SEC Filing | FS KKR Capital Corp.

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Post-Effective Amendment No. 8 to the N-2

As filed with the Securities and Exchange Commission on April 7, 2011

Securities Act File No. 333-149374

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Post-Effective Amendment No. 8 to

Form N-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FS INVESTMENT CORPORATION

(Exact name of registrant as specified in charter)

Cira Centre

2929 Arch Street, Suite 675

Philadelphia, PA 19104

(215) 495-1150

(Address and telephone number, including area code, of principal executive offices)

Michael C. Forman

FS Investment Corporation

Cira Centre

2929 Arch Street, Suite 675

Philadelphia, PA 19104

(Name and address of agent for service)

COPIES TO:

Steven B. Boehm, Esq.

Cynthia M. Krus, Esq.

Sutherland Asbill & Brennan LLP

1275 Pennsylvania Avenue, N.W.

Washington, DC 20004-2415

Tel: (202) 383-0100

Fax: (202) 637-3593

Rosemarie A. Thurston, Esq.

Alston & Bird LLP

1201 West Peachtree Street

Atlanta, GA 30309-3424

Tel: (404) 881-7000

Fax: (404) 253-8447

Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as amended, other than securities offered in connection with a distribution reinvestment plan, check the following box. x

It is proposed that this filing will become effective (check appropriate box): x when declared effective pursuant to section 8(c).

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a previously filed post-effective amendment registration statement.

This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is .


PROSPECTUS		SUBJECT TO COMPLETION

Maximum Offering of 150,000,000 Shares of Common Stock

We are a specialty finance company that invests primarily in the debt securities of private companies. Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation.

We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended. We have elected to be treated for federal income tax purposes as a regulated investment company under the Internal Revenue Code of 1986, as amended. We are managed by FB Income Advisor, LLC, a private investment firm that is registered as an investment adviser with the Securities and Exchange Commission and is an affiliate of ours. FB Advisor oversees the management of our activities and is responsible for making investment decisions for our portfolio. FB Advisor has engaged GSO / Blackstone Debt Funds Management LLC, a subsidiary of GSO Capital Partners LP, to act as a sub-adviser.

Through our affiliate, FS² Capital Partners, LLC, or the dealer manager, we are offering up to 150,000,000 shares of common stock in this offering at a current offering price of $10.75 per share. The dealer manager is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell the shares offered. The minimum permitted purchase is $5,000 in shares of our common stock. As of March 31, 2011, we have sold an aggregate of 60,188,362 shares of our common stock for gross proceeds of approximately $617.2 million.

We do not intend to list our shares on any securities exchange during the offering period, and we do not expect a secondary market in the shares to develop. As a result, you should not expect to be able to resell your shares regardless of how we perform. If you are able to sell your shares, you will likely receive less than your purchase price. We have implemented a share repurchase program, but only a limited number of shares are eligible for repurchase by us. Accordingly, you should consider that you may not have access to the money you invest for at least five years, or until we complete a liquidity event, which we intend to seek to complete within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors. There is no assurance that we will complete a liquidity event within such timeframe or at all. As a result of the foregoing, an investment in our shares is not suitable for investors that require short-term liquidity. See “Share Repurchase Program” and “Liquidity Strategy.”

Investing in our common stock may be considered speculative and involves a high degree of risk, including the risk of a substantial loss of investment. See “Risk Factors” beginning on page 33 to read about the risks you should consider before buying shares of our common stock, including the risk of leverage.

An investment in our shares is not suitable for all investors. See “Suitability Standards” for information on the suitability standards that investors must meet in order to purchase shares of our common stock in this offering.

We intend to continue to issue shares of our common stock in this offering. As a result, your ownership in us is subject to dilution. See “Risk Factors—Risks Relating to an Investment in Our Common Stock—A stockholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us.”

This prospectus contains important information about us that a prospective investor should know before investing in our common stock. Please read this prospectus before investing and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission, or the SEC. This information will be available free of charge by contacting us at 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104 or by telephone at (215) 495-1150 or on our website at www.fsinvestmentcorp.com. The SEC also maintains a website at www.sec.gov that contains such information.

Neither the SEC, the Attorney General of the State of New York nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Except as specifically required by the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, the use of forecasts is prohibited and any representation to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in our common stock is not permitted.


	Per Share		Total Maximum
Price to Public⁽¹⁾	$	10.750	$	1,612,500,000
Sales Load⁽²⁾	$	1.075	$	161,250,000
Net Proceeds (Before Expenses)⁽³⁾	$	9.675	$	1,451,250,000

(1)

Assumes all shares are sold at the current offering price of $10.75 per share, which is subject to adjustment based upon, among other things, our net asset value per share. Prior to February 16, 2011, our offering price was $10.70 per share; prior to February 1, 2011, our offering price was $10.65 per share; prior to January 3, 2011, our offering price was $10.50 per share; prior to November 1, 2010, our offering price was $10.40 per share; and prior to October 1, 2009, our offering price was $10.00 per share.

(2)	“Sales Load” includes selling commissions of 7.0% and dealer manager fees of 3.0%.

(3)	We estimate that we will incur approximately $24.2 million of expenses if the maximum number of common shares is sold.

Because you will pay a sales load of up to 10% and offering expenses of up to 1.5%, if you invest $100 in the Company’s shares and pay the full sales load, between $88.50 and $90.00 will actually be used by us for investments. See “Estimated Use of Proceeds.”

The date of this prospectus is April [ ], 2011.

FS² Capital Partners, LLC

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the SEC using a continuous offering process. Periodically, as we make material investments or have other material developments, we will provide a prospectus supplement that may add, update or change information contained in this prospectus. We will endeavor to avoid interruptions in the continuous offering of our shares of common stock, including, to the extent permitted under the rules and regulations of the SEC, by filing an amendment to the registration statement with the SEC if our net asset value declines more than ten percent from our net asset value as of the effective date of this registration statement. There can be no assurance, however, that our continuous offering will not be suspended while the SEC reviews such amendment, until it is declared effective.

Any statement that we make in this prospectus will be modified or superseded by any inconsistent statement made by us in a subsequent prospectus supplement. The registration statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC and any prospectus supplement, together with additional information described below under “Available Information.” In this prospectus, we use the term “day” to refer to a calendar day, and we use the term “business day” to refer to any day other than Saturday, Sunday, a legal holiday or a day on which banks in New York City are authorized or required to close.

You should rely only on the information contained in this prospectus. Neither we nor the dealer manager have authorized any other person to provide you with different information from that contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or sale of our common stock. If there is a material change in the affairs of our company, we will amend or supplement this prospectus.

For information on the suitability standards that investors must meet in order to purchase shares of our common stock in this offering, see “Suitability Standards.”

TABLE OF CONTENTS


	PAGE
ABOUT THIS PROSPECTUS		i
PROSPECTUS SUMMARY		1
FEES AND EXPENSES		21
COMPENSATION OF THE DEALER MANAGER AND THE INVESTMENT ADVISER		24
QUESTIONS AND ANSWERS ABOUT THIS OFFERING		28
SELECTED FINANCIAL DATA		32
RISK FACTORS		33
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		54
ESTIMATED USE OF PROCEEDS		55
DISTRIBUTIONS		56
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		60
SENIOR SECURITIES		79
INVESTMENT OBJECTIVES AND STRATEGY		80
DETERMINATION OF NET ASSET VALUE		102
MANAGEMENT		105
PORTFOLIO MANAGEMENT		112
PORTFOLIO COMPANIES		114
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT		128
ADMINISTRATIVE SERVICES		137
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		138
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS		140
DISTRIBUTION REINVESTMENT PLAN		142
DESCRIPTION OF OUR SECURITIES		143
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS		151
REGULATION		157
PLAN OF DISTRIBUTION		161
SUITABILITY STANDARDS		166
LIQUIDITY STRATEGY		168
SHARE REPURCHASE PROGRAM		169
CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR		171
BROKERAGE ALLOCATION AND OTHER PRACTICES		171
LEGAL MATTERS		171
EXPERTS		171
AVAILABLE INFORMATION		171
PRIVACY NOTICE		172
INDEX TO FINANCIAL STATEMENTS		F-1
APPENDIX A: FORM OF SUBSCRIPTION AGREEMENT		A-1

PROSPECTUS SUMMARY

This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to consider. To understand this offering fully, you should read the entire prospectus carefully, including the section entitled “Risk Factors,” before making a decision to invest in our common stock.

Unless otherwise noted, the terms “we,” “us,” “our,” the “Company” and “FS Investment Corporation” refer to FS Investment Corporation. In addition, the term “FB Advisor” refers to FB Income Advisor, LLC, the term “GDFM” refers to GSO / Blackstone Debt Funds Management LLC, a subsidiary of GSO Capital Partners LP and the term “GSO” refers to GSO Capital Partners LP.

FS Investment Corporation

We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. As such, we are required to comply with certain regulatory requirements. We are managed by FB Advisor, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, which oversees the management of our activities and is responsible for making investment decisions for our portfolio. FB Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor, according to asset allocation and other guidelines set by FB Advisor. GDFM, a registered investment adviser under the Advisers Act, is a subsidiary of GSO, which oversees approximately $31.0 billion in assets under management as of December 31, 2010. GSO is the credit platform affiliate of The Blackstone Group L.P., or Blackstone. We have elected to be treated for federal income tax purposes as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We will seek to meet our investment objectives by:

•

utilizing the experience and expertise of FB Advisor and GDFM, along with the broader resources of GSO which includes its access to the relationships and human capital of its parent, Blackstone, in sourcing, evaluating and structuring transactions;

•

employing a defensive investment approach focused on long-term credit performance and principal protection;

•

focusing primarily on debt investments in a broad array of private U.S. companies, including small and middle market companies, which we define as companies with annual revenue of $10 million to $2.5 billion at the time of investment. In many environments, we believe such a focus offers an opportunity for superior risk adjusted returns;

•

focusing primarily on investing in established, stable companies with positive cash flow; and

•

maintaining rigorous portfolio monitoring, in an attempt to anticipate and pre-empt negative credit events within our portfolio.

Our portfolio is comprised primarily of investments in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, which we refer to as mezzanine loans, of private U.S. companies. We may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from our target companies as primary market investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of our debt investments or through a co-investment with a financial sponsor. In addition, a portion of our portfolio may be comprised of corporate bonds and other debt securities. However, such investments are not expected to comprise a significant portion of our portfolio.

As a BDC, we are subject to certain regulatory restrictions in making our investments. For example, we generally will not be permitted to co-invest with certain entities affiliated with GDFM in transactions originated by GSO or its affiliates unless we obtain an exemptive order from the SEC or co-invest alongside GSO or its affiliates in accordance with existing regulatory guidance. We are seeking an exemptive order from the SEC. However, there can be no assurance that we will obtain such relief. Even if we receive exemptive relief, GSO and its affiliates are not obligated to offer GDFM or us the right to participate in any transactions originated by them.

Prior to obtaining exemptive relief, we intend to co-invest alongside GSO or its affiliates only in accordance with existing regulatory guidance. For example, at any time, we may co-invest in syndicated deals and secondary loan market transactions where price is the only negotiated point. While we desire to receive exemptive relief from the SEC, given the latitude permitted within existing regulatory guidance and our current universe of investment opportunities, we do not feel that the absence of exemptive relief materially affects our ability to achieve our investment objectives.

To enhance our opportunity for gain, we intend to employ leverage as market conditions permit and at the discretion of FB Advisor, but in no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act.

While a BDC may list its shares for trading in the public markets, we have currently elected not to do so. We believe that a non-traded structure is more appropriate for the long-term nature of the assets in which we invest. This structure allows us to operate with a long-term view, similar to that of other types of private investment funds—instead of managing to quarterly market expectations—and to pursue our investment objectives without subjecting our investors to the daily share price volatility associated with the public markets. To provide our stockholders with limited liquidity, we intend to conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in March 2010. During the year ended December 31, 2010, we repurchased 228,950 shares at $9.36 per share for aggregate consideration totaling approximately $2,143,000. On January 3, 2011, we repurchased 99,633 shares at $9.59 per share for aggregate consideration totaling approximately $955,000 and, on April 1, 2011, we repurchased 158,258 shares at $9.675 per share for aggregate consideration totaling approximately $1,531,000. This will be the only method of liquidity that we offer prior to a liquidity event. See “Share Repurchase Program.”

Although we do not currently intend to list our securities on an exchange and do not expect a public market to develop for them in the foreseeable future, we intend to seek to complete a liquidity event within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors. We will view our offering stage as complete as of the termination date of our most recent public equity offering, if we have not conducted a public equity offering in any continuous two year period. See “—Liquidity Strategy” for a discussion of what constitutes a liquidity event. Therefore, stockholders may not be able to sell their shares promptly or at a desired price.

Status of Our Ongoing Public Offering

Since commencing our initial public offering and through March 31, 2011, we have sold 60,188,362 shares (as adjusted for stock distributions) of our common stock for gross proceeds of approximately $617.2 million. As of March 31, 2011, we had raised total gross proceeds of approximately $618.2 million, including approximately $1 million contributed by principals of our investment adviser in February 2008. The following table summarizes the sales of our common stock on a quarterly basis during 2009, 2010 and 2011. Dollar amounts are presented in thousands, except per share data:


	Shares Sold⁽¹⁾⁽²⁾		Average Price per Share⁽²⁾		Gross Proceeds
Fiscal 2009
March 31		1,074,045	$	7.76	$	8,330
June 30		1,926,763		8.44		16,271
September 30		3,544,170		9.35		33,129
December 31⁽³⁾		3,560,315		10.04		35,734

		10,105,293		9.25		93,464
Fiscal 2010
March 31⁽³⁾		4,331,680		10.28		44,524
June 30⁽³⁾		7,198,906		10.36		74,583
September 30⁽³⁾		6,586,899		10.35		68,145
December 31⁽⁴⁾		13,202,581		10.39		137,168

		31,320,066		10.36		324,420
Fiscal 2011
March 31⁽⁵⁾		18,763,003		10.62		199,321

		18,763,003		10.62		199,321

		60,188,362	$	10.25	$	617,205

(1)	The number of shares sold includes 53,444 shares, 834,021 shares and 376,389 shares purchased through our distribution reinvestment plan during 2009, 2010 and 2011, respectively.

(2)

The number of shares sold and the average sales price per share have been retroactively adjusted to reflect the stock distributions issued subsequent to the date at which the shares were sold. All shares were sold at prices between $9.00 and $10.75 per share, depending on the offering price then in effect and the amount of discounts or commissions waived by us or the dealer manager.

(3)	We announced an increase in our public offering price to $10.40 per share beginning with the closing that occurred on October 1, 2009. The purpose of this action was to ensure that our net asset value per share did not exceed our net offering price per share, as required by the 1940 Act.

(4)	We announced an increase in our public offering price to $10.50 per share beginning with the closing that occurred on November 1, 2010. The purpose of this action was to ensure that our net asset value per share did not exceed our net offering price per share, as required by the 1940 Act.

(5)

We announced an increase in our public offering price to $10.65 per share beginning with the closing that occurred on January 3, 2011. We announced a further increase in our public offering price to $10.70 per share beginning with the closing that occurred on February 1, 2011. We announced a further increase in our public offering price to $10.75 per share beginning with the closing that occurred on February 16, 2011. The purpose of each of these actions was to ensure that our net asset value per share did not exceed our net offering price per share, as required by the 1940 Act.

Capital Contribution by FB Advisor and GDFM

In February 2008, pursuant to a private placement, Michael C. Forman and David J. Adelman, the principals of FB Advisor, contributed an aggregate of approximately $1 million. As of December 31, 2010, employees of GSO held an aggregate of approximately 131,142 shares of our common stock.

Distributions

We declared our first distribution on January 29, 2009. Subject to the board of directors’ discretion and applicable legal restrictions, our board of directors intends to authorize and declare distributions on either a semi-monthly or monthly basis and pay distributions on either a monthly or quarterly basis. While we historically paid distributions on a quarterly basis, commencing in the fourth quarter of 2010, subject to the board of directors’ discretion and applicable legal restrictions, we began to pay distributions on a monthly rather than quarterly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date we accept each stockholder’s subscription for shares of our common stock. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital for tax purposes. No portion of the distributions paid during the years ended December 31, 2010 or 2009 represented a return of capital for tax purposes. Each year a statement on Form 1099-DIV identifying the source of the distributions will be mailed to our stockholders. There can be no assurance that we will be able to pay distributions at a specific rate or at all. See “Material U.S. Federal Income Tax Considerations.”

We intend to continue to make our ordinary distributions in the form of cash, out of assets legally available, unless stockholders elect to receive their distributions in additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder. If stockholders hold shares in the name of a broker or financial intermediary, they should contact the broker or financial intermediary regarding their election to receive distributions in additional shares of our common stock.

Portfolio Update

During the year ended December 31, 2010, we made investments in portfolio companies totaling $849.2 million. During the same period, we sold positions totaling approximately $122.6 million and received principal repayments of approximately $117.5 million. As of December 31, 2010, our investment portfolio, with a total fair value of $733.6 million, consisted of interests in 144 portfolio companies (66% in first lien senior secured loans, 19% in second lien senior secured loans, 4% in senior secured bonds and 11% in mezzanine debt/other) with an average annual earnings before interest, taxes, depreciation and amortization, or EBITDA, of approximately $294.5 million. As of December 31, 2010, the investments in our portfolio were purchased at an average price of 94.9% of par value, the weighted average credit rating of our portfolio was B2 based upon the Moody’s scale and our estimated gross annual portfolio yield, prior to leverage, was 8.5% based upon the purchase price of our investments.

As of February 28, 2011, our investment portfolio consisted of interests in 155 portfolio companies with an average annual EBITDA of approximately $270.5 million. As of February 28, 2011, the investments in our portfolio were purchased at an average price of 95.7% of par value, the weighted average credit rating of our portfolio was B2 based upon the Moody’s scale and our estimated gross annual portfolio yield, prior to leverage, was 8.6% based upon the purchase price of our investments. We intend to continue to add securities to our portfolio as our offering progresses. The following is our investment portfolio as of February 28, 2011:

Portfolio Company^(a)

Industry

Date of Most
Recent

Purchase

Principal
Amount
(in thousands)^(b)

Amortized
Cost
(in thousands)

Senior Secured Loans—First Lien—62.5%

1-800 Contacts, Inc., L+395, 3.8% LIBOR Floor, 3/4/15

Healthcare

May-10

5,508

5,243

Acosta, Inc., L+325, 1.5% LIBOR Floor, 1/27/18

Industrials

Feb-11

3,902

Advance Pierre Foods, Inc., L+525, 1.8% LIBOR Floor, 9/29/16^(c)

Consumer Staples

Sep-10

4,912

4,820

Airvana Network Solutions Inc., L+900, 2.0% LIBOR Floor, 8/27/14

Telecommunication Services

Aug-10

2,250

2,240

Alliant Holdings LLC, L+500, 1.8% LIBOR Floor, 8/16/14^(c)

Financials

Dec-10

2,000

2,019

Altegrity, Inc., L+600, 1.8% LIBOR Floor, 2/21/15^(c)

Industrials

Aug-10

7,363

7,265

Amscan Holdings, Inc., L+525, 1.5% LIBOR Floor, 12/2/17^(c)

Consumer Discretionary

Jan-11

8,923

8,910

AmWINS Group, Inc., L+250, 6/8/13^(c)

Financials

Oct-09

949

807

Anchor Glass Container Corp., L+400, 2.0% LIBOR Floor, 3/1/16^(c)

Industrials

Feb-10

3,270

3,242

Ardent Health Services LLC, L+500, 1.5% LIBOR Floor, 9/15/15^(c)

Healthcare

Oct-10

7,302

7,232

Aspect Software, Inc., L+450, 1.8% LIBOR Floor, 5/7/16^(c)

Information Technology

May-10

1,985

1,968

Atlantic Broadband Finance, LLC, L+350, 1.5% LIBOR Floor, 11/29/15^(c)

Telecommunication Services

Nov-10

1,338

1,332

Attachmate Corp., L+500, 1.5% LIBOR Floor, 2/25/17^(c)

Information Technology

Feb-11

10,000

9,900

Avaya Inc., L+392, 10/24/14^(c)

Information Technology

Nov-10

7,930

7,140

Axcan Intermediate Holdings Inc., L+400, 1.5% LIBOR Floor, 2/10/17^(c)

Healthcare

Feb-11

10,000

9,950

Bentley Systems Inc., L+425, 1.5% LIBOR Floor, 11/24/16

Information Technology

Dec-10

1,789

1,771

Burger King Corp., L+300, 1.5% LIBOR Floor, 10/19/16^(c)

Consumer Staples

Feb-11

6,529

C.H.I. Overhead Doors, Inc., L+550, 2.0% LIBOR Floor, 4/21/15

Industrials

Feb-11

5,000

4,975

Calumet Lubricants Co., LP, L+400, 1/3/15^(c)

Energy

Aug-10

2,819

2,638

Canwest LP, L+700, 2.0% LIBOR Floor, 7/23/16^(c)

Consumer Discretionary

Nov-10

7,484

7,416

Carestream Health, Inc., L+350, 1.5% LIBOR Floor, 2/25/17

Healthcare

Feb-11

15,000

14,925

CCC Information Services Inc., L+400, 1.5% LIBOR Floor, 11/11/15^(c)

Information Technology

Dec-10

1,578

1,563

CDW Corp., L+500, 7/10/17^(c)

Information Technology

Aug-10

5,584

5,003

Cedar Fair, LP, L+300, 1.0% LIBOR Floor, 12/15/17

Consumer Discretionary

Feb-11

1,500

Cenveo Corp., L+475, 1.5% LIBOR Floor, 12/21/16^(c)

Consumer Discretionary

Dec-10

6,667

6,602

Ceridian Corp., L+300, 11/9/14^(c)

Industrials

Oct-10

7,456

6,808

Citgo Petroleum Corp., L+700, 2.0% LIBOR Floor, 6/24/17^(c)

Energy

Aug-10

6,965

6,880

Clopay Ames True Temper Holding Corp., L+600, 1.8% LIBOR Floor, 9/30/16^(c)

Consumer Discretionary

Dec-10

7,941

7,904

CMP Susquehanna Corp., L+200, 5/5/13^(c)

Telecommunication Services

Dec-10

6,980

6,315

Contec LLC, L+475, 3.0% LIBOR Floor, 7/28/14^(c)

Telecommunication Services

May-09

1,942

1,668

ConvaTec Inc., L+425, 1.5% LIBOR Floor, 12/22/16^(c)

Healthcare

Dec-10

2,314

2,303

Corel Corp., L+400, 5/2/12

Information Technology

Aug-09

1,359

1,258

CPG International Inc., L+450, 1.5% LIBOR Floor, 2/18/17

Industrials

Feb-11

1,862

1,852

Cumulus Media Inc., L+375, 6/11/14^(c)

Telecommunication Services

Oct-10

4,060

3,763

Custom Building Products, Inc., L+400, 1.8% LIBOR Floor, 3/1/15^(c)

Materials

Mar-10

2,830

2,807

Data Device Corp., L+550, 1.8% LIBOR Floor, 12/23/16

Industrials

Dec-10

9,231

9,096

Datatel, Inc., L+350, 1.5% LIBOR Floor, 2/18/17^(c)

Information Technology

Feb-11

1,546

DEI Sales, Inc., L+550, 2.0% LIBOR Floor, 9/22/13

Consumer Discretionary

Jan-11

3,566

3,398

DineEquity, Inc., L+300, 1.3% LIBOR Floor, 10/19/17^(c)

Consumer Staples

Feb-11

2,004

Dunkin’ Brands, Inc., L+300, 1.3% LIBOR Floor, 11/23/17^(c)

Consumer Staples

Feb-11

2,500

Equipower Resources Holdings, LLC, L+425, 1.5% LIBOR Floor, 1/26/18

Utilities

Jan-11

1,631

1,615

Fairmount Minerals, Ltd., L+450, 1.8% LIBOR Floor, 8/5/16^(c)

Materials

Oct-10

6,466

6,412

Fifth Third Processing Solutions LLC, L+400, 1.5% LIBOR Floor, 11/3/16^(c)

Financials

Oct-10

3,731

3,696

First Data Corp., L+275, 9/24/14^(c)

Information Technology

May-10

7,621

6,664

First Reserve Crestwood Holdings LLC, L+850, 2.0% LIBOR Floor, 10/3/16

Energy

Sep-10

4,429

4,346

Freescale Semiconductor, Inc., L+425, 12/1/16^(c)

Industrials

Oct-10

7,437

7,086

General Chemical Corp., L+500, 1.8% LIBOR Floor, 10/6/15^(c)

Materials

Nov-10

7,527

7,556

Getty Images, Inc., L+375, 1.5% LIBOR Floor, 11/7/16^(c)

Consumer Discretionary

Nov-10

2,441

2,418

Global Tel Link Corp., L+550, 1.8% LIBOR Floor, 11/10/16^(c)

Telecommunication Services

Dec-10

8,304

8,155

Goodman Global, Inc., L+400, 1.8% LIBOR Floor, 10/28/16^(c)

Consumer Discretionary

Oct-10

1,814

1,796

Green Tree Credit Solutions LLC, L+575, 2.3% LIBOR Floor, 12/18/15^(c)

Financials

Jul-10

4,364

4,210

Grifols, SA, L+425, 1.8% LIBOR Floor, 10/1/16^(c)

Healthcare

Oct-10

4,336

4,296

Hanger Orthopedic Group, Inc., L+375, 1.5% LIBOR Floor, 12/1/16^(c)

Healthcare

Nov-10

1,944

1,935

Harbor Freight Tools USA, Inc., L+500, 1.5% LIBOR Floor, 12/22/17^(c)

Consumer Discretionary

Dec-10

9,929

9,832

HarbourVest Partners LP, L+475, 1.5% LIBOR Floor, 12/17/16^(c)

Financials

Dec-10

11,496

11,385

Harland Clarke Holdings Corp., L+250, 6/30/14^(c)

Industrials

Jul-10

2,448

2,132

Houghton International Inc., L+500, 1.8% LIBOR Floor, 1/31/16^(c)

Materials

Jan-11

1,778

1,769

iHealth Technologies, Inc., L+600, 1.8% LIBOR Floor, 12/28/16

Healthcare

Dec-10

3,636

3,565

Infogroup, Inc., L+450, 1.8% LIBOR Floor, 7/1/16^(c)

Consumer Discretionary

May-10

4,647

4,565

Intelligrated, Inc., L+575, 1.8% LIBOR Floor, 2/18/17

Information Technology

Feb-11

5,000

4,950

Intelsat Jackson Holdings SA, L+375, 1.5% LIBOR Floor, 4/2/18^(c)

Telecommunication Services

Dec-10

3,000

2,986


Portfolio Company^(a)	Industry	Date of Most Recent Purchase	Principal Amount (in thousands)^(b)		Amortized Cost (in thousands)
Interactive Data Corp., L+350, 1.3% LIBOR Floor, 2/11/18	Financials	Feb-11	$	10,000	$	10,000
Intralinks, Inc., L+425, 1.5% LIBOR Floor, 6/15/14	Information Technology	May-09		1,451		1,181
inVentiv Health, Inc., L+325, 1.5% LIBOR Floor, 8/4/16	Healthcare	Feb-11		671		671
KIK Custom Products Inc., L+225, 5/31/14^(c)	Consumer Staples	Mar-10		4,949		4,420
Lantiq Deutschland GmbH, L+700, 2.0% LIBOR Floor, 11/16/15^(c)	Information Technology	Jan-11		6,978		6,877
MDA Info Products Ltd., L+550, 1.5% LIBOR Floor, 1/4/17	Information Technology	Dec-10		5,000		4,928
MedAssets, Inc., L+375, 1.5% LIBOR Floor, 11/22/16^(c)	Healthcare	Nov-10		1,667		1,651
Mosaic US Holdings Inc., L+275, 4/3/13	Consumer Discretionary	Oct-09		882		680
NBTY, Inc., L+410, 1.6% LIBOR Floor, 10/1/17^(c)	Consumer Staples	Feb-11		3,241		3,220
NCO Group, Inc., L+500, 2.5% LIBOR Floor, 5/15/13^(c)	Information Technology	Jan-11		8,303		8,260
New Development Holdings, LLC (Calpine), L+550, 1.5% LIBOR Floor, 7/3/17^(c)	Utilities	Aug-10		5,558		5,488
NSH Merger Sub, Inc., L+650, 1.8% LIBOR Floor, 2/3/17	Healthcare	Feb-11		10,500		10,326
OSI Restaurant Partners, LLC, L+225, 6/14/14^(c)	Consumer Discretionary	Jul-10		5,638		4,999
Ozburn Hessey Holding Co., LLC, L+550, 2.0% LIBOR Floor, 4/8/16^(c)	Industrials	Aug-10		6,230		6,199
Petco Animal Supplies, Inc., L+325, 1.3% LIBOR Floor, 11/25/17	Consumer Discretionary	Feb-11		3,654		3,654
Playboy Enterprises, Inc., L+650, 1.8% LIBOR Floor, 3/4/17	Consumer Discretionary	Feb-11		3,488		3,419
Protection One, Inc., L+425, 1.8% LIBOR Floor, 6/4/16^(c)	Consumer Discretionary	Aug-10		4,343		4,317
RBS Worldpay, Inc., L+450, 1.8% LIBOR Floor, 10/15/17	Financials	Oct-10		1,538		1,524
Remy International, Inc., L+450, 1.8% LIBOR Floor, 12/17/13^(c)	Consumer Discretionary	Dec-10		2,083		2,064
RepconStrickland, Inc., L+525, 3.3% LIBOR Floor, 2/19/13	Energy	Apr-10		3,925		3,619
Res-Care, Inc., L+550, 1.8% LIBOR Floor, 12/22/16	Consumer Discretionary	Dec-10		5,000		4,903
Revlon Consumer Products Corp., L+400, 2.0% LIBOR Floor, 3/11/15^(c)	Consumer Discretionary	Jul-10		6,357		6,267
Reynolds & Reynolds Co., L+350, 1.8% LIBOR Floor, 4/21/17^(c)	Information Technology	May-10		4,723		4,692
Reynolds Group Holdings Inc., L+325, 1.0% LIBOR Floor, 2/9/18	Industrials	Feb-11		3,658		3,658
Sagittarius Restaurants LLC, L+550, 2.0% LIBOR Floor, 5/18/15	Consumer Discretionary	Aug-10		3,041		3,010
Savvis, Inc., L+500, 1.8% LIBOR Floor, 8/4/16^(c)	Information Technology	Aug-10		7,382		7,234
Sedgwick CMS Holdings, L+350, 1.5% LIBOR Floor, 9/28/16^(c)	Industrials	Feb-11		4,082		4,082
SemGroup Corp., L+700, 1.5% LIBOR Floor, 11/30/12^(c)	Energy	Feb-11		10,249		10,285
Sheridan Production Co., LLC, L+550, 2.0% LIBOR Floor, 4/20/17^(c)	Energy	Jan-11		10,448		10,355
Sitel, LLC, L+550, 1/30/14^(c)	Telecommunication Services	Dec-10		5,966		5,632
Smile Brands Group Inc., L+525, 1.8% LIBOR Floor, 12/21/17^(c)	Healthcare	Dec-10		5,966		5,878
Smurfit-Stone Container Enterprises, Inc., L+475, 2.0% LIBOR Floor, 2/10/16	Industrials	Feb-10		6,965		6,907
Sorenson Communication, Inc., L+400, 2.0% LIBOR Floor, 8/16/13^(c)	Consumer Discretionary	Feb-11		9,000		8,725
Spansion, LLC, L+550, 2.0% LIBOR Floor, 2/9/15^(c)	Information Technology	Dec-10		5,903		5,940
Sports Authority, Inc., L+600, 1.5% LIBOR Floor, 11/16/17^(c)	Consumer Discretionary	Dec-10		8,000		7,789
Styron Sarl, L+450, 1.5% LIBOR Floor, 6/14/16^(c)	Materials	Jan-11		4,131		4,131
Summit Materials Companies I, LLC, L+500, 1.5% LIBOR Floor, 12/31/15^(c)	Materials	Dec-10		4,000		4,000
Swift Transportation Co., Inc., L+450, 1.5% LIBOR Floor, 12/21/16^(c)	Industrials	Dec-10		4,288		4,246
Targus Information Corp., L+525, 1.8% LIBOR Floor, 12/28/16	Information Technology	Dec-10		5,000		4,902
Telcordia Technologies Inc., L+500, 1.8% LIBOR Floor, 4/30/16^(c)	Telecommunication Services	Nov-10		7,984		8,003
Texas Competitive Electric Holdings Co. LLC, L+350, 10/10/14^(c)	Utilities	Jan-11		13,384		11,176
The Gymboree Corp., L+350, 1.5% LIBOR Floor, 4/11/18	Consumer Discretionary	Feb-11		1,692		1,692
TNS, Inc., L+400, 2.0% LIBOR Floor, 11/18/15^(c)	Telecommunication Services	Sep-10		1,317		1,317
TowerCo Finance LLC, L+375, 1.5% LIBOR Floor, 2/2/17	Telecommunication Services	Jan-11		1,400		1,393
Toys“R”Us, Inc., L+450, 1.5% LIBOR Floor, 8/17/16^(c)	Consumer Discretionary	Oct-10		6,716		6,680
TransUnion LLC, L+325, 1.5% LIBOR Floor, 2/9/18	Financials	Feb-11		2,500		2,500
Trident Exploration Corp., L+950, 3.0% LIBOR Floor, 6/10/14^(c)	Energy	Nov-10		8,960		8,908
Univar Inc., L+350, 1.5% LIBOR Floor, 4/28/17^(c)	Materials	Feb-11		6,642		6,642
Vertafore, Inc., L+375, 1.5% LIBOR Floor, 7/29/16	Information Technology	Feb-11		6,866		6,866
Yell Group Plc, L+300, 7/31/14	Consumer Discretionary	Oct-09		804		682

Total Senior Secured Loans—First Lien				560,640		546,355

Senior Secured Loans—Second Lien—17.9%
Advance Pierre Foods, Inc., L+950, 1.8% LIBOR Floor, 9/21/17^(c)	Consumer Staples	Jan-11		12,000		12,053
Advantage Sales & Marketing Inc., L+775, 1.5% LIBOR Floor, 5/29/18	Industrials	Jan-11		12,000		11,893
AMN Healthcare Services, Inc., L+1000, 1.8% LIBOR Floor, 9/1/16	Healthcare	Aug-10		10,000		9,724
AmWINS Group, Inc., L+550, 6/8/14	Financials	May-10		1,992		1,686
Attachmate Corp., L+758, 1.0% LIBOR Floor, 2/25/17^(c)	Information Technology	Feb-11		15,000		14,294
Awesome Acquisition Co., L+500, 6/4/14	Consumer Discretionary	Oct-09		2,940		2,369
BNY ConvergEx Group, LLC, L+700, 1.8% LIBOR Floor, 12/17/17^(c)	Information Technology	Dec-10		6,000		5,927
Central Parking Systems, Inc., L+450, 11/22/14	Industrials	May-10		250		201
Datatel, Inc., L+725, 1.5% LIBOR Floor, 2/18/18^(c)	Information Technology	Feb-11		9,783		9,734
FR Brand Acquisition Corp., L+615, 2/7/15^(c)	Industrials	Jan-11		13,000		11,741
Goodman Global, Inc., L+700, 2.0% LIBOR Floor, 10/27/17^(c)	Consumer Discretionary	Oct-10		7,000		6,866
Kronos Inc., L+575, 6/11/15^(c)	Industrials	Nov-10		3,000		2,922
Roundy’s Supermarkets, Inc., L+800, 2.0% LIBOR Floor, 4/16/16^(c)	Consumer Staples	Jan-11		12,000		12,142
Sedgwick CMS Holdings, L+750, 1.5% LIBOR Floor, 5/30/17	Industrials	Aug-10		500		500
Southern Pacific Resource Co., L+850, 2.0% LIBOR Floor, 12/22/15^(c)	Energy	Jan-11		13,000		12,782
TPF Generation Holdings (Tenaska Power Fund), LLC, L+425, 12/15/14^(c)	Energy	Dec-10		9,170		8,363
Vertafore, Inc., L+825, 1.5% LIBOR Floor, 10/29/17^(c)	Information Technology	Oct-10		10,000		9,905
Wm. Bolthouse Farms, Inc., L+750, 2.0% LIBOR Floor, 8/11/16^(c)	Consumer Staples	Feb-11		11,079		11,133
Xerium Technologies, Inc., L+625, 2.0% LIBOR Floor, 5/25/15^(c)	Materials	Jan-11		11,933		11,704

Total Senior Secured Loans—Second Lien				160,647		155,939


Portfolio Company^(a)	Industry	Date of Most Recent Purchase	Principal Amount (in thousands)^(b)		Amortized Cost (in thousands)
Senior Secured Bonds—5.2%
Allen Systems Group, Inc., 10.5%, 11/15/16	Information Technology	Jan-11	$	8,723	$	8,811
Avaya Inc., 7.0%, 4/1/19^(c)	Information Technology	Feb-11		1,500		1,500
Calpine Corp., 7.9%, 1/15/23	Utilities	Jan-11		8,500		8,500
First Data Corp., 8.9%, 8/15/20^(c)	Information Technology	Aug-10		4,300		4,233
Logan’s Roadhouse, Inc., 10.8%, 10/15/17	Consumer Discretionary	Sep-10		4,000		4,000
Nexstar Broadcasting Group, Inc., 8.9%, 4/15/17^(c)	Telecommunication Services	Apr-10		5,000		4,971
Paetec Holding Corp., 8.9%, 6/30/17^(c)	Telecommunication Services	Apr-10		4,680		4,814
Palace Entertainment Holdings, LLC, 8.9%, 4/15/17^(c)	Consumer Discretionary	Feb-11		2,400		2,400
Roofing Supply Group LLC, 8.6%, 12/1/17^(c)	Industrials	Nov-10		800		800
Stallion Oilfield Services Ltd., 10.5%, 2/15/15	Energy	Aug-10		3,598		3,659
United Refining Co., 10.5%, 2/28/18	Energy	Feb-11		1,875		1,808

Total Senior Secured Bonds				45,376		45,496

Mezzanine Debt/Other—14.4%
Apidos CDO IV Class E, L+360, 10/27/18	Financials	May-10		2,000		1,061
Ares 2007 CLO 11A Class E, L+600, 10/11/21	Financials	Sep-10		4,775		3,040
Ares 2007 CLO 12X Class E, L+575, 11/25/20	Financials	Nov-10		2,252		1,747
Aspect Software, Inc., 10.6%, 5/15/17^(c)	Information Technology	Apr-10		4,000		4,000
ATI Enterprises Inc., L+1100, 2.3% LIBOR Floor, 12/30/16	Consumer Discretionary	Jan-10		8,000		7,910
Aurora Diagnostics, LLC, 10.8%, 1/15/18	Healthcare	Dec-10		8,000		8,000
Base CLO I Class E, EURIBOR+500, 10/17/18	Financials	Mar-10	€	1,500		972
Blue Mountain CLO III Class E, L+355, 3/17/21	Financials	May-10	$	2,000		877
Bresnan Broadband Holdings LLC, 8.0%, 12/15/18^(c)	Telecommunication Services	Dec-10		5,000		5,000
Burlington Coat Factory Holdings Inc., 10.0%, 2/15/19	Consumer Discretionary	Feb-11		680		680
Cambium Learning, Inc., 9.8%, 2/15/17	Consumer Discretionary	Feb-11		3,000		2,983
Cincinnati Bell Inc., 8.4%, 10/15/20^(c)	Telecommunication Services	Oct-10		8,000		8,000
Commscope Inc., 8.3%, 1/15/19^(c)	Telecommunication Services	Jan-11		4,000		4,000
Del Monte Foods Co., 7.6%, 2/15/19^(c)	Consumer Staples	Feb-11		2,500		2,500
Foothill CLO I Class Subord., 16.7%, 2/22/21	Financials	Feb-11		4,000		4,540
Franklin CLO 6A Class E, L+425, 8/9/19	Financials	Oct-10		1,919		1,141
Galaxy VII CLO Class Subord., 12.1%, 10/13/18	Financials	Jan-11		2,000		1,803
Grifols, SA, 8.3%, 2/1/18	Healthcare	Jan-11		2,500		2,500
Hughes Network Systems, LLC, 9.5%, 4/15/14	Telecommunication Services	Jul-10		2,000		2,069
Insight Pharmaceuticals LLC, 13.0%, 2.0% PIK, 12/31/17	Healthcare	Feb-11		15,000		14,700
Lightpoint CLO 2006 V Class D, L+365, 8/5/19	Financials	Sep-10		6,500		3,044
Lightpoint CLO 2007 VII Class D, L+400, 5/15/21	Financials	Sep-10		4,000		2,196
Mediacom Broadband LLC, 8.5%, 10/15/15	Consumer Discretionary	Aug-10		2,000		2,028
Mountain View CLO II Class Preferred, 21.0%, 1/12/21	Financials	Jan-11		9,225		6,984
N.E.W. Customer Service Cos., Inc., L+750, 2.0% LIBOR Floor, 3/22/17^(c)	Industrials	Mar-10		7,000		6,869
NBTY, Inc., 9.0%, 10/1/18	Consumer Staples	Sep-10		4,700		4,700
NCO Group Inc., L+488, 11/15/13	Information Technology	Jan-11		2,000		1,737
Octagon CDO 2007 1A Class Income, 38.1%, 8/25/21	Financials	Oct-10		4,000		2,701
Paetec Holding Corp., 9.9%, 12/1/18	Telecommunication Services	Nov-10		4,000		3,870
Trimaran CLO IV Ltd. Class Pref., 15.5%, 12/1/17	Financials	Feb-11		12,500		11,294
Univar Inc., 12.0%, 6/30/18	Materials	Dec-10		3,000		2,942

Total Mezzanine Debt/Other				142,051		125,888

TOTAL INVESTMENTS—100%					$	873,678

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

(b)	Denominated in U.S. Dollars unless otherwise noted.

(c)	Security is held within Broad Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the amended and restated revolving credit facility with Deutsche Bank AG, New York Branch.

The tables below show portfolio investments that were sold or experienced a repayment in excess of 1% of a position’s value between January 1, 2011 and February 28, 2011.


