Alcentra Limited (the “Firm” or “We” or “Us”) is a private company limited by shares and incorporated in England and Wales. The Firm has been providing investment advisory services since July 2002. The Bank of New York Mellon Corporation (“BNY Mellon”) owns 100% of our parent holding company, BNY Alcentra Group Holdings, Inc. (“Group Holdings”). Alcentra Limited and Alcentra NY are subsidiaries of Group Holdings. We provide discretionary investment advisory services to individual institutional investors in the form of separate accounts, pooled investment vehicles (private funds) that are exempt from registration in the United States, and to other investment advisers through sub-advisory agreements. Our business is not limited to US clients and US operations but is also subject to foreign registration and regulation by the United Kingdom Financial Conduct Authority.

 We focus on the sub-investment grade debt capital markets. Our employees are primarily organized in the following teams: Credit Analysts, Finance, Risk and Compliance, Transaction Management, and Business Development. These teams support the CLO, Mezzanine, Direct Lending, Special Situations, High Yield, Structured Credit strategies and Multi Strategies of the Firm. See Item 8 below.  Our clients are typically private funds but also include some separately managed accounts, whose investors include a variety of institutions (“Professional Clients”). These funds include collateralized loan obligations (“CLOs”), private loan funds, direct lending funds and mezzanine debt funds. Alcentra also provides services to a German Investment Company and a portfolio series of a Delaware statutory trust under a sub-advisory agreement with the Bank of New York Mellon. Alcentra provides discretionary investment services to private funds with multi-credit strategies. These private funds will generally be divided into sleeves for each of the underlying strategies. Portfolio management for specific sleeves may be delegated from our affiliate, Alcentra NY LLC, under a sub-advisory agreement. See Item 7 below.  For our separately managed accounts, we offer investment advisory services tailored to meet clients’ individual investment goals. We work with clients to create investment guidelines mutually acceptable to the client and the Firm. When creating investment guidelines, clients may impose investment restrictions in certain individual securities or types of securities. Clients who impose investment restrictions might limit our ability to employ the strategy resulting in investment performance that differs from that of other client accounts.  We also offer investment advisory services to private funds. Each private fund has an investment objective and a set of investment policies and/or guidelines that we must follow. For this reason, we cannot tailor the investment advisory services we provide to pooled investment vehicles to meet individual investor needs. In addition, we cannot impose individual investment restrictions on our investment strategies for underlying investors in the private funds.  The Firm also shares research and other services with our affiliate Alcentra NY LLC (“Alcentra NY”) through a service agreement. In addition, we serve as sub-adviser to a number of private funds which are advised by Alcentra NY through a separate sub-advisory agreement. See Item 10 below.  We manage approximately $18 billion as of December 31, 2017 on a discretionary basis. Assets under management reflect assets of all accounts and portions of accounts managed by Alcentra for Alcentra and its affiliates. We offer investment advisory services tailored to meet clients’ individual investment goals. We work with clients to create investment guidelines mutually acceptable to the client and us. When creating investment guidelines, clients may impose investment restrictions in certain individual securities or types of securities. The strategies in which we may invest client assets and the fees we may receive for managing such strategies are described below.

We offer investment advisory services in the form of pooled investment vehicles or “funds”. Each pooled investment vehicle has an investment objective and a set of investment policies and/or guidelines that we must follow. For this reason, we cannot tailor the investment advisory services we provide to our funds to meet individual investor needs. In addition, we cannot impose individual investment restrictions on our investment strategies for underlying investors in the pooled investment vehicles. please register to get more info

We are compensated for our advisory services by earning management fees and in some instances performance fees from our clients. We will generally describe our management fees below. Please see Item 6 for a discussion of our performance fees. Investors in our private funds should refer to the applicable fund’s offering materials for a complete description of our fees. Generally, our fees are dependent on the strategy that your account follows.
Separate Account Fees
We provide investment advisory services to separate account clients for a fee. This fee is typically charged as a percentage of an account’s assets under our management. While this fee is typically expressed as an annual percentage, it is calculated based on the average market value of the account’s portfolio held during the quarter. Fees are billed on a quarterly basis in arrears. Your investment advisory agreement may also provide that you will incur fees and expenses in addition to our advisory fees such as custody, brokerage and other transaction costs, administrative and other expenses. Examples of other costs and expenses may include markups, mark-downs and other amounts included in the price of a security, odd-lot differentials, transfer taxes, wire transfer fees and electronic fund fees. Please review your investment advisory agreement for further information on how we charge and collect fees.

A representative fee based on the type of strategy is as follows:

A management fee shall be paid to the Firm on a quarterly basis in arrears. Such fee shall be in an amount equal to 0.65% of the net asset value of the portfolio annually.

We reserve the right, in our sole discretion, to negotiate or modify (either up or down) the basic fee schedule set forth above for any client due to a variety of factors, including but not limited to: the level of reporting and administrative operations required to service an account, the investment strategy or style, the number of portfolios or accounts involved, and/or the number and types of services provided to the client. Because our fees are negotiable, the actual fee paid by any client or group of clients may be different from the fees reflected in our representative fee set forth above. We may require the inclusion of a performance fee in the investment advisory agreement in addition to the asset based management fee for our separate account clients. Please see Item 6 below for more information on our performance fees
Private Fund Fees
European Leveraged Loan Strategy: We serve as collateral manager for certain cash flow CLOs and earn management fees which are determined mainly by the assets under management of each CLO and are based on the current outstanding aggregate collateral balance (being the nominal face amount of the assets and cash) of the CLOs. The management fees consist of senior management fees and subordinated management fees. The senior management fee has a higher priority in a CLO payment waterfall whereas the subordinated management fee generally ranks below principal and interest payments to senior note holders in the payment waterfall. Also, to earn the subordinated management fee, over-collateralization and interest coverage tests must be passing on the relevant determination date for all senior CLO note holders. The sum of the senior and subordinated management fees we earn from advising cash flow CLOs generally ranges from 20 to 65 basis points annually and are paid either semi-annually or quarterly in arrears. Please consult the offering materials of each CLO for further details. Global Special Situations Strategy: The fees for the Alcentra Special Situations Fund consist of management fees ranging from 0-% to 2% depending on the specific class of shares invested in and performance fees ranging from 0% of 20%. European Loan Strategy: The management fee for the Alcentra European Loan Strategy charges management fees ranging from 0.5% to 1% (institutional and retail respectively), with performance fees of 10% on specific classes of shares. Certain classes of shares have a performance fee hurdle Structured Credit Strategy: Alcentra’s Structured Credit strategies target varying risk and return objectives including a) a high grade structured credit strategy with a focus on highly rated (AAA and AA) CLO securities b) a mezzanine structured credit strategy with a focus on securitized tranches rated A, BBB, BB, B and c) an opportunistic structured credit strategy with a focus CLO equity, warehouse and other credit opportunities. The fees vary by strategy. The high grade structured credit strategy charges management fees ranging from 0% to 0.3%. The mezzanine structured credit strategy charges management fees ranging from 0 to .6%. The opportunistic structured credit strategy charges management fees ranging from 0% to 1.5% and performance fees of between 10% -20% on specific classes of shares. European Mezzanine Funds: Alcentra Limited acts as investment adviser to The Alcentra Mezzanine Fund I and The Alcentra Mezzanine Fund II, and serves as sub-adviser to the Alcentra Mezzanine QPAM Fund. These funds are focused on mezzanine and mezzanine related investments in high quality middle market and selected larger end sponsored and unsponsored Leverage Buyout (“LBO”) transactions in Europe. We generally charge annualized management fees of 1.50% based on aggregate commitments of capital made by limited partners of such funds during the funds’ investment periods and thereafter on funded commitments, subject to other limitations as provided in the funds’ offering materials. Management fees are charged in advance on a quarterly basis. Allocation of General Partner's Profit Share During the investment period, the General Partner receives an amount equal to an annual rate of: i. 1.5% of the commitment of the underlying investor; plus ii. 1% of the amount by which that investor’s acquisition cost of all unrealised investments exceeds their commitment; plus iii. 0.1% of the interest costs of the fund on the principal amount outstanding under the fund’s leverage facility Direct Lending Funds: Alcentra acts as investment adviser to UK Direct Lending Fund and European Direct Lending Fund. Allocation of General Partner's Profit Share The General Partner will be allocated a profit share out of amounts otherwise allocated to each Fund Investor equal to 1.25% per annum of that Fund Investor’s share of the acquisition costs of Investments that have not been realised or fully and permanently written, provided that the 1.25% annual rate referred to above will be reduced to 1% for a Fund Investor which makes a Fund Commitment of €75m of US$100m or more, with effect from the date on which such threshold is met.

