Oaktree Strategic Income Corp - FORM 10-K

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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - Oaktree Strategic Income Corp	fsfr-ex321_201593010xk.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) - Oaktree Strategic Income Corp	fsfr-ex311_201593010xk.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Oaktree Strategic Income Corp	fsfr-ex322_201593010xk.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) - Oaktree Strategic Income Corp	fsfr-ex312_201593010xk.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)



	þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the period ended September 30, 2015



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

COMMISSION FILE NUMBER: 1-35999

Fifth Street Senior Floating Rate Corp.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



DELAWARE (State or jurisdiction of incorporation or organization)		61-1713295 (I.R.S. Employer Identification No.)

777 West Putnam Avenue, 3rd Floor Greenwich, CT (Address of principal executive office)		06830 (Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:

(203) 681-3600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		The NASDAQ Global Select Market

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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. (Check one):

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of March 31, 2015 is $292,795,941. The registrant had 29,466,768 shares of common stock outstanding as of December 11, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to the registrant’s 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.

TABLE OF CONTENTS




		Page

	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	21
Item 1B.	Unresolved Staff Comments	45
Item 2.	Properties	45
Item 3.	Legal Proceedings	45
Item 4.	Mine Safety Disclosures	45
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	46
Item 6.	Selected Financial Data	50
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	51
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	73
Item 8.	Consolidated Financial Statements and Supplementary Data	75
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	131
Item 9A.	Controls and Procedures	131
Item 9B.	Other Information	132
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	132
Item 11.	Executive Compensation	132
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	132
Item 13.	Certain Relationships and Related Transactions, and Director Independence	132
Item 14.	Principal Accounting Fees and Services	132
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	132
Signatures		135
Exhibit Index

PART I

Item 1. Business

General

We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, or the 1940 Act. Also, we are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and intend to take advantage of the exemption for emerging growth companies allowing us to temporarily forgo the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We do not intend to take advantage of other disclosure or reporting exemptions for emerging growth companies under the JOBS Act.

Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments while seeking to preserve our capital. We intend to achieve our investment objective by investing primarily in senior secured loans, including first lien, unitranche and second lien debt instruments, that pay interest at rates which are determined periodically on the basis of a floating base lending rate, made to private middle market companies whose debt is rated below investment grade, which we refer to collectively as “senior loans.” We may also invest in senior unsecured loans issued by private middle market companies and, to a lesser extent, subordinated loans issued by private middle market companies and senior and subordinated loans issued by public companies. Under normal market conditions, at least 80% of the value of our net assets plus borrowings for investment purposes will be invested in floating rate senior loans. This policy may be changed by our Board of Directors with at least 60 days’ prior written notice provided to stockholders to the extent such a change would not affect our ability to maintain our election as a BDC.

Senior loans typically pay interest at rates which are determined periodically on the basis of a floating base lending rate, primarily the London-Interbank Offered Rate, or LIBOR, plus a premium. The senior loans in which we invest are typically made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities which operate in various industries and geographical regions. Senior loans typically are rated below investment grade. Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” securities or "junk," and may be considered a higher risk than debt instruments that are rated investment grade. We target senior loans that generally bear annual interest at a rate of LIBOR plus a 5.0% premium (with a LIBOR floor), and for our investments that are not considered senior loans, we target an annual interest rate of LIBOR plus a 9.0% premium (with a LIBOR floor). If the LIBOR floor is higher than the current applicable LIBOR rate, the LIBOR floor will be the applicable LIBOR rate. We may make investments with interest rates that differ from our target rates and will periodically reassess our target rates in light of prevailing market conditions.

We invest in senior loans made primarily to private leveraged middle market companies with approximately $20 million to $100 million of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range in size between $3 million and $30 million each, although we expect that this investment size will vary proportionately with the size of our capital base. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus, but are intended to enhance our overall returns. These opportunistic investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States. We may invest up to 30% of our total assets in such opportunistic investments, including senior loans issued by non-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act. See “Business Development Company Regulations.”

We are managed by Fifth Street Management LLC ("Fifth Street Management") and FSC CT LLC (“FSC CT”) provides the administrative services necessary for us to operate. We believe that our ability to leverage the existing investment management and administrative support platforms of Fifth Street Management and FSC CT, respectively, enables us to operate more efficiently and with lower overhead costs than other newly formed funds of comparable size.

From the time we commenced operations on June 29, 2013, through September 30, 2015, we have originated over $1.5 billion of funded debt investments. As of September 30, 2015, our portfolio totaled $623.6 million at fair value and was comprised of 64 investments, including our investment in subordinated notes and LLC equity interests in FSFR Glick JV LLC ("FSFR Glick JV"). The 64 debt investments in our portfolio as of September 30, 2015 had a weighted average debt to EBITDA multiple of 4.01 calculated at the time of origination of the investment. The weighted average annual yield of our debt investments as of September 30, 2015 was approximately 8.22%, of which 8.14% represented cash payments and 0.08% represented other non-cash items. The weighted average annual yield of our debt investments is determined before, and therefore does not take into account, the payment of all of our and our consolidated subsidiaries’ expenses and the payment by an investor of any stockholder transaction expenses, and does not represent the return on investment for our stockholders.

As a BDC, we are required to comply with certain regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of our securities and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. We are currently targeting a debt to equity ratio of 0.85x (i.e., we aim to have one dollar of equity for each $0.85 of debt outstanding).

In October 2014, we entered into an LLC agreement with GF Equity Funding 2014 LLC (“GF Equity Funding”) to form the FSFR Glick JV. On April 21, 2015, FSFR Glick JV began investing primarily in senior secured loans of middle market companies. We co-invest in these securities with GF Equity Funding through our investment in FSFR Glick JV. FSFR Glick JV is managed by a four person Board of Directors, two of whom are selected by us and two of whom are selected by GF Equity Funding. FSFR Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of the FSFR Glick JV must be approved by an investment committee of the FSFR Glick JV consisting of one representative of the Company and one representative of GF Equity Funding (with approval of each required). The members provide capital to the FSFR Glick JV in exchange for LLC equity interests, and the Company and GF Debt Funding 2014 LLC(“GF Debt Funding”), an entity advised by affiliates of GF Equity Funding, provide capital to the FSFR Glick JV in exchange for subordinated notes (the “Subordinated Notes”). As of September 30, 2015, we and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC equity interests and we and GF Debt Funding owned 87.5% and 12.5%, respectively, of the Subordinated Notes.

As a BDC, we were substantially limited in our ability to co-invest in privately negotiated transactions with affiliated funds until we obtained an exemptive order from the Securities and Exchange Commission, or SEC, on September 9, 2014. The exemptive relief permits us to participate in negotiated co-investment transactions, subject to the conditions of the relief granted by the SEC, with certain affiliates, each of whose investment adviser is Fifth Street Management, or an investment adviser controlling, controlled by or under common control with Fifth Street Management, in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to the conditions to the exemptive relief.

We have also elected to be treated and qualified, and intend to continue to qualify, for federal income tax purposes as a regulated investment company, or RIC, under subchapter M of the Internal Revenue Code, or the Code. See “Taxation as a Regulated Investment Company.” As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any net ordinary income or realized net capital gains that we distribute to our stockholders if we meet certain source-of-income, annual distribution and asset diversification requirements.

Our principal executive office is located at 777 West Putnam Avenue, 3^rd Floor, Greenwich, Connecticut 06830 and our telephone number is (203) 681-3600.

The Investment Adviser

We are externally managed and advised by Fifth Street Management, a registered investment adviser under the Investment Advisers Act of 1940, or the Advisers Act, that is partially and indirectly owned by Fifth Street Asset Management Inc. ("FSAM"), a publicly traded asset manager with over $5 billion of assets under management as of September 30, 2015. Our administrator, FSC CT, is a wholly-owned subsidiary of Fifth Street Management, and provides the administrative services necessary for us to operate. Our investment adviser serves pursuant to the investment advisory agreement in accordance with the Advisers Act, under which it receives from us a percentage of our gross assets as a management fee and a percentage of our ordinary income and capital gains as an incentive fee.

Leonard M. Tannenbaum, the chief executive officer of our investment adviser, has led the investment of over $9 billion in small and mid-sized companies and the origination of over 300 investment transactions since 1998. Our investment adviser also currently serves as the investment adviser to Fifth Street Finance Corp. (“FSC”), in addition to various other private fund vehicles. In focusing on senior loans that bear interest on the basis of a floating base lending rate, our primary investment focus differs from that of FSC, which focuses more generally on debt and equity investments in small and mid-sized companies. However, there may be overlap in terms of our targeted investments. See “Material Conflicts of Interest.”

We benefit from our investment adviser’s ability to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate investments and manage a diversified portfolio of those investments. The principals of our investment adviser have broad investment backgrounds, with prior experience at investment funds, investment banks and

other financial services companies and have developed a broad network of contacts within the private equity community. This network of contacts provides our principal source of investment opportunities.

The key principals and members of senior management of our investment adviser are Bernard D. Berman, our chairman and our investment adviser’s president, Ivelin M. Dimitrov, our chief executive officer and the chief investment officer of our investment adviser, Alexander C. Frank, the chief operating officer, Todd G. Owens, our president, Leonard M. Tannenbaum, our investment adviser’s chief executive officer, and David Heilbrunn, a Managing Director of our administrator.

Business Strategy

Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments while seeking to preserve our capital. We have adopted the following business strategy to achieve our investment objective:

•

Concentrate on floating rate senior loans. We concentrate on senior loans that bear interest based on a floating rate. We believe that senior loans, which are often supported by a pledge of collateral, provide us with adequate protection and attractive risk-adjusted returns. However, we can provide no assurance that any collateral will be sufficient to pay interest due or repay principal in the event of a default by a portfolio company. In addition, with interest rates at historically low levels, we believe that investing in floating rate loans provides us with positive exposure to any future period of rising interest rates.

•

Capitalize on our investment adviser's strong relationships with private equity sponsors. Our investment adviser has developed an extensive network of relationships with private equity sponsors that invest in middle market companies, which should serve as a significant source of investment opportunities for us. We believe that the strength of these relationships is due to a common investment philosophy, a consistent market focus, a rigorous approach to diligence and a reputation for delivering on commitments. Although our interests may not always be aligned with our private equity sponsors given their position as the equity holder and our position as the debt holder in our portfolio companies, we believe that private equity sponsors provide significant benefits including incremental due diligence, additional monitoring capabilities and a potential source of capital and operational expertise for our portfolio companies.

•

Focus on established middle market companies. We believe that there are fewer finance companies focused on transactions involving middle market companies than larger companies, and that this is one factor that allows us to negotiate favorable investment terms. Such favorable terms include higher debt yields and lower leverage levels, as well as more significant covenant protection than typical of transactions involving larger companies. We target companies with established market positions, seasoned management teams, proven products and services and strong regional or national operations. We believe that these companies possess better risk-adjusted return profiles than newer companies that are in the early stages of building management teams and/or a revenue base.

•

Make direct originations. Over the last several years, the principals of our investment adviser have developed an origination strategy that we believe allows us to directly originate a significant portion of our investments. We believe that the benefits of direct originations include, among other things, our ability to control the structuring of investment protections and to generate origination and prepayment fees.

•

Benefit from the large pool of uninvested private equity capital likely to seek complementary debt financing. We expect that private equity firms will continue to be active investors in middle market companies. These private equity funds generally seek to leverage their investments by combining their capital with senior secured loans and/or mezzanine debt provided by other sources, and we believe that our capital is well-positioned to partner with such equity investors. We expect such activity to be funded by the substantial amounts of private equity capital that have been raised in recent years.

•

Selectively participate in a broad pipeline of capital market transactions. In addition to making direct originations, we also acquire senior loans through assignments or participations of interests in such loans. To do so, we utilize our investment adviser’s extensive network of sponsor and bank relationships to review a wide variety of transactions. This robust pipeline should allow us to efficiently deploy capital and make investments in selected companies that align with our investment objective.

•

Employ disciplined underwriting policies and rigorous portfolio management. Our investment adviser has developed an extensive underwriting process which includes a review of the prospects, competitive position, financial performance and industry dynamics of each potential portfolio company. In addition, we perform substantial diligence on potential investments, and seek to invest alongside private equity sponsors who have proven capabilities in building value. As part of the monitoring process, our investment adviser analyzes monthly and quarterly financial statements versus previous periods and years, reviews financial projections, compliance certificates and covenants and meets with management.


•	Structure our investments to minimize risk of loss and achieve attractive risk-adjusted returns. We structure our aggregate investments on a basis that we believe presents reasonable risk with high cash yields and cash structuring

fees. Our investments typically have strong protections, including default penalties, prepayment fees, information rights, and affirmative, negative and financial covenants, such as lien protection and prohibitions against change of control. We believe that these protections, coupled with the other features of our investments described above, allow us to reduce our risk of capital loss and should enable us to achieve attractive risk-adjusted returns; however, there can be no assurance that we will be able to successfully structure our investments to minimize risk of loss or achieve attractive risk-adjusted returns.

•

Leverage the skills and experience of our investment adviser. The principals of our investment adviser have broad investment backgrounds, with prior experience at private investment funds, investment banks and other financial services companies and collectively, they also have experience managing distressed companies. We believe that our investment adviser’s expertise in valuing, structuring, negotiating and closing transactions provides us with a competitive advantage by allowing us to provide financing solutions that meet the needs of our portfolio companies while adhering to our underwriting standards.

Investment Criteria

The principals of our investment adviser have identified the following investment criteria and guidelines for use in evaluating prospective portfolio companies and they use these criteria and guidelines in evaluating investment opportunities for us. However, not all of these criteria and guidelines are met in connection with each of our investments.


•	Established companies with a history of positive operating cash flow. We seek to invest in established companies with sound historical financial performance. We will generally focus on companies with a history of profitability on an operating cash flow basis.

•

Strong market presence. We seek to invest in portfolio companies that we believe have developed strong positions within their markets and exhibit the potential to maintain sufficient cash flows and profitability to service their obligations in a range of economic environments. We also seek portfolio companies that we believe possess advantages in scale, scope, customer loyalty, product pricing or product quality as compared to their competitors.

•

Private equity sponsorship. We generally seek to invest in companies in connection with private equity sponsors who have proven capabilities in building value. We believe that a private equity sponsor can serve as a committed partner and advisor that will actively work with the company and its management team to meet company goals and create value. We assess a private equity sponsor’s commitment to a portfolio company by, among other things, the capital contribution it has made or will make in the portfolio company.


•	Seasoned management team. We generally require that our portfolio companies have a seasoned management team, with strong corporate governance. We also seek to invest in companies that have proper incentives in place, including having significant equity interests, to motivate management to act in accordance with our interests.


•	Defensible and sustainable business. We seek to invest in companies with proven products and/or services and strong regional or national operations.

•

Exit strategy. We generally seek to invest in companies that we believe possess attributes that will provide us with the ability to exit our investments. We expect to exit our investments typically through one of three scenarios: (i) the sale of the company resulting in repayment of all outstanding debt, (ii) the recapitalization of the company through which our loan is replaced with debt or equity from a third party or parties or (iii) the repayment of the initial or remaining principal amount of our loan then outstanding at maturity. In some investments, there may be scheduled amortization of some portion of our loan which would result in a partial exit of our investment prior to the maturity of the loan.

Investments

We invest in portfolio companies primarily in the form of senior loans. These senior loans typically have current cash pay interest with some amortization of principal. Interest is generally paid on a floating rate basis, often with a floor, based on the LIBOR rate. We generally obtain security interests in the assets of our portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first or second priority liens on the assets of a portfolio company. We also may make unsecured debt or equity investments from time to time, including investments in structured products such as loan securitizations.

The senior loans that we target typically have final maturities of four to six years. However, we expect that our portfolio companies often may repay these loans early, generally within three to four years from the date of initial investment. Early repayments of loans by portfolio companies may have an adverse effect on our earnings to the extent that we are not able to re-invest the proceeds from such repayments in loans that bear interest at rates similar to the rates of the repaid loans or at all.

We generally tailor the terms of an investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its profitability. We seek to limit the downside potential of our

investments by negotiating covenants in connection with our investments that afford our portfolio companies flexibility in managing their businesses, consistent with preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or participation rights.

Deal Origination

Our deal origination efforts are focused on building relationships with private equity sponsors that are focused on investing in the middle market companies that we target. We divide the country geographically into Eastern, Central and Western regions and emphasize active, consistent sponsor coverage. The investment professionals of our investment adviser have developed an extensive network of relationships with these private equity sponsors. We estimate that there are approximately 2,500 of such private equity firms and our investment adviser has active relationships with approximately 300 of them. An active relationship is one through which our investment adviser has received at least one investment opportunity from the private equity sponsor within the last year.

We believe that our investment adviser has a reputation as a reliable, responsive and efficient source of funding to support private equity investments. We believe that this reputation and the relationships of our investment adviser with private equity sponsors provides us with significant investment opportunities.

Our origination process is designed to efficiently evaluate a large number of opportunities and to identify the most attractive of such opportunities. A significant number of opportunities that clearly do not fit our investment criteria are screened by the partners of our investment adviser when they are initially identified. If an originator believes that an opportunity fits our investment criteria and merits consideration, the investment is presented to our investment adviser’s Investment Committee. This is the first stage of our origination process, the “Review” stage. During this stage, the originator gives a preliminary description of the opportunity. This is followed by preliminary due diligence, from which an investment overview is created. The opportunity may be discussed several times by the full Investment Committee of our investment adviser, or subsets of that Committee. At any point in this stage, we may reject the opportunity, and, indeed, our investment adviser has historically decided not to proceed with more than 80% of the investment opportunities reviewed by its Investment Committee.

For the subset of opportunities that we decide to pursue, we issue preliminary term sheets and classify them in the “Term Sheet Issued” stage. This term sheet serves as a basis for negotiating the critical terms of a transaction. At this stage we begin our underwriting and investment approval process, as more fully described below. After the term sheet for a potential transaction has been fully negotiated, the transaction is presented to our investment adviser’s Investment Committee for approval. If the deal is approved, the term sheet is signed. Our underwriting and investment approval process is ongoing during this stage, during which we begin documentation of the loan. The final stage, “Closings,” culminates with the funding of an investment only after all due diligence is satisfactorily completed and all closing conditions, including the sponsor’s funding of its investment in the portfolio company, have been satisfied.

Investment Underwriting

Investment Underwriting Process and Approval

We make our investment decisions only after consideration of a number of factors regarding the potential investment including, but not limited to: (i) historical and projected financial performance; (ii) company and industry specific characteristics, such as strengths, weaknesses, opportunities and threats; (iii) composition and experience of the management team; and (iv) track record of the private equity sponsor leading the transaction. Our investment adviser uses a proprietary scoring system to evaluate each opportunity. This methodology is employed to screen a high volume of potential investment opportunities on a consistent basis.

If an investment is deemed appropriate to pursue, a more detailed and rigorous evaluation is made along a variety of investment parameters, not all of which may be relevant or considered in evaluating a potential investment opportunity. The following outlines the general parameters and areas of evaluation and due diligence we utilize for investment decisions, although not all factors will necessarily be considered or given equal weighting in the evaluation process.

Management Assessment

Our investment adviser makes an in-depth assessment of the management team, including evaluation along several key metrics:


•	The number of years in their current positions;


•	Track record;


•	Industry experience;


•	Management incentive, including the level of direct investment in the enterprise;


•	Background investigations; and


•	Completeness of the management team (lack of positions that need to be filled).

Industry Dynamics

An evaluation of the industry is undertaken by our investment adviser that considers several factors. If considered appropriate, industry experts will be consulted or retained. The following factors are analyzed by our investment adviser:


•	Sensitivity to economic cycles;


•	Competitive environment, including number of competitors, threat of new entrants or substitutes;


•	Fragmentation and relative market share of industry leaders;


•	Growth potential; and


•	Regulatory and legal environment.

Business Model and Financial Assessment

Prior to making an investment decision, our investment adviser undertakes a review and analysis of the financial and strategic plans for the potential investment. There is significant evaluation of and reliance upon the due diligence performed by the private equity sponsor and third party experts including accountants and consultants. Areas of evaluation include:


•	Historical and projected financial performance;


•	Quality of earnings, including source and predictability of cash flows;


•	Customer and vendor interviews and assessments;


•	Potential exit scenarios, including probability of a liquidity event;


•	Internal controls and accounting systems; and


•	Assets, liabilities and contingent liabilities.

Private Equity Sponsor

Among the most critical due diligence investigations is the evaluation of the private equity sponsor making the investment. A private equity sponsor is typically the controlling shareholder upon completion of an investment and as such is considered critical to the success of the investment. The private equity sponsor is evaluated along several key criteria, including:


•	Investment track record;


•	Industry experience;


•	Capacity and willingness to provide additional financial support to the company through additional capital contributions, if necessary; and


•	Reference checks.

Portfolio Management

Active Involvement in our Portfolio Companies

As a BDC, we are obligated to offer to provide managerial assistance to our portfolio companies and to provide it if requested. In fact, we provide managerial assistance to our portfolio companies as a general practice and we seek investments where such assistance is appropriate. We monitor the financial trends of each portfolio company to assess the appropriate course of action for each company and to evaluate overall portfolio quality. We have several methods of evaluating and monitoring the performance of our investments, which may include but are not limited to, the following:


•	Review of monthly and quarterly financial statements and financial projections for portfolio companies;


•	Periodic and regular contact with portfolio company management to discuss financial position requirements and accomplishments;


•	Attendance at board meetings;


•	Periodic formal update interviews with portfolio company management and, if appropriate, the private equity sponsor; and


•	Assessment of business development success, including product development, profitability and the portfolio company’s overall adherence to its business plan.

Ranking Criteria

In addition to various risk management and monitoring tools, we use an investment ranking system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio. We use a four-level numeric ranking scale. The following is a description of the conditions associated with each investment ranking:


•	Investment Ranking 1 is used for investments that are performing above expectations and/or a capital gain is expected.


•	Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risk at the time of the original investment. All new investments are initially ranked 2.


•	Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original investment. The portfolio company may be out of compliance with debt covenants and requires closer monitoring.


•	Investment Ranking 4 is used for investments that are performing substantially below our expectations and whose risks have increased substantially since the original investment. Investments with a ranking of 4 are those for which some loss of principal is expected.

In the event that we determine that an investment is underperforming, or circumstances suggest that the risk associated with a particular investment has significantly increased, we will undertake more aggressive monitoring of the affected portfolio company. While our investment ranking system will identify the relative risk for each investment, the ranking alone does not dictate the scope and/or frequency of any monitoring that we perform. The frequency of our monitoring of an investment is determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing our investment, if any.

The following table shows the distribution of our investments on the 1 to 4 investment ranking scale at fair value as of September 30, 2015:



Investment Ranking	Fair Value		% of Portfolio
1	—		—
2	$	596,955,786	95.72	%
3	26,691,688		4.28
4	—		—
Total	$	623,647,474	100.00	%

Valuation of Portfolio Investments and Net Asset Value Determinations

As a business development company, we generally invest in illiquid senior loans issued by private middle market companies. All of our investments are recorded at fair value as determined in good faith by our Board of Directors.

Authoritative accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments’ complexity.

In accordance with authoritative accounting guidance, we perform detailed valuations of our debt and equity investments on an individual basis, using bond yield, market and income approaches as appropriate. In general, we utilize a bond yield method for the majority of our investments, as long as it is appropriate. If, in our judgment, the bond yield approach is not appropriate, we may use the market approach, income approach, or, in certain cases, an alternative methodology potentially including market quotations, asset liquidation model, expected recovery model or other alternative approaches.

Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, our capital markets group obtains and analyzes readily available market quotations provided by independent pricing services for all of our senior secured debt investments for which quotations are available. In determining the fair value of a particular investment, pricing services use observable market information, including both binding and non-binding indicative quotations. These investments are generally classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustment for investment-specific factors or restrictions.

We evaluate the prices obtained from independent pricing services based on available market information and company specific data that could affect the credit quality and/or fair value of the investment. We do not adjust any of the prices received from these sources unless we have a reason to believe any such market quotations are not reflective of the fair value of an investment.

Market quotations may be deemed not to represent fair value where we believe that facts and circumstances applicable to an issuer, a seller or purchaser or the market for a particular security causes current market quotations not to reflect the fair value of the security, among other reasons. Examples of these events could include cases when a security trades infrequently causing a quoted purchase or sale price to become stale or in the event of a “fire sale” by a distressed seller. In these instances, we value such investments by using the valuation procedure that we use with respect to assets for which market quotations are not readily available (as discussed below).

If the quotation provided by the pricing service is based on only one or two market sources, we perform additional procedures to corroborate such information, generally including but not limited to, the bond yield approach discussed below and a quantitative and qualitative assessment of the credit quality and market trends affecting the portfolio company.

Under the bond yield approach, we use bond yield models to determine the present value of the future cash flow streams of our debt investments. We review various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assess the information in the valuation process.

Under the market approach, we estimate the enterprise value of the portfolio companies in which we invest. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, we analyze various factors, including the portfolio company’s historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA, cash flows, net income or revenues. We generally require portfolio companies to provide annual audited and quarterly and monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

Under the income approach, we generally prepare and analyze discounted cash flow models based on projections of the future free cash flows of the business.

We estimate the fair value of privately held warrants using a Black Scholes pricing model. At each reporting date, privately held warrants are valued based on an analysis of various factors and subjective assumptions including, but not limited to, the current stock price (by analyzing the portfolio company’s operating performance and financial condition and general market conditions), the expected period until exercise, expected volatility of the underlying stock price, expected dividends, and the risk free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.

Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:


•	The quarterly valuation process begins with each portfolio company or investment being initially valued either by our capital markets group for quoted investments or our finance department for unquoted investments;


•	Preliminary valuations are then reviewed and discussed with the principals of the investment adviser;


•	Separately, independent valuation firms engaged by our Board of Directors prepare preliminary valuations of our investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to us;


•	Our finance department compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;


•	Our finance department prepares a valuation report for the Audit Committee of our Board of Directors;


•	The Audit Committee of our Board of Directors is apprised of the preliminary valuations of the independent valuation firms;


•	The Audit Committee of our Board of Directors reviews the preliminary valuations with the portfolio managers of the investment adviser, and our finance department responds and supplements the preliminary valuations to reflect any comments provided by the Audit Committee;


•	The Audit Committee of our Board of Directors makes a recommendation to the Board of Directors regarding the fair value of the investments in our portfolio; and


•	Our Board of Directors discusses the valuations and determines the fair value of each investment in our portfolio in good faith.

In addition, we have independent valuation firms provide us with valuation assistance on a portion of our portfolio on a quarterly basis and a substantial portion of our portfolio over the course of each fiscal year; however, our Board of Directors is ultimately and solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process.

Determination of fair values involves subjective judgments and estimates. 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 financial statements.

Quarterly Net Asset Value Determination

Our Board of Directors determines the net asset value per share of our common stock on a quarterly basis. The net asset value per share of our common stock is equal to the value of our total assets minus liabilities divided by the total number of shares of common stock outstanding. Our liabilities include amounts that we have accrued under our investment advisory agreement, including the management fee, Part I incentive fee and Part II incentive fee, the latter of which will be accrued based upon the cumulative realized and unrealized capital appreciation in our portfolio.

Competition

We compete for investments with a number of BDCs and investment funds (including private equity funds), as well as traditional financial services companies such as commercial banks and other sources of financing. Many of these entities have greater financial and managerial resources than we do. We believe we are able to be competitive with these entities primarily on the basis of the experience and contacts of our management team, our responsive and efficient investment analysis and decision-making processes, the investment terms we offer, and our willingness to make smaller investments.

We believe that some of our competitors make loans with interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete solely on the interest rates that we offer to potential portfolio companies. For additional information concerning the competitive risks we face, see “Risk Factors — Risks Relating to Our Business and Structure — We may face increasing competition for investment opportunities, which could reduce returns and result in losses.”

Employees

We do not have any employees. Our day-to-day investment operations are managed by Fifth Street Management as our investment adviser. See “- Investment Advisory Agreement.” Fifth Street Management utilizes a team of over 35 investment professionals, including its principals. In addition, we reimburse our administrator, FSC CT, for the allocable portion of overhead and other expenses incurred by it in performing its obligations under an administration agreement, including our allocable portion of the costs of compensation of our chief financial officer and chief compliance officer and their staffs. For a more detailed discussion of the administration agreement, see “— Administration Agreement.”

Properties

We do not own any real estate or other physical properties material to our operations. We utilize office space that is leased by our affiliates for our principal executive office at 777 West Putnam Avenue, 3rd Floor, Greenwich, CT 06830. We also utilize additional office space that is leased by our affiliates at 311 South Wacker Drive, Suite 3380, Chicago, IL 60606 and One Embarcadero Center, Suite 1560, San Francisco, CA 94111.

Material Conflicts of Interest

Our executive officers and three of our independent directors, and certain members of our investment adviser, serve or may serve as officers, directors or principals of entities that may operate in the same or a related line of business as us or as investment funds managed by our affiliates. For example, Fifth Street Management presently serves as investment adviser to FSC, a publicly-traded BDC with total assets of approximately $2.6 billion as of September 30, 2015, that invests in the debt and equity of small and mid-sized companies, primarily in connection with investments by private equity sponsors, including in middle market leveraged companies similar to those we target for investment. Specifically, FSC generally targets small and mid-sized companies with annual revenues between $25 million and $250 million and generally targets investment sizes ranging from $10 million to $100 million. In addition, though not the primary focus of its investment portfolio, FSC's investments also include floating rate senior loans. In contrast, we target investments ranging from between $3 million and $30 million, and generally target private leveraged middle market companies with approximately $20 million to $100 million of EBITDA. Therefore, there may be certain investment opportunities that satisfy the investment criteria for both FSC and us. In addition, certain of our executive officers and three of our independent directors serve in substantially similar capacities for FSC. Fifth Street Management also manages private investment funds, and may manage other funds in the future, that have investment mandates that are similar, in whole or in part, to ours. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. For example, the principals of our investment adviser may face conflicts of interest in the allocation of investment opportunities to us and such other funds. The fact that our investment advisory fees are lower than those of certain other funds, such as FSC, could amplify this conflict of interest.

If we are unable to rely on our exemptive relief for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity's investment strategy, on an alternating basis. Although our investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, we and our common stockholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of our investment adviser.

Fifth Street Management’s investment allocation policy is also designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities if we are able to co-invest, either pursuant to SEC interpretive positions or our exemptive order, with other accounts managed by our investment adviser and its affiliates. Generally, under the investment allocation, co-investments will be allocated pursuant to the conditions of the exemptive order. Under the investment allocation policy, a portion of each opportunity that is appropriate for us and any affiliated fund will be offered to us and such other eligible accounts as determined by Fifth Street Management and generally based on asset class, fund size and liquidity, among other factors. If there is a sufficient amount of securities to satisfy all participants, the securities will be allocated among the participants in accordance with their order size and if there is an insufficient amount of securities to satisfy all participants, the securities will be allocated pro rata based on each participating party’s capital available for investment in the asset class being allocated, up to the amount proposed to be invested by each. In accordance with Fifth Street Management’s investment allocation policy, we might not participate in each individual opportunity, but will, on an overall basis, be entitled to participate equitably with other entities managed by Fifth Street Management and its affiliates. Fifth Street Management seeks to treat all clients fairly and equitably such that none receive preferential treatment vis-à-vis the others over time, in a manner consistent with its fiduciary duty to each of them; however, in some instances, especially in instances of limited liquidity, the factors may not result in pro rata allocations or may result in situations where certain funds receive allocations where others do not. See “Certain Relationships and Related Transactions, and Director Independence.”

administration agreement, including a portion of the rent at market rates and the compensation of our chief financial officer and chief compliance officer and their respective staffs. We utilize office space that is leased by our administrator from an affiliate controlled by the chief executive officer of our investment adviser and administrator, Mr. Tannenbaum. We also utilize additional office space that is leased by our affiliates in Chicago, IL and San Francisco, CA. Any reimbursement for a portion of the rent at these locations is at cost with no profit to, or markup by, FSC CT.

Investment Advisory Agreement

Management Services

Our investment adviser, Fifth Street Management, is registered as an investment adviser under the Advisers Act. Our investment adviser serves pursuant to an investment advisory agreement in accordance with the Advisers Act. Subject to the overall supervision of our Board of Directors, our investment adviser manages our day-to-day operations and provides us with investment advisory services. Under the terms of the investment advisory agreement, our investment adviser:


•	determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;


•	determines what securities we purchase, retain or sell;


•	identifies, evaluates and negotiates the structure of the investments we make; and


•	executes, monitors and services the investments we make.

Our investment adviser’s services under the investment advisory agreement are not exclusive and it is free to furnish similar services to other entities so long as its services to us are not impaired.

Management Fee

We pay our investment adviser a fee for its services under the investment advisory agreement consisting of two components — a base management fee and an incentive fee. The cost of both the base management fee payable to our investment adviser and any incentive fees earned by our investment adviser is ultimately borne by our stockholders.

Base Management Fee

The base management fee is calculated at an annual rate of 1% of our gross assets (i.e., total assets held before deduction of any liabilities), which includes any investments acquired with the use of leverage and excludes any cash and cash equivalents (as defined in the notes to our consolidated financial statements). Although we do not anticipate making significant investments in derivative financial instruments, the fair value of any such investments which will not necessarily equal their notional value, will be included in our calculation of gross assets. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed quarters. For example, the average value of our gross assets used for calculating the third quarter base management fee will be equal to our gross assets at the end of the second quarter plus our gross assets at the end of the third quarter, divided by two. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.

Incentive Fee

The incentive fee has two parts. The first part ("Part I incentive fee") is calculated and payable quarterly in arrears based on our “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including (i) any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, advisory, diligence and consulting fees or other fees that we receive from portfolio companies), (ii) any gain realized on the extinguishment of our own debt and (iii) any other income of any kind that we are required to distribute to our stockholders in order to maintain our RIC status) accrued during the quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement with FSC CT, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, or OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received and may never receive in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding quarter, will be compared to a “hurdle rate” of 1.5% per quarter (6% annualized), subject to a “catch-up” provision measured as of the end of each quarter. Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1% base management fee. The operation of the incentive fee with respect to our Pre-Incentive Fee Net Investment Income for each quarter is as follows:


•	no incentive fee is payable to the investment adviser in any quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.5% (the “preferred return” or “hurdle”);

•

50% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any quarter (10% annualized) is payable to the investment adviser. We refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) as the “catch-up.” The “catch-up” provision is intended to provide our investment adviser with an incentive fee of 20% on all of our Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when our Pre-Incentive Fee Net Investment Income exceeds 2.5% in any quarter; and


•	20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any quarter (10% annualized) is payable to the investment adviser once the hurdle is reached and the catch-up is achieved.

The following is a graphical representation of the calculation of the Part I portion of the incentive fee:

Quarterly Incentive Fee based on Pre-Incentive Fee Net Investment Income

(expressed as a percentage of the value of net assets)

Percentage of pre-incentive fee net investment income

allocated to Fifth Street Management

The second part of the incentive fee ("Part II incentive fee" or "capital gains incentive fee") is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date) and equals 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees, provided that, the incentive fee determined at the end of our first fiscal year end was calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation from inception.

Example 1: Part I Incentive Fee for Each Quarter

Scenario 1

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%

Hurdle rate(1) = 1.5%

Management fee(2) = 0.25%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%

Pre-Incentive Fee Net Investment Income

(investment income – (management fee + other expenses)) = 0.80%

Pre-Incentive Fee Net Investment Income does not exceed hurdle rate, therefore there is no Part I incentive fee.

Scenario 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.65%

Hurdle rate(1) = 1.5%

Management fee(2) = 0.25%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%

Pre-Incentive Fee Net Investment Income

(investment income – (management fee + other expenses) = 2.2%

Incentive fee = 50% × Pre-Incentive Fee Net Investment Income (subject to “catch-up”)(3)

= 50% × (2.2% – 1.5%)

= 0.35%

Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, but does not fully satisfy the “catch-up” provision, therefore the Part I incentive fee is 0.35%.

Scenario 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.25%

Hurdle rate(1) = 1.5%

Management fee(2) = 0.25%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%

Pre-Incentive Fee Net Investment Income

(investment income – (management fee + other expenses) = 2.8%

Incentive fee = 50% × Pre-Incentive Fee Net Investment Income (subject to “catch-up”)(3)

Incentive fee = 50% × “catch-up” + (20% × (Pre-Incentive Fee Net Investment Income – 2.5%))

Catch up = 2.5% – 1.5%

= 1.0%

Incentive fee = (50% × 1.0%) + (20% × (2.8% – 2.5%))

= 0.50% + (20% × 0.3%)

= 0.50% + 0.06%

= 0.56%

Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, and fully satisfies the “catch-up” provision, therefore the Part I incentive fee is 0.56%.


(1)	Represents 6% annualized hurdle rate.


(2)	Represents 1% annualized base management fee.


(3)	The “catch-up” provision is intended to provide our investment adviser with an incentive fee of 20% on all Pre- Incentive Fee Net Investment Income as if a hurdle rate did not apply when our net investment income exceeds 2.5% in any quarter.

Example 2: Part II Incentive Fee(*):

Scenario 1:

Assumptions

Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)

Year 2: Investment A sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million

Year 3: FMV of Investment B determined to be $25 million

Year 4: Investment B sold for $31 million

The Part II incentive fee would be:

Year 1: None

Year 2: Part II incentive fee of $6 million — ($30 million realized capital gains on sale of Investment A multiplied by 20%)

Year 3: None — $5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous Part II incentive fee paid in Year 2)

Year 4: Part II incentive fee of $200,000 — $6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (Part II incentive fee taken in Year 2)

Scenario 2

Assumptions

Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)

Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million

Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million

Year 4: FMV of Investment B determined to be $24 million

Year 5: Investment B sold for $20 million

The Part II incentive fee, if any, would be:

Year 1: None

Year 2: $5 million Part II incentive fee — 20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B)

Year 3: $1.4 million Part II incentive fee(1) — $6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million Part II incentive fee received in Year 2

Year 4: None

Year 5: None — $5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative Part II incentive fee paid in Year 2 and Year 3(2)

* The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example.


(1)	As illustrated in Year 3 of Scenario 1 above, if we were to be wound up on a date other than our fiscal year end of any year, we may have paid aggregate Part II incentive fees that are more than the amount of such fees that would be payable if we had been wound up on our fiscal year end of such year.


(2)	As noted above, it is possible that the cumulative aggregate Part II fee received by our investment adviser ($6.4 million) is effectively greater than $5 million (20% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation ($25 million)).

Payment of Our Expenses

Our primary operating expenses are the payment of a base management fee and any incentive fees under the investment advisory agreement and the allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under the administration agreement. Our investment management fee compensates our investment adviser for its work in identifying, evaluating, negotiating, executing and servicing our investments. We generally bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:


•	expenses of offering our debt and equity securities;


•	the investigation and monitoring of our investments, including expenses and travel fees incurred in connection with on-site visits;


•	the cost of calculating our net asset value;


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


•	management and incentive fees payable pursuant to the investment advisory agreement;


•	fees payable to third parties relating to, or associated with, making investments and valuing investments (including third-party valuation firms);


•	transfer agent, trustee and custodial fees;


•	interest payments and other costs related to our borrowings;


•	fees and expenses associated with our website, public relations and marketing efforts (including attendance at industry and investor conferences and similar events);


•	federal and state registration fees;


•	any exchange listing fees;


•	federal, state and local taxes;


•	independent directors’ fees and expenses, including travel expenses and other costs of meetings of the Board and its committees;


•	brokerage commissions;


•	costs of preparing and mailing proxy statements, stockholders’ reports and notices;


•	costs of preparing government filings, including periodic and current reports with the SEC;


•	fidelity bond, liability insurance and other insurance premiums; and

•

printing, mailing, independent accountants and outside legal costs and all other direct expenses incurred by either our administrator or us in connection with administering our business, including payments under the administration agreement that will be based upon our allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under the administration agreement and the compensation of our chief financial officer and chief compliance officer and their staffs.

Duration and Termination

Unless earlier terminated as described below, the investment advisory agreement will remain in effect from year-to-year if approved annually by the Board of Directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. The investment advisory agreement will automatically terminate in the event of its assignment. The investment advisory agreement may be terminated by either party without penalty upon not more than 60 days’ written notice to the other. The investment advisory agreement may also be terminated, without penalty, upon the vote of a majority of our outstanding voting securities.

Indemnification

The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, our investment adviser and its officers, managers, agents, employees, controlling persons, members (or their owners) and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of our investment adviser’s services under the investment advisory agreement or otherwise as our investment adviser.

Organization of our Investment Adviser

Our investment adviser is a Delaware limited liability company that registered as an investment adviser under the Advisers Act. The principal address of our investment adviser is 777 West Putnam Avenue, 3rd Floor, Greenwich, CT 06830.