Security	Original Cost		Disposition Price		Transaction Type
Alaska Communications Systems Holdings, Inc., L+400, 1.5% LIBOR Floor, 10/21/16	$	3,646,205	$	3,701,451		Sale
Armstrong World Industries, Inc., L+350, 1.5% LIBOR Floor, 5/23/17	$	1,678,313	$	1,712,048		Sale
BBHI Acquisition LLC, L+300, 1.5% LIBOR Floor, 12/14/17	$	2,043,387	$	2,082,087		Sale
Booz Allen Hamilton Inc., 3.0%, 1.0% LIBOR Floor, 1/27/16	$	1,264,822	$	1,282,213		Sale
Burger King Corp., L+300, 1.5% LIBOR Floor, 10/19/16	$	1,754,386	$	1,769,737		Sale
Charter Communications Operating, LLC, 7.1%, 1/15/18	$	6,649,482	$	6,715,375		Sale
Cedar Fair, LP, L+400, 1.5% LIBOR Floor, 12/15/16	$	2,924,660	$	3,009,593		Sale
CommScope, Inc., 8.3%, 1/15/19	$	1,781,330	$	1,817,136		Sale
Dunkin’ Brands, Inc., L+300, 1.3% LIBOR Floor, 11/23/17	$	1,166,775	$	1,172,609		Sale
Florida East Coast Industries, Inc., 8.1%, 2/1/17	$	200,000	$	207,500		Sale
Green Mountain Coffee Roasters, Inc., L+400, 1.5% LIBOR Floor, 12/16/16	$	1,736,842	$	1,765,351		Sale
Intelsat Jackson Holdings SA, L+375, 1.5% LIBOR Floor, 4/2/18	$	2,624,396	$	2,673,851		Sale
Interactive Data Corp., L+350, 1.3% LIBOR Floor, 2/8/18	$	7,000,000	$	7,056,250		Sale
J Crew Operating Corp., L+350, 1.3% LIBOR Floor, 3/9/18	$	4,170,616	$	4,196,682		Sale
Knology, Inc., L+400, 1.5% LIBOR Floor, 10/15/16	$	1,930,500	$	1,979,250		Sale
Michael Foods Group, Inc., L+300, 1.3% LIBOR Floor, 2/22/18	$	3,930,844	$	3,960,325		Sale
NBTY, Inc., L+325, 1.0% LIBOR Floor, 10/1/17	$	2,212,389	$	2,220,686		Sale
NRG Energy Inc., 7.6%, 1/15/18	$	5,000,000	$	5,018,750		Sale
Reynolds Group Holdings Inc., L+325, 1.0% LIBOR Floor, 2/17/18	$	4,000,000	$	4,040,000		Sale
Rovi Corp., L+300, 1.0% LIBOR Floor, 2/7/18	$	847,134	$	860,934		Sale
Rural/Metro Corp., LLC, L+425, 1.8% LIBOR Floor, 11/24/16	$	1,466,316	$	1,495,789		Sale
Scitor Corp., 3.5%, 1.5% LIBOR Floor, 2/15/17	$	1,144,250	$	1,155,750		Sale
SI Organization, Inc., L+325, 1.3% LIBOR Floor, 2/18/17	$	344,828	$	345,690		Sale
Six Flags Theme Parks, Inc., L+400, 1.5% LIBOR Floor, 6/30/16	$	2,723,540	$	2,788,549		Sale
Syniverse Holdings, Inc., L+375, 1.5% LIBOR Floor, 9/8/14	$	2,008,696	$	2,059,420		Sale
United Components, Inc., L+400, 1.5% LIBOR Floor, 7/20/17	$	853,081	$	864,810		Sale
Universal Health Services, Inc., L+400, 1.5% LIBOR Floor, 11/15/16	$	4,925,000	$	5,087,500		Sale
WCP Exposition Services Operating Co. LLC, L+600, 3.0% LIBOR Floor, 8/29/11	$	243,964	$	358,533		Sale


Security	Weighted Average Purchase Price⁽¹⁾			Weighted Average Disposition Price⁽¹⁾			Paydown Amount		Transaction Type
Airvana Network Solutions Inc., L+900, 2.0% LIBOR Floor, 8/27/14		99.5	%		100.0	%	$	116,667		Paydown
Anchor Glass Container Corp., L+400, 2.0% LIBOR Floor, 3/1/16		99.0	%		100.0	%	$	146,165		Paydown
Avaya Inc., L+650, 4.0% LIBOR Floor, 10/24/14		103.0	%		100.5	%	$	5,007,437		Paydown
Avaya Inc., L+275, 10/24/14		88.0	%		100.3	%	$	7,950,254		Paydown
Burger King Corp., L+450, 1.8% LIBOR Floor, 10/19/16		100.3	%		101.0	%	$	6,594,706		Paydown
Canwest LP, L+700, 2.0% LIBOR Floor, 7/23/16		99.9	%		100.0	%	$	346,824		Paydown
Carestream Health, Inc., L+525, 10/30/13		96.2	%		100.0	%	$	8,000,000		Paydown
Corel Corp., L+400, 5/2/12		80.3	%		109.0	%	$	74,858		Paydown
Datatel, Inc., L+825, 2.0% LIBOR Floor, 12/10/16		98.0	%		103.0	%	$	5,150,000		Paydown
DineEquity, Inc., L+450, 1.5% LIBOR Floor, 10/19/17		100.0	%		101.0	%	$	2,435,786		Paydown
Dresser, Inc., L+575, 5/4/15		87.9	%		100.0	%	$	7,405,000		Paydown
Dunkin’ Brands, Inc., L+425, 1.5% LIBOR Floor, 11/23/17		99.5	%		101.0	%	$	2,525,000		Paydown
Edwards Ltd., L+575, 11/30/14		87.9	%		100.0	%	$	2,305,159		Paydown
Fairmount Minerals, Ltd., L+450, 1.8% LIBOR Floor, 8/5/16		99.5	%		100.0	%	$	292,849		Paydown
First Reserve Crestwood Holdings LLC, L+850, 2.0% LIBOR Floor, 10/3/16		98.0	%		100.0	%	$	71,250		Paydown
Green Tree Credit Solutions LLC, L+575, 2.3% LIBOR Floor, 12/18/15		96.3	%		100.0	%	$	101,833		Paydown
HarbourVest Partners LP, L+475, 1.5% LIBOR Floor, 12/17/16		99.0	%		100.0	%	$	145,522		Paydown
Interactive Data Corp., L+500, 1.8% LIBOR Floor, 1/29/17		99.0	%		101.0	%	$	6,783,412		Paydown
Michael Foods Group, Inc., L+450, 1.8% LIBOR Floor, 6/29/16		98.0	%		101.0	%	$	2,561,160		Paydown
NBTY, Inc., L+450, 1.8% LIBOR Floor, 10/1/17		99.0	%		101.0	%	$	2,234,513		Paydown
Petco Animal Supplies, Inc., L+450, 1.5% LIBOR Floor, 11/24/17		99.0	%		101.0	%	$	2,959,535		Paydown
Protection One, Inc., L+425, 1.8% LIBOR Floor, 6/4/16		99.4	%		100.0	%	$	58,846		Paydown
Reynolds & Reynolds Co., L+350, 1.8% LIBOR Floor, 4/21/17		99.3	%		100.0	%	$	246,154		Paydown
Reynolds Group Holdings Inc., L+425, 1.5% LIBOR Floor, 5/5/16		99.8	%		100.0	%	$	1,688,625		Paydown
Reynolds Group Holdings Inc., L+425, 2.0% LIBOR Floor, 5/5/16		100.2	%		100.0	%	$	3,298,851		Paydown
Reynolds Group Holdings Inc., L+475, 1.8% LIBOR Floor, 5/12/16		99.9	%		100.0	%	$	2,962,500		Paydown
Sagittarius Restaurants LLC, L+550, 2.0% LIBOR Floor, 5/18/15		98.9	%		100.0	%	$	44,625		Paydown
Stallion Oilfield Services Ltd., 10.5%, 2/15/15		101.9	%		103.0	%	$	414,060		Paydown
Styron Sarl, L+575, 1.8% LIBOR Floor, 6/14/16		100.2	%		101.0	%	$	7,976,096		Paydown
Swift Transportation Co., Inc., L+450, 1.5% LIBOR Floor, 12/21/16		99.0	%		100.0	%	$	257,482		Paydown
The Gymboree Corp., L+400, 1.5% LIBOR Floor, 11/23/17		99.5	%		101.0	%	$	2,160,278		Paydown
Univar Inc., L+450, 1.8% LIBOR Floor, 6/30/17		99.2	%		101.0	%	$	6,708,104		Paydown
Vertafore, Inc., L+500, 1.8% LIBOR Floor, 7/29/16		99.3	%		100.0	%	$	6,909,722		Paydown

(1)	As a percentage of par value.

About FB Advisor

FB Advisor is registered as an investment adviser with the SEC under the Advisers Act. Our chief executive officer, Michael C. Forman, has led FB Advisor since its inception. In 2005, Mr. Forman co-founded FB Capital Partners, L.P., an investment firm that invests in private equity, senior and mezzanine debt, and real estate, and has served as managing general partner since its inception. In 2007, he co-founded Franklin Square Holdings, L.P., or Franklin Square Holdings, a national sponsor and distributor of alternative investment products designed for the individual investor. In managing its funds, Franklin Square Holdings seeks to partner with what it believes to be best-in-class institutional asset managers.

Mr. Forman and the other members of FB Advisor’s senior management team, including David J. Adelman, the vice chairman of our board of directors and the co-founder of Franklin Square Holdings, have extensive experience in private lending, private equity and real estate investing, and have developed an expertise in using all levels of a firm’s capital structure to produce income-generating investments, while focusing on risk management. FB Advisor is presently staffed with twelve employees and may retain additional investment personnel as our activities expand. See “Management” for biographical information regarding Mr. Forman, Mr. Adelman and the other members of FB Advisor’s senior management team.

All investment decisions require the unanimous approval of FB Advisor’s investment committee, which is led by Mr. Forman. Our board of directors, including a majority of independent directors, oversees and monitors our investment performance and annually reviews the compensation we pay to FB Advisor and the compensation FB Advisor pays to GDFM to determine that the provisions of the investment advisory and administrative services agreement and the investment sub-advisory agreement, respectively, are carried out. See “Investment Advisory and Administrative Services Agreement.”

About GDFM

From time to time, FB Advisor may enter into sub-advisory relationships with registered investment advisers that possess skills that FB Advisor believes will aid it in achieving our investment objectives. FB Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor, according to asset allocation and other guidelines set by FB Advisor. GDFM is a Delaware limited liability company with principal offices located at 280 Park Avenue, New York, New York 10017.

GDFM is a wholly-owned subsidiary of GSO. GSO is the credit platform affiliate of Blackstone, a leading global alternative asset manager. As of December 31, 2010, GSO and its affiliates managed approximately $31.0 billion of assets across multiple strategies within the leveraged finance marketplace, including leveraged loans, high-yield bonds, distressed, mezzanine and private equity. As sub-adviser, GDFM makes recommendations to FB Advisor in a manner that is consistent with its existing investment and monitoring processes.

Blackstone is a leading global alternative asset manager and provider of financial advisory services. It is one of the largest independent managers of private capital in the world, with assets under management of $128.1 billion as of December 31, 2010. Blackstone’s alternative asset management businesses include the management of private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation vehicles, separately managed accounts and publicly-traded closed-end mutual funds. Blackstone is a publicly traded limited partnership that has common units which trade on the New York Stock Exchange under the symbol “BX.” Information about Blackstone and its various affiliates, including certain ownership, governance and financial information, is disclosed in Blackstone’s periodic filings with the SEC, which can be obtained from Blackstone’s website at http://ir.blackstone.com or the SEC’s website at www.sec.gov.

Market Opportunity

We believe that there are and will continue to be significant investment opportunities in senior secured and second lien secured loans as well as investments in debt securities of small and middle market companies.

Attractive Opportunities in Senior Secured and Second Lien Secured Loans

Since the beginning of 2009, there have been signs that global credit and other financial market conditions have improved markedly as stability has increased throughout the international financial system. Concentrated policy initiatives undertaken by central banks and governments appear to have curtailed the incidence of large-scale failures within the global financial system. Concurrently, investor confidence, financial indicators, capital markets activity and asset prices have shown signs of marked improvement. While financial conditions have improved, economic activity continues to be somewhat subdued as unemployment rates remain high. Corporate interest rate risk premiums, otherwise known as credit spreads, remain above historical averages, particularly in the loan market. Given current market conditions, it is our view that, at this time, there are and will continue to be significant investment opportunities in senior secured and second lien secured loans as well as investments in debt securities of small and middle market companies.

We feel that opportunities in senior secured and second lien secured loans are significant not only because of the potential returns available, but also because of the strong defensive characteristics of this investment class. Because these loans have priority in payment among an issuer’s security holders (i.e., they are due to receive payment before bondholders and equityholders), they carry the least potential risk among investments in the issuer’s capital structure. Further, these investments are secured by the issuer’s assets, which may be seized in the event of a default if necessary, and generally carry restrictive covenants aimed at ensuring repayment before unsecured creditors, such as most types of public bondholders, and other security holders and preserving collateral to protect against credit deterioration. In addition, most senior secured debt issues carry variable interest rate structures, meaning the securities are generally less susceptible to declines in value experienced by fixed-rate securities in a rising interest rate environment. However, in declining interest rate environments, variable interest rate structures decrease the income we would receive from our debt securities.

Opportunity in Small and Middle Market Private Companies

In addition to investing in senior secured and second lien secured loans generally, we believe that the market for lending to private companies, particularly small and middle market private companies within the U.S., may at times present a compelling investment opportunity. We believe that the following characteristics support our belief:

Large target market. According to The U.S. Census Bureau, in its most recently released economic census in 2002, there were approximately 153,000 small and middle market companies in the U.S. with annual revenues between $10 million and $2.5 billion, compared with approximately 900 companies with revenues greater than $2.5 billion. These smaller and middle market companies represent a significant portion of the growth segment of the U.S. economy and often require substantial capital investment to grow their businesses. Small and middle market companies have generated a significant number of investment opportunities for investment programs managed by FB Advisor and GDFM over the past several years, and we believe that this market segment will continue to produce significant investment opportunities for us.

Limited investment competition. Despite the size of the market, we believe that financial difficulties and a widespread consolidation in the financial services industry have substantially reduced the number of investment firms and financial institutions lending to small and middle market companies. We believe that lending to small and middle market private U.S. companies generally requires a greater dedication of the lender’s time and resources compared to lending to larger companies, due in part to the smaller size of each investment and the often fragmented nature of information available for disclosure from these companies. In addition, small and middle market companies may require more active monitoring and participation on the lender’s part. We believe that many large financial organizations, with relatively high cost structures, are not equipped to deal with these factors and instead emphasize services to larger corporate clients and transactions with a consequent reduction in the availability of debt financing to small and middle market companies.

Attractive market segment. We believe that the underserved nature of such a large segment of the market can at times create a significant opportunity for investment. In many environments, we believe that small and middle market companies are more likely to offer attractive economics in terms of transaction pricing, up-front and ongoing fees, prepayment penalties and more attractive security features in the form of stricter covenants and quality collateral. In addition, as compared to larger companies, small and middle market companies often have simpler capital structures and carry less leverage, thus aiding the structuring and negotiation process and allowing us greater flexibility in structuring favorable transactions. We believe that these factors often result in advantageous conditions in which to pursue our investment objectives of generating current income and, to a lesser extent, long-term capital appreciation.

Characteristics of and Risks Related to Investments in Private Companies

We invest primarily in the debt of privately held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. Second, the investments themselves may often be illiquid. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. In addition, little public information generally exists about private companies. Finally, these companies often do not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FB Advisor and/or GDFM to obtain adequate information through their due diligence efforts to evaluate the creditworthiness of, and risks involved in, investing in these companies. These companies and their financial information will also generally not be subject to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and other rules and regulations that govern public companies that are designed to protect investors.

Investment Strategy

When identifying prospective portfolio companies, we focus primarily on the following attributes, which we believe help us generate attractive total returns with an acceptable level of risk. While these criteria provide general guidelines for our investment decisions, we caution you that, if we believe the benefits of investing are sufficiently strong, not all of these criteria necessarily will be met by each prospective portfolio company in which we choose to invest. These attributes are:

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Leading, defensible market positions. We seek to invest in companies that have developed strong positions within their respective markets and exhibit the potential to maintain sufficient cash flows and profitability to service our debt in a range of economic environments. We seek companies that we believe possess advantages in scale, scope, customer loyalty, product pricing, or product quality versus their competitors, thereby minimizing business risk and protecting profitability.

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Investing in stable companies with positive cash flow. We seek to invest in established, stable companies with strong profitability and cash flows. Such companies, we believe, are well-positioned to maintain consistent cash flow to service and repay our loans and maintain growth in their businesses or market share. We do not intend to invest in start-up companies, turnaround situations or companies with speculative business plans.

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Proven management teams. We focus on investments in which the target company has an experienced management team with an established track record of success. We typically require the portfolio companies to have in place proper incentives to align management’s goals with ours.

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Private equity sponsorship. Often, we seek to participate in transactions sponsored by what we believe to be high-quality private equity firms. FB Advisor’s management team believes that a private equity sponsor’s willingness to invest significant sums of equity capital into a company is an implicit endorsement of the quality of the investment. Further, by co-investing with quality private equity firms which commit significant sums of equity capital with junior priority to our debt investments, we may benefit from having due diligence on our investments performed by both parties. Further, strong private

equity sponsors with significant investments at risk have the ability and a strong incentive to contribute additional capital in difficult economic times should operational issues arise.

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Diversification. We seek to diversify our portfolio broadly among issuers and industries, thereby potentially reducing the risk of a downturn in any one company or industry having a disproportionate impact on the value of our portfolio. We cannot assure you that we will be successful in this regard.

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Viable exit strategy. Many of our current investments are tradable in a privately negotiated over-the-counter market, providing us a means by which we may exit our positions. We expect that a large portion of our portfolio will continue to be tradable on this secondary market for the foreseeable future, depending upon market conditions. For any investments that are not traded within a secondary market, we focus primarily on investing in companies whose business models and growth prospects offer other attractive exit possibilities, including repayment of our investments, with the potential for capital gain on any equity interests we hold, through an initial public offering of common stock, merger, sale or recapitalization.

Competitive Advantages

We believe that we offer to our investors the following competitive advantages:

Global platform with seasoned investment professionals. FB Advisor’s management team believes that the breadth and depth of its experience, together with the wider resources of GSO’s investment team which is dedicated to sourcing, structuring, executing, monitoring and realizing upon a broad range of private investments, as well as the specific expertise of GDFM, provides us with a significant competitive advantage in sourcing and analyzing attractive investment opportunities worldwide.

Long-term investment horizon. Unlike most private equity and venture capital funds, we are not required to return capital to our stockholders once we exit a portfolio investment. Such funds typically can only be invested once and must be returned to investors after a specific time period. These provisions often force private equity and venture capital funds to seek liquidity events, including initial public offerings, mergers, or recapitalizations more quickly than they otherwise might, potentially resulting in a lower return to investors. We believe that freedom from such capital return requirements, which allows us to invest using a longer-term focus, will provide us with the opportunity to increase total returns on invested capital, compared to other private company investment vehicles.

GDFM transaction sourcing capability. FB Advisor seeks to leverage GDFM’s significant access to transaction flow. GDFM seeks to generate investment opportunities through syndicate and club deals (generally, investments made by a small group of investment firms) and, subject to regulatory constraints as discussed under “—FS Investment Corporation,” also through GSO’s proprietary origination channels. With respect to syndicate and club deals, GDFM has built a network of relationships with commercial and investment banks, finance companies and other investment funds as a result of the long track record of its investment professionals in the leveraged finance marketplace. With respect to GDFM’s origination channel, FB Advisor seeks to leverage the global presence of GSO to generate access to a substantial amount of originated transactions with attractive investment characteristics. We believe that the broad network of GDFM will produce a significant amount of investment opportunities for us. GDFM also has a significant trading platform allowing us access to the secondary loan market for investment opportunities.

Disciplined, income-oriented investment philosophy. FB Advisor and GDFM employ a defensive investment approach focused on long-term credit performance and principal protection. This investment approach involves a multi-stage selection process for each investment opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of credit deterioration. This strategy is designed to maximize current yield and minimize the risk of capital loss while maintaining potential for long-term capital appreciation.

Expertise across all levels of the corporate capital structure. FB Advisor and GDFM believe that their broad expertise and experience investing at all levels of a company’s capital structure affords us numerous approaches to managing risk while preserving the opportunity for significant returns on our investments. We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that will perform in a broad range of economic conditions.

Plan of Distribution

A decline in our net asset value per share to an amount more than 5% below our current offering price, net of selling commissions and dealer manager fees, creates a rebuttable presumption that there has been a material change in the value of our assets such that a reduction in the offering price per share is warranted. This presumption may only be rebutted if our board of directors, in consultation with our management, reasonably and in good faith determines that the decline in net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, rather than a more fundamental shift in the valuation of our portfolio. In the event that (i) net asset value per share decreases to more than 5% below our current net offering price and (ii) our board of directors believes that such decrease in net asset value per share is the result of a non-temporary movement in the credit markets or the value of our assets, our board of directors will undertake to establish a new net offering price that is not more than 5% above our net asset value per share. If our board of directors determines that the decline in our net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, investors will purchase shares at an offering price per share, net of selling commissions and dealer manager fees, which represents a premium to the net asset value per share of greater than 5%.

FS² Capital Partners, LLC acts as the dealer manager in connection with the sale of shares registered in this offering. The dealer manager was formed in 2007 and is an affiliate of FB Advisor.

To purchase shares in this offering, you must complete and sign a subscription agreement (in the form attached to this prospectus as Appendix A) for a specific dollar amount equal to or greater than $5,000 and pay such amount at the time of subscription. You should make your check payable to “UMB Bank, N.A., as agent for FS Investment Corporation.” Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. Pending acceptance of your subscription, proceeds will be deposited into an account for your benefit. See “How to Subscribe.”

Suitability Standards

Pursuant to applicable state securities laws, shares of common stock offered through this prospectus are suitable only as a long-term investment for persons of adequate financial means who have no need for liquidity in this investment. Initially, there is not expected to be any public market for the shares, which means that it may be difficult to sell shares. As a result, we have established suitability standards which require investors to have either (i) a net worth (not including home, furnishings, and personal automobiles) of at least $70,000 and an annual gross income of at least $70,000, or (ii) a net worth (not including home, furnishings and personal automobiles) of at least $250,000. Our suitability standards also require that a potential investor (1) can reasonably benefit from an investment in us based on such investor’s overall investment objectives and portfolio structuring; (2) is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation; and (3) has apparent understanding of (a) the fundamental risks of the investment, (b) the risk that such investor may lose his or her entire investment, (c) the lack of liquidity of the shares, (d) the background and qualifications of FB Advisor and GDFM, and (e) the tax consequences of the investment. For additional information, including special suitability standards for residents of Alabama, Arizona, Iowa, Kansas, Kentucky, Massachusetts, Michigan, Nebraska, Ohio and Oregon, see “Suitability Standards.”

How to Subscribe

Investors who meet the suitability standards described herein may purchase shares of our common stock. Investors seeking to purchase shares of our common stock should proceed as follows:

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Read this entire prospectus and any appendices and supplements accompanying this prospectus.

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Complete the execution copy of the subscription agreement provided by your financial representative. A specimen copy of the subscription agreement, including instructions for completing it, is included in this prospectus as Appendix A.

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Deliver a check for the full purchase price of the shares of our common stock being subscribed for along with the completed subscription agreement to the selected broker-dealer. You should make your check payable to “UMB Bank, N.A., as agent for FS Investment Corporation.” After you have satisfied the applicable minimum purchase requirement, additional purchases must be in increments of $500, except for purchases made pursuant to our distribution reinvestment plan.

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By executing the subscription agreement and paying the total purchase price for the shares of our common stock subscribed for, each investor attests that he meets the suitability standards as stated in the subscription agreement and agrees to be bound by all of its terms.

Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. Subscriptions will be accepted or rejected within 15 days of receipt by us and, if rejected, all funds shall be returned to subscribers without deduction for any expenses within ten business days from the date the subscription is rejected. We are not permitted to accept a subscription for shares of our common stock until at least five business days after the date you receive this prospectus.

An approved trustee must process and forward to us subscriptions made through IRAs, Keogh plans and 401(k) plans. In the case of investments through IRAs, Keogh plans and 401(k) plans, we will send the confirmation and notice of our acceptance to the trustee.

Estimated Use of Proceeds

We intend to use substantially all of the proceeds from this offering, net of expenses, to make investments in private U.S. companies in accordance with our investment objectives and using the strategies described in this prospectus. The remainder will be used for working capital and general corporate purposes. There can be no assurance we will be able to sell all the shares we are registering. If we sell only a portion of the shares we are registering, we may be unable to achieve our investment objectives or provide diversification of our portfolio.

Pending investment of the proceeds raised in this offering, we will invest the net proceeds primarily in short-term securities consistent with our business development company election and our election to be taxed as a RIC. During this time, we may employ a portion of the net proceeds to pay operating expenses, distributions to stockholders, and for general corporate purposes. See “Estimated Use of Proceeds.”

Share Repurchase Program

To provide our stockholders with limited liquidity, we intend to conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in March 2010 and the repurchase occurred in connection with our April 1, 2010 closing. The following table reflects certain information regarding the quarterly tender offers that we have conducted to date:


For the Three Months Ended	Repurchase Date	Shares Repurchased		Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares (in thousands)
March 31, 2010	April 1, 2010		11,142	$	9.360	$	104
June 30, 2010	July 1, 2010		108,904		9.360		1,019
September 30, 2010	October 1, 2010		108,904		9.360		1,019
December 31, 2010	January 3, 2011		99,633		9.590		955
March 31, 2011	April 1, 2011		158,258		9.675		1,531

Our quarterly repurchases will be conducted on such terms as may be determined by our board of directors unless, in the judgment of the independent directors of our board of directors, such repurchases would not be in the best interests of our stockholders or would violate applicable law. We will conduct such repurchase offers in accordance with the requirements of Rule 13e-4 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the 1940 Act. In months in which we repurchase shares, we will conduct repurchases on the same date that we hold our first semi-monthly closing for the sale of shares in this offering. The offer to repurchase shares is conducted solely through tender offer materials mailed to each stockholder and is not being made through this prospectus.

We currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the sale of shares of our common stock under our distribution reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares. In addition, we will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter. We will offer to repurchase such shares at a price equal to 90% of the offering price in effect on each date of repurchase.

In connection with its consideration of whether to conduct such tender offers, our board of directors will consider any requests it has received from stockholders. If you wish to tender your shares to be repurchased you must either tender at least 25% of the shares you purchased in the offering or all of the shares that you own. If you choose to tender only a portion of your shares, you must maintain a minimum balance of $5,000 worth of shares following a tender of shares for repurchase. If the amount of repurchase requests exceeds the number of shares we seek to repurchase, we will repurchase shares on a pro-rata basis. As a result, we may repurchase less than the full amount of shares that you request to have repurchased. If we do not repurchase the full amount of your shares that you have requested to be repurchased, or we determine not to make repurchases of our shares, you may not be able to dispose of your shares, even if we under-perform. Any periodic repurchase offers will be subject in part to our available cash and compliance with the RIC qualification and diversification rules promulgated under the Code and the 1940 Act.

We have received exemptive relief from Regulation M under the Exchange Act from the Division of Trading and Markets of the SEC in connection with our proposed share repurchase program. See “Share Repurchase Program.”

Liquidity Strategy

We intend to seek to complete a liquidity event for our stockholders within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors. We will view our offering stage as complete as of the termination date of our most recent public equity offering if we have not conducted a public equity offering in any continuous two year period. We may determine not to pursue a liquidity event if we believe that then-current market conditions are not favorable for a liquidity event, and that such conditions will improve in the future. A liquidity event could include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, (2) a listing of our shares on a national securities exchange or (3) a merger or another transaction approved by our board of directors in which our stockholders will receive cash or shares of a publicly traded company. We refer to the above scenarios as “liquidity events.” While our intention is to seek to complete a liquidity event within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors, there can be no assurance that a suitable transaction will be available or that market conditions for a liquidity event will be favorable during that timeframe. In making a determination of what type of liquidity event is in the best interest of our stockholders, our board of directors, including our independent directors, may consider a variety of criteria, including, but not limited to, portfolio diversification, portfolio performance, our financial condition, potential access to capital as a listed company, market conditions for the sale of our assets or listing of our securities, internal management considerations and the potential for stockholder liquidity. If we determine to pursue a listing of our securities on a national securities exchange in the future, at that time we may consider either an internal or an external management structure.

Prior to the completion of a liquidity event, our share repurchase program may provide a limited opportunity for you to have your shares of common stock repurchased, subject to certain restrictions and limitations, at a price which may reflect a discount from the purchase price you paid for the shares being repurchased. See “Share Repurchase Program” for a detailed description of our share repurchase program.

Advisory Fees

FB Advisor and GDFM are compensated for their services. Under the investment advisory and administrative services agreement, FB Advisor is entitled to a fee consisting of two components—a base management fee and an incentive fee. The base management fee is payable quarterly in arrears, and is calculated at an annual rate of 2.0% of the average value of our gross assets.

The incentive fee consists of three parts. The first part, which we refer to as the subordinated incentive fee on income, will be calculated and payable quarterly in arrears based upon our “pre-incentive fee net investment income” for the immediately preceding quarter and will be subordinated to a preferred return on adjusted capital equal to 2.0% per quarter, or an annualized rate of 8.0%.

The third part of the incentive fee, which we refer to as the subordinated liquidation incentive fee, will equal 20.0% of the net proceeds from a liquidation of the Company in excess of adjusted capital, as calculated immediately prior to liquidation. See “Investment Advisory and Administrative Services Agreement—Overview of FB Advisor—Advisory Fees.”

See “Investment Advisory and Administration Services Agreement—Overview of GDFM” for a description of the investment sub-advisory agreement and the fees payable to GDFM by FB Advisor pursuant to such agreement.

Administration

FB Advisor is reimbursed for administrative expenses it incurs on our behalf. See “Administrative Services.”

Conflicts of Interest

FB Advisor, GDFM and certain of their affiliates may experience conflicts of interest in connection with the management of our business affairs, including, but not limited to, the following:

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The directors, officers and other personnel of FB Advisor allocate their time between advising us and managing other investment activities and business activities in which they may be involved;

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The compensation payable by us to FB Advisor and other affiliates will be approved by our board of directors consistent with the exercise of the requisite standard of care applicable to directors under Maryland law. Such compensation is payable, in most cases, whether or not our stockholders receive distributions;

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We may compete with certain affiliates for investments, subjecting FB Advisor and its affiliates to certain conflicts of interest in evaluating the suitability of investment opportunities and making or recommending acquisitions on our behalf;

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Regardless of the quality of the assets acquired, the services provided to us or whether we make distributions to our stockholders, FB Advisor and GDFM will receive certain fees in connection with the management of our portfolio and sale of our portfolio companies;

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Because the dealer manager, FS² Capital Partners, LLC, is an affiliate of FB Advisor, its due diligence review and investigation of us and this prospectus cannot be considered to be an independent review;

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The personnel of GDFM allocate their time between assisting FB Advisor in identifying investment opportunities and making investment recommendations and performing similar functions for other business activities in which they may be involved;

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We may compete with other funds managed by affiliates of GDFM for investment opportunities, subjecting GDFM and its affiliates to certain conflicts of interest in evaluating the suitability of investment opportunities and making or recommending acquisitions to FB Advisor;

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From time to time, to the extent consistent with the 1940 Act and the rules and regulations promulgated thereunder, we and other clients for which FB Advisor or GDFM provide investment management services or carry on investment activities may make investments at different levels of an investment entity’s capital structure or otherwise in different classes of an issuer’s securities. These investments may inherently give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held by us and such other clients;

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FB Advisor, GDFM and their respective affiliates may give advice and recommend securities to other clients which may differ from advice given to, or securities recommended or bought for, us, even though their investment objectives may be similar to ours;

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GSO and its affiliates may have existing business relationships or access to material, non-public information that would prevent GDFM from recommending certain investment opportunities that would otherwise fit within our investment objectives;

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FB Advisor, GDFM and their respective affiliates are not restricted from forming additional investment funds, from entering into other investment advisory relationships or from engaging in other business activities, even though such activities may be in competition with us and/or may involve substantial time and resources of FB Advisor and GDFM. Affiliates of GDFM, whose primary business includes the origination of investments, engage in investment advisory business with accounts that compete with us. Affiliates of GDFM have no obligation to make their originated investment opportunities available to us; and

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To the extent permitted by the 1940 Act and staff interpretations, FB Advisor may determine it appropriate for us and one or more other investment accounts managed by FB Advisor, GDFM or any of their respective affiliates to participate in an investment opportunity. We are seeking exemptive relief from the SEC to engage in co-investment opportunities with GDFM and/or its affiliates. There can be no assurance that we will obtain such exemptive relief. These co-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among us and the other participating accounts. To mitigate these conflicts, FB Advisor will seek to execute such transactions for all of the participating investment accounts, including us, on a fair and equitable basis, taking into account such factors as the relative amounts of capital available for new investments and the investment programs and portfolio positions of us, the clients for which participation is appropriate and any other factors deemed appropriate.

Risk Factors

An investment in our common stock involves a high degree of risk and may be considered speculative. You should carefully consider the information found in “Risk Factors” before deciding to invest in shares of our common stock. The following are some of the risks an investment in us involves:

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We are a relatively new company and have a limited operating history and are subject to the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives.

•

FB Advisor has not previously managed a business development company or a regulated investment company. Therefore, FB Advisor may not be able to successfully operate our business or achieve our investment objectives.

•

Economic activity in the United States was impacted by the global financial crisis of 2008 and has yet to fully recover. These conditions may make it more difficult for us to achieve our investment objectives.

•

Because there is no public trading market for shares of our common stock and we are not obligated to effectuate a liquidity event by a specified date, it will be difficult for you to sell your shares.

•

We have elected to be treated as a RIC for federal income tax purposes. Failure to maintain our qualification as a RIC would subject us to federal income tax on all of our income, which would have a material adverse effect on our financial performance.

•

As a result of the annual distribution requirement to maintain our qualification as a RIC, we will likely need to continually raise cash or make borrowings to fund new investments. At times, these sources of funding may not be available to us on acceptable terms, if at all.

•

We are subject to financial market risks, including changes in interest rates, which may have a substantial negative impact on our investments.

•

A significant portion of our 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.

•

We invest primarily in senior secured term loans, second lien secured loans and, to a lesser extent, mezzanine debt and selected equity investments issued by private U.S. companies, including small and middle market companies. For our senior secured and second lien secured loans, the collateral securing these investments may decrease in value or lose its entire value over time or may fluctuate based on the performance of the portfolio company which may lead to a loss in principal. Mezzanine debt investments are typically unsecured, and this may involve a heightened level of risk, including a loss of principal or the loss of the entire investment.

•

The potential for FB Advisor to earn incentive fees under the investment advisory and administrative services agreement may create an incentive for it to enter into investments that are riskier or more speculative than would otherwise be in our best interests, and, since the base management fee is based on gross assets, FB Advisor may have an incentive to increase portfolio leverage in order to earn higher base management fees. In addition, since GDFM will receive a portion of the advisory fees paid to FB Advisor, GDFM may have an incentive to recommend investments that are riskier or more speculative.

•

This is a “best efforts” offering and if we are unable to raise substantial funds then we will be more limited in the number and type of investments we may make.

•

FB Advisor, its affiliates and GDFM face conflicts of interest as a result of compensation arrangements, time constraints and competition for investments, which they will attempt to resolve in a fair and equitable manner, but which may result in actions that are not in your best interests.

•

The purchase price at which you purchase shares will be determined at each semi-monthly closing date. As a result, your purchase price may be higher than the prior semi-monthly closing price per share, and therefore you may receive a smaller number of shares than if you had subscribed at the prior semi-monthly closing price.

•

In the event of a decline in our net asset value, the board of directors may elect not to reduce our net offering price per share. As a result, your purchase price may be materially higher than the Company’s current net asset value per share.

•

The agreements governing our wholly-owned financing subsidiary’s revolving credit facility contain various covenants which, if not complied with, could accelerate repayment under the facility, which would materially and adversely affect our liquidity, financial condition and our ability to pay distributions to our stockholders. In addition, the facility exposes us to the risks of borrowing, also known as leverage, which may be considered a speculative investment technique. Leverage increases the volatility of investments by magnifying the potential for gain and loss on amounts invested, therefore increasing the risks associated with investing in our securities.

See “Risk Factors” beginning on page 33 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

Reports to Stockholders

Within 60 days after the end of each fiscal quarter, we will distribute our quarterly report on Form 10-Q to all stockholders of record. In addition, we will distribute our annual report on Form 10-K to all stockholders within 120 days after the end of each fiscal year. These reports will also be available on our website at www.fsinvestmentcorp.com and on the SEC’s website at www.sec.gov. These reports should not be considered a part of or as incorporated by reference in the prospectus, or the registration statement of which the prospectus is a part.

Promptly following the payment of distributions to all stockholders of record residing in Maryland, we will send information to stockholders regarding the source of such distributions.

Distribution Reinvestment Plan

We have adopted an “opt in” distribution reinvestment plan pursuant to which you may elect to have the full amount of your cash distributions reinvested in additional shares of our common stock. Participants in our distribution reinvestment plan are free to elect or revoke reinstatement in the distribution reinvestment plan within a reasonable time as specified in the plan. If you do not elect to participate in the plan you will automatically receive any distributions we declare in cash. For example, if our board of directors authorizes, and we declare, a cash distribution, then if you have “opted in” to our distribution reinvestment plan you will have your cash distributions reinvested in additional shares of our common stock, rather than receiving the cash distributions. We expect to coordinate distribution payment dates so that the same price that is used for the semi-monthly closing date immediately following such distribution payment date will be used to calculate the purchase price for purchasers under the distribution reinvestment plan. In such case, your reinvested distributions will purchase shares at a price equal to 95% of the price that shares are sold in the offering at the semi-monthly closing immediately following the distribution payment date. See “Distribution Reinvestment Plan.” No commissions or fees will be assessed pursuant to our distribution reinvestment plan.

Taxation

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

Corporate Information

Our principal executive offices are located at 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104. We maintain a website at www.fsinvestmentcorp.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information to be part of this prospectus.

FEES AND EXPENSES

The following table is intended to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you,” “us” or “FS Investment Corporation,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.

Stockholder Transaction Expenses:


Expenses (as a percentage of offering price)⁽¹⁾
Sales load to dealer manager⁽²⁾	10.00	%
Offering expenses⁽³⁾	1.50	%
Total stockholder transaction expenses	11.50	%

Annual expenses (as a percentage of average net assets attributable to common stock)⁽¹⁾
Base management fee⁽⁴⁾	2.89	%
Incentive fees payable under our investment advisory and administrative services agreement⁽⁵⁾	0.72	%
Interest payments on borrowed funds⁽⁶⁾	1.19	%
Other expenses⁽⁷⁾	0.81	%
Acquired fund fees and expenses⁽⁸⁾	0.00	%
Total Annual Expenses	5.61	%

Example

The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed our annual operating expenses would remain at the percentage levels set forth in the table above and that stockholders would pay a sales load of 10% with respect to common stock sold by us in this offering.


	1 Year		3 Years		5 Years		10 Years
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return:⁽¹⁾	$	164	$	263	$	360	$	597

The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. In addition, while the example assumes reinvestment of all distributions at net asset value, participants in our distribution reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the greater of 95% of the most recent offering price or at such price necessary to ensure that shares are not sold at a price that is below net asset value. See “Distribution Reinvestment Plan” for additional information regarding our distribution reinvestment plan. See “Plan of Distribution” for additional information regarding stockholder transaction expenses.

(1)

Amount assumes that we sell $840 million worth of our common stock during the twelve months following December 31, 2010, which represents the average monthly rate of capital raising during the first three months of 2011, annualized over twelve months. As of December 31, 2010, the Company had net assets of approximately $389.2 million. Assuming the Company raises an additional $840 million over the twelve months following December 31, 2010, the Company would receive net proceeds of approximately $743.4 million, resulting in estimated net assets of approximately $1,132.6 million, and average net assets of

approximately $760.9 million. The amount also assumes inclusion of $340 million in proceeds from the revolving credit facility maintained by our wholly-owned financing subsidiary (see Note 6 below), which results in average total assets of approximately $1,100.9 million. We may draw down less than the full amount available under the revolving credit facility. Actual expenses will depend on the number of shares we sell in this offering and the amount of leverage we employ. For example, if we were to raise proceeds significantly less than this amount over the twelve months following December 31, 2010, our expenses as a percentage of our average net assets would be significantly higher.

There can be no assurance that we will sell $840 million worth of our common stock during the twelve months following December 31, 2010.

(2)	“Sales load” includes selling commissions of 7.0% and dealer manager fees of 3.0%.

(3)	Amount reflects estimated offering expenses to be paid by us of up to $12.6 million if we raise $840 million in gross proceeds.

(4)

Our base management fee under the investment advisory and administrative services agreement will be payable quarterly in arrears, and will be calculated at an annual rate of 2.0% of the average value of our gross assets, which are assumed to equal 144.7% of our average net assets as described in Note (6) below. See “Investment Advisory and Administrative Services Agreement—Overview of FB Advisor—Advisory Fee.” The base management fee shown in the table above is higher than the contractual rate because the base management fee in the table is required to be calculated as a percentage of our average net assets, rather than our gross assets.

(5)

Based on our current business plan, we anticipate that we may have capital gains and interest income that could result in the payment of an incentive fee to FB Advisor in the following twelve months. However, the incentive fee payable to FB Advisor is based on our performance and will not be paid unless we achieve certain performance targets.

The incentive fee will consist of three parts. The first part, which we refer to as the subordinated incentive fee on income, will be calculated and payable quarterly in arrears based upon our “pre-incentive fee net investment income” for the immediately preceding quarter and will be subordinated to a preferred return on adjusted capital equal to 2.0% per quarter, or an annualized rate of 8.0%. Because the example above assumes a 5.0% annual return, as required by the SEC, no subordinated incentive fee on income would be payable in the following twelve months.

The second part of the incentive fee, which we refer to as the incentive fee on capital gains during operations, will be an incentive fee on capital gains earned on liquidated investments from the portfolio during operations prior to a liquidation of the Company and will be determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee will equal 20.0% of our incentive fee capital gains, which will equal our realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar 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 gains incentive fees. The amount in the table assumes that the incentive fee on capital gains during operations will be approximately 0.72% of net assets and is based on the actual realized capital gains for the year ended December 31, 2010 and the unrealized appreciation of our investments as of such date and assumes that all such unrealized appreciation is converted to realized capital gains on such date. Such amounts are expressed as a percentage of the estimated average net assets of approximately $760.9 million for the following twelve months.

The third part of the incentive fee, which we refer to as the subordinated liquidation incentive fee, will equal 20.0% of the net proceeds from a liquidation of the Company in excess of adjusted capital, as calculated immediately prior to liquidation. For purposes of the example above, we have assumed that the subordinated liquidation incentive fee is zero. See “Investment Advisory and Administrative Services Agreement—Overview of FB Advisor—Advisory Fees” for a full explanation of how this incentive fee is calculated.

(6)

On January 28, 2011, Broad Street Funding LLC, or Broad Street, our wholly-owned financing subsidiary, and Deutsche Bank AG, New York Branch, or Deutsche Bank, entered into an amended and restated multi-lender, syndicated revolving credit facility, or the credit facility, which amended and restated the revolving credit facility

Broad Street originally entered into with Deutsche Bank on March 10, 2010 and the amendments thereto, or the original credit facility. Deutsche Bank is a lender and serves as administrative agent under the credit facility.

The credit facility provides for borrowings in an aggregate amount up to $340,000,000. Pursuant to the terms of the credit facility, borrowings thereunder may be designated as Tranche A borrowings in an amount up to $240,000,000 (referred to herein as the Tranche A Commitment) or as Tranche C borrowings in an amount up to $100,000,000 (referred to herein as the Tranche C Commitment). The credit facility also provides for Tranche B borrowings in an amount up to $100,000,000 (referred to herein as the Tranche B Commitment), but there are currently no Tranche B Commitments outstanding. All Tranche A Commitments bear interest at the rate of LIBOR + 2.23% per annum and will mature and be due and payable on March 10, 2012. All Tranche C Commitments bear interest at the rate of LIBOR + 1.85% per annum and will mature and be due and payable on March 10, 2012. In connection with the amendment and restatement of the original credit facility, a $100,000,000 Tranche B Commitment that was provided under the original credit facility by Deutsche Bank to Broad Street on an uncommitted basis was converted into a $100,000,000 Tranche C Commitment provided by a new lender on a committed basis.

In connection with entering into the original credit facility, and from time to time thereafter, we have transferred debt securities to Broad Street as a contribution to capital and retain a residual interest in the contributed debt securities through our ownership of Broad Street. We may contribute additional debt securities to Broad Street from time to time and Broad Street may purchase additional debt securities from various sources. Broad Street has appointed us to manage its portfolio of debt securities pursuant to the terms of an investment management agreement. Broad Street’s obligations to the lenders under the credit facility are secured by a first priority security interest in substantially all of the assets of Broad Street, including its portfolio of debt securities.

As of December 31, 2010, approximately $297.2 million was outstanding under this credit facility. The figure in the table assumes we borrow the full amount available under the credit facility and that the annualized borrowing costs under such facility, including amortized costs and expenses, is 2.67%. Because the assumed borrowing ($340 million) represents 44.7% of our assumed average net assets over the twelve months following December 31, 2010 ($760.9 million), the borrowing costs as a percentage of net assets set forth in the table above is 1.19% (or 44.7% of 2.67%).

