Sierra Income Corp - FORM 10-Q

Sierra Income Corp - FORM 10-Q - May 7, 2015

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Sierra Income Corp Reports

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EX-31.2 - EX-31.2 - Sierra Income Corp	d919319dex312.htm
EX-32.1 - EX-32.1 - Sierra Income Corp	d919319dex321.htm
EX-31.1 - EX-31.1 - Sierra Income Corp	d919319dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 814-00924

Sierra Income Corporation

(Exact name of registrant as specified in its charter)

Maryland

45-2544432

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

375 Park Avenue, 33^rd Floor

New York, NY 10152

(Address of principal executive offices)

(212) 759-0777

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 7, 2015, the Registrant had 66,465,115 shares of common stock, $0.001 par value, outstanding.

TABLE OF CONTENTS


		Page
Part I. Financial Information

Item 1. Financial Statements			F-1

	Consolidated Statements of Assets and Liabilities as of March 31, 2015 (unaudited) and December 31, 2014		F-1

	Consolidated Statements of Operations for the three months ended March 31, 2015 (unaudited) and March 31, 2014 (unaudited)		F-2

	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2015 (unaudited) and March 31, 2014 (unaudited)		F-3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2015 (unaudited) and March 31, 2014 (unaudited)		F-4

	Consolidated Schedules of Investments as of March 31, 2015 (unaudited) and March 31, 2014 (unaudited)		F-5

	Notes to Consolidated Financial Statements (unaudited)		F-22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1

Item 3. Quantitative and Qualitative Disclosures About Market Risk			19

Item 4. Controls and Procedures			20

Part II. Other Information

Item 1. Legal Proceedings			20

Item 1A. Risk Factors			20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			22

Item 3. Defaults Upon Senior Securities			22

Item 4. Mine Safety Disclosures			22

Item 5. Other Information			22

Item 6. Exhibits			23

SIGNATURES			26

Sierra Income Corporation

Consolidated Statements of Assets and Liabilities


	As of
	March 31, 2015			December 31, 2014
	(unaudited)
ASSETS
Non-controlled/non-affiliated investments, at fair value (amortized cost of $720,308,635 and $620,968,517, respectively)	$	714,392,095		$	616,915,093
Cash and cash equivalents		66,473,033			65,749,154
Cash collateral on total return swap (Note 5)		57,726,340			56,877,928
Interest receivable		6,190,230			5,213,605
Due from affiliate (Note 7)		4,230,404			6,995,930
Deferred financing costs		3,979,305			2,675,682
Receivable due on total return swap (Note 5)		2,051,518			1,095,582
Unsettled trades receivable		387,431			424,641
Prepaid expenses and other assets		61,094			118,017

Total assets	$	855,491,450		$	756,065,632

LIABILITIES
Revolving credit facilities payable	$	271,500,000		$	236,500,000
Unsettled trades payable		5,880,000			16,935,000
Unrealized depreciation on total return swap (Note 5)		4,844,580			7,651,597
Management fee payable		3,720,397			3,271,387
Accounts payable and accrued expenses		2,480,134			2,427,843
Interest payable		985,146			648,497
Administrator fees payable		553,844			450,058
Incentive fee payable		270,497			—
Due to affiliate (Note 7)		—			1,574,737
Deferred tax liability		409,887			86,600

Total liabilities	$	290,644,485		$	269,545,719

Commitments (Note 11)

NET ASSETS
Common shares, par value $.001 per share, 250,000,000 common shares authorized, 62,913,036 and 54,260,324 common shares issued and outstanding, respectively	$	62,913		$	54,260
Capital in excess of par value		572,190,162			494,060,576
Accumulated net realized gain/(loss) (distribution in excess of net realized gain/(loss)) from investments and total return swap		(3,253,591	)		(5,408,243	)
Accumulated undistributed net investment income		6,608,601			9,518,341
Net unrealized appreciation/(depreciation) on investments and total return swap		(10,761,120	)		(11,705,021	)

Total net assets		564,846,965			486,519,913

Total liabilities and net assets	$	855,491,450		$	756,065,632

NET ASSET VALUE PER SHARE	$	8.98		$	8.97

See accompanying notes to the consolidated financial statements.

F-1

Sierra Income Corporation

Consolidated Statements of Operations


	For the three months ended March 31,
	2015			2014
	(unaudited)			(unaudited)
INVESTMENT INCOME
Interest from non-controlled/non-affiliated investments	$	14,332,341		$	3,757,861
Fee income		1,327,074			834,649
Paid-in-kind interest income		347,153			3,704
Interest from cash		251			—

Total investment income		16,006,819			4,596,214

EXPENSES
Base management fee		3,720,397			1,142,771
Interest and financing expenses		1,832,631			163,401
General and administrative expenses		1,335,315			531,043
Administrator expenses		555,749			228,216
Professional fees		549,981			255,328
Organizational and offering costs reimbursed to SIC Advisors (Note 7)		443,687			983,785
Offering costs		392,753			—
Incentive fee		270,497			112,491

Total gross expenses		9,101,010			3,417,035
Net expense support reimbursement (Note 7)		(1,993,518	)		(1,313,470	)

Net expenses		7,107,492			2,103,565

NET INVESTMENT INCOME		8,899,327			2,492,649

Net realized gain/(loss) from investments		(745,665	)		1,270,253
Net realized gain on total return swap (Note 5)		2,900,317			438,709
Net change in unrealized appreciation/(depreciation) on investments		(1,863,116	)		(201,084	)
Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)		2,807,017			447,021

Net gain/(loss) on investments and total return swap		3,098,553			1,954,899

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	11,997,880		$	4,447,548

WEIGHTED AVERAGE — BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.21		$	0.22
WEIGHTED AVERAGE — BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE	$	0.15		$	0.12
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING — BASIC AND DILUTED (Note 10)		58,356,637			20,369,602
DIVIDENDS DECLARED PER COMMON SHARE	$	0.20		$	0.20

See accompanying notes to the consolidated financial statements.

F-2

Sierra Income Corporation

Consolidated Statements of Changes in Net Assets


	For the three months ended March 31,
	2015			2014
	(unaudited)			(unaudited)
INCREASE FROM OPERATIONS
Net investment income	$	8,899,327		$	2,492,649
Net realized gain/(loss) on investments		(745,665	)		1,270,253
Net realized gain on total return swap (Note 5)		2,900,317			438,709
Net change in unrealized appreciation/(depreciation) on investments		(1,863,116	)		(201,084	)
Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)		2,807,017			447,021

Net increase in net assets resulting from operations		11,997,880			4,447,548

SHAREHOLDER DISTRIBUTIONS
Distributions from net realized gains		—			(1,708,962	)
Distributions from net investment income (Note 2)		(11,809,067	)		(2,492,649	)

Net decrease in net assets from shareholder distributions		(11,809,067	)		(4,201,611	)

COMMON SHARE TRANSACTIONS
Issuance of common shares, net of underwriting costs		72,566,865			72,777,647
Issuance of common shares pursuant to distribution reinvestment plan		5,571,374			1,831,192
Repurchase of common shares		—			(27,540	)

Net increase in net assets resulting from common share transactions		78,138,239			74,581,299

Total increase in net assets		78,327,052			74,827,236
Net assets at beginning of period		486,519,913			153,002,273

Net assets at end of period (including accumulated undistributed net investment income of $6,608,601 and $(249,177), respectively)	$	564,846,965		$	227,829,509

Net asset value per common share	$	8.98		$	9.20
Common shares outstanding, beginning of period		54,260,324			16,663,500
Issuance of common shares		8,033,670			7,907,676
Issuance of common shares pursuant to distribution reinvestment plan		619,042			199,476
Repurchase of common shares		—			(3,000	)

Common shares outstanding, end of period		62,913,036			24,767,652

See accompanying notes to the consolidated financial statements.

F-3

Sierra Income Corporation

Consolidated Statements of Cash Flows


	For the three months ended March 31,
	2015			2014
	(unaudited)			(unaudited)
Cash flows from operating activities
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	11,997,880		$	4,447,548
ADJUSTMENT TO RECONCILE NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES
Paid-in-kind interest income		(347,153	)		(3,704	)
Net amortization of premium on investments		(191,008	)		14,561
Amortization of deferred financing costs		(1,303,623	)		(281,192	)
Net realized (gain)/loss on investments		745,666			(1,270,253	)
Net change in unrealized (appreciation)/depreciation on investments		1,863,116			201,084
Net change in unrealized (appreciation)/depreciation on total return swap (Note 5)		(2,807,017	)		(447,021	)
Purchases, Originations, and Participations		(103,820,422	)		(122,821,433	)
Proceeds from sale of investments and principal repayments		4,272,799			45,835,550
(Increase)/decrease in operating assets:
Cash collateral on total return swap (Note 5)		(848,412	)		(13,515,172	)
Unsettled trades receivable		37,210			(5,914,375	)
Due from affiliate		2,765,526			(346,329	)
Interest receivable		(976,625	)		197,212
Receivable due on total return swap (Note 5)		(955,936	)		(143,240	)
Prepaid expenses and other assets		56,923			(16,626	)
Increase/(decrease) in operating liabilities:
Unsettled trades payable		(11,055,000	)		(9,445,539	)
Management fee payable		449,010			328,116
Accounts payable and accrued expenses		52,291			91,970
Provisional incentive fee		270,497			112,491
Administrator fees payable		103,786			76,054
Interest payable		336,649			14,401
Due to affiliate		(1,574,737	)		(6,704	)
Deferred tax liability		323,287			—

NET CASH USED IN OPERATING ACTIVITIES		(100,605,293	)		(102,892,601	)

Cash flows from financing activities
Borrowings under revolving credit facility		100,000,000			25,000,000
Repayments of revolving credit facility		(65,000,000	)		(16,000,000	)
Proceeds from issuance of common stock, net of underwriting costs		72,566,865			72,777,647
Payment of cash dividends		(6,237,693	)		(2,370,419	)
Repurchase of common shares		—			(27,540	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		101,329,172			79,379,688

TOTAL INCREASE/(DECREASE) IN CASH		723,879			(23,512,913	)
CASH AT BEGINNING OF PERIOD		65,749,154			34,939,948

CASH AT END OF PERIOD	$	66,473,033		$	11,427,035

Supplemental Information
Cash paid during the period for interest	$	1,495,982		$	149,000
Supplemental non-cash information
Paid-in-kind interest income	$	347,153		$	3,704
Amortization of deferred financing costs	$	1,303,623		$	281,192
Net amortization of premium on investments	$	191,008		$	(14,561	)
Issuance of common shares in connection with distribution reinvestment plan	$	5,571,374		$	1,831,192

See accompanying notes to the consolidated financial statements.

F-4

Sierra Income Corporation

Consolidated Schedule of Investments

As of March 31, 2015

(unaudited)


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Non-controlled/non-affiliated investments — 126.5%
AAR Intermediate Holdings, LLC	Energy: Oil & Gas	Senior Secured First Lien Term Loans LIBOR + 12.000%, 1.000% Floor^(3) (4)		6/30/2015	$	1,006,234	$	1,006,234	$	1,003,369		0.2	%
		Senior Secured First Lien Term loans LIBOR + 12.000%, 1.000% Floor^{(3) (4)}		3/30/2019		11,225,798		10,548,568		10,326,090		1.8	%
		Warrants to purchase 0.625% of outstanding company equity⁽⁴⁾⁽⁵⁾		3/30/2019		790,778		790,778		503,024		0.1	%

						13,022,810		12,345,580		11,832,483
AESC Holding Corp, Inc.	Retail	Senior Secured Second Lien Term Loans LIBOR + 9.000%, 1.000% Floor⁽³⁾⁽⁴⁾		5/27/2019		7,000,000		7,000,000		7,070,000		1.3	%

						7,000,000		7,000,000		7,070,000
ALG USA Holdings, Inc.	Hotel, Gaming & Leisure	Senior Secured Second Lien Term Loans LIBOR + 9.000%, 1.250% Floor⁽⁶⁾		2/28/2020		2,000,000		1,968,665		1,999,448		0.4	%

						2,000,000		1,968,665		1,999,448
AM3 Pinnacle Corporation	Media: Broadcasting & Subscription	Senior Secured First Lien Term Loans 10.000%⁽⁴⁾⁽⁷⁾		10/22/2018		6,566,527		6,566,527		6,481,555		1.1	%

						6,566,527		6,566,527		6,481,555
American Beacon Advisors, Inc.⁽⁸⁾	Banking, Finance, Insurance & Real Estate	Senior Secured Second Lien Term Loans LIBOR + 8.750%, 1.000% Floor⁽⁶⁾		4/15/2023		6,000,000		5,880,000		5,880,000		1.0	%

						6,000,000		5,880,000		5,880,000
American Pacific Corp.	Chemicals, Plastics & Rubber	Senior Secured First Lien Term Loans LIBOR + 6.000%, 1.000% Floor⁽⁶⁾		2/27/2019		7,920,000		7,871,380		7,965,941		1.4	%

						7,920,000		7,871,380		7,965,941
Anaren, Inc.	Aerospace & Defense	Senior Secured Second Lien Term Loans LIBOR + 8.250%, 1.000% Floor⁽⁶⁾		8/18/2021		10,000,000		9,910,684		9,818,870		1.7	%

						10,000,000		9,910,684		9,818,870
Aperture Group, LLC	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term Loans LIBOR + 6.250%, 1.000% Floor⁽³⁾		8/29/2019		7,462,500		7,429,357		7,388,124		1.3	%

						7,462,500		7,429,357		7,388,124

See accompanying notes to consolidated financial statements.

F-5


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Ascensus, Inc.	Banking, Finance, Insurance & Real Estate	Senior Secured Second Lien Term Loans LIBOR + 8.000%, 1.000% Floor⁽⁶⁾		12/2/2020		4,000,000		3,951,040		4,000,000		0.7	%

						4,000,000		3,951,040		4,000,000
Associated Asphalt Partners, LLC	Chemicals, Plastics & Rubber	Senior Secured First Lien Notes 8.500%⁽⁹⁾		2/15/2018		1,778,000		1,788,562		1,753,795		0.3	%

						1,778,000		1,788,562		1,753,795
Asurion Corp.⁽⁸⁾	Banking, Finance, Insurance & Real Estate	Senior Secured Second Lien Term Loans LIBOR + 7.500%, 1.000% Floor⁽⁶⁾		3/3/2021		7,000,000		6,935,701		7,043,750		1.2	%

						7,000,000		6,935,701		7,043,750
Atrium Innovations, Inc.⁽¹⁰⁾	Healthcare & Pharmaceuticals	Senior Secured Second Lien Term Loans LIBOR + 6.750%, 1.000% Floor⁽⁶⁾		8/13/2021		5,000,000		4,977,941		4,690,230		0.8	%

						5,000,000		4,977,941		4,690,230
Bennu Oil & Gas, LLC	Energy: Oil & Gas	Senior Secured Second Lien Term Loans LIBOR + 7.500%, 1.250% Floor⁽⁶⁾		11/1/2018	$	5,511,471	$	5,507,216	$	4,615,451		0.8	%

						5,511,471		5,507,216		4,615,451
Birch Communications, Inc.	Telecommunications	Senior Secured First Lien Term Loans LIBOR + 6.750%, 1.000% Floor⁽³⁾⁽⁴⁾		7/18/2020		14,572,917		14,312,191		14,039,089		2.5	%

						14,572,917		14,312,191		14,039,089
Brundage-Bone Concrete Pumping, Inc.	Construction & Building	Senior Secured First Lien Notes 10.375%^(9)(11)		9/1/2021		7,500,000		7,637,726		7,800,000		1.4	%

						7,500,000		7,637,726		7,800,000
Capstone Nutrition	Healthcare & Pharmaceuticals	Common Stock⁽⁴⁾⁽⁵⁾				288		300,000		446,946		0.1	%
		Senior Secured First Lien Term Loans LIBOR + 9.500%, 1.000% Floor⁽³⁾⁽⁴⁾		4/28/2019		15,000,000		15,000,000		15,079,176		2.7	%

						15,000,288		15,300,000		15,526,122
Charming Charlie, Inc.	Retail	Senior Secured First Lien Term Loans LIBOR + 8.000%, 1.000% Floor⁽⁶⁾		12/24/2019		8,922,710		8,940,507		9,011,937		1.6	%

						8,922,710		8,940,507		9,011,937
Collective Brands Finance, Inc.^(8)(10)	Retail	Senior Secured Second Lien Term Loans LIBOR + 7.500%, 1.000% Floor⁽⁶⁾		3/11/2022		6,000,000		6,018,194		5,604,145		1.0	%

						6,000,000		6,018,194		5,604,145
ContMid Intermediate, Inc.	Automotive	Senior Secured Second Lien Term Loans LIBOR + 9.000%, 1.000% Floor⁽³⁾⁽⁴⁾		10/25/2019		14,317,924		14,317,924		14,189,754		2.5	%

						14,317,924		14,317,924		14,189,754

See accompanying notes to consolidated financial statements.

F-6


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
ConvergeOne Holdings Corp.	Telecommunications	Senior Secured Second Lien Term Loans LIBOR + 8.000%, 1.000% Floor⁽³⁾⁽⁴⁾		6/17/2021		12,500,000		12,384,841		12,171,698		2.2	%

						12,500,000		12,384,841		12,171,698
Cornerstone Chemical Company	Chemicals, Plastics & Rubber	Senior Secured First Lien Notes 9.375%^(9)(11)		3/15/2018		2,500,000		2,582,102		2,600,000		0.5	%

						2,500,000		2,582,102		2,600,000
CP OpCo, LLC	Services: Consumer	Senior Secured First Lien Term Loans LIBOR + 6.750%, 1.000% Floor⁽⁴⁾⁽⁶⁾		9/30/2020		8,000,000		8,000,000		7,911,763		1.4	%

						8,000,000		8,000,000		7,911,763
CRGT, Inc.	Services: Business	Senior Secured First Lien Term Loans LIBOR + 6.500%, 1.000% Floor⁽⁴⁾⁽⁶⁾		12/19/2020		9,937,500		9,937,500		9,841,378		1.7	%

						9,937,500		9,937,500		9,841,378
Deltek, Inc.	High Tech Industries	Senior Secured Second Lien Term Loans LIBOR + 8.750%, 1.250% Floor⁽⁶⁾		10/10/2019		3,000,000		2,982,409		3,060,000		0.5	%

						3,000,000		2,982,409		3,060,000
DHISCO Electronic Distribution, Inc.	Hotel, Gaming & Leisure	Senior Secured First Lien Term Loans LIBOR + 9.000% PIK, 1.500% Floor^(3)(4)(7)		2/10/2018		3,688,455		3,688,455		3,672,602		0.7	%
		Senior Secured First Lien Term loans LIBOR + 9.000%, 1.500% Floor⁽³⁾⁽⁴⁾		11/10/2019		19,523,810		19,523,810		19,359,515		3.4	%
		Warrants to purchase 4.2% of the outstanding equity⁽⁴⁾⁽⁵⁾		2/10/2018		769,231		769,231		1,108,268		0.2	%

						23,981,496		23,981,496		24,140,385
Drew Marine Partners, LP	Transportation: Cargo	Senior Secured Second Lien Term Loans LIBOR + 7.000%, 1.000% Floor⁽⁶⁾		5/19/2021		10,000,000		10,075,870		9,910,203		1.8	%

						10,000,000		10,075,870		9,910,203
Dynamic Energy Services International LLC	Energy: Oil & Gas	Senior Secured First Lien Term Loans LIBOR + 8.500%, 1.000% Floor⁽³⁾⁽⁴⁾		3/6/2018	$	9,500,000	$	9,500,000	$	9,324,725		1.7	%

						9,500,000		9,500,000		9,324,725
EarthLink, Inc.⁽¹⁰⁾	Telecommunications	Senior Secured First Lien Notes 7.375%^(9)(11)		6/1/2020		2,450,000		2,439,433		2,520,437		0.4	%

						2,450,000		2,439,433		2,520,437
Encompass Digital Media, Inc.⁽⁸⁾	Telecommunications	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		6/6/2022		1,500,000		1,486,482		1,481,115		0.3	%

						1,500,000		1,486,482		1,481,115

See accompanying notes to consolidated financial statements.

F-7


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
FKI Security Group LLC	Capital Equipment	Senior Secured First Lien Term Loans LIBOR + 8.500%, 1.000% Floor⁽³⁾⁽⁴⁾		3/30/2020		15,000,000		15,000,000		15,000,000		2.7	%

						15,000,000		15,000,000		15,000,000
Flexera Software, LLC⁽⁸⁾	High Tech Industries	Senior Secured Second Lien Term Loans LIBOR + 7.000%, 1.000% Floor⁽⁶⁾		4/2/2021		5,000,000		5,017,949		4,798,172		0.9	%

						5,000,000		5,017,949		4,798,172
Gastar Exploration USA, Inc.⁽¹⁰⁾	Energy: Oil & Gas	Senior Secured First Lien Notes 8.625%^(9)(11)		5/15/2018		5,400,000		5,412,750		4,981,500		0.9	%

						5,400,000		5,412,750		4,981,500
Genex Holdings, Inc.⁽⁸⁾	Banking, Finance, Insurance & Real Estate	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		5/30/2022		9,500,000		9,530,988		9,216,123		1.6	%

						9,500,000		9,530,988		9,216,123
GK Holdings, Inc.	Services: Business	Senior Secured Second Lien Term Loans LIBOR + 9.500%, 1.000% Floor⁽³⁾		1/20/2022		10,000,000		10,000,000		10,000,000		1.8	%

						10,000,000		10,000,000		10,000,000
Green Field Energy Services, Inc.	Energy: Oil & Gas	Senior Secured First Lien Notes 13.000%^(4)(9)(12)		11/15/2016		766,616		755,049		237,651		0.0	%
		Warrants/Equity⁽⁴⁾⁽⁵⁾		11/15/2021		709		29,000		—		0.0	%

						767,325		784,049		237,651
GTCR Valor Companies, Inc.	High Tech Industries	Senior Secured First Lien Term Loans LIBOR + 5.000%, 1.000% Floor⁽⁶⁾		5/30/2021		7,948,626		7,875,158		7,705,656		1.4	%
		Senior Secured Second Lien Term Loans LIBOR + 8.500%, 1.000% Floor⁽⁶⁾		11/30/2021		4,000,000		3,962,818		3,868,350		0.7	%

						11,948,626		11,837,976		11,574,006
H.D. Vest, Inc.	Banking, Finance, Insurance & Real Estate	Senior Secured Second Lien Term Loans LIBOR + 8.000%, 1.250% Floor⁽³⁾		3/17/2021		16,500,000		16,500,000		16,500,000		2.9	%

						16,500,000		16,500,000		16,500,000
HBC Holdings, LLC	Wholesale	Senior Secured First Lien Term Loans LIBOR + 5.750%, 1.000% Floor⁽⁴⁾⁽⁶⁾		3/30/2020		14,925,000		14,925,000		14,925,005		2.6	%

						14,925,000		14,925,000		14,925,005
Heligear Acquisition Co.	Aerospace & Defense	Senior Secured First Lien Notes 10.250%⁽⁴⁾⁽⁹⁾		10/15/2019		15,000,000		15,000,000		14,681,250		2.6	%

						15,000,000		15,000,000		14,681,250
Hill International, Inc.	Construction & Building	Senior Secured First Lien Term Loans LIBOR + 6.750%, 1.000% Floor⁽⁴⁾⁽⁶⁾		9/26/2020		16,915,000		16,915,000		16,915,023		3.0	%

						16,915,000		16,915,000		16,915,023

See accompanying notes to consolidated financial statements.

