FS KKR Capital Corp. II - FORM 10-Q

FS KKR Capital Corp. II - FORM 10-Q - August 14, 2015

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FS KKR Capital Corp. II Reports

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EX-31.1 - EX-31.1 - FS KKR Capital Corp. II	d70781dex311.htm
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EX-32.1 - EX-32.1 - FS KKR Capital Corp. II	d70781dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-00926

FS Investment Corporation II

(Exact name of registrant as specified in its charter)

Maryland

80-0741103

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


201 Rouse Boulevard
Philadelphia, Pennsylvania		19112
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (215) 495-1150

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The issuer had 318,431,767 shares of common stock outstanding as of August 3, 2015.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014		1
	Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014		2
	Unaudited Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2015 and 2014		3
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014		4
	Consolidated Schedules of Investments as of June 30, 2015 (Unaudited) and December 31, 2014		5
	Notes to Unaudited Consolidated Financial Statements		29
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		67
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		92
ITEM 4.	CONTROLS AND PROCEDURES		93

PART II—OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		94
ITEM 1A.	RISK FACTORS		94
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		95
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		95
ITEM 4.	MINE SAFETY DISCLOSURES		95
ITEM 5.	OTHER INFORMATION		95
ITEM 6.	EXHIBITS		95
	SIGNATURES		101

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

FS Investment Corporation II

Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	June 30, 2015 (Unaudited)			December 31, 2014
Assets
Investments, at fair value—unaffiliated (amortized cost—$4,629,204 and $4,409,806, respectively)	$	4,582,788		$	4,396,228
Investments, at fair value—affiliated (amortized cost—$83,726 and $0, respectively)		85,600			—
Cash		386,880			224,583
Collateral held at broker for open credit default swap contracts		—			37,951
Receivable for investments sold and repaid		13,724			3,698
Interest receivable		43,567			56,320
Deferred financing costs		9,693			7,728
Prepaid expenses and other assets		165			1
Receivable on credit default swaps		—			62

Total assets	$	5,122,417		$	4,726,571

Liabilities
Payable for investments purchased	$	24,673		$	84,272
Repurchase agreements payable⁽¹⁾		924,506			625,400
Credit facilities payable		1,141,794			1,015,794
Stockholder distributions payable		19,998			9,085
Management fees payable		22,063			23,069
Subordinated income incentive fees payable⁽²⁾		25,095			15,334
Administrative services expense payable		1,899			1,845
Interest payable		9,811			6,882
Directors’ fees payable		221			262
Unamortized swap premiums received		—			10,622
Unrealized depreciation on credit default swaps		—			19,426
Other accrued expenses and liabilities		2,146			2,790

Total liabilities		2,172,206			1,814,781

Commitments and contingencies⁽³⁾

Stockholders’ equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.001 par value, 450,000,000 shares authorized, 317,161,430 and 313,037,127 shares issued and outstanding, respectively		317			313
Capital in excess of par value		2,953,110			2,914,177
Accumulated undistributed net realized gains (losses) on investments and credit default swaps and gain/loss on foreign currency⁽⁴⁾		(23,410	)		8,168
Accumulated undistributed net investment income⁽⁴⁾		64,623			22,143
Net unrealized appreciation (depreciation) on investments and credit default swaps and unrealized gain/loss on foreign currency		(44,429	)		(33,011	)

Total stockholders’ equity		2,950,211			2,911,790

Total liabilities and stockholders’ equity	$	5,122,417		$	4,726,571

Net asset value per share of common stock at period end	$	9.30		$	9.30

(1)	See Note 8 for a discussion of the Company’s repurchase transactions.

(2)	See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.

(3)	See Note 10 for a discussion of the Company’s commitments and contingencies.

(4)	See Note 5 for a discussion of the sources of distributions paid by the Company.

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Investment income
Interest income—unaffiliated	$	128,187		$	80,066		$	235,851		$	148,650
Interest income—affiliated		1,195			—			1,195			—
Fee income—unaffiliated		31,532			18,924			39,238			31,405
Fee income—affiliated		1,482			—			1,482			—
Dividend income—unaffiliated		5,434			526			5,804			526

Total investment income		167,830			99,516			283,570			180,581

Operating expenses
Management fees⁽¹⁾		25,214			19,849			49,440			37,490
Capital gains incentive fees⁽²⁾		—			6,387			—			12,321
Subordinated income incentive fees⁽²⁾		25,095			9,679			40,308			9,679
Administrative services expenses		1,140			1,216			2,216			2,590
Stock transfer agent fees		677			850			1,018			1,700
Accounting and administrative fees		429			350			856			667
Interest expense		16,486			7,252			29,705			13,153
Directors’ fees		224			279			412			458
Other general and administrative expenses		1,342			1,101			2,393			2,270

Operating expenses		70,607			46,963			126,348			80,328
Management fee waiver⁽¹⁾		(3,151	)		—			(4,002	)		—

Net expenses		67,456			46,963			122,346			80,328

Net investment income		100,374			52,553			161,224			100,253

Realized and unrealized gain/loss
Net realized gain (loss) on investments—unaffiliated		(14,081	)		(2,815	)		(11,696	)		(210	)
Net realized gain (loss) on credit default swaps		—			—			(19,588	)		—
Net realized gain (loss) on foreign currency		(269	)		2			(294	)		6
Net change in unrealized appreciation (depreciation) on investments—unaffiliated		(31,626	)		34,748			(32,837	)		61,807
Net change in unrealized appreciation (depreciation) on investments—affiliated		1,873			—			1,873			—
Net change in unrealized appreciation (depreciation) on credit default swaps		—			—			19,426			—
Net change in unrealized gain (loss) on foreign currency		191			(10	)		120			(10	)

Total net realized and unrealized gain (loss) on investments		(43,912	)		31,925			(42,996	)		61,593

Net increase (decrease) in net assets resulting from operations	$	56,462		$	84,478		$	118,228		$	161,846

Per share information—basic and diluted⁽³⁾
Net increase (decrease) in net assets resulting from operations (Earnings per Share)	$	0.18		$	0.28		$	0.38		$	0.55

Weighted average shares outstanding		316,126,500			305,302,628			314,885,356			293,671,272

(1)	See Note 4 for a discussion of the waiver by FSIC II Advisor, LLC, the Company’s investment adviser, of certain management fees to which it was otherwise entitled during the applicable period.

(2)	See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees and subordinated income incentive fees.

(3)	The weighted average shares used in the per share computation of the net increase (decrease) in net assets resulting from operations is based on the weighted average shares outstanding during the applicable period.

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Statements of Changes in Net Assets

(in thousands)


	Six Months Ended June 30,
	2015			2014
Operations
Net investment income	$	161,224		$	100,253
Net realized gain (loss) on investments, credit default swaps and foreign currency		(31,578	)		(204	)
Net change in unrealized appreciation (depreciation) on investments		(30,964	)		61,807
Net change in unrealized appreciation (depreciation) on credit default swaps		19,426			—
Net change in unrealized gain (loss) on foreign currency		120			(10	)

Net increase (decrease) in net assets resulting from operations		118,228			161,846

Stockholder distributions⁽¹⁾
Distributions from net investment income		(118,744	)		(106,878	)

Net decrease in net assets resulting from stockholder distributions		(118,744	)		(106,878	)

Capital share transactions⁽²⁾
Issuance of common stock		—			442,395
Reinvestment of stockholder distributions		52,801			56,392
Repurchases of common stock		(13,864	)		(4,830	)
Offering costs		—			(1,686	)

Net increase in net assets resulting from capital share transactions		38,937			492,271

Total increase in net assets		38,421			547,239
Net assets at beginning of period		2,911,790			2,390,985

Net assets at end of period	$	2,950,211		$	2,938,224

Accumulated undistributed (distributions in excess of) net investment income⁽¹⁾	$	64,623		$	(16,608	)

(1)	See Note 5 for a discussion of the sources of distributions paid by the Company.

(2)	See Note 3 for a discussion of transactions with respect to shares of the Company’s common stock during the six months ended June 30, 2015 and 2014.

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Statements of Cash Flows

(in thousands)


	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	118,228		$	161,846
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Purchases of investments		(1,116,563	)		(1,755,780	)
Paid-in-kind interest		(6,035	)		(3,797	)
Proceeds from sales and repayments of investments		831,697			720,033
Net realized (gain) loss on investments		11,696			210
Net change in unrealized (appreciation) depreciation on investments		30,964			(61,807	)
Net change in unrealized (appreciation) depreciation on credit default swap		(19,426	)		—
Accretion of discount		(23,919	)		(6,975	)
Amortization of deferred financing costs		2,073			761
(Increase) decrease in collateral held at broker for open swap contracts		37,951			—
(Increase) decrease in receivable for investments sold and repaid		(10,026	)		11,706
(Increase) decrease in interest receivable		12,753			(13,825	)
(Increase) decrease in receivable for credit default swaps		62			—
(Increase) decrease in prepaid expenses and other assets		(164	)		(91	)
Increase (decrease) in payable for investments purchased		(59,599	)		(39,879	)
Increase (decrease) in management fees payable		(1,006	)		4,836
Increase (decrease) in accrued capital gains incentive fees		—			12,321
Increase (decrease) in subordinated income incentive fees payable		9,761			9,679
Increase (decrease) in administrative services expense payable		54			1,317
Increase (decrease) in interest payable		2,929			1,614
Increase (decrease) in directors’ fees payable		(41	)		40
Increase (decrease) in unamortized swap premiums received		(10,622	)		—
Increase (decrease) in other accrued expenses and liabilities		(644	)		1,064

Net cash used in operating activities		(189,877	)		(956,727	)

Cash flows from financing activities
Issuance of common stock		—			442,927
Reinvestment of stockholder distributions		52,801			56,392
Repurchases of common stock		(13,864	)		(4,830	)
Offering costs		—			(1,686	)
Stockholder distributions		(107,831	)		(105,435	)
Borrowings under credit facilities⁽¹⁾		126,000			343,500
Borrowings under repurchase agreements⁽²⁾		299,106			—
Deferred financing costs paid		(4,038	)		(5,875	)

Net cash provided by financing activities		352,174			724,993

Total increase (decrease) in cash		162,297			(231,734	)
Cash at beginning of period		224,583			581,632

Cash at end of period	$	386,880		$	349,898

Supplemental disclosure
Local and excise taxes paid	$	986		$	352

(1)	See Note 8 for a discussion of the Company’s revolving credit facilities. During the six months ended June 30, 2015 and 2014, the Company paid $11,756 and $1,791, respectively, in interest expense on the credit facilities.

(2)	See Note 8 for a discussion of the Company’s repurchase transactions. During the six months ended June 30, 2015 and 2014, the Company paid $12,947 and $8,987, respectively, in interest expense pursuant to its repurchase agreements.

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Senior Secured Loans—First Lien—87.2%
A.T. Cross Co.	(e)(g)	Retailing	L+875				9/6/19	$	41,316	$	41,316	$	41,316
A.T. Cross Co.	(s)	Retailing	L+875				9/6/19		20,000		20,000		20,000
Abaco Energy Technologies LLC	(g)(k)	Energy	L+700		1.0	%	11/20/20		27,156		25,639		20,639
Acision Finance LLC	(k)(l)(o)	Software & Services	L+975		1.0	%	12/15/18		32,448		31,225		32,124
Allen Systems Group, Inc.	(e)(f)(h)(x)	Software & Services	L+790, 1.2% PIK (1.2% Max PIK)		1.0	%	4/30/20		70,251		70,251		70,251
Altus Power America, Inc.		Energy	L+750		1.5	%	10/10/21		1,024		1,024		1,035
Altus Power America, Inc.	(s)	Energy	L+750		1.5	%	10/10/21		2,101		2,101		2,122
AP Exhaust Acquisition, LLC	(e)(h)(i)(k)	Automobiles & Components	L+775		1.5	%	1/16/21		150,811		150,811		149,303
Apex Tool Group, LLC	(i)	Capital Goods	L+325		1.3	%	1/31/20		2,243		2,235		2,205
Ascension Insurance, Inc.	(e)(f)(g)(i)	Insurance	L+825		1.3	%	3/5/19		78,135		77,172		77,549
Aspect Software, Inc.	(h)(i)	Software & Services	L+550		1.8	%	5/7/16		7,419		7,431		7,363
Atlas Aerospace LLC	(g)(l)	Capital Goods	L+807		1.0	%	5/8/19		57,000		57,000		57,000
Atlas Aerospace LLC	(s)	Capital Goods	L+750		1.0	%	5/8/19		21,714		21,714		21,714
ATX Networks Corp.	(g)(h)(o)(n)	Technology Hardware & Equipment	L+600		1.0	%	6/11/21		10,000		9,850		9,850
Avaya Inc.	(i)	Technology Hardware & Equipment	L+525		1.0	%	5/29/20		3,919		3,919		3,798
BenefitMall Holdings, Inc.	(e)(h)(i)(k)(l)	Commercial & Professional Services	L+725		1.0	%	11/24/20		114,425		114,425		115,569
BenefitMall Holdings, Inc.	(s)	Commercial & Professional Services	L+725		1.0	%	11/24/20		41,818		41,818		42,236
Blue Coat Holdings, Inc.	(s)	Technology Hardware & Equipment	L+350		1.0	%	5/20/20		2,045		2,045		2,027
Blueprint Sub, Inc.	(g)(h)(k)(l)	Software & Services	L+750		1.0	%	5/7/21		70,000		70,000		70,120
Blueprint Sub, Inc.	(s)	Software & Services	L+750		1.0	%	5/7/21		14,737		14,737		14,762
Blueprint Sub, Inc.	(s)	Software & Services	L+450		1.0	%	5/7/21		3,684		3,684		3,684
BPA Laboratories Inc.	(e)	Pharmaceuticals, Biotechnology & Life Sciences	2.5%				7/3/17		3,763		3,530		3,114
BRG Sports, Inc.	(h)	Consumer Durables & Apparel	L+550		1.0	%	4/15/21		1,370		1,346		1,377
Cactus Wellhead, LLC	(g)(h)	Energy	L+600		1.0	%	7/31/20		16,655		15,608		14,240
Cadence Aerospace Finance, Inc.	(g)	Capital Goods	L+525		1.3	%	5/9/18		2,910		2,926		2,880
Caesars Entertainment Operating Co., Inc.	(k)(o)(p)	Consumer Services	L+575				3/1/17		15,620		14,947		13,531
Caesars Entertainment Operating Co., Inc.	(k)(o)(p)	Consumer Services	L+675				3/1/17		15,707		15,097		13,696
Caesars Entertainment Operating Co., Inc.	(o)(p)	Consumer Services	L+850		2.0	%	10/31/16		2,671		2,692		2,347
Caesars Entertainment Operating Co., Inc.	(e)(g)(i)(j)(o)(p)	Consumer Services	L+875		1.0	%	3/1/17		68,576		68,183		57,776

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Caesars Entertainment Resort Properties, LLC	(e)(f)(g)(k)	Consumer Services	L+600		1.0	%	10/11/20	$	44,363	$	42,213	$	40,481
Cengage Learning Acquisitions, Inc.	(g)(j)	Media	L+600		1.0	%	3/31/20		5,200		5,179		5,215
CEVA Group Plc	(o)(s)	Transportation	L+500				3/19/19		20,000		20,000		17,300
Cimarron Energy Inc.	(k)(l)	Energy	L+775		1.0	%	12/15/19		25,000		25,000		24,750
CITGO Holding, Inc.		Energy	L+850		1.0	%	5/12/18		3,742		3,521		3,764
Corner Investment PropCo, LLC	(e)(g)(k)	Consumer Services	L+975		1.3	%	11/2/19		40,738		41,217		40,738
CoSentry.Net, LLC	(e)(i)(k)	Software & Services	L+800		1.3	%	12/31/19		60,894		60,894		61,579
Crestwood Holdings LLC	(g)	Energy	L+600		1.0	%	6/19/19		5,309		5,291		5,269
Del Monte Foods, Inc.	(i)(o)	Food, Beverage & Tobacco	L+325		1.0	%	2/18/21		2,774		2,762		2,653
Digital River, Inc.	(g)(h)	Software & Services	L+650		1.0	%	2/12/21		15,000		14,290		15,150
Eastman Kodak Co.	(g)	Consumer Durables & Apparel	L+625		1.0	%	9/3/19		7,127		7,027		7,150
EnergySolutions, LLC	(g)	Commercial & Professional Services	L+575		1.0	%	5/29/20		4,092		4,021		4,116
FairPoint Communications, Inc.	(e)(h)(o)	Telecommunication Services	L+625		1.3	%	2/14/19		14,431		14,612		14,578
Fairway Group Acquisition Co.	(g)	Food & Staples Retailing	L+400		1.0	%	8/17/18		9,428		8,260		8,768
Fox Head, Inc.	(h)(k)(l)	Consumer Durables & Apparel	L+850		1.0	%	12/19/20		13,286		13,286		13,300
FR Dixie Acquisition Corp.	(g)	Energy	L+475		1.0	%	12/18/20		4,147		4,131		3,608
FR Utility Services LLC	(g)	Energy	L+575		1.0	%	10/18/19		569		569		571
Greystone Bridge VIII LLC	(f)(o)	Real Estate	L+1050				5/1/20		14,223		14,223		14,223
Greystone Bridge VIII LLC	(o)(s)	Real Estate	L+1050				5/1/20		25,777		25,777		25,777
H.M. Dunn Company, Inc.	(k)(l)	Capital Goods	L+810		1.0	%	3/26/21		60,000		60,000		60,600
H.M. Dunn Company, Inc.	(s)	Capital Goods	L+725		1.0	%	3/26/21		21,429		21,429		21,643
Hybrid Promotions, LLC	(h)(k)(l)	Consumer Durables & Apparel	L+850		1.0	%	12/19/20		48,714		48,714		48,768
Industrial Group Intermediate Holdings, LLC	(h)(i)(k)(l)	Materials	L+800		1.3	%	5/31/20		82,538		82,538		82,538
Industry City TI Lessor, L.P.	(k)	Consumer Services	5.0%, 5.3% PIK (5.3% Max PIK)				6/30/26		10,221		10,221		10,374
Intralinks, Inc.	(g)(h)(k)(o)	Software & Services	L+525		2.0	%	2/24/19		24,688		24,501		24,626
JW Aluminum Co.	(l)	Materials	L+750		1.0	%	5/6/17		19,000		19,000		19,000
Latham Pool Products, Inc.	(g)(h)(k)	Capital Goods	L+775		1.0	%	6/29/21		35,000		35,000		35,000
MB Precision Holdings LLC	(e)(h)(i)(k)	Capital Goods	L+725		1.3	%	1/23/20		62,055		62,055		61,434
MMM Holdings, Inc.	(g)	Health Care Equipment & Services	L+825		1.5	%	12/12/17		2,524		2,534		2,015
MModal LLC	(e)(g)	Health Care Equipment & Services	L+775		1.3	%	1/31/20		10,111		10,068		9,318

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Mood Media Corp.	(g)(o)	Media	L+600		1.0	%	5/1/19	$	1,798	$	1,784	$	1,757
Moxie Liberty LLC	(g)(i)	Energy	L+650		1.0	%	8/21/20		11,853		11,892		11,883
Moxie Patriot LLC	(i)	Energy	L+575		1.0	%	12/19/20		5,556		5,511		5,569
MSO of Puerto Rico, Inc.	(g)	Health Care Equipment & Services	L+825		1.5	%	12/12/17		1,835		1,842		1,465
New HB Acquisition, LLC	(h)(i)	Food, Beverage & Tobacco	L+550		1.3	%	4/9/20		2,679		2,659		2,725
New Star Metals Inc.	(e)(g)(h)(i)(k)	Capital Goods	L+800		1.3	%	3/20/20		109,125		109,125		109,125
Nine West Holdings, Inc.	(l)	Consumer Durables & Apparel	L+375		1.0	%	10/8/19		470		458		414
Nobel Learning Communities, Inc.	(g)(k)(l)	Consumer Services	L+846		1.0	%	4/27/21		84,472		84,472		84,999
Nobel Learning Communities, Inc.	(s)	Consumer Services	L+450		1.0	%	4/27/20		11,180		11,180		11,180
Nova Wildcat Amerock, LLC	(e)(g)(h)	Consumer Durables & Apparel	L+321, 5.5% PIK (5.5% Max PIK)		1.3	%	9/10/19		68,797		68,797		62,605
Panda Sherman Power, LLC	(e)	Energy	L+750		1.5	%	9/14/18		2,298		2,311		2,278
PeroxyChem LLC	(h)(i)	Capital Goods	L+650		1.0	%	2/28/20		7,585		7,463		7,613
PharMEDium Healthcare Corp.	(g)	Health Care Equipment & Services	L+325		1.0	%	1/28/21		701		698		697
PHRC License, LLC	(f)(h)(i)	Consumer Services	L+900		1.5	%	8/14/20		59,763		59,763		59,763
Polymer Additives, Inc.	(h)(i)(l)	Materials	L+838		1.0	%	12/20/21		63,068		63,068		63,857
Production Resource Group, LLC	(g)(h)(i)(l)	Media	L+750		1.0	%	7/23/19		47,500		47,500		47,856
Professional Plumbing Group, Inc.	(e)(g)	Capital Goods	L+875		0.8	%	7/31/19		29,158		29,158		29,304
Reddy Ice Corp.	(g)(j)	Food, Beverage & Tobacco	L+550		1.3	%	5/1/19		3,072		2,857		2,742
RGL Reservoir Operations Inc.	(g)(h)(o)	Energy	L+500		1.0	%	8/13/21		6,806		6,623		4,441
Serena Software, Inc.	(g)(h)	Software & Services	L+650		1.0	%	4/14/20		17,100		16,811		17,196
Smile Brands Group Inc.	(e)(f)(g)(h)(i)	Health Care Equipment & Services	L+625		1.3	%	8/16/19		43,414		42,929		29,956
Sorenson Communications, Inc.	(e)(g)(h)(i)(k)	Telecommunication Services	L+575		2.3	%	4/30/20		100,990		100,571		101,747
Southcross Holdings Borrower LP	(l)	Energy	L+500		1.0	%	8/4/21		314		313		306
Spencer Gifts LLC	(n)	Retailing	L+425		1.0	%	7/16/21		1,000		995		1,001
Sports Authority, Inc.	(g)	Consumer Durables & Apparel	L+600		1.5	%	11/16/17		7,818		7,863		6,807
Stallion Oilfield Holdings, Inc.	(e)(g)(h)	Energy	L+675		1.3	%	6/19/18		16,516		16,178		13,593
Stonewall Gas Gathering LLC	(g)(i)	Capital Goods	L+775		1.0	%	1/28/22		9,975		9,503		10,100
SunGard Availability Services Capital, Inc.	(g)(j)	Software & Services	L+500		1.0	%	3/29/19		10,855		9,969		10,014
Sunnova Asset Portfolio 5 Holdings, LLC		Energy	12.0% PIK (12.0% Max PIK)				11/14/21		8,288		8,288		8,371

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost			Fair Value^(d)
Sunnova Asset Portfolio 5 Holdings, LLC	(s)	Energy	12.0% PIK (12.0% Max PIK)				11/14/21	$	6,136	$	6,136		$	6,197
Swift Worldwide Resources US Holdings Corp.	(g)(i)	Energy	L+800		1.3	%	4/30/19		19,786		19,786			19,489
ThermaSys Corp.	(g)	Capital Goods	L+400		1.3	%	5/3/19		4,841		4,843			4,843
U.S. Xpress Enterprises, Inc.	(e)(h)(i)(k)	Transportation	L+1050, 0.0% PIK (1.8% Max PIK)		1.5	%	5/30/19		86,474		86,474			87,771
UTEX Industries, Inc.	(l)	Energy	L+400		1.0	%	5/21/21		1,142		1,137			1,060
Vertellus Performance Chemicals LLC	(k)(l)	Materials	L+950		1.0	%	1/30/20		65,000		65,000			65,037
Warren Resources, Inc.	(e)(f)(k)(l)	Energy	L+850		1.0	%	5/22/20		65,940		65,940			65,940
Warren Resources, Inc.	(s)	Energy	L+850		1.0	%	5/22/20		9,006		9,006			9,006
Waste Pro USA, Inc.	(e)(h)(i)(k)(l)	Commercial & Professional Services	L+750		1.0	%	10/15/20		111,882		111,882			113,560
Waste Pro USA, Inc.	(s)	Commercial & Professional Services	L+750		1.0	%	10/15/20		12,222		12,222			12,406
Weight Watchers International, Inc.	(o)	Consumer Services	L+325		0.8	%	4/2/20		26,490		15,757			12,852
Weight Watchers International, Inc.	(o)(n)	Consumer Services	L+300				4/2/16		7,671		6,821			6,877
Winchester Electronics Corp.	(e)(k)(l)	Technology Hardware & Equipment	L+850		1.0	%	11/17/20		98,182		98,182			98,182
Winchester Electronics Corp.		Technology Hardware & Equipment	L+800		1.0	%	11/17/20		12,929		12,929			12,929
Winchester Electronics Corp.	(s)	Technology Hardware & Equipment	L+800		1.0	%	11/17/20		19,803		19,803			19,803

Total Senior Secured Loans—First Lien											2,847,558			2,803,250
Unfunded Loan Commitments											(231,652	)		(231,652	)

Net Senior Secured Loans—First Lien											2,615,906			2,571,598

Senior Secured Loans—Second Lien—37.8%
Accellent Inc.	(j)	Health Care Equipment & Services	L+650		1.0	%	3/11/22		8,814		8,795			8,467
Advantage Sales & Marketing Inc.	(j)	Commercial & Professional Services	L+650		1.0	%	7/25/22		797		791			803
Alison US LLC	(g)(o)	Capital Goods	L+850		1.0	%	8/29/22		4,444		4,278			3,556
American Energy—Marcellus, LLC	(g)	Energy	L+750		1.0	%	8/4/21		3,333		3,289			1,844
Ascent Resources—Utica, LLC	(e)(f)(i)(l)	Energy	L+950, 2.0% PIK (2.0% Max PIK)		1.5	%	9/30/18		241,833		240,640			236,997
AssuredPartners Capital, Inc.	(l)	Insurance	L+675		1.0	%	4/2/22		6,983		6,921			6,904
Atlas Resource Partners, L.P.	(e)(h)(k)(o)	Energy	L+900		1.0	%	2/23/20		67,000		65,097			68,145

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
BlackBrush Oil & Gas, L.P.	(f)(l)	Energy	L+650		1.0	%	7/30/21	$	11,182	$	10,348	$	10,386
BPA Laboratories Inc.	(e)	Pharmaceuticals, Biotechnology & Life Sciences	2.5%				7/3/17		3,272		2,751		2,765
BRG Sports, Inc.	(l)	Consumer Durables & Apparel	L+925		1.0	%	4/15/22		12,500		12,220		12,688
Byrider Finance, LLC	(f)	Automobiles & Components	L+1000		1.3	%	8/22/20		16,667		16,667		16,667
Cervalis LLC	(e)(h)	Commercial & Professional Services	L+875		1.3	%	2/8/19		30,000		29,724		30,300
Checkout Holding Corp	(l)	Media	L+675		1.0	%	4/11/22		10,000		9,934		7,430
Chief Exploration & Development LLC	(g)	Energy	L+650		1.0	%	5/16/21		1,174		1,164		1,112
ColourOz Investment 2 LLC	(i)(o)	Materials	L+725		1.0	%	9/5/22		5,714		5,674		5,712
Compuware Corp.	(e)	Software & Services	L+825		1.0	%	12/15/22		10,000		8,729		9,358
Consolidated Precision Products Corp.	(e)	Capital Goods	L+775		1.0	%	4/30/21		6,932		6,903		6,966
Crossmark Holdings, Inc.	(l)	Commercial & Professional Services	L+750		1.3	%	12/21/20		7,778		7,794		6,358
Del Monte Foods, Inc.	(l)(o)	Food, Beverage & Tobacco	L+725		1.0	%	8/18/21		3,333		3,305		3,035
Drew Marine Group Inc.	(l)(o)	Energy	L+700		1.0	%	5/19/21		2,500		2,495		2,475
Eastman Kodak Co.	(j)	Consumer Durables & Apparel	L+950		1.3	%	9/3/20		25,000		24,517		24,985
Extreme Reach, Inc.	(l)	Media	L+950		1.0	%	1/22/21		8,000		7,868		7,960
Fieldwood Energy LLC	(f)(j)	Energy	L+713		1.3	%	9/30/20		2,667		1,866		2,055
Filtration Group Corp.	(j)	Capital Goods	L+725		1.0	%	11/21/21		1,303		1,330		1,310
Flexera Software LLC	(l)	Software & Services	L+700		1.0	%	4/2/21		10,000		9,957		9,969
Inmar, Inc.	(l)	Software & Services	L+700		1.0	%	1/27/22		2,830		2,806		2,781
Jazz Acquisition, Inc.	(g)	Capital Goods	L+675		1.0	%	6/19/22		3,700		3,751		3,598
Jonah Energy LLC	(f)	Energy	L+650		1.0	%	5/12/21		1,250		1,059		1,192
Leedsworld Inc.	(e)(f)(g)	Retailing	L+875		1.3	%	6/28/20		62,500		62,500		62,500
LM U.S. Member LLC	(e)(l)	Transportation	L+725		1.0	%	1/25/21		5,137		5,150		5,116
MD America Energy, LLC	(l)	Energy	L+850		1.0	%	8/4/19		10,250		9,821		9,989
Mitchell International, Inc.	(k)	Software & Services	L+750		1.0	%	10/11/21		9,750		9,955		9,762
National Surgical Hospitals, Inc.	(e)	Health Care Equipment & Services	L+900		1.0	%	6/1/23		17,500		17,500		17,565
Neff Rental LLC	(l)	Capital Goods	L+625		1.0	%	6/9/21		12,073		12,018		12,005
Nielsen & Bainbridge, LLC	(f)	Consumer Services	L+925		1.0	%	8/15/21		16,675		16,437		16,425
P2 Upstream Acquisition Co.	(l)	Energy	L+800		1.0	%	4/30/21		14,500		14,736		13,533
Paw Luxco II Sarl	(o)	Consumer Durables & Apparel	EURIBOR+950				1/29/19	€	5,727		7,115		5,185
Payless Inc.	(l)	Consumer Durables & Apparel	L+750		1.0	%	3/11/22	$	14,092		13,965		12,777