(7)

Other expenses include accounting, legal and auditing fees, as well as the reimbursement of the compensation of our chief compliance officer and other administrative personnel, and fees payable to our independent directors. The amount presented in the table does not include preferred pricing arrangements we have received from certain parties as a newly-formed entity but instead reflects estimated amounts we will pay during the twelve months following December 31, 2010 assuming we raise $840 million during such time.

(8)

We have no current intention during the following twelve months to invest in the securities or other investment instruments of public investment companies or BDCs or private investment companies. If we were to make such investments, we would incur fees and our stockholders would pay two levels of fees. As we have no current intention of making any such investments, any estimate of the amount of such fees would be highly speculative.

COMPENSATION OF THE DEALER MANAGER AND THE INVESTMENT ADVISER

The dealer manager receives compensation and reimbursement for services relating to this offering, and we compensate FB Advisor for the investment and management of our assets. The most significant items of compensation, fees, expense reimbursements and other payments that we expect to pay to these entities and their affiliates are included in the table below. The selling commissions and dealer manager fee may vary for different categories of purchasers. See “Plan of Distribution.” This table assumes the shares are sold through distribution channels associated with the highest possible selling commissions and dealer manager fees. For illustrations of how the base management fee, the subordinated incentive fee on income, the incentive fee on capital gains during operations and the subordinated liquidation incentive fee are calculated, see “Investment Advisory and Administrative Services Agreement—Overview of FB Advisor—Advisory Fees.”


Type of Compensation	Determination of Amount	Estimated Amount for Maximum Offering (150,000,000 Shares)⁽¹⁾

	Fees to the Dealer Manager

Sales Load

Selling commissions⁽²⁾	7.0% of gross offering proceeds from the offering; all selling commissions are expected to be reallowed to selected broker-dealers.	$112,875,000

Dealer manager fee⁽²⁾	Up to 3.0% of gross proceeds, all or a portion of which may be reallowed to selected broker-dealers.	$48,375,000

Reimbursement to Our Investment Adviser

Other organization and offering expenses⁽³⁾	We reimburse FB Advisor for the organizational and offering costs it has incurred on our behalf only to the extent that the reimbursement would not cause the selling commissions, dealer manager fee, accountable due diligence expenses and the other organizational and offering expenses borne by us to exceed 15.0% of the gross offering proceeds as the amount of proceeds increases. Based on our current estimate, we estimate that these expenses would be approximately $24.2 million, or 1.5% of the gross offering proceeds, if we use the maximum amount offered.	$24,187,500

	Investment Adviser Fees

Base management fee	The base management fee is calculated at an annual rate of 2.0% of our average gross assets and payable quarterly in arrears. The base management fee may or may not be taken in whole or in part at the	$28,541,250


Type of Compensation	Determination of Amount	Estimated Amount for Maximum Offering (150,000,000 Shares)⁽¹⁾
	discretion of FB Advisor. All or any part of the base management fee not taken as to any quarter shall be deferred without interest and may be taken in any such other quarter prior to the occurrence of a liquidity event as FB Advisor shall determine.

Subordinated Incentive Fee on Income	The subordinated incentive fee on income is calculated and payable quarterly in arrears based upon our “pre-incentive fee net investment income” for the immediately preceding quarter, and will be subordinated to a preferred return on adjusted capital equal to 2.0% per quarter (an annualized rate of 8.0%).⁽⁴⁾No subordinated incentive fee on income is payable in any calendar quarter in which pre-incentive fee net investment income does not exceed the preferred quarterly return of 2.0%, or the preferred quarterly return, on adjusted capital. For any calendar quarter in which pre-incentive fee net investment income is greater than the preferred quarterly return, but less than 2.5%, the subordinated incentive fee on income shall equal the amount of pre-incentive fee net investment income in excess of the preferred quarterly return. This fee is referred to as the catch-up⁽⁵⁾ and provides an increasing fee, but is in no event greater than the 20.0% of the pre-incentive fee net investment income, as the pre-incentive fee net investment income increases from a 2.0% to a 2.5% quarterly return on adjusted capital. For any calendar quarter in which the pre-incentive fee net investment income exceeds 2.5% of adjusted capital, the subordinated incentive fee on income shall equal 20.0% of pre-incentive fee net investment income. For purposes of this fee, adjusted capital shall mean cumulative gross proceeds generated from sales of our common stock (including our distribution reinvestment plan) reduced for distributions to	These amounts cannot be estimated since they are based upon the performance of the assets held by the Company. The Company has not achieved performance sufficient to realize subordinated incentive fee on income to date.


Type of Compensation	Determination of Amount	Estimated Amount for Maximum Offering (150,000,000 Shares)⁽¹⁾
	investors of proceeds from non- liquidating dispositions of our investments and amounts paid for share repurchases pursuant to our share repurchase program.

Incentive Fee on Capital Gains During Operations	An incentive fee on capital gains earned on liquidated investments of the portfolio during operations prior to a liquidation of the Company will be determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement) and will equal 20.0% of our incentive fee capital gains, which will equal our realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar 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 gains incentive fees.	These amounts cannot be estimated since they are based upon the performance of the assets held by the Company. The amount of any incentive fee on capital gains earned on liquidated investments will be reported by the Company in its quarterly and annual financial statements filed with the SEC under the Exchange Act.

Subordinated Liquidation Incentive Fee	The subordinated liquidation incentive fee will equal 20.0% of the net proceeds from a liquidation of the company in excess of adjusted capital, as measured immediately prior to liquidation.	These amounts cannot be estimated since they are based upon the performance of the assets held by the Company and the amount ultimately realized by the Company upon a liquidation.

Other Expenses

Other Operating Expenses	We will reimburse the expenses incurred by FB Advisor in connection with its provision of administrative services provided to us, including the compensation payable by FB Advisor to our chief compliance officer and other administrative personnel of FB Advisor. We will not reimburse FB Advisor for personnel costs in connection with services for which FB Advisor receives a separate fee. In	We have estimated these annual expenses to be approximately $8,000,000. Actual amounts may be lower or higher than this.

Type of Compensation

Determination of Amount

Estimated Amount for

Maximum Offering
(150,000,000 Shares)⁽¹⁾

addition, we will not reimburse FB Advisor for (i) rent or depreciation, capital equipment or other costs of its own administrative items, or (ii) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any controlling person of FB Advisor.

(1)

Assumes all shares are sold at the current offering price of $10.75 per share with no reduction in selling commissions or dealer manager fees. Prior to February 16, 2011, we sold shares at an offering price of $10.70 per share; prior to February 1, 2011, we sold shares at an offering price of $10.65 per share; prior to January 3, 2011, we sold shares at an offering price of $10.50 per share; prior to November 1, 2010, we sold shares at an offering price of $10.40 per share; and prior to October 1, 2009, we sold shares at an offering price of $10.00 per share. The offering price is subject to increase or decrease depending, in part, on our net asset value.

(2)

The selling commission and dealer manager fee may be reduced or waived in connection with certain categories of sales, such as sales for which a volume discount applies, sales through investment advisers or banks acting as trustees or fiduciaries and sales to our affiliates. No selling commission or dealer manager fee will be paid in connection with sales under our distribution reinvestment plan.

(3)

The organizational and offering expense reimbursement consists of costs incurred by FB Advisor and its affiliates on our behalf for legal, accounting, printing and other offering expenses, including costs associated with technology integration between our systems and those of our selected broker-dealers, marketing expenses, salaries and direct expenses of FB Advisor’s employees, employees of its affiliates and others while engaged in registering and marketing the shares of our common stock, which shall include development of marketing and marketing presentations and training and educational meetings and generally coordinating the marketing process for us. Any such reimbursements will not exceed actual expenses incurred by FB Advisor. FB Advisor is responsible for the payment of our cumulative organizational and offering expenses to the extent they exceed 1.5% of the aggregate proceeds from the offering, without recourse against or reimbursement by us.

(4)

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee preferred return and may result in an increase in the amount of incentive fees payable to FB Advisor.

(5)	As the quarterly pre-incentive fee net investment income rises from 2.0% to 2.5%, the “catch-up” feature allows FB Advisor to recoup the fees foregone as a result of the existence of the investor’s preferred quarterly return.

Certain of the advisory fees payable to FB Advisor are not based on the performance of our investments. See “Investment Advisory and Administrative Services Agreement” and “Certain Relationships and Related Party Transactions” for a more detailed description of the fees and expenses payable to FB Advisor, the dealer manager and their affiliates and the conflicts of interest related to these arrangements.

QUESTIONS AND ANSWERS ABOUT THIS OFFERING

Set forth below are some of the more frequently asked questions and answers relating to our structure, our management, our business and an offering of this type. See “Prospectus Summary” and the remainder of this prospectus for more detailed information about our structure, our business and this offering.

Q:	What is a “BDC”?

BDCs are closed-end funds that elect to be treated as business development companies under the 1940 Act. As such, BDCs are subject to only certain provisions of the 1940 Act, as well as the Securities Act of 1933, as amended, or the Securities Act, and the Exchange Act. BDCs make investments in private or thinly-traded public companies in the form of long-term debt or equity capital, with the goal of generating current income and/or capital growth. BDCs can be internally or externally managed and qualify to elect to be taxed as “regulated investment companies” for federal tax purposes.

Q:	What is a “RIC”?

A “RIC” is a regulated investment company under Subchapter M of the Code. A RIC generally does not have to pay corporate level federal income taxes on any income that it distributes to its stockholders from its tax earnings and profits. To qualify as a RIC, a company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to obtain RIC tax treatment, a company must distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally its net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. See “Material U.S. Federal Income Tax Considerations” for more information regarding RICs.

Q:	Who will choose which investments to make?

All investment decisions made by FB Advisor will require the unanimous approval of its investment committee. FB Advisor’s investment committee is led by Michael C. Forman. Our board of directors, including a majority of independent directors, oversees and monitors our investment performance and annually reviews the compensation we pay to FB Advisor and the compensation FB Advisor pays to GDFM to determine that the provisions of the investment advisory and administrative services agreement and the investment sub-advisory agreement, respectively, are carried out. Pursuant to an investment sub-advisory agreement with FB Advisor, GDFM acts as our investment sub-advisor, and will make investment recommendations for our benefit to FB Advisor.

Q:	What is the experience of FB Advisor and GDFM?

Our investment activities are managed by FB Advisor, who oversees the management of our activities, and GDFM, who assists with the day-to-day management of our investment operations. FB Advisor is led by its senior management team who have significant experience across private lending, private equity and real estate investing. See “Management” for the experience of these individuals. FB Advisor’s sub-advisor, GDFM, is a subsidiary of GSO.

Q:	How does a “best efforts” offering work?

When shares of common stock are offered to the public on a “best efforts” basis, the broker-dealers participating in the offering are only required to use their best efforts to sell the shares of our common stock. Broker-dealers do not have a firm commitment or obligation to purchase any of the shares of common stock.

Q:	How long will this offering last?

Q:	Will I receive a stock certificate?

No. Our board of directors has authorized the issuance of shares of our capital stock without certificates. We expect that we will not issue shares in certificated form, although we may decide to issue certificates at such time, if ever, as we list our shares on a national securities exchange. We anticipate that all shares of our common stock will be issued in book-entry form only. The use of book-entry registration protects against loss, theft or destruction of stock certificates and reduces the offering costs.

Q:	Who can buy shares of common stock in this offering?

In general, you may buy shares of our common stock pursuant to this prospectus if you have either (1) a net worth of at least $70,000 and an annual gross income of at least $70,000, or (2) a net worth of at least $250,000. For this purpose, net worth does not include your home, home furnishings and personal automobiles. Our suitability standards also require that a potential investor (i) can reasonably benefit from an investment in us based on such investor’s overall investment objectives and portfolio structuring; (ii) is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation; and (iii) has apparent understanding of (a) the fundamental risks of the investment, (b) the risk that such investor may lose his or her entire investment, (c) the lack of liquidity of the shares, (d) the background and qualifications of FB Advisor and GDFM, and (e) the tax consequences of the investment.

Generally, you must purchase at least $5,000 in shares of our common stock. Certain volume discounts may be available for large purchases. See “Plan of Distribution.” After you have satisfied the applicable minimum purchase requirement, additional purchases must be in increments of at least $500, except for purchases made pursuant to our distribution reinvestment plan. These minimum net worth and investment levels may be higher in certain states, so you should carefully read the more detailed description under “Suitability Standards.”

Our affiliates may also purchase shares of our common stock. The selling commission and the dealer manager fee that are payable by other investors in this offering will be reduced or waived for certain purchasers, including our affiliates.

Q:	How do I subscribe for shares of common stock?

If you meet the suitability standards and choose to purchase shares in this offering, you will need to (1) complete a subscription agreement, the form of which is attached to this prospectus as Appendix A, and (2) pay for the shares at the time you subscribe. We reserve the right to reject any subscription in whole or in part. Subscriptions will be accepted or rejected by us within 15 days of receipt by us and, if rejected, all funds will be returned to subscribers without deduction for any expenses within ten business days from the date the subscription is rejected.

Q:	Is there any minimum initial investment required?

Yes. To purchase shares in this offering, you must make an initial purchase of at least $5,000. Once you have satisfied the minimum initial purchase requirement, any additional purchases of our shares in this offering must be in amounts of at least $500 except for additional purchases pursuant to our distribution reinvestment plan. See “Plan of Distribution.”

Q:	Can I invest through my IRA, Keogh or after-tax deferred account?

Yes, subject to the suitability standards. An approved trustee must process and forward to us subscriptions made through IRAs, Keogh plans and 401(k) plans. In the case of investments through IRAs, Keogh plans and 401(k) plans, we will send the confirmation and notice of our acceptance to the trustee. Please be aware that in purchasing shares, custodians or trustees of employee pension benefit plans or IRAs may be subject to the fiduciary duties imposed by the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or other applicable laws and to the prohibited transaction rules prescribed by ERISA and related provisions of the Code. In addition, prior to purchasing shares, the trustee or custodian of an employee

pension benefit plan or an IRA should determine that such an investment would be permissible under the governing instruments of such plan or account and applicable law. See “Suitability Standards” for more information.

Q:	How will the payment of fees and expenses affect my invested capital?

The payment of fees and expenses will reduce the funds available to us for investment in portfolio companies and the income generated by the portfolio as well as funds available for distribution to stockholders. The payment of fees and expenses will also reduce the book value of your shares of common stock.

Q:	Will the distributions I receive be taxable?

Cash distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (which is, generally, our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions, or Qualifying Dividends, may be eligible for a maximum tax rate of 15%. In this regard, it is anticipated that distributions paid by us generally will not be attributable to dividends and, therefore, generally will not qualify for the 15% maximum rate applicable to Qualifying Dividends. Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as “capital gain dividends” will be taxable to a U.S. stockholder as long-term capital gains that are currently taxable at a current maximum rate of 15% in the case of individuals, trusts or estates, regardless of the U.S. stockholder’s holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder. We do not expect that special stock distributions that we pay ratably to all investors from time to time, if any, will be taxable.

Q:	When will I get my detailed tax information?

A:	We will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain.

Q:	Will I be notified on how my investment is doing?

Q:	Will I be able to sell my shares of common stock in a secondary market?

We do not currently intend to list our shares on an exchange and do not expect a public trading market to develop for them in the foreseeable future. Because of the lack of a trading market for our shares, stockholders may not be able to sell their shares promptly or at a desired price. If you are able to sell your shares, you may have to sell them at a discount to the purchase price of your shares.

Q:	Are there any restrictions on the transfer of shares?

No. Shares of our common stock will have no preemptive, exchange, conversion or redemption rights and will be freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. However, we do not currently intend to list our shares on an exchange and do not expect a public trading market to develop for them in the foreseeable future. We have instituted a share repurchase program, but we have limited the number of shares that we will offer to repurchase. As a result, your ability to sell your shares will be limited and you may not receive a full return of invested capital upon selling your shares. We will not charge for transfers of our shares except for necessary and reasonable costs actually incurred by us. See “Risk Factors—Risks Related to an Investment in Our Common Stock.”

Q:	Will I otherwise be able to liquidate my investment?

Q:	Who can help answer my questions?

A:	If you have more questions about the offering or if you would like additional copies of this prospectus, you should contact your registered representative or the dealer manager at:

FS² Capital Partners, LLC

Cira Centre

2929 Arch Street, Suite 675

Philadelphia, PA 19104

(215) 495-1150

Attention: Investor Services

SELECTED FINANCIAL DATA

You should read this selected consolidated financial data in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The selected financial data as of and for the years ended December 31, 2010, 2009 and 2008 and for the period from December 21, 2007 (Inception) to December 31, 2007 has been derived from our audited financial statements.

Dollar amounts are presented in thousands, except for per share data.


										Period from December 21, 2007 (Inception) to December 31, 2007
	Year Ended December 31,
	2010			2009			2008
Statement of operations data:
Investment income	$	30,670		$	4,420		$	25		$	—
Operating expenses
Total expenses		21,278			2,509			605			37
Less: Expense reimbursement from sponsor		—			(240	)		—			—

Net expenses		21,278			2,269			605			37

Net investment income (loss)		9,392			2,151			(580	)		(37	)
Realized and unrealized gain		18,872			9,305			—			—

Net increase (decrease) in net assets resulting from operations	$	28,264		$	11,456		$	(580	)	$	(37	)

Per share data:
Net investment income (loss)—basic and diluted	$	0.40		$	0.48		$	(4.72	)

Net increase (decrease) in net assets resulting from operations—basic and diluted	$	1.21		$	2.57		$	(4.72	)

Distributions declared	$	0.87		$	0.67		$	0.18

Balance sheet data:
Total assets	$	782,005		$	110,068		$	1,000

Credit facility payable	$	297,201		$	—		$	—

Total net assets	$	389,232		$	93,197		$	999

Other data:
Total return⁽¹⁾		13.08	%		33.33	%		2.40	%
Number of portfolio company investments at period end		144			50			—
Total portfolio investments for the period	$	849,242		$	106,098		$	—
Investment sales and prepayments for the period	$	240,054		$	16,717		$	—

(1)

The 2008 total return is based on an initial investment at $7.32 per share, which represents the initial offering price per share, net of commissions and discounts, after taking into account the stock distributions to stockholders described in “Distributions.” The 2009 total return was calculated by taking the net asset value per share as of December 31, 2009, adding the cash distributions per share which were declared during the calendar year and dividing the total by the net asset value per share on December 31, 2008. The 2010 total return was calculated by taking the net asset value per share as of December 31, 2010, adding the cash distributions per share which were declared during the calendar year and dividing the total by the net asset value per share on December 31, 2009. The total return does not consider the effect of the sales load from the sale of the Company’s common stock.

RISK FACTORS

Investing in our common stock involves a number of significant risks. In addition to the other information contained in this Prospectus, you should consider carefully the following information before making an investment in our common stock. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, the net asset value of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business and Structure

We are a relatively new company and have limited operating history.

We were formed on December 21, 2007 and commenced operations on January 2, 2009 after meeting our minimum offering requirement of selling, in aggregate, $2.5 million in common stock to persons not affiliated with us. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives and that the value of our common stock could decline substantially.

Economic activity in the United States was impacted by the global financial crisis of 2008 and has yet to fully recover.

Beginning in the third quarter of 2007, global credit and other financial markets suffered substantial stress, volatility, illiquidity and disruption. These forces reached extraordinary levels in late 2008, resulting in the bankruptcy of, the acquisition of, or government intervention in the affairs of several major domestic and international financial institutions. In particular, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. We believe that such value declines were exacerbated by widespread forced liquidations as leveraged holders of financial assets, faced with declining prices, were compelled to sell to meet margin requirements and maintain compliance with applicable capital standards. Such forced liquidations also impaired or eliminated many investors and investment vehicles, leading to a decline in the supply of capital for investment and depressed pricing levels for many assets. These events significantly diminished overall confidence in the debt and equity markets, engendered unprecedented declines in the values of certain assets, and caused extreme economic uncertainty.

Economic activity continues to be somewhat subdued as unemployment rates remain high. Despite this, capital has steadily flowed into the financial markets since the nadir of the credit crisis, as general risk aversion has subsided. As a result, corporate interest rate risk premiums, otherwise known as credit spreads, declined significantly throughout most of 2009 and 2010. However, credit spreads remain above historical averages, particularly in the loan market. The improving economic and market conditions which have driven these declines in credit spreads may reverse themselves if uncertainty returns to the markets. Such a reversal could negatively impact credit spreads as well as our ability to obtain financing, particularly from the debt markets.

Price declines in the large corporate leveraged loan market may adversely affect the fair value of our syndicated loan portfolio, reducing our net asset value through increased net unrealized depreciation.

Prior to the onset of the financial crisis, collateralized loan obligations, or CLOs, a type of leveraged investment vehicle holding corporate loans, hedge funds and other highly leveraged investment vehicles, comprised the majority of the market for purchasing and holding senior secured and second lien secured loans. As the secondary market pricing of the loans underlying these portfolios deteriorated during the fourth quarter of 2008, it is our understanding that many investors, as a result of their generally high degrees of leverage, were forced to raise cash by selling their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines, with widespread redemption requests and other constraints

resulting from the credit crisis generating further selling pressure. The pervasive forced selling and the resultant price declines led to the elimination or significant impairment of many of our leveraged competitors for investment opportunities, especially those having built their investment portfolios prior to the financial crisis.

While prices appreciated measurably during 2009 and 2010, conditions in the large corporate leveraged loan market may deteriorate again, which may cause pricing levels to decline. As a result, we may suffer unrealized depreciation and could incur realized losses in connection with the sale of our syndicated loans, which could have a material adverse impact on our business, financial condition and results of operations.

Our ability to achieve our investment objectives depends on FB Advisor’s and GDFM’s ability to manage and support our investment process. If either FB Advisor or GDFM were to lose any members of their respective senior management teams, our ability to achieve our investment objectives could be significantly harmed.

Since we have no employees, we will depend on the investment expertise, skill and network of business contacts of FB Advisor and GDFM. FB Advisor, with the assistance of GDFM, evaluates, negotiates, structures, executes, monitors and services our investments. Our future success depends to a significant extent on the continued service and coordination of FB Advisor and its senior management team. The departure of any members of FB Advisor’s senior management team could have a material adverse effect on our ability to achieve our investment objectives. Likewise, the departure of any key employees of GDFM may impact its ability to render services to us under the terms of its sub-advisory agreement with FB Advisor.

Our ability to achieve our investment objectives depends on FB Advisor’s ability, with the assistance of GDFM, to identify, analyze, invest in, finance and monitor companies that meet our investment criteria. FB Advisor’s capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable terms depend on the employment of investment professionals in an adequate number and of adequate sophistication to match the corresponding flow of transactions. To achieve our investment objectives, FB Advisor may need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. FB Advisor 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 results of operations. In addition, both the investment advisory and administrative services agreement and the sub-advisory agreement that FB Advisor has entered into with GDFM have termination provisions that allow the parties to terminate the agreements without penalty. The investment advisory and administrative services agreement may be terminated at any time, without penalty, by FB Advisor, upon 120 days notice to us. The sub-advisory agreement may be terminated at any time, without the payment of any penalty, upon 60 days written notice by GDFM or, if our board of directors or the holders of a majority of our outstanding voting securities determine that the sub-advisory agreement with GDFM should be terminated, by FB Advisor. If either agreement is terminated, it may adversely affect the quality of our investment opportunities. In addition, in the event such agreements are terminated, it may be difficult for us to replace FB Advisor or for FB Advisor to replace GDFM. Furthermore, the termination of either of these agreements may adversely impact the terms of our credit facility. See “—Risks Related to Debt Financing.”

Because our business model depends to a significant extent upon relationships with private equity sponsors, investment banks, and commercial banks, the inability of FB Advisor and GDFM to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.

We expect that FB Advisor and GDFM will depend on their relationships with private equity sponsors, investment banks, and commercial banks, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If FB Advisor or GDFM fail to maintain their existing relationships or develop new relationships with other sponsors or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom FB Advisor and GDFM 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 delay deployment of our capital, reduce returns and result in losses.

We compete for investments with other business development companies and investment funds (including private equity funds, mezzanine funds and collateralized loan obligation, or CLO, funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, have begun to invest in areas they have not traditionally invested in, including making investments in small- to mid-sized private, U.S. companies. As a result of these new entrants, competition for investment opportunities in small and middle market private U.S. companies may intensify. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. 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 are able to do. We may lose investment opportunities if we do not 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 small and middle market private U.S. 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 have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a business development company.

A significant portion of our investment portfolio will be recorded at fair value as determined in good faith by our board of directors and, as a result, there is and will be 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. However, the majority of our investments are not publicly traded or actively traded on a secondary market but are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. As a result, we will 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 dealer quotes for securities traded on the secondary market for institutional investors, 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.

There is a risk that investors in our equity securities may not receive distributions or that our distributions may not grow over time.

We intend to make 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 make a specified level of cash

distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. See “Regulation—Senior Securities.”

The amount of any distributions we may make is uncertain. Our distribution proceeds have exceeded and in the future may exceed our net investment income, particularly during the period before we have substantially invested the net proceeds from our public offering. Therefore, portions of the distributions that we make may represent a return of capital to you for tax purposes, which will lower your tax basis in your shares and reduce the amount of funds we have for investment in targeted assets. We may not be able to pay you distributions, and our distributions may not grow over time. We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent our cash flow from operations, net investment income or earnings are not sufficient to fund declared distributions.

We intend to declare distributions on either a semi-monthly or monthly basis and pay distributions on either a monthly or quarterly basis. We will pay these distributions to our stockholders out of assets legally available for distribution. We may fund distributions from the uninvested proceeds of this offering and borrowings. We have paid and may continue to pay distributions from the sale of assets to the extent distributions exceed our net investment income or cash flows from operations.

While Franklin Square Holdings has, in the past, limited our expenses to ensure that such expenses were reasonable in relation to our income, we cannot assure you that we will achieve investment results that will allow us to make a targeted level of cash distributions or year-to-year increases in cash distributions. We do not expect that conditions will require Franklin Square Holdings to provide reimbursements in the future. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described in this prospectus. In addition, the inability to satisfy the asset coverage test applicable to us as a business development company may 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 net investment income, our financial condition, maintenance of our RIC status, compliance with applicable business development company regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future. In the event that we encounter delays in locating suitable investment opportunities, we may pay all or a substantial portion of our distributions from the proceeds of our public offering or from borrowings in anticipation of future cash flow, which may constitute a return of your capital and will lower your tax basis in your shares. Distributions from the proceeds of our public offering or from borrowings also could reduce the amount of capital we ultimately invest in our portfolio companies.

Our board of directors may change our 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 operating policies, investment criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria 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 all or part of your investment. Moreover, we will have significant flexibility in investing the net proceeds of this offering and may use the net proceeds from our public offering in ways with which investors may not agree or for purposes other than those contemplated at the time of our public offering.

If we internalize our management functions, your interest in us could be diluted, and we could incur other significant costs associated with being self-managed.

Our board of directors may decide in the future to internalize our management functions. If we do so, we may elect to negotiate to acquire FB Advisor’s assets and personnel. At this time, we cannot anticipate the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many

forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of your interests as a stockholder and could reduce the earnings per share attributable to your investment.

In addition, while we would no longer bear the costs of the various fees and expenses we expect to pay to FB Advisor under the existing investment advisory and administrative services agreement, we would incur the compensation and benefits costs of our officers and other employees and consultants that are now being paid by FB Advisor or its affiliates. In addition, we may issue equity awards to officers, employees and consultants. These awards would decrease net income and may further dilute your investment. We cannot reasonably estimate the amount of fees we would save or the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to FB Advisor, our earnings per share would be lower as a result of the internalization than it otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares. As we are currently organized, we will not have any employees. If we elect to internalize our operations, we would employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims and other employee-related liabilities and grievances.

If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity. Currently, individuals employed by FB Advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. These personnel have a great deal of know-how and experience. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could thus result in our incurring excess costs and/or suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from effectively managing our investments.

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 are permitted to make, 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 to avail ourselves of new or different opportunities. Such changes could result in material differences to our strategies and plans as set forth in this prospectus and may result in our investment focus shifting from the areas of expertise of FB Advisor and GDFM to other types of investments in which FB Advisor and GDFM 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.

The impact of recent financial reform legislation on us is uncertain.

In light of current conditions in the U.S. and global financial markets and the U.S. and global economy, legislators, the presidential administration and regulators have increased their focus on the regulation of the financial services industry. The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, institutes a wide range of reforms that will have an impact on all financial institutions. Many of the requirements called for in the Dodd-Frank Act will be implemented over time, most of which will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies

and through regulations, the full impact such requirements will have on our business, results of operations or financial condition is unclear. The changes resulting from the Dodd-Frank Act may require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations or principles, or changes thereto, may negatively impact our business, results of operations and financial condition. While we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of the Dodd-Frank Act, these changes could be materially adverse to us and our stockholders.

As a public company, we are subject to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act. Efforts to comply with such regulations will involve significant expenditures, and non-compliance with such regulations may adversely affect us.

We are subject to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC. Our management is required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we expect to incur significant additional expenses which may negatively impact our financial performance and our ability to make distributions. In the event that we are unable to maintain or achieve compliance with the Sarbanes-Oxley Act and related rules and regulations, we may be adversely affected.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly 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 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 markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods.

Risks Related to FB Advisor and Its Affiliates

FB Advisor has limited experience managing a business development company or a regulated investment company, or RIC.

FB Advisor has limited experience managing a BDC or a RIC and may not be able to successfully operate our business or achieve our investment objectives. As a result, an investment in our shares of common stock may entail more risk than the shares of common stock of a comparable company with a substantial operating history.

The 1940 Act and the Code impose numerous constraints on the operations of business development companies and RICs that do not apply to the other types of investment vehicles previously managed by FB Advisor’s management team. For example, under the 1940 Act, business development companies are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private or thinly traded companies. Moreover, qualification for RIC tax treatment under Subchapter M of the Code requires satisfaction of source-of-income, diversification and other requirements. The failure to comply with these provisions in a timely manner could prevent us from qualifying as a business development company or RIC or could force us to pay unexpected taxes and penalties, which could be material. FB Advisor’s limited experience in managing a portfolio of assets under such constraints may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objectives.

FB Advisor and its affiliates, including our officers and some of our directors, face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in actions that are not in the best interests of our stockholders.

FB Advisor and its affiliates receive substantial fees from us in return for their services, and these fees could influence the advice provided to us. Among other matters, the compensation arrangements could affect their judgment with respect to public offerings of equity by us, which allow the dealer manager to earn additional dealer manager fees and FB Advisor to earn increased asset management fees. In addition, the decision to utilize leverage has increased our assets and, as a result, has increased the amount of management fees payable to FB Advisor.

We may be obligated to pay FB Advisor incentive compensation even if we incur a net loss due to a decline in the value of our portfolio.

Our investment advisory and administrative services agreement entitles FB Advisor to receive incentive compensation on income regardless of any capital losses. In such case, we may be required to pay FB Advisor incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter.

Any incentive fee payable by us that relates to our net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. FB Advisor is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in our paying an incentive fee on income we never received.

For federal income tax purposes, we may be required to recognize taxable income (such as deferred interest that is accrued as original issue discount) in circumstances in which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC even though we will not have received any corresponding cash amount. Under such circumstances, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay an incentive fee with respect to such accrued income for which we have not received a corresponding cash payment. As a result, 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 forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. For additional discussion regarding the tax implications of a RIC, see “—Federal Income Tax Risks—We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.”

The time and resources that individuals employed by FB Advisor and GDFM devote to us may be diverted and we may face additional competition due to the fact that individuals employed by FB Advisor and GDFM are not prohibited from raising money for or managing another entity that makes the same types of investments that we target.

Neither FB Advisor nor GSO are prohibited from raising money for and managing another investment entity that makes the same types of investments as those we target. As a result, the time and resources that these individuals may devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities. If we are able to obtain exemptive relief from the SEC, we also intend to co-invest with any such investment entity to the extent permitted by the 1940 Act, or the rules and regulations thereunder. There is no assurance that we will obtain such relief. In the event the SEC does not grant

us relief, we could be limited in our ability to invest in certain portfolio companies in which GDFM or any of its affiliates are investing or are invested. Even if we are able to receive exemptive relief, we will be unable to participate in certain transactions originated by GSO or its affiliates prior to receipt of such relief. Affiliates of GDFM, whose primary business include the origination of investments, engage in investment advisory business with accounts that compete with us. Affiliates of GDFM have no obligation to make their originated investment opportunities available to GDFM or to us.

Our incentive fee may induce FB Advisor to make, and GDFM to recommend, speculative investments.

The incentive fee payable by us to FB Advisor may create an incentive for it to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to FB Advisor is determined may encourage it to use leverage to increase the return on our investments. In addition, the fact that our base management fee is payable based upon our gross assets, which would include any borrowings for investment purposes, may encourage FB Advisor to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor holders of our common stock. Such a practice could result in our investing in more speculative securities than would otherwise be in our best interests, which could result in higher investment losses, particularly during cyclical economic downturns. In addition, since GDFM will receive a portion of the advisory fees paid to FB Advisor, GDFM may have an incentive to recommend investments that are riskier or more speculative.

Risks Related to Business Development Companies

The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a business development company.

As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Regulation.” Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Conversely, if we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition and result of operations. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments.

Failure to maintain our status as a business development company would reduce our operating flexibility.

If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.

Regulations governing our operation as a business development company and RIC will 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 as a RIC, we may need to periodically access the capital markets to raise cash to fund new investments. 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 reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend. As a BDC, therefore, we intend to continuously issue equity at a rate more frequent 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 would prohibit us from paying distributions and could prevent us from qualifying as a RIC. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price below net asset value per share, which may be a disadvantage as compared with other public companies. We may, however, 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 sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the fair value of such securities.

Our ability to enter into transactions with our affiliates will be restricted.

We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of the independent members of our board of directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act and we will generally be prohibited from buying or selling any securities from or to such affiliate, absent the prior approval of our board of 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 board of 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 from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions 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 from or to any portfolio company of a private equity fund managed by FB Advisor without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.

We are uncertain of our sources for funding our future capital needs; if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.

The net proceeds from the sale of shares will be used for our investment opportunities, operating expenses and for payment of various fees and expenses such as base management fees, incentive fees and other fees. Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require debt or equity financing to operate. Accordingly, in the event that we develop a need for additional capital in the future for investments or for any other reason, these sources of funding may not be available to us. Consequently, if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected. As a result, we would be less able to achieve portfolio diversification and our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our stockholders.

Risks Related to Our Investments

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

Senior Secured Loans and Second Lien Secured Loans. When we invest in senior secured term loans and second lien secured loans, we will generally take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries. We expect this security interest to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our security interest could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.

Mezzanine Debt. Our mezzanine debt investments will generally be subordinated to senior loans and will generally be unsecured. This may result in a heightened level of risk and volatility or a loss of principal, which could lead to the loss of the entire investment. These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our stockholders to non-cash income. Since we will not receive any principal repayments prior to the maturity of some of our mezzanine debt investments, such investments will be of greater risk than amortizing loans.

Equity Investments. We expect to make selected equity investments. In addition, when we invest in senior secured and second lien secured loans or mezzanine debt, we may acquire warrants to purchase equity securities. Our goal is ultimately to dispose of these equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

In addition, investing in small and middle market companies involves a number of significant risks, including that they:

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may have limited financial resources and may be unable to meet their obligations under their debt securities 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 we may have obtained in connection with our investment;

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have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tends to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;

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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 our portfolio company and, in turn, on us;

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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. In addition, our executive officers, directors and members of FB Advisor

may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and

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may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.

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

We invest primarily in first lien, second lien and, to a lesser extent, mezzanine debt issued by private U.S. companies, including small and middle market private U.S. companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we 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. 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 instruments in which we 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.

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 intend to generally structure certain 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 provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to 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.

We generally will not control our portfolio companies.

We do not expect to control most of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements with such portfolio companies 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 debt investors. Due to the lack of liquidity for our 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.

We will be exposed to risks associated with changes in interest rates.

We are subject to financial market risks, including changes in interest rates. While the majority of our investments are floating-rate debt instruments, to the extent that we invest in fixed-rate securities or loans, general interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities and, accordingly, have a material adverse effect on our investment objectives and our rate of return on invested capital. In addition, an increase in interest rates would make it more expensive to use debt for our financing needs, if any.

We may enter into total return swap agreements or other derivative transactions which expose us to certain risks, including risks similar to those associated with the use of leverage.

Our wholly-owned financing subsidiary, Arch Street Funding LLC, or Arch Street, has entered into a total return swap, or TRS, for a portfolio of senior secured floating rate loans with Citibank, N.A., or Citibank. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” for a more detailed discussion of the terms of the TRS between Arch Street and Citibank.

A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS is typically used to obtain exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. A TRS may effectively add leverage to our portfolio because, in addition to our total net assets, we would be subject to investment exposure on the amount of securities subject to the TRS.

A TRS is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty. In the case of the TRS with Citibank, Arch Street is required to post cash collateral amounts to secure its obligations to Citibank under the TRS. Citibank, however, is not required to collateralize any of its obligations to Arch Street under the TRS.

In addition to customary events of default and termination events, the agreements governing the TRS with Citibank contain the following termination events: (a) a failure to satisfy the portfolio criteria for at least 30 days; (b) a failure to post initial cash collateral or additional collateral as required by the agreements; (c) a default by Arch Street or us with respect to indebtedness in an amount equal to or greater than the lesser of $10,000,000 and 2% of our net asset value at such time; (d) a merger of Arch Street or us meeting certain criteria; (e) us or Arch Street amending our respective constituent documents to alter our investment strategy in a manner that has or could reasonably be expected to have a material adverse effect; and (f) our ceasing to be the investment manager of Arch Street or having authority to enter into transactions under the TRS on behalf of Arch Street, and not being replaced by an entity reasonably acceptable to Citibank.

In addition to the rights of Citibank to terminate the TRS following an event of default or termination event as described above, Citibank may terminate the TRS on or after the second anniversary of the effectiveness of the TRS. Arch Street may terminate the TRS at any time upon providing no more than 30 days, and no less than 10 days, prior notice to Citibank. Any termination prior to the second anniversary of the effectiveness of the TRS will result in payment of an early termination fee to Citibank. Upon any termination of the TRS, Arch Street will be required to pay Citibank the amount of any decline in the aggregate value of the loans subject to the TRS or, alternatively, will be entitled to receive the amount of any appreciation in the aggregate value of such loans. In the event that Citibank chooses to exercise its termination rights, it is possible that Arch Street will owe more to Citibank or, alternatively, will be entitled to receive less from Citibank than it would have if Arch Street controlled the timing of such termination due to the existence of adverse market conditions at the time of such termination.

In addition, because a TRS is a form of synthetic leverage, such arrangements are subject to risks similar to those associated with the use of leverage. See “—Risks Relating to Debt Financing” below.

Second priority liens on collateral securing loans that we will 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.

Certain 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 make to our 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 in respect of 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.

A covenant breach by our portfolio companies may 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 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.

We may not realize gains from our equity investments.

Certain investments that we may make could include warrants or other equity securities. In addition, we may make direct equity investments in companies. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we 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 intend to 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.

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

Our investments are primarily in privately held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and the ability to withstand financial distress. Second, the investments themselves tend to be less liquid. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. As a result, the relative lack of liquidity and the potential diminished capital resources of our target portfolio companies may

affect our investment returns. Finally, little public information generally exists about private companies. Further, these companies may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FB Advisor and/or GDFM to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial information will generally not be subject to the Sarbanes-Oxley Act and other rules and regulations 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.

A lack of liquidity in certain of our investments may adversely affect our business.

We invest in certain companies whose securities are not publicly traded or actively traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors and whose securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. The illiquidity of certain of our 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. The reduced liquidity 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.

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 return on the investment.

Risks Relating to Debt Financing

The agreements governing Broad Street’s revolving credit facility contain various covenants which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our stockholders.

Our wholly-owned financing subsidiary, Broad Street, has entered into a revolving credit facility with Deutsche Bank. The agreements governing this facility contain default provisions such as (a) the failure to make principal payments when due or interest payments within three business days of when due; (b) borrowings under the facility exceeding the applicable advance rates; (c) the purchase by Broad Street of certain ineligible assets; (d) the insolvency or bankruptcy of us or Broad Street; (e) our ceasing to act as investment manager of Broad Street’s assets; (f) the decline of our net asset value below $50,000,000; and (g) fraud or other illicit acts by us or FB Advisor or GDFM in our or their investment advisory capacities. An event of default under the facility would result, among other things, in the termination of the availability of further funds under the facility and an accelerated maturity date for all amounts outstanding under the facility. This could disrupt our business, reduce our revenues and, by delaying any dividends allowed to us under the facility until the lender has been paid in full, reduce our liquidity and cash flow and impair our ability to grow our business, make distribution payments to our stockholders and maintain our status as a RIC.

The agreements governing the facility also require Broad Street to comply with certain operational covenants. These covenants require Broad Street to, among other things, maintain eligible assets with an aggregate value equal to or exceeding a specified multiple of the borrowings under the facility. The occurrence of certain “Super-Collateralization Events” results in an increase of the minimum aggregate value of eligible assets

that Broad Street is required to maintain. Super-Collateralization Events include, without limitation, (i) certain key employees ceasing to be directors, principals, officers or investment managers of GDFM; (ii) the bankruptcy or insolvency of GDFM or FB Advisor; (iii) GDFM ceasing to act as our sub-adviser or FB Advisor ceasing to act as our investment adviser; (iv) our ceasing to act as Broad Street’s investment manager, becoming bankrupt or insolvent, defaulting in certain material agreements or failing to maintain a net asset value at least equal to $50,000,000; and (v) us or GDFM or FB Advisor committing fraud or other illicit acts in our or their investment advisory capacities. A decline in the value of assets owned by Broad Street or the occurrence of a Super-Collateralization Event under the facility could result in us being required to contribute additional assets to Broad Street, which would likely disrupt our business and impact our ability to meet our investment objectives and pay distributions to our stockholders.

The failure to meet collateral requirements under the facility or the occurrence of any other event of default which results in the termination of the facility may force Broad Street or us to liquidate positions at a time and/or at a price which is disadvantageous to us and could result in losses. In addition, upon the occurrence of an event of default under the facility, Deutsche Bank would have the right to the assets pledged as collateral supporting the amounts outstanding under the facility and could sell such assets in order to satisfy amounts due under the facility.

Each borrowing under the facility is subject to the satisfaction of certain conditions. We cannot assure you that Broad Street will be able to borrow funds under the facility at any particular time or at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources” for a more detailed discussion of the terms of the facility.

If we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.

The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. If we use leverage to partially finance our investments, through borrowing from banks and other lenders, you will experience increased risks of investing in our common stock. If the value of our assets increases, leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, 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 increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while 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 distribution payments. Leverage is generally considered a speculative investment technique.

At December 31, 2010, we had approximately $297.2 million of indebtedness outstanding under Broad Street’s revolving credit facility with Deutsche Bank.

Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes (i) $1,100.9 million in total assets, (ii) a weighted average cost of funds of 2.67%, (iii) $340.0 million in debt outstanding (i.e., assumes that our wholly-owned financing subsidiary, Broad Street, borrows the full amount available under its revolving credit facility with Deutsche Bank) and (iv) $760.9 million in stockholders’ equity. In order to compute the “Corresponding return to shareholders,” the “Assumed Return on Our Portfolio (net of expenses)” is multiplied by the assumed total assets to obtain an assumed return to us. From this amount, the interest expense is calculated by multiplying the assumed weighted average cost of funds times the assumed debt outstanding, and the product is subtracted from the assumed return to us in order to determine the return available to stockholders. The return available to stockholders is then divided by our stockholders’ equity to determine the “Corresponding return to stockholders.” Actual interest payments may be different.

Assumed Return on Our Portfolio

(net of expenses)


	-10%			-5%			0%			5%			10%
Corresponding return to stockholders		-15.66	%		-8.42	%		-1.19	%		6.04	%		13.28	%

Changes in interest rates may affect our cost of capital and net investment income.