In addition, the annual % rates referred to above will be further reduced by 0.25 % points for a Fund Commitment made by a Fund Investor at first Closing (so that, for the avoidance of doubt, the annual rate shall be 0.75% for a Fund Investor which makes a €75m or US$100m Fund Commitment at the first closing.

The fees of the Manager, Alcentra Limited is borne by the General Partner. Alcentra serves as investment adviser for BNY Multi-Strategy funds, which principally invest in our European Loan, Structured Credit, Special Situations and Direct Lending strategies. The multi- strategy funds do not separately charge investors management fees. Investors pay performance fees at the relevant fee rate of the strategy.
European High Yield: Alcentra High Yield provides discretionary investment advisory services to
a German investment company. These accounts charge a 55bps management fee.

Multi-Credit Strategy: For multi-credit and other accounts, we generally charge a management fee ranging from 10 basis points to 100 basis points payable on a monthly or quarterly basis in arrears. To the extent Alcentra NY LLC provides Sub-advisory services to these accounts, Alcentra Limited pays Alcentra NY for sub-advisory services it provides. A management fee is typically not charged on investments made in other funds managed by Alcentra or its affiliates in order to prevent a layering of fees. The respective fund offering materials describe the respective fund fee structures in more detail. Please consult these materials for further fee details For the portfolio series of the Delaware statutory trust for which we serve as sub-adviser, the fund pays a management fee equal to 1.1% annually, payable quarterly on the first calendar day of each quarter (prior to any distributions to investors) based on the NAV of each investor’s units. Custody and Administrative Fees are deducted from the management fee. BNY Mellon as Trustee and Adviser to the Fund receives 5% of the remaining management fee and we receive 95%. If, in any performance period, the NAV of a series of units equals or exceeds a set threshold amount, we receive an incentive fee for such series equal to 10% of the amount, if any, by which the NAV exceeds the threshold amount.
General Fee Information for All Clients
Should our management services be terminated prior to the actual provision of services for the upcoming period, we will return management fees pro-rata from the date of our termination to the end of the period to which the advance fee covered. Other non-management fees may be assessed, either at the fund or portfolio company level, which include without limitation monitoring fees, transaction fees, break-up fees and directors’ fees. The funds’ offering materials describe the funds’ fee structure and use of such fees. Please consult these materials for further fee details. In addition, each of the private funds or separate accounts we manage may also be subject to additional charges such as custody, brokerage and other transaction costs, administrative, fund director fees and other expenses. Fees are not generally negotiable, though they may be waived or deferred at the discretion of the private fund in accordance with the fund’s offering materials. Such waivers and deferrals will cause some clients or groups of clients to pay fees that are different from the basic fee schedules disclosed in fund offering materials. Please see the applicable private fund’s offering materials for further information regarding fees. As stated above, most of the private funds charge performance fees. Please see Item 6 below for more information on our fund performance fees. Please see Item 12 of this brochure for more information on brokerage. Certain private funds may invest in pooled investment vehicles (e.g. our Structured Credit strategies can invest in CLO notes) that they themselves bear advisory fees and operational expenses such as advisory, transfer agent, distribution, shareholder servicing, networking and recordkeeping fees. The private funds will indirectly bear these fees and expenses as an investor in such pooled investment vehicles and, as a result, the private fund will bear higher expenses than if it invested directly in the securities held by the pooled investment vehicle. We do not charge or receive compensation in connection with the sale of investment products. However, certain employees of our affiliates can accept compensation (also referred to as “commissions”) for the sale of securities, private funds or other investment products that we manage. Currently we have no plans for our employees or supervised persons to accept compensation for the sale of private funds that we manage. Accepting commissions for the sale of such investment products gives rise to a conflict of interest in that it may give our employees an incentive to recommend investment products based on the compensation they will receive, rather than solely on a client’s needs. please register to get more info