F-8


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Holland Acquisition Corp.	Energy: Oil & Gas	Senior Secured First Lien Term Loans LIBOR + 9.000%, 1.000% Floor⁽⁶⁾		5/29/2018	$	5,000,000	$	4,926,578	$	4,651,396		0.8	%

						5,000,000		4,926,578		4,651,396
Ignite Restaurant Group, Inc.	Hotel, Gaming & Leisure	Senior Secured First Lien Term Loans LIBOR + 7.000%, 1.000% Floor⁽⁶⁾		2/13/2019		11,940,000		11,779,593		11,913,399		2.1	%

						11,940,000		11,779,593		11,913,399
Integra Telecom Holdings, Inc.	Telecommunications	Senior Secured Second Lien Term Loans LIBOR + 8.500%, 1.250% Floor⁽³⁾⁽⁴⁾		2/22/2020		735,455		733,850		722,158		0.1	%

						735,455		733,850		722,158
Interface Security Systems, Inc.	Services: Consumer	Senior Secured First Lien Notes 9.250%⁽⁹⁾		1/15/2018		3,417,000		3,460,320		3,429,813		0.6	%

						3,417,000		3,460,320		3,429,813
IPS Corporation	Wholesale	Senior Secured First Lien Term Loans LIBOR + 6.250%, 1.000% Floor⁽⁶⁾		2/5/2021		15,000,000		15,000,000		15,000,000		2.7	%

						15,000,000		15,000,000		15,000,000
IronGate Energy Services, LLC	Energy: Oil & Gas	Senior Secured First Lien Notes 11.000%^(9)(11)		7/1/2018		3,000,000		2,959,115		2,028,750		0.4	%

						3,000,000		2,959,115		2,028,750
Isola USA Corp.⁽⁸⁾	High Tech Industries	Senior Secured First Lien Term Loans LIBOR + 8.250%, 1.000% Floor⁽⁶⁾		11/29/2018		5,836,871		5,953,452		5,852,939		1.0	%

						5,836,871		5,953,452		5,852,939
JAC Holding Corp.	Automotive	Senior Secured First Lien Notes 11.500%^(4)(9)(11)		10/1/2019		12,000,000		12,000,000		12,360,000		2.2	%

						12,000,000		12,000,000		12,360,000
Jordan Reses Supply Company, LLC	Healthcare & Pharmaceuticals	Senior Secured Second Lien Term Loans LIBOR + 11.000%, 1.000% Floor⁽³⁾⁽⁴⁾		4/24/2020		5,000,000		5,000,000		5,061,605		0.9	%

						5,000,000		5,000,000		5,061,605
Kik Custom Products, Inc.	Consumer Goods: Non-durable	Senior Secured Second Lien Term Loans LIBOR + 8.250%, 1.250% Floor⁽¹³⁾		10/29/2019		5,000,000		4,991,761		4,964,428		0.9	%

						5,000,000		4,991,761		4,964,428
Liquidnet Holdings, Inc.	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term Loans LIBOR + 6.750%, 1.000% Floor⁽⁶⁾		5/22/2019		6,737,500		6,650,613		6,635,224		1.2	%

						6,737,500		6,650,613		6,635,224
Livingston International, Inc.^(8)(10)	Transportation: Cargo	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.250% Floor⁽⁶⁾		4/18/2020		2,658,504		2,654,411		2,535,659		0.5	%

						2,658,504		2,654,411		2,535,659

See accompanying notes to consolidated financial statements.

F-9


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
LTCG Holdings Corp.	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term Loans LIBOR + 5.000%, 1.000% Floor⁽⁶⁾		6/6/2020		3,850,000		3,833,174		3,825,617		0.7	%

						3,850,000		3,833,174		3,825,617
Miller Heiman, Inc.	Services: Business	Senior Secured First Lien Term Loans LIBOR + 5.750%, 1.000% Floor⁽⁶⁾		9/30/2019	$	24,531,250	$	24,531,250	$	24,398,372		4.3	%

						24,531,250		24,531,250		24,398,372
Nathan’s Famous, Inc.⁽¹⁰⁾	Beverage, Food & Tobacco	Senior Secured First Lien Notes 10.000%⁽¹¹⁾		3/15/2020		7,000,000		7,000,000		7,341,250		1.3	%

						7,000,000		7,000,000		7,341,250
Nation Safe Drivers Holdings, Inc.	Banking, Finance, Insurance & Real Estate	Senior Secured Second Lien Term Loans LIBOR + 8.000%, 2.000% Floor⁽⁴⁾⁽⁶⁾		9/29/2020		20,676,479		20,676,479		20,537,174		3.6	%

						20,676,479		20,676,479		20,537,174
New Media Holdings II, LLC	Media: Advertising, Printing & Publishing	Senior Secured First Lien Term Loans LIBOR + 6.250%, 1.000% Floor⁽⁶⁾		6/4/2020		22,381,213		22,381,213		22,151,757		3.9	%

						22,381,213		22,381,213		22,151,757
Newpage Corp.	Media: Advertising, Printing & Publishing	Senior Secured First Lien Term Loans LIBOR + 8.250%, 1.250% Floor⁽⁶⁾		2/11/2021		9,792,917		9,679,657		9,413,442		1.7	%

						9,792,917		9,679,657		9,413,442
Northern Lights MIDCO, LLC	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term Loans LIBOR + 9.500%, 1.500% Floor⁽³⁾⁽⁴⁾		11/21/2019		4,700,000		4,700,000		4,777,685		0.8	%

						4,700,000		4,700,000		4,777,685
Omnitracs, Inc.	High Tech Industries	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		5/25/2021		7,000,000		7,014,232		6,946,444		1.2	%

						7,000,000		7,014,232		6,946,444
Oxford Mining Company, LLC	Metals & Mining	Senior Secured First Lien Term Loans LIBOR + 8.500%, 0.750% Floor, 3% PIK^(4)(6)(7)		12/31/2018		11,953,390		11,953,390		11,857,365		2.1	%

						11,953,390		11,953,390		11,857,365
Reddy Ice Corporation	Beverage, Food & Tobacco	Senior Secured Second Lien Term Loans LIBOR + 9.500%, 1.250% Floor⁽³⁾⁽⁴⁾		10/1/2019		2,000,000		2,000,000		1,857,323		0.3	%

						2,000,000		2,000,000		1,857,323
Research Now Group, Inc.	Services: Business	Senior Secured Second Lien Term Loans LIBOR + 8.750%, 1.000% Floor⁽⁶⁾		3/18/2022		15,000,000		15,000,000		15,000,000		2.7	%

						15,000,000		15,000,000		15,000,000

See accompanying notes to consolidated financial statements.

F-10


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Response Team Holdings, LLC	Construction & Building	Preferred Equity 12%^{(4) (5)}			$	3,138,480	$	2,881,073	$	3,110,679		0.6	%
		Senior Secured First Lien Term Loans LIBOR + 8.000%, 2.000% Floor, 1% PIK⁽³⁾⁽⁴⁾		3/28/2019		15,244,627		15,244,627		15,473,487		2.7	%
		Warrants to purchase 3.70% of the outstanding common units ⁽⁴⁾⁽⁵⁾		3/28/2019		257,407		257,407		768,262		0.1	%

						18,640,514		18,383,107		19,352,428
School Specialty, Inc.	Wholesale	Senior Secured First Lien Term Loans LIBOR + 8.500%, 1.000% Floor⁽⁶⁾		6/11/2019		10,878,628		10,803,513		10,821,315		1.9	%

						10,878,628		10,803,513		10,821,315
Sizzling Platter, LLC	Hotel, Gaming & Leisure	Senior Secured First Lien Term Loans LIBOR + 7.500%, 1.000% Floor⁽⁶⁾		4/28/2019		15,000,000		15,000,000		15,130,610		2.7	%

						15,000,000		15,000,000		15,130,610
Southwest Dealer Services, Inc.	Automotive	Senior Secured First Lien Term Loans LIBOR + 6.000%, 1.000% Floor⁽³⁾⁽⁴⁾		3/16/2020		7,000,000		7,000,000		7,000,000		1.2	%

						7,000,000		7,000,000		7,000,000
Survey Sampling International, LLC	Services: Business	Senior Secured Second Lien Term Loans LIBOR + 9.000%, 1.000% Floor⁽⁶⁾		12/16/2021		24,000,000		24,000,000		23,708,520		4.2	%

						24,000,000		24,000,000		23,708,520
Tempel Steel Company	Metals & Mining	Senior Secured First Lien Notes 12.000%^(4)(9)(11)		8/15/2016		1,115,000		1,109,706		943,569		0.2	%

						1,115,000		1,109,706		943,569
TGI Friday’s, Inc.	Hotel, Gaming & Leisure	Senior Secured Second Lien Term Loans LIBOR + 8.250%, 1.000% Floor⁽⁴⁾⁽⁶⁾		7/15/2021		15,000,000		14,794,289		14,767,131		2.6	%

						15,000,000		14,794,289		14,767,131
Tourico Holidays, Inc.	Hotel, Gaming & Leisure	Senior Secured First Lien Term Loans LIBOR + 7.500%, 1.000% Floor⁽³⁾		11/5/2018		14,812,500		14,812,500		14,724,488		2.6	%

						14,812,500		14,812,500		14,724,488
TravelCLICK, Inc.⁽⁸⁾	Hotel, Gaming & Leisure	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		11/6/2021		6,000,000		5,917,326		5,740,809		1.0	%

						6,000,000		5,917,326		5,740,809
True Religion Apparel, Inc.	Retail	Senior Secured Second Lien Term Loans LIBOR + 10.000%, 1.000% Floor⁽¹³⁾		1/30/2020		4,000,000		3,859,078		3,745,482		0.7	%

						4,000,000		3,859,078		3,745,482

See accompanying notes to consolidated financial statements.

F-11


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value			% of Net Assets⁽²⁾
U.S. Well Services, LLC	Energy: Oil & Gas	Warrants/Equity ⁽⁵⁾		2/15/2019		1,731		173		227,107			0.0	%

						1,731		173		227,107
Valence Surface Technologies, Inc.	Aerospace & Defense	Senior Secured First Lien Term Loans LIBOR + 5.500%, 1.000% Floor⁽³⁾		6/13/2019		9,809,037		9,746,854		9,613,610			1.7	%

						9,809,037		9,746,854		9,613,610
Velocity Pooling Vehicle, LLC	Automotive	Senior Secured Second Lien Term Loans LIBOR + 7.250%, 1.000% Floor⁽³⁾⁽⁴⁾		5/14/2022	$	20,625,000	$	17,988,981	$	17,910,463			3.2	%

						20,625,000		17,988,981		17,910,463
Vestcom International, Inc.	Services: Business	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.000% Floor⁽¹³⁾		9/30/2022		5,000,000		5,000,000		4,930,554			0.9	%

						5,000,000		5,000,000		4,930,554
YP LLC⁽⁸⁾	Media: Advertising, Printing & Publishing	Senior Secured First Lien Term Loans LIBOR + 6.750%, 1.250% Floor⁽⁶⁾		6/4/2018		4,130,435		4,167,201		4,128,667			0.7	%

						4,130,435		4,167,201		4,128,667
Z Gallerie, LLC	Retail	Senior Secured First Lien Term Loans LIBOR + 6.500%, 1.000% Floor⁽¹³⁾		10/8/2020		10,000,000		9,893,779		9,884,414			1.8	%

						10,000,000		9,893,779		9,884,414

Total non-controlled/non-affiliated investments							$	720,308,635	$	714,392,095			126.5	%


Derivative Instrument — Long Exposure							Notional Amount		Unrealized Appreciation (Depreciation)
Total return swap with Citibank, N.A. (Note 5)		Total Return Swap					$	229,558,619	$	(4,844,580	)

							$	229,558,619	$	(4,844,580	)

⁽¹⁾	All of the Company’s investments are domiciled in the United States except for Atrium Innovations, Inc. and Livingston International, Inc. which are domiciled in Canada.

⁽²⁾	Percentage is based on net assets of $564,846,965 as of March 31, 2015.

⁽³⁾

The interest rate on these loans is subject to a base rate plus 1M LIBOR, which at March 31, 2015 was 0.18%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1M LIBOR rate at March 31, 2015, the prevailing rate in effect at March 31, 2015 was the base rate plus the LIBOR floor.

⁽⁴⁾	An affiliated fund that is managed by an affiliate of SIC Advisors LLC also holds an investment in this security.

⁽⁵⁾	Security is non-income producing.

⁽⁶⁾

The interest rate on these loans is subject to a base rate plus 3M LIBOR, which at March 31, 2015 was 0.27%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3M LIBOR rate at March 31, 2015, the prevailing rate in effect at March 31, 2015 was the base rate plus the LIBOR floor.

⁽⁷⁾	The investment has an unfunded commitment as of March 31, 2015. For further details, see Note 11. Fair value includes an analysis of the unfunded commitment.

⁽⁸⁾

Security is also held in the underlying portfolio of the total return swap with Citibank, N.A. (see Note 5). The Company’s total exposure to American Beacon Advisors, Inc., Asurion Corp., Collective Brands Finance, Inc., Encompass Digital Media, Inc., Flexera Software, LLC, Genex Holdings, Inc., Isola USA Corp., Livingston International, Inc., TravelCLICK, Inc., and YP LLC is $6,875,000 or 1.2%, $16,889,761 or 3.0%, $11,536,814 or 2.0%, $6,431,240 or 1.1%, $7,065,047 or 1.3%, $11,196,173 or 2.0%, $9,694,439 or 1.7%, $4,505,102 or 0.8%, $20,518,439 or 3.6%, $8,290,080 or 1.5%, respectively, of Net Assets as of March 31, 2015.

See accompanying notes to consolidated financial statements.

F-12

⁽⁹⁾	Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $53,336,765 and 9.4% of net assets as of March 31, 2015 and are considered restricted.

⁽¹⁰⁾	The investment is not a qualifying asset under Section 55 of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 3.9% of the Company’s portfolio at fair value.

⁽¹¹⁾	Represents securities in Level 2 in the ASC 820 table (see Note 4).

⁽¹²⁾	The investment was on non-accrual status as of March 31, 2015.

⁽¹³⁾

The interest rate on these loans is subject to a base rate plus 6M LIBOR, which at March 31, 2015 was 0.40%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6M LIBOR rate at March 31, 2015, the prevailing rate in effect at March 31, 2015 was the base rate plus the LIBOR floor.

1 Month

3 Month

6 Month

See accompanying notes to consolidated financial statements.

F-13

Sierra Income Corporation

Consolidated Schedule of Investments

As of December 31, 2014


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Non-controlled/non-affiliated investments — 126.8%
AAR Intermediate Holdings, LLC	Oil and Gas	Senior Secured First Lien Term Loans
		LIBOR + 12.000%, 1.000% Floor⁽³⁾⁽⁴⁾		6/30/2015	$	1,006,234	$	1,006,234	$	997,872		0.2	%
		Senior Secured First Lien Term Loans LIBOR + 12.000%, 1.000% Floor⁽³⁾⁽⁴⁾		3/30/2019		11,697,470		10,938,261		10,703,771		2.2	%

		Warrants to purchase 1.98% of outstanding company equity⁽⁴⁾⁽⁵⁾		3/30/2019		790,778		790,778		598,870		0.1	%

						13,494,482		12,735,273		12,300,513
ALG USA Holdings, Inc.	Leisure, Amusement,	Senior Secured Second Lien Term Loans

	Motion Pictures, and Entertainment	LIBOR + 9.000%, 1.250% Floor⁽⁶⁾		2/28/2020		2,000,000		1,967,491		2,011,269		0.4	%

						2,000,000		1,967,491		2,011,269
Allen Edmonds Corp.	Retail Stores	Senior Secured Second Lien Term Loans
		LIBOR + 9.000%, 1.000% Floor⁽³⁾⁽⁴⁾		5/27/2019		7,000,000		7,000,000		7,070,000		1.5	%

						7,000,000		7,000,000		7,070,000
AM3 Pinnacle Corporation	Telecommunications	Senior Secured First Lien Term Loans
		10.000%⁽⁴⁾⁽⁷⁾		10/22/2018		6,533,857		6,533,857		6,533,857		1.3	%

						6,533,857		6,533,857		6,533,857
American Pacific Corp.	Chemicals, Plastics, and Rubber	Senior Secured First Lien Term Loans
		LIBOR + 6.000%, 1.000% Floor⁽⁶⁾		2/27/2019		7,940,000		7,888,650		8,056,333		1.7	%

						7,940,000		7,888,650		8,056,333
Anaren, Inc.	Aerospace and Defense	Senior Secured Second Lien Term Loans LIBOR + 8.250%, 1.000% Floor⁽⁶⁾		8/18/2021		10,000,000		9,908,218		9,935,749		2.0	%

						10,000,000		9,908,218		9,935,749
Ascensus, Inc.	Finance	Senior Secured Second Lien Term Loans LIBOR + 8.000%, 1.000% Floor⁽⁶⁾		12/2/2020		4,000,000		3,948,926		4,000,000		0.8	%

						4,000,000		3,948,926		4,000,000
Associated Asphalt Partners, LLC	Chemicals, Plastics, and Rubber	Senior Secured First
Associated Asphalt Partners, LLC	Chemicals, Plastics, and Rubber	Lien Notes 8.500%⁽⁸⁾		2/15/2018		2,000,000		2,013,443		1,993,534		0.4	%

						2,000,000		2,013,443		1,993,534
Asurion Corp.⁽⁹⁾	Insurance	Senior Secured Second Lien Term Loans LIBOR + 7.500%, 1.000% Floor⁽⁶⁾		3/3/2021		7,000,000		6,935,000		7,000,000		1.4	%

						7,000,000		6,935,000		7,000,000

F-14


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Atrium Innovations, Inc.⁽¹⁰⁾	Healthcare, Education, and Childcare	Senior Secured Second Lien Term Loans
Atrium Innovations, Inc.⁽¹⁰⁾	Healthcare, Education, and Childcare	LIBOR + 6.750%, 1.000% Floor⁽⁶⁾		8/13/2021		5,000,000		4,977,296		4,743,856		1.0	%

						5,000,000		4,977,296		4,743,856
Bennu Oil & Gas, LLC	Oil and Gas	Senior Secured Second Lien Term Loans
		LIBOR + 7.500%, 1.250% Floor⁽⁶⁾		11/1/2018		5,525,389		5,520,837		4,570,180		0.9	%

						5,525,389		5,520,837		4,570,180
Birch Communications, Inc.	Telecommunications	Senior Secured First Lien Term Loans
		LIBOR + 6.750%, 1.000% Floor⁽³⁾⁽⁴⁾		7/18/2020		14,572,917		14,300,451		14,042,615		2.9	%

						14,572,917		14,300,451		14,042,615
Brundage-Bone Concrete Pumping, Inc.	Buildings and Real Estate	Senior Secured First
Brundage-Bone Concrete Pumping, Inc.	Buildings and Real Estate	Lien Notes 10.375%⁽⁸⁾		9/1/2021		7,500,000		7,641,129		7,600,484		1.6	%

						7,500,000		7,641,129		7,600,484
Charming Charlie, Inc.	Retail Stores	Senior Secured First Lien Term Loans
		LIBOR + 8.000%, 1.000% Floor⁽⁶⁾		12/24/2019		8,945,242		8,963,787		9,034,694		1.9	%

						8,945,242		8,963,787		9,034,694
Collective Brands Finance, Inc.^(9)(10)	Retail Stores	Senior Secured Second Lien Term Loans LIBOR + 7.500%, 1.000% Floor⁽⁶⁾		3/11/2022		6,000,000		6,018,670		5,669,782		1.2	%

						6,000,000		6,018,670		5,669,782
Contmid, Inc.	Automobile	Senior Secured Second Lien Term Loans LIBOR + 9.000%, 1.000% Floor⁽³⁾⁽⁴⁾		10/25/2019		14,317,924		14,317,924		14,317,924		2.9	%

						14,317,924		14,317,924		14,317,924
ConvergeOne Holdings Corporation	Telecommunications	Senior Secured Second Lien Term Loans
		LIBOR + 8.000%, 1.000% Floor⁽³⁾⁽⁴⁾		6/17/2021		12,500,000		12,381,463		12,312,750		2.5	%

						12,500,000		12,381,463		12,312,750
Cornerstone Chemical Company	Chemicals, Plastics, and Rubber	Senior Secured First
Cornerstone Chemical Company	Chemicals, Plastics, and Rubber	Lien Notes^(8)(11)		3/15/2018		2,500,000		2,587,841		2,550,000		0.5	%

						2,500,000		2,587,841		2,550,000
CP Opco, LLC	Leisure, Amusement, Motion Pictures, and Entertainment	Senior Secured First Lien Term Loans LIBOR + 6.750%, 1.000% Floor⁽⁴⁾⁽⁶⁾		9/30/2020		8,000,000		8,000,000		8,000,000		1.6	%

						8,000,000		8,000,000		8,000,000
CRGT, Inc.	Diversified/Conglomerate Service	Senior Secured First Lien Term Loans LIBOR + 6.500%, 1.000% Floor⁽⁴⁾⁽⁶⁾		12/19/2020		10,000,000		10,000,000		10,000,000		2.1	%

						10,000,000		10,000,000		10,000,000
Deltek, Inc.	Electronics	Senior Secured Second Lien Term Loans LIBOR + 8.750%, 1.250% Floor⁽⁶⁾		10/10/2019		3,000,000		2,981,523		3,060,000		0.6	%

						3,000,000		2,981,523		3,060,000

F-15


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Drew Marine Partners LP	Cargo Transport	Senior Secured Second Lien Term Loans
		LIBOR + 7.000%, 1.000% Floor⁽⁶⁾		5/19/2021		10,000,000		10,078,927		10,033,409		2.1	%

						10,000,000		10,078,927		10,033,409
Dynamic Energy Services International, LLC	Oil and Gas	Senior Secured First Lien Term Loans
		LIBOR + 8.500%, 1.000% Floor⁽³⁾⁽⁴⁾		3/6/2018		9,625,000		9,625,000		9,338,439		1.9	%

						9,625,000		9,625,000		9,338,439
EarthLink, Inc.⁽¹⁰⁾	Telecommunications	Senior Secured First
		Lien Notes 7.375%^(8)(11)		6/1/2020		2,450,000		2,439,171		2,462,250		0.5	%

						2,450,000		2,439,171		2,462,250
Encompass Digital Media, Inc.⁽⁹⁾	Broadcasting and Entertainment	Senior Secured Second Lien Term Loans
		LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		6/6/2022		1,500,000		1,486,019		1,500,568		0.3	%

						1,500,000		1,486,019		1,500,568
F.H.G. Corp.	Healthcare, Education, and	Senior Secured First Lien Term Loans
	Childcare	LIBOR + 9.500%, 1.000% Floor⁽³⁾⁽⁴⁾		4/28/2019		15,000,000		15,000,000		14,880,354		3.1	%

						15,000,000		15,000,000		14,880,354
F.H.G. Corp. Cornerstone Research	Healthcare, Education, and Childcare	Common Stock⁽⁴⁾⁽⁵⁾
F.H.G. Corp. Cornerstone Research	Healthcare, Education, and Childcare					288		300,000		63,169		0.0	%

						288		300,000		63,169
Flexera Software, Inc.⁽⁹⁾	Electronics	Senior Secured Second Lien Term Loans
		LIBOR + 7.000%, 1.000% Floor⁽⁶⁾		4/2/2021		5,000,000		5,018,504		4,852,592		1.0	%

						5,000,000		5,018,504		4,852,592
Gastar Exploration USA, Inc.⁽¹⁰⁾	Oil and Gas	Senior Secured First
Gastar Exploration USA, Inc.⁽¹⁰⁾		Lien Notes 8.625%^(8)(11)		5/15/2018		5,400,000		5,413,659		4,731,750		1.0	%

						5,400,000		5,413,659		4,731,750
Genex Services, Inc.⁽⁹⁾	Insurance	Senior Secured Second Lien Term Loans
		LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		5/30/2022		9,500,000		9,531,763		9,299,753		1.9	%

						9,500,000		9,531,763		9,299,753
Green Field Energy Services, Inc.	Oil and Gas	Senior Secured First Lien Notes 13.000%^(4)(8)(12)		11/15/2016		766,616		755,260		237,651		0.1	%

		Warrants/Equity⁽⁴⁾⁽⁵⁾		11/15/2021		709		29,000		—		0.0	%

						767,325		784,260		237,651
GTCR Valor Companies, Inc.	Electronics	Senior Secured First Lien Term Loans
		LIBOR + 5.000%, 1.000% Floor⁽⁶⁾		5/30/2021		7,968,616		7,892,569		7,788,079		1.6	%

F-16


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
		Senior Secured Second Lien Term Loans LIBOR + 8.500%, 1.000% Floor⁽⁶⁾		11/30/2021		4,000,000		3,961,852		3,914,693		0.8	%

						11,968,616		11,854,421		11,702,772
HBC Holdings, LLC	Diversified/ Conglomerate	Senior Secured First Lien Term Loans
	Service	LIBOR + 5.750%, 1.000% Floor⁽⁴⁾⁽⁶⁾		3/30/2020		14,962,500		14,962,500		14,962,500		3.1	%

						14,962,500		14,962,500		14,962,500
Hill International, Inc.	Buildings and Real Estate	Senior Secured First Lien Term Loans
	Buildings and Real Estate	LIBOR + 6.750%, 1.000% Floor⁽⁴⁾⁽⁶⁾		9/25/2020		16,957,500		16,957,500		16,957,457		3.5	%