Board Approval of the Investment Advisory Agreement

At an in person meeting of our Board of Directors held on June 27, 2013, our Board of Directors unanimously voted to approve the investment advisory agreement. Our Board of Directors has since approved the annual continuation of the investment advisory agreement. In reaching a decision to approve the investment advisory agreement, the Board of Directors reviewed a significant amount of information and considered, among other things:


•	the nature, quality and extent of the advisory and other services to be provided to us by our investment adviser;


•	the projected costs of the services to be provided by our investment adviser (including the base management fee, the incentive fee (including hurdle rates) and expense ratios) and comparative data;


•	the extent to which economies of scale would be realized as we grow, and whether fees payable under the Investment Advisory Agreement reflect these economies of scale for the benefit of our stockholders;


•	our investment adviser’s projected profitability with respect to managing us;


•	any existing and potential sources of indirect income our investment adviser and its affiliates receive as a result of the relationship with us; and


•	various other factors.

In view of the wide variety of factors that our Board of Directors considered in connection with its evaluation of the investment advisory agreement, it is not practical to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Our Board of Directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of our

Board of Directors. Rather, our Board of Directors based its approval on the totality of information presented to, and the investigation conducted by, it. In considering the factors discussed above, individual directors may have given different weights to different factors.

Based on the information reviewed and the factors discussed above, our directors (including those directors who are not “interested persons” of the Company) concluded that the terms of the investment advisory agreement, including the fee rates thereunder, were reasonable in relation to the services expected to be provided and approved the investment advisory agreement with the investment adviser as being in the best interests of the Company and its stockholders.

Conflicts of interest may arise if the investment adviser seeks to change the terms of our investment advisory agreement, including, for example, the amount of the base management fee, the incentive fee or other compensation terms. Material amendments to our investment advisory agreement must be approved by the affirmative vote of the holders of a majority of our outstanding voting securities and by a majority of our independent directors, and we may from time to time decide it is appropriate to seek the requisite approval to change the terms of the investment advisory agreement.

Administration Agreement

We have entered into an administration agreement with FSC CT under which FSC CT provides administrative services for us, including office facilities and equipment and clerical, bookkeeping and record-keeping services at such facilities. Under the administration agreement, FSC CT also performs, or oversees the performance of, our required administrative services, which includes being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, FSC CT assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. For providing these services, facilities and personnel, we reimburse FSC CT the allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under the administration agreement, including rent and our allocable portion of the costs of compensation and related expenses of our chief financial officer and chief compliance officer and their staffs. Such reimbursement is at cost, with no profit to, or markup by, FSC CT. Our allocable portion of FSC CT's costs is determined based upon costs attributable to our operations versus costs attributable to the operations of other entities for which FSC CT provides administrative services.

FSC CT may also provide on our behalf managerial assistance to our portfolio companies. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

The administration agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, FSC CT and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of services under the administration agreement or otherwise as administrator for us.

FSC, Inc. served as our administrator until December 31, 2013. FSC CT assumed such role effective January 1, 2014. The administration agreement with FSC, Inc. had terms substantially similar to the terms of the administration agreement with FSC CT. During the year ended September 30, 2015, we incurred expenses of $1.3 million under the administration agreements.

License Agreement

We have also entered into a license agreement with Fifth Street Capital LLC pursuant to which Fifth Street Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name “Fifth Street.” Under this agreement, we have a right to use the “Fifth Street” name, for so long as Fifth Street Management or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “Fifth Street” name.

Exchange Act Reports

We maintain a website at http://fsfr.fifthstreetfinance.com. The information on our website is not incorporated by reference in this annual report on Form 10-K.

We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We make this

information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.

Business Development Company Regulations

We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities.

The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) more than 50% of our voting securities.

As a business development company, we will not generally be permitted to invest in any portfolio company in which our investment adviser or any of its affiliates currently have an investment or to make any co-investments with our investment adviser or its affiliates without an exemptive order from the SEC. In September 2014, Fifth Street Management received exemptive relief from the SEC to permit us to co-invest, subject to the conditions of the relief granted by the SEC, with other funds managed by Fifth Street Management in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are any of the following:

(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

(a) is organized under the laws of, and has its principal place of business in, the United States;

(b) is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and

(i) does not have any class of securities that is traded on a national securities exchange;

(ii) has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;

(iii) is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or

(iv) is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million;

(2) Securities of any eligible portfolio company that we control;

(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements;

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities; or

(6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.

Managerial Assistance to Portfolio Companies

Business development companies generally must offer to make available to the issuer of the securities significant managerial assistance, except in circumstances where either (i) the business development company controls such issuer of securities or (ii) the business development company purchases such securities in conjunction with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance. Providing managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees (if any), offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement (which is substantially similar to a secured loan) involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for U.S. federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of debt and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we may be prohibited from making distributions to our stockholders or repurchasing such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to Our Business and Structure — Regulations that govern our operation as a BDC and RIC may affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth,” and “— Because we borrow money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us.”

Common Stock

We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, be able to sell our common stock, warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in our best interests and that of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). A proposal, approved by our stockholders at our 2014 Special Meeting of Stockholders, authorizes us to sell shares of common stock below the then current net asset value per share of our common stock subject to certain limitations, in one or more offerings for the period ending on the earlier of (i) the one year anniversary of the date of the stockholder approval or (ii) the date of our 2015 annual meeting of stockholders, which is expected to be held in March 2015. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. We may also make rights offerings to our stockholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. See “Risk Factors — Risks Relating to Our Business and Structure — Regulations that govern our operation as a BDC and RIC may affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.”

Code of Ethics

We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and we have also approved the investment adviser’s code of ethics that was adopted by it under Rule 17j-1 under the 1940 Act and Rule 204A-1 of the Advisers Act. These codes establish procedures for personal investments and restrict certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. You may also read and copy the codes of ethics at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the codes of ethics are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov and are available at our corporate governance webpage at http://fsfr.fifthstreetfinance.com.

Compliance Policies and Procedures

We and our investment adviser have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. Our chief compliance officer is responsible for administering these policies and procedures.

Proxy Voting Policies and Procedures

We have delegated our proxy voting responsibility to our investment adviser. The proxy voting policies and procedures of our investment adviser are set forth below. The guidelines are reviewed periodically by our investment adviser and our non-interested directors, and, accordingly, are subject to change.

Introduction

As an investment adviser registered under the Investment Advisers Act of 1940, our investment adviser has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients.

These policies and procedures for voting proxies for the investment advisory clients of our investment adviser are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy policies

Our investment adviser will vote proxies relating to our securities in the best interest of our stockholders. It will review on a case-by-case basis each proposal submitted for a stockholder vote to determine its impact on the portfolio securities held by us. Although our investment adviser will generally vote against proposals that may have a negative impact on our portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so.

The proxy voting decisions of our investment adviser will be made by the officers who are responsible for monitoring each of our investments. To ensure that its vote is not the product of a conflict of interest, our investment adviser will require that: (a) anyone involved in the decision-making process disclose to its chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (b) employees involved in the decision-making process or vote administration are prohibited from revealing how our investment adviser intends to vote on a proposal in order to reduce any attempted influence from interested parties.

Proxy voting records

You may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making a written request for proxy voting information to: Chief Compliance Officer, 777 West Putnam Avenue, 3rd Floor, Greenwich, CT 06830.

Other

We are subject to periodic examination by the SEC for compliance with the 1940 Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

Securities Exchange Act and Sarbanes-Oxley Act Compliance

We are subject to the reporting and disclosure requirements of the Exchange Act, including the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-Oxley Act of 2002, which imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. For example:


•	pursuant to Rule 13a-14 of the Exchange Act, our chief executive officer and chief financial officer are required to certify the accuracy of the financial statements contained in our periodic reports;


•	pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose our conclusions about the effectiveness of our disclosure controls and procedures; and


•	pursuant to Rule 13a-15 of the Exchange Act, our management is required to prepare a report regarding its assessment of our internal control over financial reporting. When we are no longer an emerging growth company under the JOBS Act, our independent registered public accounting firm will be required to audit our internal control over financial reporting.

The NASDAQ Global Select Market Corporate Governance Regulations

The NASDAQ Global Select Market has adopted corporate governance regulations that listed companies must comply with. We are in compliance with such corporate governance listing standards applicable to BDCs.

Taxation as a Regulated Investment Company

As a BDC, we have elected to be treated, and intend to continue 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 income that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC tax treatment we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the “Annual Distribution Requirement”).

If we qualify as a RIC and satisfy the Annual Distribution Requirement, then we generally will not be subject to U.S. federal income tax on the portion of our income we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.

We will be subject to a 4% nondeductible U.S. federal excise tax 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 income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the “Excise Tax Avoidance Requirement”). We generally will endeavor in each taxable year to make sufficient distributions to our stockholders to avoid any U.S. federal excise tax on our earnings.

In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:


•	continue to qualify as a business development company under the 1940 Act at all times during each taxable year;


•	derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and


•	diversify our holdings so that at the end of each quarter of the taxable year:


•	at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and

•

no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships” (the “Diversification Tests”).

Qualified earnings may exclude such income as management fees received in connection with potential outside managed funds and certain other fees.

We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as PIK interest and deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy the distribution requirements. However, under the 1940 Act, we are not permitted in certain circumstances to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

Item 1A. Risk Factors

RISK FACTORS

Investing in our securities involves a number of significant risks. In addition to the other information contained in this annual report on Form 10-K, you should consider carefully the following information before making an investment in our securities. The risks set out below are not the only risks we face; however, they discuss the presently known principal risks of investing in our securities. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose part or all of your investment. The risk factors described below are the principal risk factors associated with an investment in our securities, as well as those factors generally associated with a business development company with investment objectives, investment policies, capital structure or trading markets similar to ours, including investments in a portfolio of small and developing or financially troubled businesses.

Risks Relating to Economic Conditions

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

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

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

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

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

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

The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. Since 2010, several European Union (“EU”) countries, including Greece, Ireland, Italy, Spain, and Portugal, have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, such as China, may have a severe impact on the worldwide and United States financial markets. We cannot predict the effects of these or similar events in the future on the United States economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

Risks Relating to Our Business and Structure

Changes in interest rates may increase our cost of capital, reduce the ability of our portfolio companies to service their debt obligations and decrease our net investment income.

General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital, our net investment income, our net asset value and the market price of our common stock. Substantially all of our debt investments will have variable interest rates that reset periodically based on benchmarks such as LIBOR and the prime rate, so an increase in interest rates from their historically low present levels may make it more difficult for our portfolio companies to service their obligations under the debt investments that we will hold. In addition, any such increase in interest rates would make it more expensive to use debt to finance our investments. Decreases in credit spreads on debt that pays a floating rate of return would have an impact on the income generation of our floating rate assets. Trading prices for debt that pays a fixed rate of return tend to fall as interest rates rise. Trading prices tend to fluctuate more for fixed rate securities that have longer maturities. Although we have no policy governing the maturities of our investments, under current market conditions, we expect that we will invest in a portfolio of debt generally having maturities of up to seven years. This means that we will be subject to greater risk (other things being equal) than an entity investing solely in shorter-term securities.

Because we may borrow to fund our investments, a portion of our net investment income may be dependent upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. Portions of our investment portfolio and our borrowings under our $175 million revolving credit facility (the "Citibank facility") and our $309 million debt securitization (the "Debt Securitization") have floating rate components. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income. We may hedge against such interest rate fluctuations by using standard hedging instruments such as interest rate swap agreements, futures, options and forward contracts, subject to applicable legal requirements, including without limitation, all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged borrowings. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and/or results of operations.

A general increase in interest rates will likely have the effect of increasing our net investment income, which would make it easier for our investment adviser to receive incentive fees.

Given the structure of our investment advisory agreement with our investment adviser, any general increase in interest rates would likely have the effect of making it easier for our investment adviser to meet the quarterly hurdle rate for payment of Part I fees under the investment advisory agreement. In addition, in view of the catch-up provision applicable to Part I fees under the investment advisory agreement, our investment adviser could potentially receive a significant portion of the increase in our investment income attributable to such a general increase in interest rates. If that were to occur, our increase in net earnings, if any, would likely be significantly smaller than the relative increase in our investment adviser's Part I fee resulting from such a general increase in interest rates.

A significant portion of our investment portfolio is recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by our Board of Directors. Typically, there is not a public market for the securities of the privately held companies in which we invest. As a result, we value these securities quarterly at fair value as determined in good faith by our Board of Directors.

Certain factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company does business, comparison to comparable publicly-traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize upon the sale of one or more of our investments. As a result, investors that may purchase our common stock based on an overstated net asset value would pay a higher price than the realizable value of our investments might warrant.

Our ability to achieve our investment objective depends on our investment adviser’s ability to support our investment process; if our investment adviser were to lose any of its key principals, our ability to achieve our investment objective could be significantly harmed.

We depend on the investment expertise, skill and network of business contacts of the principals of our investment adviser. The principals of our investment adviser evaluate, negotiate, structure, execute, monitor and service our investments. Our future success depends to a significant extent on the continued service and coordination of the principals of our investment adviser. The departure of any key principals could have a material adverse effect on our ability to achieve our investment objective.

In particular, our ability to achieve our investment objective depends on our investment adviser’s ability to identify, analyze, invest in, finance and monitor companies that meet our investment criteria. Our investment adviser’s capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable terms depends on the employment of investment professionals in adequate number and of adequate sophistication to match the corresponding flow of transactions. To achieve our investment objective, our investment adviser may need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. Our investment adviser may not be able to find investment professionals in a timely manner or at all. Failure to support our investment process could have a material adverse effect on our business, financial condition and/or results of operations.

RiverNorth Capital Management, LLC has publicly filed preliminary proxy materials that would solicit proxies of FSC's stockholders to terminate FSC's investment advisory agreement with our investment adviser. Although we are not party to that agreement, we believe that the termination of the investment advisory agreement between FSC and our investment adviser (or the renegotiation of the terms of that agreement) could adversely affect the ability of our investment adviser to provide an appropriate level of services to us or identify or have access to appropriate investment opportunities which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Our business model depends to a significant extent upon strong referral relationships with private equity sponsors, and the inability of the principals of our investment adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.

We expect that the principals of our investment adviser will maintain and develop their relationships with private equity sponsors, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If the principals of our investment adviser fail to maintain their existing relationships or develop new relationships with other sponsors or sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom the principals of our investment adviser have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.

We may face increasing competition for investment opportunities, which could reduce returns and result in losses.

We compete for investments with other BDCs and investment funds (including private equity funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Many of our competitors are substantially larger and may have considerably greater financial, technical and marketing resources than us. For example, some competitors may have a lower cost of capital and access to funding sources that may not be available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than us. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we may be able to do. We may lose investment opportunities if we cannot match our competitors’ pricing, terms and structure. If we are forced to match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact that the market for investments in middle market companies is underserved by traditional commercial banks and other financial sources. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors may have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a BDC.

Because we borrow money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us.

Borrowings, also known as leverage, magnify the potential for loss on invested equity capital. If we continue to use leverage to partially finance our investments, through borrowings from banks and other lenders, you would experience increased risks of investing in our securities. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distributions or scheduled debt payments. Leverage is generally considered a speculative investment technique and we only intend to use leverage if expected returns would exceed the cost of borrowing. We are currently targeting a debt to equity ratio of 0.85x (i.e., we aim to have one dollar of equity for each $0.85 of debt outstanding).

Our incentive fee may induce our investment adviser to make speculative investments.

The incentive fee payable by us to our investment adviser may create an incentive for our investment adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement, which could result in higher investment losses, particularly during cyclical economic downturns. The way in which the incentive fee payable to our investment adviser is determined, which is calculated separately in two components as a percentage of the income (subject to a hurdle rate) and as a percentage of the realized gain on invested capital, may encourage our investment adviser to use leverage to increase the return on our investments or otherwise manipulate our income so as to recognize income in quarters where the hurdle rate is exceeded. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor the holders of our common stock.

The incentive fee payable by us to our investment adviser also may create an incentive for our investment adviser to invest on our behalf in instruments that have a deferred interest feature. Under these investments, we accrue the interest over the life of the investment but do not receive the cash income from the investment until the end of the investment’s term, if at all. Our net investment income used to calculate the income portion of our incentive fee, however, includes accrued interest. Thus, a portion of the incentive fee is based on income that we have not yet received in cash and may never receive in cash if the portfolio company is unable to satisfy such interest payment obligation to us. While we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a formal “claw back” right against our investment adviser per se, the amount of accrued income written off in any period will reduce the income in the period in which such write-off was taken and thereby reduce such period’s incentive fee payment.

In addition, our investment adviser receives an incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of the incentive fee based on income, there is no performance threshold applicable to the portion of the incentive fee based on net capital gains. As a result, our investment adviser may have a tendency to invest more in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

Given the subjective nature of the investment decisions that our investment adviser may make on our behalf, we may be unable to monitor these potential conflicts of interest between us and our investment adviser.

Our base management fee may induce our investment adviser to incur leverage.

Our base management fee is payable based upon our gross assets, which includes any borrowings for investment purposes, and may encourage our investment adviser to use leverage to make additional investments. Under certain circumstances, the use of increased leverage may increase the likelihood of default, which would disfavor holders of our common stock. Given the subjective nature of the investment decisions that our investment adviser may make on our behalf, we may not be able to monitor this potential conflict of interest.

We may not replicate the historical performance of other investment companies with which our investment professionals have been affiliated.

The 1940 Act imposes numerous constraints on the investment activities of BDCs. For example, BDCs are required to invest at least 70% of their total assets primarily in securities of U.S. private companies or thinly traded public companies with a market capitalization of less than $250 million, cash, cash equivalents, U.S. government securities or high-quality debt investments that mature in one year or less. These constraints may hinder our investment adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objectives. Our investment adviser’s track record and achievements are not necessarily indicative of the future results it will achieve. Accordingly, we can offer no assurance that we will replicate the historical performance of other investment companies with which our investment professionals have been affiliated, such as FSC, and we caution that our investment returns could be substantially lower than the returns achieved by such other companies.

Our Citibank facility subjects significant amounts of our assets to security interests and if we default on our obligations under the credit facility, we may suffer adverse consequences, including foreclosure on our assets.

Under the Citibank facility, certain of our assets are pledged as collateral to secure borrowings thereunder. If we default on our obligations under the Citibank facility, the lender has the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or their superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we intend to operate. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the distributions that we intend to pay to our stockholders.

In addition, if the lender exercises its right to sell the assets pledged under the Citibank facility, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under such facility.

Pending legislation may allow us to incur additional leverage.

As a BDC, under the 1940 Act we generally are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Legislation introduced in the U.S. House of Representatives, if eventually passed, would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%, as proposed. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us may increase.

Because we intend to distribute between 90% and 100% of our income to our stockholders in connection with our election to be treated as a RIC, we will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow would be impaired.

In order to qualify for the tax benefits available to RICs and to minimize corporate-level taxes, we intend to distribute to our stockholders between 90% and 100% of our annual taxable income, except that we may retain certain net capital gains for investment, and treat such amounts as deemed distributions to our stockholders. If we elect to treat any amounts as deemed distributions, we must pay taxes at the corporate rate on such deemed distributions on behalf of our stockholders. As a result of these requirements, we will likely need to raise capital from other sources to grow our business. As a BDC, we are generally required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which will include all of our borrowings and any outstanding preferred stock, of at least 200%. These requirements limit the amount that we may borrow. Because we will continue to need capital to grow our investment portfolio, these limitations may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so.

While we expect to be able to issue additional equity securities, we cannot assure you that equity financing will be available to us on favorable terms, or at all. Also, as a BDC, we generally will not be permitted to issue equity securities priced below NAV without prior stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new investment activities, and our net asset value and share price could decline.

Our ability to enter into transactions with our affiliates is restricted.

We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of the members of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities are deemed our affiliate for purposes of the 1940 Act and we generally are prohibited from buying or selling any securities (other than our securities) from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such person, absent the prior approval of the SEC. Similar restrictions will limit our ability to transact business with our officers or directors or their affiliates. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by our investment adviser without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us. We have received exemptive relief from the SEC to co-invest with investment funds managed by Fifth Street Management where doing so is consistent with our investment strategy as well as applicable law (including the terms and conditions of the exemptive order issued by the SEC). Under the terms of the relief permitting us to co-invest with other funds managed by Fifth Street Management, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategies. We intend to co-invest, subject to the conditions included in the exemptive order we received from the SEC, with certain of our affiliates. We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification.

There are significant potential conflicts of interest, including our investment adviser’s management of FSC and certain private investment funds, which could impact our investment returns; you will not be purchasing an investment in FSC.

Our executive officers and three of our independent directors, and certain members of our investment adviser, serve or may serve as officers, directors or principals of entities that may operate in the same or a related line of business as us or as investment funds managed by our affiliates. For example, Fifth Street Management presently serves as investment adviser to FSC, a publicly-traded BDC with total assets of approximately $2.6 billion as of September 30, 2015, that invests in the debt and equity of small and mid-sized companies, primarily in connection with investments by private equity sponsors, including in middle market leveraged companies similar to those we target for investment. FSC generally targets small and mid-sized companies with annual revenues between $25 million and $250 million and generally targets investment sizes ranging from $10 million to $100 million. In addition, though not the primary focus of its investment portfolio, FSC's investments also include floating rate senior loans. In contrast, we target investments ranging from between $3 million and $30 million, and generally target private leveraged middle market companies with approximately $20 million to $100 million of EBITDA. Therefore, there may be certain investment opportunities that satisfy the investment criteria for both FSC and us. In addition, certain of our executive officers and three of our independent directors serve in substantially similar capacities for FSC. Fifth Street Management also manages private investment funds, and may manage other funds in the future, that have investment mandates that are similar, in whole or in part, to ours. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. For example, the principals of our investment adviser may face conflicts of interest in the allocation of investment opportunities to us and such other funds. The fact that our investment advisory fees are lower than those of certain other funds, such as FSC, could amplify this conflict of interest.

Fifth Street Management has adopted, and our Board of Directors has approved, an investment allocation policy that governs the allocation of investment opportunities among the investment funds managed by Fifth Street Management and its affiliates. To the extent an investment opportunity is appropriate for us or FSC or any other investment fund managed by our affiliates, Fifth Street Management will adhere to its investment allocation policy in order to determine to which entity to allocate the opportunity. As a BDC, we were substantially limited in our ability to co-invest in privately negotiated transactions with affiliated funds until we obtained an exemptive order from the SEC on September 9, 2014. The exemptive relief permits us to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Fifth Street Management, or an investment adviser controlling, controlled by or under common control with Fifth Street Management, in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to the conditions of the exemptive order. If we are unable to rely on our exemptive relief for a particular transaction, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity's investment strategy, on an alternating basis. Although our investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, we and our common stockholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of our investment adviser.

Pursuant to the administration agreement with FSC CT, which is a wholly-owned subsidiary of our investment adviser, FSC CT furnishes us with the facilities and administrative services necessary to conduct our day-to-day operations. We pay FSC CT its allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under the administration agreement, including a portion of the rent at market rates and the compensation of our chief financial officer and chief compliance officer and their respective staffs. We utilize office space that is leased by our administrator from an affiliate controlled by the chief executive officer of our investment adviser and administrator, Mr. Tannenbaum. We also utilize

additional office space that is leased by our affiliates in Chicago, IL and San Francisco, CA. Any reimbursement for a portion of the rent at these locations is at cost with no profit to, or markup by, FSC CT.

The incentive fee we pay to our investment adviser relating to capital gains may be effectively greater than 20%.

As a result of the operation of the cumulative method of calculating the capital gains portion of the incentive fee that we pay to our investment adviser, the cumulative aggregate capital gains fee that will be received by our investment adviser could be effectively greater than 20%, depending on the timing and extent of subsequent net realized capital losses or net unrealized depreciation. For additional information on this calculation, see “— Investment Advisory Agreement — Management Fee — Incentive Fee.” We cannot predict whether, or to what extent, this anticipated payment calculation would affect an investment in shares of our common stock.

A failure on our part to maintain qualification as a BDC would significantly reduce our operating flexibility.

If we fail to continuously qualify as a BDC, we might be subject to regulation as a registered closed-end investment company under the 1940 Act, which would significantly decrease our operating flexibility. In addition, failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us. For additional information on the qualification requirements of a BDC, see the disclosure under the caption “— Business Development Company Regulations.”

Regulations that govern our operation as a BDC and RIC may affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.

As a result of the annual distribution requirement to qualify for tax-free treatment at the corporate level on income and gains distributed to stockholders, we may need to periodically access the capital markets to raise cash to fund new investments. Generally, we will not be able to issue or sell our common stock at a price below net asset value per share, which may be a disadvantage as compared with other public companies or private investment funds. If our common stock trades at a discount to net asset value, this restriction could adversely affect our ability to raise capital. We may, however, be able to sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders as well as those stockholders that are not affiliated with us approve such a sale. In any such case, the price at which our securities will be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such securities (less any underwriting commission or discount).

We also may make rights offerings to our stockholders at prices less than net asset value, subject to applicable requirements of the 1940 Act. If we raise additional funds by issuing more shares of our common stock or issuing senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders may decline at that time and such stockholders may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on terms favorable to us or at all.

In addition, we may issue “senior securities,” including borrowing money from banks or other financial institutions only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. Our ability to issue different types of securities is also limited. Compliance with these requirements may unfavorably limit our investment opportunities and may reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we may borrow and the rates at which we may lend. As a BDC, therefore, we may need to issue equity more frequently than our privately owned competitors, which may lead to greater stockholder dilution.

We expect to borrow for investment purposes. If the value of our assets declines, we may be unable to satisfy the asset coverage test, which could prohibit us from paying distributions and could prevent us from qualifying as a RIC. If we are unable to satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of any debt financing we may have, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

In addition, we may in the future seek to securitize our portfolio securities to generate cash for funding new investments. To securitize loans, we would likely create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. We would then sell interests in the subsidiary on a non-recourse basis to purchasers and we would retain all or a portion of the equity in the subsidiary. An inability to successfully securitize our loan portfolio could limit our ability to grow our business or fully execute our business strategy and may decrease our earnings, if any. The securitization market is subject to changing market conditions and we may not be able to access this market when we would otherwise deem appropriate. Moreover, the successful securitization of our portfolio might expose us to losses as the residual investments in which we do not sell interests will tend to be those that are riskier and more apt to generate losses. The 1940 Act also may impose restrictions on the structure of any securitization.

We may experience fluctuations in our operating results.

We may experience fluctuations in our operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we may acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our market and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

Our Board of Directors has the authority to modify or waive our current investment objective, operating policies and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current investment objective, operating policies and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose part or all of your investment.

We will be subject to corporate-level income tax on all of our income if we are unable to maintain qualification as a RIC under Subchapter M of the Code or do not satisfy the annual distribution requirement.

In order to satisfy the requirements applicable to maintaining qualification as a RIC and be relieved of federal taxes on income and gains distributed to our stockholders, we must meet the following annual distribution, income source and asset diversification requirements:

•

The annual distribution requirement for a RIC would be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and we may be subject to certain financial covenants under our debt arrangements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.


•	The income source requirement would be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.

•

The asset diversification requirement would be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we fail to qualify for or maintain RIC status or to meet the annual distribution requirement for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.

We may not be able to pay you distributions, our distributions may not grow over time and/or a portion of our distributions may be a return of capital.

We intend to pay distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to sustain a specified level of cash distributions or make periodic increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay distributions. All distributions will be paid at the discretion of our Board of Directors and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board of Directors may deem relevant from time to time. We cannot assure you that we will continue to pay distributions to our stockholders.

When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits. Distributions in excess of current and accumulated earnings and profits will be

treated as a non-taxable return of capital to the extent of an investor’s basis in our stock and, assuming that an investor holds our stock as a capital asset, thereafter as a capital gain.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we may include in income certain amounts that we will have not yet received in cash, such as original issue discount or accruals on a contingent payment debt instrument, which may occur if we receive warrants in connection with the origination of a loan or possibly in other circumstances. Such original issue discount will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we do not receive, and may never receive, in cash.

Since, in certain cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual distribution requirement necessary to be relieved of U.S. federal taxes on income and gains distributed to our stockholders. Accordingly, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forego new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to satisfy the annual distribution requirement and thus become subject to corporate-level income tax.

In addition, as discussed elsewhere herein, our loans may contain PIK interest provisions. PIK interest, computed at the contractual rate specified in each loan agreement, will be added to the principal balance of the loan and recorded as interest income. To avoid the imposition of corporate-level tax on us, this non-cash source of income will need to be paid out to stockholders in cash distributions or, in the event that we determine to do so, in shares of our common stock, even though we may have not yet collected and may never collect the cash relating to the PIK interest.

To the extent original issue discount and/or PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

Our investments may include original issue discount, or OID, instruments and/or contractual PIK interest. To the extent OID or PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:


•	OID instruments may have higher yields, which reflect the payment deferral and credit risk associated with these instruments;


•	Because we may be required to distribute amounts attributable to OID accruals, such OID accruals may create uncertainty about the source of our distributions to stockholders;


•	OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of the collateral;


•	PIK interest typically has the effect of increasing the outstanding principal amount of a loan, resulting in a borrower owing more at the end of the term of the loan than what it owed when the loan was originated; and


•	OID and PIK instruments may represent a higher credit risk than coupon loans.

We may in the future choose to pay distributions partly in our own stock, in which case you may be required to pay tax in excess of the cash you receive.

We may distribute taxable distributions that are payable in part in our stock. In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC annual distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to the limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder electing to receive cash receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the distribution paid in stock will be equal to the amount of cash that could have been received instead of stock. Taxable stockholders receiving such distributions will be required to include the full amount of the distribution as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such distributions in excess of any cash received. If a U.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distributions, including in respect of all or a portion of such distribution that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on distributions, it may put downward pressure on the trading price of our stock.

We and our investment adviser could be the target of litigation.

We or our investment adviser could become the target of securities class action litigation or other similar claims if our stock price fluctuates significantly or for other reasons. The outcome of any such proceedings could materially adversely affect our business, financial condition, and/or operating results and could continue without resolution for long periods of time. Any litigation or other similar claims could consume substantial amounts of our management’s time and attention, and that time and attention and the devotion of associated resources could, at times, be disproportionate to the amounts at stake. Litigation and other claims are subject to inherent uncertainties, and a material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome in litigation or other similar claims becomes probable and reasonably estimable. In addition, we could incur expenses associated with defending ourselves against litigation and other similar claims, and these expenses could be material to our earnings in future periods.

We may be unable to invest a significant portion of the net proceeds from an offering of our securities, on acceptable terms within an attractive timeframe.

Delays in investing the net proceeds raised in an offering of shares of our common stock may cause our performance to be worse than that of other fully invested BDCs or other lenders or investors pursuing comparable investment strategies. We cannot assure you that we will be able to identify any additional investments that meet our investment objective or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of an offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.

We anticipate that, depending on market conditions, it may take us a substantial period of time to invest substantially all of the net proceeds of an offering in securities meeting our investment objective. During this period, we will invest the net proceeds from an offering primarily in high quality, short-term debt securities, consistent with our business development company election and our election to be taxed as a RIC, at yields significantly below the returns which we expect to achieve when our portfolio is fully invested in securities meeting our investment objective. As a result, any distributions that we pay during this period may be substantially lower than the distributions that we may be able to pay when our portfolio is fully invested in securities meeting our investment objective. In addition, until such time as the net proceeds of an offering are invested in securities meeting our investment objective, the market price for our common stock may decline. Thus, the return on your investment may be lower than when, if ever, our portfolio is fully invested in securities meeting our investment objective.

Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.

We and our portfolio companies are subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we may be permitted to make or that impose limits on our ability to pledge a significant amount of our assets to secure loans, any of which could harm us and our stockholders, potentially with retroactive effect.

Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences to the strategies and plans set forth herein and may result in our investment focus shifting from the areas of expertise of our investment adviser to other types of investments in which our investment adviser may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.

It is unclear how increased regulatory oversight and changes in the method for determining LIBOR may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR, or how such changes could affect our results of operations or financial condition.

As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers’ Association, or BBA, member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR, and there are ongoing investigations by regulators and governmental authorities in various jurisdictions. Following a review of LIBOR conducted at the request of the U.K. government, on September 28, 2012, recommendations for reforming the setting and governing of LIBOR were released, which are referred to as the Wheatley Review. The Wheatley Review made a number of recommendations for changes with respect to LIBOR, including the introduction of S-5 statutory regulation of LIBOR, the transfer of responsibility for LIBOR from the BBA to an independent administrator, changes to the method of the compilation of lending rates and new regulatory oversight and enforcement mechanisms for rate-setting and a reduction in the number of currencies and tenors for which LIBOR is published. Based on the Wheatley Review and on a subsequent public and governmental consultation process, on March 25, 2013, the U.K. Financial Services Authority published final rules for the U.K. Financial Conduct Authority’s regulation and supervision of LIBOR, which are referred to as the FCA Rules. In particular, the FCA Rules include requirements that (1) an independent LIBOR administrator monitor and survey LIBOR submissions to identify breaches of practice standards and/or potentially manipulative behavior, and (2) firms submitting data to LIBOR establish and maintain a clear conflicts of interest policy and appropriate systems and controls.

It is uncertain what additional regulatory changes or what changes, if any, in the method of determining LIBOR may be required or made by the U.K. government or other governmental or regulatory authorities. Accordingly, uncertainty as to the nature of such changes may adversely affect the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act.” As a result, we have taken advantage of the exemption for emerging growth companies allowing us to temporarily forgo the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We cannot predict if investors will find shares of our common stock less attractive because we will rely on this exemption. If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for our shares and our share price may be more volatile. We did not take advantage of other disclosure or reporting exemptions for emerging growth companies under the JOBS Act. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our initial public offering, (ii) in which we have total annual gross revenue of at least $1 billion, or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of our prior second fiscal quarter, and (b) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

We have identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our financial statements in future periods.

As set forth in “Item 9A. Controls and Procedures,” for the period ended September 30, 2015, we identified a material weakness relating to our internal control over financial reporting under standards established by the Public Company Accounting Oversight Board ("PCAOB"). The PCAOB defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

We have taken and will take a number of actions to remediate this material weakness, as set forth in Item 9A. While we have started to implement these measures, some of these measures will take time to be fully integrated and confirmed to be effective. We cannot assure you that the steps taken will remediate such weaknesses, nor can we be certain of whether additional actions will be required or the costs of any such actions. Until measures are fully implemented and tested, the identified material weakness may continue to exist.

We may need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the identified material weaknesses or significant deficiencies or other material weaknesses or deficiencies will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses or deficiencies may be identified in the future. If we are unable to correct material weaknesses or deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

Future control deficiencies could prevent us from accurately and timely reporting our financial results.

We may identify deficiencies in our internal control over financial reporting in the future, including significant deficiencies and material weaknesses. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a company’s financial reporting. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our failure to identify deficiencies in our internal control over financial reporting in a timely manner or remediate any deficiencies, or the identification of material weaknesses or significant deficiencies in the future could prevent us from accurately and timely reporting our financial results.

We are subject to risks associated with communications and information systems.

We depend on the communications and information systems of our investment adviser and its affiliates as well as certain third-party service providers. As our reliance on these systems has increased, so have the risks posed to these communications and information systems. Any failure or interruption in these systems could cause disruptions in our activities. In addition, these systems are subject to potential attacks, including through adverse events that threaten the confidentiality, integrity or availability of our information resources. These attacks, which may include cyber incidents, may involve a third party gaining unauthorized access to our communications or information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. Any such attack could result in disruption to our business, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could have a material adverse effect on our business, financial condition and results of operations.

We incur significant costs as a result of being a publicly traded company.

As a publicly-traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the SEC and the listing standards of the NASDAQ Global Select Market. Upon ceasing to qualify as an emerging growth company under the JOBS Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, which will increase costs associated with our periodic reporting requirements.

Risks Relating to Our Investments

Our investments in portfolio companies may be risky, and we could lose all or parts of our investments.

The companies in which we invest are typically highly leveraged, and, in most cases, our investments in such companies are not rated by any rating agency. If such investments were rated, we believe that they would likely receive a rating from a nationally recognized statistical rating organization of below investment grade, which is often referred to as “junk.” Exposure to below investment grade securities involves certain risks, and those securities are viewed as having predominately speculative characteristics with respect to the issuer's capacity to pay interest and repay principal.

Investing in middle market companies involves a number of significant risks. Among other things, these companies:

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may have limited financial resources and may be unable to meet their obligations under their debt instruments that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees from subsidiaries or affiliates of our portfolio companies that we may have obtained in connection with our investments, as well as a corresponding decrease in the value of the equity components of our investments;


•	may not have collateral sufficient to pay any outstanding interest or principal due to us in the event of a default by these companies;


•	may have shorter operating histories, narrower product lines, smaller market shares and/or significant customer concentrations than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;


•	are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on one or more of our portfolio companies and, in turn, on us;


•	generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; and/or


•	generally have less publicly available information about their businesses, operations and financial condition. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and as a result may lose part or all of our investment.

Further, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers and directors may serve as directors on the boards of such companies. To the extent that litigation arises out of our investments in these companies, our officers and directors may be named as defendants in such litigation, which could result in an expenditure of funds (through our indemnification of such officers and directors) and the diversion of management time and resources.

We may incur greater risk with respect to investments we acquire through assignments or participations of interests.

We may acquire senior loans through assignments or participations of interests in such loans. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to such debt obligation. However, the purchaser’s rights can be more restricted than those of the assigning institution, and we may not be able to unilaterally enforce all rights and remedies under an assigned debt obligation and with regard to any associated collateral. A participation typically results in a contractual relationship only with the institution participating out the interest and not directly with the borrower. Sellers of participations typically include banks, broker-dealers, other financial institutions and lending institutions. In purchasing participations, we generally will have no right to enforce compliance by the borrower with the terms of the loan agreement against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which we have purchased the participation. As a result, we will be exposed to the credit risk of both the borrower and the institution selling the participation. Further, in purchasing participations in lending syndicates, we will not be able to conduct the same level of due diligence on a borrower or the quality of the senior loan with respect to which we are buying a participation as we would conduct if we were investing directly in the senior loan. This difference may result in us being exposed to greater credit or fraud risk with respect to such senior loans than we expected when initially purchasing the participation.

An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies.

We invest primarily in privately held companies. Generally, little public information exists about these companies, including typically a lack of audited financial statements and ratings by third parties. We therefore must rely on the ability of our investment adviser to obtain adequate information to evaluate the potential risks of investing in these companies. These companies and their financial information may not be subject to the Sarbanes-Oxley Act of 2002 and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. These factors could affect our investment returns.

We may allocate the net proceeds from an offering in ways with which you may not agree.

We have significant flexibility in investing the net proceeds of an offering, and may do so in a way with which you may not agree. Additionally, our investment adviser will select our investments subsequent to the closing of an offering, and our stockholders will have no input with respect to such investment decisions. Further, other than general limitations that may be included in a future credit facility, the holders of our debt securities will generally not have veto power or a vote in approving any changes to our investment or operational policies. These factors increase the uncertainty, and thus the risk, of investing in our securities. In addition, pending such investments, we will invest the net proceeds from an offering primarily in high quality, short-term debt securities, consistent with our business development company election and our election to be taxed as a RIC, at yields significantly below the returns which we expect to achieve when our portfolio is fully invested in securities meeting our investment objective. If we are not able to identify or gain access to suitable investments, our income may be limited.

Our portfolio companies may incur debt that ranks equally with, or senior to, some of our investments in such companies.

We invest primarily in senior secured loans, including unitranche and second lien debt instruments, as well as unsecured debt instruments, issued by our portfolio companies. If we invest in unitranche, second lien, or unsecured debt instruments, our portfolio companies typically may be permitted to incur other debt that ranks equally with, or senior to, such debt instruments. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we will be entitled to receive payments in respect of the debt securities in which we will invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. In such cases, after repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we will invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

If we invest in the securities and obligations of distressed or bankrupt companies, such investments may be subject to significant risks, including lack of income, extraordinary expenses, uncertainty with respect to satisfaction of debt, lower-than-expected investment values or income potentials and resale restrictions.

We are authorized to invest in the securities and obligations of distressed or bankrupt companies. At times, distressed debt obligations may not produce income and may require us to bear certain extraordinary expenses (including legal, accounting, valuation and transaction expenses) in order to protect and recover our investment. Therefore, to the extent we invest in distressed debt, our ability to achieve current income for our stockholders may be diminished.

We also will be subject to significant uncertainty as to when and in what manner and for what value the distressed debt we invest in will eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving the distressed debt securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or plan of reorganization is adopted with respect to distressed debt held by us, there can be no assurance that the securities or other assets received by us in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made.

Moreover, any securities received by us upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of our participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed debt, we may be restricted from disposing of such securities.

The lack of liquidity in our investments may adversely affect our business.

We invest in companies whose securities are not publicly traded, and whose securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. In fact, all of our assets may be invested in illiquid securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

We may not have the funds or ability to make additional investments in our portfolio companies.

After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected yield on the investment.

The disposition of our investments may result in contingent liabilities.