Advisers are subject to certain fiduciary standards under federal law and owe clients an affirmative duty of utmost good faith to act solely in the best interests of the client and to make full and fair disclosure of all material facts, particularly where the adviser’s interests may conflict with the client’s best interest. In this section, we describe our performance based fee arrangements and our side-by-side management activities and the inherent conflicts in such arrangements. We have entered into performance-based fee arrangements with some of our clients, in addition to the fees described in Section 5 above. In general, our performance fee is based on the portfolio’s gross return in excess of a high water mark, specified benchmark, hurdle rate or preferred return during a designated period of time. However, variations exist depending on, among other things, the strategy followed. The CLOs we manage may pay a performance fee if specified internal rates of return are achieved. These amounts, if earned, are typically paid at the end of the life of the CLO. Investors in the private funds managed by European Mezzanine and Direct Lending Team pay a share of the profits of the funds’ investments, called “carried interest”, typically up to 20 percent. The remaining 80 percent of the funds’ profits is paid to the funds’ investors. Under this strategy a hurdle rate or preferred return, typically 8 percent, must be achieved before we can receive any carried interest payments. For more detailed information on how performance fees are calculated for our funds under this strategy please refer to the offering documents of such funds. Investors in the private funds managed by the Structured Credit team, in addition to an annual management fee, pay a carried interest, typically 15%-20% over a high water mark during a designated period of time. The high water mark keeps track of the highest level of performance on which carried interest has been paid and which must be exceeded in order for an additional carried interest to be assessed. For more detailed information on how carried interest is calculated, please refer to the offering documents of such funds. Investors in the private fund managed by the Global Special Situations team, in addition to an annual management fee, may, in certain share classes, be subject to an annual performance fee equal to 20% of any increase in the aggregate net asset value of the relevant class of shares (including net realized and unrealized gains and net investment income) over the highest net asset value per share of the relevant class as at the end of the prior calculation period. For more detailed information, please refer to the offering documents of the fund. For the portfolio series of the Delaware statutory trust for which we serve as sub-adviser If, in any performance period, the NAV of a series of units equals or exceeds a set threshold amount, we receive an incentive fee for such series equal to 10% of the amount, if any, by which the NAV exceeds the threshold amount. For some of our multi-credit and other accounts, we charge a performance fee that is typically earned if a specified return is earned and may be subject to a high water mark. Performance fees generally range from 10%-15% and are payable on a quarterly or annual basis in arrears. A portion of the performance fee may be shared with Alcentra NY LLC on accounts for which we provide sub- advisory services. For investments made in other funds managed by Alcentra or its affiliates, a performance fee will not typically be charged on both the fund and the underlying fund in order to prevent a layering of fees. The respective fund offering materials describe the respective fund performance fee structures in more detail. Please consult these materials for further fee details “Side-by-side management” refers to our simultaneous management of multiple types of client accounts/investment products. For example, we manage different types of pooled investment vehicles for clients at the same time. In addition, we manage funds and separate accounts with the same strategy. Our clients have a variety of investment objectives, policies, strategies, limitations and restrictions. Our affiliates likewise manage a variety of separate accounts and pooled investment vehicles. Side-by-side management gives rise to a variety of potential and actual conflicts of interest for us, our employees and our supervised persons. Below we discuss the conflicts that we and our employees and supervised persons face when engaging in side-by-side management and how we deal with them. Note that we manage our accounts consistent with applicable law, and we follow procedures that are reasonably designed to treat our clients fairly and to prevent any client or group of clients from being systematically favored or disadvantaged. For example, we have Trade Allocation Policies and Procedures which are designed and implemented to ensure that all clients are treated fairly and equally, and to prevent these conflicts from influencing the allocation of investment opportunities among clients. Please see Item 12 for an explanation of our Trade Allocation Policies and Procedures.
Conflicts of Interest Relating to Performance Based Fees When Engaging in Side-by-Side
Management
We manage accounts that are charged a performance-based fee and other accounts that are charged a different type of fee, such as a flat asset-based fee. We may have a financial incentive to favor accounts with performance-based fees because we (and our employees and supervised persons) may have an opportunity to earn greater fees on such accounts as compared to client accounts without performance-based fees. Thus, we may have an incentive to direct our best investment ideas to client accounts that pay performance-based fees, and to allocate, aggregate or sequence trades in favor of such accounts. We also may have an incentive to give accounts with performance-based fees better execution and better brokerage commissions. Please see also Item 12.
Conflicts of Interest Relating to the Management of Multiple Client Accounts
We and our affiliates perform investment advisory services for various clients. We may give advice and take action in the performance of our duties with respect to any of our other clients which may differ from the advice given, or the timing or nature of action taken, with respect to another client. We have no obligation to purchase or sell for a client any security or other property which we purchase or sell for our own account or for the account of any other client, if it is undesirable or impractical to take such action. We may give advice or take action in the performance of our duties with respect to any of our clients which may differ from the advice given, or the timing or nature of action taken by our affiliates on behalf of their clients. Further, we may provide discretionary investment advisory services for some clients while providing non-discretionary investment advice for other clients in the same strategy. This creates conflicts including, with respect to the timing of trades and the potential for front-running.
Conflicts of Interest Relating to Accounts with Different Strategies
We and our affiliates manage numerous accounts with a variety of strategies, which may present conflicts of interest. For example, a long/short position in two client accounts simultaneously can result in a loss to one client based on a decision to take a gain in the other. Taking concurrent conflicting positions in certain derivative instruments can likewise cause a loss to one client and a gain to another. Please see also Item 12.
Conflicts of Interest Relating to Investment in Affiliated Accounts
To the extent permissible under applicable law, we may decide to invest some or all of our temporary investments in money market accounts or funds advised or managed by a BNY Mellon affiliate. In addition, we may invest client accounts in affiliated pooled vehicles. For example, our Structured Credit Strategy may purchase notes of CLOs for which we or one of our affiliates serve as investment manager. We have an incentive to allocate investments to these types of affiliated accounts in order to generate additional fees for us or our affiliates. Please see also Item 12.
Conflicts of Interest Relating to “Proprietary Funds”
We, our affiliates, and our existing and future employees may from time to time manage and/or invest in products managed by the Firm (“Proprietary Funds”). Fees or incentive allocations on such investments as well as minimum investment amounts may be reduced or waived altogether in these instances. Furthermore, we or our affiliates or employees have a managerial interest in various Proprietary Funds as a general or managing partner or have an otherwise financial interest, including but not limited to the receipt of management and/or certain performance based fees. The interests of the Firm, our affiliates and employees may be, at times, significant in such Proprietary Funds. Investment by the Firm, our affiliates, or our employees in Proprietary Funds may create conflicts of interest. We may have an incentive to favor these Proprietary Funds by, for example, directing our best investment ideas to these funds or allocating, aggregating or sequencing trades in favor of such funds, to the disadvantage of other funds. We also may have an incentive to dedicate more time and attention to our Proprietary Funds and to give them better execution and brokerage commissions than our other client accounts. Please see also Item 12.
Conflicts of Interest - Relating to use of Affiliates as Administrators and Custodians of Funds
We use affiliate entities as Administrators and Custodians for some of our funds we manage. We could receive superior level of service or inferior and/ or more expensive service than that of an external provider. Information barriers could be breached internally allowing Affiliates access to information about funds and the common parent could use. Please see also Item 12.
Other Conflicts of Interest
As noted previously, we and our affiliates manage numerous accounts with a variety of interests. This necessarily creates potential conflicts of interest for us. For example, we or an affiliate may cause multiple accounts to invest in the same investment. Such accounts may have conflicting interests and objectives in connection with such investment, including differing views on the operations or activities of the portfolio company, the targeted returns for the transaction and the timeframe for and method of exiting the investment. Conflicts may also arise in cases where multiple Firm and/or affiliate client accounts are invested in different parts of an issuer’s capital structure. For example, one of our funds could acquire debt obligations of a company while an affiliate’s account acquires an equity investment. In negotiating the terms and conditions of any such investments, we may find that the interests of the debt-holding client accounts and the equity holding client accounts may conflict. If that issuer encounters financial problems, decisions over the terms of the workout could raise conflicts of interest (including, for example, conflicts over proposed waivers and amendments to debt covenants). For example, debt holding accounts may be better served by a liquidation of an issuer in which it could be paid in full, while equity holding accounts might prefer a reorganization of the issuer that would have the potential to retain value for the equity holders. As another example, holders of an issuer’s senior securities may be able to act to direct cash flows away from junior security holders, and both the junior and senior securities may be held in client accounts. Any of the foregoing conflicts of interest will be discussed and resolved on a case-by-case basis by a committee of the Firm’s senior managers. Any such discussions will factor in the interests of the relevant parties and applicable laws. Please see also Item 12. please register to get more info

We offer investment advisory services to private funds (including CLOs, other private funds, limited partnerships, limited liability companies, private multi-credit funds and private structured credit funds and a publicly listed fund) in addition to separately managed accounts which may include corporate pension and profit sharing plans, public/ governmental pension plans, other U.S. and International institutions (“Professional Clients”).Each private fund has an investment objective and a set of investment policies and/or guidelines that we must follow. . We also provide discretionary advisory services to a portfolio series of a Delaware statutory trust under a sub-advisory agreement with The Bank of New York Mellon, an affiliate of Alcentra.

We also offer investment sub-advisory services to our affiliate Alcentra NY for the benefit of private funds that it manages. Alcentra NY is headquartered in NY and is registered as an investment adviser with the Securities and Exchange Commission. Registration does not imply certain level of skill or training but Alcentra NY has expertise in the U.S. credit market and manages a number of investment vehicles utilizing investment strategies similar to those utilized by the Firm, but generally focusing on U.S. rather than European market.
Account Requirements
Each private fund is required to execute a written agreement with us, granting us authority to manage its assets and setting out minimum and ongoing investment requirements. All such terms are subject to negotiation. Investors in private funds we manage are also subject to minimum and ongoing investment requirements as determined by such funds. Please refer to the offering and subscription documents of such private funds for more specific information.
Account Requirements for Separate Accounts
We require clients to execute a written investment management agreement with us, granting us authority to manage their assets. Generally, client accounts are subject to minimum account sizes in the region of $50m – $100m which vary depending upon the strategy of the account. Account Strategy Minimum Account Size European Loan Structured Credit Global Special Situations Direct Lending High Yield Multi-Strategy We reserve the right to waive the minimum account size requirements.
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We are credit investors and we invest primarily, on behalf of our clients, in the sub-investment grade credit markets. Our objective is to deliver strong, risk-adjusted returns together with capital preservation. Generally, we seek to meet this objective through intensive fundamental research and credit analysis, combined with active portfolio management to minimize “credit” losses. However, our methods of analysis do vary depending on the type of client and the investment strategy selected.

Each client account typically follows one of and/or combination of the following strategies:  European Leveraged Loan Strategy  European Mezzanine Debt Strategy  Global Special Situations Strategy  Structured Credit Strategy  European High Yield Strategy  Direct Lending Strategy  Multi-Credit Strategy

European Leveraged Loan Strategy
This strategy invests in leveraged loans typically originated in Europe. European leveraged loans are corporate loans of below investment grade issuers bearing floating interest rates typically based off either the London Interbank Offering rate (“LIBOR”) or the European Interbank Offered Rate, a widely used floating rate index. These loans are generally senior secured obligations, which are at or near the top of an issuer's capital structure.

