N-CSRS 1 pris2020q2n-csrs.htm N-CSRS Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22725
Priority Income Fund, Inc.
(Exact name of registrant as specified in charter)
10 East 40th Street, 42nd Floor
New York, NY 10016
(Address of principal executive offices)
M. Grier Eliasek
Chief Executive Officer
Priority Income Fund, Inc.
10 East 40th Street, 42nd Floor
New York, NY 10016
(Name and address of agent for service)
Registrant’s telephone number, including area code: (212) 448-0702
Date of fiscal year end: June 30
Date of reporting period: December 31, 2019




Item 1. Report to Stockholders.
The semi-annual report to stockholders for the six months ended December 31, 2019 is filed herewith pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended.





image0a21.jpg
Semi-Annual Report
December 31, 2019

image1a35.jpg











priorityincomefund.com





image3a33.jpg

Priority Income Fund, Inc. (the “Company”) is an externally managed, non-diversified, closed-end investment management company registered under the Investment Company Act of 1940, as amended. The Company has elected to be treated for tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

INVESTMENT OBJECTIVE
The Company’s investment objective is to generate current income and, as a secondary objective, long-term capital appreciation. We expect to seek to achieve our investment objective by investing, under normal circumstances, at least 80% of our total assets in senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated, which we collectively refer to as “Senior Secured Loans,” with an emphasis on current income. Our investments may take the form of the purchase of Senior Secured Loans (either in the primary or secondary markets) or through investments in the equity and junior debt tranches of collateralized loan obligation (“CLO”) vehicles that in turn own pools of Senior Secured Loans. The Company intends to invest in both the primary and secondary markets.
 

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  4



image3a33.jpg

Letter to Stockholders

Dear Stockholders,

We are pleased to present this semi-annual report of Priority Income Fund, Inc. (“we,” “us,” “our,” the “Company” or “Priority”) for the six months ended December 31, 2019. Priority has made regular monthly distributions for each month of the past 24 quarters and declared bonus distributions for each of the past 24 quarters.

Dividend Policy
To qualify for tax treatment as a regulated investment company, the Company is required to pay out distributions as determined in accordance with federal income tax regulations (distributable income), rather than accounting income. In certain periods, we expect our annual distributable income to be higher or lower than our reportable accounting income. In addition to net investment income, our dividend policy considers in part our estimate of our distributable income, which includes (1) interest income from our underlying collateralized loan obligation (“CLO”) equity investments, (2) recognition of certain mark-to-market gains or losses to the extent that the fair market value of our CLO investments is determined to deviate from its adjusted tax basis, and (3) acceleration of unamortized fees and expenses following the refinancing or reset of a CLO’s liabilities. As a result, distributable income may differ from accounting income, as expressed by net investment income.

Our distributions may exceed our earnings, and therefore, portions of the distributions that we make may be a return of the money that you originally invested and represent a return of capital to you for tax purposes.

Priority Update
In this semi-annual report, we refer to “Senior Secured Loans” collectively as senior secured loans made primarily to U.S. companies whose debt is rated below investment grade or, in some circumstances, unrated. These investments, which are often referred to as “junk” or “high yield,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.

In calendar year 2019 we continued to implement Priority’s strategy of targeting attractive risk-adjusted investments in CLO debt and CLO equity that further our primary objective of providing our stockholders with current income. Priority accomplished the following in calendar year 2019:
(i)
Invested in 31 CLO equity investments totaling $167.1 million in par value and $117.5 million in cost basis.
(ii)
Invested in 21 CLO debt investments totaling $73.4 million in par value and $60.9 million in cost basis, increasing our total CLO debt investment exposure to 17.7% of the portfolio as of December 31, 2019. We increased the allocation to CLO debt in 2019 as volatility in the CLO debt markets led to attractive risk-adjusted returns for CLO debt.
(iii)
Continued to pay a base distribution and bonus distribution totaling 11.1% per share based on the previous Class R gross offering price of $13.52 as of December 31, 2019. For the trailing 12 months, base and bonus distribution coverage through net investment income was 105%.
(iv)
Issued one additional series of preferred equity, Series E (NYSE: PRIFE), in October 2019 resulting in gross proceeds of $27.5 million. The issuance of preferred equity will help us achieve our target leverage for the Company of approximately 0.50x debt plus preferred equity to common equity. Priority currently has $157.7 million of preferred shares outstanding resulting in a ratio of 0.39x preferred to common equity as of December 31, 2019. As of the end of the reporting period, Priority had the following preferred shares outstanding:
1.
Series A (NYSE: PRIFA) - 6.375% totaling $37.50 million due June 2025
2.
Series B (NYSE: PRIFB) - 6.250% totaling $25.00 million due December 2023
3.
Series C (NYSE: PRIFC) - 6.625% totaling $40.25 million due June 2024
4.
Series D (NYSE: PRIFD) - 7.000% totaling $27.43 million due June 2029
5.
Series E (NYSE: PRIFE) - 6.375% totaling $27.50 million due December 2024
(v)
Closed a $25 million senior secured credit facility that will assist the Company in managing its working capital needs.


2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  5



Since our last annual report period end date of June 30, 2019, Priority invested in six CLO equity investments totaling $38.4 million in par value and $24.0 million in cost basis and 14 CLO debt investments totaling $52.9 million in par value and $42.5 million in cost basis. As of December 31, 2019, Priority held 103 CLO equity investments and 24 CLO debt investments with an underlying collateral pool of approximately 2,600 Senior Secured Loans.

Priority announced Preferred Capital Securities (“PCS”) will be the new distributor for the Company for its 18 month follow-on offering of common shares. In conjunction with the follow-on offering we made the following changes, which we believe will improve liquidity and transparency:
Starting in June 2020, we are increasing our quarterly tender amounts to 2.5% per quarter or 10.0% per annum. Because of certain restrictions placed on the size of our prior tender offers, this is more than double our current tender limit.
We will determine the Company’s net asset value on a monthly basis instead of quarterly.
We will adjust the offering price on a monthly basis in conjunction with the monthly determination of net asset value.
We reduced the upfront load charged on the Class R shares from 8% to 6.75%.

Market Commentary
Since our last annual report period end date of June 30, 2019, the Senior Secured Loan and CLO markets experienced volatility primarily due to a shift in interest rates. The Federal Reserve cut interest rates three times in 2019, reducing the yield on floating rate products. As a result, open-ended Senior Secured Loan mutual funds saw $27.15 billion of outflows in 20191 as investors rotated out of floating rate Senior Secured Loans into investments with fixed yields. These outflows resulted in a decline in price for Senior Secured Loans. In the second half of 2019, the S&P / LSTA Leveraged Loan Index (“Index”) traded down to a bottom of 95.35 at November 6, 2019 from 96.79 at June 30, 2019 and the 98 to 99 range during most of 2018.2 The Index did rally at the end of the year, ending at 96.72.2 This decline in the Index led to widening in CLO liability spreads in the second half of 2019.

Priority’s Net Asset Value per share ("NAV") was $12.54 at December 31, 2019, compared to $13.02 at June 30, 2019. The decline in NAV was primarily due to the outflows from the open-ended Senior Secured Loan mutual funds. The outflows led to a decline in the price in the S&P / LSTA Leveraged Loan Index, which led to mark-to-market declines in the valuation of the portfolio by the Company’s third-party valuation agent.

U.S. CLO issuance in 2019 was $116.4 billion3, an 8.6% decline from 2018. While CLO issuance in 2019 declined, it was in line with CLO research analyst projections for full year 2019 of $90 billion to $140 billion4. The CLO market has grown to $683 billion, further expanding the market opportunity for the Company5. CLOs represented 71.4% of the buyer base in the institutional Senior Secured Loan market in 20196, highlighting the importance of the CLO market.

CLO research analysts are projecting CLO issuance to decline in 2020:
Barclays: $80 - $90 billion7 
Bank of America Merrill Lynch: $80 - $90 billion7
BNP Paribas: $90 billion8 
Citigroup: $80 billion9 
JP Morgan: $90 billion - $100 billion10 
Morgan Stanley: $75 billion11 
Nomura: $80 - $90 billion12 
Wells Fargo: $90 billion13 

The volume of CLO refinancings and CLO resets (also known as extensions) significantly declined in 2019 as CLO liability spreads remained at the wider end of the range over the past 24 months. A CLO refinancing is an occurrence where all or part of the CLO liabilities are refinanced at a lower spread without a change in CLO maturity. The CLO refinancing at lower rates directly benefits the equity investors in CLOs, given that such refinancing reduces the spread cost of CLO financing. A CLO reset is an occurrence where all of the CLO liabilities are refinanced and the CLO reinvestment period is extended typically by two to five years. In 2019, $18.2 billion of CLOs were reset and $25.0 billion of CLOs were refinanced compared to $122.1 billion of CLO resets and $33.8 billion of CLO refinancings in 2018.14 

Priority participated in three CLO resets and one CLO refinancing in 2019. The decline in activity is due to (1) the aforementioned widening in CLO liability spreads resulting in a decline in CLO reset and CLO refinancing activity market-wide and (2) Priority completing 41 CLO resets and 45 CLO refinancings in calendar years 2017 and 2018.