Most of our investments will likely involve private securities. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

Even though we structure most of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provide managerial assistance to such a portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance.

Second priority liens on collateral securing loans that we may make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

To a certain extent, loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing first priority debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the company’s remaining assets, if any.

The rights we may have with respect to the collateral securing the loans we may make to portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken with respect to the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of

enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

We generally do not control our portfolio companies.

We generally do not control our portfolio companies, even though our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as a debt investor. Due to the lack of liquidity for our anticipated investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

Defaults by our portfolio companies would harm our operating results.

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

Our portfolio may be limited to a small number of industries, which may subject us to a risk of significant loss if there is a downturn in any such industry.

Our portfolio may be limited to a small number of industries. A downturn in any particular industry in which we are invested could significantly impact the aggregate returns we realize.

As of September 30, 2015, our investments in the Internet and software services industry represented approximately 28% of the fair value of our portfolio and our investments in the healthcare services industry represented approximately 16% of the fair value of our portfolio. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.

Our investments in the Internet software and services sector face considerable uncertainties including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences, periodic downturns, regulatory concerns and litigation risks.

As of September 30, 2015, our investments in portfolio companies that operate in the Internet software and services sector represents approximately 28% of the fair value our total portfolio. The revenues, income (or losses) and valuations of technology-related companies can and often do fluctuate suddenly and dramatically. In addition, because of rapid technological change, the average selling prices of products and some services provided by technology-related sectors have historically decreased over their productive lives. As a result, the average selling prices of products and services offered by our portfolio companies that operated in technology-related sectors may decrease over time, which could adversely affect their operating results and, correspondingly, the value of any investments that we may hold.

Our investments in Internet and software companies are subject to substantial risks. For example, our portfolio companies face intense competition since their businesses are rapidly evolving and intensely competitive, and are subject to changing technology, shifting user needs, and frequent introductions of new products and services. Internet and software companies have many competitors in different industries, including general purpose search engines, vertical search engines and e-commerce sites, social networking sites, traditional media companies, and providers of online products and services. Potential competitors to our portfolio companies in the Internet and software industries range from large and established companies to emerging startups.

Further, such companies are subject to laws that were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. The laws that do reference the Internet are being interpreted by the courts, but their applicability and scope remain uncertain. For example, the laws relating to the liability of providers of online services are currently unsettled both within the U.S. and abroad. Claims have been threatened and filed under both U.S. and foreign laws for defamation, invasion of privacy and other tort claims, unlawful activity, copyright and trademark infringement, or other theories based on the nature and content of the materials searched and the ads posted by a company’s users, a company’s products and services, or content generated by a company’s users. Further, the growth of Internet and software companies into a variety of new fields implicate a variety of new regulatory issues and may

subject such companies to increased regulatory scrutiny, particularly in the U.S. and Europe. As a result, these portfolio company investments face considerable risk. This could, in turn, materially adversely affect the value of the Internet and software companies in our portfolio.

Our investments in the healthcare sector face considerable uncertainties including substantial regulatory challenges.

As of September 30, 2015, our investments in portfolio companies that operate in the healthcare sector represent nearly 16% of our total portfolio. Our investments in the healthcare sector are subject to substantial risks. The laws and rules governing the business of healthcare companies and interpretations of those laws and rules are subject to frequent change. Broad latitude is given to the agencies administering those regulations. Existing or future laws and rules could force our portfolio companies engaged in healthcare to change how they do business, restrict revenue, increase costs, change reserve levels and change business practices.

Healthcare companies often must obtain and maintain regulatory approvals to market many of their products, change prices for certain regulated products and consummate some of their acquisitions and divestitures. Delays in obtaining or failing to obtain or maintain these approvals could reduce revenue or increase costs. Policy changes on the local, state and federal level, such as the expansion of the government’s role in the healthcare arena and alternative assessments and tax increases specific to the healthcare industry or healthcare products as part of federal health care reform initiatives, could fundamentally change the dynamics of the healthcare industry.

We are subject to risks associated with our investments in energy companies.

As of September 30, 2015, our investments in portfolio companies that operate in the energy sector represent 0.70% of our total portfolio. The energy industry has been in a period of disruption and volatility that has been characterized by decreases in oil and gas prices and production levels. This disruption and volatility has led to, and future disruptions and volatility may lead to, decreases in the credit quality and performance of certain of our debt and equity investments in energy companies, which could, in turn, negatively impact the fair value of our investments in energy companies. Any prolonged decline in oil and gas prices or production levels could adversely impact the ability of our portfolio companies in the energy industry to satisfy financial or operating covenants that may be imposed by us and other lenders or to make payments to us as and when due, which could have a material adverse effect on our business, financial condition and results of operations. In addition, energy companies are subject to supply and demand fluctuations in the markets in which they operate, which are impacted by a numerous factors, including weather, use of renewable fuel sources, natural disasters, governmental regulation and general economic conditions, in addition to the effects of increasing regulation and general operational risks, any of which could have a material adverse effect on the performance and value of our energy-related investments as well as our cash flows from such investments.

We may not realize gains from our equity investments.

Although we primarily invest in senior loans, certain of our investments may include warrants or other equity securities. In addition, we may make direct equity investments in companies. Our intended goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we may receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from the equity interests we may hold, if any, and any gains that we do realize on the disposition of any such equity interests may not be sufficient to offset any other losses we may experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We may seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress.

We are subject to certain risks associated with foreign investments.

We may make investments in foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in foreign exchange rates, exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. In addition, our foreign investments generally do not constitute "qualifying assets" under the 1940 Act, which qualifying assets must represent at least 70% of our total assets. See “Business Development Company Regulation — Qualifying Assets.”

Our success depends, in part, on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our business as a whole.

We may expose ourselves to risks if we engage in hedging transactions.

We may enter into hedging transactions, which may expose us to risks associated with such transactions. We may utilize instruments such as forward contracts and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions and amounts due under our credit facilities from changes in market interest rates. Use of these hedging instruments may include counterparty credit risk. Utilizing such hedging instruments does not eliminate the possibility of fluctuations in the values of such positions and amounts due under our credit facilities or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.

The success of any hedging transactions, if any, will depend on our ability to correctly predict market movements and interest rates. Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings or credit facilities being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. See also “— Changes in interest rates may increase our cost of capital, reduce the ability of our portfolio companies to service their debt obligations and decrease our net investment income."

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore have few restrictions with respect to the proportion of our assets that may be invested in securities of a single industry or issuer.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single industry or issuer, excluding limitations on investments in other investment companies. To the extent that we assume large positions in the securities of a small number of industries or issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the industry or issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond RIC diversification requirements, we do not have fixed guidelines for diversification, and our investments could be limited to relatively few industries or issuers.

We are subject to risks associated with the Debt Securitization.

As a result of the Debt Securitization, we are subject to a variety of risks, including those set forth below. We use the term “debt securitization” to describe a form of secured borrowing under which an operating company (sometimes referred to as an “originator” or “sponsor”) acquires or originates mortgages, receivables, loans or other assets that earn income, whether on a one-time or recurring basis (collectively, “income producing assets”), and borrows money on a non-recourse basis against a legally separate pool of loans or other income producing assets. In a typical debt securitization, the originator transfers the loans or income producing assets to a single-purpose, bankruptcy-remote subsidiary (also referred to as a “special purpose entity”), which is established solely for the purpose of holding loans and income producing assets and issuing debt secured by these income producing assets. The special purpose entity completes the borrowing through the issuance of notes secured by the loans or other assets. The special purpose entity may issue the notes in the capital markets to a variety of investors, including banks, non-bank financial institutions and other investors. In the Debt Securitization, institutional investors purchased $222.6 million long-term secured notes (the “2015 Notes”) issued by FS Senior Funding Ltd., our wholly-owned subsidiary, in a private placement.

We are subject to certain risks as a result of our interests in the junior notes and membership interests of the 2015 Issuer.

Under the terms of the master transfer agreement governing the Debt Securitization, we sold to FS Senior Funding Ltd. (the “2015 Issuer”) all of our ownership interest in certain of our portfolio loans and participations for the purchase price and other consideration set forth in such master transfer agreement. Following this transfer, the 2015 Issuer held all of the ownership interest in such portfolio loans and participations. As a result of the Debt Securitization and as of September 30, 2015, we held the Class C Senior Secured Notes (the “Class C Notes”) as well as all of the Subordinated Notes (the “Subordinated Notes”) of the 2015 Issuer. As a result, we consolidate the financial statements of the 2015 Issuer, as well as our other subsidiaries, in our consolidated financial statements. Because the 2015 Issuer is disregarded as an entity separate from its owner for U.S. federal income tax purposes, the sale or contribution by us to the 2015 Issuer did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.

The Class C Notes are subordinated obligations of the 2015 Issuer.

The Class C Notes are the most junior class of rated notes issued by the 2015 Issuer, are subordinated in priority of payment to the Class A-T Senior Secured Floating Rate Notes, Class A-R Senior Secured Revolving Floating Rate Notes, Class A-S Senior Secured Floating Rate Notes (collectively, the “Class A Notes”) and the Class B Senior Secured Floating Rate Notes (the “Class B Notes,” and, together with the Class A Notes, the “Senior 2015 Notes,” and, together with the Class C Notes, the “2015 Notes”) and are subject to certain payment restrictions set forth in the indenture governing the Debt Securitization. Therefore, we only receive cash distributions on the Class C Notes if the 2015 Issuer has made all cash interest payments on all the Senior 2015 Notes it has issued. Consequently, to the extent that the value of the 2015 Issuer’s portfolio of loan investments has been reduced as a result of conditions in the credit markets, or as a result of defaulted loans or individual fund assets, the value of the Class C Notes at their redemption will be reduced because the Class C Notes are junior to the Senior 2015 Notes and will bear losses of the 2015 Issuer’s portfolio of loan investments prior to the Senior 2015 Notes.

The 2015 Issuer, as holders of the Subordinated Notes, is the residual claimant on funds, if any, remaining after holders of all classes of 2015 Notes have been paid in full on each payment date or upon maturity of such notes under the Debt Securitization documents. The Subordinated Notes in the 2015 Issuer represent all of the residual interest in the 2015 Issuer, and, as the holder of the Subordinated Notes, we may receive distributions, if any, only to the extent that the 2015 Issuer makes distributions out of funds remaining after holders of all classes of 2015 Notes have been paid in full on each payment date any amounts due and owing on such payment date or upon maturity of such 2015 Notes.

The interests of holders of the senior classes of securities issued by the 2015 Issuer may not be aligned with our interests.

The Class A Notes are the debt obligations ranking senior in right of payment to other securities issued by the 2015 Issuer in the Debt Securitization. As such, there are circumstances in which the interests of holders of the Class A Notes may not be aligned with the interests of holders of the other classes of notes issued by the 2015 Issuer. For example, under the terms of the Class A Notes, holders of the Class A Notes have the right to receive payments of principal and interest prior to holders of the Class B Notes, the Class C Notes and the 2015 Issuer and the holders of the Class B Notes have the right to receive payments of the principal and interest prior to the holders of the Class C Notes.

For as long as the Class A Notes remain outstanding, holders of the Class A Notes comprise the most senior class of notes outstanding of the 2015 Issuer (the “Controlling Class”) under the Debt Securitization. If the Class A Notes are paid in full, the Class B Notes would comprise the Controlling Class under the Debt Securitization. Holders of the Controlling Class under the Debt Securitization have the right to act in certain circumstances with respect to the portfolio loans in ways that may benefit their interests but not the interests of holders of more junior classes of notes and Subordinated Notes, including by exercising remedies under the indenture in the Debt Securitization.

If an event of default has occurred and acceleration occurs in accordance with the terms of the indenture governing the Debt Securitization, the Controlling Class, as the most senior class of notes then outstanding in the Debt Securitization will be paid in full before any further payment or distribution on the more junior classes of notes and Subordinated Notes. In addition, if an event of default under the Debt Securitization occurs, holders of a majority of the Controlling Class of the Debt Securitization may be entitled to determine the remedies to be exercised under the indenture, subject to the terms of such indenture. For example, upon the occurrence of an event of default with respect to the notes issued by the 2015 Issuer, the trustee or holders of a majority of the Controlling Class may declare the principal, together with any accrued interest, of all the notes of such class and any junior classes to be immediately due and payable. This would have the effect of accelerating the principal on such notes, triggering a repayment obligation on the part of the 2015 Issuer. If at such time the portfolio loans were not performing well, the 2015 Issuer may not have sufficient proceeds available to enable the trustee under the indenture to repay the obligations of holders of the 2015 Notes or the Subordinated Notes.

Remedies pursued by the Controlling Class could be adverse to the interests of the holders of the 2015 Notes that are subordinated to the Controlling Class, and the Controlling Class will have no obligation to consider any possible adverse effect on such other interests. Thus, we cannot assure you that any remedies pursued by the Controlling Class will be in the best interests of the 2015 Issuer or us or that the 2015 Issuer or we will receive any payments or distributions upon an acceleration of the notes. In a liquidation under the Debt Securitization, the Class C Notes will be subordinated to payment of the Class A Notes and Class B Notes and may not be paid in full to the extent funds remaining after payment of the Class A Notes and Class B Notes are insufficient. In addition, under the Debt Securitization, after the Class A Notes and Class B Notes are paid in full, the holder of the Class C Notes will be the only remaining noteholder and may amend the applicable indenture to, among other things, direct the assignment of any remaining assets to other wholly-owned subsidiaries for a price less than the fair market value of such assets with the difference in price to be considered an equity contribution to such subsidiaries. Any failure of the 2015 Issuer to make distributions on the notes we indirectly or directly hold, whether as a result of an event of default, liquidation or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in an inability of us to make distributions sufficient to maintain our status as a RIC.

The 2015 Issuer may fail to meet certain asset coverage tests.

Under the documents governing the Debt Securitization, there are two asset coverage tests applicable to the 2015 Notes. The first such test compares the amount of interest received on the portfolio loans held by the 2015 Issuer to the amount of interest payable in respect of the Class A Notes, the Class B Notes and the Class C Notes, with respect to the 2015 Issuer. To meet this first test, interest received on the portfolio loans must equal at least 200.0% of the interest payable in respect of the Class A Notes and Class B Notes, taken together, and at least 175.00% of the interest payable in respect of the Class C Notes. The second such test compares the principal amount of the portfolio loans of the applicable debt securitization to the aggregate outstanding principal amount of the Class A Notes, the Class B Notes and the Class C Notes. To meet this second test at any time, the aggregate principal amount of the portfolio loans must equal at least 144.95% of the Class A Notes and the Class B Notes, taken together, and 131.63% of the Class C Notes. If any asset coverage test with respect to the Class A Notes, the Class B Notes or Class C Notes is not met, proceeds from the portfolio of loan investments that otherwise would have been distributed to the holders of the Class C Notes and the 2015 Issuer will instead be used to redeem first the Class A Notes and then the Class B Notes, to the extent necessary to satisfy the applicable asset coverage tests on a pro forma basis after giving effect to all payments made in respect of the notes, which we refer to as a mandatory redemption, or to obtain the necessary ratings confirmation.

The value of the Class B Notes or the Class C Notes could be adversely affected by a mandatory redemption because such redemption could result in the applicable notes being redeemed at par at a time when they are trading in the secondary market at a premium to their stated principal amount and when other investments bearing the same rate of interest may be difficult or expensive to acquire. A mandatory redemption could also result in a shorter investment duration than a holder of such notes may have wanted or anticipated, which could, in turn, result in such a holder incurring breakage costs on related hedging transactions. In addition, the reinvestment period under the Debt Securitization may extend through as late as May 28, 2019, which could affect the value of the collateral securing the Class C Notes.

We may not receive cash from the 2015 Issuer.

We receive cash from the 2015 Issuer only to the extent of payments on the Class C Notes and distributions, if any, with respect to the membership interests of the 2015 Issuer as permitted under the Debt Securitization. The 2015 Issuer may only make payments on such securities to the extent permitted by the payment priority provisions of the indenture governing the Debt Securitization, which generally provide that principal payments on the Class C Notes may not be made on any payment date unless all amounts owing under the Class A Notes and Class B Notes are paid in full. If the 2015 Issuer does not meet the asset coverage tests or the interest coverage test set forth in the documents governing the Debt Securitization, cash would be diverted from the Class C Notes to first pay the Class A Notes and Class B Notes in amounts sufficient to cause such tests to be satisfied. In the event that we fail to receive cash indirectly from the 2015 Issuer, we could be unable to make such distributions in amounts sufficient to maintain our status as a RIC, or at all.

We may be required to assume liabilities of the 2015 Issuer and are indirectly liable for certain representations and warranties in connection with the Debt Securitization.

The structure of the Debt Securitization is intended to prevent, in the event of our bankruptcy, the consolidation of the 2015 Issuer with our operations. If the true sale of the assets in the Debt Securitization was not respected in the event of our insolvency, a trustee or debtor-in-possession might reclaim the assets of the 2015 Issuer for our estate. However, in doing so, we would become directly liable for all of the indebtedness then outstanding under the Debt Securitization, which would equal the full amount of debt of the 2015 Issuer reflected on our consolidated balance sheet. In addition, we cannot assure you that the recovery in the event we were consolidated with the 2015 Issuer for purposes of any bankruptcy proceeding would exceed the amount to which we would otherwise be entitled as the holder of the Class C Notes had we not been consolidated with the 2015 Issuer.

In addition, in connection with the Debt Securitization, we gave the lenders certain customary representations with respect to the legal structure of the 2015 Issuer, and the quality of the assets transferred to each entity. We remain liable for any breach of such representations for the life of the Debt Securitization.

The 2015 Issuer may issue additional 2015 Notes.

Under the terms of the Debt Securitization documents, the 2015 Issuer could issue additional 2015 Notes in any class at any time during the reinvestment period on a pro rata basis for each class of notes (but not for each sub-class) and use the net proceeds of such issuance to purchase additional portfolio loans or for another permitted use as provided in the Debt Securitization documents. Any such additional issuance, however, would require the consent of the collateral manager to the Debt Securitization and the holders of a majority of the Subordinated Notes. Among the other conditions that must be satisfied in connection with an additional issuance of 2015 Notes, the aggregate principal amount of all additional issuances of any class of 2015 Notes may not exceed 100% of the outstanding principal amount of such class of 2015 Notes; the 2015 Issuer must notify each rating agency of such issuance prior to the issuance date and such rating agency, if it then rates any class of 2015 Notes, must confirm in writing that no immediate withdrawal or reduction with respect to its then-current rating of any such class of 2015 Notes will occur as a result of such issuance; and the terms of the 2015 Notes to be issued must be identical to the terms of previously issued 2015 Notes of the same class (except that all monies due on such additional 2015 Notes will accrue from the issue date of such notes and that the prices of such 2015 Notes do not have to be identical to those of the initial 2015 Notes). We do not expect to cause the 2015 Issuer to issue any additional 2015 Notes at this time. The total purchase price for any additional 2015 Notes that may be issued may not always equal 100% of the par value of such 2015 Notes, depending on several factors, including fees and closing expenses.

Restructurings of investments of our Debt Securitization may decrease their value and reduce amounts payable on the 2015 Notes.

We and FS Senior Funding Ltd. have entered into a collateral management agreement, an agreement entered into between a manager and a debt securitization vehicle or similar issuer, which sets forth the terms and conditions pursuant to which the manager provides advisory and/or management services with respect to the client’s securities portfolio. Under the collateral management agreement, we serve as collateral manager of the Debt Securitization. In addition, we retained our investments adviser to furnish collateral management sub-advisory services to us pursuant to a sub-collateral management agreement with our investment adviser. Our investment adviser is a registered investment adviser under the Advisers Act.

We have broad authority to direct and supervise the investment and reinvestment of the investments held by the Debt Securitization, which may include exercising or enforcing, or refraining from exercising or enforcing, any or all of the Debt Securitization’s rights in connection with the execution of amendments, waivers, modifications and other changes to the investment documentation in accordance with the collateral management agreement. During periods of economic uncertainty and recession, the incidence of amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers, modifications and other restructurings will change the terms of the investments and in some cases may result in the Debt Securitization holding assets not meeting its criteria for investments. This could adversely impact the coverage tests under the indenture governing the 2015 Notes. Any amendment, waiver, modification or other restructuring that reduces the Debt Securitization’s compliance with certain financial tests will make it more likely that the Debt Securitization will need to utilize cash to pay down the unpaid principal amount of the 2015 Notes to cure any breach in such test instead of making payments on the 2015 Notes. Any such use of cash would reduce distributions available and delay the timing of payments to us.

We cannot assure you that any particular restructuring strategy pursued by us or any successor collateral manager will maximize the value of or recovery on any investment. Any restructuring can fundamentally alter the nature of the related investment, and restructurings are not subject to the same underwriting standards that are employed in connection with the origination or acquisition of investments. Any restructuring could alter, reduce or delay the payment of interest or principal on

any investment, which could delay the timing and reduce the amount of payments made to us. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments made to us.

The Debt Securitization depends on the managerial expertise available to the collateral manager and its key personnel.

The Debt Securitization’s activities are directed by us (or any successor collateral manager). We have retained the investment adviser to furnish collateral management sub-advisory services. In our capacity as holder of the 2015 Notes, we are generally not able to make decisions with respect to the management, disposition or other realization of any investment, or other decisions regarding the business and affairs of the Debt Securitization. Consequently, the success of the Debt Securitization will depend, in large part, on the financial and managerial expertise of the investment adviser’s investment professionals. There can be no assurance that such investment professionals will continue to serve in their current positions or continue to be authorized persons of the investment adviser. Although such investment professionals will devote such time as they determine in their discretion is reasonably necessary to fulfill the collateral manager’s obligations to the Debt Securitization effectively, they will not devote all of their professional time to the affairs of the Debt Securitization.

Our ability to transfer the 2015 Notes is limited.

The notes issued pursuant to the Debt Securitization are illiquid investments and subject to extensive transfer restrictions, and no party is under any obligation to make a market for the notes. There is no market for the notes, and we may not be able to sell or otherwise transfer the 2015 Notes at their fair value, or at all, in the event that we determine to sell them. During economic downturns, notes issued in securitization transactions may experience high volatility and significant fluctuations in market value. Additionally, some potential buyers of such notes now view securitization products as an inappropriate investment, thereby reducing the number of potential buyers and/or potentially affecting liquidity in the secondary market.

Risks Relating to Our Securities

Shares of some closed-end investment companies, including BDCs, have traded at a discount to their NAV.

Shares of some closed-end investment companies, including BDCs, have traded at a discount to their NAV. This characteristic of closed-end investment companies and BDCs is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our common stock will trade at, above or below NAV. We cannot predict the prices at which our common stock will trade. We cannot assure you that the market price of shares of our common stock will not decline at any time. In addition, our common stock has at times traded below its net asset value since our inception and if our common stock continues to trade below its net asset value, we will generally not be able to sell additional shares of our common stock to the public at its market price without first obtaining the approval of our stockholders (including our unaffiliated stockholders) and our independent directors for such issuance.

Investing in our common stock may involve an above average degree of risk.

The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk, and therefore, an investment in our shares may not be suitable for someone with lower risk tolerance.

The market price of our common stock may fluctuate significantly.

The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:


•	significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies;


•	inability to obtain any exemptive relief that may be required by us from the SEC, if any;


•	changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs and BDCs;


•	loss of our BDC or RIC status;


•	changes in earnings or variations in operating results;


•	changes in the value of our portfolio of investments;


•	any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;


•	departure of our investment adviser’s key personnel; and


•	general economic trends and other external factors.

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues for a sustained period of time, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

Certain provisions of our amended and restated certificate of incorporation and bylaws as well as the Delaware General Corporation Law could deter takeover attempts and have an adverse impact on the price of our common stock.

Our amended and restated certificate of incorporation and our bylaws as well as the Delaware General Corporation Law contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price for our common stock.

If we issue debt securities, the net asset value and market value of our common stock may become more volatile.

We cannot assure you that the issuance of debt securities would result in a higher yield or rate of return to the holders of our common stock. The issuance of debt securities would likely cause the net asset value and market value of our common stock to become more volatile. If the interest rate on the debt securities were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced. If the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of leverage would result in a lower rate of return to the holders of common stock than if we had not issued the debt securities. Any decline in the net asset value of our investment would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of our common stock than if we were not leveraged through the issuance of debt securities. This decline in net asset value would also tend to cause a greater decline in the market price for our common stock.

There is also a risk that, in the event of a sharp decline in the value of our net assets, we would be in danger of failing to maintain required asset coverage ratios which may be required by the debt securities or of a downgrade in the ratings of the debt securities or our current investment income might not be sufficient to meet the distribution requirements on the interest payments on the debt securities. In order to counteract such an event, we might need to liquidate investments in order to fund redemption of some or all of the debt securities. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the debt securities. Holders of debt securities may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.

The trading market or market value of our debt securities or any convertible debt securities, if issued to the public, may be volatile.

Our debt securities or any convertible debt securities, if issued to the public, may or may not have an established trading market. We cannot assure investors that a trading market for our debt securities or any convertible debt securities, if issued to the public, would develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely affect the trading market for, and market value of, our publicly issued debt securities or any convertible debt securities, if issued to the public. These factors would likely include, but are not limited to, the following:

•the time remaining to the maturity of these debt securities;

•the outstanding principal amount of debt securities with terms identical to these debt securities;

•the general economic environment;

•the supply of debt securities trading in the secondary market, if any;

•the redemption, repayment or convertible features, if any, of these debt securities;

•the level, direction and volatility of market interest rates generally; and

•market rates of interest higher or lower than rates borne by the debt securities.

There also may be a limited number of buyers for our debt securities, if issued to the public. This too may materially adversely affect the market value of such debt securities or the trading market for such debt securities. Our debt securities may include convertible features that cause them to more closely bear risks associated with an investment in our common stock.

Terms relating to redemption may materially adversely affect the return on any debt securities.

If we issue any debt securities or any convertible debt securities that are redeemable at our option, we may choose to redeem the debt securities at times when prevailing interest rates are lower than the interest rate paid on the debt securities. In addition, if the debt securities are subject to mandatory redemption, we may be required to redeem the debt securities at times when prevailing interest rates are lower than the interest rate paid on the debt securities. In this circumstance, a holder of our debt securities may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the debt securities being redeemed.

The issuance of warrants or convertible debt that are exchangeable for our common stock, will cause your interest in us to be diluted as a result of any such warrants or convertible debt offering.

Stockholders who do not fully exercise warrants or convertible debt issued to them in any offering of warrants or convertible debt to purchase our common stock should expect that they will, at the completion of the offering, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their warrants or convertible debt. We cannot state precisely the amount of any such dilution in share ownership because we do not know what proportion of the common stock would be purchased as a result of any such offering.

In addition, if the warrant price or convertible debt price is less than our net asset value per share of common stock at the time of such offering, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offering. The amount of any such decrease in net asset value is not predictable because it is not known at this time what the warrant price, convertible debt price or net asset value per share will be on the expiration date of such offering or what proportion of our common stock will be purchased as a result of any such offering. However, our Board of Directors will make a good faith determination that any offering of warrants or convertible debt would result in a net benefit to existing stockholders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We do not own any real estate or other physical properties material to our operations. We utilize office space that is leased by our administrator from an affiliate controlled by the chief executive officer of our investment adviser and administrator, Mr. Tannenbaum. See “Material Conflicts of Interest.” Pursuant to an administration agreement with our administrator, we pay an allocable portion of the rent at market rates for our principal executive office at 777 West Putnam Avenue, 3rd Floor, Greenwich, CT 06830. We also utilize additional office space that is leased by our affiliates at 311 South Wacker Drive, Suite 3380, Chicago, IL 60606 and One Embarcadero Center, Suite 1560, San Francisco, CA 94111. We may from time to time, through our affiliates, lease satellite office space elsewhere, but these leases are generally not material to our operations.

Item 3. Legal Proceedings

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock is traded on the NASDAQ Global Select Market under the symbol “FSFR.” The following table sets forth, for the last two most recently completed fiscal years, the range of high and low closing sales prices of our common stock as reported on the NASDAQ Global Select Market:



	High		Low
Fiscal year ended September 30, 2015
First quarter	$	11.75	$	9.77
Second quarter	$	11.02	$	10.21
Third quarter	$	10.94	$	9.22
Fourth quarter	$	9.40	$	8.51
Fiscal year ended September 30, 2014
First quarter	$	13.91	$	13.09
Second quarter	$	15.10	$	13.20
Third quarter	$	14.83	$	13.75
Fourth quarter	$	14.33	$	11.27

The last reported price for our common stock on December 10, 2015 was $7.99 per share. As of December 10, 2015, we had four stockholders of record, which did not include stockholders for whom shares are held in nominee or “street” name.

Sales of Unregistered Securities

We did not engage in any sales of unregistered securities during the fiscal year ended September 30, 2015.

Distributions

Our distributions, if any, are determined by our Board of Directors.

In addition, we have elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As long as we continue to qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.

To maintain RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year in which such taxable income was generated. We may, in the future, make actual distributions to our stockholders of our net capital gains. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. See “Item 1. Business — Taxation as a Regulated Investment Company.”

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we make a cash distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the

amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these Treasury regulations or private letter rulings.

The following table reflects the distributions per share that our Board of Directors has declared on our common stock from inception to September 30, 2015:



Frequency	Date Declared	Record Date	Payment Date	Amount per Share	Total Distribution	DRIP Shares Issued (1)	DRIP Shares Value
Quarterly	October 8, 2013	October 21, 2013	October 31, 2013	$0.01	$66,668	—	—
Quarterly	October 8, 2013	December 16, 2013	January 31, 2014	0.20	1,333,354	606	$8,288
Quarterly	January 3, 2014	March 31, 2014	April 15, 2014	0.23	1,533,357	469	6,734
Quarterly	February 11, 2014	June 30, 2014	July 15, 2014	0.27	1,800,027	1,279	17,924
Quarterly	May 12, 2014	September 15, 2014	October 15, 2014	0.30	8,840,030	17,127	191,093
Quarterly	September 9, 2014	December 15, 2014	January 15, 2015	0.30	8,840,030	23,183	242,678
Quarterly	November 20, 2014	April 2, 2015	April 15, 2015	0.30	8,840,030	28,296	307,794
Monthly	February 4, 2015	May 1, 2015	May 15, 2015	0.10	2,946,677	5,045	50,830
Monthly	February 4, 2015	June 1, 2015	June 15, 2015	0.10	2,946,677	5,296	53,237
Monthly	February 4, 2015	July 1, 2015	July 15, 2015	0.10	2,946,677	14,572	137,464
Monthly	February 4, 2015	August 3, 2015	August 17, 2015	0.10	2,946,677	6,174	56,388
Monthly	July 10, 2015	September 4, 2015	September 15, 2015	0.075	2,210,007	4,575	41,121
Monthly	July 10, 2015	October 6, 2015	October 15, 2015	0.075	2,210,008	12,080	108,563
Monthly	July 10, 2015	November 5, 2015	November 16, 2015	0.075	2,210,008	13,269	116,730

_______________________

(1) Shares were purchased on the open market and distributed.

Stock Performance Graph

The following graph compares the cumulative total return provided to our shareholders relative to the cumulative total returns of the NYSE Composite index, the NASDAQ Financial index and a customized peer group of our two direct competitors, Solar Senior Capital Ltd. and PennantPark Floating Rate Capital Ltd. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock on July 12, 2013, the date our common stock was listed, and in each index at June 30, 2013, and its relative performance is tracked through September 30, 2015.



	7/13	9/13	12/13	3/14	6/14	9/14	12/14	3/15	6/15	9/15

Fifth Street Senior Floating Rate Corp.	100.00	95.69	94.97	104.77	104.16	89.93	80.08	85.65	76.53	73.89
NYSE Composite	100.00	105.64	114.82	116.93	122.75	120.34	122.57	123.97	123.72	112.91
NASDAQ Financial	100.00	104.51	116.84	117.58	116.80	114.16	123.17	125.35	131.71	123.65
Peer Group	100.00	96.46	98.55	97.72	100.79	96.61	97.25	103.96	104.49	94.94

Selected unaudited quarterly financial data for Fifth Street Senior Floating Rate Corp. for the years ended September 30, 2015, September 30, 2014 and for the period from June 29, 2013 through September 30, 2013 is below:



	For the three months ended
(dollars in thousands, except per share amounts)	September 30, 2015			June 30, 2015 (revised)			March 31, 2015 (revised)		December 31, 2014 (revised)			September 30, 2014 (revised)		June 30, 2014 (revised)		March 31, 2014 (revised)		December 31, 2013 (revised)		September 30, 2013 (revised)
Total investment income	$	14,068		$	14,140		$	11,341	$	11,923		$	4,918	$	3,043	$	2,910	$	1,646	$	456
Net investment income	7,402			7,086			6,294		7,496			2,297		1,263		1,438		765		16
Net realized and unrealized gain (loss)	(7,115		)	(4,632		)	393		(1,012		)	2,070		733		409		389		688
Net increase in net assets resulting from operations	287			2,454			6,687		6,484			4,367		1,996		1,847		1,154		704
Net assets	356,807			361,782			368,168		370,322			372,678		100,969		100,773		100,459		100,705
Total investment income per common share	$	0.48		$	0.48		$	0.38	$	0.40		$	0.29	$	0.46	$	0.44	$	0.25	$	0.09
Net investment income per common share	0.25			0.24			0.21		0.25			0.13		0.19		0.22		0.11		0.00
Earnings per common share	0.01			0.08			0.23		0.22			0.26		0.30		0.28		0.17		0.13
Net asset value per common share at period end	12.11			12.28			12.49		12.57			12.65		15.15		15.12		15.07		15.11

Refer to Note 2 and Note 14 of the Consolidated Financial Statements for additional information and a reconciliation of quarterly financial statements previously filed to revised amounts.

Item 6. Selected Financial Data

The following selected financial data should be read together with our consolidated financial statements and the related notes and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which is included elsewhere in this annual report on Form 10-K. The financial information as of and for the fiscal year ended September 30, 2015, September 30, 2014 and as of September 30, 2013 and for the period from June 29, 2013 through September 30, 2013 set forth below was derived from the audited financial statements and related notes for Fifth Street Senior Floating Rate Corp.



	At and for the Year Ended September 30, 2015			At and for the Year Ended September 30, 2014 (revised)			At and for the period from June 29, 2013 (commencement of operations) through September 30, 2013 (revised)
Statement of Operations data:
Total investment income	$	51,472,531		$	12,516,674		$	456,417
Base management fee, net	5,931,155			1,602,617			61,379
Part I incentive fee	5,689,371			708,235			—
Part II incentive fee	(766,552		)	774,841			137,609
All other expenses	12,340,527			3,667,100			241,723
Net investment income	28,278,030			5,763,881			15,706
Net realized and unrealized gain (loss) on investments	(12,365,948		)	3,600,076			688,043
Net increase in net assets resulting from operations	15,912,082			9,363,957			703,749
Per share data:
Net asset value per common share at period end	$	12.11		$	12.65		$	15.11
Market price at period end	8.73			11.82			13.54
Net investment income (2)	0.96			0.62			—
Net realized and unrealized gain (loss) on investments (2)	(0.42		)	0.39			0.13
Net increase in net assets resulting from operations (2)	0.54			1.01			0.13
Distributions per common share	1.07			1.01			—
Balance Sheet data at period end:
Total investments at fair value	$	623,647,474		$	300,001,397		$	48,653,617
Cash, cash equivalents and restricted cash	52,692,097			109,557,165			52,346,831
Other assets	21,370,913			2,946,782			449,596
Total assets	697,710,484			412,505,344			101,450,044
Total liabilities	340,903,381			39,827,666			744,775
Total net assets	356,807,103			372,677,678			100,705,269
Other data:
Weighted average yield on debt investments(1)	8.22		%	7.27		%	6.81		%
Number of investments at period end	64			48			8


(1)	Weighted average yield is calculated based upon our debt investments at the end of the period.


(2)	Calculated based on weighted average shares outstanding for the period.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in connection with our consolidated financial statements and the notes thereto included elsewhere in this annual report on Form 10-K. The 2013 "previous year comparative period" presented for these financial statements is for the period from June 29, 2013 through September 30, 2013, as we commenced operations on June 29, 2013.

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


•	our future operating results and dividend projections;


•	our business prospects and the prospects of our portfolio companies;


•	the impact of the investments that we expect to make;


•	the ability of our portfolio companies to achieve their objectives;


•	our expected financings and investments;


•	the adequacy of our cash resources and working capital; and


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

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


•	changes in the economy and the financial markets;


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


•	future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or RICs; and


•	other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

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

Except as otherwise specified, references to the "Company," "we," "us," and "our," refer to Fifth Street Senior Floating Rate Corp.

All amounts are in dollars, except share amounts, percentages and as otherwise indicated.

Overview

We were formed in May 2013 as a Delaware corporation and commenced operations in June 2013. We are structured as an externally managed, closed-end, non-diversified management investment company. Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments while seeking to preserve our capital. We have elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes we have elected to be treated, and intend to continue to qualify annually, as a RIC under Subchapter M of the Code. Also, we are an "emerging growth company," as defined in the JOBS Act, and intend to take advantage of the exemption for emerging growth companies allowing us to temporarily forego the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We do not intend to take advantage of other disclosure or reporting exemptions for emerging growth companies under the JOBS Act.

On July 17, 2013, we completed an initial public offering of 6,666,668 shares of our common stock at the public offering price of $15.00 per share. The proceeds of our initial public offering totaled $100.0 million and all offering costs were borne by

our investment adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses.

On August 19, 2014, we completed a follow-on public offering of 22,800,000 shares of our common stock at the public offering price of $12.91 per share. The net proceeds totaled $276.2 million after deducting underwriting commissions of $17.7 million and offering costs of $0.5 million. Our common stock is listed on the NASDAQ Global Select Market, where it trades under the symbol "FSFR."

Critical Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") requires management to make certain estimates and assumptions affecting amounts reported in the consolidated financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.

Investment Valuation

We are required to report our investments that are not publicly traded or for which current market values are not readily available at fair value. The fair value is deemed to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In accordance with authoritative accounting guidance, we perform detailed valuations of our debt and equity investments on an individual basis, using bond yield, market and income approaches as appropriate. In general, we utilize a bond yield method for the majority of our investments where there is no readily available market quotation, as long as it is appropriate. If, in our judgment, the bond yield approach is not appropriate, we may use the market approach, income approach, or, in certain cases, an alternative methodology potentially including market quotations, an asset liquidation model, expected recovery model or other alternative approaches.

We evaluate the prices obtained from independent pricing services based on available market information and company specific data that could affect the credit quality and/or fair value of the investment. Investments for which market quotations are readily available may be valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. We do not adjust any of the prices received from these sources unless we have a reason to believe any such market quotations are not reflective of the fair value of an investment.

Under the market approach, we estimate the enterprise value of the portfolio companies in which we invest. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values from which we derive a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, we analyze various factors, including the portfolio company's historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA (earnings before interest, taxes, depreciation and amortization), cash flows, net income or revenues. We generally require portfolio companies to provide annual audited and quarterly or monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

Under the income approach, we generally prepare and analyze discounted cash flow models based on our projections of the future free cash flows of the business.

Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:


•	The quarterly valuation process begins with each portfolio company or investment being initially valued either by our capital markets group for quoted investments or our finance department for unquoted investments;

•Preliminary valuations are then reviewed and discussed with principals of the Investment Adviser;


•	Separately, independent valuation firms engaged by our Board of Directors prepare preliminary valuations of our investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to us;


•	Our finance department compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;


•	Our finance department prepares a valuation report for the Audit Committee of our Board of Directors;


•	The Audit Committee of our Board of Directors is apprised of the preliminary valuations of the independent valuation firms;


•	The Audit Committee of our Board of Directors reviews the preliminary valuations with the portfolio managers of the Investment Adviser, and our finance department responds and supplements the preliminary valuations to reflect any comments provided by the Audit Committee;


•	The Audit Committee of our Board of Directors makes a recommendation to our Board of Directors regarding the fair value of the investments in our portfolio; and


•	Our Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

The fair value of all of our investments at September 30, 2015 and September 30, 2014, was determined in good faith by our Board of Directors. In addition, we have independent valuation firms provide us with valuation assistance on a portion of our portfolio on a quarterly basis and a substantial portion of our portfolio over the course of each fiscal year. We will continue to utilize independent valuation firms to provide us with assistance regarding our determination of the fair value of selected portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter; however, our Board of Directors is ultimately and solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process.

In certain cases, an independent valuation firm may perform a portfolio company valuation which is reviewed and, where appropriate, relied upon by our Board of Directors in determining the fair value of such investment.

The percentages of our portfolio, at fair value, valued by independent valuation firms each period during the current and preceding fiscal years were as follows:



For the quarter ended December 31, 2013	34.1	%
For the quarter ended March 31, 2014	30.5	%
For the quarter ended June 30, 2014	56.6	%
For the quarter ended September 30, 2014	44.3	%
For the quarter ended December 31, 2014	54.1	%
For the quarter ended March 31, 2015 (1)	32.1	%
For the quarter ended June 30, 2015	23.8	%
For the quarter ended September 30, 2015 (2)	76.5	%

__________

(1) The decrease from prior quarters is primarily related to the increased use of market quotations to value certain of our portfolio investments.