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Peak 10, Inc.	(j)	Software & Services	L+725		1.0	%	6/17/22	$	5,500	$	5,450	$	5,252
Pelican Products, Inc.	(l)	Capital Goods	L+825		1.0	%	4/9/21		5,438		5,403		5,410
Penton Media, Inc.	(j)	Media	L+775		1.3	%	10/2/20		8,442		8,341		8,481
Printpack Holdings, Inc.	(e)(i)(l)	Materials	L+875		1.0	%	5/28/21		60,000		58,927		58,800
PSAV Acquisition Corp.	(e)(k)	Technology Hardware & Equipment	L+825		1.0	%	1/24/22		80,000		78,956		80,500
Renaissance Learning, Inc.	(k)	Software & Services	L+700		1.0	%	4/11/22		4,857		4,815		4,770
Road Infrastructure Investment, LLC	(l)	Consumer Services	L+675		1.0	%	9/30/21		7,759		7,726		7,361
Samson Investment Co.	(g)(p)(t)	Energy	L+400		1.0	%	9/25/18		2,000		1,839		799
Sequential Brands Group, Inc.	(e)(i)(k)(l)(o)	Consumer Durables & Apparel	L+900		1.0	%	4/8/21		88,000		88,000		88,880
Spencer Gifts LLC	(f)	Retailing	L+825				6/29/22		7,000		6,965		6,965
Templar Energy LLC	(h)(j)	Energy	L+750		1.0	%	11/25/20		29,231		28,653		21,616
Therakos, Inc.	(e)	Pharmaceuticals, Biotechnology & Life Sciences	L+950		1.3	%	6/27/18		28,000		27,507		28,385
TNS, Inc.	(f)(h)(l)	Software & Services	L+800		1.0	%	8/14/20		45,296		44,938		45,032
Ultima US Holdings LLC	(l)(o)	Capital Goods	L+850		1.0	%	12/31/20		57,000		56,075		56,715
Vantage Energy II, LLC	(i)	Energy	L+750		1.0	%	5/8/17		13,000		13,000		12,935
Vantage Energy, LLC	(i)	Energy	L+750		1.0	%	12/20/18		18,185		18,053		16,912
Winebow Holdings, Inc.	(g)	Retailing	L+750		1.0	%	1/2/22		2,775		2,756		2,677
WNA Holdings, Inc.	(l)	Materials	L+725		1.3	%	12/7/20		4,000		3,968		3,988

Total Senior Secured Loans—Second Lien											1,131,242		1,116,153

Senior Secured Bonds—8.2%
Advanced Lighting Technologies, Inc.	(e)(f)	Materials	10.5%				6/1/19		35,500		32,103		22,187
Algeco Scotsman Global Finance Plc	(f)(j)(o)	Commercial & Professional Services	8.5%				10/15/18		16,469		16,240		16,057
American Energy—Woodford, LLC	(j)	Energy	12.0% PIK (12.0% Max PIK)				12/30/20		2,625		1,865		1,864
Aspect Software, Inc.	(f)(j)	Software & Services	10.6%				5/15/17		8,005		8,212		7,725
Avaya Inc.	(j)	Technology Hardware & Equipment	7.0%				4/1/19		5,500		5,475		5,390
Avaya Inc.	(f)(j)	Technology Hardware & Equipment	10.5%				3/1/21		17,550		15,467		14,567
Caesars Entertainment Resort Properties, LLC	(e)(f)(j)	Consumer Services	11.0%				10/1/21		37,350		38,033		31,374
CEVA Group Plc	(j)(o)	Transportation	9.0%				9/1/21		2,000		2,000		1,960
FourPoint Energy, LLC	(e)(f)	Energy	8.0%				12/31/20		46,312		44,524		42,376

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Amortized Cost			Fair Value^(d)
FourPoint Energy, LLC	(f)(s)	Energy	8.0%		12/31/20	$	14,625	$	14,552		$	13,382
Global A&T Electronics Ltd.	(f)(o)	Technology Hardware & Equipment	10.0%		2/1/19		11,550		11,418			10,900
iHeartCommunications, Inc.	(j)	Media	10.6%		3/15/23		3,500		3,500			3,299
JW Aluminum Co.	(e)(f)	Materials	11.5%, 1.0% PIK (1.0% Max PIK)		11/15/17		17,726		17,706			18,435
Logan’s Roadhouse, Inc.	(f)(j)	Consumer Services	10.8%		10/15/17		37,814		33,681			28,124
Modular Space Corp.	(j)	Capital Goods	10.3%		1/31/19		9,950		10,207			8,557
Prince Mineral Holding Corp.	(e)	Materials	11.5%		12/15/19		2,320		2,302			2,181
SandRidge Energy, Inc.	(j)(o)	Energy	8.8%		6/1/20		11,700		11,672			10,479
Sorenson Communications, Inc.	(e)(f)(j)	Telecommunication Services	9.0%		10/31/20		18,877		18,214			18,782

Total Senior Secured Bonds									287,171			257,639
Unfunded Bond Commitments									(14,552	)		(14,552	)

Net Senior Secured Bonds									272,619			243,087

Subordinated Debt—13.8%
Algeco Scotsman Global Finance Plc	(f)(j)(o)	Commercial & Professional Services	10.8%		10/15/19		6,500		5,335			5,021
Alta Mesa Holdings, LP	(f)	Energy	9.6%		10/15/18		1,350		958			1,060
Atlas Energy Holdings Operating Co., LLC	(j)(o)	Energy	7.8%		1/15/21		7,535		6,559			5,614
Atlas Energy Holdings Operating Co., LLC	(j)(o)	Energy	9.3%		8/15/21		2,264		1,687			1,718
Aurora Diagnostics, LLC	(e)	Pharmaceuticals, Biotechnology & Life Sciences	10.8%		1/15/18		7,000		7,026			6,247
Bellatrix Exploration Ltd.	(j)(o)	Energy	8.5%		5/15/20		5,000		4,902			4,725
Blue Coat Holdings, Inc.	(j)	Technology Hardware & Equipment	8.4%		6/1/23		15,000		15,000			15,281
Brooklyn Basketball Holdings, LLC	(f)(i)	Consumer Services	L+800		10/25/19		39,746		39,746			39,746
BWAY Holding Co.	(j)	Materials	9.1%		8/15/21		6,250		6,213			6,422
Calumet Specialty Products Partners, L.P.	(j)(o)	Energy	6.5%		4/15/21		2,500		2,500			2,470
CEC Entertainment, Inc.	(f)(j)(n)	Consumer Services	8.0%		2/15/22		27,184		26,980			27,116
Ceridian Corp.	(j)	Software & Services	11.0%		3/15/21		3,000		3,182			3,188
Communications Sales & Leasing, Inc.	(j)(o)	Telecommunication Services	8.3%		10/15/23		2,000		1,942			1,966
Eclipse Resources Corp.	(j)(o)(n)	Energy	8.9%		7/15/23		9,175		8,983			8,911
Elizabeth Arden, Inc.	(j)(o)	Household & Personal Products	7.4%		3/15/21		615		572			510
EV Energy Partners, L.P.	(f)(o)	Energy	8.0%		4/15/19		259		229			242

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Global Jet Capital Inc.		Commercial & Professional Services	15.0%, 0.0% PIK (15.0% Max PIK)		1/30/25	$	620	$	620	$	620
Global Jet Capital Inc.		Commercial & Professional Services	15.0%, 0.0% PIK (15.0% Max PIK)		4/30/25		4,826		4,826		4,826
Jupiter Resources Inc.	(i)(j)(o)	Energy	8.5%		10/1/22		28,800		26,425		24,372
Legacy Reserves LP	(e)(o)	Energy	8.0%		12/1/20		8,250		8,116		7,136
Legacy Reserves LP	(j)(o)	Energy	6.6%		12/1/21		5,000		3,929		4,000
Lightstream Resources Ltd.	(j)(o)	Energy	8.6%		2/1/20		4,150		3,486		2,707
Linn Energy, LLC	(j)(o)	Energy	6.5%		9/15/21		1,000		813		806
Linn Energy, LLC	(j)(o)	Energy	7.8%		2/1/21		1,500		1,209		1,181
Linn Energy, LLC	(j)(o)	Energy	6.3%		11/1/19		1,500		1,235		1,200
Linn Energy, LLC	(j)(o)	Energy	8.6%		4/15/20		500		430		416
Mood Media Corp.	(e)(f)(j)(o)	Media	9.3%		10/15/20		46,207		45,635		39,622
Navistar International Corp.	(f)(o)	Transportation	8.3%		11/1/21		10,240		9,977		9,792
NewStar Financial, Inc.	(e)(k)(l)(o)	Diversified Financials	8.3%, 0.0% PIK (8.8% Max PIK)		12/4/24		100,000		70,723		77,000
Ocean Rig UDW Inc	(j)(o)	Energy	7.3%		4/1/19		4,700		4,700		3,572
Opal Acquisition, Inc.	(j)	Consumer Services	8.9%		12/15/21		27,000		27,000		26,528
P.F. Chang’s China Bistro, Inc.	(j)	Consumer Services	10.3%		6/30/20		20,853		21,499		21,583
Rex Energy Corp.	(e)(o)	Energy	8.9%		12/1/20		4,000		3,979		3,630
Rex Energy Corp.	(j)(o)	Energy	6.3%		8/1/22		3,950		3,950		3,182
Samson Investment Co.	(f)(p)(t)	Energy	9.8%		2/15/20		1,400		1,135		74
SandRidge Energy, Inc.	(j)(o)	Energy	8.8%		1/15/20		10,659		9,512		5,836
Sorenson Communications, Inc.	(e)(f)(j)	Telecommunication Services	13.0%		10/31/21		14,346		13,426		14,848
SunGard Availability Services Capital, Inc.	(j)	Software & Services	8.8%		4/1/22		5,900		4,193		4,322
Talos Production LLC	(j)	Energy	9.8%		2/15/18		4,500		4,059		3,971
TI Group Automotive Systems, LLC.	(j)	Automobiles & Components	8.8%		7/15/23		10,275		10,275		10,262
Triangle USA Petroleum Corp.	(j)(o)	Energy	6.8%		7/15/22		2,350		2,350		1,830
Windstream Corp.	(j)(o)	Telecommunication Services	6.4%		8/1/23		2,600		2,600		2,126
York Risk Services Holding Corp.	(j)	Insurance	8.5%		10/1/22		3,350		3,350		2,930

Total Subordinated Debt									421,266		408,609

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Collateralized Securities—4.3%
CGMS CLO 2013-3A Class Subord.	(o)	Diversified Financials	16.5%		7/15/25		$ 17,000	$	11,092	$	12,751
JPMorgan Chase Bank, N.A. Credit-Linked Notes	(o)	Diversified Financials	14.2%		12/20/21		76,260		75,983		75,116
NewStar Clarendon 2014-1A Class D	(o)	Diversified Financials	L+435		1/25/27		1,060		993		1,007
NewStar Clarendon 2014-1A Class Subord. B	(o)	Diversified Financials	12.5%		1/25/27		12,140		12,013		11,913
Octagon CLO 2012-1A Class Income	(o)	Diversified Financials	17.5%		1/15/24		4,650		2,619		3,192
Wind River CLO Ltd. 2013-1A Class Subord. B	(o)	Diversified Financials	12.3%		4/20/25		26,720		19,897		21,966

Total Collateralized Securities									122,597		125,945


						Number of Shares		Cost		Fair Value^(d)
Equity/Other—6.9%
A.T. Cross Co., Common Equity, Class A Units	(f)(p)	Retailing					1,000,000		1,000		900
Abaco Energy Technologies LLC, Common Equity	(p)	Energy					3,055,556		3,056		1,681
ACP FH Holdings GP, LLC, Common Equity	(f)(p)	Consumer Durables & Apparel					88,571		89		92
ACP FH Holdings, LP, Common Equity	(f)(p)	Consumer Durables & Apparel					8,768,572		8,769		9,069
Allen Systems Group, Inc., Common Equity	(p)(x)	Software & Services					625,178		13,475		15,348
Altus Power America Holdings, LLC, Preferred Equity	(p)	Energy					341,425		341		597
Amaya Gaming Group Inc., Warrants	(o)(p)	Consumer Services					2,000,000		16,832		40,640
AP Exhaust Holdings, LLC, Common Equity	(p)(r)	Automobiles & Components					8,378		8,378		7,331
Ascent Resources Utica Holdings, LLC, Common Equity	(p)(q)	Energy					13,555,557		12,900		10,844
BPA Laboratories, Inc., Series A Warrants	(e)(p)	Pharmaceuticals, Biotechnology & Life Sciences					10,924		—		—
BPA Laboratories, Inc., Series B Warrants	(e)(p)	Pharmaceuticals, Biotechnology & Life Sciences					17,515		—		—
Burleigh Point, Ltd., Warrants	(o)(p)	Retailing					17,256,081		1,898		3,279
Cimarron Energy Inc., Common Equity	(p)	Energy					2,500,000		2,500		2,000
CoSentry.Net, LLC, Preferred Equity	(f)(p)	Software & Services					2,632		2,500		4,514

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Number of Shares		Cost		Fair Value^(d)
DHS Technologies LLC, Common Equity	(f)	Capital Goods		60,872	$	5,000	$	1,272
Eastman Kodak Co., Common Equity	(p)	Consumer Durables & Apparel		1,846		36		31
ERC Ireland Holdings Ltd., Common Equity	(o)(p)	Telecommunication Services		733		152		174
FourPoint Energy, LLC, Common Equity, Class C Units	(p)(r)	Energy		13,000		13,000		16,120
FourPoint Energy, LLC, Common Equity, Class D Units	(p)(r)	Energy		2,437		1,610		3,058
Global Jet Capital Holdings, LP, Preferred Equity	(p)	Commercial & Professional Services		2,333,842		2,334		2,341
Industrial Group Intermediate Holdings, LLC, Common Equity	(p)(r)	Materials		2,107,438		2,107		3,583
MB Precision Investment Holdings, LLC, Class A-2 Units	(f)(p)	Capital Goods		2,287,659		2,288		2,173
MModal LLC, Common Equity	(e)(g)(p)	Health Care Equipment & Services		132,235		2,182		2,000
New Star Metals Inc., Common Equity	(f)	Capital Goods		2,223,246		2,250		2,668
NewStar Financial, Inc., Warrants	(o)(p)(v)	Diversified Financials		6,000,000		30,115		30,660
Professional Plumbing Group, Inc., Common Equity	(f)(p)	Capital Goods		3,000,000		3,000		4,500
PSAV Holdings LLC, Common Equity		Technology Hardware & Equipment		10,000		10,000		18,000
Sorenson Communications, Inc., Common Equity	(e)(f)(p)	Telecommunication Services		43,796		—		21,381
Swift Worldwide Resources Holdco Limited, Common Equity	(o)(p)(u)	Energy		1,250,000		2,010		1,573
Therakos, Inc., Common Equity		Pharmaceuticals, Biotechnology & Life Sciences		14,366		1,478		7,387

Total Equity/Other						149,300		213,216
Unfunded Contingent Warrant Commitment	(w)					—		(10,220	)

Net Equity/Other						149,300		202,996

TOTAL INVESTMENTS—158.2%					$	4,712,930		4,668,388

LIABILITIES IN EXCESS OF OTHER ASSETS—(58.2%)								(1,718,177	)

NET ASSETS—100.0%							$	2,950,211

(a)	Security may be an obligation of one or more entities affiliated with the named company.

(b)

Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly-disclosed base rate plus a basis point spread. As of June 30, 2015, the three-month London Interbank Offered Rate was 0.28%, the Euro Interbank Offered Rate was (0.01)% and the U.S. Prime Lending Rate was 3.25%.

(c)	Denominated in U.S. dollars unless otherwise noted.

(d)	Fair value and market value are determined by the Company’s board of directors (see Note 7).

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)

(e)	Security or portion thereof held within Lehigh River LLC and is pledged as collateral supporting the amounts outstanding under the Class A Floating Rate Notes issued to Cobbs Creek LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8).

(f)	Security or portion thereof held within Cobbs Creek LLC and is pledged as collateral supporting the obligations of Cobbs Creek LLC under the repurchase transaction with JPMorgan Chase Bank, N.A., London Branch (see Note 8).

(g)	Security or portion thereof held within Cooper River LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 8).

(h)	Security or portion thereof held within Wissahickon Creek LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Wells Fargo Bank, National Association (see Note 8).

(i)	Security or portion thereof held within Darby Creek LLC and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8).

(j)	Security or portion thereof held within Dunning Creek LLC and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8).

(k)	Security or portion thereof held within Juniata River LLC and is pledge as collateral supporting the amounts outstanding under a revolving credit facility with JPMorgan Chase Bank, N.A. (see Note 8).

(l)	Security or portion thereof held within Green Creek LLC and is pledged as collateral supporting the amounts outstanding under the Notes issued to Schuylkill River LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8).

(m)	Security or portion thereof held within Schuylkill River LLC and is pledged as collateral supporting the obligations of Schuylkill River LLC under the repurchase transaction with Goldman Sachs Bank USA (see Note 8).

(n)	Position or portion thereof unsettled as of June 30, 2015.

(o)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of June 30, 2015, 82.5% of the Company’s total assets represented qualifying assets.

(p)	Security is non-income producing.

(q)	Security held within IC II American Energy Investments, Inc., a wholly-owned subsidiary of the Company.

(r)	Security held within FSIC II Investments, Inc., a wholly-owned subsidiary of the Company.

(s)	Security is an unfunded commitment.

(t)	Security was on non-accrual status as of June 30, 2015.

(u)	Investment denominated in British pounds. Cost and fair value are converted into U.S. dollars as of June 30, 2015.

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of June 30, 2015

(in thousands, except share amounts)

(v)	Includes 2,000,000 NewStar Financial, Inc., or NewStar, warrants, which is the maximum number of warrants that the Company will forfeit in the event that the Company declines to fund additional subordinated debt investments in NewStar in an amount not to exceed $50,000 upon the request of NewStar.

(w)	Represents the maximum number of NewStar warrants that the Company will forfeit in the event that the Company declines to fund additional subordinated debt investments in NewStar in an amount not to exceed $50,000 upon the request of NewStar.

(x)

Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns 25% or more of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of June 30, 2015, the Company held one investment in a portfolio company of which it is deemed to be an “affiliated person” but would not be deemed to “control”. The following table presents certain financial information with respect to such portfolio company for the six months ended June 30, 2015:


Portfolio Company	Purchases		Sales and Repayments		Interest Income		Fee Income		Dividend Income		Net Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)
Senior Secured Loans—First Lien
Allen Systems Group, Inc.	$	70,251	$	—	$	1,195	$	1,482	$	—	$	—	$	—
Equity/Other
Allen Systems Group, Inc., Common Equity	$	13,475	$	—	$	—	$	—	$	—	$	—	$	1,873

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Senior Secured Loans—First Lien—80.6%
A.T. Cross Co.	(e)(g)	Retailing	L+825				9/6/19	$	41,525	$	41,525	$	41,525
A.T. Cross Co.	(s)	Retailing	L+825				9/6/19		20,000		20,000		20,000
Abaco Energy Technologies LLC	(g)(k)(n)	Energy	L+700		1.0	%	11/20/20		27,500		25,855		25,987
Acision Finance LLC	(k)(l)(o)(n)	Software & Services	L+975		1.0	%	12/15/18		33,280		31,948		32,946
Air Medical Group Holdings, Inc.	(g)	Health Care Equipment & Services	L+400		1.0	%	6/30/18		1,437		1,439		1,440
Allen Systems Group, Inc.	(e)(f)	Software & Services	L+1625		1.0	%	12/14/17		68,615		76,592		84,594
Allen Systems Group, Inc.	(e)(f)	Software & Services	L+1425		1.0	%	12/14/17		2,867		3,201		3,534
Altus Power America, Inc.		Energy	L+750		1.5	%	10/10/21		762		762		762
Altus Power America, Inc.	(s)	Energy	L+750		1.5	%	10/10/21		2,363		2,363		2,363
Alvogen Pharma US, Inc.	(g)(i)	Pharmaceuticals, Biotechnology & Life Sciences	L+575		1.3	%	5/23/18		9,120		9,078		9,195
AP Exhaust Acquisition, LLC	(e)(h)(i)(k)	Automobiles & Components	L+775		1.5	%	1/16/21		150,811		150,811		146,286
Apex Tool Group, LLC	(i)	Capital Goods	L+325		1.3	%	1/31/20		2,254		2,245		2,195
Ascension Insurance, Inc.	(e)(f)(i)	Insurance	L+825		1.3	%	3/5/19		78,653		77,585		78,652
Aspect Software, Inc.	(h)(i)	Software & Services	L+550		1.8	%	5/7/16		7,469		7,487		7,319
Avaya Inc.	(i)	Technology Hardware & Equipment	L+450				10/26/17		3,942		3,748		3,790
Azure Midstream Energy LLC	(g)	Energy	L+550		1.0	%	11/15/18		4,275		4,223		3,847
BBB Industries US Holdings, Inc.	(g)	Automobiles & Components	L+500		1.0	%	11/3/21		7,000		6,863		6,964
BenefitMall Holdings, Inc.	(e)(h)(i)(k)(l)	Commercial & Professional Services	L+725		1.0	%	11/24/20		115,000		115,000		115,000
BenefitMall Holdings, Inc.	(s)	Commercial & Professional Services	L+725		1.0	%	11/24/20		41,818		41,818		41,818
Boomerang Tube, LLC	(e)	Energy	L+950		1.5	%	10/11/17		4,438		4,351		3,849
BPA Laboratories, Inc.	(e)	Pharmaceuticals, Biotechnology & Life Sciences	2.5%				7/3/17		3,763		3,478		3,393
BRG Sports, Inc.	(h)	Consumer Durables & Apparel	L+550		1.0	%	4/15/21		1,444		1,417		1,447
Cactus Wellhead, LLC	(g)(h)	Energy	L+600		1.0	%	7/31/20		12,718		12,480		10,334
Cadillac Jack, Inc.	(e)(g)(h)(i)(k)(o)	Consumer Services	L+850		1.0	%	5/15/19		163,550		161,807		168,252
Caesars Entertainment Operating Co., Inc.	(k)(o)	Consumer Services	L+575				3/1/17		15,620		14,844		13,705
Caesars Entertainment Operating Co., Inc.	(k)(o)	Consumer Services	L+675				3/1/17		15,707		15,005		13,805
Caesars Entertainment Operating Co., Inc.	(o)	Consumer Services	L+850		2.0	%	10/31/16		2,671		2,698		2,375
Caesars Entertainment Operating Co., Inc.	(e)(g)(i)(j)(o)	Consumer Services	L+875		1.0	%	1/28/18		68,577		68,120		59,776
Caesars Entertainment Resort Properties, LLC	(e)(f)(g)(k)	Consumer Services	L+600		1.0	%	10/11/20		58,502		55,456		54,895
Cengage Learning Acquisitions, Inc.	(g)(j)	Media	L+600		1.0	%	3/31/20		5,365		5,341		5,322

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
CEVA Group Plc	(o)(s)	Transportation	L+550		1.0	%	3/19/19	$	20,000	$	20,000	$	16,675
Cimarron Energy Inc.	(k)(l)	Energy	L+775		1.0	%	12/15/19		25,000		25,000		25,000
Corner Investment PropCo, LLC	(e)(g)(k)	Consumer Services	L+975		1.3	%	11/2/19		40,975		41,503		40,771
CoSentry.Net, LLC	(e)(f)(i)	Software & Services	L+800		1.3	%	12/31/19		57,945		57,945		58,235
Crestwood Holdings LLC	(g)	Energy	L+600		1.0	%	6/19/19		5,452		5,432		5,176
Del Monte Foods Consumer Products, Inc.	(i)(o)	Food, Beverage & Tobacco	L+325		1.0	%	2/18/21		2,788		2,775		2,563
Eastman Kodak Co.	(g)	Consumer Durables & Apparel	L+625		1.0	%	9/3/19		7,164		7,046		7,185
EnergySolutions, LLC	(g)	Energy	L+575		1.0	%	5/29/20		4,342		4,260		4,341
FairPoint Communications, Inc.	(e)(h)(o)	Telecommunication Services	L+625		1.3	%	2/14/19		16,505		16,693		16,412
Fairway Group Acquisition Co.	(g)(n)	Food & Staples Retailing	L+400		1.0	%	8/17/18		9,482		8,162		8,155
Fox Head, Inc.	(h)(k)(l)	Consumer Durables & Apparel	L+850		1.0	%	12/19/20		13,286		13,286		13,286
FR Dixie Acquisition Corp.	(g)	Energy	L+475		1.0	%	12/18/20		4,168		4,150		3,460
FR Utility Services LLC	(g)	Energy	L+575		1.0	%	10/18/19		571		571		569
Fram Group Holdings Inc.	(g)	Automobiles & Components	L+500		1.5	%	7/29/17		2,002		2,022		1,993
Hybrid Promotions, LLC	(h)(k)(l)	Consumer Durables & Apparel	L+850		1.0	%	12/19/20		48,714		48,714		48,714
Ikaria Acquisition Inc.	(g)	Pharmaceuticals, Biotechnology & Life Sciences	L+400		1.0	%	2/12/21		419		417		418
Industrial Group Intermediate Holdings, LLC	(h)(i)(k)(l)	Materials	L+800		1.3	%	5/31/20		84,355		84,355		84,355
Industry City TI Lessor, L.P.	(k)	Consumer Services	5.0%, 5.3% PIK (5.3% Max PIK)				6/30/26		9,904		9,904		9,755
Internap Network Services Corp.	(g)(o)	Software & Services	L+500		1.0	%	11/26/19		5,910		5,861		5,888
Intralinks, Inc.	(g)(h)(k)(o)	Software & Services	L+525		2.0	%	2/24/19		24,813		24,603		24,502
Intrawest Operations Group, LLC	(i)	Consumer Services	L+450		1.0	%	12/9/20		4,417		4,386		4,421
Kanders C3 Holdings, LLC	(e)(f)	Capital Goods	L+900		1.3	%	12/19/18		20,400		20,265		21,232
Kanders C3 Holdings, LLC	(e)(f)	Capital Goods	L+900		1.3	%	12/19/18		1,765		1,754		1,783
Kanders C3 Holdings, LLC	(s)	Capital Goods	L+900		1.3	%	12/19/18		10,204		10,204		10,307
Lantiq Deutschland GmbH	(e)(o)	Software & Services	L+900		2.0	%	11/16/15		975		949		970
Larchmont Resources, LLC	(g)	Energy	L+725		1.0	%	8/7/19		7,317		7,258		7,116
MB Precision Holdings LLC	(e)(h)(i)(k)	Capital Goods	L+725		1.3	%	1/23/20		62,370		62,370		61,746
MMI International Ltd.	(g)(l)(o)	Technology Hardware & Equipment	L+600		1.3	%	11/20/18		6,180		6,049		6,107
MMM Holdings, Inc.	(g)	Health Care Equipment & Services	L+825		1.5	%	12/12/17		2,687		2,700		2,606
MModal Inc.	(e)(g)	Health Care Equipment & Services	L+775		1.3	%	1/31/20		10,111		10,064		9,922