2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  6



Issuance in the institutional Senior Secured Loan market (including refinancings) declined in 2019 by 29% from 2018 to $309.4 billion.1 The decline in issuance was driven by a decline in M&A related activity (39% decline) and less opportunistic activity related to refinancing and dividends. We believe the decline in opportunistic activity is due to the outflows from the open-ended Senior Secured Loan mutual funds.

We continue to believe that the following factors indicate that long-term fundamentals in the CLO market remain solid:
The equity tranches of U.S. cash flow CLOs have delivered approximately 21.0% annual cash average yields from January 2003 through December 2019.15 
Default rates for Senior Secured Loans continue to remain below the historical average in the U.S. of 2.19% from January 1, 2003 to December 31, 2019. The market trailing 12-month (“TTM”) default rate as of December 31, 2019 was 1.39% compared to a 0.48% default rate in the Senior Secured Loans underlying the CLOs held by Priority.1 Priority’s TTM default rate continues to outperform the market default rate, with such outperformance equaling 91 basis points as of December 31, 2019.
We continue to be underweight both the retail and oil & gas industries due to the underperformance seen in both markets. At December 31, 2019, Priority’s exposure to the oil & gas industry was 2.58% and exposure to the retail industry was 3.35%. We have evaluated our oil & gas and retail exposures with our collateral managers, and we continue to monitor our positions in these sectors.
Interest coverage of borrowers in the Senior Secured Loans underlying the CLOs continues to be solid. The average ratio of EBITDA to cash interest was 4.57x, illustrating borrowers have a cushion to continue making ongoing interest payments.16 
There is a limited amount of maturities of Senior Secured Loans over the next couple of years. Only 10.0% of Senior Secured Loans mature through December 31, 2022.1 

We believe the following factors indicate that the long-term fundamentals for the investments held by Priority remain attractive: (1) Priority continues to be underweight in the oil & gas and retail industries, (2) Priority’s portfolio TTM default rate as of December 31, 2019 stood at 0.48% (91 basis points less than the market TTM default rate of 1.39%), and (3) the underlying Senior Secured Loan portfolio in Priority experienced an increase in the weighted average spread over the past five quarters.

M. Grier Eliasek
Chief Executive Officer

This letter may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the future performance of Priority Income Fund, Inc. Words such as “believes,” “expects,” and “future” or similar expressions are intended to identify forward-looking statements. Any such statements, other than statements of historical fact, are highly likely to be affected by unknowable future events and conditions, including elements of the future that are or are not under the control of Priority Income Fund, Inc., and that Priority Income Fund, Inc. may or may not have considered. Accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results may vary materially from any forward-looking statements. Such statements speak only as of the time when made. Priority Income Fund, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any performance information quoted above represents past performance. We caution investors that the past performance described above is not indicative of and does not guarantee future returns. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Current performance information may be different than the performance data presented above. Index and asset class performance quoted above does not reflect the fees, expenses or taxes that a stockholder may incur. The results described above may not be representative of our portfolio.
_____________________________________
1.
S&P Capital IQ - Wrap Charts 4Q19
2.
S&P Capital IQ - S&P-LSTA Leveraged Loan Index
3.
Wells Fargo - The CLO Salmagundi: U.S. CLO 2019 Year In Review, January 6, 2020
4.
S&P Capital IQ - 2019 US CLO Outlook: Braced for turbulence but not expecting crash, December 21, 2018
5.
Wells Fargo - The CLO Monthly Market Overview - February 4, 2020
6.
S&P Capital IQ - Quarterly Leverage Lending Review 4Q 2019    
7.
S&P Capital IQ - 2020 CLO Outlook: Rise of the new managers, January 6, 2020
8.
BNP Paribas - Global CLO Market Outlook, December 12, 2019
9.
Citi Research - 2020 US CLO Market Outlook, February 7, 2020
10.
J.P. Morgan - CLO 2020 Outlook, November 26, 2019
11.
Morgan Stanley - CLO Tracker December 2019, December 12, 2019
12.
Nomura - 2020 CLO Outlook, November 25, 2019
13.
Wells Fargo - U.S. CLO Market: 2020 Outlook, November 27, 2019
14.
S&P Capital IQ - CLO Global Databank
15.
Citigroup Global Markets Research, January 21, 2020
16.
S&P Capital IQ - Leveraged Loan Index Current Credit Stats

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  7



Portfolio Composition - At a Glance
 
 
 
 
 
 
 
 
 
Top Ten Holdings
 
 
 
 
 
 
 
 
As of December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Investment
 
Investment
 
Legal Maturity
 
Fair Value
 
% of Net Assets
Cedar Funding IV CLO, Ltd.
 
Subordinated Notes
 
7/23/2030
 
$
16,909,908

 
4.2
%
OZLM XXII, Ltd.
 
Subordinated Notes
 
1/17/2031
 
15,742,872

 
3.9
%
CIFC Funding 2017-IV, Ltd.
 
Subordinated Notes
 
10/24/2030
 
15,450,981

 
3.8
%
Sound Point CLO XVII, Ltd.
 
Subordinated Notes
 
10/20/2030
 
12,757,156

 
3.2
%
Carlyle Global Market Strategies CLO 2014-3-R, Ltd.
 
Subordinated Notes
 
7/28/2031
 
12,028,373

 
3.0
%
Sound Point CLO II, Ltd.
 
Subordinated Notes
 
1/27/2031
 
11,375,841

 
2.8
%
THL Credit Wind River 2018-3 CLO, Ltd.
 
Subordinated Notes
 
1/20/2031
 
11,206,707

 
2.8
%
Carlyle Global Market Strategies CLO 2013-1, Ltd.
 
Subordinated Notes
 
8/14/2030
 
9,619,525

 
2.4
%
Venture 28A CLO, Ltd.
 
Subordinated Notes
 
10/19/2029
 
9,508,221

 
2.4
%
Octagon Investment Partners XXIII, Ltd.
 
Subordinated Notes
 
7/15/2027
 
9,418,234

 
2.3
%

Portfolio Composition
Number of Loans Underlying the Company’s CLO Investments
2,603

Dollar Amount of Loans Underlying the Company’s CLO Investments
$59.9 billion

Percentage of Collateral Underlying the Company’s CLO Investments that are in Default
0.64
%
Last Twelve Months Default Rate of Collateral Underlying the Company’s CLO Investments
0.48
%

Legal Maturity of Portfolio Securities
maturitygrapha22.jpg

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  8



Collateral Summary
Number of loans underlying the Company’s CLO investments
2,603

Largest exposure to any individual borrower
0.85
%
Average individual borrower exposure
0.07
%
Aggregate exposure to 10 largest borrowers
5.98
%
Aggregate exposure to senior secured loans
98.11
%
Weighted average stated spread
3.49
%
Weighted average LIBOR floor
0.96
%
Weighted average percentage of floating rate loans with LIBOR floors
42.32
%
Weighted average credit rating of underlying collateral based on average Moody’s rating
B2/B3

Weighted average maturity of underlying collateral
4.8 years

U.S. dollar currency exposure
100
%
Underlying Secured Loan Rating Distribution (Moody’s / S&P)(1)
Quarter-End
Aaa/AAA
Aa/AA
A/A
Baa/BBB
Ba/BB
B/B
Caa/CCC and Lower
Unrated
December 31, 2019
0.00% / 0.00%
0.00% / 0.00%
0.00% / 0.00%
3.07% / 1.61%
24.93% / 22.15%
64.52% / 67.49%
4.79% / 5.12%
1.04% / 1.97%
(1)Excludes structured product assets and newly issued transactions for which collateral data is not yet available.
 
Cash is included within the denominator of the above calculations, but is not rated by Moody’s/S&P.