						16,957,500		16,957,500		16,957,457
Holland Acquisition Corp.	Oil and Gas	Senior Secured First Lien Term Loans
		LIBOR + 9.000%, 1.000% Floor⁽⁶⁾		5/29/2018		5,000,000		4,921,900		4,599,148		0.9	%

						5,000,000		4,921,900		4,599,148
Ignite Restaurant Group, Inc.	Personal, Food, and Miscellaneous Services	Senior Secured First Lien Term Loans
	Personal, Food, and Miscellaneous Services	LIBOR + 7.000%, 1.000% Floor⁽⁶⁾		2/13/2019		11,970,000		11,799,221		11,970,000		2.5	%

						11,970,000		11,799,221		11,970,000
Integra Telecom, Inc.	Telecommunications	Senior Secured Second Lien Term Loans
		LIBOR + 8.500%, 1.250% Floor⁽³⁾⁽⁴⁾		2/22/2020		735,455		733,682		728,204		0.2	%

						735,455		733,682		728,204
Interface Security Systems, Inc.	Electronics	Senior Secured First Lien Notes 9.250%⁽⁴⁾⁽⁸⁾		1/15/2018		3,417,000		3,463,712		3,484,637		0.7	%

						3,417,000		3,463,712		3,484,637
IronGate Energy Services, LLC	Oil and Gas	Senior Secured First Lien Notes 11.000%⁽⁸⁾		7/1/2018		3,000,000		2,957,768		2,588,307		0.5	%

						3,000,000		2,957,768		2,588,307
Isola USA⁽⁹⁾	Electronics	Senior Secured First
		Lien Term Loans LIBOR + 8.250%, 1.000% Floor⁽⁶⁾		11/29/2018		5,874,528		5,999,752		5,931,034		1.2	%

						5,874,528		5,999,752		5,931,034
JAC Holdings Corp.	Automobile	Senior Secured First Lien Notes 11.500%⁽⁴⁾⁽⁸⁾		10/1/2019		12,000,000		12,000,000		12,000,000		2.5	%

						12,000,000		12,000,000		12,000,000
Jordan Reses Supply Company LLC	Healthcare, Education, and Childcare	Senior Secured Second Lien Term Loans
	Healthcare, Education, and Childcare	LIBOR + 11.000%, 1.000% Floor⁽³⁾⁽⁴⁾		4/24/2020		5,000,000		5,000,000		5,000,000		1.0	%

						5,000,000		5,000,000		5,000,000
Kik Custom Products, Inc.	Healthcare, Education, and Childcare	Senior Secured Second Lien Term Loans
	Healthcare, Education, and Childcare	LIBOR + 8.250%, 1.250% Floor⁽¹³⁾		10/29/2019		5,000,000		4,991,433		5,006,500		1.0	%

						5,000,000		4,991,433		5,006,500
Linc Energy Finance (USA), Inc.	Oil and Gas	Senior Secured Second
Linc Energy Finance (USA), Inc.		Lien Notes 12.500%⁽⁴⁾⁽⁸⁾		10/31/2017		500,000		498,615		504,137		0.1	%

F-17


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
		Senior Secured Second Lien Notes 12.500%⁽⁴⁾		10/31/2017		500,000		487,623		504,137		0.1	%

						1,000,000		986,238		1,008,274
Liquidnet Holdings, Inc.	Finance	Senior Secured First Lien Term Loans
		LIBOR + 6.750%, 1.000% Floor⁽⁶⁾		5/22/2019		6,825,000		6,732,689		6,564,518		1.4	%

						6,825,000		6,732,689		6,564,518
Livingston International, Inc.^(9)(10)	Cargo Transport	Senior Secured Second Lien Term Loans
Livingston International, Inc.^(9)(10)		LIBOR + 7.750%, 1.250% Floor⁽⁶⁾		4/18/2020		2,658,504		2,654,268		2,555,694		0.5	%

						2,658,504		2,654,268		2,555,694
LTCG Holdings Corp.	Healthcare, Education, and Childcare	Senior Secured Second Lien Term Loans
	Healthcare, Education, and Childcare	LIBOR + 5.000%, 1.000% Floor⁽⁶⁾		6/6/2020		3,900,000		3,882,146		3,912,136		0.8	%

						3,900,000		3,882,146		3,912,136
Miller Heiman, Inc.	Diversified/Conglomerate Service	Senior Secured First Lien Term Loans LIBOR + 5.750%, 1.000% Floor⁽⁶⁾		9/30/2019		24,687,500		24,687,500		24,687,500		5.1	%

						24,687,500		24,687,500		24,687,500
Nation Safe Drivers Holdings, Inc.	Insurance	Senior Secured Second Lien Term Loans
		LIBOR + 8.000%, 2.000% Floor^(4)(6)(7)		9/29/2020		18,236,058		18,236,058		18,236,058		3.8	%

						18,236,058		18,236,058		18,236,058
New Media Holdings II, LLC	Printing and Publishing	Senior Secured First Lien Term Loans
	Printing and Publishing	LIBOR + 6.250%, 1.000% Floor⁽⁶⁾		6/4/2020		12,437,500		12,437,500		12,437,500		2.6	%

						12,437,500		12,437,500		12,437,500
Newpage Corp.	Containers, Packaging, and Glass	Senior Secured First Lien Term Loans LIBOR + 8.250%, 1.250% Floor⁽⁶⁾		2/11/2021		10,000,000		9,879,551		10,059,144		2.1	%

						10,000,000		9,879,551		10,059,144
Northern Lights Midco, LLC	Finance	Senior Secured First Lien Term Loans
		LIBOR + 9.500%, 1.500% Floor⁽³⁾⁽⁴⁾		11/21/2019		4,700,000		4,700,000		4,700,000		1.0	%

						4,700,000		4,700,000		4,700,000
Northstar Aerospace, Inc.	Aerospace and Defense	Senior Secured First Lien Notes 10.250%⁽⁴⁾⁽⁸⁾		10/15/2019		15,000,000		15,000,000		15,000,000		3.1	%

						15,000,000		15,000,000		15,000,000
OH Acquisition, LLC	Finance	Senior Secured First Lien Term Loans
		LIBOR + 6.250%, 1.000% Floor⁽³⁾		8/29/2019		7,481,250		7,446,184		7,443,844		1.5	%

						7,481,250		7,446,184		7,443,844
Omnitracs, Inc.	Electronics	Senior Secured Second Lien Term Loans LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		5/25/2021		7,000,000		7,014,550		7,007,467		1.4	%

						7,000,000		7,014,550		7,007,467

F-18


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Oxford Mining Company, LLC	Mining, Steel, Iron, and Nonprecious Metals	Senior Secured First Lien Term Loans
	Mining, Steel, Iron, and Nonprecious Metals	LIBOR + 8.500%, 0.750% Floor, 3% PIK^(4)(6)(7)		12/31/2018		11,864,407		11,864,407		11,864,407		2.4	%

						11,864,407		11,864,407		11,864,407
Pegasus Solutions, Inc.	Diversified/ Conglomerate Service	Senior Secured First Lien Term Loans
	Diversified/ Conglomerate Service	LIBOR + 9.000%, 1.500% Floor^(3)(4)(7)		5/10/2017		—		—		—		0.0	%

		Senior Secured First Lien Term Loans LIBOR + 9.000%, 1.500% Floor⁽³⁾⁽⁴⁾		2/10/2018		3,593,304		3,593,304		3,593,304		0.7	%

		Senior Secured First Lien Term Loans LIBOR + 9.000%, 1.500% Floor, PIK⁽³⁾⁽⁴⁾		11/10/2020		19,523,809		19,523,809		19,523,809		4.0	%

		Warrants to purchase 4.2% of the outstanding equity⁽⁴⁾⁽⁵⁾		02/10/2018		769,231		769,231		769,231		0.2	%

						23,886,344		23,886,344		23,886,344
Reddy Ice Group, Inc.	Beverage, Food, and Tobacco	Senior Secured Second Lien Term Loans
	Beverage, Food, and Tobacco	LIBOR + 9.500%, 1.250% Floor⁽³⁾⁽⁴⁾		10/1/2019		2,000,000		2,000,000		1,866,703		0.4	%

						2,000,000		2,000,000		1,866,703
Response Team Holdings, LLC	Buildings and Real Estate	Preferred Equity 12%⁽⁴⁾⁽⁵⁾				3,046,179		2,788,771		2,906,831		0.6	%

		Senior Secured First Lien Term Loans LIBOR + 8.500%, 2.000% Floor, 1% PIK⁽³⁾⁽⁴⁾		3/28/2019		15,206,579		15,206,579		15,287,086		3.1	%

		Warrants to purchase 3.70% of the outstanding common units⁽⁴⁾⁽⁵⁾		3/28/2019		257,407		257,407		596,258		0.1	%

						18,510,165		18,252,757		18,790,175
School Specialty, Inc.	Healthcare, Education, and Childcare	Senior Secured First Lien Term Loans
	Healthcare, Education, and Childcare	LIBOR + 8.500%, 1.000% Floor⁽⁶⁾		6/11/2019		10,895,272		10,815,266		10,901,620		2.2	%

						10,895,272		10,815,266		10,901,620
Securus Technologies, Inc.	Telecommunications	Senior Secured Second Lien Term Loans
		LIBOR + 7.750%, 1.250% Floor⁽⁶⁾		4/30/2021		2,000,000		1,984,030		1,997,903		0.4	%

						2,000,000		1,984,030		1,997,903
Sizzling Platter, LLC	Personal, Food, and Miscellaneous Services	Senior Secured Second Lien Term Loans
	Personal, Food, and Miscellaneous Services	LIBOR + 7.500%, 1.000% Floor⁽⁶⁾		4/28/2019		15,000,000		15,000,000		15,303,157		3.1	%

						15,000,000		15,000,000		15,303,157
Survey Sampling International, LLC	Diversified/ Conglomerate Service	Senior Secured Second Lien Term Loans
	Diversified/ Conglomerate Service	LIBOR + 9.000%, 1.000% Floor⁽⁶⁾		12/16/2021		24,000,000		24,000,000		24,000,000		5.0	%

						24,000,000		24,000,000		24,000,000

F-19


Company⁽¹⁾	Industry	Type of Investment	Maturity		Par/Share Amount		Cost		Fair Value		% of Net Assets⁽²⁾
Tempel Steel Company	Mining, Steel, Iron,	Senior Secured First
	and Nonprecious Metals	Lien Notes 12.000%^(4)(8)(11)		8/15/2016		1,115,000		1,108,838		1,050,887		0.2	%

						1,115,000		1,108,838		1,050,887
TGI Friday’s, Inc.	Personal, Food, and Miscellaneous Services	Senior Secured Second Lien Term Loans
	Personal, Food, and Miscellaneous Services	LIBOR + 8.250%, 1.000% Floor⁽⁴⁾⁽⁶⁾		7/15/2021		15,000,000		14,786,434		14,594,273		3.0	%

						15,000,000		14,786,434		14,594,273
Tourico Holidays, Inc.	Hotels, Motels, Inns, and Gaming	Senior Secured First Lien Term Loans
	Hotels, Motels, Inns, and Gaming	LIBOR + 7.500%, 1.000% Floor⁽³⁾		11/5/2018		15,000,000		15,000,000		15,000,000		3.1	%

						15,000,000		15,000,000		15,000,000
Travelclick, Inc.⁽⁹⁾	Hotels, Motels, Inns, and Gaming	Senior Secured Second Lien Term Loans
	Hotels, Motels, Inns, and Gaming	LIBOR + 7.750%, 1.000% Floor⁽⁶⁾		11/6/2021		6,000,000		5,915,121		5,808,540		1.2	%

						6,000,000		5,915,121		5,808,540
True Religion Apparel, Inc.	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured Second
True Religion Apparel, Inc.		Lien Term Loans
		LIBOR + 10.000%, 1.000% Floor⁽¹³⁾		1/30/2020		4,000,000		3,854,021		3,758,756		0.8	%

						4,000,000		3,854,021		3,758,756
U.S. Well Services, LLC⁽¹⁰⁾	Oil and Gas	Warrants/Equity⁽⁵⁾		2/15/2019		1,731		173		227,107		0.0	%

						1,731		173		227,107
Valence Surface Technologies, Inc.	Chemicals, Plastics, and Rubber	Senior Secured First Lien Term Loans
	Chemicals, Plastics, and Rubber	LIBOR + 5.500%, 1.000% Floor⁽³⁾		6/12/2019		9,874,459		9,808,191		9,751,900		2.0	%

						9,874,459		9,808,191		9,751,900
Velocity Pooling Vehicle, LLC	Automobile	Senior Secured Second Lien Term Loans
		LIBOR + 7.250%, 1.000% Floor⁽³⁾⁽⁴⁾		5/14/2022		20,625,000		17,904,357		18,098,444		3.7	%

						20,625,000		17,904,357		18,098,444
Vestcom International, Inc.	Diversified/ Conglomerate Service	Senior Secured Second Lien Term Loans
	Diversified/ Conglomerate Service	LIBOR + 7.750%, 1.000% Floor⁽¹³⁾		9/30/2022		5,000,000		5,000,000		5,000,000		1.0	%

						5,000,000		5,000,000		5,000,000
YP LLC⁽⁹⁾	Diversified/ Conglomerate Service	Senior Secured First Lien Term Loans
	Diversified/ Conglomerate Service	LIBOR + 6.750%, 1.250% Floor⁽⁶⁾		6/4/2018		4,260,870		4,301,734		4,268,708		0.9	%

						4,260,870		4,301,734		4,268,708
Z Gallerie, LLC	Retail Stores	Senior Secured First Lien Term Loans LIBOR + 6.500%, 1.000% Floor⁽¹³⁾		10/8/2020		10,000,000		9,889,189		10,000,000		2.1	%

						10,000,000		9,889,189		10,000,000
Total non-controlled/non-affiliated investments							$	620,968,517	$	616,915,093		126.8	%

F-20


Company⁽¹⁾	Industry	Type of Investment	Maturity	Par/Share Amount		Cost		Fair Value			% of Net Assets⁽²⁾
Money market fund — 3.9%
Federated Prime Obligations Fund				$	19,032,637	$	19,032,637	$	19,032,637			3.9	%

Total money market fund						$	19,032,637	$	19,032,637			3.9	%


Derivative Instrument — Long Exposure						Notional Amount		Unrealized Appreciation (Depreciation)
Total return swap with Citibank, N.A. (Note 5)		Total Return Swap				$	209,523,834	$	(7,651,597	)

						$	209,523,834	$	(7,651,597	)

⁽¹⁾	All of our investments are domiciled in the United States except for Atrium Innovations, Inc. and Livingston International, Inc. which are domiciled in Canada. All investments are denominated in USD.

⁽²⁾	Percentage is based on net assets of $486,519,913 as of December 31, 2014.

⁽³⁾

The interest rate on these loans is subject to a base rate plus 1M LIBOR, which at December 31, 2014 was 0.17%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1M LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor.

⁽⁴⁾	An affiliated fund that is managed by an affiliate of SIC Advisors LLC also holds an investment in this security.

⁽⁵⁾	Security is non-income producing.

⁽⁶⁾

The interest rate on these loans is subject to a base rate plus 3M LIBOR, which at December 31, 2014 was 0.26%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3M LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor.

⁽⁷⁾	The investment has an unfunded commitment as of December 31, 2014 which is excluded from the presentation (see Note 11). Fair value includes an analysis of the unfunded commitment.

⁽⁸⁾	Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $54,203,637 and 11.2% of net assets as of December 31, 2014 and are considered restricted.

⁽⁹⁾

Security is also held in the underlying portfolio of the total return swap with Citibank, N.A. (see Note 5). The Company’s total commitment to Asurion Corp., Collective Brands Finance, Inc., Encompass Digital Media, Inc., Flexera Software, Inc., Genex Services, Inc., Isola USA, Livingston International, Inc., Travelclick, Inc., and YP LLC is $16,896,070 or 3.5%, $11,617,395 or 2.4%, $6,463,131 or 1.3%, $7,119,467 or 1.5%, $11,284,778 or 2.3%, 9,797,159 or 2.0%, $4,525,137 or 0.9%, $20,622,355 or 4.2%, 8,561,534 or 1.8%, respectively, of Net Assets as of December 31, 2014.

⁽¹⁰⁾	The investment is not a qualifying asset under Section 55 of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 3.3% of the Company’s portfolio at fair value.

⁽¹¹⁾	Represents securities in Level 2 in the ASC 820 table (see Note 4).

⁽¹²⁾	The investment was on non-accrual status as of December 31, 2014.

⁽¹³⁾

The interest rate on these loans is subject to a base rate plus 6M LIBOR, which at December 31, 2014 was 0.36%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6M LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor.

1 Month

3 Month

6 Month

F-21

SIERRA INCOME CORPORATION

Notes to Consolidated Financial Statements

March 31, 2015

(unaudited)

Note 1. Organization

Sierra Income Corporation (the “Company”) was incorporated under the general corporation laws of the State of Maryland on June 13, 2011 and formally commenced operations on April 17, 2012. The Company is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is externally managed by SIC Advisors LLC (“SIC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). SIC Advisors is a majority owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC. The term “Medley” refers to the collective activities of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, SIC Advisors, associated investment funds and their respective affiliates. The Company has elected and intends to continue to qualify to be treated for U.S. federal income tax purposes as a Regulated Investment Company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s fiscal year-end is December 31st.

On April 17, 2012, the Company successfully reached its minimum escrow requirement and officially commenced operations by issuing 1,108,033 shares of common stock to SIC Advisors for gross proceeds of $10,000,000. The Company’s offering period is currently scheduled to terminate on April 17, 2016, unless further extended. Since commencing its operations, the Company has sold a total of 62,913,036 shares of common stock, which includes shares issued as part of the distribution reinvestment plan (see Note 13), for total proceeds of $635.6 million, which includes the shares sold to SIC Advisors. The proceeds from the issuance of common stock are presented in the Company’s consolidated statements of changes in net assets and consolidated statements of cash flows and are presented net of selling commissions and dealer manager fees.

On August 15, 2013, the Company formed Arbor Funding LLC, a wholly-owned financing subsidiary (see Note 6).

On June 18, 2014, the Company formed Alpine Funding LLC, a wholly-owned financing subsidiary (see Note 6).

The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

The Company’s investment objective is to generate current income, and to a lesser extent, long-term capital appreciation. The Company intends to meet its investment objective by investing primarily in the debt of privately owned U.S. companies with a focus on senior secured debt, second lien debt and, to a lesser extent, subordinated debt. The Company will originate transactions sourced through SIC Advisors’ direct origination network, and also expects to acquire debt securities through the secondary market. The Company may make equity investments in companies that it believes will generate appropriate risk adjusted returns, although it does not expect this to be a substantial portion of the portfolio.

F-22

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and includes the accounts of the Company and its wholly-owned subsidiaries, Alpine Funding LLC, Arbor Funding LLC, and Taxable Subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited interim financial results included herein contain all adjustments and reclassifications that are necessary for the fair presentation of financial statements for the periods included herein. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2014, which was filed with the U.S. Securities and Exchange Commission on March 6, 2015. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2015. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Cash and Cash Equivalents

The Company considers cash equivalents to be highly liquid investments or investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in a financial institution which, at times, may be in excess of the Federal Deposit Insurance Corporation insurance limits.

Offering Costs

Offering costs incurred directly by the Company are expensed in the period incurred. See Note 7 regarding offering costs paid for by SIC Advisors.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Deferred Financing Costs

Financing costs, incurred in connection with the Company’s credit facilities (discussed in Note 6), are deferred and amortized over the life of each facility, respectively.

Indemnification

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

F-23

Revenue Recognition

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. The Company records amortized or accreted discounts or premiums as interest income using the effective interest method. Dividend income, if any, is recognized on an accrual basis to the extent that the Company expects to collect such amount.

Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income in the period that the Company becomes entitled to such fees. Other fees related to loan administration requirements are capitalized as deferred revenue and recorded into income over the respective period.

Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three months ended March 31, 2015 and March 31, 2014, the Company earned $347,153 and $3,704 in PIK interest, respectively.

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in the consolidated statements of operations. For total return swap transactions (discussed in Note 5), periodic payments are received or made at the end of each settlement period, but prior to settlement are recorded as realized gains or losses on total return swap in the consolidated statements of operations.

Management reviews all loans that become 90 days or more past due on principal and interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although the Company may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At March 31, 2015, one portfolio company was on non-accrual status with a fair value of $237,651 or less than 0.1% of the fair value of the Company’s portfolio. At December 31, 2014, one portfolio company was on non-accrual status with a fair value of $237,651 or less than 0.1% of the fair value of the Company’s portfolio.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, the Company would be deemed to “control” a portfolio company if it owns more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. The Company refers to such investments in portfolio companies that it “controls” as “Controlled Investments.” Under the 1940 Act, the Company would be deemed to be an “Affiliated Person” of a portfolio company if it owns between 5% and 25% of the portfolio company’s outstanding voting securities or if it is under common control with such portfolio company. The Company refers to such investments in Affiliated

F-24

Persons as “Affiliated Investments.” As of March 31, 2015 and December 31, 2014, the Company has no Controlled Investments or Affiliated Investments.

Valuation of Investments

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and Accounting Standards Codification (“ASC”) Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The Company weighs the use of third-party broker quotes, if any, in determining fair value based on management’s understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

The methodologies utilized by the Company in estimating its fair value of its investments categorized as Level 3 generally fall into the following two categories:

•

The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business.

•

The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.

The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, the Company uses a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, the Company weighs some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies,

F-25

discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, the Company may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model. The Company may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.

The methodologies and information that the Company utilizes when applying the Market Approach for performing investments includes, among other things:

•

valuations of comparable public companies (Guideline Comparable Approach),

•

recent sales of private and public comparable companies (Guideline Comparable Approach),

•

recent acquisition prices of the company, debt securities or equity securities (Acquisition Price approach),

•

external valuations of the portfolio company, offers from third parties to buy the company (Estimated Sales Proceeds Approach),

•

subsequent sales made by the company of its investments (Expected Sales Proceeds Approach); and

•

estimating the value to potential buyers.

The methodologies and information that the Company utilizes when applying the Income Approach for performing investments includes:

•

discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and

•

Black-Scholes model, or simulation models or a combination thereof (Income Approach — Option Model) with respect to the valuation of warrants.

Over-the-counter (“OTC”) derivative contracts, such as total return swaps (discussed in Note 5) are fair valued using models that measure the change in fair value of reference assets underlying the swaps offset against any fees payable to the swap counterparty. The fair values of the reference assets underlying the swaps are determined using similar methods as described above for debt and equity investments where the Company also invests directly in such assets.

The Company undertakes a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

•

the Company’s quarterly valuation process begins with each portfolio investment being initially valued by the investment professionals responsible for monitoring the portfolio investment;

•

conclusions are then documented and discussed with senior management; and

•

an independent valuation firm engaged by the Company’s board of directors prepares an independent valuation report for approximately one third of the portfolio investments each quarter on a rotating quarterly basis on non-fiscal year-end quarters, such that each of these investments will be valued by an independent valuation firm at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms.

In addition, all of the Company’s investments are subject to the following valuation process:

•

management reviews preliminary valuations and its own independent assessment;

•

the audit committee of the Company’s board of directors reviews the preliminary valuations of senior management and independent valuation firms; and

F-26

•

the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of SIC Advisors, the respective independent valuation firms and the audit committee.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

Fair Value of Financial Instruments

The carrying amounts of certain of the Company’s financial instruments, including cash and accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are discussed in Note 4.

Federal Income Taxes

The Company has elected to be treated as a RIC under subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of its investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax-exempt interest income (which is the excess of the Company’s gross tax-exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of March 31, 2015 and December 31, 2014, the Company recorded a deferred tax liability of $409,887 and $86,600, respectively, on the consolidated statements of assets and liabilities. The change in deferred tax liabilities is included as a component of net unrealized appreciation/(depreciation) on investments in the consolidated statements of operations. There were no such deferred tax liabilities for the three months ended March 31, 2014.

ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI 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 the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting

F-27

purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

Although the Company files federal and state tax returns, the Company’s major tax jurisdiction is federal. The Company’s federal tax returns from inception-to-date remain subject to examination by the Internal Revenue Service.

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. There were no material uncertain income tax positions at March 31, 2015 or March 31, 2014.