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Mood Media Corp.	(g)(o)	Media	L+600		1.0	%	5/1/19	$	1,807	$	1,791	$	1,774
Moxie Liberty LLC	(g)(i)	Energy	L+650		1.0	%	8/21/20		11,853		11,897		11,794
Moxie Patriot LLC	(i)	Energy	L+575		1.0	%	12/19/20		5,556		5,507		5,528
MSO of Puerto Rico, Inc.	(g)	Health Care Equipment & Services	L+825		1.5	%	12/12/17		1,953		1,963		1,895
New HB Acquisition, LLC	(h)(i)	Food, Beverage & Tobacco	L+550		1.3	%	4/9/20		3,867		3,836		3,935
New Star Metals Inc.	(e)(g)(h)(i)(k)	Capital Goods	L+800		1.3	%	3/20/20		109,725		109,725		109,725
Nine West Holdings	(l)	Consumer Durables & Apparel	L+375		1.0	%	10/8/19		473		459		443
Nova Wildcat Amerock, LLC	(e)(g)(h)	Consumer Durables & Apparel	L+798		1.3	%	9/10/19		75,000		75,000		73,500
Opal Acquisition, Inc.	(i)	Consumer Services	L+400		1.0	%	11/27/20		1,428		1,419		1,418
Panda Sherman Power, LLC	(e)	Energy	L+750		1.5	%	9/14/18		2,310		2,324		2,298
Panda Temple Power, LLC (TLA)	(e)	Energy	L+700		1.5	%	7/17/18		1,722		1,734		1,746
PeroxyChem LLC	(h)(i)	Capital Goods	L+650		1.0	%	2/28/20		9,925		9,749		9,826
PharMEDium Healthcare Corp.	(g)	Health Care Equipment & Services	L+325		1.0	%	1/28/21		704		701		686
PHRC License, LLC	(f)(h)(i)	Consumer Services	L+900		1.5	%	8/14/20		60,000		60,000		59,400
Polymer Additives, Inc.	(h)(i)(l)	Materials	L+838		1.0	%	12/20/21		63,068		63,068		63,068
Production Resource Group, LLC	(g)(h)(i)(l)	Media	L+750		1.0	%	7/23/19		47,500		47,500		47,738
Professional Plumbing Group, Inc.	(e)(g)	Capital Goods	L+875		0.8	%	7/31/19		29,158		29,158		29,304
PRV Aerospace, LLC	(g)	Capital Goods	L+525		1.3	%	5/9/18		2,966		2,984		2,930
Reddy Ice Holdings, Inc.	(g)	Food & Staples Retailing	L+550		1.3	%	5/1/19		1,170		1,160		1,032
RGL Reservoir Operations Inc.	(g)(h)(o)	Energy	L+500		1.0	%	8/13/21		6,840		6,645		5,518
Serena Software, Inc.	(g)(h)	Software & Services	L+650		1.0	%	4/14/20		18,000		17,671		17,916
Smile Brands Group Inc.	(e)(f)(g)(h)(i)	Health Care Equipment & Services	L+625		1.3	%	8/16/19		43,635		43,110		41,781
Sorenson Communications, Inc.	(e)(g)(h)(i)(k)	Telecommunication Services	L+575		2.3	%	4/30/20		101,500		101,043		102,515
Southcross Holdings Borrower LP	(l)	Energy	L+500		1.0	%	8/4/21		316		314		283
The Sports Authority, Inc.	(g)	Consumer Durables & Apparel	L+600		1.5	%	11/16/17		7,818		7,871		6,939
Sprint Industrial Holdings LLC	(g)	Energy	L+575		1.3	%	11/14/19		7,229		7,180		6,904
Stallion Oilfield Holdings, Inc.	(e)(g)(h)	Energy	L+675		1.3	%	6/19/18		16,603		16,211		14,216
SunGard Availability Services Capital, Inc.	(g)(j)(n)	Software & Services	L+500		1.0	%	3/29/19		8,205		7,533		7,348
Sunnova Asset Portfolio 5 Holdings, LLC		Energy	12.0% PIK (12.0% Max PIK)				11/14/21		3,607		3,607		3,607

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost			Fair Value^(d)
Sunnova Asset Portfolio 5 Holdings, LLC	(s)	Energy	12.0% PIK (12.0% Max PIK)				11/14/21	$	6,400	$	6,400		$	6,400
Swift Worldwide Resources US Holdings Corp.	(g)(i)	Energy	L+800		1.3	%	4/30/19		19,887		19,887			19,489
Therakos, Inc.	(e)(g)	Pharmaceuticals, Biotechnology & Life Sciences	L+575		1.3	%	12/27/17		6,443		6,367			6,419
ThermaSys Corp.	(g)	Capital Goods	L+400		1.3	%	5/3/19		4,905		4,907			4,831
U.S. Xpress Enterprises, Inc.	(e)(h)(i)(k)	Transportation	L+850, 1.5% PIK (1.5% Max PIK)		1.5	%	5/30/19		94,763		94,763			94,763
UTEX Industries, Inc.	(l)	Energy	L+400		1.0	%	5/21/21		1,148		1,143			1,062
Waste Pro USA, Inc.	(e)(h)(i)(l)	Commercial & Professional Services	L+750		1.0	%	10/15/20		112,444		112,444			112,444
Waste Pro USA, Inc.	(s)	Commercial & Professional Services	L+750		1.0	%	10/15/20		12,222		12,222			12,222
Winchester Electronics Corp.	(e)(k)(l)	Technology Hardware & Equipment	Prime+750				11/17/20		98,182		98,182			98,182
Winchester Electronics Corp.	(s)	Technology Hardware & Equipment	Prime+700				11/17/20		32,732		32,732			32,732

Total Senior Secured Loans—First Lien											2,506,445			2,492,644
Unfunded Loan Commitments											(145,739	)		(145,739	)

Net Senior Secured Loans—First Lien											2,360,706			2,346,905

Senior Secured Loans—Second Lien—34.4%
Accellent Inc.	(j)	Health Care Equipment & Services	L+650		1.0	%	3/11/22		8,814		8,792			8,350
Advantage Sales & Marketing Inc.	(g)(j)	Commercial & Professional Services	L+650		1.0	%	7/25/22		4,236		4,206			4,203
Alison US LLC	(g)(o)	Capital Goods	L+850		1.0	%	8/29/22		4,444		4,272			4,160
Alliance Laundry Systems LLC	(e)	Capital Goods	L+825		1.3	%	12/10/19		1,450		1,439			1,451
American Energy—Marcellus, LLC	(g)	Energy	L+750		1.0	%	8/4/21		3,333		3,285			3,067
American Energy—Utica, LLC	(e)(f)(i)(l)	Energy	L+400, 5.5% PIK (5.5% Max PIK)		1.5	%	9/30/18		106,649		106,649			104,516
American Energy—Utica, LLC	(f)(l)	Energy	L+400, 5.5% PIK (5.5% Max PIK)		1.5	%	9/30/18		72,432		72,431			70,983
AssuredPartners, Inc.	(l)	Insurance	L+675		1.0	%	4/2/22		6,983		6,916			6,756
BlackBrush Oil & Gas, L.P.	(l)	Energy	L+650		1.0	%	7/30/21		6,637		6,589			5,509
BPA Laboratories, Inc.	(e)	Pharmaceuticals, Biotechnology & Life Sciences	2.5%				7/3/17		3,272		2,644			2,901
Brasa (Holdings) Inc.	(e)	Consumer Services	L+950		1.5	%	1/20/20		621		602			615
BRG Sports, Inc.	(l)	Consumer Durables & Apparel	L+925		1.0	%	4/15/22		12,500		12,205			12,594

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Byrider Finance, LLC	(f)	Automobiles & Components	L+1000		1.3	%	8/22/20	$	16,667	$	16,667	$	16,667
Catalina Marketing Corp.	(l)	Media	L+675		1.0	%	4/11/22		10,000		9,930		9,325
Cervalis LLC	(e)(f)	Commercial & Professional Services	L+875		1.3	%	2/8/19		30,000		29,688		30,000
Chief Exploration & Development LLC	(g)	Energy	L+650		1.0	%	5/16/21		2,259		2,238		2,044
ColourOz Investment 2 LLC	(i)(o)(n)	Materials	L+725		1.0	%	9/5/22		4,726		4,691		4,490
Compuware Corp.	(e)(o)(n)	Software & Services	L+825		1.0	%	12/9/22		10,000		8,700		9,250
Consolidated Precision Products Corp.	(e)	Capital Goods	L+775		1.0	%	4/30/21		15,575		15,506		14,874
Crossmark Holdings, Inc.	(l)	Commercial & Professional Services	L+750		1.3	%	12/21/20		7,778		7,795		7,603
DAE Aviation Holdings, Inc.	(k)(o)	Capital Goods	L+675		1.0	%	8/5/19		15,000		14,869		14,738
Del Monte Foods Consumer Products, Inc.	(l)(o)	Food, Beverage & Tobacco	L+725		1.0	%	8/18/21		3,333		3,303		2,867
Drew Marine Group Inc.	(l)(o)	Energy	L+700		1.0	%	5/19/21		2,500		2,495		2,488
Eastman Kodak Co.	(j)	Consumer Durables & Apparel	L+950		1.3	%	9/3/20		25,000		24,459		25,000
Extreme Reach, Inc.	(l)	Media	L+950		1.0	%	1/22/21		8,000		7,859		7,993
Filtration Group Corp.	(j)	Energy	L+725		1.0	%	11/21/21		5,158		5,173		5,164
Flexera Software LLC	(l)	Software & Services	L+700		1.0	%	4/2/21		10,000		9,954		9,600
Inmar, Inc.	(l)	Software & Services	L+700		1.0	%	1/27/22		2,830		2,804		2,770
Jazz Acquisition, Inc.	(g)	Capital Goods	L+675		1.0	%	6/19/22		3,700		3,753		3,621
Kronos Inc.	(k)	Software & Services	L+850		1.3	%	4/30/20		9,906		9,913		10,104
Leedsworld Inc.	(e)(f)(g)	Retailing	L+875		1.3	%	6/28/20		62,500		62,500		61,875
LM U.S. Member LLC	(e)(l)	Transportation	L+725		1.0	%	1/25/21		8,138		8,199		8,015
MD America Energy, LLC	(l)	Energy	L+850		1.0	%	8/4/19		12,500		11,920		12,000
Mitchell International, Inc.	(k)	Software & Services	L+750		1.0	%	10/11/21		10,000		10,224		9,985
Neff Rental LLC	(l)	Capital Goods	L+625		1.0	%	6/9/21		12,073		12,016		12,126
Nielsen & Bainbridge, LLC	(f)	Consumer Services	L+925		1.0	%	8/15/21		15,000		14,786		14,775
Onex Carestream Finance L.P.	(f)	Health Care Equipment & Services	L+850		1.0	%	12/7/19		4,717		4,642		4,701
P2 Upstream Acquisition Co.	(l)	Energy	L+800		1.0	%	4/30/21		14,500		14,750		13,956
Paw Luxco II Sarl	(o)	Consumer Durables & Apparel	EURIBOR+950				1/29/19	€	5,727		7,073		6,021
Payless Inc.	(l)	Consumer Durables & Apparel	L+750		1.0	%	3/11/22	$	14,092		13,961		12,683
Peak 10, Inc.	(j)	Software & Services	L+725		1.0	%	6/17/22		5,500		5,447		5,335
Pelican Products, Inc.	(l)	Capital Goods	L+825		1.0	%	4/9/21		5,438		5,401		5,370
Penton Media, Inc.	(j)	Media	L+775		1.3	%	10/2/20		9,000		8,885		8,933

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor			Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Printpack Holdings, Inc.	(e)(i)(l)	Materials	L+875		1.0	%	5/28/21	$	60,000	$	58,871	$	59,700
PSAV Acquisition Corp.	(e)	Technology Hardware & Equipment	L+825		1.0	%	1/24/22		80,000		78,898		80,500
Redtop Acquisitions Ltd.	(o)	Consumer Services	L+725		1.0	%	6/3/21		5,449		5,389		5,442
Renaissance Learning, Inc.	(k)	Software & Services	L+700		1.0	%	4/11/22		12,857		12,739		12,343
Road Infrastructure Investment, LLC	(l)	Consumer Services	L+675		1.0	%	9/30/21		7,759		7,724		7,031
Samson Investment Co.	(g)	Energy	L+400		1.0	%	9/25/18		2,000		1,818		1,579
Sensus USA Inc.	(f)	Capital Goods	L+725		1.3	%	5/9/18		2,050		2,055		1,963
Sequential Brands Group, Inc.	(e)(i)(k)	Consumer Durables & Apparel	L+800		1.0	%	8/15/20		50,000		50,000		50,000
The Telx Group, Inc.	(j)	Software & Services	L+650		1.0	%	4/9/21		7,000		6,936		6,851
Templar Energy LLC	(h)(j)	Energy	L+750		1.0	%	11/25/20		29,231		28,602		21,134
Therakos, Inc.	(e)	Pharmaceuticals, Biotechnology & Life Sciences	L+950		1.3	%	6/27/18		28,000		27,481		28,385
TNS, Inc.	(f)(h)(l)	Telecommunication Services	L+800		1.0	%	8/14/20		51,469		51,010		50,954
Ultima US Holdings LLC	(l)(o)	Capital Goods	L+850		1.0	%	12/31/20		57,000		56,035		55,860
US Renal Care, Inc.	(i)	Health Care Equipment & Services	L+750		1.0	%	1/3/20		2,500		2,458		2,489
Vantage Energy II, LLC	(i)	Energy	L+750		1.0	%	5/8/17		13,000		13,000		12,935
Vantage Energy, LLC	(i)	Energy	L+750		1.0	%	12/20/18		18,277		18,127		16,267
Vertafore, Inc.	(f)	Software & Services	L+825		1.5	%	10/27/17		830		831		836
Winebow Holdings, Inc.	(g)	Retailing	L+750		1.0	%	1/2/22		2,775		2,755		2,691
WNA Holdings, Inc.	(l)	Materials	L+725		1.3	%	12/7/20		5,000		4,958		4,875

Total Senior Secured Loans—Second Lien											1,019,318		1,001,313

Senior Secured Bonds—8.6%
Advanced Lighting Technologies, Inc.	(e)(f)	Materials	10.5%				6/1/19		35,500		31,793		23,607
Allen Systems Group, Inc.	(f)(p)(t)	Software & Services	10.5%				11/15/16		14,225		10,242		4,979
Altice Financing S.A.	(j)(o)	Media	7.8%				5/15/22		7,000		7,000		6,974
Aspect Software, Inc.	(f)(j)	Software & Services	10.6%				5/15/17		8,005		8,262		7,605
Avaya Inc.	(j)	Technology Hardware & Equipment	7.0%				4/1/19		5,500		5,473		5,444
Avaya Inc.	(f)(j)	Technology Hardware & Equipment	10.5%				3/1/21		15,550		13,632		13,412
Caesars Entertainment Resort Properties, LLC	(e)(f)(j)	Consumer Services	11.0%				10/1/21		70,460		71,140		64,471
CEVA Group Plc	(j)(o)	Transportation	9.0%				9/1/21		2,000		2,000		1,890
FourPoint Energy, LLC	(e)(f)	Energy	8.0%				12/31/20		43,875		41,989		38,610

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Amortized Cost			Fair Value^(d)
FourPoint Energy, LLC	(s)	Energy	8.0%		12/31/20	$	17,063	$	16,977		$	15,015
Global A&T Electronics Ltd.	(f)(o)	Technology Hardware & Equipment	10.0%		2/1/19		9,000		9,000			8,118
JW Aluminum Co.	(e)(f)	Materials	11.5%, 1.0% PIK (1.0% Max PIK)		11/15/17		17,550		17,527			17,550
Light Tower Rentals, Inc.	(j)	Capital Goods	8.1%		8/1/19		2,100		2,100			1,680
Logan’s Roadhouse, Inc.	(f)(j)	Consumer Services	10.8%		10/15/17		36,814		32,309			27,288
Modular Space Corp.	(j)	Capital Goods	10.3%		1/31/19		9,950		10,234			8,657
Prince Mineral Holding Corp.	(e)	Materials	11.5%		12/15/19		2,600		2,578			2,655
Sorenson Communications, Inc.	(e)(f)(j)	Telecommunication Services	9.0%		10/31/20		18,877		18,175			17,933

Total Senior Secured Bonds									300,431			265,888
Unfunded Bond Commitments									(16,977	)		(16,977	)

Net Senior Secured Bonds									283,454			248,911

Subordinated Debt—14.5%
Acosta HoldCo, Inc.	(j)	Consumer Services	7.8%		10/1/22		4,800		4,799			4,871
American Energy—Woodford, LLC	(j)	Energy	9.0%		9/15/22		3,750		3,598			2,358
Armored AutoGroup Inc.	(j)	Household & Personal Products	9.3%		11/1/18		2,544		2,651			2,557
Atlas Energy Holdings Operating Co., LLC	(j)(o)	Energy	7.8%		1/15/21		5,000		5,000			3,625
Aurora Diagnostics, LLC	(e)	Pharmaceuticals, Biotechnology & Life Sciences	10.8%		1/15/18		7,000		7,030			6,090
Beazer Homes USA, Inc.	(j)(o)	Capital Goods	7.3%		2/1/23		2,750		2,750			2,681
Brooklyn Basketball Holdings, LLC	(f)(i)	Consumer Services	L+800		10/15/19		39,746		39,746			39,348
BWAY Holding Co.	(j)	Materials	9.1%		8/15/21		6,250		6,211			6,281
Cadillac Jack, Inc.	(f)(o)(n)	Consumer Services	6.0%, 7.0% PIK (7.0% Max PIK)		5/15/20		52,268		36,562			54,947
Calumet Specialty Products Partners, L.P.	(j)(o)	Energy	6.5%		4/15/21		2,500		2,500			2,233
CEC Entertainment, Inc.	(j)	Consumer Services	8.0%		2/15/22		11,000		11,018			10,725
Compressco Partners, LP	(j)(o)	Energy	7.3%		8/15/22		4,000		3,942			3,468
Elizabeth Arden, Inc.	(j)(o)	Household & Personal Products	7.4%		3/15/21		615		569			569
Era Group Inc.	(j)(o)	Energy	7.8%		12/15/22		7,250		7,145			7,540
First Data Corp.	(j)	Software & Services	11.8%		8/15/21		650		671			753

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Global Jet Capital, Inc.		Commercial & Professional Services	8.0% PIK (8.0% Max PIK)		1/30/15	$	313	$	313	$	313
Hub International Ltd.	(j)	Insurance	7.9%		10/1/21		3,500		3,500		3,500
Hub International Ltd.	(j)	Insurance	8.1%, 0.8% PIK (0.8% Max PIK)		7/15/19		6,000		5,986		5,918
Jefferies Finance LLC	(j)(o)	Diversified Financials	7.4%		4/1/20		1,500		1,500		1,400
Jefferies Finance LLC	(j)(o)	Diversified Financials	6.9%		4/15/22		950		950		860
Jupiter Resources Inc.	(i)(j)(o)	Energy	8.5%		10/1/22		22,300		20,975		16,725
Kinetic Concepts, Inc.	(f)	Health Care Equipment & Services	12.5%		11/1/19		4,300		4,619		4,730
Legacy Reserves L.P.	(e)(o)	Energy	8.0%		12/1/20		8,250		8,107		6,895
Lightstream Resources Ltd.	(j)(o)	Energy	8.6%		2/1/20		4,150		3,436		2,925
Mood Media Corp.	(e)(f)(j)(o)	Media	9.3%		10/15/20		46,207		45,596		37,774
NewStar Financial, Inc.	(e)(k)(l)(o)	Diversified Financials	8.3%, 0.0% PIK (8.8% Max PIK)		12/4/24		100,000		69,995		75,000
Ocean Rig UDW Inc.	(j)(o)	Energy	7.3%		4/1/19		4,700		4,700		3,349
Opal Acquisition, Inc.	(j)	Consumer Services	8.9%		12/15/21		27,000		27,000		27,506
P.F. Chang’s China Bistro, Inc.	(f)(j)	Consumer Services	10.3%		6/30/20		12,968		13,314		13,033
Resolute Energy Corp.	(j)	Energy	8.5%		5/1/20		5,800		5,856		2,748
Rex Energy Corp.	(e)(o)	Energy	8.9%		12/1/20		15,000		14,914		13,500
Rex Energy Corp.	(j)(o)	Energy	6.3%		8/1/22		3,950		3,950		3,022
RKI Exploration & Production, LLC	(j)	Energy	8.5%		8/1/21		1,650		1,462		1,345
Samson Investment Co.	(f)	Energy	9.8%		2/15/20		1,400		1,132		588
SandRidge Energy, Inc.	(j)(o)	Energy	8.8%		1/5/20		10,659		9,421		7,275
Sidewinder Drilling Inc.	(e)	Energy	9.8%		11/15/19		1,722		1,722		1,007
Signode Industrial Group US Inc.	(j)	Commercial & Professional Services	6.4%		5/1/22		4,900		4,900		4,753
Sorenson Communications, Inc.	(e)(f)(j)	Telecommunication Services	13.0%		10/31/21		14,346		13,388		14,633
SunGard Availability Services Capital, Inc.	(j)	Software & Services	8.8%		4/1/22		1,000		647		595
Talos Production LLC	(j)	Energy	9.8%		2/15/18		1,500		1,364		1,358
Triangle USA Petroleum Corp.	(j)(o)	Energy	6.8%		7/15/22		2,350		2,350		1,542
U.S. Coatings Acquisition Inc.	(j)	Capital Goods	7.4%		5/1/21		2,000		2,000		2,125
Warren Resources, Inc.	(j)	Energy	9.0%		8/1/22		12,650		12,202		7,906

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes	Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Windstream Corp.	(j)(o)	Telecommunication Services	6.4%		8/1/23		$ 2,600		$ 2,600		$ 2,444
WMG Acquisition Corp.	(j)	Media	6.8%		4/15/22		6,000		6,000		5,520
York Risk Services Holding Corp.	(j)	Insurance	8.5%		10/1/22		3,350		3,350		3,348

Total Subordinated Debt									431,441		421,683

Collateralized Securities—6.3%
AMMC 2012 CDO 11A Class Subord.	(o)	Diversified Financials	12.4%		10/30/23		6,000		4,022		4,076
Apidos CLO XIV Class E	(o)	Diversified Financials	L+440		4/15/25		6,000		5,381		5,194
Ares 2012 CLO 2A Class Subord.	(o)	Diversified Financials	8.9%		10/12/23		8,500		6,614		5,698
CGMS CLO 2013-3A Class E	(o)	Diversified Financials	L+525		7/15/25		5,000		4,495		4,215
CGMS CLO 2013-3A Class Subord.	(o)	Diversified Financials	14.6%		7/15/25		22,000		15,890		18,949
Halcyon Loan Advisors Funding 2013-2 Class Subord.	(o)	Diversified Financials	15.2%		8/1/25		15,000		11,363		14,628
JPMorgan Chase Bank, N.A. Credit-Linked Notes	(o)	Diversified Financials	14.3%		12/20/21		76,260		75,735		78,739
NewStar Clarendon 2014-1A Class D	(o)(n)	Diversified Financials	L+435		1/25/27		1,060		993		993
NewStar Clarendon 2014-1A Sub B	(o)(n)	Diversified Financials	12.4%		1/25/27		12,140		12,013		12,013
Octagon CLO 2012-1A Class Income	(o)	Diversified Financials	14.9%		1/15/24		4,650		2,926		3,715
Wind River CLO Ltd. 2013-1A Class Subord. B	(o)	Diversified Financials	12.6%		4/20/25		40,720		32,636		36,370

Total Collateralized Securities									172,068		184,590


						Number of Shares		Cost		Fair Value^(d)
Equity/Other—6.6%
A.T. Cross Co., Common Equity, Class A Units	(p)	Retailing					1,000,000		1,000		1,000
Abaco Energy Technologies LLC, Common Equity	(p)	Energy					3,055,556		3,056		3,056
ACP FH Holdings GP, LLC, Common Equity	(p)	Consumer Durables & Apparel					88,571		89		89
ACP FH Holdings, LP, Common Equity	(p)	Consumer Durables & Apparel					8,768,572		8,769		8,769
Altus Power America Holdings, Inc., Preferred Equity	(p)	Energy					253,925		254		254
Amaya Gaming Group Inc., Warrants	(o)(p)	Consumer Services					2,000,000		16,832		35,179
American Energy Appalachia Holdings, LLC, Common Equity	(p)(q)	Energy					13,555,557		12,900		13,556
AP Exhaust Holdings, LLC, Common Equity	(p)(r)	Automobiles & Components					8,378		8,378		5,990

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Number of Shares/Contracts		Cost		Fair Value^(d)
BPA Laboratories, Inc., Series A Warrants		(e)(p)	Pharmaceuticals, Biotechnology & Life Sciences		10,924	$	—	$	—
BPA Laboratories, Inc., Series B Warrants		(e)(p)	Pharmaceuticals, Biotechnology & Life Sciences		17,515		—		—
Burleigh Point, Ltd., Warrants		(o)(p)	Retailing		17,256,081		1,898		5,003
Cimarron Energy Inc., Common Equity		(p)	Energy		2,500,000		2,500		2,500
CoSentry.Net, LLC, Preferred Equity		(p)	Software & Services		2,632		2,500		4,185
DHS Technologies LLC		(f)	Capital Goods		60,872		5,000		1,468
Eastman Kodak Co., Common Equity		(p)	Consumer Durables & Apparel		1,846		36		40
ERC Ireland Holdings Ltd., Common Equity		(o)(p)(n)	Telecommunication Services		22,401		2,548		3,550
ERC Ireland Holdings Ltd., Warrants		(o)(p)	Telecommunication Services		4,943		598		783
FourPoint Energy, LLC, Common Equity, Class C Units		(p)(r)	Energy		13,000		13,000		16,575
FourPoint Energy, LLC, Common Equity, Class D Units		(p)(r)	Energy		2,437		1,610		3,132
Industrial Group Intermediate Holdings, LLC, Common Equity		(p)(r)	Materials		2,107,438		2,107		2,950
MB Precision Holdings LLC, Common Equity		(p)	Capital Goods		2,287,659		2,288		2,288
MModal Inc., Common Equity		(e)(g)(p)	Health Care Equipment & Services		132,235		2,182		1,989
New Star Metals Inc., Common Equity			Capital Goods		2,223,246		2,250		2,890
NewStar Financial, Inc., Warrants		(o)(p)	Diversified Financials		4,750,000		30,115		31,350
Professional Plumbing Group, Inc., Common Equity		(p)	Capital Goods		3,000,000		3,000		4,200
PSAV Holdings LLC, Common Equity		(p)	Technology Hardware & Equipment		10,000		10,000		15,000
Sorenson Communications, Inc., Common Equity		(e)(f)(p)	Telecommunication Services		43,796		—		20,466
Swift Worldwide Resources Holdco Limited, Common Equity		(o)(p)(y)	Energy		1,250,000		2,010		1,947
Therakos, Inc., Common Equity			Pharmaceuticals, Biotechnology & Life Sciences		14,366		1,478		6,169
Weight Watchers International, Inc., Put Option		(o)(p)(u)	Food & Staples Retailing		4,000		2,895		1,360
Weight Watchers International, Inc., Put Option		(o)(p)(u)	Food & Staples Retailing		5,000		2,022		1,175
Weight Watchers International, Inc., Put Option		(o)(p)(u)	Food & Staples Retailing		5,000		1,504		863

Total Equity/Other							142,819		197,776
Unfunded Contingent Warrant Commitment							—		(4,950	)

Net Equity/Other							142,819		192,826

TOTAL INVESTMENTS—151.0%						$	4,409,806		4,396,228

LIABILITIES IN EXCESS OF OTHER ASSETS—(51.0%)		(v)							(1,484,438	)

NET ASSETS—100.0%								$	2,911,790

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)

Credit Default Swaps on Corporate Issues—Sell Protection


Reference Entity	Counterparty		Implied Credit Spread at December 31, 2014^(w)			Industry		Fixed Deal Received Rate			Maturity		Notional^(x)		Market Value^(d)			Unamortized Premiums Paid (Received)			Unrealized Appreciation (Depreciation)
Caesars Entertainment Operating Co., Inc.		JPMorgan Chase Bank, N.A.		888.2	%		Consumer Services		5.0	%		6/20/15	$	15,000	$	(12,026	)	$	(3,768	)	$	(8,258	)
Caesars Entertainment Operating Co., Inc.		JPMorgan Chase Bank, N.A.		656.5	%		Consumer Services		5.0	%		9/20/15		22,000		(18,022	)		(6,854	)		(11,168	)

(a)	Security may be an obligation of one or more entities affiliated with the named company.

(b)

Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly-disclosed base rate plus a basis point spread. As of December 31, 2014, the three-month London Interbank Offered Rate was 0.26%, the Euro Interbank Offered Rate was 0.08% and the U.S. Prime Lending Rate was 3.25%.

(c)	Denominated in U.S. dollars unless otherwise noted.