Alcentra’s Leveraged Loan Strategy seeks to generate attractive risk adjusted returns by investing in senior secured loans in mostly large, below investment-grade European corporate debt issuers. In addition, the strategy makes selective investments in senior secured and unsecured bonds that offer appealing relative value opportunities. The strategy focuses on investment opportunities in larger capitalization companies typically with annual earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of €50 million and greater, with the greater proportion of investments in companies with EBITDA greater than €$100MM.

The methods of analysis for the European Leveraged Loan Strategy can be divided into three areas: credit analysis, portfolio management and vehicle management: Credit analysis is performed on the individual investments that comprise a portfolio. Investment evaluation is approached from both a top down industry analysis that includes a review of the current economic outlook, observed default trends in the industry and performance drivers specific to that business and a bottom up review of the operating performance, and risk metrics of each company. The credit analysis process incorporates an analyst’s review and screen of the financial fundamentals followed by a quantitative analysis of corporate earnings, cash flow, leverage and more. A qualitative evaluation of product lines, competitive position, management quality and customer base will lead to a presentation to and review by the Firm’s credit committee. Generally the credit committee will assess the relative risks and returns and either reject the investment, ask for additional evaluative analysis and information or approve the credit. Typically following an investment, the credit analyst responsible for the transaction will monitor company and investment performance via discussions and conference calls with management, industry specialists and buy and sell side traders and analysts. The Credit Committee conducts quarterly performance reviews (“QPR”) covering recent performance, changes in outlook and projections, price movements and relative values and changes in risk metrics. The reviews and conclusions drawn from the QPRs are incorporated into portfolio and vehicle management strategies.

Portfolio management is undertaken by the portfolio management team in concert with the investment analysts. Portfolio management entails the creation of a portfolio of individual investments in loans or other assets that aggregate into a total that seeks to match the return objectives and risk characteristic of a particular fund. Our management objective is to create a portfolio of solid, performing loans that generate stable cash interest payments quarter after quarter. Since there is limited opportunity for capital appreciation in par loans, emphasis must be placed on risk mitigation. Here, the portfolio management team uses diversification in industry (including the avoidance of certain perceived at-risk industries), size, location and absolute number to help to reduce the impact of any single event. In the CLOs, the number of individual issuers in a portfolio is typically in the region of 50 names.

Vehicle management is a third critical element in investment management. Each client account has its own risk parameters and return objectives. In CDOs, additional constraints related to spread, industry diversification, price, average ratings, maturity limits, geographic location and a multitude of other tests and limits requires precision in investment buys and sells. Portfolio managers, along with the analyst team and the operations team, work to monitor the tests and constraints in advance of trade allocations with a view to optimizing the risk adjusted returns for the vehicles. This can lead to different investment decisions for the same assets among our funds.
European Mezzanine Debt Strategy
We provide advisory and sub-advisory services (to our affiliate, Alcentra NY), for private funds which have a European Mezzanine Debt strategy. European mezzanine loans are a hybrid floating- rate loan product filling the funding gap between senior secured debt and equity. They typically share collateral with senior secured lenders, albeit in a junior position. Yield is achieved by a combination of cash-pay coupon, rolled-up interest ('Payment-In-Kind' and usually referred to as PIK) and there may also be equity warrants, to achieve a total return. This strategy also invests in PIK loans outright and co-invests in equity securities depending on our view of the transaction and overall returns. Since mezzanine is a higher risk product than senior secured loans, we adopt a more conservative approach when assessing potential investments and the hit-rate of investments made versus opportunities analyzed is significantly lower for mezzanine than for senior secured loans. Each transaction will involve the same detailed due diligence undertaken for new senior loans, although final investment selection will require the Firm to place greater focus on the equity story and exit strategy of the financial sponsor as We believe this will greatly impact the final internal rate of return on the investment.
Global Special Situations Strategy
The Strategy has a mandate to invest on both the long and short side, across the capital structure in a variety of instruments including senior secured and mezzanine debt, common equity (both publicly listed and OTC) as well as high yield bonds and credit default swaps (CDS). High-yield bonds are issued by organizations that do not qualify for "investment-grade" ratings. These assets are generally unsecured, rank behind the senior debt and are mostly issued with a fixed rate coupon. High yield bonds provide a high rate of current income and the potential for capital appreciation. The buying or selling of CDS contracts allow the investor to express a view as to the creditworthiness of the borrower: by entering into such an agreement the risk of default on an obligor’s debt securities is transferred from the buyer of the CDS contract to the seller of the swap, as the buyer becomes entitled to the par value of the bond or loan in the event of a default. The use of such contracts provides the Global Special Situations Strategy with the ability to express both a negative view of an obligor’s creditworthiness, or alternatively hedge its exposure to risk that it may have on the long side. The investment team actively monitors positions and employs disciplined trading in order to manage its risk.

Each member of the Alcentra Global Special Situations team is responsible for the identification and analysis of potentially attractive investment opportunities. If, following preliminary analysis, it is believed the investment fits the fund risk/reward criteria the team will undertake a more thorough review, incorporating a combination of in-depth fundamental and technical analysis. This analysis will include, but will not be limited to: business and industry analysis; contact with the company and discussions with management; financial modelling of the company’s earnings and cash flow; valuation analysis; and legal due diligence associated with the company’s finance documentation. All investment proposals are submitted to the Fund’s Investment Committee for consideration. This Committee is responsible for the approval of any proposal and as part of this process sets limits according to the maximum exposure the Fund can acquire, whether it be on the long or short side, to any particular security.
Structured Credit Strategy
We have entered into joint management agreements with our affiliate, Alcentra NY, pursuant to which Alcentra Limited and Alcentra provide discretionary investment services on the Structured Credit Strategy. The Structured Credit Strategy invests in securities that are secured or collateralized by non-investment grade U.S. and European leveraged loans (collateralized loan obligations or “CLOs”). CLO securities are issued in tranches with different seniorities of security and cash flow, and consequently different credit risks. Cash flows from collateral are used to pay the manager, trustee and other service providers of the transaction and make principal and interest payments to the note holders in the order of seniority (senior notes first, followed by the junior notes). Equity shares are entitled to the residual interest proceeds generated by the collateral; however, this cash flow may be deferred or eliminated since the interests of equity shareholders are subordinated to the interests of holders of other tranches. The rates of interest payments (or “coupons”) on the senior notes are set to be lower than the coupons on the more junior notes, reflecting the lower risk assumed by the senior note holders. Alcentra Limited uses a disciplined approach to investment selection and portfolio management and investment decisions are predicated upon a complete credit analysis. As a general rule, Alcentra Limited and Alcentra NY jointly expect their overall strategy will be to:  purchase effective exposure to credit tranches backed by senior secured leveraged loans, initially at a discount to par looking for upside from eventual repayment at par;  selectively purchase second and lower priority credit tranches with certain key features such as: superior subordination, portfolio quality and favourable language as it relates to over- collaterisation tests; and  employ a disciplined approach to sales.