The following table reflects, for tax purposes, the estimated sources of the cash distributions that the Company has paid on its common stock during the three months ended March 31, 2015 and the three months ended March 31, 2014:


	Three months ended March 31, 2015					Three months ended March 31, 2014
Source of Distribution	Distribution Amount⁽¹⁾		Percentage			Distribution Amount		Percentage
Return of capital from offering proceeds	$	—		—	%	$	—		—	%
Return of capital from borrowings		—		—			—		—
Ordinary income		11,809,067		100.0			4,201,611		100.0
Return of capital (other)		—		—			—		—

Distributions on a tax basis:	$	11,809,067		100.0	%	$	4,201,611		100.0	%

⁽¹⁾	The Distribution Amount and Percentage reflected for March 31, 2015 are estimated figures. The actual source of distributions for the fiscal year ending 2015 will be calculated in connection with the Company’s year-end procedures.

Segments

The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s consolidated financial statements. See Note 3 for further information.

Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk

SIC Advisors has broad discretion in making investments for the Company. Investments generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuates.

F-28

The value of the Company’s investments in loans and bonds may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as the Company’s borrowers, and those for which market yields are observable, increase materially. SIC Advisors may attempt to minimize these risks by maintaining low loan-to-liquidation values with each loan and the collateral underlying the loan.

The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

Note 3. Investments

The following table shows the composition of the Company’s portfolio investments by industry classification at fair value at March 31, 2015:


	Fair Value		Percentage
Hotel, Gaming & Leisure	$	88,416,270		12.4	%
Services: Business		87,878,824		12.3	%
Banking, Finance, Insurance & Real Estate		85,803,697		12.0	%
Automotive		51,460,217		7.2	%
Construction & Building		44,067,451		6.2	%
Wholesale		40,746,320		5.7	%
Energy: Oil & Gas		37,899,063		5.3	%
Media: Advertising, Printing & Publishing		35,693,866		5.0	%
Retail		35,315,978		5.0	%
Aerospace & Defense		34,113,730		4.8	%
High Tech Industries		32,231,561		4.5	%
Telecommunications		30,934,497		4.3	%
Healthcare & Pharmaceuticals		25,277,957		3.5	%
Capital Equipment		15,000,000		2.1	%
Metals & Mining		12,762,046		1.8	%
Transportation: Cargo		12,445,862		1.7	%
Chemicals, Plastics & Rubber		12,319,736		1.7	%
Services: Consumer		11,341,576		1.6	%
Beverage, Food & Tobacco		9,198,573		1.3	%
Media: Broadcasting & Subscription		6,481,555		0.9	%
Consumer Goods: Non-durable		4,964,428		0.7	%

Total	$	714,392,095		100.0	%

See Note 5 for industry classifications of the underlying TRS reference assets as of March 31, 2015.

F-29

The following table shows the composition of the Company’s portfolio investments by industry classification at fair value at December 31, 2014:


	Fair Value		Percentage
Diversified/Conglomerate Service	$	106,805,052		17.3	%
Healthcare, Education, and Childcare		44,507,635		7.2	%
Automobile		44,416,368		7.2	%
Building and Real Estate		43,348,116		7.0	%
Personal, Food, and Miscellaneous Services		41,867,430		6.8	%
Oil and Gas		39,601,369		6.4	%
Telecommunications		38,077,579		6.2	%
Electronics		36,038,502		5.9	%
Insurance		34,535,811		5.6	%
Retail Stores		31,774,476		5.2	%
Aerospace and Defense		24,935,749		4.0	%
Finance		22,708,362		3.7	%
Chemicals, Plastics, and Rubber		22,351,767		3.6	%
Hotels, Motels, Inns, and Gaming		20,808,540		3.4	%
Mining, Steel, Iron, and Nonprecious Metals		12,915,294		2.1	%
Cargo Transport		12,589,103		2.0	%
Printing and Publishing		12,437,500		2.0	%
Containers, Packaging, and Glass		10,059,144		1.6	%
Leisure, Amusement, Motion Pictures, and Entertainment		10,011,269		1.6	%
Personal and Nondurable Consumer Products (Manufacturing Only)		3,758,756		0.6	%
Beverage, Food, and Tobacco		1,866,703		0.3	%
Broadcasting and Entertainment		1,500,568		0.3	%

Total	$	616,915,093		100.0	%

See Note 5 for industry classifications of the underlying TRS reference assets as of December 31, 2014.

The following table summarizes the amortized cost and the fair value of the Company’s portfolio investments as of March 31, 2015:


	Amortized Cost		Percentage			Fair Value		Percentage
Senior secured first lien term loans	$	432,477,081		60.1		$	430,584,735		60.3	%
Senior secured second lien term loans		220,659,129		30.6			216,965,059		30.4
Senior secured first lien notes		62,144,763		8.6			60,678,015		8.5
Warrants/Equity		5,027,662		0.7			6,164,286		0.8

Total	$	720,308,635		100.0	%	$	714,392,095		100.0	%

The following table summarizes the amortized cost and the fair value of the Company’s portfolio investments as of December 31, 2014:


	Amortized Cost		Percentage			Fair Value		Percentage
Senior secured first lien term loans	$	335,675,585		54.0	%	$	335,182,650		54.3	%
Senior secured second lien term loans		223,990,513		36.1			221,863,203		35.9
Senior secured first lien notes		55,380,821		8.9			53,699,500		8.7
Senior secured second lien notes		986,238		0.2			1,008,274		0.2
Warrants/Equity		4,935,360		0.8			5,161,466		0.9

Total	$	620,968,517		100.0	%	$	616,915,093		100.0	%

F-30

The following table shows the composition of the Company’s portfolio investments by geography classification at fair value at March 31, 2015:


Geography	Fair Value		Percentage
United States	$	707,166,206		99.0	%
Canada		7,225,889		1.0

Total	$	714,392,095		100.0	%

The following table shows the composition of the Company’s portfolio investments by geography classification at fair value at December 31, 2014:


Geography	Fair Value		Percentage
United States	$	609,615,543		98.8	%
Canada		7,299,550		1.2

Total	$	616,915,093		100.0	%

In connection with certain of the Company’s investments, the Company receives warrants which are obtained for the objective of increasing the total investment returns and are not held for hedging purposes. For the three months ended March 31, 2015 and March 31, 2014, the total fair value of warrants were $2,606,661 and $313,405, respectively, and were included in investments at fair value on the consolidated statement of assets and liabilities. Total realized and unrealized gains related to warrants for the three months ended March 31, 2015 and March 31, 2014 were $910,518 and $668, respectively and were recorded on the consolidated statement of operations in those accounts. The warrants are received in connection with individual investments and are not subject to master netting arrangements. The Company acquired warrants in 0 and 1 portfolio companies during the three months ended March 31, 2015 and March 31, 2014, respectively.

As part of the Company’s investment objective, in addition to purchasing loans on the secondary market, it makes loans directly to privately-held middle market companies to help provide these companies with capital as the trend of bank consolidation that has occurred over the last 20 years has reduced the amount of capital available for such companies. As of March 31, 2015, the Company held loans it has made directly to 51 investee companies with aggregate principal amounts of $554.6 million. As of December 31, 2014, the Company held loans it has made directly to 47 investee companies with aggregate principal amounts of $476.4 million. During the three months ended March 31, 2015 and March 31, 2014, the Company made 8 and 10 loans to investee companies, respectively, with aggregate principal amounts of $91.5 million and $69.2 million, respectively. The details of the Company’s loans have been disclosed on the consolidated schedule of investments as well as in Note 4. In addition to providing loans to investee companies, from time to time the Company assists investee companies in securing financing from other sources by introducing such investee companies to sponsors or by leading a syndicate of lenders to provide the investee companies with financing. During the three months ended March 31, 2015 and March 31, 2014, the Company did not make any such introductions or lead any syndicates. Affiliates of the Company’s Advisor do not serve as officers or directors of any investee companies or provide managerial direction as part of their roles.

In addition to the loans that the Company has provided, the Company has unfunded commitments to provide additional financings through undrawn term loans or revolving lines of credit. The details of such arrangements are disclosed in Note 11.

SIC Senior Loan Strategy JV I LLC

On March 27, 2015, the Company and Great American Life Insurance Company (“Great American Life”) entered into a limited liability company operating agreement to co-manage SIC Senior Loan Strategy JV I LLC (the “Joint Venture”). The Company and Great American Life have committed to provide $100 million of equity to the Joint Venture, with the Company providing $87.5 million and Great American Life providing $12.5

F-31

million. In addition, the Joint Venture intends to seek a credit facility from a third party financing provider. The Joint Venture is expected to invest primarily in first lien middle market and other corporate debt securities. All portfolio and other material decisions regarding the Joint Venture must be submitted to the Joint Venture’s board of managers, which is comprised of four members, two of whom are selected by the Company and the other two are selected by Great American Life. As a result, consistent with precedent transactions that have been reviewed and approved by the SEC, the Company has concluded that it does not control the Joint Venture. As of March 31, 2015, the Joint venture had not commenced operations.

The Company has determined that the Joint Venture is an investment company under ASC 946, however in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company does not consolidate its interest in the Joint Venture.

Note 4. Fair Value Measurements

The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows:

•

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

•

Level 2 — Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

•

Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

In addition to using the above inputs in investment valuations, the Company employs the valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with the Company’s valuation policy, the Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value.

F-32

The following table presents the fair value measurements of the Company’s total investments, by major class according to the fair value hierarchy, as of March 31, 2015:


Type of Investment	Level 1		Level 2		Level 3		Total
Senior secured first lien term loans	$	—	$	—	$	430,584,735	$	430,584,735
Senior secured first lien notes		—		44,005,319		16,672,696		60,678,015
Senior secured second lien term loans		—		—		216,965,059		216,965,059
Warrants/Equity		—		—		6,164,286		6,164,286

Total	$	—	$	44,005,319	$	670,386,776	$	714,392,095


Derivative Instrument-Long Exposure	Level 1		Level 2		Level 3		Total
Liability
Total return swap with Citibank, N.A.	$	—	$	—	$	4,844,580	$	4,844,580

The following table presents the fair value measurements of the Company’s total investments, by major class according to the fair value hierarchy, as of December 31, 2014:


Type of Investment	Level 1		Level 2		Level 3		Total
Senior secured first lien term loans	$	—	$	—	$	335,182,650	$	335,182,650
Senior secured first lien notes		—		10,794,887		42,904,613		53,699,500
Senior secured second lien term loans		—		—		221,863,203		221,863,203
Senior secured second lien notes		—		—		1,008,274		1,008,274
Warrants/Equity		—		—		5,161,466		5,161,466

Total	$	—	$	10,794,887	$	606,120,206	$	616,915,093


Derivative Instrument-Long Exposure	Level 1		Level 2		Level 3		Total
Liability
Total return swap with Citibank, N.A.	$	—	$	—	$	7,651,597	$	7,651,597

The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three months ended March 31, 2015 based off of fair value hierarchy at March 31, 2015:


	Senior Secured First Lien Notes⁽²⁾			Senior Secured First Lien Term Loans			Senior Secured Second Lien Term Loans			Warrants/ Equity		Total Return Swap			Total
Balance, December 31, 2014	$	43,912,887		$	339,094,785		$	217,951,068		$	5,161,466	$	(7,651,597	)	$	598,468,609
Purchases		—			94,379,999			2,440,422			1		—			96,820,422
Sales		(458,660	)		(1,845,221	)		(1,968,918	)		—		—			(4,272,799	)
Transfers in		—			—			—			—		—			—
Transfers out		(25,673,429	)		—			—			—		—			(25,673,429	)
Amortization of discount/(premium)		(146	)		93,704			108,416			—		—			201,974
Paid-in-kind interest income		—			254,852			—			92,301		—			347,153
Net realized gains (losses)		(752,524	)		36,015			(29,156	)		—		—			(745,665	)
Net change in unrealized appreciation/ (depreciation)		(355,432	)		(1,429,399	)		(1,536,773	)		910,518		2,807,017			395,931

Balance, March 31, 2015	$	16,672,696		$	430,584,715		$	216,965,059		$	6,164,286	$	(4,844,580	)	$	665,542,196

Change in net unrealized appreciation (depreciation) in investments held as of March 31, 2015⁽¹⁾	$	(385,024	)	$	(1,441,558	)	$	(1,536,773	)	$	910,518	$	2,807,017		$	365,658

⁽¹⁾	Amount is included in the related amount on investments and derivative instruments in the condensed consolidated statements of operations.

(2)	Includes assets previously classified as Senior Secured Second Lien Notes.

F-33

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the three months ended March 31, 2015, the Company recorded $xxx in transfers from Level 3 to Level 2 due to an increase in observable inputs in market data and no other transfers between levels.

The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three months ended March 31, 2014 based off of fair value hierarchy at March 31, 2014:


	Senior Secured First Lien Notes			Senior Secured Second Lien Notes			Senior Secured First Lien Term Loans			Senior Secured Second Lien Term Loans			Warrants/ Equity		Total Return Swap		Total
Balance, December 31, 2013	$	41,917,999		$	5,254,676		$	28,583,326		$	56,481,247		$	54,977	$	351,396	$	132,643,621
Purchases		3,016,876			—			61,104,611			44,387,842			2,777,778		—		111,287,107
Sales		(19,261,999	)		(3,559,512	)		(9,125,539	)		(5,010,000	)		—		—		(36,957,050	)
Transfers in		—			—			—			—			—		—		—
Transfers out		—			—			—			—			—		—		—
Amortization of discount/(premium)		(15,965	)		1,283			7,906			9,262			—		—		2,486
Paid-in-kind interest income		—			—			—			—			3,074		—		3,074
Net realized gains		757,401			76,597			15,100			93			—		—		849,191
Net change in unrealized appreciation/ (depreciation)		(49,398	)		(70,290	)		6,631			157,458			1,298		447,021		492,720

Balance, March 31, 2014	$	26,364,914		$	1,702,754		$	80,592,035		$	96,025,902		$	2,837,127	$	798,417	$	208,321,149

Change in net unrealized appreciation (depreciation) in investments held as of March 31, 2014⁽¹⁾	$	220,955		$	2,439		$	15,012		$	210,458		$	1,298	$	447,021	$	897,183

⁽¹⁾	Amount is included in the related amount on investments and derivative instruments in the condensed consolidated statements of operations.

F-34

The following table presents the quantitative information about Level 3 fair value measurements of the Company’s total investments, as of March 31, 2015:

Fair Value

Valuation techniques⁽¹⁾

Unobservable input⁽¹⁾

Range (weighted average)

Senior secured first lien term loans

346,204,737

Income Approach (DCF)

Market yield

6.71% – 17.05% (9.49%)

37,000,000

Recent arms-length transaction

7.50% – 10.07% (8.69%)

Senior secured first lien notes

237,651

Enterprise valuation analysis

Estimated liquidation proceeds

189.1M – $222.4M ($205.8M)

1,753,795

Income Approach (DCF)

Market yield

9.1%

14,681,250

Recent arms-length transaction

Recent Arms-length transaction

10.9%

Senior secured second lien term loans

216,965,058

Income Approach (DCF)

Market yield

8.86% – 14.97% (10.54%)

47,380,000

Recent arms-length transaction

9.53% – 11.19% (10.35%)

Warrants/Equity

3,110,679

Income Approach (DCF)

Market yield

12.23%

2,606,660

Market Approach (guideline comparable)

EBITDA Multiple

4.0x – 13.5x (6.8x)

446,946

Recent Arms-length transaction

Recent arms-length transaction

N/A

Total return swap

(4,844,580

)

Income Approach (DCF)

Market yield

5.12% – 16.32% (8.04%)

⁽¹⁾	Represents amounts used when the Company has determined that market participants would use such multiples when measuring the fair value of these investments.

The following table presents the quantitative information about Level 3 fair value measurements of the Company’s total investments, as of December 31, 2014:

Fair Value

Valuation techniques⁽¹⁾

Unobservable input⁽¹⁾

Range (weighted average)

Senior secured first lien term loans

335,182,650

Income Approach (DCF)

Market yield

7.23% – 17.63% (10.60%)

Market Approach (Recent Acquisition Price)

Market yield

7.50% – 13.03% (10.11%)

Senior secured first lien notes

42,904,613

Income Approach (DCF)

Market yield

8.50% – 16.30% (11.02%)

Enterprise valuation analysis

EBITDA multiple

4.00x – 8.00x (2.00x)

Estimated liquidation proceeds

189.1M – $222.4M ($205.8)M

Senior secured second lien term loans

221,863,203

Income Approach (DCF)

Market yield

6.71% – 15.27% (10.55%)

Market Approach (Recent Acquisition Price)

Recent arms-length transaction

8.50% – 10.96% (10.32%)

Senior secured second lien notes

1,008,274

Income Approach (DCF)

Market yield

12.16% – 12.16% (12.16%)

Warrants/Equity

5,161,466

Enterprise valuation analysis

Estimated liquidation proceeds

—

Market Approach (guideline comparable)

EBITDA multiple

3.50x (14.00x)

Income Approach (DCF)

EBITDA multiple

13.14% – 13.14% (13.14%)

Total return swap

(7,651,597

)

Market Approach (Recent Acquisition Price)

Recent arms-length transaction

N/A

Income Approach (DCF)

Market yield of underlying assets

5.84% – 14.87% (8.43%)

⁽¹⁾	Represents amounts used when the Company has determined that market participants would use such multiples when measuring the fair value of these investments.

F-35

The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. Significant increases in market yields would result in significantly lower fair value measurements.

The significant unobservable inputs used in the fair value measurement of the Company’s warrants/equity investments are comparable company EBITDA multiples. Significant decreases in EBITDA multiples in isolation would result in significantly lower fair value measurements.

Note 5. Total Return Swap

On August 27, 2013, the Company, through its wholly-owned financing subsidiary, Arbor Funding LLC (“Arbor”), entered into a total return swap (“TRS”) with Citibank, N.A. (“Citibank”) that is indexed to a basket of loans.

SIC Advisors acts as the investment manager of Arbor and has discretion over the composition of the basket of loans underlying the TRS. The terms of the TRS are governed by an ISDA 2002 Master Agreement, the Schedule thereto and Credit Support Annex to such Schedule, and the Confirmation exchanged thereunder, between Arbor and Citibank, which collectively establish the TRS, and are collectively referred to herein as the “TRS Agreement”. On March 21, 2014, the Company amended and restated its Confirmation Letter Agreement (the “Amended Confirmation Agreement”) with Citibank. The Amended Confirmation Agreement increases the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $100,000,000 to $200,000,000, and increased the interest rate payable to Citibank from LIBOR plus 1.30% per annum to LIBOR plus 1.35% per annum. Other than the foregoing, the Amended Confirmation Agreement did not change any of the other terms of the TRS.

On July 23, 2014, the Company, through Arbor, entered into the Second Amended and Restated Confirmation Letter Agreement (the “Second Amended Confirmation Agreement”) with Citi. The Second Amended Confirmation Agreement increases the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $200,000,000 to $350,000,000. Other than the foregoing, the Second Amended Confirmation Agreement did not change any of the other terms of the TRS.

Pursuant to the terms of the TRS Agreement, as amended by the Second Amended Confirmation Agreement, and subject to conditions customary for transactions of this nature, Arbor may select a portfolio of loans with a maximum market value (determined at the time each such loan becomes subject to the TRS) of $350,000,000, which is also referred to as the maximum notional amount of the TRS. Each individual loan, and the portfolio of loans taken as a whole, must meet criteria described in the Amended TRS Agreement. Arbor receives from Citibank a periodic payment on set dates that is based upon any coupons, both earned and accrued, generated by the loans underlying the TRS, subject to limitations described in the Amended TRS Agreement as well as any fees associated with the loans included in the portfolio. Arbor pays to Citibank interest at a rate equal to one-month LIBOR plus 1.35% per annum. In addition, upon the termination or repayment of any loan subject to the TRS, Arbor either receives from Citibank the appreciation in the value of such loan, or pays to Citibank any depreciation in the value of such loan.

Citibank may terminate the TRS on or after the second anniversary of the effectiveness of the TRS. SIC Advisors may terminate the TRS on behalf of Arbor at any time upon providing 10 days prior notice to Citibank. Any termination by SIC Advisors on behalf of Arbor prior to the second anniversary of the effectiveness of the

F-36

TRS will result in payment of an early termination fee to Citibank. The early termination fee shall equal the present value of the following two cash flows: (a) interest payments at a rate equal 1.35% based on 70% of the maximum notional amount of $350,000,000, payable from the later of the first anniversary of the effectiveness of the TRS or the termination date until the second anniversary of the effectiveness of the TRS and (b) interest payments at a rate equal to 0.15% based on the maximum notional amount of $350,000,000, payable from the later of the first anniversary of the effectiveness of the TRS or the termination date until the second anniversary of the effectiveness of the TRS.

Arbor is required to pay a minimum usage fee in connection with the TRS of 1.35% on the amount equal to 85% of the average daily unused portion of the maximum amount permitted under the TRS. Such minimum usage fee will not apply during the first 365 days and last 60 days of the term of the TRS. Arbor will also pay Citibank customary fees in connection with the establishment and maintenance of the TRS. During the three months ended March 31, 2015, Arbor paid $135,775 in minimum usage fees. During the three months ended March 31, 2014, Arbor did not pay any minimum usage fees.

Arbor is required to initially cash collateralize a specified percentage of each loan (generally 25% to 35% of the market value of such loan) included under the TRS in accordance with margin requirements described in the Amended TRS Agreement. As of March 31, 2015 and December 31, 2014, Arbor has posted $57,726,340 and $56,877,928, respectively, in collateral to Citibank in relation to the TRS which is recorded on the consolidated statements of assets and liabilities as cash collateral on total return swap. Arbor may be required to post additional collateral from time to time as a result of a decline in the mark-to-market value of the portfolio of loans subject to the TRS. The obligations of Arbor under the Amended TRS Agreement are non-recourse to the Company and the Company’s exposure under the Amended TRS Agreement is limited to the value of the Company’s investment in Arbor, which generally equals the value of cash collateral provided by Arbor under the Amended TRS Agreement.

In connection with the TRS, Arbor has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. In addition to customary events of default and termination events included in the form ISDA 2002 Master Agreement, the Amended TRS Agreement contains the following termination events: (a) a failure to satisfy the portfolio criteria for at least 30 days; (b) a failure to post initial cash collateral or additional collateral as required by the Amended TRS Agreement; (c) a default by Arbor or the Company with respect to indebtedness in an amount equal to or greater than the lesser of $10,000,000 and 2% of the Company’s net asset value at such time; (d) a merger of Arbor or the Company meeting certain criteria; (e) the Company or Arbor amending their respective constituent documents to alter their investment strategy in a manner that has or could reasonably be expected to have a material adverse effect; and (f) SIC Advisors ceasing to be the investment manager of Arbor or to have authority to enter into transactions under the Amended TRS Agreement on behalf of Arbor, and not being replaced by an entity reasonably acceptable to Citibank. As of March 31, 2015 and December 31, 2014, the Company did not have any derivatives with contingent features in net liability positions. Therefore, if a trigger event had occurred, no amount would have been required to be posted by the Company.

The Company’s maximum credit risk exposure as of March 31, 2015 and December 31, 2014 is $57,726,340 and $56,877,928, respectively, which is recorded on the consolidated statements of assets and liabilities as cash collateral on total return swap.

The Company’s receivable from Citibank, represents realized amounts from payments on underlying loans in the total return swap portfolio which as of March 31, 2015 and December 31, 2014 was $2,051,518 and $1,095,582, respectively, which is recorded on the consolidated statements of assets and liabilities as receivable due on total return swap. The Company does not offset collateral posted in relation to the TRS with any unrealized appreciation or depreciation outstanding in the consolidated statements of assets and liabilities as of March 31, 2015 or December 31, 2014.

F-37

Transactions in total return swap contracts during the three months ended March 31, 2015 and March 31, 2014 resulted in and $2,900,317 and $438,709 in realized gains/(losses) and $2,807,017 and $447,021 in unrealized gains/(losses), respectively, which is recorded on the consolidated statements of operations.

The Company only held one derivative position as of the three months ended March 31, 2015 and December 31, 2014 and the derivative held is subject to a netting arrangement. The following table represents the Company’s gross and net amounts after offset under Master Agreements (“MA”) of the derivative assets and liabilities presented by derivative type net of the related collateral pledged by the Company as of March 31, 2015 and December 31, 2014:


	Gross Derivative Assets/(Liabilities) Subject to MA			Derivative Amount Available for Offset		Net Amount Presented in the Consolidated Statements of Assets and Liabilities			Cash Collateral Received		Net Amount of Derivative Assets/(Liabilities)
March 31, 2015
Total Return Swap⁽¹⁾	$	(4,844,580	)	$	—	$	(4,844,580	)	$	—	$	(4,844,580	)

December 31, 2014
Total Return Swap⁽¹⁾	$	(7,651,597	)	$	—	$	(7,651,597	)	$	—	$	(7,651,597	)

⁽¹⁾	Cash was posted for initial margin requirements for the total return swap as of March 31, 2015 and December 31, 2014 and is reported on the consolidated statements of assets and liabilities as cash collateral on total return swap.