Since we intend to use debt to finance investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to purchase or develop such expertise.

You should also be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee preferred return and may result in a substantial increase of the amount of incentive fees payable to FB Advisor with respect to pre-incentive fee net investment income.

Risks Relating to an Investment in Our Common Stock

Investors will not know the purchase price per share at the time they submit their subscription agreements and could receive fewer shares of common stock than anticipated if our board of directors determines to increase the offering price to comply with the requirement that we avoid selling shares below net asset value per share.

Investors will not know the purchase price per share at the time they submit their subscription agreements and could pay a premium for their shares of common stock if our board of directors does not decrease the offering price in the event of a decline to our net asset value per share.

The purchase price at which you purchase shares will be determined at each semi-monthly closing date to ensure that the sales price is equal to or greater than the net asset value of our shares, after deducting selling commissions and dealer manager fees. In the event of a decrease to our net asset value per share, you could pay a premium of more than 5% for your shares of common stock if our board of directors does not decrease the offering price. A decline in our net asset value per share to an amount more than 5% below our current offering price, net of selling commissions and dealer manager fees, creates a rebuttable presumption that there has been a material change in the value of our assets such that a reduction in the offering price per share is warranted. This presumption may only be rebutted if our board of directors, in consultation with our management, reasonably and in good faith determines that the decline in net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, rather than a more fundamental shift in the valuation of our portfolio. In the event that (i) net asset value per share decreases to more than 5% below our current net offering price and

(ii) our board of directors believes that such decrease in net asset value per share is the result of a non-temporary movement in the credit markets or the value of our assets, our board of directors will undertake to establish a new net offering price that is not more than 5% above our net asset value per share. If our board of directors determines that the decline in our net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, investors will purchase shares at an offering price per share, net of selling commissions and dealer manager fees, which represents a premium to the net asset value per share of greater than 5%. See “Plan of Distribution.”

If we are unable to raise substantial funds in our ongoing, continuous “best efforts” offering, we will be limited in the number and type of investments we may make, and the value of your investment in us may be reduced in the event our assets under-perform.

Our continuous offering is being made on a best efforts basis, whereby the dealer manager and broker-dealers participating in the offering are only required to use their best efforts to sell our shares and have no firm commitment or obligation to purchase any of the shares. To the extent that less than the maximum number of shares is subscribed for, the opportunity for diversification of our investments may be decreased and the returns achieved on those investments may be reduced as a result of allocating all of our expenses among a smaller capital base.

Our shares are not listed on an exchange or quoted through a quotation system, and will not be for the foreseeable future, if ever. Therefore, our stockholders have limited liquidity and may not receive a full return of invested capital upon selling shares.

Our shares are illiquid assets for which there is not a secondary market, and it is not expected that any will develop in the future. We intend to seek to complete a liquidity event for our stockholders within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors. However, there can be no assurance that we will complete a liquidity event within such time or at all. We expect that our board of directors, in the exercise of its fiduciary duty to our stockholders, will determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event, and that such an event is in the best interests of our stockholders. A liquidity event could include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, (2) a listing of our shares on a national securities exchange or (3) a merger or another transaction approved by our board in which our stockholders will receive cash or shares of a publicly traded company.

Prior to the completion of a liquidity event, our share repurchase program may provide a limited opportunity for investors to achieve liquidity, subject to certain restrictions and limitations, at a price which may reflect a discount from the purchase price you paid for the shares being repurchased.

In making the decision to apply for listing of our shares, our directors will try to determine whether listing our shares or liquidating our assets will result in greater value for our stockholders. In making a determination of what type of liquidity event is in the best interest of our stockholders, our board of directors, including our independent directors, may consider a variety of criteria, including, but not limited to, market conditions, portfolio diversification, portfolio performance, our financial condition, potential access to capital as a listed company, market conditions for the sale of our assets or listing of our common stock, internal management requirements to become a perpetual life company and the potential for stockholder liquidity. If our shares are listed, we cannot assure you a public trading market will develop. Further, even if we do complete a liquidity event, you may not receive a return of all of your invested capital.

We are not obligated to complete a liquidity event by a specified date; therefore, it will be difficult for an investor to sell his or her shares.

consideration market conditions and other factors. We expect that our board of directors, in the exercise of the requisite standard of care applicable to directors under Maryland law, will determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event, and that such a transaction is in the best interests of our stockholders. A liquidity event could include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, (2) a listing of our shares on a national securities exchange or (3) a merger or another transaction approved by our board in which our stockholders will receive cash or shares of a publicly traded company. However, there can be no assurance that we will complete a liquidity event within such time or at all. If we do not successfully complete a liquidity event, liquidity for an investor’s shares will be limited to our share repurchase program, which we have no obligation to maintain.

The dealer manager in our continuous offering may be unable to sell a sufficient number of shares of common stock for us to achieve our investment objectives.

The dealer manager for our public offering is FS² Capital Partners, LLC, or our dealer manager. Our dealer manager has limited experience selling shares on behalf of a BDC. There is no assurance that it will be able to sell a sufficient number of shares to allow us to have adequate funds to purchase a diversified portfolio of investments and generate income sufficient to cover our expenses. As a result, we may be unable to achieve our investment objectives, and you could lose some or all of the value of your investment.

Because the dealer manager is one of our affiliates, you will not have the benefit of an independent due diligence review of us, which is customarily performed in firm commitment underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty you face as a stockholder.

The dealer manager, FS² Capital Partners, LLC, is one of our affiliates. As a result, its due diligence review and investigation of us and this prospectus cannot be considered to be an independent review. Therefore, you do not have the benefit of an independent review and investigation of this offering of the type normally performed by an unaffiliated, independent underwriter in a firm commitment underwritten public securities offering.

Our ability to successfully conduct our continuous offering is dependent, in part, on the ability of the dealer manager to successfully establish, operate and maintain a network of broker-dealers.

Other than serving as dealer manager for our public offering, the dealer manager has no prior experience acting as a dealer manager for a public offering. The success of our public offering, and correspondingly our ability to implement our business strategy, is dependent upon the ability of the dealer manager to establish and maintain a network of licensed securities broker-dealers and other agents to sell our shares. If the dealer manager fails to perform, we may not be able to raise adequate proceeds through our public offering to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, you could lose all or a part of your investment.

We intend to offer to repurchase your shares on a quarterly basis. As a result, you will have limited opportunities to sell your shares and, to the extent you are able to sell your shares under the repurchase program, you may not be able to recover the amount of your investment in our shares.

We intend to conduct tender offers to allow you to tender your shares on a quarterly basis at a price equal to 90% of our public offering price in effect on the date of repurchase. The first such tender offer commenced in March 2010. The share repurchase program will include numerous restrictions that limit your ability to sell your shares. We intend to limit the number of shares repurchased pursuant to our share repurchase program as follows: (1) we currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the sale of shares of our common stock under our distribution reinvestment plan, although at the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares; (2) we will not repurchase shares in any calendar year in excess of 10% of

the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter; (3) unless you tender all of your shares, you must tender at least 25% of the amount of shares you have purchased in the offering and must maintain a minimum balance of $5,000 subsequent to submitting a portion of your shares for repurchase by us; and (4) to the extent that the number of shares put to us for repurchase exceeds the number of shares that we are able to purchase, we will repurchase shares on a pro rata basis, not on a first-come, first-served basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all repurchase requests made in any year. Our board of directors may amend, suspend or terminate the repurchase program upon 30 days notice. We will notify you of such developments (1) in our quarterly reports or (2) by means of a separate mailing to you, accompanied by disclosure in a current or periodic report under the Exchange Act. In addition, although we have adopted a share repurchase program, we have discretion to not repurchase your shares, to suspend the plan, and to cease repurchases. Further, the plan has many limitations and should not be relied upon as a method to sell shares promptly and at a desired price.

The timing of our repurchase offers pursuant to our share repurchase program may be at a time that is disadvantageous to our stockholders.

When we make quarterly repurchase offers pursuant to the share repurchase program, we may offer to repurchase shares at a price that is lower than the price that investors paid for shares in our offering. As a result, to the extent investors have the ability to sell their shares to us as part of our share repurchase program, the price at which an investor may sell shares, which will be 90% of the offering price in effect on the date of repurchase, may be lower than what an investor paid in connection with the purchase of shares in our offering.

In addition, in the event an investor chooses to participate in our share repurchase program, the investor will be required to provide us with notice of intent to participate prior to knowing what the net asset value per share will be on the repurchase date. Although an investor will have the ability to withdraw a repurchase request prior to the repurchase date, to the extent an investor seeks to sell shares to us as part of our periodic share repurchase program, the investor will be required to do so without knowledge of what the repurchase price of our shares will be on the repurchase date.

We may be unable to invest a significant portion of the net proceeds of our offering on acceptable terms in an acceptable timeframe.

Delays in investing the net proceeds of our offering may impair our performance. We cannot assure you that we will be able to identify any investments that meet our investment objectives or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of our offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.

In addition, even if we are able to raise significant proceeds, we will not be permitted to use such proceeds to co-invest with certain entities affiliated with GDFM in transactions originated by GSO or its affiliates unless we first obtain an exemptive order from the SEC. We are seeking an exemptive order. However, there can be no assurance that we will obtain such relief.

Before making investments, we will invest the net proceeds of our public offering primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, which may produce returns that are significantly lower than the returns which we expect to achieve when our portfolio is fully invested in securities meeting our investment objectives. As a result, any distributions that we pay while our portfolio is not fully invested in securities meeting our investment objectives may be lower than the distributions that we may be able to pay when our portfolio is fully invested in securities meeting our investment objectives.

A stockholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us.

Our investors do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 450,000,000 shares of common stock. Pursuant to our charter, a majority of our entire board of directors may amend our charter to increase the number of authorized shares of stock without stockholder approval. After an investor purchases shares, our board may elect to sell additional shares in the future, issue equity interests in private offerings or issue share-based awards to our independent directors or employees of FB Advisor. To the extent we issue additional equity interests after an investor purchases our shares, an investor’s percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, an investor may also experience dilution in the book value and fair value of your shares.

Certain provisions of our charter and bylaws as well as provisions of the Maryland General Corporation Law could deter takeover attempts and have an adverse impact on the value of our common stock.

The Maryland General Corporation Law and our charter and bylaws contain provisions that may have the effect of discouraging, delaying or making difficult a change in control of our company or the removal of our incumbent directors. We will be covered by the Business Combination Act of the Maryland General Corporation Law to the extent that such statute is not superseded by applicable requirements of the 1940 Act. However, our board of directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any person to the extent that such business combination receives the prior approval of our board of directors, including a majority of our directors who are not interested persons as defined in the 1940 Act. Under the Control Share Acquisition Act of the Maryland General Corporation Law, “control shares” acquired in a “control share acquisition” have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiror, by officers or by directors who are employees of the corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of shares of our common stock. The Business Combination Act (if our board should repeal the resolution) and the Control Share Acquisition Act (if we amend our bylaws to be subject to that Act) may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

In addition, our board of directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock; and our board of directors may, without stockholder action, amend our charter to increase the number of shares of stock of any class or series that we have authority to issue. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value of our common stock.

Federal Income Tax Risks

We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.

To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements. See “Material U.S. Federal Income Tax Considerations.”

•

The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements 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 income tax.

•

The income source requirement will 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 will 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 maintain RIC tax treatment 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 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 be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in 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 debt instruments that were 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 deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discounts and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for tax purposes.

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the 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. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. 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 forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. For additional discussion regarding the tax implications of a RIC, see “Material U.S. Federal Income Tax Considerations—Taxation as a Regulated Investment Company.”

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

our future operating results;

•

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 current and 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” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this prospectus 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 “Risk Factors” and elsewhere in this prospectus. Other factors that could cause actual results to differ materially include:

•

changes in the economy;

•

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

•

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

We have based the forward-looking statements included in this prospectus on information available to us on the date of this prospectus, and we assume no obligation to update any such forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. 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. The forward-looking statements and projections contained in this prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act.

ESTIMATED USE OF PROCEEDS

The following table sets forth our estimates of how we intend to use the gross proceeds from this offering. Information is provided assuming that we sell: (1) $500,000,000 worth of shares of common stock and (2) the maximum number of shares registered in this offering, or 150,000,000 shares. The amount of net proceeds may be more or less than the amount depicted in the table below depending on the public offering price of the common stock and the actual number of shares of common stock we sell in the offering. The table below assumes that shares of common stock are sold at the current offering price of $10.75 per share. Such amount is subject to increase or decrease based upon, among other things, our net asset value per share.

Pending such use, we will invest the net proceeds of this offering primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our business development company election and our election to be taxed as a RIC.

The amounts in this table assume that the full fees and commissions are paid on all shares of our common stock offered to the public on a best efforts basis. All or a portion of the selling commission and dealer manager fee may be reduced or eliminated in connection with certain categories of sales such as sales for which a volume discount applies, sales through investment advisers or banks acting as trustees or fiduciaries and sales to our affiliates. The reduction in these fees will be accompanied by a corresponding reduction in the per share purchase price but will not affect the amounts available to us for investments. Because amounts in the following table are estimates, they may not accurately reflect the actual receipt or use of the offering proceeds.


	$500 Million Raised					Maximum Offering
	Amount		%			Amount		%
Gross Proceeds	$	500,000,000		100.0	%	$	1,612,500,000		100.0	%
Less:
Selling Commission	$	35,000,000		7.0	%	$	112,875,000		7.0	%
Dealer Manager Fee	$	15,000,000		3.0	%	$	48,375,000		3.0	%
Offering Expenses	$	7,500,000		1.5	%	$	24,187,500		1.5	%

Net Proceeds/Amount Available for Investments	$	442,500,000		88.5	%	$	1,427,062,500		88.5	%

DISTRIBUTIONS

We declared our first distribution on January 29, 2009. Subject to the board of directors’ discretion and applicable legal restrictions, our board of directors intends to authorize and declare distributions on either a semi-monthly or monthly basis and pay distributions on either a monthly or quarterly basis. While we historically paid distributions on a quarterly basis, commencing in the fourth quarter of 2010, subject to the board of directors’ discretion and applicable legal restrictions, we began to pay distributions on a monthly rather than quarterly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date we accept each stockholder’s subscription for shares of our common stock. From time to time, we may also pay interim special distributions in the form of cash or shares of common stock at the discretion of our board of directors. During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital for tax purposes. Each year a statement on Form 1099-DIV, identifying the source of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in capital surplus, which is a nontaxable distribution) will be mailed to our stockholders. No portion of the distributions paid during the years ended December 31, 2010 or 2009 represented a return of capital for tax purposes.

To maintain RIC tax treatment, we must, among other things, distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of (1) 98% of our net ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no federal income tax. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Promptly following the payment of distributions to all stockholders of record, we will send information to stockholders residing in Maryland regarding the source of such distributions.

The following table reflects the cash distributions per share that we have declared and paid on our common stock during the years ended December 31, 2008, 2009 and 2010. Dollar amounts in the table below and the notes thereto are presented in thousands, except per share data:


	Distribution
For the Year Ended	Per Share^(1)(2)(3)		Amount
2008	$	0.1835	$	25
2009		0.6717		3,134
2010		0.8728		21,389

(1)	The amount of each per share distribution has been retroactively adjusted to reflect the stock distributions declared throughout 2009 and 2010 as discussed below.

(2)	In addition to regular semi-monthly cash distributions during such period, cash distributions declared and paid on our common stock during the year ended December 31, 2010 include approximately $3,851, or approximately $0.12 per share, in special cash distributions.

(3)

On October 13, 2010, our board of directors determined to increase the amount of semi-monthly distributions payable to stockholders of record from $0.03125 per share to $0.03185 per share, effective October 1, 2010. On October 29, 2010, our board of directors determined to increase the amount of semi-monthly distributions payable to stockholders of record from $0.03185 per share to $0.032156 per share, effective November 1, 2010.

On January 13, 2011, our board of directors declared two regular semi-monthly cash distributions of $0.032156 per share each, which were paid on January 31, 2011 to stockholders of record on January 14, 2011 and January 28, 2011, respectively. On February 14, 2011, our board of directors declared two regular semi-monthly cash distributions of $0.032156 per share each, which were paid on February 28, 2011 to stockholders of record on February 14, 2011 and February 25, 2011, respectively. On March 14, 2011, our board of directors declared two regular semi-monthly cash distributions of $0.032156 per share each, which were paid on March 31, 2011 to stockholders of record on March 14, 2011 and March 30, 2011, respectively. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.

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

We may fund our cash distributions to stockholders from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and expense reimbursements from Franklin Square Holdings. The following table reflects, for tax purposes, the sources of the cash distributions that we have paid on our common stock during the years ended December 31, 2010, 2009 and 2008. Dollar amounts in the table below and the paragraph that follows such table are presented in thousands:


	Year ended December 31,
	2010					2009					2008
Source of Distribution	Distribution Amount		Percentage			Distribution Amount		Percentage			Distribution Amount		Percentage
Offering proceeds	$	—		—		$	—		—		$	—		—
Borrowings		—		—			—		—			—		—
Net investment income⁽¹⁾		13,545		63	%		1,917		61	%		25		100	%
Capital gains proceeds from the sale of assets		7,844		37	%		977		31	%		—		—
Non-capital gains proceeds from the sale of assets		—		—			—		—			—		—
Expense reimbursement from sponsor		—		—			240		8	%		—		—

Total	$	21,389		100	%	$	3,134		100	%	$	25		100	%

(1)	During the years ended December 31, 2010 and 2009, 84% and 57%, respectively, of our gross investment income was attributable to cash interest earned and 16% and 43%, respectively, was attributable to non-cash accretion of discount and PIK interest.

The aggregate cost of our investments for federal income tax purposes totaled $715,695 and $92,366 as of December 31, 2010 and 2009, respectively. The aggregate net unrealized appreciation on a tax basis was $17,885 and $8,226 as of December 31, 2010 and 2009, respectively. Our net investment income on a tax basis for the years ended December 31, 2010 and 2009 was $13,545 and $2,157, respectively. We distributed all of our net investment income earned as of December 31, 2010 and 2009.

The difference between our GAAP-basis net investment income and our tax-basis net investment income is due to the tax-basis amortization of organization and start-up costs incurred prior to the commencement of our operations, interest income earned on a tax basis due to the required accretion of discount on a non-performing loan, and the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Capital Gains Incentive Fee.” The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the years ended December 31, 2010 and 2009. Dollar amounts are presented in thousands:


	Year ended December 31,
	2010			2009
GAAP basis net investment income	$	9,392		$	2,151
Amortization of organizational costs		(43	)		(43	)
Tax accretion of discount on investment		133			49
Reversal of incentive fee accrual on unrealized gains		4,063			—

Tax basis net investment income	$	13,545		$	2,157

The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year.

The following table reflects the stock distributions per share that we have declared on our common stock to date:


Date Declared	Record Date		Payment Date		Distribution Percentage			Shares Issued
Fiscal 2009
March 31, 2009		March 31, 2009		March 31, 2009		1.4	%		13,818
April 30, 2009		April 30, 2009		April 30, 2009		3.0	%		42,661
May 29, 2009		May 29, 2009		May 29, 2009		3.7	%		79,125
June 30, 2009		June 30, 2009		June 30, 2009		3.5	%		96,976
July 30, 2009		July 31, 2009		July 31, 2009		3.1	%		117,219
August 31, 2009		August 31, 2009		August 31, 2009		3.0	%		148,072
December 31, 2009		December 31, 2009		December 31, 2009		0.5	%		49,710
Fiscal 2010
January 28, 2010		January 31, 2010		January 31, 2010		2.5	%		283,068

The purpose of these special distributions was to maintain a net asset value per share that was below the then-current net offering price, as required by the 1940 Act, subject to certain limited exceptions. Our board of directors determined that our portfolio performance sufficiently warranted taking these actions.

The stock distributions increased the number of shares outstanding, thereby reducing our net asset value per share. However, because the stock distributions were issued to all stockholders in proportion to their current holdings, the reduction in net asset value per share as a result of the stock distributions was offset exactly by the increase in the number of shares owned by each investor. As overall value to an investor was not reduced as a result of the special stock distributions, our board of directors determined that these issuances would not be dilutive to existing stockholders. As the stock distributions did not change any stockholder’s proportionate interest in us, they are not expected to represent taxable distributions. Specific tax characteristics of all distributions are reported to stockholders annually on Form 1099-DIV.

As of December 31, 2010 and 2009, the components of accumulated earnings on a tax basis were as follows (dollar amounts in the table below and the note thereto are presented in thousands):


	As of December 31,
	2010			2009
Distributable ordinary income	$	1,290		$	53
Incentive fee accrual on unrealized gains		(4,063	)		—
Unamortized organizational costs		(558	)		(600	)
Unrealized appreciation on investments⁽¹⁾		17,885			8,226

	$	14,554		$	7,679

(1)	As of December 31, 2010 and 2009, the gross unrealized appreciation on our investments was $20,136 and $8,390, respectively. As of December 31, 2010 and 2009, the gross unrealized depreciation on our investments was $2,251 and $164, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this section contains forward-looking statements that involve risks and uncertainties. Please see “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this prospectus. Many of the amounts and percentages presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” have been rounded for convenience of presentation, and all dollar amounts are presented in thousands, except per share data.

Overview

We were incorporated under the general corporation laws of the State of Maryland on December 21, 2007, and commenced operations on January 2, 2009 upon raising gross proceeds in excess of $2.5 million from persons who are not affiliated with us or FB Advisor. We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a BDC under the 1940 Act and has elected to be treated for federal income tax purposes as a RIC under the Code.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. Our portfolio is comprised primarily of investments in senior secured loans, second lien secured loans and, to a lesser extent, long-term subordinated loans, referred to as mezzanine loans, of private U.S. companies. We may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from our target companies. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of our debt investments or through a co-investment with a financial sponsor. In addition, a portion of our portfolio may be comprised of corporate bonds and other debt securities. However, such investments are not expected to comprise a significant portion of our portfolio.

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

Portfolio Investment Activity For The Years Ended December 31, 2010 and 2009

During the year ended December 31, 2010, we made investments in portfolio companies totaling $849,242. During the same period, we sold positions totaling $122,581 and received principal repayments of $117,473. As of December 31, 2010, our investment portfolio, with a total fair value of $733,580, consisted of interests in 144 portfolio companies (66% in first lien senior secured loans, 19% in second lien senior secured loans, 4% in senior secured bonds and 11% in mezzanine debt/other) with an average annual EBITDA of approximately $294.5 million. As of December 31, 2010, the investments in our portfolio were purchased at an average price of 94.9% of par value, the weighted average credit rating of our portfolio was B2 based upon the Moody’s scale and our estimated gross annual portfolio yield, prior to leverage, was 8.5% based upon the purchase price of our investments.

During the year ended December 31, 2009, we made investments in portfolio companies totaling $106,098. During the same period, we sold positions totaling $11,779 and received principal repayments of $4,938. As of

December 31, 2009, our investment portfolio, with a total fair value of $100,592, consisted of interests in 50 portfolio companies (46% in first lien senior secured loans, 45% in second lien senior secured loans and 9% in mezzanine debt) with an average annual EBITDA of approximately $269.4 million. As of December 31, 2009, the investments in our portfolio were purchased at an average price of 82.5% of par value, the weighted average credit rating of our portfolio was B3 based upon the Moody’s scale and our estimated gross annual portfolio yield was 13.2% based upon the purchase price of our investments.

The following table summarizes the composition of our investment portfolio at cost and fair value as of December 31, 2010 and 2009:


	Year Ended December 31,
	2010							2009
	Cost⁽¹⁾		Fair Value		Percentage of Portfolio			Cost⁽¹⁾		Fair Value		Percentage of Portfolio
Senior Secured Loans—First Lien	$	473,881	$	484,105		66	%	$	41,835	$	45,780		46	%
Senior Secured Loans—Second Lien		131,960		135,962		19	%		41,351		45,521		45	%
Senior Secured Bonds		30,265		31,659		4	%		—		—		—
Mezzanine Debt/Other		79,408		81,854		11	%		9,131		9,291		9	%

	$	715,514	$	733,580		100	%	$	92,317	$	100,592		100	%

(1)	Cost represents the original cost adjusted for the accretion of discounts on debt investments.

We do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of December 31, 2010, we had three such investments, all of which have been fully funded.

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of December 31, 2010 and 2009:


	Year Ended December 31,
	2010					2009
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Consumer Discretionary	$	129,749		17.6	%	$	10,739		10.7	%
Consumer Staples		56,184		7.7	%		4,615		4.6	%
Energy		69,048		9.4	%		9,388		9.3	%
Financials		59,431		8.1	%		6,876		6.8	%
Healthcare		63,460		8.7	%		3,927		3.9	%
Industrials		96,762		13.2	%		10,943		10.9	%
Information Technology		117,499		16.0	%		32,030		31.8	%
Materials		46,832		6.4	%		5,762		5.7	%
Telecommunication Services		81,675		11.1	%		12,671		12.7	%
Utilities		12,940		1.8	%		3,641		3.6	%

Total	$	733,580		100.0	%	$	100,592		100.0	%

Portfolio Asset Quality

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


Investment Rating		Summary Description
1		Investment exceeding expectations and/or capital gain expected.

2		Performing investment generally executing in accordance with the portfolio company’s business plan—full return of principal and interest expected.

3		Performing investment requiring closer monitoring.

4		Underperforming investment—some loss of interest or dividend expected, but still expecting a positive return on investment.

5		Underperforming investment with expected loss of interest and some principal.

The following table shows the distribution of our debt investments on the 1 to 5 investment rating scale at fair value as of December 31, 2010 and 2009:


	December 31, 2010					December 31, 2009
Investment Rating	Investments at Fair Value		Percentage of Portfolio			Investments at Fair Value		Percentage of Portfolio
1	$	38,899		5	%	$	—		—
2		682,861		93	%		98,848		98	%
3		11,384		2	%		—		—
4		436		0	%		1,744		2	%
5		—		—			—		—

	$	733,580		100	%	$	100,592		100	%

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

Results of Operations

The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain, net unrealized appreciation and depreciation and net unrealized gains and losses on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating expenses. Net realized gain on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated cost. Net unrealized appreciation and depreciation on investments is the net change in the fair value of our investment portfolio. Net unrealized gains and losses on foreign currency is the net change in the fair value of our investments due to the impact of foreign currency fluctuations.

Comparison of the years ended December 31, 2010 and December 31, 2009

Revenues

We generated investment income of $30,670 and $4,420 for the years ended December 31, 2010 and 2009, respectively, in the form of interest earned on senior secured loans, mezzanine debt, collateralized loan and debt

obligations and corporate bonds in our portfolio. Such revenues represent $25,742 and $2,513 of cash interest earned as well as $4,928 and $1,907 in non-cash portions relating to accretion of discount and PIK interest for the years ended December 31, 2010 and 2009, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized. The increase in investment income is due to the growth of our portfolio since commencing operations in 2009. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments.

We expect the dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases. We may also generate revenues in the form of dividends on the equity or other securities we may hold. Since commencing operations, we have not owned any equity interests in our portfolio companies and, therefore, did not receive dividend payments or other fees from our portfolio companies.

In addition, we may generate revenues in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned. No such fees were earned during the years ended December 31, 2010 or 2009.

Expenses

Our primary operating expenses are the payment of advisory fees and other expenses under the investment advisory and administrative services agreement and other expenses necessary for our operations. Our investment advisory fee compensates FB Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. FB Advisor is responsible for compensating our investment sub-adviser.

We also reimburse FB Advisor for its performance of services related to our administration and operation, provided that such reimbursement shall be the lower of FB Advisor’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location, and provided further that such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We do not reimburse FB Advisor for any services for which it receives a separate fee, nor for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FB Advisor. We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

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corporate and organizational expenses relating to offerings of our common stock, subject to limitations included in the investment advisory and administrative services agreement;

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

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

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investment advisory fees;

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

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transfer agent and custodial fees;

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fees and expenses associated with marketing efforts;

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federal and state registration fees;

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federal, state and local taxes;

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independent directors’ fees and expenses;

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costs of proxy statements, stockholders’ reports and notices;

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fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

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direct costs such as printing, mailing, long distance telephone and staff;

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fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act of 2002;

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costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws;

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brokerage commissions for the purchase and sale of our investments; and

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all other expenses incurred by FB Advisor, our sub-adviser or us in connection with administering our business, including expenses incurred by FB Advisor or our sub-adviser in performing administrative services for us, and the reimbursement of the compensation of our chief compliance officer and other administrative personnel paid by FB Advisor, to the extent they are not controlling persons of FB Advisor or any of its affiliates, subject to the limitations included in the investment advisory and administrative services agreement.

Our total operating expenses were $21,278 and $2,509 for the years ended December 31, 2010 and 2009, respectively. Our operating expenses include base management fees attributed to FB Advisor of $7,900 and $829 for the years ended December 31, 2010 and 2009, respectively. Our operating expenses also include administrative services expenses attributed to FB Advisor of $924 and $261 for the years ended December 31, 2010 and 2009, respectively.

FB Advisor is eligible to receive incentive fees based on performance. We accrued incentive fee expenses during the years ended December 31, 2010 and 2009 of $5,459 and $173, respectively. The incentive fee expense for the year ended December 31, 2010 includes $4,063 accrued with respect to unrealized gains in our investment portfolio, although no such incentive fee is actually payable by us with respect to such unrealized gains unless and until those gains are actually realized. See “—Critical Accounting Policies—Capital Gains Incentive Fee.”

We recorded interest expense of $3,881 for the year ended December 31, 2010 in connection with our revolving credit facility. Fees incurred with BNY Mellon Asset Servicing (formerly PNC Global Investment Services), which provides various accounting and administrative services to us, totaled $568 and $326 for the years ended December 31, 2010 and 2009, respectively. We incurred expenses with our stock transfer agent of $890 and $265 for the years ended December 31, 2010 and 2009, respectively.

Our other general and administrative expenses totaled $1,656 and $655 for the years ended December 31, 2010 and 2009, respectively, and consisted of the following:


	Year Ended December 31,
	2010		2009
Expenses associated with our independent audit and related fees	$	385	$	114
Compensation of our chief financial officer and our chief compliance officer		168		153
Legal fees		316		151
Printing fees		260		42
Fees paid to our independent directors		189		81
Other		338		114

Total	$	1,656	$	655

After the first half of 2009, our other general and administrative expenses increased as initial pricing arrangements that we negotiated with certain vendors, due to our relatively small scale, ceased. In addition, our independent directors began receiving fees in connection with their service as independent directors in the second

half of 2009. Prior to the third quarter of 2009, our independent directors had agreed to waive all fees payable in connection with their service as members of our board of directors.

Over the next several quarters, we expect our general and administrative operating expenses related to our ongoing operations to continue to increase because of the anticipated growth in the size of our asset base. During the years ended December 31, 2010 and 2009, the ratio of our operating expenses to our average net assets was 9.89% and 6.53%, respectively. We generally expect our general and administrative operating expenses to decline as a percentage of our total assets during periods of asset growth and increase as a percentage of our total assets during periods of asset declines. Incentive fees, interest expense and costs relating to our continuous offering, among other things, may also increase or decrease our operating expenses in relation to our expense ratios relative to comparative periods depending on portfolio performance, changes in benchmark interest rates such as LIBOR and offerings of our securities, among other factors. The higher ratio of operating expenses to average net assets during the year ended December 31, 2010 compared to the year ended December 31, 2009 can primarily be attributed to (i) a change in our methodology during 2010 for accruing for incentive fees to include unrealized gains in the calculation of our capital gains incentive fee expense, even though no such incentive fee is actually payable by us with respect to such unrealized gains unless and until those gains are actually realized (see “—Critical Accounting Policies—Capital Gains Incentive Fee”), and (ii) interest expense related to the revolving credit facility between Broad Street and Deutsche Bank which was established during the first quarter of 2010. Without such expenses, our ratio of operating expenses to average net assets would have been approximately 6.20% during the year ended December 31, 2010.

Expense Reimbursement

Beginning on February 26, 2009, our affiliate and sponsor, Franklin Square Holdings, agreed to reimburse us for expenses in an amount that is sufficient to ensure that, for tax purposes, our net investment income and net capital gains are equal to or greater than the cumulative distributions paid to our stockholders in each quarter. This arrangement is designed to ensure that no portion of our distributions will represent a return of capital for our stockholders. Franklin Square Holdings has no obligation to reimburse any portion of our expenses. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. During the year ended December 31, 2010, we received no reimbursements from Franklin Square Holdings. During the year ended December 31, 2009, reimbursements from Franklin Square Holdings totaled $240. We do not expect that conditions will require Franklin Square Holdings to provide reimbursements in the future. To the extent reimbursements may be needed in the future, there can be no assurance that Franklin Square Holdings will provide any such reimbursements. Franklin Square Holdings is controlled by our chief executive officer, Michael Forman, and our director, David Adelman.

Net Investment Income

Our net investment income totaled $9,392 ($0.40 per share) and $2,151 ($0.48 per share) for the years ended December 31, 2010 and 2009, respectively.

Net Realized Gains or Losses

We sold investments and received principal repayments of $122,581 and $117,473, respectively, during the year ended December 31, 2010, from which we realized net gains of $9,081. We sold investments and received principal repayments of $11,779 and $4,938, respectively, during the year ended December 31, 2009, from which we realized net gains of $1,030.

Net Change in Unrealized Appreciation on Investments and Unrealized Loss on Foreign Currency

For the year ended December 31, 2010, the net change in unrealized appreciation on investments totaled $9,809 and the net change in unrealized loss on foreign currency totaled $18. For the year ended December 31, 2009, the net change in unrealized appreciation on investments totaled $8,275. We did not hold any investment

denominated in a foreign currency during the year ended December 31, 2009. The unrealized appreciation on our investments during the year ended December 31, 2010 was primarily driven by general improvement in the credit markets. The increase in unrealized appreciation for the year ended December 31, 2009 was due primarily to general increases in prices for senior secured debt as the loan market partially recovered from its historical lows reached in the fourth quarter of 2008.

Net Increase in Net Assets Resulting from Operations

For the year ended December 31, 2010, the net increase in net assets resulting from operations was $28,264 ($1.21 per share) compared to a net increase in net assets resulting from operations of $11,456 ($2.57 per share) during the corresponding period in 2009.

Comparison of the years ended December 31, 2009 and December 31, 2008

We commenced operations on January 2, 2009, when we raised in excess of $2.5 million from persons who are not affiliated with us or FB Advisor. As a result, no comparisons with the year ended December 31, 2008 have been provided.

For the year ended December 31, 2008 and for the period from December 21, 2007 (Inception) to December 31, 2007, we incurred organization costs of $605 and $37, respectively, included in other general and administrative expenses, which represented our only operating activities at that time. These organization costs included, among other items, the cost of legal services pertaining to our organization and the incorporation of our business. These costs were paid on our behalf by an affiliate and were treated as capital contributions. No such costs were incurred during the years ended December 31, 2010 and 2009.

Financial Condition, Liquidity and Capital Resources

During the year ended December 31, 2010, we sold 31,320,067 shares (as adjusted for stock distributions) of our common stock for gross proceeds of $324,420. The gross proceeds received during the year ended December 31, 2010 include reinvested stockholder distributions of $8,252. During the year ended December 31, 2010, we also incurred offering costs of $1,671 in connection with the sale of our common stock, which consisted primarily of legal, due diligence and printing fees. Franklin Square Holdings funded $1,125 of these offering costs. We recorded these costs as a contribution to capital. The offering costs were offset against capital in excess of par in our consolidated financial statement and the other expenses were charged to expense as incurred. The sales commissions and dealer manager fees related to the sale of our common stock were $30,252 for the year ended December 31, 2010. These sales commissions and fees include $5,435 retained by the dealer manager, FS² Capital Partners, LLC, or FS², which is one of our affiliates.

During the year ended December 31, 2009, we sold 10,105,293 shares (as adjusted for stock distributions) of our common stock for gross proceeds of $93,464 and incurred related offering costs of $387 in connection with the sale of our common stock, which consisted primarily of legal, due diligence and printing fees. Franklin Square Holdings funded these offering costs. The sales commissions and dealer manager fees related to the sale of our common stock were $8,187 for the year ended December 31, 2009. These sales commissions and fees include $1,295 retained by FS².

As of March 31, 2011, we have sold 60,188,362 shares (as adjusted for stock distributions) of our common stock for gross proceeds of $617,205 since commencing our continuous public offering. Including the seed capital contributed by Messrs. Forman and Adelman, we have raised gross proceeds of $618,205 to date.

We generate cash primarily from the net proceeds of our ongoing continuous public offering and from cash flows from fees, interest and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments. We are engaged in a continuous offering of shares of our common stock.

We accept subscriptions on a continuous basis and issue shares at semi-monthly closings at prices that, after deducting selling commissions and dealer manager fees, must be above our net asset value per share.

Prior to investing in debt securities of private U.S. companies, we will invest the net proceeds from our continuous offering primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our business development company election and our election to be taxed as a RIC.

As of December 31, 2010, we had $38,790 in cash, which we have invested in interest bearing accounts.

To provide our stockholders with limited liquidity, we conduct quarterly tender offers pursuant to our share repurchase program. During the year ended December 31, 2010, we repurchased 228,950 shares at $9.36 per share for aggregate consideration totaling $2,143. On January 3, 2011, we repurchased 99,633 shares at $9.59 per share for aggregate consideration totaling $955 and, on April 1, 2011, we repurchased 158,258 shares at $9.675 per share for aggregate consideration totaling $1,531.

Revolving Credit Facility

On January 28, 2011, Broad Street and Deutsche Bank entered into an amended and restated multi-lender, syndicated revolving credit facility, or the credit facility, which amended and restated the revolving credit facility Broad Street originally entered into with Deutsche Bank on March 10, 2010 and the amendments thereto, or the original credit facility. Deutsche Bank is a lender and serves as administrative agent under the credit facility.

The credit facility provides for borrowings in an aggregate amount up to $340,000. Pursuant to the terms of the credit facility, borrowings thereunder may be designated as Tranche A borrowings in an amount up to $240,000 (referred to herein as the Tranche A Commitment) or as Tranche C borrowings in an amount up to $100,000 (referred to herein as the Tranche C Commitment). The credit facility also provides for Tranche B borrowings in an amount up to $100,000 (referred to herein as the Tranche B Commitment), but there are currently no Tranche B Commitments outstanding. All Tranche A Commitments bear interest at the rate of LIBOR + 2.23% per annum and will mature and be due and payable on March 10, 2012. All Tranche C Commitments bear interest at the rate of LIBOR + 1.85% per annum and will mature and be due and payable on March 10, 2012. In connection with the amendment and restatement of the original credit facility, a $100,000 Tranche B Commitment that was provided under the original credit facility by Deutsche Bank to Broad Street on an uncommitted basis was converted into a $100,000 Tranche C Commitment provided by a new lender on a committed basis.

As of December 31, 2010, $297,201 was outstanding under the credit facility. The carrying amount of the amount outstanding under the credit facility approximates its fair value. We incurred costs of $1,341 in connection with obtaining and amending the credit facility, which we have recorded as deferred financing costs on our consolidated balance sheet and amortize to interest expense over the life of the credit facility. As of December 31, 2010, $835 of such deferred financing costs have yet to be amortized to interest expense.

The effective interest rate under the credit facility was 2.38% on December 31, 2010. Interest is paid quarterly in arrears and commenced August 20, 2010. We recorded interest expense of $3,881 for the year ended December 31, 2010, of which $506 related to the amortization of deferred financing costs. We paid $2,492 in interest expense for the year ended December 31, 2010.

Borrowings under the credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Broad Street varies depending upon the types of assets in Broad Street’s portfolio. The occurrence of certain events described as “Super-Collateralization Events” in the credit agreement that governs the credit facility, or a decline in our net asset value below a specified threshold, results in a lowering of the amount of funds that will be advanced against such assets. Super-Collateralization Events include, without limitation, (i) certain key employees ceasing to be directors, principals, officers or investment managers of GDFM, the sub-adviser to FB Advisor; (ii) the bankruptcy or insolvency of GDFM or FB Advisor; (iii) GDFM ceasing to act as our sub-adviser or FB Advisor ceasing to act as our investment adviser; (iv) our ceasing to act as Broad Street’s investment manager, becoming bankrupt or insolvent, defaulting on certain material agreements or failing to maintain a net asset value at least equal to $50,000; and (v) us or GDFM or FB Advisor committing fraud or other illicit acts in our or their investment advisory capacities.

In connection with the credit facility, Broad Street has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. In addition to customary events of default included in financing transactions, the credit facility contains the following events of default: (a) the failure to make principal payments when due or interest payments within three business days of when due, (b) borrowings under the credit facility exceeding the applicable advance rates, (c) the purchase by Broad Street of certain ineligible assets, (d) the insolvency or bankruptcy of Broad Street or us, (e) we cease to act as investment manager of Broad Street’s assets, (f) the decline of our net asset value below $50,000 and (g) fraud or other illicit acts by us or FB Advisor or GDFM in our or their investment advisory capacities. During the continuation of an event of default, Broad Street must pay interest at a default rate. Broad Street was in compliance with the terms of the credit facility as of December 31, 2010.

Borrowings of Broad Street will be considered borrowings by us for purposes of complying with the asset coverage requirements under the 1940 Act applicable to business development companies.

RIC Status and Distributions

We have elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. In order to qualify as a RIC, we must distribute at least 90% of our “Investment Company Taxable Income,” as defined by the Code, each year. As long as the distributions are declared by the due date of the tax return, including extensions, distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to maintain our RIC status each year. We are also subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes.

We declared our first distribution on January 29, 2009. Subject to the board of directors’ discretion and applicable legal restrictions, our board of directors intends to authorize and declare distributions on either a semi-monthly or monthly basis and pay distributions on either a monthly or quarterly basis. While we historically paid distributions on a quarterly basis, commencing in the fourth quarter of 2010, we began to pay distributions on a monthly rather than quarterly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date we accept each stockholder’s subscription for shares of our common stock. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital for tax purposes. Each year a statement on Form 1099-DIV identifying the source of the distributions will be mailed to our stockholders. No portion of the distributions paid during the years ended December 31, 2010 or 2009 represented a return of capital for tax purposes.

We make our ordinary distributions in the form of cash, out of assets legally available, unless stockholders elect to receive their distributions and/or long-term capital gains distributions in additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to the U.S. stockholder.

The following table reflects the cash distributions per share that we have declared and paid on our common stock during the years ended December 31, 2008, 2009 and 2010:


	Distribution
For the Year Ended	Per Share^(1)(2)(3)		Amount
2008	$	0.1835	$	25
2009		0.6717		3,134
2010		0.8728		21,389

(1)	The amount of each per share distribution has been retroactively adjusted to reflect the stock distributions declared throughout 2009 and 2010 as discussed below.

(2)	In addition to regular semi-monthly cash distributions during such period, cash distributions declared and paid on our common stock during the year ended December 31, 2010 include approximately $3,851, or approximately $0.12 per share, in special cash distributions.

(3)

We have adopted an “opt in” distribution reinvestment plan for our stockholders. As a result, if we make a distribution, our stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. See “Distribution Reinvestment Plan.”


	Year ended December 31,
	2010					2009					2008
Source of Distribution	Distribution Amount		Percentage			Distribution Amount		Percentage			Distribution Amount		Percentage
Offering proceeds	$	—		—		$	—		—		$	—		—
Borrowings		—		—			—		—			—		—
Net investment income⁽¹⁾		13,545		63	%		1,917		61	%		25		100	%
Capital gains proceeds from the sale of assets		7,844		37	%		977		31	%		—		—
Non-capital gains proceeds from the sale of assets		—		—			—		—			—		—
Expense reimbursement from sponsor		—		—			240		8	%		—		—

Total	$	21,389		100	%	$	3,134		100	%	$	25		100	%

(1)	During the years ended December 31, 2010 and 2009, 84% and 57%, respectively, of our gross investment income was attributable to cash interest earned and 16% and 43%, respectively, was attributable to non-cash accretion of discount and PIK interest.