There is no assurance that Alcentra Limited will adopt this strategy in all circumstances and/or at all times. Alcentra Limited will generally employ a portfolio management strategy that will seek diversification and liquidity.
European High Yield Strategy
The Alcentra High Yield investment process combines top-down, macroeconomic analysis with bottom-up research to identify attractive securities based on proprietary, fundamental research. Our top-down approach includes macroeconomic research to assess the overall risk environment, and determine broad portfolio themes, industry emphasis, and overall portfolio quality. Industry analysis includes identifying the key players within each industry, understanding the evolution and history of the industry, determining what business models are likely to be successful, and participating in key industry events when possible. With this macroeconomic foundation in place, the analysts scour their respective industry universes to identify issuer- and security-level sources of potential alpha. In analyzing a specific company and its fixed income securities, we carefully assess the credit characteristics of each issuer. We thoroughly analyze key variables as they relate to Alcentra High Yield and conduct a comprehensive historical analysis of company operations and financials, including applying financial and scenario analysis of individual issuers. We focus on important leading indicators and measures of profitability, including management quality, free cash flow, financial flexibility, market share, revenue growth, margin trends, and access to capital. To assess the future direction of credit quality, we build our own pro-forma financials based on input/data received from the company, rating agency contacts and other sources. Our analysts also conduct one-on-one meetings with key senior management when possible and attend conferences and teleconferences where we have the opportunity to meet with and get to know management from a large range of issuers within a given industry. Objective: Generally maximized return relative to benchmark index over a 3-5 year market cycle with appropriate amount of risk. Benchmarks: Includes BofA Merrill Lynch Euro High Yield Constrained Index and BofA Merrill Lynch BB-B European Currency Fixed & Floating Rate High Yield Index Investment Universe: Generally non-U.S. high yield and investment grade corporate bonds. The portfolio employs various fixed income derivatives including futures, options, swaps and forward contracts. Alpha Sources: Strategy seeks to add alpha through active management which includes decisions with respect to yield curve management, security selection and sector allocation. Risk: Annualized tracking error is typically between 100-300 basis points. Use of Derivatives in Alcentra High Yield: Except to the extent prohibited or limited by client agreements or guidelines, Alcentra High Yield from time to time includes derivatives in client portfolios. Derivatives typically include, swaps, and in particular credit default swap indexes (CDX), options, FX forwards and futures. Derivatives are used for interest rate and other hedging purposes relating to particular investments or for overall portfolio management. In the absence of a contrary direction in a client account agreement or guideline, Alcentra High Yield does not generally use derivatives for speculative purposes or to create leverage. In using derivatives, Alcentra High Yield takes into account, among other things, structural, operational and counterparty risks, as well as the characteristics of the underlying investment or index.

Cash Management – Alcentra High Yield: Most of our strategies will be fully invested the majority of the time but will use cash for tactical or strategic purposes. We hold some cash balances due to cash flows or limited availability of securities due to market conditions rather than tactical judgments. We will also from time to time hold cash balances as a means of reducing risk in portfolios. We manage cash conservatively. Direct Lending Strategy This strategy seeks to focus on investments in secured loans comprising 1st lien senior, uni-tranche, mezzanine and mezzanine related and equity investments in high quality, middle market, sponsored and unsponsored leveraged transactions in Europe for the European Direct Lending fund and in UK for the UK Direct Lending fund. The funds will target individual transactions with expected gross returns of 8% to 12% per annum for senior investments and gross returns of 9% to 15% per annum for mezzanine investments with an investment horizon of three to four years. Additional returns can be expected from transactions where the fund will also make equity co-investments. The fund aims to maximize its senior first lien exposure, but is able to allocate up to 30% to other investments. Investment Process Alcentra will seek investment opportunities in small and medium sized enterprises that conduct a material part of their business in Europe which have an enterprise value of up to €1,000 million (or equivalent value in local currency), and that have some or all of the following characteristics: (i) profitable track record; (ii) leading and defensible market position; (iii) stable industry; (iv) cash generative business with historically reliable cash flows; (v) asset coverage; (vi) experienced management team; and (vii) where proceeds are to be used for the purpose of directly financing or indirectly benefitting existing or proposed European operations. Alcentra will target portfolio companies with strong fundamentals and high visibility towards full debt repayment, through obtaining structural seniority, and pursuing comprehensive credit analysis, focusing on cash flow generation and asset coverage. Accordingly, Alcentra will typically seek investments with an underlying equity cushion of 40%-60% of the capital structure. Alcentra will focus its credit analysis on the track record of the company, its market position, management team, its underlying assets, and the jurisdictions in which the operations and the debt are located. No investments will be made directly in real estate assets, or asset-backed securities.

Sourcing

The Investment Adviser will originate opportunities in the European mid-market space through several channels including direct approaches from European corporates, banking and sponsor relationships, and debt advisory firms across Europe. As one of the largest sub-investment grade debt investors, Alcentra has relationships with a broad number of advisory firms.

The team will proactively market the Fund’s capabilities directly to businesses through local business networks, local banking relationships, and local accounting and advisory groups.

Credit analysis is primarily undertaken by the DL investment team, and they will supplement their work by working with the broader Alcentra analyst team of industry-focused and specialist analysts with in-depth industry knowledge. Analysts rely on extensive proprietary information and industry knowledge gathered from the firm’s investments up to 300 European issuers at any given time, combined with the detailed third party due diligence to ensure that the key questions and risks associated with that sector and the company are identified. The analysts complete an assessment of the likely performance of the company and its markets, the strength of its management and market positions, the security of the investment, alignment of interest with the financial sponsor or owner and their ability to manage the company to a successful exit or through a business cycle. The due diligence process also includes an in-depth analysis of the optimal structure for the investment and documentation in order to obtain adequate risk/return characteristics. The due diligence process consists of three stages: Stage 1- Initial Due Diligence An Alcentra analyst will prepare an initial report to be submitted to the Investment Committee in order to determine the suitability of the asset for inclusion in the Fund's portfolio Stage 2- in depth Due Diligence Review If the General Partner gives its preliminary approval to the potential investment, the responsible analyst will perform (within the parameters set by the General Partner) more in-depth due diligence as needed to confirm or reject the investment,

Stage 3-Execution Phase Once the General Partner has made the final decision to invest, the analyst will continue to work with legal counsel and the General Partner to finalise all loan documentation from a legal and commercial perspective.
Multi-Credit Strategy
Alcentra provides discretionary investment services to private funds with multi-credit strategies. These private funds seek to invest in multiple credit strategies and will generally be divided into sleeves for each of the underlying strategies. Portfolio management for specific sleeves may be delegated to our affiliate, Alcentra NY LLC, under a sub-advisory agreement. Alcentra allocates to the sleeves based on its analysis of the relative attractiveness of the underlying strategies and the investment program of the fund. Sleeve allocation determinations are led by the Global Chief Investment Officer and, for some clients, may involve an investment committee. Depending on the investment program of the fund, investments may be made directly into specific assets within the respective strategies and/or into other funds managed by Alcentra or our affiliate, Alcentra NY LLC. Direct investments into specific assets are made using the method of analysis that has been established for the relevant strategy. Alcentra typically re-evaluates its sleeve allocations at least quarterly or more frequently if conditions warrant.