(2) The increase from the prior quarter is primarily due to additional year-end procedures related to portfolio investments that were valued using market quotations based on only one source.

As of September 30, 2015 and September 30, 2014, approximately 89.4% and 72.7%, respectively, of our total assets represented investments in portfolio companies valued at fair value.

Revenue Recognition

Interest and Dividend Income

Interest income, adjusted for accretion of original issue discount, or OID, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that collection is doubtful. Distributions of income from portfolio companies are generally recorded as dividend income on the ex-dividend date.

Fee Income

We receive a variety of fees in the ordinary course of business including servicing, advisory, structuring and prepayment fees which are classified as fee income and recognized as they are earned.

Payment-in-Kind (PIK) Interest

Although none of our investments bore PIK interest as of September 30, 2015, a portion of our loans may contain contractual PIK interest provisions in the future. The PIK interest, which represents contractually deferred interest, will be added to the loan balance that is generally due at the end of the loan term, and would generally be recorded on the accrual basis to the extent such amounts are expected to be collected. We would generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest would involve subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; monthly and quarterly financial statements and financial projections for the portfolio company; our assessment of the portfolio company's business development success, including product development, profitability and the portfolio company's overall adherence to its business plan; information obtained by us in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, we would determine whether to cease accruing PIK interest on a loan or debt security. Our determination to cease accruing PIK interest on a loan or debt security would generally be made well before our full write-down of such loan or debt security. There were no investments on which we earned PIK interest for the years ended September 30, 2015 and September 30, 2014 or for the period from June 29, 2013 through September 30, 2013.

For a discussion of risks we are subject to if we were to acquire loans that bear PIK interest, see "Risk Factors — Risks Relating to Our Business and Structure — We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income," "— We may in the future choose to pay distributions in our own stock, in which case you may be required to pay tax in excess of the cash you receive" and "— Our incentive fee may induce our investment adviser to make speculative investments." In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of our loans or debt securities would decline by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments would increase the

recorded cost basis of these investments in our financial statements and, as a result, would increase the cost basis of these investments for purposes of computing the Part II incentive fee payable by us to our Investment Adviser.

To maintain our status as a RIC, PIK income must be paid out to our stockholders in the form of distributions even though we have not yet collected the cash and may never collect the cash relating to the PIK interest. We did not have any accumulated PIK interest as of September 30, 2015 and September 30, 2014.

Portfolio Composition

Our investments principally consist of senior secured loans in privately-held companies. Our loans are typically secured by a first or second lien on the assets of the portfolio company and generally have terms of up to seven years (but an expected average life of between three and four years). We are currently focusing our origination efforts on a prudent mix of first lien and second lien loans which we believe will provide superior risk-adjusted returns while maintaining adequate credit protection. The mix may change over time based on market conditions and management's view of where the best risk-adjusted returns are available.

A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments is shown in the following tables:



	September 30, 2015		September 30, 2014
Cost:
Senior secured debt	90.61	%	99.83	%
Subordinated notes of FSFR Glick JV	8.38		—
LLC equity interests of FSFR Glick JV	0.93		—
Purchased equity	0.08		0.17
Total	100.00	%	100.00	%



	September 30, 2015		September 30, 2014
Fair value:
Senior secured debt	90.68	%	99.78	%
Subordinated notes of FSFR Glick JV	8.43		—
LLC equity interests of FSFR Glick JV	0.73		—
Purchased equity	0.13		0.17
Equity grants	0.03		0.05
Total	100.00	%	100.00	%

The industry composition of our portfolio at cost and fair value, respectively, as a percentage of total investments was as follows:



	September 30, 2015		September 30, 2014
Cost:
Internet software & services	22.79	%	9.01	%
Healthcare services	14.13		12.79
Multi-sector holdings	9.31		—
Advertising	6.86		3.58
Integrated telecommunication services	6.01		6.09
Diversified support services	4.67		1.15
Specialized consumer services	4.53		1.07
Education services	3.43		3.14
Application software	3.37		24.58
Security & alarm services	2.80		—
Electronic equipment & instruments	2.17		—
Data processing & outsourced services	2.14		2.01
IT consulting & other services	1.89		—
Personal products	1.70		1.65
Food retail	1.63		—
Environmental & facilities services	1.58		—
Pharmaceuticals	1.55		3.34
Research & consulting services	1.47		1.65
Food distributors	1.41		—
Diversified capital markets	1.38		1.83
Construction & engineering	0.94		2.01
Wireless telecommunication services	0.91		0.99
Healthcare technology	0.78		2.66
Oil & gas equipment & services	0.70		1.59
Computer hardware	0.65		1.53
Industrial machinery	0.63		—
Fertilizers & agricultural chemicals	0.57		1.31
Casinos & gaming	—		4.43
Hotels, resorts & cruise lines	—		3.24
Healthcare equipment	—		2.92
Alternative carriers	—		1.66
Electrical components & equipment	—		1.66
Electronic components	—		1.54
Movies & entertainment	—		1.50
Specialty chemicals	—		1.07
	100.00	%	100.00	%



Fair value:	September 30, 2015		September 30, 2014
Internet software & services	22.34	%	9.03	%
Healthcare services	13.79		12.73
Multi-sector holdings	9.16		—
Advertising	6.99		3.61
Integrated telecommunication services	6.14		6.13
Diversified support services	4.73		1.15
Specialized consumer services	4.62		1.06
Application software	3.51		24.59
Education services	3.43		3.13
Security & alarm services	2.85		—
Electronic equipment & instruments	2.20		—
Data processing & outsourced services	2.19		2.00
IT consulting & other services	1.94		—
Personal products	1.73		1.63
Food retail	1.67		—
Environmental & facilities services	1.60		—
Pharmaceuticals	1.57		3.30
Research & consulting services	1.49		1.65
Food distributors	1.44		—
Diversified capital markets	1.42		1.80
Construction & engineering	0.95		2.03
Wireless telecommunication services	0.87		0.99
Healthcare technology	0.78		2.67
Oil & gas equipment & services	0.70		1.57
Computer hardware	0.66		1.54
Industrial machinery	0.62		—
Fertilizers & agricultural chemicals	0.61		1.35
Casinos & gaming	—		4.43
Hotels, resorts & cruise lines	—		3.20
Healthcare equipment	—		2.97
Alternative carriers	—		1.66
Electrical components & equipment	—		1.62
Movies & entertainment	—		1.55
Electronic components	—		1.54
Specialty chemicals	—		1.07
	100.00	%	100.00	%

Portfolio Asset Quality

We employ a ranking system to assess and monitor the credit risk of our investment portfolio. We rank all investments on a scale from 1 to 4. The system is intended to reflect the performance of the borrower's business, the collateral coverage of the loan, and other factors considered relevant to making a credit judgment. We have determined that there should be an individual ranking assigned to each tranche of securities in the same portfolio company where appropriate. This may arise when the perceived risk of loss on the investment varies significantly between tranches due to their respective seniority in the capital structure.


•	Investment Ranking 1 is used for investments that are performing above expectations and/or capital gains are expected.


•	Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risks at the time of the original or restructured investment. All new investments are initially ranked 2.

•

Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original or restructured investment. The portfolio company may be out of compliance with debt covenants and may require closer monitoring. To the extent that the underlying agreement has a PIK interest provision, investments with a ranking of 3 are generally those on which we are not accruing PIK interest.


•	Investment Ranking 4 is used for investments that are performing substantially below our expectations and for which risk has increased substantially since the original or restructured investment. Investments with a ranking of 4 are those for which some loss of principal is expected and are generally those on which we are not accruing cash interest.

The following table shows the distribution of our investments on the 1 to 4 investment ranking scale at fair value as of September 30, 2015 and September 30, 2014:



Investment Ranking	September 30, 2015					September 30, 2014
Investment Ranking	Fair Value		% of Portfolio		Leverage Ratio	Fair Value		% of Portfolio		Leverage Ratio
1	—		—		—	—		—		—
2	$	596,955,786	95.72	%	4.71	$	300,001,397	100.00	%	4.48
3	26,691,688		4.28		5.87	—		—		—
4	—		—		—	—		—		—
Total	$	623,647,474	100.00	%	4.76	$	300,001,397	100.00	%	4.48

We may from time to time modify the payment terms of our investments, either in response to current economic conditions and their impact on certain of our portfolio companies or in accordance with tier pricing provisions in certain loan agreements. Such modified terms may include increased PIK interest provisions and reduced cash interest rates. Any future modifications to our loan agreements, may limit the amount of interest income that we recognize from the modified investments, which may, in turn, limit our ability to make distributions to our stockholders. As of September 30, 2015, we had modified the payment terms of our investments in two portfolio companies. As of September 30, 2014, we had modified the payment terms of our investment in one portfolio company.

Loans and Debt Securities on Non-Accrual Status

As of September 30, 2015 there was one investment on which we stopped accruing OID income. While this investment was current with its cash interest payments, we reversed $13,816 of noncash income related to this investment for the quarter. As of September 30, 2014 and September 30, 2013, there were no investments on which we had stopped accruing cash interest or OID income. For the year ended September 30, 2014 and the period from June 29, 2013 through September 30, 2013, there were no income non-accrual amounts.

The percentages of our debt investments at cost and fair value by accrual status for the year ended September 30, 2015 were as follows:



	September 30, 2015
	Cost		% of Debt Portfolio		Fair Value		% of Debt Portfolio
Accrual	$	625,911,700	98.80	%	$	619,219,635	99.29	%
Noncash non-accrual	7,605,257		1.20		4,427,839		0.71
Total	$	633,516,957	100.00	%	$	623,647,474	100.00	%

The non-accrual status of our portfolio investments as of September 30, 2015 was as follows:



		September 30, 2015
Answers Corporation - second lien term loan		Noncash non-accrual

Income non-accrual amount for the year ended September 30, 2015 is presented in the following table.



	Year ended September 30, 2015
OID income	13,816
Total	$	13,816

FSFR Glick JV LLC

In October 2014, we entered into an LLC agreement with GF Equity Funding 2014 LLC ("GF Equity Funding") to form FSFR Glick JV LLC ("FSFR Glick JV"). On April 21, 2015, FSFR Glick JV began investing in senior secured loans of middle market companies. We co-invest in these securities with GF Equity Funding through our investment in FSFR Glick JV. FSFR Glick JV is managed by a four person Board of Directors, two of whom are selected by us and two of whom are selected by GF Equity Funding. FSFR Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of the FSFR Glick JV must be approved by an investment committee of FSFR Glick JV consisting of one representative of us and one representative of GF Equity Funding (with approval of each required). The members provide capital to the FSFR Glick JV in exchange for LLC equity interests, and we and GF Debt Funding 2014 LLC ("GF Debt Funding"), an entity advised by affiliates of GF Equity Funding, provide capital to the FSFR Glick JV in exchange for subordinated notes (the "Subordinated Notes"). As of September 30, 2015, we and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC interests and we and GF Debt Funding owned 87.5% and 12.5% respectively, of the Subordinated Notes. FSFR Glick JV is not an "eligible portfolio company" as defined in section 2(a)(46) of the 1940 Act.

We have determined that FSFR Glick JV is an investment company under ASC 946; however, in accordance with such guidance, we will generally not consolidate our investment in a company other than a wholly-owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our noncontrolling interest in FSFR Glick JV.

As of September 30, 2015, FSFR Glick JV had total assets of $190.4 million. Our investment in FSFR Glick JV consisted of LLC equity interests of $4.6 million and Subordinated Notes of $52.6 million, at fair value as of September 30, 2015. The Subordinated Notes are junior in right of payment to the repayment of temporary contributions made by us to fund investments of FSFR Glick JV. FSFR Glick JV's portfolio consisted of middle market and other corporate debt securities of 29 "eligible portfolio companies" (as defined in the Section 2(a)(46) of the 1940 Act) as of September 30, 2015. As of September 30, 2015, the largest investment in a single company in FSFR Glick JV's portfolio at fair value was $14.9 million, and the five largest investments in portfolio companies in FSFR Glick JV totaled $58.2 million at fair value. The portfolio companies in FSFR Glick JV are in industries similar to those in which we may invest directly.

As of September 30, 2015, FSFR Glick JV had total capital commitments of $100.0 million, $87.5 million of which was from us and the remaining $12.5 million from GF Equity Funding and GF Debt Funding. Approximately $67.4 million was funded as of September 30, 2015, relating to these commitments, of which $59.0 million was from us. As of September 30, 2015, we had commitments to fund Subordinated Notes to FSFR Glick JV of $78.8 million, of which $25.7 million was unfunded. As of September 30, 2015, we had commitments to fund LLC equity interests in FSFR Glick JV of $8.7 million, of which $2.9 million was unfunded.

Additionally, FSFR Glick JV has a senior revolving credit facility with Credit Suisse AG, Cayman Island Branch ("Credit Suisse facility") with a stated maturity date of April 17, 2023, which permitted up to $200.0 million of borrowings as of September 30, 2015. Borrowings under the Credit Suisse facility were secured by all of the assets of FSFR Glick JV and all of the equity interests in FSFR Glick JV and bore interest at a rate equal to the 3-month LIBOR plus 2.5% per annum with no LIBOR floor as of September 30, 2015. Under the Credit Suisse facility, $122.4 million in borrowings were outstanding as of September 30, 2015.

Below is a summary of FSFR Glick JV's portfolio, followed by a listing of the individual loans in FSFR Glick JV's portfolio as of September 30, 2015:



		September 30, 2015
Senior secured loans (1)		$182,823,774
Weighted average current interest rate on senior secured loans (2)		6.93%
Number of borrowers in FSFR Glick JV		29
Largest loan to a single borrower (1)		$14,853,895
Total of five largest loans to borrowers (1)		$58,192,159

__________

(1) At fair value

(2) Computed using the annual interest rate on accruing senior secured loans

FSFR Glick JV Loan Portfolio as of September 30, 2015

Portfolio Company (4)

Business Description

Investment Type

Maturity Date

Stated Interest Rate (1)

Principal

Fair Value (2)

Accruent, LLC (3)

Internet software & services

First Lien Term Loan

11/25/2019

LIBOR +6.25% (1% floor) cash

14,777,933

14,853,895

Ameritox Ltd. (3)

Healthcare services

First Lien Term Loan

6/23/2019

LIBOR+7.5% (1% floor) cash

7,794,458

7,048,923

Answers Corporation (3)

Internet software & services

First Lien Term Loan

10/1/2021

LIBOR+5.25% (1% floor) cash

7,959,900

5,857,173

Beyond Trust Software, Inc. (3)

Application software

First Lien Term Loan

9/25/2019

LIBOR+7% (1% floor) cash

13,665,783

13,549,671

Compuware Corporation (3)

Internet software & services

First Lien Term Loan B1

12/15/2019

LIBOR+5.25% (1% floor) cash

7,797,468

7,551,848

Idera, Inc. (3)

Internet software & services

First Lien Term Loan

11/5/2020

LIBOR+5.5% (0.5% floor) cash

3,160,000

Metamorph US 3, LLC (3)

Internet software & services

First Lien Term Loan

12/1/2020

LIBOR+5.5% (1% floor) cash

8,398,019

8,310,898

Motion Recruitment Partners LLC (3)

Diversified support services

First Lien Term Loan

2/13/2020

LIBOR+6% (1% floor) cash

9,562,500

9,459,652

NAVEX Global, Inc. (3)

Internet software & services

First Lien Term Loan

11/19/2021

LIBOR+4.75% (1% floor) cash

2,435,442

2,423,265

Teaching Strategies, LLC (3)

Education services

First Lien Term Loan

10/1/2019

LIBOR+5.5% (0.5% floor) cash

2,695,442

2,673,135

Teaching Strategies, LLC

Education services

First Lien Delayed Draw Term Loan

10/1/2019

LIBOR+5.5% (0.5% floor) cash

7,020,000

6,961,725

TrialCard Incorporated (3)

Healthcare services

First Lien Term Loan

12/31/2019

LIBOR+5% (1% floor) cash

7,332,387

7,232,017

Air Newco LLC

IT consulting & other services

First Lien Term Loan B

3/20/2022

LIBOR+5.5% (1% floor) cash

5,970,000

5,977,463

Fineline Technologies, Inc. (3)

Electronic equipment & instruments

First Lien Term Loan

5/5/2017

LIBOR+5.5% (1% floor) cash

8,820,000

8,818,256

LegalZoom.com, Inc. (3)

Specialized consumer services

First Lien Term Loan

5/13/2020

LIBOR+7% (1% floor) cash

9,950,000

9,882,838

GK Holdings, Inc.

IT consulting & other services

First Lien Term Loan

1/20/2021

LIBOR+5.5% (1% floor) cash

3,473,750

3,460,723

Vitera Healthcare Solutions, LLC

Healthcare technology

Second Lien Term Loan

11/4/2021

LIBOR+8.25% (1% floor) cash

3,000,000

2,925,000

TIBCO Software, Inc. (3)

Internet software & services

First Lien Term Loan

12/4/2020

LIBOR+5.5% (1% floor) cash

2,328,300

2,310,838

CM Delaware LLC

Advertising

First Lien Term Loan

3/18/2021

LIBOR+5.25% (1% floor) cash

2,152,041

2,143,971

New Trident Holdcorp, Inc. (3)

Healthcare services

First Lien Term Loan B

7/31/2019

LIBOR+5.25% (1.25% floor) cash

2,064,508

2,000,003

Central Security Group, Inc. (3)

Specialized consumer services

First Lien Term Loan

10/6/2020

LIBOR+5.25% (1% floor) cash

5,969,925

5,910,225

Language Line, LLC (3)

Integrated telecommunication services

First Lien Term Loan

7/7/2021

LIBOR+5.5% (1% floor) cash

10,000,000

10,020,850

All Web Leads, Inc. (3)

Advertising

First Lien Term Loan

6/30/2020

LIBOR+6.5% (1% floor) cash

9,937,500

9,884,905

Auction.com, LLC

Internet software & services

First Lien Term Loan

5/12/2019

LIBOR+5.0% (1% floor) cash

3,980,000

3,970,050

Aptos, Inc. (3)

Data processing & outsourced services

First Lien Term Loan B

6/23/2022

LIBOR+5.25% (0.75% floor) cash

7,980,000

7,960,050

Vubiquity, Inc.

Application software

First Lien Term Loan

8/12/2021

LIBOR+5.5% (1% floor) cash

4,200,000

4,179,000

Too Faced Cosmetics, LLC (3)

Personal products

First Lien Term Loan B

7/7/2021

LIBOR+5.0% (1% floor) cash

3,000,000

American Seafoods Group LLC (3)

Food distributors

First Lien Term Loan

8/19/2021

LIBOR+5.0% (1% floor) cash

4,000,000

3,980,000

Worley Claims Services, LLC (3)

Internet software & services

First Lien Term Loan

10/31/2020

LIBOR+8.0% (1% floor) cash

4,339,095

4,317,400

Poseidon Merger Sub, Inc. (3)

Advertising

Second Lien Term Loan

8/15/2023

LIBOR+8.5% (1% floor) cash

3,000,000

Total Portfolio Investments

186,764,451

182,823,774

__________

(1) Represents the current interest rate as of September 30, 2015. All interest rates are payable in cash, unless otherwise noted.

(2) Represents the fair value determined utilizing a similar process as us in accordance with ASC 820. However, the determination of such fair value is not included in the valuation process of the Board of Directors described elsewhere herein.

(3) This investment is held by both us and FSFR Glick JV at September 30, 2015.

(4) The principal balance outstanding for all floating rate loans is indexed to LIBOR and an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR based on each respective credit agreement.

The amortized cost and fair value of the Subordinated Notes held by us was $53.1 million and $52.6 million, respectively, as of September 30, 2015. The Subordinated Notes pay a weighted average interest rate of LIBOR plus 8.0% per annum and also entitle the holders thereof to receive a portion of the excess cash flow from the investment portfolio, which may result in a return greater than the contractual coupon. For the period ended September 30, 2015, we earned interest income of $1.8 million on our investment in the Subordinated Notes. The cost and fair value of the LLC equity interests held by us was $5.9 million and $4.6 million as of September 30, 2015, respectively. We earned dividend income of $0.7 million for the period ended September 30, 2015 with respect to our LLC equity interests. The LLC equity interests are dividend producing to the extent there is residual income to be distributed on a quarterly basis.

Below is certain summarized financial information for FSFR Glick JV as of September 30, 2015 and for the period ended September 30, 2015:



	September 30, 2015
Selected Balance Sheet Information:
Investments in loans at fair value (cost $184,900,371)	$	182,823,774
Cash and cash equivalents	3,127,824
Restricted cash	2,188,133
Other assets	2,253,143
Total assets	$	190,392,874

Senior credit facility payable	$	122,380,636
Subordinated notes payable at fair value (proceeds $60,680,682)	60,118,109
Other liabilities	2,690,043
Total liabilities	$	185,188,788
Members' equity	5,204,086
Total liabilities and members' equity	$	190,392,874



	Year ended September 30, 2015
Selected Statement of Operations Information:
Interest income	$	4,295,162
Total investment income	4,295,162
Interest expense	3,408,486
Other expenses	56,281
Total expenses (1)	3,464,767
Net unrealized depreciation	(1,514,024		)
Net loss	$	(683,629	)

__________

(1) There are no management fees or incentive fees charged at FSFR Glick JV.

FSFR Glick JV has elected to fair value the Subordinated Notes issued to us and GF Debt Funding under ASC 825 — Financial Instruments, or ASC 825. The Subordinated Notes are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model.

During the period ended September 30, 2015, we sold $179.8 million of senior secured debt investments at fair value to FSFR Glick JV in exchange for $121.0 million cash consideration, $52.9 million of subordinated notes in FSFR Glick JV and $5.9 million of LLC equity interests in FSFR Glick JV. We recognized a $2.0 million realized loss on these transactions.

Discussion and Analysis of Results and Operations

Revision of Previously Issued Financial Statements for Correction of Immaterial Errors

During the three months ended September 30, 2015, we identified errors in the recognition of fee income since the commencement of operations through 2015. The errors primarily related to recognizing fee income at deal close when the amounts did not represent a separately identifiable revenue stream and instead were more related to underwriting the investment. These errors mainly affected the timing of when income should be recognized and were partially offset by the net overpayment of Part I and Part II incentive fees paid to the Investment Adviser. We assessed the materiality of the errors on our prior quarterly and annual financial statements, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of our previously issued financial statements. The cumulative adjustment as of June 30, 2015 was a $9.7 million reduction to fee income partially offset by a $1.6 million increase to interest income and a $1.5 million net decrease to Part I and Part II incentive fees payable to the Investment Adviser, resulting in a $6.6 million reduction to net investment income and a $1.5 million increase in net assets resulting from operations. Further, an $8.1 million increase in realized and unrealized gain was recorded.

Under the SAB No. 99 and SAB No. 108 framework, we concluded the cumulative corrections of these errors would be qualitatively material to our quarterly financial statements within the 2015 fiscal year and, therefore, it is not appropriate to recognize the cumulative corrections in any 2015 period. Accordingly, all prior period financial statements since the commencement of operations have been revised herein to correct these errors (the "Revision").

These prior period revisions will be reflected in future quarterly and annual filings for the respective period. The Revision had no net impact on our net cash provided by (used in) operating activities for any period presented.

The following tables present a reconciliation of selected annual statement of operations data as previously filed to revised amounts for the year ended September 30, 2014 and the period from June 29, 2013 through September 30, 2013:



	For the year ended							For the period ended
	September 30, 2014							September 30, 2013
in millions, except per share amounts	As previously reported		Adjustment			As revised		As previously reported		Adjustment			As revised
Interest income	$	10.1	$	0.4		$	10.5	$	0.4	$	—		$	0.4
Fee income	5.7		(3.7		)	2.0		0.7		(0.7		)	—
Total investment income	15.8		(3.3		)	12.5		1.1		(0.7		)	0.4
Part I incentive fee	1.6		(0.9		)	0.7		—		—			—
Part II incentive fee	0.1		0.7			0.8		—		0.1			0.1
Net expenses	6.9		(0.2		)	6.7		0.3		0.1			0.4
Net investment income	8.9		(3.1		)	5.8		0.8		(0.8		)	—
Net realized and unrealized gain on investments	0.3		3.3			3.6		—		0.7			0.7
Net increase in net assets resulting from operations	$	9.2	$	0.2		$	9.4	$	0.8	$	(0.1	)	$	0.7

Results of Operations

The principal measure of our financial performance is the net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends, fees, and other investment income and total expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment portfolio.

Comparison of the years ended September 30, 2015 and September 30, 2014

Total Investment Income

Total investment income includes interest income on our investments, fee income and other investment income. Fee income consists principally of servicing, advisory, structuring and prepayment fees.

Total investment income for the years ended September 30, 2015 and September 30, 2014 was $51.5 million and $12.5 million, respectively. For the year ended September 30, 2015, this amount primarily consisted of $41.1 million of interest income from portfolio investments and $9.7 million of fee income. For the year ended September 30, 2014, this amount primarily consisted of $10.5 million of interest income from portfolio investments and $2.0 million of fee income.

The weighted average cash yield on our debt investments at September 30, 2015 and September 30, 2014 was 8.14% and 7.05%, respectively.

The increase in our total investment income for the year ended September 30, 2015, as compared to the year ended September 30, 2014, was primarily attributable to higher average levels of outstanding debt investments, which was principally due to a net increase of 16 debt investments in our portfolio year over year and an increase in fees related to investment activity, partially offset by amortization repayments received on our debt investments.

Expenses

Net expenses for the year ended September 30, 2015 and September 30, 2014 were $23.2 million and $6.8 million, respectively. Net expenses increased for the year ended September 30, 2015 as compared to the year ended September 30, 2014 by $16.4 million. This was due primarily to increases in:


•	Base management fee, which was attributable to $346.1 million of net funded deal originations during the year;


•	Part I incentive fee, which was attributable to a $26.0 million increase in pre-incentive fee net investment income for the year-over-year period; and


•	Interest expense, which was attributable to a $193.4 million increase in weighted average debt outstanding for the year-over-year period.

Net Investment Income

As a result of the $39.0 million increase in total investment income, as compared to the $16.4 million increase in total expenses, net investment income for the year ended September 30, 2015 reflected an approximate $22.5 million increase, as compared to the year ended September 30, 2014.

Realized Gain (Loss) on Investments

During the year ended September 30, 2015, we recorded investment realization events, including the following:


•	In October 2014, we received a cash payment of $6.8 million from Answers Corporation in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In December 2014, we received a cash payment of $4.9 million from Survey Sampling International, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In April 2015, we received a cash payment of $9.4 million from Travel Leaders Group, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In April 2015, we received a cash payment of $11.2 million from IPC Systems, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In April 2015, we received a cash payment of $2.5 million from Symphony Teleca Services, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In May 2015, we received a cash payment of $4.1 million from GOBP Holdings, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In August 2015, we received a cash payment of $14.3 million from AMAG Pharmaceuticals, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction; and


•	During the year ended September 30, 2015, we received cash payments of $480.4 million in connection with full or partial payoffs and sales of debt investments in the open market and recorded a net realized gain of $0.4 million.

During the year ended September 30, 2014, we recorded investment realization events, including the following:


•	In March 2014, we received a cash payment of $5.0 million from Bellisio Foods, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In May 2014, we received a cash payment of $8.8 million from American Auto Auction Group, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In August 2014, we received a cash payment of $4.5 million from Quorum Business Solutions (USA), Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In August 2014, we received a cash payment of $7.5 million from TriMark USA LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and


•	During the year ended September 30, 2014, we received cash payments of $121.8 million in connection with full or partial payoffs and sales of debt securities and recorded a net realized gain of $1.3 million.

Net Unrealized Appreciation (Depreciation) on Investments

Net unrealized appreciation or depreciation is the net change in the fair value of our investments during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

During the year ended September 30, 2015, we recorded net unrealized depreciation of $12.8 million. This consisted of $11.8 million of net unrealized depreciation on debt investments and $1.0 million of net unrealized depreciation on equity investments. During the year ended September 30, 2014, we recorded net unrealized appreciation of $2.3 million, consisting of $2.1 million of unrealized appreciation on debt investments and $0.2 million of unrealized appreciation on equity investments. For the three months ended September 30, 2015, approximately half of the net losses on our portfolio were due to market movements, as increased volatility in loan prices driven by the market dislocation that occurred during the quarter negatively affected our investment valuations accordingly.

Comparison of year ended September 30, 2014 and period from June 29, 2013 through September 30, 2013

Total Investment Income

Total investment income includes interest and dividend income on our investments, fee income and other investment income. Fee income consists principally of loan and arrangement fees, administrative fees, unused fees, amendment fees, advisory fees, structuring fees, prepayment fees and waiver fees.

Total investment income for the year ended September 30, 2014 and for the period from June 29, 2013 through September 30, 2013 was $12.5 million and $0.5 million, respectively. For the year ended September 30, 2014, this amount primarily consisted of $10.5 million of interest income from portfolio investments and $2.0 million of fee income. For the period from June 29, 2013 through September 30, 2013, this amount consisted of interest income from portfolio investments. The weighted average cash yield on our debt investments at September 30, 2014 and September 30, 2013 was 7.05% and 6.55%, respectively. The increase in interest income over the previous year comparative period was due to a full year of operation and the increased size of our portfolio.

Expenses

Net expenses for the year ended September 30, 2014 and for the period from June 29, 2013 through September 30, 2013 were $6.8 million and $0.4 million, respectively. For the year ended September 30, 2014, this amount primarily consisted of $1.6 million of interest expense, $1.6 million of base management fees (net of waivers), $0.7 million Part I incentive fee, $0.8 million of Part II incentive fees (of which $145,898 was contractually due to the Investment Adviser with the remainder representing theoretical accruals in accordance with GAAP) and $0.8 million in professional fees. Our expenses increased over the previous year comparative period due to a full year of operations and the increased size of our portfolio.

Net Investment Income

As a result of the $12.0 million increase in total investment income as compared to the $6.3 million increase in net expenses, net investment income for the year ended September 30, 2014 reflected a $5.7 million or 366.0% increase compared to the period from June 29, 2013 through September 30, 2013, which was due to a full year of operations and the increased size of our portfolio.

Realized Gain (Loss) on Investments

During the year ended September 30, 2014, we recorded investment realization events, including the following:


•	In March 2014, we received a cash payment of $5.0 million from Bellisio Foods, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In May 2014, we received a cash payment of $8.8 million from American Auto Auction Group, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In August 2014, we received a cash payment of $4.5 million from Quorum Business Solutions (USA), Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In August 2014, we received a cash payment of $7.5 million from TriMark USA LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and


•	During the year ended September 30, 2014, we received total cash payments of $147.6 million in connection with full or partial open market sales and repayments of debt investments and recorded a net realized gain of $0.3 million.

During the period from June 29, 2013 through September 30, 2013, we recorded the following investment realization event:


•	In September 2013, we received $4.0 million in connection with the sale of our investment in BMC Software Finance, Inc. The debt investment was exited at par and a realized gain of $40,000 was recorded on this transaction.

Net Unrealized Appreciation (Depreciation) on Investments

During the year ended September 30, 2014, we recorded net unrealized appreciation of $2.3 million, consisting of $2.1 million of unrealized appreciation on debt investments, $0.2 million of unrealized appreciation on equity investments. During the period from June 29, 2013 through September 30, 2013, we recorded $0.6 million net unrealized appreciation on debt investments.

Financial Condition, Liquidity and Capital Resources

Cash Flows

We have a number of alternatives available to fund the growth of our investment portfolio and our operations, including, but not limited to, raising equity, increasing debt and funding from operational cash flow. Additionally, we may reduce investment size by syndicating a portion of any given transaction. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or as we deem appropriate.

For the year ended September 30, 2015, we experienced a net decrease in cash and cash equivalents of $66.0 million. During that period, we used $342.3 million of cash in operating activities, primarily for the funding of $887.0 million of investments and net revolvers, partially offset by $552.5 million of principal payments and proceeds from the sale of investments and $28.3 million of net investment income. During the same period, cash provided by financing activities was $276.3 million, primarily consisting of $136.7 million of net borrowings under credit facilities and $186.4 million of borrowings under our 2015 Debt Securitization, partially offset by $39.4 million of cash distributions paid to our shareholders and $6.1 million of deferred financing costs paid.

For the year ended September 30, 2014, we experienced a net increase in cash and cash equivalents of $55.1 million. During that period, we used $214.5 million of cash in operating activities, primarily for the funding of $400.5 million of investments and net revolvers, partially offset by $153.1 million of amortization payments and proceeds from the sale of investments and $5.8 million of net investment income. During the same period, cash provided by financing activities was $269.6 million, primarily consisting of $276.7 million net proceeds from a follow-on equity offering, partially offset by $4.7 million of cash dividends paid, $1.8 million of deferred financing costs recognized and $0.5 million of offering costs paid.

As of September 30, 2015, we had $41.4 million of cash and cash equivalents, $11.3 million of restricted cash, portfolio investments (at fair value) of $623.6 million, payables from unsettled transactions of $11.8 million and unfunded commitments

of $76.8 million. Pursuant to the terms of our Citibank facility and 2015 Debt Securitization, we are restricted in terms of access to $4.2 million of restricted cash until such time as we submit required monthly reporting schedules. As of September 30, 2015, $7.1 million of restricted cash could be used only for the payment of interest expense on the notes issued in the 2015 Debt Securitization, which is described in further detail in Note 7 to our Consolidated Financial Statements.

As of September 30, 2014, we had $107.4 million of cash and cash equivalents, $2.1 million of restricted cash, portfolio investments (at fair value) of $300.0 million, distribution payable of $8.8 million, payables from unsettled transactions of $27.9 million and unfunded commitments of $19.6 million.

Other Sources of Liquidity

We intend to continue to generate cash primarily from cash flows from operations, including interest earned, future borrowings and future offerings of our securities. Our primary use of funds is investments in our targeted asset classes and cash distributions to holders of our common stock.

Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, because our common stock has at times traded at a price below our then-current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we may be limited in our ability to raise equity capital.

In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. See "Regulated Investment Company Status and Distributions" below. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

Also, as a business development company, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. As of September 30, 2015, we were in compliance with this requirement. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on favorable terms, if at all.

Significant Capital Transactions

The following table reflects the dividend distributions per share that our Board of Directors has declared, including shares issued under our DRIP, on our common stock from inception through September 30, 2015:



Frequency	Date Declared	Record Date	Payment Date	Amount per Share	Total Distribution	DRIP Shares Issued (1)	DRIP Shares Value
Quarterly	October 8, 2013	October 21, 2013	October 31, 2013	$0.01	$66,668	—	—
Quarterly	October 8, 2013	December 16, 2013	January 31, 2014	0.20	1,333,354	606	$8,288
Quarterly	January 3, 2014	March 31, 2014	April 15, 2014	0.23	1,533,357	469	6,734
Quarterly	February 11, 2014	June 30, 2014	July 15, 2014	0.27	1,800,027	1,279	17,924
Quarterly	May 12, 2014	September 15, 2014	October 15, 2014	0.30	8,840,030	17,127	191,093
Quarterly	September 9, 2014	December 15, 2014	January 15, 2015	0.30	8,840,030	23,183	242,678
Quarterly	November 20, 2014	April 2, 2015	April 15, 2015	0.30	8,840,030	28,296	307,794
Monthly	February 4, 2015	May 1, 2015	May 15, 2015	0.10	2,946,677	5,045	50,830
Monthly	February 4, 2015	June 1, 2015	June 15, 2015	0.10	2,946,677	5,296	53,237
Monthly	February 4, 2015	July 1, 2015	July 15, 2015	0.10	2,946,677	14,572	137,464
Monthly	February 4, 2015	August 3, 2015	August 17, 2015	0.10	2,946,677	6,174	56,388
Monthly	July 10, 2015	September 4, 2015	September 15, 2015	0.075	2,210,007	4,575	41,121
Monthly	July 10, 2015	October 6, 2015	October 15, 2015	0.075	2,210,008	12,080	108,563
Monthly	July 10, 2015	November 5, 2015	November 16, 2015	0.075	2,210,008	13,269	116,730

______________

(1) Shares were purchased on the open market and distributed.

On July 17, 2013, we completed an initial public offering of 6,666,668 shares of our common stock at the public offering price of $15.00 per share. The proceeds totaled $100.0 million and all offering costs were borne by our investment adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses.

On August 19, 2014, we completed a follow-on public offering of 22,800,000 shares of our common stock at the public offering price of $12.91. The net proceeds totaled $276.2 million after deducting underwriting commissions of $17.7 million and offering costs of $0.5 million.

Borrowings

Natixis Facility

On November 1, 2013, FS Senior Funding LLC, our wholly-owned, special purpose financing subsidiary entered into the $100 million revolving credit facility (the "Natixis facility") with the lenders referred to therein, Natixis, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent and custodian.

Borrowings under the Natixis facility were subject to certain customary advance rates and accrued interest at a rate equal to either the applicable commercial paper rate (subject to an overall cap) plus 1.90% in the case of a lender that is a commercial paper conduit or otherwise the three-month LIBOR plus 2.00% per annum. In addition, there was a commitment fee payable on the undrawn amount under the credit facility equal to 1.00% (or 0.50% for the first six months after the closing date) of such undrawn amount. Interest and commitment fees were payable quarterly in arrears. The reinvestment period under the credit facility ended 18 months after the closing date and the credit facility was scheduled to mature on November 1, 2021.

On October 16, 2014, we entered into agreements to expand the Natixis facility from $100 million to $200 million, including a $100 million term loan and a $100 million revolving credit facility. Fifth Third Bank ("Fifth Third") also joined the facility as a term loan lender. The $50 million term loan provided by Fifth Third is priced at LIBOR plus 2% per annum, and the $100 million revolving credit facility and $50 million term loan provided by Natixis, New York Branch, are priced at the applicable commercial paper rate plus 1.9% per annum. The facility maturity date remained unchanged.

Borrowings under the Natixis facility, were secured by all of the assets of FS Senior Funding LLC and all of our equity interest in FS Senior Funding LLC. We used the Natixis facility to fund a portion of FS Senior Funding LLC's loan origination activities and for general corporate purposes. Each loan origination under the Natixis facility was subject to the satisfaction of certain conditions. Our borrowings under the Natixis facility bore interest at a weighted average interest rate of 2.253% and 2.203% for the years ended September 30, 2015 and September 30, 2014, respectively. For the years ended September 30, 2015 and September 30, 2014, we recorded interest expense of $4.8 million and $1.6 million, respectively, related to the Natixis facility.

On May 28, 2015, we completed a $309.0 million debt securitization transaction (the "2015 Debt Securitization"), the proceeds of which were used to repay the entire amount outstanding under the Natixis facility. In connection therewith, the Amended and Restated Loan and Servicing Agreement and other related documents governing the Natixis facility were also terminated. As such, we had no borrowings outstanding or capacity available under the Natixis facility as of September 30, 2015. Upon termination of the Natixis facility, we accelerated the $2.1 million remaining unamortized fee balance into interest expense during the year ended 2015.

Citibank Facility

On January 15, 2015, FS Senior Funding II LLC, our wholly-owned, special purpose financing subsidiary, entered into a $175 million revolving credit facility (the "Citibank facility") with the lenders referred to therein, Citibank, N.A., as administrative agent, and Wells Fargo Bank, N. A., as collateral agent and custodian.

Borrowings under the Citibank facility are subject to certain customary advance rates and accrued interest at a rate equal to LIBOR plus 2.00% per annum on broadly syndicated loans and LIBOR plus 2.25% per annum on all other eligible loans during the reinvestment period, and rates equal to LIBOR plus 3.50% per annum and LIBOR plus 4.00% per annum during the subsequent two years, respectively. In addition, there is a commitment fee payable on the undrawn amount under the Citibank facility of either 0.50% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility exceed 50% of the aggregate commitments by lenders to make advances on such day) or 0.75% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility do not exceed 50% of the aggregate commitments by lenders to make advances on such day) for the duration of the reinvestment period. Interest and commitment fees are payable quarterly in arrears. The reinvestment period under the Citibank facility ends three years after the closing date and the credit facility will mature on January 15, 2020. The Citibank facility does not require us to comply with significant financial covenants.

As of September 30, 2015, we had $136.7 million outstanding under the Citibank facility. Borrowings under the Citibank facility are secured by all of the assets of FS Senior Funding II LLC and all of our equity interests in FS Senior Funding II LLC. We may use the Citibank facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Citibank facility is subject to the satisfaction of certain conditions. Our borrowings under the Citibank facility bore interest at a weighted average interest rate of 2.516% for the year ended September 30, 2015. For the year ended September 30, 2015, we recorded interest expense of $2.6 million related to the Citibank facility.