The following represents the volume of the Company’s derivative transactions during the three months ended March 31, 2015 and March 31, 2014:


	Three months ended March 31,
	2015		2014
Average notional par amount of contract	$	217,464,352	$	44,836,562

F-38

The following is a summary of the TRS reference assets as of March 31, 2015:


Company⁽¹⁾	Industry	Type of Investment	Coupon Rate	Maturity		Par Amount		Initial Notional Cost⁽²⁾		Fair Value		Unrealized Appreciation (Depreciation)
American Beacon Advisors, Inc.	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term loans⁽³⁾	LIBOR + 4.500%, 1.00% Floor		3/17/2022		1,000,000		995,000		1,002,920		7,920
Answers Corporation	Telecommunications	Senior Secured First Lien Term loans	LIBOR + 5.250%, 1.00% Floor		10/3/2021		15,000,000		14,475,000		14,287,500		(187,500	)
ANVC Merger Corp.	High Tech Industries	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.00% Floor		2/18/2021		4,950,000		4,900,500		4,937,625		37,125
AP Gaming I, LLC	Hotel, Gaming & Leisure	Senior Secured Second Lien Term loans	LIBOR + 8.250%, 1.000% Floor		12/20/2020		6,682,500		6,482,025		6,640,734		158,709
Asurion Corp.	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term loans	LIBOR + 3.750%, 1.25% Floor		5/24/2019		9,847,236		9,846,011		9,869,097		23,086
Atkore International, Inc.	Metals & Mining	Senior Secured Second Lien Term loans	LIBOR + 6.750%, 1.00% Floor		10/9/2021		10,000,000		10,032,500		9,650,000		(382,500	)
Bowlmor AMF Corporation	Hotel, Gaming & Leisure	Senior Secured First Lien Term loans	LIBOR + 6.250%, 1.00% Floor		9/18/2021		8,977,500		8,842,838		8,910,169		67,331
CJ Holding Co.	Energy: Oil & Gas	Senior Secured First Lien Term loans⁽³⁾	LIBOR + 6.250%, 1.00% Floor		3/24/2022		2,000,000		1,680,000		1,771,660		91,660
CJ Holding Co.	Energy: Oil & Gas	Senior Secured First Lien Term loans⁽³⁾	LIBOR + 5.500%, 1.00% Floor		3/24/2022		6,000,000		5,160,000		5,340,000		180,000
CSP Technologies North America, Inc.	Containers, Packaging & Glass	Senior Secured First Lien Term loans	LIBOR + 6.000%, 1.00% Floor		1/29/2022		10,000,000		10,000,000		10,000,000		—
Collective Brands Finance, Inc.	Retail	Senior Secured First Lien Term loans⁽⁴⁾	LIBOR + 4.000%, 1.00% Floor		3/11/2021		5,955,000		5,932,669		5,668,446		(264,223	)
Encompass Digital Media, Inc.	Telecommunications	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.000% Floor		6/6/2021		4,975,000		4,950,125		4,972,911		22,786
Fieldwood Energy LLC	Energy: Oil & Gas	Senior Secured Second Lien Term loans	LIBOR + 7.125%, 1.250% Floor		9/30/2020		4,246,305		4,317,500		3,096,788		(1,220,712	)
Flexera Software, LLC	High Tech Industries	Senior Secured Second Lien Term loans	LIBOR + 7.000%, 1.000% Floor		4/2/2021		2,250,000		2,266,875		2,159,177		(107,698	)
Genex Holdings, Inc.	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.000% Floor		5/21/2021		1,990,000		1,980,050		1,992,488		12,438
Hudson Products Holdings Inc.	Energy: Oil & Gas	Senior Secured First Lien Term loans	LIBOR + 4.000%, 1.000% Floor		3/17/2019		1,970,038		1,960,188		1,886,311		(73,877	)
Iqor US Inc.	Services: Business	Senior Secured First Lien Term loans	LIBOR + 5.00%, 1.000% Floor		4/1/2021		7,710,280		7,556,074		7,305,490		(250,584	)
Isola USA Corp.	High Tech Industries	Senior Secured First Lien Term loans	LIBOR + 8.250%, 1.000% Floor		11/29/2018		3,900,000		3,841,500		3,910,743		69,243
Livingston International, Inc.	Transportation: Cargo	Senior Secured Second Lien Term loans⁽⁴⁾	LIBOR + 7.750%, 1.250% Floor⁽¹⁾⁽⁴⁾		4/8/2020		1,954,783		1,969,443		1,864,455		(104,988	)

F-39


Company⁽¹⁾	Industry	Type of Investment	Coupon Rate	Maturity		Par Amount		Initial Notional Cost⁽²⁾		Fair Value		Unrealized Appreciation (Depreciation)
Maxim Crane Works LP	Construction & Building	Senior Secured Second Lien Term loans	LIBOR + 9.250%, 1.000% Floor		11/26/2018		3,500,000		3,567,500		3,421,250		(146,250	)
Mohegan Tribal Gaming	Hotel, Gaming & Leisure	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.000% Floor		6/15/2018		4,980,000		4,866,450		4,935,379		68,929
Nine West Holdings, Inc.	Consumer Goods: Durable	Senior Secured First Lien Term loans	LIBOR + 3.750%, 1.000% Floor		10/8/2019		5,970,000		5,955,075		5,637,949		(317,126	)
Packaging Coordinators, Inc.	Containers, Packaging & Glass	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.000% Floor		8/1/2021		4,987,500		4,937,625		4,937,625		—
Pharmed Group Corporation	Healthcare & Pharmaceuticals	Senior Secured First Lien Term loans	LIBOR + 3.250%, 1.000% Floor		1/28/2021		474,028		471,658		469,288		(2,370	)
Pharmed Group Corporation	Healthcare & Pharmaceuticals	Senior Secured Second Lien Term loans	LIBOR + 6.750%, 1.000% Floor		1/28/2022		5,000,000		4,975,000		4,987,500		12,500
Polymer Group Inc.	Consumer Goods: Durable	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.000% Floor		12/19/2019		3,969,336		3,964,386		3,979,260		14,874
Preferred Sands Holding Company, LLC	Energy: Oil & Gas	Senior Secured First Lien Term loans	LIBOR + 5.750%, 1.000% Floor		7/27/2020		6,982,500		6,912,675		6,081,758		(830,917	)
Sungard Availability Services Capital Inc.	High Tech Industries	Senior Secured First Lien Term loans	LIBOR + 5.000%, 1.000% Floor		3/31/2019		11,910,000		11,857,894		10,421,250		(1,436,644	)
Tensar Corp.	Environmental Industries	Senior Secured First Lien Term loans	LIBOR + 4.750%, 1.000% Floor		7/9/2021		11,970,000		11,850,300		11,012,400		(837,900	)
Thomson Multimedia	Consumer Goods: Durable	Senior Secured First Lien Term loans	LIBOR + 6.000%, 1.000% Floor		3/31/2020		5,955,000		6,058,022		5,972,031		(85,991	)
TravelCLICK, Inc.	Hotel, Gaming & Leisure	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.250% Floor		5/12/2021		14,926,899		14,777,630		14,889,581		111,951
Tribune Publishing Co.	Media: Advertising, Printing & Publishing	Senior Secured First Lien Term loans	LIBOR + 4.750%, 1.000% Floor		8/4/2021		9,875,000		9,796,000		9,763,906		(32,094	)
Viking Acquisition Inc.	Automotive	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.250% Floor		11/5/2016		3,650,757		3,655,320		3,655,320		—
Visant Corporation	Wholesale	Senior Secured First Lien Term loans	LIBOR + 6.000%, 1.000% Floor		9/23/2021		14,962,500		14,663,250		15,015,467		352,217
YP LLC	Media: Advertising, Printing & Publishing	Senior Secured First Lien Term loans	LIBOR + 6.750%, 1.250% Floor		6/4/2018		4,130,435		4,161,412		4,128,667		(32,745	)
YRC Worldwide Inc.	Transportation: Cargo	Senior Secured First Lien Term loans	LIBOR + 7.250%, 1.000% Floor		2/13/2019		9,912,406		9,900,124		9,776,110		(124,014	)

									229,558,619		224,351,255	($	5,207,364	)
Total accrued interest income, net of expenses												$	362,784

Total unrealized depreciation on total return swap												($	4,844,580	)

F-40

(1)	All investments are domiciled in the United States except for Livingston International, Inc., which is domiciled in Canada.

(2)	Represents the initial amount of par of an investment in which the TRS is referenced.

(3)	The referenced asset or portion thereof is unsettled as of March 31, 2015.

(4)	The investment is not a qualifying asset under the Investment Company Act of 1940, as amended.

The following is a summary of the TRS reference assets as of December 31, 2014:


Company⁽¹⁾	Industry	Type of Investment	Coupon Rate	Maturity		Par Amount		Initial Notional Cost⁽²⁾		Fair Value		Unrealized Appreciation (Depreciation)
Answers Corporation	Electronics	Senior Secured First Lien Term loans	LIBOR + 5.250%, 1.00% Floor		10/1/2021		15,000,000	$	14,475,000	$	14,212,500	$	(262,500	)
ANVC Merger Corp.	Aerospace and Defense	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.00% Floor		2/18/2021		4,962,500		4,912,875		4,863,250		(49,625	)
AP Gaming I, LLC	Electronics	Senior Secured Second Lien Term loans	LIBOR + 8.250%, 1.000% Floor		12/18/2020		6,699,375		6,498,394		6,665,878		167,484
Asurion Corporation	Insurance	Senior Secured Second Lien Term loans	LIBOR + 3.750%, 1.25% Floor		5/24/2019		9,897,301		9,896,070		9,754,186		(141,884	)
Atkore International, Inc.	Mining, Steel, Iron, and Nonprecious Metals	Senior Secured Second Lien Term loans	LIBOR + 6.750%, 1.00% Floor		10/9/2021		10,000,000		10,032,500		9,750,000		(282,500	)
Bowlmor AMF Corporation	Broadcasting and Entertainment	Senior Secured First Lien Term loans	LIBOR + 6.250%, 1.00% Floor		9/18/2021		9,000,000		8,865,000		8,820,000		(45,000	)
Collective Brands Finance Inc.	Retail Stores	Senior Secured First Lien Term loans	LIBOR + 4.000%, 1.00% Floor		3/11/2021		5,970,000		5,947,613		5,432,700		(514,913	)
Encompass Digital Media, Inc.	Broadcasting and Entertainment	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.000% Floor		6/6/2021		4,987,500		4,962,563		4,943,859		(18,704	)
Fieldwood Energy LLC	Oil and Gas	Senior Secured First Lien Term loans	LIBOR + 7.125%, 1.250% Floor		9/30/2020		4,246,305		4,317,500		3,075,557		(1,241,943	)
Flexera Software, Inc.	Electronics	Senior Secured Second Lien Term loans	LIBOR + 7.000%, 1.000% Floor		4/2/2021		2,250,000		2,266,875		2,183,667		(83,208	)
Genex Services, Inc.	Insurance	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.000% Floor		5/21/2021		1,995,000		1,985,025		1,977,544		(7,481	)
Hudson Products Holdings, Inc.	Machinery (Non-Agriculture, Non-Construction, Non-Electronic)	Senior Secured First Lien Term loans	LIBOR + 4.000%, 1.000% Floor		3/15/2019		1,975,000		1,965,125		1,897,639		(67,486	)
Iqor US, Inc.	Diversified/Conglomerate Service	Senior Secured First Lien Term loans	LIBOR + 5.00%, 1.000% Floor		4/1/2021		7,746,032		7,591,111		7,126,349		(464,762	)
Isola USA	Electronics	Senior Secured First Lien Term loans	LIBOR + 8.250%, 1.000% Floor		11/23/2018		3,925,000		3,866,125		3,962,768		96,643
Livingston International, Inc.	Cargo Transport	Senior Secured Second Lien Term loans	LIBOR + 7.750%, 1.250% Floor⁽¹⁾⁽³⁾		4/16/2020		1,954,783		1,969,443		1,879,187		(90,256	)
Maxim Crane Works LP	Diversified/Conglomerate Service	Senior Secured Second Lien Term loans	LIBOR + 9.250%, 1.000% Floor		11/26/2018		3,500,000		3,567,500		3,517,500		(50,000	)

F-41


Company⁽¹⁾	Industry	Type of Investment	Coupon Rate	Maturity		Par Amount		Initial Notional Cost⁽²⁾		Fair Value		Unrealized Appreciation (Depreciation)
Mohegan Tribal Gaming	Hotels, Motels, Inns and Gaming	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.000% Floor		11/19/2019		1,985,000		1,965,150		1,903,833		(61,317	)
Nine West Holdings, Inc.	Retail Stores	Senior Secured First Lien Term loans	LIBOR + 3.750%, 1.000% Floor		10/8/2019		5,985,000		5,970,038		5,588,494		(381,544	)
Packaging Coordinators, Inc.	Containers, Packaging, and Glass	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.000% Floor		8/1/2021		5,000,000		4,950,000		4,812,500		(137,500	)
Pharmed Group Corporation	Healthcare, Education, and Childcare	Senior Secured First Lien Term loans	LIBOR + 3.250%, 1.000% Floor		1/28/2021		485,000		482,575		468,834		(13,741	)
Pharmed Group Corporation	Healthcare, Education, and Childcare	Senior Secured Second Lien Term loans	LIBOR + 6.750%, 1.000% Floor		1/28/2022		5,000,000		4,975,000		4,937,500		(37,500	)
Polymer Group, Inc.	Containers, Packaging, and Glass	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.000% Floor		12/19/2019		3,979,360		3,974,397		3,914,695		(59,702	)
Preferred Sands Holding Company, LLC	Mining, Steel, Iron, and Nonprecious Metals	Senior Secured First Lien Term loans	LIBOR + 5.750%, 1.000% Floor		7/31/2020		7,000,000		6,930,000		5,775,000		(1,155,000	)
Sungard Availability Services Capital, Inc.	Diversified/Conglomerate Service	Senior Secured First Lien Term loans	LIBOR + 5.000%, 1.000% Floor		3/31/2019		11,940,000		11,887,763		10,578,840		(1,308,923	)
Tensar Corp.	Diversified/Conglomerate Manufacturing	Senior Secured First Lien Term loans	LIBOR + 4.750%, 1.000% Floor		7/9/2021		12,000,000		11,880,000		10,740,000		(1,140,000	)
Thomson Multimedia	Printing and Publishing	Senior Secured First Lien Term loans	LIBOR + 6.000%, 1.000% Floor		3/31/2020		5,970,000		6,073,281		5,902,838		(170,443	)
TravelCLICK, Inc.	Hotels, Motels, Inns and Gaming	Senior Secured First Lien Term loans	LIBOR + 4.500%, 1.250% Floor		5/12/2021		14,963,449		14,813,815		14,738,998		(74,817	)
Tribune Publishing Co.	Printing and Publishing	Senior Secured First Lien Term loans	LIBOR + 4.750%, 1.000% Floor		8/4/2021		10,000,000		9,920,000		9,850,000		(70,000	)
Viking Acquisition, Inc.	Automobile	Senior Secured First Lien Term loans	LIBOR + 4.250%, 1.250% Floor		11/5/2016		3,660,571		3,665,146		3,613,276		(51,870	)
Visant Corporation	Diversified/Conglomerate Manufacturing	Senior Secured First Lien Term loans	LIBOR + 6.000%, 1.000% Floor		9/23/2021		15,000,000		14,700,000		14,550,000		(150,000	)
YP, LLC	Business Services	Senior Secured First Lien Term loans	LIBOR + 6.750%, 1.250% Floor		6/4/2018		4,260,870		4,292,826		4,268,709		(24,117	)
YRC Worldwide, Inc.	Cargo Transport	Senior Secured First Lien Term loans	LIBOR + 7.000%, 1.000% Floor		2/13/2019		9,937,437		9,925,124		9,831,902		(93,222	)

								$	209,523,834	$	201,538,003	$	(7,985,831	)
Total accrued interest income, net of expenses													334,234

Total unrealized depreciation on total return swap												$	(7,651,597	)

⁽¹⁾	All investments are domiciled in the United States except for Livingston International, Inc., which is domiciled in Canada.

⁽²⁾	Represents the initial amount of par of an investment in which the TRS is referenced.

⁽³⁾	The investment is not a qualifying asset under the Investment Company Act of 1940, as amended.

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Note 6. Borrowings

As a BDC, the Company is only allowed to employ leverage to the extent that its asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that the Company employs at any time depends on its assessment of the market and other factors at the time of any proposed borrowing.

The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s margin borrowings are estimated based upon market interest rates for its own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company’s debt obligation is recorded at its carrying value, which approximates fair value. As of March 31, 2015 and December 31, 2014, Alpine’s borrowings under the Alpine Credit Facility totaled $121,500,000 and $121,500,000, respectively, and was recorded as part of revolving credit facility payable on the consolidated statements of assets and liabilities.

ING Credit Facility

On November 24, 2014, the Company entered into Amendment 3 to its existing senior secured syndicated revolving credit facility (the “ING Credit Facility”) pursuant to a Senior Secured Revolving Credit Agreement (the “Revolving Credit Agreement”) with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING Credit Facility matures on December 4, 2017 and is secured by substantially all of the Company’s assets, subject to certain exclusions as further set forth in a Guarantee, Pledge and Security Agreement (the “Security Agreement”) entered into in connection with the Revolving Credit Agreement, among the Company, the Subsidiary Guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent. The ING Credit Facility also includes usual and customary representations, covenants and events of default for senior secured revolving credit facilities of this nature.

The ING Credit Facility allows for the Company, at its option, to borrow money at a rate of either (i) an alternate base rate plus 1.75% per annum or (ii) LIBOR plus 2.75% per annum. The interest rate margins are subject to certain step-downs upon the satisfaction of certain conditions described in the Revolving Credit Agreement. The alternate base rate will be the greatest of (i) the U.S. Prime Rate set forth in the Wall Street Journal, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) three month LIBOR plus 1%. As of March 31, 2015 and December 31, 2014, the commitment under the ING Credit Facility was $170,000,000 and $150,000,000, respectively, and the ING Credit Facility includes an accordion feature that allows for potential future expansion of the ING Credit Facility up to a total of $500,000,000. Availability of loans under the ING Credit Facility is linked to the valuation of the collateral pursuant to a borrowing base mechanism.

The Company is also required to pay a commitment fee to the lenders based on the daily unused portion of the aggregate commitments under the ING Credit Facility. The commitment fee is (i) 0.50% for the initial six month period commencing on the closing date and (ii) thereafter, 1% of the aggregate unused commitments if the used portion of the aggregate commitments is less than or equal to 35% of the aggregate commitments, or 0.50% if the used portion of the aggregate commitments is greater than 35% of the aggregate commitments. The ING Credit Facility provides that the Company may use the proceeds of the facility for general corporate purposes, including making investments in accordance with the Company’s investment objective and strategy.

Borrowings under the Revolving Credit Agreement are subject to, among other things, a minimum borrowing base. Substantially all of the Company’s assets are pledged as collateral under the Revolving Credit Agreement. The ING Credit Facility requires the Company to, among other things (i) make representations and warranties regarding the collateral as well the Company’s business and operations, (ii) agree to certain indemnification obligations, and (iii) agree to comply with various affirmative and negative covenants. The

F-43

documents for the Revolving Credit Agreement also include default provisions, such as the failure to make timely payments under the Revolving Credit Agreement, the occurrence of a change in control, and the failure by the Company to materially perform under the operative agreements governing the Revolving Credit Agreement, which, if not complied with, could accelerate repayment under the Revolving Credit Agreement, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations.

In connection with the security interest established under the Security Agreement, the Company, ING Capital LLC, in its capacity as collateral agent, and State Street Bank and Trust Company, in its capacity as the Company’s custodian, entered into a Control Agreement dated as of December 4, 2013 (the “Control Agreement”), in order to, among other things, perfect the security interest granted pursuant to the Security Agreement in, and provide for control over, the related collateral.

As of March 31, 2015 and December 31, 2014, the carrying amount of the Company’s borrowings under the ING Credit Facility approximated their fair value. The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s borrowing under the ING Credit Facility is estimated based upon market interest rates of the Company’s borrowing or entities with similar credit risk, adjusted for nonperformance risk, if any. At March 31, 2015 and December 31, 2014, the ING Credit Facility would be deemed to be Level 3, as defined in Note 4.

As of March 31, 2015 and December 31, 2014, $1,367,058 and $1,992,919 of financing costs related to the ING Credit Facility have been capitalized and are being amortized over the respective terms, respectively. For the three months ended March 31, 2015 and March 31, 2014, the Company recorded $970,784 and $163,401, respectively, of interest and financing expenses related to the ING Credit Facility, of which $779,272 and $46,343 was attributable to interest and $191,512 and $117,058 was attributable to amortization of deferred financing costs, respectively. As of March 31, 2015 and December 31, 2014, the Company’s outstanding borrowings under the ING Credit Facility were $150,000,000 and $115,000,000, respectively. For the three months ended March 31, 2015 and March 31, 2014, the Company’s weighted average outstanding debt balance and interest rate on the ING Credit Facility was $90,277,778 and 3.5% and $14,366,367 and 3.2%, respectively.

Alpine Credit Facility

On July 23, 2014, the Company’s wholly-owned, special purpose financing subsidiary, Alpine Funding LLC (“Alpine”), entered into a revolving credit facility (the “Alpine Credit Facility”) pursuant to a Loan Agreement with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto (the “Loan Agreement”). Alpine’s obligations to JPMorgan under the Alpine Credit Facility are secured by a first priority security interest in substantially all of the assets of Alpine, including its portfolio of loans. The obligations of Alpine under the Alpine Credit Facility are non-recourse to the Company.

The Alpine Credit Facility provides for borrowings in an aggregate principal amount up to $300,000,000 on a committed basis. Borrowings under the Alpine Credit Facility are subject to compliance with a net asset value coverage ratio with respect to the current value of Alpine’s portfolio and various eligibility criteria must be satisfied with respect to the initial acquisition of each loan in Alpine’s portfolio. Any amounts borrowed under the Alpine Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on July 23, 2019.

Pricing under the Alpine Credit Facility for each one month calculation period is based on the London Interbank Offered Rate (“LIBOR”) for an interest period of one month, plus a spread of 3.25% per annum. If LIBOR is unavailable, pricing will be determined at the prime rate offered by JPMorgan or the federal funds

F-44

effective rate, plus a spread of 3.25% per annum. Interest is payable monthly in arrears. Beginning February 23, 2015, Alpine will be required to pay a commitment fee equal to 0.50% on the average daily unused amount of the financing commitments to the extent $150,000,000 has not been borrowed. Alpine also paid a set-up fee and incurred certain other customary costs and expenses in connection with obtaining the Alpine Credit Facility on July 23, 2014, and its first amendment which increased the aggregate principal amount from $150,000,000 to $300,000,000 on February 6, 2015.

Borrowings of Alpine will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the Investment Company Act of 1940 Act, as amended, applicable to business development companies.

Pursuant to a Sale and Contribution Agreement entered into between the Company and Alpine (the “Sale Agreement”) in connection with the Alpine Credit Facility, the Company may sell loans or contribute cash or loans to Alpine from time to time and will retain a residual interest in any assets contributed through its ownership of Alpine or will receive fair market value for any assets sold to Alpine. In certain circumstances the Company may be required to repurchase certain loans sold to Alpine. In addition to the acquisition of loans pursuant to the Sale Agreement, Alpine may purchase additional assets from various sources. Alpine has appointed SIC Advisors LLC to manage its portfolio of assets pursuant to the terms of a Portfolio Management Agreement between SIC Advisors LLC and Alpine.

As of March 31, 2015 and December 31, 2014, the carrying amount of the Company’s borrowings under the Alpine Credit Facility approximated the fair value of the Company’s debt obligation. The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s borrowing under the Alpine Credit Facility is estimated based upon market interest rates of the Company’s borrowing or entities with similar credit risk, adjusted for nonperformance risk, if any. At March 31, 2015 and December 31, 2014, the Alpine Credit Facility would be deemed to be Level 3, as defined in Note 4.

As of March 31, 2015 and December 31, 2014, $2,345,771 and $1,050,000 of financing costs related to the Alpine Credit Facility has been capitalized and is being amortized over the respective terms, respectively. For the three months ended March 31, 2015, the Company recorded $1,140,044 of interest and financing expenses related to the Alpine Credit Facility, of which $1,053,359 was attributable to interest and $86,685 was attributable to amortization of deferred financing costs. As of March 31, 2015 and December 31, 2014, the Company’s outstanding borrowing under the Alpine Credit Facility was $121,500,000 and $121,500,000, respectively. For the three months ended March 31, 2015, the Company’s weighted average outstanding debt balance and interest rate on the Alpine Credit Facility was $121,500,000 and 3.5%, respectively.