Alcentra provides discretionary sub-investment services to a private fund with a multi-credit strategy and a separately managed account. The private fund is divided into sleeves for each of the underlying strategies. Portfolio management for specific sleeves is delegated to from our affiliate, Alcentra Limited, under a sub-advisory agreement. Each sleeve of a multi-credit account managed under a sub-advisory agreement utilizes the investment process of the underlying strategy described above.
Table of Risks
An “X” in the table indicates that the strategy involves the corresponding risk. An empty box indicates that the strategy does not involve the corresponding risk in a material way. However, an empty box does not guarantee that the strategy will not be subject to the corresponding risk. The risks set forth below represent a general summary of the material risks involved in the investment strategies we offer. Following the table we provide a description of each of these risks. In addition, investors in our private funds must also read the “Risk Factors” section in the offering documents for a more detailed discussion of the risks involved in such funds. In the case of a
conflict between these risks and those in the offering documents, the offering documents will
control.
Risk Type
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General Risk X X X X X X X Allocation Risk X X X Asian Emerging Market Risk X Bank Loans and Participations Risk X X X Banking Industry Risk X Call Risk X X X X X X Closed-End Investment Companies X X Convertible Securities Risk X X X Corporate and Other Debt Obligations X X X X X X X Counterparty Creditworthiness X X X X Counterparty Risk X X X X Country/Sector Allocation Risk X X X X X X X Country, Industry and Market Sector X X X X Credit Default Swaps (CDS) X X X X Credit Risk X X X X X X X Derivative Risk X X X Emerging Market Risk – Fixed Income X X Floating Rate Loan Risk X X X X X X X Fixed-Income Market Risk X X X X X X X Forward Foreign Currency Exchange Transactions X X X X Foreign Currency Risk X X X X Foreign Government obligations and securities of supranational entities risk X X Foreign Investment Risk X X X X Futures Contracts X X X X Government Securities Risk X X Health Care Sector Risk X X X High-Yield Bond Risk X X X X X Interest Rate Risk X X X X X X X Investment Strategy Risk X X X X Issuer Risk X X X X X X X Lender Liability Considerations/ Equitable Subordination X X X X Leverage Risk X X X X X X X Liquidity Risk X X X X X X X Loan Valuation X X X X X X Management Conflicts risk X X X X X X X Market Risk X X X X X X X Market Sector X X X X Micro-Cap Company Risk X X X X Midsize Company X X X X X X Non- Diversification Risk X X X X Participation Interests and assignment Risks X X X X X X Preferred Stock Risk X X X X Pre-Payment Risk X X X X X X X Subordinated Securities Risk X X X X X X X Systemic Risk X X US Government Securities X X Warrants and Rights Risks X X X When Issued and Delayed Securities X X  General Risks. Each investment strategy we offer invests in a variety of securities and employs a number of investment techniques that involve certain risks. Investments involve risk of loss that clients [and investors in our Funds] should be prepared to bear. We do not guarantee or represent that our investment program will be successful. Our past results are not necessarily indicative of our future performance and our investment results may vary over time. We cannot assure you that our investments of your money will be profitable, and in fact, you could incur substantial losses. Your investments with us are not a bank deposit and are not insured or guaranteed by the FDIC or any other government agency.  Allocation risk. The asset classes in which the strategy seeks investment exposure can perform differently from each other at any given time (as well as over the long term), so the strategy will be affected by its allocation among the various asset classes. If the strategy favors exposure to an asset class during a period when that class underperforms, performance may be hurt.  Asian Emerging Market Risk. Many Asian economies are characterized by over-extension of credit, frequent currency fluctuations, devaluations and restrictions, rising unemployment, rapid fluctuations in inflation, reliance on exports, and less efficient markets. Currency devaluation in one Asian country can have a significant effect on the entire region. The legal systems in many Asian countries are still developing, making it more difficult to obtain and/or enforce judgments. Furthermore, increased political and social unrest in some Asian countries could cause economic and market uncertainty throughout the region. The auditing and reporting standards in some Asian emerging market countries may not provide the same degree of shareholder/investor protection or information to investors as those in developed countries. In particular, valuation of assets, depreciation, exchange differences, deferred taxation, contingent liability and consolidation may be treated differently than under the auditing and reporting standards of developed countries.  Bank Loans and Participations. Bank loans and derivatives of bank loans and participations are subject to unique risks, including: (i) the possible invalidation of an investment transaction as a fraudulent conveyance under relevant creditors' rights laws; (ii) so-called lender liability claims by the issuer of the obligations; (iii) environmental liabilities that may arise with respect to collateral securing the obligations; and, (iv) limitations on the ability of the strategy to directly enforce its rights with respect to participations. In analyzing each bank loan assignment or swap, we must compare the relative significance of the risks against the expected benefits of the investment. Successful claims by third parties arising from these and other risks will be borne by the investors.  Banking Industry Risk. The risks generally associated with concentrating investments in the banking industry, such as interest rate risk, credit risk, and regulatory developments relating to the banking industry.  Call Risk. Some bonds / mezzanine debt instruments (collectively “bonds”) give the issuer the option to call, or redeem, the bonds before their maturity date. If an issuer “calls” its bond during a time of declining interest rates, the strategy might have to reinvest the proceeds in an investment offering a lower yield, and therefore might not benefit from any increase in value as a result of declining interest rates. During periods of market illiquidity or rising interest rates, prices of “callable” issues are subject to increased price fluctuation.  Closed-end Investment Companies – Valuation Risk. The interests of a closed-end investment company at times trade above (a premium) or below (a discount) the net asset value of such entity’s portfolio. At times, discounts could widen or premiums could shrink either diluting positive performance or compounding negative performance. There is no assurance that discounted entities will appreciate to their net asset value.  Convertible Securities Risk. Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer. Although to a lesser extent than with fixed-income securities, the market values of convertible securities tend to decline as interest rates increase. In addition, because of the conversion feature, the market values of convertible securities tend to vary with fluctuations in the market value of the underlying common stock. Although convertible securities are designed to provide for a stable stream of income, they are subject to the risk that their issuers may default on their obligations. Convertible securities also offer the potential for capital appreciation through the conversion feature, although there can be no assurance of capital appreciation because securities prices fluctuate. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital appreciation.  Corporate and Other Debt Obligations. Corporate and other debt obligations, including commercial paper, are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations.  Counterparty Creditworthiness. Under certain conditions, a counterparty to a transaction could default and the market for certain securities or financial instruments in which the counterparty deals may become illiquid.  Counterparty Risk. The risk that a counterparty in a repurchase agreement or other derivative investment could fail to honor the terms of its agreement.  Country Industry and Sector Allocation Risk. While the portfolio managers use the country and sector weightings of the strategy’s benchmark index as a guide in structuring the strategy’s portfolio, they may overweight or underweight certain countries or sectors relative to the index. This may cause the strategy’s performance to be more or less sensitive to developments affecting those countries or sectors.  Country, Industry and Market Sector Risk. The strategy may be overweighted or underweighted, relative to the selected benchmark in companies in certain countries, industries or market sectors, which may cause the strategy’s performance to be more or less sensitive to positive or negative developments affecting these countries, industries or sectors. In addition, the strategy can, from time to time, invest a significant portion (more than 25%) of its total assets in securities of companies located in particular countries, such as the United Kingdom and Japan, depending on such country’s representation within the client’s selected benchmark.  Credit Default Swaps (“CDS”). The "buyer" in a credit default contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract provided that no event of default on an underlying obligation has occurred. If a "credit event" occurs, the seller must pay the buyer the full notional value, or "par value," of the obligation. CDS transactions are either "physical settled" or "cash settled." Physical settlement entails the actual delivery by the buyer of the reference asset to the seller in exchange for the payment of the full par value of the reference asset. Cash settled entails a net cash payment from the seller to the buyer based on the difference of the par value of the reference asset and the current market value of the reference asset. The portfolio may be either the buyer or seller in a CDS transaction. CDS can be used to address the perception of the client that a particular credit, or group of credits, may experience credit improvement or deterioration. In the case of expected credit improvement, the portfolio may sell credit default protection in which it receives a premium to take on the risk. In such an instance, the obligation of the portfolio to make payments upon the occurrence of a credit event creates leveraged exposure to the credit risk of the referenced entity. The portfolio may also buy credit default protection with respect to a reference entity if there is a high likelihood of perceived credit deterioration or for risk management purposes. In such instance, the portfolio will pay a premium regardless of whether there is a credit event. If the portfolio is a buyer and no credit event occurs, the portfolio will have made a series of periodic payments and recover nothing of monetary value. However, if a credit event occurs, the portfolio (if the buyer) will receive the full notional value of the reference obligation either through a cash or physical settlement. As a seller, the portfolio receives a fixed rate of income throughout the term of the contract, which typically is between six months and five years (but may be longer), provided that there is no credit event. CDS transactions involve greater risks than if the portfolio had invested in the reference obligation directly. The CDS market in high yield securities is comparatively new and rapidly evolving compared to the CDS market for more seasoned and liquid investment-grade securities, creating the risk that the newer markets will be less liquid and be difficult to exit or enter into a particular transaction.  