates can be expected to lead to a change in the interest rate that Priority receive on many of its debt investments. Accordingly, a change in the interest rate could make it easier for Priority to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to the Priority Adviser with respect to the portion of the incentive fee payable under Priority's Investment Advisory Agreement with the Priority Adviser that is based on income.

Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in Priority’s portfolio.

In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers' Association, or the BBA, in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.

Actions by the BBA, regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR is determined. Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including Priority’s portfolio of LIBOR-indexed, floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an

adverse impact on the market for LIBOR-based securities or the value of Priority’s portfolio of LIBOR-indexed, floating-rate debt securities. On July 27, 2017, the FCA announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021, or the FCA Announcement. Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury securities. On December 12, 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve Bank of New York published the three proposed reference rates as alternatives to LIBOR, or the “Federal Reserve Board Notice.” In March 2018, the Alternative Rates Reference Committee of the Federal Reserve Board and the Federal Reserve Bank of New York, or the ARRC, published its Second Report discussing, among other things, use of SOFR and other alternative reference rates to LIBOR.

At this time, it is not possible to predict the effect of the FCA Announcement, the Federal Reserve Board Notice, or other regulatory changes or announcements, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere. As such, the potential effect of any such event on Priority’s net investment income cannot yet be determined. The CLOs in which Priority invests generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations, which could adversely impact Priority’s net investment income. Recently, the CLOs in which Priority invests have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like those proposed by the ARRC) upon the occurrence of certain material disruption events. However, Priority cannot ensure that all CLOs in which Priority invests will have such provisions, nor can Priority ensure that CLO investment managers will undertake the suggested amendments when able. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which Priority invests, is currently unclear. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on Priority’s net investment income and portfolio returns.

Priority’s ability to achieve its investment objective depends on the Priority Adviser’s ability to manage and support its investment process. If the Priority Adviser were to lose access to its professionals, its ability to achieve its investment objective could be significantly harmed.

Since Priority has no employees, Priority depends on the investment expertise, skill and network of business contacts of the Priority Adviser. The Priority Adviser evaluates, negotiates, structures, executes, monitors and services Priority's investments. Priority’s success depends to a significant extent on the continued service and coordination of the professionals of the Priority Adviser. The departure of any of the Priority Adviser’s professionals could have a material adverse effect on Priority’s ability to achieve its investment objective.

Priority’s ability to achieve its investment objective depends on the Priority Adviser’s ability to identify, analyze, invest in, finance and monitor companies and investments that meet its investment criteria. The Priority Adviser’s capabilities in structuring the investment process, providing competent, attentive and efficient services to Priority, 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 its investment objective, the Priority Adviser may from time to time need to hire, train, supervise and manage new investment professionals to participate in its investment selection and monitoring process. The Priority Adviser may not be able to find investment professionals in a timely manner or at all. Failure to support its investment process could have a material adverse effect on its business, financial condition and results of operations.

Priority's Investment Advisory Agreement with the Priority Adviser and its Investment Administration Agreement with the Prospect Administration both have termination provisions that allow the parties to terminate the agreements without penalty. For example, Priority's Investment Advisory Agreement may be terminated at any time, without penalty, by the Priority Adviser upon 60 days’ notice to it. If either agreement is terminated, it may adversely affect

the quality of Priority's investment opportunities. In addition, if such agreements are terminated, it may be difficult for Priority to replace the Priority Adviser or Prospect Administration.

Because its business model depends to a significant extent upon relationships with investment banks, commercial banks and CLO collateral managers, the inability of the Priority Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect its business.

The Priority Adviser depends on its relationships with investment banks, commercial banks and CLO collateral managers, and Priority relies to a significant extent upon these relationships to provide Priority with potential investment opportunities. If the Priority Adviser fails to maintain its existing relationships or develop new relationships with other sources of investment opportunities, Priority may not be able to grow its investment portfolio. In addition, individuals with whom the Priority Adviser has relationships are not obligated to provide Priority with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for it.

Priority may face increasing competition for investment opportunities, which could delay deployment of its capital, reduce returns and result in losses.

Priority competes for investments with other investment companies and investment funds (including private equity funds, mezzanine funds and CLOs), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, invest in Target Securities. As a result of these new entrants, competition for investment opportunities in Target Securities may intensify. Many of Priority's competitors are substantially larger and have considerably greater financial, technical and marketing resources than Priority does. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to Priority. In addition, some of Priority’s competitors may have higher risk tolerances or different risk assessments than Priority has. These characteristics could allow Priority’s competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than Priority is able to do. Priority may lose investment opportunities if Priority does not match its competitors’ pricing, terms and structure. If Priority is forced to match its competitors’ pricing, terms and structure, Priority may not be able to achieve acceptable returns on its investments or may bear substantial risk of capital loss. A significant part of Priority’s competitive advantage stems from the fact that the market for Target Securities is underserved by financing sources generally. A significant increase in the number and/or the size of its competitors in this target market could force Priority to accept less attractive investment terms. Furthermore, many of Priority’s competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on Priority as a registered closed-end management investment company.

A significant portion of Priority’s investment portfolio is recorded at fair value as determined in good faith pursuant to its valuation procedures and, as a result, there could be uncertainty as to the value of its investments.

Under the 1940 Act, Priority is required to carry its investments at market value or, if there is no readily available market value, at fair value as determined pursuant to its valuation procedures. Typically, there is not a public market for the securities in which Priority invests. Priority’s Target Securities, and particularly its investments in the equity and junior debt tranches of CLOs, are difficult to value by virtue of the fact that they are not publicly traded or actively traded on a secondary market but, instead, are traded on a privately negotiated over-the-counter secondary market for institutional investors. As a result, Priority values these securities quarterly at fair value as determined in good faith pursuant to its valuation procedures. Certain factors that may be considered in determining the fair value of Priority's investments include dealer quotes for securities traded on the secondary market for institutional investors, the nature and realizable value of any collateral and estimates of the value of securities in which Priority invests, which will be supplied, directly or indirectly, by banks, other market counterparties or pricing systems or estimates approved for such purpose by the Priority Board. Such estimates may be unaudited or may be subject to little verification or other due diligence and may not comply with generally accepted accounting practices or other valuation principles. In addition, these entities may not provide estimates of the value of the securities in which Priority invests on a regular or timely basis or at all with the result that the values of such investments may be estimated by the Priority Adviser on the basis of information available at the time. Because such valuations, and particularly valuations of private securities, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, its 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 or if Priority tried to sell its investments. Due to this uncertainty, Priority’s fair value determinations may cause its net asset value on a given date to materially understate or overstate the value that Priority may ultimately realize upon the sale of one or more of its investments.

There is a risk that investors in Priority shares may not receive dividends and other distributions and that such dividends and other distributions may not grow over time.

Priority make dividends and other distributions to stockholders out of assets legally available for distribution. Priority cannot assure provide assurance to investors that it will achieve investment results that will enable it to make any specified level of cash dividends or other distributions or year-to-year increases in cash dividends or other distributions. In addition, due to the asset coverage test applicable to Priority as a registered closed-end management investment company, it may be limited in its ability to make distributions. In addition, a portion of, or substantially all, of Priority's distributions paid prior to the termination of its expense support and conditional reimbursement agreement were the result of expense support payments provided by the Priority Adviser that may be subject to repayment by Priority within three years if certain conditions are met. Holders of Priority shares should understand that such distributions may not be based on Priority’s investment performance and can only be sustained if Priority achieves positive investment performance in future periods and/or the Priority Adviser continues to make such expense support payments. Holders of Priority shares should also understand that any reimbursements to the Priority Adviser (if any such reimbursements are made) would reduce the future dividends and other distributions to which such holders would otherwise be entitled. There can be no assurance that Priority will achieve the performance necessary to sustain its level or amount of dividends and other distributions or that Priority will be able to make dividends or other distributions at all.

The amounts of any dividends and other distributions that Priority may make are uncertain and may exceed its earnings. Therefore, portions of those dividends and other distributions may be a return of the invested capital to investors for tax purposes.

Priority intends, subject to change by the Priority Board, to continue to declare dividends and other distributions on a quarterly basis and pay dividends and other distributions on a monthly basis. Priority will pay these dividends and other distributions to its stockholders out of assets legally available for distribution. While the Priority Adviser may agree to limit its expenses to ensure that such expenses are reasonable in relation to its income, Priority cannot assure investors that it will achieve investment results that will allow it to make a targeted level of cash dividends or other distributions or year-to-year increases in cash dividends or other distributions. Priority’s ability to make dividends and other distributions may be adversely affected by, among other things, the impact of one or more of the risk factors described in this joint proxy statement/prospectus. In addition, the inability to satisfy the asset coverage test applicable to Priority as an investment company registered under the 1940 Act may limit its ability to make dividends and other distributions. All dividends and other distributions will be paid at the discretion of the Priority Board and will depend on its earnings, Priority’s financial condition, maintenance of its status as a RIC under Subchapter M of the Code, compliance with applicable investment company regulations and such other factors as the Priority Board may deem relevant from time to time. Priority cannot assure investors that it will be able to make dividends or other distributions to its stockholders in the future. In the event that Priority encounters delays in locating suitable investment opportunities, it may make all or a substantial portion of its dividends and other distributions from the proceeds of securities offerings and/or from borrowings in anticipation of future cash flow, which may constitute a return of investors' capital. Such a return of capital is not immediately taxable, but reduces investors' tax basis in its Priority shares, which may result in the investor recognizing more gain (or less loss) when its Priority shares are sold. Dividends and other distributions from the proceeds of Priority's securities offerings and/or from borrowings will occur after payment of fees and expenses and could reduce the amount of capital that Priority has available to invest in investments.

If Priority internalizes its management and administrative functions, investors' interests in Priority could be diluted, and Priority could incur other significant costs associated with being self-managed.

The Priority Board may decide in the future to internalize its management and administrative functions. If it does so, Priority may elect to negotiate to acquire certain assets and personnel of the Priority Adviser, Prospect Capital Management or Prospect Administration, among other things. At this time, Priority cannot anticipate the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and Priority shares. The payment of such consideration could result in dilution of investors' as stockholders and could reduce the earnings per share attributable to their investments.

In addition, while Priority would no longer bear the costs of the various fees and expenses that it expects to pay to the Priority Adviser and Prospect Administration under the Investment Advisory Agreement and Administration Agreement, respectively, and to Destra Capital Investments LLC, or Destra, under the Investor Services Agreement, Priority would incur the compensation and benefits costs of its officers and other employees and consultants that are now being paid by the Priority Adviser or its affiliates. In addition, Priority may issue equity awards to officers, employees and consultants. These awards would decrease net income and may further dilute investors' investments. Priority cannot reasonably estimate the amount of fees that Priority would save or the costs that Priority would incur if it became self-managed. If the expenses that Priority assumes as a result of an internalization are higher than the expenses that it avoids paying to the Priority Adviser, Priority’s earnings per share would be lower as a result of the internalization than it otherwise would have been, potentially decreasing the amount of funds available to distribute to its stockholders and the value of its shares. As Priority is currently organized, Priority does have any employees. If Priority elects to internalize its operations, it would employ personnel and be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims and other employee-related liabilities and grievances.

If Priority internalizes its management functions, Priority could have difficulty integrating these functions as a stand-alone entity. Currently, individuals employed by Prospect Capital Management, Prospect Administration and their affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. These personnel have a great deal of know-how and experience. Priority may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could thus result in its incurring excess costs and/or suffering deficiencies in its disclosure controls and procedures or its internal control over financial reporting. Such deficiencies could cause Priority to incur additional costs, and its management’s attention could be diverted from effectively managing its investments.

Efforts by Priority to comply with the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with such regulations could adversely affect it.

Priority is subject to the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC. Priority is required to periodically review its internal control over financial reporting, and evaluate and disclose changes in its internal controls over financial reporting. Priority's development and maintenance of an effective system of internal controls requires significant expenditures, which could negatively impact its financial performance and ability to make distributions. This process also diverts some of management’s time and attention. Priority cannot be certain as to completion of its evaluation, testing and remediation actions or the impact of the same on its operations and may not be able to ensure that the process is effective or that its internal controls over financial reporting are or will be effective in a timely manner. In the event that Priority is unable to develop or maintain an effective system of internal controls and maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, it may be adversely affected.

Changes in laws or regulations governing Prospect's operations may adversely affect its business or cause it to alter its business strategy.

Priority, the Target Securities in which Priority invests, and the companies whose securities are held by CLOs are subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations, rulings or regulations could be adopted from time to time, including those governing the types of investments that Priority is permitted to make, any of which could harm Priority and its stockholders, potentially with retroactive effect.

Additionally, any changes to the laws and regulations governing its operations in the future relating to permitted investments may cause Priority to alter its investment strategy to avail itself of new or different investment opportunities. Such changes could result in material differences to its strategies and plans as set forth in this joint proxy statement/prospectus and may result in its investment focus shifting from the areas of expertise of the Priority Adviser to other types of investments in which the Priority Adviser may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on Priority’s results of operations and the value of its investors' investments.

Changes in the laws or regulations or the interpretations of the laws and regulations that govern registered closed-end management investment companies, RICs or non-depository commercial lenders could significantly affect Priority’s operations and its cost of doing business. Priority’s portfolio companies are subject to federal, state and

local laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, any of which could materially adversely affect Priority's business, including with respect to the types of investments that it is permitted to make, and investors' interests as stockholder of Priority, potentially with retroactive effect. In addition, any changes to the laws and regulations governing Priority’s operations relating to permitted investments may cause Priority to alter its investment strategy in order to avail itself of new or different opportunities. These changes could result in material changes to the strategies and plans set forth in this joint proxy statement/prospectus and may result in its investment focus shifting from the areas of expertise of the Priority Adviser to other types of investments in which the Priority Adviser may have less expertise or little or no experience. Any such changes, if they occur, could have a material adverse effect on Priority’s business, results of operations and financial condition and, consequently, the value of its investors' investments in Priority.

Over the last several years, there has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether these regulations will be implemented or what form they will take, increased regulation of non-bank credit extension could negatively impact Priority’s operations, cash flows or financial condition, impose additional costs on it, intensify the regulatory supervision of Priority or otherwise adversely affect its business.

The application of the risk retention rules under U.S. and EU law to CLOs may have broader effects on the CLO and loan markets in general, potentially resulting in fewer or less desirable investment opportunities for it.

Section 941 of the Dodd-Frank Act added a provision to the Securities Exchange Act of 1934, as amended, requiring that the seller, sponsor or securitizer of a securitization vehicle retain no less than 5% of the credit risk in assets that it sells into a securitization and prohibiting such securitizer from directly or indirectly hedging or otherwise transferring the retained credit risk. The responsible federal agencies adopted final rules implementing these restrictions on October 22, 2014. The risk retention rules became effective with respect to CLOs two years after publication in the Federal Register. Under the final rules, the asset manager of a CLO is considered the sponsor of a securitization vehicle and is required to retain 5% of the credit risk in the CLO, which may be retained horizontally in the equity tranche of the CLO or vertically as a 5% interest in each tranche of the securities issued by the CLO. Although the final rules contain an exemption from such requirements for the asset manager of a CLO if, among other things, the originator or lead arranger of all of the loans acquired by the CLO retains such risk at the asset level and, upon origination of such asset, takes a loan tranche of at least 20% of the aggregate principal balance, it is possible that the originators and lead arrangers of loans in this market will not agree to assume this risk or provide such retention at origination of the asset in a manner that would provide meaningful relief from the risk retention requirements for CLO managers.

Priority believes that the U.S. risk retention requirements imposed for CLO managers under Section 941 of the Dodd-Frank Act has created some uncertainty in the market in regard to future CLO issuance. Given that certain CLO managers may require that capital provider partners satisfy this requirement, Priority believes that this may create additional risks for Priority in the future.

On February 9, 2018, a panel of the United States Court of Appeals for the District of Columbia Circuit ruled that certain federal agencies described below exceeded their authority under the Dodd-Frank Act in adopting the final rules as applied to asset managers of open-market CLOs. The agencies can request that the full court rehear the case, and if the full court agrees to rehear the case, there can be no assurance as to how long the court will take to issue its decision or whether the full court will reach the same ruling as that of the panel. The period for the federal agencies responsible for the Final U.S. Risk Retention Rules, or the “Applicable Agencies,” to petition for en banc review of the DC Circuit Ruling has expired and the Applicable Agencies have not filed a petition for certiorari requesting the case to be heard by the United States Supreme Court. Pending resolution of any such rehearing or appeal, the final rules continue to apply to asset managers of open-market CLOs. Since the Applicable Agencies have not successfully challenged the DC Circuit Ruling and the DC District Court has issued the above described order implementing the DC Circuit Ruling, collateral managers of open market CLOs are no longer required to comply with the Final U.S. Risk Retention Rules at this time. As such, it is possible that some collateral managers of open market CLOs will decide to dispose of the notes constituting the “eligible vertical interest” or “eligible horizontal interest” they were previously required to retain, or decide take other action with respect to such notes that is not otherwise permitted by the Final U.S. Risk Retention Rules.

There can be no assurance or representation that any of the transactions, structures or arrangements currently under consideration by or currently used by CLO market participants will comply with the Final U.S. Risk Retention Rules to the extent such rules are reinstated or otherwise become applicable to open market CLOs. The ultimate impact of the Final U.S. Risk Retention Rules on the loan securitization market and the leveraged loan market generally remains uncertain, and any negative impact on secondary market liquidity for securities comprising a CLO may be experienced due to the effects of the Final U.S. Risk Retention Rules on market expectations or uncertainty, the relative appeal of other investments not impacted by the Final U.S. Risk Retention Rules and other factors.

In the European Union, there has also been an increase in political and regulatory scrutiny of the securitization industry. This has resulted in a number of measures for increased regulation which are currently at various stages of implementation. In particular, investors that are credit institutions or investment firms regulated in a Member State of the European Economic Area, or the “EEA,” or consolidated affiliates thereof, should be aware of Part Five (Articles 404-410) of the European Union Capital Requirements Regulation, or the “CRR,” as supplemented by Commission Delegated Regulation (EU) No 625/2014 of March 13, 2014 and Commission Implementing Regulation (EU) No 602/2014 of June 4, 2014, or collectively, the CRR Requirements. Article 405 of the CRR restricts such credit institutions and investment firms, together with consolidated group affiliates thereof, each a CRR Investor, from investing in securitizations unless the originator, sponsor or original lender in respect of the relevant securitization has explicitly disclosed to the CRR Investor that it will retain, on an ongoing basis, a net economic interest of not less than 5% in respect of certain specified credit risk tranches or asset exposures as contemplated by Article 405 of the CRR. Article 406 of the CRR requires a CRR Investor to be able to demonstrate that it has undertaken certain due diligence in respect of, amongst other things, its investment in the securitization and the exposures underlying the securitization, and that procedures are established for monitoring the performance of the underlying exposures on an on-going basis. Failure by a CRR Investor to comply with one or more of the requirements set out in the CRR may result in the imposition of a penal capital charge on such CRR Investor’s investment.