The difference between our GAAP-basis net investment income and our tax-basis net investment income is due to the tax-basis amortization of organization and start-up costs incurred prior to the commencement of our operations, interest income earned on a tax basis due to the required accretion of discount on a non-performing loan, and the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by us. See “—Critical Accounting Policies—Capital Gains Incentive Fee.” The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the years ended December 31, 2010 and 2009:


	Year ended December 31,
	2010			2009
GAAP basis net investment income	$	9,392		$	2,151
Amortization of organizational costs		(43	)		(43	)
Tax accretion of discount on investment		133			49
Reversal of incentive fee accrual on unrealized gains		4,063			—

Tax basis net investment income	$	13,545		$	2,157

The following table reflects the stock distributions per share that we have declared on our common stock to date:


Date Declared	Record Date		Payment Date		Distribution Percentage			Shares Issued
Fiscal 2009
March 31, 2009		March 31, 2009		March 31, 2009		1.4	%		13,818
April 30, 2009		April 30, 2009		April 30, 2009		3.0	%		42,661
May 29, 2009		May 29, 2009		May 29, 2009		3.7	%		79,125
June 30, 2009		June 30, 2009		June 30, 2009		3.5	%		96,976
July 30, 2009		July 31, 2009		July 31, 2009		3.1	%		117,219
August 31, 2009		August 31, 2009		August 31, 2009		3.0	%		148,072
December 31, 2009		December 31, 2009		December 31, 2009		0.5	%		49,710
Fiscal 2010
January 28, 2010		January 31, 2010		January 31, 2010		2.5	%		283,068

The stock distributions increased the number of shares outstanding, thereby reducing our net asset value per share. However, because the stock distributions were issued to all stockholders in proportion to their current holdings, the reduction in net asset value per share as a result of the stock distribution was offset exactly by the increase in the number of shares owned by each investor. As overall value to an investor was not reduced as a result of the special stock distributions, our board of directors determined that these issuances would not be dilutive to existing stockholders. As the stock distributions did not change any stockholder’s proportionate interest in us, they are not expected to represent taxable distributions. Specific tax characteristics of all distributions will be reported to stockholders annually on Form 1099-DIV.

As of December 31, 2010 and 2009, the components of accumulated earnings on a tax basis were as follows:


	As of December 31,
	2010			2009
Distributable ordinary income	$	1,290		$	53
Incentive fee accrual on unrealized gains		(4,063	)		—
Unamortized organizational costs		(558	)		(600	)
Unrealized appreciation on investments⁽¹⁾		17,885			8,226

	$	14,554		$	7,679

(1)	As of December 31, 2010 and 2009, the gross unrealized appreciation on our investments was $20,136 and $8,390, respectively. As of December 31, 2010 and 2009, the gross unrealized depreciation on our investments was $2,251 and $164, respectively.

Critical Accounting Policies

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In

preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating plans occur we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below:

Valuation of Portfolio Investments

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

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

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

•

our quarterly valuation process begins with each portfolio company or investment being initially valued by FB Advisor’s management team, with such valuation potentially taking into account information received from any of our sub-advisers or an independent valuation firm, if applicable;

•

preliminary valuation conclusions are then documented and discussed with our valuation committee;

•

our valuation committee reviews the preliminary valuation and FB Advisor’s management team, together with our independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the valuation committee; and

•

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

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our 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. Below is a description of factors that our board of directors may consider when valuing our equity and debt investments.

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

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

Our board of directors may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. Our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

The fair values of our investments are determined in good faith by our board of directors. Our board of directors is solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our investments as of December 31, 2010 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. We valued our collateralized loan and debt obligations and our mezzanine debt investments by obtaining bid and ask prices from independent dealers. We valued all of our other investments, including our senior secured bond investments, by using an independent third-party pricing service, which provided prevailing bid and ask prices that were screened for validity by the service from dealers on the date of the relevant period end. Our investments as of December 31, 2009 consisted entirely of debt securities that are traded on a private over-the-counter market for institutional investors. We valued one of our second lien investments and one of our mezzanine debt investments by obtaining bid and ask prices from independent dealers. We valued all of our other investments by using an independent third-party pricing service, which provided prevailing bid and ask prices that were screened for validity by the service from dealers on the date of the relevant period end. We periodically benchmark the bid and ask prices received from the service against the actual prices at which we purchase and sell our investments. Based on the results of the benchmark analysis and our experience in purchasing and selling these investments, we believe that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), we believe that these valuation inputs are classified as Level 3 within the fair value hierarchy. We may also use other methods to determine fair value for securities for which we cannot obtain prevailing bid and ask prices through our third-party pricing service. Our valuation committee and board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with our valuation process.

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Loan origination fees, original issue

discount, and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan. Upon the prepayment of a loan or security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and securities as interest income when we receive such amounts.

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

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

Capital Gains Incentive Fee

Pursuant to the terms of the investment advisory and administrative services agreement we entered into with FB Advisor, the incentive fee on capital gains earned on liquidated investments of our portfolio during operations prior to our liquidation will be determined and payable in arrears as of the end of each calendar year. Such fee will equal 20.0% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While the investment advisory and administrative services agreement with FB Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, commencing during the quarter ended December 31, 2010, we have changed our methodology for accruing for this incentive fee to include unrealized gains in the calculation of the capital gains incentive fee expense and related capital gains incentive fee payable. This accrual reflects the incentive fees that would be payable to FB Advisor as if our entire portfolio was liquidated at its fair value as of the balance sheet date even though FB Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized. During the year ended December 31, 2010, we accrued a capital gains incentive fee of $5,459 based on the performance of our portfolio, of which only $1,396 was based on realized gains and is payable to FB Advisor.

Uncertainty in Income Taxes

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

Contractual Obligations

We have entered into an agreement with FB Advisor to provide investment advisory and administrative services. Payments for investment advisory services under the investment advisory and administrative services

agreement are equal to (a) an annual base management fee of 2.0% of the average value of our gross assets and (b) an incentive fee based on our performance. FB Advisor, and to the extent it is required to provide such services, our sub-adviser, will be reimbursed for administrative expenses incurred on our behalf. For the years ended December 31, 2010 and 2009, we incurred $7,900 and $829, respectively, in base management fees and $924 and $261, respectively, in administrative services expenses under the investment advisory and administrative services agreement. In addition, FB Advisor is eligible to receive incentive fees based on performance. During the years ended December 31, 2010 and 2009, we accrued $1,396 and $173, respectively, in capital gains incentive fees payable to FB Advisor under the investment advisory and administrative services agreement. We have also recorded $4,063 in incentive fees based on the unrealized gains in our investment portfolio as of December 31, 2010; however, such fees are not due and payable to FB Advisor unless and until such time as the gains become realized.

As of December 31, 2010, $297,201 was outstanding under the revolving credit facility between Broad Street and Deutsche Bank. All such amounts will mature, and all accrued and unpaid interest thereunder will be due and payable, on March 10, 2012.

A summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the revolving credit facility between Broad Street and Deutsche Bank at December 31, 2010 is as follows:


	Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Borrowings⁽¹⁾	$	297,201	$	—	$	297,201	$	—	$	—

(1)	At December 31, 2010, $42,799 remained unused under the revolving credit facility.

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Standards

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, which provides additional guidance to improve disclosures regarding fair value measurements. This guidance requires two new disclosures: (1) transfers in and out of Level 1 and 2 measurements and the reasons for the transfers and (2) a gross presentation of activity within the Level 3 roll forward. The guidance also includes clarifications to existing disclosure requirements on the level of disaggregation and disclosures regarding inputs and valuation techniques. The guidance applies to all entities required to make disclosures about recurring and nonrecurring fair value measurements. The effective date of this guidance is the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. Except for the gross presentation of Level 3 roll forward information, we adopted this guidance during 2010, and such adoption did not have a significant impact on our consolidated financial statements or disclosures. We are currently evaluating the impact that the gross presentation of Level 3 roll forward information will have on our consolidated financial statement disclosures when adopted.

Related Party Transactions

We have entered into an investment advisory and administrative services agreement with FB Advisor. Pursuant to the investment advisory and administrative services agreement, FB Advisor is paid a base management fee of 2% of average gross assets and an incentive fee of 20% of net investment income, subject to an annualized 8% hurdle, and 20% of net realized gains, if applicable. We commenced accruing fees under the agreement on January 2, 2009, upon the commencement of operations. During the years ended December 31,

2010 and 2009, FB Advisor earned $7,900 and $829, respectively, in base management fees. Management fees are paid on a quarterly basis in arrears. We paid $5,039 and $392 of these fees during the years ended December 31, 2010 and 2009, respectively.

We accrue for the capital gains incentive fee, which, if earned, is paid annually. We accrue the incentive fee based on net realized and unrealized gains; however, under the terms of our investment advisory and administrative services agreement, the fee payable to FB Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. During the year ended December 31, 2010, we accrued a capital gains incentive fee of $5,459 based on the performance of our portfolio, of which only $1,396 was based on realized gains and is payable to FB Advisor. During the year ended December 31, 2010, we paid FB Advisor $173 in capital gains incentive fees earned during the year ended December 31, 2009. We also reimburse FB Advisor for expenses necessary for its performance of services related to our administration and operation, provided that such reimbursement shall be the lower of FB Advisor’s actual costs or the amount that we would be required to pay for comparable services in the same geographic location, and provided further that such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. During the years ended December 31, 2010 and 2009, we incurred administrative services charges of $924 and $261, respectively, attributable to FB Advisor. Of these charges, $908 and $257, respectively, related to the allocation of costs of administrative personnel for services provided to us by employees of FB Advisor and the remainder related to other reimbursable expenses. We have paid FB Advisor $710 and $165, respectively, for the services incurred under this arrangement during the years ended December 31, 2010 and 2009.

Franklin Square Holdings funded offering costs and other expenses in the amount of $1,125, $404 and $1,914 for the years ended December 31, 2010, 2009 and 2008, respectively. We recorded these costs as a contribution to capital. The offering costs were offset against capital in excess of par on the financial statement and the other expenses were charged to expense as incurred. We incurred organization costs of $605 during the year ended December 31, 2008. No such costs were incurred during the years ended December 31, 2010 and 2009.

The dealer manager for our public offering is FS², which is one of our affiliates. During the years ended December 31, 2010 and 2009, FS² retained $5,435 and $1,295, respectively, for selling commissions and dealer manager fees in connection with the sale of our common stock.

Under the terms of the investment advisory and administrative services agreement, when our registration statement was declared effective by the SEC and we were successful in raising gross proceeds from unrelated outside investors of at least $2.5 million, or the minimum offering requirement, FB Advisor became entitled to receive 1.5% of gross proceeds raised until all offering costs and organization costs funded by FB Advisor or its affiliates (including Franklin Square Holdings) have been recovered. On January 2, 2009, we exceeded the minimum offering requirement. We paid total reimbursements of $1,678 and $1,418, respectively, to FB Advisor and its affiliates during the years ended December 31, 2010 and 2009. As of December 31, 2010, $641 is payable to FB Advisor and its affiliates under this arrangement. The reimbursements are recorded as a reduction of capital.

Members of FB Advisor’s senior management team provide investment advisory services to both us and FB Capital Partners, L.P. FB Capital Partners, L.P., which is owned by Mr. Forman, our chief executive officer, was organized for the purpose of sourcing and managing income-oriented investments for institutions and high net worth individuals. While neither FB Capital Partners, L.P. nor FB Advisor is making private corporate debt investments for clients other than us currently, FB Advisor intends to allocate investment opportunities in a fair and equitable manner consistent with our investment objectives and strategies, if necessary, so that we will not be disadvantaged in relation to any other client of FB Advisor or its management team.

capital gains are equal to or greater than the cumulative distributions paid to our stockholders in each quarter. This arrangement is designed to ensure that no portion of our distributions will represent a return of capital for our stockholders. Franklin Square Holdings has no obligation to reimburse any portion of our expenses. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. During the year ended December 31, 2010, we received no reimbursements from Franklin Square Holdings. During the year ended December 31, 2009, the reimbursements from Franklin Square Holdings totaled $240. We do not expect that conditions will require Franklin Square Holdings to provide reimbursements in the future. To the extent reimbursements may be needed in the future, there can be no assurance that Franklin Square Holdings will provide any such reimbursements. Franklin Square Holdings is controlled by our chief executive officer, Michael Forman, and our director, David Adelman.

Recent Developments

On March 18, 2011, Arch Street, our newly-formed, wholly-owned financing subsidiary, entered into a total return swap, or TRS, for senior secured floating rate loans with Citibank.

The obligations of Arch Street under the TRS are non-recourse to us and our exposure under the TRS is limited to the value of our investment in Arch Street, which generally will equal the value of cash collateral provided by Arch Street under the TRS. Pursuant to the terms of the TRS, Arch Street may select a portfolio of loans with a maximum market value of $200,000. Arch Street is required to initially cash collateralize a specified percentage of each loan (generally between 20% and 25% of the market value of such loan) included under the TRS in accordance with margin requirements described in the agreements governing the TRS.

A TRS is a commonly used form of financing arrangement that provides economic exposure similar to the exposure under Broad Street’s credit facility. Because of the unique structure of a TRS, a TRS often offers lower financing costs than are offered through more traditional borrowing arrangements.

Generally, pursuant to a TRS, one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS is typically used to obtain exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. A TRS may effectively add leverage to our portfolio because, in addition to our total net assets, we would be subject to investment exposure on the amount of securities subject to the TRS.

The TRS with Citibank enables us, through our ownership of Arch Street, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citibank. As such, the TRS is analogous to Arch Street borrowing funds to acquire loans and incurring interest expense to a lender.

Pursuant to the terms of an investment management agreement that we have entered into with Arch Street, we act as the manager of the rights and obligations of Arch Street under the TRS, including selecting the specific loans to be included in the portfolio of loans subject to the TRS. The terms of the TRS are governed by a set of agreements between Arch Street and Citibank, which collectively establish the TRS, and are collectively referred to herein as the TRS Agreement.

Pursuant to the terms of the TRS Agreement, Arch Street may select a portfolio of loans with a maximum market value (determined at the time each such loan becomes subject to the TRS) of $200,000. Each individual loan, and the portfolio of loans taken as a whole, must meet criteria described in the TRS Agreement. Arch Street will receive from Citibank all interest and fees payable in respect of the loans included in the portfolio. Arch Street will pay to Citibank interest at a rate equal to one-month LIBOR + 1.25% per annum. In addition, upon the termination or repayment of any loan subject to the TRS, Arch Street will either receive from Citibank the

appreciation in the value of such loan, or pay to Citibank any depreciation in the value of such loan. Arch Street may be required to post additional collateral from time to time as a result of a decline in the mark-to-market value of the portfolio of loans subject to the TRS.

Citibank may terminate the TRS on or after the second anniversary of the effectiveness of the TRS. Arch Street may terminate the TRS at any time upon providing no more than 30 days, and no less than 10 days, prior notice to Citibank. Any termination prior to the second anniversary of the effectiveness of the TRS will result in payment of an early termination fee to Citibank. Arch Street is required to pay a minimum usage fee in connection with the TRS. Arch Street will also pay Citibank customary fees in connection with the establishment and maintenance of the TRS.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of December 31, 2010, all but sixteen of our portfolio investments paid variable interest rates. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments, especially to the extent that we hold variable rate investments, and to declines in the value of any fixed rate investments we hold. Accordingly, an increase in interest rates would make it easier for us to meet or exceed our incentive fee preferred return, as defined in our investment advisory and administrative services agreement, and may result in a substantial increase in our net investment income, and also to the amount of incentive fees payable to FB Advisor with respect to our increased pre-incentive fee net investment income.

Pursuant to the terms of the $340,000 revolving credit facility which Broad Street maintains with Deutsche Bank, Broad Street borrows at a floating rate based on LIBOR. Pursuant to the terms of the TRS between Arch Street and Citibank, Arch Street pays fees to Citibank at a floating rate based on LIBOR in exchange for the right to receive the economic benefit of a pool of loans having a maximum notional amount of $200,000. We expect any future credit facilities or total return swap agreements that we or any subsidiary may enter into will also be based on a floating interest rate. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have debt outstanding or swap agreements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments. We expect that our long-term investments will be financed primarily with equity and long-term debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a materially adverse effect on our business, financial condition and results of operations.

In addition, we may have risk regarding portfolio valuation. See “Determination of Net Asset Value.”

SENIOR SECURITIES

Information about our senior securities is shown in the following table as of December 31, 2010. Dollar amounts in this section are presented in thousands, unless otherwise indicated.

On January 28, 2011, Broad Street, our wholly-owned financing subsidiary, and Deutsche Bank entered into an amended and restated multi-lender, syndicated revolving credit facility, or the credit facility, which amended and restated the revolving credit facility Broad Street originally entered into with Deutsche Bank on March 10, 2010 and the amendments thereto, or the original credit facility. Deutsche Bank is a lender and serves as administrative agent under the credit facility.

The facility is secured by a first priority security interest on substantially all of the assets held by Broad Street. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources” for a discussion of the facility. At December 31, 2010, there was approximately $297,201 of indebtedness outstanding under the revolving credit facility with Deutsche Bank.


Year	Total Amount Outstanding Exclusive of Treasury Securities ⁽¹⁾	Asset Coverage per Unit⁽²⁾	Involuntary Liquidation Preference per Unit⁽³⁾	Average Market Value per Unit⁽⁴⁾
Revolving Credit Facility

2010	$297,201	2.31	—	N/A

(1)	Total amount (in thousands) of each class of senior securities outstanding at the end of the period presented.

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

(3)

The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it. The “—” in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities.

(4)	Not applicable because senior securities are not registered for public trading.

INVESTMENT OBJECTIVES AND STRATEGY

We were organized in December 2007 to invest in debt securities of private U.S. companies and commenced operations in January 2009. We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. In addition, we have elected to be treated for federal income tax purposes as a RIC under the Code.

We are managed by FB Advisor which oversees the management of our operations and is responsible for making investment decisions for our portfolio. FB Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor, according to asset allocation and other guidelines set by FB Advisor. GDFM is a subsidiary of GSO, the credit platform affiliate of Blackstone, a leading global alternative asset manager and provider of financial advisory services. GSO is one of the world’s largest credit platforms in the alternative asset business with approximately $31.0 billion in assets under management as of December 31, 2010.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We will seek to meet our investment objectives by:

•

employing a defensive investment approach focused on long-term credit performance and principal protection;

•

focusing primarily on debt investments in a broad array of private U.S. companies, including small and middle-market companies, which we define as companies with annual revenue of $10 million to $2.5 billion at the time of investment. In many environments, we believe such a focus offers an opportunity for superior risk adjusted returns;

•

focusing primarily on investing in established, stable companies with positive cash flows; and

•

maintaining rigorous portfolio monitoring, in an attempt to anticipate and pre-empt negative credit events within our portfolio.

Our portfolio is comprised primarily of investments in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, or mezzanine loans, of private U.S. companies. We may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from our target companies as primary market investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of our debt investments or through a co-investment with a financial sponsor. In addition, a portion of our portfolio may be comprised of corporate bonds and other debt securities. However, such investments are not expected to comprise a significant portion of our portfolio.

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

As a BDC, we are subject to certain regulatory restrictions in making our investments. For example, we will not be permitted to co-invest with certain entities affiliated with GDFM in transactions originated by GSO or its

affiliates unless we obtain an exemptive order from the SEC. We are currently seeking an exemptive order. However, there can be no assurance that we will obtain such relief. Even if we receive exemptive relief, GSO and its affiliates are not obligated to offer GDFM or us the right to participate in any transactions originated by them.

We currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the sale of shares under our distribution reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares. In addition, we will not repurchase shares in any calendar year in an amount exceeding 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter. We will offer to repurchase such shares on each date of repurchase at a price equal to 90% of the current offering price in effect on each date of repurchase. Our board of directors may amend, suspend or terminate the repurchase program at any time upon 30 days’ notice.

Although we do not currently intend to list our securities on an exchange and do not expect a public market to develop for them in the foreseeable future, we intend to seek to complete a liquidity event within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors. We will view our offering stage as complete as of the termination date of our most recent public equity offering, if we have not conducted a public equity offering in any continuous two-year period. Therefore, stockholders may not be able to sell their shares promptly or at a desired price.

Status of Our Ongoing Public Offering


	Shares Sold⁽¹⁾⁽²⁾		Average Price per Share⁽²⁾		Gross Proceeds
Fiscal 2009
March 31		1,074,045	$	7.76	$	8,330
June 30		1,926,763		8.44		16,271
September 30		3,544,170		9.35		33,129
December 31⁽³⁾		3,560,315		10.04		35,734

		10,105,293		9.25		93,464
Fiscal 2010
March 31⁽³⁾		4,331,680		10.28		44,524
June 30⁽³⁾		7,198,906		10.36		74,583
September 30⁽³⁾		6,586,899		10.35		68,145
December 31⁽⁴⁾		13,202,581		10.39		137,168

		31,320,066		10.36		324,420
Fiscal 2011
March 31⁽⁵⁾		18,763,003		10.62		199,321

		18,763,003		10.62		199,321

		60,188,362	$	10.25	$	617,205

(1)	The number of shares sold includes 53,444 shares, 834,021 shares and 376,389 shares purchased through our distribution reinvestment plan during 2009, 2010 and 2011, respectively.

(2)

(3)	We announced an increase in our public offering price to $10.40 per share beginning with the closing that occurred on October 1, 2009. The purpose of this action was to ensure that our net asset value per share did not exceed our net offering price per share, as required by the 1940 Act.

(4)	We announced an increase in our public offering price to $10.50 per share beginning with the closing that occurred on November 1, 2010. The purpose of this action was to ensure that our net asset value per share did not exceed our net offering price per share, as required by the 1940 Act.

(5)

Portfolio Update

During the year ended December 31, 2010, we made investments in portfolio companies totaling $849.2 million. During the same period, we sold positions totaling approximately $122.6 million and received principal repayments of approximately $117.5 million. As of December 31, 2010, our investment portfolio, with a total fair value of $733.6 million, consisted of interests in 144 portfolio companies (66% in first lien senior secured loans, 19% in second lien senior secured loans, 4% in senior secured bonds and 11% in mezzanine debt/other) with an average annual EBITDA of approximately $294.5 million. As of December 31, 2010, the investments in our portfolio were purchased at an average price of 94.9% of par value, the weighted average credit rating of our portfolio was B2 based upon the Moody’s scale and our estimated gross annual portfolio yield, prior to leverage, was 8.5% based upon the purchase price of our investments.

Portfolio Company^(a)

Industry

Date of Most
Recent

Purchase

Principal
Amount
(in thousands)^(b)

Amortized
Cost
(in thousands)

Senior Secured Loans—First Lien—62.5%

1-800 Contacts, Inc., L+395, 3.8% LIBOR Floor, 3/4/15

Healthcare

May-10

5,508

5,243

Acosta, Inc., L+325, 1.5% LIBOR Floor, 1/27/18

Industrials

Feb-11

3,902

Advance Pierre Foods, Inc., L+525, 1.8% LIBOR Floor, 9/29/16^(c)

Consumer Staples

Sep-10

4,912

4,820

Airvana Network Solutions Inc., L+900, 2.0% LIBOR Floor, 8/27/14

Telecommunication Services

Aug-10

2,250

2,240

Alliant Holdings LLC, L+500, 1.8% LIBOR Floor, 8/16/14^(c)

Financials

Dec-10

2,000

2,019

Altegrity, Inc., L+600, 1.8% LIBOR Floor, 2/21/15^(c)

Industrials

Aug-10

7,363

7,265

Amscan Holdings, Inc., L+525, 1.5% LIBOR Floor, 12/2/17^(c)

Consumer Discretionary

Jan-11

8,923

8,910

AmWINS Group, Inc., L+250, 6/8/13^(c)

Financials

Oct-09

949

807

Anchor Glass Container Corp., L+400, 2.0% LIBOR Floor, 3/1/16^(c)

Industrials

Feb-10

3,270

3,242

Ardent Health Services LLC, L+500, 1.5% LIBOR Floor, 9/15/15^(c)

Healthcare

Oct-10

7,302

7,232

Aspect Software, Inc., L+450, 1.8% LIBOR Floor, 5/7/16^(c)

Information Technology

May-10

1,985

1,968

Atlantic Broadband Finance, LLC, L+350, 1.5% LIBOR Floor, 11/29/15^(c)

Telecommunication Services

Nov-10

1,338

1,332

Attachmate Corp., L+500, 1.5% LIBOR Floor, 2/25/17^(c)

Information Technology

Feb-11

10,000

9,900

Avaya Inc., L+392, 10/24/14^(c)

Information Technology

Nov-10

7,930

7,140

Axcan Intermediate Holdings Inc., L+400, 1.5% LIBOR Floor, 2/10/17^(c)

Healthcare

Feb-11

10,000

9,950

Bentley Systems Inc., L+425, 1.5% LIBOR Floor, 11/24/16

Information Technology

Dec-10

1,789

1,771

Burger King Corp., L+300, 1.5% LIBOR Floor, 10/19/16^(c)

Consumer Staples

Feb-11

6,529

C.H.I. Overhead Doors, Inc., L+550, 2.0% LIBOR Floor, 4/21/15

Industrials

Feb-11

5,000

4,975

Calumet Lubricants Co., LP, L+400, 1/3/15^(c)

Energy

Aug-10

2,819

2,638

Canwest LP, L+700, 2.0% LIBOR Floor, 7/23/16^(c)

Consumer Discretionary

Nov-10

7,484

7,416

Carestream Health, Inc., L+350, 1.5% LIBOR Floor, 2/25/17

Healthcare

Feb-11

15,000

14,925

CCC Information Services Inc., L+400, 1.5% LIBOR Floor, 11/11/15^(c)

Information Technology

Dec-10

1,578

1,563

CDW Corp., L+500, 7/10/17^(c)

Information Technology

Aug-10

5,584

5,003

Cedar Fair, LP, L+300, 1.0% LIBOR Floor, 12/15/17

Consumer Discretionary

Feb-11

1,500

Cenveo Corp., L+475, 1.5% LIBOR Floor, 12/21/16^(c)

Consumer Discretionary

Dec-10

6,667

6,602

Ceridian Corp., L+300, 11/9/14^(c)

Industrials

Oct-10

7,456

6,808

Citgo Petroleum Corp., L+700, 2.0% LIBOR Floor, 6/24/17^(c)

Energy

Aug-10

6,965

6,880

Clopay Ames True Temper Holding Corp., L+600, 1.8% LIBOR Floor, 9/30/16^(c)

Consumer Discretionary

Dec-10

7,941

7,904

CMP Susquehanna Corp., L+200, 5/5/13^(c)

Telecommunication Services

Dec-10

6,980

6,315

Contec LLC, L+475, 3.0% LIBOR Floor, 7/28/14^(c)

Telecommunication Services

May-09

1,942

1,668

ConvaTec Inc., L+425, 1.5% LIBOR Floor, 12/22/16^(c)

Healthcare

Dec-10

2,314

2,303

Corel Corp., L+400, 5/2/12

Information Technology

Aug-09

1,359

1,258

CPG International Inc., L+450, 1.5% LIBOR Floor, 2/18/17

Industrials

Feb-11

1,862

1,852

Cumulus Media Inc., L+375, 6/11/14^(c)

Telecommunication Services

Oct-10

4,060

3,763

Custom Building Products, Inc., L+400, 1.8% LIBOR Floor, 3/1/15^(c)

Materials

Mar-10

2,830

2,807

Data Device Corp., L+550, 1.8% LIBOR Floor, 12/23/16

Industrials

Dec-10

9,231

9,096

Datatel, Inc., L+350, 1.5% LIBOR Floor, 2/18/17^(c)

Information Technology

Feb-11

1,546

DEI Sales, Inc., L+550, 2.0% LIBOR Floor, 9/22/13

Consumer Discretionary

Jan-11

3,566

3,398

DineEquity, Inc., L+300, 1.3% LIBOR Floor, 10/19/17^(c)

Consumer Staples

Feb-11

2,004

Dunkin’ Brands, Inc., L+300, 1.3% LIBOR Floor, 11/23/17^(c)

Consumer Staples

Feb-11

2,500

Equipower Resources Holdings, LLC, L+425, 1.5% LIBOR Floor, 1/26/18

Utilities

Jan-11

1,631

1,615

Fairmount Minerals, Ltd., L+450, 1.8% LIBOR Floor, 8/5/16^(c)

Materials

Oct-10

6,466

6,412

Fifth Third Processing Solutions LLC, L+400, 1.5% LIBOR Floor, 11/3/16^(c)

Financials

Oct-10

3,731

3,696

First Data Corp., L+275, 9/24/14^(c)

Information Technology

May-10

7,621

6,664

First Reserve Crestwood Holdings LLC, L+850, 2.0% LIBOR Floor, 10/3/16

Energy

Sep-10

4,429

4,346

Freescale Semiconductor, Inc., L+425, 12/1/16^(c)

Industrials

Oct-10

7,437

7,086

General Chemical Corp., L+500, 1.8% LIBOR Floor, 10/6/15^(c)

Materials

Nov-10

7,527

7,556

Getty Images, Inc., L+375, 1.5% LIBOR Floor, 11/7/16^(c)

Consumer Discretionary

Nov-10

2,441

2,418

Portfolio Company^(a)

Industry

Date of Most
Recent

Purchase

Principal
Amount
(in thousands)^(b)

Amortized
Cost
(in thousands)

Global Tel Link Corp., L+550, 1.8% LIBOR Floor, 11/10/16^(c)

Telecommunication Services

Dec-10

8,304

8,155

Goodman Global, Inc., L+400, 1.8% LIBOR Floor, 10/28/16^(c)

Consumer Discretionary

Oct-10

1,814

1,796

Green Tree Credit Solutions LLC, L+575, 2.3% LIBOR Floor, 12/18/15^(c)

Financials

Jul-10

4,364

4,210

Grifols, SA, L+425, 1.8% LIBOR Floor, 10/1/16^(c)

Healthcare

Oct-10

4,336

4,296

Hanger Orthopedic Group, Inc., L+375, 1.5% LIBOR Floor, 12/1/16^(c)

Healthcare

Nov-10

1,944

1,935

Harbor Freight Tools USA, Inc., L+500, 1.5% LIBOR Floor, 12/22/17^(c)

Consumer Discretionary

Dec-10

9,929

9,832

HarbourVest Partners LP, L+475, 1.5% LIBOR Floor, 12/17/16^(c)

Financials

Dec-10

11,496

11,385

Harland Clarke Holdings Corp., L+250, 6/30/14^(c)

Industrials

Jul-10

2,448

2,132

Houghton International Inc., L+500, 1.8% LIBOR Floor, 1/31/16^(c)

Materials

Jan-11

1,778

1,769

iHealth Technologies, Inc., L+600, 1.8% LIBOR Floor, 12/28/16

Healthcare

Dec-10

3,636

3,565

Infogroup, Inc., L+450, 1.8% LIBOR Floor, 7/1/16^(c)

Consumer Discretionary

May-10

4,647

4,565

Intelligrated, Inc., L+575, 1.8% LIBOR Floor, 2/18/17

Information Technology

Feb-11

5,000

4,950

Intelsat Jackson Holdings SA, L+375, 1.5% LIBOR Floor, 4/2/18^(c)

Telecommunication Services

Dec-10

3,000

2,986

Interactive Data Corp., L+350, 1.3% LIBOR Floor, 2/11/18

Financials

Feb-11

10,000

Intralinks, Inc., L+425, 1.5% LIBOR Floor, 6/15/14

Information Technology

May-09

1,451

1,181

inVentiv Health, Inc., L+325, 1.5% LIBOR Floor, 8/4/16

Healthcare

Feb-11

671

KIK Custom Products Inc., L+225, 5/31/14^(c)

Consumer Staples

Mar-10

4,949

4,420

Lantiq Deutschland GmbH, L+700, 2.0% LIBOR Floor, 11/16/15^(c)

Information Technology

Jan-11

6,978

6,877

MDA Info Products Ltd., L+550, 1.5% LIBOR Floor, 1/4/17

Information Technology

Dec-10

5,000

4,928

MedAssets, Inc., L+375, 1.5% LIBOR Floor, 11/22/16^(c)

Healthcare

Nov-10

1,667

1,651

Mosaic US Holdings Inc., L+275, 4/3/13

Consumer Discretionary

Oct-09

882

680

NBTY, Inc., L+410, 1.6% LIBOR Floor, 10/1/17^(c)

Consumer Staples

Feb-11

3,241

3,220

NCO Group, Inc., L+500, 2.5% LIBOR Floor, 5/15/13^(c)

Information Technology

Jan-11

8,303

8,260

New Development Holdings, LLC (Calpine), L+550, 1.5% LIBOR Floor, 7/3/17^(c)

Utilities

Aug-10

5,558

5,488

NSH Merger Sub, Inc., L+650, 1.8% LIBOR Floor, 2/3/17

Healthcare

Feb-11

10,500

10,326

OSI Restaurant Partners, LLC, L+225, 6/14/14^(c)

Consumer Discretionary

Jul-10

5,638

4,999

Ozburn Hessey Holding Co., LLC, L+550, 2.0% LIBOR Floor, 4/8/16^(c)

Industrials

Aug-10

6,230

6,199

Petco Animal Supplies, Inc., L+325, 1.3% LIBOR Floor, 11/25/17

Consumer Discretionary

Feb-11

3,654

Playboy Enterprises, Inc., L+650, 1.8% LIBOR Floor, 3/4/17

Consumer Discretionary

Feb-11

3,488

3,419

Protection One, Inc., L+425, 1.8% LIBOR Floor, 6/4/16^(c)

Consumer Discretionary

Aug-10

4,343

4,317

RBS Worldpay, Inc., L+450, 1.8% LIBOR Floor, 10/15/17

Financials

Oct-10

1,538

1,524

Remy International, Inc., L+450, 1.8% LIBOR Floor, 12/17/13^(c)

Consumer Discretionary

Dec-10

2,083

2,064

RepconStrickland, Inc., L+525, 3.3% LIBOR Floor, 2/19/13

Energy

Apr-10

3,925

3,619

Res-Care, Inc., L+550, 1.8% LIBOR Floor, 12/22/16

Consumer Discretionary

Dec-10

5,000

4,903

Revlon Consumer Products Corp., L+400, 2.0% LIBOR Floor, 3/11/15^(c)

Consumer Discretionary

Jul-10

6,357

6,267

Reynolds & Reynolds Co., L+350, 1.8% LIBOR Floor, 4/21/17^(c)

Information Technology

May-10

4,723

4,692

Reynolds Group Holdings Inc., L+325, 1.0% LIBOR Floor, 2/9/18

Industrials

Feb-11

3,658

Sagittarius Restaurants LLC, L+550, 2.0% LIBOR Floor, 5/18/15

Consumer Discretionary

Aug-10

3,041

3,010

Savvis, Inc., L+500, 1.8% LIBOR Floor, 8/4/16^(c)

Information Technology

Aug-10

7,382

7,234

Sedgwick CMS Holdings, L+350, 1.5% LIBOR Floor, 9/28/16^(c)

Industrials

Feb-11

4,082

SemGroup Corp., L+700, 1.5% LIBOR Floor, 11/30/12^(c)

Energy

Feb-11

10,249

10,285

Sheridan Production Co., LLC, L+550, 2.0% LIBOR Floor, 4/20/17^(c)

Energy

Jan-11

10,448

10,355

Sitel, LLC, L+550, 1/30/14^(c)

Telecommunication Services

Dec-10

5,966

5,632

Smile Brands Group Inc., L+525, 1.8% LIBOR Floor, 12/21/17^(c)

Healthcare

Dec-10

5,966

5,878

Smurfit-Stone Container Enterprises, Inc., L+475, 2.0% LIBOR Floor, 2/10/16

Industrials

Feb-10

6,965

6,907

Sorenson Communication, Inc., L+400, 2.0% LIBOR Floor, 8/16/13^(c)

Consumer Discretionary

Feb-11

9,000

8,725

Spansion, LLC, L+550, 2.0% LIBOR Floor, 2/9/15^(c)

Information Technology

Dec-10

5,903

5,940

Sports Authority, Inc., L+600, 1.5% LIBOR Floor, 11/16/17^(c)

Consumer Discretionary

Dec-10

8,000

7,789

Styron Sarl, L+450, 1.5% LIBOR Floor, 6/14/16^(c)

Materials

Jan-11

4,131

Summit Materials Companies I, LLC, L+500, 1.5% LIBOR Floor, 12/31/15^(c)

Materials

Dec-10

4,000

Swift Transportation Co., Inc., L+450, 1.5% LIBOR Floor, 12/21/16^(c)

Industrials

Dec-10

4,288

4,246

Targus Information Corp., L+525, 1.8% LIBOR Floor, 12/28/16

Information Technology

Dec-10

5,000

4,902

Telcordia Technologies Inc., L+500, 1.8% LIBOR Floor, 4/30/16^(c)

Telecommunication Services

Nov-10

7,984

8,003

Texas Competitive Electric Holdings Co. LLC, L+350, 10/10/14^(c)

Utilities

Jan-11

13,384

11,176

The Gymboree Corp., L+350, 1.5% LIBOR Floor, 4/11/18

Consumer Discretionary

Feb-11

1,692

TNS, Inc., L+400, 2.0% LIBOR Floor, 11/18/15^(c)

Telecommunication Services

Sep-10

1,317

TowerCo Finance LLC, L+375, 1.5% LIBOR Floor, 2/2/17

Telecommunication Services

Jan-11

1,400

1,393

Toys“R”Us, Inc., L+450, 1.5% LIBOR Floor, 8/17/16^(c)

Consumer Discretionary

Oct-10

6,716

6,680

TransUnion LLC, L+325, 1.5% LIBOR Floor, 2/9/18

Financials

Feb-11

2,500

Trident Exploration Corp., L+950, 3.0% LIBOR Floor, 6/10/14^(c)

Energy

Nov-10

8,960

8,908

Univar Inc., L+350, 1.5% LIBOR Floor, 4/28/17^(c)

Materials

Feb-11

6,642

Vertafore, Inc., L+375, 1.5% LIBOR Floor, 7/29/16

Information Technology

Feb-11

6,866

Yell Group Plc, L+300, 7/31/14

Consumer Discretionary

Oct-09

804

682

Total Senior Secured Loans—First Lien

560,640

546,355

Senior Secured Loans—Second Lien—17.9%

Advance Pierre Foods, Inc., L+950, 1.8% LIBOR Floor, 9/21/17^(c)

Consumer Staples

Jan-11

12,000

12,053

Advantage Sales & Marketing Inc., L+775, 1.5% LIBOR Floor, 5/29/18

Industrials

Jan-11

12,000

11,893

AMN Healthcare Services, Inc., L+1000, 1.8% LIBOR Floor, 9/1/16

Healthcare

Aug-10

10,000

9,724

AmWINS Group, Inc., L+550, 6/8/14

Financials

May-10

1,992

1,686

Attachmate Corp., L+758, 1.0% LIBOR Floor, 2/25/17^(c)

Information Technology

Feb-11

15,000

14,294

Awesome Acquisition Co., L+500, 6/4/14

Consumer Discretionary

Oct-09

2,940

2,369

BNY ConvergEx Group, LLC, L+700, 1.8% LIBOR Floor, 12/17/17^(c)

Information Technology

Dec-10

6,000

5,927

Central Parking Systems, Inc., L+450, 11/22/14

Industrials

May-10

250

201


Portfolio Company^(a)	Industry	Date of Most Recent Purchase	Principal Amount (in thousands)^(b)		Amortized Cost (in thousands)
Datatel, Inc., L+725, 1.5% LIBOR Floor, 2/18/18^(c)	Information Technology	Feb-11	$	9,783	$	9,734
FR Brand Acquisition Corp., L+615, 2/7/15^(c)	Industrials	Jan-11		13,000		11,741
Goodman Global, Inc., L+700, 2.0% LIBOR Floor, 10/27/17^(c)	Consumer Discretionary	Oct-10		7,000		6,866
Kronos Inc., L+575, 6/11/15^(c)	Industrials	Nov-10		3,000		2,922
Roundy’s Supermarkets, Inc., L+800, 2.0% LIBOR Floor, 4/16/16^(c)	Consumer Staples	Jan-11		12,000		12,142
Sedgwick CMS Holdings, L+750, 1.5% LIBOR Floor, 5/30/17	Industrials	Aug-10		500		500
Southern Pacific Resource Co., L+850, 2.0% LIBOR Floor, 12/22/15^(c)	Energy	Jan-11		13,000		12,782
TPF Generation Holdings (Tenaska Power Fund), LLC, L+425, 12/15/14^(c)	Energy	Dec-10		9,170		8,363
Vertafore, Inc., L+825, 1.5% LIBOR Floor, 10/29/17^(c)	Information Technology	Oct-10		10,000		9,905
Wm. Bolthouse Farms, Inc., L+750, 2.0% LIBOR Floor, 8/11/16^(c)	Consumer Staples	Feb-11		11,079		11,133
Xerium Technologies, Inc., L+625, 2.0% LIBOR Floor, 5/25/15^(c)	Materials	Jan-11		11,933		11,704

Total Senior Secured Loans—Second Lien				160,647		155,939

Senior Secured Bonds—5.2%
Allen Systems Group, Inc., 10.5%, 11/15/16	Information Technology	Jan-11		8,723		8,811
Avaya Inc., 7.0%, 4/1/19^(c)	Information Technology	Feb-11		1,500		1,500
Calpine Corp., 7.9%, 1/15/23	Utilities	Jan-11		8,500		8,500
First Data Corp., 8.9%, 8/15/20^(c)	Information Technology	Aug-10		4,300		4,233
Logan’s Roadhouse, Inc., 10.8%, 10/15/17	Consumer Discretionary	Sep-10		4,000		4,000
Nexstar Broadcasting Group, Inc., 8.9%, 4/15/17^(c)	Telecommunication Services	Apr-10		5,000		4,971
Paetec Holding Corp., 8.9%, 6/30/17^(c)	Telecommunication Services	Apr-10		4,680		4,814
Palace Entertainment Holdings, LLC, 8.9%, 4/15/17^(c)	Consumer Discretionary	Feb-11		2,400		2,400
Roofing Supply Group LLC, 8.6%, 12/1/17^(c)	Industrials	Nov-10		800		800
Stallion Oilfield Services Ltd., 10.5%, 2/15/15	Energy	Aug-10		3,598		3,659
United Refining Co., 10.5%, 2/28/18	Energy	Feb-11		1,875		1,808

Total Senior Secured Bonds				45,376		45,496

Mezzanine Debt/Other—14.4%
Apidos CDO IV Class E, L+360, 10/27/18	Financials	May-10		2,000		1,061
Ares 2007 CLO 11A Class E, L+600, 10/11/21	Financials	Sep-10		4,775		3,040
Ares 2007 CLO 12X Class E, L+575, 11/25/20	Financials	Nov-10		2,252		1,747
Aspect Software, Inc., 10.6%, 5/15/17^(c)	Information Technology	Apr-10		4,000		4,000
ATI Enterprises Inc., L+1100, 2.3% LIBOR Floor, 12/30/16	Consumer Discretionary	Jan-10		8,000		7,910
Aurora Diagnostics, LLC, 10.8%, 1/15/18	Healthcare	Dec-10		8,000		8,000
Base CLO I Class E, EURIBOR+500, 10/17/18	Financials	Mar-10	€	1,500		972
Blue Mountain CLO III Class E, L+355, 3/17/21	Financials	May-10	$	2,000		877
Bresnan Broadband Holdings LLC, 8.0%, 12/15/18^(c)	Telecommunication Services	Dec-10		5,000		5,000
Burlington Coat Factory Holdings Inc., 10.0%, 2/15/19	Consumer Discretionary	Feb-11		680		680
Cambium Learning, Inc., 9.8%, 2/15/17	Consumer Discretionary	Feb-11		3,000		2,983
Cincinnati Bell Inc., 8.4%, 10/15/20^(c)	Telecommunication Services	Oct-10		8,000		8,000
Commscope Inc., 8.3%, 1/15/19^(c)	Telecommunication Services	Jan-11		4,000		4,000
Del Monte Foods Co., 7.6%, 2/15/19^(c)	Consumer Staples	Feb-11		2,500		2,500
Foothill CLO I Class Subord., 16.7%, 2/22/21	Financials	Feb-11		4,000		4,540
Franklin CLO 6A Class E, L+425, 8/9/19	Financials	Oct-10		1,919		1,141
Galaxy VII CLO Class Subord., 12.1%, 10/13/18	Financials	Jan-11		2,000		1,803
Grifols, SA, 8.3%, 2/1/18	Healthcare	Jan-11		2,500		2,500
Hughes Network Systems, LLC, 9.5%, 4/15/14	Telecommunication Services	Jul-10		2,000		2,069
Insight Pharmaceuticals LLC, 13.0%, 2.0% PIK, 12/31/17	Healthcare	Feb-11		15,000		14,700
Lightpoint CLO 2006 V Class D, L+365, 8/5/19	Financials	Sep-10		6,500		3,044
Lightpoint CLO 2007 VII Class D, L+400, 5/15/21	Financials	Sep-10		4,000		2,196
Mediacom Broadband LLC, 8.5%, 10/15/15	Consumer Discretionary	Aug-10		2,000		2,028
Mountain View CLO II Class Preferred, 21.0%, 1/12/21	Financials	Jan-11		9,225		6,984
N.E.W. Customer Service Cos., Inc., L+750, 2.0% LIBOR Floor, 3/22/17^(c)	Industrials	Mar-10		7,000		6,869
NBTY, Inc., 9.0%, 10/1/18	Consumer Staples	Sep-10		4,700		4,700
NCO Group Inc., L+488, 11/15/13	Information Technology	Jan-11		2,000		1,737
Octagon CDO 2007 1A Class Income, 38.1%, 8/25/21	Financials	Oct-10		4,000		2,701
Paetec Holding Corp., 9.9%, 12/1/18	Telecommunication Services	Nov-10		4,000		3,870
Trimaran CLO IV Ltd. Class Pref., 15.5%, 12/1/17	Financials	Feb-11		12,500		11,294
Univar Inc., 12.0%, 6/30/18	Materials	Dec-10		3,000		2,942

Total Mezzanine Debt/Other				142,051		125,888

TOTAL INVESTMENTS—100%					$	873,678

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

(b)	Denominated in U.S. Dollars unless otherwise noted.