Credit Risk. Failure of an issuer to make timely interest or principal payments when due, or a decline or perception of a decline in the credit quality of a security, can cause a security’s price to fall, lowering the value of the portfolio’s investment in such security. The lower the security’s credit rating, the greater the chance the issuer of the security will default or fail to meet its payment obligations. See also “High Yield Securities Risk.”  Cybersecurity Risk. In addition to the risks described in this section that primarily relate to the value of investments, there are operational, systems, information security and related risks involved in investing, including but not limited to “cybersecurity” risk. An Information breach, which occurs through the malicious use or misuse of computer(s) or computer networks, that results in an actual or potential adverse effect on an information system and/or the information residing therein, and/or their intended behaviour of the information system. This also includes information represented in a physical form as well as electronic. Information and Cybersecurity attacks that include but are not limited to gaining unauthorized access to digital systems to obtain client and financial information, compromising the integrity of systems and client data (e.g., misappropriation of assets or sensitive information), or causing operational disruption through taking systems off-line (e.g., denial of service attacks). As the use of technology has become more prevalent, we and the client accounts we manage have become potentially more susceptible to operational risks through information and cybersecurity attacks. These attacks in turn could cause us and client accounts (including funds) we manage to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures, and/or financial loss. Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities in which we invest, counterparties with which we engage in transactions, third-party service providers (e.g., a client account’s custodian), governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers and other financial institutions and other parties. While cybersecurity risk management systems and business continuity plans have been developed and are designed to reduce the risks associated with these attacks, there are inherent limitations in any information and cybersecurity risk management system or business continuity plan, including the possibility that certain risks have not been identified. Accordingly, there is no guarantee that such efforts will succeed, especially since we do not directly control the information and cybersecurity systems of issuers or third-party service providers.  Derivatives Risk. A small investment in derivatives could have a potentially large impact on a strategy’s’ performance. The use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets, and the use of derivatives may result in losses. Derivatives in which we may invest can be highly volatile, illiquid and difficult to value, and there is the risk that changes in the value of a derivative held by the strategy will not correlate with the underlying instruments or the strategy’s other investments in the manner intended. Derivative instruments also involve the risk that a loss is sustained as a result of the failure of the counterparty to the derivative instruments to make required payments or otherwise comply with the derivative instruments’ terms. As many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, reference rate or index can result in a loss substantially greater than the amount invested in the derivative itself on its nominal value. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Certain types of derivatives, including swap agreements, forward contracts and other over-the-counter transactions, involve greater risks than the underlying obligations because, in addition to general market risks, they are subject to illiquidity risk, counterparty risk, credit risk and pricing risk. Additionally, some derivatives involve economic leverage, which could increase the volatility of these investments as they fluctuate in value more than the underlying instrument. See also “Leverage Risk.”  Emerging Market Risk – Fixed Income. The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The fixed income securities of issuers located in emerging markets can be more volatile and less liquid than those of issuers in more mature economies. In addition, such securities often are considered to be below investment grade credit quality and predominantly speculative.  Floating Rate Loan Risk. Unlike publicly traded common stocks which trade on national exchanges, there is no central place or exchange for loans to trade. Loans trade in an over-the- counter market, and confirmation and settlement, which are effected through standardized procedures and documentation, may take significantly longer than seven days to complete. Loans trade in an over-the-counter market and are confirmed and settled through standardized procedures and documentation Extended trade settlement periods may, in unusual market conditions with a high volume of shareholder redemptions, present a risk to shareholders regarding the fund's ability to pay redemption proceeds within the allowable time periods stated in this prospectus. The secondary market for floating rate loans also may be subject to irregular trading activity and wide bid/ask spreads. The lack of an active trading market for certain floating rate loans may impair the ability of the portfolio to realize full value in the event of the need to sell a floating rate loan and may make it difficult to value such loans. There may be less readily available, reliable information about certain floating rate loans than is the case for many other types of securities, and the strategy’s portfolio managers may be required to rely primarily on their own evaluation of a borrower's credit quality rather than on any available independent sources. The value of collateral, if any, securing a floating rate loan can decline, and may be insufficient to meet the issuer's obligations in the event of non-payment of scheduled interest or principal or may be difficult to readily liquidate. In the event of the bankruptcy of a borrower, the portfolio could experience delays or limitations imposed by bankruptcy or other insolvency laws with respect to its ability to realize the benefits of the collateral securing a loan. The floating rate loans in which the portfolio invests typically will be below investment grade quality and, like other below investment grade securities, are inherently speculative. As a result, the risks associated with such floating rate loans are similar to the risks of below investment grade securities, although senior loans are typically senior and secured in contrast to other below investment grade securities, which are often subordinated and unsecured. Floating rate loans may not be considered to be "securities" for purposes of the anti-fraud protections of the federal securities laws, including those with respect to the use of material non-public information, so that purchasers, such as the fund, may not have the benefit of these protections.  Fixed-income market risk. The market value of a fixed-income security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The fixed-income securities market can be susceptible to increases in volatility and decreases in liquidity. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates), which are at or near historic lows in the United States and in other countries. During periods of reduced market liquidity, the fund may not be able to readily sell fixed-income securities at prices at or near their perceived value. If the portfolio needed to sell large blocks of fixed-income securities to meet redemption requests or to raise cash, those sales could further reduce the prices of such securities. An unexpected increase in portfolio redemption requests, including requests from investors who may own a significant percentage of the portfolio, which may be triggered by market turmoil or an increase in interest rates, could cause the portfolio to sell its holdings at a loss or at undesirable prices and adversely affect the portfolio's price and increase the portfolio's liquidity risk, portfolio expenses and/or taxable distributions. Economic and other market developments can adversely affect fixed-income securities markets. Regulations and business practices, for example, have led some financial intermediaries to curtail their capacity to engage in trading (i.e., "market making") activities for certain fixed-income securities, which could have the potential to decrease liquidity and increase volatility in the fixed- income securities markets. Policy and legislative changes worldwide are affecting many aspects of financial regulation. The impact of these changes on the markets, and the practical implications for market participants, may not be fully known for some time.  Forward Foreign Currency Exchange Transactions. We engage in spot transactions and use forward contracts for investment purposes and to protect against uncertainty in the level of future exchange rates. For example, these portfolios use forward contracts in connection with existing portfolio positions to lock in the U.S. dollar value of those positions, to increase a portfolio’s exposure to foreign currencies that rise in value relative to the U.S. dollar or to shift the portfolio’s exposure to foreign currency fluctuations from one country to another. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. Accordingly, it may be necessary for a portfolio to purchase additional foreign currency on the spot (that is, cash) market and bear the expense of such purchase if the market value of the security is less than the amount of foreign currency the portfolio is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the portfolio is obligated to deliver. Per current market convention, Alcentra typically does not employ ISDAs for foreign currency exchange transactions with maturities less than 3 months. In order to minimize risk, we roll these contracts monthly.  Foreign Currency Risk. Investments in foreign currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or in the case of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. Currency exchange rates can fluctuate significantly over short periods of time. A decline in the value of foreign currencies relative to the U.S. dollar will reduce the value of securities held by the strategy and denominated in those currencies. Foreign currencies are also subject to risks caused by inflation, interest rates, budget deficits and low savings rates, political factors and government controls.  