Investors who are EEA-regulated managers of alternative investment funds should be aware of Article 17 of the European Union Alternative Investment Fund Managers Directive, or the AIFMD, as implemented by Section 5 of Chapter III of Commission Delegated Regulation (EU) No 231/2013, or the AIFMR, and together with Article 17 of the AIFMD, the AIFM Requirements. The provisions of Section 5 of Chapter III of the AIFMR provide for risk retention and due diligence requirements in respect of EEA-regulated alternative investment fund managers which assume exposure to the credit risk of a securitization on behalf of one or more alternative investment funds that they manage. While such requirements are similar to those which apply under Part Five of the CRR, they are not identical and, in particular, additional due diligence obligations apply to the relevant alternative investment fund managers. Risk retention and due diligence requirements similar to those in AIFMR apply to investments in securitizations by EEA insurance and reinsurance undertakings under Article 135(2) of EU Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), as supplemented by Articles 254-257 of Commission Delegated Regulation (EU) No 2015/35, or the Solvency II Regulation, or collectively, the Solvency II Requirements. Similar requirements are scheduled to apply in the future to investments in securitizations by the same types and additional types of EEA institutional investors pursuant to the Securitisation Regulation referred to below. The CRR Requirements, the AIFM Requirements and the Solvency II Requirements are referred to collectively as the EU Securitization Retention Requirements.

The existing EU Securitization Retention Requirements will be replaced by new requirements to apply to securitizations in respect of which the relevant securities are issued on or after January 1, 2019. The principal EU regulation to implement the new EU securitization retention requirements and establish a general framework for securitization, or Securitization Regulation, was adopted by the European Parliament and the Council of the European Union as Regulation (EU) 2017/2402 of December 12, 2017. On and after January 1, 2019, the EU securitization retention requirements in the Securitization Regulation will apply to the types of regulated investors covered by the existing EU Securitization Retention Requirements and also to (a) certain investment companies authorized in accordance with Directive 2009/65/EC, and managing companies as defined in that Directive, and (b) institutions for occupational retirement provision falling within the scope of Directive (EU) 2016/2341 (subject to certain exceptions), and certain investment managers and authorized entities appointed by such institutions. There will be material differences between those new EU securitization retention requirements and those in effect on the date of this joint proxy statement/prospectus, and certain aspects of the new EU securitization retention requirements are to be specified in new regulatory technical standards which have not yet been adopted or published in final form.

With regard to securitizations of which the securities are issued before January 1, 2019, investors that are subject to the existing EU Securitization Retention Requirements will continue to be subject to those existing EU Securitization Retention Requirements (as in effect on December 31, 2018).

All CLOs issued in Europe are generally structured in compliance with the existing EU Securitization Retention Requirements so that prospective investors subject to the existing EU Securitization Retention Requirements can invest in compliance with such requirements. To the extent a CLO is structured in compliance with the EU Securitization Retention Requirements, Priority's ability to invest in the residual tranches of such CLOs could be limited, or it could be required to hold its investment for the life of the CLO. If a CLO has not been structured to comply with the EU Securitization Retention Requirements, that will limit the ability of EEA-regulated institutional investors to purchase CLO securities, which may adversely affect the price and liquidity of the securities (including the residual tranche) in the secondary market. Additionally, the EU Securitization Retention Requirements have reduced the issuance of new CLOs and reduced the liquidity provided by CLOs to the leveraged loan market generally. Reduced liquidity in the loan market could reduce investment opportunities for collateral managers, which could negatively affect the return of its investments. Any reduction in the volume and liquidity provided by CLOs to the leveraged loan market could also reduce opportunities to redeem or refinance the securities comprising a CLO in an optional redemption or refinancing and could negatively affect the ability of obligors to refinance their collateral obligations, either of which developments could increase defaulted obligations above historic levels.

Priority may experience fluctuations in its quarterly results.

Priority could experience fluctuations in its quarterly operating results due to a number of factors, including its ability or inability to make investments that meet its investment criteria, the yield earned or interest rate payable on the securities that Priority acquires, the level of its expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which Priority 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.

Priority may be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence.

Priority is classified as “non-diversified” under the 1940 Act. As a result, Priority can invest a greater portion of its assets in obligations of a single issuer than a “diversified” fund. Priority may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. Priority intends to maintain its status as a RIC under Subchapter M of the Code, and thus Priority intends to satisfy the diversification requirements of Subchapter M, including its less stringent diversification requirements that apply to the percentage of its total assets that are represented by cash and cash items (including receivables), U.S. government securities, the securities of other regulated investment companies and certain other securities.

Regulations governing Priority’s operation as a registered closed-end management investment company may adversely impact Priority's ability to raise additional capital and the way in which it does so. As a registered closed-end management investment company, the necessity of raising additional capital may expose Priority to risks, including the typical risks associated with leverage.

In addition to Priority's outstanding shares of Series A Term Preferred Stock due 2025, or Series A Term Preferred Stock, and its Series B Term Preferred Stock due 2023, or Series B Term Preferred Stock, Priority may in the future issue debt securities or additional shares of Preferred Stock and/or borrow money from banks or other financial institutions, which are collectively referred to as senior securities, up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, Priority is permitted, as a registered closed-end management investment company, to issue senior securities representing indebtedness so long as its asset coverage ratio with respect thereto, defined under the 1940 Act as the ratio of Priority’s gross assets (less all liabilities and indebtedness not represented by senior securities) to its outstanding senior securities representing indebtedness, is at least 300% after each issuance of such senior securities. In addition, Priority is permitted to issue additional shares of preferred stock so long as its asset coverage ratio with respect thereto, defined under the 1940 Act as the ratio of its gross assets (less all liabilities and indebtedness not represented by senior securities) to its outstanding senior securities representing indebtedness, plus the aggregate involuntary liquidation preference of its outstanding Preferred Stock, is at least 200% after each issuance of such preferred stock. If the value of Priority's assets declines, it may be unable to satisfy these tests. If that happens, Priority may be required to sell a portion of its investments and, depending on the nature of Priority’s leverage, repay a portion of its indebtedness or redeem outstanding shares of Preferred Stock, in each

case at a time when doing so may be disadvantageous. Also, any amounts that Priority uses to service its indebtedness or preferred dividends would not be available for distributions to its common stockholders.

Furthermore, as a result of issuing senior securities, Priority is exposed to typical risks associated with leverage, including an increased risk of loss. Priority’s Preferred Stock, including its shares of Series A and Series B Term Preferred Stock, ranks “senior” to common stock in its capital structure, but ranks “junior” to any secured indebtedness Priority currently has outstanding or incurs in the future.

Priority is generally not able to issue and sell its shares at a price below its per share NAV, other than in connection with a rights offering to its existing stockholders. Priority may, however, sell shares below its per share NAV if the Priority Board determines that such sale is in the best interests of Priority and its stockholders, and its stockholders approve such sale. In any such case, the price at which its securities are to be issued and sold may not be less than a price that, in the determination of the Priority Board, closely approximates the market value of such securities (less any distributing commission or discount). If Priority raises additional funds by issuing more shares, then the percentage ownership of its stockholders at that time will decrease, and its investors may experience dilution.

Priority’s ability to enter into transactions with its affiliates is restricted.

Priority is prohibited under the 1940 Act from participating in certain transactions with its affiliates without the prior approval of the SEC. Any person that owns, directly or indirectly, 5% or more of its outstanding voting securities is an affiliate for purposes of the 1940 Act and Priority is generally prohibited from buying or selling any securities from or to such affiliate. The 1940 Act also prohibits certain “joint” transactions with certain of Priority's affiliates, which could include investments in the same portfolio company or CLO (whether at the same or different times), without prior approval of the SEC. If a person acquires more than 25% of its voting securities, Priority will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit Priority's ability to transact business with its officers or directors or its affiliates. As a result of these restrictions, Priority may be prohibited from buying or selling any security from or to any portfolio company or CLO of an investment fund managed by the Priority Adviser or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to it.

Priority is uncertain of its sources for funding its future capital needs; if Priority cannot obtain equity or debt financing on acceptable terms, its ability to acquire investments and to expand its operations will be adversely affected.

Priority's net proceeds from sales of its shares are used for investment opportunities, operating expenses and payment of various fees and expenses, such as base management fees, incentive fees and other fees. Any working capital reserves that Priority maintains may not be sufficient for investment purposes, and Priority may require additional debt or equity financing to operate. Accordingly, in the event that Priority develop a need for additional capital in the future for investments or for any other reason, these sources of funding may not be available to it. Consequently, if Priority cannot obtain debt or equity financing on acceptable terms, its ability to acquire investments and to expand its operations will be adversely affected. As a result, Priority would be less able to broaden its portfolio and achieve its investment objective, which may negatively impact its results of operations and reduce its ability to make distributions to its stockholders.

If Priority fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results or prevent fraud. As a result, Priority's stockholders could lose confidence in its financial and other public reporting, which would harm its business and its ability to continue to make offerings of its shares.

Effective internal controls over financial reporting are necessary for Priority to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause Priority to fail to meet its reporting obligations. In addition, any testing by Priority conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by its independent registered public accounting firm (when undertaken, as noted below), may reveal deficiencies in its internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to its consolidated financial statements or identify other areas for further attention or improvement. Inadequate internal controls could also cause investors and lenders to lose confidence in Priority's reported financial information, which could have a negative effect on its ability to continue make offerings of its shares.

Priority may experience cyber-security incidents and are subject to cyber-security risks. Failure of cyber-security systems, as well as the occurrence of events unanticipated in its disaster recovery systems and management continuity planning, could impair Priority's ability to conduct business effectively.

Priority’s business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, Priority's information technology systems could become subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Cyberattacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through "hacking" or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on Priority's business, results of operations and financial condition. Like other companies, Priority may experience threats to its data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, Priority's computer systems and networks, or otherwise cause interruptions or malfunctions in its operations, which could result in damage to its reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in Priority’s disaster recovery systems, or a support failure from external providers, could have an adverse effect on its ability to conduct business and on its results of operations and financial condition, particularly if those events affect its computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of Priority’s managers were unavailable in the event of a disaster, its ability to effectively conduct its business could be severely compromised.

Cyber-security failures or breaches by the Priority Adviser, any future sub-adviser(s), the Prospect Administrator and other service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which Priority invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with its ability to calculate its net asset value, impediments to trading, the inability of its stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While Priority has established a business continuity plan in the event of, and risk management systems to prevent, such cyberattacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, Priority cannot control the cyber security plans and systems put in place by its service providers and issuers in which Priority invests. Priority and its stockholders could be negatively impacted as a result.

Priority is dependent on information systems and systems failures could significantly disrupt its business, which may, in turn, negatively affect its ability to operate, including its ability to make dividends and other distributions.

Priority’s business is dependent on its and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in its activities. Priority’s financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond its control and adversely affect its business. There could be:

These events, in turn, could have a material adverse effect on its operating results and negatively affect Priority’s ability to operate effectively, including its ability to make dividends and other distributions to stockholders.

Risks Related to an Investment in Priority shares

The Priority shares to be received by Stira Alcentra shareholders in connection with the Merger will not be listed on an exchange or quoted through a quotation system for the foreseeable future, if ever. Therefore, Stira Alcentra shareholders will have limited liquidity and may not receive a full return of their invested capital if they sell their Priority shares.

The Priority shares issued to Stira Alcentra shareholders in connection with the Merger are illiquid assets for which there is not expected to be any secondary market, nor is it expected that any will develop in the foreseeable future, if ever. Priority intends to pursue a liquidity event for its stockholders, such as a public listing of its shares, following the earlier of the expiration of the offering period and the completion of its common stock offering, subject to then-current market conditions. Priority expects that it may take up to three years after the completion of its common stock offering to complete a liquidity event. On May 30, 2017, the Priority Board approved an extension of its offering until the earlier of (i) November 2, 2019, or (ii) the date upon which 150,000,000 shares have been sold in the course of the offering of Priority shares, unless further extended by the Priority Board. This offering will be complete when Priority has sold the maximum number of shares offered hereby, or earlier in the event that Priority determine in its sole discretion to cease offering additional shares for sale to investors. The Priority Board, in the exercise of its fiduciary duties to its stockholders, may determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event and that such liquidity event is in the best interests of its stockholders. A liquidity event could include, among other things, (1) the sale of all or substantially all of its assets, either on a complete portfolio basis or individually followed by a liquidation, (2) listing of its shares on a national securities exchange or (3) a merger or another transaction approved by the Priority Board in which Priority stockholders receive cash or shares of a publicly traded company. Prior to the completion of a liquidity event, Priority’s share repurchase program may provide a limited opportunity for investors to achieve liquidity, subject to certain restrictions and limitations, at a price which may reflect a discount from the purchase price that investors paid for the Priority shares being repurchased. See “Share Repurchase Program of Priority Income Fund, Inc.” for a detailed description of Priority's share repurchase program. However, the completion of a liquidity event is in the sole discretion of the Priority Board, and depending upon the type of liquidity event, it may also require Priority stockholder approval. Accordingly, there can be no assurance that Priority will complete a liquidity event within its proposed timeframe, if at all. If Priority does not successfully complete a liquidity event, liquidity for an investor’s Priority shares will be limited to its share repurchase program, which Priority has no obligation to maintain.

In making the decision whether to apply for listing of its shares, Priority’s directors will try to determine whether listing of its shares or liquidating its assets will result in greater value for its stockholders. In making a determination of what type of liquidity event is in the best interest of its stockholders, Priority's Board, including its independent directors, may consider a variety of criteria, including, but not limited to, market conditions, portfolio diversification, portfolio performance, its financial condition, potential access to capital as a listed company, market conditions for the sale of its assets or listing of its shares, and the potential for stockholder liquidity. Even if its shares are listed, Priority cannot assure investors that a public trading market will develop for them. Further, even if Priority does complete a liquidity event, investors may not receive a return of all of their invested capital.

Priority is not obligated to complete a liquidity event by a specified date; therefore, it will be difficult or impossible for an investor to sell its Priority shares.

Priority’s securities are not currently listed on any securities exchange, and Priority does not expect a public market for them to develop in the foreseeable future, if ever. Therefore, stockholders should not expect to be able to sell their Priority shares promptly or at a desired price. No stockholder will have the right to require Priority to repurchase its shares or any portion thereof. Because no public market exists for Priority shares, and none is expected to develop, stockholders will not be able to liquidate their investment prior to its liquidation or the occurrence of another liquidity event, other than through Priority's share repurchase program, or, in limited circumstances, as a result of transfers of shares to other eligible investors. Stockholders that are unable to sell their shares will be unable to reduce their exposure on any market downturn.

Priority intends to pursue a liquidity event for its stockholders, such as a public listing of its shares, immediately following the earlier of the expiration of the offering period and completion of its common stock offering, which is

referred to herein as the "Offering," subject to then-current market conditions. Priority expects that it may take up to three years after completion of the Offering to complete a liquidity event. On May 30, 2017, the Priority Board approved an extension of the Offering period until the earlier of (i) November 2, 2019, or (ii) the date upon which 150,000,000 shares have been sold in the course of the Offering, unless further extended by the Priority Board. The Offering will be complete when Priority has sold the maximum number of shares offered thereby, or earlier in the event Priority determines in its sole discretion to cease offering additional shares for sale to investors in the Offering. A liquidity event could include, among other things, (1) the sale of all or substantially all of Priority's assets, either on a complete portfolio basis or individually followed by a liquidation, (2) listing of Priority's shares on a national securities exchange, or (3) a merger or another transaction involving Priority that is approved by the Priority Board in which its stockholders will receive cash or shares of a publicly traded company. However, the completion of a liquidity event is in the sole discretion of the Priority Board and, depending upon its structure, it may require stockholder approval. Accordingly, there can be no assurance that Priority will complete a liquidity event within its proposed timeframe, if at all. If Priority does not successfully complete a liquidity event, liquidity for an investor’s Priority shares will be limited to its share repurchase program, which it has no obligation to maintain.

Priority intends to continue to offer to repurchase your Priority shares on a quarterly basis, though Priority is under no obligation to do so. As a result you will have limited opportunities to sell your Priority shares and, to the extent you are able to sell your Priority shares under the share repurchase program, you may not be able to recover the amount of your investment in your Priority shares.

Priority intends to continue to make repurchase offers under its share repurchase program to allow you to sell Priority your Priority shares on a quarterly basis at a price equal to the then-current net asset value per share of the Priority shares, measured as of the date of repurchase. The share repurchase program include numerous restrictions that limit your ability to sell your Priority shares. Priority intends to limit the number of Priority shares that may be repurchased pursuant to its share repurchase program as follows: (1) Priority intends to limit the number of Priority shares that it can repurchase under its share repurchase program during any calendar year to the number of Priority shares that it can repurchase with dollar amounts retained by Priority as a result of issuing additional Priority shares, rather than making cash dividends or other distributions on outstanding Priority shares, under the Priority distribution reinvestment program, although, at the discretion of the Priority Board, Priority may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable period to repurchase Priority shares; (2) Priority does not currently intend to repurchase Priority shares in any calendar year in excess of 20% of the weighted average number of Priority shares outstanding in the prior calendar year, or 5% in each quarter; and (3) to the extent that the number of Priority shares submitted to Priority for repurchase exceeds the number of Priority shares that it is able to repurchase, Priority will repurchase Priority shares on a pro rata basis (subject to odd-lot priority), not on a first-come, first-served basis. Further, Priority will have no obligation to repurchase Priority shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent Priority from accommodating all repurchase requests made in any year. Also, if you invest through a fee-based program, also known as a wrap account, of an investment dealer, your liquidity may be further restricted by the terms and conditions of such program, which may limit your ability to request the repurchase of your Priority shares that are held in such account. Priority may discontinue or change the terms and conditions of its share repurchase program at any time in the sole discretion of the Priority Board. Accordingly, Priority's share repurchase program has many limitations and should not be relied upon as a method to sell Priority shares promptly and at a desired price.

The timing of Priority’s repurchase offers pursuant to its share repurchase program may be at a time that is disadvantageous to its stockholders.

When Priority makes quarterly repurchase offers for Priority shares pursuant to its share repurchase program, Priority may offer to repurchase Priority shares at a price that is lower than the price that investors paid for Priority shares in the applicable offering. As a result, to the extent investors have the ability to sell their Priority shares to Priority as part of its share repurchase program, the price at which an investor may sell Priority shares, which will be equal to the then-current net asset value per share of Priority shares as of the date of repurchase, may be lower than what an investor paid in connection with the purchase of such Priority shares in the applicable offering.

In addition, in the event an investor chooses to participate in Priority's share repurchase program, the investor will be required to provide Priority with notice of intent to participate prior to knowing what the net asset value per share of

Priority shares and consequently the repurchase price will be on the repurchase date. Although an investor will have the ability to withdraw a repurchase request prior to the repurchase date, to the extent an investor seeks to sell Priority shares to Priority as part of its share repurchase program, the investor will be required to do so without knowledge of what the repurchase price of its Priority shares will be on the repurchase date.

Priority may be unable to invest a significant portion of the net proceeds of the Offering on acceptable terms within an acceptable timeframe.

Delays in investing the net proceeds of the Offering may impair Priority's investment performance. Priority cannot assure you that it will be able to identify any investments that meet its investment objective or that any investment that Priority makes will produce a positive return. Priority may be unable to invest the net proceeds of the Offering on acceptable terms within the time period that Priority anticipate or at all, which could harm its financial condition and operating results.

Before making investments, Priority will invest the net proceeds of the Offering in temporary investments, such as cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less, which Priority expects will have returns substantially lower than the returns that Priority anticipate earning from investments in CLO securities and related investments. As a result, Priority may not have as great an ability to pay distributions while its portfolio is not fully invested in securities meeting its investment objective as Priority may be able to when its portfolio is fully invested in securities meeting its investment objective.