2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  9



Statement of Assets and Liabilities (unaudited)
As of December 31, 2019
 
 
 
 
 
 
 
Assets
 
Investments, at fair value (amortized cost $624,101,580)
$
565,111,050

Interest receivable
2,650,044

Cash
2,587,466

Deferred common stock offering costs (Note 5)
386,747

Deferred financing costs on Revolving Credit Facility (Note 12)
255,648

Due from affiliate (Note 5)
211,284

Prepaid expenses
81,916

 
 
 
 
Total assets
571,284,155

Liabilities
 
Mandatorily redeemable preferred stock; ($0.01 par value; 40,000,000 shares authorized; 1,500,183 Series A Term Preferred Stock outstanding with net of offering costs of $300,714 and unamortized discount of $983,816; 1,000,000 Series B Term Preferred Stock outstanding with net offering costs of $244,701 and unamortized discount of $623,206; 1,610,000 Series C Term Preferred Stock outstanding with net offering costs of $218,974 and unamortized discount of $1,080,574; 1,097,007 Series D Term Preferred Stock outstanding with net offering costs of $329,637 and unamortized discount of $816,515; 1,100,000 Series E Term Preferred Stock outstanding with net offering costs of $319,281 and unamortized discount of $818,115 (Note 7)
151,944,217

Due to Adviser (Note 5)
6,043,377

Revolving Credit facility (Note 12)
5,000,000

Accrued expenses
1,672,955

Payable for investment securities purchased
1,646,175

Due to Administrator (Note 5)
885,874

Due to affiliate (Note 5)
29,023

Interest payable
19,076

Payable for capital shares sold
5,366

Preferred dividend payable
4,864

 
 
 
 
Total liabilities
167,250,927

Commitments and contingencies (Note 10)

Net assets
$
404,033,228

 
 
Components of net assets:
 
Common stock, $0.01 par value; 160,000,000 shares authorized; 32,211,774 shares issued and
 
 
outstanding (Note 4)
$
322,118

Paid-in capital in excess of par
417,266,614

Total distributable earnings
(13,555,504
)
Net assets
$
404,033,228

 
 
 
 
 
 
 
Net asset value per share
$
12.54

 
See accompanying notes to financial statements.



2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  10



Statement of Operations (unaudited)
For the six months ended December 31, 2019
 
 
Investment income
 
Interest income from investments
$
46,520,546

 
 
 
 
Total investment income
46,520,546

Expenses
 
Incentive fee (Note 5)
6,265,268

Base management fee (Note 5)
5,547,575

Total investment advisory fees
11,812,843

 
 
Preferred dividend expense
5,085,468

Administrator costs (Note 5)
1,689,330

Transfer agent fees and expenses
709,562

General and administrative
631,228

Valuation services
478,982

Audit and tax expense
332,725

Legal expense
205,899

Amortization of common stock offering costs (Note 5)
189,653

Report and notice to shareholders
176,260

Adviser shared service expense (Note 5)
130,331

Insurance expense
119,115

Director fees
75,000

Interest expense
24,432

Total expenses
21,660,828

Expense Support Repayment (Note 5)

Net expenses
21,660,828

Net investment income
24,859,718

Net realized loss and net change in unrealized appreciation/depreciation on investments
 
Net realized loss on investments
(919,286
)
Net change in unrealized appreciation/depreciation on investments
(17,160,266
)
Net realized loss and net change in unrealized appreciation/depreciation on investments
(18,079,552
)
Net increase in net assets resulting from operations
$
6,780,166

 
See accompanying notes to financial statements.









2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  11



Statements of Changes in Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
Year Ended
 
 
 
 
 
 
 
December 31, 2019
June 30, 2019
 
 
 
 
 
 
 
(unaudited)
 
 
Net increase in net assets resulting from operations:
 
 
 
Net investment income
$
24,859,718

$
43,015,803

 
Net realized loss on investments
(919,286
)
(2,070,447
)
 
Net change in unrealized appreciation/depreciation on investments
(17,160,266
)
(16,897,033
)
 
 
 
 
 
Net increase in net assets resulting from operations
6,780,166

24,048,323

 
Distributions to common stockholders:
 
 
 
Distributions from earnings (Notes 6 and 8)
(22,014,211
)
(27,362,678
)
 
Return of capital (Notes 6 and 8)
(1,592,933
)
(12,690,785
)
 
 
 
 
 
Total distributions to common stockholders
(23,607,144
)
(40,053,463
)
 
Capital transactions:
 
 
 
Gross proceeds from shares sold (Note 4)
19,478,720

51,119,673

 
Commissions and fees on shares sold (Note 5)
(1,522,593
)
(3,893,401
)
 
Proceeds from merger transaction (Note 11)

34,965,647

 
Reinvestment of dividends (Note 4)
12,380,706

17,922,234

 
Repurchase of common shares (Note 4)
(9,181,550
)
(17,086,002
)
 
 
 
 
 
Net increase in net assets from capital transactions
21,155,283

83,028,151

 
 
 
 
 
Total increase in net assets
4,328,305

67,023,011

 
Net assets:
 
 
 
Beginning of period
399,704,923

332,681,912

 
End of period
$
404,033,228

$
399,704,923

 
 
 
 
 
 
 
 
 
 
See accompanying notes to financial statements.





2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  12



Statement of Cash Flows (unaudited)
For the six months ended December 31, 2019
 
 
 
 
 
 
 
Cash flows used in operating activities:
 
Net increase in net assets resulting from operations
$
6,780,166

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
 
Amortization of common stock offering costs (Note 5)
189,653

Amortization of purchase discount, net
3,548,195

Amortization of preferred stock offering costs
93,747

Amortization of preferred stock discount
320,391

Amortization of deferred financing costs
5,356

Purchases of investments
(66,541,517
)
Distributions received from investments
1,630,451

Net realized loss on investments
919,286

Net change in unrealized appreciation/depreciation on investments
17,160,266

(Increase) Decrease in operating assets:
 
Deferred offering costs (Note 5)
(428,356
)
Deferred financing costs on Revolving Credit Facility (Note 12)
(261,004
)
Interest receivable
(1,373,839
)
Due from affiliate (Note 5)
(79,366
)
Prepaid expenses
(62,687
)
Increase (Decrease) in operating liabilities:
 
Payable for investment securities purchased
(13,091,051
)
Due to Adviser (Note 5)
423,516

Accrued expenses
(445,904
)
Due to Administrator (Note 5)
676,531

Due to affiliate (Note 5)
6,868

Preferred dividend payable
(6,864
)
Interest payable
19,076

Net cash used in operating activities
(50,517,086
)
Cash flows provided by financing activities:
 
Gross proceeds from shares sold (Note 4)
21,218,395

Commissions and fees on shares sold (Note 5)
(1,626,149
)
Borrowings under Revolving Credit Facility
5,000,000

Distributions paid to common stockholders
(16,266,009
)
Repurchase of common shares (Note 4)
(9,181,550
)
Proceeds from the issuance of mandatorily redeemable preferred stock (Note 7)
27,892,949

Preferred stock issuance costs, paid and deferred
(394,823
)
Net cash provided by financing activities
26,642,813

Net decrease in cash
(23,874,273
)
Cash, beginning of year
26,461,739

Cash, end of period
$
2,587,466

 
 
Supplemental information
 
Value of shares issued through reinvestment of dividends
$
12,380,706

 
See accompanying notes to financial statements.

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  13




Schedule of Investments (unaudited)
As of December 31, 2019
Portfolio Investments(1)(5)
 
Investment
 
Estimated Yield(2)/Interest Rate
 
Legal Maturity
 
Acquisition date
 
Principal Amount
 
Amortized Cost
 
Fair Value(3)
Level 3
 
% of Net Assets
Collateralized Loan Obligation - Equity Class (Cayman Islands)
Adams Mill CLO Ltd.(6)
 
Subordinated Notes
 
%
 
7/15/2026
 
8/12/2014
 
$
500,000

 
$
277,296

 
$
145,962

 
0.0
 %
Apidos CLO XVIII-R
 
Subordinated Notes
 
19.63
%
 
10/22/2030
 
10/22/2018
 
410,000

 
485,220

 
412,082

 
0.1
 %
Apidos CLO XXI
 
Subordinated Notes
 
16.11
%
 
7/19/2027
 
6/18/2015
 
5,000,000

 
4,248,507

 
3,364,043

 
0.8
 %
Apidos CLO XXII
 
Subordinated Notes
 
7.03
%
 
10/20/2027
 
10/14/2015
 
3,000,000

 
2,714,496

 
2,243,675

 
0.6
 %
Apidos CLO XXIV
 
Subordinated Notes
 
24.42
%
 
10/21/2030
 
5/21/2019
 
6,750,000

 
4,156,904

 
4,352,676

 
1.1
 %
Apidos CLO XXVI
 
Subordinated Notes
 
22.78
%
 
7/18/2029
 
7/29/2019
 
6,000,000

 
4,162,884

 
4,353,656

 
1.1
 %
Babson CLO Ltd. 2015-I
 
Subordinated Notes
 
12.20
%
 
1/20/2031
 
4/29/2015
 
3,400,000

 
2,387,160

 
1,865,643

 
0.5
 %
Barings CLO Ltd. 2018-III
 
Subordinated Notes
 
9.29
%
 
7/20/2029
 
11/18/2014
 
397,600

 
237,141

 
166,079

 
0.0
 %
BlueMountain CLO 2012-2 Ltd.
 