(d)	Fair value and market value are determined by the Company’s board of directors (see Note 7).

(e)	Security or portion thereof held within Lehigh River LLC and is pledged as collateral supporting the amounts outstanding under the Class A Floating Rate Notes issued to Cobbs Creek LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8).

(f)	Security or portion thereof held within Cobbs Creek LLC and is pledged as collateral supporting the obligations of Cobbs Creek LLC under the repurchase transaction with JPMorgan Chase Bank, N.A., London Branch (see Note 8).

(g)	Security or portion thereof held within Cooper River LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 8).

(h)	Security or portion thereof held within Wissahickon Creek LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Wells Fargo Bank, National Association (see Note 8).

(i)	Security or portion thereof held within Darby Creek LLC and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8).

(j)	Security or portion thereof held within Dunning Creek LLC and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8).

(k)	Security or portion thereof held within Juniata River LLC and is pledge as collateral supporting the amounts outstanding under a revolving credit facility with JPMorgan Chase Bank, N.A. (see Note 8).

(l)	Security or portion thereof held within Green Creek LLC and is pledged as collateral supporting the amounts outstanding under the Notes issued to Schuylkill River LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8).

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)

(m)	Security or portion thereof held within Schuylkill River LLC and is pledged as collateral supporting the obligations of Schuylkill River LLC under the repurchase transaction with Goldman Sachs Bank USA (see Note 8).

(n)	Position or portion thereof unsettled as of December 31, 2014.

(o)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of December 31, 2014, 78.8% of the Company’s total assets represented qualifying assets.

(p)	Security is non-income producing.

(q)	Security held within IC II American Energy Investments, Inc., a wholly-owned subsidiary of the Company.

(r)	Security held within FSIC II Investments, Inc., a wholly-owned subsidiary of the Company.

(s)	Security is an unfunded commitment.

(t)	Security was on non-accrual status as of December 31, 2014.

(u)	Put options expire January 15, 2016. The strike prices are $20.00, $17.50 and $15.00, respectively.

(v)	Includes the effect of credit default swap positions.

(w)

Implied credit spread, represented in absolute terms, utilized in determining the market value of the credit default swap agreements as of period end serves as an indicator of the current status of the payment/performance risk and represents the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required in connection with the entrance into the agreement. Wider credit spreads generally represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring, as defined under the terms of the applicable agreement.

(x)	The maximum potential amount the Company could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of the applicable agreement.

(y)	Investment denominated in British pounds. Cost and fair value are converted into U.S. dollars as of December 31, 2014.

See notes to unaudited consolidated financial statements.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 1. Principal Business and Organization

FS Investment Corporation II, or the Company, was incorporated under the general corporation laws of the State of Maryland on July 13, 2011 and formally commenced investment operations on June 18, 2012 upon raising gross proceeds in excess of $2,500, or the minimum offering requirement, from sales of shares of its common stock in its continuous public offering to persons who were not affiliated with the Company or the Company’s investment adviser, FSIC II Advisor, LLC, or FSIC II Advisor, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, and an affiliate of the Company. Prior to satisfying the minimum offering requirement, the Company had no operations except for matters relating to its organization and registration as a non-diversified, closed-end management investment company.

The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of June 30, 2015, the Company had nine wholly-owned financing subsidiaries, two wholly-owned subsidiaries through which it holds interests in certain non-controlled and non-affiliated portfolio companies and another wholly-owned subsidiary through which it may hold certain investments in portfolio companies from time to time. The unaudited consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries as of June 30, 2015. All significant intercompany transactions have been eliminated in consolidation. Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state income taxes.

The Company’s investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation by investing primarily in senior secured loans and second lien secured loans of private U.S. companies. The Company seeks to generate superior risk-adjusted returns by focusing on debt investments in a broad array of private U.S. companies, including middle market companies, which the Company defines as companies with annual revenues of $50 million to $2.5 billion at the time of investment. The Company may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the “over-the-counter” market or directly from the Company’s target companies as primary market or directly originated investments. In connection with the Company’s debt investments, the Company may on occasion receive equity interests such as warrants or options as additional consideration. The Company may also purchase or otherwise acquire minority interests in target companies in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity, or the cash value of common stock or other equity. Any such minority interests are generally acquired in conjunction with one of the Company’s debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of the Company’s portfolio may be comprised of corporate bonds, collateralized loan obligations, or CLOs, other debt securities and derivatives, including total return swaps and credit default swaps.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the fiscal year ended December 31, 2014 included in the Company’s annual report on Form 10-K for the year ended December 31, 2014. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015. The December 31, 2014 consolidated balance sheet and consolidated schedule of investments are derived from the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2014. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies. The Company has evaluated the impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

Use of Estimates: The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded and all amounts are in thousands, except share and per share amounts.

Capital Gains Incentive Fee: The Company entered into an investment advisory and administrative services agreement with FSIC II Advisor, dated as of February 8, 2012, or the investment advisory and administrative services agreement. Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of such agreement). Such fee will equal 20.0% of the Company’s incentive fee capital gains (i.e., the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While the investment advisory and administrative services agreement neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute of Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, the Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FSIC II Advisor as if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though FSIC II Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Subordinated Income Incentive Fee: Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of the Company’s “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from its distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds of non-liquidating dispositions of the Company’s investments

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

and amounts paid for share repurchases pursuant to the Company’s share repurchase program. As a result, FSIC II Advisor will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FSIC II Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.34375%, or 9.375% annually, of adjusted capital. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

Credit Default Swaps: When the Company is the buyer of a credit default swap contract, the Company is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty to the contract if a specified credit event with respect to the issuer of the debt obligation, such as a U.S. or foreign corporate issuer or sovereign issuer, occurs. In return, the Company pays the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no specified credit event occurs, the Company would have paid the stream of payments and received no proceeds from the contract. When the Company is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an amount up to the notional amount of the swap and, in certain instances, take delivery of securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract specific but may include bankruptcy, failure to pay principal or interest, restructuring, obligation acceleration and repudiation or moratorium. If the Company is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Company could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap agreement entered into by the Company for the same referenced obligation. As the seller of a credit default swap contract, the Company may create economic leverage because, in addition to its total net assets, the Company is subject to investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily and is recorded as realized loss or gain. The Company records an increase or decrease to unrealized appreciation (depreciation) on credit default swaps in an amount equal to the change in daily valuation. Upfront payments or receipts, if any, are recorded as unamortized swap premiums paid or received, respectively, and are amortized over the life of the swap contract as realized losses or gains. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation (depreciation) on credit default swaps to determine the market value of swaps as presented in Note 7 and Note 9. The Company will segregate assets in the form of cash and/or liquid securities in an amount equal to any unrealized depreciation on the credit default swaps of which it is the buyer, marked-to-market on a daily basis. The Company will segregate assets in the form of cash and/or liquid securities in an amount equal to the notional amount of the credit default swaps of which it is the seller. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction. As of June 30, 2015, the Company had no outstanding credit default swap contracts.

Reclassifications: Certain amounts in the unaudited consolidated financial statements for the three and six months ended June 30, 2014 and the audited consolidated financial statements for the year ended December 31, 2014 may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements for the three and six months ended June 30, 2015. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations or cash flows as previously reported.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 3. Share Transactions

Below is a summary of transactions with respect to shares of the Company’s common stock during the six months ended June 30, 2015 and 2014:


	Six Months Ended June 30,
	2015						2014
	Shares			Amount			Shares			Amount
Gross Proceeds from Offering		—		$	—			46,680,052		$	486,879
Reinvestment of Distributions		5,588,381			52,801			5,933,163			56,392

Total Gross Proceeds		5,588,381			52,801			52,613,215			543,271
Commissions and Dealer Manager Fees		—			—			—			(44,484	)

Net Proceeds to Company		5,588,381			52,801			52,613,215			498,787
Share Repurchase Program		(1,464,078	)		(13,864	)		(507,488	)		(4,830	)

Net Proceeds from Share Transactions		4,124,303		$	38,937			52,105,727		$	493,957

Public Offering of Shares

In March 2014, the Company closed its continuous public offering of shares of common stock to new investors. The Company sold 302,266,066 shares of common stock for gross proceeds of $3,112,692 in its continuous public offering, including shares issued pursuant to its distribution reinvestment plan. Following the closing of its continuous public offering, the Company has continued to issue shares pursuant to its distribution reinvestment plan. As of August 3, 2015, the Company had issued a total of 322,913,389 shares of common stock and raised total gross proceeds of $3,308,015, including $200 of seed capital contributed by the principals of FSIC II Advisor in December 2011 and $18,395 in proceeds raised from the principals of FSIC II Advisor, other individuals and entities affiliated with FSIC II Advisor, certain members of the Company’s board of directors and certain individuals and entities affiliated with GSO / Blackstone Debt Funds Management LLC, or GDFM, the Company’s investment sub-adviser, in a private placement completed in June 2012 (see Note 4).

During the six months ended June 30, 2015 and 2014, the Company issued 5,588,381 and 52,613,215 shares of common stock for gross proceeds of $52,801 and $543,271 at an average price per share of $9.45 and $10.33, respectively. All of the shares of common stock the Company issued during the six months ended June 30, 2015 were issued on account of reinvested stockholder distributions pursuant to the Company’s dividend reinvestment plan. The gross proceeds received during the six months ended June 30, 2014 include reinvested stockholder distributions of $56,392 for which the Company issued 5,933,163 shares of common stock. During the period from July 1, 2015 to August 3, 2015, the Company issued 2,268,181 shares of common stock pursuant to its distribution reinvestment plan for gross proceeds of $21,264 at an average price per share of $9.37.

The proceeds from the issuance of common stock as presented on the Company’s unaudited consolidated statements of changes in net assets and unaudited consolidated statements of cash flows are presented net of selling commissions and dealer manager fees of $0 and $44,484 for the six months ended June 30, 2015 and 2014, respectively.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

Share Repurchase Program

The Company intends to continue to conduct quarterly tender offers pursuant to its share repurchase program. The first such tender offer commenced in August 2012, and the repurchase occurred in connection with the Company’s October 1, 2012 semi-monthly closing. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

•

the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);

•

the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

•

the Company’s investment plans and working capital requirements;

•

the relative economies of scale with respect to the Company’s size;

•

the Company’s history in repurchasing shares of common stock or portions thereof; and

•

the condition of the securities markets.

The Company currently intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the proceeds it receives from the issuance of shares of common stock under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above. The Company’s board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice.

On February 24, 2014, the Company amended the terms of its share repurchase program, which became effective as of the commencement of the Company’s quarterly repurchase offer for the second quarter of 2014, which was completed in June 2014. Prior to the amendment of the share repurchase program, the Company offered to repurchase shares of common stock at a price equal to 90% of the share price in effect on the date of repurchase. Under the amended share repurchase program, the Company intends to offer to repurchase shares of common stock at a price equal to the price at which shares of common stock are issued pursuant to the Company’s distribution reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which shares of common stock are issued under the Company’s distribution reinvestment plan is determined by the Company’s board of directors or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per share as of such date.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

The following table provides information concerning the Company’s repurchases of shares of common stock pursuant to its share repurchase program during the six months ended June 30, 2015 and 2014:


For the Three Months Ended	Repurchase Date	Shares Repurchased		Percentage of Shares Tendered That Were Repurchased			Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares
Fiscal 2014
December 31, 2013	January 2, 2014		135,094		100	%	$	9.45	$	1,277
March 31, 2014	April 1, 2014		372,394		100	%	$	9.54	$	3,553
Fiscal 2015
December 31, 2014	January 2, 2015		578,569		100	%	$	9.50	$	5,496
March 31, 2015	April 1, 2015		885,509		100	%	$	9.45	$	8,368

On July 1, 2015, the Company repurchased 997,845 shares of common stock (representing 100% of the shares of the common stock tendered for repurchase) at $9.45 per share for aggregate consideration totaling $9,430.

Note 4. Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor is entitled to an annual base management fee of 2.0% of the average value of the Company’s gross assets and an incentive fee based on the Company’s performance. The Company commenced accruing fees under the investment advisory and administrative services agreement on June 18, 2012, upon commencement of the Company’s investment operations. Base management fees are paid on a quarterly basis in arrears. Effective March 5, 2015, FSIC II Advisor agreed to permanently waive a portion of its base management fee to which it is entitled under the investment advisory and administrative services agreement, so that the fee received equals 1.75% of the average value of the Company’s gross assets.

The incentive fee consists of two parts. The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, equals 20.0% of the Company’s “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company’s investments paid to stockholders and amounts paid for share repurchases pursuant to the Company’s share repurchase program. As a result, FSIC II Advisor will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FSIC II Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.34375%, or 9.375% annually, of adjusted capital. This “catch-up” feature allows FSIC II Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. The Company accrues for the capital gains incentive fee, which, if earned, is paid annually. The Company accrues the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FSIC II Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized.

The Company reimburses FSIC II Advisor for expenses necessary to perform services related to the Company’s administration and operations, including FSIC II Advisor’s allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., or Franklin Square Holdings, the Company’s sponsor and an affiliate of FSIC II Advisor, providing administrative services to the Company on behalf of FSIC II Advisor. The amount of this reimbursement is set at the lesser of (1) FSIC II Advisor’s actual costs incurred in providing such services and (2) the amount that the Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. FSIC II Advisor is required to allocate the cost of such services to the Company based on factors such as assets, revenues, time allocations and/or other reasonable metrics. The Company’s board of directors reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of the administrative expenses among the Company and certain affiliates of FSIC II Advisor. The Company’s board of directors then assesses the reasonableness of such reimbursements for expenses allocated to the Company based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the Company’s board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company’s board of directors, among other things, compares the total amount paid to FSIC II Advisor for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs. The Company does not reimburse FSIC II Advisor for any services for which it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FSIC II Advisor.

Under the investment advisory and administrative services agreement, the Company, either directly or through reimbursement to FSIC II Advisor or its affiliates, was responsible for its organization and offering costs in an amount up to 1.5% of gross proceeds raised in the Company’s continuous public offering. Organization and offering costs primarily included legal, accounting, printing and other expenses relating to the Company’s continuous public offering, including costs associated with technology integration between the Company’s systems and those of its selected broker-dealers, marketing expenses, salaries and direct expenses of FSIC II Advisor’s personnel, employees of its affiliates and others while engaged in registering and marketing the Company’s common stock, which included the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

Prior to satisfaction of the minimum offering requirement and for a period of time thereafter, Franklin Square Holdings funded certain of the Company’s organization and offering costs. Following this period, the Company paid certain of its organization and offering costs directly and reimbursed FSIC II Advisor for offering

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

costs incurred by FSIC II Advisor on the Company’s behalf, including marketing expenses, salaries and other direct expenses of FSIC II Advisor’s personnel and employees of its affiliates while engaged in registering and marketing the Company’s common stock. Organization and offering costs funded directly by Franklin Square Holdings were recorded by the Company as a contribution to capital. The offering costs were offset against capital in excess of par value on the consolidated financial statements and the organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts reimbursed to FSIC II Advisor for ongoing offering costs and any reimbursements paid to Franklin Square Holdings for organization and offering costs previously funded, were recorded as a reduction of capital.

The dealer manager for the Company’s continuous public offering was FS² Capital Partners, LLC, or FS², which is one of the Company’s affiliates. Under the dealer manager agreement among the Company, FSIC II Advisor and FS², or the dealer manager agreement, FS² was entitled to receive selling commissions and dealer manager fees in connection with the sale of shares of common stock in the Company’s continuous public offering, all or a portion of which were re-allowed to selected broker-dealers. The dealer manager agreement terminated in connection with the closing of the Company’s continuous public offering in March 2014.

The following table describes the fees and expenses the Company accrued under the investment advisory and administrative services agreement and the dealer manager fees FS² received under the dealer manager agreement during the three and six months ended June 30, 2015 and 2014:


			Three Months Ended June 30,				Six Months Ended June 30,
Related Party	Source Agreement	Description	2015		2014		2015		2014
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Base Management Fee⁽¹⁾	$	22,063	$	19,849	$	45,438	$	37,490
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Capital Gains Incentive Fee⁽²⁾	$	—	$	6,387	$	—	$	12,321
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Subordinated Incentive Fee on Income⁽³⁾	$	25,095	$	9,679	$	40,308	$	9,679
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Administrative Services Expenses⁽⁴⁾	$	1,140	$	1,216	$	2,216	$	2,590
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Offering Costs⁽⁵⁾	$	—	$	—	$	—	$	1,087
FS²	Dealer Manager Agreement	Dealer Manager Fee⁽⁶⁾	$	—	$	—	$	—	$	8,821

(1)

FSIC II Advisor agreed, effective March 5, 2015, to permanently waive a portion of its base management fee to which it is entitled under the investment advisory agreement so that the fee received equals 1.75% of the average value of the Company’s gross assets. As a result, the amount shown for the three and six months ended June 30, 2015 is net of waivers of $3,151 and $4,002, respectively. During the six months ended June 30, 2015 and 2014, $46,444 and $32,654, respectively, in base management fees were paid to FSIC II Advisor. As of June 30, 2015, $22,063 in base management fees were payable to FSIC II Advisor.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

(2)

During the six months ended June 30, 2015 and 2014, the Company accrued capital gains incentive fees of $0 and $12,321, respectively, based on the performance of its portfolio, all of which was based on unrealized gains. No such fees are actually payable by the Company with respect to such unrealized gains unless and until those gains are actually realized. See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee. The Company did not pay any capital gains incentive fees to FSIC II Advisor during the six months ended June 30, 2015. As of June 30, 2015, the Company did not have any accrued capital gains incentive fees based on the performance of its portfolio.

(3)	During the six months ended June 30, 2015 and 2014, $30,547 and $0, respectively, of subordinated incentive fees on income were paid to FSIC II Advisor. As of June 30, 2015, a subordinated incentive fee on income of $25,095 was payable to FSIC II Advisor.

(4)

During the six months ended June 30, 2015 and 2014, $2,125 and $2,396, respectively, of administrative services expenses related to the allocation of costs of administrative personnel for services rendered to the Company by FSIC II Advisor and the remainder related to other reimbursable expenses. The Company paid $2,162 and $1,273 in administrative services expenses to FSIC II Advisor during the six months ended June 30, 2015 and 2014, respectively.

(5)

During the six months ended June 30, 2015 and 2014, the Company incurred offering costs of $0 and $1,686, respectively, of which $0 and $1,087, respectively, related to reimbursements to FSIC II Advisor for offering costs incurred on the Company’s behalf, including marketing expenses, salaries and other direct expenses of FSIC II Advisor’s personnel and employees of its affiliates while engaged in registering and marketing the Company’s shares.

(6)	Represents aggregate sales commissions and dealer manager fees retained by FS² and not re-allowed to selected broker-dealers.

Capital Contribution by FSIC II Advisor and GDFM

In December 2011, Michael C. Forman and David J. Adelman, the principals of FSIC II Advisor, contributed an aggregate of $200 to purchase 22,222 shares of common stock at $9.00 per share, which represented the initial public offering price of $10.00 per share, excluding selling commissions and dealer manager fees. The principals will not tender these shares of common stock for repurchase as long as FSIC II Advisor remains the Company’s investment adviser.

In June 2012, pursuant to a private placement, Messrs. Forman and Adelman agreed to purchase, through affiliated entities controlled by each of them, 222,222 additional shares of common stock at $9.00 per share, which represented the initial public offering price of $10.00 per share, excluding selling commissions and dealer manager fees. The principals will not tender these shares of common stock for repurchase as long as FSIC II Advisor remains the Company’s investment adviser. In connection with the same private placement, certain members of the Company’s board of directors and other individuals and entities affiliated with FSIC II Advisor purchased 1,247,267 shares of common stock, and certain individuals and entities affiliated with GDFM purchased 574,444 shares of common stock, in each case at a price of $9.00 per share. In connection with the private placement, the Company sold an aggregate of 2,043,933 shares of common stock for aggregate gross proceeds of $18,395 upon satisfying the minimum offering requirement on June 18, 2012. As of August 3, 2015, the Company had issued an aggregate of 3,462,501 shares of common stock for aggregate gross proceeds of $31,722 to members of the Company’s board of directors and individuals and entities affiliated with FSIC II

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

Advisor and GDFM, including shares of common stock sold to Messrs. Forman and Adelman in December 2011 and shares sold in the private placement completed in June 2012.

Potential Conflicts of Interest

FSIC II Advisor’s senior management team is comprised of substantially the same personnel as the senior management teams of FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC III Advisor, LLC and FS Global Advisor, LLC, the investment advisers to certain other BDCs and a closed-end management investment company affiliated with Franklin Square Holdings. As a result, such personnel provide investment advisory services to the Company and each of FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation III and FS Global Credit Opportunities Fund. While none of FSIC II Advisor, FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC III Advisor, LLC or FS Global Advisor, LLC is currently making private corporate debt investments for clients other than the Company, FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation III or FS Global Credit Opportunities Fund, respectively, any, or all, may do so in the future. In the event that FSIC II Advisor undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with the Company’s investment objectives and strategies, if necessary, so that the Company will not be disadvantaged in relation to any other client of FSIC II Advisor or its management team. In addition, even in the absence of FSIC II Advisor retaining additional clients, it is possible that some investment opportunities may be provided to FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation III and/or FS Global Credit Opportunities Fund rather than to the Company.

Exemptive Relief

In an order dated June 4, 2013, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FSIC II Advisor, including FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation III and any future BDCs that are advised by FSIC II Advisor or its affiliated investment advisers, or, collectively, the Company’s co-investment affiliates. The Company believes this relief has and may continue to enhance its ability to further its investment objectives and strategy. The Company believes this relief may also increase favorable investment opportunities for the Company, in part by allowing it to participate in larger investments, together with the Company’s co-investment affiliates, than would be available to it if such relief had not been obtained. Because the Company did not seek exemptive relief to engage in co-investment transactions with GDFM and its affiliates, it will continue to be permitted to co-invest with GDFM and its affiliates only in accordance with existing regulatory guidance.

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, dated as of May 10, 2012 and amended and restated as of May 16, 2013, or, as amended and restated, the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company’s distributions to stockholders will be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including preferred and common equity investments, may generate dividends and other distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company’s distributions to stockholders may also be deemed to constitute a return of capital to the extent that the Company may use such dividends or other distribution proceeds to fund its distributions to stockholders. Under those circumstances, Franklin Square Holdings will not

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

reimburse the Company for the portion of such distributions to stockholders that represent a return of capital, as the purpose of the expense reimbursement agreement is not to prevent tax-advantaged distributions to stockholders.

Under the expense reimbursement agreement, Franklin Square Holdings will reimburse the Company for expenses in an amount equal to the difference between the Company’s cumulative distributions paid to its stockholders in each quarter, less the sum of its net investment company taxable income, net capital gains and dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in each quarter.

Pursuant to the expense reimbursement agreement, the Company has a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of the Company’s net investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the regular cash distributions paid by the Company to stockholders; provided, however, that (i) the Company will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause “other operating expenses” (as defined below) (on an annualized basis and net of any expense support payments received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the Company’s average net assets attributable to its shares of common stock for the fiscal year-to-date period after taking such payments into account and (B) the percentage of the Company’s average net assets attributable to its shares of common stock represented by “other operating expenses” during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) the Company will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate amount of distributions per share declared by the Company in such calendar quarter is less than the aggregate amount of distributions per share declared by the Company in the calendar quarter in which Franklin Square Holdings made the expense support payment to which such reimbursement relates. “Other operating expenses” means the Company’s total “operating expenses” (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. “Operating expenses” means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.

The Company or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, the Company’s conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.

Franklin Square Holdings is controlled by the Company’s chairman, president and chief executive officer, Michael C. Forman, and its vice-chairman, David J. Adelman. There can be no assurance that the expense

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of the Company’s expenses in future quarters. As of June 30, 2015, there were no unreimbursed expense support payments subject to future reimbursement by the Company.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company declared and paid on its common stock during the six months ended June 30, 2015 and 2014:


	Distribution
For the Three Months Ended	Per Share		Amount
Fiscal 2014
March 31, 2014	$	0.1740	$	49,274
June 30, 2014	$	0.1885	$	57,604
Fiscal 2015
March 31, 2015	$	0.1885	$	59,177
June 30, 2015	$	0.1885	$	59,567

The Company intends to authorize and declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. On May 14, 2015 and August 6, 2015, the Company’s board of directors declared regular monthly cash distributions for July 2015 through September 2015 and October 2015 through December 2015, respectively, each in the amount of $0.06283 per share. These distributions have been or will be paid monthly to stockholders of record as of monthly record dates previously determined by the Company’s board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive the distribution in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the distribution reinvestment plan.

On February 24, 2014, the Company amended and restated its distribution reinvestment plan, which first applied to the reinvestment of cash distributions paid on or after, March 26, 2014. Under the original plan, cash distributions to participating stockholders were reinvested in additional shares of the Company’s common stock at a purchase price equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended plan, cash distributions to participating stockholders will be reinvested in additional shares of the Company’s common stock at a purchase price determined by the Company’s board of directors, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per share of the Company’s common stock as of such date. Although distributions paid in the form of additional shares of common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders who elect to participate in the Company’s distribution reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes. Stockholders receiving distributions in the form of additional shares of common stock will be treated as receiving a distribution in the amount of the fair market value of the Company’s shares of common stock.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of the Company’s common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, gains from credit default swaps, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from Franklin Square Holdings. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the Company makes may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Company’s stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all. No portion of the distributions paid during the six months ended June 30, 2015 represented a return of capital.

For a period of time following commencement of the Company’s continuous public offering, substantial portions of the Company’s distributions were funded through the reimbursement of certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FSIC II Advisor, that were subject to repayment by the Company within three years. The purpose of this arrangement was to ensure that no portion of the Company’s distributions to stockholders was paid from offering proceeds or borrowings. Any such distributions funded through expense reimbursements or waivers of advisory fees were not based on the Company’s investment performance. No portion of the distributions paid during the six months ended June 30, 2015 and 2014 was funded through the reimbursement of operating expenses by Franklin Square Holdings. There can be no assurance that the Company will continue to achieve the performance necessary to sustain its distributions or that the Company will be able to pay distributions at a specific rate or at all. Franklin Square Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the six months ended June 30, 2015 and 2014:


	Six Months Ended June 30,
	2015					2014
Source of Distribution	Distribution Amount		Percentage			Distribution Amount		Percentage
Offering proceeds	$	—		—		$	—		—
Borrowings		—		—			—		—
Net investment income (prior to expense reimbursement)⁽¹⁾		118,744		100	%		106,878		100	%
Short-term capital gains proceeds from the sale of assets		—		—			—		—
Long-term capital gains proceeds from the sale of assets		—		—			—		—
Gains from credit default swaps (ordinary income for tax)		—		—			—		—
Non-capital gains proceeds from the sale of assets		—		—			—		—
Distributions on account of preferred and common equity		—		—			—		—
Expense reimbursement from sponsor		—		—			—		—

Total	$	118,744		100	%	$	106,878		100	%

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

(1)

During the six months ended June 30, 2015 and 2014, 95.5% and 94.0%, respectively, of the Company’s gross investment income was attributable to cash income earned, 2.4% and 3.9%, respectively, was attributable to non-cash accretion of discount and 2.1% and 2.1%, respectively, was attributable to paid-in-kind, or PIK, interest.

The Company’s net investment income on a tax basis for the six months ended June 30, 2015 and 2014 was $128,465 and $110,880, respectively. As of June 30, 2015 and December 31, 2014, the Company had $51,122 and $19,204, respectively, of undistributed net investment income and realized gains on a tax basis.

The difference between the Company’s GAAP-basis net investment income and its tax-basis net investment income is primarily due to the reclassification of unamortized original issue discount recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes and the reclassification of realized gains on credit default swaps to income for tax purposes.

The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the six months ended June 30, 2015 and 2014:


	Six Months Ended June 30,
	2015			2014
GAAP-basis net investment income	$	161,224		$	100,253
Reversal of incentive fee accrual on unrealized gains		—			12,321
Reclassification of unamortized original issue discount and prepayment fees		(33,893	)		(2,447	)
Reclassification of realized gains on credit default swap		(19,588	)		—
Reversal of mark-to-market on outstanding credit default swaps		19,426			—
Other miscellaneous differences		1,296			753

Tax-basis net investment income	$	128,465		$	110,880

The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.

As of June 30, 2015 and December 31, 2014, the components of accumulated earnings on a tax basis were as follows:


	June 30, 2015 (Unaudited)			December 31, 2014
Distributable ordinary income (income and short-term capital gains)	$	21,252		$	9,166
Distributable realized gains (long-term capital gains)		29,870			10,038
Unamortized organization costs		(182	)		(189	)
Net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency⁽¹⁾		(52,559	)		(21,715	)

Total	$	(1,619	)	$	(2,700	)

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

(1)

As of June 30, 2015 and December 31, 2014, the gross unrealized appreciation on the Company’s investments and unrealized gain on foreign currency was $104,836 and $123,852, respectively. As of June 30, 2015 and December 31, 2014, the gross unrealized depreciation on the Company’s investments and unrealized loss on foreign currency was $157,395 and $145,567, respectively.