Note 7. Agreements

Investment Advisory Agreement

On April 15, 2012, the Company entered into an investment advisory agreement (“IAA”) with SIC Advisors to manage the Company’s investment activities. The IAA became effective as of April 17, 2012, the date that the Company met its minimum offering requirement. Pursuant to the 1940 Act, the initial term of the IAA was for two years from its effective date, with one-year renewals subject to approval by the Company’s board of directors, a majority of whom must be independent directors. On March 12, 2014, the Company’s board of directors approved the renewal of the IAA for an additional one-year term at an in-person meeting. Pursuant to the IAA, SIC Advisors implements the Company’s business strategy on a day-to-day basis and performs certain services for the Company, subject to oversight by the Company’s board of directors. SIC Advisors is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investment

F-45

transactions, asset sales, financings and performing asset management duties. Under the IAA, the Company has agreed to pay SIC Advisors a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of the Company’s gross assets payable quarterly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage. “Gross assets” also includes any cash collateral posted with respect to the TRS, adjusted for realized and unrealized appreciation. For the first quarter of the Company’s operations, the base management fee was calculated based on the initial value of the Company’s gross assets. Subsequently, the base management fee is calculated based on the gross assets at the end of each completed calendar quarter. Base management fees for any partial quarter are appropriately prorated. For the three months ended March 31, 2015 and March 31, 2014, the Company recorded an expense for base management fees of $3,720,397 and $1,142,771, respectively, of which $3,720,397 and $3,271,387 were payable at March 31, 2015 and December 31, 2014, respectively.

The incentive fee consists of the following two parts:

An incentive fee on net investment income (“subordinated incentive fee on income”) is calculated and payable quarterly in arrears and is based upon pre-incentive fee net investment income for the immediately preceding quarter. No subordinated incentive fee on income is payable in any calendar quarter in which pre-incentive fee net investment income does not exceed a quarterly return to stockholders of 1.75% per quarter on the Company’s net assets at the end of the immediately preceding fiscal quarter (the “Preferred Quarterly Return”). All pre-incentive fee net investment income, if any, that exceeds the Preferred Quarterly Return, but is less than or equal to 2.1875% of net assets at the end of the immediately preceding fiscal quarter in any quarter, will be payable to SIC Advisors. The Company refers to this portion of its Subordinated Incentive Fee on Income as the “Catch Up”. It is intended to provide an incentive fee of 20% on pre-incentive fee net investment income when pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter in any quarter. For any quarter in which the Company’s pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter, the Subordinated Incentive Fee on Income shall equal 20% of the amount of pre-incentive fee net investment income, because the Preferred Quarterly Return and Catch Up will have been achieved. There is no incentive fee on net investment income earned on the TRS.

For the three months ended March 31, 2015 and March 31, 2014, the Company recorded an incentive fee on net income of $270,497 and $0, respectively. As of March 31, 2015 and December 31, 2014, the Company recorded an incentive fee on net income payable of $270,497 and $0, respectively.

A capital gains incentive fee will be earned on realized investments and shall be payable in arrears as of the end of each calendar year during which the IAA is in effect. If the IAA is terminated, the fee will also become payable as of the effective date of such termination. The fee equals 20% of the realized capital gains, less the aggregate amount of any previously paid capital gains incentive fees. Incentive fee on capital gains is equal to realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis.

Under GAAP, the Company calculates capital gains incentive fees as if the Company had realized all assets at their fair values and liabilities at their settlement amounts as of the reporting date. GAAP requires that the capital gains incentive fee accrual assume the cumulative aggregate unrealized capital appreciation is realized, even though such unrealized capital appreciation is not payable under the IAA. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. There can be no assurance that such unrealized capital appreciation will be realized in the future and that the provisional capital gains incentive fee will become payable.

F-46

For the three months ended March 31, 2015 and March 31, 2014, the Company recorded a capital gains incentive fee of $0 and $112,491, respectively. As of March 31, 2015 and December 31, 2014, the Company recorded a capital gains incentive fee payable of $0 and $0, respectively.

Prior to June 2, 2014, SIC Advisors bore all organizational and offering expenses, as defined in the IAA, on behalf of the Company until the Company’s gross proceeds in connection with the sale of its common stock exceeded $300,000,000. As of June 2, 2014, the Company is responsible for all ongoing organization and offering expenses.

Pursuant to the terms of the IAA, the Company has agreed to reimburse SIC Advisors for any such organizational and offering expenses incurred by SIC Advisors (“O&O Reimbursable Expenses”) not to exceed 1.25% of the gross subscriptions raised by the Company over the course of the offering period, which is currently scheduled to terminate April 17, 2015, unless further extended.

In the event that other organizational and offering expenses exceed 5.25% of the gross proceeds from the sale of shares of the Company’s common stock pursuant to its public offering or one or more private offerings at the time of the completion of the offering or other organizational and offering expenses, together with selling commissions, dealer manager fees and any discounts paid to members of the Financial Industry Regulatory Authority, exceed 15% of the gross proceeds from the sale of shares of the Company’s common stock pursuant to its public offering or one or more private offerings at the time of the completion of the offering, then SIC Advisors shall be required to pay without reimbursement from the Company, or, if already paid by the Company, reimburse the Company, for amounts exceeding such 5.25% and 15% limit, as appropriate.

For the three months ended March 31, 2015 and March 31, 2014, SIC Advisors incurred O&O Reimbursable Expenses of $0 and $1,077,448, respectively. Of the total $5,931,441 organizational and offering costs incurred from inception through March 31, 2015, $517,486 and $990,489 were reimbursed to SIC Advisors during the three months ended March 31, 2015 and March 31, 2014, respectively. For the three months ended March 31, 2015 and March 31, 2014, the Company reimbursed SIC Advisors $0 and $997,193, respectively. As of March 31, 2015 and December 31, 2014, $0 and $73,799 have been accrued and are reflected in the consolidated statements of assets and liabilities as due to affiliate, respectively. The remaining unreimbursed amount will be eligible for reimbursement to the extent the Company receives subscriptions until April 17, 2016, which is the currently scheduled date that the offering period ends, unless it is extended. O&O Reimbursable Expenses paid for by SIC Advisors and reimbursed by the Company will be expensed on the Company’s consolidated statements of operations.

Administration Agreement

On April 5, 2012, the Company entered into an administration agreement (the “Administration Agreement”) with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes the Company with administrative services necessary to conduct its day-to-day operations. On February 28, 2013, Medley Capital LLC entered into a Sub-Administration Agreement with State Street Bank Global Fund Accounting and Custody to perform certain financial, accounting, administrative and other services on behalf of the Company. On March 12, 2014, the Company’s board of directors approved the renewal of the Administration Agreement for an additional one-year term at an in-person meeting. Medley Capital LLC is reimbursed for administrative expenses it incurs on the Company’s behalf in performing its obligations. Such costs are reasonably allocated to the Company on the basis of assets, revenues, time records or other reasonable methods. The Company does not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. Medley Capital LLC is an affiliate of SIC Advisors. For the three months ended March 31, 2015 and March 31, 2014, the Company recorded an expense of $555,749 and $228,216, relating to administrator expenses. As of March 31, 2015 and December 31, 2014, the Company had $553,844 and $450,058 in administrator expenses payable, respectively.

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Expense Support and Reimbursement Agreement

On June 29, 2012, the Company entered into an Expense Support and Reimbursement Agreement (the “Expense Support Agreement”) with SIC Advisors. Pursuant to the Expense Support Agreement, SIC Advisors has agreed to reimburse the Company for operating expenses in an amount equal to the difference between distributions paid to the Company’s stockholders in each month, less the sum of the Company’s net investment income, the Company’s net realized capital gains and dividends paid to the Company from its portfolio companies during such period (“Expense Support Reimbursement”). To the extent that no dividends or other distributions are paid to the Company’s stockholders in any given month, then the Expense Support Reimbursement for such month shall be equal to such amount necessary in order for Available Operating Funds for the month to equal zero. The terms of the Expense Support Agreement commenced as of the date that the Company’s registration statement was declared effective by the SEC and continued monthly thereafter until December 31, 2012. Most recently, on December 9, 2014, the Company’s board of directors approved an extension of the Expense Support Agreement through June 30, 2015.

Pursuant to the Expense Support Agreement, the Company has a conditional obligation to reimburse SIC Advisors for any amounts funded by SIC Advisors under the Expense Support Agreement if, and only to the extent that, during any fiscal quarter occurring within three years of the date on which SIC Advisors incurred a liability for such amount, the sum of the Company’s net investment income, the Company’s net capital gains and the amount of any dividends and other distributions paid to the Company from its portfolio companies, to the extent not included in net investment income or net capital gains for tax purposes, exceeds the distributions paid by the Company to stockholders. The purpose of the Expense Support Agreement is to avoid such distributions being characterized as returns of capital for GAAP purposes, to the extent possible, and to reduce operating expenses until the Company has raised sufficient capital to be able to absorb such expenses.

Pursuant to the Expense Support Agreement, the Company will reimburse SIC Advisors for expense support payments it previously made following any calendar quarter in which the Company received net investment income, net capital gains and dividends from its portfolio companies in excess of the distributions paid to the Company’s stockholders during such calendar quarter (the “Excess Operating Funds”). Any such reimbursement will be made within three years of the date that the expense support payment obligation was incurred by SIC Advisors, subject to the conditions described below. The amount of the reimbursement during any calendar quarter will equal the lesser of (i) the Excess Operating Funds received during the quarter and (ii) the aggregate amount of all expense payments made by SIC Advisors that have not yet been reimbursed. In addition, the Company will only make reimbursement payments if its “operating expense ratio” (as described in footnote 1 to the table below) is equal to or less than its operating expense ratio at the time the corresponding expense payment was incurred and if the annualized rate of its regular cash distributions to the Company’s stockholders is equal to or greater than the annualized rate of the Company’s regular cash distributions to stockholders at the time the corresponding expense payment was incurred.

For the three months ended March 31, 2015 and March 31, 2014, the Company recorded net Expense Support Reimbursements of $1,993,518 and $1,313,470, respectively, on the consolidated statements of operations and gross Expense Support Reimbursements. Repayments of amounts paid by SIC Advisors to the Company under the Expense Support Agreement will be accrued as they become probable and estimable. The Company may only remit payment to SIC Advisors for Expense Support Reimbursements to the extent that the Company’s excess net income eligible for reimbursement (i) does not cause the Operating Expense Ratio to exceed such ratio in effect at the time that the original Expense Payment Obligation was incurred, and (ii) to the extent that the current Annualized Distribution Rate is not below such rate in effect at the time that the original Expense Payment Obligation was incurred. The Company refers to Expense Support Reimbursements that are eligible for reimbursement to SIC Advisors by virtue of having satisfied the conditions described above as a “Crystalized Reimbursement.” For the three months ended March 31, 2015 and March 31, 2014, the Company did not record any Crystalized Reimbursement. As of March 31, 2015 and December 31, 2014 the total amounts eligible for reimbursement of the Company to SIC Advisors was $12,534,317 and $10,540,799, respectively.

F-48

The following table provides information regarding liabilities incurred by SIC Advisors pursuant to the Expense Support Agreement as well as other information relating to the Company’s ability to reimburse SIC Advisors for such payments:


Quarter Ended	Amount of Expense Payment Obligation		Amount Repaid to SIC Advisors		Operating Expense Ratio ⁽¹⁾			Annualized Distribution Rate ⁽²⁾			Eligible to be Repaid Through
June 30, 2012	$	454,874	$	454,874		6.13	%		8.00	%	June 30, 2015
September 30, 2012		437,303		437,303		4.05	%		8.00	%	September 30, 2015
December 31, 2012		573,733		573,733		3.91	%		8.00	%	December 31, 2015
March 31, 2013		685,404		35,028		1.71	%		8.00	%	March 31, 2016
June 30, 2013		732,425		—		1.00	%		7.84	%	June 30, 2016
September 30, 2013		1,262,848		—		0.83	%		7.84	%	September 30, 2016
December 31, 2013		1,258,575		—		0.45	%		7.84	%	December 31, 2016
March 31, 2014		1,313,470		—		0.45	%		7.80	%	March 31, 2017
June 30, 2014		2,143,066		—		0.38	%		7.80	%	June 30, 2017
September 30, 2014		1,717,593		123,025		0.38	%		7.77	%	September 30, 2017
December 31, 2014		1,585,471		—		0.47	%		8.00	%	December 31, 2017
March 31, 2015		1,993,518		—		0.43	%		8.00	%	March 31, 2018

⁽¹⁾

“Operating Expense Ratio” is as of the date the expense support payment obligation was incurred by the Company’s Advisor and includes all expenses borne by the Company, except for organizational and offering expenses, base management and incentive fees owed to SIC Advisors, and interest expense, as a percentage of net assets.

⁽²⁾

“Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by SIC Advisors. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders.

Note 8. Related Party Transactions

On October 19, 2011, SIC Advisors entered into a subscription agreement to purchase 110.80 shares of common stock for cash consideration of $1,000. The consideration represents $9.025 per share.

On March 31, 2012, SIC Advisors entered into a subscription agreement to purchase 1,108,033.24 shares of common stock for cash consideration of $10,000,000. The purchase was made on April 17, 2012. The consideration represents $9.025 per share.

Due from affiliate relates to amounts due from SIC Advisors pursuant to the Expense Support Agreement as discussed in Note 7.

Due to affiliate relates to reimbursements of organizational and offering expenses pursuant to the IAA paid to SIC Advisors as discussed in Note 7.

An affiliate of the Company’s dealer manager has an ownership interest in SIC Advisors.

Opportunities for co-investments may arise when SIC Advisors or an affiliated adviser becomes aware of investment opportunities that may be appropriate for the Company and other clients or affiliated funds. As a BDC, the Company was substantially limited in its ability to co-invest in privately negotiated transactions with affiliated funds until it obtained an exemptive order from the SEC on November 25, 2013 (the “Exemptive Order”). The Exemptive Order permits the Company to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Medley LLC, the parent company of SIC Advisors, or an investment adviser controlled by Medley LLC, in a manner consistent with its investment objective, strategies

F-49

and restrictions, as well as regulatory requirements and other pertinent factors. Co-investment under the Exemptive Order is subject to certain conditions therein, including the condition that, in the case of each co-investment transaction, the Company’s board of directors determines that it would be advantageous for the Company to co-invest in a manner described in the Exemptive Order. Before receiving the Exemptive Order, the Company only participated in co-investments that were allowed under existing regulatory guidance, such as syndicated loan transactions where price was the only negotiated term, which limited the types of investments that the Company could make. Please refer to footnote 4 to the consolidated schedule of investments as of March 31, 2015 and December 31, 2014 for disclosures regarding securities also held by affiliated funds.

Note 9. Directors Fees

The Company’s independent directors receive an annual retainer fee of $30,000 and further receive a fee of $2,500 ($1,000 for telephonic attendance) for each regularly scheduled board meeting and a fee of $1,000 for each special board meeting and all committee meetings as well as reimbursement of reasonable and documented out-of-pocket expenses incurred in connection with attending each board or committee meeting. In addition, the chairman of the audit committee receives an annual retainer of $10,000, while the chairman of any other committee receives an annual retainer of $2,500. For the three months ended March 31, 2015 and March 31, 2014, the Company recorded directors’ fees expenses of $47,125 and $41,189, respectively, as general and administrative expenses within the consolidated statements of operations. At March 31, 2015 and December 31, 2014, the Company recorded directors’ fees payable of $47,125 and $0, respectively, as accounts payable and accrued expenses within the consolidated statements of assets and liabilities.

Note 10. Earnings Per Share

In accordance with the provisions of ASC Topic 260 — Earnings per Share basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The following table sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the three months ended March 31:


	2015		2014
Net increase/(decrease) in net assets from operations	$	11,997,880	$	4,447,548
Weighted average common shares outstanding		58,356,637		20,369,602
Earnings per common share-basic and diluted	$	0.21	$	0.22

Note 11. Commitments and Contingencies

The Company’s investment portfolio may contain debt investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of March 31, 2015 and December 31, 2014 the Company had $10,040,355 and $12,625,200 unfunded commitments under loan and financing agreements.


	As of
	March 31, 2015		December 31, 2014
AM3 Pinnacle Corporation	$	—	$	144,424
Nation Safe Drivers Holdings, Inc.		—		2,440,421
Oxford Mining Company, LLC		8,135,593		8,135,593
DHISCO Electronic Distributions, Inc.		1,904,762		1,904,762

Total	$	10,040,355	$	12,625,200

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Note 12. Fee Income

Fee income consists of origination/closing fee, amendment fee, prepayment penalty, administrative agent fee, transaction break-up fee and other miscellaneous fees. The following tables summarize the Company’s fee income for the three months ended March 31:


	2015		2014
Origination fee	$	1,282,455	$	669,689
Prepayment fee		—		150,000
Amendment fee		35,433		9,555
Administrative agent fee		1,367		4,315
Other fees		7,819		1,090

Fee income	$	1,327,074	$	834,649

Note 13. Distributions and Share Repurchase Plan Distributions

Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Company’s board of directors.

The Company has adopted an “opt in” distribution reinvestment plan (“DRIP”) pursuant to which the Company’s common stockholders may elect to have the full amount of any cash distributions reinvested in additional shares of the Company’s common stock. As a result, if the Company declares a cash dividend or other distribution, each stockholder that has “opted in” to the Company’s reinvestment plan will have their distributions automatically reinvested in additional shares of the Company’s common stock rather than receiving cash distributions. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions. For the three months ended March 31, 2015, the Company distributed a total of $11,809,067, of which, $6,237,693 was in cash and $5,571,374 was in the form of common shares associated with the DRIP. For the three months ended March 31, 2014, the Company distributed a total of $4,201,611, of which, $2,370,419, was in cash and $1,831,192 was in the form of common shares associated with the DRIP.

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The following table reflects the cash distributions per share that the Company declared or paid to its stockholders since it commenced operations in April 2012. Stockholders of record as of each respective record date were entitled to receive the distribution.


Record Date	Payment Date		Amount per share
July 13 and 31, 2012		August 1, 2012	$	0.03333
August 15 and 31, 2012		September 4, 2012		0.03333
September 14 and 28, 2012		October 1, 2012		0.03333
October 15 and 30, 2012		October 31, 2012		0.03333
November 15 and 29, 2012		November 30, 2012		0.03333
December 14 and 28, 2012		December 31, 2012		0.03333
January 15 and 31, 2013		January 31, 2013		0.03333
February 15 and 28, 2013		February 28, 2013		0.03333
March 15 and 29, 2013		March 29, 2013		0.03333
April 15 and 30, 2013		April 30, 2013		0.03333
May 15 and 31, 2013		May 31, 2013		0.03333
June 14 and 28, 2013		June 28, 2013		0.03333
July 15 and 31, 2013		July 31, 2013		0.03333
August 15 and 30, 2013		August 30, 2013		0.03333
September 13 and 30, 2013		September 30, 2013		0.03333
October 15 and 31, 2013		October 31, 2013		0.03333
November 15 and 29, 2013		November 29, 2013		0.03333
December 13 and 31, 2013		December 31, 2013		0.03333
January 15 and 31, 2014		January 31, 2014		0.03333
February 14 and 28, 2014		February 28, 2014		0.03333
March 14 and 31, 2014		March 31, 2014		0.03333
April 15 and 30, 2014		April 30, 2014		0.03333
May 15 and 30, 2014		May 30, 2014		0.03333
June 13 and 30, 2014		June 30, 2014		0.03333
July 15 and 31, 2014		July 31, 2014		0.03333
August 15 and 29, 2014		August 29, 2014		0.03333
September 15 and 30, 2014		September 30, 2014		0.03333
October 15 and 31, 2014		October 31, 2014		0.03333
November 14 and 28, 2014		November 28, 2014		0.03333
December 15 and 31, 2014		December 31, 2014		0.03333
January 15 and 30, 2015		January 30, 2015		0.03333
February 13 and 27, 2015		February 27, 2015		0.03333
March 13 and 31, 2015		March 31, 2015		0.03333
April 15 and 30, 2015		April 30, 2015		0.03333
May 15 and 29, 2015		May 29, 2015		0.03333
June 15 and 30, 2015		June 30, 2015		0.03333

The Company’s distributions may be funded from offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Company for investment. Any capital returned to stockholders through distributions will be distributed after payment of fees and expenses.

The Company’s previous distributions to stockholders were funded from temporary Expense Support Reimbursements that are subject to repayment to SIC Advisors. These distributions were not based on the Company’s investment performance and may not continue in the future. If SIC Advisors had not agreed to make Expense Support Reimbursements, these distributions would have come from paid-in-capital. The reimbursement of these payments owed to SIC Advisors will reduce the future distributions to which stockholders would otherwise be entitled.

F-52

The determination of the tax attributes (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution) of distributions is made annually as of the end of the Company’s fiscal year based upon its taxable income for the full year and distributions paid for the full year.

Share Repurchase Program

In June 2013, the Company commenced a share repurchase program pursuant to which it intends to conduct quarterly share repurchases, of up to 2.5% of the weighted average number of outstanding shares in any 3-month period or 10% of the weighted average number of outstanding shares in any 12-month period. The purpose of the share repurchase program is to allow stockholders to sell their shares back to the Company at a price equal to the most recently disclosed net asset value per share of the Company’s common stock immediately prior to the date of repurchase. Shares will be purchased from stockholders participating in the program on a pro rata basis. Unless the Company’s board of directors determines otherwise, the number of shares to be repurchased during any calendar year will be limited to the proceeds received in association with the sale of shares of common stock under the distribution reinvestment plan.

The following table reflects activity under the Company’s Share Repurchase Plan:


Offer Date	Quantity Offered		Price per Share		Repurchase Date		Repurchase Quantity
6/4/13		16,652	$	9.18		—		—
8/8/13		32,627	$	9.13		9/27/13		3,642
11/7/13		60,966	$	9.14		12/19/13		5,826
3/12/14		120,816	$	9.18		4/25/14		9,835
5/6/14		199,476	$	9.20		6/13/14		17,777
8/5/14		294,068	$	9.25		9/12/14		35,887
11/5/14		411,894	$	9.22		12/24/14		411,894
3/4/15		535,571	$	8.97		4/24/15		68,472
5/6/15		620,420	$	8.98		N/A		N/A

F-53

Note 14. Financial Highlights

The following is a schedule of financial highlights of the Company for the three months ended March 31:


	2015			2014			2013
Per Share Data:⁽¹⁾
Net asset value at beginning of period	$	8.97		$	9.18		$	8.96
Net investment income/(loss)		0.15			0.12			0.17
Net realized gains/(losses) on investments and total return swap		0.04			0.08			0.03
Net unrealized appreciation/(depreciation) on investments and total return swap		0.02			0.02			0.22

Net increase/(decrease) in net assets		0.21			0.22			0.42
Distributions declared from net investment income⁽²⁾		(0.20	)		(0.12	)		(0.17	)
Distributions from net realized capital gains		—			(0.08	)		(0.03	)

Total distributions to stockholders		(0.20	)		(0.20	)		(0.20	)
Issuance of common stock above net asset value⁽³⁾		—			—			—
Net asset value at end of period		8.98			9.20			9.18
Total return based on net asset value⁽⁴⁾⁽⁵⁾		2.38	%		2.39	%		4.73	%
Portfolio turnover rate⁽⁶⁾		0.64	%		29.17	%		10.83	%
Shares outstanding at end of period		62,913,036			24,767,652			3,874,385
Net assets at end of period		564,846,965			227,829,509			35,578,291
Ratio/Supplemental Data (annualized):
Ratio of net investment income/(loss) to average net assets		6.87	%		5.47	%		7.63	%
Ratio of net expenses (including incentive fees) to average net assets		5.49	%		4.62	%		7.48	%
Ratio of incentive fees to average net assets		0.21	%		0.25	%		2.12	%
Supplemental data (annualized):
Asset coverage ratio per unit⁽⁷⁾	$	2,276		$	3,884		$	3,806
Percentage of non-recurring fee income⁽⁸⁾		8.28	%		18.07	%		6.12	%
Ratio of net operating expenses to average net assets		5.28	%		4.37	%		5.36	%
Ratio of interest and financing related expenses to average net assets		1.42	%		0.36	%		0.41	%

⁽¹⁾	The per share data was derived by using the weighted average shares outstanding during the three months ended March 31, 2015, 2014, and 2013, which were 58,356,637, 20,369,602, and 3,226,281, respectively.