Subordinated Notes
 
13.71
%
 
11/20/2028
 
1/14/2015
 
3,000,000

 
2,470,288

 
1,868,338

 
0.5
 %
BlueMountain CLO 2013-2 Ltd.
 
Subordinated Notes
 
11.81
%
 
10/22/2030
 
10/6/2015
 
1,900,000

 
1,467,771

 
1,045,768

 
0.3
 %
BlueMountain Fuji US CLO II Ltd.
 
Subordinated Notes
 
17.50
%
 
10/21/2030
 
9/28/2017
 
2,500,000

 
2,345,256

 
2,140,224

 
0.5
 %
California Street CLO IX, Ltd.
 
Preference Shares
 
27.72
%
 
7/16/2032
 
12/19/2019
 
4,670,000

 
1,661,179

 
2,394,404

 
0.6
 %
California Street CLO XII, Ltd.(6)
 
Subordinated Notes
 
%
 
10/15/2025
 
9/17/2015
 
14,500,000

 
7,456,815

 
5,194,967

 
1.3
 %
Carlyle Global Market Strategies CLO 2013-1, Ltd.
 
Subordinated Notes
 
15.07
%
 
8/14/2030
 
6/30/2016
 
17,550,000

 
12,842,773

 
9,619,525

 
2.4
 %
Carlyle Global Market Strategies CLO 2013-4, Ltd.
 
Income Notes
 
17.55
%
 
1/15/2031
 
12/28/2016
 
11,839,488

 
7,074,416

 
6,906,511

 
1.7
 %
Carlyle Global Market Strategies CLO 2014-1, Ltd.
 
Income Notes
 
28.97
%
 
4/17/2031
 
3/3/2016
 
12,870,000

 
7,420,200

 
9,394,926

 
2.3
 %
Carlyle Global Market Strategies CLO 2014-3-R, Ltd.
 
Subordinated Notes
 
16.87
%
 
7/28/2031
 
6/15/2018
 
15,000,000

 
13,109,048

 
12,028,373

 
3.0
 %
Carlyle Global Market Strategies CLO 2016-1, Ltd.
 
Subordinated Notes
 
19.60
%
 
4/20/2027
 
4/20/2016
 
6,500,000

 
5,943,305

 
5,614,453

 
1.4
 %
Carlyle Global Market Strategies CLO 2016-3, Ltd.
 
Subordinated Notes
 
16.54
%
 
10/19/2029
 
9/13/2016
 
3,245,614

 
3,057,809

 
2,641,608

 
0.7
 %
Carlyle Global Market Strategies CLO 2017-5, Ltd.
 
Subordinated Notes
 
15.26
%
 
1/22/2030
 
1/30/2018
 
10,000,000

 
9,722,592

 
8,331,563

 
2.1
 %
Cedar Funding II CLO, Ltd.
 
Subordinated Notes
 
17.81
%
 
6/10/2030
 
9/29/2017
 
2,500,000

 
1,946,147

 
1,696,221

 
0.4
 %
Cedar Funding IV CLO, Ltd.
 
Subordinated Notes
 
18.45
%
 
7/23/2030
 
6/23/2017
 
21,114,286

 
18,106,567

 
16,909,908

 
4.2
 %
Cedar Funding V CLO, Ltd.
 
Subordinated Notes
 
17.96
%
 
7/17/2031
 
10/17/2018
 
2,358,000

 
2,500,513

 
2,331,525

 
0.6
 %
Cedar Funding VI CLO, Ltd.
 
Subordinated Notes
 
20.61
%
 
10/20/2028
 
8/10/2017
 
4,892,500

 
4,703,676

 
4,512,869

 
1.1
 %
Cent CLO 21 Limited
 
Subordinated Notes
 
13.30
%
 
7/26/2030
 
6/18/2014
 
510,555

 
398,727

 
292,961

 
0.1
 %
CIFC Funding 2013-I, Ltd.
 
Subordinated Notes
 
18.89
%
 
7/16/2030
 
6/7/2018
 
3,000,000

 
1,692,239

 
1,450,140

 
0.4
 %
CIFC Funding 2013-II, Ltd.
 
Income Notes
 
10.00
%
 
10/18/2030
 
2/11/2014
 
305,000

 
205,822

 
156,407

 
0.0
 %
CIFC Funding 2013-IV, Ltd.
 
Subordinated Notes
 
18.33
%
 
4/28/2031
 
3/19/2019
 
8,000,000

 
5,044,635

 
5,035,815

 
1.2
 %
CIFC Funding 2014, Ltd.
 
Income Notes
 
15.03
%
 
1/17/2031
 
3/13/2014
 
2,758,900

 
1,873,923

 
1,652,196

 
0.4
 %

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  14



Portfolio Investments(1)(5)
 
Investment
 
Estimated Yield(2)/Interest Rate
 
Legal Maturity
 
Acquisition date
 
Principal Amount
 
Amortized Cost
 
Fair Value(3)
Level 3
 
% of Net Assets
Collateralized Loan Obligation - Equity Class (Cayman Islands)
CIFC Funding 2014-III, Ltd.
 
Income Notes
 
15.89
%
 
10/22/2031
 
11/17/2016
 
$
11,700,000

 
$
7,378,853

 
$
6,588,221

 
1.6
 %
CIFC Funding 2014-IV-R, Ltd.
 
Income Notes
 
16.73
%
 
10/17/2030
 
9/3/2014
 
4,286,000

 
2,712,351

 
2,453,700

 
0.6
 %
CIFC Funding 2015-I, Ltd.
 
Subordinated Notes
 
19.40
%
 
1/22/2031
 
11/30/2015
 
7,500,000

 
5,650,739

 
5,283,095

 
1.3
 %
CIFC Funding 2015-III, Ltd.
 
Subordinated Notes
 
18.01
%
 
4/19/2029
 
5/31/2018
 
10,000,000

 
7,648,215

 
6,914,698

 
1.7
 %
CIFC Funding 2015-IV, Ltd.
 
Subordinated Notes
 
13.12
%
 
10/20/2027
 
5/2/2016
 
9,100,000

 
7,435,487

 
5,758,101

 
1.4
 %
CIFC Funding 2016-I, Ltd.
 
Subordinated Notes
 
11.48
%
 
10/21/2031
 
12/21/2016
 
2,000,000

 
1,830,419

 
1,616,438

 
0.4
 %
CIFC Funding 2017-I, Ltd.
 
Subordinated Notes
 
11.62
%
 
4/20/2029
 
3/9/2017
 
8,000,000

 
7,407,950

 
5,702,176

 
1.4
 %
CIFC Funding 2017-IV, Ltd.
 
Subordinated Notes
 
16.77
%
 
10/24/2030
 
9/19/2017
 
18,000,000

 
17,520,476

 
15,450,981

 
3.8
 %
Galaxy XIX CLO, Ltd.
 
Subordinated Notes
 
14.38
%
 
7/24/2030
 
12/8/2016
 
2,750,000

 
1,862,922

 
1,341,220

 
0.3
 %
Galaxy XXVIII CLO, Ltd.
 
Subordinated Notes
 
7.62
%
 
7/15/2031
 
6/27/2014
 
250,000

 
180,772

 
114,063

 
0.0
 %
GoldenTree Loan Opportunities IX, Ltd.
 
Subordinated Notes
 
15.16
%
 
10/29/2029
 
7/24/2017
 
3,250,000

 
2,456,209

 
1,905,189

 
0.5
 %
Halcyon Loan Advisors Funding 2014-2 Ltd.(6)
 
Subordinated Notes
 
%
 
4/28/2025
 
4/28/2014
 
400,000

 
210,313

 
—    

 
0.0
 %
Halcyon Loan Advisors Funding 2014-3 Ltd.(6)
 
Subordinated Notes
 
%
 
10/22/2025
 
9/29/2014
 
500,000

 
298,545

 
—    

 
0.0
 %
Halcyon Loan Advisors Funding 2015-1 Ltd.(6)
 
Subordinated Notes
 
%
 
4/20/2027
 
4/16/2015
 
3,000,000

 
1,907,873

 
919,839

 
0.2
 %
Halcyon Loan Advisors Funding 2015-2 Ltd.(6)
 
Subordinated Notes
 
%
 
7/26/2027
 
6/24/2015
 
3,000,000

 
1,994,395

 
1,049,551

 
0.3
 %
Halcyon Loan Advisors Funding 2015-3 Ltd.
 