The aggregate cost of the Company’s investments for U.S. federal income tax purposes totaled $4,721,060 and $4,417,936 as of June 30, 2015 and December 31, 2014, respectively. The aggregate net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency on a tax basis was $(52,559) and $(21,715) as of June 30, 2015 and December 31, 2014, respectively.

Note 6. Investment Portfolio

The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of June 30, 2015 and December 31, 2014:


	June 30, 2015 (Unaudited)							December 31, 2014
	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio			Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio
Senior Secured Loans—First Lien	$	2,615,906	$	2,571,598		55	%	$	2,360,706	$	2,346,905		53	%
Senior Secured Loans—Second Lien		1,131,242		1,116,153		24	%		1,019,318		1,001,313		23	%
Senior Secured Bonds		272,619		243,087		5	%		283,454		248,911		6	%
Subordinated Debt		421,266		408,609		9	%		431,441		421,683		10	%
Collateralized Securities		122,597		125,945		3	%		172,068		184,590		4	%
Equity/Other		149,300		202,996		4	%		142,819		192,826		4	%

Total	$	4,712,930	$	4,668,388		100	%	$	4,409,806	$	4,396,228		100	%

(1)	Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

As of June 30, 2015, except for Allen Systems Group, Inc., in which the Company held a senior secured loan and an equity/other investment, the Company was not an “affiliated person” of any of its portfolio companies, as defined in the 1940 Act. As of June 30, 2015, the Company did not “control” any of its portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned 25% or more of its voting securities or it had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities.

The Company’s investment portfolio may contain loans and other unfunded arrangements that are in the form of lines of credit, revolving credit facilities, delayed draw credit facilities or other investments, pursuant to which the Company may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2015, the Company had fifteen senior secured loan investments with aggregate unfunded commitments of $231,652, one senior secured bond investment with an unfunded commitment of $14,552 and one unfunded commitment to purchase up to $700 in shares of preferred stock of Altus Power America Holdings, LLC. As of December 31, 2014, the Company had eight senior secured loan investments with aggregate unfunded commitments of $145,739 and one senior secured bond investment

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 6. Investment Portfolio (continued)

with an unfunded commitment of $16,977. The Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise. For additional details regarding the Company’s unfunded debt investments, see the Company’s unaudited consolidated schedule of investments as of June 30, 2015 and audited consolidated schedule of investments as of December 31, 2014.

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2015 and December 31, 2014:


	June 30, 2015 (Unaudited)					December 31, 2014
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Automobiles & Components	$	183,563		4	%	$	177,900		4	%
Capital Goods		489,048		10	%		383,827		9	%
Commercial & Professional Services		300,173		6	%		274,316		6	%
Consumer Durables & Apparel		294,128		6	%		266,710		6	%
Consumer Services		582,331		12	%		733,804		17	%
Diversified Financials		223,385		5	%		288,250		7	%
Energy		784,953		17	%		601,604		14	%
Food & Staples Retailing		8,768		0	%		12,585		0	%
Food, Beverage & Tobacco		11,155		0	%		9,365		0	%
Health Care Equipment & Services		71,483		2	%		80,589		2	%
Household & Personal Products		510		0	%		3,126		0	%
Insurance		87,383		2	%		98,174		2	%
Materials		351,740		8	%		269,531		6	%
Media		121,620		3	%		131,353		3	%
Pharmaceuticals, Biotechnology & Life Sciences		47,898		1	%		62,970		1	%
Real Estate		14,223		0	%		—		—
Retailing		118,638		3	%		112,094		3	%
Software & Services		430,469		9	%		328,443		8	%
Technology Hardware & Equipment		269,379		6	%		230,554		5	%
Telecommunication Services		175,602		4	%		229,690		5	%
Transportation		101,939		2	%		101,343		2	%

Total	$	4,668,388		100	%	$	4,396,228		100	%

Note 7. Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

or liability developed based on the best information available in the circumstances. The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.

Level 3: Inputs that are unobservable for an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of June 30, 2015 and December 31, 2014, the Company’s investments were categorized as follows in the fair value hierarchy:


Valuation Inputs	June 30, 2015 (Unaudited)		December 31, 2014
Level 1—Price quotations in active markets	$	31	$	3,438
Level 2—Significant other observable inputs		—		—
Level 3—Significant unobservable inputs		4,668,357		4,392,790

Total	$	4,668,388	$	4,396,228

As of June 30, 2015 and December 31, 2014, the Company’s credit default swaps were categorized as follows in the fair value hierarchy:


	June 30, 2015 (Unaudited)				December 31, 2014
Valuation Inputs	Asset		Liability		Asset		Liability
Level 1—Price quotations in active markets	$	—	$	—	$	—	$	—
Level 2—Significant other observable inputs		—		—		—		—
Level 3—Significant unobservable inputs		—		—		—		(30,048	)

Total	$	—	$	—	$	—	$	(30,048	)

The Company’s investments as of June 30, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Forty-four senior secured loan investments, one senior secured bond investment, four subordinated debt investments and one collateralized security, for which broker quotes were not available, were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the investments. Except as described below, all of the Company’s equity/other investments were also valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or in limited instances, book value or liquidation value. One equity/other investment, which was traded on an active public market, was valued at its closing price as of June 30, 2015. Two senior secured loan investments, which were newly-issued and purchased near June 30, 2015, were valued at cost, as the Company’s board of directors determined that the cost of such investments was the best indication of their fair value. Except as described above, the Company valued its other investments, including two equity/other investments, by using the midpoint

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services.

The Company’s investments as of December 31, 2014 consisted primarily of debt investments that were acquired directly from the issuer. Twenty-nine senior secured loan investments, one senior secured bond investment, four subordinated debt investments and one collateralized security, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the investments. Except as described below, all of the Company’s equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or in limited instances, book value or liquidation value. Four equity/other investments, which were traded on active public markets, were valued at their closing price as of December 31, 2014. Three senior secured loan investments, two collateralized securities and one equity/other investment which were newly-issued and purchased near December 31, 2014, were valued at cost, as the Company’s board of directors determined that the cost of such investments was the best indication of their fair value. Except as described above, the Company valued its other investments and credit default swaps, including two equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services.

The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing services and/or dealers, as applicable, against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods, including the use of an independent valuation firm, to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers, or where the Company’s board of directors otherwise determines that the use of such other methods is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firms against the actual prices at which it purchases and sells its investments. The valuation committee of the Company’s board of directors, or the valuation committee, and the board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation policy.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

The following is a reconciliation for the six months ended June 30, 2015 and 2014 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:


	For the Six Months Ended June 30, 2015
	Senior Secured Loans—First Lien			Senior Secured Loans—Second Lien			Senior Secured Bonds			Subordinated Debt			Collateralized Securities			Equity/ Other			Total
Fair value at beginning of period	$	2,346,905		$	1,001,313		$	248,911		$	421,683		$	184,590		$	189,388		$	4,392,790
Accretion of discount (amortization of premium)		4,639			1,028			1,127			17,115			10			—			23,919
Net realized gain (loss)		(2,859	)		271			(8,438	)		(7,446	)		(907	)		3,601			(15,778	)
Net change in unrealized appreciation (depreciation)		(30,507	)		2,916			5,011			(2,899	)		(9,174	)		675			(33,978	)
Purchases		713,419			197,949			44,249			144,331			239			16,376			1,116,563
Paid-in-kind interest		2,443			2,501			176			915			—			—			6,035
Sales and redemptions		(462,442	)		(89,825	)		(47,949	)		(165,090	)		(48,813	)		(7,075	)		(821,194	)
Net transfers in or out of Level 3		—			—			—			—			—			—			—

Fair value at end of period	$	2,571,598		$	1,116,153		$	243,087		$	408,609		$	125,945		$	202,965		$	4,668,357

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	(15,341	)	$	(4,340	)	$	(6,521	)	$	834		$	(7,237	)	$	235		$	(32,370	)


	For the Six Months Ended June 30, 2014
	Senior Secured Loans—First Lien			Senior Secured Loans—Second Lien			Senior Secured Bonds			Subordinated Debt			Collateralized Securities			Equity/ Other			Total
Fair value at beginning of period	$	1,268,093		$	697,240		$	203,927		$	276,640		$	182,100		$	27,764		$	2,655,764
Accretion of discount (amortization of premium)		1,700			1,898			1,874			1,459			44			—			6,975
Net realized gain (loss)		1,008			290			(4,692	)		3,184			—			—			(210	)
Net change in unrealized appreciation (depreciation)		3,074			8,647			9,693			17,743			7,088			16,564			62,809
Purchases		942,191			491,895			121,551			141,172			—			52,580			1,749,389
Paid-in-kind interest		50			3,007			—			740			—			—			3,797
Sales and redemptions		(369,336	)		(118,542	)		(76,776	)		(147,271	)		(8,108	)		—			(720,033	)
Net transfers in or out of Level 3		—			—			—			—			—			—			—

Fair value at end of period	$	1,846,780		$	1,084,435		$	255,577		$	293,667		$	181,124		$	96,908		$	3,758,491

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	8,233		$	15,120		$	4,413		$	19,801		$	7,088		$	16,564		$	71,219

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

The following is a reconciliation for the six months ended June 30, 2015, of credit default swaps for which significant unobservable inputs (Level 3) were used in determining market value:


	Six Months Ended June 30, 2015
Market value at beginning of period	$	(30,048	)
Net realized gain (loss)		(19,662	)
Net change in unrealized appreciation (depreciation)		19,426
Swap premiums received		—
Coupon payments received		74
Premiums paid on exit		30,210
Net transfers in or out of Level 3		—

Market value at end of period	$	—

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to credit default swaps still held at the reporting date	$	—

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of June 30, 2015 and December 31, 2014 were as follows:

Type of Investment

Fair Value at
June 30, 2015
(Unaudited)

Valuation
Technique⁽¹⁾

Unobservable Input

Range

Weighted
Average

Senior Secured Loans—First Lien

1,959,596

Market Comparables

Market Yield (%)

7.0% – 14.8%

9.5%

567,152

Market Quotes

Indicative Dealer Quotes

47.9% – 102.3%

91.4%

44,850

Cost

100.0% – 100.0%

100.0%

Senior Secured Loans—Second Lien

584,188

Market Comparables

Market Yield (%)

8.5% – 14.0%

11.5%

30,300

Other⁽²⁾

N/A

501,665

Market Quotes

Indicative Dealer Quotes

38.8% – 102.0%

95.9%

Senior Secured Bonds

41,206

Market Comparables

Market Yield (%)

9.8% – 10.3%

10.0%

201,881

Market Quotes

Indicative Dealer Quotes

60.0% – 105.0%

86.6%

Subordinated Debt

116,746

Market Comparables

Market Yield (%)

8.8% – 12.8%

11.3%

5,446

Other⁽²⁾

N/A

286,417

Market Quotes

Indicative Dealer Quotes

4.3% – 106.8%

91.7%

Collateralized Securities

75,116

Market Comparables

Market Yield (%)

11.8% – 11.8%

11.8%

50,829

Market Quotes

Indicative Dealer Quotes

68.7% – 98.1%

83.5%

Equity/Other

122,599

Market Comparables

EBITDA Multiples (x)

5.5x – 12.0x

8.7x

Production Multiples

(Mboe/d)

$62,500.0 – $67,500.0

$65,000.0

Proved Reserves
Multiples (Mmboe)

$9.5 – $10.5

$10.0

PV–10 Multiples (x)

1.5x – 2.1x

1.7x

Capacity Multiple ($/kW)

$2,000.0 – $2,500.0

$2,250.0

3,613

Other⁽²⁾

N/A

74,579

Option Valuation Model

Volatility (%)

37.5% – 57.0%

48.1%

2,174

Market Quotes

Indicative Dealer Quotes

$14.3 – $217.0

$31.0

Total

4,668,357

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

(1)

Investments using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.

(2)	Fair value based on expected outcome of proposed corporate transactions.

Type of Investment

Fair Value at
December 31, 2014

Valuation

Technique⁽¹⁾

Unobservable Input

Range

Weighted
Average

Senior Secured Loans—First Lien:

1,413,100

Market Comparables

Market Yield (%)

4.8% – 12.3%

8.9%

88,130

Other⁽²⁾

Other

N/A

720,607

Market Quotes

Indicative Dealer Quotes

78.8% – 102.3%

96.0%

125,068

Cost

100.0% – 100.0%

100.0%

Senior Secured Loans—Second Lien

427,476

Market Comparables

Market Yield (%)

8.5% – 12.0%

10.5%

573,837

Market Quotes

Indicative Dealer Quotes

71.6% – 102.5%

96.4%

Senior Secured Bonds

36,648

Market Comparables

Market Yield (%)

10.5% – 11.0%

10.8%

212,263

Market Quotes

Indicative Dealer Quotes

34.0% – 102.3%

86.2%

Subordinated Debt

169,295

Market Comparables

Market Yield (%)

8.8% – 13.0%

10.8%

312

Other

N/A

252,076

Market Quotes

Indicative Dealer Quotes

41.5% – 116.3%

89.1%

Collateralized Securities

91,745

Market Comparables

Market Yield (%)

11.3% – 11.3%

11.3%

92,845

Market Quotes

Indicative Dealer Quotes

67.0% – 97.5%

86.9%

Equity/Other

174,209

Market Comparables

EBITDA Multiples (x)

5.0x – 12.0x

7.7x

Production Multiples (Mboe/d)

$37,500.0 – $70,256.0

$52,330.5

Proved Reserves Multiples (Mmboe)

$10.5 – $12.0

$11.3

PV-10 Multiples (x)

1.7x – 1.8x

1.7x

Option Valuation Model

Volatility (%)

37.5% – 55.5%

47.1%

6,322

Market Quotes

Indicative Dealer Quotes

$13.8 – $132.7

$94.5

8,857

Cost

$1.00 – $1.00

$1.00

Total

4,392,790

Credit Default Swaps

(30,048

)

Market Quotes

Indicative Dealer Quotes

(81.9%) - (80.2%)

(81.2)%

(1)

Investments and credit default swaps using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.

(2)	Fair value based on expected outcome of proposed restructuring of portfolio company.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements

The following table presents summary information with respect to the Company’s outstanding financing arrangements as of June 30, 2015. For additional information regarding these financing arrangements, please see the notes to the Company’s audited consolidated financial statements contained in its annual report on Form 10-K for the year ended December 31, 2014 and the additional disclosure set forth in this Note 8.


Facility	Type of Facility	Rate	Amount Outstanding		Amount Available		Maturity Date
JPM Facility	Repurchase	3.25%	$	550,000	$	—	May 20, 2017
Goldman Facility	Repurchase	L+2.50%	$	374,506	$	25,494	December 15, 2018
Cooper River Credit Facility	Revolving	L+2.25%	$	170,494	$	29,506	May 29, 2020
Wissahickon Creek Credit Facility	Revolving	L+1.50% to L+2.50%	$	188,600	$	61,400	February 19, 2019
Darby Creek Credit Facility	Revolving	L+2.50%	$	249,500	$	500	February 20, 2018
Dunning Creek Credit Facility	Revolving	L+1.45%	$	233,200	$	16,800	May 14, 2016
Juniata River Credit Facility	Revolving	L+2.50%	$	300,000	$	—	November 14, 2019

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2015 were $1,910,004 and 2.90%, respectively. As of June 30, 2015, the Company’s weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 2.87%.

JPM Facility

On April 23, 2013, through its two wholly-owned, special-purpose financing subsidiaries, Lehigh River LLC, or Lehigh River, and Cobbs Creek LLC, or Cobbs Creek, the Company entered into an amendment, or the April 2013 amendment, to its debt financing arrangement with JPMorgan Chase Bank, N.A., London Branch, or JPM, which the Company originally entered into on October 26, 2012 (and previously amended on February 6, 2013). The April 2013 amendment, among other things: (i) increased the amount of debt financing available under the arrangement from $300,000 to $550,000; and (ii) extended the final repurchase date under the financing arrangement from February 20, 2017 to May 20, 2017. The Company elected to structure the financing in the manner described more fully below in order to, among other things, obtain such financing at a lower cost than would be available through alternate arrangements.

Pursuant to the financing arrangement, the assets held by Lehigh River secure the obligations of Lehigh River under certain Class A Floating Rate Notes, or the Class A Notes, to be issued from time to time by Lehigh River to Cobbs Creek pursuant to an Amended and Restated Indenture, dated as of February 6, 2013, as supplemented by Supplemental Indenture No. 1, dated as of April 23, 2013, with Citibank N.A., or Citibank, as trustee, or the Amended and Restated Indenture. Pursuant to the Amended and Restated Indenture, the aggregate principal amount of Class A Notes that may be issued by Lehigh River from time to time is $660,000. All principal and interest on the Class A Notes will be due and payable on the stated maturity date of May 20, 2024. Cobbs Creek will purchase the Class A Notes to be issued by Lehigh River from time to time at a purchase price equal to their par value.

Cobbs Creek, in turn, has entered into an amended repurchase transaction with JPM pursuant to the terms of an amended and restated global master repurchase agreement and related annex and amended and restated confirmation thereto, each dated as of April 23, 2013, or, collectively, the JPM facility. Pursuant to the JPM facility, JPM has agreed to purchase from time to time Class A Notes held by Cobbs Creek for an aggregate purchase price equal to approximately 83.33% of the principal amount of Class A Notes purchased. Subject to

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

certain conditions, the maximum principal amount of Class A Notes that may be purchased under the JPM facility is $660,000. Accordingly, the maximum amount payable at any time to Cobbs Creek under the JPM facility is $550,000. Under the JPM facility, Cobbs Creek will, on a quarterly basis, repurchase the Class A Notes sold to JPM under the JPM facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction must occur no later than May 20, 2017. The repurchase price paid by Cobbs Creek to JPM for each repurchase of Class A Notes will be equal to the purchase price paid by JPM for such Class A Notes, plus interest thereon accrued at a fixed rate of 3.25% per annum. Commencing May 20, 2015, Cobbs Creek is permitted to reduce (based on certain thresholds) the aggregate principal amount of Class A Notes subject to the JPM facility. Such reductions, and any other reductions of the principal amount of Class A Notes, including upon an event of default, will be subject to breakage fees in an amount equal to the present value of 1.25% per annum over the remaining term of the JPM facility applied to the amount of such reduction.

Pursuant to the financing arrangement, the assets held by Cobbs Creek secure the obligations of Cobbs Creek under the JPM facility.

As of June 30, 2015 and December 31, 2014, Class A Notes in the aggregate principal amount of $660,000 and $660,000, respectively, had been purchased by Cobbs Creek from Lehigh River and subsequently sold to JPM under the JPM facility for aggregate proceeds of $550,000 and $550,000, respectively. The carrying amount outstanding under the JPM facility approximates its fair value. The Company funded each purchase of Class A Notes by Cobbs Creek through a capital contribution to Cobbs Creek. As of June 30, 2015 and December 31, 2014, Cobbs Creek’s liability under the JPM facility was $550,000 and $550,000, respectively, plus $2,085 and $2,085, respectively, of accrued interest expense. The Class A Notes issued by Lehigh River and purchased by Cobbs Creek eliminate in consolidation on the Company’s financial statements.

As of June 30, 2015 and December 31, 2014, the fair value of assets held by Lehigh River was $1,195,220 and $1,189,438, respectively, which included assets purchased by Lehigh River with proceeds from the issuance of Class A Notes. As of June 30, 2015 and December 31, 2014, the fair value of assets held by Cobbs Creek was $367,700 and $392,225.

The Company incurred costs of $159 in connection with obtaining and amending the JPM facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the JPM facility. As of June 30, 2015, $54 of such deferred financing costs had yet to be amortized to interest expense.

For the three and six months ended June 30, 2015 and 2014, the components of total interest expense for the JPM facility were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct interest expense	$	4,518	$	4,518	$	8,987	$	8,987
Amortization of deferred financing costs		10		10		20		20

Total interest expense	$	4,528	$	4,528	$	9,007	$	9,007

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

For the six months ended June 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the JPM facility were as follows:


	Six Months Ended June 30,
	2015			2014
Cash paid for interest expense⁽¹⁾	$	8,987		$	8,987
Average borrowings under the facility	$	550,000		$	550,000
Effective interest rate on borrowings		3.25	%		3.25	%
Weighted average interest rate		3.25	%		3.25	%

(1)	Interest under the JPM facility is payable quarterly in arrears and commenced in May 2013.

Amounts outstanding under the JPM facility are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Goldman Facility

On December 15, 2014, the Company, through its two wholly-owned, special-purpose financing subsidiaries, Green Creek LLC, or Green Creek, and Schuylkill River LLC, or Schuylkill River, entered into a debt financing arrangement with Goldman Sachs Bank USA, or Goldman, pursuant to which up to $400,000 is available to the Company. The Company elected to structure the financing in the manner described more fully below in order to, among other things, obtain such financing at a lower cost than would have been available through alternate arrangements.

The Company may sell and/or contribute assets to Green Creek from time to time pursuant to an Amended and Restated Sale and Contribution Agreement, dated as of December 15, 2014, between the Company and Green Creek, or the Sale and Contribution Agreement. The assets held by Green Creek secure the obligations of Green Creek under Floating Rate Notes, or the Notes, to be issued from time to time by Green Creek to Schuylkill River pursuant to an Indenture, dated as of December 15, 2014, with Citibank, as trustee, or the Indenture. Pursuant to the Indenture, the aggregate principal amount of Notes that may be issued by Green Creek from time to time is $690,000. Schuylkill River will purchase the Notes to be issued by Green Creek from time to time at a purchase price equal to their par value.

Interest on the Notes under the Indenture will accrue at three-month LIBOR plus a spread of 4.00% per annum. Principal and any unpaid interest on the Notes will be due and payable on the stated maturity date of February 15, 2026.

Schuylkill River, in turn, has entered into a repurchase transaction with Goldman, pursuant to the terms of a master repurchase agreement and the related annex and master confirmation thereto, each dated as of December 15, 2014, or collectively, the Goldman facility. Pursuant to the Goldman facility, on one or more occasions beginning December 15, 2014, Goldman will purchase Notes held by Schuylkill River for an aggregate purchase price equal to 58.00% of the principal amount of Notes purchased. Subject to certain conditions, the maximum principal amount of Notes that may be purchased under the Goldman facility is $690,000. Accordingly, the aggregate maximum amount payable to Schuylkill River under the Goldman facility will not

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

exceed $400,000. As of June 30, 2015 and December 31, 2014, Notes in an aggregate principal amount of $645,700 and $130,000, respectively, had been purchased by Schuylkill River from Green Creek and subsequently sold to Goldman under the Goldman facility for aggregate proceeds of $374,506 and $75,400, respectively. Schuylkill River intends to enter into additional repurchase transactions under the Goldman facility with respect to the remaining $44,300 in principal amount of Notes (assuming Green Creek issues the maximum amount of Notes).

Schuylkill River will repurchase the Notes sold to Goldman under the Goldman facility no later than December 15, 2018. The repurchase price paid by Schuylkill River to Goldman will be equal to the purchase price paid by Goldman for the repurchased Notes, plus interest (referred to as financing fees) accrued at the applicable pricing rate under the Goldman facility. Up until March 15, 2015, financing fees were accrued on the aggregate purchase price paid by Goldman for such Notes. Thereafter, financing fees commenced accruing on $400,000 (even if the aggregate purchase price paid for Notes purchased by Goldman is less than that amount), unless and until the outstanding amount is reduced in accordance with the terms of the Goldman facility. If the Goldman facility is accelerated prior to December 15, 2018 due to an event of default or the failure of Green Creek to commit to sell any underlying assets that become defaulted obligations within 30 days, then Schuylkill River must pay to Goldman a fee equal to the present value of the aggregate amount of the financing fees that would have been payable to Goldman from the date of acceleration through December 15, 2018 had the acceleration not occurred. The financing fee under the Goldman facility is equal to three-month LIBOR plus a spread of up to 2.50% per annum for the relevant period.

As of June 30, 2015 and December 31, 2014, Notes in an aggregate principal amount of $645,700 and $130,000, respectively, had been purchased by Schuylkill River from Green Creek and subsequently sold to Goldman under the Goldman facility for aggregate proceeds of $374,506 and $75,400, respectively. The carrying amount outstanding under the Goldman facility approximates its fair value. The Company funded each purchase of the Notes by Schuylkill River through a capital contribution to Schuylkill River. As of June 30, 2015 and December 31, 2014, Schuylkill River’s liability under the Goldman facility was $374,506 and $75,400, respectively, plus $1,449 and $89, respectively, of accrued interest expense. The Notes issued by Green Creek and purchased by Schuylkill River eliminate in consolidation on the Company’s financial statements.

As of June 30, 2015 and December 31, 2014, the fair value of assets held by Green Creek was $692,945 and $453,678, respectively.

The Company incurred costs of $2,167 in connection with obtaining the Goldman facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Goldman facility. As of June 30, 2015, $1,885 of such deferred financing costs had yet to be amortized to interest expense.

For the three and six months ended June 30, 2015, the components of total interest expense for the Goldman facility were as follows:


	Three Months Ended June 30, 2015		Six Months Ended June 30, 2015
Direct interest expense	$	3,087	$	4,129
Amortization of deferred financing costs		133		259

Total interest expense	$	3,220	$	4,388

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

For the six months ended June 30, 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Goldman facility were as follows:


	Six Months Ended June 30, 2015
Cash paid for interest expense⁽¹⁾	$	2,769
Average borrowings under the facility	$	247,708
Effective interest rate on borrowings		3.00	%
Weighted average interest rate		3.32	%

(1)	Interest under the Goldman facility is paid quarterly in arrears and commenced on May 15, 2015.

Amounts outstanding under the Goldman facility will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Cooper River Credit Facility

On May 29, 2015, the Company’s wholly-owned, special-purpose financing subsidiary, Cooper River LLC, or Cooper River, entered into a revolving credit facility, or the Cooper River facility, which amends and restates that certain credit facility dated as of March 27, 2013, with Citibank, as administrative agent, and the financial institutions and other lenders from time to time party thereto. The Cooper River facility provides for a five-year credit facility with a three-year reinvestment period, during which Cooper River, subject to compliance with the terms of the facility, including maintenance of the required borrowing base, is permitted to borrow, repay and re-borrow advances up to a maximum commitment of $200,000, followed by a two-year amortization period.

The Company may contribute cash or debt securities to Cooper River from time to time, subject to certain restrictions set forth in the Cooper River facility, and will retain a residual interest in any assets contributed through its ownership of Cooper River or will receive fair market value for any debt securities sold to Cooper River. Cooper River may purchase additional debt securities from various sources. Cooper River has appointed the Company to manage its portfolio of debt securities pursuant to the terms of an investment management agreement. Cooper River’s obligations to the lenders under the Cooper River facility are secured by a first priority security interest in substantially all of the assets of Cooper River, including its portfolio of debt securities. The obligations of Cooper River under the Cooper River facility are non-recourse to the Company and the Company’s exposure under the Cooper River facility is limited to the value of the Company’s investment in Cooper River.

Borrowings under the Cooper River facility, prior to its amendment and restatement, accrued interest at a rate equal to three-month LIBOR plus a spread of (a) 1.75% per annum from closing through March 26, 2015 and (b) 2.00% per annum thereafter. Borrowings under the amended and restated Cooper River facility will accrue interest at a rate per annum equal to three-month LIBOR (subject to a 0% floor) plus a spread of (i) 2.25% during the reinvestment period, (ii) 2.75% during the first year of the amortization period and (iii) 3.75% thereafter.

Beginning on June 24, 2013 through March 26, 2015, Cooper River was subject to a non-usage fee of 0.50% per annum to the extent the aggregate principal amount available under the Cooper River facility had not been borrowed. Such non-usage fee did not apply from March 27, 2015 through the date the Cooper River facility was amended and restated. Under the amended and restated Cooper River Facility, Cooper River will pay

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

a commitment fee of 0.75% per annum of the aggregate principal amount available under the Cooper River facility that has not been borrowed. Any amounts borrowed under the Cooper River facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 29, 2020.

As of June 30, 2015 and December 31, 2014, $170,494 and $170,494, respectively, was outstanding under the Cooper River facility. The carrying amount outstanding under the Cooper River facility approximates its fair value. The Company incurred costs of $3,860 in connection with obtaining the Cooper River facility (including the original facility and amended and restated facility), which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Cooper River facility. As of June 30, 2015, $2,252 of such deferred financing costs had yet to be amortized to interest expense.