(c)	Security is held within Broad Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the amended and restated revolving credit facility with Deutsche Bank AG, New York Branch.

The tables below show portfolio investments that were sold or experienced a repayment in excess of 1% of a position’s value between January 1, 2011 and February 28, 2011.


Security	Original Cost		Disposition Price		Transaction Type
Alaska Communications Systems Holdings, Inc., L+400, 1.5% LIBOR Floor, 10/21/16	$	3,646,205	$	3,701,451		Sale
Armstrong World Industries, Inc., L+350, 1.5% LIBOR Floor, 5/23/17	$	1,678,313	$	1,712,048		Sale
BBHI Acquisition LLC, L+300, 1.5% LIBOR Floor, 12/14/17	$	2,043,387	$	2,082,087		Sale
Booz Allen Hamilton Inc., 3.0%, 1.0% LIBOR Floor, 1/27/16	$	1,264,822	$	1,282,213		Sale
Burger King Corp., L+300, 1.5% LIBOR Floor, 10/19/16	$	1,754,386	$	1,769,737		Sale
Charter Communications Operating, LLC, 7.1%, 1/15/18	$	6,649,482	$	6,715,375		Sale
Cedar Fair, LP, L+400, 1.5% LIBOR Floor, 12/15/16	$	2,924,660	$	3,009,593		Sale
CommScope, Inc., 8.3%, 1/15/19	$	1,781,330	$	1,817,136		Sale
Dunkin’ Brands, Inc., L+300, 1.3% LIBOR Floor, 11/23/17	$	1,166,775	$	1,172,609		Sale
Florida East Coast Industries, Inc., 8.1%, 2/1/17	$	200,000	$	207,500		Sale
Green Mountain Coffee Roasters, Inc., L+400, 1.5% LIBOR Floor, 12/16/16	$	1,736,842	$	1,765,351		Sale
Intelsat Jackson Holdings SA, L+375, 1.5% LIBOR Floor, 4/2/18	$	2,624,396	$	2,673,851		Sale
Interactive Data Corp., L+350, 1.3% LIBOR Floor, 2/8/18	$	7,000,000	$	7,056,250		Sale
J Crew Operating Corp., L+350, 1.3% LIBOR Floor, 3/9/18	$	4,170,616	$	4,196,682		Sale
Knology, Inc., L+400, 1.5% LIBOR Floor, 10/15/16	$	1,930,500	$	1,979,250		Sale
Michael Foods Group, Inc., L+300, 1.3% LIBOR Floor, 2/22/18	$	3,930,844	$	3,960,325		Sale
NBTY, Inc., L+325, 1.0% LIBOR Floor, 10/1/17	$	2,212,389	$	2,220,686		Sale
NRG Energy Inc., 7.6%, 1/15/18	$	5,000,000	$	5,018,750		Sale
Reynolds Group Holdings Inc., L+325, 1.0% LIBOR Floor, 2/17/18	$	4,000,000	$	4,040,000		Sale
Rovi Corp., L+300, 1.0% LIBOR Floor, 2/7/18	$	847,134	$	860,934		Sale
Rural/Metro Corp., LLC, L+425, 1.8% LIBOR Floor, 11/24/16	$	1,466,316	$	1,495,789		Sale
Scitor Corp., 3.5%, 1.5% LIBOR Floor, 2/15/17	$	1,144,250	$	1,155,750		Sale
SI Organization, Inc., L+325, 1.3% LIBOR Floor, 2/18/17	$	344,828	$	345,690		Sale
Six Flags Theme Parks, Inc., L+400, 1.5% LIBOR Floor, 6/30/16	$	2,723,540	$	2,788,549		Sale
Syniverse Holdings, Inc., L+375, 1.5% LIBOR Floor, 9/8/14	$	2,008,696	$	2,059,420		Sale
United Components, Inc., L+400, 1.5% LIBOR Floor, 7/20/17	$	853,081	$	864,810		Sale
Universal Health Services, Inc., L+400, 1.5% LIBOR Floor, 11/15/16	$	4,925,000	$	5,087,500		Sale
WCP Exposition Services Operating Co. LLC, L+600, 3.0% LIBOR Floor, 8/29/11	$	243,964	$	358,533		Sale


Security	Weighted Average Purchase Price⁽¹⁾			Weighted Average Disposition Price⁽¹⁾			Paydown Amount		Transaction Type
Airvana Network Solutions Inc., L+900, 2.0% LIBOR Floor, 8/27/14		99.5	%		100.0	%	$	116,667		Paydown
Anchor Glass Container Corp., L+400, 2.0% LIBOR Floor, 3/1/16		99.0	%		100.0	%	$	146,165		Paydown
Avaya Inc., L+650, 4.0% LIBOR Floor, 10/24/14		103.0	%		100.5	%	$	5,007,437		Paydown
Avaya Inc., L+275, 10/24/14		88.0	%		100.3	%	$	7,950,254		Paydown
Burger King Corp., L+450, 1.8% LIBOR Floor, 10/19/16		100.3	%		101.0	%	$	6,594,706		Paydown
Canwest LP, L+700, 2.0% LIBOR Floor, 7/23/16		99.9	%		100.0	%	$	346,824		Paydown
Carestream Health, Inc., L+525, 10/30/13		96.2	%		100.0	%	$	8,000,000		Paydown
Corel Corp., L+400, 5/2/12		80.3	%		109.0	%	$	74,858		Paydown
Datatel, Inc., L+825, 2.0% LIBOR Floor, 12/10/16		98.0	%		103.0	%	$	5,150,000		Paydown
DineEquity, Inc., L+450, 1.5% LIBOR Floor, 10/19/17		100.0	%		101.0	%	$	2,435,786		Paydown
Dresser, Inc., L+575, 5/4/15		87.9	%		100.0	%	$	7,405,000		Paydown
Dunkin’ Brands, Inc., L+425, 1.5% LIBOR Floor, 11/23/17		99.5	%		101.0	%	$	2,525,000		Paydown
Edwards Ltd., L+575, 11/30/14		87.9	%		100.0	%	$	2,305,159		Paydown
Fairmount Minerals, Ltd., L+450, 1.8% LIBOR Floor, 8/5/16		99.5	%		100.0	%	$	292,849		Paydown
First Reserve Crestwood Holdings LLC, L+850, 2.0% LIBOR Floor, 10/3/16		98.0	%		100.0	%	$	71,250		Paydown
Green Tree Credit Solutions LLC, L+575, 2.3% LIBOR Floor, 12/18/15		96.3	%		100.0	%	$	101,833		Paydown
HarbourVest Partners LP, L+475, 1.5% LIBOR Floor, 12/17/16		99.0	%		100.0	%	$	145,522		Paydown
Interactive Data Corp., L+500, 1.8% LIBOR Floor, 1/29/17		99.0	%		101.0	%	$	6,783,412		Paydown
Michael Foods Group, Inc., L+450, 1.8% LIBOR Floor, 6/29/16		98.0	%		101.0	%	$	2,561,160		Paydown
NBTY, Inc., L+450, 1.8% LIBOR Floor, 10/1/17		99.0	%		101.0	%	$	2,234,513		Paydown
Petco Animal Supplies, Inc., L+450, 1.5% LIBOR Floor, 11/24/17		99.0	%		101.0	%	$	2,959,535		Paydown
Protection One, Inc., L+425, 1.8% LIBOR Floor, 6/4/16		99.4	%		100.0	%	$	58,846		Paydown
Reynolds & Reynolds Co., L+350, 1.8% LIBOR Floor, 4/21/17		99.3	%		100.0	%	$	246,154		Paydown
Reynolds Group Holdings Inc., L+425, 1.5% LIBOR Floor, 5/5/16		99.8	%		100.0	%	$	1,688,625		Paydown
Reynolds Group Holdings Inc., L+425, 2.0% LIBOR Floor, 5/5/16		100.2	%		100.0	%	$	3,298,851		Paydown
Reynolds Group Holdings Inc., L+475, 1.8% LIBOR Floor, 5/12/16		99.9	%		100.0	%	$	2,962,500		Paydown
Sagittarius Restaurants LLC, L+550, 2.0% LIBOR Floor, 5/18/15		98.9	%		100.0	%	$	44,625		Paydown
Stallion Oilfield Services Ltd., 10.5%, 2/15/15		101.9	%		103.0	%	$	414,060		Paydown
Styron Sarl, L+575, 1.8% LIBOR Floor, 6/14/16		100.2	%		101.0	%	$	7,976,096		Paydown
Swift Transportation Co., Inc., L+450, 1.5% LIBOR Floor, 12/21/16		99.0	%		100.0	%	$	257,482		Paydown
The Gymboree Corp., L+400, 1.5% LIBOR Floor, 11/23/17		99.5	%		101.0	%	$	2,160,278		Paydown
Univar Inc., L+450, 1.8% LIBOR Floor, 6/30/17		99.2	%		101.0	%	$	6,708,104		Paydown
Vertafore, Inc., L+500, 1.8% LIBOR Floor, 7/29/16		99.3	%		100.0	%	$	6,909,722		Paydown

(1)	As a percentage of par value.

Distributions

We intend to continue to make our ordinary distributions in the form of cash, out of assets legally available, unless stockholders elect to receive their distributions in additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to the U.S. stockholder. If stockholders hold shares in the name of a broker or financial intermediary, they should contact the broker or financial intermediary regarding their election to receive distributions in additional shares of our common stock. See “Distributions” for the cash and stock distributions declared and paid during 2009 and 2010.

About FB Advisor

FB Advisor is registered as an investment adviser with the SEC under the Advisers Act. Our chief executive officer, Michael C. Forman, has led FB Advisor since its inception. In 2005, Mr. Forman co-founded FB Capital Partners, L.P., an investment firm that invests in private equity, senior and mezzanine debt, and real estate, and has served as managing general partner since its inception. In 2007, he co-founded Franklin Square Holdings, a national sponsor and distributor of alternative investment products designed for the individual investor. In managing its funds, Franklin Square Holdings seeks to partner with what it believes to be best-in-class institutional asset managers.

About GDFM

Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor, according to asset allocation and other guidelines set by FB Advisor. GDFM is a Delaware limited liability company with principal offices located at 280 Park Avenue, New York, New York 10017.

Under the investment sub-advisory agreement, GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor, according to asset allocation and other guidelines set by FB Advisor. In addition, to the extent requested by FB Advisor, GDFM assists with the monitoring of our portfolio and may make managerial assistance available to certain of our portfolio companies. It is anticipated that FB Advisor will benefit from the scale arising from GDFM’s existing infrastructure, access to investment opportunities from GSO’s existing institutional relationships, access to proprietary investments from GSO’s existing dedicated origination and sourcing team and risk management from GDFM’s existing policies and expertise. GDFM has an established infrastructure and investment processes for managing leveraged credit portfolios, including senior secured loans, second lien secured loans, mezzanine debt, high yield bonds, structured finance instruments and credit derivatives. GDFM may rely upon the wider resources and operations of GSO, including additional originated deal flow, market risk management, finance, compliance, legal, internal audit and fund administration as needed.

Market Opportunity

Attractive Opportunities in Senior Secured and Second Lien Secured Loans

The chart below illustrates the sharp decline and subsequent partial recovery in the average prices of senior secured loans, including first and second lien loans, tracked by the Credit Suisse Leveraged Loan Index.

LOGO

Source: Bloomberg

We feel that opportunities in senior secured loans and second lien secured loans are significant not only because of the potential returns available, but also because of the strong defensive characteristics of this investment class. Because these loans have priority in payment among an issuer’s security holders (i.e., they are due to receive payment before bondholders and equityholders), they carry the least potential risk among investments in the issuer’s capital structure. Further, these investments are secured by the issuer’s assets, which may be seized in the event of a default if necessary, and generally carry restrictive covenants aimed at ensuring repayment before unsecured creditors, such as most types of public bondholders, and other security holders and preserving collateral to protect against credit deterioration. In addition, most senior secured debt issues carry variable interest rate structures, meaning the securities are generally less susceptible to declines in value experienced by fixed-rate securities in a rising interest rate environment. However, in declining interest rate environments, variable interest rate structures decrease the income we would receive from our debt securities.

The chart below illustrates examples of the collateral used to secure senior secured and second lien secured debt.

LOGO

Source: Moody’s Investors Service

Further, as a result of the dislocation in the credit markets and the reduction in competition for loans, lenders have recalibrated their concepts of risk and are now in a position to demand improved pricing, reduced issuer leverage and more stringent covenant structures before committing to new debt issues. As an example, the chart below depicts the reduced leverage permitted of issuers in the current marketplace. In contrast to the recent peak of the credit cycle, which was characterized by loose lending practices, we believe that the current environment for newly-issued loans presents an opportunity for investors to receive stronger risk-adjusted returns.

LOGO

Source: S&P Leveraged Commentary & Data

Opportunity in Small and Middle Market Private Companies

In addition to investing in senior secured and second lien secured loans generally, we believe that the market for lending to private companies, particularly small and middle market private companies within the U.S., is underserved and presents a compelling investment opportunity.

Large Target Market

According to The U.S. Census Bureau, in its most recently released economic census in 2002, there were approximately 153,000 small and middle market companies in the U.S. with annual revenues between $10 million and $2.5 billion, compared with approximately 900 companies with revenues greater than $2.5 billion. These smaller and middle market companies represent a significant portion of the growth segment of the U.S. economy and often require substantial capital investment to grow their businesses. In the same economic census mentioned above, The U.S. Census Bureau found that firms in this target market collectively generated $8.7 trillion in revenues and employed 44.3 million people. Small and middle market companies have generated a significant number of investment opportunities for investment programs managed by FB Advisor and GDFM over the past several years, and we believe that this market segment may continue to produce significant investment opportunities for us.

Limited Investment Competition

Despite the size of the market, we believe that financial difficulties and a widespread consolidation in the financial services industry have substantially reduced the number of investment firms and financial institutions lending to small and middle market companies. For example, the Federal Deposit Insurance Corporation reports that the number of federally insured financial institutions declined from approximately 15,200 in 1990 to approximately 7,800 in 2010.

We believe that lending to small and middle market companies, which are often private, generally requires a greater dedication of the lender’s time and resources compared to lending to larger companies, due in part to the smaller size of each investment and the often fragmented nature of information available for disclosure from these companies. Further, many investment firms lack the breadth and scale necessary to track investment opportunities, particularly within the secondary market, in the loans of thousands of small and middle market firms, meaning that attractive investment opportunities are often overlooked. In addition, small and middle market companies may require more active monitoring and participation on the lender’s part. We believe that many large financial organizations, with relatively high cost structures, are not equipped to deal with these factors and instead emphasize services to larger corporate clients and transactions with a consequential reduction in the availability of debt financing to small and middle market companies.

Attractive Market Segment

We believe that the underserved nature of such a large segment of the market can at times create a significant opportunity for investment. In many environments, we believe that small and middle market companies are more likely to offer attractive economics in terms of transaction pricing, up-front and ongoing fees, prepayment penalties and more attractive security features in the form of stricter covenants and quality collateral. Further, due to a lack of coverage at many investment firms, loans to small and middle market firms tend to be priced less efficiently, potentially creating attractive opportunities for investment. In addition, as compared to larger companies, small and middle market companies often have simpler capital structures and carry less leverage, thus aiding the structuring and negotiation process and allowing us greater flexibility in structuring favorable transactions. We believe that these factors often result in advantageous conditions in which to pursue our investment objectives of generating current income and, to a lesser extent, long-term capital appreciation.

Characteristics of and Risks Relating to Investments in Private Companies

We invest primarily in the debt of privately held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. Second, the investments themselves may often be illiquid. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. In addition, little public information generally exists about private companies. Finally, these companies often do not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FB Advisor and/or GDFM to obtain adequate information through their due diligence efforts to evaluate the creditworthiness of, and risks involved in, investing in these companies. These companies and their financial information will also generally not be subject to the Sarbanes-Oxley Act and other rules and regulations that govern public companies that are designed to protect investors.

Investment Strategy

•

market, we focus primarily on investing in companies whose business models and growth prospects offer other attractive exit possibilities, including repayment of our investments, with the potential for capital gain on any equity interests we hold, through an initial public offering of common stock, merger, sale or recapitalization.

Competitive Advantages

We believe that we offer the following competitive advantages to our investors:

Global platform with seasoned investment professionals

FB Advisor’s management team believes that the breadth and depth of its experience, together with the wider resources of GSO’s investment team, which is dedicated to sourcing, structuring, executing, monitoring and realizing upon a broad range of private investments, as well as the specific expertise of GDFM, provides us with a significant competitive advantage in sourcing and analyzing attractive investment opportunities worldwide.

Long-term investment horizon

Unlike most private equity and venture capital funds, we will not be required to return capital to our stockholders once we exit a portfolio investment. Such funds typically can only be invested once and must be returned to investors within a specific time period. These provisions often force private equity and venture capital funds to seek liquidity events, including initial public offerings, mergers, or recapitalizations, more quickly than they otherwise might, potentially resulting in a lower return to investors. We believe that freedom from such capital return requirements, which allows us to invest using a longer-term focus, will provide us with the opportunity to increase total returns on invested capital, compared to other private company investment vehicles.

GDFM transaction sourcing capability

FB Advisor seeks to leverage GDFM’s significant access to transaction flow. GDFM seeks to generate investment opportunities through syndicate and club deals (generally, investments made by a small group of investment firms) and, subject to regulatory constraints as discussed under “Regulation,” also through GSO’s proprietary origination channels. With respect to syndicate and club deals, GDFM has built a network of relationships with commercial and investment banks, finance companies and other investment funds as a result of the long track record of its investment professionals in the leveraged finance marketplace. With respect to GDFM’s origination channel, FB Advisor seeks to leverage the global presence of GSO to generate access to a substantial amount of originated transactions with attractive investment characteristics. We believe that the broad network of GDFM will produce a significant amount of investment opportunities for us. GDFM also has a significant trading platform allowing us access to the secondary loan market for investment opportunities.

Disciplined, income-oriented investment philosophy

FB Advisor and GDFM employ a defensive investment approach focused on long-term credit performance and principal protection. This investment approach involves a multi-stage selection process for each investment opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of credit deterioration. This strategy is designed to maximize current yield and minimize the risk of capital loss while maintaining the potential for long-term capital appreciation. FB Advisor’s approach seeks to produce strong returns concurrent with reduced risk by:

•

focusing on companies it believes to have leading, defensible market positions;

•

engaging in extensive due diligence and credit analysis;

•

committing significant resources to monitor portfolio companies closely after the transaction is closed;

•

participating in transactions sponsored by what it believes to be high-quality private equity firms;

•

investing primarily in companies with proven management teams; and

•

investing in established, stable companies with positive cash flow.

Expertise across all levels of the corporate capital structure

FB Advisor and GDFM believe that their broad expertise and experience at all levels of a company’s capital structure affords us numerous approaches to managing risk while preserving the opportunity for significant returns on our investments. We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that will perform in a broad range of economic conditions.

Operating and Regulatory Structure

Our investment activities are managed by FB Advisor and supervised by our board of directors, a majority of whom are independent. Under our investment advisory and administrative services agreement, we have agreed to pay FB Advisor an annual base management fee based on our gross assets as well as incentive fees based on our performance. See “Investment Advisory and Administrative Services Agreement” for a description of the fees we pay to FB Advisor.

FB Advisor provides us with general ledger accounting, fund accounting, and investor and other administrative services. FB Advisor has contracted with BNY Mellon Asset Servicing (formerly PNC Global Investment Servicing) to provide various accounting and administrative services. FB Advisor has also contracted with Vigilant Compliance Services, LLC to provide us with a chief compliance officer, Salvatore Faia, a principal with that firm.

As a business development company, we are required to comply with certain regulatory requirements. Also, while we are permitted to finance investments using debt, our ability to use debt will be limited in certain significant respects. Within the limits of existing regulation, we will adjust our use of debt, according to market conditions, to the level we believe will allow us to generate maximum risk-adjusted returns. See “Regulation.” We have elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code.

Investment Types

We focus primarily on investments in debt securities, including senior secured loans, second lien secured loans and, to a lesser extent, mezzanine loans. FB Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure, where returns tend to be stronger in a more stable or growing economy, but less secure in weak economic environments. Below is a diagram illustrating where these investments lie in a typical portfolio company’s capital structure. Senior secured debt is situated at the top of the capital structure, and typically has the first claim on the assets and cash flows of the company, followed by second lien secured debt, mezzanine debt, preferred equity and finally common equity. Due to this priority of cash flows, an investment’s risk increases as it moves further down the capital structure. Investors are usually compensated for this risk associated with junior status in the form of higher returns, either through higher interest payments or potentially higher capital appreciation. We rely on FB Advisor’s and GDFM’s experience to structure investments, possibly using all levels of the capital structure, which we believe will perform in a broad range of economic environments.

Typical Leveraged Capital Structure Diagram

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Senior Secured Loans

Senior secured loans are situated at the top of the capital structure. Because these loans have priority in payment, they carry the least risk among all investments in a firm. Generally, our senior secured loans are expected to have maturities of three to seven years, offer some form of amortization, and have first priority security interests in the assets of the borrower. Generally, we expect that the interest rate on our senior secured loans typically will have variable rates ranging between 2.0% and 6.0% over a standard benchmark, such as the prime rate or the London Interbank Offered Rate (LIBOR).

Second Lien Secured Loans

Second lien secured loans are immediately junior to senior secured loans and have substantially the same maturities, collateral and covenant structures as senior secured loans. Second lien secured loans, however, are granted a second priority security interest in the assets of the borrower. In return for this junior ranking, second lien secured loans generally offer higher returns compared to senior secured debt. These higher returns come in the form of higher interest and in some cases the potential for equity participation through warrants, though to a lesser extent than with mezzanine loans. Generally, we expect these loans to carry a fixed or a floating current yield of 4.0% to 8.0% over the prime rate or LIBOR. In addition, we may receive additional returns from any warrants we may receive in connection with these investments.

Mezzanine Loans

In addition to senior secured and second lien secured loans, we also may invest a portion of our assets in mezzanine loans. Mezzanine loans usually rank junior in priority of payment to senior secured loans and second lien secured loans and are often unsecured, but are situated above preferred equity and common stock in the capital structure. In return for their junior status compared to senior secured loans and second lien secured loans, mezzanine loans typically offer higher returns through both higher interest rates and possible equity ownership in the form of warrants, enabling the lender to participate in the capital appreciation of the borrower. These warrants typically require only a nominal cost to exercise. We intend to generally target mezzanine loans with interest-only payments throughout the life of the loan, with the principal due at maturity. Typically, mezzanine loans have maturities of five to ten years. Generally, we expect these loans to carry a fixed or a floating current yield of 6.0% to 12.0% over the prime rate or LIBOR. In addition, we may receive additional returns from any warrants we may receive in connection with these investments. In some cases, a portion of the total interest may accrue or be paid in kind.

Equity and Equity-Related Securities

While we intend to maintain our focus on investments in debt securities, from time to time, when we see the potential for extraordinary gain, or in connection with securing particularly favorable terms in a debt investment, we may enter into non-control investments in preferred or common equity, typically in conjunction with a private equity sponsor we believe to be of high quality. In addition, we typically receive the right to make equity investments in a portfolio company whose debt securities we hold in connection with the next equity financing round for that company. This right will provide us with the opportunity to further enhance our returns over time through equity investments in our portfolio companies. In addition, we may hold equity-related securities consisting primarily of warrants or other equity interests generally obtained in connection with our mezzanine loans. In the future, we may achieve liquidity through a merger or acquisition of a portfolio company, a public offering of a portfolio company’s stock or by exercising our right, if any, to require a portfolio company to repurchase the equity-related securities we hold. With respect to any preferred or common equity investments, we expect to target an annual investment return of at least 25%.

Cash

In addition, we may maintain a certain level of cash or equivalent instruments to make follow-on investments if necessary in existing portfolio companies or to take advantage of new opportunities.

Comparison of Targeted Debt Investments to Corporate Bonds

Loans to private companies are debt instruments that can be compared to corporate bonds to aid an investor’s understanding. As with corporate bonds, loans to private companies can range in credit quality depending on security-specific factors, including total leverage, amount of leverage senior to the security in question, variability in the issuer’s cash flows, the quality of assets securing debt and the degree to which such assets cover the subject company’s debt obligations. As is the case in the corporate bond market, we will require greater returns for securities that we perceive to carry increased risk. The companies in which we invest may be leveraged, often as a result of leveraged buyouts or other recapitalization transactions, and, in certain cases, will not be rated by national rating agencies. We believe that our targeted debt investments typically will carry ratings from an NRSRO, and that such ratings generally will be below investment grade (rated lower than “Baa3” by Moody’s Investors Service or lower than “BBB-” by Standard & Poor’s Corporation). To the extent we make unrated investments, we believe that such investments would likely receive similar ratings if they were to be examined by a NRSRO. Compared to below-investment grade corporate bonds that are typically available to the public, our targeted senior secured and second lien secured loan investments are higher in the capital structure, have priority in receiving payment, are secured by the issuer’s assets, allowing the lender to seize collateral if necessary, and generally exhibit higher rates of recovery in the event of default. Corporate bonds, on the other hand, are often unsecured obligations of the issuer.

The market for loans to private companies possesses several key differences compared to the corporate bond market. For instance, due to a possible lack of debt ratings for certain small and middle market firms, and also due to the reduced availability of information for private companies, investors must conduct extensive due diligence investigations before committing to an investment. This intensive due diligence process gives the investor significant access to management, which is often not possible in the case of corporate bondholders, who rely on underwriters, debt rating agencies and publicly available information for due diligence reviews and monitoring of corporate issuers. While holding these investments, private debt investors often receive monthly or quarterly updates on the portfolio company’s financial performance, along with possible representation on the company’s board of directors, which allows the investor to take remedial action quickly if conditions happen to deteriorate. Due to reduced liquidity, the relative scarcity of capital and extensive due diligence and expertise required on the part of the investor, we believe that private debt securities typically offer higher returns than corporate bonds of equivalent credit quality.

Sources of Income

The primary means through which our stockholders will receive a return of value is through interest income, dividends and capital gains generated by our investments. In addition to these sources of income, we may receive fees paid by our portfolio companies, including one-time closing fees paid at the time each investment is made and monitoring fees paid throughout the term of our investments. Closing fees typically range from 1.0% to 2.0% of the purchase price of an investment, while monitoring fees generally range from 0.25% to 1.0% of the purchase price of an investment annually.

Risk Management

We seek to limit the downside potential of our investment portfolio by:

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applying our investment strategy guidelines for portfolio investments;

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requiring a total return on investments (including both interest and potential appreciation) that adequately compensates us for credit risk;

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diversifying our portfolio, size permitting, with an adequate number of companies, across different industries, with different types of collateral; and

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negotiating or seeking out loans with covenants that protect us while affording portfolio companies flexibility in managing their businesses consistent with preservation of capital.

Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights. We may also enter into interest rate hedging transactions at the sole discretion of FB Advisor. Such transactions will enable us to selectively modify interest rate exposure as market conditions dictate.

Affirmative Covenants

Affirmative covenants require borrowers to take actions that are meant to ensure the solvency of the company, facilitate the lender’s monitoring of the borrower, and ensure payment of interest and loan principal due to lenders. Examples of affirmative covenants include requiring the firm to maintain adequate insurance, accounting and tax records, and to produce frequent financial reports for the benefit of the lender.

Negative Covenants

Negative covenants impose restrictions on the borrower and are meant to protect lenders from actions that the borrower may take that could harm the credit quality of the lender’s investments. Examples of negative covenants include restrictions on the payment of dividends and restrictions on the issuance of additional debt without the lender’s approval. In addition, certain covenants restrict a borrower’s activities by requiring it to meet certain earnings interest coverage ratio and leverage ratio requirements. These covenants are also referred to as financial or maintenance covenants.

Investment Process

The investment professionals employed by FB Advisor and GDFM have spent their careers developing the resources necessary to invest in private companies. Our transaction process is highlighted below.

Our Transaction Process

LOGO

Sourcing

In order to source transactions, FB Advisor seeks to leverage GDFM’s significant access to transaction flow, along with GDFM’s trading platform, which allows for access to the syndicated loan market, a key source of investment opportunities for us. GDFM seeks to generate investment opportunities through its trading platform, through syndicate and club deals and, subject to regulatory constraints, through GSO’s proprietary origination channels. With respect to syndicate and club deals, GDFM has built a network of relationships with commercial and investment banks, finance companies and other investment funds as a result of the long track record of its investment professionals in the leveraged finance marketplace. With respect to GDFM’s origination channel, FB Advisor seeks to leverage the global presence of GSO to generate access to originated transactions with attractive investment characteristics. We believe that the broad network of GDFM will produce a significant pipeline of investment opportunities for us.

Evaluation

Initial Review. In its initial review of an investment opportunity to present to FB advisor, GDFM’s transaction team examines information furnished by the target company and external sources, including rating agencies, if applicable, to determine whether the investment meets our basic investment criteria and other guidelines specified by FB Advisor, within the context of proper portfolio diversification, and offers an acceptable probability of attractive returns with identifiable downside risk. For the majority of loans available on the secondary market, a comprehensive credit analysis is conducted and continuously maintained by a dedicated GDFM research analyst, the results of which are available for the transaction team to review. In the case of a primary loan transaction, FB Advisor and GDFM conduct detailed due diligence investigations as necessary.

Credit Analysis/Due Diligence. Before undertaking an investment, the transaction team conducts a thorough due diligence review of the opportunity to ensure the company fits our investment strategy, which may include:

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a full operational analysis to identify the key risks and opportunities of the target’s business, including a detailed review of historical and projected financial results;

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a detailed analysis of industry dynamics, competitive position, regulatory, tax and legal matters;

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on-site visits, if deemed necessary;

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background checks to further evaluate management and other key personnel;

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a review by legal and accounting professionals, environmental or other industry consultants, if necessary;

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financial sponsor due diligence, including portfolio company and lender reference checks, if necessary; and

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a review of management’s experience and track record.

When possible, our advisory team seeks to structure transactions in such a way that our target companies are required to bear the costs of due diligence, including those costs related to any outside consulting work we may require.

Execution

Recommendation. FB Advisor has engaged GDFM to identify and recommend investment opportunities for its approval. GDFM seeks to maintain a defensive approach toward its investment recommendations by emphasizing risk control in its transaction process, which includes (i) the pre-review of each opportunity by one of its portfolio managers to assess the general quality, value and fit relative to our portfolio, (ii) where possible, transaction structuring with a focus on preservation of capital in varying economic environments and (iii) ultimate approval of investment recommendations by GDFM’s investment committee.

Approval. After completing its internal transaction process, GDFM makes formal recommendations for review and approval by FB Advisor. In connection with its recommendation, it transmits any relevant underwriting material and other information pertinent to the decision-making process. In addition, GDFM makes its staff available to answer inquiries by FB Advisor in connection with its recommendations. The consummation of a transaction requires unanimous approval of the members of FB Advisor’s investment committee.

Monitoring

Portfolio Monitoring. FB Advisor, with the help of GDFM, monitors our portfolio with a focus toward anticipating negative credit events. To maintain portfolio company performance and help to ensure a successful exit, FB Advisor and GDFM work closely with the lead equity sponsor, loan syndicator, portfolio company management, consultants, advisers and other lenders to discuss financial position, compliance with covenants, financial requirements and execution of the company’s business plan. In addition, depending on the size, nature and performance of the transaction, we may occupy a seat or serve as an observer on a portfolio company’s board of directors.

Typically, FB Advisor and GDFM receive financial reports detailing operating performance, sales volumes, margins, cash flows, financial position and other key operating metrics on a quarterly basis from our portfolio companies. FB Advisor and GDFM use these data, combined with due diligence gained through contact with the company’s customers, suppliers, competitors, market research, and other methods, to conduct an ongoing, rigorous assessment of the company’s operating performance and prospects.


Investment Rating		Summary Description

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

FB Advisor monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection with valuing our assets, our board of directors reviews these investment ratings on a quarterly basis. In the event that our board of directors or advisory team determines that an investment is underperforming, or circumstances suggest that the risk associated with a particular investment has significantly increased, they attempt to sell the asset in the secondary market, if applicable, or to implement a plan to attempt to exit the investment or to correct the situation.

The following table shows the distribution of our debt investments on the 1 to 5 investment rating scale at fair value as of December 31, 2010 and 2009 (dollar amounts are presented in thousands):


	December 31, 2010					December 31, 2009
Investment Rating	Investments at Fair Value		Percentage of Portfolio			Investments at Fair Value		Percentage of Portfolio
1	$	38,899		5	%	$	—		—
2		682,861		93	%		98,848		98	%
3		11,384		2	%		—		—
4		436		0	%		1,744		2	%
5		—		—			—		—

	$	733,580		100	%	$	100,592		100	%

Valuation Process. Each quarter, we value investments in our portfolio, and such values are disclosed each quarter in reports filed with the SEC. Investments for which market quotations are readily available are recorded at such market quotations. With respect to investments for which market quotations are not readily available, our board of directors determines the fair value of investments in good faith utilizing the input of our valuation committee, FB Advisor, and the input of any other professionals or materials that our board of directors deems worthy and relevant, including GDFM and independent third-party valuations, if applicable. See “Determination of Net Asset Value.”

Managerial Assistance. As a business development company, we will offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Depending on the nature of the assistance required, FB Advisor or GDFM will provide such managerial assistance on our behalf to portfolio companies that request this assistance. To the extent fees are paid for these services, we, rather than FB Advisor, will retain any fees paid for such assistance.

Exit

Many of our current investments are tradable in a privately negotiated over-the-counter market, providing us a means by which we may exit our positions. We expect that a large portion of our portfolio will continue to be tradable on this secondary market for the foreseeable future, depending on market conditions. For any investments that are not tradable within this market, we focus primarily on investing in companies whose business models and growth prospects offer attractive exit possibilities, including repayment of our investments, with the potential for capital gain on any equity interests we hold, through an initial public offering of common stock, merger, a sale or a recapitalization.

Staffing

We do not currently have any employees. The compensation of our chief compliance officer, Salvatore Faia, is paid by FB Advisor. We will reimburse FB Advisor for the compensation paid to our chief compliance officer and his staff. Mr. Faia is not affiliated with FB Advisor. See “Administrative Services.”

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Each of our executive officers described under “Management,” aside from Mr. Faia, is a principal or officer of FB Advisor, which manages and oversees our investment operations. In the future, FB Advisor may retain additional investment personnel based upon its needs. See “Investment Advisory and Administrative Services Agreement.”

Facilities

Our administrative and principal executive offices are located at Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.

Legal Proceedings

Neither we nor FB Advisor is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or against FB Advisor.

From time to time, we and individuals employed by FB Advisor may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

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DETERMINATION OF NET ASSET VALUE

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

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

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preliminary valuation conclusions are then documented and discussed with our valuation committee;

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Determination of fair values involves subjective judgments and estimates. Accordingly, the notes to our 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. Below is a description of factors that our board of directors may consider when valuing our equity and debt investments.

Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The board of directors, in its analysis of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these

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factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

Determinations in Connection With Offerings

We are offering our shares on a continuous basis at a current offering price of $10.75 per share; however, to the extent that our net asset value increases, we will sell at a price necessary to ensure that shares are not sold at a price per share, after deduction of selling commissions and dealer manager fees, that is below net asset value per share. To the extent that the net asset value per share increases subsequent to the last semi-monthly closing, the price per share may increase. In the event of a material decline in our net asset value per share, which we consider to be a 5% decrease below our current net offering price, and subject to certain conditions, we will reduce our offering price accordingly. Therefore, persons who subscribe for shares of our common stock in this offering must submit subscriptions for a certain dollar amount, rather than a number of shares of common stock and, as a result, may receive fractional shares of our common stock. In connection with each semi-monthly closing on the sale of shares of our common stock offered pursuant to this prospectus on a continuous basis, the board of directors or a committee thereof is required within 48 hours of the time that each closing and sale is made to make the determination that we are not selling shares of our common stock at a price which, after deducting selling commissions and dealer manager fees, is below our then current net asset value per share. The board of directors or a committee thereof will consider the following factors, among others, in making such determination:

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the net asset value of our common stock disclosed in the most recent periodic report we filed with the SEC;

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our management’s assessment of whether any material change in the net asset value has occurred (including through the realization of net gains on the sale of our portfolio investments) from the period beginning on the date of the most recently disclosed net asset value to the period ending two days prior to the date of the closing on and sale of our common stock; and

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the magnitude of the difference between the net asset value disclosed in the most recent periodic report we filed with the SEC and our management’s assessment of any material change in the net asset value since the date of the most recently disclosed net asset value, and the offering price of the shares of our common stock at the date of closing.

Importantly, this determination does not require that we calculate net asset value in connection with each closing and sale of shares of our common stock, but instead it involves the determination by the board of directors or a committee thereof that we are not selling shares of our common stock at a price which, after deducting selling commissions and dealer manager fees, is below the then current net asset value at the time at which the closing and sale is made.

Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price which, after deducting selling commissions and dealer manager fees, is below the then current net asset value of our common stock at the time at which the closing and sale is made or (ii) trigger the undertaking (which we provided to the SEC in the registration statement to which this prospectus is a part) to suspend the offering of shares of our common stock pursuant to this prospectus if the net asset value fluctuates by certain amounts in certain circumstances until the prospectus is amended, the board of directors or a committee thereof will elect, in the case of clause (i) above, either to postpone the closing until such time that there is no longer the possibility of the occurrence of such event or to undertake to determine net asset value within two days prior to any such sale to ensure that such sale will not be at a price which, after deducting selling commissions and dealer manager fees, is below our then current net asset value, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine net asset value to ensure that such undertaking has not been triggered.

In addition, a decline in our net asset value per share to an amount more than 5% below our current offering price, net of selling commissions and dealer manager fees, creates a rebuttable presumption that there has been a material change in the value of our assets such that a reduction in the offering price per share is warranted. This presumption may only be rebutted if our board of directors, in consultation with our management, reasonably and in good faith determines that the decline in net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, rather than a more fundamental shift in the valuation of our portfolio. In the event that (i) net asset value per share decreases to more than 5% below our current net offering price and (ii) our board of directors believes that such decrease in the net asset value per share is the result of a non-temporary movement in the credit markets or the value of our assets, our board of directors will undertake to establish a new net offering price that is not more than 5% above our net asset value per share. If our board of directors determines that the decline in our net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, investors will purchase shares at an offering price per share, net of selling commissions and dealer manager fees, which represents a premium to the net asset value per share of greater than 5%.

These processes and procedures are part of our compliance policies and procedures. Records will be made contemporaneously with all determinations described in this section and these records will be maintained with other records we are required to maintain under the 1940 Act. Promptly following any adjustment to the offering price per share of our common stock offered pursuant to this prospectus, we will update this prospectus by filing a prospectus supplement with the SEC. We will also make updated information available via our website.

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MANAGEMENT

Our business and affairs are managed under the direction of our board of directors. The responsibilities of the board of directors include, among other things, the oversight of our investment activities, the quarterly valuation of our assets, oversight of our financing arrangements and corporate governance activities. The board of directors currently has an audit committee, a valuation committee and a nominating and corporate governance committee, and may establish additional committees from time to time as necessary. Each director will serve until the next annual meeting of stockholders and until his or her successor is duly elected. Although the number of directors may be increased or decreased, a decrease will not have the effect of shortening the term of any incumbent director. Any director may resign at any time and may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast at a meeting called for the purpose of the proposed removal. The notice of the meeting shall indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed.

A vacancy created by an increase in the number of directors or the death, resignation, removal, adjudicated incompetence or other incapacity of a director may be filled only by a vote of a majority of the remaining directors. As provided in our charter, nominations of individuals to fill the vacancy of a board seat previously filled by an independent director will be made by the remaining independent directors.

Board of Directors and Executive Officers

Our board of directors consists of eight members, five of whom are not “interested persons” of us or FB Advisor as defined in Section 2(a)(19) of the 1940 Act. We refer to these individuals as our independent directors. Members of our board of directors will be elected annually at our annual meeting of stockholders. We are prohibited from making loans or extending credit, directly or indirectly, to our directors or executive officers under Section 402 of the Sarbanes-Oxley Act.

Directors

Information regarding our board of directors is set forth below. We have divided the directors into two groups—independent directors and interested directors. The address for each director is c/o FS Investment Corporation, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104.


NAME	AGE		DIRECTOR SINCE		EXPIRATION OF TERM
Interested Directors
Michael C. Forman		50		2008		2011
David J. Adelman		39		2008		2011
Michael Heller		46		2008		2011

Independent Directors
Gregory P. Chandler		44		2008		2011
Barry H. Frank		72		2008		2011
Thomas J. Gravina		49		2009		2011
Jeffrey K. Harrow		54		2010		2011
Paul Mendelson		64		2008		2011

Interested Directors

Michael C. Forman has served as our President and Chief Executive Officer and as Chairman of our board of directors since inception and as the Chief Executive Officer of FB Advisor since its inception. In 2005, Mr. Forman co-founded FB Capital Partners, L.P., an investment firm that invests in private equity, senior and mezzanine debt, and real estate, and has served as managing general partner since inception. In 2007, Mr. Forman co-founded Franklin Square Holdings. Prior to co-founding FB Capital Partners, Mr. Forman spent

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nearly twenty years as an attorney in the Corporate and Securities Department at the Philadelphia based law firm of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, where he was a partner from 1991 until leaving the firm to focus exclusively on investments. In addition to his career as an attorney and investor, Mr. Forman has been an active entrepreneur and has founded several companies, including companies engaged in the gaming, specialty finance and asset management industries. Mr. Forman serves as a member of the board of directors of a number of private companies. He is also a member of a number of civic and charitable boards, including The Franklin Institute, the University of the Arts, the Vetri Foundation for Children, the Executive Committee of the Greater Philadelphia Alliance for Capital and Technologies (PACT), and Murex Investments, Inc., a Pennsylvania-based economic development/venture capital firm, where he chairs the investment committee. Mr. Forman received his B.A., summa cum laude, from the University of Rhode Island, where he was elected Phi Beta Kappa, and received his J.D. from Rutgers University.