Foreign Government Obligations and Securities of Supranational Entities Risk. Investing in the sovereign debt of emerging market countries creates exposure to the direct or indirect consequences of political, social or economic changes in the countries that issue the securities or in which the issuers are located. The ability and willingness of sovereign obligors in emerging market countries or the governmental authorities that control repayment of their debt to pay principal and interest on such debt when due depends on general economic and political conditions within the relevant country. Certain countries in which the strategy may invest have historically experienced, and may continue to experience, high rates of inflation, high interest rates and extreme poverty and unemployment. Some of these countries are also characterized by political uncertainty or instability. Additional factors which influence the ability or willingness to service debt include a country’s cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the relative size of its debt service burden to the economy as a whole and its government’s policy towards the International Monetary Fund (“IMF”), the International Bank for Reconstruction and Development (“IBRD”) and other international agencies. The ability of a foreign sovereign obligor to make timely payments on its external debt obligations also will be strongly influenced by the obligor’s balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and the extent of its foreign reserves. A governmental obligor may default on its obligations. Some sovereign obligors in emerging market countries have been among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. These obligors, in the past, have experienced substantial difficulties in servicing their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness.  Foreign Investment Risk. Special risks associated with investments in foreign companies include exposure to currency fluctuations, less liquidity, less developed or less efficient trading markets, lack of comprehensive company information, political or economic instability, seizure or nationalization of assets, imposition of taxes or repatriation restrictions and differing auditing and legal standards. The securities of issuers located in emerging markets can be more volatile and less liquid than those of issuers in more mature economies.  Futures Contracts. Futures contracts generally provide a high degree of liquidity and a low level of counterparty performance and settlement risk. While the use of futures contracts by a portfolio can amplify a gain, it can also amplify a loss. This loss can be substantially more money than the initial margin posted by the portfolio pursuant to the contracts. There is no assurance of market liquidity for futures contracts, whether traded on an exchange or in the over-the-counter market and, as a result, there may be times where a portfolio would not be able to close a future investment position when it wanted to do so. Upon entering into a futures transaction, a portfolio will generally be required to deposit an initial margin payment with the futures commission merchant (the “futures broker”). The initial margin payment will be deposited with a portfolio’s custodian in an account registered in the futures broker’s name; however, the futures broker can gain access to that account only under specified conditions. As the future is marked-to-market to reflect changes in its market value, subsequent margin payments, called variation margin, will be paid to or by the futures broker on a daily basis. Prior to expiration of the future, if a portfolio elects to close out its position by taking an opposite position, a final determination of variation margin is made, additional cash is required to be paid by or released to the portfolio, and any loss or gain is realized for tax purposes. Position limits also apply to futures traded on an exchange. An exchange can order the liquidation of positions found to be in violation of those limits and may impose certain other sanctions. Initial margin is posted to a collateral pool which may be used to cover third-party liabilities in an event of default by a clearing broker or a major clearing broker’s client.  Government Securities Risk. Not all obligations of the U.S. government’s agencies and instrumentalities are backed by the full faith and credit of the U.S. Treasury. Some obligations are backed only by the credit of the issuing agency or instrumentality, and in some cases there is some risk of default by the issuer. Any guarantee by the U.S. government or its agencies or instrumentalities of a security held by the strategy does not apply to the market value of such security. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. In addition, because many types of U.S. government securities trade actively outside the United States, their prices rise and fall as changes in global economic conditions affect the demand for these securities.  Health Care Sector Risk. For investments focused in the health care and related sectors, the value of your investment will be affected by factors particular to those sectors and may fluctuate more widely than that of a strategy which invests in a broad range of industries. Health care companies are subject to government regulation and approval of their products and services, which can have a significant effect on their market price. The types of products or services produced or provided by these companies may quickly become obsolete. Moreover, liability for products that are later alleged to be harmful or unsafe can be substantial, and have a significant impact on the health care company’s market value and/or share price. Biotechnology and related companies are affected by patent considerations, intense competition, rapid technology change and obsolescence, and regulatory requirements of various federal and state agencies. In addition, some of these companies are relatively small and have thinly traded securities, not yet offer products or offer a single product, and have persistent losses during a product’s transition from development to production, or erratic revenue patterns. The stock prices of these companies are very volatile, particularly when their products are up for regulatory approval and/or under regulatory scrutiny.  High-Yield Bond Risk. High yield (“junk”) bonds involve greater credit risk, including the risk of default, than investment grade bonds, and are considered predominantly speculative with respect to the issuer’s ability to make principal and interest payments. The prices of high-yield bonds can fall dramatically in response to bad news about the issuer, its industry, or the economy in general.  Interest Rate Risk. Prices of debt securities, and particularly fixed rate debt securities, tend to move inversely with changes in interest rates. Typically, a rise in rates will adversely affect the prices of these securities and, accordingly, the value of your investment. The longer the effective maturity and duration of the strategy’s portfolio, the more the value of your investment is likely to react to interest rates.  Investment Strategy Risk. The strategy's sustainability investment criteria may limit the number of investment opportunities available to the strategy, and, as a result, at times the strategy's returns may be lower than those of strategies that are not subject to such special investment considerations.  Issuer Risk. The value of a security or investment may decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s products or services.  Lender Liability Considerations/Equitable Subordination. In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, including equitable subordination (collectively termed “lender liability”). Generally, lender liability is founded upon the premise that the institutional lender has violated a duty (whether implied or contractual) of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower. Funds that we manage, as a creditor, may be subject to allegations of lender liability. Furthermore, funds may be unable to control the conduct of the other lenders under a loan syndication agreement requiring less than a unanimous vote, yet funds may be subject to lender liability for such conduct.  Leverage Risk. The companies in which client accounts will invest expect to employ considerable leverage, a significant portion of which may be at floating interest rates. The leveraged capital structure of the companies will increase the sensitivity of client accounts’ investments to any deterioration in a company’s revenues, condition or industry, competitive pressures, an adverse economic environment or rising interest rates. In the event any such company cannot generate adequate cash flow to meet debt service, client accounts may suffer a partial or total loss of capital invested in the company, which could adversely affect client account returns.  Liquidity Risk. When there is little or no active trading market for specific types of securities or other instruments, it can become more difficult to sell the securities or other instruments at or near their perceived value. In such a market, the value of such securities or other instruments and the value of your investment may fall dramatically, even during periods of declining interest rates. Liquidity risk also exists when a particular derivative instrument is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with many privately negotiated derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.  Loan Valuation Risk. Because there may be a lack of centralized information and trading for certain loans in which we may invest, reliable market value quotations may not be readily available for such loans and their valuation may require more research than for securities with a more developed secondary market. Moreover, the valuation of such loans may be affected by uncertainties in the conditions of the financial market, unreliable reference data, lack of transparency and inconsistency of valuation models and processes.  Management Conflicts Risk. The adviser and its affiliates may participate in the primary and secondary market for loan obligations. Because of limitations imposed by applicable law, the presence of the adviser and its affiliates in the loan obligations market may restrict the Firm’s ability to acquire some loan obligations or affect the timing or price of such acquisitions. The Firm and its affiliates engage in a broad spectrum of financial services and asset management activities in which their interests or the interests of their clients may conflict with those of the fund. In addition, because of the financial services and asset management activities of the Firm and its affiliates, the Firm may not have access to material non-public information regarding the borrower to which other lenders have access.  Market Risk. The market value of a security or investment may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of a security or investment may also decline because of factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.  Market Sector Risk. A given strategy may significantly overweight or underweight certain companies, industries or market sectors, which may cause the strategy’s performance to be more or less sensitive to developments affecting those companies, industries or sectors.  Micro-Cap Company Risk. Micro-Cap stocks may offer greater opportunity for capital appreciation than the stocks of larger and more established companies; however, they also involve substantially greater risks of loss and price fluctuations. Micro-Cap companies carry additional risks because their earnings and revenues tend to be less predictable (and some companies may be experiencing significant losses), and their share prices tend to be more volatile and their markets less liquid than companies with larger market capitalizations. Micro-Cap companies may be newly formed or in the early stages of development, with limited product lines, markets or financial resources, and may lack management depth. In addition, there may be less public information available about these companies. The shares of micro-cap companies tend to trade less frequently than those of larger, more established companies, which can adversely affect the pricing of these securities and the Firm’s ability to sell these securities. Also, it may take a long time before the value of your investment realizes a gain, if any, on an investment in a micro-cap company.  Midsize Company Risk. Midsize companies carry additional risks because the operating histories of these companies te please register to get more info