Debt Securitization

On May 28, 2015, we completed our $309.0 million 2015 Debt Securitization consisting of $222.6 million in senior secured notes ("2015 Notes") and $86.4 million of unsecured subordinated notes ("2015 Subordinated Notes"). The notes offered in the 2015 Debt Securitization were issued by FS Senior Funding Ltd. (the "2015 Issuer"), a wholly-owned subsidiary of us, through a private placement. The 2015 Notes are secured by the assets held by the 2015 Issuer. The 2015 Debt Securitization consists of $126.0 million Class A-T Senior Secured 2015 Notes of the 2015 Issuer which bear interest at three-month LIBOR plus 1.80%; $29.0 million Class A-S Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 1.55%, with a step-up in spread to 2.10% to occur in October 2016; $20.0 million Class A-R Senior Secured Revolving Notes of the 2015 Issuer which bear interest at a rate of Commercial Paper ("CP") plus 1.80%, collectively, the "Class A Notes;" and $25.0 million Class B Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 2.65% per annum. In partial consideration for the loans transferred to the 2015 Issuer as part of the 2015 Debt Securitization, we currently retain the entire $22.6 million of the Class C Senior Secured Notes (which we purchased at 98.0%) and the entire $86.4 million of the 2015 Subordinated Notes. The Class A Notes and Class B Notes are included in our September 30, 2015 Consolidated Statement of Assets and Liabilities as notes payable. As of September 30, 2015, the Class C Notes and the 2015 Subordinated Notes were eliminated in consolidation.

The proceeds of the private placement of the 2015 Notes, net of expenses, were used to repay the entire amount outstanding under the Natixis Facility. As part of the 2015 Debt Securitization, FS Senior Funding LLC, the borrower under the Natixis Facility, merged with and into 2015 Issuer, with the 2015 Issuer remaining as the surviving entity. Upon completion of the 2015 Debt Securitization, our Natixis facility was paid off and terminated.

We serve as collateral manager to the 2015 Issuer under a collateral management agreement. We are entitled to a fee for our services as collateral manager. The collateral management fee is eliminated in consolidation. We have retained Fifth Street Management LLC, our Investment Adviser, to furnish collateral management sub-advisory services to us pursuant to a sub-collateral management agreement. Fifth Street Management LLC intends to waive its right to such sub-collateral management fees in respect of the 2015 Debt Securitization.

The collateral management agreement does not include any incentive fee payable to us as collateral manager or payable to Fifth Street Management LLC as sub-advisor under the sub-collateral management agreement.

Through May 28, 2019, all principal collections received on the underlying collateral may be used by the 2015 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as collateral manager of the 2015 Issuer and in accordance with our investment strategy. All note classes are scheduled to mature on May 28, 2025.

As of September 30, 2015, there were 51 investments in portfolio companies with a total fair value of $292.7 million, securing the 2015 Notes of the 2015 Issuer. The pool of loans in the 2015 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

The aggregate accrued interest payable on the notes of the 2015 Issuer at September 30, 2015 was approximately $1.5 million. Deferred debt issuance costs consist of fees and expenses incurred in connection with debt offerings. As of September 30, 2015, we had a deferred debt issuance costs balance of approximately $2.8 million associated with the 2015 Debt Securitization.

For the year ended September 30, 2015, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the 2015 Debt Securitization were as follows:



Interest expense	$	1,476,995
Amortization of debt issuance costs	120,877
Total interest and other debt financing expenses	$	1,597,872
Cash paid for interest expense	$	—
Annualized average interest rate	2.39		%
Average outstanding balance	$	61,900,170

The classes, interest rates, spread over LIBOR, cash paid for interest, stated interest expense and note discount expense of each of the Class A-T, A-S, A-R and B for the year ended September 30, 2015 is as follows:



				Year ended September 30, 2015
	Stated Interest Rate	LIBOR Spread (basis points)		Cash Paid for Interest		Interest Expense
Class A-T Notes	2.15103%	180		$	—	$	948,605
Class A-S Notes	1.90103%	155	(1)	—		192,955
Class A-R Notes	1.99075%	180	(2)	—		72,845
Class B Notes	3.00103%	265		—		262,590
Class C Notes	3.60103%	325	(3)	—		—
Total				$	—	$	1,476,995

_______________________

(1) Step-up in spread to occur in October 2016.

(2) Includes 1.0% undrawn fee. Class A-R Notes were partially undrawn during the period ending September 30, 2015.

(3) We hold all Class C Notes outstanding and thus have not recorded any related interest expense.

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A, B, C and Subordinated Notes are as follows:

Description

Class A-T Notes

Class A-S Notes

Class A-R
Notes

Class B Notes

Class C Notes

Subordinated Notes

Type

Senior Secured Floating Rate Term Debt

Senior Secured Floating Rate Revolver

Senior Secured Floating Rate Term Debt

Subordinated Term Notes

Amount Outstanding

$126,000,000

$29,000,000

$6,366,000

$25,000,000

$22,575,680

$86,400,000

Moody's Rating

"Aaa"

"Aa2"

S&P Rating

"AAA"

Interest Rate

LIBOR + 1.80%

LIBOR + 1.55%*

CP + 1.80% **

LIBOR + 2.65%

LIBOR + 3.25%

Stated Maturity

May 28, 2025

_______________________

* Spread to step-up to 2.10% in October 2016.

** Carries a 1.0% undrawn fee.

The proceeds of the private placement of the Class A Notes and the Class B Notes of the 2015 Securitization Issuer, net of discount and debt issuance costs, may be used to fund a portion of the 2015 Issuer's loan origination activities and for general corporate purposes. The creditors of the 2015 Issuer have received security interests in the assets owned by the 2015 Issuer and such assets are not intended to be available to our Creditors (or any of our other affiliates). As part of the 2015 Debt Securitization, we entered into master loan sale agreements under which we agreed to directly or indirectly sell or contribute certain senior secured debt investments (or participation interests therein) to the 2015 Issuer, and to purchase or otherwise acquire the 2015 Subordinated Notes of the 2015 Issuer, as applicable. The 2015 Notes (other than the Class C Notes) are the secured obligations of the 2015 Issuer and indentures governing the 2015 Notes include customary covenants and events of default.

The 2015 Debt Securitization requires us to comply with certain monthly financial covenants, including overcollateralization and interest coverage tests. We are currently in compliance with all financial covenants under the Debt Securitization.

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of September 30, 2015 and September 30, 2014, our only off-balance sheet arrangements consisted of $76.8 million and $19.6 million, respectively, of unfunded commitments to provide debt and equity financing to certain of our portfolio companies. Such commitments are subject to our portfolio companies' satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities and are not reflected on our Consolidated Statements of Assets and Liabilities. We believe that our assets will provide adequate cover to satisfy all of our unfunded commitments as of September 30, 2015.

A summary of the composition of unfunded commitments (consisting of revolvers, term loans and FSFR Glick JV subordinated notes and LLC equity interests) as of September 30, 2015 and September 30, 2014 is shown in the table below:



	September 30, 2015		September 30, 2014
FSFR Glick JV LLC	$	28,522,027	$	—
TIBCO Software, Inc.	5,300,000		—
Landslide Holdings, Inc.	5,000,000		5,000,000
Triple Point Group Holdings, Inc.	4,968,590		4,984,375
Executive Consulting Group, Inc.	4,800,000		—
BeyondTrust Software, Inc.	3,605,000		5,625,000
Motion Recruitment Partners LLC	2,900,000		—
Legalzoom.com, Inc.	2,607,018		—
All Web Leads, Inc.	2,454,572		—
Idera, Inc.	2,400,000		—
Teaching Strategies, LLC	2,400,000		—
PowerPlan, Inc.	2,100,000		—
Metamorph US 3, LLC	1,800,000		—
Dynatect Group Holdings, Inc.	1,800,000		—
My Alarm Center, LLC	1,287,499		—
NextCare, Inc.	1,221,621		1,555,642
Ameritox Ltd.	1,000,000		—
Valet Merger Sub, Inc.	1,000,000		—
TrialCard Incorporated	850,000		—
Internet Pipeline, Inc.	800,000		—
GTCR Valor Companies, Inc.	—		2,412,308
Total	$	76,816,327	$	19,577,325

Contractual Obligations

The following table reflects information pertaining to our debt outstanding under the Natixis facility, Citibank facility and 2015 Debt Securitization:



	Debt Outstanding as of September 30, 2014		Debt Outstanding as of September 30, 2015		Weighted average debt outstanding for the year ended September 30, 2015		Maximum debt outstanding for the year ended September 30, 2015
Natixis credit facility payable (1)	$	—	$	—	$	103,982,987	$	200,000,000
Citibank credit facility payable	—		136,659,800		77,357,800		136,659,800
2015 Debt Securitization	—		186,366,000		61,900,170		186,366,000
Total debt	$	—	$	323,025,800	$	243,240,957

_______________________

(1) The Natixis facility was terminated in connection with our 2015 Debt Securitization.

The following table reflects our contractual obligations arising from the Citibank Facility and 2015 Debt Securitization:



	Payments due by period as of September 30, 2015
	Total		< 1 year		1-3 years		3-5 years		> 5 years
Citibank facility	$	136,659,800	$	—	$	—	$	136,659,800	$	—
Interest due on Citibank facility	14,805,854		3,446,516		6,893,031		4,466,307		—
Notes payable	186,366,000		—		—		—		186,366,000
Interest due on notes payable	39,996,823		4,137,758		4,137,758		4,137,758		27,583,549
Total	$	377,828,477	$	7,584,274	$	11,030,789	$	145,263,865	$	213,949,549

Regulated Investment Company Status and Distributions

We have elected to be treated as a RIC under Subchapter M of the Code. As long as we continue to qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Distributions declared and paid by us in a year may differ from taxable income for that year as such distributions may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.

We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our dividends for that fiscal year, a portion of those dividend distributions may be deemed a return of capital to our stockholders.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and due to provisions in our Natixis facility. If we do not distribute a certain percentage of our taxable income annually, we will suffer adverse tax consequences, including possible loss of our status as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.

Related Party Transactions

We have entered into an investment advisory agreement with Fifth Street Management. Messrs. Berman, Dimitrov and Owens, each an interested member of our Board of Directors, have a direct or indirect pecuniary interest in Fifth Street Management. Fifth Street Management is a registered investment adviser under the Investment Adviser's Act of 1940, that is partially and indirectly owned by Fifth Street Asset Management Inc. Pursuant to the investment advisory agreement, fees payable to our investment adviser will be equal to (a) a base management fee of 1.0% of the average value of our gross assets at the end of the two most recently completed quarters, which includes any borrowings for investment purposes and excludes cash, cash equivalents and restricted cash and (b) an incentive fee based on our performance. The incentive fee consists of two parts. The Part I incentive fee is calculated and payable quarterly in arrears and equals 20% of our "Pre-Incentive Fee Net Investment Income" for the immediately preceding quarter, subject to a preferred return, or "hurdle," and a "catch up" feature. The Part II incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement) and equals 20% of our "Incentive Fee Capital Gains," which equals our realized capital gains on a cumulative basis from inception through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee. The investment advisory agreement may be terminated by either party without penalty upon no fewer than 60 days' written notice to the other. During the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 through September 30, 2013, we incurred fees of $10.9 million, $3.2 million and $0.2 million respectively, under the investment advisory agreement.

The Company serves as collateral manager to the 2015 Issuer under a collateral management agreement in connection with the 2015 Debt Securitization and will receive a fee for providing these services. We have retained Fifth Street Management LLC to furnish collateral management sub-advisory services to us pursuant to a sub-collateral management agreement. Fifth Street Management LLC will be entitled to receive 100% of the collateral management fees paid to us under the collateral management agreement, but intends to waive its right to such sub-collateral management fees in respect of the 2015 Debt Securitization.

Pursuant to the administration agreement with FSC CT LLC, a wholly-owned subsidiary of our Investment Adviser, FSC CT will furnish us with the facilities, including our principal executive offices and administrative services necessary to conduct our day-to-day operations, including equipment, clerical, bookkeeping and recordkeeping services at such facilities. In addition, FSC CT assists us in connection with the determination and publishing of our net asset value, the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders. We pay FSC CT its allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under the administration agreement, including a portion of the rent at market rates and the compensation of our chief financial officer and chief compliance officer and their respective staffs. We utilize office space that is leased by our administrator from an affiliate controlled by the chief executive officer of our investment adviser and administrator, Mr. Tannenbaum. We also utilize additional office space that is leased by our affiliates in Chicago, IL and San Francisco, CA. Any reimbursement for a portion of the rent at these locations is at cost with no profit to, or markup by, FSC CT.

The administration agreement may be terminated by either party without penalty upon no fewer than 60 days' written notice to the other. For the year ended September 30, 2014, the Investment Adviser voluntarily agreed to waive the portion of the base management fee attributable to assets funded with proceeds from the August 2014 offering, which resulted in a waiver of $0.2 million. During the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 through September 30, 2013, we incurred expenses of $1.3 million, $0.7 million and $0.1 million, respectively, under the administration agreements.

We have also entered into a license agreement with Fifth Street Capital LLC pursuant to which Fifth Street Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name "Fifth Street." Under this agreement, we will have a right to use the "Fifth Street" name for so long as Fifth Street Management LLC or one of its affiliates remains our Investment

Adviser. Other than with respect to this limited license, we will have no legal right to the "Fifth Street" name. Fifth Street Capital LLC is controlled by Mr. Tannenbaum, our Investment Adviser's chief executive officer.

Recent Developments

On November 30, 2015, our Board of Directors declared the following distributions:


•	$0.075 per share, payable on December 22, 2015 to stockholders of record on December 11, 2015;


•	$0.075 per share, payable on January 15, 2016 to stockholders of record on January 4, 2016; and


•	$0.075 per share, payable on February 16, 2016 to stockholders of record on February 5, 2016.

Recently Issued Accounting Standards

See Note 3 to the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and the anticipated impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle funds investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent our debt investments include floating interest rates. In addition, our investments are carried at fair value as determined in good faith by our Board of Directors in accordance with the 1940 Act (See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Investment Valuation”). Our valuation methodology utilizes discount rates in part in valuing our investments, and changes in those discount rates may have an impact on the valuation of our investments.

As of September 30, 2015, 100% of our debt investment portfolio (at cost and fair value) bore interest at floating rates and had interest rate floors between 0% and 2%.

Based on our Consolidated Statement of Assets and Liabilities as of September 30, 2015, the following table shows the approximate annualized increase in interest income from hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure. However, there can be no assurances our portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates.



Basis point increase(1)	Interest Income		Interest Expense			Net increase (decrease)
500	$	26,890,097	$	(16,151,290	)	$	10,738,807
400	20,708,799		(12,921,032		)	7,787,767
300	14,527,501		(9,690,774		)	4,836,727
200	8,346,203		(6,460,516		)	1,885,687
100	2,176,955		(3,230,258		)	(1,053,303		)

__________________


(1)	A decline in interest rates would not have a material impact on our financial statements.

We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The following table shows a comparison of the interest rate base for our interest-bearing cash and outstanding investments, at principal as of September 30, 2015 and September 30, 2014. Because we terminated our Natixis facility in connection with our 2015 Debt Securitization, borrowings are not shown below.



	September 30, 2015				September 30, 2014
	Interest Bearing Cash and Investments		Borrowings		Interest Bearing Cash and Investments
Money market rate	$	52,692,097	$	—	$	109,557,165
Prime rate	18,905,206		—		5,177,783
LIBOR:
30 day	171,084,244		—		29,929,483
60 day	14,963,919		—		3,221,875
90 day	420,878,965		186,366,000		261,536,008
180 day	6,352,000		136,659,800		—
Fixed rate	—		—		—
Total	$	684,876,431	$	323,025,800	$	409,422,314

Item 8. Financial Statements

Index to Financial Statements



	Page
Report of Independent Registered Public Accounting Firm	76
Consolidated Statements of Assets and Liabilities as of September 30, 2015 and September 30, 2014	77
Consolidated Statements of Operations for the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 (commencement of operations) through September 30, 2013	78
Consolidated Statements of Changes in Net Assets for the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 (commencement of operations) through September 30, 2013	79
Consolidated Statements of Cash Flows for the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 (commencement of operations) through September 30, 2013	80
Consolidated Schedule of Investments as of September 30, 2015	81
Consolidated Schedule of Investments as of September 30, 2014	88
Notes to Consolidated Financial Statements	93

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Fifth Street Senior Floating Rate Corp.:

In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statements of operations, changes in net assets and cash flows present fairly, in all material respects, the financial position of Fifth Street Senior Floating Rate Corp. and its subsidiaries (the Company) at September 30, 2015 and September 30, 2014, and the results of their operations, the changes in their net assets and their cash flows for the years ended September 30, 2015 and 2014 and for the period from June 29, 2013 (commencement of operations) to September 30, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2015 by correspondence with the custodian, transfer agent and brokers, and the application of alternative auditing procedures where confirmations were not received, provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

New York, New York

December 14, 2015

Fifth Street Senior Floating Rate Corp.

Consolidated Statements of Assets and Liabilities



	September 30, 2015			September 30, 2014 (revised)
ASSETS
Investments at fair value:
Control investments (cost September 30, 2015: $58,977,973; cost September 30, 2014: $0)	$	57,156,921		$	—
Non-control/Non-affiliate investments (cost September 30, 2015: $574,538,984; cost September 30, 2014: $297,098,712)	566,490,553			300,001,397
Total investments at fair value (cost September 30, 2015: $633,516,957; cost September 30, 2014: $297,098,712)	623,647,474			300,001,397
Cash and cash equivalents	41,433,301			107,429,760
Restricted cash	11,258,796			2,127,405
Interest, dividends and fees receivable	2,783,379			1,120,010
Due from portfolio companies	11,587			200,840
Receivables from unsettled transactions	13,541,056			—
Deferred financing costs	5,001,675			1,625,932
Other assets	33,216			—
Total assets	$	697,710,484		$	412,505,344
LIABILITIES AND NET ASSETS
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	1,964,249		$	1,213,683
Base management fee payable	1,656,205			475,437
Part I incentive fee payable	253,076			77,803
Part II incentive fee payable	145,898			912,450
Due to FSC CT	379,641			239,617
Interest payable	1,669,012			205,646
Distributions payable	—			8,840,030
Payables from unsettled transactions	11,809,500			27,863,000
Credit facility payable	136,659,800			—
Notes payable	186,366,000			—
Total liabilities	340,903,381			39,827,666
Commitments and contingencies (Note 4)
Net assets:
Common stock, $0.01 par value, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding at September 30, 2015 and September 30, 2014	294,668			294,668
Additional paid-in-capital	373,995,934			374,101,816
Net unrealized appreciation (depreciation) on investments	(9,869,483		)	2,902,685
Net realized gain on investments	1,800,070			1,115,453
Accumulated overdistributed net investment income	(9,414,086		)	(5,736,944		)
Total net assets (equivalent to $12.11 and $12.65 per common share at September 30, 2015 and September 30, 2014, respectively) (Note 13)	356,807,103			372,677,678
Total liabilities and net assets	$	697,710,484		$	412,505,344

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Statements of Operations



	Year ended September 30, 2015			Year ended September 30, 2014 (revised)			Period from June 29, 2013 (commencement of operations) through September 30, 2013 (revised)
Interest income:
Control investments	$	1,770,130		$	—		$	—
Non-control/Non-affiliate investments	39,269,556			10,468,094			454,743
Interest on cash and cash equivalents	28,571			8,889			1,674
Total interest income	41,068,257			10,476,983			456,417
Fee income:
Non-control/Non-affiliate investments	9,673,649			2,039,691			—
Total fee income	9,673,649			2,039,691			—
Dividend and other income:
Control investments	730,625			—			—
Total dividend and other income	730,625			—			—
Total investment income	51,472,531			12,516,674			456,417
Expenses:
Base management fee	5,931,155			1,757,492			61,379
Part I incentive fee	5,689,371			708,235			—
Part II incentive fee	(766,552		)	774,841			137,609
Professional fees	985,607			827,447			102,811
Board of Directors fees	359,700			185,083			33,521
Interest expense	8,950,703			1,555,767			—
Administrator expense	794,725			514,861			61,721
General and administrative expenses	1,249,792			583,942			43,670
Total expenses	23,194,501			6,907,668			440,711
Base management fee waived	—			(154,875		)	—
Net expenses	23,194,501			6,752,793			440,711
Net investment income	28,278,030			5,763,881			15,706
Unrealized appreciation (depreciation) on investments:
Control investments	(1,821,052		)	—			—
Non-control/Non-affiliate investments	(10,951,116		)	2,254,642			648,043
Net unrealized appreciation (depreciation) on investments	(12,772,168		)	2,254,642			648,043
Realized gain (loss) on investments:
Non-control/Non-affiliate investments	406,220			1,345,434			40,000
Net realized gain on investments	406,220			1,345,434			40,000
Net increase in net assets resulting from operations	$	15,912,082		$	9,363,957		$	703,749
Net investment income per common share — basic and diluted	$	0.96		$	0.62		$	—
Earnings per common share — basic and diluted	$	0.54		$	1.01		$	0.13
Weighted average common shares outstanding — basic and diluted	29,466,768			9,290,330			5,319,250
Distributions per common share	$	1.07		$	1.01		$	—

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Statements of Changes in Net Assets



	Year ended September 30, 2015			Year ended September 30, 2014 (revised)			Period from June 29, 2013 (commencement of operations) through September 30, 2013 (revised)
Operations:
Net investment income	$	28,278,030		$	5,763,881		$	15,706
Net unrealized appreciation (depreciation) on investments	(12,772,168		)	2,254,642			648,043
Net realized gain on investments	406,220			1,345,434			40,000
Net increase in net assets resulting from operations	15,912,082			9,363,957			703,749
Stockholder transactions:
Distributions to stockholders	(31,676,775		)	(11,823,899		)	—
Tax return of capital	—			(1,749,538		)	—
Net decrease in net assets from stockholder transactions	(31,676,775		)	(13,573,437		)	—
Capital share transactions:
Issuance of common stock, net	(105,882		)	276,181,889			100,000,020
Issuance of common stock under dividend reinvestment plan	889,511			224,038			—
Repurchases of common stock under dividend reinvestment plan	(889,511		)	(224,038		)	—
Net increase (decrease) in net assets from capital share transactions	(105,882		)	276,181,889			100,000,020
Total increase (decrease) in net assets	(15,870,575		)	271,972,409			100,703,769
Net assets at beginning of period	372,677,678			100,705,269			1,500
Net assets at end of period	$	356,807,103		$	372,677,678		$	100,705,269
Net asset value per common share	$	12.11		$	12.65		$	15.11
Common shares outstanding at end of period	29,466,768			29,466,768			6,666,768

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Statements of Cash Flows



	Year ended September 30, 2015			Year ended September 30, 2014 (revised)			Period from June 29, 2013 (commencement of operations) through September 30, 2013 (revised)
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	15,912,082		$	9,363,957		$	703,749
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Net unrealized (appreciation) depreciation on investments	12,772,168			(2,254,642		)	(648,043		)
Net realized gain on investments	(406,220		)	(1,345,434		)	(40,000		)
Recognition of fee income	(9,673,649		)	(2,039,691		)	—
Accretion of original issue discount on investments	(1,634,191		)	(396,488		)	(24,869		)
Amortization of deferred financing costs	2,768,573			210,415			—
Changes in operating assets and liabilities:
Fee income received	9,767,645			2,082,659			—
Increase in restricted cash	(9,131,391		)	(2,127,405		)	—
Increase in interest and fees receivable	(1,663,369		)	(725,987		)	(394,023		)
(Increase) decrease in due from portfolio companies	189,253			(192,507		)	(8,333		)
Increase in receivables from unsettled transactions	(13,541,056		)	—			—
(Increase) decrease in other assets	(33,216		)	47,240			(47,240		)
Increase in accounts payable, accrued expenses and other liabilities	750,566			729,617			484,066
Increase in base management fee payable	1,180,768			414,058			61,379
Increase (decrease) in incentive fee payable	(591,279		)	852,644			137,609
Increase in due to FSC CT	140,024			177,896			61,721
Increase in interest payable	1,463,366			205,646			—
Increase (decrease) in payables from unsettled transactions	(16,053,500		)	27,863,000			—
Purchases of investments and net revolver activity	(886,999,491		)	(400,524,925		)	(51,949,038		)
Principal payments applied to investments (scheduled payments)	11,677,139			5,587,277			8,333
Principal payments applied to investments (payoffs)	60,488,532			26,978,730			—
Proceeds from the sale of investments	480,361,990			120,564,734			4,000,000
Net cash used in operating activities	(342,255,256		)	(214,529,206		)	(47,654,689		)
Cash flows from financing activities:
Proceeds from issuance of common stock	—			276,687,121			100,000,020
Distributions paid in cash	(39,436,200		)	(4,700,460		)	—
Borrowings under credit facilities	428,509,800			110,620,610			—
Repayments of borrowings under credit facilities	(291,850,000		)	(110,620,610		)	—
Proceeds from issuance of notes payable	186,366,000			—			—
Repurchases of common stock under dividend reinvestment plan	(1,080,605		)	(32,946		)	—
Deferred financing costs paid	(6,144,316		)	(1,836,347		)	—
Offering costs paid	(105,882		)	(505,233		)	—
Net cash provided by financing activities	276,258,797			269,612,135			100,000,020
Net increase (decrease) in cash and cash equivalents	(65,996,459		)	55,082,929			52,345,331
Cash and cash equivalents, beginning of period	107,429,760			52,346,831			1,500
Cash and cash equivalents, end of period	$	41,433,301		$	107,429,760		$	52,346,831
Supplemental information:
Cash paid for interest	$	4,718,763		$	1,220,079		$	—
Non-cash operating activities:
Exchange of investments	$	58,823,756		$	—		$	—
Non-cash financing activities:
Issuance of shares of common stock under dividend reinvestment plan	$	1,080,605		$	32,946		$	—

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015



Portfolio Company/Type of Investment (1)(2)	Industry	Principal (5)		Cost		Fair Value
Control Investments (3)
FSFR Glick JV LLC	Multi-sector holdings
Subordinated Note, LIBOR+8% cash due 10/20/2021 (7)(8)(12)(13)		$	53,095,597	$	53,095,597	$	52,603,346
87.5% equity interest (7)				5,882,376		4,553,575
				58,977,973		57,156,921
Total Control Investments (16.0% of net assets)				$	58,977,973	$	57,156,921
Affiliate Investments (4)				$	—	$	—
Non-Control/Non-Affiliate Investments (6)
Triple Point Group Holdings, Inc.	Application software
First Lien Revolver, LIBOR+4.25% (1% floor) cash due 7/10/2018 (8)				$	—	$	—
				—		—
Blackhawk Specialty Tools, LLC	Oil & gas equipment & services
First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 8/1/2019 (8)(14)		$	4,499,996	4,418,746		4,364,794
				4,418,746		4,364,794
New Trident Holdcorp, Inc.	Healthcare services
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2019 (8)(10)(14)		11,851,711		11,701,369		11,481,404
Second Lien Term Loan, LIBOR+9% (1.25% floor) cash due 7/31/2020 (8)		1,000,000		969,500		966,665
				12,670,869		12,448,069
Landslide Holdings, Inc.	Application software
First Lien Revolver, LIBOR+4.25% (1% floor) cash due 8/9/2018 (8)				—		—
				—		—
Smile Brands Group Inc.	Healthcare services
First Lien Term Loan B, LIBOR+6.25% (1.25% floor) cash due 8/16/2019 (8)(14)		4,900,000		4,825,097		3,448,375
				4,825,097		3,448,375
NXT Capital, LLC	Diversified capital markets
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 9/4/2020 (8)(14)		8,809,782		8,756,158		8,831,807
				8,756,158		8,831,807
Vitera Healthcare Solutions, LLC	Healthcare technology
First Lien Term Loan, LIBOR+5% (1% floor) cash due 11/4/2020 (8)(14)		4,912,500		4,959,398		4,838,813
				4,959,398		4,838,813
The Active Network, Inc.	Internet software & services
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 11/15/2021 (8)(14)		2,400,000		2,297,362		2,282,004
				2,297,362		2,282,004
Accruent, LLC	Internet software & services
First Lien Term Loan, LIBOR+4.5% (1.25% floor) cash due 11/25/2019 (8)(9)(10)(14)		19,872,068		19,872,068		19,974,214
				19,872,068		19,974,214
Pacific Architects and Engineers Incorporated	Diversified support services
First Lien Term Loan B, LIBOR+6.25% (1% floor) cash due 7/17/2018 (8)(14)		3,438,750		3,405,864		3,403,709
				3,405,864		3,403,709
Survey Sampling International, LLC	Research & consulting services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 12/16/2020 (8)(10)(14)		8,358,000		8,301,333		8,326,658
Second Lien Term Loan, LIBOR+9% (1% floor) cash due 12/16/2021 (8)		1,000,000		982,381		990,000
				9,283,714		9,316,658

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015



Portfolio Company/Type of Investment (1)(2)	Industry	Principal (5)		Cost		Fair Value
Answers Corporation	Internet software & services
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 10/1/2021 (8)(10)(14)		$	11,910,000	$	11,504,344	$	8,763,795
Second Lien Term Loan, LIBOR+9% (1% floor) cash due 10/3/2022 (8)		8,000,000		7,605,257		4,427,839
				19,109,601		13,191,634
Maxor National Pharmacy Services, LLC	Pharmaceuticals
First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 1/31/2020 (8)(10)(14)		9,825,000		9,825,000		9,819,438
				9,825,000		9,819,438
NextCare, Inc.	Healthcare services
Senior Term Loan, LIBOR+6% (1% floor) cash due 7/31/2018 (8)(14)		7,100,334		7,100,334		7,085,839
Delayed Draw Term Loan, LIBOR+6% (1% floor) cash due 7/31/2018 (8)		610,250		610,250		609,204
				7,710,584		7,695,043
J.A. Cosmetics Holdings, Inc.	Personal products
First Lien Term Loan, LIBOR+5% (1.25% floor) cash due 1/31/2019 (8)(14)		4,812,500		4,787,500		4,818,516
				4,787,500		4,818,516
B&H Education, Inc.	Education services
First Lien Term Loan, LIBOR+5.25% (1.5% floor) cash due 5/3/2015 (8)(15)		5,686,571		5,686,571		5,256,256
				5,686,571		5,256,256
Aptean, Inc.	Application software
Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 2/26/2021 (8)		1,250,000		1,237,500		1,205,206
				1,237,500		1,205,206
Stratus Technologies, Inc.	Computer hardware
First Lien Term Loan, LIBOR+5% (1% floor) cash due 4/28/2021 (8)(14)		4,131,944		4,099,489		4,121,614
				4,099,489		4,121,614
TravelCLICK, Inc.	Internet software & services
Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 11/6/2021 (8)(14)		3,380,000		3,281,969		3,333,525
				3,281,969		3,333,525
Language Line, LLC	Integrated telecommunication services
First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 7/7/2021 (8)(10)(14)		15,000,000		15,000,000		15,031,275
Second Lien Term Loan, LIBOR+9.75% (1% floor) cash due 7/7/2022 (8)(10)(14)		8,000,000		8,000,000		8,040,000
				23,000,000		23,071,275
GTCR Valor Companies, Inc.	Advertising
First Lien Term Loan, LIBOR+5% (1% floor) cash due 5/30/2021 (8)(10)(14)		13,455,992		13,275,118		13,338,252
				13,275,118		13,338,252
ConvergeOne Holdings Corp.	Integrated telecommunication services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 6/17/2020 (8)(14)		5,397,670		5,363,527		5,367,308
				5,363,527		5,367,308
Verdesian Life Sciences, LLC	Fertilizers & agricultural chemicals
First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/1/2020 (8)(14)		3,754,945		3,713,056		3,754,945
				3,713,056		3,754,945

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015



Portfolio Company/Type of Investment (1)(2)	Industry	Principal (5)		Cost			Fair Value
PR Wireless, Inc.	Wireless telecommunication services
First Lien Term Loan, LIBOR+9% (1% floor) cash due 6/29/2020 (7)(8)		$	5,896,482	$	5,746,610		$	5,299,540
35.5263 Common Stock Warrants (7)				—			154,706
				5,746,610			5,454,246
TV Borrower US, LLC	Integrated telecommunication services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 1/8/2021 (7)(8)(14)		6,930,000		6,792,500			6,919,606
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 7/8/2021 (7)(8)(14)		3,000,000		2,902,560			2,929,995
				9,695,060			9,849,601
American Dental Partners, Inc.	Healthcare services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/30/2021 (8)(10)		5,940,000		5,915,714			5,940,000
				5,915,714			5,940,000
BeyondTrust Software, Inc.	Application software
First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/25/2019 (8)(10)(14)		19,872,068		19,590,591			19,868,049
First Lien Revolver, LIBOR+7% (1% floor) cash due 9/25/2019 (8)				—			—
500,000 Class A membership interest in BeyondTrust Holdings LLC				500,000			809,394
				20,090,591			20,677,443
Reliant Hospital Partners, LLC	Healthcare services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 10/1/2019 (8)(14)		7,359,375		7,359,375			7,359,375
				7,359,375			7,359,375
Hill International, Inc.	Construction and engineering
First Lien Term Loan, LIBOR+6.75% (1% floor) cash due 9/26/2020 (8)(14)		6,039,000		5,945,467			5,908,869
				5,945,467			5,908,869
Teaching Strategies, LLC	Education services
First Lien Term Loan, LIBOR+5.5% (0.5% floor) cash due 10/1/2019 (8)(10)(14)		16,106,327		16,057,408			16,129,873
First Lien Revolver, LIBOR+5.5% (0.5% floor) cash due 10/1/2019 (8)				—			—
				16,057,408			16,129,873
Dynatect Group Holdings, Inc.	Industrial machinery
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 9/30/2020 (8)(10)		3,970,000		3,970,000			3,867,602
First Lien Delayed Draw Term Loan, LIBOR+4.5% (1% floor) cash due 9/30/2020 (8)(10)				—			—
				3,970,000			3,867,602
Idera, Inc.	Internet software & services
First Lien Term Loan, LIBOR+5.5% (0.5% floor) cash due 11/5/2020 (8)(10)(14)		16,787,500		16,553,740			16,787,500
First Lien Revolver, LIBOR+5.5% (0.5% floor) cash due 11/5/2019 (8)(11)				(128		)	—
				16,553,612			16,787,500
Central Security Group, Inc.	Specialized consumer services
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 10/6/2020 (8)(10)		2,565,575		2,535,124			2,539,919
				2,535,124			2,539,919

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015



Portfolio Company/Type of Investment (1)(2)	Industry	Principal (5)		Cost			Fair Value
Kellermeyer Bergensons Services, LLC	Diversified support services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 10/29/2021 (8)(14)		$	5,359,500	$	5,295,190		$	5,292,506
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 4/29/2022 (8)(14)		280,000		280,000			281,400
				5,575,190			5,573,906
GOBP Holdings Inc.	Food retail
Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 10/21/2022 (8)(10)(14)		6,400,000		6,328,892			6,384,000
				6,328,892			6,384,000
NAVEX Global, Inc.	Internet software & services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 11/19/2021 (8)(14)		6,802,442		6,726,246			6,768,430
Second Lien Term Loan, LIBOR+8.75% (1% floor) cash due 11/18/2022 (8)		1,500,000		1,500,000			1,485,000
				8,226,246			8,253,430
Executive Consulting Group, LLC	Healthcare services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 11/21/2019 (8)(10)(14)		7,000,000		7,000,000			6,988,039
Delayed Draw Term Loan, LIBOR+4.75% (1% floor) cash due 11/21/2019 (8)(10)				—			—
				7,000,000			6,988,039
TIBCO Software, Inc.	Internet software & services
First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/4/2020 (8)(10)		7,999,800		7,571,941			7,939,802
First Lien Revolver, LIBOR+4% cash due 11/25/2020 (8)				—			—
				7,571,941			7,939,802
Metamorph US 3, LLC	Internet software & services
First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/1/2020 (8)(10)(14)		17,310,731		17,200,848			17,131,150
First Lien Revolver, LIBOR+5.5% (1% floor) cash due 12/1/2020 (8)(14)		600,000		567,664			600,000
				17,768,512			17,731,150
Compuware Corporation	Internet software & services
First Lien Term Loan B1, LIBOR+5.25% (1% floor) cash due 12/15/2019 (8)(10)(14)		8,254,351		8,140,683			7,994,339
First Lien Term Loan B2, LIBOR+5.25% (1% floor) cash due 12/15/2021 (8)(10)		6,451,250		6,164,940			6,233,520
				14,305,623			14,227,859
Novetta Solutions, LLC	Diversified support services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 10/2/2020 (8)(14)		5,742,000		5,693,114			5,742,000
				5,693,114			5,742,000
AF Borrower, LLC	IT consulting & other services
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 1/28/2022 (8)(10)		8,258,500		8,078,315			8,217,208
				8,078,315			8,217,208
Ameritox Ltd.	Healthcare services
First Lien Term Loan, LIBOR+7.5% (1% floor) cash due 6/23/2019 (8)(10)(14)		19,680,542		19,677,876			17,815,474
First Lien Revolver, LIBOR+7.5% (1% floor) cash due 6/23/2019 (8)		1,000,000		999,810			1,000,000
				20,677,686			18,815,474
TrialCard Incorporated	Healthcare services
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 12/31/2019 (8)(9)(10)(14)		10,085,815		10,080,571			9,947,755
First Lien Revolver, LIBOR+5.25% (1% floor) cash due 12/31/2019 (8)(9)(11)				(375		)	—
				10,080,196			9,947,755
Motion Recruitment Partners LLC	Diversified support services
First Lien Term Loan, LIBOR+6% (1% floor) cash due 2/13/2020 (8)(10)(14)		14,917,500		14,906,741			14,757,057
First Lien Revolver, LIBOR+6% (1% floor) cash due 2/13/2020 (8)(11)				(960		)	—
				14,905,781			14,757,057

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015



Portfolio Company/Type of Investment (1)(2)	Industry	Principal (5)		Cost			Fair Value
PowerPlan, Inc.	Internet software & services
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 2/23/2022 (8)(10)(14)		$	13,668,333	$	13,668,333		$	13,665,537
First Lien Revolver, LIBOR+5.25% (1% floor) cash due 2/23/2021 (8)				—			—
				13,668,333			13,665,537
Digital River, Inc.	Internet software & services
First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 2/12/2021 (8)(10)(14)		9,937,500		9,751,027			9,937,500
				9,751,027			9,937,500
Curo Health Services Holdings, Inc.	Healthcare services
First Lien Term Loan B, LIBOR+5.5% (1% floor) cash due 2/5/2022 (8)(10)		5,392,950		5,344,819			5,410,936
				5,344,819			5,410,936
Research Now Group, Inc.	Data processing & outsourced services
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 3/18/2021 (8)(14)		3,731,250		3,708,681			3,721,922
Second Lien Term Loan, LIBOR+8.75% (1% floor) cash due 3/18/2022 (8)(10)		4,000,000		3,945,000			3,990,000
				7,653,681			7,711,922
Fineline Technologies, Inc.	Electronic equipment & instruments
First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 5/5/2017 (8)(10)(14)		13,720,000		13,720,000			13,717,288
				13,720,000			13,717,288
My Alarm Center, LLC	Security & alarm services
First Lien Term Loan A, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(10)(14)		16,047,619		16,047,619			16,046,254
First Lien Term Loan B, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(10)		960,356		960,356			966,015
First Lien Term Loan C, LIBOR+8% (1% floor) cash due 1/9/2018 (8)		618,812		618,812			617,504
First Lien Term Revolver, LIBOR+8% (1% floor) cash due 1/9/2018 (8)		133,333		133,333			133,333
				17,760,120			17,763,106
Legalzoom.com, Inc.	Specialized consumer services
First Lien Term Loan, LIBOR+7% (1% floor) cash due 5/13/2020 (8)(10)(14)		19,900,000		19,874,564			19,912,601
First Lien Revolver, LIBOR+7% (1% floor) cash due 5/13/2020 (8)(11)				(2,210		)	—
				19,872,354			19,912,601
TWCC Holding Corp.	Specialized consumer services
First Lien Term Loan B1, LIBOR+5% (0.75% floor) cash due 2/11/2020 (8)(14)		6,368,000		6,309,614			6,342,528
				6,309,614			6,342,528
Raley's	Food retail
First Lien Term Loan, LIBOR+6.25% (1% floor) cash due 5/18/2022 (8)(14)		4,048,750		3,971,631			4,048,750
				3,971,631			4,048,750
Retail Solutions Group, Inc.	Data processing & outsourced services
First Lien Term Loan, LIBOR+5.25% (0.75% floor) cash due 6/23/2022 (8)(14)		5,985,000		5,927,667			5,970,038
				5,927,667			5,970,038
All Web Leads, Inc.	Advertising
First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 6/30/2020 (8)(10)(14)		17,598,366		17,578,629			17,604,775
First Lien Revolver, LIBOR+6.5% (1% floor) cash due 6/30/2020 (8)		1,636,381		1,633,468			1,636,381
				19,212,097			19,241,156
Too Faced Cosmetics, LLC	Personal products
First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/7/2021 (8)(14)		6,000,000		6,000,000			6,000,000
				6,000,000			6,000,000
Internet Pipeline, Inc.	Internet software & services
First Lien Term Loan, LIBOR+7.25% (1% floor) cash due 8/4/2022 (8)(14)		12,000,000		12,000,000			12,000,000
First Lien Revolver, LIBOR+7.25% (1% floor) cash due 8/4/2021 (8)				—			—
				12,000,000			12,000,000
Poseidon Merger Sub, Inc.	Advertising
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/15/2022 (8)(14)		4,000,000		4,000,000			4,000,000
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 8/15/2023 (8)		7,000,000		6,980,768			7,000,000
				10,980,768			11,000,000

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015



Portfolio Company/Type of Investment (1)(2)	Industry	Principal (5)		Cost			Fair Value
American Seafoods Group LLC	Food distributors
First Lien Term Loan, LIBOR+5% (1% floor) cash due 8/19/2021 (8)(14)		$	6,000,000	$	5,942,222		$	5,970,000
Second Lien Term Loan, LIBOR+9% (1% floor) cash due 2/19/2022 (8)		3,000,000		2,970,769			3,000,000
				8,912,991			8,970,000
Accentcare, Inc.	Healthcare services
First Lien Term Loan, LIBOR+5.75% (1% floor) cash due 9/3/2021 (8)		8,000,000		7,921,111			7,960,000
				7,921,111			7,960,000
CRGT Inc.	IT consulting & other services
First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 12/19/2020 (8)(14)		3,875,316		3,875,316			3,865,628
				3,875,316			3,865,628
Valet Merger Sub, Inc.	Environmental & facilities services
First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/24/2021 (8)(14)		10,000,000		9,998,007			10,000,000
First Lien Revolver, LIBOR+7% (1% floor) cash due 9/24/2021 (8)(11)				(200		)	—
				9,997,807			10,000,000
Total Non-Control/Non-Affiliate Investments (158.8% of net assets)				$	574,538,984		$	566,490,553
Total Portfolio Investments (174.8% of net assets)				$	633,516,957		$	623,647,474

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2015


(1)	All debt investments are income producing unless otherwise noted. Equity is non-income producing unless otherwise noted.