Your interest in Priority will be diluted if Priority issue additional Priority shares, which could reduce the overall value of an investment in Priority.

Potential investors will not have preemptive rights to any shares Priority issue in the future. Priority’s charter authorizes it to issue 200,000,000 shares. Pursuant to Priority’s charter, a majority of the Priority Board may amend its charter to increase the number of authorized shares without stockholder approval. After an investor purchases shares, the Priority Board may elect to sell additional shares, issue equity interests in private offerings and/or issue share-based awards to its independent directors or investment personnel of the Priority Adviser. To the extent that Priority issues additional equity interests after an investor purchases its Priority shares, an investor’s percentage ownership interest in Priority will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of its investments, you may also experience dilution in the book value and fair value of your shares.

Certain provisions of Priority's charter and bylaws could deter takeover attempts and have an adverse impact on the value of Priority shares.

Priority’s charter and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from attempting to acquire it. Priority’s charter classifies the Priority Board into three staggered classes, with directors in each class elected to hold office for a term expiring at the annual meeting of its stockholders held in the third year following their election and until their successors are duly elected and qualify, and provides that a director may be removed only for “cause,” as defined in the charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors.

Under Priority’s charter, certain charter amendments and certain transactions such as a merger, conversion to an open-end company, liquidation, or other transactions that may result in a change of control of it, must be approved by stockholders entitled to cast at least 80 percent of the votes entitled to be cast on such matter, unless the matter has been approved by at least two-thirds of its “continuing directors,” as defined in its charter. Additionally, the Priority Boardmay, without stockholder action, authorize the issuance of shares in one or more classes or series, including preferred shares, and the Priority Board may, without stockholder action, amend Priority's charter to increase the number of its shares of any class or series that Priority has authority to issue. These and other takeover defense provisions may inhibit a change of control in circumstances that could give the holders of Priority shares the opportunity to realize a premium over the value of their shares.

Priority has entered into a royalty-free license to use the name   “Priority Income Fund, Inc.”   which may be terminated if the Priority Adviser is no longer its investment adviser.

Priority entered into a royalty-free license agreement with the Priority Adviser. Under the agreement, the Priority Adviser granted Priority a non-exclusive license to use the name “Priority Income Fund, Inc.” and Priority has the right to use the “Priority Income Fund, Inc.” name for so long as the Priority Adviser remains its investment adviser.

Risks Related to the Priority Adviser and Priority’s Affiliates

The Priority Adviser and its affiliates, including its officers and some of its directors, will face conflicts of interest caused by compensation arrangements with Priority and its affiliates, which could result in actions that are not in the best interests of its stockholders.

The Priority Adviser and its affiliates will receive substantial fees from Priority in return for their services, and these fees could influence the advice they provide to it. Among other matters, the compensation arrangements could affect their judgment with respect to public offerings of equity by Priority, which allow the dealer manager to earn additional dealer manager fees and the Priority Adviser to earn increased asset management fees. In addition, if Priority decides to utilize leverage, it will increase its assets under management and, as a result, will increase the amount of management fees payable to the Priority Adviser.

Priority may be obligated to pay the Priority Adviser incentive compensation even if Priority incurs a net loss due to a decline in the value of its portfolio.

Priority’s Investment Advisory Agreement entitles the Priority Adviser to receive incentive compensation on income regardless of any capital losses. In such case, Priority may be required to pay the Priority Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of its portfolio or if Priority incurs a net loss for that quarter.

Any incentive fee payable by Priority that relates to its net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If an investment defaults and was structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the subordinated incentive fee will become uncollectible. The Priority Adviser is not under any obligation to reimburse Priority for any part of the subordinated incentive fee it received that was based on accrued income that Priority never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in its paying a subordinated incentive fee on income Priority never received.

The Priority Adviser’s professionals’ time and resources may be diverted due to obligations they have to other clients.

The Priority Adviser’s professionals serve or may serve as officers, directors or principals of other entities that operate in the same or a related line of business as Priority does, or of other investment funds, accounts and/or other investment vehicles. In serving in these multiple capacities, those personnel may have obligations to other clients or investors in those other investment vehicles, the fulfillment of which may not be in Priority's best interests or in the best interest of its stockholders. Priority’s investment objective may overlap with the investment objectives of those other investment vehicles. For example, Priority rely on the Priority Adviser to manage its day-to-day activities and to implement its investment strategy. The Priority Adviser and certain of its affiliates are currently, and plan in the future to continue to be, involved with activities which are unrelated to Priority. As a result of these activities, the Priority Adviser, its personnel and certain of its affiliates will have conflicts of interest in allocating their time and resources between Priority and other activities in which they are or may become involved, including, but not limited to, the management of Prospect Capital Management and Prospect Capital Corporation. The Priority Adviser and its personnel will devote only as much of its or their time and resources to its business as the Priority Adviser and its personnel, in their judgment, determine is reasonably required, which may be substantially less than their full time and resources.

Furthermore, the Priority Adviser and its affiliates may have existing business relationships or access to material, non-public information that may prevent them from recommending investment opportunities to Priority that would otherwise fit within its investment objective. These activities could be viewed as creating a conflict of interest in that the time, effort and ability of the members of the Priority Adviser and its affiliates and their officers and employees will not be devoted exclusively to Priority's business, but will instead be allocated between Priority and the management of the monies of other advisees of the Priority Adviser and its affiliates.

Priority may face additional competition due to the fact that individuals associated with the Priority Adviser are not prohibited from raising money for or managing other investment vehicles that make the same types of investments that Priority targets.

The Priority Adviser’s professionals are not prohibited from raising money for and managing another investment vehicles that make the same types of investments as those that Priority targets. For example, certain professionals of the Priority Adviser are simultaneously providing advisory services to other affiliated entities, including Prospect

Capital Management, which serves as the investment adviser to Prospect Capital Corporation, and Pathway Capital Opportunity Fund, Inc., or Pathway. Prospect Capital Corporation is a publicly-traded business development company that focuses on generating current income and, to a lesser extent, long-term capital appreciation for stockholders, primarily by making investments in senior secured loans, subordinated debt, unsecured debt, Target Securities and equity of portfolio companies. As a result, the time and resources that the Priority Adviser’s professionals may devote to Priority may be diverted to another investment entity. In addition, Priority may compete with any such investment vehicle for the same investors and investment opportunities. Priority has received an exemptive order from the SEC, which is referred to as the Order, granting Priority the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Priority Adviser or certain affiliates, including Prospect Capital Corporation and Pathway, subject to the conditions included therein. Under the terms of the Order permitting Priority to co-invest with other funds managed by the Priority Adviser or its affiliates, a majority of its independent directors who have no financial interest in the transaction must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to Priority and its stockholders and do not involve overreaching of Priority or its stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of its stockholders and is consistent with its investment objective and strategies. The Order also imposes reporting and record keeping requirements and limitations on transactional fees. Priority may only co-invest with certain entities affiliated with the Priority Adviser in negotiated transactions originated by the Priority Adviser or its affiliates in accordance with such Order and existing regulatory guidance. See “Certain Relationships and Related Party Transactions—Allocation of Investments” in the statement of additional information. To the extent Priority is able to make co-investments with the Priority Adviser’s affiliates, these co-investment transactions may give rise to conflicts of interest or perceived conflicts of interest among Priority and the other participating accounts.

Affiliates of the Priority Adviser have no obligation to make their originated investment opportunities available to the Priority Adviser or to it, and such opportunities may be provided to Prospect Capital Corporation or another affiliate of the Priority Adviser.

To mitigate the foregoing conflicts, the Priority Adviser and its affiliates will seek to allocate portfolio transactions on a fair and equitable basis, taking into account such factors as the relative amounts of capital available for new investments, the applicable investment programs and portfolio positions, the clients for which participation is appropriate and any other factors deemed appropriate.

Priority’s incentive fee may induce the Priority Adviser to make speculative investments.

The subordinated incentive fee payable by Priority to the Priority Adviser may create an incentive for it to make investments on Priority'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 subordinated incentive fee payable to the Priority Adviser is determined may encourage it to use leverage to increase the return on its investments. In addition, the fact that Priority’s base management fee is payable based upon its average total assets, which would include any borrowings for investment purposes, may encourage the Priority Adviser to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of a default, which would adversely affect holders of its common stock. Such a practice could result in Priority’s investing in more speculative securities than would otherwise be in its best interests, which could result in higher investment losses, particularly during cyclical economic downturns.

Risks Related to Priority’s Investments

Priority’s investments in CLOs may be riskier and less transparent to Priority and its stockholders than direct investments in the underlying companies.

Priority may invest in senior secured loans directly or indirectly through securities issued by CLOs. However, it has invested primarily in the equity and junior debt tranches of CLOs. Generally, Priority will be required to disclose less information regarding the underlying debt investments held by CLOs than if Priority had invested directly in the debt of the underlying companies. As a result, Priority stockholders will not know the details of the underlying securities of the CLOs in which Priority invests. Priority’s investments in the equity and junior debt tranches of CLOs will also be subject to the risk of leverage associated with the debt issued by such CLOs and the repayment priority of senior debt holders in such CLOs. Priority’s investments in CLOs may be risky, and Priority could lose all or part of its investment.

CLOs typically will have no significant assets other than their underlying senior secured loans; payments on CLO investments are and will be payable solely from the cashflows from such senior secured loans.

CLOs typically will have no significant assets other than their underlying senior secured loans. Accordingly, payments on CLO investments are and will be payable solely from the cashflows from such senior secured loans, net of all management fees and other expenses. Payments to Priority as a holder of CLO investments are and will be made only after payments due on the senior notes (and, where applicable, the junior secured notes) from time to time have been made in full. This means that relatively small numbers of defaults of senior secured loans may adversely impact Priority’s returns.

The senior loan portfolios of the CLOs in which Priority invests may be concentrated in a limited number of industries or borrowers, which may subject those vehicles, and in turn it, to a risk of significant loss if there is a downturn in a particular industry in which a number of a CLO’s investments are concentrated.

The CLOs in which Priority invests may have senior loan portfolios that are concentrated in a limited number of industries or borrowers. A downturn in any particular industry or borrower in which a CLO is heavily invested may subject that vehicle, and in turn it, to a risk of significant loss and could significantly impact the aggregate returns Priority realize. If an industry in which a CLO is heavily invested suffers from adverse business or economic conditions, a material portion of Priority’s investment in that CLO could be affected adversely, which, in turn, could adversely affect its financial position and results of operations.

Priority’s CLO investments are exposed to leveraged credit risk.

Priority may be in a subordinated position with respect to realized losses on the senior secured loans underlying Priority’s investments in the equity and junior debt tranches of CLOs. The leveraged nature of equity and junior debt tranches of CLOs, in particular, magnifies the adverse impact of senior secured loan defaults. CLO investments represent a leveraged investment with respect to the underlying senior secured loans. Therefore, changes in the market value of the CLO investments could be greater than the change in the market value of the underlying senior secured loans, which are subject to credit, liquidity and interest rate risk.

Changes in credit spreads may adversely affect Priority’s profitability and result in realized and unrealized depreciation on its investments.

The performance of Priority’s CLO equity investments will depend, in a large part, upon the spread between the rate at which the CLO borrows funds and the rate at which it lends these funds. Any reduction of the spread between the rate at which the CLO invests and the rate at which it borrows may adversely affect the CLO equity investor’s profitability. Additionally, changes in credit spreads could lead to refinancing (paying off the existing senior secured loan with the proceeds from a new loan) or repricing (reducing the interest rate on an existing senior secured loan) of the senior secured loans that make up a CLO’s portfolio, which would result in a decline in the yield to the CLO’s equity investors and a corresponding loss on investment.

During the 2018 fiscal year, Priority has observed a continuance in the rate of refinancings in senior secured loans albeit at slower pace than during the 2017 fiscal year. Total refinancing volume was $89.6 billion in the first six calendar months of 2018, compared to $119.5 billion in the first six calendar months of 2017. The $274.4 billion of new senior secured loans issued in the first six calendar months of 2018 excludes $256.7 billion of senior secured loan repricings, where corporate borrowers were able to reduce the spread over Libor via an amendment. This compares to $295.7 billion of new senior secured loans issued in the first six calendar months of 2017 and $336.1 million of repricings during the same period.

Because CLO equity investors are paid the residual income after the CLO debt tranches receive contractual interest payments, a reduction in the weighted average spread of the senior secured loans underlying a CLO will reduce the income flowing to CLO equity investors. As a result, CLO investors will experience realized and unrealized depreciation in periods of prolonged spread compression. If these conditions continue, the CLO investors, such as Priority, may lose some or all of their investment.

Priority’s net asset value per share was $13.47 at June 30, 2018 compared to $13.83 at December 31, 2017, representing a 2.6% decline. The decline in net asset value per share since December 31, 2017 is primarily a function of valuation changes driven by the decline in the weighted average spread of the senior secured loan portfolios underlying its CLO investments. While Priority has sought to offset this impact by reducing CLO liability costs through refinancings and resets in its portfolio, Priority can give no assurance that Priority will be able to recapture any unrealized depreciation and that Priority will not realize a loss on its investments. A continuation of

the conditions that have led to spread compression over the past two years may lead to additional realized and unrealized losses on its investments.

There is the potential for interruption and deferral of cashflow.

If certain minimum collateral value ratios and/or interest coverage ratios are not met by a CLO (e.g., due to senior secured loan defaults), then cashflow that otherwise would have been available to pay the distribution on the CLO investments may instead be used to redeem any senior notes or to purchase additional senior secured loans, until the ratios again exceed the minimum required levels or any senior notes are repaid in full. This could result in an elimination, reduction or deferral in the distribution and/or principal paid to the holders of the CLO investments, which would adversely impact Priority’s returns.

Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Priority’s investment strategy involves investments in securities issued by foreign entities, including foreign CLOs. Investing in foreign entities may expose Priority to additional risks not typically associated with investing in U.S. issuers. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Further, Priority, and the CLOs in which Priority invests, may have difficulty enforcing creditor’s rights in foreign jurisdictions. In addition, the underlying companies of the CLOs in which Priority invests may be foreign, which may create greater exposure for Priority to foreign economic developments.

Although Priority’s investments are U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments. Priority may employ hedging techniques to minimize these risks, but Priority can offer no assurance that Priority will, in fact, hedge currency risk, or that if Priority does, such strategies will be effective.

Priority’s investments in Target Securities may be illiquid.

Priority may invest a substantial percentage of its portfolio in securities that are considered illiquid. “Illiquid securities” are securities which cannot be sold within seven days in the ordinary course of business at approximately the value used by Priority in determining its net asset value. Priority may not be able to readily dispose of such securities at prices that approximate those at which Priority could sell such securities if they were more widely-traded and, as a result of such illiquidity, Priority may have to sell other investments or engage in borrowing transactions to raise cash to meet its obligations. Limited liquidity can also affect the volatility and market price of securities, thereby adversely affecting Priority’s net asset value and ability to make dividend distributions. Target Securities may not be readily marketable and may be subject to restrictions on resale. Target Securities loans are generally not listed on any U.S. national securities exchange and no active trading market may exist for the securities in which Priority will invest. Although a secondary market may exist for Priority’s investments, the market for its investments may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. As a result, these types of investments may be more difficult to value. In addition, Priority believes that ownership of Target Securities has generally been distributed across a wide range of holders, some of whom Priority believes may continue to face near- to intermediate-term liquidity issues. Further, Priority believes that larger institutional investors with sufficient resources to source, analyze and negotiate the purchase of these assets may refrain from purchases of the size that Priority is targeting, thereby reducing the prospective investor population, which would limit Priority’s ability to sell its Target Securities if Priority choose to or need to do so. Priority has no limitation on the amount of its assets which may be invested in securities that are not readily marketable or are subject to restrictions on resale.

Priority may invest in assets with no or limited performance or operating history.

Priority may invest in assets with no or limited investment history or performance record upon which the Priority Adviser will be able to evaluate their likely performance. Priority’s investments in entities with no or limited operating history are subject to all of the risks and uncertainties associated with a new business, including the risk

that such entities will not achieve target returns. Consequently, Priority’s profitability, net asset value and share price could be adversely affected.

Priority is exposed to underlying borrower fraud through the Target Securities held in its portfolio.

Investing in Target Securities involves the possibility of Priority’s investments being subject to potential losses arising from material misrepresentation or omission on the part of borrowers whose senior secured loans it holds, either directly or indirectly through CLOs. Such inaccuracy or incompleteness may adversely affect the valuation of Priority’s investments or may adversely affect the ability of the relevant investment to perfect or effectuate a lien on the collateral securing the loan. The CLOs in which Priority will invest will rely upon the accuracy and completeness of representations made by the underlying borrowers to the extent reasonable, but cannot guarantee such accuracy or completeness. In addition, the quality of Priority’s investments in Target Securities is subject to the accuracy of representations made by the underlying issuers. In addition, Priority is subject to the risk that the systems used by the CLO collateral managers to control for such accuracy are defective.

The payment of underlying portfolio manager fees and other charges could adversely impact Priority’s returns.

Priority may invest in securities where the underlying portfolios may be subject to management, administration and incentive or performance fees, in addition to those payable by Priority. Payment of such additional fees could adversely impact the returns that Priority achieves.

The inability of a CLO collateral manager to reinvest the proceeds of the prepayment of senior secured loans may adversely affect Priority's investment in that CLO.

There can be no assurance that, in relation to any CLO investment, in the event that any of the senior secured loans of a CLO underlying such investment are prepaid, the CLO collateral manager will be able to reinvest such proceeds in new senior secured loans with equivalent investment returns. If the CLO collateral manager cannot reinvest in new senior secured loans with equivalent investment returns, the interest proceeds available to pay interest on the rated liabilities and investments of the CLO may be adversely affected.

Priority’s investments are subject to prepayments and calls, increasing re-investment risk.

Priority’s investments and/or the underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on their value. Prepayment rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond Priority’s control and consequently cannot be predicted with certainty. In addition, for a CLO collateral manager there is often a strong incentive to refinance well performing portfolios once the senior tranches amortize. The yield to maturity of the investments will depend on, inter alia, the amount and timing of payments of principal on the loans and the price paid for the investments. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments of the debt.

Furthermore, Priority’s investments generally will not contain optional call provisions, other than a call at the option of the holders of the equity tranches for the senior notes and the junior secured notes to be paid in full after the expiration of an initial period in the deal (referred to as the “non-call period”).

The exercise of the call option is by the relevant percentage (usually a majority) of the holders of the equity tranches and, therefore, where Priority does not hold the relevant percentage Priority will not be able to control the timing of the exercise of the call option. The equity tranches also generally have a call at any time based on certain tax event triggers. In any event, the call can only be exercised by the holders of equity tranches if they can demonstrate (in accordance with the detailed provisions in the transaction documents) that the senior notes and junior secured notes will be paid in full if the call is exercised.

Early prepayments and/or the exercise of a call option other than at Priority’s request may also give rise to increased re-investment risk with respect to certain investments, as Priority may realize excess cash earlier than expected. If Priority is unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce its net income and, consequently, could have an adverse impact on its ability to pay dividends.

Priority will have limited control of the administration and amendment of senior secured loans owned by the CLOs in which Priority invests.