Subordinated Notes
 
4.28
%
 
10/18/2027
 
9/3/2015
 
7,000,000

 
5,526,344

 
4,088,130

 
1.0
 %
HarbourView CLO VII-R, Ltd.
 
Subordinated Notes
 
10.99
%
 
7/18/2031
 
6/10/2015
 
275,000

 
190,435

 
156,059

 
0.0
 %
Jefferson Mill CLO Ltd.
 
Subordinated Notes
 
11.46
%
 
10/20/2031
 
7/28/2015
 
6,049,689

 
4,814,393

 
3,211,652

 
0.8
 %
LCM XV Limited Partnership
 
Income Notes
 
7.13
%
 
7/19/2030
 
2/25/2014
 
250,000

 
183,746

 
119,244

 
0.0
 %
LCM XVI Limited Partnership
 
Income Notes
 
11.72
%
 
10/15/2031
 
6/19/2014
 
6,814,685

 
4,499,805

 
3,209,954

 
0.8
 %
LCM XVII Limited Partnership
 
Income Notes
 
13.75
%
 
10/15/2031
 
10/15/2014
 
1,000,000

 
712,618

 
611,943

 
0.2
 %
Madison Park Funding XIII, Ltd.
 
Subordinated Notes
 
23.29
%
 
4/19/2030
 
2/27/2014
 
13,000,000

 
9,158,701

 
8,828,849

 
2.2
 %
Madison Park Funding XIV, Ltd.
 
Subordinated Notes
 
15.82
%
 
10/22/2030
 
8/6/2014
 
14,000,000

 
10,123,113

 
9,090,698

 
2.2
 %
Madison Park Funding XV, Ltd.(6)
 
Subordinated Notes
 
%
 
1/27/2026
 
12/29/2014
 
4,000,000

 
2,817,050

 
1,708,121

 
0.4
 %
Mountain View CLO 2014-1 Ltd.(6)
 
Income Notes
 
%
 
10/15/2026
 
9/25/2014
 
1,000,000

 
508,546

 
102,138

 
0.0
 %
Mountain View CLO IX Ltd.
 
Subordinated Notes
 
18.98
%
 
7/15/2031
 
6/25/2015
 
8,815,500

 
5,194,426

 
5,397,566

 
1.3
 %
Octagon Investment Partners XIV, Ltd.
 
Income Notes
 
16.05
%
 
7/16/2029
 
12/6/2017
 
6,150,000

 
3,945,470

 
3,223,463

 
0.8
 %
Octagon Investment Partners XV, Ltd.
 
Income Notes
 
20.95
%
 
7/19/2030
 
5/28/2019
 
5,644,737

 
3,159,854

 
3,109,952

 
0.8
 %
Octagon Investment Partners XVII, Ltd.
 
Subordinated Notes
 
19.28
%
 
1/27/2031
 
7/2/2018
 
16,153,000

 
8,837,103

 
8,374,471

 
2.1
 %
Octagon Investment Partners 18-R, Ltd.
 
Subordinated Notes
 
13.89
%
 
4/16/2031
 
8/4/2015
 
4,568,944

 
2,644,043

 
2,149,820

 
0.5
 %
Octagon Investment Partners 20-R, Ltd.
 
Subordinated Notes
 
17.82
%
 
5/12/2031
 
5/13/2019
 
3,500,000

 
2,656,591

 
2,479,428

 
0.6
 %
Octagon Investment Partners XXI, Ltd.
 
Subordinated Notes
 
15.60
%
 
2/14/2031
 
1/13/2016
 
13,822,188

 
7,888,517

 
6,683,762

 
1.7
 %
Octagon Investment Partners XXII, Ltd.
 
Subordinated Notes
 
17.66
%
 
1/22/2030
 
11/25/2014
 
6,625,000

 
4,863,902

 
4,327,159

 
1.1
 %

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  15



Portfolio Investments(1)(5)
 
Investment
 
Estimated Yield(2)/Interest Rate
 
Legal Maturity
 
Acquisition date
 
Principal Amount
 
Amortized Cost
 
Fair Value(3)
Level 3
 
% of Net Assets
Collateralized Loan Obligation - Equity Class (Cayman Islands)
Octagon Investment Partners XXIII, Ltd.
 
Subordinated Notes
 
23.50
%
 
7/15/2027
 
2/8/2016
 
$
12,000,000

 
$
9,428,261

 
$
9,418,234

 
2.3
 %
Octagon Investment Partners 27, Ltd.
 
Subordinated Notes
 
17.54
%
 
7/15/2030
 
11/2/2018
 
5,000,000

 
3,668,307

 
3,314,296

 
0.8
 %
Octagon Investment Partners 30, Ltd.
 
Subordinated Notes
 
14.64
%
 
3/18/2030
 
11/20/2017
 
9,525,000

 
8,977,259

 
7,690,784

 
1.9
 %
Octagon Investment Partners 31, Ltd.
 
Subordinated Notes
 
34.25
%
 
7/19/2030
 
12/27/2019
 
3,067,500

 
1,802,300

 
1,857,297

 
0.5
 %
Octagon Investment Partners 33, Ltd.
 
Subordinated Notes
 
18.01
%
 
1/20/2031
 
7/11/2018
 
2,850,000

 
2,553,520

 
2,392,312

 
0.6
 %
Octagon Investment Partners 36, Ltd.
 
Subordinated Notes
 
26.83
%
 
4/15/2031
 
12/27/2019
 
10,400,960

 
8,381,746

 
8,443,518

 
2.1
 %
Octagon Loan Funding, Ltd.
 
Subordinated Notes
 
15.62
%
 
11/18/2031
 
9/17/2014
 
3,240,000

 
2,244,532

 
1,925,751

 
0.5
 %
OZLM VI, Ltd.
 
Subordinated Notes
 
13.28
%
 
4/17/2031
 
11/3/2016
 
15,688,991

 
11,174,961

 
9,200,757

 
2.3
 %
OZLM VII, Ltd.
 
Subordinated Notes
 
10.40
%
 
7/17/2029
 
11/6/2015
 
2,654,467

 
1,558,533

 
1,280,594

 
0.3
 %
OZLM VIII, Ltd.
 
Subordinated Notes
 
7.49
%
 
10/17/2029
 
9/9/2014
 
950,000

 
594,467

 
411,940

 
0.1
 %
OZLM IX, Ltd.
 
Subordinated Notes
 
13.38
%
 
10/20/2031
 
2/27/2017
 
15,000,000

 
11,122,953

 
9,415,389

 
2.3
 %
OZLM XII, Ltd.
 
Subordinated Notes
 
6.29
%
 
4/30/2027
 
1/20/2017
 
12,122,952

 
9,127,462

 
6,418,573

 
1.6
 %
OZLM XXII, Ltd.
 
Subordinated Notes
 
17.74
%
 
1/17/2031
 
5/16/2017
 
27,343,000

 
16,377,980

 
15,742,872

 
3.9
 %
Romark WM-R Ltd.
 
Subordinated Notes
 
11.70
%
 
4/21/2031
 
5/15/2014
 
490,713

 
402,510

 
276,429

 
0.1
 %
Sound Point CLO II, Ltd.
 
Subordinated Notes
 
18.45
%
 
1/27/2031
 
5/20/2019
 
21,053,778

 
12,463,492

 
11,375,841

 
2.8
 %
Sound Point CLO VII-R, Ltd.
 
Subordinated Notes
 
25.72
%
 
10/23/2031
 
8/2/2019
 
9,002,745

 
3,838,773

 
3,878,762

 
1.0
 %
Sound Point CLO XVII, Ltd.
 
Subordinated Notes
 
16.88
%
 
10/20/2030
 
7/13/2018
 
15,000,000

 
14,144,421

 
12,757,156

 
3.2
 %
Sound Point CLO XVIII, Ltd.
 
Subordinated Notes
 
15.82
%
 
1/20/2031
 
10/31/2018
 
6,250,000

 
6,249,784

 
5,590,641

 
1.4
 %
Symphony CLO XIV, Ltd.(6)
 
Subordinated Notes
 
%
 
7/14/2026
 
5/29/2014
 
750,000

 
467,928

 
281,910

 
0.1
 %
Symphony CLO XVI, Ltd.
 