⁽²⁾	The per share data for distributions is the actual amount of paid distributions per share during the period.

⁽³⁾	Shares issued under the DRIP (see Note 13) as well as the continuous issuance of shares of common stock may cause on incremental increase/decrease in net asset value per share due to the effect of issuing shares at amounts that differ from the prevailing net asset value at each issuance.

⁽⁴⁾	Total annual returns are historical and assume reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge.

⁽⁵⁾

Total returns, ratios of net investment income/(loss), and ratios of net expenses to average net assets for the three months ended March 31, 2015, 2014, and 2013, prior to the effect of the Expense Support and Reimbursement Agreement were as follows: total return (12.18)%, 1.80%, and (2.71%) and ratio of net investment income/(loss): 5.38%, 2.61%, and (2.24%) and ratio of net expenses to average net assets: 7.05%, 7.56%, and 17.95%, respectively.

⁽⁶⁾	Not annualized.

⁽⁷⁾

Asset coverage per unit is the ratio of the carrying value of the Company’s total consolidated assets for regulatory purposes, which includes the underlying fair value of net TRS, less all liabilities and indebtedness not represented by senior securities to the aggregate amount of Senior Securities representing indebtedness and the implied leverage on the TRS. Asset coverage per unit is expressed in terms of dollars per $1,000 of indebtedness. As of March 31, 2015, 2014, and 2013, the Company’s Asset Coverage Per Unit including unfunded commitments was $2,226, $3,829, and $3,806, respectively.

⁽⁸⁾	Represents the impact of non-recurring fees over total investment income.

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Note 15. Subsequent Events

Management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three months ended March 31, 2015, except as disclosed below.

The Company issued common shares and received gross proceeds of approximately $33.2 million subsequent to March 31, 2015.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q.

Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to Sierra Income Corporation. “SIC Advisors” and the “Adviser” refer to SIC Advisors LLC, our investment adviser. SIC Advisors is a majority owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC. “Medley” refers, collectively, to the activities and operations of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, SIC Advisors, associated investment funds and their respective affiliates.

Some of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including, but not limited to, statements as to:

•

our future operating results;

•

our business prospects and the prospects of our portfolio companies;

•

changes in the economy;

•

risks associated with possible disruptions in our operations;

•

the effect of investments that we expect to make;

•

our contractual arrangements and relationships with third parties;

•

actual and potential conflicts of interest with SIC Advisors and its affiliates;

•

the dependence of our future success on the general economy and its effect on the industries in which we invest;

•

the ability of our portfolio companies to achieve their objectives;

•

the use of borrowed money to finance a portion of our investments;

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the adequacy of our financing sources and working capital;

•

the timing of cash flows, if any, from the operations of our portfolio companies;

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the ability of SIC Advisors to locate suitable investments for us and to monitor and administer our investments;

•

the ability of SIC Advisors and its affiliates to attract and retain highly talented professionals;

•

our ability to maintain our qualification as a RIC and as a BDC; and

•

the effect of changes in laws or regulations affecting our operations.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this annual report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in this annual report on Form 10-K.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.

Overview

We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the Investment Company Act of 1940 (the “1940 Act”). We are externally managed by SIC Advisors LLC, or SIC Advisors, which is a registered investment adviser under the Advisers Act. SIC Advisors is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. In addition, we have elected and intend to qualify to be treated, for U.S. federal income tax purposes, as a RIC under subchapter M of the Code.

On April 17, 2012 we successfully reached the minimum escrow requirement and officially commenced operations by receiving gross proceeds of $10 million in exchange for 1,108,033.24 shares of our common stock sold to SIC Advisors. As of March 31, 2015, we have combined proceeds, including leverage through a revolving credit facility with ING Capital LLC and a revolving credit facility with JP Morgan Chase through Alpine Funding LLC, our wholly-owned special purpose financing subsidiary, which we have used to invest $720.3 million across 79 portfolio companies.

Under our Investment Advisory Agreement, we pay SIC Advisors an annual management fee as well as an incentive fee based on our investment performance. Also, under the Administration Agreement, we reimburse Medley for the allocable portion of overhead and other expenses incurred by Medley Capital LLC in performing its obligations under the Administration Agreement, including our allocable portion of the costs of compensation and related expenses of our chief compliance officer, chief financial officer and their respective staffs.

We intend to meet our investment objective by primarily lending to, and investing in the debt of privately owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $1 billion. We intend to focus primarily on making investments in first lien senior secured debt, second lien secured debt, and to a lesser extent, subordinated debt, of middle market companies in a broad range of industries. We expect that the majority of our debt investments will bear interest at floating interest rates, but our portfolio may also include fixed-rate investments. We will originate transactions sourced through our existing SIC Advisors’ network, and, to a lesser extent, expect to acquire debt securities through the secondary market. We may make equity investments in companies that we believe will generate appropriate risk adjusted returns, although we do not expect such investments to be a substantial portion of our portfolio.

The level of our investment activity depends on many factors, including the amount of debt and equity capital available to prospective portfolio companies, the level of merger, acquisition and refinancing activity for such companies, the availability of credit to finance transactions, the general economic environment and the competitive environment for the types of investments we make. Based on prevailing market conditions, we anticipate that we will invest the proceeds from each subscription closing generally within 30-90 days. The precise timing will depend on the availability of investment opportunities that are consistent with our investment objectives and strategies. Any distributions we make during such period may be substantially lower than the distributions that we expect to pay when our portfolio is fully invested.

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing, with certain limited exceptions. To obtain and maintain our RIC status, we must meet specified source-of-income and asset diversification requirements. To be eligible for tax treatment under Subchapter M for U.S. federal income tax purposes, we must distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable year.

Revenues

We generate revenue in the form of interest on the debt securities that we hold and distributions and capital gains on other interests that we acquire in our portfolio companies. We expect that the senior debt we invest in will generally have stated terms of approximately six years and that the subordinated debt we invest in will generally have stated terms of approximately seven years. Our senior and subordinated debt investments bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly, quarterly or semiannually. In addition, some of our investments provide for deferred interest payments or paid-in-kind (“PIK”) interest. The principal amount of the debt securities and any accrued but unpaid interest generally will become due at the maturity date. In addition, we may generate revenue in the form of commitment and other fees in connection with our transactions. Original issue discounts and market discounts or premiums will be capitalized, and we will accrete or amortize such amounts as interest income. We will record prepayment premiums on loans and debt securities as income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.

Expenses

Our primary annual operating expenses consist of the payment of advisory fees and the reimbursement of expenses under our Investment Advisory Agreement with SIC Advisors and our Administration Agreement with Medley Capital LLC. We bear other expenses, which include, among other things:

•

corporate, organizational and offering expenses relating to offerings of our common stock, subject to limitations included in our Investment Advisory Agreement;

•

the cost of calculating our net asset value, including the related fees and cost of any third-party valuation services;

•

the cost of effecting sales and repurchases of shares of our common stock and other securities;

•

fees payable to third parties relating to, or associated with, monitoring our financial and legal affairs, making investments, and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

•

interest payable on debt, if any, incurred to finance our investments;

•

transfer agent and custodial fees;

•

fees and expenses associated with marketing efforts subject to limitations included in the Investment Advisory Agreement;

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federal and state registration fees and any stock exchange listing fees;

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federal, state and local taxes;

•

independent directors’ fees and expenses, including travel expenses;

•

costs of director and stockholder meetings, proxy statements, stockholders’ reports and notices;

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costs of fidelity bonds, directors and officers/errors and omissions liability insurance and other types of insurance;

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direct costs, including those relating to printing of stockholder reports and advertising or sales materials, mailing, long distance telephone and staff subject to limitations included in the Investment Advisory Agreement;

•

fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act of 2002, the 1940 Act and applicable federal and state securities laws;

•

brokerage commissions for our investments;

•

all other expenses incurred by us or the Advisor in connection with administering our investment portfolio, including expenses incurred by our Advisor in performing certain of its obligations under the Investment Advisory Agreement; and

•

the reimbursement of the compensation of our chief financial officer and chief compliance officer, whose salary is paid by Medley, to the extent that each such reimbursement amount is annually approved by our independent director committee and subject to the limitations included in our Administration Agreement.

Reimbursement of Medley for Administrative Services

We reimburse Medley Capital LLC for the administrative expenses necessary for its performance of services to us. However, such reimbursement is made at an amount equal to the lower of Medley Capital LLC’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. Also, such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC.

Portfolio and Investment Activity

As of March 31, 2015, our portfolio consisted of investments in 79 portfolio companies with a fair value of $714.4 million, and was comprised of 53.6 % Senior Secured first lien term loans, 37.0% Senior Secured second lien term loans, 8.5 % Senior Secured first lien notes and 0.9 % warrants and equity.

As of December 31, 2014, our investment portfolio consisted of investments in 73 portfolio companies with a fair value of $616.9 million, and was comprised of 54.3% Senior Secured first lien term loans, 35.9% Senior Secured second lien term loans, 8.7% Senior Secured first lien notes, 0.2% Senior Secured second lien notes, 0.5% preferred equity, and 0.4% warrants.

As of March 31, 2015, our income-bearing investment portfolio, which represented 99.6 % of our total portfolio, had a weighted average yield based upon the cost of our portfolio investments of approximately 9.1 %, and 9.9 % of our income-bearing portfolio bore interest based on fixed rates, and 90.1 % of our income-bearing portfolio bore interest on floating rates, such as LIBOR.

As of December 31, 2014, our income-bearing investment portfolio, which represented 99.6% of our total portfolio, had a weighted average yield based upon the cost of our portfolio investments of approximately 9.1%, and 10.0% of our income-bearing portfolio bore interest based on fixed rates, and 90.0% of our income-bearing portfolio bore interest on floating rates, such as LIBOR.

During the quarter ended March 31, 2015, we invested $80.9 million of principal in directly originated transactions across 7 portfolio companies and $23.0 million of principal in syndicated transactions across

3 portfolio companies. As of March 31, 2015, the investment portfolio was comprised of $554.6 million of principal in directly originated transactions across 51 portfolio companies and $169.4 million of principal in syndicated transactions across 28 portfolio companies.

The following table summarizes the amortized cost and the fair value of investments, not including cash as of March 31, 2015:


	Amortized Cost		Percentage			Fair Value		Percentage
Senior secured first lien term loans	$	432,477,081		60.1		$	430,584,735		60.3	%
Senior secured second lien term loans		220,659,129		30.6			216,965,059		30.4
Senior secured first lien notes		62,144,763		8.6			60,678,015		8.5
Warrants/Equity		5,027,662		0.7			6,164,286		0.8

Total	$	720,308,635		100.0	%	$	714,392,095		100.0	%

The following table summarizes the amortized cost and the fair value of investments, not including cash as of December 31, 2014:


	Amortized Cost		Percentage			Value		Percentage
Senior secured first lien term loans	$	335,675,585		54.0	%	$	335,182,650		54.3	%
Senior secured second lien term loans		223,990,513		36.1			221,863,203		35.9
Senior secured first lien notes		55,380,821		8.9			53,699,500		8.7
Senior secured second lien notes		986,238		0.2			1,008,274		0.2
Warrants/Equity		4,935,360		0.8			5,161,466		0.9

Total	$	620,968,517		100.0	%	$	616,915,093		100.0	%

The weighted average current yield to maturity, including the yield of cash collateral on total return swap, based on fair value at March 31, 2015 was as follows:


	Percentage of Total Investments			Weighted Average Current Yield for Total Investments
Senior Secured First Lien Term Loans		49.5	%		9.4	%
Senior Secured First Lien Notes		7.8			10.7
Senior Secured Second Lien Term Loans		34.2			10.5
Senior Secured Second Lien Notes		—			—
Equity/Warrants		8.5			19.4

Total		100.0	%		10.7	%

The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value at March 31, 2015:


	Investments at Fair Value⁽¹⁾		Percentage of Total Portfolio⁽¹⁾			Value of TRS Underlying Loans		Percentage of TRS Underlying Loans			Total Investments at Fair Value including the value of TRS Underlying Loans		Percentage of Total Portfolio Including the value of TRS Underlying Loans
Hotel, Gaming & Leisure		88,416,270		12.4	%		35,375,864		15.8	%		123,792,134		13.2	%
Banking, Finance, Insurance & Real Estate		85,803,697		12.0			12,864,504		5.7			98,668,201		10.5
Services: Business		87,878,824		12.3			7,305,490		3.3			95,184,314		10.1
Energy: Oil & Gas		37,899,063		5.3			18,176,517		8.1			56,075,580		6.0
Wholesale		40,746,320		5.7			15,015,467		6.7			55,761,787		5.9
Media: Advertising, Printing & Publishing		35,693,866		5.0			19,864,604		8.9			55,558,470		5.9
Automotive		51,460,217		7.2			3,655,320		1.6			55,115,537		5.9
High Tech Industries		32,231,561		4.5			21,428,795		9.6			53,660,356		5.7
Telecommunications		30,934,497		4.3			19,260,411		8.6			50,194,908		5.3
Construction & Building		44,067,451		6.2			3,421,250		1.5			47,488,701		5.1
Retail		35,315,978		4.9			11,306,394		5.0			46,622,372		5.0
Aerospace & Defense		34,113,730		4.8			—		0.0			34,113,730		3.6
Healthcare & Pharmaceuticals		25,277,957		3.5			5,456,788		2.4			30,734,745		3.3
Transportation: Cargo		12,445,862		1.7			11,640,566		5.2			24,086,428		2.6
Metals & Mining		12,800,934		1.8			9,650,000		4.3			22,450,934		2.4
Capital Equipment		15,000,000		2.1			—		0.0			15,000,000		1.6
Containers, Packaging & Glass		—		0.0			14,937,625		6.7			14,937,625		1.6
Chemicals, Plastics & Rubber		12,319,736		1.7			—		0.0			12,319,736		1.3
Services: Consumer		11,341,576		1.6			—		0.0			11,341,576		1.2
Environmental Industries		—		0.0			11,012,400		4.9			11,012,400		1.2
Beverage, Food & Tobacco		9,198,573		1.3			—		0.0			9,198,573		1.0
Media: Broadcasting & Subscription		6,481,555		0.9			—		0.0			6,481,555		0.7
Consumer goods: Non-durable		4,964,428		0.7			—		0.0			4,964,428		0.5
Consumer goods: Durable		—		0.0			3,979,260		1.8			3,979,260		0.4

	$	714,392,095		100.0	%	$	224,351,255		100.0	%	$	938,743,350		100.0	%

⁽¹⁾	Does not include TRS underlying loans

SIC Advisors regularly assesses the risk profile of each of our portfolio investments and rates each of them based on the following categories, which we refer to as SIC Advisors’ investment credit rating:


Credit Rating		Definition
1		Investments that are performing above expectations.

2		Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination or purchase. All new loans are rated ‘2’.

3		Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due.

4		Investments that are performing below expectations and for which risk has increased materially since origination or purchase. Some loss of interest or dividend is expected, but no loss of principal. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).

5		Investments that are performing substantially below expectations and whose risks have increased substantially since origination or purchase. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Some loss of principal is expected.

The following table shows the distribution of our investments, not including cash and cash equivalents, on the 1 to 5 investment performance rating scale at fair value as of March 31, 2015:


	March 31, 2015					December 31, 2014
Investment Performance Rating	Investments at Fair Value		Percentage			Investments at Fair Value		Percentage
1	$	—		—	%	$	—		—	%
2		707,672,889		99.1			616,677,442		100.0
3		6,481,555		0.9			—		—
4		—		—			—		—
5		237,651		0.0			237,651		0.0

Total	$	714,392,095		100.0	%	$	616,915,093		100.0	%

Results of Operations

Operating results for the three months ended March 31, 2015 and 2014 are as follows:


	For the three months ended March 31
	2015		2014
Total investment income	$	16,006,819	$	4,596,214
Total expenses, net		7,107,492		2,103,565
Net investment income/(loss)		8,899,327		2,492,649
Net realized gain/(loss) on investments and total return swap		2,154,652		1,708,962
Net unrealized gain/(loss) on investments and total return swap		943,901		245,937

Net increase/(decrease) in net assets resulting from operations	$	11,997,880	$	4,447,548

Investment Income

For the three months ended March 31, 2015, investment income totaled $16,006,819, of which $14,332,341 was attributable to portfolio interest, $1,327,074 was attributable to fee income, $347,153 was attributable to PIK interest and $251 was attributable to interest from cash.

For the three months ended March 31, 2014, investment income totaled $4,596,214, of which $3,757,861 was attributable to portfolio interest, $834,649 was attributable to fee income, and $3,704 was attributable to PIK interest.

Operating Expenses

Operating expenses for the three months ended March, 2015 and 2014 were as follows:


	For the three months ended March 31
	2015		2014
Base management fees		3,720,397	$	1,142,771
Provisional incentive fees		270,497		112,491
Administrator expenses		555,749		228,216
Professional fees		549,981		255,328
Interest and financing expenses		1,832,631		163,401
Organizational and offering costs reimbursed to an affiliate		443,687		983,785
General and administrative expenses		1,335,315		531,043

Expenses before expense reimbursement	$	9,101,010	$	3,417,035

Expense Support and Reimbursement Agreement

On June 29, 2012, the Company entered into an Expense Support and Reimbursement Agreement (the “Expense Support Agreement”) with SIC Advisors. Pursuant to the Expense Support Agreement, SIC Advisors has agreed to reimburse the Company for operating expenses in an amount equal to the difference between distributions paid to the Company’s stockholders in each month, less the sum of the Company’s net investment income, the Company’s net realized capital gains and dividends paid to the Company from its portfolio companies during such period (“Expense Support Reimbursement”). To the extent that no dividends or other distributions are paid to the Company’s stockholders in any given month, then the Expense Support Reimbursement for such month shall be equal to such amount necessary in order for Available Operating Funds for the month to equal zero. The terms of the Expense Support Agreement commenced as of the date that the Company’s registration statement was declared effective by the SEC and continued monthly thereafter until December 31, 2012. Subsequently, the Company’s board of directors approved amendments to the Expense Support Agreement that extended the term from December 31, 2012 to June 30, 2015.

Pursuant to the Expense Support Agreement, the Company has a conditional obligation to reimburse SIC Advisors for any amounts funded by SIC Advisors under the Expense Support Agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which SIC Advisors incurred a liability for such amount, the sum of the Company’s net investment income, the Company’s net capital gains and the amount of any dividends and other distributions paid to the Company from its portfolio companies (to the extent not included in net investment income or net capital gains for tax purposes) exceeds the distributions paid by the Company to stockholders. The purpose of the Expense Support Agreement is to avoid such distributions being characterized as returns of capital for GAAP purposes and to reduce operating expenses until the Company has raised sufficient capital to be able to absorb such expenses.

quarter will equal the lesser of (i) the Excess Operating Funds received during the quarter and (ii) the aggregate amount of all expense payments made by SIC Advisors that have not yet been reimbursed. In addition, the Company will only make reimbursement payments if its “operating expense ratio” (as described in footnote 1 to the table below) is equal to or less than its operating expense ratio at the time the corresponding expense payment was incurred and if the annualized rate of its regular cash distributions to the Company’s stockholders is equal to or greater than the annualized rate of the Company’s regular cash distributions to stockholders at the time the corresponding expense payment was incurred.

As of March 31, 2015, we recorded $4,230,404 in our statements of assets and liabilities as due from affiliate relating to the Expense Support Agreement. For the three months ended March 31, 2015, we recorded an expense reimbursement of $1,993,518 on the statement of operations. Expense reimbursements to SIC Advisors will be accrued as they become probable and estimable. For the three months ended March 31, 2015, we did not record any expense reimbursements to SIC Advisors. As of December 31, 2014, we recorded $6,995,930 in our consolidated statement of assets and liabilities as due from affiliate relating to the Expense Support and Reimbursement Agreement. For the three months ended March 31, 2014, we recorded an expense reimbursement of $1,313,470 on the statement of operations. For the three months ended March 31, 2014 we did not record any expense reimbursements to SIC Advisors.

For the three months ended March 31, 2015 total expense reimbursement from SIC Advisors pursuant to the Expense Support and Reimbursement Agreement was $ 1,993,518 and net expenses after taking into account the expense reimbursement from SIC Advisors, was $7,107,492.

For the three months ended March 31, 2014 total expense reimbursement from SIC Advisors pursuant to the Expense Support and Reimbursement Agreement was $1,313,470 and net expenses after taking into account the expense reimbursement from SIC Advisors, was $2,103,565.

Net Realized Gains/Losses from Investments

We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized.

During the quarter ended March 31, 2015, we recognized $2,154,652 in net realized gains on total investments. During the quarter ended March 31, 2014, we recognized $1,708,962 in net realized gains on total investments.

Net Unrealized Appreciation/Depreciation on Investments

Net change in unrealized appreciation on investments reflects the net change in the fair value of our total investments. During the quarter ended March 31, 2015, we had unrealized appreciation of $943,901 on total investments. During the quarter ended March 31, 2014, we had unrealized appreciation of $245,937 on our total investments.

Changes in Net Assets from Operations

For the three months ended March 31, 2015, we recorded a net increase in net assets resulting from operations of $11,997,880 compared to a net increase in net assets resulting from operations of $4,457,548 for the three months ended March 31, 2014. Based on 58,356,637 and 20,369,602 weighted average common shares outstanding for the three months ended March 31, 2015 and 2014, respectively, our per share net increase in net assets resulting from operations was $0.21 for the three months ended March 31, 2015 compared to a per share net increase in net assets from operations of $0.22 for the three months ended March 31, 2014.

Financial Condition, Liquidity and Capital Resources

As a BDC, we distribute substantially all of our net income to our stockholders and have an ongoing demand to raise additional capital for investment purposes. To fund growth, we have a number of alternatives available to increase capital; including raising equity, increasing debt, and funding from operational cash flow.

Our liquidity and capital resources have been generated primarily from the net proceeds of our public offering of common stock.

As of March 31, 2015, we had $66,473,033 in cash. In the future, we may generate cash from future offerings of securities, future borrowings and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. Our primary use of funds is investments in our targeted asset classes, cash distributions to our stockholders, and other general corporate purposes.

In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spillover certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow.

On December 4, 2013, we entered into a three-year senior secured syndicated revolving credit facility with a one-year term out period (the “ING Facility”) pursuant to a Senior Secured Revolving Credit Agreement (the “Revolving Credit Agreement”) with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING Facility matures on December 4, 2017 and is secured by substantially all of our assets, subject to certain exclusions as further set forth in a Guarantee, Pledge and Security Agreement (the “Security Agreement”) entered into in connection with the Revolving Credit Agreement, among us, the Subsidiary Guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent. The ING Facility also includes usual and customary representations, covenants and events of default for senior secured revolving credit facilities of this nature. As of March 31, 2015, our borrowings under the ING Facility totaled $150,000,000 and were recorded as part of revolving credit facility payable on our consolidated statements of assets and liabilities.

On July 23, 2014, our newly-formed, wholly-owned, special purpose financing subsidiary, Alpine Funding LLC (“Alpine”), entered into a revolving credit facility (the “Alpine Credit Facility”) pursuant to a Loan Agreement with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto (the “Loan Agreement”). Alpine’s obligations to JPMorgan under the Alpine Credit Facility are secured by a first priority security interest in substantially all of the assets of Alpine, including its portfolio of loans. The obligations of Alpine under the Alpine Credit Facility are non-recourse to the Company.

Borrowings under the Alpine Credit Facility are subject to compliance with a net asset value coverage ratio with respect to the current value of Alpine’s portfolio and various eligibility criteria must be satisfied with respect to the initial acquisition of each loan in Alpine’s portfolio. Any amounts borrowed under the Alpine Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on July 23, 2019. As of March 31, 2015, Alpine’s borrowings under the Alpine Credit Facility totaled $121,500,000 and were recorded as part of revolving credit facility payable on our consolidated statements of assets and liabilities.

Contractual Obligations and Off-Balance Sheet Arrangements

We have entered into certain contracts under which we have material future commitments. On April 5, 2012, we entered into the Investment Advisory Agreement with SIC Advisors in accordance with the 1940 Act.

The Investment Advisory Agreement became effective as of April 17, 2012, the date that we met the minimum offering requirement. Pursuant to the 1940 Act, the initial term of the Investment Advisory Agreement was for two years from its effective date, with one-year renewals subject to approval by our board of directors, a majority of whom must be independent directors. On March 4, 2015, the board of directors approved the renewal of the Investment Advisory Agreement for an additional one-year term at an in-person meeting. SIC Advisors serves as our investment advisor in accordance with the terms of the Investment Advisory Agreement. Payments under our Investment Advisory Agreement in each reporting period consist of (i) a management fee equal to a percentage of the value of our gross assets and (ii) an incentive fee based on our performance.