For the three and six months ended June 30, 2015 and 2014, the components of total interest expense for the Cooper River facility were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct interest expense	$	1,024	$	855	$	1,867	$	1,701
Non-usage fees		44		37		81		74
Amortization of deferred financing costs		565		130		693		257

Total interest expense	$	1,633	$	1,022	$	2,641	$	2,032

For the six months ended June 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Cooper River facility were as follows:


	Six Months Ended June 30,
	2015			2014
Cash paid for interest expense⁽¹⁾	$	1,814		$	1,791
Average borrowings under the facility	$	170,494		$	170,494
Effective interest rate on borrowings (including the effect of non-usage fees)		2.63	%		2.08	%
Weighted average interest rate (including the effect of non-usage fees)		2.27	%		2.08	%

(1)	Interest under the Cooper River facility is payable quarterly in arrears and commenced on March 27, 2013.

Borrowings of Cooper River are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Wissahickon Creek Credit Facility

On February 19, 2014, the Company’s wholly-owned, special-purpose financing subsidiary, Wissahickon Creek LLC, or Wissahickon Creek, entered into a revolving credit facility, or the Wissahickon Creek facility, with Wells Fargo Securities, LLC, as administrative agent, each of the conduit lenders and institutional lenders from time to time party thereto and Wells Fargo Bank, National Association, or, collectively with Wells Fargo Securities, LLC, Wells Fargo, as the collateral agent, account bank and collateral custodian under the Wissahickon Creek facility. The Wissahickon Creek facility provides for borrowings in an aggregate principal amount up to $250,000 on a committed basis.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

The Company may contribute cash, loans or bonds to Wissahickon Creek from time to time and will retain a residual interest in any assets contributed through its ownership of Wissahickon Creek or will receive fair market value for any assets sold to Wissahickon Creek. Wissahickon Creek may purchase additional assets from various sources. Wissahickon Creek has appointed the Company to manage its portfolio of assets pursuant to the terms of a collateral management agreement. Wissahickon Creek’s obligations to Wells Fargo under the Wissahickon Creek facility are secured by a first priority security interest in substantially all of the assets of Wissahickon Creek, including its portfolio of assets. The obligations of Wissahickon Creek under the Wissahickon Creek facility are non-recourse to the Company, and the Company’s exposure under the facility is limited to the value of its investment in Wissahickon Creek.

Pricing under the Wissahickon Creek facility is based on LIBOR for a three-month interest period, plus a spread ranging between 1.50% and 2.50% per annum, depending on the composition of the portfolio of assets for the relevant period. Interest is payable quarterly in arrears. Beginning June 19, 2014, Wissahickon Creek became subject to a non-usage fee to the extent the aggregate principal amount available under the facility is not borrowed. The non-usage fee equals 0.50% per annum on unborrowed amounts up to and including $25,000 and 2.00% on unborrowed amounts exceeding $25,000. Any amounts borrowed under the Wissahickon Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 19, 2019.

As of June 30, 2015 and December 31, 2014, $188,600 and $185,000, respectively, was outstanding under the Wissahickon Creek facility. The carrying amount outstanding under the Wissahickon Creek facility approximates its fair value. The Company incurred costs of $3,410 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $2,487 of such deferred financing costs had yet to be amortized to interest expense.

For the three and six months ended June 30, 2015 and 2014, the components of total interest expense for the Wissahickon Creek facility were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct interest expense	$	1,267	$	258	$	2,490	$	258
Non-usage fees		217		88		440		88
Amortization of deferred financing costs		170		163		338		236

Total interest expense	$	1,654	$	509	$	3,268	$	582

For the six months ended June 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Wissahickon Creek facility were as follows:


	Six Months Ended June 30,
	2015			2014
Cash paid for interest expense⁽¹⁾	$	2,828		$	—
Average borrowings under the facility	$	187,401		$	97,143
Effective interest rate on borrowings (including the effect of non-usage fees)		3.09	%		5.36	%
Weighted average interest rate (including the effect of non-usage fees)		3.11	%		3.66	%

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

(1)	Interest under the Wissahickon Creek facility is payable quarterly in arrears and commenced on May 27, 2014.

Borrowings of Wissahickon Creek are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Darby Creek Credit Facility

On February 20, 2014, the Company’s wholly-owned, special-purpose financing subsidiary, Darby Creek LLC, or Darby Creek, entered into a revolving credit facility, or the Darby Creek facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent, each of the lenders from time to time party thereto, the other agents party thereto and Wells Fargo Bank, National Association, as the collateral agent and collateral custodian under the Darby Creek facility. The Darby Creek facility provides for borrowings in an aggregate principal amount up to $250,000 on a committed basis.

The Company may sell or contribute assets to Darby Creek from time to time and will retain a residual interest in any assets contributed through its ownership of Darby Creek or will receive fair market value for any assets sold to Darby Creek. Darby Creek may purchase additional assets from various sources. Darby Creek has appointed the Company to manage its portfolio of assets pursuant to the terms of an investment management agreement. Darby Creek’s obligations to Deutsche Bank under the Darby Creek facility are secured by a first priority security interest in substantially all of the assets of Darby Creek, including its portfolio of assets. The obligations of Darby Creek under the Darby Creek facility are non-recourse to the Company and the Company’s exposure under the facility is limited to the value of its investment in Darby Creek.

Pricing under the Darby Creek facility is based on LIBOR for a three-month interest period (for each committed lender) or the commercial paper rate of each conduit lender, plus, in each case, a spread of 2.50% per annum. Darby Creek is subject to a non-usage fee of 0.50% per annum to the extent the aggregate principal amount available under the Darby Creek facility is not borrowed. In addition, Darby Creek is subject to (i) a make-whole fee on a quarterly basis effectively equal to a portion of the spread that would have been payable if the full amount under the Darby Creek facility had been borrowed, less the non-usage fee accrued during such quarter and (ii) an administration fee. Any amounts borrowed under the Darby Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 20, 2018. Borrowings under the Darby Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Darby Creek varies depending upon the types of assets in Darby Creek’s portfolio.

As of June 30, 2015 and December 31, 2014, $249,500 and $249,500, respectively, was outstanding under the Darby Creek facility. The carrying amount outstanding under the Darby Creek facility approximates its fair value. The Company incurred costs of $2,994 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $2,161 of such deferred financing costs had yet to be amortized to interest expense.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

For the three and six months ended June 30, 2015 and 2014, the components of total interest expense for the Darby Creek facility were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct interest expense	$	1,908	$	310	$	3,769	$	310
Non-usage fees		—		475		—		761
Amortization of deferred financing costs		203		120		377		173

Total interest expense	$	2,111	$	905	$	4,146	$	1,244

For the six months ended June 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Darby Creek facility were as follows:


	Six Months Ended June 30,
	2015			2014
Cash paid for interest expense⁽¹⁾	$	3,720		$	—
Average borrowings under the facility	$	249,500		$	73,845
Effective interest rate on borrowings (including the effect of non-usage and administration fees)		3.00	%		3.44	%
Weighted average interest rate (including the effect of non-usage and administration fees)		3.00	%		6.56	%

(1)	Interest under the Darby Creek facility is payable quarterly in arrears and commenced on February 20, 2014.

Borrowings of Darby Creek are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Dunning Creek Credit Facility

On May 14, 2014, the Company’s wholly-owned, special-purpose financing subsidiary, Dunning Creek LLC, or Dunning Creek, entered into a revolving credit facility, or the Dunning Creek facility, with Deutsche Bank, as administrative agent and lender, and each of the other lenders from time to time party thereto. The Dunning Creek facility originally provided for borrowings in an aggregate principal amount up to $150,000 on a committed basis. On June 4, 2014, the Dunning Creek facility was amended to increase the maximum commitments available under the facility to $250,000. On May 14, 2015, the Dunning Creek facility was amended to extend the maturity date to May 14, 2016 and to reduce the applicable spread over LIBOR to 1.45% per annum.

The Company may contribute cash, loans or bonds to Dunning Creek from time to time, subject to certain restrictions set forth in the Dunning Creek facility, and will retain a residual interest in any assets contributed through its ownership of Dunning Creek or will receive fair market value for any assets sold to Dunning Creek. Dunning Creek may purchase additional assets from various sources. Dunning Creek has appointed the Company to manage its portfolio of assets pursuant to the terms of an investment management agreement. Dunning Creek’s

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

obligations to the lenders under the Dunning Creek facility are secured by a first priority security interest in substantially all of the assets of Dunning Creek, including its portfolio of assets. The obligations of Dunning Creek under the Dunning Creek facility are non-recourse, to the Company and the Company’s exposure under the facility is limited to the value of its investment in Dunning Creek.

As of June 30, 2015, pricing under the Dunning Creek facility was based on LIBOR for an interest period reasonably close to the weighted average LIBOR applicable to the assets held by Dunning Creek, plus a spread of 1.45% per annum. Any amounts borrowed under the Dunning Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 14, 2016.

As of June 30, 2015 and December 31, 2014, $233,200 and $230,800, respectively, was outstanding under the Dunning Creek facility. The carrying amount outstanding under the Dunning Creek facility approximates its fair value. The Company incurred costs of $1,335 in connection with obtaining and amending the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $543 of such deferred financing costs had yet to be amortized to interest expense.

For the three and six months ended June 30, 2015 and 2014, the components of total interest expense for the Dunning Creek facility were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct interest expense	$	1,048	$	213	$	2,079	$	213
Amortization of deferred financing costs		169		75		350		75

Total interest expense	$	1,217	$	288	$	2,429	$	288

For the six months ended June 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Dunning Creek facility were as follows:


	Six Months Ended June 30,
	2015			2014
Cash paid for interest expense⁽¹⁾	$	2,099		$	—
Average borrowings under the facility	$	231,476		$	100,675
Effective interest rate on borrowings		1.72	%		1.77	%
Weighted average interest rate		1.79	%		1.77	%

(1)	Interest under the Dunning Creek facility is payable quarterly in arrears and commenced on May 14, 2014.

Borrowings of Dunning Creek are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Juniata River Credit Facility

On November 14, 2014, the Company’s wholly-owned, special-purpose financing subsidiary, Juniata River LLC, or Juniata River, entered into a senior secured term loan facility, or the Juniata River facility, with JPM, as

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

administrative agent, and the financial institutions and other lenders from time to time party thereto, Citibank, as collateral agent, and Virtus Group, LP, as collateral administrator. The Juniata River facility provides for delayed-draw borrowings in an aggregate principal amount up to $300,000 on a committed basis before February 14, 2015.

The Company may contribute cash, loans or bonds to Juniata River from time to time, subject to certain restrictions set forth in the Juniata River facility, and will retain a residual interest in any assets contributed through its ownership of Juniata River or will receive fair market value for any assets sold to Juniata River. Juniata River may purchase additional assets from various sources. Juniata River has appointed the Company to manage its portfolio of assets pursuant to the terms of an investment management agreement. Juniata River’s obligations to the lenders under the Juniata River facility are secured by a first priority security interest in substantially all of the assets of Juniata River, including its portfolio of debt securities. The obligations of Juniata River under the Juniata River facility are non-recourse to the Company, and the Company’s exposure under the Juniata River facility is limited to the value of the Company’s investment in Juniata River.

Pricing under the Juniata River facility is based on LIBOR for a six month interest period for the first interest payment due and thereafter a three-month interest period, in each case, plus a spread of 2.50% per annum. Interest is payable in arrears beginning on April 25, 2015 and each quarter thereafter. Any amounts borrowed under the Juniata River facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on November 14, 2019.

As of June 30, 2015 and December 31, 2014, $300,000 and $180,000, respectively, was outstanding under the Juniata River facility. The carrying amount outstanding under the Juniata River facility approximates its fair value. The Company incurred costs of $355 in connection with obtaining the Juniata River facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortize to interest expense over the life of the Juniata River facility. As of June 30, 2015, $311 of such deferred financing costs had yet to be amortized to interest expense.

For the three and six months ended June 30, 2015, the components of total interest expense for the Juniata River facility were as follows:


	Three Months Ended June 30, 2015		Six Months Ended June 30, 2015
Direct interest expense	$	2,101	$	3,790
Amortization of deferred financing costs		22		36

Total interest expense	$	2,123	$	3,826

For the six months ended June 30, 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Juniata River facility were as follows:


	Six Months Ended June 30, 2015
Cash paid for interest expense⁽¹⁾	$	2,486
Average borrowings under the facility	$	273,425
Effective interest rate on borrowings		2.78	%
Weighted average interest rate		2.76	%

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

(1)	Interest under the Juniata River facility is payable quarterly in arrears and commenced on April 25, 2015.

Borrowings of Juniata River are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Note 9. Financial Instruments

The Company is subject to credit risk in the normal course of pursuing its investment objectives. The Company has in the past, and may in the future, enter into credit default swap contracts to manage its credit risk, to gain exposure to a credit in which it may otherwise invest or to enhance its returns, which may involve elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Company has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered.

The Company may enter into swap contracts containing provisions allowing the counterparty to terminate the contract under certain conditions, including, but not limited to, a decline in the Company’s net asset value below a certain level over a certain period of time, which would trigger a payment by the Company for those swaps in a liability position.

The Company had certain credit default swap contracts outstanding during the six months ended June 30, 2015 and the year ended December 31, 2014. As of June 30, 2015, the Company had no outstanding credit default swap contracts. The effect of derivative instruments (which are not considered to be hedging instruments for accounting disclosure purposes) on the Company’s consolidated statements of operations whose primary underlying risk exposure is credit risk for the six months ended June 30, 2015 was as follows:


Derivative	Realized Gain (Loss) on Derivatives Recognized in Income⁽¹⁾			Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income⁽²⁾
Credit Default Swap Contracts	$	(19,588	)	$	19,426

(1)	Reflected on the consolidated statement of operations as: Net realized gain (loss) on credit default swaps.

(2)	Reflected on the consolidated statement of operations as: Net change in unrealized appreciation (depreciation) on credit default swaps.

See Note 7 for a summary of credit default swap activity for the six months ended June 30, 2015.

The fair value of open derivative instruments (which are not considered to be hedging instruments for accounting disclosure purposes) whose primary underlying risk exposure is credit risk as of December 31, 2014 was as follows:


	Fair Value
Derivative	Asset Derivative		Liability Derivative⁽¹⁾

Credit Default Swap Contracts	$	—	$	30,048

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 9. Financial Instruments (continued)

(1)	Reflected on the consolidated balance sheet as: Unamortized swap premiums received and unrealized depreciation on credit default swaps.

The Company’s derivative assets and liabilities at fair value by risk, which are reported on a gross basis on its unaudited consolidated balance sheet, are presented in the table above. The following tables present the Company’s derivative assets and liabilities by counterparty, net of amounts available for offset under a master netting agreement and net of the related collateral received by the Company for assets or pledged by the Company for liabilities as of December 31, 2014:

Counterparty

Derivative
Assets Subject
to Master
Netting
Agreement

Derivatives
Available for
Offset

Non-cash
Collateral
Received⁽¹⁾

Cash
Collateral
Received⁽¹⁾

Net Amount of
Derivative
Assets⁽²⁾

JPMorgan Chase Bank, N.A.

—



Counterparty	Derivative Liabilities Subject to Master Netting Agreement		Derivatives Available for Offset		Non-cash Collateral Pledged⁽¹⁾		Cash Collateral Pledged⁽¹⁾		Net Amount of Derivative Liabilities⁽³⁾
JPMorgan Chase Bank, N.A.	$	30,048	$	—	$	—	$	30,048	$	—

(1)	In some instances, the actual amount of the collateral received and/or pledged may be more than the amount shown due to overcollateralization.

(2)	Net amount of derivative assets represents the net amount due from the counterparty to the Company in the event of default.

(3)	Net amount of derivative liabilities represents the net amount due from the Company to the counterparty in the event of default.

The effect of derivative instruments (which are not considered to be hedging instruments for accounting disclosure purposes) on the Company’s consolidated statements of operations whose primary underlying risk exposure is credit risk for the year ended December 31, 2014 was as follows:


Derivative	Realized Gain (Loss) on Derivatives Recognized in Income⁽¹⁾		Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income⁽²⁾
Credit Default Swap Contracts	$	7,535	$	(19,426	)

(1)	Reflected on the consolidated statement of operations as: Net realized gain (loss) on credit default swaps.

(2)	Reflected on the consolidated statement of operations as: Net change in unrealized appreciation (depreciation) on credit default swaps.

The average notional amount of credit default swap contracts outstanding during the year ended December 31, 2014, which is indicative of the volume of this derivative type, was approximately $37,200.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 10. Commitments and Contingencies

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management of FSIC II Advisor has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect upon its financial condition or results of operations.

See Note 6 for a discussion of the Company’s unfunded commitments.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 11. Financial Highlights

The following is a schedule of financial highlights of the Company for the six months ended June 30, 2015 and the year ended December 31, 2014:


	Six Months Ended June 30, 2015 (Unaudited)			Year Ended December 31, 2014
Per Share Data⁽¹⁾:
Net asset value, beginning of period	$	9.30		$	9.39
Results of operations⁽²⁾
Net investment income (loss)		0.51			0.80
Net realized and unrealized appreciation (depreciation) on investments, credit default swaps and gain/loss on foreign currency		(0.13	)		(0.17	)

Net increase (decrease) in net assets resulting from operations		0.38			0.63

Stockholder distributions⁽³⁾
Distributions from net investment income		(0.38	)		(0.69	)
Distributions from net realized gain on investments		—			(0.05	)

Net decrease in net assets resulting from stockholder distributions		(0.38	)		(0.74	)

Capital share transactions
Issuance of common stock⁽⁴⁾		0.00			0.03
Repurchases of common stock⁽⁵⁾		—			—
Offering costs⁽²⁾		—			(0.01	)

Net increase (decrease) in net assets resulting from capital share transactions		0.00			0.02

Net asset value, end of period	$	9.30		$	9.30

Shares outstanding, end of period		317,161,430			313,037,127

Total return⁽⁶⁾		4.09	%		6.92	%

Ratio/Supplemental Data:
Net assets, end of period	$	2,950,211		$	2,911,790

Ratio of net investment income to average net assets⁽⁷⁾		5.49	%		8.43	%

Ratio of total operating expenses to average net assets⁽⁷⁾		4.30	%		5.43	%
Ratio of waived expenses to average net assets⁽⁷⁾		(0.14	)%		—

Ratio of net operating expenses and excise taxes to average net assets⁽⁷⁾		4.16	%		5.43	%

Portfolio turnover⁽⁸⁾		18.20	%		43.79	%

Total amount of senior securities outstanding, exclusive of treasury securities	$	2,066,300		$	1,641,194

Asset coverage per unit⁽⁹⁾		2.43			2.75

(1)	Per share data may be rounded in order to recompute the ending net asset value per share.

(2)	The per share data was derived by using the weighted average shares outstanding during the applicable period.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 11. Financial Highlights (continued)

(3)	The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.

(4)

The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous public offering, as applicable, and pursuant to the Company’s distribution reinvestment plan. The issuance of common stock at an offering price, net of selling commissions and dealer manager fees, that is greater than the net asset value per share results in an increase in net asset value per share.

(5)	The per share impact of the Company’s repurchases of common stock is a reduction to net asset value of less than $0.01 per share during the period.

(6)

The total return for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions per share which were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the applicable period. The total return does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of the Company’s common stock. The total return includes the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return in the table should not be considered a representation of the Company’s future total return, which may be greater or less than the return shown in the table due to a number of factors, including the Company’s ability or inability to make investments in companies that meet its investment criteria, the interest rate payable on the debt securities the Company acquires, the level of the Company’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return on the Company’s investment portfolio during the applicable period and do not represent an actual return to stockholders.

(7)	Weighted average net assets during the applicable period are used for this calculation. The following is a schedule of supplemental ratios for the six months ended June 30, 2015 and the year ended December 31, 2014:


	Six Months Ended June 30, 2015 (Unaudited)			Year Ended December 31, 2014
Ratio of accrued capital gains incentive fees to average net assets		—			(0.32	)%
Ratio of subordinated income incentive fees to average net assets		1.37	%		1.16	%
Ratio of interest expense to average net assets		1.01	%		1.16	%
Ratio of excise taxes to average net assets		—			0.04	%

(8)	Portfolio turnover for the six months ended June 30, 2015 is not annualized.

(9)	Asset coverage per unit is the ratio of the carrying value of the Company’s total consolidated assets, less liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 12. Recently Issued Accounting Standards

In April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update No. 2015-03, Interest-Imputation of Interest to simplify the presentation of debt issuance costs. Under existing guidance, debt issuance costs are recognized as a deferred charge and presented as an asset on the balance sheet. The amendments to the guidance require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by the amendments to the guidance. The amendments to the FASB codification guidance are to be applied retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2015. Early application by public entities is permitted. Management is currently assessing the impact of this guidance on the Company’s consolidated financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (in thousands, except share and per share amounts)

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us” and “our” refer to FS Investment Corporation II.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:

•

our future operating results;

•

our business prospects and the prospects of the companies in which we may invest;

•

the impact of the investments that we expect to make;

•

the ability of our portfolio companies to achieve their objectives;

•

our current and expected financings and investments;

•

changes in the general interest rate environment;

•

the adequacy of our cash resources, financing sources and working capital;

•

the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;

•

our contractual arrangements and relationships with third parties;

•

actual and potential conflicts of interest with FSIC II Advisor, FB Income Advisor, LLC, FS Investment Corporation, FS Investment Advisor, LLC, FS Energy and Power Fund, FSIC III Advisor, LLC, FS Investment Corporation III, FS Global Advisor, LLC, FS Global Credit Opportunities Fund, FS Global Credit Opportunities Fund—A, FS Global Credit Opportunities Fund—D, GDFM or any of their affiliates;

•

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

•

our use of financial leverage;

•

the ability of FSIC II Advisor to locate suitable investments for us and to monitor and administer our investments;

•

the ability of FSIC II Advisor or its affiliates to attract and retain highly talented professionals;

•

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

•

the impact on our business of the Dodd-Frank Act, and the rules and regulations issued thereunder;

•

the effect of changes to tax legislation and our tax position; and

•

the tax status of the enterprises in which we may invest.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including those factors set forth in “Item 1A. Risk Factors” in our annual report on Form 10-K. Factors that could cause actual results to differ materially include:

•

changes in the economy;

•

risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and

•

future changes in laws or regulations and conditions in our operating areas.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Overview

We were incorporated under the general corporation laws of the State of Maryland on July 13, 2011 and formally commenced investment operations on June 18, 2012 upon raising gross proceeds in excess of $2,500 from sales of shares of our common stock in our continuous public offering to persons who were not affiliated with us or FSIC II Advisor. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. Prior to satisfying the minimum offering requirement, we had no operations except for matters relating to our organization. In March 2014, we closed our continuous public offering of shares of common stock to new investors.

Our investment activities are managed by FSIC II Advisor and supervised by our board of directors, a majority of whom are independent. Under the investment advisory and administrative services agreement, we have agreed to pay FSIC II Advisor an annual base management fee based on the average value of our gross assets as well as incentive fees based on our performance. FSIC II Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FSIC II Advisor in identifying investment opportunities and makes investment recommendations for approval by FSIC II Advisor according to guidelines set by FSIC II Advisor.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We have identified and intend to focus on the following investment categories, which we believe will allow us to generate an attractive total return with an acceptable level of risk.

Direct Originations: We intend to leverage our relationship with GDFM and its global sourcing and origination platform to directly source investment opportunities. Such investments are originated or structured specifically for us or made by us and are not generally available to the broader market. These investments may include both debt and equity components, although we do not expect to make equity investments independent of having an existing credit relationship. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions.

Opportunistic: We intend to seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market price of such investment reflects a lower value than deemed warranted by our fundamental analysis. We believe that market price inefficiencies may occur due to, among other things, general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community. We seek to allocate capital to these securities that have been misunderstood or mispriced by the market and where we believe there is an opportunity to earn an attractive return on our investment. Such opportunities may include event driven investments, anchor orders and CLOs.

In the case of event driven investments, we intend to take advantage of dislocations that arise in the markets due to an impending event and where the market’s apparent expectation of value differs substantially from our

fundamental analysis. Such events may include a looming debt maturity or default, a merger, spin-off or other corporate reorganization, an adverse regulatory or legal ruling, or a material contract expiration, any of which may significantly improve or impair a company’s financial position. Compared to other investment strategies, event driven investing depends more heavily on our ability to successfully predict the outcome of an individual event rather than on underlying macroeconomic fundamentals. As a result, successful event driven strategies may offer both substantial diversification benefits and the ability to generate performance in uncertain market environments.

We may also invest in certain opportunities that are originated and then syndicated by a commercial or investment bank, but where we provide a capital commitment significantly above the average syndicate participant, i.e., an anchor order. In these types of investments, we may receive fees, preferential pricing or other benefits not available to other lenders in return for our significant capital commitment. Our decision to provide an anchor order to a syndicated transaction is predicated on a rigorous credit analysis, our familiarity with a particular company, industry or financial sponsor, and the broader investment experiences of FSIC II Advisor and GDFM.

In addition, our relationship with GSO Capital Partners L.P., the parent of GDFM and one of the largest CLO managers in the world, allows us to opportunistically invest in CLOs. CLOs are a form of securitization where the cash flow from a pooled basket of syndicated loans is used to support distribution payments made to different tranches of securities. While collectively CLOs represent nearly fifty percent of the broadly syndicated loan universe, investing in individual CLO tranches requires a high degree of investor sophistication due to their structural complexity and the illiquid nature of their securities.

Broadly Syndicated/Other: Although our primary focus is to invest in directly originated transactions and opportunistic investments, in certain circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our directly originated investments and provide a complement to our less liquid strategies. In addition, and because we typically receive more attractive financing terms on these positions than we do on our less liquid assets, we are able to leverage the broadly syndicated portion of our portfolio in such a way that maximizes the levered return potential of our portfolio.

Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle market U.S. companies and, to a lesser extent, subordinated loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the “over-the-counter” market or directly from our target companies as primary market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase or otherwise acquire minority interests in target companies in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity, or the cash value of common stock or other equity. Any such minority interests are generally in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, CLOs, other debt securities and derivatives, including total return swaps and credit default swaps. FSIC II Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or otherwise make opportunistic investments.

The senior secured loans, second lien secured loans, and senior secured bonds, in which we invest generally have stated terms of three to seven years and subordinated debt investments that we make generally have stated terms of up to ten years, but the expected average life of such securities is generally between three and seven years. However, there is no limit on the maturity or duration of any security in our portfolio. Our debt investments may be rated by a nationally recognized statistical rating organization and, in such case, generally will carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investors Service, Inc. or lower than “BBB-” by Standard & Poor’s Ratings Services).We also invest in non-rated debt securities.

Revenues

The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on total return swap, net realized gain or loss on credit default swaps, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments, net unrealized appreciation or depreciation on total return swap, net unrealized appreciation or depreciation on credit default swaps and net unrealized gain or loss on foreign currency.

Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net gain or loss on credit default swaps represents the amortized portion of swap premiums received, the periodic payments received and the net realized gain or loss resulting from the exit of our credit default swaps. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized appreciation or depreciation on credit default swaps is the net change in the market value of our credit default swaps. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.

We principally generate revenues in the form of interest income on the debt investments we hold. In addition, we may generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we hold.

Expenses

Our primary operating expenses include the payment of management and incentive fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing arrangements and other expenses necessary for our operations. The management and incentive fees compensate FSIC II Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. FSIC II Advisor is responsible for compensating our investment sub-adviser.

We reimburse FSIC II Advisor for expenses necessary to perform services related to our administration and operations, including FSIC II Advisor’s allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings providing administrative services to us on behalf of FSIC II Advisor. Such services include the provision of general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FSIC II Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition, FSIC II Advisor assists us in calculating our net asset value, oversees the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. See Note 4 to our unaudited consolidated financial statements included herein for additional information regarding the reimbursements payable to FSIC II Advisor for administrative services and the methodology for determining the amount of any such reimbursements. We bear all other expenses of our operations and transactions. For additional information regarding these expenses, please see our annual report on Form 10-K for the fiscal year ended December 31, 2014.

In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by FSIC II Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.

Expense Reimbursement

Pursuant to the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to stockholders will be paid from offering proceeds or borrowings. However, because certain investments we may make, including preferred and common equity investments, may generate dividends and other distributions to us that are treated for tax purposes as a return of capital, a portion of our distributions to stockholders may also be deemed to constitute a return of capital to the extent that we may use such dividends or other distribution proceeds to fund our distributions to stockholders. Under those circumstances, Franklin Square Holdings will not reimburse us for the portion of such distributions to stockholders that represent a return of capital, as the purpose of the expense reimbursement agreement is not to prevent tax-advantaged distributions to stockholders.

Under the expense reimbursement agreement, Franklin Square Holdings will reimburse us for expenses in an amount equal to the difference between our cumulative distributions paid to our stockholders in each quarter, less the sum of our net investment company taxable income, net capital gains and dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in each quarter.