Priority will not be able to directly enforce any rights and remedies in the event of a default of a senior secured loan held by a CLO. In addition, the terms and conditions of the senior secured loans underlying Priority’s investments in the equity and junior debt tranches of CLOs may be amended, modified or waived only by the agreement of the

underlying lenders. Generally, any such agreement must include a majority or a super majority (measured by outstanding loans or commitments) or, in certain circumstances, a unanimous vote of the lenders. Consequently, the terms and conditions of the payment obligations arising from senior secured loans could be modified, amended or waived in a manner contrary to its preferences.

Priority will have no influence on management of underlying investments managed by non-affiliated third party CLO collateral managers.

Priority will not be responsible for and will have no influence over the asset management of the portfolios underlying the CLO investments that Priority holds where those portfolios are managed by non-affiliated third party CLO collateral managers. Similarly, Priority will not be responsible for and will have no influence over the day-to-day management, administration or any other aspect of the issuers of the individual securities. As a result, the values of the portfolios underlying Priority’s CLO investments could decrease as a result of decisions made by third party CLO collateral managers.

Priority will have limited control of the administration and amendment of any CLO in which Priority invests.

The terms and conditions of Target Securities may be amended, modified or waived only by the agreement of the underlying security holders. Generally, any such agreement must include a majority or a super majority (measured by outstanding amounts) or, in certain circumstances, a unanimous vote of the security holders. Consequently, the terms and conditions of the payment obligation arising from the CLOs in which Priority invests be modified, amended or waived in a manner contrary to its preferences.

Senior secured loans of CLOs may be sold and replaced resulting in a loss to it.

The senior secured loans underlying Priority’s CLO investments may be sold and replacement collateral purchased within the parameters set out in the relevant CLO indenture between the CLO and the CLO trustee and those parameters may typically only be amended, modified or waived by the agreement of a majority of the holders of the senior notes and/or the junior secured notes and/or the equity tranche once the CLO has been established. If these transactions result in a net loss, the magnitude of the loss from the perspective of the equity tranche would be increased by the leveraged nature of the investment.

Priority’s financial results may be affected adversely if one or more of its significant equity or junior debt investments in a CLO defaults on its payment obligations or fails to perform as Priority expects.

Priority expects that a majority of its portfolio will consist of equity and junior debt investments in CLOs, which involve a number of significant risks. CLOs are typically highly levered (~10 times), and therefore the junior debt and equity tranches that Priority will invest in are subject to a higher risk of total loss. As of June 30, 2018, the range of leverage ratios of the CLO investments in Priority’s portfolio was 6.6 times to 12.5 times, excluding investments that have been called for redemption, and the weighted average was 9.5 times. In particular, investors in CLOs indirectly bear risks of the underlying debt investments held by such CLOs. Priority will generally have the right to receive payments only from the CLOs, and will generally not have direct rights against the underlying borrowers or the entity that sponsored the CLOs. Although it is difficult to predict whether the prices of indices and securities underlying CLOs will rise or fall, these prices (and, therefore, the prices of the CLOs) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally.

The investments that Priority makes in CLOs will likely be thinly traded or have only limited trading markets. CLO investments are typically privately offered and sold in the primary and secondary markets. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from the underlying senior secured loans will not be adequate to make interest or other payments; (ii) the quality of the underlying senior secured loans may decline in value or default; and (iii) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO or unexpected investment results. Further, Priority’s investments in equity and junior debt tranches of CLOs will be subordinate to the senior debt tranches thereof.

Investments in structured vehicles, including equity and junior debt instruments issued by CLOs, involve risks, including credit risk and market risk. Changes in interest rates and credit quality may cause significant price fluctuations. Additionally, changes in the underlying senior secured loans held by a CLO may cause payments on the instruments Priority hold to be reduced, either temporarily or permanently. Structured investments, particularly the

subordinated interests in which Priority invests, are less liquid than many other types of securities and may be more volatile than the senior secured loans underlying the CLOs in which Priority invests.

Non-investment grade or “junk” debt involves a greater risk of default and higher price volatility than investment grade debt.

The senior secured loans underlying Priority’s CLO investments typically will be BB or B rated (non-investment grade or “junk”) and in limited circumstances, unrated, senior secured loans. Non-investment grade or “junk” securities are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default and higher price volatility than investment grade debt.

Priority’s investments in CLOs may be subject to special anti-deferral provisions that could result in Priority incurring tax or recognizing income prior to receive cash distributions related to such income.

Priority anticipate that the CLOs in which Priority invests may constitute “passive foreign investment companies,” or PFICs. If Priority acquire shares in a PFIC (including in CLOs that are PFICs), Priority may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend by Priority to its stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require Priority to recognize its share of the PFICs' income for each year regardless of whether Priority receives any distributions from such PFICs. Priority must nonetheless distribute such income to maintain its tax treatment as a RIC.

If Priority holds more than 10% of the shares in a foreign corporation that is treated as a controlled foreign corporation, or CFC (including in a CLO treated as a CFC), Priority may be treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporation in an amount equal to its pro rata share of the foreign corporation’s income for the tax year (including both ordinary earnings and capital gains). If Priority is required to include such deemed distributions from a CFC in its income, Priority will be required to distribute such income to maintain its RIC tax treatment, regardless of whether or not the CFC makes an actual distribution during such year.

If Priority is required to include amounts in income prior to receiving distributions representing such income, Priority may have to sell some of its investments at times and/or at prices Priority would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If Priority is not able to obtain cash from other sources, Priority may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. For additional discussion regarding the tax implications of a RIC, see “Certain Material U.S. Federal Income Tax Considerations—Taxation as a Regulated Investment Company.”

Proposed regulations may impact Priority’s ability to qualify as a RIC if Priority does not receive timely distributions from its CLO investments.

As discussed above, Priority may be required to include in Priority’s income its proportionate share of the income of certain CLO investments to the extent that such CLOs are PFICs for which Priority has made a qualifying electing fund, or QEF, election or are CFCs. To qualify as a RIC, Priority must, among other thing, derive in each taxable year at least 90% of its gross income from certain sources specified in the Code, which is referred to herein as the "90% Income Test." Although the Code generally provides that the income inclusions from a QEF or a CFC will be ‘‘good income’’ for purposes of the 90% Income Test to the extent that the QEF or the CFC distributes such income to Priority in the same taxable year to which the income is included in its income, the Code does not specifically provide whether these income inclusions would be ‘‘good income’’ for the 90% Income Test if Priority does not receive distributions from the QEF or CFC during such taxable year. The IRS has issued a series of private rulings in which it has concluded that all income inclusions from a QEF or a CFC included in a RIC’s gross income would constitute ‘‘good income’’ for purposes of the 90% Income Test. Such rulings are not binding on the IRS except with respect to the taxpayers to whom such rulings were issued. Accordingly, under current law, Priority believe that the income inclusions from a CLO that is a QEF or a CFC would be ‘‘good income’’ for purposes of the 90% Income Test. Recently, the IRS and U.S. Treasury Department issued proposed regulations that provide that the income inclusions from a QEF or a CFC would not be good income for purposes of the 90% Income Test unless Priority receive a cash distribution from such entity in the same year attributable to the included income. If such income were not considered ‘‘good income’’ for purposes of the 90% Income Test, Priority may fail to qualify as a RIC. If these regulations are finalized, Priority will carefully monitor its investments in CLOs to avoid disqualification as a RIC.

The CLOs in which Priority invests may be subject to withholding tax if they fail to comply with certain reporting requirements.

Legislation commonly referred to as the ‘‘Foreign Account Tax Compliance Act,’’ or FATCA, imposes a withholding tax of 30% on payments of U.S. source interest and distributions, and gross proceeds from the disposition of an instrument that produces U.S. source interest or distributions paid after December 31, 2018, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners. Most CLOs in which Priority invests will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which Priority invests fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to equity and junior debt holders in such CLO, which could materially and adversely affect its operating results and cash flows.

To the extent OID and PIK interest constitute a portion of its income, Priority will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

Priority’s investments may include original issue discount, or OID, instruments and payment in kind, or PIK, interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of its income, Priority is exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

For accounting purposes, any cash distributions to stockholders representing OID and PIK income are not treated as coming from paid-in capital, even if the cash to pay them comes from offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by its stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

Risks Related to Priority’s Capital Structure and Leverage

Priority’s borrowings, including the Series A and Series B Preferred Stock, expose it to additional risks, including the typical risks associated with leverage, and could adversely affect its business, financial condition and results of operations.

Priority has incurred leverage through the issuance of the Series A and Series B Preferred Stock. Priority may incur additional leverage, directly or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, additional shares of Preferred Stock, debt securities and other structures and instruments, in significant amounts and on terms that the Priority Adviser and the Priority Board deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and financing of Priority's investments, to pay fees and expenses and for other purposes. Such leverage may be secured and/or unsecured. Any such leverage does not include leverage embedded or inherent in the CLOs in which Priority invests or in derivative instruments in which Priority may invest. Accordingly, there is a layering of leverage in its overall structure.

The more leverage that Priority employs, the more likely a substantial change will occur in its NAV. Accordingly, any event that adversely affects the value of an investment would be magnified to the extent leverage is utilized. For instance, any decrease in Priority's income would cause net income to decline more sharply than it would have had Priority not borrowed. Such a decline could also negatively affect Priority's ability to make distributions and other payments to its securityholders. Leverage is generally considered a speculative investment technique. Priority’s ability to service any debt that it incurs will depend largely on its financial performance and will be subject to

prevailing economic conditions and competitive pressures. The cumulative effect of the use of leverage with respect to any investments in a market that moves adversely to such investments could result in a substantial loss that would be greater than if Priority's investments were not leveraged.

As a registered closed-end management investment company, Priority will generally be required to meet certain asset coverage requirements, as defined under the 1940 Act, with respect to any senior securities. With respect to senior securities representing indebtedness (i.e., borrowings or deemed borrowings, including notes), other than temporary borrowings as defined under the 1940 Act, Priority is required under current law to have an asset coverage of at least 300%, measured at the time of borrowing and calculated as the ratio of Priority’s total assets (less all liabilities and indebtedness not represented by senior securities) over the aggregate amount of Priority’s outstanding senior securities representing indebtedness. With respect to senior securities that are stock (i.e., its Preferred Stock), Priority is required under current law to have an asset coverage of at least 200%, measured at the time of the issuance of any such shares of preferred stock and calculated as the ratio of its total assets (less all liabilities and indebtedness not represented by senior securities) over the aggregate amount of its outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding shares of preferred stock. If legislation were passed that modifies this section of the 1940 Act and increases the amount of senior securities that Priority may incur, Priority may increase its leverage to the extent then permitted by the 1940 Act and the risks associated with an investment in Priority may increase.

If Priority’s asset coverage declines below 300% (or 200%, as applicable), Priority would not be able to incur additional debt or issue additional Preferred Stock, and could be required by law to sell a portion of its investments to repay some debt or redeem shares of Series A or Series B Preferred Stock when it is disadvantageous to do so, which could have a material adverse effect on its operations, and Priority may not be able to make certain distributions or pay dividends of an amount necessary to continue to be subject to tax as a RIC. The amount of leverage that Priority employs will depend on the Priority Adviser’s and the Priority Board's assessment of market and other factors at the time of any proposed borrowing. Priority cannot provide any assurance to investors that it will be able to obtain credit at all or on terms acceptable to it.

In addition, any debt facility into which Priority may enter would likely impose financial and operating covenants that restrict its business activities, including limitations that could hinder its ability to finance additional loans and investments or to make the distributions required to maintain its ability to be subject to tax as a RIC under Subchapter M of the Code.

Illustration . The following table is furnished in response to the requirements of the SEC and illustrates the effect of leverage on returns from an investment in Priority shares, assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below. The calculation assumes (i) $448.9 million in total assets, (ii) an average cost of funds of 6.322%, (iii) $34 million in Series A Preferred Stock outstanding for 12 months and $25.0 million in Series B Preferred Stock outstanding for 12 months (iv) $370.6 million of shareholders’ equity.

The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, Priority’s projected or actual performance. Actual returns may be greater or less than those appearing in the table.

Priority’s borrowings may increase the potential for loss on amounts invested in Priority and, therefore, the risk of investing in it.

In addition to its outstanding shares of Preferred Stock, Priority may issue additional debt securities or Preferred Stock and/or borrow money from banks or other financial institutions. The use of borrowings, also known as leverage, increases the volatility of investments and magnifies the potential for loss for Priority’s investors. If Priority uses leverage to partially finance its investments, through borrowing from banks and other lenders, Priority stockholders will experience increased risks of investing in Priority shares. If the value of Priority’s assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had Priority not leveraged. Similarly, any decrease in Priority’s income would cause net income attributable to its stockholders to decline more sharply than it would have had Priority not borrowed. Such a decline could negatively affect its ability

to make distribution payments, including to holders of its shares of Preferred Stock. Leverage is generally considered a speculative investment technique. In addition, the decision to utilize leverage will increase its assets and, as a result, will increase the amount of management fees payable to the Priority Adviser.

Changes in interest rates may affect Priority’s cost of capital and net investment income.

Because Priority finances its investments, in part, using leverage, including the Series A and Series B Preferred Stock and any future issuances of Preferred Stock or other borrowings, its net investment income will depend, in part, upon the difference between the rate at which Priority borrow funds and the rate at which Priority invests those funds. As a result, Priority can offer no assurance that a significant change in market interest rates will not have a material adverse effect on its net investment income. In periods of rising interest rates when Priority has debt outstanding, its cost of funds will increase, which could reduce its net investment income. Priority expects that its long-term fixed-rate investments will be financed primarily with equity and long-term debt. Priority 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 to the extent permitted by the 1940 Act. These activities may limit Priority’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 its business, financial condition and results of operations.

Also, Priority has limited experience in entering into hedging transactions, and Priority may have to purchase or develop such expertise.

You should also be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to its debt investments. Accordingly, an increase in interest rates may make it easier for Priority to meet or exceed the subordinated incentive fee preferred return and may result in a substantial increase of the amount of incentive fees payable to the Priority Adviser with respect to pre-incentive fee net investment income. See “Investment Advisory Agreement.”

Holders of any preferred stock that Priority issues have the right to elect members of the Priority Board and class voting rights on certain matters.

Holders of Priority’s Preferred Stock have, and any Preferred Stock that Priority might issue in the future would have, the right to elect members of the Priority Board and class voting rights on certain matters. Holders of the Series A and Series B Preferred Stock have, and any Preferred Stock Priority might issue in the future would have, voting separately as a single class, the right to elect two members of the Priority Board at all times and, in the event dividends become two full years in arrears, would have the right to elect a majority of the directors until such arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of Priority shares and its Preferred Stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of its credit facilities, might impair its ability to maintain its qualification as a RIC for federal income tax purposes. While Priority would intend to redeem its outstanding shares of its Preferred Stock to the extent necessary to enable Priority to distribute its income as required to maintain its qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.

Federal Income Tax Risks

Priority will be subject to corporate-level income tax if Priority is unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.

To maintain RIC tax treatment under the Code, Priority must meet the following annual distribution, income source and asset diversification requirements. See “Certain Material U.S. Federal Income Tax Considerations.”

If Priority fails to qualify for or maintain RIC tax treatment for any reason and becomes subject to corporate income tax, the resulting corporate taxes could substantially reduce its net assets, the amount of income available for distribution and the amount of its distributions.

Priority may have difficulty paying its required distributions if it recognizes income before or without receiving cash representing such income.

For federal income tax purposes, Priority may be required to recognize taxable income in circumstances in which it does not receive a corresponding payment in cash. For example, if Priority holds debt or equity investments that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, debt instruments that were issued with warrants), it must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by Priority in the same taxable year. Priority may also have to include in income other amounts that it has not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Priority anticipates that a portion of its income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, Priority may elect to amortize market discounts and include such amounts in its taxable income in the current year, instead of upon disposition, as an election not to do so would limit its ability to deduct interest expenses for tax purposes.

The recognition of income in connection with investments that Priority purchases with original issue discount may result in the payment of an incentive fee to the Priority Adviser without a corresponding receipt of cash income.

In the event that Priority recognizes loan interest income in excess of the cash that Priority receives in connection with an investment that it purchases with original issue discount, Priority may be required to liquidate assets in order to pay a portion of the incentive fee. The Priority Adviser, however, is not required to reimburse Priority for the portion of any incentive fees attributable to non-cash income in the event of a subsequent default on such investment and non-payment of such non-cash income.

Because any original issue discount or other amounts accrued will be included in Priority's investment company taxable income for the year of the accrual, Priority may be required to make a distribution to its stockholders in order to satisfy the annual distribution requirement, even though it will not have received any corresponding cash amount. As a result, Priority may have difficulty meeting the annual distribution requirement necessary to qualify for and maintain RIC tax treatment under the Code. Priority may have to sell some of its investments at times and/or at prices that it would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If Priority is not able to obtain cash from other sources, it may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. If Priority fails to qualify for or maintain RIC tax treatment for any reason and becomes subject to corporate income tax, the resulting corporate taxes could substantially reduce its net assets, the amount of income available for distribution and the amount of its distributions. For additional discussion regarding the tax implications of a RIC, see “Certain Material U.S. Federal Income Tax Considerations—Taxation as a Regulated Investment Company.”

If Priority does not qualify as a   “publicly offered regulated investment company,”   as defined in the Code, you will be taxed as though you received a distribution of some of its expenses.

A “publicly offered regulated investment company” is a RIC whose shares are either (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market or (iii) held by at least 500 persons at all times during the taxable year. If Priority is not a publicly offered RIC for any period, a non-corporate stockholder’s allocable portion of its affected expenses, including its management fees, will be treated as an additional distribution to the stockholder and will not be deductible for non-corporate taxpayers for the 2018 through 2025 tax years. While Priority has qualified for tax-treatment as a RIC since its first tax year, there can be no assurance that Priority will continue to qualify in any of its taxable years.

Priority may in the future choose to pay dividends in part in its own stock, in which case you may be required to pay tax in excess of the cash you receive.

Priority may distribute taxable dividends that are payable in cash or shares of its common stock at the election of each stockholder. In accordance with guidance issued by the Internal Revenue Service, a publicly traded RIC should generally be eligible to treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder is permitted to elect to receive his or her distribution in either cash or stock of the RIC (even where there is a limitation on the percentage of the distribution payable in cash, provided that the limitation is at least 20%), subject to the satisfaction of certain guidelines. If too many stockholders elect to receive cash, each stockholder electing to receive cash generally must receive a portion of his or her distribution in cash (with the balance of the distribution paid in stock). If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the distribution paid in stock generally will be a taxable distribution in an amount equal to the amount of cash that could have been received instead of stock. If Priority decides to make any such distributions that are payable in part in its stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, its stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of its current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the price such stockholder receives in the sale. Furthermore, with respect to non-U.S. stockholders, Priority may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

Risks Related to Stira Alcentra

The following risk factors represent risks associated with Stira Alcentra and an investment in Stira Alcentra Shares. If the Merger is completed in the manner contemplated by the Merger Agreement, Stira Alcentra will be merged with and into Priority, with Priority as the surviving entity. Following the completion of the Merger, Stira Alcentra shareholders will own Priority shares and be subject to the risks and uncertainties related to Priority and the Priority shares described elsewhere in this joint proxy statement/prospectus. The risks related to Stira Alcentra and an investment in Stira Alcentra Shares, therefore, are presented solely as a comparison to the risks related to Priority and an investment in Priority shares .