David J. Adelman is our Vice Chairman and the Vice Chairman of FB Advisor and, together with Mr. Forman, is responsible for developing and implementing the Company’s investment strategy. Mr. Adelman has significant managerial and investment experience and has served as the president and chief executive officer of Philadelphia-based Campus Apartments, Inc. since 1999. Campus Apartments develops, manages, designs, and privately finances more than 220 upscale housing facilities for colleges and universities across the United States. In 2006, Campus Apartments entered into a $1.1 billion venture with GIC Real Estate Pte Ltd., the real estate investment arm of the Government of Singapore Investment Corporation, in which Campus Apartments uses the venture’s capital to acquire, develop, operate and manage student housing projects across the United States. In addition to his duties as president and chief executive officer of Campus Apartments, Mr. Adelman is the vice chair of University City District Board of Directors, the President of the Apartment Association of Greater Philadelphia, board member of Hyperion Bank and the National Multi Family Council (NMHC), member of the Executive Committee of the Urban Land Institute’s Philadelphia Chapter and a member of the Young President’s Organization. Mr. Adelman is also an active private investor and entrepreneur, having co-founded Franklin Square Holdings with Mr. Forman. Mr. Adelman received his B.A. in Political Science from Ohio State University.

Michael Heller is a shareholder at the law firm of Cozen O’Connor, where he serves as the Chairman of the Firm’s Business Law Department, is a member of its Management Committee and heads the Firm’s Emerging Business and Venture Capital practice group. Mr. Heller is a corporate and securities lawyer whose practice is devoted to representing private equity and venture capital funds as well as counseling entrepreneurs and middle-market businesses in various corporate matters, including the structuring of capital-raising transactions and merger and acquisition transactions. Prior to becoming the Chairman of the Business Law Department in 2006, Mr. Heller served as Vice-Chairman of the Firm’s Business Law Department from 2002 until 2006. Mr. Heller is a member of the Board of Directors of Cozen O’Connor, Hanover Fire and Casualty Insurance Company, a privately held property and casualty insurance company, and Fox Chase Cancer Center. Mr. Heller received a B.S. in Accounting, summa cum laude, from The Pennsylvania State University, and a J.D., magna cum laude, from Villanova University, where he was a Law Review editor and a member of the Order of the Coif.

Independent Directors

Gregory P. Chandler has been Chief Financial Officer of Emtec, Inc. and President of Emtec Global Services Division since May 2009. Previously, he served as Managing Director, Investment Banking, at Janney Montgomery Scott LLC from 1999 to 2009. Prior to this, he was a consultant at PricewaterhouseCoopers, where he assisted companies in a diverse set of industries in the “Office of the CFO Practice” and worked on strategy engagements and larger scale human resources and accounting enterprise software engagements. From 1995 to 1999, he worked as a Certified Public Accountant at Coopers and Lybrand. In his capacity as an auditor there, he was part of the Investment Company practice where he managed audits of mutual funds, hedge funds and venture capital funds. Mr. Chandler also served as a logistics officer with the United States Army for four years. Mr. Chandler’s degrees include a B.S. in Engineering from the United States Military Academy at West Point and an MBA from Harvard Business School. He is also a Certified Public Accountant. Mr. Chandler has been an

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independent director of FS Investment Corporation since 2008 and he is the chair of the Audit Committee. He also serves on the boards of Emtec, Inc., a publicly traded systems integrator, and The Enterprise Center, a not-for-profit entity.

Barry H. Frank is a partner in the law firm of Archer & Greiner, P.C. (formerly Pelino & Lentz, P.C.) where he has been a partner since he joined the firm in February 2003. Prior to joining Archer & Greiner, P.C., Mr. Frank was a partner in the law firm of Schnader, Harrison, Segal & Lewis from May 2000 through January 2003. Previously, Mr. Frank had been a partner in the law firm of Mesirov, Gelman, Jaffe, Cramer & Jamieson from 1987 until 2000, when Mesirov Gelman merged with Schnader. From 1975 through 1987 Mr. Frank was a partner in the law firm of Pechner, Dorfman, Wolfe, Rounick & Cabot. Mr. Frank has focused his practice on business and corporate taxation, business and estate planning. Mr. Frank received a B.S. from Pennsylvania State University and a J.D. from the Temple University School of Law. Mr. Frank served on the Board of Directors of Deb Shops, Inc., formerly listed on NASDAQ, from 1989 through 2007. He also served on the Audit Committee of Deb Shops, Inc. from 1989 through 2007 and was Chairman of the Audit Committee from 1989 through 2003.

Thomas J. Gravina currently serves as Chairman of GPX Enterprises, L.P., a private investment firm, and Chairman of GPX Realty Partners, L.P., a private real estate and investment advisory firm, and has served in such capacity since co-founding both companies in 2005. Mr. Gravina also currently serves as Chairman and Chief Executive Officer of Evolve IP, LLC, a private communications company, which he co-founded in December 2006. Previously, from 2000 to 2005, Mr. Gravina served as President and Chief Executive Officer of ATX Communications, Inc., a publicly traded communications company. Mr. Gravina also served as Chairman of the Board of Directors of ATX Communications from 2005 to 2006. Mr. Gravina led the multi-billion dollar merger in 2000 between publicly traded CoreComm Limited and Voyager.net, and privately held ATX Telecommunications Services, of which he was Co-Chief Executive Officer and Co-Founder since 1987. Mr. Gravina is a member of the Board of Directors and Chairman of the Audit Committee of the Philadelphia College of Osteopathic Medicine and is a member of several other charitable and civic boards. Mr. Gravina received his B.S. in Business Administration from Villanova University.

Jeffrey K. Harrow has been Chairman of Sparks Marketing Group, Inc., or Sparks, since 2001. Mr. Harrow is responsible for both operating divisions of Sparks, which includes Sparks Custom Retail and Sparks Exhibits & Environments, with offices throughout the United States and China. Sparks’ clients include a number of Fortune 500 companies. Prior to joining Sparks, Mr. Harrow served as President and CEO of CMPExpress.com from 1999 to 2000. During Mr. Harrow’s tenure, annual revenues grew from $20 million to $60 million and the employee base grew from 30 to 120 associates. Mr. Harrow created the strategy that allowed CMPExpress.com to move from a Business-to-Consumer marketplace into the Business-to-Business sector. In 2000, Mr. Harrow successfully negotiated the sale of CMPExpress.com to Cyberian Outpost (NASDAQ ticker: COOL). From 1982 through 1998, Mr. Harrow was the President, CEO and a Director of Travel One, a national travel management company. Mr. Harrow was responsible for growing the company from a single office location to more than 100 offices in over 40 cities and to its rank as the 6th largest travel management company in the United States. Under his sales strategy, annual revenues grew from $8 million to just under $1 billion. During this time, Mr. Harrow purchased nine travel companies in strategic cities to complement Travel One’s organic growth. In 1998, Mr. Harrow and his partners sold Travel One to American Express. In addition to serving as a board member of Sparks and Ovation Travel Group, Mr. Harrow’s past directorships include Director of Cherry Hill National Bank, Hickory Travel Systems and the Dean’s Board of Advisors of The George Washington University School of Business. Mr. Harrow is a graduate of The George Washington University School of Government and Business Administration where he received his B.B.A. in 1979.

Paul Mendelson served as the Chief Financial Officer of Lincoln Investment Planning, Inc., a broker-dealer and registered investment adviser, from 1994 until 2011 and currently serves as a Senior Advisor for Business Development for Lincoln Investment. As Chief Financial Officer, Mr. Mendelson was responsible for all financial reporting, controls, planning and regulatory issues. His activities also included acquisitions, consulting with independent branch offices and negotiating contracts, and, as a member of the executive committee, he

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participated in strategic planning. From 1996 to 1999, Mr. Mendelson also led the technology and operations divisions of Lincoln Investment. Prior to joining Lincoln Investment in 1994, Mr. Mendelson spent 20 years in various positions, including controller, chief financial officer, vice president, president and trustee for a group of commonly-owned privately-held businesses, including manufacturing, retail, service and real estate. Prior to this, Mr. Mendelson spent two years with Arthur Anderson and Company, an international public accounting firm. Mr. Mendelson received a B.S. degree in Accounting from Lehigh University and an M.B.A. degree from the Wharton School of the University of Pennsylvania. He is a member of the American Institute of Certified Public Accountants and holds a Series 27 Securities License.

Executive Officers

The following persons serve as our executive officers in the following capacities:


NAME	AGE		POSITIONS HELD
Michael C. Forman		50	President and Chief Executive Officer
Salvatore Faia		48	Chief Compliance Officer
William Goebel		36	Chief Financial Officer
Gerald F. Stahlecker		45	Executive Vice President
Ryan D. Conley		29	Vice President, Treasurer and Secretary

The address for each executive officer is c/o FS Investment Corporation, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104.

Executive Officers Who are Not Directors

Salvatore Faia has been our Chief Compliance Officer since inception. Since 2004, Mr. Faia has served as the president of Vigilant Compliance Services, a full service compliance firm serving mutual funds and the investment industry. In connection with his role as president of Vigilant Compliance Services, he currently serves as chief compliance officer for a number of mutual funds and investment advisers.

From 2002 to 2004, Mr. Faia served as senior legal counsel for PFPC Worldwide, and from 1997 to 2001, he was a partner with Pepper Hamilton LLP. Mr. Faia has extensive experience with mutual funds, hedge funds, investment advisers, broker dealers and the investment management industry. In addition to being an experienced 1940 Act and Advisers’ Act attorney, he is a Certified Public Accountant, and holds various Financial Industry Regulatory Authority Securities Licenses. Mr. Faia is a Member of the Investment Company Institute’s Chief Compliance Officer Committee. Mr. Faia graduated from La Salle University and received his J.D. from the University of Pennsylvania Law School.

William Goebel, CFA, CPA, has served as our Chief Financial Officer since March 2011. Prior to joining the Company, Mr. Goebel held a senior manager audit position with Ernst & Young LLP in the firm’s asset management practice from 2003 to 2011, where he was responsible for the audits of RICs, private investment partnerships, investment advisers and broker-dealers. Mr. Goebel began his career at a regional public accounting firm, Tait, Weller and Baker, in 1997. Mr. Goebel received a B.S. in Economics from the Wharton School of the University of Pennsylvania in 1997. He is a CFA Charterholder and a Certified Public Accountant.

Gerald F. Stahlecker has served as our Executive Vice President since March 2010 and has served as Executive Vice President of FB Advisor and Franklin Square Holdings since January 1, 2010. Mr. Stahlecker was a Director of the Company and served as a member of the Audit Committee and as Chairman of the Valuation Committee from the Company’s inception to December 2009 when he resigned as a Director in order to join our affiliates, FB Advisor and Franklin Square Holdings. Mr. Stahlecker is a former founding partner of Radcliffe Capital Management, L.P., or Radcliffe, an SEC-registered investment advisory firm which manages the Radcliffe Funds, a family of Cayman Islands-based, master-feeder structured hedge funds, as well as

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separately managed accounts for an institutional investor base. Radcliffe pursues convertible arbitrage, high-yield debt, special situations and event-driven investment strategies. From its founding in October 2002 until selling his interest in Radcliffe in July 2009, Mr. Stahlecker served as Managing Director and Chief Operating Officer of Radcliffe and was the co-chair of its investment committee. Prior to co-founding Radcliffe and its affiliated entities, from May 1998 through October 2002, Mr. Stahlecker served as an officer and director of Rose Glen Capital Management, L.P., or Rose Glen, a predecessor to Radcliffe. Rose Glen managed hedge funds focusing on directly negotiated, structured debt and equity investments in public companies. Mr. Stahlecker has extensive experience in structuring and negotiating investment transactions on behalf of investors and issuers and has participated in numerous distressed and special situation restructurings on behalf of investors.

From 1992 to 1998, Mr. Stahlecker was an attorney at Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, a Philadelphia-based law firm, where he practiced corporate and securities law. While at Klehr, Harrison, Mr. Stahlecker represented hedge funds, venture capital funds and other institutional investors pursuing structured equity and debt investments in public and private companies. Prior to attending law school, from 1987 to 1989, Mr. Stahlecker worked as a senior analyst at Furash & Company, a consulting boutique in Washington, D.C., where he advised banks and other financial institutions regarding mergers and acquisitions, restructurings, asset/liability management and strategic planning. Mr. Stahlecker received his B.S. in Industrial Management, with concentrations in Finance and Strategic Planning, from Carnegie Mellon University and his J.D. from Villanova University Law School, where he was an Editor of the Villanova University Environmental Law Journal. Mr. Stahlecker previously served on the Board of Trustees of The Philadelphia School and was a member of its advancement, finance and investment committees.

Ryan D. Conley, CFA, has been our Vice President and Secretary since inception and has served as Treasurer since March 2010. Mr. Conley also serves as Senior Vice President of FB Advisor and Franklin Square Holdings, where he is responsible for product development, investment management and fund operations. From 2006 to 2008, Mr. Conley served as analyst at FB Capital Partners, where he was responsible for evaluating, executing and monitoring income-oriented private equity investments. From 2004 to 2006, Mr. Conley was first an associate, and later a senior associate in the Investment Banking Group at Janney Montgomery Scott LLC, where he was responsible for providing valuation analysis, transaction execution and advisory services to companies in the water and energy industries. His investment and advisory experience includes private equity and debt investments, public equity and debt offerings, mergers, acquisitions and other corporate finance assignments totaling more than $2.5 billion in transaction value. Mr. Conley holds a B.A. in Economics from Swarthmore College and holds the CFA Institute’s Chartered Financial Analyst designation.

Committees of the Board of Directors

Our board of directors has the following committees:

Audit Committee

The audit committee is responsible for selecting, engaging and discharging our independent accountants, reviewing the plans, scope and results of the audit engagement with our independent accountants, approving professional services provided by our independent accountants (including compensation therefore), reviewing the independence of our independent accountants and reviewing the adequacy of our internal controls over financial reporting. The members of the audit committee are Messrs. Chandler, Frank and Gravina, all of whom are independent. Mr. Chandler serves as the chairman of the audit committee. Our board of directors has determined that Mr. Chandler is an “audit committee financial expert” as defined under SEC rules.

Valuation Committee

On December 19, 2008, our board of directors formed the valuation committee, which is currently composed of Messrs. Frank, Heller, Mendelson and Chandler, a majority of whom are independent. Mr. Frank serves as chairman of the valuation committee. The valuation committee establishes guidelines and makes recommendations to our board of directors regarding the valuation of our loans and investments.

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Nominating and Corporate Governance Committee

On January 13, 2011, our board of directors formed the nominating and corporate governance committee, which is currently composed of Messrs. Gravina, Harrow and Heller, a majority of whom are independent. Mr. Gravina serves as chairman of the nominating and corporate governance committee. The committee selects and nominates directors for election by our stockholders, selects nominees to fill vacancies on our board of directors or a committee thereof, develops and recommends to our board of directors a set of corporate governance principles and oversees the evaluation of our board of directors and our management.

Compensation of Directors

The table below sets forth the compensation received by each of our directors from the Company for the fiscal year ended December 31, 2010:


Name of Director	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Gregory P. Chandler	$	42,000		—		—		—		—		—	$	42,000
Barry H. Frank	$	42,000		—		—		—		—		—	$	42,000
Thomas J. Gravina	$	33,000		—		—		—		—		—	$	33,000
Jeffrey K. Harrow⁽¹⁾	$	7,250		—		—		—		—		—	$	7,250
Paul Mendelson	$	32,000		—		—		—		—		—	$	32,000
David J. Adelman		—		—		—		—		—		—		—
Michael C. Forman		—		—		—		—		—		—		—
Michael Heller	$	33,000		—		—		—		—		—	$	33,000

(1)	Mr. Harrow was appointed as a director effective September 1, 2010. Consequently, he did not receive any compensation from us prior to such date.

Prior to meeting our minimum offering requirement, our directors were not entitled to compensation. Subsequent to meeting our minimum offering requirement in January 2009, our directors who do not also serve in an executive officer capacity for us or FB Advisor became entitled to receive an annual cash retainer of $25,000. These directors are Messrs. Chandler, Frank, Gravina, Harrow, Heller and Mendelson.

On March 14, 2011, our board of directors approved, effective as of January 1, 2011, a fee arrangement which applies to those directors who do not also serve in an executive officer capacity for us or FB Advisor. The fee arrangement provides for a sliding scale of annual cash retainer fees, fees for attending board and committee meetings and annual fees for serving as a committee chairperson, determined based on our net asset value as of the end of each fiscal quarter. Amounts payable under the arrangement will be determined and paid quarterly in arrears as follows:


Net Asset Value	Annual Cash Retainer		Board/Committee Meeting Fee		Annual Chairperson Fee
$0 to $100 million	$	0	$	0	$	0
$100 million to $300 million	$	25,000	$	1,000	$	5,000
$300 million to $500 million	$	40,000	$	1,000	$	5,000
$500 million to $1 billion	$	60,000	$	1,500	$	20,000
> $1 billion	$	80,000	$	2,500	$	25,000

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We will also reimburse each of the above directors for all reasonable and authorized business expenses in accordance with our policies as in effect from time to time, including reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and each committee meeting not held concurrently with a board meeting.

We do not pay compensation to our directors who also serve in an executive officer capacity for us or FB Advisor. Our directors waived all compensation and reimbursements through June 30, 2009.

Compensation of Executive Officers

Our executive officers do not receive any direct compensation from us. We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided by individuals who are employees of FB Advisor or by individuals who were contracted by FB Advisor to work on behalf of us, pursuant to the terms of the investment advisory and administrative services agreement. Each of our executive officers is an employee of FB Advisor or an outside contractor, and the day-to-day investment operations and administration of our portfolio are managed by FB Advisor. In addition, we reimburse FB Advisor for our allocable portion of expenses incurred by FB Advisor in performing its obligations under the investment advisory and administrative services agreement, including the allocable portion of the cost of our officers and their respective staffs determined under the investment advisory and administrative services agreement.

Under the terms of the investment advisory and administrative services agreement, there was no liability on our part for the offering or organization costs funded by FB Advisor until the investment advisory and administrative services agreement became effective on January 2, 2009 upon meeting the minimum offering requirement of $2.5 million in gross proceeds from investors who are not affiliated with us or FB Advisor. FB Advisor is entitled to receive 1.5% of gross proceeds raised until all offering costs and organization costs described above and any future offering or organization costs funded by FB Advisor or its affiliates have been recovered. The minimum reimbursement to FB Advisor for such fees is $125,000. We paid the minimum reimbursement of $125,000 to FB Advisor on January 7, 2009. We paid total reimbursements of approximately $1,678,000 to FB Advisor and its affiliates during the year ended December 31, 2010. As of December 31, 2010, we have paid total reimbursements of approximately $3,096,000 to FB Advisor and its affiliates since exceeding the minimum offering requirement. As of December 31, 2010, $641,000 is payable to FB Advisor and its affiliates under this arrangement.

The investment advisory and administrative services agreement provides that FB Advisor and its officers, directors, controlling persons and any other person or entity affiliated with it acting as our agent shall be entitled to indemnification (including reasonable attorneys’ fees and amounts reasonably paid in settlement) for any liability or loss suffered by FB Advisor, and FB Advisor be held harmless for any loss or liability suffered by us, if (i) FB Advisor has determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests, (ii) FB Advisor was acting on behalf of or performing services for us, (iii) the liability or loss suffered was not the result of negligence or misconduct by FB Advisor or an affiliate thereof acting as our agent, and (iv) the indemnification or agreement to hold FB Advisor harmless is only recoverable out of our net assets and not from our stockholders.

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PORTFOLIO MANAGEMENT

The management of our investment portfolio is the responsibility of FB Advisor and its investment committee, which is led by Michael Forman, chief executive officer of FB Advisor and chairman of its investment committee. The other members of FB Advisor’s investment committee are David Adelman, vice chairman of FB Advisor, Gerald Stahlecker and Ryan Conley. For more information regarding the business experience of Messrs. Forman, Adelman, Stahlecker and Conley, see “Management—Board of Directors and Executive Officers.” FB Advisor’s investment committee must unanimously approve each new investment that we make. The members of FB Advisor’s investment committee will not be employed by us, and will receive no compensation from us in connection with their portfolio management activities.

Pursuant to an investment sub-advisory agreement between FB Advisor and GDFM, GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor. In addition, to the extent requested by FB Advisor, GDFM may assist with the monitoring of our portfolio and may make managerial assistance available to certain of our portfolio companies.

Investment Personnel

Our senior staff of investment personnel currently consists of the members of FB Advisor’s investment committee, Messrs. Forman, Adelman, Stahlecker and Conley.

FB Advisor is currently staffed with twelve employees, including the investment personnel noted above. In addition, FB Advisor may retain additional investment personnel in the future based upon its needs.

The table below shows the dollar range of shares of common stock beneficially owned as of March 31, 2011 by each portfolio manager of FB Advisor:


Name of Portfolio Manager		Dollar Range of Equity Securities in FS Investment Corporation⁽¹⁾
Michael C. Forman		Over $1,000,000
David J. Adelman		$100,001 - $500,000
Gerald F. Stahlecker		None
Ryan D. Conley		$10,001 - $50,000

(1)	Dollar ranges are as follows: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001-$500,000, $500,001-$1,000,000, or over $1,000,000.

Investment Personnel of the Sub-adviser

Daniel H. Smith is a senior managing director at Blackstone and is head of GDFM. Mr. Smith joined GSO from the Royal Bank of Canada, or RBC, in July 2005. At RBC, Mr. Smith was a managing partner and head of RBC Capital Partners Debt Investments business, RBC’s alternative investments unit responsible for the management of $2.5 billion in capital and a portfolio of merchant banking investments. Prior to RBC, Mr. Smith worked at Indosuez Capital, a division of Credit Agricole Indosuez, where he was the co-head and managing director responsible for management of the firm’s $4.0 billion in CLOs and a member of the investment committee responsible for a portfolio of private equity co-investments and mezzanine debt investments. Previously, Mr. Smith worked at Van Kampen and Frye Louis Capital Management. Mr. Smith received a Masters degree in Management from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.S. in Petroleum Engineering from the University of Southern California.

Mr. Smith leads GDFM’s team of dedicated investment professionals in providing assistance to FB Advisor pursuant to the investment sub-advisory agreement.

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Lee M. Shaiman is a managing director and senior portfolio manager at GDFM. Mr. Shaiman joined GSO from RBC in July 2005 where he was a managing partner and head of portfolio management and credit research in the Debt Investments group. He is a Certified Public Accountant, licensed in the State of New Jersey. Mr. Shaiman has over 27 years’ experience in leveraged finance, including structuring and placement of senior bank loans and bridge financing, private placements, high yield bonds and equity co-investments. Mr. Shaiman received a Masters of Science in Accounting and Taxation from the Wharton School of the University of Pennsylvania and a B.S. in Economics, cum laude, Phi Beta Kappa, from Rutgers College.

Brad Marshall is a principal and portfolio manager at GDFM. Since joining GSO in 2005, Mr. Marshall has been involved with portfolio management and the ongoing analysis and evaluation of fixed income investment opportunities in the energy and power sectors. Before joining GSO, Mr. Marshall worked in various roles at RBC, including fixed income research and business development within RBC’s private equity funds effort. Prior to his time with RBC, Mr. Marshall helped develop a private equity funds business for TAL Global, a Canadian asset management division of Canadian Imperial Bank of Commerce, and, prior to that, he co-founded a microchip verification software company where he served as chief finance officer. Mr. Marshall received an M.B.A. from McGill University in Montreal where he was an Academic All-Canadian and a B.A. (Honors) in Economics from Queen’s University in Kingston, Canada.

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PORTFOLIO COMPANIES

The following table sets forth certain information as of December 31, 2010, with respect to each company in which we had a debt or equity investment. Other than these investments, our only relationships with our portfolio companies are the managerial assistance we may separately provide to our portfolio companies, which services would be ancillary to our investments, and the board observer or participation rights we may receive. We do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.

For information relating to the value of our investments in our portfolio companies, see our Schedule of Investments at December 31, 2010, at page F-9.


Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
*Senior Secured Loans—First Lien*
1-800 Contacts, Inc. 66 E. Wadsworth Park Drive Draper, UT 84020	1-800 Contacts is a direct-to-consumer retailer of contact lenses.	$	5,233

Advance Pierre Foods, Inc. 9990 Princeton Road Cincinnati, OH 45246	Advance Pierre is a producer of pre-cooked foods sold to schools, fast food restaurants, food distributors and food retailers.	$	4,829

Airvana Network Solutions Inc. 19 Alpha Road Chelmsford, MA 01824	Airvana is a provider of IP-based wireless network infrastructure products.	$	2,356

Alaska Communications Systems Holdings, Inc. 600 Telephone Avenue Anchorage, AK 99503	Alaska Communications is a provider of broadband and other wireline and wireless telecommunications services.	$	3,647

Alliant Holdings LLC 5050 Lincoln Drive Edina, MN 55436	Alliant is a broker of insurance and financial products and services to middle market commercial customers.	$	2,020

Altegrity, Inc. 7799 Leesburg Pike Suite North 1100 Falls Church, VA 22043	Altegrity provides employment screening, drug testing, security staffing and background investigations in North America.	$	7,260

Amscan Holdings, Inc. 80 Grasslands Road Elmsford, NY 10523	Amscan is a designer, manufacturer and distributor of party goods and accessories.	$	6,869

AmWINS Group, Inc. 4725 Piedmont Row Drive Suite 600 Charlotte, NC 28210	AmWINS is a wholesale distributor of specialty insurance products and services in the United States.	$	797

Anchor Glass Container Corp. One Anchor Plaza 4343 Anchor Plaza Parkway Tampa, FL 33634	Anchor Glass is a manufacturer of glass containers and bottles.	$	3,386

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Ardent Health Services LLC One Burton Hills Boulevard Suite 250 Nashville, TN 37215	Ardent Health Services is a regional operator of acute care hospitals in the southwestern United States.	$	7,229

Armstrong World Industries, Inc. 2500 Columbia Avenue Lancaster, PA 17603	Armstrong is a global producer of ceiling products, flooring and cabinets.	$	1,678

Aspect Software, Inc. 300 Apollo Drive Chelmsford, MA 01824	Aspect Software is a provider of communications solutions to the contact center industry.	$	1,967

Atlantic Broadband Finance, LLC 1 Batterymarch Park Suite 405 Quincy, MA 02169	Atlantic Broadband is an operator of cable systems in the eastern United States.	$	1,331

Avaya Inc. 211 Mount Airy Road Basking Ridge, NJ 07920	Avaya is a provider of unified communications, contact centers, data solutions and related services.	$	9,170

BBHI Acquisition LLC 1111 Stewart Avenue Bethpage, NY 11714	BBHI was formed to acquire Bresnan Broadband Holdings, LLC. Bresnan is a cable operator serving customers in Montana, Wyoming, Colorado and Utah.	$	2,043

Bentley Systems Inc. 685 Stockton Drive Exton, PA 19341	Bentley Systems is a provider of comprehensive software solutions for the infrastructure lifecycle.	$	1,771

Burger King Corp. 5505 Blue Lagoon Drive Miami, FL 33126	Burger King is global franchisor of fast food restaurants.	$	6,547

Calumet Lubricants Co., LP 2780 Waterfront Parkway E. Drive Suite 200 Indianapolis, IN 46214	Calumet is an independent refiner that produces specialty fuel products.	$	2,630

Canwest LP 31st Floor TD Center 201 Portage Avenue Winnipeg, Manitoba Canada A6	Canwest is a Canadian media company with operations in the cable television and newspaper industries.	$	7,754

CCC Information Services Inc. 222 Merchandise Mart Plaza Suite 900 Chicago, IL 60654	CCC is a provider of integrated claims management, collision repair and insurance estimating software services.	$	1,562

CDW Corp. 200 N. Milwaukee Avenue Vernon Hills, IL 60061	CDW is a direct marketer of multi-branded information technology products and services.	$	4,978

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Cedar Fair, LP One Cedar Point Drive Sandusky, OH 44870	Cedar Fair is an owner and global operator of amusement resorts.	$	2,927

Cenveo Corp. One Canterbury Green 201 Broad Street Stamford, CT 06901	Cenveo provides printing, publishing and graphics communications services in North America.	$	6,600

Ceridian Corp. 3311 E. Old Shakopee Road Minneapolis, MN 55425	Ceridian provides human resources, payroll and benefit services to companies around the world.	$	6,780

Citgo Petroleum Corp. 1293 Eldridge Parkway Houston, TX 77077	Citgo Petroleum is an independent crude oil refiner and producer of refined products in the United States.	$	6,878

Clopay Ames True Temper Holding Corp. 712 Fifth Avenue 18^th Floor New York, NY 10019	Clopay Ames is a manufacturer of building and outdoor work products.	$	7,903

CMP Susquehanna Corp. 3280 Peachtree Road N.W. Suite 2300 Atlanta, GA 30305	CMP Susquehanna is a radio broadcasting company with operations across the United States.	$	6,267

Contec LLC 1011 State Street Schenectady, NY 12307	Contec is a provider of repair and maintenance services for digital cable set-top boxes in the United States.	$	1,656

ConvaTec Inc. 100 Headquarters Park Drive Skillman, NJ 08558	ConvaTec is a provider of products and product-related services for ostomy care and advanced wound care.	$	2,303

Corel Corp. 385 Ravendale Drive Mountain View, CA 94043	Corel is a global packaged software company.	$	1,313

Cumulus Media Inc. 3280 Peachtree Road N.W. Suite 2300 Atlanta, GA 30305	Cumulus Media owns and operates radio broadcasting stations in mid-size and smaller radio markets.	$	3,748

Custom Building Products, Inc. 13001 Seal Beach Boulevard Seal Beach, CA 90740	Custom Building Products is a manufacturer and distributor of mortar, sealant and related products.	$	2,806

Data Device Corp. 105 Wilbur Place Bohemia, NY 11716	Data Device is a provider of components and software services to the military, commercial and aerospace markets.	$	9,092

DEI Sales, Inc. 1 Viper Way Vista, CA 92081	DEI Sales is a designer and marketer of consumer-branded vehicle security and remote start systems and a supplier of mobile audio products.	$	2,201

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
DineEquity, Inc. 450 S. Brand Boulevard 7^th Floor Glendale, CA 91203	DineEquity is the owner and operator of IHOP and Applebee’s restaurant chains in the United States and internationally.	$	2,412

Dunkin’ Brands, Inc. 130 Royall Street Canton, MA 02021	Dunkin’ Brands is a franchisor of coffee and baked good restaurants and ice cream shops.	$	2,488

Fairmount Minerals, Ltd. P.O. Box 87 11833 Ravenna Road Chardon, OH 44024	Fairmount Minerals is a producer of industrial sand in the United States.	$	6,701

Fifth Third Processing Solutions LLC 38 Fountain Square Plaza 11^th Floor Cincinnati, OH 45263	Fifth Third Processing is a provider of electronic payment processing services.	$	3,695

First Data Corp. 6200 S. Quebec Street Greenwood Village, CO 80111	First Data is a provider of electronic commerce and payment solutions for merchants, financial institutions and card issuers globally.	$	6,622

First Reserve Crestwood Holdings LLC 717 Texas Avenue Suite 3150 Houston, TX 77002	First Reserve is the parent company of Quicksilver Gas Services GP, which gathers and processes natural gas.	$	4,413

Freescale Semiconductor, Inc. 6501 William Cannon Drive West Austin, TX 78735	Freescale Semiconductor is a manufacturer of semiconductors across a spectrum of industries.	$	7,076

General Chemical Corp. 90 E. Halsey Road Parsippany, NJ 07054	General Chemical is a producer of inorganic chemicals to diverse end-use markets.	$	7,557

Getty Images, Inc. 601 N. 34^th Street Seattle, WA 98103	Getty Images is a creator and distributor of imagery, digital footage and music.	$	2,418

Global Tel Link Corp. 2601 Cameron Street Mobile, AL 33607	Global Tel Link is a provider of telecommunication services to correctional facilities in the United States.	$	8,151

Goodman Global, Inc. 5151 San Felipe Suite 500 Houston, TX 77056	Goodman Global is a domestic manufacturer of HVAC products for residential and light commercial use.	$	1,796

Green Mountain Coffee Roasters, Inc. 33 Coffee Lane Waterbury, VT 05676	Green Mountain is a producer of specialty coffees and coffee brewing equipment.	$	1,737

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Green Tree Credit Solutions LLC 345 Saint Peter Street Saint Paul, MN 55102	Green Tree provides third-party servicing for consumer loans.	$	4,303

Grifols, SA Avinguda del la Generalitat 152 - 158 Parc de Negocis Can Sant Joan Sant Cugat del Valles 08174 Barcelona, Spain	Grifols is a producer and distributor of plasma derivative therapies that are used in the treatment of chronic and acute conditions.	$	4,295

Hanger Orthopedic Group, Inc. 10910 Domain Drive Suite 300 Austin, TX 78758	Hanger is a provider of orthotic and prosthetic services and products.	$	1,935

Harbor Freight Tools USA, Inc. 26541 Agoura Road Calabasas, CA 91302	Harbor Freight Tools is a discount catalog retailer of tools and construction equipment.	$	9,830

HarbourVest Partners, LP One Financial Center 44^th Floor Boston, MA 02111	HarbourVest is a global private equity firm.	$	11,526

Harland Clarke Holdings Corp. 10931 Laureate Drive San Antonio, TX 78249	Harland Clarke is a provider of checks and check-related products and services in the United States.	$	2,121

iHealth Technologies, Inc. 115 Perimeter Center Place Suite 700 Atlanta, GA 30346	iHealth is a provider of payment policy management services to health plan administrators.	$	3,564

Infogroup, Inc. 5711 S. 86^th Circle Omaha, NE 68127	Infogroup is a leading provider of marketing solutions across a diverse group of industries.	$	4,563

Intelsat Jackson Holdings SA 4 rue Albert Borschette Luxembourg N4 L-1246	Intelsat is a global provider of fixed satellite services to companies and government agencies.	$	5,609

Interactive Data Corp. 32 Crosby Drive Bedford, MA 01730	Interactive Data provides financial market data, analytics and related solutions to financial institutions.	$	6,651

Intralinks, Inc. 150 E. 42nd Street 8th Floor New York, NY 10017	Intralinks provides hosted, software-as-service workspaces to exchange and manage time-sensitive, confidential information.	$	1,169

KIK Custom Products Inc. 101 Macintosh Boulevard Concord, Ontario Canada L4K 4R5	KIK Custom Products is a custom manufacturer of both national brand and retailer brand consumer products.	$	4,394

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Knology, Inc. 1241 O G Skinner Drive West Point, GA 31833	Knology provides interactive video, voice and data services.	$	1,931

Lantiq Deutschland GmbH Am Campeon 3 85579 Neubiberg, Germany	Lantiq is a provider of broadband communications and semiconductor solutions.	$	5,879

MDA Info Products Ltd. 13800 Commerce Parkway Richmond, British Columbia Canada V6V 2J3	MDA provides property-related information solutions to insurance carriers, real estate attorneys and financial institutions.	$	4,925

MedAssets, Inc. 100 North Point Center East Suite 200 Alpharetta, GA 30022	MedAssets provides supply chain consulting and revenue cycle management services for health systems, hospitals and healthcare providers.	$	1,650

Michael Foods Group, Inc. 301 Carlson Parkway Suite 400 Minnetonka, MN 55305	Michael Foods is a producer and distributor of dairy and potato products.	$	2,490

Mosaic US Holdings Inc. 6051 N. State Highway 161 Irving, TX 75038	Mosaic provides field sales and marketing services in North America.	$	666

NBTY, Inc. 90 Orville Drive Bohemia, NY 11716	NBTY is a manufacturer, marketer, distributor and retailer of vitamins, nutritional supplements and related products worldwide.	$	2,191

NCO Group, Inc. 507 Prudential Road Horsham, PA 19044	NCO Group provides clients with business process outsourcing solutions.	$	3,283

New Development Holdings, LLC (Calpine) 727 Texas Avenue Suite 1000 Houston, TX 77002	Calpine is engaged in the financing, acquisition, ownership and operation of independent power production facilities and wholesale marketing of electricity in the United States and abroad.	$	5,486

OSI Restaurant Partners, LLC 2202 N.W. Shore Boulevard Suite 500 Tampa, FL 33607	OSI Restaurant Partners owns and operates casual dining restaurants in the United States.	$	4,968

Ozburn Hessey Holding Co., LLC 7101 Executive Center Drive Suite 333 Brentwood, TN 37027	Ozburn Hessey is a provider of contract logistic services.	$	6,198

Petco Animal Supplies, Inc. 9125 Rehco Road San Diego, CA 92121	Petco is a specialty retailer of premium pet food and services in the United States.	$	2,901

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Protection One, Inc. 1035 N. Third Street Suite 101 Lawrence, KS 66044	Protection One is a national provider of security alarm services.	$	4,375

RBS Worldpay, Inc. 600 Morgan Falls Road Suite 260 Atlanta, GA 30350	RBS Worldpay is a global payments services business providing merchant acquiring and processing services.	$	1,523

Remy International, Inc. 600 Corporation Drive Pendleton, IN 46064	Remy is a manufacturer of starters and alternators for light and heavy-duty original equipment manufacturers.	$	2,063

RepconStrickland, Inc. 1605 S. Battleground Road La Porte, TX 77571	RepconStrickland engages in the upgrade, repair and maintenance of mission-critical operations in the oil refinery industry.	$	3,595

Res-Care, Inc. 10140 Linn Station Road Louisville, KY 40223	Res-Care is a human services company that provides residential, therapeutic, job training and educational support to people with intellectual or developmental disabilities and other special needs.	$	4,900

Revlon Consumer Products Corp. 237 Park Avenue New York, NY 10017	Revlon is a global producer of cosmetics and beauty care products.	$	6,263

Reynolds & Reynolds Co. One Reynolds Way Kettering, OH 45430	Reynolds & Reynolds is a provider of integrated software solutions for automotive retailers.	$	4,936

Reynolds Group Holdings Inc. Onehunga 4 Henderson Place Auckland, New Zealand	Reynolds Group is a global manufacturer and supplier of consumer food and beverage packaging and storage products.	$	7,934

Rural/Metro Corp. 9221 E. Via de Ventura Scottsdale, AZ 85258	Rural/Metro is a provider of medical ambulance response services and other healthcare- related services.	$	1,466

Sagittarius Restaurants LLC 25521 Commercentre Drive Suite 200 Lake Forest, CA 92630	Sagittarius is the owner, operator and franchisor of Del Taco LLC and Captain D’s LLC.	$	3,052

Savvis, Inc. 1 Savvis Parkway Town & Country, MO 63017	Savvis provides a variety of IT services, including managed hosting, utility computing, collocation, security, network and related professional services.	$	7,230

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
SemGroup Corp. Two Warren Place 6120 S. Yale Avenue Suite 700 Tulsa, OK 74136	SemGroup provides purchasing, selling, processing, transporting and storing services to the energy industry.	$	3,458

Sheridan Production Co., LLC 113111 McCormick Road Suite 260 Hunt Valley, MD 21031	Sheridan is an oil and gas production company focused on acquiring and exploiting a balanced portfolio of oil and gas producing properties in the United States.	$	7,824

Sitel, LLC Two American Center Suite 1000 3102 West End Avenue Nashville, TN 37203	Sitel is a global business process outsourcing provider of customer care and back office processes.	$	5,614

Six Flags Theme Parks, Inc. 924 Avenue J East Grand Prairie, TX 75050	Six Flags is a regional theme park operator in North America.	$	2,724

Smile Brands Group Inc. 8105 Irvine Center Drive Suite 1500 Irvine, CA 92618	Smile Brands is a provider of support services to general and multi-specialty dental offices in the United States.	$	5,877

Smurfit-Stone Container Enterprises, Inc. 222 N. LaSalle Street Chicago, IL 60601	Smurfit-Stone Container is a paper recycler and producer of containerboard products and corrugated containers.	$	6,905

Spansion, LLC 915 Deguigne Drive Sunnyvale, CA 94085	Spansion develops, designs and manufactures flash memory products.	$	5,942

Sports Authority, Inc. 1050 W. Hampden Avenue Englewood, CO 80110	Sports Authority provides a wide assortment of quality, brand-name sporting goods.	$	7,783

Styron Sarl Styron Ashman Center 4520 Ashman Street P.O. Box 1206 Midland, MI 48642	Styron is a diversified chemicals and plastics manufacturing company that serves customers in the automotive, appliances and packaging industries.	$	7,812

Summit Materials Companies I, LLC 2900 K Street N.W. Suite 100 Habourside North Tower Building Washington D.C. 20007	Summit Materials is a building materials company participating in the aggregates, concrete and asphalt industries.	$	4,000

Swift Transportation Co., Inc. 2200 S. 75^th Avenue Phoenix, AZ 85043	Swift is a truckload carrier that hauls freight, such as building materials, paper products and retail merchandise.	$	4,500

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Syniverse Holdings, Inc. 8125 Highwoods Palm Way Tampa, FL 33647	Syniverse is a provider of mobile-roaming, messaging and network services.	$	2,009

Targus Information Corp. 8010 Tower Crescent Drive 5^th Floor Vienna, VA 22182	Targus is a provider of on-demand data and marketing and data analytics.	$	4,900

Telcordia Technologies Inc. One Telcordia Drive Piscataway, NJ 08854	Telcordia Technologies is a global provider of telecommunications software and services.	$	8,024

Texas Competitive Electric Holdings Co. LLC (TXU Corp.) 1601 Bryan Street Dallas, TX 75201	TXU is a privately-held company which generates, distrmibutes and sells electricity largely within the Texas marketplace.	$	7,737

The Gymboree Corp. 500 Howard Street San Francisco, CA 94105	Gymboree is a specialty retailer of apparel and accessories for children.	$	2,128

TNS, Inc. 11480 Commerce Park Drive Suite 600 Reston, VA 20191	TNS is a provider of business critical data communication services to credit card and automated teller machine transaction processors.	$	1,317

Toys“R”Us, Inc. One Geoffrey Way Wayne, NJ 07470	Toys“R”Us is a toy and juvenile products retailer.	$	6,696

Trident Exploration Corp. 444 - 7 Avenue S.W. Suite 1000 Calgary, AB T2P 0XP	Trident Exploration is a natural gas exploration and development company.	$	8,904

Univar Inc. 17425 N.E. Union Hill Road Redmond, WA 98052	Univar is a global distributor of specialty and commodity chemicals and provider of supply-chain management and other services.	$	6,589

Universal Health Services, Inc. 367 S. Gulph Road King of Prussia, PA 19406	Universal Health owns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers.	$	4,930

Vertafore, Inc. 11831 N.E. 195^th Street Bothell, WA 98011	Vertafore is a provider of specialized software solutions and information for the insurance industry.	$	6,827

WCP Exposition Services Operating Co. LLC 139 Campanelli Drive Middleboro, MA 02346	WCP Exposition Services, through its subsidiaries, provides general contracting services for tradeshows and conventions, including booth preparation, material handling, registration and other services.	$	244

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Yell Group Plc Queens Walk, Oxford Road, Reading Berkshire, England RG1 7PT	Yell Group is an international directories business operating in the advertising market through printed, online and phone-based media.	$	675

*Senior Secured Loans—Second Lien*
Advance Pierre Foods, Inc. 9990 Princeton Road Cincinnati, OH 45246	Advance Pierre is a producer of pre-cooked foods sold to schools, fast food restaurants, food distributors and food retailers.	$	4,864

Advantage Sales & Marketing Inc. 18100 Von Karman Avenue Suite 1000 Irvine, CA 92612	Advantage Sales & Marketing is a sales and marketing agency in the United States.	$	9,850

AMN Healthcare Services, Inc. 12400 High Bluff Drive Suite 100 San Diego, CA 92130	AMN Healthcare Services provides healthcare staffing services.	$	9,716