Pursuant to the expense reimbursement agreement, we have a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of our net investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the regular cash distributions paid by us to our stockholders; provided, however, that (i) we will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause “other operating expenses” (as defined below) (on an annualized basis and net of any expense support payments received by us during such fiscal year) to exceed the lesser of (A) 1.75% of our average net assets attributable to shares of our common stock for the fiscal year-to-date period after taking such payments into account and (B) the percentage of our average net assets attributable to shares of our common stock represented by “other operating expenses” during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) we will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate amount of distributions per share declared by us in such calendar quarter is less than the aggregate amount of distributions per share declared by us in the calendar quarter in which Franklin Square Holdings made the expense support payment to which such reimbursement relates. “Other operating expenses” means our total “operating expenses” (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. “Operating expenses” means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.

We or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of

each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, our conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.

Franklin Square Holdings is controlled by our chairman, president and chief executive officer, Michael C. Forman, and our vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of our expenses in future quarters.

As of June 30, 2015 and December 31, 2014, no amounts remained subject to repayment by us to Franklin Square Holdings in the future.

Portfolio Investment Activity for the Three and Six Months Ended June 30, 2015 and for the Year Ended December 31, 2014

During the six months ended June 30, 2015, we made investments in portfolio companies totaling $1,116,563. During the same period, we sold investments for proceeds of $456,918 and received principal repayments of $374,779. As of June 30, 2015, our investment portfolio, with a total fair value of $4,668,388 (55% in first lien senior secured loans, 24% in second lien senior secured loans, 5% in senior secured bonds, 9% in subordinated debt, 3% in collateralized securities and 4% in equity/other), consisted of interests in 183 portfolio companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $206.4 million. As of June 30, 2015, the investments in our portfolio were purchased at a weighted average price of 97.7% of par or stated value, as applicable, and our estimated gross portfolio yield (which represents the expected annualized yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), prior to leverage, was 9.7% based upon the amortized costs of our investments.

During the year ended December 31, 2014, we made investments in portfolio companies totaling $3,382,134. During the same period, we sold investments for proceeds of $951,935 and received principal repayments of $673,165. As of December 31, 2014, our investment portfolio, with a total fair value of $4,396,228 (53% in first lien senior secured loans, 23% in second lien senior secured loans, 6% in senior secured bonds, 10% in subordinated debt, 4% in collateralized securities and 4% in equity/other), consisted of interests in 200 portfolio companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $181.7 million. As of December 31, 2014, the investments in our portfolio were purchased at a weighted average price of 97.8% of par or stated value, as applicable, and our estimated gross portfolio yield, prior to leverage, was 9.6% based upon the amortized cost of our investments.

Based on our regular monthly cash distribution rate of $0.06283 per share as of June 30, 2015 and December 31, 2014 and our final public offering price of $10.60 per share, the annualized distribution rate to stockholders as of June 30, 2015 and December 31, 2014 was 7.11%. The annualized distribution rate to stockholders is expressed as a percentage equal to the projected annualized distribution amount per share divided by our final public offering price per share.

Our estimated gross portfolio yield and our annualized distribution rate to stockholders do not represent actual investment returns to stockholders, are subject to change and, in the future, may be greater or less than the rates set forth above. See the section entitled “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2014 and our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements.

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the three and six months ended June 30, 2015:


Net Investment Activity	For the Three Months Ended June 30, 2015			For the Six Months Ended June 30, 2015
Purchases	$	695,032		$	1,116,563
Sales and Redemptions		(586,899	)		(831,697	)

Net Portfolio Activity	$	108,133		$	284,866


	For the Three Months Ended June 30, 2015					For the Six Months Ended June 30, 2015
New Investment Activity by Asset Class	Purchases		Percentage			Purchases		Percentage
Senior Secured Loans—First Lien	$	438,571		63	%	$	713,419		64	%
Senior Secured Loans—Second Lien		123,139		18	%		197,949		18	%
Senior Secured Bonds		21,777		3	%		44,249		4	%
Subordinated Debt		95,278		14	%		144,331		13	%
Collateralized Securities		81		0	%		239		0	%
Equity/Other		16,186		2	%		16,376		1	%

Total	$	695,032		100	%	$	1,116,563		100	%

The following table summarizes the composition of our investment portfolio at cost and fair value as of June 30, 2015 and December 31, 2014:


	June 30, 2015 (Unaudited)							December 31, 2014
	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio			Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio
Senior Secured Loans—First Lien	$	2,615,906	$	2,571,598		55	%	$	2,360,706	$	2,346,905		53	%
Senior Secured Loans—Second Lien		1,131,242		1,116,153		24	%		1,019,318		1,001,313		23	%
Senior Secured Bonds		272,619		243,087		5	%		283,454		248,911		6	%
Subordinated Debt		421,266		408,609		9	%		431,441		421,683		10	%
Collateralized Securities		122,597		125,945		3	%		172,068		184,590		4	%
Equity/Other		149,300		202,996		4	%		142,819		192,826		4	%

Total	$	4,712,930	$	4,668,388		100	%	$	4,409,806	$	4,396,228		100	%

(1)	Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

The following table presents certain selected information regarding the composition of our investment portfolio as of June 30, 2015 and December 31, 2014:


	June 30, 2015	December 31, 2014
Number of Portfolio Companies	183	200
% Variable Rate (based on fair value)	79.4%	76.8%
% Fixed Rate (based on fair value)	16.3%	18.8%
% Income Producing Equity/Other Investments (based on fair value)	0.6%	0.3%
% Non-Income Producing Equity/Other Investments (based on fair value)	3.7%	4.1%
Average Annual EBITDA of Portfolio Companies	$206,400	$181,700
Weighted Average Purchase Price of Investments (as a % of par or stated value)	97.7%	97.8%
% of Investments on Non-Accrual (based on fair value)	0.0%	0.1%
Gross Portfolio Yield Prior to Leverage (based on amortized cost)	9.7%	9.6%
Gross Portfolio Yield Prior to Leverage (based on amortized cost)—Excluding Non-Income Producing Assets	10.0%	9.9%

Direct Originations

The following tables present certain selected information regarding our direct originations for the three and six months ended June 30, 2015:


New Direct Originations	For the Three Months Ended June 30, 2015			For the Six Months Ended June 30, 2015
Total Commitments (including unfunded commitments)	$	697,337		$	987,801
Exited Investments (including partial paydowns)		(353,238	)		(386,001	)

Net Direct Originations	$	344,099		$	601,800


	For the Three Months Ended June 30, 2015					For the Six Months Ended June 30, 2015
New Direct Originations by Asset Class (including unfunded commitments)	Commitment Amount		Percentage			Commitment Amount		Percentage
Senior Secured Loans—First Lien	$	509,229		73	%	$	732,443		74	%
Senior Secured Loans—Second Lien		167,426		24	%		234,426		24	%
Senior Secured Bonds		—		—			—		—
Subordinated Debt		5,045		1	%		5,123		0	%
Collateralized Securities		—		—			—		—
Equity/Other		15,637		2	%		15,809		2	%

Total	$	697,337		100	%	$	987,801		100	%


	For the Three Months Ended June 30, 2015			For the Six Months Ended June 30, 2015
Average New Direct Origination Commitment Amount	$	49,810		$	51,990
Weighted Average Maturity for New Direct Originations		7/24/20			7/9/20
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations funded during Period		9.8	%		10.1	%
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations funded during Period—Excluding Non-Income Producing Assets		10.1	%		10.2	%
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period		11.5	%		11.4	%

The following table presents certain selected information regarding our direct originations as of June 30, 2015 and December 31, 2014:


Characteristics of All Direct Originations Held in Portfolio	June 30, 2015			December 31, 2014
Number of Portfolio Companies		56			44
Average Annual EBITDA of Portfolio Companies	$	54,500		$	52,300
Average Leverage Through Tranche of Portfolio Companies—Excluding Equity/Other and Collateralized Securities		5.1x			4.7x
% of Investments on Non-Accrual (based on fair value)		—			—
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations		9.6	%		9.6	%
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations—Excluding Non-Income Producing Assets		10.0	%		10.1	%

Portfolio Composition by Strategy and Industry

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the total portfolio assets in such strategies as of June 30, 2015 and December 31, 2014:


	June 30, 2015					December 31, 2014
Portfolio Composition by Strategy	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Direct Originations	$	3,237,977		69	%	$	2,722,339		62	%
Opportunistic		811,715		18	%		903,455		21	%
Broadly Syndicated/Other		618,696		13	%		770,434		17	%

Total	$	4,668,388		100	%	$	4,396,228		100	%


	June 30, 2015 (Unaudited)					December 31, 2014
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Automobiles & Components	$	183,563		4	%	$	177,900		4	%
Capital Goods		489,048		10	%		383,827		9	%
Commercial & Professional Services		300,173		6	%		274,316		6	%
Consumer Durables & Apparel		294,128		6	%		266,710		6	%
Consumer Services		582,331		12	%		733,804		17	%
Diversified Financials		223,385		5	%		288,250		7	%
Energy		784,953		17	%		601,604		14	%
Food & Staples Retailing		8,768		0	%		12,585		0	%
Food, Beverage & Tobacco		11,155		0	%		9,365		0	%
Health Care Equipment & Services		71,483		2	%		80,589		2	%
Household & Personal Products		510		0	%		3,126		0	%
Insurance		87,383		2	%		98,174		2	%
Materials		351,740		8	%		269,531		6	%
Media		121,620		3	%		131,353		3	%
Pharmaceuticals, Biotechnology & Life Sciences		47,898		1	%		62,970		1	%
Real Estate		14,223		0	%		—		—
Retailing		118,638		3	%		112,094		3	%
Software & Services		430,469		9	%		328,443		8	%
Technology Hardware & Equipment		269,379		6	%		230,554		5	%
Telecommunication Services		175,602		4	%		229,690		5	%
Transportation		101,939		2	%		101,343		2	%

Total	$	4,668,388		100	%	$	4,396,228		100	%

As of June 30, 2015, except for Allen Systems Group, Inc., in which we held a senior secured loan and an equity/other investment, we were not an “affiliated person” of any of our portfolio companies, as defined in the 1940 Act. As of June 30, 2015, we did not “control” any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities or we had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if we owned 5% or more of its voting securities.

Our investment portfolio may contain loans and other unfunded arrangements that are in the form of lines of credit, revolving credit facilities, delayed draw credit facilities or other investments, pursuant to which we may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2015, we had fifteen senior secured loan investments with aggregate unfunded commitments of $231,652, one senior secured bond investment with an unfunded commitment of $14,552 and one unfunded commitment to purchase up to $700 in shares of preferred stock of Altos Power America Holdings, LLC. As of December 31, 2014, we had eight senior secured loan investments with aggregate unfunded commitments of $145,739 and one senior secured bond investment with an unfunded commitment of $16,977. We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise. For additional details regarding our unfunded debt investments, see our unaudited consolidated schedule of investments as of June 30, 2015 and audited consolidated schedule of investments as of December 31, 2014.

Portfolio Asset Quality

In addition to various risk management and monitoring tools, FSIC II Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. FSIC II Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment rating:


Investment Rating		Summary Description
1		Investment exceeding expectations and/or capital gain expected.
2		Performing investment generally executing in accordance with the portfolio company’s business plan—full return of principal and interest expected.
3		Performing investment requiring closer monitoring.
4		Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment.
5		Underperforming investment with expected loss of interest and some principal.

The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of June 30, 2015 and December 31, 2014:


	June 30, 2015					December 31, 2014
Investment Rating	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
1	$	80,195		2	%	$	284,924		7	%
2		3,775,502		81	%		3,608,887		82	%
3		771,636		16	%		485,443		11	%
4		38,910		1	%		10,528		0	%
5		2,145		0	%		6,446		0	%

Total	$	4,668,388		100	%	$	4,396,228		100	%

The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.

Results of Operations

Comparison of the Three Months Ended June 30, 2015 and 2014

Revenues

We generated investment income of $167,830 and $99,516 for the three months ended June 30, 2015 and 2014, respectively, in the form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds, subordinated debt and collateralized securities in our portfolio and dividends and other distributions earned on equity/other investments in our portfolio. Such revenues represent $161,902 and $94,180 of cash income earned as well as $5,928 and $5,336 in non-cash portions relating to accretion of discount and PIK interest for the three months ended June 30, 2015 and 2014, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

During the three months ended June 30, 2015 and 2014, we generated $129,382 and $80,066, respectively, of interest income, which represented 77.1% and 80.5%, respectively, of total investment income. The increase in interest income was due primarily to the growth of our investment portfolio and the increase in the number of directly originated investments within our investment portfolio during the twelve month period ended June 30, 2015. The level of interest income we receive is generally related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest income that we earn to increase as the proportion of directly originated investments in our portfolio continues to increase.

During the three months ended June 30, 2015 and 2014, we generated $33,014 and $18,924, respectively, of fee income, which represented 19.7% and 19.0%, respectively, of total investment income. The increase in fee income was due primarily to the prepayment of several large investments during the three months ended June 30, 2015. Such fee income is transaction based, and typically consists of prepayment fees, structuring fees, amendment and consent fees, and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of prepayments and other events at existing portfolio companies resulting in such fees.

During the three months ended June 30, 2015 and 2014, we generated $5,434 and $526, respectively, of dividend income. The increase in dividend income was due primarily to a one-time dividend paid in respect of one of our investments during the three months ended June 30, 2015.

Expenses

Our net operating expenses were $67,456 and $46,963 for the three months ended June 30, 2015 and 2014, respectively. Our operating expenses include base management fees attributed to FSIC II Advisor of $22,063 and $19,849, net of waivers by FSIC II Advisor of base management fees to which it was otherwise entitled of $3,151 and $0, for the three months ended June 30, 2015 and 2014, respectively. Our operating expenses also include administrative services expenses attributed to FSIC II Advisor of $1,140 and $1,216 for the three months ended June 30, 2015 and 2014, respectively.

FSIC II Advisor is eligible to receive incentive fees based on performance. During the three months ended June 30, 2015 and 2014, we accrued a subordinated incentive fee on income of $25,095 and $9,679, respectively, based upon the performance of our portfolio. During the three months ended June 30, 2015 and 2014, we accrued capital gains incentive fees of $0 and $6,387, respectively, based upon the performance of our portfolio, all of which was based on unrealized gains. No such fees are actually payable by us with respect to unrealized gains unless and until those gains are actually realized. See “—Critical Accounting Policies—Capital Gains Incentive Fee” for additional information about how the incentive fees are calculated.

We recorded interest expense of $16,486 and $7,252 for the three months ended June 30, 2015 and 2014, respectively, in connection with our financing arrangements. For the three months ended June 30, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various accounting and administrative

services to us, totaled $429 and $350, respectively, and fees and expenses incurred with our stock transfer agent totaled $677 and $850, respectively. Fees for our board of directors were $224 and $279 for the three months ended June 30, 2015 and 2014, respectively.

Our other general and administrative expenses totaled $1,342 and $1,101 for the three months ended June 30, 2015 and 2014, respectively, and consisted of the following:


	Three Months Ended June 30,
	2015		2014
Expenses associated with our independent audit and related fees	$	110	$	109
Compensation of our chief compliance officer⁽¹⁾		—		30
Legal fees		200		200
Printing fees		275		275
Other		757		487

Total	$	1,342	$	1,101

(1)

On April 1, 2015, James F. Volk was appointed as our chief compliance officer. Prior to that date, we had contracted with Vigilant Compliance, LLC to provide the services of Salvatore Faia as our chief compliance officer. Mr. Volk is employed by Franklin Square Holdings and does not receive any direct compensation from us in this capacity.

During the three months ended June 30, 2015 and 2014, the ratio of our net expenses to our average net assets was 2.28% and 1.62%, respectively. During the three months ended June 30, 2015 and 2014, the ratio of our net expenses to average net assets included $16,486 and $7,252, respectively, related to interest expense and $25,095 and $16,066, respectively, related to accruals of incentive fees. Without such expenses, our ratio of net expenses to average net assets would have been 0.87% and 0.82% for the three months ended June 30, 2015 and 2014, respectively. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance, and changes in amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR among other factors.

Net Investment Income

Our net investment income totaled $100,374 ($0.32 per share) and $52,553 ($0.17 per share) for the three months ended June 30, 2015 and 2014, respectively. The increase in net investment income was primarily due to the increases in revenues from interest and fee income during the three months ended June 30, 2015, as described above.

Net Realized Gains or Losses

We sold investments and received principal repayments of $252,511 and $334,388, respectively, during the three months ended June 30, 2015, from which we realized a net loss of $14,081. During the three months ended June 30, 2015, we also realized net losses of $269 from settlements on foreign currency transactions. We sold investments and received principal repayments of $192,330 and $217,105, respectively, during the three months ended June 30, 2014, from which we realized a net loss of $2,815. During the three months ended June 30, 2014, we also realized a net gain of $2 from settlements on foreign currency.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss) on Foreign Currency

For the three months ended June 30, 2015, the net change in unrealized appreciation (depreciation) on investments totaled $(29,753) and the net change in unrealized gain (loss) on foreign currency was $191. For the

three months ended June 30, 2014, the net change in unrealized appreciation (depreciation) on investments totaled $34,748 and the net change in unrealized gain (loss) on foreign currency was $(10). The net change in unrealized appreciation (depreciation) on our investments during the three months ended June 30, 2015, was primarily driven by reduced valuations of certain loan positions and the reversal of unrealized gains and losses resulting from the paydown of certain senior secured bond and subordinated debt positions.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended June 30, 2015 and 2014, the net increase in net assets resulting from operations was $56,462 ($0.18 per share) and $84,478 ($0.28 per share), respectively.

Comparison of the Six Months Ended June 30, 2015 and 2014

Revenues

We generated investment income of $283,570 and $180,581 for the six months ended June 30, 2015 and 2014, respectively, in the form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds, subordinated debt and collateralized securities in our portfolio and dividends and other distributions earned on equity/other investments in our portfolio. Such revenues represent $270,715 and $169,809 of cash income earned as well as $12,855 and $10,772 in non-cash portions relating to accretion of discount and PIK interest for the six months ended June 30, 2015 and 2014, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

During the six months ended June 30, 2015 and 2014, we generated $237,046 and $148,650, respectively, of interest income, which represented 83.6% and 82.3%, respectively, of total investment income. The increase in investment income was due primarily to the growth of our investment portfolio and the increase in the number of directly originated investments within our investment portfolio during the twelve month period ended June 30, 2015. The level of interest income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest income that we earn to increase as the proportion of directly originated investments in our portfolio continues to increase.

During the six months ended June 30, 2015 and 2014, we generated $40,720 and $31,405, respectively, of fee income, which represented 14.4% and 17.4%, respectively, of total investment income. The increase in fee income was due primarily to the prepayment of several large investments during the six months ended June 30, 2015. Such fee income is transaction based, and typically consists of prepayment fees, structuring fees, amendment and consent fees, and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

During the six months ended June 30, 2015 and 2014, we generated $5,804 and $526, respectively, of dividend income. The increase in dividend income was due primarily to a one-time dividend paid in respect of one of our investments during the six months ended June 30, 2015.

Expenses

Our net operating expenses were $122,346 and $80,328 for the six months ended June 30, 2015 and 2014, respectively. Our operating expenses include base management fees attributed to FSIC II Advisor of $45,438 and $37,490, net of waivers by FSIC II Advisor of base management fees to which it was otherwise entitled of $4,002 and $0, for the six months ended June 30, 2015 and 2014, respectively. Our operating expenses also include administrative services expenses attributed to FSIC II Advisor of $2,216 and $2,590 for the six months ended June 30, 2015 and 2014, respectively.

FSIC II Advisor is eligible to receive incentive fees based on performance. During the six months ended June 30, 2015 and 2014, we accrued a subordinated incentive fee on income of $40,308 and $9,679, respectively, based upon the performance of our portfolio. During the six months ended June 30, 2015 and 2014, we accrued capital gains incentive fees of $0 and $12,321, respectively, based upon the performance of our portfolio, all of which was based on unrealized gains. No such fees are actually payable by us with respect to unrealized gains unless and until those gains are actually realized. See “—Critical Accounting Policies—Capital Gains Incentive Fee” for additional information about how the incentive fees are calculated.

We recorded interest expense of $29,705 and $13,153 for the six months ended June 30, 2015 and 2014, respectively, in connection with our financing arrangements. For the six months ended June 30, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $856 and $667, respectively, and fees and expenses incurred with our stock transfer agent totaled $1,018 and $1,700, respectively. Fees for our board of directors were $412 and $458 for the six months ended June 30, 2015 and 2014, respectively.

Our other general and administrative expenses totaled $2,393 and $2,270 for the six months ended June 30, 2015 and 2014, respectively, and consisted of the following:


	Six Months Ended June 30,
	2015		2014
Expenses associated with our independent audit and related fees	$	219	$	230
Compensation of our chief compliance officer⁽¹⁾		30		60
Legal fees		401		397
Printing fees		547		524
Other		1,196		1,059

Total	$	2,393	$	2,270

(1)

During the six months ended June 30, 2015 and 2014, the ratio of our net expenses to our average net assets was 4.16% and 2.87%, respectively. During the six months ended June 30, 2015 and 2014, the ratio of our net expenses to average net assets included $29,705 and $13,153, respectively, related to interest expense and $40,308 and $22,000, respectively, related to accruals of incentive fees. Without such expenses, our ratio of net expenses to average net assets would have been 1.78% and 1.61% for the six months ended June 30, 2015 and 2014, respectively. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance, and changes in amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR among other factors.

Net Investment Income

Our net investment income totaled $161,224 ($0.51 per share) and $100,253 ($0.34 per share) for the six months ended June 30, 2015 and 2014, respectively. The increase in net investment income was primarily due to the growth of our portfolio, as well as the increase in revenues from interest and fee income during the six months ended June 30, 2015, as described above.

Net Realized Gains or Losses

We sold investments and received principal repayments of $456,918 and $374,779, respectively, during the six months ended June 30, 2015, from which we realized a net loss of $11,696. During the six months ended

June 30, 2015, we also realized net losses of $19,588 and $294, respectively, on our credit default swaps and from settlements on foreign currency. We sold investments and received principal repayments of $321,629 and $398,404, respectively, during the six months ended June 30, 2014, from which we realized a net loss of $210. During the six months ended June 30, 2014, we also realized a net gain of $6 from settlements on foreign currency.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Credit Default Swaps and Unrealized Gain (Loss) on Foreign Currency

For the six months ended June 30, 2015, the net change in unrealized appreciation (depreciation) on investments totaled $(30,964), the net change in unrealized gain (loss) on foreign currency was $120 and the net change in unrealized appreciation (depreciation) on our credit default swaps was $19,426. For the six months ended June 30, 2014, the net change in unrealized appreciation (depreciation) on investments totaled $61,807 and the net change in unrealized gain (loss) on foreign currency was $(10). The net change in unrealized appreciation (depreciation) on our investments during the six months ended June 30, 2015, was primarily driven by reduced valuations of certain loan positions and the reversal of unrealized gains and losses resulting from the paydown of certain senior secured bond and subordinated debt positions. The net change in unrealized appreciation (depreciation) on our credit default swaps was due to the closing of our credit default swap contracts.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the six months ended June 30, 2015 and 2014, the net increase in net assets resulting from operations was $118,228 ($0.38 per share) and $161,846 ($0.55 per share), respectively.

Financial Condition, Liquidity and Capital Resources

Overview

As of June 30, 2015, we had $386,880 in cash, which we held in a custodial account, and $133,700 in borrowings available under our financing arrangements. As of June 30, 2015, we had sixteen debt investments with aggregate unfunded commitments of $246,204, and one equity investment with an unfunded commitment of $700. We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.

We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments, as well as from the issuance of shares under our distribution reinvestment plan and principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of FSIC II Advisor, but in no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See “—Financing Arrangements.”

Prior to investing in securities of portfolio companies, we invest the cash received from fees, interest and dividends earned from our investments and from the issuance of shares under our distribution reinvestment plan, as well as principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.

Distribution Reinvestment Plan

Following the closing of our continuous public offering, we have continued to issue shares pursuant to our distribution reinvestment plan. The gross proceeds received from the issuance of our common stock under our distribution reinvestment plan during the six months ended June 30, 2015 was $52,801, for which we issued 5,588,381 shares of common stock. During the period from July 1, 2015 to August 3, 2015, we issued 2,268,181 shares of common stock pursuant to our distribution reinvestment plan at an average price per share of $9.37 for gross proceeds of $21,264.

Share Repurchase Program

To provide our stockholders with limited liquidity, we intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. The following table provides information concerning our repurchases of shares of common stock pursuant to our share repurchase program during the six months ended June 30, 2015 and 2014:


For the Three Months Ended	Repurchase Date	Shares Repurchased		Percentage of Shares Tendered That Were Repurchased			Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares
Fiscal 2014
December 31, 2013	January 2, 2014		135,094		100	%	$	9.45	$	1,277
March 31, 2014	April 1, 2014		372,394		100	%	$	9.54	$	3,553
Fiscal 2015
December 31, 2014	January 2, 2015		578,569		100	%	$	9.50	$	5,496
March 31, 2015	April 1, 2015		885,509		100	%	$	9.45	$	8,368

On July 1, 2015, we repurchased 997,845 shares of common stock (representing 100% of the shares of the common stock tendered for repurchase) at $9.45 per share for aggregate consideration totaling $9,430.

For additional information regarding our share repurchase program, see Note 3 to our unaudited consolidated financial statements included herein.

Financing Arrangements

The following table presents a summary of information with respect to our outstanding financing arrangements as of June 30, 2015:


Facility	Type of Facility	Rate	Amount Outstanding		Amount Available		Maturity Date
JPM Facility	Repurchase	3.25%	$	550,000	$	—	May 20, 2017
Goldman Facility	Repurchase	L+2.50%	$	374,506	$	25,494	December 15, 2018
Cooper River Credit Facility	Revolving	L+2.25%	$	170,494	$	29,506	May 29, 2020
Wissahickon Creek Credit Facility	Revolving	L+1.50% to L+2.50%	$	188,600	$	61,400	February 19, 2019
Darby Creek Credit Facility	Revolving	L+2.50%	$	249,500	$	500	February 20, 2018
Dunning Creek Credit Facility	Revolving	L+1.45%	$	233,200	$	16,800	May 14, 2016
Juniata River Credit Facility	Revolving	L+2.50%	$	300,000	$	—	November 14, 2019

Our average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2015 were $1,910,004 and 2.90%, respectively. As of June 30, 2015, the weighted average effective interest rate on our borrowings, including the effect of non-usage fees, was 2.87%.

For additional information regarding our financing arrangements, see Note 8 to our unaudited consolidated financial statements included herein.

RIC Status and Distributions

We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our stockholders. In order to qualify for and maintain RIC tax treatment, we must, among other things, distribute to our stockholders each tax

year dividends of an amount at least equal to 90% of our “investment company taxable income,” determined without regard to any deduction for distributions paid. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of the tax year or the due date of the tax return, including extensions, distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC status each tax year. We are also generally subject to nondeductible U.S. federal excise taxes on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses for the one-year period ending October 31 of that calendar year (adjusted for certain ordinary losses) and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, will be treated as if it had been paid by us, as well as received by our U.S. stockholders, on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions. If we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Following formal commencement of our investment operations, we declared our first distribution on June 20, 2012. Prior to the closing of our continuous public offering in March 2014, we authorized and declared regular cash distributions on a weekly basis, and paid such distributions on a monthly basis. Effective January 1, 2015 and subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize and declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date that shares of our common stock are issued to such stockholder. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.

The following table reflects the cash distributions per share that we have declared and paid on our common stock during the six months ended June 30, 2015 and 2014:


	Distribution
For the Three Months Ended	Per Share		Amount
Fiscal 2014
March 31, 2014	$	0.1740	$	49,274
June 30, 2014	$	0.1885	$	57,604
Fiscal 2015
March 31, 2015	$	0.1885	$	59,177
June 30, 2015	$	0.1885	$	59,567

On May 14, 2015 and August 6, 2015, our board of directors declared regular monthly cash distributions for July 2015 through September 2015 and October 2015 through December 2015, respectively, each in the amount of $0.06283. These distributions have been or will be paid monthly to stockholders of record as of monthly record dates previously determined by our board of directors.

We have adopted an “opt in” distribution reinvestment plan for our stockholders. As a result, if we make a cash distribution, stockholders will receive the distribution in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the distribution reinvestment plan.

On February 24, 2014, we amended and restated our distribution reinvestment plan, which first applied to the reinvestment of cash distributions paid on or after, March 26, 2014. Under the original plan, cash distributions to participating stockholders were reinvested in additional shares of our common stock at a purchase price equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended plan, cash distributions to participating stockholders will be reinvested in additional shares of our common stock at a purchase price determined by our board of directors, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of our common stock as determined in good faith by our board of directors or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per share of our common stock as of such date. Although distributions paid in the form of additional shares of common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders who elect to participate in our distribution reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes. Stockholders receiving distributions in the form of additional shares of common stock will be treated as receiving a distribution in the amount of the fair market value of our shares of common stock.