Subordinated Notes
 
13.47
%
 
10/15/2031
 
7/15/2015
 
5,000,000

 
4,235,151

 
3,332,424

 
0.8
 %
THL Credit Wind River 2013-1 CLO, Ltd.
 
Subordinated Notes
 
11.00
%
 
7/19/2030
 
11/3/2017
 
10,395,000

 
7,667,617

 
5,606,623

 
1.4
 %
THL Credit Wind River 2013-2 CLO, Ltd.
 
Income Notes
 
12.41
%
 
10/18/2030
 
12/29/2017
 
3,250,000

 
1,966,006

 
1,613,139

 
0.4
 %
THL Credit Wind River 2014-1 CLO, Ltd.
 
Subordinated Notes
 
18.50
%
 
7/18/2031
 
7/13/2018
 
11,800,000

 
7,538,902

 
7,144,070

 
1.8
 %
THL Credit Wind River 2018-2 CLO, Ltd.
 
Subordinated Notes
 
17.38
%
 
7/15/2030
 
3/13/2019
 
8,884,000

 
7,886,673

 
7,616,864

 
1.9
 %
THL Credit Wind River 2018-3 CLO, Ltd.
 
Subordinated Notes
 
18.26
%
 
1/20/2031
 
7/2/2019
 
13,000,000

 
11,599,644

 
11,206,707

 
2.8
 %
Venture XVIII CLO, Ltd.
 
Subordinated Notes
 
18.38
%
 
10/15/2029
 
7/18/2018
 
4,750,000

 
3,236,073

 
3,100,843

 
0.8
 %
Venture 28A CLO, Ltd.
 
Subordinated Notes
 
16.91
%
 
10/19/2029
 
7/18/2018
 
12,000,000

 
10,376,533

 
9,508,221

 
2.4
 %
Venture XXX CLO, Ltd.
 
Subordinated Notes
 
20.03
%
 
1/15/2031
 
7/18/2018
 
5,100,000

 
4,509,051

 
4,425,153

 
1.1
 %
Venture XXXII CLO, Ltd.
 
Subordinated Notes
 
21.14
%
 
7/18/2031
 
10/11/2018
 
7,929,328

 
7,502,331

 
7,414,707

 
1.8
 %
Venture XXXIV CLO, Ltd.
 
Subordinated Notes
 
21.54
%
 
10/15/2031
 
8/1/2019
 
5,250,000

 
4,494,626

 
4,565,071

 
1.1
 %
Voya IM CLO 2013-1, Ltd.
 
Income Notes
 
13.30
%
 
10/15/2030
 
6/14/2016
 
4,174,688

 
2,876,912

 
2,375,864

 
0.6
 %
Voya IM CLO 2013-3, Ltd.
 
Subordinated Notes
 
7.12
%
 
10/17/2031
 
2/23/2015
 
4,000,000

 
2,323,699

 
1,509,364

 
0.4
 %
Voya IM CLO 2014-1, Ltd.
 
Subordinated Notes
 
10.62
%
 
4/18/2031
 
3/13/2014
 
314,774

 
232,677

 
167,779

 
0.0
 %
Voya CLO 2014-3, Ltd.(6)
 
Subordinated Notes
 
%
 
7/24/2026
 
4/15/2015
 
7,000,000

 
3,461,529

 
1,085,514

 
0.3
 %

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  16



Portfolio Investments(1)(5)
 
Investment
 
Estimated Yield(2)/Interest Rate
 
Legal Maturity
 
Acquisition date
 
Principal Amount
 
Amortized Cost
 
Fair Value(3)
Level 3
 
% of Net Assets
Collateralized Loan Obligation - Equity Class (Cayman Islands)
Voya CLO 2014-4, Ltd.
 
Subordinated Notes
 
10.61
%
 
7/14/2031
 
11/25/2014
 
$
1,000,000

 
$
759,808

 
$
558,390

 
0.1
 %
Voya CLO 2015-2, Ltd.
 
Subordinated Notes
 
22.01
%
 
7/23/2027
 
7/23/2015
 
13,712,000

 
8,970,725

 
9,151,262

 
2.3
 %
Voya CLO 2016-1, Ltd.
 
Subordinated Notes
 
18.46
%
 
1/21/2031
 
2/25/2016
 
7,750,000

 
6,920,404

 
6,692,638

 
1.7
 %
Voya CLO 2016-3, Ltd.
 
Subordinated Notes
 
13.62
%
 
10/20/2031
 
10/27/2016
 
10,225,000

 
8,581,160

 
7,284,394

 
1.8
 %
Voya CLO 2017-3, Ltd.
 
Subordinated Notes
 
10.35
%
 
7/19/2030
 
7/12/2017
 
5,750,000

 
6,500,395

 
5,156,786

 
1.3
 %
Voya CLO 2018-1, Ltd.
 
Subordinated Notes
 
15.01
%
 
4/18/2031
 
4/6/2018
 
10,000,000

 
9,775,015

 
8,720,485

 
2.2
 %
West CLO 2014-1 Ltd.(6)
 
Subordinated Notes
 
%
 
7/17/2026
 
7/24/2014
 
13,375,000

 
8,749,007

 
5,061,077

 
1.3
 %
Total Collateralized Loan Obligation - Equity Class
 
 
$
528,676,612


$
465,062,630

 
115.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Loan Obligation - Debt Class (Cayman Islands)(4)
Carlyle Global Market Strategies 2014-2-R, Ltd.
 
Class E Notes
 
9.90% (LIBOR + 8.00%)
 
5/15/2031
 
3/8/2019
 
$
7,500,000

 
$
6,715,629

 
$
7,229,731

 
1.8
 %
Carlyle CLO 17, Ltd.
 
Class E-R Notes
 
10.29% (LIBOR + 8.35%)
 
4/30/2031
 
3/7/2019
 
3,000,000

 
2,749,953

 
2,878,133

 
0.7
 %
Cent CLO 21 Limited
 
Class E-R2 Notes
 
10.59% (LIBOR + 8.65%)
 
7/27/2030
 
7/27/2018
 
109,122

 
102,869

 
105,752

 
0.0
 %
CIFC Funding 2014-IV, Ltd.
 
Class E Notes
 
10.00% (LIBOR + 8.00%)
 
10/17/2030
 
11/14/2019
 
9,000,000

 
7,245,596

 
7,465,009

 
1.8
 %
CIFC Funding 2014-V, Ltd.
 
Class F-R2 Notes
 
10.50% (LIBOR + 8.50%)
 
10/17/2031
 
9/27/2018
 
750,000

 
726,909

 
725,733

 
0.2
 %
CIFC Funding 2015-I, Ltd.
 
Class F-RR Notes
 
9.80% (LIBOR + 7.85%)
 
1/22/2031
 
11/4/2019
 
5,000,000

 
3,903,398

 
4,064,550

 
1.0
 %
CIFC Funding 2015-IV, Ltd.
 
Class E-R Notes
 
10.62% (LIBOR + 8.65%)
 
10/20/2027
 
1/22/2019
 
9,000,000

 
8,623,518

 
8,671,805

 
2.1
 %
CIFC Funding 2016-I, Ltd.
 
Class F-R Notes
 
12.97% (LIBOR + 11.00%)
 
10/21/2031
 
9/27/2019
 
3,750,000

 
3,559,827

 
3,662,632

 
0.9
 %
Galaxy XXI CLO, Ltd.
 
Class F-R Notes
 
9.22% (LIBOR + 7.25%)
 
4/21/2031
 
3/12/2019
 
6,000,000

 
4,825,963

 
5,512,889

 
1.4
 %
Galaxy XXVII CLO, Ltd.
 
Class F Junior Notes
 
9.96% (LIBOR + 8.06%)
 
5/16/2031
 
3/7/2019
 
1,500,000

 
1,321,120

 
1,445,950

 
0.4
 %
Galaxy XXVIII CLO, Ltd.
 
Class F Junior Notes
 
10.48% (LIBOR + 8.48%)
 
7/15/2031
 
7/16/2018
 
41,713

 
38,702

 
40,286

 
0.0
 %
HarbourView CLO VII-R, Ltd.
 
Class F Notes
 
10.27% (LIBOR + 8.27%)
 
7/18/2031
 
10/31/2018
 
6,000,000

 
5,767,764

 
5,748,448

 
1.4
 %
Madison Park Funding XIII, Ltd.
 