Risks Related to Stira Alcentra’s Investment Strategies and Fund Investments

Middle-Market Companies Risk   

Investing in middle market companies involves a number of significant risks, including:

Stira Alcentra’s portfolio consists primarily of credit instruments of middle-market companies. Stira Alcentra considers lower middle-market and middle-market companies to be companies having annual earnings, before interest, taxes, depreciation and amortization, or EBITDA, of between $5 million and $50 million and/or revenues of between $25 million and $750 million, which are referred to herein as "Middle-Market Companies." Investing in Middle-Market Companies involves a number of significant risks. Typically, the debt in which Stira Alcentra invests is not initially rated by any rating agency; however, if such investments were rated, they would likely be below investment grade (commonly referred to as “high-yield” or “junk” securities). Compared to larger publicly owned companies, Middle-Market Companies may be in a weaker financial position and experience wider variations in their operating results, which may make them more vulnerable to economic downturns and other business disruptions. These companies generally need more capital to compete; however, their access to capital is limited and their cost of capital is often higher than that of their competitors. Stira Alcentra’s portfolio companies face intense competition from larger companies with greater financial, technical and marketing resources and their success will depend on the managerial talents and efforts of an individual or a small group of persons. Therefore, the loss of any of their key employees could affect a portfolio company’s ability to compete effectively and harm its financial condition. Further, some of these companies may conduct business in regulated industries that are susceptible to regulatory changes. These factors could impair the cash flow of Stira Alcentra’s portfolio companies and result in other events, such as bankruptcy. These events could limit a portfolio company’s ability to repay its obligations to Stira Alcentra, which may have an adverse effect on the return on, or the recovery of, its investment in these businesses. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the value of the loan’s collateral and the fair market value of the loan, which may materially impact Stira Alcentra’s operations.

Some of these companies cannot obtain financing from public capital markets or from traditional credit sources, such as commercial banks. Accordingly, loans made to these types of companies pose a higher default risk than loans made to companies that have access to traditional credit sources.

Risk of Investing in Leveraged Portfolio Companies   

Investment in leveraged companies involves a number of significant risks. Leveraged companies in which Stira Alcentra may invest may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that Stira Alcentra holds. Such developments may be accompanied by deterioration in the value of any collateral and a reduction in the likelihood of Stira Alcentra realizing any guarantees that it may have obtained in connection with its investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position.

Liquidity Risk   

Stira Alcentra may invest in securities that, at the time of investment, are illiquid, as determined by using the SEC’s standard applicable to registered investment companies ( i.e. , securities that cannot be disposed of by Stira Alcentra within seven days in the ordinary course of business at approximately the amount at which Stira Alcentra has valued

the securities). Stira Alcentra may also invest in restricted securities. Investments in restricted securities could have the effect of increasing the amount of Stira Alcentra’s assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these securities.

Illiquid and restricted securities may be difficult to dispose of at a fair price at the times when Stira Alcentra believes it is desirable to do so. The market price of illiquid and restricted securities generally is more volatile than that of more liquid securities, which may adversely affect the price that Stira Alcentra pays for or recovers upon the sale of such securities. Illiquid and restricted securities may also be more difficult to value, especially in challenging markets. The judgment of the Stira Adviser and Stira Alcentra’s investment sub-adviser, Alcentra NY, LLC, or the Stira Sub-Adviser, may play a greater role in the valuation process. Investment of Stira Alcentra’s assets in illiquid and restricted securities may restrict Stira Alcentra’s ability to take advantage of market opportunities. In order to dispose of an unregistered security, Stira Alcentra, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered, thereby enabling Stira Alcentra to sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and acquirer of the securities. In either case, Stira Alcentra would bear market risks during that period.

To the extent that the traditional dealer counterparties that engage in debt trading do not maintain inventories of corporate bonds (which provide an important indication of their ability to “make markets”) that keep pace with the growth of the bond markets over time, relatively low levels of dealer inventories could lead to decreased liquidity and increased volatility in the debt markets. Additionally, market participants other than Stira Alcentra may attempt to sell debt holdings at the same time as Stira Alcentra, which could cause downward pricing pressure and contribute to illiquidity.

Valuation Risk   

Stira Alcentra is required to carry its investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by the Stira Alcentra Board. As part of the valuation process, the Stira Alcentra Board may take into account the following types of factors, if relevant, in determining the fair value of Stira Alcentra’s investments:

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, Stira Alcentra will use the pricing indicated by the external event to corroborate its valuation. Stira Alcentra records decreases in the market values or fair values of its investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in Stira Alcentra’s portfolio. The effect of all of these factors on Stira Alcentra’s portfolio may reduce its net asset value by increasing net unrealized depreciation in its portfolio. Depending on market conditions, Stira Alcentra could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on its business, financial condition, results of operations and cash flows of Stira Alcentra.

Non-Diversification Risk   

Stira Alcentra is classified as “non-diversified” under the 1940 Act. As a result, it can invest a greater portion of its assets in obligations of a single issuer than a “diversified” fund. Stira Alcentra may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. Stira Alcentra intends to qualify for the special tax treatment available to RICs under Subchapter M of the Code, and thus intends to satisfy the diversification requirements of Subchapter M, including its less stringent diversification requirements that apply to the percentage of Stira Alcentra’s total assets that are represented by cash and cash items, including receivables, U.S. government securities, the securities of other RICs and certain other securities.

Lack of Funds to Make Additional Investments Risk   

Stira Alcentra may not have the funds or ability to make additional investments in its portfolio companies. After Stira Alcentra’s initial investment in a portfolio company, it 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 Stira Alcentra 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 Stira Alcentra’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 Stira Alcentra to increase its participation in a successful operation or may reduce the expected return on the investment.

Economic Recession or Downturn Risk   

Many of Stira Alcentra’s portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay Stira Alcentra’s debt investments during these periods. Therefore, Stira Alcentra’s non-performing assets are likely to increase, and the value of its portfolio is likely to decrease, during these periods. Adverse economic conditions may also decrease the value of any collateral securing Stira Alcentra’s secured loans. A prolonged recession may further decrease the value of such collateral and result in losses of value in Stira Alcentra’s portfolio and a decrease in Stira Alcentra’s revenues, net income and NAV. Unfavorable economic conditions also could increase Stira Alcentra’s funding costs, limit Stira Alcentra’s access to the capital markets or result in a decision by lenders not to extend credit to it on terms it deems acceptable. These events could prevent Stira Alcentra from increasing investments and harm Stira Alcentra’s operating results.

Covenant Breach Risk   

A borrower may fail to satisfy financial or operating covenants imposed by Stira Alcentra or other lenders, which could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize such company’s ability to meet its obligations under the debt or equity securities that Stira Alcentra holds. Stira Alcentra may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting company, which may materially impact Stira Alcentra’s operations.

Prepayment and Maturity Extension Risk   

Prepayment risk occurs when a debt investment held by Stira Alcentra can be repaid in whole or in part prior to its maturity. The amount of prepayable obligations in which Stira Alcentra invests from time to time may be affected by general business conditions, market interest rates, borrowers’ financial conditions and competitive conditions among lenders. In a period of declining interest rates, borrowers may prepay investments more quickly than anticipated, reducing the yield to maturity and the average life of the relevant investment. Moreover, when Stira Alcentra reinvests the proceeds of a prepayment in these circumstances, it will likely receive a rate of interest that is lower than the rate of interest on the security that was prepaid. To the extent that Stira Alcentra purchases the relevant investment at a premium, prepayments may result in a loss to the extent of the premium paid. If Stira Alcentra buys such investments at a discount, both scheduled payments and unscheduled prepayments will increase current and total returns and unscheduled prepayments will also accelerate the recognition of income, which may be taxable as ordinary income to investors. In a period of rising interest rates, prepayments of investments may occur at a slower than expected rate, creating maturity extension risk. This particular risk may effectively change an investment that was considered short- or intermediate-term at the time of purchase into a longer-term investment. Since the value of longer-term investments generally fluctuates more widely in response to changes in interest rates than shorter-term investments, maturity extension risk could increase the volatility of Stira Alcentra’s performance. When interest rates decline, the value of an investment with prepayment features may not increase as much as that of other fixed-

income securities, and, as noted above, changes in market rates of interest may accelerate or delay prepayments and thus affect maturities.

No Control Over Portfolio Companies   

Stira Alcentra does not expect to control most of its portfolio companies, although its debt agreements with such portfolio companies may contain certain restrictive covenants. As a result, Stira Alcentra is subject to the risk that a portfolio company in which it invests may make business decisions with which it disagrees and the management of such company, as representatives of the holders of its common equity, may take risks or otherwise act in ways that do not serve Stira Alcentra’s interests as a debt investor. A portfolio company may make decisions that could decrease the value of Stira Alcentra’s portfolio holdings. Stira Alcentra may not be able to dispose of its interests in its portfolio companies as readily as it would like or at an appropriate valuation, if it invests in non-traded companies. In addition, where Stira Alcentra is entitled to occupy a seat on the board of a portfolio company, such involvement may prevent Stira Alcentra from freely disposing of its debt investments and may subject Stira Alcentra to additional liability or result in re-characterization of its debt investments as equity.

Contingent Liabilities  

From time to time Stira Alcentra may incur contingent liabilities in connection with an investment. For example, Stira Alcentra may purchase a revolving credit facility from a lender that has not yet been fully drawn. If the borrower subsequently draws down on the facility, Stira Alcentra would be obligated to fund the amounts due. Stira Alcentra may also enter into agreements pursuant to which it agrees to assume responsibility for default risk presented by a third party, and may, on the other hand, enter into agreements through which third parties offer default protection to Stira Alcentra. See also “— Credit Risk.”

Debt Instruments Risk   

Stira Alcentra invests in loans and other types of debt instruments and securities. Such investments may be secured, partially secured or unsecured and may be rated or unrated, and whether or not rated, may have speculative characteristics. Changes in interest rates generally will cause the value of fixed rate debt investments held by Stira Alcentra to vary inversely to such changes. Debt investments with longer terms to maturity or duration are subject to greater volatility than investments in shorter-term obligations. The issuer of a debt security or instrument may not be able or willing to pay interest or to repay principal when due in accordance with the terms of the associated agreement. An obligor’s willingness to pay interest or to repay principal due in a timely manner may be affected by, among other factors, its cash flow. Commercial bank lenders may be able to contest payments to the holders of other debt obligations of the same obligor in the event of default under their commercial bank loan agreements.

Stira Alcentra may invest in loans and other similar forms of debt that differ from traditional debt securities in that debt securities are typically part of a large issue of securities and loans and similar debt instruments may not be securities, but may represent a specific commercial loan to a borrower. Loan participations typically represent direct participation, together with other parties, in a loan to a corporate borrower, and generally are offered by banks or other financial institutions or lending syndicates. Stira Alcentra may participate in such syndications, or can buy part of a loan, becoming a part lender. When purchasing indebtedness and loan participations, Stira Alcentra assumes the credit risk associated with the borrower and may assume the credit risk associated with an interposed bank or other financial intermediary. Members of a syndicate in which Stira Alcentra participates may have different and sometimes superior rights to those of Stira Alcentra. Where Stira Alcentra invests as a sub-participant in syndicated debt, it may be subject to certain risks as a result of having no direct contractual relationship with the underlying borrower. As a result, Stira Alcentra will generally be dependent on the lender to enforce its rights and obligations under the loan arrangements in the event of a default by the underlying borrower and will generally not have any direct rights against the underlying borrower, any direct rights in the collateral, if any, securing such borrowing, or any right to deal directly with such borrower. The lender will, in general, retain the right to determine whether remedies provided for in the underlying loan arrangement will be exercised, or waived. In the event that Stira Alcentra enters into such an investment, there can be no assurance that its ability to realize upon a participation will not be interrupted or impaired in the event of the bankruptcy or insolvency of any of the borrower or the lender or that in such circumstances Stira Alcentra will benefit from any set-off between the lender and the borrower. Claims by third parties arising from these and other risks may be borne by Stira Alcentra.

Floating Rate and Fixed Rate Debt Investments   

Stira Alcentra pursues its investment objective by providing customized financing solutions to Middle-Market Companies in the form of floating and fixed rate senior secured loans, second lien loans and subordinated debt. Stira

Alcentra is, therefore, subject to risks associated with fluctuations in interest rates. In the event of a rising interest rate environment, payments under floating rate debt instruments would rise and there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased interest costs and may otherwise be unable to repay their loans. Investments in floating rate debt instruments may also decline in value in response to rising interest rates if the interest rates of such investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, fixed rate debt instruments may decline in value because the fixed rates of interest paid thereunder may be below market interest rates.

Senior Loan Risk   

In most circumstances, senior loans are fully collateralized by assets of the borrower. Such instruments vary from other types of debt in that they generally hold a senior position in the capital structure of a borrower. Thus, they are generally repaid before unsecured bank loans, corporate bonds, subordinated debt, trade creditors, and preferred or common shareholders. In instances where borrowers are not required to hedge their interest rate exposure under the terms of the applicable loan documents, substantial increases in interest rates may cause an increase in loan defaults as borrowers may lack resources to meet higher debt service requirements. The value of Stira Alcentra’s assets may also be affected by other uncertainties such as economic developments affecting the market for senior secured term loans or affecting borrowers generally.

Senior loans usually include restrictive covenants, which must be maintained by the borrower. Stira Alcentra may have an obligation with respect to certain senior secured term loan investments to make additional loans upon demand by the borrower. Such instruments, unlike certain bonds, usually do not have call protection. This means that such interests, while having a stated term, may be prepaid, often without penalty. The rate of such prepayments may be affected by, among other things, general business and economic conditions, as well as the financial status of the borrower. Prepayment would cause the actual duration of a senior loan to be shorter than its stated maturity, which could have an adverse impact on the expected return on the investment.

Stira Alcentra may acquire senior loans through assignments. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the purchaser’s rights can be more restricted than those of the assigning institution, and Stira Alcentra may not be able to unilaterally enforce all rights and remedies under the senior loan and with regard to any associated collateral.

Senior loans typically will be secured by pledges of collateral from the borrower in the form of tangible and intangible assets. In some instances, Stira Alcentra may invest in senior loans that are secured only by stock of the borrower or its subsidiaries or affiliates. The value of the collateral may decline below the principal amount of the senior secured term loans subsequent to an investment by Stira Alcentra, which may materially impact Stira Alcentra’s operations.

Mezzanine Investments Risk   

Stira Alcentra 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, without limitation: (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. The occurrence of any of these risks may materially impact Stira Alcentra’s operations.

Subordinated and Unsecured or Partially Secured Loan Risk   

Stira Alcentra may invest in unsecured loans and secured subordinated loans, including second and lower lien loans. Second lien loans are generally second in line in terms of repayment priority. A second lien loan may have a claim

on the same collateral pool as the first lien or it may be secured by a separate set of assets. Second lien loans generally give investors priority over general unsecured creditors in the event of an asset sale. The priority of the collateral claims of third or lower lien loans ranks below holders of second lien loans and so on. Such junior loans are subject to the same general risks inherent to any loan investment, including credit risk, market risk, liquidity risk and interest rate risk. Due to their lower place in the borrower’s capital structure and possible unsecured or partially secured status, such loans involve a higher degree of overall risk than senior loans of the same borrower.

Credit Risk   

Stira Alcentra’s debt investments are subject to the risk of non-payment of scheduled interest or principal by the borrowers with respect to such investments. Such non-payment would likely result in a reduction of income to Stira Alcentra and a reduction in the value of the debt investments experiencing non-payment.

Although Stira Alcentra may invest in investments that the Stira Sub-Adviser believes are secured by specific collateral, the value of which may exceed the principal amount of Stira Alcentra’s investments at the time of initial investment, there can be no assurance that the liquidation of any such collateral would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal payments with respect to such investment, or that such collateral could be readily liquidated. In addition, in the event of bankruptcy of a borrower, Stira Alcentra could experience delays or limitations with respect to its ability to realize the benefits of the collateral securing an investment. Under certain circumstances, collateral securing an investment may be released without the consent of Stira Alcentra. Moreover, Stira Alcentra’s investments in secured debt may be unperfected for a variety of reasons, including the failure to make required filings by lenders, trustees or other responsible parties and, as a result, Stira Alcentra may not have priority over other creditors as anticipated. As discussed above under “— Subordinated and Unsecured or Partially Secured Loan Risk,” Stira Alcentra’s right to payment and its security interest, if any, may be subordinated to the payment rights and security interests of more senior creditors. Certain of these investments may have an interest-only payment schedule, with the principal amount remaining outstanding and at risk until the maturity of the investment. In this case, a portfolio company’s ability to repay the principal of an investment may be dependent upon a liquidity event or the long-term success of the company, the occurrence of which is uncertain.

Companies in which Stira Alcentra invests could deteriorate as a result of, among other factors, an adverse development in their business, a change in the competitive environment or an economic downturn. As a result, companies that Stira Alcentra expected to be stable may operate, or expect to operate, at a loss or have significant variations in operating results, may require substantial additional capital to support their operations or maintain their competitive position, or may otherwise have a weak financial condition or be experiencing financial distress.

Non-Performing and Distressed Nature of Debt  

 It is anticipated that certain debt instruments purchased by Stira Alcentra will be non-performing and possibly in default. Furthermore, the borrower or relevant guarantor may also be in bankruptcy or liquidation. Stira Alcentra may also invest in debt instruments that are performing but are currently distressed and have a high risk of becoming non-performing. There can be no assurance as to the amount and timing of payments, if any, with respect to any such debt instruments.

Stira Alcentra may invest in debtor-in-possession financings. In such investments there is a risk that the underlying borrower may not successfully come out of Chapter 11 proceedings and may be forced to liquidate its assets in which case Stira Alcentra’s only recourse will be against the security provided by the borrower (which may not be sufficient to cover related losses).

High-Yield Instruments Risk   

Stira Alcentra may invest in debt securities and instruments that are classified as “higher-yielding” or “junk” (and, therefore, higher-risk) investments. In most cases, such investments will be rated below investment grade by NRSROs or will be unrated and face ongoing uncertainties and exposure to adverse business, financial or economic conditions and the issuer’s failure to make timely interest and principal payments. Such securities and instruments are generally not exchange-traded and, as a result, trade in the over-the-counter, or OTC, marketplace, which is less transparent than the exchange-traded marketplace. In addition, Stira Alcentra may invest in bonds of issuers that do not have publicly-traded equity securities, making it more difficult to hedge the risks associated with such investments. The market for high-yield securities periodically experiences periods of significant volatility and reduced liquidity, which may make it difficult for Stira Alcentra to sell such securities or could result in Stira Alcentra receiving lower prices for such securities than those used in calculating Stira Alcentra’s NAV. The market

values of certain of these lower-rated and unrated debt investments tend to reflect individual corporate developments to a greater extent and tend to be more sensitive to economic conditions than those of higher-rated investments, which react primarily to fluctuations in the general level of interest rates. Companies that issue such securities are often highly leveraged and may not have available to them more traditional methods of financing. Major economic recessions globally may disrupt severely the market for such securities, and may have an adverse impact on the value of such securities and the ability of the issuers of such securities to repay principal and interest thereon, thereby increasing the incidence of default of such securities. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the value and liquidity of these high-yield debt securities.

Equity Securities Risk  

Stira Alcentra may invest in equity securities from time to time. The value of equity securities, including common stocks, preferred stocks and convertible stocks, will fluctuate in response to factors affecting the particular company, as well as broader market and economic conditions. Moreover, in the event of a company’s bankruptcy, claims of certain creditors, including bondholders, will have priority over claims of holders of common stock and are likely to have varying types of priority over holders of preferred and convertible stock.