We intend to continue to make our regular distributions in the form of cash, unless stockholders elect to receive their distributions in additional shares of our common stock under our distribution reinvestment plan. From time to time and not less than quarterly, FSIC II Advisor must review our accounts to determine whether cash distributions are appropriate. We intend to distribute pro rata to our stockholders funds received by us which FSIC II Advisor deems unnecessary for us to retain. We may fund our cash distributions to stockholders from any sources of funds legally available to us, including proceeds from the sale of shares of our common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, gains from credit default swaps, non-capital gains proceeds from the sale of assets, and dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and reimbursements of certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees. We have not established limits on the amount of funds we may use from available sources to make distributions.

During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities and will be made after the deduction of fees and expenses, including any fees payable to FSIC II Advisor. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the six months ended June 30, 2015 and 2014 and represented a return of capital.

Pursuant to the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to stockholders will be paid from our offering proceeds or borrowings. For a period of time following commencement of our continuous public offering, substantial portions of our distributions were funded through the reimbursement of certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FSIC II Advisor, that were subject to repayment by us within three years. Any such distributions funded through expense reimbursements or waivers of advisory fees were not based on our investment performance. No portion of the distributions paid during the six months ended June 30, 2015 and 2014 was funded through the reimbursement of operating expenses by Franklin Square Holdings. There can be no assurance that we will continue to achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at a specific rate or at all. Franklin Square Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

The following table reflects the sources of the cash distributions on a tax basis that we have paid on our common stock during the six months ended June 30, 2015 and 2014:


	Six Months Ended June 30,
	2015					2014
Source of Distribution	Distribution Amount		Percentage			Distribution Amount		Percentage
Offering proceeds	$	—		—		$	—		—
Borrowings		—		—			—		—
Net investment income (prior to expense reimbursement)⁽¹⁾		118,744		100	%		106,878		100	%
Short-term capital gains proceeds from the sale of assets		—		—			—		—
Long-term capital gains proceeds from the sale of assets		—		—			—		—
Gains from credit default swaps (ordinary income for tax)		—		—			—		—
Non-capital gains proceeds from the sale of assets		—		—			—		—
Distributions on account of preferred and common equity		—		—			—		—
Expense reimbursement from sponsor		—		—			—		—

Total	$	118,744		100	%	$	106,878		100	%

(1)

During the six months ended June 30, 2015 and 2014, 95.5% and 94.0%, respectively, of our gross investment income was attributable to cash income earned, 2.4% and 3.9%, respectively, was attributable to non-cash accretion of discount and 2.1% and 2.1%, respectively, was attributable to PIK interest.

Our net investment income on a tax basis for the six months ended June 30, 2015 and 2014 was $128,465 and $110,880, respectively. As of June 30, 2015 and December 31, 2014, we had $51,122 and $19,204, respectively, of undistributed net investment income and realized gains on a tax basis.

See Note 5 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income and tax-basis net investment income for the six months ended June 30, 2015 and 2014.

Critical Accounting Policies

Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Valuation of Portfolio Investments

We determine the net asset value of our investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by our board of directors. In connection with that determination, FSIC II Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the FASB, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:

•

our quarterly fair valuation process begins with FSIC II Advisor’s management team reviewing and documenting valuations of each portfolio company or investment, which valuations may be obtained from an independent third-party valuation service, if applicable;

•

FSIC II Advisor’s management team then provides the valuation committee with the preliminary valuations for each portfolio company or investment;

•

preliminary valuations are then discussed with the valuation committee;

•

the valuation committee reviews the preliminary valuations and FSIC II Advisor’s management team, together with our independent third-party valuation services, if applicable, supplement the preliminary valuations to reflect any comments provided by the valuation committee;

•

following its review, the valuation committee will recommend that our board of directors approve our fair valuations; and

•

our board of directors discusses the valuations and determines the fair value of each such investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of FSIC II Advisor, the valuation committee and any independent third-party valuation services, if applicable.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of directors may use any approved independent third-party pricing or valuation services. However, our board of directors is not required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including information obtained from FSIC II Advisor or any approved independent third-party valuation or pricing service that our board of directors deems to be reliable in determining fair value under the circumstances. Below is a description of factors that FSIC II Advisor’s management team, any approved independent third-party valuation services and our board of directors may consider when determining the fair value of our investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of directors, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

FSIC II Advisor’s management team, any approved independent third-party valuation services and our board of directors may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. FSIC II Advisor’s management team, any approved independent third-party valuation services and our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in consultation with FSIC II Advisor’s management team and any approved independent third party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of directors subsequently values these warrants or other equity securities received at their fair value.

The fair values of our investments are determined in good faith by our board of directors. Our board of directors is solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of directors has delegated day-to-day responsibility for implementing our valuation policy to FSIC II Advisor’s management team, and has authorized FSIC II Advisor’s management team to utilize independent third-party valuation and pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing FSIC II Advisor’s implementation of the valuation process.

Our investments as of June 30, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Forty-four senior secured loan investments, one senior secured bond investment, four subordinated debt investments and one collateralized security, for which broker quotes were not available, were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the investments. Except as described below, all of our equity/other investments were also valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues, or in limited instances, book value or liquidation value. One equity/other investment, which was traded on an active public market, was valued at its closing price as of June 30, 2015. Two senior secured loan investments, which were newly-issued and purchased near June 30, 2015, were valued at cost, as our board of directors determined that the cost of such investments was the best indication of their fair value. Except as described above, we valued our other investments, including two equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services.

Our investments as of December 31, 2014 consisted primarily of debt investments that were acquired directly from the issuer. Twenty-nine senior secured loan investments, one senior secured bond investment, four

subordinated debt investments and one collateralized security, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the investments. Except as described below, all of our equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues, or in limited instances, book value or liquidation value. Four equity/other investments, which were traded on active public markets, were valued at their closing price as of December 31, 2014. Three senior secured loan investments, two collateralized securities and one equity/other investment which were newly-issued and purchased near December 31, 2014, were valued at cost, as our board of directors determined that the cost of such investments was the best indication of their fair value. Except as described above, we valued our other investments and credit default swaps, including two equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services.

We periodically benchmark the bid and ask prices we receive from the third-party pricing services and/or dealers as applicable against the actual prices at which we purchase and sell our investments. Based on the results of the benchmark analysis and the experience of our management in purchasing and selling these investments, we believe that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), we believe that these valuation inputs are classified as Level 3 within the fair value hierarchy. We may also use other methods, including the use of an independent valuation firm, to determine fair value for securities for which we cannot obtain prevailing bid and ask prices through our third-party pricing services or independent dealers, or where our board of directors otherwise determines that the use of such other methods is appropriate. We periodically benchmark the valuations provided by the independent valuation firms against the actual prices at which we purchase and sell our investments. The valuation committee and our board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with our valuation policy.

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We record dividend income on the ex-dividend date. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Loan origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. We record prepayment premiums on loans and securities as fee income when we receive such amounts.

Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign Currency

Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized. Net change in unrealized gains or losses on foreign currency reflects the change in the value of receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.

Capital Gains Incentive Fee

Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). Such fee will equal 20.0% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While the investment advisory and administrative services agreement neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an AICPA Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FSIC II Advisor if our entire portfolio were liquidated at its fair value as of the balance sheet date even though FSIC II Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Subordinated Income Incentive Fee

Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of our “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of our common stock (including proceeds from our distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds of non-liquidating dispositions of our investments and amounts paid for share repurchases pursuant to our share repurchase program. As a result, FSIC II Advisor will not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FSIC II Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.34375%, or 9.375% annually, of adjusted capital. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the six months ended June 30, 2015 and 2014, we did not incur any interest or penalties.

Contractual Obligations

We have entered into an agreement with FSIC II Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee based on of the average value of our gross assets and (b) an incentive fee based on our performance. FSIC II Advisor and, to the extent it is

required to provide such services, GDFM, are reimbursed for administrative and/or organizational and offering costs incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein and “—Related Party Transactions—Compensation of the Investment Adviser and Dealer Manager” for a discussion of this agreement and the amount of fees and expenses accrued under these agreements during the six months ended June 30, 2015 and 2014.

A summary of our significant contractual payment obligations related to the repayment of our outstanding indebtedness at June 30, 2015 is as follows:


	Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
JPM Facility⁽¹⁾	$	550,000	$	550,000		—		—		—
Goldman Facility⁽²⁾	$	374,506	$	374,506		—		—		—
Cooper River Credit Facility⁽³⁾	$	170,494		—		—	$	170,494		—
Wissahickon Creek Credit Facility⁽⁴⁾	$	188,600		—		—	$	188,600		—
Darby Creek Credit Facility⁽⁵⁾	$	249,500		—	$	249,500		—		—
Dunning Creek Credit Facility⁽⁶⁾	$	233,200	$	233,200		—		—		—
Juniata River Credit Facility⁽⁷⁾	$	300,000		—		—	$	300,000		—

(1)

At June 30, 2015, no amounts remained unused under the JPM facility. Cobbs Creek will, on a quarterly basis, repurchase the Class A Notes sold to JPM under the JPM facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction is scheduled to occur no later than May 20, 2017.

(2)	At June 30, 2015, $25,494 remained unused under the Goldman facility. All amounts under the Goldman facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on December 15, 2018.

(3)	At June 30, 2015, $29,506 remained unused under the Cooper River facility. All amounts under the Cooper River facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 29, 2020.

(4)	At June 30, 2015, $61,400 remained unused under the Wissahickon Creek facility. All amounts under the Wissahickon Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 19, 2019.

(5)	At June 30, 2015, $500 remained unused under the Darby Creek facility. All amounts under the Darby Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 20, 2018.

(6)	At June 30, 2015, $16,800 remained unused under the Dunning Creek facility. All amounts under the Dunning Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 14, 2016.

(7)	At June 30, 2015, no amounts remained unused under the Juniata River facility. All amounts under the Juniata River facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on November 14, 2019.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Recently Issued Accounting Standards

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest-Imputation of Interest, to simplify the presentation of debt issuance costs. Under existing guidance, debt issuance costs are recognized as

a deferred charge and presented as an asset on the balance sheet. The amendments to the guidance require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by the amendments in this guidance. The amendments to the FASB codification in this guidance are to be applied retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2015. Early application by public entities is permitted. We are currently assessing the impact of this guidance on our consolidated financial statements.

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor is entitled to an annual base management fee based on the average value of our gross assets and an incentive fee based on our performance. We also reimburse FSIC II Advisor and GDFM for expenses necessary to perform services related to our administration and operations, including FSIC II Advisor’s allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings providing administrative services to us on behalf of FSIC II Advisor.

Pursuant to the investment advisory and administrative services agreement we also reimbursed FSIC II Advisor and its affiliates for expenses necessary to perform services related to our organization and continuous public offering. In addition, the dealer manager for our continuous public offering was FS², which is one of our affiliates. Under the dealer manager agreement FS² was entitled to receive selling commissions and dealer manager fees in connection with the sale of shares of our common stock in our continuous public offering, all or a portion of which were re-allowed to selected broker-dealers. Our continuous public offering closed in March 2014, and in connection therewith, the dealer manager agreement was terminated. Therefore, in the future we will not make any additional reimbursements to FSIC II Advisor or its affiliates for services related to our organization and continuous public offering, and FS² will no longer receive selling commissions and dealer manager fees relating to our continuous public offering.

The following table describes the fees and expenses we accrued under the investment advisory and administrative services agreement and the dealer manager fees FS² received under the dealer manager agreement during the three and six months ended June 30, 2015 and 2014:


			Three Months Ended June 30,				Six Months Ended June 30,
Related Party	Source Agreement	Description	2015		2014		2015		2014
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Base Management Fee⁽¹⁾	$	22,063	$	19,849	$	45,438	$	37,490
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Capital Gains Incentive Fee⁽²⁾	$	—	$	6,387	$	—	$	12,321
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Subordinated Incentive Fee on Income⁽³⁾	$	25,095	$	9,679	$	40,308	$	9,679
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Administrative Services Expenses⁽⁴⁾	$	1,140	$	1,216	$	2,216	$	2,590
FSIC II Advisor	Investment Advisory and Administrative Services Agreement	Offering Costs⁽⁵⁾	$	—	$	—	$	—	$	1,087
FS²	Dealer Manager Agreement	Dealer Manager Fee⁽⁶⁾	$	—	$	—	$	—	$	8,821

(1)

FSIC II Advisor agreed, effective March 5, 2015, to permanently waive a portion of the base management fee to which it is entitled under the investment advisory agreement so that the fee received equals 1.75% of the average value of our gross assets. As a result, the amount shown for the three and six months ended June 30, 2015 is net of waivers of $3,151 and $4,002, respectively. During the six months ended June 30, 2015 and 2014, $46,444 and $32,654, respectively, in base management fees were paid to FSIC II Advisor. As of June 30, 2015, $22,063 in base management fees were payable to FSIC II Advisor.

(2)

During the six months ended June 30, 2015 and 2014, we accrued capital gains incentive fees of $0 and $12,321, respectively, based on the performance of our portfolio, all of which was based on unrealized gains. No such fees are actually payable by us with respect to such unrealized gains unless and until those gains are actually realized. See Note 2 to our unaudited consolidated financial statements included herein for a discussion of the methodology employed by us in calculating the capital gains incentive fee. We did not pay any capital gains incentive fees to FSIC II Advisor during the six months ended June 30, 2015. As of June 30, 2015, we did not have any accrued capital gains incentive fees based on the performance of our portfolio.

(3)	During the six months ended June 30, 2015 and 2014, $30,547 and $0, respectively, of subordinated incentive fees on income were paid to FSIC II Advisor. As of June 30, 2015, a subordinated incentive fee on income of $25,095 was payable to FSIC II Advisor.

(4)

During the six months ended June 30, 2015 and 2014, $2,125 and $2,396, respectively, of administrative services expenses related to the allocation of costs of administrative personnel for services rendered to us by FSIC II Advisor and the remainder related to other reimbursable expenses. We paid $2,162 and $1,273, in administrative services expenses to FSIC II Advisor during the six months ended June 30, 2015 and 2014, respectively.

(5)

During the six months ended June 30, 2015 and 2014, we incurred offering costs of $0 and $1,686, respectively, of which $0 and $1,087, respectively, related to reimbursements to FSIC II Advisor for offering costs incurred on our behalf, including marketing expenses, salaries and other direct expenses of FSIC II Advisor’s personnel and employees of its affiliates while engaged in registering and marketing our common stock.

(6)	Represents aggregate sales commissions and dealer manager fees retained by FS² and not re-allowed to selected broker-dealers.

See Note 4 to our unaudited consolidated financial statements included herein for additional information regarding our agreements with FSIC II Advisor and FS², as well as our other related party transactions and relationships, including potential conflicts of interests, our exemptive relief order from the SEC and our expense reimbursement agreement with Franklin Square Holdings.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of June 30, 2015, 79.4% of our portfolio investments (based on fair value) paid variable interest rates, 16.3% paid fixed interest rates, 3.7% were non-income producing equity or other investments and the remaining 0.6% were income producing equity/other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this point would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income under, the investment advisory and administrative services agreement we have entered into with FSIC II Advisor, and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to FSIC II Advisor with respect to our increased pre-incentive fee net investment income.

Pursuant to the terms of the Cooper River facility, Wissahickon Creek facility, Darby Creek facility, Dunning Creek facility, Juniata River facility and Goldman facility, borrowings are at a floating rate based on LIBOR. Under the terms of the JPM facility, Cobbs Creek pays interest to JPM at a fixed rate. To the extent that any present or future credit facilities, total return swap agreements or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding or financing arrangements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

The following table shows the effect over a twelve month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the composition of our investment portfolio, including the accrual status of our investments, and our financing arrangements in effect as of June 30, 2015 (dollar amounts are presented in thousands):


Basis Point Change in Interest Rates	Increase (Decrease) in Interest Income⁽¹⁾			Increase (Decrease) in Interest Expense			Increase (Decrease) in Net Interest Income			Percentage Change in Net Interest Income
Down 25 basis points	$	(255	)	$	(3,464	)	$	3,209			0.8	%
No change		—			—			—			—
Up 100 basis points		8,043			13,855			(5,812	)		(1.4	)%
Up 300 basis points		80,942			41,564			39,378			9.8	%
Up 500 basis points		156,134			69,273			86,861			21.6	%

(1)	Assumes no defaults or prepayments by portfolio companies over the next twelve months.

We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the six months ended June 30, 2015 and 2014, we did not engage in interest rate hedging activities.

In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of Portfolio Investments.”

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2015.

Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act) that occurred during the three-month period ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.

Item 1A.

Risk Factors.

Investing in our common stock involves a number of significant risks. In addition to the other information contained in this quarterly report on Form 10-Q, investors should consider carefully the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2014 and our additional filings with the SEC before making an investment in our common stock.

Risks Related to Our Investments

Our investments in CLOs may be riskier than a direct investment in the debt or other securities of the underlying companies.

When investing in CLOs, we may invest in any level of a CLO’s subordination chain, including subordinated (lower-rated) tranches and residual interests (the lowest tranche). CLOs are typically highly levered and therefore, the junior debt and equity tranches that we may invest in are subject to a higher risk of total loss and deferral or nonpayment of interest than the more senior tranches to which they are subordinated. In addition, we will generally have the right to receive payments only from CLOs, and will generally not have direct rights against the underlying borrowers or entities that sponsored the CLOs. Furthermore, the investments we make in CLOs are at times thinly traded or have only a limited trading market. As a result, investments in such CLOs may be characterized as illiquid securities.

A prolonged continuation of depressed oil and natural gas prices could negatively impact the energy industry investments within our investment portfolio.

A prolonged continuation of depressed oil and natural gas prices would adversely affect the credit quality and performance of certain of our debt and equity investments in energy and power companies. A decrease in credit quality and performance would, in turn, negatively affect the fair value of these investments, which would consequently negatively affect our net asset value. Should a prolonged period of depressed oil and natural gas prices occur, the ability of certain of our portfolio companies in the energy industry to satisfy financial or operating covenants imposed by us or other lenders may be adversely affected, which could, in turn, negatively impact their financial condition and their ability to satisfy their debt service and other obligations. Likewise, should a prolonged period of depressed oil and natural gas prices occur, it is possible that the cash flows and profit generation capacity of these portfolio companies also be adversely affected thereby negatively impacting their ability to pay us dividends or distributions on our investments.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The table below provides information concerning our repurchases of shares of our common stock during the three months ended June 30, 2015, pursuant to our share repurchase program.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 to April 30, 2015		885,509	$	9.45		885,509		(1	)
May 1 to May 31, 2015		—		—		—		—
June 1 to June 30, 2015		—		—		—		—

Total		885,509	$	9.45		885,509		(1	)

(1)	A description of the maximum number of shares of our common stock that may be repurchased under our share repurchase program is set forth in Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q.

See Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for a more detailed discussion of the terms of our share repurchase program.

Item 3.

Defaults upon Senior Securities.

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.

The following exhibits are filed as part of this annual report or hereby incorporated by reference to exhibits previously filed with the SEC:



3.1		Articles of Amendment and Restatement of the Company. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 14, 2012.)

3.2		Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit (b) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

4.1		Distribution Reinvestment Plan of the Company. (Incorporated by reference to Exhibit (e) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

4.2		Amended and Restated Distribution Reinvestment Plan of the Company, effective as of January 1, 2013. (Incorporated by reference to Exhibit 4.3 filed with the Company’s Quarterly Report filed on Form 10-Q for the quarterly period ended September 30, 2012 filed on November 14, 2012.)

4.3		Amended and Restated Distribution Reinvestment Plan of the Company, effective as of March 26, 2014. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 24, 2014.)



10.1		Investment Advisory and Administrative Services Agreement, dated as of February 8, 2012, by and between the Company and FSIC II Advisor, LLC. (Incorporated by reference to Exhibit (g)(1) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

10.2		Investment Sub-Advisory Agreement, dated as of February 8, 2012, by and between FSIC II Advisor, LLC and GSO / Blackstone Debt Funds Management LLC. (Incorporated by reference to Exhibit (g)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

10.3		Dealer Manager Agreement, dated as of February 8, 2012, by and among the Company, FSIC II Advisor, LLC and FS2 Capital Partners, LLC. (Incorporated by reference to Exhibit (h)(1) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

10.4		Form of Follow-On Dealer Manager Agreement. (Incorporated by reference to Exhibit (h)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-184474) filed on May 10, 2013.)

10.5		Form of Selected Dealer Agreement. (Included as Appendix A to the Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(1) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

10.6		Form of Follow-On Selected Dealer Agreement. (Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-184474) filed on May 10, 2013.)

10.7		Custodian Agreement, dated as of February 8, 2012, by and between the Company and State Street Bank and Trust Company. (Incorporated by reference to Exhibit (j) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

10.8		Escrow Agreement, dated as of January 23, 2012, by and among the Company, UMB Bank, N.A. and FS2 Capital Partners, LLC. (Incorporated by reference to Exhibit (k) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)

10.9		ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of July 2, 2012, by and between Del River LLC (formerly known as IC-II Investments LLC) and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 3, 2012.)

10.10		Confirmation Letter Agreement, dated as of July 2, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 3, 2012.)

10.11		Amended and Restated Confirmation Letter Agreement, dated as of September 12, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 12, 2012.)

10.12		Amended and Restated Confirmation Letter Agreement, dated as of September 27, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2012.)



10.13		Amended and Restated Confirmation Letter Agreement, dated as of November 15, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 15, 2012.)

10.14		Amended and Restated Confirmation Letter Agreement, dated as of December 13, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 17, 2012.)

10.15		Investment Management Agreement, dated as of July 2, 2012, by and between the Company and Del River LLC. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 3, 2012.)

10.16		Termination Acknowledgement (TRS), dated as of June 13, 2013, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 17, 2013.)

10.17		Asset Transfer Agreement, dated as of October 26, 2012, by and between the Company and Lehigh River LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.18		Indenture, dated as of October 26, 2012, by and between Lehigh River LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.19		Amended and Restated Indenture, dated as of February 6, 2013, by and between Lehigh River LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 7, 2013.)

10.20		Lehigh River LLC Class A Floating Rate Secured Note, due 2023. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.21		Supplemental Indenture No. 1, dated as of April 23, 2013, by and between Lehigh River LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 26, 2013.)

10.22		Lehigh River LLC Class A Floating Rate Secured Note, due 2024. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 7, 2013.)

10.23		TBMA/ISMA 2000 Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch and Cobbs Creek LLC, together with the related Annex and Confirmation thereto, each dated as of October 26, 2012. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.24		Lehigh River LLC Class A Floating Rate Secured Note, due 2024. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 26, 2013.)

10.25		TBMA/ISMA 2000 Amended and Restated Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch and Cobbs Creek LLC, together with the related Annex and Amended and Restated Confirmation thereto, each dated as of February 6, 2013. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 7, 2013.)

10.26		Revolving Credit Agreement, dated as of October 26, 2012, by and between the Company and Cobbs Creek LLC. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.27		TBMA/ISMA 2000 Amended and Restated Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch, and Cobbs Creek LLC, together with the related Annex and Amended and Restated Confirmation thereto, each dated as of April 23, 2013. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 26, 2013.)



10.28		Asset Transfer Agreement, dated as of October 26, 2012, by and between the Company and Cobbs Creek LLC. (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.29		Collateral Management Agreement, dated as of October 26, 2012, by and between Lehigh River LLC and the Company. (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.30		Collateral Administration Agreement, dated as of October 26, 2012, by and among Lehigh River LLC, the Company and Virtus Group, LP. (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.31		Collateral Management Agreement, dated as of October 26, 2012, by and between Cobbs Creek LLC and the Company. (Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on October 30, 2012.)

10.32		Amended and Restated Credit and Security Agreement, dated as of May 29, 2015, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 4, 2015.)

10.33		Amended and Restated Account Control Agreement, dated as of May 29, 2015, by and between Cooper River LLC, as pledgor, Citibank, N.A., as secured party, and Citibank, N.A., as securities intermediary. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 4, 2015.)

10.34		Security Agreement, dated as of March 27, 2013, by and between Cooper River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 28, 2013.)

10.35		Agreement and Plan of Merger, dated as of March 27, 2013, by and among Cooper River LLC, Cooper River CBNA Loan Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 28, 2013.)

10.36		Amended and Restated Investment Management Agreement, dated as of May 29, 2015, by and between the Company, as investment manager, and Cooper River LLC. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 4, 2015.)

10.37		Amended and Restated Sales and Contribution Agreement, dated as of May 29, 2015, by and between the Company, as seller, and Cooper River LLC, as purchaser. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 4, 2015.)

10.38		Loan and Servicing Agreement, dated as of February 19, 2014, by and among Wissahickon Creek LLC, as borrower, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.39		Purchase and Sale Agreement, dated as of February 19, 2014, by and between Wissahickon Creek LLC, as purchaser, and the Company, as seller. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.40		Collateral Management Agreement, dated as of February 19, 2014, by and between Wissahickon Creek LLC and the Company, as collateral manager. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)



10.41		Securities Account Control Agreement, dated as of February 19, 2014, by and among Wissahickon Creek LLC, as pledgor, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National Association, as securities intermediary. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.42		Loan Financing and Servicing Agreement, dated as of February 20, 2014, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.43		Sale and Contribution Agreement, dated as of February 20, 2014, by and between Darby Creek LLC, as purchaser, and the Company, as seller. (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.44		Investment Management Agreement, dated as of February 20, 2014, by and between Darby Creek LLC and the Company, as investment manager. (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.45		Securities Account Control Agreement, dated as of February 20, 2014, by and among Darby Creek LLC, as pledgor, Wells Fargo Bank, National Association, as secured party, and Wells Fargo Bank, National Association, as securities intermediary. (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)

10.46		Credit Agreement, dated as of May 14, 2014, by and among Dunning Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and lender, and the other lenders from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 19, 2014.)

10.47		First Amendment to Credit Agreement, dated as of June 4, 2014, by and between Dunning Creek LLC and Deutsche Bank AG, New York Branch, as administrative agent and lender. (Incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K filed on June 6, 2014.)

10.48		Custodial Agreement, dated as of May 14, 2014, by and among Dunning Creek LLC, as borrower, the Company, as manager, Deutsche Bank AG, New York Branch, as administrative agent, and Deutsche Bank Trust Company Americas, as custodian. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 19, 2014.)

10.49		Security Agreement, dated as of May 14, 2014, by and between Dunning Creek LLC, as borrower, and Deutsche Bank AG, New York Branch, as administrative agent. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 19, 2014.)

10.50		Sale and Contribution Agreement, dated as of May 14, 2014, by and between the Company, as seller, and Dunning Creek LLC, as purchaser. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 19, 2014.)

10.51		Investment Management Agreement, dated as of May 14, 2014, by and between Dunning Creek LLC and the Company, as Investment Manager. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on May 19, 2014.)

10.52		Loan Agreement, dated as of November 14, 2014, by and among Juniata River LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent and lender, Citibank, N.A., as collateral agent and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K filed on March 18, 2015.)

10.53		Sale and Contribution Agreement, dated as of November 14, 2014, between Juniata River LLC, as purchaser, and the Company, as seller. (Incorporated by reference to Exhibit 10.52 to the Company’s Annual Report on Form 10-K filed on March 18, 2015.)



10.54		Investment Management Agreement, dated as of November 14, 2014, between Juniata River LLC and the Company, as investment manager. (Incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K filed on March 18, 2015.)

10.55		Collateral Administration Agreement, dated as of November 14, 2014, by and among Juniata River LLC, JPMorgan Chase Bank, National Association, as administrative agent, the Company, as investment manager and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.54 to the Company’s Annual Report on Form 10-K filed on March 18, 2015.)

10.56		Amended and Restated Sale and Contribution Agreement, dated as of December 15, 2014, by and between the Company and Green Creek LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

10.57		Indenture, dated as of December 15, 2014, by and between Green Creek LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

10.58		Green Creek LLC Floating Rate Notes due 2026. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

10.59		September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Schuylkill River LLC, together with the related Annex and Master Confirmation thereto, each dated as of December 15, 2014. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

10.60		Revolving Credit Agreement, dated as of December 15, 2014, by and between the Company and Schuylkill River LLC. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

10.61		Amended and Restated Investment Management Agreement, dated as of December 15, 2014, by and between Green Creek LLC and the Company. (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

10.62		Collateral Administration Agreement, dated as of December 15, 2014, by and among Green Creek LLC, the Company and Virtus Group, LP. (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December 19, 2014.)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

100

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 14, 2015.


FS INVESTMENT CORPORATION II

By:		/s/ Michael C. Forman
		Michael C. Forman Chief Executive Officer (Principal Executive Officer)

By:		/s/ Michael Lawson
		Michael Lawson Chief Financial Officer (Principal Financial and Accounting Officer)

101

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