(2)	See Note 4 to the Consolidated Financial Statements for portfolio composition by geographic region.


(3)	Control Investments are defined by the Investment Company Act of 1940 ("1940 Act") as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.


(4)	Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.


(5)	Principal amount is net of repayments, if any.


(6)	Non-Control/Non-Affiliate Investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.


(7)	Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act.

(8)

The principal balance outstanding for all floating rate loans is indexed to LIBOR and an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.

(9)

Interest rates have been adjusted on certain term loans from the stated rates in the original credit agreement as shown in the Consolidated Schedule of Investments. These rate adjustments are temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements, or permanent in nature per loan amendment or waiver documents. The table below summarizes these rate adjustments by portfolio company:



Portfolio Company	Effective date	Cash interest	Reason
TrialCard Incorporated	April 1, 2015	- 0.25% on Term Loan and Revolver	Tier pricing per loan agreement
Accruent, LLC	November 14, 2014	+ 1.50% on First Lien Term Loan	Per loan amendment


(10)	Investment pledged as collateral under the Company's credit facility, in whole or in part.


(11)	Investment has undrawn commitments and a negative cost basis as a result of unamortized fees. Unamortized fees are classified as unearned income which reduces cost basis.


(12)	In addition to the interest earned based on the stated contractual interest rate of this security, the subordinated notes entitle us to receive a portion of the excess cash flow from the FSFR Glick JV LLC's loan portfolio, which may result in a return to the BDC greater than the contractual stated interest rate.

(13)

As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Schedule 12-14 in the accompanying notes to the consolidated financial statements for transactions during the year ended September 30, 2015 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to control.


(14)	Investment pledged as collateral under the Company's 2015 Debt Securitization (as defined in Note 7 — Borrowings), in whole or in part.


(15)	The Company is currently in negotiations with the borrower to extend the maturity date on this loan.

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2014



Portfolio Company/Type of Investment (1)(2)(8)	Industry	Principal (5)		Cost		Fair Value
Control Investments (3)				$	—	$	—
Affiliate Investments (4)				$	—	$	—
Non-Control/Non-Affiliate Investments (6)
Triple Point Group Holdings, Inc.	Application software
First Lien Term Loan, LIBOR+4.25% (1% floor) cash due 7/10/2020 (8)(10)		$	2,181,723	$	2,036,600	$	2,001,494
First Lien Revolver, LIBOR+4.25% (1% floor) cash due 7/10/2018 (8)				—		—
				2,036,600		2,001,494
BioScrip, Inc.	Healthcare services
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2020 (8)(10)		1,670,679		1,630,247		1,671,520
				1,630,247		1,671,520
Blackhawk Specialty Tools, LLC	Oil & gas equipment & services
First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 8/1/2019 (8)(10)		4,749,995		4,710,411		4,708,121
				4,710,411		4,708,121
New Trident Holdcorp, Inc.	Healthcare services
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2019 (8)(10)		4,950,000		4,904,461		4,959,019
Second Lien Term Loan, LIBOR+9% (1.25% floor) cash due 7/31/2020 (8)		1,000,000		982,750		1,003,056
				5,887,211		5,962,075
Landslide Holdings, Inc.	Application software
First Lien Revolver, L+4.25% (1% floor) cash due 8/9/2018				—		—
				—		—
Smile Brands Group Inc.	Healthcare services
First Lien Term Loan B, LIBOR+6.25% (1.25% floor) cash due 8/16/2019 (8)(10)		4,950,000		4,861,139		4,855,860
				4,861,139		4,855,860
NXT Capital, LLC	Diversified capital markets
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 9/4/2018 (8)(10)		5,447,487		5,405,321		5,459,605
				5,405,321		5,459,605
Vitera Healthcare Solutions, LLC	Healthcare technology
First Lien Term Loan, LIBOR+5% (1% floor) cash due 11/4/2020 (8)(10)		4,962,500		4,919,623		4,980,474
Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 11/4/2021 (8)		3,000,000		2,974,219		3,030,948
				7,893,842		8,011,422
The Active Network, Inc.	Internet software & services
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 11/15/2021 (8)		2,400,000		2,384,063		2,401,616
				2,384,063		2,401,616
Accruent, LLC	Internet software & services
First Lien Term Loan, LIBOR+4.5% (1.25% floor) cash due 11/25/2019 (8)(10)		6,461,732		6,461,732		6,366,822
				6,461,732		6,366,822
Travel Leaders Group, LLC	Hotels, resorts & cruise lines
First Lien Term Loan B, LIBOR+6% (1% floor) cash due 12/5/2018 (8)(10)		9,625,000		9,625,000		9,592,523
				9,625,000		9,592,523
Pacific Architects and Engineers Incorporated	Diversified support services
First Lien Term Loan B, LIBOR+6.25% (1% floor) cash due 7/17/2018 (8)(10)		3,473,750		3,409,408		3,461,756
				3,409,408		3,461,756
Power Products, LLC	Electrical components & equipment
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 12/13/2019 (8)(10)		4,975,000		4,924,907		4,860,113
				4,924,907		4,860,113
Survey Sampling International, LLC	Research & consulting services
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 12/12/2019 (8)(10)		4,937,500		4,891,000		4,941,631
				4,891,000		4,941,631
Therakos, Inc.	Healthcare services
First Lien Term Loan, LIBOR+6.25% (1.25% floor) cash due 12/27/2017 (8)(10)		1,946,028		1,938,111		1,927,011
				1,938,111		1,927,011

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2014



Portfolio Company/Type of Investment (1)(2)(8)	Industry	Principal (5)		Cost		Fair Value
Answers Corporation	Internet software & services
First Lien Term Loan, LIBOR+4.5% (3.25% floor) cash due 12/20/2018 (8)(10)		$	4,812,500	$	4,767,876	$	4,871,425
Second Lien Term Loan, LIBOR+10% (1% floor) cash due 6/19/2020 (8)(10)		2,000,000		1,963,810		2,046,110
				6,731,686		6,917,535
Maxor National Pharmacy Services, LLC	Pharmaceuticals
First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 1/31/2020 (8)(10)		9,925,000		9,925,000		9,887,945
				9,925,000		9,887,945
NextCare, Inc.	Healthcare services
Senior Term Loan, LIBOR+5.75% (1.25% floor) cash due 10/10/2017 (8)(10)		5,384,152		5,384,152		5,396,673
Delayed Draw Term Loan, LIBOR+5.75% (1.25% floor) cash due 10/10/2017 (8)(10)				—		—
Senior Revolver, LIBOR+5.75% (1.25% floor) cash due 10/10/2017 (8)(10)		187,410		187,410		187,410
Acquisition Line, LIBOR+5.75% (1.25% floor) cash due 10/10/2017 (8)(10)		398,781		398,781		398,781
				5,970,343		5,982,864
J.A. Cosmetics Holdings, Inc.	Personal products
First Lien Term Loan, LIBOR+5% (1.25% floor) cash due 1/31/2019 (8)(10)		4,937,500		4,895,000		4,888,194
				4,895,000		4,888,194
Aegis Toxicology Sciences Corporation	Healthcare services
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 8/24/2021 (8)		3,100,000		3,057,633		3,107,612
				3,057,633		3,107,612
B&H Education, Inc.	Education services
First Lien Term Loan, LIBOR+5.25% (1.5% floor) cash due 5/3/2015 (8)(10)		6,382,886		6,354,343		6,376,798
				6,354,343		6,376,798
Deluxe Entertainment Services Group Inc.	Movies & entertainment
First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 2/28/2020 (8)(10)		4,672,320		4,469,389		4,640,481
				4,469,389		4,640,481
Aptean, Inc.	Application software
Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 2/24/2021 (8)		1,250,000		1,233,036		1,258,260
				1,233,036		1,258,260
Extreme Reach, Inc.	Advertising
First Lien Term Loan, LIBOR+5.75% (1% floor) cash due 1/24/2020 (8)(10)		5,432,000		5,358,500		5,473,100
				5,358,500		5,473,100
CM Delaware LLC	Advertising
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 3/18/2021 (7)(8)(9)(10)		2,189,000		2,137,976		2,189,687
				2,137,976		2,189,687
Stratus Technologies, Inc.	Computer hardware
First Lien Term Loan, LIBOR+5% (1% floor) cash due 4/28/2021 (8)(10)		4,604,167		4,557,738		4,605,770
				4,557,738		4,605,770
TravelCLICK, Inc.	Internet software & services
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 5/6/2019 (8)(10)		4,987,816		4,941,983		4,993,915
Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 11/8/2021 (8)		4,000,000		3,886,667		4,002,939
				8,828,650		8,996,854
LTI Flexible Products, Inc.	Electronic components
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 5/1/2021 (8)(10)		4,588,500		4,567,143		4,611,005
				4,567,143		4,611,005
Language Line, LLC	Integrated telecommunication services
Second Lien Term Loan, LIBOR+8.75% (1.75% floor) cash due 12/20/2016 (8)		4,400,000		4,394,774		4,403,484
				4,394,774		4,403,484
IPC Systems, Inc.	Alternative carriers
First Lien Term Loan, LIBOR+5% (1% floor) cash due 11/8/2020 (8)(10)		4,987,500		4,940,705		4,987,468
				4,940,705		4,987,468
LTCG Holdings Corp.	Healthcare services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 6/6/2020 (8)(10)		1,185,000		1,179,333		1,185,844
				1,179,333		1,185,844
GTCR Valor Companies, Inc.	Advertising
First Lien Term Loan, LIBOR+5% (1% floor) cash due 5/30/2021 (8)(10)		3,179,723		3,149,744		3,176,754
Delayed Draw Term Loan, L+5% (1% floor) cash due 5/30/2021				—		—
				3,149,744		3,176,754

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2014



Portfolio Company/Type of Investment (1)(2)(8)	Industry	Principal (5)		Cost			Fair Value
ConvergeOne Holdings Corp.	Integrated telecommunication services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 6/17/2020 (8)(10)		$	3,990,000	$	3,945,351		$	3,992,347
				3,945,351			3,992,347
American Residential Services, L.L.C.	Specialized consumer services
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 6/30/2021 (8)(10)		3,192,000		3,176,762			3,193,060
				3,176,762			3,193,060
Verdesian Life Sciences, LLC	Fertilizers & agricultural chemicals
First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/1/2020 (8)(10)		3,955,000		3,900,222			4,039,398
				3,900,222			4,039,398
PR Wireless, Inc.	Wireless telecommunication services
First Lien Term Loan, LIBOR+9% (1% floor) cash due 6/27/2020 (7)(10)		2,992,500		2,935,833			2,797,378
35.5263 Common Stock Warrants (7)				—			167,990
				2,935,833			2,965,368
TV Borrower US, LLC	Integrated telecommunication services
First Lien Term Loan, LIBOR+5% (1% floor) cash due 1/8/2021 (7)(10)		7,000,000		6,831,250			7,000,000
Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 7/8/2021 (7)		3,000,000		2,913,462			3,000,000
				9,744,712			10,000,000
Symphony Teleca Services, Inc.	Application software
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/7/2019 (10)		2,500,000		2,476,613			2,500,000
				2,476,613			2,500,000
St. George's University Scholastic Services LLC	Education services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/7/2021 (7)(10)		3,000,000		2,985,357			3,000,000
				2,985,357			3,000,000
CPI Buyer, LLC	Healthcare equipment
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 8/15/2021		8,900,000		8,682,798			8,900,000
				8,682,798			8,900,000
EP Minerals, LLC	Specialty chemicals
First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 8/20/2020 (10)		3,200,000		3,184,444			3,200,000
				3,184,444			3,200,000
American Dental Partners, Inc.	Healthcare services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/29/2021		6,000,000		5,970,714			6,000,000
				5,970,714			6,000,000
BeyondTrust Software, Inc.	Application software
First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/25/2019 (10)		67,500,000		66,847,623			67,500,000
First Lien Revolver, LIBOR+7% (1% floor) cash due 9/25/2019 (11)				(54,389		)	—
500,000 Class A membership interest in BeyondTrust Holdings LLC				500,000			500,000
				67,293,234			68,000,000
Reliant Hospital Partners, LLC	Healthcare services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 10/1/2019 (10)		7,500,000		7,500,000			7,500,000
				7,500,000			7,500,000
Hill International, Inc.	Construction and engineering
First Lien Term Loan, LIBOR+6.75% (1% floor) cash due 9/26/2019 (10)		6,100,000		5,980,033			6,100,000
				5,980,033			6,100,000
Scientific Games International, Inc.	Casinos & gaming
First Lien Term Loan, LIBOR+5% (1% floor) cash due 9/17/2021 (10)		13,300,000		13,168,822			13,300,000
				13,168,822			13,300,000
Evergreen Skills Lux S.a.r.l	Internet software & services
First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 4/28/2021 (7)(10)		2,400,000		2,373,290			2,400,000
				2,373,290			2,400,000

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2014



Portfolio Company/Type of Investment (1)(2)(8)	Industry	Principal (5)	Cost		Fair Value
Vestcom International, Inc.	Data processing & outsourced services
First Lien Term Loan, LIBOR+4.25% (1% floor) cash due 9/30/2021 (10)		6,000,000	5,970,542		6,000,000
			5,970,542		6,000,000
Total Non-Control/Non-Affiliate Investments (80.5% of net assets)			$	297,098,712	$	300,001,397
Total Portfolio Investments (80.5% of net assets)			$	297,098,712	$	300,001,397

See notes to Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.

Consolidated Schedule of Investments

September 30, 2014


(1)	All debt investments are income producing unless otherwise noted.


(2)	See Note 4 to the Consolidated Financial Statements for portfolio composition by geographic region.


(3)	Control Investments are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.


(4)	Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.


(5)	Principal amount is net of repayments, if any.


(6)	Non-Control/Non-Affiliate Investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.


(7)	Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act.

(8)

(9)


(10)	Held by the Company, in whole or in part, indirectly through FS Senior Funding LLC and pledged as collateral under the Company's credit facility with Natixis, New York Branch.


(11)	Investment has undrawn commitments and a negative cost basis as a result of unamortized fees. Unamortized fees are classified as unearned income which reduces cost basis.

See notes to Consolidated Financial Statements.

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

Fifth Street Senior Floating Rate Corp. (the "Company") was formed in May 2013 as a Delaware corporation and commenced operations in June 2013. The Company is structured as an externally managed, closed-end, non-diversified management investment company, that has elected to be regulated as a business development company under the Investment Company Act of 1940 (the "1940 Act"). The Company is managed by Fifth Street Management LLC (the "Investment Adviser").

The Company also has wholly-owned subsidiaries that are consolidated for accounting purposes and the portfolio investments held by the subsidiaries are included in the Company's Consolidated Financial Statements. The subsidiaries are operated solely for investment activities of the Company. All significant intercompany balances and transactions have been eliminated.

On July 17, 2013, the Company completed an initial public offering of 6,666,668 shares of its common stock at the public offering price of $15.00 per share. The proceeds of its initial public offering totaled $100.0 million and all offering costs were borne by the Investment Adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses. The Company's common stock is listed on the NASDAQ Global Select Market, where it trades under the symbol "FSFR."

On August 19, 2014, the Company completed a follow-on public offering of 22,800,000 shares of its common stock at the public offering price of $12.91 per share. The net proceeds totaled $276.2 million after deducting underwriting commissions of $17.7 million and offering costs of $0.5 million.

Note 2. Revision of Previously Issued Financial Statements for Correction of Immaterial Errors

During the three months ended September 30, 2015, the Company identified errors in the recognition of fee income since the commencement of operations through 2015. The errors primarily related to recognizing fee income at deal close when the amounts did not represent a separately identifiable revenue stream and instead were more related to underwriting the investment. These errors mainly affected the timing of when income should be recognized and were partially offset by the net overpayment of Part I and Part II incentive fees paid to the Investment Adviser. The Company assessed the materiality of the errors on its prior quarterly and annual financial statements, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of its previously issued financial statements. The cumulative adjustment as of June 30, 2015 was a $9.7 million reduction to fee income partially offset by a $1.6 million increase to interest income and a $1.5 million net decrease to Part I and Part II incentive fees payable to the Investment Adviser, resulting in a $6.6 million reduction to net investment income and a $1.5 million increase in net assets resulting from operations. Further, an $8.1 million increase in realized and unrealized gain was recorded.

Under the SAB No. 99 and SAB No. 108 framework, the Company concluded the cumulative corrections of these errors would be qualitatively material to the Company's quarterly financial statements within the 2015 fiscal year and, therefore, it is not appropriate to recognize the cumulative corrections in any 2015 period. Accordingly, all prior period financial statements since the commencement of operations have been revised herein to correct these errors (the "Revision").

These prior period revisions will be reflected in future quarterly and annual filings for the respective period. The Revision had no net impact on the Company’s net cash provided by (used in) operating activities for any period presented.

The following tables present a reconciliation of selected annual financial data as previously filed to revised amounts for the year ended September 30, 2014 and the period from June 29, 2013 through September 30, 2013:

2014 Annual Financial Statements



	September 30, 2014
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	926,180		$	(848,377	)	$	77,803
Part II incentive fee payable	54,826			857,624			912,450
Total liabilities	39,818,419			9,247			39,827,666
Net Assets:
Net realized and unrealized gain on investments	4,150			4,013,988			4,018,138
Accumulated overdistributed net investment income	(1,713,709		)	(4,023,235		)	(5,736,944		)
Total net assets	372,686,925			(9,247		)	372,677,678
Total liabilities and net assets	412,505,344			—			412,505,344
Net asset value per common share at period end	$	12.65		$	—		$	12.65



	Year ended September 30, 2014
Consolidated Statement of Operations:	As previously reported		Adjustment			As revised
Interest income	$	10,130,569	$	346,414		$	10,476,983
Fee income	5,712,050		(3,672,359		)	2,039,691
Total investment income	15,842,619		(3,325,945		)	12,516,674
Part I incentive fee	1,556,612		(848,377		)	708,235
Part II incentive fee	54,826		720,015			774,841
Net expenses	6,881,155		(128,362		)	6,752,793
Net investment income	8,961,464		(3,197,583		)	5,763,881
Net realized and unrealized gain on investments	274,131		3,325,945			3,600,076
Net increase in net assets resulting from operations	9,235,595		128,362			9,363,957
Total investment income per common share	$	1.71	$	(0.36	)	$	1.35
Net investment income per common share	$	0.96	$	(0.34	)	$	0.62
Earnings per common share	$	0.99	$	0.02		$	1.01



	Year ended September 30, 2014
Consolidated Statement of Changes in Net Assets:	As previously reported		Adjustment			As revised
Net investment income	$	8,961,464	$	(3,197,583	)	$	5,763,881
Net realized and unrealized gain on investments	274,131		3,325,945			3,600,076
Net increase in net assets resulting from operations	9,235,595		128,362			9,363,957
Total increase in net assets	271,844,047		128,362			271,972,409
Net assets at beginning of period	100,842,878		(137,609		)	100,705,269
Net assets at end of period	372,686,925		(9,247		)	372,677,678
Net asset value per common share at period end	12.65		—			12.65



	Year ended September 30, 2014
Consolidated Statement of Cash Flows:	As previously reported			Adjustment			As revised
Net increase in net assets resulting from operations	$	9,235,595		$	128,362		$	9,363,957
Net realized and unrealized gain on investments	(274,131		)	(3,325,945		)	(3,600,076		)
Recognition of fee income	(5,712,050		)	3,672,359			(2,039,691		)
Accretion of original issue discount on investments	(50,074		)	(346,414		)	(396,488		)
Fee income received	5,755,018			(3,672,359		)	2,082,659
Increase in incentive fee payable	981,006			(128,362		)	852,644
Purchases of investments and net revolver activity	(404,197,284		)	3,672,359			(400,524,925		)
Net cash used in operating activities	(214,529,206		)	—			(214,529,206		)
Net increase in cash and cash equivalents	55,082,929			—			55,082,929
Cash and cash equivalents, beginning of period	52,346,831			—			52,346,831
Cash and cash equivalents, end of period	$	107,429,760		$	—		$	107,429,760

2013 Annual Financial Statements



	September 30, 2013
Consolidated Statement of Assets and Liabilities:	As previously reported		Adjustment			As revised
Liabilities:
Part II incentive fee payable	$	—	$	137,609		$	137,609
Total liabilities	607,166		137,609			744,775
Net Assets:
Net realized and unrealized gain on investments	—		688,043			688,043
Accumulated undistributed net investment income	841,358		(825,652		)	15,706
Total net assets	100,842,878		(137,609		)	100,705,269
Total liabilities and net assets	101,450,044		—			101,450,044
Net asset value per common share at period end	$	15.13	$	(0.02	)	$	15.11



	Period from June 29, 2013 through September 30, 2013
Consolidated Statement of Operations:	As previously reported		Adjustment			As revised
Interest income	$	436,012	$	20,405		$	456,417
Fee income	708,448		(708,448		)	—
Total investment income	1,144,460		(688,043		)	456,417
Part II incentive fee	—		137,609			137,609
Net expenses	303,102		137,609			440,711
Net investment income	841,358		(825,652		)	15,706
Net realized and unrealized gain on investments	—		688,043			688,043
Net increase in net assets resulting from operations	841,358		(137,609		)	703,749
Total investment income per common share	$	0.22	$	(0.13	)	$	0.09
Net investment income per common share	$	0.16	$	(0.16	)	$	—
Earnings per common share	$	0.16	$	(0.03	)	$	0.13



	Period from June 29, 2013 through September 30, 2013
Consolidated Statement of Changes in Net Assets:	As previously reported		Adjustment			As revised
Net investment income	$	841,358	$	(825,652	)	$	15,706
Net realized and unrealized gain on investments	—		688,043			688,043
Net increase in net assets resulting from operations	841,358		(137,609		)	703,749
Total increase in net assets	100,841,378		(137,609		)	100,703,769
Net assets at beginning of period	1,500		—			1,500
Net assets at end of period	100,842,878		(137,609		)	100,705,269
Net asset value per common share at period end	15.13		(0.02		)	15.11



	Period from June 29, 2013 through September 30, 2013
Consolidated Statement of Cash Flows:	As previously reported			Adjustment			As revised
Net increase in net assets resulting from operations	$	841,358		$	(137,609	)	$	703,749
Net realized and unrealized gain on investments	—			(688,043		)	(688,043		)
Recognition of fee income	(708,448		)	708,448			—
Accretion of original issue discount on investments	(4,464		)	(20,405		)	(24,869		)
Fee income received	708,448			(708,448		)	—
Increase in incentive fee payable	—			137,609			137,609
Purchases of investments and net revolver activity	(52,657,486		)	708,448			(51,949,038		)
Net cash used in operating activities	(47,654,689		)	—			(47,654,689		)
Net increase in cash and cash equivalents	52,345,331			—			52,345,331
Cash and cash equivalents, beginning of period	1,500			—			1,500
Cash and cash equivalents, end of period	52,346,831			—			52,346,831

Note 3. Significant Accounting Policies

Basis of Presentation:

The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Regulation S-X. The financial results of the Company’s portfolio investments are not consolidated in the Company’s Consolidated Financial Statements. As provided under ASU 2013-08 which amended Accounting Standards Codification ("ASC") 946 – Financial Services – Investment Companies ("ASC 946"), the Company is an investment company as it is regulated under the 1940 Act and is applying guidance in ASC 946.

Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions and conditions. The most significant estimates inherent in the preparation of the Company's Consolidated Financial Statements are the valuation of investments and revenue recognition.

The Consolidated Financial Statements include portfolio investments at fair value of $623.6 million and $300.0 million at September 30, 2015 and September 30, 2014, respectively. The portfolio investments represent 174.8% and 80.5% of net assets at September 30, 2015 and September 30, 2014, respectively, and their fair values have been determined in good faith by the Company's Board of Directors in the absence of readily available market values. Because of the inherent uncertainty of valuation, the determined values may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, "Control Investments" are defined as investments in companies in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation; "Affiliate Investments" are defined as investments in companies in which the

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company owns between 5% and 25% of the voting securities; and "Non-Control/Non-Affiliate Investments" are defined as investments that are neither Control Investments nor Affiliate Investments.

Consolidation:

As provided under Regulation S-X and ASC Topic 946-810 – Financial Services – Investment Companies, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company or a controlled operating company whose business consists of providing services to the Company. FS Senior Funding Ltd. would be considered an investment company but for the exceptions under Sections 3(c)(1) and 3(c)(7) under the 1940 Act, and was established solely for the purpose of allowing the Company to borrow funds for the purpose of making investments. The Company owns all of the equity in this entity and controls the decision making power that drives its economic performance. Accordingly, the Company consolidates the results of the Company’s wholly-owned subsidiaries, including FS Senior Funding Ltd., in its Consolidated Financial Statements.

Fair Value Measurements:

The Financial Accounting Standards Board ("FASB") ASC 820 Fair Value Measurements and Disclosures ("ASC 820") defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity.

Assets recorded at fair value in the Company's Consolidated Financial Statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:


•	Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.


•	Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.


•	Level 3 — Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Under ASC 820, the Company performs detailed valuations of its debt and equity investments for which quotations are not readily available on an individual basis, using bond yield, market and income approaches as appropriate. In general, the Company utilizes the bond yield method in determining the fair value of its debt investments when there is no readily available market quotation, as long as it is appropriate. If, in the Company's judgment, the bond yield approach is not appropriate, it may use the market or income approach in determining the fair value of the Company's investment in the portfolio company. In certain instances, the Company may use alternative methodologies, including an asset liquidation model, expected recovery model or other alternative approaches.

Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, the Company's capital markets group obtains and analyzes readily available market quotations provided by independent pricing services for all of the Company’s senior secured debt investments for which quotations are available. In determining the fair value of a particular investment, pricing services use observable market information, including both binding and non-binding indicative quotations. These investments are generally classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustment for investment-specific factors or restrictions.

The Company evaluates the prices obtained from independent pricing services based on available market information and company specific data that could affect the credit quality and/or fair value of the investment. Investments for which market quotations are readily available maybe be valued at such market quotations. In order to validate market quotations, the Company looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. The Company does not adjust any of the prices received from these sources unless the Company has a reason to believe any such market quotations are not reflective of the fair value of an investment.

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Market quotations may be deemed not to represent fair value where the Company believes that facts and circumstances applicable to an issuer, a seller or purchaser or the market for a particular security causes current market quotations not to reflect the fair value of the security, among other reasons. Examples of these events could include cases when a security trades infrequently causing a quoted purchase or sale price to become stale or in the event of a "fire sale" by a distressed seller. In these instances, the Company values such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available (as discussed below).

If the quotation provided by the pricing service is based on only one or two market sources, the Company performs additional procedures to corroborate such information, generally including but not limited to, the bond yield approach discussed below and a quantitative and qualitative assessment of the credit quality and market trends affecting the portfolio company.

Under the bond yield approach, the Company uses bond yield models to determine the present value of the future cash flow streams of its debt investments. The Company reviews various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assesses the information in the valuation process.

Under the market approach, the Company estimates the enterprise value of the portfolio companies in which it invests. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which the Company derives a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, the Company analyzes various factors, including the portfolio company's historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA (earnings before interest, taxes, depreciation and amortization), cash flows, net income or revenues. The Company generally requires portfolio companies to provide annual audited and quarterly or monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

Under the income approach, the Company generally prepares and analyzes discounted cash flow models based on projections of the future free cash flows of the business.

The Company estimates the fair value of privately held warrants using a Black Scholes pricing model. At each reporting date, privately held warrants are valued based on an analysis of various factors and subjective assumptions including, but not limited to, the current stock price (by analyzing the portfolio company’s operating performance and financial condition and general market conditions), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.

The Company's Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company's investments:


•	The quarterly valuation process begins with each portfolio company or investment being initially valued either by the Company's capital markets group for quoted investments or the Company's finance department for unquoted investments;

•Preliminary valuations are then reviewed and discussed with principals of the Investment Adviser;


•	Separately, independent valuation firms engaged by the Board of Directors prepare preliminary valuations of the Company's investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to the Company;


•	The finance department compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;


•	The finance department prepares a valuation report for the Audit Committee of the Board of Directors;


•	The Audit Committee of the Board of Directors is apprised of the preliminary valuations of the independent valuation firms;


•	The Audit Committee of the Board of Directors reviews the preliminary valuations with the portfolio managers of the Investment Adviser, and the finance department responds and supplements the preliminary valuations to reflect any comments provided by the Audit Committee;


•	The Audit Committee of the Board of Directors makes a recommendation to the Board of Directors regarding the fair value of the investments in the Company's portfolio; and


•	The Board of Directors discusses valuations and determines the fair value of each investment in the Company's portfolio in good faith.

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each of the Company's investments at September 30, 2015 and September 30, 2014 was determined in good faith by the Board of Directors. In addition, the Company will continue to utilize independent valuation firms to provide assistance regarding the determination of the fair value of a portion of the Company's portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, with a substantial portion being valued over the course of each fiscal year. However, the Board of Directors is ultimately and solely responsible for the valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company's valuation policy and a consistently applied valuation process.

Investment Income:

Interest income, adjusted for accretion of original issue discount ("OID"), is recorded on an accrual basis to the extent that such amounts are expected to be collected.

The Company generally recognizes dividend income on the ex-dividend date.

The Company may invest in debt securities which contain payment-in-kind ("PIK") interest provisions. PIK interest is computed at the contractual rate specified in each investment agreement and added to the principal balance of the investment and recorded as income.

The Company stops accruing cash interest, PIK and OID income on investments when it is determined that collection is doubtful.

Fee income consists of the servicing fees, advisory fees, structuring fees and prepayment fees that the Company receives in connection with its debt investments. These fees are recognized as earned.

Cash and Cash Equivalents:

Cash, cash equivalents and restricted cash consist of demand deposits and highly liquid investments with maturities of three months or less, when acquired. The Company places its cash, cash equivalents and restricted cash with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation ("FDIC") insured limit.

Restricted Cash:

As of September 30, 2015, included in restricted cash is $11.3 million that was held at U.S. Bank, National Association and Wells Fargo in connection with the Company's credit facility and its 2015 Debt Securitization (as defined in Note 7 — Borrowings). Pursuant to the terms of the credit facility and the 2015 Debt Securitization, the Company is restricted in terms of access to $4.2 million until such time as the Company submits its required monthly reporting schedules. As of September 30, 2015, $7.1 million of restricted cash could only be used for the payment of interest expense on the notes issued in the 2015 Debt Securitization.

Due from Portfolio Companies:

Due from portfolio companies consists of amounts payable to the Company from its portfolio companies, excluding those amounts attributable to interest, dividends or fees receivable. These amounts are recognized as they become payable to the Company (e.g., principal payments on the scheduled amortization payment date).

Deferred Financing Costs:

Deferred financing costs consist of fees and expenses in connection with the closing or amending of the Company's credit facilities or debt securitizations, and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the terms of the respective credit facilities and debt securitizations. This amortization expense is included in interest expense in the Company's Consolidated Statements of Operations. Upon early termination of a credit facility, the remaining balance of unamortized fees related to such facility is accelerated into interest expense.

Offering Costs:

Offering costs consist of fees and expenses incurred in connection with the public offer and sale of Company's common stock, including legal, accounting and printing fees. There were $0.1 million and $0.5 million of offering costs, respectively, charged to capital during the years ended September 30, 2015 and September 30, 2014.

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes:

As a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code ("Code"), the Company is not subject to U.S. federal income tax on the portion of its taxable income and gains distributed to its stockholders as a dividend. The Company intends to distribute between 90% and 100% of its taxable income and gains, within the Subchapter M rules, and thus the Company anticipates that it will not incur any U.S. federal or state income tax at the corporate level. As a RIC, the Company is also subject to a U.S. federal excise tax based on distributive requirements of its taxable income on a calendar year basis. The Company anticipates timely distribution of its taxable income within the tax rules; however, the Company incurred a de minimis U.S. federal excise tax for calendar year 2013. The Company did not incur a U.S. federal excise tax for calendar year 2014 and does not expect to incur a U.S. federal excise tax for calendar year 2015. The Company may incur a U.S. federal excise tax in future years.

ASC 740 Accounting for Uncertainty in Income Taxes ("ASC 740") provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company's Consolidated Financial Statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. The Company identifies its major tax jurisdictions as U.S. Federal and Connecticut, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.

Recent Accounting Pronouncements:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard will be effective for the Company on January 1, 2018 and early adoption is permitted on the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of this standard on its consolidated financial statements and its ongoing financial reporting.

In April 2015, the FASB issued ASU 2015-03 that requires debt issuance costs (deferred financing costs) related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the related debt liability, similar to the presentation of debt discounts. The update is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Additionally, in August 2015, the FASB issued ASU 2015-15, which provides further clarification on the same topic and states that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of the deferred costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance is not expected to have a material effect on the consolidated financial statements as it will result in a reclassification on the Consolidated Statements of Assets and Liabilities. Accordingly, there will be no impact on net asset value or net increase in net assets resulting from operations as a result of adoption of this guidance.

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The new guidance removes the requirement that investments for which NAV is determined based on practical expedient reliance be reported utilizing the fair value hierarchy. ASU 2015-07 is required to be applied retrospectively for periods beginning on or after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

Note 4. Portfolio Investments

At September 30, 2015, 174.8% of net assets, or $623.6 million, was invested in 64 portfolio investments, including 16.0% of net assets, or $57.2 million, in subordinated notes and LLC equity interests of FSFR Glick JV LLC, and 14.8% of net assets, or $52.7 million, was in cash and cash equivalents (including restricted cash). In comparison, at September 30, 2014, 80.5% of net assets, or $300.0 million, was invested in 48 portfolio investments and 29.4% of net assets, or $109.6 million, was invested in cash and cash equivalents (including restricted cash). As of September 30, 2015, 90.7% of the Company's portfolio at fair value consisted of senior secured debt investments that bore interest at floating rates and that are secured by first or second priority liens on the assets of the portfolio companies, 8.4% consisted of investments in the subordinated notes of FSFR Glick JV LLC and 0.9% consisted of investments in the LLC equity interests of FSFR Glick JV LLC and other portfolio companies. As of September 30, 2014, 99.8% of the

100

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company's portfolio at cost and fair value, consisted of senior secured debt investments that bore interest at floating rates which are secured by first or second priority liens on the assets of the portfolio companies.

During the years ended September 30, 2015, September 30, 2014 and the period from June 29, 2013 through September 30, 2013, the Company recorded net unrealized appreciation (depreciation) of $(12.8) million, $2.3 million and $0.6 million, respectively. During the years ended September 30, 2015, September 30, 2014 and the period from June 29, 2013 through September 30, 2013, the Company recorded net realized gains of $0.4 million, $1.3 million and $40,000, respectively.

The composition of the Company's investments as of September 30, 2015 and September 30, 2014 at cost and fair value was as follows:



	September 30, 2015				September 30, 2014
	Cost		Fair Value		Cost		Fair Value
Investments in debt securities (senior secured)	$	574,038,984	$	565,526,453	$	296,598,712	$	299,333,407
Investments in equity securities (common stock and warrants)	500,000		964,100		500,000		667,990
Debt investment in FSFR Glick JV LLC	53,095,597		52,603,346		—		—
Equity investment in FSFR Glick JV LLC	5,882,376		4,553,575		—		—
Total	$	633,516,957	$	623,647,474	$	297,098,712	$	300,001,397

The following table presents the financial instruments carried at fair value as of September 30, 2015, on the Company's Consolidated Statements of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:



	Level 1		Level 2		Level 3		Total
Investments in debt securities (senior secured)	$	—	$	—	$	565,526,453	$	565,526,453
Investments in debt securities (subordinated notes of FSFR Glick JV LLC)	—		—		52,603,346		52,603,346
Investment in equity securities (common stock and warrants, including LLC equity interest of FSFR Glick JV LLC)	—		—		5,517,675		5,517,675
Total investments at fair value	$	—	$	—	$	623,647,474	$	623,647,474

The following table presents the financial instruments carried at fair value as of September 30, 2014, on the Company's Consolidated Statements of Assets and Liabilities for each of the levels of hierarchy established by ASC 820:



	Level 1		Level 2		Level 3		Total
Investments in debt securities (senior secured)	$	—	$	—	$	299,333,407	$	299,333,407
Investment in equity securities (common stock and warrants)	—		—		667,990		667,990
Total investments at fair value	$	—	$	—	$	300,001,397	$	300,001,397

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the fact that the unobservable factors are significant to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated by external sources). Accordingly, the appreciation (depreciation) in the tables below includes changes in fair value due in part to observable factors that are part of the valuation methodology.

101

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll-forward in the changes in fair value from September 30, 2014 to September 30, 2015, for all investments for which the Company determines fair value using unobservable (Level 3) factors:



	Senior Secured Debt			Subordinated Debt (subordinated notes of FSFR Glick JV)			Common Equity (including LLC equity interests of FSFR Glick JV)/Warrants			Total
Fair value as of September 30, 2014	$	299,333,407		$	—		$	667,990		$	300,001,397
New investments & net revolver activity	886,999,489			53,095,597			5,882,376			945,977,462
Redemptions/repayments	(611,505,632		)	—			—			(611,505,632		)
Accretion of original issue discount	1,634,191			—			—			1,634,191
Net change in unearned income	(93,996		)	—			—			(93,996		)
Net unrealized depreciation on investments	(11,247,226		)	(492,251		)	(1,032,691		)	(12,772,168		)
Net realized gain on investments	406,220			—			—			406,220
Fair value as of September 30, 2015	$	565,526,453		$	52,603,346		$	5,517,675		$	623,647,474
Net unrealized depreciation relating to Level 3 assets still held at September 30, 2015 and reported within net unrealized depreciation on investments in the Consolidated Statement of Operations for the year ended September 30, 2015	$	(10,273,110	)	$	(492,251	)	$	(1,032,691	)	$	(11,798,052	)

The following table provides a roll-forward in the changes in fair value from September 30, 2013 to September 30, 2014, for all investments for which the Company determines fair value using unobservable (Level 3) factors:



	Senior Secured Debt			Subordinated Debt			Common Equity/Warrants		Total
Fair value as of September 30, 2013	$	48,653,617		$	—		$	—	$	48,653,617
New investments & net revolver activity	397,024,925			3,000,000			500,000		400,524,925
Redemptions/repayments	(150,097,631		)	(3,033,110		)	—		(153,130,741		)
Accretion of original issue discount	396,488			—			—		396,488
Net change in unearned income	(42,968		)	—			—		(42,968		)
Net unrealized appreciation on investments	2,086,652			—			167,990		2,254,642
Net realized gain on investments	1,312,324			33,110			—		1,345,434
Fair value as of September 30, 2014	$	299,333,407		$	—		$	667,990	$	300,001,397
Net unrealized appreciation relating to Level 3 assets still held at September 30, 2014 and reported within net unrealized appreciation on investments in the Consolidated Statement of Operations for the year ended September 30, 2014	$	2,099,988		$	—		$	167,990	$	2,267,978

The Company generally utilizes a bond yield model to estimate the fair value of its debt investments when there is not a readily available market value (Level 3), which model is based on the present value of expected cash flows from the debt investments. The significant observable inputs into the model are market interest rates for debt with similar characteristics, which are adjusted for the portfolio company's credit risk. The credit risk component of the valuation considers several factors including financial performance, business outlook, debt priority and collateral position. These factors are incorporated into the calculation of the capital structure premium, tranche specific risk premium/(discount), size premium and industry premium/(discount), which are significant unobservable inputs into the model.