Non-U.S. Securities Risk  

Investments in certain non-U.S. securities involve factors not typically associated with investing in the United States or other developed countries, including risks relating to: (i) differences between U.S. and non-U.S. securities markets, including potential price volatility in and relative illiquidity of some non-U.S. securities markets; the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements; and less government supervision and regulation; (ii) other differences in law and regulation, including fewer investor protections, less stringent fiduciary duties, less developed bankruptcy laws and difficulty in enforcing contractual obligations; (iii) certain economic and political risks, including potential economic, political or social instability; exchange control regulations; restrictions on foreign investment and repatriation of capital, possibly requiring government approval; expropriation or confiscatory taxation; other government restrictions by the United States or other governments; higher rates of inflation; higher transaction costs; and reliance on a more limited number of commodity inputs, service providers, and/or distribution mechanisms; and (iv) the possible imposition of local taxes on income and gains recognized with respect to securities and assets. Certain non-U.S. markets may rely heavily on particular industries or non-U.S. capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, organizations, entities and/or individuals, changes in international trading patterns, trade barriers, and other protectionist or retaliatory measures. International trade barriers or economic sanctions against non-U.S. countries, organizations, entities and/or individuals may adversely affect Stira Alcentra’s non-U.S. holdings or exposures. Certain non-U.S. investments may become less liquid in response to social, political or market developments or adverse investor perceptions, or become illiquid after purchase by Stira Alcentra, particularly during periods of market turmoil. Certain non-U.S. investments may become illiquid when, for instance, there are few, if any, interested buyers and sellers or when dealers are unwilling to make a market for certain securities. When Stira Alcentra holds illiquid investments, its portfolio may be harder to value, especially in changing markets. Because non-U.S. securities may trade on days when Stira Alcentra Shares are not priced, Stira Alcentra’s NAV may change at times when Stira Alcentra Shares cannot be sold.

In addition, the tax laws of some foreign jurisdictions in which Stira Alcentra may invest are unclear and interpretations of such laws can change over time. As a result, in order to comply with guidance related to the accounting and disclosure of uncertain tax positions under GAAP, Stira Alcentra may be required to accrue for book purposes certain foreign taxes in respect of its foreign securities or other foreign investments that it may or may not ultimately pay. Such tax accruals will reduce Stira Alcentra’s NAV at the time accrued, even though, in some cases, Stira Alcentra ultimately will not pay the related tax liabilities. Conversely, Stira Alcentra’s NAV will be increased by any tax accruals that are ultimately reversed.

Dividends   

Dividends relating to equity securities may not be fixed, but may be declared at the discretion of a portfolio company’s board of directors. There is no guarantee that a company in which Stira Alcentra invests will declare dividends in the future or that, if declared, the dividends will remain at current levels or increase over time.

Collateralized Debt Obligations  

Stira Alcentra may invest in CDOs, which include CBOs, CLOs and other securitized products. CDOs are types of asset-backed securities. The risks of an investment in a CDO depend largely on the type of collateral securities and the class of the CDO in which Stira Alcentra invests. Normally, CDOs, CBOs, CLOs and other securitized products are privately offered and sold, and thus are not registered under the securities laws. As a result, investments in CDOs may be characterized by Stira Alcentra as illiquid securities. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for transactions under Rule 144A of the Securities Act. In addition to the normal risks associated with fixed income securities and asset-backed securities generally discussed elsewhere in this joint proxy statement/prospectus, CDOs carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the risk that the collateral may default or decline in value or be downgraded, if rated by a NRSRO; (iii) Stira Alcentra is likely to invest in tranches of CDOs that are subordinate to other tranches; (iv) the structure and complexity of the transaction and the legal documents could lead to disputes among investors regarding the characterization of proceeds; (v) the investment return achieved by Stira Alcentra could be significantly different than those predicted by financial models; (vi) the lack of a readily available secondary market for CDOs; (vii) risk of forced “fire sale” liquidation due to technical defaults such as coverage test failures; and (viii) the CDO’s manager may perform poorly.

Structured Products Risk  

Stira Alcentra may invest in structured products, consisting of CLOs and credit-linked notes. CLOs and structured products are generally backed by an asset or a pool of assets (often senior secured loans and other credit-related assets in the case of a CLO) that serve as collateral. Holders of structured products bear the risks, including credit risk, of the underlying investments, index or reference obligation and are subject to prepayment and counterparty risks.

In some instances, such as in the case of most CLOs, structured products are issued in multiple tranches, offering investors various maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their degree of risk. If there are defaults or the relevant collateral otherwise underperforms, scheduled payments to senior tranches of such securities take precedence over those of mezzanine tranches and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches.

Stira Alcentra may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured products generally pay their share of the structured product’s administrative and other expenses. Although it is difficult to predict whether the prices of indices and securities underlying structured products will rise or fall, these prices (and, therefore, the prices of structured products) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. If the issuer of a structured product uses shorter-term financing to purchase longer-term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely affect the value of the structured products owned by Stira Alcentra.

Certain structured products may be thinly traded or have a limited trading market. CLOs and credit-linked notes are typically privately offered and sold. Structured products, and particularly subordinated interests thereof, are less liquid than many other types of securities and may be more volatile than the underlying assets. As a result, investments in CLOs and credit-linked notes may be subject to liquidity risk and may be characterized by Stira Alcentra as illiquid securities. In addition to the general risks associated with debt securities discussed herein, CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the fact that investments in CLO equity and junior debt tranches will likely be subordinate to other senior classes of CLO debt; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

In addition, changes in the collateral held by a CLO may cause payments on the instruments Stira Alcentra holds to be reduced, either temporarily or permanently. Further, the performance of a CLO or other structured products will be affected by a variety of factors, including the security’s priority in the capital structure of the issuer thereof, the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets. There are also the risks that the trustee of a CLO does not properly carry out its duties to the CLO, potentially resulting in loss to the CLO. In addition, the complex structure of the security may produce unexpected investment results, especially during times of market stress or volatility.

Risk of Leveraged Loan Market Price Decline   

Prior to the onset of the financial crisis, CLOs holding corporate loans, hedge funds and other highly leveraged investment vehicles comprised a substantial portion of the market for purchasing and holding first and second lien secured loans. As the secondary market pricing of the loans underlying these portfolios deteriorated during the fourth quarter of 2008, it is Stira Alcentra’s understanding that many investors, as a result of their generally high degrees of leverage, were forced to raise cash by selling their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales and further price declines, with widespread redemption requests and other constraints resulting from the credit crisis generating further selling pressure.

Conditions in the leveraged loan market may experience similar disruption or deterioration, which may cause pricing levels to similarly decline or be volatile. As a result, Stira Alcentra may suffer unrealized depreciation and could incur realized losses in connection with the sale of Stira Alcentra’s syndicated loans, which could have a material adverse impact on Stira Alcentra’s business, financial condition and results of operations.

U.S. Government Debt Securities Risk   

U.S. government debt securities generally do not involve the credit risks associated with investments in other types of debt securities, although, as a result, the yields available from U.S. government debt securities are generally lower than the yields available from other securities. Like other debt securities, however, the values of U.S. government debt securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in Stira Alcentra’s NAV. Since the magnitude of these fluctuations will generally be greater at times when Stira Alcentra’s average maturity is longer, under certain market conditions Stira Alcentra may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. In addition, economic events within the United States may negatively impact the value of U.S. government debt securities. See “— Risks Related to Stira Alcentra’s Investment Strategies and Fund Investments — U.S. Credit Rating and European Economic Crisis Risk.”

Lender Liability Risk   

A number of U.S. judicial decisions have upheld judgments obtained by borrowers against lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has violated a duty, whether implied or contractual, of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the borrower or has assumed an excessive degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or investors. Because of the nature of its investments, Stira Alcentra may be subject to allegations of lender liability.

In addition, under common law principles that in some cases form the basis for lender liability claims, if a lender or bondholder (i) intentionally takes an action that results in the undercapitalization of a borrower to the detriment of other creditors of such borrower, (ii) engages in other inequitable conduct to the detriment of such other creditors, (iii) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (iv) uses its influence as a shareholder to dominate or control a borrower to the detriment of other creditors of such borrower, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors, a remedy called “equitable subordination.”

Because affiliates of, or persons related to, the Stira Adviser or the Stira Sub-Adviser may hold equity or other interests in portfolio companies of Stira Alcentra, Stira Alcentra could be exposed to claims for equitable subordination or lender liability or both based on such equity or other holdings.

Reinvestment Risk   

Stira Alcentra may reinvest the cash flows received from a security. There is a risk that the interest rate at which interim cash flows can be reinvested will fall. Reinvestment risk is greater for longer holding periods and for securities with large, early cash flows such as high-coupon bonds. Reinvestment risk also applies generally to the reinvestment of the proceeds Stira Alcentra receives upon the maturity or sale of an investment in a portfolio company.

Fraud Risk  

A major concern when investing in loans and other debt securities is the possibility of a material misrepresentation or omission on the part of the borrower. Such inaccuracy or incompleteness may adversely affect the valuation of the collateral underlying the loans or may adversely affect the ability of Stira Alcentra to perfect or effectuate a lien on the collateral securing the loan. Stira Alcentra relies upon the accuracy and completeness of representations made by borrowers to the extent reasonable when it makes its investments, but cannot guarantee such accuracy or completeness. Under certain circumstances, in the event of bankruptcy or insolvency proceedings of a borrower, a court, pursuant to fraudulent conveyance or other similar laws, could subordinate loans and other obligations to presently existing or future indebtedness of the borrower or take other action detrimental to lenders, including Stira Alcentra. For example, payments to Stira Alcentra, in satisfaction of the borrower’s indebtedness, may be reclaimed if any such payment or distribution is later determined by a court to have been a fraudulent conveyance, a fraudulent transfer or a preferential payment.

Payment-in-Kind/Original Issue Discount Risk.   

Stira Alcentra’s investments may include original issue discount, or OID, instruments and contractual PIK interest. To the extent OID or PIK interest constitute a portion of Stira Alcentra’s income, it is exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

Risks Related to Stira Alcentra’s Investment Program

Market and Economic Risks.   

Stira Alcentra and its portfolio companies may be materially affected by market, economic and political conditions globally and in the jurisdictions and sectors in which they invest or operate, including factors affecting interest rates, the availability of credit, currency exchange rates and trade barriers. These factors are outside Stira Alcentra’s control and could adversely affect the liquidity and value of its investments, and may reduce the ability of Stira Alcentra to make attractive new investments.

In particular, economic and financial market conditions began to significantly deteriorate in 2008. Global financial markets experienced considerable declines in the valuations of debt and equity securities, an acute contraction in the availability of credit and the failure of a number of leading financial institutions. As a result, certain government bodies and central banks worldwide, including the U.S. Treasury Department and the U.S. Federal Reserve, undertook unprecedented intervention programs, the long-term effects of which remain uncertain. The U.S. economy has experienced and continues to experience constrained lending. Stira Alcentra’s investment strategy and the availability of opportunities relies in part on the continuation of certain trends and conditions observed in the market for debt securities and the larger financial markets and, in some cases, on the improvement of such conditions. Although certain financial markets have shown some recent signs of improvement, to the extent economic conditions experienced over the last several years continue, they may adversely impact the investments of

Stira Alcentra. Trends and historical events do not imply, forecast or predict future events and past performance is not necessarily indicative of future results. There can be no assurance that the assumptions made or the beliefs and expectations currently held by the Stira Adviser, the Stira Sub-Adviser or their affiliates will prove correct, and actual events and circumstances may vary significantly.

Stira Alcentra may be subject to risk arising from a default by one of several large institutions that are dependent on one another to meet their liquidity or operational needs, so that a default by one institution may cause a series of defaults by the other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which Stira Alcentra interacts on a daily basis.

Foreign Currency Risk   

Investments made by Stira Alcentra, and the income received by Stira Alcentra with respect to such investments, may be denominated in various non-U.S. currencies. However, the books of Stira Alcentra are maintained in U.S. dollars. Accordingly, changes in currency values may adversely affect the U.S. dollar value of portfolio investments, interest and other revenue streams received by Stira Alcentra, gains and losses realized on the sale of portfolio investments and the amount of distributions, if any, made by Stira Alcentra. In addition, Stira Alcentra may incur substantial costs in converting investment proceeds from one currency to another. Stira Alcentra may enter into derivative transactions designed to reduce such currency risks. Furthermore, the portfolio companies in which Stira Alcentra invests may be subject to risks relating to changes in currency values. If a portfolio company suffers adverse consequences as a result of such changes, Stira Alcentra may also be adversely affected as a result.

Currency Hedging Risk   

The Stira Adviser and the Stira Sub-Adviser may seek to hedge all or a portion of Stira Alcentra’s foreign currency risk. However, the Stira Adviser and the Stira Sub-Adviser cannot guarantee that it will be practical to hedge these risks in certain markets or conditions or that any efforts to do so will be successful.

Counterparty Risk   

Stira Alcentra’s investments may be exposed to the credit risk of the counterparties with which, or the dealers, brokers and exchanges through which, Stira Alcentra deals, whether in exchange-traded or OTC transactions. The counterparty risk for cleared derivatives is generally lower than for uncleared derivatives, but cleared contracts are not risk-free. Stira Alcentra may be subject to the risk of loss of its assets on deposit or being settled or cleared with a broker in the event of the broker’s bankruptcy, the bankruptcy of any clearing broker through which the broker executes and clears transactions on behalf of Stira Alcentra, the bankruptcy of an exchange clearing house or the bankruptcy of any other counterparty. In the case of any such bankruptcy, it is expected that all securities and other assets deposited with such broker or dealer will be clearly identified as being assets of Stira Alcentra, and Stira Alcentra should not be exposed to a credit risk with regard to such parties. However, it may not always be possible to achieve this and Stira Alcentra might recover, even in respect of property specifically traceable to Stira Alcentra, only a  pro rata  share of all property available for distribution to all of the counterparty’s customers and counterparties. Such an amount may be less than the amounts owed to Stira Alcentra. Such events would have an adverse effect on Stira Alcentra’s NAV.

Stira Alcentra’s investments may be structured through the use of OTC options and swaps or other indirect investment transactions. Such transactions may be entered into with a small number of counterparties resulting in a concentration of counterparty risk. The exercise of counterparty rights under such arrangements, including forced sales of securities, may have a significant adverse impact on Stira Alcentra and its NAV.

U.S. Credit Rating and European Economic Crisis Risk.   

In August 2011, S&P lowered its long-term sovereign credit rating on the United States from “AAA” to “AA+,” which was re-affirmed by Standard & Poor’s, or S&P, in June 2015. In January 2012, S&P lowered its long-term sovereign credit ratings for France, Italy, Spain and six other European countries, which negatively impacted global markets and economic conditions. During subsequent periods, S&P further lowered its long-term sovereign credit rating for Spain. S&P subsequently raised its long-term sovereign credit rating on Spain to “BBB,” but its current credit rating still signifies significant ongoing risk. Recent U.S. budget deficit concerns, together with signs of deteriorating sovereign debt conditions in Europe, have increased the possibility of additional credit-rating downgrades and economic slowdowns. The impact of any further downgrade to the U.S. government’s sovereign credit rating, or its perceived creditworthiness, and the impact of the current crisis in Europe with respect to the

ability of certain European Union countries to continue to service their sovereign debt obligations is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. In addition, the economic downturn and the significant government interventions into the financial markets and fiscal stimulus spending over the last several years have contributed to significantly increased U.S. budget deficits. There can be no assurance that future fiscal or monetary measures to aid economic recovery will be effective. These developments and reactions of the credit markets to these developments could cause interest rates and borrowing costs to rise, which may negatively impact Stira Alcentra’s ability to obtain debt financing on favorable terms. In addition, any adverse economic conditions resulting from any further downgrade of the U.S. government’s sovereign credit rating or the economic crisis in Europe could have a material adverse effect on Stira Alcentra’s business, financial condition and results of operations.

Eurozone Risk  

Stira Alcentra intends to invest from time to time in European companies and companies 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 or the Eurozone create risks that could materially and adversely affect Stira Alcentra’s investments.

Sovereign debt defaults and European Union and/or Eurozone exits could have material adverse effects on Stira Alcentra’s investments in European companies, 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 in order to limit or contain these issues may themselves lead to economic contraction and resulting adverse effects for Stira Alcentra. Legal uncertainty about funding of Euro denominated obligations following any breakup or exits from the Eurozone, particularly in the case of investments in companies in affected countries, could have material adverse effects on Stira Alcentra.

Brexit Risk   

On June 23, 2016, voters in the United Kingdom referendum, or the Referendum, on the question of whether to remain or leave the European Union voted in a majority in favor of leaving the European Union, which is referred to herein as "Brexit." This historic event is widely expected to have consequences that are both profound and uncertain for the economic and political future of the United Kingdom and the European Union, and those consequences include significant legal and business uncertainties pertaining to Stira Alcentra’s investments. Due to the very recent occurrence of Brexit, the full scope and nature of the consequences are not at this time known and are unlikely to be known for a significant period of time. However, Brexit has led to significant uncertainty in the business, legal and political environment. Risks associated with the outcome of the Referendum include short and long term market volatility and currency volatility (including volatility of the value of the British pound sterling relative to the United States dollar and other currencies and volatility in global currency markets generally), macroeconomic risk to the United Kingdom and European economies, impetus for further disintegration of the European Union and related political stresses (including those related to sentiment against cross border capital movements and activities of investors like Stira Alcentra), prejudice to financial services businesses that are conducting business in the European Union and which are based in the United Kingdom, legal uncertainty regarding achievement of compliance with applicable financial and commercial laws and regulations in view of the expected steps to be taken pursuant to or in contemplation of Article 50 of the Treaty on European Union and negotiations undertaken under Article 218 of the Treaty on the Functioning of the European Union, and the unavailability of timely information as to expected legal, tax and other regimes. Should the economic recovery in the United States be adversely impacted by increased volatility in the global financial markets caused by Brexit, loan and asset growth and liquidity conditions at U.S. financial institutions may deteriorate.

Market Developments  

Although the U.S. and foreign markets are not currently experiencing the same levels of disruption as occurred during 2008 and 2009, extreme volatility or market disruption may occur in the future. Instability in the credit markets may make it more difficult for issuers of debt securities to obtain financing or refinancing for their investment or lending activities or operations. In particular, because of volatile conditions in the credit markets, issuers of debt securities may be subject to increased cost for debt, tightening underwriting standards and reduced liquidity for loans they make, securities they purchase and securities they issue.

For example, certain borrowers may, due to macroeconomic conditions, be unable to repay loans or other indebtedness during this period. A borrower’s failure to satisfy financial or operating covenants imposed by lenders could lead to defaults and, potentially, termination of the loans and foreclosure on its assets, to the extent such loans or indebtedness are secured, which could trigger cross-defaults under other agreements and jeopardize the borrower’s ability to meet its obligations under its debt securities. Stira Alcentra may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting borrower. In addition, if one of the borrowers were to commence bankruptcy proceedings, even though Stira Alcentra may have structured its interest as senior debt, depending on the facts and circumstances, including the extent to which Stira Alcentra actually provided managerial assistance to such borrower, a bankruptcy court might recharacterize Stira Alcentra’s debt holding and subordinate all or a portion of its claim to that of other creditors. Adverse economic conditions also may decrease the value of collateral securing some of Stira Alcentra’s loans or other debt instruments and the value of its equity investments.