Class F-R Notes
 
9.92% (LIBOR + 7.95%)
 
4/19/2030
 
10/29/2019
 
2,000,000

 
1,641,336

 
1,868,934

 
0.5
 %
Mountain View CLO IX Ltd.
 
Class E Notes
 
10.02% (LIBOR + 8.02%)
 
7/15/2031
 
10/31/2018
 
3,625,000

 
3,475,545

 
3,421,414

 
0.8
 %
Octagon Investment Partners XVII, Ltd.
 
Class F-R2 Notes
 
9.14% (LIBOR + 7.20%)
 
1/24/2031
 
10/17/2019
 
5,362,500

 
4,054,495

 
4,993,719

 
1.2
 %
Octagon Investment Partners 18-R, Ltd.
 
Class E Notes
 
10.25% (LIBOR + 8.25%)
 
4/16/2031
 
10/17/2019
 
6,000,000

 
4,723,405

 
5,605,334

 
1.4
 %

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  17



Portfolio Investments(1)(5)
 
Investment
 
Estimated Yield(2)/Interest Rate
 
Legal Maturity
 
Acquisition date
 
Principal Amount
 
Amortized Cost
 
Fair Value(3)
Level 3
 
% of Net Assets
Collateralized Loan Obligation - Debt Class (Cayman Islands)(4)
Octagon Investment Partners XXII, Ltd.
 
Class F-RR Notes
 
9.70% (LIBOR + 7.75%)
 
1/22/2030
 
11/27/2019
 
$
5,500,000

 
$
4,153,179

 
$
4,478,730

 
1.1
 %
Octagon Investment Partners 39, Ltd.
 
Class F Notes
 
9.97% (LIBOR + 8.00%)
 
10/21/2030
 
11/4/2019
 
6,500,000

 
5,185,172

 
5,268,121

 
1.3
 %
OZLM VIII, Ltd.
 
Class E-RR Notes
 
10.17% (LIBOR + 8.17%)
 
10/17/2029
 
11/15/2018
 
8,400,000

 
8,134,324

 
7,953,371

 
2.0
 %
Sound Point CLO IV-R, Ltd.
 
Class F Notes
 
10.10% (LIBOR + 8.10%)
 
4/18/2031
 
3/20/2019
 
3,500,000

 
3,165,037

 
3,305,203

 
0.8
 %
Venture XIX CLO, Ltd.
 
Class F-RR Notes
 
10.50% (LIBOR + 8.50%)
 
1/15/2032
 
12/11/2018
 
7,900,000

 
7,643,876

 
7,592,255

 
1.9
 %
Venture XXXIII CLO, Ltd.
 
Class F Notes
 
10.00% (LIBOR + 8.00%)
 
7/15/2031
 
12/5/2019
 
2,500,000

 
1,819,518

 
2,014,318

 
0.5
 %
Voya IM CLO 2012-4, Ltd.
 
Class E-R-R Notes
 
12.74% (LIBOR + 10.85%)
 
10/15/2030
 
11/5/2019
 
3,320,000

 
3,120,153

 
3,117,952

 
0.8
 %
Voya IM CLO 2014-1, Ltd.
 
Class E-R2 Notes
 
10.32% (LIBOR + 8.35%)
 
4/18/2031
 
4/15/2019
 
3,000,000

 
2,727,680

 
2,878,151

 
0.7
 %
Total Collateralized Loan Obligation - Debt Class
 
 
$
95,424,968

 
$
100,048,420

 
24.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Portfolio Investments
 
 
 
 
 
 
 
$
624,101,580

 
$
565,111,050

 
139.9
 %
Other liabilities in excess of assets
 
 
 
 
 
 
 
 
 
(161,077,822
)
 
(39.9
)%
Net Assets
 
 
 
 
 
 
 
 
 
$
404,033,228

 
100.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The Company does not "control" and is not an "affiliate" of any of the portfolio investments, each term as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). In general, under the 1940 Act, the Company would be presumed to "control" a portfolio company if the Company owned 25% or more of its voting securities and would be an "affiliate" of a portfolio company if the Company owned 5% or more of its voting securities.
(2) The CLO subordinated notes/securities/fee notes, income notes and preferred shares are considered equity positions in the CLOs. The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to senior debt holders and CLO expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.
(3) Fair value is determined by or under the direction of the Company’s Board of Directors. As of December 31, 2019, all of the Company’s investments were classified as Level 3. ASC 820 classifies such unobservable inputs used to measure fair value as Level 3 within the valuation hierarchy. See Notes 2 and 3 within the accompanying notes to financial statements for further discussion.
(4) The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 1.91% at December 31, 2019. The current base rate for each investment may be different from the reference rate on December 31, 2019.
(5) Restricted securities for which quotations are not readily available are valued at fair value, as determined by the Board of Directors.
(6) The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital with any remaining unamortized investment costs written off if the actual distributions are less than the amortized investment cost. If an investment has been impaired upon being called, any future distributions will be recorded as a return of capital. To the extent that the impaired CLO’s cost basis is fully recovered, any future distributions will be recorded as realized gains.
 
See accompanying notes to financial statements.

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  18




Notes to Financial Statements (unaudited)
December 31, 2019


Note 1. Principal Business and Organization
Priority Income Fund, Inc., (the “Company,” “us,” “our,” or “we”) was incorporated under the general corporation laws of the State of Maryland on July 19, 2012 as an externally managed, nondiversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), and commenced operations on May 9, 2013. In addition, the Company has elected to be treated for 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 investment objective is to generate current income, and as a secondary objective, long-term capital appreciation. We seek to achieve our investment objective by investing, under normal circumstances, in senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated (“Senior Secured Loans”) with an emphasis on current income. Our investments may take the form of the purchase of Senior Secured Loans (either in the primary or secondary markets) or through investments in the equity and junior debt tranches of collateralized loan obligation (“CLO”) vehicles that in turn own pools of Senior Secured Loans. The Company intends to invest in both the primary and secondary markets.

The Company is managed by Priority Senior Secured Income Management, LLC (the “Adviser”), which is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. The Adviser is 50% owned by Prospect Capital Management, L.P. (“PCM”) and 50% by Stratera Holdings, LLC (“Stratera Holdings”).

The Company is offering up to 100,000,000 shares of its common stock, on a best efforts basis. The Company commenced the offering on May 9, 2013, at an initial offering price of $15.00 per share, for an initial offering period of 36 months from the date of the commencement of the offering. On January 6, 2014, the Company satisfied its minimum offering requirement by raising over $2.5 million from selling shares to persons not affiliated with the Company or the Adviser (the “Minimum Offering Requirement”), and as a result, broke escrow and commenced making investments.

On February 9, 2016 the Company’s Board of Directors approved an 18-month extension to the offering period for the sale of shares through November 9, 2017. Subsequently, on May 30, 2017, our Board of Directors approved a continuation of this offering for an additional two years, extending the offering period for the sale of shares through November 2, 2019. On November 25, 2019, our Board of Directors approved an additional 18-month continuous public offering period until the earlier of (i) July 23, 2021, or (ii) the date upon which 150,000,000 common shares have been sold in the course of the offering of the Company's common shares, unless further extended by our Board of Directors.

On December 21, 2018 the Company’s Board of Directors approved a definitive agreement (the “Merger Agreement”) pursuant to which the Company agreed, subject to the satisfaction of certain closing conditions, to acquire Stira Alcentra Global Credit Fund, a Delaware statutory trust (“Stira Alcentra”), in a common stock transaction (the “Stira Alcentra Acquisition”). In connection with the Merger, the Company also entered into a consulting agreement (the “Consulting Agreement”), with Stira Capital Markets Group, LLC (“SCMG”), the dealer-manager of Stira Alcentra. The transaction was treated as an asset acquisition in accordance with ASC 805, Business Combinations. The transaction was completed on May 10, 2019. See Note 11 for further discussion.

Note 2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Company in the preparation of its financial statements.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form N-CSRS, ASC 946, Financial Services - Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X.

Use of Estimates
The preparation of financial statements in conformity with U.S. 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 income, expenses and gains (losses) during the reporting period. Actual results could differ from those estimates and those differences could be material.

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  19



Cash
Cash are funds deposited with financial institutions.

Investment Valuation
The Company follows guidance under U.S. GAAP, which classifies the inputs used to measure fair values into the following hierarchy:

Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2. Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities on an inactive market, or other observable inputs other than quoted prices.

Level 3. Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

Investments for which market quotations are readily available are valued at such market quotations and are classified in Level 1 of the fair value hierarchy.