102

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant Unobservable Inputs for Level 3 Investments

The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of September 30, 2015:



Asset	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average (c)
Senior secured debt	$	319,401,727	Bond yield approach	Capital structure premium	(a)	0.0	%	-	2.0%		0.03%
				Tranche specific risk premium / (discount)	(a)	(7.5	)%	-	6.0%		(0.8)%
				Size premium	(a)	0.5	%	-	2.0%		1.1%
				Industry premium / (discount)	(a)	(2.2	)%	-	7.3%		(0.02)%
	246,124,726		Market quotations	Broker quoted price	(d)	N/A		-	N/A		N/A
FSFR Glick JV subordinated notes	52,603,346		Bond yield approach	Capital structure premium	(a)	2.0	%	-	2.0%		2.0%
				Tranche specific risk premium / (discount)	(a)	(1.4	)%	-	(1.4	)%	(1.4)%
				Size premium	(a)	2.0	%	-	2.0%		2.0%
				Industry premium / (discount)	(a)	(1.9	)%	-	(1.9	)%	(1.9)%
FSFR Glick JV equity	4,553,575		Net asset value	Net asset value		N/A		-	N/A		N/A
Common equity/warrants	964,100		Market and income approaches	Weighted average cost of capital		17.0	%	-	17.0%		17.0%
				Company specific risk premium	(a)	1.0	%	-	1.0%		1.0%
				Revenue growth rate		34.3	%	-	34.3%		34.3%
				EBITDA multiple	(b)	12.2x		-	12.2x		12.2x
Total	$	623,647,474

_____________________

(a) Used when market participant would take into account this premium or discount when pricing the investment.

(b) Used when market participant would use such multiples when pricing the investment.

(d) The Company generally uses prices provided by an independent pricing service which are non-binding indicative prices on or near the valuation date as the primary basis for the fair value determinations for quoted senior secured debt investments. Since these prices are non-binding, they may not be indicative of fair value. Each quoted price is evaluated by the Audit Committee in conjunction with additional information compiled by the Company, including financial performance, recent business developments and various other factors.

103

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of September 30, 2014:



Asset	Fair Value		Valuation Technique	Unobservable Input	Range					Weighted Average (c)
Senior secured debt	$	299,333,407	Bond yield approach	Capital structure premium	(a)	0.0	%	-	2.0%	0.3%
				Tranche specific risk premium / (discount)	(a)	(3.0	)%	-	5.0%	(0.1)%
				Size premium	(a)	0.0	%	-	1.5%	0.5%
				Industry premium / (discount)	(a)	(0.7	)%	-	1.1%	0.3%
Common equity/warrants	667,990		Market and income approaches	Weighted average cost of capital		7.0	%	-	21.0%	17.5%
				Company specific risk premium	(a)	4.0	%	-	5.0%	4.3%
				Revenue growth rate		11.7	%	-	41.9%	34.3%
				EBITDA multiple	(b)	9.5x		-	9.9x	9.6x
				Revenue multiple	(b)	4.1x		-	5.3x	4.7x
Total	$	300,001,397

_____________________

(a) Used when market participant would take into account this premium or discount when pricing the investment.

(b) Used when market participant would use such multiples when pricing the investment.

Under the bond yield approach, the significant unobservable inputs used in the fair value measurement of the Company's investments in debt securities are capital structure premium, tranche specific risk premium/(discount), size premium and industry premium/(discount). Significant increases or decreases in any of those inputs in isolation may result in a significantly lower or higher fair value measurement, respectively.

Under the market and income approaches, the significant unobservable inputs used in the fair value measurement of the Company's investments in debt or equity securities are the weighted average cost of capital, company specific risk premium, revenue growth rate, EBITDA multiple and revenue multiple. Significant increases or decreases in a portfolio company's weighted average cost of capital or company specific risk premium in isolation may result in a significantly lower or higher fair value measurement, respectively. Significant increases or decreases in the revenue growth rate or valuation multiples in isolation may result in a significantly higher or lower fair value measurement, respectively.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of September 30, 2015, and the level of each financial liability within the fair value hierarchy:



	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Citibank facility payable	$	136,659,800	$	136,659,800	$	—	$	—	$	136,659,800
Notes payable	186,366,000		186,366,000		—		—		186,366,000
Total	$	323,025,800	$	323,025,800	$	—	$	—	$	323,025,800

The carrying value of credit facility payable and notes payable approximates their fair values and are both included in Level 3 of the hierarchy.

Off-Balance Sheet Arrangements

The Company's off-balance sheet arrangements consisted of $76.8 million and $19.6 million of unfunded commitments to provide debt and equity financing to its portfolio companies as of September 30, 2015 and September 30, 2014, respectively. Such commitments are subject to the portfolio companies' satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities and are not reflected in the Company's Consolidated Statements of Assets and Liabilities.

104

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the composition of the unfunded commitments (consisting of revolvers, term loans and FSFR Glick JV subordinated notes and LLC equity interests) as of September 30, 2015 and September 30, 2014 is shown in the table below:



	September 30, 2015		September 30, 2014
FSFR Glick JV LLC	$	28,522,027	$	—
TIBCO Software, Inc.	5,300,000		—
Landslide Holdings, Inc.	5,000,000		5,000,000
Triple Point Group Holdings, Inc.	4,968,590		4,984,375
Executive Consulting Group, Inc.	4,800,000		—
BeyondTrust Software, Inc.	3,605,000		5,625,000
Motion Recruitment Partners LLC	2,900,000		—
Legalzoom.com, Inc.	2,607,018		—
All Web Leads, Inc.	2,454,572		—
Idera, Inc.	2,400,000		—
Teaching Strategies, LLC	2,400,000		—
PowerPlan, Inc.	2,100,000		—
Metamorph US 3, LLC	1,800,000		—
Dynatect Group Holdings, Inc.	1,800,000		—
My Alarm Center, LLC	1,287,499		—
NextCare, Inc.	1,221,621		1,555,642
Ameritox Ltd.	1,000,000		—
Valet Merger Sub, Inc.	1,000,000		—
TrialCard Incorporated	850,000		—
Internet Pipeline, Inc.	800,000		—
GTCR Valor Companies, Inc.	—		2,412,308
Total	$	76,816,327	$	19,577,325

Portfolio Composition

Summaries of the composition of the Company's investment portfolio at cost and fair value as a percentage of total investments are shown in the following tables:



	September 30, 2015				September 30, 2014
Cost:
Senior secured debt	$	574,038,984	90.61	%	$	296,598,712	99.83	%
Subordinated notes of FSFR Glick JV	53,095,597		8.38		—		—
LLC equity interests of FSFR Glick JV	5,882,376		0.93		—		—
Purchased equity	500,000		0.08		500,000		0.17
Total	$	633,516,957	100.00	%	$	297,098,712	100.00	%
Fair Value:
Senior secured debt	$	565,526,453	90.68	%	$	299,333,407	99.78	%
Subordinated notes of FSFR Glick JV	52,603,346		8.43		—		—
LLC equity interests of FSFR Glick JV	4,553,575		0.73		—		—
Purchased equity	809,394		0.13		500,000		0.17
Equity grants	154,706		0.03		167,990		0.05
Total	$	623,647,474	100.00	%	$	300,001,397	100.00	%

105

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company primarily invests in portfolio companies located in North America. The following tables show the portfolio composition by geographic region at cost and fair value as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company's business.



	September 30, 2015				September 30, 2014
Cost:
Northeast U.S.	$	215,112,970	33.96	%	$	70,083,331	23.59	%
Southwest U.S.	124,389,488		19.63		103,093,756		34.70
West U.S.	117,699,067		18.58		32,691,908		11.00
Southeast U.S.	80,767,518		12.75		31,062,867		10.46
Midwest U.S.	80,106,244		12.64		39,989,682		13.46
International	15,441,670		2.44		20,177,168		6.79
Total	$	633,516,957	100.00	%	$	297,098,712	100.00	%

Fair Value:
Northeast U.S.	$	211,240,832	33.87	%	$	70,855,117	23.62	%
Southwest U.S.	125,336,010		20.10		103,704,012		34.57
West U.S.	116,741,778		18.72		32,989,244		11.00
Southeast U.S.	80,689,139		12.94		31,405,771		10.47
Midwest U.S.	74,335,868		11.92		40,492,198		13.50
International	15,303,847		2.45		20,555,055		6.84
Total	$	623,647,474	100.00	%	$	300,001,397	100.00	%

106

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The composition of the Company's portfolio by industry at cost and fair values as of September 30, 2015 and September 30, 2014 were as follows:



	September 30, 2015				September 30, 2014
Cost:
Internet software & services	$	144,406,294	22.79	%	$	26,779,421	9.01	%
Healthcare services	89,505,451		14.13		37,994,732		12.79
Multi-sector holdings	58,977,973		9.31		—		—
Advertising	43,467,983		6.86		10,646,220		3.58
Integrated telecommunication services	38,058,587		6.01		18,084,837		6.09
Diversified support services	29,579,949		4.67		3,409,408		1.15
Specialized consumer services	28,717,092		4.53		3,176,762		1.07
Education services	21,743,979		3.43		9,339,700		3.14
Application software	21,328,090		3.37		73,039,482		24.58
Security & alarm services	17,760,120		2.80		—		—
Electronic equipment & instruments	13,720,000		2.17		—		—
Data processing & outsourced services	13,581,348		2.14		5,970,542		2.01
IT consulting & other services	11,953,631		1.89		—		—
Personal products	10,787,500		1.70		4,895,000		1.65
Food retail	10,300,523		1.63		—		—
Environmental & facilities services	9,997,808		1.58		—		—
Pharmaceuticals	9,825,000		1.55		9,925,000		3.34
Research & consulting services	9,283,714		1.47		4,891,000		1.65
Food distributors	8,912,991		1.41		—		—
Diversified capital markets	8,756,158		1.38		5,405,321		1.83
Construction & engineering	5,945,467		0.94		5,980,033		2.01
Wireless telecommunication services	5,746,610		0.91		2,935,833		0.99
Healthcare technology	4,959,398		0.78		7,893,842		2.66
Oil & gas equipment & services	4,418,746		0.70		4,710,411		1.59
Computer hardware	4,099,489		0.65		4,557,738		1.53
Industrial machinery	3,970,000		0.63		—		—
Fertilizers & agricultural chemicals	3,713,056		0.57		3,900,222		1.31
Casinos & gaming	—		—		13,168,822		4.43
Hotels, resorts & cruise lines	—		—		9,625,000		3.24
Healthcare equipment	—		—		8,682,798		2.92
Alternative carriers	—		—		4,940,705		1.66
Electrical components & equipment	—		—		4,924,907		1.66
Electronic components	—		—		4,567,143		1.54
Movies & entertainment	—		—		4,469,389		1.50
Specialty chemicals	—		—		3,184,444		1.07
Total	$	633,516,957	100.00	%	$	297,098,712	100.00	%

107

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	September 30, 2015				September 30, 2014
Fair Value:
Internet software & services	$	139,324,155	22.34	%	$	27,082,827	9.03	%
Healthcare services	86,013,066		13.79		38,192,786		12.73
Multi-sector holdings	57,156,921		9.16		—		—
Advertising	43,579,408		6.99		10,839,541		3.61
Integrated telecommunication services	38,288,184		6.14		18,395,831		6.13
Diversified support services	29,476,672		4.73		3,461,756		1.15
Specialized consumer services	28,795,048		4.62		3,193,060		1.06
Application software	21,882,649		3.51		73,759,754		24.59
Education services	21,386,129		3.43		9,376,798		3.13
Security & alarm services	17,763,106		2.85		—		—
Electronic equipment & instruments	13,717,288		2.20		—		—
Data processing & outsourced services	13,681,960		2.19		6,000,000		2.00
IT consulting & other services	12,082,836		1.94		—		—
Personal products	10,818,516		1.73		4,888,194		1.63
Food retail	10,432,750		1.67		—		—
Environmental & facilities services	10,000,000		1.60		—		—
Pharmaceuticals	9,819,438		1.57		9,887,945		3.30
Research & consulting services	9,316,658		1.49		4,941,631		1.65
Food distributors	8,970,000		1.44		—		—
Diversified capital markets	8,831,807		1.42		5,459,605		1.80
Construction & engineering	5,908,869		0.95		6,100,000		2.03
Wireless telecommunication services	5,454,246		0.87		2,965,368		0.99
Healthcare technology	4,838,813		0.78		8,011,422		2.67
Oil & gas equipment & services	4,364,794		0.70		4,708,121		1.57
Computer hardware	4,121,614		0.66		4,605,770		1.54
Industrial machinery	3,867,602		0.62		—		—
Fertilizers & agricultural chemicals	3,754,945		0.61		4,039,398		1.35
Casinos & gaming	—		—		13,300,000		4.43
Hotels, resorts & cruise lines	—		—		9,592,523		3.20
Healthcare equipment	—		—		8,900,000		2.97
Alternative carriers	—		—		4,987,468		1.66
Electrical components & equipment	—		—		4,860,113		1.62
Movies & entertainment	—		—		4,640,481		1.55
Electronic components	—		—		4,611,005		1.54
Specialty chemicals	—		—		3,200,000		1.07
Total	$	623,647,474	100.00	%	$	300,001,397	100.00	%

The Company's investments are generally in middle market companies in a variety of industries. At September 30, 2015, the Company had no single investment that represented greater than 10% of the total investment portfolio at fair value. At September 30, 2014, the Company had no single investment that represented greater than 25% of the total investment portfolio at fair value. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment and in any given year can be highly concentrated among several investments. For the year ended September 30, 2015, no individual investment produced income that exceeded 10% of total investment income. For the year ended September 30, 2014, no individual investment produced income that exceeded 15% of total investment income. For the period from June 29, 2013 through September 30, 2013, no individual investment produced income that exceeded 30% of total investment income.

108

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FSFR Glick JV LLC

In October 2014, the Company entered into an LLC agreement with GF Equity Funding 2014 LLC ("GF Equity Funding") to form FSFR Glick JV LLC ("FSFR Glick JV"). On April 21, 2015, FSFR Glick JV began investing primarily in senior secured loans of middle market companies. The Company co-invests in these securities with GF Equity Funding through its investment in FSFR Glick JV. FSFR Glick JV is managed by a four person Board of Directors, two of whom are selected by the Company and two of whom are selected by GF Equity Funding. FSFR Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of the FSFR Glick JV must be approved by an investment committee of the FSFR Glick JV consisting of one representative of the Company and one representative of GF Equity Funding (with approval of each required). The members provide capital to the FSFR Glick JV in exchange for LLC equity interests, and the Company and GF Debt Funding 2014 LLC ("GF Debt Funding"), an entity advised by affiliates of GF Equity Funding, provide capital to the FSFR Glick JV in exchange for subordinated notes (the "Subordinated Notes"). As of September 30, 2015, the Company and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC equity interests and the Company and GF Debt Funding owned 87.5% and 12.5%, respectively, of the Subordinated Notes. FSFR Glick JV is not an "eligible portfolio company" as defined in section 2(a)(46) of the 1940 Act.

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

As of September 30, 2015, FSFR Glick JV had total assets of $190.4 million. The Company's investment in FSFR Glick JV consisted of LLC equity interests of $4.6 million and Subordinated Notes of $52.6 million, at fair value as of September 30, 2015. The Subordinated Notes are junior in right of payment to the repayment of temporary contributions made by the Company to fund investments of FSFR Glick JV. FSFR Glick JV's portfolio consisted of middle market and other corporate debt securities of 29 "eligible portfolio companies" (as defined in the Section 2(a)(46) of the 1940 Act) as of September 30, 2015. As of September 30, 2015, the largest investment in a single company in FSFR Glick JV's portfolio at fair value was $14.9 million, and the five largest investments in portfolio companies in FSFR Glick JV totaled $58.2 million at fair value. The portfolio companies in FSFR Glick JV are in industries similar to those in which the Company may invest directly.

As of September 30, 2015, FSFR Glick JV had total capital commitments of $100.0 million, $87.5 million of which was from the Company and the remaining $12.5 million from GF Equity Funding and GF Debt Funding. Approximately $67.4 million in aggregate commitments were funded as of September 30, 2015, of which $59.0 million was from the Company. As of September 30, 2015, the Company had commitments to fund Subordinated Notes to FSFR Glick JV of $78.8 million, of which $25.7 million was unfunded. As of September 30, 2015, the Company had commitments to fund LLC equity interests in FSFR Glick JV of $8.7 million, of which $2.9 million was unfunded.

Additionally, FSFR Glick JV has a senior revolving credit facility with Credit Suisse AG, Cayman Island Branch ("Credit Suisse facility") with a stated maturity date of April 17, 2023, which permitted up to $200.0 million of borrowings as of September 30, 2015. Borrowings under the Credit Suisse facility are secured by all of the assets of FSFR Glick JV and all of the equity interests in FSFR Glick JV and bore interest at a rate equal to the 3-month LIBOR plus 2.5% per annum with no LIBOR floor as of September 30, 2015. Under the Credit Suisse facility, $122.4 million of borrowings were outstanding as of September 30, 2015.

Below is a summary of FSFR Glick JV's portfolio, followed by a listing of the individual loans in FSFR Glick JV's portfolio as of September 30, 2015:



		September 30, 2015
Senior secured loans (1)		$182,823,774
Weighted average current interest rate on senior secured loans (2)		6.93%
Number of borrowers in FSFR Glick JV		29
Largest loan to a single borrower (1)		$14,853,895
Total of five largest loans to borrowers (1)		$58,192,159

__________

(1) At fair value

(2) Computed using the annual interest rate on accruing senior secured loans

109

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FSFR Glick JV Loan Portfolio as of September 30, 2015

Portfolio Company (4)

Business Description

Investment Type

Maturity Date

Stated Interest Rate (1)

Principal

Fair Value (2)

Accruent, LLC (3)

Internet software & services

First Lien Term Loan

11/25/2019

LIBOR +6.25% (1% floor) cash

14,777,933

14,853,895

Ameritox Ltd. (3)

Healthcare services

First Lien Term Loan

6/23/2019

LIBOR+7.5% (1% floor) cash

7,794,458

7,048,923

Answers Corporation (3)

Internet software & services

First Lien Term Loan

10/1/2021

LIBOR+5.25% (1% floor) cash

7,959,900

5,857,173

Beyond Trust Software, Inc. (3)

Application software

First Lien Term Loan

9/25/2019

LIBOR+7% (1% floor) cash

13,665,783

13,549,671

Compuware Corporation (3)

Internet software & services

First Lien Term Loan B1

12/15/2019

LIBOR+5.25% (1% floor) cash

7,797,468

7,551,848

Idera, Inc. (3)

Internet software & services

First Lien Term Loan

11/5/2020

LIBOR+5.5% (0.5% floor) cash

3,160,000

Metamorph US 3, LLC (3)

Internet software & services

First Lien Term Loan

12/1/2020

LIBOR+5.5% (1% floor) cash

8,398,019

8,310,898

Motion Recruitment Partners LLC (3)

Diversified support services

First Lien Term Loan

2/13/2020

LIBOR+6% (1% floor) cash

9,562,500

9,459,652

NAVEX Global, Inc. (3)

Internet software & services

First Lien Term Loan

11/19/2021

LIBOR+4.75% (1% floor) cash

2,435,442

2,423,265

Teaching Strategies, LLC (3)

Education services

First Lien Term Loan

10/1/2019

LIBOR+5.5% (0.5% floor) cash

2,695,442

2,673,135

Teaching Strategies, LLC

Education services

First Lien Delayed Draw Term Loan

10/1/2019

LIBOR+5.5% (0.5% floor) cash

7,020,000

6,961,725

TrialCard Incorporated (3)

Healthcare services

First Lien Term Loan

12/31/2019

LIBOR+5% (1% floor) cash

7,332,387

7,232,017

Air Newco LLC

IT consulting & other services

First Lien Term Loan B

3/20/2022

LIBOR+5.5% (1% floor) cash

5,970,000

5,977,463

Fineline Technologies, Inc. (3)

Electronic equipment & instruments

First Lien Term Loan

5/5/2017

LIBOR+5.5% (1% floor) cash

8,820,000

8,818,256

LegalZoom.com, Inc. (3)

Specialized consumer services

First Lien Term Loan

5/13/2020

LIBOR+7% (1% floor) cash

9,950,000

9,882,838

GK Holdings, Inc.

IT consulting & other services

First Lien Term Loan

1/20/2021

LIBOR+5.5% (1% floor) cash

3,473,750

3,460,723

Vitera Healthcare Solutions, LLC

Healthcare technology

Second Lien Term Loan

11/4/2021

LIBOR+8.25% (1% floor) cash

3,000,000

2,925,000

TIBCO Software, Inc. (3)

Internet software & services

First Lien Term Loan

12/4/2020

LIBOR+5.5% (1% floor) cash

2,328,300

2,310,838

CM Delaware LLC

Advertising

First Lien Term Loan

3/18/2021

LIBOR+5.25% (1% floor) cash

2,152,041

2,143,971

New Trident Holdcorp, Inc. (3)

Healthcare services

First Lien Term Loan B

7/31/2019

LIBOR+5.25% (1.25% floor) cash

2,064,508

2,000,003

Central Security Group, Inc. (3)

Specialized consumer services

First Lien Term Loan

10/6/2020

LIBOR+5.25% (1% floor) cash

5,969,925

5,910,225

Language Line, LLC (3)

Integrated telecommunication services

First Lien Term Loan

7/7/2021

LIBOR+5.5% (1% floor) cash

10,000,000

10,020,850

All Web Leads, Inc. (3)

Advertising

First Lien Term Loan

6/30/2020

LIBOR+6.5% (1% floor) cash

9,937,500

9,884,905

Auction.com, LLC

Internet software & services

First Lien Term Loan

5/12/2019

LIBOR+5.0% (1% floor) cash

3,980,000

3,970,050

Aptos, Inc. (3)

Data processing & outsourced services

First Lien Term Loan B

6/23/2022

LIBOR+5.25% (0.75% floor) cash

7,980,000

7,960,050

Vubiquity, Inc.

Application software

First Lien Term Loan

8/12/2021

LIBOR+5.5% (1% floor) cash

4,200,000

4,179,000

Too Faced Cosmetics, LLC (3)

Personal products

First Lien Term Loan B

7/7/2021

LIBOR+5.0% (1% floor) cash

3,000,000

American Seafoods Group LLC (3)

Food distributors

First Lien Term Loan

8/19/2021

LIBOR+5.0% (1% floor) cash

4,000,000

3,980,000

Worley Claims Services, LLC (3)

Internet software & services

First Lien Term Loan

10/31/2020

LIBOR+8.0% (1% floor) cash

4,339,095

4,317,400

Poseidon Merger Sub, Inc. (3)

Advertising

Second Lien Term Loan

8/15/2023

LIBOR+8.5% (1% floor) cash

3,000,000

Total Portfolio Investments

186,764,451

182,823,774

__________

(1) Represents the current interest rate as of September 30, 2015. All interest rates are payable in cash, unless otherwise noted.

(2) Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.

(3) This investment is held by both the Company and FSFR Glick JV at September 30, 2015.

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FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) The principal balance outstanding for all floating rate loans is indexed to LIBOR and an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.

The amortized cost and fair value of the Subordinated Notes held by the Company was $53.1 million and $52.6 million, respectively, as of September 30, 2015. The Subordinated Notes pay a weighted average interest rate of LIBOR plus 8.0% per annum and also entitle the holders thereof to receive a portion of the excess cash flow from the investment portfolio, which may result in a return greater than the contractual coupon. For the period ended September 30, 2015, the Company earned interest income of $1.8 million on its investment in the Subordinated Notes. The cost and fair value of the LLC equity interests held by the Company was $5.9 million and $4.6 million, respectively, as of September 30, 2015. The Company earned dividend income of $0.7 million for the period ended September 30, 2015 with respect to its LLC equity interests. The LLC equity interests are dividend producing to the extent there is residual income to be distributed on a quarterly basis.

Below is certain summarized financial information for FSFR Glick JV as of September 30, 2015 and for the period ended September 30, 2015:



	September 30, 2015
Selected Balance Sheet Information:
Investments in loans at fair value (cost $184,900,371)	$	182,823,774
Cash and cash equivalents	3,127,824
Restricted cash	2,188,133
Other assets	2,253,143
Total assets	$	190,392,874

Senior credit facility payable	$	122,380,636
Subordinated notes payable at fair value (proceeds $60,680,682)	60,118,109
Other liabilities	2,690,043
Total liabilities	$	185,188,788
Members' equity	5,204,086
Total liabilities and members' equity	$	190,392,874



	Year ended September 30, 2015
Selected Statement of Operations Information:
Interest income	$	4,295,162
Total investment income	4,295,162
Interest expense	3,408,486
Other expenses	56,281
Total expenses (1)	3,464,767
Net unrealized depreciation	(1,514,024		)
Net loss	$	(683,629	)

__________

(1) There are no management fees or incentive fees charged at FSFR Glick JV.

FSFR Glick JV has elected to fair value the Subordinated Notes issued to the Company and GF Debt Funding under ASC 825. The Subordinated Notes are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model.

During the period ended September 30, 2015, the Company sold $179.8 million of senior secured debt investments at fair value to FSFR Glick JV in exchange for $121.0 million cash consideration, $52.9 million of subordinated notes in FSFR Glick JV and $5.9 million of LLC equity interests in FSFR Glick JV. The Company recognized a $2.0 million realized loss on these transactions.

In accordance with SEC Regulation S-X Rules 3-09 and 4-08(g), the Company must determine which of its unconsolidated portfolio companies, if any, are considered "significant subsidiaries." After performing this analysis for all periods presented, the

111

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company determined that FSFR Glick JV is a significant subsidiary for the year ended September 30, 2015 under the asset test of Rule 1-02(w) of Regulation S-X. However, the audited financial statements are not required since only the asset test was triggered, and as such, the disclosures herein of the summary financial information of FSFR Glick JV satisfies Rule 4-08(g) of Regulation S-X.

Note 5. Fee Income

The Company receives a variety of fees in the ordinary course of business including servicing, advisory, structuring and prepayment fees, which are classified as fee income and recognized as they are earned. The majority of fee income is comprised of advisory fees which are recognized at investment close and are non-recurring in nature.

Note 6. Share Data

On July 17, 2013, the Company completed an initial public offering of 6,666,668 shares of its common stock at the public offering price of $15.00 per share. The proceeds of its initial public offering totaled $100.0 million and all offering costs were borne by the Company's Investment Adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses.

On August 19, 2014, the Company completed a follow-on public offering of 22,800,000 shares of its common stock at the public offering price of $12.91. The net proceeds totaled $276.2 million after deducting underwriting commissions of $17.7 million and offering costs of $0.5 million.

The following sets forth the computation of basic and diluted earnings per share, pursuant to ASC 260-10 Earnings per Share, year ended September 30, 2015 and September 30, 2014 and for the period from June 29, 2013 through September 30, 2013:



	Year ended September 30, 2015		Year ended September 30, 2014		Period from June 29, 2013 (commencement of operations) through September 30, 2013
Earnings per common share — basic and diluted:
Net increase in net assets resulting from operations	$	15,912,082	$	9,363,957	$	703,749
Weighted average common shares outstanding	29,466,768		9,290,330		5,319,250
Earnings per common share — basic and diluted	$	0.54	$	1.01	$	0.13

The Company's Board of Directors has declared the following distributions, including shares issued under the Company's dividend reinvestment plan ("DRIP"), from inception to September 30, 2015:



Frequency	Date Declared	Record Date	Payment Date	Amount per Share	Total Distribution	DRIP Shares Issued (1)	DRIP Shares Value
Quarterly	October 8, 2013	October 21, 2013	October 31, 2013	$0.01	$66,668	—	$—
Quarterly	October 8, 2013	December 16, 2013	January 31, 2014	0.20	1,333,354	606	8,288
Quarterly	January 3, 2014	March 31, 2014	April 15, 2014	0.23	1,533,357	469	6,734
Quarterly	February 11, 2014	June 30, 2014	July 15, 2014	0.27	1,800,027	1,279	17,924
Quarterly	May 12, 2014	September 15, 2014	October 15, 2014	0.30	8,840,030	17,127	191,093
Quarterly	September 9, 2014	December 15, 2014	January 15, 2015	0.30	8,840,030	23,183	242,678
Quarterly	November 20, 2014	April 2, 2015	April 15, 2015	0.30	8,840,030	28,296	307,794
Monthly	February 4, 2015	May 1, 2015	May 15, 2015	0.10	2,946,677	5,045	50,830
Monthly	February 4, 2015	June 1, 2015	June 15, 2015	0.10	2,946,677	5,296	53,237
Monthly	February 4, 2015	July 1, 2015	July 15, 2015	0.10	2,946,677	14,572	137,464
Monthly	February 4, 2015	August 3, 2015	August 17, 2015	0.10	2,946,677	6,174	56,388
Monthly	July 10, 2015	September 4, 2015	September 15, 2015	0.075	2,210,007	4,575	41,121
Monthly	July 10, 2015	October 6, 2015	October 15, 2015	0.075	2,210,008	12,080	108,563
Monthly	July 10, 2015	November 5, 2015	November 16, 2015	0.075	2,210,008	13,269	116,730

_______________________

(1) Shares were purchased on the open market and distributed.

112

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Borrowings

Natixis Facility

On November 1, 2013, FS Senior Funding LLC, the Company's wholly-owned, special purpose financing subsidiary, entered into a $100 million revolving credit facility (the "Natixis facility") with the lenders referred to therein, Natixis, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent and custodian.

Borrowings under the Natixis facility were subject to certain customary advance rates and accrued interest at a rate equal to either the applicable commercial paper rate (subject to an overall cap) plus 1.90% in the case of a lender that is a commercial paper conduit or otherwise the three-month LIBOR plus 2.00% per annum. In addition, there was a commitment fee payable on the undrawn amount under the Natixis facility equal to 1.00% (or 0.50% for the first six months after the closing date) of such undrawn amount. Interest and commitment fees were payable quarterly in arrears. The reinvestment period under the Natixis facility ended 18 months after the closing date and the Natixis facility was scheduled to mature on November 1, 2021.

On October 16, 2014, the Company entered into agreements to expand the Natixis facility from $100 million to $200 million, including a $100 million term loan and a $100 million revolving credit facility. Fifth Third Bank ("Fifth Third") also joined the facility as a term loan lender. The $50 million term loan provided by Fifth Third was priced at LIBOR plus 2% per annum, and the $100 million revolving credit facility and $50 million term loan provided by Natixis, New York Branch, were priced at the applicable commercial paper rate plus 1.9% per annum. The facility maturity date remained unchanged.

Borrowings under the Natixis facility were secured by all of the assets of FS Senior Funding LLC and all of the Company's equity interest in FS Senior Funding LLC. The Company used the Natixis facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Natixis facility was subject to the satisfaction of certain conditions. The Company's borrowings under the Natixis facility bore interest at a weighted average interest rate of 2.253% and 2.203% for the years ended September 30, 2015 and September 30, 2014, respectively. For the years ended September 30, 2015 and September 30, 2014, the Company recorded interest expense of $4.8 million and $1.6 million, respectively, related to the Natixis facility.

On May 28, 2015, the Company completed a $309.0 million debt securitization transaction (the "2015 Debt Securitization"), the proceeds of which were used to repay the entire amount outstanding under the Natixis facility. In connection therewith, the Amended and Restated Loan and Servicing Agreement and other related documents governing the Natixis facility were also terminated. As such, the Company had no borrowings outstanding or capacity available under the Natixis facility as of September 30, 2015. Upon termination of the Natixis facility, the Company accelerated the $2.1 million remaining unamortized fee balance into interest expense during the year ended September 30, 2015.

Citibank Facility

On January 15, 2015, FS Senior Funding II LLC, the Company's wholly-owned, special purpose financing subsidiary, entered into a $175 million revolving credit facility (the "Citibank facility") with the lenders referred to therein, Citibank, N.A., as administrative agent, and Wells Fargo Bank, N. A., as collateral agent and custodian.

Borrowings under the Citibank facility are subject to certain customary advance rates and accrued interest at a rate equal to LIBOR plus 2.00% per annum on broadly syndicated loans and LIBOR plus 2.25% per annum on all other eligible loans during the reinvestment period, and rates equal to LIBOR plus 3.50% per annum and LIBOR plus 4.00% per annum during the subsequent two years, respectively. In addition, there is a commitment fee payable on the undrawn amount under the credit facility of either 0.50% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility exceed 50% of the aggregate commitments by lenders to make advances on such day) or 0.75% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility do not exceed 50% of the aggregate commitments by lenders to make advances on such day) for the duration of the reinvestment period. Interest and commitment fees are payable quarterly in arrears. The reinvestment period under the credit facility ends three years after the closing date and the credit facility will mature on January 15, 2020. The Citibank facility does not require the Company to comply with significant financial covenants.

As of September 30, 2015, the Company had $136.7 million outstanding under the Citibank facility. Borrowings under the Citibank facility are secured by all of the assets of FS Senior Funding II LLC and all of the Company's equity interests in FS Senior Funding II LLC. The Company may use the Citibank facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Citibank facility is subject to the satisfaction of certain conditions. The Company's borrowings under the Citibank facility bore interest at a weighted average interest rate of 2.516% for the year ended September 30, 2015. For the year ended September 30, 2015, the Company recorded interest expense of $2.6 million related to the Citibank facility.

113

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt Securitization

On May 28, 2015, the Company completed its $309.0 million 2015 Debt Securitization consisting of $222.6 million in senior secured notes ("2015 Notes") and $86.4 million of unsecured subordinated notes ("2015 Subordinated Notes"). The notes offered in the 2015 Debt Securitization were issued by FS Senior Funding Ltd. (the "2015 Issuer"), a wholly-owned subsidiary of the Company, through a private placement. The 2015 Notes are secured by the assets held by the 2015 Issuer. The 2015 Debt Securitization consists of $126.0 million Class A-T Senior Secured 2015 Notes of the 2015 Issuer which bear interest at three-month LIBOR plus 1.80% per annum; $29.0 million Class A-S Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 1.55% per annum, with a step-up in spread to 2.10% to occur in October 2016; $20.0 million Class A-R Senior Secured Revolving Notes of the 2015 Issuer which bear interest at a rate of Commercial Paper ("CP") plus 1.80% per annum, collectively, the "Class A Notes;" and $25.0 million Class B Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 2.65% per annum. In partial consideration for the loans transferred to the 2015 Issuer as part of the 2015 Debt Securitization, the Company currently retains the entire $22.6 million of the Class C Senior Secured Notes (which the Company purchased at 98.0%) and the entire $86.4 million of the 2015 Subordinated Notes. The Class A Notes and Class B Notes are included in the Company's September 30, 2015 Consolidated Statements of Assets and Liabilities as notes payable. As of September 30, 2015, the Class C Notes and the 2015 Subordinated Notes were eliminated in consolidation.

The Company serves as collateral manager to the 2015 Issuer under a collateral management agreement. The Company is entitled

to a fee for its services as collateral manager. The Company has retained Fifth Street Management LLC, the Company’s Investment Adviser, to furnish collateral management sub-advisory services to the Company pursuant to a sub-collateral management agreement. Fifth Street Management LLC intends to waive its right to such sub-collateral management fees in respect of the 2015 Debt Securitization.

The collateral management agreement does not include any incentive fee payable to the Company as collateral manager or payable to Fifth Street Management LLC as sub-advisor under the sub-collateral management agreement.

Through May 28, 2019, all principal collections received on the underlying collateral may be used by the 2015 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as sub-collateral manager of the 2015 Issuer and in accordance with the Company's investment strategy. All note classes are scheduled to mature on May 28, 2025.

The aggregate accrued interest payable on the 2015 Notes at September 30, 2015 was approximately $1.5 million. Deferred debt issuance costs consist of fees and expenses incurred in connection with debt offerings. As of September 30, 2015, the Company had a deferred debt issuance costs balance of approximately $2.8 million associated with the 2015 Debt Securitization.



Interest expense	$	1,476,995
Amortization of debt issuance costs	120,877
Total interest and other debt financing expenses	$	1,597,872
Cash paid for interest expense	$	—
Annualized average interest rate	2.39		%
Average outstanding balance	$	61,900,170

114

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The classes, interest rates, spread over LIBOR, cash paid for interest and interest expense of each of the Class A-T, A-S, A-R, B and C notes for the year ended September 30, 2015 is as follows:



				Year ended September 30, 2015
	Stated Interest Rate	LIBOR Spread (basis points)		Cash Paid for Interest		Interest Expense
Class A-T Notes	2.15103%	180		$	—	$	948,605
Class A-S Notes	1.90103%	155	(1)	—		192,955
Class A-R Notes	1.99075%	180	(2)	—		72,845
Class B Notes	3.00103%	265		—		262,590
Class C Notes	3.60103%	325	(3)	—		—
Total				$	—	$	1,476,995

_______________________

(1) Step-up in spread to occur in October 2016.

(2) Includes 1.0% undrawn fee. Class A-R Notes were partially undrawn during the period ending September 30, 2015.

(3) The Company holds all Class C Notes outstanding and thus has not recorded any related interest expense.

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A, B, C and Subordinated Notes are as follows:

Description

Class A-T Notes

Class A-S Notes

Class A-R
Notes

Class B Notes

Class C Notes

Subordinated Notes

Type

Senior Secured Floating Rate Term Debt

Senior Secured Floating Rate Revolver

Senior Secured Floating Rate Term Debt

Subordinated Term Notes

Amount Outstanding

$126,000,000

$29,000,000

$6,366,000

$25,000,000

$22,575,680

$86,400,000

Moody's Rating

"Aaa"

"Aa2"

S&P Rating

"AAA"

Interest Rate

LIBOR + 1.80%

LIBOR + 1.55%*

CP + 1.80% **

LIBOR + 2.65%

LIBOR + 3.25%

Stated Maturity

May 28, 2025

_______________________

* Spread to step-up to 2.10% in October 2016.

** Carries a 1.0% undrawn fee.

The proceeds of the private placement of the Class A Notes and the Class B Notes of the 2015 Securitization Issuer, net of discount and debt issuance costs, may be used to fund a portion of the 2015 Issuer's loan origination activities and for general corporate purposes. The creditors of the 2015 Issuer have received security interests in the assets owned by the 2015 Issuer and such assets are not intended to be available to the Creditors of the Company (or any other affiliate of the Company). As part of the 2015 Debt Securitization, the Company entered into master loan sale agreements under which the Company agreed to directly or indirectly sell or contribute certain senior secured debt investments (or participation interests therein) to the 2015 Issuer, and to purchase or otherwise acquire the 2015 Subordinated Notes of the 2015 Issuer, as applicable. The 2015 Notes (other than the Class C Notes) are the secured obligations of the 2015 Issuer and indentures governing the 2015 Notes include customary covenants and events of default.

The 2015 Debt Securitization requires the Company to comply with certain monthly financial covenants, including overcollateralization and interest coverage tests. The Company is currently in compliance with all financial covenants under the Debt Securitization.

Note 8. Interest and Dividend Income

Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. In accordance with the Company's policy, accrued interest is evaluated periodically for collectability. The Company stops accruing interest on investments when it is determined that collection is doubtful. Distributions of income from portfolio companies are generally recorded as dividend income on the ex-dividend date.

As of September 30, 2015, there was one investment on which the Company stopped accruing OID income. While this investment was current with its cash interest payments, the Company reversed $13,816 of noncash income related to this investment for

115

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the quarter. As of September 30, 2014 and September 30, 2013, there were no investments on which the Company had stopped accruing cash interest or OID income. For the year ended September 30, 2014 and for the period from June 29, 2013 through September 30, 2013, there were no income non-accrual amounts.

The percentages of the Company's debt investments at cost and fair value by accrual status for the year ended September 30, 2015 were as follows:



	September 30, 2015
	Cost		% of Debt Portfolio		Fair Value		% of Debt Portfolio
Accrual	$	625,911,700	98.80	%	$	619,219,635	99.29	%
Noncash non-accrual	7,605,257		1.20		4,427,839		0.71
Total	$	633,516,957	100.00	%	$	623,647,474	100.00	%

The non-accrual status of the Company's portfolio investments as of September 30, 2015 was as follows:



		September 30, 2015
Answers Corporation - second lien term loan		Noncash non-accrual

Income non-accrual amount for the year ended September 30, 2015 is presented in the following table.