These developments may increase the volatility of the value of securities owned by Stira Alcentra making it more difficult for Stira Alcentra to accurately value its securities or to sell its securities on a timely basis. These developments, including rising interest rates, could also adversely affect the ability of Stira Alcentra to use leverage for investment purposes and increase the cost of such leverage, which would reduce returns to investors. These developments also may adversely affect the broader economy, which in turn may adversely affect the ability of issuers of securities owned by Stira Alcentra to make payments of principal and interest when due, leading to lower credit ratings of the issuer and increased defaults by the issuer. Such developments could, in turn, reduce the value of securities owned by Stira Alcentra and adversely affect Stira Alcentra’s NAV.

Legal and Regulatory Risks   

Legal and regulatory changes could occur which may materially adversely affect Stira Alcentra. The regulation of the U.S. and non-U.S. securities and futures markets and investment funds such as Stira Alcentra has undergone substantial change in recent years, and such change may continue. Future regulatory changes, including those relating to the regulation of leverage and the effect of such changes on Stira Alcentra could be substantial and adverse including, for example, increased compliance costs and the limitation or prohibition of certain types of investment activities by Stira Alcentra. Limitations on the investment activities of Stira Alcentra may result in the inability of Stira Alcentra to pursue its investment objective and strategies.

The SEC recently proposed rules governing the use of derivatives by registered investment companies, which could affect the nature and extent of derivatives use by Stira Alcentra. The proposed rules have not yet been adopted and therefore the full impact of such rules is uncertain at this time. It is possible that such rules, if adopted, could limit the implementation of Stira Alcentra’s use of derivatives, which could have an adverse effect on Stira Alcentra.

With respect to Europe, the Financial Stability Board, which monitors and makes recommendations about the global financial system, has issued reports that recommend strengthening oversight and regulation of the so-called “shadow banking” system in Europe, broadly described as credit intermediation involving entities and activities outside the regular banking system. While at this stage it is difficult to predict the scope of any new regulations, if such regulations were to extend the regulatory and supervisory requirements, such as capital and liquidity standards, currently applicable to banks, or Stira Alcentra was considered to be engaged in “shadow banking,” the regulatory and operating costs associated therewith could adversely impact the implementation of Stira Alcentra’s investment strategy and returns and may become prohibitive.

Inflation and Deflation Risk   

Inflation risk is the risk that the value of certain assets or income from Stira Alcentra’s investments may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Shares and distributions on the Shares can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with Stira Alcentra’s use of leverage would likely increase, which would tend to further reduce returns to investors.

Deflation risk is the risk that prices throughout the economy decline over time, or the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of Stira Alcentra’s portfolio.

Interest Rate Risk  

Stira Alcentra is subject to financial market risks, including changes in interest rates. General interest rate fluctuations may have a substantial negative impact on Stira Alcentra’s investments and investment opportunities and, accordingly, have a material adverse effect on Stira Alcentra’s investment objective and Stira Alcentra’s rate of return on invested capital. In addition, an increase in interest rates would make it more expensive to use debt for Stira Alcentra’s financing needs, if any.

Interest rates have recently been at or near historic lows. The historically low interest rate environment increases the risks associated with rising interest rates, including the potential for periods of volatility. Stira Alcentra currently faces a heightened level of interest rate risk, especially since the Federal Reserve Board has begun tapering its quantitative easing program. In the event of a rising interest rate environment, payments under floating rate debt instruments would rise and there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased interest costs and may otherwise be unable to repay their loans. Investments in floating rate debt instruments may also decline in value in response to rising interest rates if the interest rates of such investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, fixed rate debt instruments may decline in value because the fixed rates of interest paid thereunder may be below market interest rates.

Investment Terms and Timeframe Risk.  

Delays in investing the net proceeds of its offering of common shares may impair Stira Alcentra’s performance. Stira Alcentra cannot assure investors that it will be able to identify any investments that meet Stira Alcentra’s investment objective or that any investment that Stira Alcentra makes will produce a positive return. Stira Alcentra may be unable to invest its assets on acceptable terms within the time period that it anticipates or at all, which could harm Stira Alcentra’s financial condition and results of operations.

Stira Alcentra's proceeds from the issuance of Stira Alcentra Shares are invested in accordance with the investment objective and strategies as set forth in this joint proxy statement/prospectus. Pending such use, Stira Alcentra may invest primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, which may produce returns that are significantly lower than the returns which it expects to achieve when Stira Alcentra’s portfolio is fully invested in securities meeting its investment objective. As a result, any distributions that Stira Alcentra pays while its portfolio is not fully invested in securities meeting its investment objective may be lower than the distributions that Stira Alcentra may be able to pay when its portfolio is fully invested in securities meeting its investment objective.

Restrictions on Entering Into Affiliated Transactions.   

Stira Alcentra is prohibited under the 1940 Act from participating in certain transactions with certain of its affiliates without relying on an available exemption or the prior approval of the SEC. For purposes of the 1940 Act, the following persons are considered an affiliate of Stira Alcentra, and Stira Alcentra is generally prohibited from buying any securities from or selling any securities to such affiliate: (i) any person that owns, directly or indirectly, 5% or more of Stira Alcentra’s outstanding voting securities; (ii) any person that owns, directly or indirectly, 5% or more of the outstanding voting securities of the Stira Adviser or the Stira Sub-Adviser; or (iii) any person in which the Stira Adviser or the Stira Sub-Adviser or a person controlling or under common control with the Stira Adviser or the Stira Sub-Adviser owns, directly or indirectly, 5% or more of such person’s voting securities. The 1940 Act also prohibits certain “joint” transactions with certain of Stira Alcentra’s affiliates, which could include investments in the same portfolio company (whether at the same or different times), without the prior approval of the SEC. If a person, directly or indirectly, holds 5% or more of the voting securities of Stira Alcentra, the Stira Adviser or the Stira Sub-Adviser, or is under common control with Stira Alcentra, the Stira Adviser or the Stira Sub-Adviser, Stira Alcentra is prohibited from buying any securities or other property from or selling any securities or other property to such person or certain of that person’s affiliates, or entering into “joint” transactions with such person, absent an available exemption or the prior approval of the SEC. Similar restrictions limit Stira Alcentra’s ability to transact business with its officers or Trustees or their affiliates.

In addition, Stira Alcentra is not permitted to co-invest with certain entities affiliated with the Stira Adviser or the Stira Sub-Adviser in transactions originated by the Stira Adviser or the Stira Sub-Adviser or their respective affiliates unless it first obtains an exemptive order from the SEC or co-invests alongside the Stira Adviser or the Stira Sub-Adviser or their respective affiliates in accordance with existing regulatory guidance and the allocation policies of the Stira Adviser, the Stira Sub-Adviser and their respective affiliates, as applicable. On March 27, 2018, the SEC issued an order with regard to an exemptive application that Stira Alcentra, the Stira Adviser, the Stira Sub-

Adviser and certain of its affiliates filed with the SEC to expand Stira Alcentra’s ability to co-invest in portfolio companies with certain other funds managed by the Stira Sub-Adviser or certain of its affiliates, subject to compliance with certain conditions. Under the terms of the order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of Stira Alcentra’s independent trustees must make certain conclusions in connection with a co-investment transaction, including, but not limited to, (1) the terms of the potential co-investment transaction, including the consideration to be paid, are reasonable and fair to Stira Alcentra and shareholders and do not involve overreaching with respect to Stira Alcentra or shareholders on the part of any person concerned and (2) the potential co-investment transaction is consistent with the interests of shareholders and is consistent with Stira Alcentra's then-current objectives and strategies. Stira Alcentra intends to co-invest, subject to the conditions included in the order.

In addition, entering into certain transactions that are not deemed “joint” transactions (for purposes of the 1940 Act and relevant guidance from the SEC) may potentially lead to joint transactions within the meaning of the 1940 Act in the future. This may be the case, for example, with issuers who are near default and more likely to enter into restructuring or work-out transactions with their existing debt holders, which may include Stira Alcentra and its affiliates. In some cases, to avoid the potential of future joint transactions, the Stira Adviser and the Stira Sub-Adviser may avoid allocating an investment opportunity to Stira Alcentra that they would otherwise allocate, subject to the Stira Adviser’s and the Stira Sub-Adviser’s then current allocation policies and any applicable exemptive orders, and to the Stira Adviser’s and the Stira Sub-Adviser’s obligations to allocate opportunities in a fair and equitable manner consistent with their fiduciary duties owed to Stira Alcentra and other accounts advised by the Stira Adviser and the Stira Sub-Adviser and policies related to approval of investments.

Risks Related to the Business and Structure of Stira Alcentra

Limited Operating History   

Stira Alcentra is a non-diversified, closed-end management investment company with limited operating history, including no history operating as a RIC. As a result, prospective investors in Stira Alcentra have a limited track record and history for Stira Alcentra on which to base their investment decision. Stira Alcentra is subject to all of the business risks and uncertainties associated with any new business, including the risk that Stira Alcentra will not achieve its investment objective.

No Prior Investment Adviser Experience.   

The Stira Adviser is a newly-formed entity and has no prior experience managing a closed-end fund or a RIC. The 1940 Act and the Code impose numerous constraints on the operations of RICs that do not apply to other investment vehicles managed by affiliates of the Stira Adviser. Moreover, qualification for taxation as a RIC requires satisfaction of certain source-of-income, asset diversification and distribution requirements. The Stira Adviser has no prior experience operating and advising under these constraints, which may hinder its ability to take advantage of attractive investment opportunities and to achieve Stira Alcentra’s investment objective. Therefore, the Stira Adviser may not be able to successfully operate Stira Alcentra’s business or achieve its investment objective. As a result, an investment in Shares may entail more risk than the shares of a comparable company with a substantial operating history.

Dependence upon Key Personnel of the Stira Adviser and Stira Sub-Adviser.   

Since Stira Alcentra has no employees, it depends on the investment expertise, skill and network of business contacts of the Stira Adviser and the Stira Sub-Adviser. The Stira Sub-Adviser evaluates, negotiates, structures, executes, monitors and services Stira Alcentra’s investments, subject to the oversight of the Stira Adviser. Stira Alcentra’s future success depends to a significant extent on the continued service and coordination of the Stira Sub-Adviser and its senior management team and investment committee. The departure of any members of the Stira Sub-Adviser’s senior management team or investment committee could have a material adverse effect on Stira Alcentra’s ability to achieve its investment objective. Likewise, the departure of any key employees of the Stira Adviser may impact its ability to effectively manage Stira Alcentra’s operations.

Stira Alcentra’s ability to achieve its investment objective depends on the Stira Sub-Adviser’s ability to identify, analyze, invest in, finance and monitor companies that meet Stira Alcentra’s investment criteria. The Stira Sub-

Adviser’s capabilities in managing the investment process, providing competent, attentive and efficient services to Stira Alcentra 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 Stira Alcentra’s investment objective, the Stira Sub-Adviser may need to hire, train, supervise and manage new investment professionals to participate in Stira Alcentra’s investment selection and monitoring process. The Stira Sub-Adviser may not be able to find investment professionals in a timely manner or at all. Failure to support Stira Alcentra’s investment process could have a material adverse effect on Stira Alcentra’s business, financial condition and results of operations.

In addition, Stira Alcentra's Investment Advisory Agreement has a termination provision that allows Stira Alcentra and Stira Adviser to terminate the agreement without penalty. Stira Alcentra's Investment Advisory Agreement may be terminated at any time, without penalty, by the Stira Adviser, upon 60 days’ notice to Stira Alcentra. If Stira Alcentra's Investment Advisory Agreement is terminated, it may adversely affect the quality of Stira Alcentra’s investment opportunities. In addition, in the event that Stira Alcentra's Investment Advisory Agreement is terminated, it may be difficult for Stira Alcentra to replace the Stira Adviser. Furthermore, the termination of Stira Alcentra's Investment Advisory Agreement may adversely impact the terms of Stira Alcentra’s or its subsidiaries’ financing facilities or any financing facility into which Stira Alcentra or its subsidiaries may enter in the future, which could have a material adverse effect on Stira Alcentra’s business and financial condition.

Conflicts of Interest Risk   

The Stira Adviser, the Stira Sub-Adviser and certain of their affiliates may experience conflicts of interest in connection with the management of Stira Alcentra, including, but not limited to: the allocation of the Stira Adviser’s and the Stira Sub-Adviser’s time and resources between Stira Alcentra and other investment activities; compensation payable by Stira Alcentra to the Stira Adviser and its affiliates; competition with certain affiliates of the Stira Sub-Adviser for investment opportunities; the due diligence review of Stira Alcentra by Stira Capital Management Group, or the Dealer Manager, which is an affiliate of the Stira Adviser; investments at different levels of an entity’s capital structure by Stira Alcentra and other clients of the Stira Sub-Adviser, subject to the limitations of the 1940 Act; differing recommendations given by the Stira Sub-Adviser to Stira Alcentra compared to recommendations to other clients; restrictions on the Stira Adviser’s and the Stira Sub-Adviser’s existing business relationships or use of material non-public information with respect to potential investments by Stira Alcentra; the formation of additional investment funds or entrance into other investment banking, advisory, investment advisory and other relationships by the Stira Adviser, the Stira Sub-Adviser or their affiliates; and limitations on purchasing or selling securities to other clients of the Stira Adviser, the Stira Sub-Adviser or their respective affiliates and on entering into “joint” transactions with certain of Stira Alcentra’s, the Stira Adviser’s or the Stira Sub-Adviser’s affiliates.

Conflicts of Interest Risk in Respect to the Dealer Manager   

The Dealer Manager does, and may in the future, act as the distributor for other managed companies, such as companies sponsored by or affiliated with the Stira Adviser and its affiliates, which are currently in the process of offering shares. In addition, future programs sponsored by Stira Alcentra and its affiliates may seek to raise capital through offerings conducted concurrently with Stira Alcentra’s offering. The Dealer Manager could also act as the distributor, or engage in wholesaling activities, of offerings not sponsored by Stira Alcentra and its affiliates. As a result, the Dealer Manager may face conflicts of interest arising from potential competition with these other programs for investors and investment capital. Such conflicts may not be resolved in Stira Alcentra’s favor and an investor will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making an investment.

Stira Sub-Adviser Relationships   

Stira Alcentra expects that the Stira Sub-Adviser will depend on its relationships with private equity sponsors, investment banks and commercial banks, and Stira Alcentra expects to rely to a significant extent upon these relationships, to provide it with potential investment opportunities. If the Stira Sub-Adviser fails to maintain its

existing relationships or develop new relationships with other sponsors or sources of investment opportunities, Stira Alcentra may not be able to grow its investment portfolio. In addition, individuals with whom the Stira Sub-Adviser has relationships are not obligated to provide Stira Alcentra with investment opportunities and, therefore, there is no assurance that such relationships will generate investment opportunities for Stira Alcentra.

Stira Sub-Adviser and BNY Mellon Conflicts of Interest Policies and Procedures Risk.  

The Stira Sub-Adviser and BNY Mellon have various conflicts of interest, which could affect the Stira Sub-Adviser’s performance as investment sub-adviser to Stira Alcentra as well as Stira Alcentra’s investment performance. Specified policies and procedures implemented by the Stira Sub-Adviser and BNY Mellon to mitigate potential conflicts of interest and address certain regulatory requirements and contractual restrictions may reduce the synergies across BNY Mellon’s various businesses on which the Stira Adviser expects to draw for purposes of pursuing attractive investment opportunities. Because BNY Mellon has many different asset management and advisory businesses, it is subject to a number of actual and potential conflicts of interest, greater regulatory oversight and more legal and contractual restrictions than that to which it would otherwise be subject if it had just one line of business. In addressing these conflicts and regulatory, legal and contractual requirements across BNY Mellon’s various businesses, BNY Mellon and the Stira Sub-Adviser have implemented certain policies and procedures may reduce the benefits to Stira Alcentra otherwise expected from engaging the Stira Sub-Adviser to find attractive investments. For example, BNY Mellon may come into possession of material non-public information with respect to companies in which competing funds may be considering making an investment or companies that are BNY Mellon advisory clients. As a consequence, that information, which could be of benefit to Stira Alcentra, might become restricted to those respective businesses and otherwise be unavailable to the Stira Sub-Adviser and Stira Alcentra. In addition, certain activities of the Stira Sub-Adviser and its affiliates could restrict the activities of Stira Alcentra, including, without limitation, the pursuit of investment opportunities.

Certain Stira Sub-Adviser and BNY Mellon policies and procedures also relate to allocation of investment opportunities. Other investment vehicles of the Stira Sub-Adviser and BNY Mellon, including Alcentra Capital Corporation (NASDAQ: “ABDC”), a business development company whose shares are listed on the NASDAQ Global Select Market, have strategies similar to that of Stira Alcentra. Stira Alcentra may not always be allocated investment opportunities in the same manner as such other investment vehicles or at all.

Stira Adviser and Stira Sub-Adviser Incentive Fee Risk   

Stira Alcentra's Investment Advisory Agreement entitles the Stira Adviser to receive incentive compensation on income regardless of any capital losses. In such case, Stira Alcentra may be required to pay the Stira Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of Stira Alcentra’s portfolio or if Stira Alcentra incurs a net loss for that quarter.

Any incentive fee payable by Stira Alcentra that relates to its net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. The Stira Adviser is not under any obligation to reimburse Stira Alcentra for any part of the incentive fee it received that was based on accrued income that Stira Alcentra never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in Stira Alcentra’s paying an incentive fee on income it never received.

The incentive fee payable by Stira Alcentra to the Stira Adviser may create an incentive for it to make investments on Stira Alcentra’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 Stira Adviser is determined may encourage it to use leverage to increase the return on Stira Alcentra’s investments. In addition, the fact that the base management fee is payable based upon Stira Alcentra’s average daily gross assets, which would include any borrowings for investment purposes, may encourage the Stira Adviser to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor shareholders. Such a practice could result in Stira Alcentra’s investing in more speculative securities than would otherwise be in its best interests, which could result in higher investment losses, particularly during cyclical

economic downturns. In addition, since the Stira Sub-Adviser will receive a portion of the advisory fees paid to the Stira Adviser, the Stira Sub-Adviser may have an incentive to recommend investments that are riskier or more speculative.

Closed-end Fund; Liquidity Risks   

Stira Alcentra is a non-diversified, closed-end management investment company designed primarily for long-term investors and the Stira Alcentra Shares are not intended to be a typical traded investment. An investor should not invest in Stira Alcentra Shares 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 at a price based on NAV.

Competition for Investment Opportunities  

Stira Alcentra competes for investments with other closed-end funds and investment funds, as well as traditional financial services companies such as commercial banks 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. As a result of these new entrants, competition for investment opportunities may intensify. Some of Stira Alcentra’s competitors may be larger and have greater financial, technical and marketing resources than it does. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to Stira Alcentra. In addition, some of Stira Alcentra’s competitors may have higher risk tolerances or different risk assessments than it has. These characteristics could allow Stira Alcentra’s competitors to consider a wider variety of investments, establish more relationships and pay more competitive prices for investments than it is able to do. Stira Alcentra may lose investment opportunities if it does not match its competitors’ pricing. If Stira Alcentra is forced to match its competitors’ pricing, it may not be able to achieve acceptable returns on its investments or may bear substantial risk of capital loss. A significant increase in the number and/or the size of Stira Alcentra’s competitors could force it to accept less attractive investment terms. Furthermore, many of Stira Alcentra’s competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on it as a closed-end fund.