On April 5, 2012, we entered into the Administration Agreement with Medley Capital LLC with an initial term of two years, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. On March 4, 2015, the board of directors approved the renewal of the Administration Agreement for an additional one-year term at an in-person meeting. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf in performing its obligations. Such costs are reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC.

If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under the investment advisory agreement and administration agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

Off-Balance Sheet Arrangements

On August 27, 2013, Arbor Funding LLC (“Arbor”), a newly-formed, wholly-owned financing subsidiary of the Company, entered into a total return swap (“TRS”) with Citibank, N.A. (“Citibank”).

The TRS with Citibank enables Arbor to obtain the economic benefit of the loans underlying the TRS, despite the fact that such loans will not be directly held or otherwise owned by Arbor, in return for an interest-type payment to Citibank. Accordingly, the TRS is analogous to Arbor utilizing leverage to acquire loans and incurring an interest expense to a lender.

Our derivative asset from Citibank, net of amounts available for offset under a master netting agreement as of March 31, 2015 was $ 2,051,518, which is recorded on the consolidated statements of assets and liabilities as receivable due on total return swap.

Transactions in total return swap contracts during the three months ended March 31, 2015 were $ 2,900,317 in realized gains and $ 2,807,017 in unrealized gains, which is recorded on the consolidated statements of operations.

For the three months ended March 31, 2015, the average notional par amount of total return swap contracts was $217,464,352.

On March 27, 2015, the Sierra Income Corporation and Great American Life Insurance Company (“Great American Life”) entered into a limited liability company operating agreement to co-manage SIC Senior Loan Strategy JV I LLC (the “Joint Venture”). Sierra Income Corporation and Great American Life have committed to

provide $100 million of equity to the Joint Venture, with the Sierra Income Corporation providing $87.5 million and Great American Life providing $12.5 million. In addition, the Joint Venture intends to seek a credit facility from a third party financing provider. The Joint Venture is expected to invest primarily in first lien middle market and other corporate debt securities. All portfolio and other material decisions regarding the Joint Venture must be submitted to the Joint Venture’s board of managers, which is comprised of four members, two of whom are selected by Sierra Income Corporation and the other two are selected by Great American Life. As a result, consistent with precedent transactions that have been reviewed and approved by the SEC, the Company has concluded that it does not control the Joint Venture. As of March 31, 2015, the Joint venture had not commenced operations.

Sierra Income Corporation has determined that the Joint Venture is an investment company under ASC 946, however in accordance with such guidance, Sierra Income Corporation will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, Sierra Income Corporation does not consolidate its interest in the Joint Venture.

Distributions

We have elected and intend to continue to qualify to be treated, for U.S. federal income tax purposes, as a RIC under subchapter M of the Code. To obtain and maintain RIC tax treatment, we must, among others things, distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year) and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no federal income tax.

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.

We currently intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment and elect to treat such gains as deemed distributions to you. If this happens, you will be treated for U.S. federal income tax purposes as if you had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. We can offer no assurance that we will continue to achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Subject to our board of directors’ discretion and applicable legal restrictions, we expect to authorize and pay monthly distributions to our stockholders. Any distributions to our stockholders will be declared out of assets legally available for distribution. We expect to continue making monthly distributions unless our results of operations, our general financial condition, general economic conditions, or other factors prohibit us from doing so. From time to time, but not less than quarterly, we will review our accounts to determine whether distributions to our stockholders are appropriate. We have not established limits on the amount of funds we may use from available sources to make distributions. We expect that for a significant time after the commencement of this offering, substantially all of our distributions will result from expense support payments made by SIC Advisors

that may be subject to repayment by us within three years. The purpose of this arrangement is to avoid such distributions being characterized as returns of capital for GAAP purposes. We may still have distributions which could be characterized as a return of capital for tax purposes. Such distributions are not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or SIC Advisors continues to make Expense Support Payments under the Expense Support Agreement. Any future reimbursements to SIC Advisors will reduce the distributions that may otherwise be available for distribution to stockholders. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all. SIC Advisors has no obligation to make Expense Support Payments pursuant to the Expense Support Agreement after June 30, 2015, unless the Expense Support Agreement is extended. For the three months ended March 31, 2015 and 2014, if Expense Support Payments of $1,993,518 and $1,313,470, respectively were not made by SIC Advisors, approximately 17% and 31% of the distributions, respectively, would have been a return of capital.

Our distributions may exceed our earnings, which we refer to as a return of capital, especially during the period before we have invested substantially all of the proceeds of this offering. As a result, a portion of the distributions we make may represent a return of capital for tax purposes. Our use of the term “return of capital” merely means distributions in excess of our earnings and as such may constitute a return on your individual investments and does not mean a return on capital. Therefore stockholders are advised that they should be aware of the differences with our use of the term “return of capital” and “return on capital.”

The following table reflects the cash distributions per share that we have declared or paid to our stockholders since we commenced operations in April 2012. Stockholders of record as of each respective record date were entitled to receive the distribution.


Record Date	Payment Date	Amount per share
July 13 and 31, 2012	August 1, 2012	$	0.03333
August 15 and 31, 2012	September 4, 2012		0.03333
September 14 and 28, 2012	October 1, 2012		0.03333
October 15 and 30, 2012	October 31, 2012		0.03333
November 15 and 29, 2012	November 30, 2012		0.03333
December 14 and 28, 2012	December 31, 2012		0.03333
January 15 and 31, 2013	January 31, 2013		0.03333
February 15 and 28, 2013	February 28, 2013		0.03333
March 15 and 29, 2013	March 29, 2013		0.03333
April 15 and 30, 2013	April 30, 2013		0.03333
May 15 and 31, 2013	May 31, 2013		0.03333
June 14 and 28, 2013	June 28, 2013		0.03333
July 15 and 31, 2013	July 31, 2013		0.03333
August 15 and 30, 2013	August 30, 2013		0.03333
September 13 and 30, 2013	September 30, 2013		0.03333
October 15 and 31, 2013	October 31, 2013		0.03333
November 15 and 29, 2013	November 29, 2013		0.03333
December 13 and 31, 2013	December 31, 2013		0.03333
January 15 and 31, 2014	January 31, 2014		0.03333
February 14 and 28, 2014	February 28, 2014		0.03333
March 14 and 31, 2014	March 31, 2014		0.03333
April 15 and 30, 2014	April 30, 2014		0.03333
May 15 and 30, 2014	May 30, 2014		0.03333
June 13 and 30, 2014	September 30, 2014		0.03333
July 15 and July 31, 2014	July 31, 2014		0.03333
August 15 and August 29, 2014	August 29, 2014		0.03333
September 15 and September 30, 2014	September 30, 2014		0.03333
October 15 and October 31, 2014	October 31, 2014		0.03333
November 14 and 28, 2014	November 28, 2014		0.03333
December 15 and 31, 2014	December 31, 2014		0.03333
January 15 and 30, 2015	January 30, 2015		0.03333
February 13 and 27, 2015	February 27, 2015		0.03333
March 13 and 31, 2015	March 31, 2015		0.03333
April 15 and 30, 2015	April 30, 2015		0.03333
May 15 and 29, 2015	May 29, 2015		0.03333
June 15 and 30, 2015	June 30, 2015		0.03333

We have adopted an “opt in” distribution reinvestment plan pursuant to which our common stockholders may elect to have the full amount of any cash distributions reinvested in additional shares of our common stock. As a result, if we declare a cash distribution, stockholders that have “opted in” to our distribution reinvestment plan will have their distribution automatically reinvested in additional shares of our common stock at 90% of the offering price rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions.

Each year a statement on Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gain on the sale of securities, or a return of capital) will be mailed to our stockholders. The tax basis of shares must be reduced by the amount of any return of capital distributions, which will result in an increase in the amount of any taxable gain (or a reduction in any deductible loss) on the sale of shares.

Related Party Transactions

On October 19, 2011, SIC Advisors entered into a subscription agreement to purchase 110.80 shares of common stock for cash consideration of $1,000. The consideration represents $9.025 per share.

On April 17, 2012, SIC Advisors purchased 1,108,033.24 shares of our common stock for aggregate gross proceeds of $10,000,000. The consideration represents $9.025 per share.

We have entered into an Investment Advisory Agreement and Expense Support and Reimbursement Agreement with SIC Advisors in which our senior management holds an equity interest. Members of our senior management also serve as principals of other investment managers affiliated with SIC Advisors that do, and may in the future, manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.

We have entered into an Administration Agreement with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. Medley Capital LLC is an affiliate of SIC Advisors.

We have entered into a dealer manager agreement with SC Distributors, LLC and pay them a dealer manager fee of up to 2.75% of gross proceeds raised in the offering. An affiliated entity of SC Distributors, LLC owns an equity interest in SIC Advisors, which provides the right to receive a fixed percentage of the management fees received by SIC Advisors.

We have entered into a license agreement with SIC Advisors under which SIC Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Sierra” for specified purposes in our business. Under this agreement, we will have a right to use the “Sierra” name, subject to certain conditions, for so long as SIC Advisors or one of its affiliates remains our investment advisor. Other than with respect to this limited license, we will have no legal right to the “Sierra” name.

Management Fee

We pay SIC Advisors a fee for its services under the Investment Advisory Agreement. The fee consists of two components: a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of our gross assets and is payable quarterly in arrears. The incentive fee consists of :

•

the immediately preceding fiscal quarter in any quarter, will be payable to SIC Advisors. The Company refers to this portion of its subordinated incentive fee on income as the catch up. It is intended to provide an incentive fee of 20% on pre-incentive fee net investment income when pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter in any quarter. For any quarter in which the Company’s pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter, the subordinated incentive fee on income shall equal 20% of the amount of pre-incentive fee net investment income, because the preferred return and catch up will have been achieved.

•

A capital gains incentive fee will be earned on realized investments and shall be payable in arrears as of the end of each calendar year during which the IAA is in effect. If the IAA is terminated, the fee will become payable as of the effective date of such termination. The capital gains incentive fee is based on our realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, which we refer to as “net realized capital gains.” The capital gains incentive fee equals’ 20% of net realized capital gains, less the aggregate amount of any previously paid capital gains incentive fee.

Under the terms of the investment advisory agreement, SIC Advisors bears all organization and offering expenses on our behalf. Upon such time that we have raised $300 million in gross proceeds in connection with the sale of shares of our common stock, SIC Advisors shall no longer be obligated to bear, pay or otherwise be responsible for any ongoing organization and offering expenses on our behalf, and we will be responsible for paying or otherwise incurring all such organization and offering expenses. As of June 2, 2014 we are responsible for all ongoing organizational and offering expenses. Pursuant to the terms of the Investment Advisory Agreement, we have agreed to reimburse SIC Advisors for any such organizational and offering expenses incurred by SIC Advisors not to exceed 1.25% of the gross subscriptions raised by us over the course of the offering period, which was initially scheduled to terminate two years from the initial offering date, unless extended. At a meeting held on March 12, 2014, our board of directors approved an extension of our offering for an additional year. At a meeting held on March 4, 2015, our board of directors approved another extension of our offering for an additional year. Notwithstanding the foregoing, in the event that organizational and offering expenses, together with sales commissions, the dealer manager fee and any discounts paid to members of the Financial Industry Regulatory Authority, exceed 15% of the gross proceeds from the sale of shares of our common stock pursuant to our registration statement or otherwise at the time of the completion of our offering, then SIC Advisors shall be required to pay or, if already paid by us, reimburse us for amounts exceeding such 15% limit.

Critical Accounting Policies

This discussion of our expected operating plans is based upon our expected consolidated financial statements, which will be prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements will require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future consolidated financial statements.

Valuation of Investments

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as identified below and discussed in Note 4.

•

Level 1 — Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and publicly listed derivatives will be included in Level 1. In addition,

securities sold, but not yet purchased and call options will be included in Level 1. We will not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably affect the quoted price.

•

Level 2 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments, and various relationships between investments. Investments which are generally expected to be included in this category include corporate bonds and loans, convertible debt indexed to publicly listed securities, and certain over-the-counter derivatives.

•

Level 3 — Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments that are expected to be included in this category are our private portfolio companies.

Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, the Company uses a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and

considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model. We may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.

The Company undertakes a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

•

the Company’s quarterly valuation process begins with each portfolio investment being initially valued by the investment professionals responsible for monitoring the portfolio investment;

•

conclusions are then documented and discussed with senior management; and

•

an independent valuation firm engaged by the Company’s board of directors prepares an independent valuation report for approximately one third of the portfolio investments each quarter on a rotating quarterly basis on non fiscal year-end quarters, such that each of these investments will be valued by an independent valuation firm at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms, exclusive of TRS underlying portfolio.

In addition, all of the Company’s investments are subject to the following valuation process:

•

management reviews preliminary valuations and their own independent assessment;

•

the audit committee of the Company’s board of directors reviews the preliminary valuations of senior management and independent valuation firms; and

•

We will value the TRS in accordance with the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS will be based on the increase or decrease in the value of the assets underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The assets underlying the TRS will be valued by Citibank. Citibank will base its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations will be sent to us for review and testing. Our board of directors will review and approve the value of the TRS, as well as the value of the assets underlying the TRS, on a quarterly basis as part of their quarterly determination of net asset value. To the extent our board of directors has any questions or concerns regarding the valuation of the assets underlying the TRS, such valuation will be discussed or challenged pursuant to the terms of the TRS. For additional disclosures on the TRS, see “—Financial Condition, Liquidity and Capital Resources — Total Return Swap.”

Revenue Recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities or accounting purposes if we have reason to doubt our ability to collect such interest. Original issue discounts, market discounts or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Payment-in-Kind Interest

We have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even if we have not collected any cash.

Organization and Offering Expenses

As of June 2, 2014, the Company is responsible for all ongoing organization and offering expenses.

Federal Income Taxes

We have elected to be treated for federal income tax purposes, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders from our tax earnings and profits. To obtain and maintain our RIC tax treatment, we must, among other things, meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. Under the terms of the TRS between Arbor and Citibank, Arbor will pay fees to Citibank at a floating rate based on LIBOR in exchange for the right to receive the economic benefit of a portfolio of assets having a maximum notional amount of $350,000,000. We expect any future credit facilities, total return swap agreements or other financing arrangements that we or any of our subsidiaries may enter into will also be based on a floating interest rate. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates, when we or our subsidiaries have debt outstanding or swap agreements in effect, our cost of funds would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved.

Based on our consolidated Statement of Assets and Liabilities as of March 31, 2015, the following table shows the approximate increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure


Basis point increase	Interest Income		Interest Expense			Net Increase (Decrease)
100	$	1,177,028	$	(1,965,000	)	$	(787,972	)
200		6,390,385		(4,680,000	)		1,710,385
300		11,954,068		(7,395,000	)		4,559,068
400		17,517,751		(10,110,000	)		7,407,751
500		23,081,434		(12,825,000	)		10,256,434

Based on our consolidated Statement of Assets and Liabilities as of December 31, 2014, the following table shows the approximate increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure:


Basis point increase	Interest Income		Interest Expense			Net Increase (Decrease)
100	$	1,111,684	$	(1,790,000	)	$	(678,316	)
200		6,339,990		(4,155,000	)		2,184,990
300		11,923,673		(6,520,000	)		5,403,673
400		17,507,355		(8,885,000	)		8,622,355
500		23,091,038		(11,250,000	)		11,841,038

Item 4: Controls and Procedures.

Disclosure Controls

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures are effective.

Change In Internal Control Over Financial Reporting

No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II — Other Information

Item 1:

Legal Proceedings.

We are not currently subject to any legal proceedings, nor, to our knowledge, are any legal proceedings threatened against us or our subsidiaries.

Item 1A:

Risk Factors.

In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 5, 2015, which could materially affect our business, financial condition and/or operating results. Except as set forth below, there have been no material changes during the three months ended March 31, 2015 to the risk factors discussed in “Item 1A. Risk Factors” of our annual report on Form 10-K. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Economic recessions or downturns may have a material adverse effect on our business, financial condition and results of operations, and could impair the ability of our portfolio companies to repay loans.

Economic recessions or downturns may result in a prolonged period of market illiquidity which could have a material adverse effect on our business, financial condition and results of operations. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results.

In addition, to the extent that recessionary conditions return, the financial results of small and mid-sized companies, like those in which we invest, will likely experience deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults. Additionally, the end markets for certain of our portfolio companies’ products and services would likely experience negative economic trends. The performances of certain of our portfolio companies have been, and may continue to be, negatively impacted by these economic or other conditions, which may ultimately result in our receipt of a reduced level of interest income from our portfolio companies and/or losses or charge offs related to our investments, and, in turn, may adversely affect distributable income. Further, adverse economic conditions may decrease the value of collateral securing some of our loans and the value of our equity investments. As a result, we may need to modify the payment terms of our investments, including changes in payment-in-kind interest provisions and/or cash interest rates. These factors may result in our receipt of a reduced level of interest income from our portfolio companies and/or losses or charge offs related to our investments, and, in turn, may adversely affect distributable income and have a material adverse effect on our results of operations.

Further downgrades of the U.S. credit rating, impending automatic spending cuts or another government shutdown could negatively impact our liquidity, financial condition and earnings.

Recent U.S. debt ceiling and 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. Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the United States, or the US, from “AAA” to “AA+” in August 2011. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our 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 continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause further economic uncertainties or deterioration in the United States and worldwide. Since 2010, several European Union (“EU”) countries, including Greece, Ireland, Italy, Spain, and Portugal, have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. 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 China, may have a severe impact on the worldwide and United states financial markets. Moreover, there are concerns that the recent economic slowdown in China could have a negative impact on markets throughout the world. We do not know how long the financial markets will continue to be affected by these events and cannot predict the effects of these or similar events in the future on the United States economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

We face cyber-security risks.

Our business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, our information technology

systems could become subject to cyber-attacks. Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to maintain the availability of our electronic data systems and safeguard the security of our data, our ability to conduct business may be compromised, which impair our liquidity, disrupt our business, damage our reputation and cause losses.

Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. We are subject to cybersecurity risks. Information cyber security risks have significantly increased in recent years and, while we have not experienced any material losses relating to cyber attacks or other information security breaches, we could suffer such losses in the future. Our 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, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties, which could result in significant losses or reputational damage. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect our 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, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We currently do not maintain insurance coverage relating to cybersecurity risks, and we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully insured.

Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3:

Defaults Upon Senior Securities.

None.

Item 4:

Mine Safety Disclosures.

None.

Item 5:

Other Information.

None.

Item 6:

Exhibits.

EXHIBIT INDEX


Number		Description

3.1		Articles of Incorporation of the Registrant⁽¹⁾

3.2		Articles of Amendment of the Registrant⁽¹⁾

3.3		Articles of Amendment and Restatement of the Registrant⁽³⁾

3.4		Second Articles of Amendment and Restatement of the Registrant⁽⁶⁾

3.5		Form of Bylaws of the Registrant⁽¹⁾

10.1		Form of Subscription Agreement⁽¹⁷⁾

10.2		Amended and Restated Distribution Reinvestment Plan⁽⁸⁾

10.3		Investment Advisory Agreement⁽⁵⁾

10.4		Form of Dealer Manager Agreement⁽²⁾

10.5		Form of Participating Broker-Dealer Agreement (Included as Exhibit A to the Form of Dealer Manager Agreement)⁽²⁾

10.6		Custodian Agreement⁽²⁾

10.7		Form of Administration Agreement⁽²⁾

10.8		Form of License Agreement⁽⁵⁾

10.9		Form of Escrow Agreement⁽⁴⁾

10.10		Expense Support and Reimbursement Agreement⁽⁷⁾

10.11		ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of August 27, 2013, by and between Arbor Funding LLC and Citibank, N.A.⁽⁹⁾

10.12		Confirmation Letter Agreement, dated as of August 27, 2013, by and between Arbor Funding LLC and Citibank, N.A.⁽⁹⁾

10.13		Confirmation Letter Agreement, dated as of March 21, 2014, by and between Arbor Funding LLC and Citibank, N.A.⁽¹⁰⁾

10.14		Senior Secured Revolving Credit Agreement among the Company as borrower, the Lenders party thereto, and ING Capital LLC, as Administrative Agent, dated December 4, 2013⁽¹¹⁾

10.15		Guarantee, Pledge and Security Agreement among the Company, the Subsidiary Guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent, dated December 4, 2013⁽¹⁰⁾

10.16		Control Agreement among the Company, ING Capital LLC, as collateral agent, and State Street Bank and Trust Company, as the Company’s Custodian, dated December 4, 2013⁽¹⁰⁾

10.17		Loan Agreement, dated as of July 23, 2014, by and among Alpine Funding LLC, as company, JPMorgan Chase Bank, National Association, as administrative agent, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto⁽¹²⁾


Number		Description

10.18		Sale and Contribution Agreement, dated as of July 23, 2014, by and between Sierra Income Corporation, as seller, and Alpine Funding LLC, as purchaser⁽¹²⁾

10.19		Portfolio Management Agreement, dated as of July 23, 2014, by and between Alpine Funding LLC, as borrower and SIC Advisors LLC, as portfolio manager⁽¹²⁾

10.20		Second Amended and Restated Confirmation Letter Agreement, dated as of July 23, 2014, by and between Arbor Funding LLC and Citibank, N.A.⁽¹²⁾

10.21		Amendment No. 2 to the Senior Secured Revolving Credit Agreement, dated as of August 21, 2014, by and among the Company as borrower, SIC RT1 LLC, as Subsidiary Guarantor, the Lenders party thereto and ING Capital LLC, as Administrative Agent⁽¹³⁾

10.22		Amendment No. 3 to the Senior Secured Revolving Credit Agreement, dated as of August 21, 2014, by and among the Company as borrower, SIC RT1 LLC, as Subsidiary Guarantor, the Lenders party thereto and ING Capital LLC, as Administrative Agent⁽¹⁴⁾

10.23		Amendment No. 1 to the Loan Agreement, dated as of July 23, 2014, by and among Alpine Funding LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto⁽¹⁵⁾

10.24		Limited Liability Company Operating Agreement of Sierra Senior Loan Strategy JV I LLC, dated March 27, 2015⁽¹⁶⁾

11		Computation of Per Share Earnings (included in Note 10 to the financial statements contained in this report).

31.1		Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002^*

31.2		Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002^*

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002^*

*	Filed herewith.

⁽¹⁾	Previously filed in connection with Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-175624), filed on November 3, 2011, and incorporated by reference herein.

⁽²⁾	Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-175624), filed on February 21, 2012, and incorporated by reference herein.

⁽³⁾	Previously filed in connection with Pre-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form N-2 (File No. 333-175624), filed on March 12, 2012, and incorporated by reference herein.

⁽⁴⁾	Previously filed in connection with Pre-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form N-2 (File No. 333-175624), filed on March 21, 2012, and incorporated by reference herein.

⁽⁵⁾	Previously filed in connection with Pre-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form N-2 (File No. 333-175624), filed on April 10, 2012, and incorporated by reference herein.

⁽⁶⁾	Previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 14, 2012, and incorporated by reference herein.

⁽⁷⁾	Previously filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on July 20, 2012, and incorporated by reference herein.

⁽⁸⁾	Previously filed as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on September 26, 2012, and incorporated by reference herein.

⁽⁹⁾	Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on September 3, 2013, and incorporated by reference herein.

⁽¹⁰⁾	Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on March 27, 2014, and incorporated by reference herein.

⁽¹¹⁾	Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 9, 2013, and incorporated by reference herein.

⁽¹²⁾	Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 23, 2014, and incorporated by reference herein.

⁽¹³⁾	Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 22, 2014, and incorporated by reference herein.

⁽¹⁴⁾	Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on November 25, 2014, and incorporated by reference herein.

⁽¹⁵⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed on February 10, 2015, and incorporated by reference herein.

⁽¹⁶⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed on March 30, 2015, and incorporated by reference herein.

⁽¹⁷⁾	Previously filed in connection with Registrant’s Post-Effective Amendment No. 4 to the Registration Statement on Form N-2 (File No. 333-175624), filed on April 13, 2015, and incorporated by reference herein.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated: May 7, 2015	Sierra Income Corporation.

	By	/s/ Seth Taube
		Seth Taube Chief Executive Officer (Principal Executive Officer)

Dated: May 7, 2015	By	/s/ Richard T. Allorto, Jr.
		Richard T. Allorto, Jr. Chief Financial Officer (Principal Accounting and Financial Officer)

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