	Year ended September 30, 2015
OID income	13,816
Total	$	13,816

Note 9. Taxable/Distributable Income and Dividend Distributions

Taxable income may differ from net increase (decrease) in net assets resulting from operations primarily due to unrealized appreciation (depreciation) on investments, as investment gains and losses are not included in taxable income until they are realized.

Listed below is a reconciliation of net increase in net assets resulting from operations to taxable income year ended September 30, 2015, including cumulative prior period items related to the Revision:



Net increase in net assets resulting from operations	$	15,912,082
Net unrealized depreciation on investments	12,772,168
Book/tax difference due to deferred loan fees	3,677,142
Book/tax difference due to capital losses not recognized	—
Other book/tax differences	2,035,345
Taxable/Distributable Income (1)	$	34,396,737

__________________


(1)	The Company's taxable income year ended September 30, 2015 is an estimate and will not be finally determined until the Company files its tax return for the fiscal year ending September 30, 2015. Therefore, the final taxable income may be different than the estimate.

As of September 30, 2015, the components of accumulated undistributed income on a tax basis were as follows:



Undistributed ordinary income, net (RIC status)	$	2,028,702
Realized capital gains (losses)	691,260
Unrealized gains, net	(17,295,681		)

The effect of the permanent book/tax reclassifications during the fiscal year ended September 30, 2015 resulted in increase/(decrease) to the components of net assets on the Consolidated Statements of Assets and Liabilities as of September 30, 2015 as follows:



Undistributed Net Investment Income	$	(278,397	)
Accumulated Net Realized Gain/(Loss) on Investments	278,397
Paid-In Capital	—

116

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For financial reporting purposes, capital accounts have been adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to the tax treatment of prepayment fees, nondeductible excise taxes paid, reclassification of distributions paid and return of capital distributions.

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Act") was enacted, which changed various technical rules governing the tax treatment of RICs. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the Company is permitted to carry forward any net capital losses, if any, incurred in taxable years beginning after the date of enactment for an unlimited period.

Distributions to stockholders are recorded on the ex-dividend date. The Company is required to distribute annually to its stockholders at least 90% of its net taxable income and net realized short-term capital gains in excess of net realized long-term capital losses for each taxable year in order to be eligible for the tax benefits allowed to a RIC under Subchapter M of the Code. The Company anticipates paying out as a dividend all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the Board of Directors and is based on management's estimate of the Company's annual taxable income. The Company maintains an "opt out" dividend reinvestment plan for its stockholders.

For income tax purposes, the Company estimates that its distributions for the calendar year 2015 will be composed primarily of ordinary income, and will be reflected as such on the Form 1099-DIV for the calendar year. To the extent that the Company’s taxable earnings fall below the amount of dividends declared, however, a portion of the total amount of the Company’s dividends for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.

As a RIC, the Company is also subject to a U.S. federal excise tax based on distributive requirements of its taxable income on a calendar year basis. The Company incurred a de minimis U.S. federal excise tax for calendar year 2013. The Company did not incur a U.S. federal excise tax for calendar year 2014 and does not expect to incur a U.S. federal excise tax for calendar year 2015.

Note 10. Realized Gains or Losses and Net Unrealized Appreciation or Depreciation on Investments

Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with the Company's determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.

Net unrealized appreciation or depreciation reflects the net change in the valuation of the portfolio pursuant to the Company's valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation.

During the year ended September 30, 2015, the Company recorded investment realization events, including the following:


•	In October 2014, the Company received a cash payment of $6.8 million from Answers Corporation in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In December 2014, the Company received a cash payment of $4.9 million from Survey Sampling International, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In April 2015, the Company received a cash payment of $9.4 million from Travel Leaders Group, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In April 2015, the Company received a cash payment of $11.2 million from IPC Systems, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In April 2015, the Company received a cash payment of $2.5 million from Symphony Teleca Services, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In May 2015, the Company received a cash payment of $4.1 million from GOBP Holdings, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;

117

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


•	In August 2015, the Company received a cash payment of $14.3 million from AMAG Pharmaceuticals, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction; and


•	During the year ended September 30, 2015, the Company received cash payments of $480.4 million in connection with full or partial payoffs and sales of debt investments in the open market and recorded a net realized gain of $0.4 million.

During the year ended September 30, 2014, the Company recorded investment realization events, including the following:


•	In March 2014, the Company received a cash payment of $5.0 million from Bellisio Foods, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In May 2014, the Company received a cash payment of $8.8 million from American Auto Auction Group, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;


•	In August 2014, the Company received a cash payment of $4.5 million from Quorum Business Solutions (USA), Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;


•	In August 2014, the Company received a cash payment of $7.5 million from TriMark USA LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and


•	During the year ended September 30, 2014, the Company received cash payments of $121.8 million in connection with full or partial payoffs and sales of debt securities and recorded a net realized gain of $1.3 million.

During the period from June 29, 2013 through September 30, 2013, the Company recorded the following realization event:


•	In September 2013, the Company received $4.0 million in connection with the sale of the Company's investment in BMC Software Finance, Inc. The debt investment was exited at par and a realized gain of $40,000 was recorded on this transaction.

During the year ended September 30, 2015, the Company recorded net unrealized depreciation of $12.8 million. This consisted of $11.8 million of net unrealized depreciation on debt investments and $1.0 million of net unrealized depreciation on equity investments. During the year ended September 30, 2014, the Company recorded net unrealized appreciation of $2.3 million, consisting of $2.1 million of unrealized appreciation on debt investments and $0.2 million of unrealized appreciation on equity investments. During the period from June 29, 2013 through September 30, 2013, the Company recorded net unrealized appreciation of $0.6 million on debt investments.

Note 11. Concentration of Credit Risks

The Company places its cash in financial institutions and at times such balances may be in excess of the FDIC insured limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.

Note 12. Related Party Transactions

The Company has entered into an investment advisory agreement with the Investment Adviser. Under the investment advisory agreement, the Company pays the Investment Adviser a fee for its services consisting of two components — a base management fee and an incentive fee.

Base management Fee

The base management fee is calculated at an annual rate of 1% of the Company's gross assets (i.e., total assets held before deduction of any liabilities), which includes any investments acquired with the use of leverage and excludes any cash, cash equivalents and restricted cash. The base management fee is calculated based on the average value of the Company's gross assets at the end of the two most recently completed quarters. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.

For the year ended September 30, 2014, the Investment Adviser voluntarily agreed to waive the portion of the base management fee attributable to assets funded with proceeds from the August 2014 offering, which resulted in a waiver of $0.2 million.

118

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended September 30, 2015 and September 30, 2014 and for the period from June 29, 2013 through September 30, 2013, base management fees (net of waivers) were $5.9 million, $1.6 million and $0.1 million, respectively. At September 30, 2015 and September 30, 2014, respectively, the Company had liabilities on its Consolidated Statements of Assets and Liabilities in the amount of $1.7 million and $0.5 million, reflecting the unpaid portion of the base management fee payable to the Investment Adviser.

Incentive Fee

The incentive fee portion of the investment advisory agreement has two parts. The first part ("Part I Incentive Fee") is calculated and payable quarterly in arrears based on the Company's "Pre-Incentive Fee Net Investment Income" for the immediately preceding fiscal quarter. For this purpose, "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the fiscal quarter, minus the Company's operating expenses for the quarter (including the base management fee, expenses payable under the Company's administration agreement, and any interest expense and dividends paid on any issued and outstanding indebtedness or preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company's net assets at the end of the immediately preceding fiscal quarter, will be compared to a "hurdle rate" of 1.5% per quarter (6% annualized), subject to a "catch-up" provision measured as of the end of each fiscal quarter. The Company's net investment income used to calculate this part of the incentive fee is also included in the amount of its gross assets used to calculate the 1% base management fee. The operation of the incentive fee with respect to the Company's Pre-Incentive Fee Net Investment Income for each quarter is as follows:


•	No incentive fee is payable to the Investment Adviser in any fiscal quarter in which the Company's Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.5% (the "preferred return" or "hurdle");

•

50% of the Company's Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser. The Company refers to this portion of its Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) as the "catch-up." The "catch-up" provision is intended to provide the Investment Adviser with an incentive fee of 20% on all of the Company's Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when the Company's Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal quarter; and


•	20% of the amount of the Company's Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved (20% of all Pre-Incentive Fee Net Investment Income thereafter is allocated to the Investment Adviser).

For the years ended September 30, 2015 and September 30, 2014, the Part I incentive fee was $5.7 million and $0.7 million, respectively. For the period from June 29, 2013 through September 30, 2013, there was no Part I incentive fee paid. At September 30, 2015 and September 30, 2014, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $0.3 million and $0.1 million, respectively, reflecting the unpaid portion of the Part I incentive fee payable to the Investment Adviser.

The second part ("Part II Incentive Fee" or "capital gain incentive fee") of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date) and equals 20% of the Company's realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

In accordance with GAAP, the Company cumulatively accrued a capital gain incentive fee as of September 30, 2014 of $0.9 million. Of this amount, $0.8 million was reversed due to unrealized losses on the investment portfolio during the year ended September 30, 2015 and $0.1 million was payable to the Investment Adviser as of September 30, 2015. GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gain incentive fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains incentive fee equal to 20% of such cumulative amount, less the aggregate amount of actual capital gain incentive fees paid or capital gains incentive

119

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fees accrued under GAAP in all prior periods. As of September 30, 2015, the Company has not paid any capital gain incentive fees since inception. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior periods or a reversal of previously recorded expense if such cumulative amount is less than in the prior periods. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future.

Indemnification

The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, the Company's Investment Adviser and its officers, managers, agents, employees, controlling persons, members (or their owners) and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of the Investment Adviser's services under the investment advisory agreement or otherwise as the Company's Investment Adviser.

Administration Agreement

On January 1, 2015, the Company entered into an administration agreement with its administrator, FSC CT LLC ("FSC CT"), under substantially similar terms as its prior administration agreement with FSC CT, Inc. Under the administration agreement with FSC CT, administrative services are provided to the Company, including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreement, FSC CT also performs or oversees the performance of the Company's required administrative services, which includes being responsible for the financial records which the Company is required to maintain and preparing reports to the Company's stockholders and reports filed with the SEC. In addition, FSC CT assists the Company in determining and publishing the Company's net asset value, overseeing the preparation and filing of the Company's tax returns and the printing and dissemination of reports to the Company's stockholders, and generally overseeing the payment of the Company's expenses and the performance of administrative and professional services rendered to the Company by others. For providing these services, facilities and personnel, the Company provides reimbursement for the allocable portion of overhead and other expenses incurred in connection with payments of rent at market rates and the Company's allocable portion of the costs of compensation and related expenses of the Company's chief financial officer and chief compliance officer and their staffs. Such reimbursement is at cost with no profit to, or markup by, FSC CT. FSC CT may also provide, on the Company's behalf, managerial assistance to the Company's portfolio companies. The administration agreement may be terminated by either party without penalty upon 60 days' written notice to the other party.

For the years ended September 30, 2015 and September 30, 2014 and for the period from June 29, 2013 through September 30, 2013, the Company accrued administrative expenses of $1.3 million $0.7 million and $0.1 million, respectively. At September 30, 2015 and September 30, 2014, $0.4 million and $0.2 million, respectively, was included in Due to FSC CT in the Consolidated Statements of Assets and Liabilities.

120

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Financial Highlights



	Year ended September 30, 2015			Year ended September 30, 2014			Period from June 29, 2013 (commencement of operations) through September 30, 2013
Net asset value at beginning of period	$	12.65		$	15.11		$	—
Net investment income (5)	0.96			0.62			—
Net unrealized appreciation (depreciation) on investments (5)	(0.43		)	0.24			0.12
Net realized gain on investments (5)	0.01			0.14			0.01
Distributions to stockholders from net investment income	(1.07		)	(0.62		)	—
Distributions to stockholders classified as tax return of capital	—			(0.39		)	—
Net issuance of common stock	(0.01		)	(2.45		)	14.98
Net asset value at end of period	$	12.11		$	12.65		$	15.11
Per share market value at beginning of period	$	11.82		$	13.54		$	15.00
Per share market value at end of period	$	8.73		$	11.82		$	13.54
Total return (1)	(15.76		)%	(8.20		)%	(9.73		)%
Common shares outstanding at beginning of period	29,466,768			6,666,768			100
Common shares outstanding at end of period	29,466,768			29,466,768			6,666,768
Net assets at beginning of period	$	372,677,678		$	100,705,269		$	1,500
Net assets at end of period	$	356,807,103		$	372,677,678		$	100,705,269
Average net assets (2)	$	368,839,422		$	132,873,801		$	80,133,138
Ratio of net investment income to average net assets (3)	7.67		%	4.34		%	0.08		%
Ratio of total expenses to average net assets (3)	6.29		%	5.20		%	2.14		%
Ratio of base management fee waiver to average net assets (3)	—		%	(0.12		)%	—		%
Ratio of net expenses to average net assets (3)	6.29		%	5.08		%	2.14		%
Ratio of portfolio turnover to average investments at fair value	21.48		%	78.96		%	16.44		%
Weighted average outstanding debt (4)	$	243,240,691		$	49,833,018		$	—
Average debt per share (5)	$	8.25		$	5.36		$	—

_______________



(1)	Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company's DRIP. Total return is not annualized during interim periods.
(2)	Calculated based upon the weighted average net assets for the period.
(3)	Periods less than twelve months are annualized.
(4)	Calculated based upon the weighted average of loans payable for the period.
(5)	Calculated based upon weighted average shares outstanding for the period.

121

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14. Selected Quarterly Financial Data (unaudited)

Selected unaudited quarterly financial data for Fifth Street Senior Floating Rate Corp. for the years ended September 30, 2015 and 2014 and the period from June 29, 2013 through September 30, 2013 are below:



	For the three months ended
(dollars in thousands, except per share amounts)	September 30, 2015			June 30, 2015 (revised)			March 31, 2015 (revised)		December 31, 2014 (revised)			September 30, 2014 (revised)		June 30, 2014 (revised)		March 31, 2014 (revised)		December 31, 2013 (revised)		September 30, 2013 (revised)
Total investment income	$	14,068		$	14,140		$	11,341	$	11,923		$	4,918	$	3,043	$	2,910	$	1,646	$	456
Net investment income	7,402			7,086			6,294		7,496			2,297		1,263		1,438		765		16
Net realized and unrealized gain (loss)	(7,115		)	(4,632		)	393		(1,012		)	2,070		733		409		389		688
Net increase in net assets resulting from operations	287			2,454			6,687		6,484			4,367		1,996		1,847		1,154		704
Net assets	356,807			361,782			368,168		370,322			372,678		100,969		100,773		100,459		100,705
Total investment income per common share	$	0.48		$	0.48		$	0.38	$	0.40		$	0.29	$	0.46	$	0.44	$	0.25	$	0.09
Net investment income per common share	0.25			0.24			0.21		0.25			0.13		0.19		0.22		0.11		0.00
Earnings per common share	0.01			0.08			0.23		0.22			0.26		0.30		0.28		0.17		0.13
Net asset value per common share at period end	12.11			12.28			12.49		12.57			12.65		15.15		15.12		15.07		15.11

During the three months ended September 30, 2015, the Company identified errors in the recognition of fee income since the commencement of operations through 2015. Refer to Note 2 for additional information and a reconciliation of annual financial statements previously filed to revised amounts.

The following tables present a reconciliation of selected quarterly and year-to-date financial data as previously filed to revised amounts for the interim periods in years ended September 30, 2015 and 2014 and the period from June 29, 2013 through September 30, 2013:



	June 30, 2015
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	833,515		$	(1,600,945	)	$	(767,430	)
Part II incentive fee payable	—			145,898			145,898
Total liabilities	389,521,478			(1,455,047		)	388,066,431
Net Assets:
Net realized and unrealized loss on investments	(9,301,172		)	8,068,297			(1,232,875		)
Accumulated overdistributed net investment income	(4,768,021		)	(6,613,250		)	(11,381,271		)
Total net assets	360,327,291			1,455,047			361,782,338
Total liabilities and net assets	749,848,769			—			749,848,769
Net asset value per common share at period end	$	12.23		$	0.05		$	12.28

122

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Three months ended June 30, 2015
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	10,624,147		$	587,471		$	11,211,618
Fee income	3,008,068			(153,886		)	2,854,182
Total investment income	13,706,590			433,585			14,140,175
Part I incentive fee	833,515			274,446			1,107,961
Part II incentive fee	—			(587,855		)	(587,855		)
Net expenses	7,367,678			(313,409		)	7,054,269
Net investment income	6,338,912			746,994			7,085,906
Net realized and unrealized loss on investments	(4,198,072		)	(433,585		)	(4,631,657		)
Net increase in net assets resulting from operations	$	2,140,840		$	313,409		$	2,454,249
Total investment income per common share	$	0.47		$	0.01		$	0.48
Net investment income per common share	$	0.22		$	0.02		$	0.24
Earnings per common share	$	0.07		$	0.01		$	0.08



	Nine months ended June 30, 2015
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	28,138,540		$	1,227,544		$	29,366,084
Fee income	13,245,872			(5,281,853		)	7,964,019
Total investment income	41,458,787			(4,054,309		)	37,404,478
Part I incentive fee	4,587,918			(752,568		)	3,835,350
Part II incentive fee	(54,826		)	(711,726		)	(766,552		)
Net expenses	17,993,008			(1,464,294		)	16,528,714
Net investment income	23,465,779			(2,590,015		)	20,875,764
Net realized and unrealized loss on investments	(9,305,322		)	4,054,309			(5,251,013		)
Net increase in net assets resulting from operations	$	14,160,457		$	1,464,294		$	15,624,751
Total investment income per common share	$	1.41		$	(0.14	)	$	1.27
Net investment income per common share	$	0.80		$	(0.09	)	$	0.71
Earnings per common share	$	0.48		$	0.05		$	0.53



	March 31, 2015
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	1,161,808		$	(1,875,391	)	$	(713,583	)
Part II incentive fee payable	—			733,753			733,753
Total liabilities	306,914,284			(1,141,638		)	305,772,646
Net Assets:
Net realized and unrealized gain (loss) on investments	(5,103,100		)	8,501,882			3,398,782
Accumulated overdistributed net investment income	(2,266,903		)	(7,360,244		)	(9,627,147		)
Total net assets	367,026,481			1,141,638			368,168,119
Total liabilities and net assets	673,940,765			—			673,940,765
Net asset value per common share at period end	$	12.46		$	0.03		$	12.49

123

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Three months ended March 31, 2015
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	9,626,673		$	262,328		$	9,889,001
Fee income	2,265,158			(813,000		)	1,452,158
Total investment income	11,891,831			(550,672		)	11,341,159
Part I incentive fee	1,161,808			(221,813		)	939,995
Part II incentive fee	—			78,444			78,444
Net expenses	5,190,173			(143,369		)	5,046,804
Net investment income	6,701,658			(407,303		)	6,294,355
Net realized and unrealized gain (loss) on investments	(158,452		)	550,672			392,220
Net increase in net assets resulting from operations	6,543,206			143,369			6,686,575
Total investment income per common share	$	0.40		$	(0.02	)	$	0.38
Net investment income per common share	$	0.23		$	(0.02	)	$	0.21
Earnings per common share	$	0.22		$	0.01		$	0.23



	Six months ended March 31, 2015
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	17,514,392		$	640,073		$	18,154,465
Fee income	10,237,804			(5,127,967		)	5,109,837
Total investment income	27,752,196			(4,487,894		)	23,264,302
Part I incentive fee	3,754,403			(1,027,014		)	2,727,389
Part II incentive fee	(54,826		)	(123,871		)	(178,697		)
Net expenses	10,625,330			(1,150,885		)	9,474,445
Net investment income	17,126,866			(3,337,009		)	13,789,857
Net realized and unrealized loss on investments	(5,107,250		)	4,487,894			(619,356		)
Net increase in net assets resulting from operations	12,019,616			1,150,885			13,170,501
Total investment income per common share	$	0.94		$	(0.15	)	$	0.79
Net investment income per common share	$	0.58		$	(0.11	)	$	0.47
Earnings per common share	$	0.41		$	0.04		$	0.45



	December 31, 2014
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	2,592,595		$	(1,653,578	)	$	939,017
Part II incentive fee payable	—			655,309			655,309
Total liabilities	266,554,412			(998,269		)	265,556,143
Net Assets:
Net realized and unrealized gain (loss) on investments	(4,944,648		)	7,951,210			3,006,562
Accumulated overdistributed net investment income	(128,531		)	(6,952,941		)	(7,081,472		)
Total net assets	369,323,305			998,269			370,321,574
Total liabilities and net assets	635,877,717			—			635,877,717
Net asset value per common share at period end	$	12.53		$	0.04		$	12.57

124

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Three months ended December 31, 2014
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	7,887,719		$	377,745		$	8,265,464
Fee income	7,972,646			(4,314,967		)	3,657,679
Total investment income	15,860,365			(3,937,222		)	11,923,143
Part I incentive fee	2,592,595			(805,201		)	1,787,394
Part II incentive fee	(54,826		)	(202,315		)	(257,141		)
Net expenses	5,435,157			(1,007,516		)	4,427,641
Net investment income	10,425,208			(2,929,706		)	7,495,502
Net realized and unrealized loss on investments	(4,948,798		)	3,937,222			(1,011,576		)
Net increase in net assets resulting from operations	5,476,410			1,007,516			6,483,926
Total investment income per common share	$	0.54		$	(0.14	)	$	0.40
Net investment income per common share	$	0.35		$	(0.10	)	$	0.25
Earnings per common share	$	0.19		$	0.03		$	0.22



	September 30, 2014
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	926,180		$	(848,377	)	$	77,803
Part II incentive fee payable	54,826			857,624			912,450
Total liabilities	39,818,419			9,247			39,827,666
Net Assets:
Net realized and unrealized gain on investments	4,150			4,013,988			4,018,138
Accumulated overdistributed net investment income	(1,713,709		)	(4,023,235		)	(5,736,944		)
Total net assets	372,686,925			(9,247		)	372,677,678
Total liabilities and net assets	412,505,344			—			412,505,344
Net asset value per common share at period end	$	12.65		$	—		$	12.65



	Three months ended September 30, 2014
Consolidated Statement of Operations:	As previously reported		Adjustment			As revised
Interest income	$	3,278,023	$	168,324		$	3,446,347
Fee income	3,006,921		(1,535,415		)	1,471,506
Total investment income	6,284,944		(1,367,091		)	4,917,853
Part I incentive fee	926,180		(273,418		)	652,762
Part II incentive fee	54,826		413,901			468,727
Net expenses	2,480,176		140,484			2,620,660
Net investment income	3,804,768		(1,507,575		)	2,297,193
Net realized and unrealized gain on investments	702,416		1,367,091			2,069,507
Net increase in net assets resulting from operations	4,507,184		(140,484		)	4,366,700
Total investment income per common share	$	0.37	$	(0.08	)	$	0.29
Net investment income per common share	$	0.22	$	(0.09	)	$	0.13
Earnings per common share	$	0.26	$	—		$	0.26

125

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	June 30, 2014
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	349,835		$	(574,959	)	$	(225,124	)
Part II incentive fee payable	—			443,722			443,722
Total liabilities	107,825,584			(131,237		)	107,694,347
Net Assets:
Net realized and unrealized gain (loss) on investments	(428,285		)	2,646,897			2,218,612
Accumulated undistributed (overdistributed) net investment income	1,264,649			(2,515,660		)	(1,251,011		)
Total net assets	100,837,884			131,237			100,969,121
Total liabilities and net assets	208,663,468			—			208,663,468
Net asset value per common share at period end	$	15.13		$	0.02		$	15.15



	Three months ended June 30, 2014
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	2,979,382		$	66,306		$	3,045,688
Fee income	866,030			(868,652		)	(2,622		)
Total investment income	3,845,412			(802,346		)	3,043,066
Part I incentive fee	349,835			(349,835		)	—
Part II incentive fee	—			146,525			146,525
Net expenses	1,982,900			(203,310		)	1,779,590
Net investment income	1,862,512			(599,036		)	1,263,476
Net realized and unrealized gain (loss) on investments	(69,719		)	802,346			732,627
Net increase in net assets resulting from operations	1,792,793			203,310			1,996,103
Total investment income per common share	$	0.58		$	(0.12	)	$	0.46
Net investment income per common share	$	0.28		$	(0.09	)	$	0.19
Earnings per common share	$	0.27		$	0.03		$	0.30



	Nine months ended June 30, 2014
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	6,852,546		$	178,090		$	7,030,636
Fee income	2,705,129			(2,136,944		)	568,185
Total investment income	9,557,675			(1,958,854		)	7,598,821
Part I incentive fee	630,432			(574,959		)	55,473
Part II incentive fee	—			306,114			306,114
Net expenses	4,400,979			(268,845		)	4,132,134
Net investment income	5,156,696			(1,690,009		)	3,466,687
Net realized and unrealized gain (loss) on investments	(428,285		)	1,958,854			1,530,569
Net increase in net assets resulting from operations	4,728,411			268,845			4,997,256
Total investment income per common share	$	1.43		$	(0.29	)	$	1.14
Net investment income per common share	$	0.77		$	(0.25	)	$	0.52
Earnings per common share	$	0.71		$	0.04		$	0.75

126

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	March 31, 2014
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part I incentive fee payable	$	280,597		$	(225,124	)	$	55,473
Part II incentive fee payable	—			297,197			297,197
Total liabilities	91,615,468			72,073			91,687,541
Net Assets:
Net realized and unrealized gain (loss) on investments	(358,566		)	1,844,551			1,485,985
Accumulated undistributed (overdistributed) net investment income	1,202,165			(1,916,624		)	(714,459		)
Total net assets	100,845,119			(72,073		)	100,773,046
Total liabilities and net assets	192,460,587			—			192,460,587
Net asset value per common share at period end	$	15.13		$	(0.01	)	$	15.12



	Three months ended March 31, 2014
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	2,568,065		$	74,279		$	2,642,344
Fee income	837,855			(570,278		)	267,577
Total investment income	3,405,920			(495,999		)	2,909,921
Part I incentive fee	280,597			(225,124		)	55,473
Part II incentive fee	—			81,849			81,849
Net expenses	1,615,206			(143,275		)	1,471,931
Net investment income	1,790,714			(352,724		)	1,437,990
Net realized and unrealized gain (loss) on investments	(86,752		)	495,999			409,247
Net increase in net assets resulting from operations	1,703,962			143,275			1,847,237
Total investment income per common share	$	0.51		$	(0.07	)	$	0.44
Net investment income per common share	$	0.27		$	(0.05	)	$	0.22
Earnings per common share	$	0.26		$	0.02		$	0.28



	Six months ended March 31, 2014
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	3,873,164		$	111,784		$	3,984,948
Fee income	1,839,099			(1,268,292		)	570,807
Total investment income	5,712,263			(1,156,508		)	4,555,755
Part I incentive fee	280,597			(225,124		)	55,473
Part II incentive fee	—			159,588			159,588
Net expenses	2,418,078			(65,536		)	2,352,542
Net investment income	3,294,185			(1,090,972		)	2,203,213
Net realized and unrealized gain (loss) on investments	(358,566		)	1,156,508			797,942
Net increase in net assets resulting from operations	2,935,619			65,536			3,001,155
Total investment income per common share	$	0.86		$	(0.18	)	$	0.68
Net investment income per common share	$	0.49		$	(0.16	)	$	0.33
Earnings per common share	$	0.44		$	0.01		$	0.45

127

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	December 31, 2013
Consolidated Statement of Assets and Liabilities:	As previously reported			Adjustment			As revised
Liabilities:
Part II incentive fee payable	$	—		$	215,348		$	215,348
Total liabilities	40,364,770			215,348			40,580,118
Net Assets:
Net realized and unrealized gain (loss) on investments	(271,814		)	1,348,552			1,076,738
Accumulated undistributed (overdistributed) net investment income	944,810			(1,563,900		)	(619,090		)
Total net assets	100,674,516			(215,348		)	100,459,168
Total liabilities and net assets	141,039,286			—			141,039,286
Net asset value per common share at period end	$	15.10		$	(0.03	)	$	15.07



	Three months ended December 31, 2013
Consolidated Statement of Operations:	As previously reported			Adjustment			As revised
Interest income	$	1,305,099		$	37,505		$	1,342,604
Fee income	1,001,244			(698,014		)	303,230
Total investment income	2,306,343			(660,509		)	1,645,834
Part II incentive fee	—			77,739			77,739
Net expenses	802,870			77,739			880,609
Net investment income	1,503,473			(738,248		)	765,225
Net realized and unrealized gain (loss) on investments	(271,814		)	660,509			388,695
Net increase in net assets resulting from operations	1,231,659			(77,739		)	1,153,920
Total investment income per common share	$	0.35		$	(0.10	)	$	0.25
Net investment income per common share	$	0.23		$	(0.12	)	$	0.11
Earnings per common share	$	0.18		$	(0.01	)	$	0.17



	September 30, 2013
Consolidated Statement of Assets and Liabilities:	As previously reported		Adjustment			As revised
Liabilities:
Part II incentive fee payable	$	—	$	137,609		$	137,609
Total liabilities	607,166		137,609			744,775
Net Assets:
Net realized and unrealized gain on investments	—		688,043			688,043
Accumulated undistributed net investment income	841,358		(825,652		)	15,706
Total net assets	100,842,878		(137,609		)	100,705,269
Total liabilities and net assets	101,450,044		—			101,450,044
Net asset value per common share at period end	$	15.13	$	(0.02	)	$	15.11

128

FIFTH STREET SENIOR FLOATING RATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Period from June 29, 2013 through September 30, 2013
Consolidated Statement of Operations:	As previously reported		Adjustment			As revised
Interest income	$	436,012	$	20,405		$	456,417
Fee income	708,448		(708,448		)	—
Total investment income	1,144,460		(688,043		)	456,417
Part II incentive fee	—		137,609			137,609
Net expenses	303,102		137,609			440,711
Net investment income	841,358		(825,652		)	15,706
Net realized and unrealized gain on investments	—		688,043			688,043
Net increase in net assets resulting from operations	841,358		(137,609		)	703,749
Total investment income per common share	$	0.22	$	(0.13	)	$	0.09
Net investment income per common share	$	0.16	$	(0.16	)	$	—
Earnings per common share	$	0.16	$	(0.03	)	$	0.13

Note 15. Subsequent Events

The Company's management evaluates subsequent events through the date of issuance of the Consolidated Financial Statements. There have been no subsequent events that occurred during such period that would require disclosure in, or would be required to be recognized in, the Consolidated Financial Statements as of and for the year ended September 30, 2015.

129

Schedule 12-14

Fifth Street Senior Floating Rate Corp.

Schedule of Investments in and Advances to Affiliates

Year ended September 30, 2015



Portfolio Company/Type of Investment (1)	Amount of Interest, Fees or Dividends Credited in Income (2)		Fair Value at October 1, 2014		Gross Additions (3)		Gross Reductions (4)			Fair Value at September 30, 2015
Control Investments
FSFR Glick JV LLC
Subordinated Note, LIBOR+8% cash due 10/20/2021	$	1,770,130	$	—	$	53,095,597	$	(492,251	)	$	52,603,346
87.5% equity interest (5)	730,625		—		5,882,376		(1,328,801		)	4,553,575
Total Control Investments	$	2,500,755	$	—	$	58,977,973	$	(1,821,052	)	$	57,156,921

This schedule should be read in connection with the Company's Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.

______________________


(1)	The principal amount and ownership detail as shown in the Company's Consolidated Schedules of Investments.


(2)	Represents the total amount of interest, fees and dividends credited to income for the portion of the year an investment was included in the Control or Affiliate categories.

(3)

Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on Investments and accrued interest, and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category or out of a different category.

(4)

Gross reductions include decreases in the cost basis of investment resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.


(5)	Together with GF Equity Funding, the Company co-invests through FSFR Glick JV. FSFR Glick JV is capitalized as transactions are completed and all portfolio and investment decisions in respect to FSFR Glick JV must be approved by the FSFR Glick JV investment committee consisting of representatives of the Company and GF Equity Funding (with approval from a representative of each required).

130

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of September 30, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, as a result of the material weakness in internal control over financial reporting that is described below in Management's Report on Internal Control Over Financial Reporting, our disclosure controls and procedures were not effective.

(b) Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed by, or under the supervision of, its Chief Executive Officer and Chief Financial Officer, and effected by such company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2015, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2015 due to the material weakness described below.

Material Weakness in Internal Control over Financial Reporting

Management has determined that the Company did not design or maintain effective controls to internally communicate current accounting policies and procedures including the nature of supporting documentation required to validate certain portfolio company data. Specifically, the Company’s policies and procedures with respect to loan origination fees, while in accordance with GAAP, were not properly communicated between departments and personnel to allow for appropriate validation of support as the Fifth Street platform grew and diversified, which led to the revision of 2013, 2014 and 2015 financial information.

131

These control deficiencies, in the aggregate, could result in misstatements of accounts or disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected and, therefore, management has determined that these control deficiencies constitute a material weakness. However, management has determined that the foregoing material weakness did not result in a material misstatement in the consolidated annual or interim financial statements in the year ended September 30, 2015. In light of this material weakness, management concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2015.

There have been no changes in our internal control over financing reporting that occurred during the fourth fiscal quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(d) Remediation of Material Weaknesses in Internal Control Over Financial Reporting

We have taken and will take a number of actions to remediate this material weakness including, but not limited to, formalizing policies and procedures in all significant areas and communicating them throughout the organization, adding senior experienced accounting and financial reporting personnel and reallocating existing internal resources as necessary. Management is committed to improving our internal control processes and believes that the measures described above should be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. We cannot assure you, however, that the steps taken will remediate such weakness, nor can we be certain of whether additional actions will be required or the costs of any such actions.

Item 9B. Other Information

None.

PART III

We will file a definitive Proxy Statement for our 2016 Annual Meeting of Stockholders with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 11. Executive Compensation

The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

PART IV

132

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed or incorporated by reference as part of this Annual Report:

1. Financial Statements



	Page
Report of Independent Registered Public Accounting Firm	76
Consolidated Statements of Assets and Liabilities as of September 30, 2015 and September 30, 2014	77
Consolidated Statements of Operations for the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 (commencement of operations) through September 30, 2013	78
Consolidated Statements of Changes in Net Assets for the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 (commencement of operations) through September 30, 2013	79
Consolidated Statements of Cash Flows for the years ended September 30, 2015 and September 30, 2014 and the period from June 29, 2013 (commencement of operations) through September 30, 2013	80
Consolidated Schedule of Investments as of September 30, 2015	81
Consolidated Schedule of Investments as of September 30, 2014	88
Notes to Consolidated Financial Statements	93

2. Financial Statement Schedule

The following financial statement schedule is filed herewith:




Schedule 12-14 — Investments in and advances to affiliates	130

3. Exhibits required to be filed by Item 601 of Regulation S-K

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



3.1		Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit a filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
3.2		Bylaws of the Registrant (Incorporated by reference to Exhibit b filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
4.1		Form of Common Stock Certificate (Incorporated by reference to Exhibit d filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
4.2		Indenture among FS Senior Funding Ltd., as issuer, FS Senior Funding CLO LLC, as co-issuer, and Wells Fargo Bank, National Association, as trustee, dated as of May 28, 2015 (Incorporated by reference to Exhibit 4.1 filed with the Registrant’s Current Report on Form 8-K (File No. 814-01013) filed on June 3, 2015).
10.1		Dividend Reinvestment Plan (Incorporated by reference to Exhibit e filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
10.2		Investment Advisory Agreement by and between Registrant and Fifth Street Management LLC (Incorporated by reference to Exhibit g filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
10.3		Form of Custody Agreement (Incorporated by reference to Exhibit j filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
10.4		Administration Agreement by and between Registrant and FSC, Inc. (Incorporated by reference to Exhibit k.1 filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
10.5		License Agreement by and between Registrant and Fifth Street Capital LLC (Incorporated by reference to Exhibit k.2 filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
10.6		Amended and Restated Credit Agreement by and among the lenders referred to therein, FS Senior Funding LLC, Natixis, New York Branch, and U.S. Bank National Association, dated as of October 16, 2014 (Incorporated by reference to Exhibit 10.1 filed with the Registrants Current Report on Form 8-k (File No. 814-01013) filed October 21, 2014).

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10.7		Amended and Restated Loan Sale and Contribution Agreement by and between Registrant and FS Senior Funding LLC, dated as of October 16, 2014 (Incorporated by reference to Exhibit 10.2 filed with the Registrants Current Report on Form 8-k (File No. 814-01013) filed October 21, 2014).
10.8		Collateral Management Agreement by and between FS Senior Funding LLC and Registrant, dated as of November 1, 2013 (Incorporated by reference to Exhibit 10.3 filed with the Registrant’s Current Report on Form 8-K (File No. 814-01013) filed on November 7, 2013).
10.9		Amended and Restated Credit Agreement by and among the lenders referred to therein, FS Senior Funding LLC, Natixis, New York Branch, and U.S. Bank National Association, dated as of October 16, 2014 (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K (File No. 814-01013) filed on October 21, 2014).
10.10		Amended and Restated Loan Sale and Contribution Agreement by and between Registrant and FS Senior Funding LLC, dated as of October 16, 2014 (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K (File No. 814-01013) filed on October 21, 2014).
10.11		Loan and Security Agreement by and among Fifth Street Senior Floating Rate Corp., FS Senior Funding II LLC, the lenders referred to therein, Citibank, N.A., and Wells Fargo Bank, National Association, dated as of January 15, 2015 (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K (File No. 814-01013) filed on January 21, 2015).
10.12		Loan Sale Agreement by and between Fifth Street Senior Floating Rate Corp. and FS Senior Funding II LLC, dated as of January 15, 2015 (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K (File No. 814-01013) filed on January 21, 2015).
10.13		Administration Agreement by and between Registrant and FSC CT LLC dated as of January 1, 2014 (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-010103) filed on February 9, 2015
10.14		Amendment No. 3 to the Amended and Restated Credit Agreement by and among the lenders referred to therein, FS Senior Funding LLC, Natixis, New York Branch, and U.S. Bank National Association, dated as of May 4, 2015 (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-010103) filed on May 11, 2015.
10.15		Class A-R Note Purchase Agreement, by and among FS Senior Funding Ltd., as issuer, FS Senior Funding CLO LLC, as co-issuer, Natixis, New York Branch, as Class A-R Note Agent, and each of the Class A-R Noteholders parties thereto, dated as of May 28, 2015 (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-010103) filed on August 10, 2015.
10.16		Master Transfer Agreement by and between Fifth Street Senior Floating Rate Corp., as the seller, and FS Senior Funding Ltd., as the buyer, dated as of May 28, 2015 (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-010103) filed on August 10, 2015.
10.17		Collateral Management Agreement by and between FS Senior Funding Ltd., as issuer, and Fifth Street Senior Floating Rate Corp., as collateral manager, dated as of May 28, 2015 (Incorporated by reference to Exhibit 10.3 filed with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-010103) filed on August 10, 2015.
10.18		Sub-Advisory Agreement between Fifth Street Senior Floating Rate Corp., as collateral manager, and Fifth Street Management LLC, as sub-advisor, dated as of May 28, 2015 (Incorporated by reference to Exhibit 10.4 filed with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-010103) filed on August 10, 2015.
11.1		Computation of Per Share Earnings (included in the Notes to the Financial Statements contained in this report).
14.1		Joint Code of Ethics of Registrant and Fifth Street Finance Corp. (Incorporated by reference to Exhibit(r)(1) filed with the Fifth Street Finance Corp.'s Registration Statement on Form N-2 (File No. 333-186101) filed on September 26, 2013).
14.2		Code of Ethics of Fifth Street Management LLC (Incorporated by reference to Exhibit r.2 filed with the Registrant’s Registration Statement on Form N-2 (File No. 333-188904) filed on July 8, 2013).
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

_____________

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.




FIFTH STREET SENIOR FLOATING RATE CORP.

By:		/s/ Ivelin M. Dimitrov
		Ivelin M. Dimitrov
		Chief Executive Officer

By:		/s/ Steven M. Noreika
		Steven M. Noreika
		Chief Financial Officer

Date: December 14, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




Signature	Title	Date

/s/ IVELIN M. DIMITROV Ivelin M. Dimitrov	Chief Executive Officer (principal executive officer)	December 14, 2015

/s/ STEVEN M. NOREIKA Steven M. Noreika	Chief Financial Officer (principal financial officer and principal accounting officer)	December 14, 2015

/s/ TODD G. OWENS Todd G. Owens	President	December 14, 2015

/s/ BERNARD D. BERMAN Bernard D. Berman	Chairman	December 14, 2015

/s/ BRIAN S. DUNN Brian S. Dunn	Director	December 14, 2015

/s/ RICHARD P. DUTKIEWICZ Richard P. Dutkiewicz	Director	December 14, 2015

/s/ JEFFREY R. KAY Jeffrey R. Kay	Director	December 14, 2015

/s/ DOUGLAS F. RAY Douglas F. Ray	Director	December 14, 2015

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