Fluctuations in Results   

Stira Alcentra could experience fluctuations in its operating results due to a number of factors, including Stira Alcentra’s ability or inability to make investments that meet Stira Alcentra’s investment objective, the interest rates payable on the debt securities it acquires or originates, the level of Stira Alcentra’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which it encounters competition in its markets and general economic conditions. As a result of these and other factors, results for any previous period should not be relied upon as being indicative of performance in future periods.

Repurchase Risks  

Stira Alcentra has no obligation to repurchase Stira Alcentra Shares at any time, and repurchases will only be made at such times, in such amounts and on such terms as may be determined by the Stira Alcentra Board in its sole discretion. If and when Stira Alcentra makes repurchase offers, Stira Alcentra may offer to repurchase Stira Alcentra Shares at a price that is lower than the price that shareholders paid for Stira Alcentra Shares in the applicable offering. As a result, to the extent shareholders have the ability to sell their Stira Alcentra Shares to Stira Alcentra pursuant to a repurchase offer, the price at which a shareholder may sell Stira Alcentra Shares, which will be the NAV per Stira Alcentra Share in effect on the date of repurchase, may be lower than the price that such shareholder paid for Stira Alcentra Shares in the applicable offering.

In addition, in the event a shareholder chooses to participate in a repurchase offer, the shareholder will be required to provide Stira Alcentra with notice of intent to participate prior to knowing what the repurchase price will be on the repurchase date. Although the shareholder may have the ability to withdraw a repurchase request prior to the repurchase date, to the extent the shareholder seeks to sell Stira Alcentra Shares to Stira Alcentra as part of a repurchase offer, the shareholder will be required to do so without knowledge of what the repurchase price of the

Stira Alcentra Shares will be on the repurchase date. It is possible that general economic and market conditions could cause a decline in the NAV per Stira Alcentra Share prior to the repurchase date.

In addition, substantial requests for Stira Alcentra to repurchase Stira Alcentra Shares could require Stira Alcentra to have to liquidate a portion of its investment portfolio more rapidly than otherwise desirable in order to raise cash to fund the repurchases. This could have a material adverse effect on the value of Stira Alcentra Shares. Substantial repurchases of Stira Alcentra Shares could also result in a sizeable decrease in Stira Alcentra’s net assets, resulting in an increase in Stira Alcentra’s total annual operating expense ratio.

Distribution Payment Risk   

Stira Alcentra cannot assure investors that Stira Alcentra will achieve investment results that will allow Stira Alcentra to make a specified level of cash distributions or year-to-year increases in cash distributions. All distributions will be paid at the discretion of the Stira Alcentra Board and may depend on Stira Alcentra’s earnings, net investment income, financial condition, maintenance of RIC status, compliance with applicable regulations and such other factors as the Stira Alcentra Board may deem relevant from time to time.

In the event that Stira Alcentra encounters delays in locating suitable investment opportunities, all or a substantial portion of Stira Alcentra’s distributions may constitute a return of investor capital and will lower an investor’s tax basis in his or her Stira Alcentra Shares. A return of capital generally is a return of an investor’s investment rather than a return of earnings or gains derived from Stira Alcentra’s investment activities.

Anti-Takeover Risk   

Stira Alcentra’s amended and restated declaration of trust, or the Stira Alcentra Declaration of Trust, and its amended and restated by-laws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from attempting to acquire Stira Alcentra. Subject to the limitations of the 1940 Act, the Stira Alcentra Board may, without shareholder action, authorize the issuance of Stira Alcentra Shares in one or more classes or series, including preferred shares; and the Stira Alcentra Board may, without shareholder action, amend the Stira Alcentra Declaration of Trust. These anti-takeover provisions may inhibit a change of control in circumstances that could give shareholders the opportunity to realize a premium over the value of the Stira Alcentra Shares.

Portfolio Turnover Risk   

Stira Alcentra’s annual portfolio turnover rate may vary greatly from year to year, as well as within a given year. Although Stira Alcentra cannot accurately predict its annual portfolio turnover rate, it is not expected to exceed 100% going forward under normal circumstances. However, portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for Stira Alcentra. High portfolio turnover may result in the realization of net short-term capital gains by Stira Alcentra which, when distributed to the shareholders, will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by Stira Alcentra.

Cybersecurity Risks  

Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack or damage. Stira Alcentra and its affiliates and third-party service providers are subject to cybersecurity risks. Cybersecurity risks have significantly increased in recent years and, while Stira Alcentra has not experienced any material losses relating to cyber-attacks or other information security breaches, Stira Alcentra could suffer such losses in the future. Stira Alcentra’s and its affiliates’ and third-party service providers’ computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize confidential and other information, including nonpublic personal information and sensitive business data, processed and stored in, and transmitted through, computer systems and networks, or otherwise cause interruptions or malfunctions in Stira Alcentra’s operations or the operations of their

respective affiliates and third-party service providers. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect Stira Alcentra’s business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, Stira Alcentra may be required to expend significant additional resources to modify Stira Alcentra’s protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks.

Bank Holding Company Risk   

BNY Mellon is a bank holding company, a BHC, under the Bank Holding Company Act of 1956, as amended, which is referred to herein as the "BHCA." BNY Mellon is also a financial holding company, or FHC, under the BHCA, which is a status available to BHCs that meet certain criteria. FHCs may engage in a broader range of activities than BHCs that are not FHCs. However, the activities of FHCs and their affiliates remain subject to certain restrictions imposed by the BHCA and related regulations. Because BNY Mellon may be deemed to “control” Stira Alcentra within the meaning of the BHCA, these restrictions could apply to Stira Alcentra as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including but not limited to the Federal Reserve, may restrict the transactions and relationships between the Stira Sub-Adviser, BNY Mellon and their affiliates, on the one hand, and Stira Alcentra on the other hand, and may restrict Stira Alcentra’s investments, transactions and operations. For example, the BHCA regulations applicable to BNY Mellon and Stira Alcentra may, among other things, restrict Stira Alcentra’s ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of Stira Alcentra’s investments, and restrict the Stira Sub-Adviser’s ability to participate in the management and operations of the companies in which Stira Alcentra invests. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by BNY Mellon and its affiliates (including the Stira Sub-Adviser) for client and proprietary accounts may need to be aggregated with positions held by Stira Alcentra. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, BNY Mellon may utilize available capacity to make investments for its proprietary accounts or for the accounts of other clients, which may require Stira Alcentra to limit and/or liquidate certain investments.

These restrictions may materially adversely affect Stira Alcentra by, among other things, affecting the Stira Sub-Adviser’s ability to pursue certain strategies within Stira Alcentra’s investment program or trade in certain securities. In addition, BNY Mellon may cease in the future to qualify as an FHC, which may subject Stira Alcentra to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to BNY Mellon and Stira Alcentra will not change, or that any such change will not have a material adverse effect on Stira Alcentra.

BNY Mellon may in the future, in its sole discretion and without notice to investors, engage in activities impacting Stira Alcentra and/or the Stira Sub-Adviser in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulatory or other restrictions on, BNY Mellon, Stira Alcentra or other funds and accounts managed by the Stira Sub-Adviser and its affiliates. BNY Mellon may seek to accomplish this result by causing the Stira Sub-Adviser to resign as Stira Alcentra’s investment sub-adviser, reducing the amount of BNY Mellon’s investment in Stira Alcentra (if any), or any combination of the foregoing, or by such other means as it determines in its sole discretion. Any replacement investment sub-adviser appointed by Stira Alcentra may be unaffiliated with BNY Mellon.

Risks Related to an Investment in Stira Alcentra Shares

Stira Alcentra Shares Not Listed; No Market for Stira Alcentra Shares  

Stira Alcentra has been organized as a closed-end management investment company. 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, Stira Alcentra does not currently intend to list the Stira Alcentra Shares for trading on any securities exchange, and Stira Alcentra does not expect any secondary market to develop for the Stira

Alcentra Shares in the foreseeable future. Therefore, an investment in the Stira Alcentra Shares, unlike an investment in a typical closed-end fund, is not a liquid investment.

Stira Alcentra believes that an unlisted closed-end structure is most appropriate for the long-term nature of Stira Alcentra’s strategy. This structure allows Stira Alcentra to operate with a long-term view, similar to that of other types of private investment funds — instead of managing to quarterly market expectations — and to pursue its investment objective without subjecting its investors to the daily share price volatility associated with the public markets because the Stira Alcentra Shares will not be listed on a national securities exchange. Also, if shareholders invest through a fee-based program, also known as a wrap account, of an investment dealer, their liquidity may be further restricted by the terms and conditions of such program, which may limit their ability to request the repurchase of their Stira Alcentra Shares that are held in such account. Therefore, shareholders may not be able to sell their Stira Alcentra Shares promptly or at a desired price.

Risk That a Liquidity Event May Not Occur   

A Liquidity Event could include (i) a listing of Stira Alcentra Shares on a national securities exchange, (ii) the sale of all or substantially all of Stira Alcentra’s assets either on a complete portfolio basis or individually followed by a liquidation or (iii) a merger or another transaction approved by the Board in which Stira Alcentra likely will receive cash or shares of a publicly-traded company followed by a distribution of such cash or shares to shareholders. However, Stira Alcentra is not required to complete a Liquidity Event and may choose not to do so for an indefinite period.

Funding Future Capital Needs Risk   

The net proceeds from Stira Alcentra's offering of Stira Alcentra Shares may be used for Stira Alcentra’s investment opportunities, operating expenses and for payment of various fees and expenses, such as the base management fee, incentive fee and other fees. Any working capital reserves that Stira Alcentra maintains may not be sufficient for investment purposes, and Stira Alcentra may require debt or equity financing to operate. Accordingly, in the event that Stira Alcentra 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 it. Consequently, if Stira Alcentra cannot obtain debt or equity financing on acceptable terms, or at all, Stira Alcentra’s ability to acquire investments and to expand Stira Alcentra’s operations will be adversely affected. As a result, Stira Alcentra would be less able to allocate its portfolio among various issuers and industries and achieve its investment objective, which may negatively impact its results of operations and reduce its ability to make distributions.

Uncertain Exit Strategies  

Due to the illiquid nature of some of the positions that Stira Alcentra is expected to acquire, as well as the risks associated with Stira Alcentra’s investment strategies, Stira Alcentra is unable to predict with confidence what the exit strategy may ultimately be for any given investment, or that one will definitely be available. Exit strategies that appear to be viable when an investment is initiated may be precluded by the time the investment is ready to be realized due to economic, legal, political or other factors.

Purchase Price Risk   

The purchase price at which an investor purchases Stira Alcentra Shares in each offering will equal the NAV per Share as of the date of purchase, plus any upfront selling commissions and dealer manager fees. As a result, in the event of an increase in Stira Alcentra’s NAV per Stira Alcentra Share, an investor’s purchase price may be higher than the prior closing price per Stira Alcentra Share, and therefore an investor may receive fewer Stira Alcentra Shares than if an investor had subscribed at the prior closing price.

Investment Dilution Risk   

Stira Alcentra’s investors do not have preemptive rights to any additional Stira Alcentra Shares that Stira Alcentra may issue in the future. The Stira Alcentra Declaration of Trust authorizes it to issue an unlimited number of Stira Alcentra Shares. A majority of the Stira Alcentra Board may amend the Stira Alcentra Declaration of Trust. After an investor purchases Stira Alcentra Shares, the Stira Alcentra Board may elect to sell additional Stira Alcentra Shares in the future or issue equity interests in private offerings. To the extent Stira Alcentra issues additional equity interests after an investor purchases its Stira Alcentra Shares, such investor’s percentage ownership interest in Stira Alcentra will be diluted.

Risks Related to Debt Financing and Leverage

General Leverage Risks   

Stira Alcentra may in the future issue debt securities or preferred shares and/or borrow money from banks or other financial institutions, which are referred to herein as "Senior Securities," up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Ac, Stira Alcentra will be permitted, as a registered closed-end management investment company, to issue Senior Securities representing indebtedness so long as its asset coverage ratio with respect thereto, defined under the 1940 Act as the ratio of gross assets (less all liabilities and indebtedness not represented by senior securities) to outstanding senior securities representing indebtedness, is at least 300% after each issuance of such senior securities. In addition, Stira Alcentra will be permitted to issue additional shares of preferred shares so long as its asset coverage ratio with respect thereto, to outstanding Senior Securities representing indebtedness, plus the aggregate involuntary liquidation preference of outstanding preferred shares, is at least 200% after each issuance of such preferred shares. If the value of Stira Alcentra’s assets declines, Stira Alcentra may be unable to satisfy these tests. If that happens, Stira Alcentra may be required to sell a portion of its investments and, depending on the nature of its leverage, repay a portion of its indebtedness or redeem outstanding shares of preferred shares, in each case at a time when doing so may be disadvantageous. Also, any amounts that Stira Alcentra uses to service its indebtedness or preferred dividends would not be available for distributions. Furthermore, as a result of issuing Senior Securities, Stira Alcentra would also be exposed to typical risks associated with leverage, including an increased risk of loss. If Stira Alcentra issues preferred shares, the preferred shares would rank “senior” to common shares in its capital structure, preferred shareholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of its common shareholders, and the issuance of preferred shares could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of its common shares or otherwise be in the best interests of its common shareholders.

Risk of Loss as a Result of Incurrence of Leverage   

Stira Alcentra may borrow funds to make investments. The use of borrowings, also known as leverage, increases the volatility of investments and magnifies the potential for loss on invested equity capital. If Stira Alcentra uses leverage to partially finance its investments, through borrowing from banks and other lenders, shareholders will experience increased risks of investing in the Stira Alcentra Shares. If the value of Stira Alcentra’s assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had Stira Alcentra not leveraged. Similarly, any decrease in Stira Alcentra’s income would cause net income attributable to Stira Alcentra’s shareholders to decline more sharply than it would have had Stira Alcentra not borrowed. Such a decline could negatively affect Stira Alcentra’s ability to make share distribution payments. Leverage is generally considered a speculative investment technique.

Effect of Leverage on Interest Rates   

If Stira Alcentra borrows funds to make investments, Stira Alcentra’s net investment income will depend, in part, upon the difference between the rate at which it borrows funds and the rate at which it invests those funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on Stira Alcentra’s net investment income. In periods of rising interest rates when Stira Alcentra has debt outstanding, Stira Alcentra’s cost of funds will increase, which could reduce Stira Alcentra’s net investment income. Stira Alcentra expects that its long-term fixed-rate investments will be financed primarily with equity and long-term debt. Stira Alcentra 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 to the extent permitted by the 1940 Act. These activities may limit Stira Alcentra’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 its business, financial condition and results of operations. Also, the Stira Adviser has limited experience in entering into hedging transactions, and may have to purchase or develop such expertise.

U.S. Federal Income Tax Risks

Risks Related to Stira Alcentra’s RIC Status.   

To qualify and remain eligible for the special tax treatment accorded to RICs and their shareholders under the Code, Stira Alcentra must meet certain source-of-income, asset diversification and annual distribution requirements. Very generally, in order to qualify as a RIC, Stira Alcentra must derive at least 90% of its gross income for each tax year from dividends, interest, payments with respect to certain securities, loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in stock or other securities. Stira Alcentra must also meet certain asset diversification requirements at the end of each quarter of each of its tax years. Failure to meet these diversification requirements on the last day of a quarter may result in Stira Alcentra having to dispose of certain investments quickly in order to prevent the loss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may result in substantial losses to Stira Alcentra. In addition, in order to be eligible for the special tax treatment accorded RICs, Stira Alcentra must meet the annual distribution requirement, requiring it to distribute with respect to each tax year dividends of an amount at least equal to 90% of the sum of its “investment company taxable income” (generally its taxable ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any) and its net tax-exempt income (if any), determined without regard to any deduction for dividends paid, to shareholders. If Stira Alcentra fails to qualify as a RIC for any reason and becomes subject to corporate tax, the resulting corporate taxes could substantially reduce its net assets, the amount of income available for distribution and the amount of its distributions. Such a failure would have a material adverse effect on Stira Alcentra and shareholders. In addition, Stira Alcentra could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC.

RIC-Related Risks of Investments Generating Non-Cash Taxable Income   

Certain of Stira Alcentra’s investments will require Stira Alcentra to recognize taxable income in a tax year in excess of the cash generated on those investments during that year. In particular, Stira Alcentra expects to invest in loans and other debt obligations that will be treated as having “market discount” and/or OID for U.S. federal income tax purposes. Because Stira Alcentra may be required to recognize income in respect of these investments before, or without receiving, cash representing such income, Stira Alcentra may have difficulty satisfying the annual distribution requirements applicable to RICs and avoiding Fund-level U.S. federal income and/or excise taxes. Accordingly, Stira Alcentra may be required to sell assets, including at potentially disadvantageous times or prices, raise additional debt or equity capital, make taxable distributions of Shares or debt securities, or reduce new investments, to obtain the cash needed to make these income distributions. If Stira Alcentra liquidates assets to raise cash, Stira Alcentra may realize gain or loss on such liquidations. In the event Stira Alcentra realizes net capital gains from such liquidation transactions, the shareholders may receive larger capital gain distributions than it or they would in the absence of such transactions.

Instruments that are treated as having OID for U.S. federal income tax purposes may have unreliable valuations because their continuing accruals require judgments about the collectability of the deferred payments and the value of any collateral. Loans that are treated as having OID generally represent a significantly higher credit risk than coupon loans. Accruals on such instruments may create uncertainty about the source of distributions by Stira Alcentra to its shareholders. OID creates the risk of non-refundable cash payments to the Stira Adviser based on accruals that may never be realized. In addition, the deferral of PIK interest also reduces a loan’s loan-to-value ratio at a compounding rate.

Uncertain Tax Treatment   

Stira Alcentra may invest a portion of its net assets in below investment grade instruments (commonly referred to as “high-yield” or “junk” securities). Investments in these types of instruments may present special tax issues for Stira Alcentra. U.S. federal income tax rules are not entirely clear about issues such as when Stira Alcentra may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues will be addressed by Stira Alcentra to the extent necessary in order to seek to ensure that it distributes sufficient income so that it does not become subject to U.S. federal income or excise tax.

Legislative or Regulatory Tax Changes   

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in the Stira Alcentra Shares. In particular, on December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, or the Tax Act, into law. The Tax Act

includes sweeping changes to U.S. tax laws and represents the most significant changes to the Code since 1986. Additional changes to the tax laws are likely to continue to occur, and Stira Alcentra cannot assure shareholders that any such changes will not adversely affect their taxation, the investment in the Stira Alcentra Shares or the market value or the resale potential of Stira Alcentra’s assets. Stira Alcentra shareholders are urged to consult with their own tax advisor with respect to the impact of recent legislation, including the Tax Act, on their investment in the Stira Alcentra Shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in the Stira Alcentra Shares.

COMPARATIVE FEES AND EXPENSES

The following tables are intended to assist you in understanding the costs and expenses that an investor in Priority shares or Stira Alcentra Shares bears, directly or indirectly, and based on the assumptions set forth below, the pro forma costs and expenses estimated to be incurred by the combined entity in the first year following the Merger. Priority and Stira Alcentra caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this document contains a reference to fees or expenses paid or to be paid by “you,” “Priority” or “Stira Alcentra,” stockholders will indirectly bear such fees or expenses as investors in Priority or Stira Alcentra, as applicable.