U.S. government securities for which market quotations are available are valued at a price provided by an independent pricing agent or primary dealer. The pricing agent or primary dealer provides these prices usually after evaluating inputs including yield curves, credit rating, yield spreads, default rates, cash flows, broker quotes and reported trades. U.S. government securities are categorized in Level 2 of the fair value hierarchy.

With respect to investments for which market quotations are not readily available, or when such market quotations are deemed not to represent fair value, the board of directors (the “Board”) has approved a multi-step valuation process for each quarter, as described below, and such investments are classified in Level 3 of the fair value hierarchy:

1.
Each portfolio investment is reviewed by investment professionals of the Adviser with the independent valuation firm engaged by the Board.
2.
The independent valuation firm prepares independent valuations based on its own independent assessments and issue its report.
3.
The Audit Committee of the Board (the “Audit Committee”) reviews and discusses with the independent valuation firm the valuation report, and then makes a recommendation to the Board of the value for each investment.
4.
The Board discusses valuations and determines the fair value of such investments in the Company’s portfolio in good faith based on the input of the Adviser, the respective independent valuation firm and the Audit Committee.

The Company's investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using both a discounted single-path cash flow model and a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows, after payments to debt tranches senior to our equity positions, are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

The types of factors that are taken into account in fair value determination include, as relevant, market changes in expected returns for similar investments, performance improvement or deterioration, the nature and realizable value of any collateral, the issuer’s ability to make payments and its earnings and cash flows, the markets in which the issuer does business, comparisons to traded securities, and other relevant factors.

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  20



Securities Transactions
Securities transactions are recorded on trade date. Realized gains or losses on investments are calculated by using the specific identification method. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss.

Revenue Recognition
Interest income from investments in the “equity” positions of CLOs (typically income notes, subordinated notes or preferred shares) is recorded based on an estimation of an effective yield to expected maturity utilizing assumed future cash flows. The Company monitors the expected cash inflows from CLO equity investments, including the expected residual payments, and the estimated effective yield is updated periodically. Interest income from investments in the “debt” positions of CLOs, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis.

Preferred Stock
The Company carries its mandatorily redeemable preferred stock at accreted cost on the Statement of Assets and Liabilities, and not fair value. Refer to “Note 7. Mandatorily Redeemable Preferred Stock” for further details. In accordance with ASC 480-10-25, the Company's mandatorily redeemable preferred stock has been classified as a liability on the Statement of Assets and Liabilities. Dividend payments relating to the mandatorily redeemable preferred stock are included in preferred dividend payable on the Statement of Assets and Liabilities and preferred dividend expense on the Statement of Operations.

Asset Coverage Requirement
As a registered closed-end investment company, the Company is required to comply with the asset coverage requirements of the 1940 Act. Under the 1940 Act, the Company may not issue additional preferred stock if immediately after such issuance the Company will not have an asset coverage of at least 200% (defined as the ratio of the Company’s gross assets (less all liabilities and indebtedness not represented by senior securities) to its outstanding senior securities representing indebtedness, plus the aggregate involuntary liquidation preference of the Company’s outstanding preferred stock). If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness or redeem outstanding shares of preferred stock, in each case at a time when doing so may be disadvantageous. Also, any amounts that we use to service our indebtedness or preferred dividends would not be available for distributions to our preferred stockholders. Further, the Company may be restricted from making distributions to holders of the Company’s common stock if the Company does not have asset coverage of at least 200%. As a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.

Common Stock Offering Costs
Common stock offering costs are capitalized to deferred common stock offering costs on the Statement of Assets and Liabilities and amortized to expense over the 12 month period following such capitalization on a straight line basis.

Common stock offering expenses consist of costs for the registration, certain marketing and distribution of the Company’s common shares. These expenses include, but are not limited to, expenses for legal, accounting, printing and certain marketing, and include salaries and direct expenses of the Adviser’s employees, employees of its affiliates and others for providing these services.

Due to Adviser
Amounts due to our Adviser consist of expense support repayments, base management fees, incentive fees, routine non-compensation overhead, and operating expenses and offering expenses paid on behalf of the Company. All balances due to the Adviser are settled quarterly.

Dividends and Distributions
Dividends and distributions to common stockholders, which are determined in accordance with federal income tax regulations, are recorded on the record date. The amount to be paid out as a dividend or distribution is approved by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

Income Taxes
The Company has elected to be treated as a RIC for U.S. federal income tax purposes and intends to comply with the requirement of the Code applicable to RICs. In order to continue to qualify for RIC tax treatment among other things, the Company is required to distribute at least 90% of its investment company taxable income (the “Annual Distribution Requirement”) and intends to distribute all of the Company’s investment company taxable income and net capital gain to common stockholders; therefore, the

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  21


Company has made no provision for income taxes. The character of income and gains that the Company will distribute is determined in accordance with income tax regulations that may differ from U.S. GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

As of December 31, 2019, the cost basis of investments for tax purposes was $557,500,618 resulting in estimated gross unrealized appreciation and depreciation of $38,937,435 and $31,327,003, respectively.

If the Company does not distribute (or is not deemed to have distributed) at least (1) 98% of its calendar year ordinary income; (2) 98.2% of its capital gains for the one-year period ending October 31 in that calendar year; and (3) any income recognized but not distributed in the preceding years and on which the Company paid no corporate-level tax, the Company will generally be required to pay an excise tax equal to 4% of such excess amounts. To the extent that the Company determines that its estimated current calendar year taxable income will be in excess of estimated current calendar year dividend distributions from such taxable income, the Company accrues excise taxes, if any, on estimated excess taxable income. As of and for the calendar year ended December 31, 2018, we determined that the Company met the distribution requirements and therefore was not required to pay excise tax. Additionally, as of December 31, 2019, we do not expect to have any excise tax due for 2019 calendar year. Thus, we have not accrued any excise tax for this period.

If the Company fails to satisfy the Annual Distribution Requirement or otherwise fails to qualify as a RIC in any taxable year, the
Company would be subject to tax on all of its taxable income at regular corporate rates. The Company would not be able to deduct distributions to common stockholders, nor would the Company be required to make distributions. Distributions would generally be taxable to the Company’s individual and other non-corporate taxable common stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of the Company’s current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, the Company would be required to distribute to its common stockholders the Company’s accumulated earnings and profits attributable to non-RIC years reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. In addition, if the Company failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, the Company would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Company had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

The Company follows ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the 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 not deemed to meet the more-likely-than not threshold are recorded as a tax benefit or expense in the current year. As of December 31, 2019 and for the six months ended, the Company did not have a liability for any unrecognized tax benefits. Management has analyzed the Company’s positions taken and expected to be taken on its income tax returns for all open tax years and for the year ended June 30, 2019, and has concluded that as of December 31, 2019, no provision for uncertain tax position is required in the Company’s financial statements. Our determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. All federal and state income tax returns for each tax year in the three-year period ended June 30, 2019 remain subject to examination by the Internal Revenue Service and state departments of revenue.

Recent Accounting Pronouncement
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value

2020 SEMI-ANNUAL REPORT
PRIORITY INCOME FUND, INC.                                  22


measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our financial statements.

Note 3. Portfolio Investments
Purchases of investment securities (excluding short-term securities) for the six months ended December 31, 2019 were $66,541,517. During the six months ended December 31, 2019, the Company recorded OTTI on five investments, resulting in realized losses of $919,300. The Company received $14 from a liquidating payment on an investment that was written-off for tax purposes, which resulted in a realized gain.

The following table summarizes the inputs used to value the Company’s investments measured at fair value as of December 31, 2019:
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Collateralized Loan Obligations - Equity Class
$

 
$

 
$
465,062,630

 
$
465,062,630

Collateralized Loan Obligations - Debt Class

 

 
100,048,420

 
100,048,420

 
$

 
$

 
$
565,111,050

 
$
565,111,050


The following is a reconciliation of investments for which Level 3 inputs were used in determining fair value:
 
Collateralized Loan Obligation - Equity Class
Collateralized Loan Obligation - Debt Class
Total
Fair value at June 30, 2019
$
466,812,424

$
55,015,307

$
521,827,731

Net realized loss on investments
(919,286
)

(919,286
)
Net change in unrealized appreciation/depreciation on investments
(19,742,748
)
2,582,482

(17,160,266
)
Purchases of investments
24,036,979

42,504,538

66,541,517

Distributions received from investments
(1,630,451
)

(1,630,451
)
Proceeds from sales of investments



Amortization of purchase discount, net
(3,494,288
)
(53,907
)
(3,548,195
)
Transfers into Level 3(1)



Transfers out of Level 3(1)