AmWINS Group, Inc. 4725 Piedmont Row Drive Suite 600 Charlotte, NC 28210	AmWINS is a wholesale distributor of specialty insurance products and services in the United States.	$	1,672

Attachmate Corp. 1500 Dexter Avenue North Seattle, WA 98109	Attachmate is a supplier of enterprise solutions that include systems and security management and host connectivity to corporations and government organizations.	$	4,358

Awesome Acquisition Co. 1080 W. Bethel Road Coppell, TX 75019	Awesome Acquisition is the owner of the CiCi’s Pizza restaurant franchise.	$	2,343

BNY ConvergEx Group, LLC 1633 Broadway 48^th Floor New York, NY 10019	BNY ConvergEx is an institutional agency-only broker and financial technology provider.	$	5,925

Carestream Health, Inc. 712 Fifth Avenue 40^th Floor New York, NY 10019	Carestream is a provider of medical and dental imaging products and IT solutions.	$	7,723

Central Parking Systems, Inc. 2401 21^st Avenue South Suite 200 Nashville, TN 37212	Central Parking provides parking management and marketing services to a variety of venues across the United States.	$	199

Datatel, Inc. 4375 Fair Lakes Court Fairfax, VA 22033	Datatel provides enterprise resource planning software to higher education institutions.	$	4,915

Dresser, Inc. 15455 Dallas Parkway Addison, TX 75001	Dresser provides equipment and services for applications in the energy infrastructure market.	$	6,980

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Edwards Ltd. One Highwood Drive Suite 101 Tewksbury, MA 01876	Edwards is a manufacturer and supplier of vacuum pumps and related systems used in manufacturing processes.	$	2,062

FR Brand Acquisition Corp. 1325 Cobb International Drive Suite A-1 Kennesaw, GA 30152	FR Brand Acquisition provides specialty multi-craft services for the downstream energy infrastructure and infrastructure construction markets.	$	6,948

Goodman Global, Inc. 5151 San Felipe Suite 500 Houston, TX 77056	Goodman Global is a domestic manufacturer of HVAC products for residential and light commercial use.	$	6,863

Kronos Inc. 297 Billerica Road Chelmsford, MA 01824	Kronos is a vendor of workforce management solutions.	$	2,919

Roundy’s Supermarkets, Inc. 875 E. Wisconsin Avenue Milwaukee, WI 53202	Roundy’s is a grocery retailer in the upper midwestern United States.	$	10,106

Sedgwick CMS Holdings 1100 Ridgeway Loop Road Memphis, TN 38120	Sedgwick provides claims and productivity management solutions to employers.	$	500

Southern Pacific Resource Co. 1700, 205 - 5 Avenue S.W. Calgary, AB T2P 2V7	Southern Pacific is engaged in the exploration, development and production of in-situ thermal heavy oil and bitumen production.	$	9,700

TPF Generation Holdings (Tenaska Power Fund), LLC 1044 N. 115^th Street Suite 400 Omaha, NE 68154	Tenaska Power Fund invests in a diverse group of energy and power companies and assets in the United States with a focus on the power generation and midstream gas sectors.	$	8,329

Vertafore, Inc. 11831 N.E. 195^th Street Bothell, WA 98011	Vertafore is a provider of specialized software solutions and information for the insurance industry.	$	9,902

Wm. Bolthouse Farms, Inc. 3200 E. Brundage Lane Bakersfield, CA 93304	Bolthouse Farms is a producer of food products including, produce, beverages and salad dressings.	$	8,385

Xerium Technologies, Inc. 8537 Six Forks Road Suite 300 Raleigh, NC 27615	Xerium is a global manufacturer and supplier of specially-engineered consumable products used primarily in the production of paper, paperboard and specific industrial applications.	$	7,701

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)

*Senior Secured Bonds*
Allen Systems Group, Inc. 1333 Third Avenue South Naples, FL 34102	Allen Systems provides software and services for enterprise performance, operations and application management.	$	7,383

First Data Corp. 6200 S. Quebec Street Greenwood Village, CO 80111	First Data is a provider of electronic commerce and payment solutions for merchants, financial institutions and card issuers globally.	$	4,232

Logan’s Roadhouse, Inc. 3011 Armory Drive Suite 300 Nashville, TN 37204	Logan’s Roadhouse owns and operates franchised restaurants across the United States.	$	4,000

Nexstar Broadcasting Group, Inc. 5215 N. O’Connor Boulevard Suite 1400 Irving, TX 75039	Nexstar Broadcasting owns, operates, programs, manages and provides sales and other services to television stations across the United States.	$	4,971

Paetec Holding Corp. 600 WillowBrook Office Park Fairport, NY 14450	Paetec delivers personalized communications solutions and services to business-class customers in the United States.	$	4,809

Roofing Supply Group LLC 3890 W. Northwest Highway Suite 400 Dallas, TX 75220	Roofing Supply Group is a wholesale distributor of roofing supplies and related materials.	$	800

Stallion Oilfield Services Ltd. 950 Corbindale Suite 300 Houston, TX 77024	Stallion provides oilfield wellsite support services and production of auxiliary rentals and services for oil and gas operations in the United States.	$	4,070

*Mezzanine Debt/Other*
Apidos Capital Management 712 Fifth Avenue 12^th Floor New York, NY 10019	Apidos Capital Management is the asset manager of Apidos CDO IV.	$	1,051

Ares Management LLC 1999 Avenue of the Stars Suite 1900 Los Angeles, CA 90067	Ares CLO Management XI is the asset manager of Ares 2007 CLO 11A.	$	3,028

Ares Management LLC 1999 Avenue of the Stars Suite 1900 Los Angeles, CA 90067	Ares CLO Management XI is the asset manager of Ares 2007 CLO 12X.	$	1,743

Aspect Software, Inc. 300 Apollo Drive Chelmsford, MA 01824	Aspect Software is a provider of communications solutions to the contact center industry.	$	4,000

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
ATI Enterprises Inc. 701 W. Highlander Suite 200 Arlington, TX 76015	ATI is a privately-held, for-profit post-secondary education company that provides diplomas, certificates and associate degrees in a variety of programs.	$	7,908

Aurora Diagnostics, LLC 11025 RCA Center Drive Suite 300 Palm Beach Gardens, FL 33410	Aurora is a specialized diagnostics company providing services that play a key role in the diagnosis of cancer and other diseases.	$	8,000

Blue Mountain Capital Management 280 Park Avenue 5^th Floor East New York, NY 10017	Blue Mountain Capital Management is the asset manager of Blue Mountain CLO III.	$	869

Bresnan Broadband Holdings LLC 1111 Stewart Avenue Bethpage, NY 11714-3581	Bresnan is a cable operator serving customers in Montana, Wyoming, Colorado and Utah.	$	5,000

Cincinnati Bell Inc. 201 E. Fourth Street Cincinnati, OH 45202	Cincinnati Bell is a provider of diversified telecommunications services.	$	8,000

Franklin Advisers, Inc. One Franklin Parkway San Mateo, CA 94403-1906	Franklin Advisers is the asset manager of Franklin CLO 6A Class E.	$	1,133

Hughes Network Systems, LLC 11717 Exploration Lane Germantown, MD 20876	Hughes provides broadband satellite networks and services for enterprises, governments, small businesses and consumers.	$	2,072

M&G Investment Management Laurence Pountney Hill London, United Kingdom EC4R 0HH	M&G Investment Management is the asset manager of Base CLO I.	€	960

Mediacom Broadband LLC 100 Crystal Run Road Middletown, NY 10941	Mediacom is a cable television company and cable operator serving smaller cities and regions in the United States.	$	2,029

N.E.W Customer Service Cos., Inc. 22660 Executive Drive Sterling, VA 20166	N.E.W Customer Service is a provider of extended service plans and product protection programs for consumer products.	$	6,867

NBTY, Inc. 90 Orville Drive Bohemia, NY 11716	NBTY is a vertically integrated manufacturer, marketer, distributor and retailer of vitamins, nutritional supplements and related products worldwide.	$	4,700

Neuberger Berman 605 Third Avenue 36^th Floor New York, NY 10158	Lightpoint Capital Management (acquired by Neuberger Berman) is the asset manager of Lightpoint CLO 2006 V.	$	3,012

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Name and Address of Portfolio Company	Nature of its Principal Business	Amortized Cost of Investment (in thousands)
Neuberger Berman 605 Third Avenue 36^th Floor New York, NY 10158	Lightpoint Capital Management (acquired by Neuberger Berman) is the asset manager of Lightpoint CLO 2007 VII.	$	2,182

Octagon Credit Investors, LLC 245 Park Avenue 16^th Floor New York, NY 10167	Octagon Credit Investors is the asset manager of Octagon CDO 2007 1A Class Income.	$	2,774

Paetec Holding Corp. 600 WillowBrook Office Park Fairport, NY 14450	Paetec delivers personalized communications solutions and services to business-class customers in the United States.	$	3,868

Seix Advisors 10 Mountainview Road, C-200 Upper Saddle River, NJ 07458	Seix Advisors is the asset manager of Mountain View CLO II Class Preferred.	$	7,272

Univar Inc. 17425 N.E. Union Hill Road Redmond, WA 98052	Univar is a global distributor of specialty and commodity chemicals and provider of supply-chain management and other services.	$	2,940

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INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT

Overview of FB Advisor

Management Services and Responsibilities

FB Advisor is registered as an investment adviser under the Advisers Act and serves as our investment adviser pursuant to the investment advisory and administrative services agreement in accordance with the 1940 Act. Subject to the overall supervision of our board of directors, FB Advisor oversees our day-to-day operations and provides us with investment advisory services. Under the terms of the investment advisory and administrative services agreement, FB Advisor:

•

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

•

determines what securities we will purchase, retain or sell;

•

identifies, evaluates, negotiates and structures the investments we make; and

•

executes, monitors and services the investments we make.

FB Advisor’s services under the investment advisory and administrative services agreement may not be exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. In addition, FB Advisor performs certain administrative services under the investment advisory and administrative services agreement. See “Administrative Services.”

Advisory Fees

We pay FB Advisor a fee for its services under the investment advisory and administrative services agreement consisting of two components—a base management fee and an incentive fee. The cost of both the base management fee payable to FB Advisor and any incentive fees it earns are ultimately borne by our stockholders.

Base Management Fee

The base management fee is calculated at an annual rate of 2.0% of our average gross assets. The base management fee is payable quarterly in arrears and is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters. The base management fee may or may not be taken in whole or in part at the discretion of FB Advisor. All or any part of the base management fee not taken as to any quarter shall be deferred without interest and may be taken in such other quarter as FB Advisor shall determine. The base management fee for any partial month or quarter will be appropriately pro rated.

Incentive Fee

The incentive fee has three parts. The first part, which we refer to as the subordinated incentive fee on income, will be calculated and payable quarterly in arrears based upon our “pre-incentive fee net investment income” for the immediately preceding quarter. The subordinated incentive fee on income will be subject to a quarterly preferred return to investors, expressed as a rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, of 2.0% (8.0% annualized), subject to a “catch up” feature. 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 we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses reimbursed to FB Advisor under the investment advisory and administrative services

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agreement 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, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have 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. The calculation of the subordinated incentive fee on income for each quarter is as follows:

•

No incentive fee is payable to FB Advisor in any calendar quarter in which our pre-incentive fee net investment income does not exceed the preferred return rate of 2.0%, or the preferred return;

•

100% of our pre-incentive fee net investment income, if any, that exceeds the preferred return but is less than or equal to 2.5% in any calendar quarter (10.0% annualized) is payable to FB Advisor. We refer to this portion of our pre-incentive fee net investment income (which exceeds the preferred return but is less than or equal to 2.5%) as the “catch-up.” The “catch-up” provision is intended to provide FB Advisor with an incentive fee of 20.0% on all of our pre-incentive fee net investment income when our pre-incentive fee net investment income reaches 2.5% in any calendar quarter; and

•

20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.5% in any calendar quarter (10.0% annualized) is payable to FB Advisor once the preferred return is reached and the catch-up is achieved (20.0% of all pre-incentive fee net investment income thereafter is allocated to FB Advisor).

The following is a graphical representation of the calculation of the income-related portion of the incentive fee:

Quarterly Subordinated Incentive Fee on Income

Pre-incentive fee net investment income

(expressed as a percentage of adjusted capital)

Percentage of pre-incentive fee net investment income allocated to income-related portion of incentive fee

These calculations will be appropriately pro rated for any period of less than three months and adjusted, if appropriate, for any equity capital raises or repurchases during the current calendar quarter.

The third part of the incentive fee, which we refer to as the subordinated liquidation incentive fee, will equal 20.0% of the net proceeds from a liquidation of the company in excess of adjusted capital, as calculated immediately prior to liquidation.

All percentages are based on average adjusted capital as defined above.

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Example 1: Subordinated Incentive Fee on Income for Each Calendar Quarter

Scenario 1

Assumptions

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

Preferred return⁽¹⁾ = 2.0%

Base management fee⁽²⁾ = 0.5%

Other expenses (legal, accounting, custodian, transfer agent, etc.)⁽³⁾ = 0.2%

Pre-incentive fee net investment income

(investment income—(base management fee + other expenses) = 0.55%

Pre-incentive fee net investment income does not exceed the preferred return rate, therefore there is no subordinated incentive fee on income payable.

Scenario 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.9%

Preferred return⁽¹⁾ = 2.0%

Base management fee⁽²⁾ = 0.5%

Other expenses (legal, accounting, custodian, transfer agent, etc.)⁽³⁾ = 0.2%

Pre-incentive fee net investment income

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

Subordinated incentive fee on income = 100% × pre-incentive fee net investment income (subject to “catch-up”)⁽⁴⁾


		= 100% x (2.2% – 2.0%)
		= 0.2%

Pre-incentive fee net investment income exceeds the preferred return rate, but does not fully satisfy the “catch-up” provision, therefore the subordinated incentive fee on income is 0.2%.

Scenario 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.5%

Preferred return⁽¹⁾ = 2.0%

Base management fee⁽²⁾ = 0.5%

Other expenses (legal, accounting, custodian, transfer agent, etc.)⁽³⁾ = 0.2%

Pre-incentive fee net investment income

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

Catch up = 100% × pre-incentive fee net investment income (subject to “catch-up”)⁽⁴⁾

Subordinated incentive fee on income = 100% × “catch-up” + (20.0% × (pre-incentive fee net investment income - 2.5%))


Catch up		= 2.5% – 2.0%
		= 0.5%

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Subordinated incentive fee on income = (100% × 0.5%) + (20.0% × (2.8% – 2.5%))


		= 0.5% + (20% × 0.3%)
		= 0.5% + 0.06%
		= 0.56%

Pre-incentive fee net investment income exceeds the preferred return and fully satisfies the “catch-up” provision, therefore the subordinated incentive fee on income is 0.56%.

(1)	Represents 8.0% annualized preferred return.

(2)	Represents 2.0% annualized base management fee on average gross assets. Examples assume assets are equal to adjusted capital.

(3)	Excludes organizational and offering expenses.

(4)	The “catch-up” provision is intended to provide FB Advisor with an incentive fee of 20.0% on all pre-incentive fee net investment income when our net investment income exceeds 2.5% in any calendar quarter.

Example 2: Incentive Fee on Capital Gains During Operations

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 incentive fee on capital gains during operations would be:

Year 1: None

Year 2: Incentive fee on capital gains during operations of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20.0%)

Year 3: None g $5 million (20.0% multiplied by ($30 million cumulative realized capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)

Year 4: Incentive fee on capital gains during operations of $200,000 g $6.2 million ($31 million cumulative realized capital gains multiplied by 20.0%) less $6 million (incentive fee on capital gains during operations 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 $35 million

Year 5: Investment B sold for $20 million

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The capital gains incentive fee, if any, would be:

Year 1: None

Year 2: $5 million incentive fee on capital gains during operations g 20.0% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B)

Year 3: $1.4 million incentive fee on capital gains during operations g $6.4 million (20.0% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million incentive fee on capital gains during operations received in Year 2

Year 4: None

Year 5: None g $5 million (20.0% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative incentive fee on capital gains during operations paid in Year 2 and Year 3

Example 3: Subordinated Liquidation Incentive Fee

Scenario 1

Assumptions

Year 1: Gross offering proceeds total $85 million. $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 $25 million and all proceeds, net of any capital gains incentive fees payable, are returned to stockholders. FMV of Investment B determined to be $30 million and FMV of Investment C determined to be $27 million.

Year 3: FMV of Investment B determined to be $31 million. FMV of Investment C determined to be $20 million.

Year 4: FMV of Investment B determined to be $35 million. FMV of Investment C determined to be $25 million.

Year 5: Investments B and C sold in an orderly liquidation for total proceeds of $55 million. All proceeds, net of any capital gains incentive fees payable, are returned to stockholders.

The capital gains incentive fee, if any, would be:

Year 1: None

Year 2: $1 million incentive fee on capital gains during operations g 20.0% multiplied by a realized gain of $5 million (no unrealized depreciation or realized losses occurred). Adjusted capital now equals $61 million ($85 million gross proceeds less $24 million returned to stockholders from the sale of portfolio investments).

Year 3: None

Year 4: None

Year 5: No subordinated liquidation incentive fee due g Liquidation proceeds of $55 million are less than adjusted capital immediately prior to liquidation ($61 million).

Scenario 2

Assumptions

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Year 3: FMV of Investment B determined to be $31 million. FMV of Investment C determined to be $20 million.

Year 4: FMV of Investment B determined to be $35 million. FMV of Investment C determined to be $25 million.

Year 5: Investments B and C sold in an orderly liquidation for total proceeds of $80 million. All proceeds, net of any capital gains incentive fees payable, are returned to stockholders.

The capital gains incentive fee, if any, would be:

Year 1: None

Year 3: None

Year 4: None

Year 5: $3.8 million subordinated liquidation incentive fee g 20.0% multiplied by liquidation proceeds ($80 million) in excess of adjusted capital immediately prior to liquidation ($61 million), or $19 million.

*	The returns shown are for illustrative purposes only. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in the examples above.

Payment of Our Expenses

•

corporate and organizational expenses relating to offerings of our common stock, subject to limitations included in the investment advisory and administrative services agreement;

•

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

•

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

•

investment advisory fees;

•

transfer agent and custodial fees;

•

fees and expenses associated with marketing efforts;

•

federal and state registration fees;

•

federal, state and local taxes;

•

independent directors’ fees and expenses;

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•

costs of proxy statements, stockholders’ reports and notices;

•

fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

•

direct costs such as printing, mailing, long distance telephone and staff;

•

fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws;

•

brokerage commissions for the purchase and sale of our investments; and

•

all other expenses incurred by FB Advisor, GDFM or us in connection with administering our business, including expenses incurred by FB Advisor or GDFM in performing administrative services for us, and the reimbursement of the compensation of our chief compliance officer and other administrative personnel paid by FB Advisor, to the extent they are not controlling persons of FB Advisor or any of its affiliates, subject to the limitations included in the investment advisory and administrative services agreement.

Reimbursement of FB Advisor

We reimburse FB Advisor for the administrative expenses necessary for its performance of services to us, provided that such reimbursement shall be the lower of FB Advisor’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location, and provided further that such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse FB Advisor for any services for which it receives a separate fee, nor for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FB Advisor.

Duration and Termination

The investment advisory and administrative services agreement became effective on January 2, 2009, the date that we met our minimum offering requirement. Unless earlier terminated as described below, the investment advisory and administrative services agreement remains in effect until January 2012 and will remain in effect from year-to-year thereafter 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. In November 2010, the board of directors re-approved the investment advisory and administrative services agreement and extended its term for a period of twelve months commencing January 1, 2011, subject to earlier termination in accordance with its terms. An affirmative vote of the holders of a majority of our outstanding voting securities is also necessary in order to make material amendments to the investment advisory and administrative services agreement.

The investment advisory and administrative services agreement will automatically terminate in the event of its assignment. As required by the 1940 Act, the investment advisory and administrative services agreement provides that we may terminate the agreement without penalty upon 60 days’ written notice to FB Advisor. If FB Advisor wishes to voluntarily terminate the investment advisory and administrative services agreement, it must give stockholders a minimum of 120 days notice prior to termination and must pay all expenses associated with its termination. The investment advisory and administrative services agreement may also be terminated, without penalty, upon the vote of a majority of our outstanding voting securities.

Without the vote of a majority of our outstanding voting securities, our investment advisory and administrative services agreement may not be materially amended, nor may we engage in a merger or other reorganization with FB Advisor. In addition, should we or FB Advisor elect to terminate the investment advisory and administrative services agreement, a new investment adviser may not be appointed without approval of a

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majority of our outstanding common stock, except in limited circumstances where a temporary adviser may be appointed without stockholder consent, consistent with the 1940 Act, for a time period not to exceed 150 days following the date on which the previous contract terminates. FB Advisor may not terminate the investment sub-advisory agreement with GDFM without prior approval from our board of directors.

Prohibited Activities

Our charter prohibits the following activities between us and FB Advisor:

•

We may not purchase or lease assets in which FB Advisor has an interest unless we disclose the terms of the transaction to our stockholders and the terms do not exceed the lesser of cost or fair market value, as determined by an independent expert;

•

FB Advisor may not acquire assets from us unless approved by our stockholders in accordance with our charter;

•

We may not lease assets to FB Advisor unless we disclose the terms of the transaction to our stockholders and such terms are fair and reasonable to us;

•

We may not make any loans to FB Advisor except for the advancement of funds as permitted by our charter;

•

We may not acquire assets in exchange for our stock;

•

We may not pay a commission or fee, either directly or indirectly to FB Advisor, except as otherwise permitted by our charter, in connection with the reinvestment of cash flows from operations and available reserves or of the proceeds of the resale, exchange or refinancing of our assets;

•

FB Advisor may not charge duplicate fees to us; and

•

FB Advisor may not provide financing to us with a term in excess of 12 months.

In addition, the investment advisory and administrative services agreement prohibits FB Advisor from receiving or accepting any rebate, give-up or similar arrangement that is prohibited under federal or state securities laws. FB Advisor is also prohibited from participating in any reciprocal business arrangement that would circumvent provisions of federal or state securities laws governing conflicts of interest or investment restrictions. Finally, FB Advisor is prohibited from entering into any agreement, arrangement or understanding that would circumvent restrictions against dealing with affiliates or promoters under applicable federal or state securities laws.

Indemnification

Our charter and the investment advisory and administrative services agreement provides that FB Advisor and its officers, directors, controlling persons and any other person or entity affiliated with it acting as our agent shall not be entitled to indemnification (including reasonable attorneys’ fees and amounts reasonably paid in settlement) for any liability or loss suffered by the adviser, nor shall FB Advisor be held harmless for any loss or liability suffered by us, unless (i) FB Advisor has determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests, (ii) FB Advisor was acting on behalf of or performing services for us, (iii) the liability or loss suffered was not the result of negligence or misconduct by FB Advisor or an affiliate thereof acting as our agent, and (iv) the indemnification or agreement to hold FB Advisor harmless for any loss or liability suffered by us is only recoverable out of our net assets and not from our stockholders.

Organization of FB Advisor

FB Advisor is a Delaware limited liability company that is registered as an investment adviser under the Advisers Act. The principal address of FB Advisor is c/o FB Income Advisor, LLC, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104.

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Overview of GDFM

GDFM acts as our sub-adviser pursuant to an investment sub-advisory agreement with FB Advisor and is registered as an investment adviser with the SEC under the Advisers Act. GDFM is a Delaware limited liability company with principal offices located at 345 Park Avenue, New York, New York 10017.

Under the terms of the sub-advisory agreement, GDFM assists FB Advisor in managing our portfolio in accordance with our stated investment objectives and policies. This assistance includes making investment recommendations, monitoring and servicing our investments, performing due diligence on prospective portfolio companies, and providing research and other investment advisory services for us. However, all investment decisions are ultimately the responsibility of FB Advisor’s investment committee.

The sub-advisory agreement provides that GDFM will receive a portion of all fees payable to FB Advisor under the investment advisory and administrative services agreement. On an annual basis, GDFM shall receive $0 of the first $500,000 of the fees payable to FB Advisor under the investment advisory and administrative services agreement with respect to each year, $750,000 of the next $750,000 of fees payable to FB Advisor under the investment advisory and administrative services agreement with respect to each year and 50% of all fees in excess of $1,250,000 payable to FB Advisor under the investment advisory and administrative services agreement with respect to each year.

The sub-advisory agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written notice by GDFM or, if our board of directors or the holders of a majority of our outstanding voting securities determine that it should be terminated, by FB Advisor.

Board Approval of the Investment Advisory and Sub-Advisory Agreements

Our investment advisory and administrative services agreement and investment sub-advisory agreement were approved by our board of directors on May 13, 2008 and became effective upon our meeting the minimum offering requirement in January 2009. In November 2010, the board of directors re-approved both the investment advisory and administrative services agreement and the investment sub-advisory agreement and extended their respective terms for a period of twelve months commencing January 1, 2011, subject to earlier termination in accordance with their terms.

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ADMINISTRATIVE SERVICES

FB Advisor is reimbursed for administrative expenses it incurs on our behalf, including general ledger accounting, fund accounting, and investor services. FB Advisor also performs, or oversees the performance of, our corporate operations and 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, FB Advisor assists us in 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 will reimburse FB Advisor for administrative expenses it incurs in performing its obligations.

For a discussion of the indemnification provisions in the investment advisory and administrative services agreement, see “Investment Advisory and Administrative Services Agreement—Indemnification.”

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

We have entered into an investment advisory and administrative services agreement with FB Advisor. Pursuant to the investment advisory and administrative services agreement, we will pay FB Advisor a base management fee and an incentive fee. See “Investment Advisory and Administrative Services Agreement” for a description of how the fees payable to FB Advisor will be determined.

Mr. Forman, our chief executive officer, also serves as chief executive officer of FB Advisor, and Mr. Adelman serves as vice chairman of FB Advisor. In addition, Mr. Forman owns a controlling interest in FB Advisor.

Prior to the occurrence of a liquidity event, all future transactions with affiliates of ours shall be on terms no less favorable than could be obtained from an unaffiliated third party and must be approved by a majority of our directors, including a majority of our independent directors.

Allocation of FB Advisor’s Time

We rely, in part, on FB Advisor to manage our day-to-day activities and to implement our investment strategy. FB Advisor and certain of its affiliates are presently, and plan in the future to continue to be, involved with activities which are unrelated to us. As a result of these activities, FB Advisor, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and other activities in which they are or may become involved. FB Advisor and its employees will devote only as much of their time to our business as FB Advisor and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time. Therefore, FB Advisor, its personnel and certain affiliates may experience conflicts of interest in allocating management time, services and functions among us and any other business ventures in which they or any of their key personnel, as applicable, are or may become involved. This could result in actions that are more favorable to other affiliated entities than to us. However, FB Advisor believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all activities in which they are involved.

Allocation of GDFM’s Time

We rely, in part, on GDFM to assist in identifying investment opportunities and making investment recommendations to FB Advisor. GDFM, its affiliates and their respective members, partners, officers and employees will devote as much of their time to our activities as they deem necessary and appropriate. GDFM and its affiliates are not restricted from forming additional investment funds, from entering into other investment advisory relationships or from engaging in other business activities, even though such activities may be in competition with us and/or may involve substantial time and resources of GDFM. These activities could be viewed as creating a conflict of interest in that the time and effort of the members of GDFM, its affiliates and their officers and employees will not be devoted exclusively to our business but will be allocated between us and the management of the assets of other advisees of GDFM and its affiliates.

Competition

Neither FB Advisor, GDFM nor any of their affiliates are prohibited from advising or managing other investment advisory accounts. FB Advisor may determine it appropriate for us and one or more other investment accounts managed by FB Advisor, GDFM or any of their respective affiliates to participate in an investment opportunity. To the extent we are able to make co-investments with investment accounts managed by FB Advisor, GDFM or their respective affiliates, these co-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among us and the other participating accounts. To mitigate these conflicts, FB Advisor will seek to execute such transactions for all of the participating investment accounts, including us, on a fair and equitable basis, taking into account such factors as the relative amounts of capital available for new investments and the investment programs and portfolio positions of us, the clients for which participation is appropriate and any other factors deemed appropriate.

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Affiliated Dealer Manager

The dealer manager is an affiliate of FB Advisor. This relationship may create conflicts in connection with the dealer manager’s due diligence obligations under the federal securities laws. Although the dealer manager will examine the information in the prospectus for accuracy and completeness, due to its affiliation with FB Advisor, no independent review of us will be made in connection with the distribution of our shares in this offering.

Investments

As a BDC, we may be limited in our ability to invest in any portfolio company in which any fund or other client managed by FB Advisor, GDFM or any of their respective affiliates has an investment. We may also be limited in our ability to co-invest in a portfolio company with any fund or other client managed by FB Advisor, GDFM or one or more of their respective affiliates. We currently are seeking an exemptive order. However, there is no assurance that we will obtain such relief. As a result, we could be limited in our ability to invest in certain portfolio companies in which any fund or other client managed by FB Advisor, GDFM or any of their respective affiliates is investing or is invested.

Appraisal and Compensation

Our charter provides that, in connection with any transaction involving a merger, conversion or consolidation, either directly or indirectly, involving us and the issuance of securities of a surviving entity after the successful completion of such transaction, or “roll-up,” an appraisal of all our assets will be obtained from a competent independent appraiser which will be filed as an exhibit to the registration statement registering the roll-up transaction. Such appraisal will be based on all relevant information and shall indicate the value of our assets as of a date immediately prior to the announcement of the proposed roll-up. The engagement of such independent appraiser shall be for the exclusive benefit of our stockholders. A summary of such appraisal shall be included in a report to our stockholders in connection with a proposed roll-up. All stockholders will be afforded the opportunity to vote to approve such proposed roll-up, and shall be permitted to receive cash in an amount of such stockholder’s pro rata share of the appraised value of our net assets.

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CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

After this offering, no person will be deemed to control us, as such term is defined in the 1940 Act. The following table sets forth, as of March 31, 2011, information with respect to the beneficial ownership of our common stock by:

•

each person known to us to beneficially own more than 5% of the outstanding shares of our common stock;

•

each of our directors and each executive officer; and

•

all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. There is no common stock subject to options that are currently exercisable or exercisable within 60 days of the offering.


	Shares Beneficially Owned as of March 31, 2011
Name	Number of Shares		Percentage⁽¹⁾
Directors and Executive Officers:⁽²⁾

Interested Directors:

Michael C. Forman⁽³⁾		121,311.419		*
David J. Adelman		34,062.857		*
Michael Heller		12,263.172		*

Independent Directors:

Gregory P. Chandler		—		—
Barry H. Frank⁽⁴⁾		45,404.158		*
Thomas J. Gravina		—		—
Jeffrey K. Harrow		—		—
Paul Mendelson		5,677.534		*

Executive Officers:

Gerald F. Stahlecker		—		—
Ryan D. Conley		2,385.510		*
Salvatore Faia		—		—
William Goebel		—		—
All officers and directors as a group (12 persons)		221,104.650		*

*	Less than one percent.

(1)	Based on a total of 59,996,031.148 shares of common stock issued and outstanding on March 31, 2011.

(2)	Unless otherwise indicated, the address of each beneficial owner is c/o FS Investment Corporation, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104.

(3)	Includes 4,231.775 shares held in trust; 6,963.833 shares held by spouse in trust; 1,749.189 shares held for the benefit of minor children in trust; and 6,178.050 shares held in a 401(k) account.

(4)	Includes 21,336.213 shares held in an IRA account; 21,283.282 shares held by spouse in an IRA account; and 2,784.663 shares held in a joint account with spouse.

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The following table sets forth, as of March 31, 2011, the dollar range of our equity securities that are beneficially owned by each of our directors.


Name of Director	Dollar Range of Equity Securities Beneficially Owned^(1)(2)(3)
Interested Directors:

Michael C. Forman		Over $100,000
David J. Adelman		Over $100,000
Michael Heller		Over $100,000

Independent Directors:

Gregory P. Chandler		None
Barry H. Frank		Over $100,000
Thomas J. Gravina		None
Jeffrey K. Harrow		None
Paul Mendelson		$50,001 - $100,000
Paul Mendelson		$50,001 - $100,000

(1)	Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Exchange Act.

(2)	The dollar range of equity securities beneficially owned by our directors is based on an assumed current public offering price of $10.75 per share.

(3)	The dollar range of equity securities beneficially owned are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.

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DISTRIBUTION REINVESTMENT PLAN

We intend to declare ordinary cash distributions on either a semi-monthly or monthly basis and pay such distributions on either a monthly or quarterly basis. We declared our first distribution on January 29, 2009. We have adopted an “opt in” distribution reinvestment plan pursuant to which you may elect to have the full amount of your cash distributions reinvested in additional shares of our stock. Any distributions of our stock pursuant to our distribution reinvestment plan are dependent on the continued registration of our securities or the availability of an exemption from registration in the recipient’s home state. Participants in our distribution reinvestment plan are free to elect or revoke reinstatement in the distribution plan within a reasonable time as specified in the plan. If you do not elect to participate in the plan, you will automatically receive any distributions we declare in cash. For example, if our board of directors authorizes, and we declare, a cash distribution, then if you have “opted in” to our distribution reinvestment plan, you will have your cash distributions reinvested in additional shares of our common stock, rather than receiving the cash distributions. We generally coordinate distribution payment dates so that the same price that is used for the closing date immediately following such distribution payment date will be used to calculate the purchase price for purchasers under our distribution reinvestment plan. In such case, your reinvested distributions will purchase shares at a price equal to 95% of the price that the shares are sold in the offering at the closing immediately following the distribution date. Shares issued pursuant to our distribution reinvestment plan will have the same voting rights as our shares of common stock offered pursuant to this prospectus.

If you wish to receive your distribution in cash, no action will be required on your part to do so. If you are a registered stockholder, you may elect to have your entire distribution reinvested in shares of additional stock by notifying DST Systems, Inc., the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. If you elect to reinvest your distributions in additional shares of stock, the plan administrator will set up an account for shares you acquire through the plan and will hold such shares in non-certificated form. If your shares are held by a broker or other financial intermediary, you may “opt in” to our distribution reinvestment plan by notifying your broker or other financial intermediary of your election.

We intend to use newly issued shares to implement the plan. The number of shares we will issue to you is determined by dividing the total dollar amount of the distribution payable to you by a price equal to 95% of the price that the shares are sold in the offering at the closing immediately following the distribution date.

There are no selling commissions, dealer manager fees or other sales charges to you if you elect to participate in the distribution reinvestment plan. We pay the plan administrator’s fees under the plan.

If you receive your ordinary cash distributions in the form of stock, you generally are subject to the same federal, state and local tax consequences as you would be had you elected to receive your distributions in cash. Your basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable in cash. Any stock received in a distribution will have a holding period for tax purposes commencing on the day following the day on which the shares are credited to your account.

We reserve the right to amend, suspend or terminate the distribution reinvestment plan. We may terminate the plan upon notice in writing mailed to you at least 30 days prior to any record date for the payment of any distribution by us. You may terminate your account under the plan by filling out the transaction request form located at the bottom of your statement and sending it to the plan administrator at FS Investment Services, P.O. Box 219095, Kansas City, Missouri 64121-9095, or by calling the plan administrator at (877) 628-8575.

All correspondence concerning the plan should be directed to the plan administrator by mail at FS Investment Services, P.O. Box 219095, Kansas City, Missouri 64121-9095 or by telephone at (877) 628-8575.

We have filed the complete form of our distribution reinvestment plan with the SEC as an exhibit to the registration statement of which this prospectus is a part. You may obtain a copy of the plan by request to the plan administrator or by contacting us.

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DESCRIPTION OF OUR SECURITIES

The following description is based on relevant portions of the Maryland General Corporation Law and on our charter and bylaws. This summary is not necessarily complete, and we refer you to the Maryland General Corporation Law and our charter and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, for a more detailed description of the provisions summarized below.

Stock

Our authorized stock consists of 500,000,000 shares of stock, par value $0.001 per share, of which 450,000,000 shares are classified as common stock and 50,000,000 shares are classified as preferred stock. There is currently no market for our common stock, and we do not expect that a market for our shares will develop in the future. No stock has been authorized for issuance under any equity compensation plans. Under Maryland law, our stockholders generally will not be personally liable for our debts or obligations.

Set forth below is a chart describing the classes of our securities outstanding as of March 31, 2011:

(1)

(2)

(3)

(4)

Title of Class

Amount
Authorized

Amount Held by Us or
for Our Account

Amount Outstanding
Exclusive of Amount
Under Column (3)

Common Stock

450,000,000

—

59,996,031.148

Common Stock

Under the terms of our charter, all shares of our common stock will have equal rights as to voting and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our board of directors and declared by us out of funds legally available therefor. Except as may be provided by the board of directors in setting the terms of classified or reclassified stock, shares of our common stock will have no preemptive, exchange, conversion or redemption rights and will be freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock will be entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as may be provided by the board of directors in setting the terms of classified or reclassified stock, the holders of our common stock will possess exclusive voting power. There will be no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock will be able to elect all of our directors, provided that there are no shares of any other class or series of stock outstanding entitled to vote in the election of directors, and holders of less than a majority of such shares will be unable to elect any director.

Preferred Stock

Under the terms of our charter, our board of directors, with approval from a majority of our independent directors, is authorized to issue shares of preferred stock in one or more series without stockholder approval. The board has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, distribution rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock.

Preferred stock could be issued with rights and preferences that would adversely affect the holders of common stock. Preferred stock could also be used as an anti-takeover device. Every issuance of preferred stock will be required to comply with the requirements of the 1940 Act. The 1940 Act requires, among other things,

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that (1) immediately after issuance and before any distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if distributions on such preferred stock are in arrears by two years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.

Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses

Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment and which is material to the cause of action.

Despite the above provisions of Maryland law, and in accordance with guidelines adopted by the North American Securities Administrations Association, our charter and the investment advisory and administrative services agreement provide that FB Advisor and its officers, directors, controlling persons and any other person or entity affiliated with it acting as our agent shall not be entitled to indemnification (including reasonable attorneys’ fees and amounts reasonably paid in settlement) for any liability or loss suffered by FB Advisor, nor shall FB Advisor be held harmless for any loss or liability suffered by us, unless (1) FB Advisor has determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests, (2) FB Advisor was acting on behalf of or performing services for us, (3) the liability or loss suffered was not the result of negligence or misconduct by FB Advisor or an affiliate thereof acting as our agent and (4) the indemnification or agreement to hold FB Advisor harmless for any loss or liability suffered by us is only recoverable out of our net assets and not from our stockholders. In accordance with the 1940 Act, we will not indemnify any person for any liability to which such person would be subject by reason of such person’s willful misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

FB Advisor has also entered into a sub-advisory agreement with GDFM. The sub-advisory agreement provides that, in the absence of willful misconduct, bad faith or gross negligence or reckless disregard for its obligations and duties thereunder, GDFM is not liable for any error or judgment or mistake of law or for any loss we suffer. In addition, the sub-advisory agreement provides that GDFM will indemnify us and FB Advisor, and any respective affiliates, for any liability and expenses, including reasonable attorneys’ fees, which we, FB Advisor, or any respective affiliates may sustain as a result of GDFM’s willful misconduct, bad faith, gross negligence, reckless disregard of its duties thereunder or violation of applicable law, including, without limitation, the federal and state securities laws.

Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity against reasonable expenses incurred in the proceeding in which the director or officer was successful. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a

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court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

Our insurance policy does not currently provide coverage for claims, liabilities and expenses that may arise out of activities that the present or former directors or officers of FB Advisor have performed for another entity at our request. There is no assurance that such entities will in fact carry such insurance. However, we note that we do not expect to request the present or former directors or officers of FB Advisor to serve another entity as a director, officer, partner or trustee unless we can obtain insurance providing coverage for such persons for any claims, liabilities or expenses that may arise out of their activities while serving in such capacities.

Provisions of the Maryland General Corporation Law and Our Charter and Bylaws

The Maryland General Corporation Law and our charter and bylaws contain provisions that could make it more difficult for a potential acquirer to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with the board of directors. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.

Election of Directors

As permitted by Maryland law, our directors will be elected by a plurality of all votes cast by holders of the outstanding shares of stock entitled to vote at a meeting at which a quorum is present.

Number of Directors; Vacancies; Removal

Our charter provides that the number of directors will be set by the board of directors in accordance with our bylaws. Our bylaws provide that a majority of our entire board of directors may at any time increase or decrease the number of directors. Our bylaws provide that the number of directors may never be less than one or more than twelve. Except as may be provided by the board of directors in setting the terms of any class or series of preferred stock, and pursuant to an election in our charter as permitted by Maryland law, any and all vacancies on the board of directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.

Under Maryland law, our stockholders may remove a director, with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast in the election of directors.

We currently have a total of eight members of the board of directors, five of whom are independent directors. Our charter provides that a majority of our board of directors must be independent directors except for a period of up to 60 days after the death, removal or resignation of an independent director pending the election of his or her successor.

Action by Stockholders

The Maryland General Corporation Law provides that stockholder action can be taken only at an annual or special meeting of stockholders or by unanimous consent in lieu of a meeting. These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.

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Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals

Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the board of directors and the proposal of business to be considered by stockholders may be made only (a) pursuant to our notice of the meeting, (b) by the board of directors or (c) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the board of directors at a special meeting may be made only (a) pursuant to our notice of the meeting, (b) by the board of directors or (c) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.

The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our board of directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

Calling of Special Meetings of Stockholders

Our bylaws provide that special meetings of stockholders may be called by our board of directors and certain of our officers. In addition, our charter and bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by the secretary of the corporation upon the written request of stockholders entitled to cast 10% or more of the votes entitled to be cast at the meeting.

Approval of Extraordinary Corporate Action; Amendment of Charter and Bylaws

Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless advised by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Under our charter, provided that our directors then in office have approved and declared the action advisable and submitted such action to the stockholders, an action that requires stockholder approval, including a merger, or a sale of all or substantially all of our assets or a similar transaction outside the ordinary course of business, must be approved by the affirmative vote of stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. Notwithstanding the foregoing, (i) amendments to our charter to make our common stock a “redeemable security” or to convert the company, whether by merger or otherwise, from a closed-end company to an open-end company, and (ii) the dissolution of the company each must be approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter.

Our charter and bylaws provide that the board of directors will have the exclusive power to make, alter, amend or repeal any provision of our bylaws.

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Our charter provides that approval by a majority of our stockholders is needed for the following actions:

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Amend the investment advisory and administrative services agreement; and

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Removal of FB Advisor and election of a new investment adviser.

Without the approval of a majority of our stockholders, FB Advisor may not:

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Amend the investment advisory and administrative services agreement except for amendments that would not adversely affect the interests of our stockholders;

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Voluntarily withdraw as our investment adviser unless such withdrawal would not affect our tax status and would not materially adversely affect our stockholders;

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Appoint a new investment adviser;

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Sell all or substantially all of our assets other than in the ordinary course of business; and

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Approve a merger or any other reorganization of FS Investment Corporation.

No Appraisal Rights

In certain extraordinary transactions, the Maryland General Corporation Law provides the right to dissenting stockholders to demand and receive the fair value of their shares, subject to certain procedures and requirements set forth in the statute. Those rights are commonly referred to as appraisal rights. Except with respect to appraisal rights arising in connection with the Control Share Acquisition Act defined and discussed below, as permitted by the Maryland General Corporation Law, and similar rights in connection with a proposed roll-up transaction, our charter provides that stockholders will not be entitled to exercise appraisal rights. See “Certain Relationships and Related Party Transactions—Appraisal and Compensation.”

Control Share Acquisitions

The Maryland General Corporation Law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, which we refer to as the Control Share Acquisition Act. Shares owned by the acquirer, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:

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one-tenth or more but less than one-third;

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one-third or more but less than a majority; or

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a majority or more of all voting power.

The requisite stockholder approval must be obtained each time an acquirer crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

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If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may repurchase for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to repurchase control shares is subject to certain conditions and limitations, including, as provided in our bylaws, compliance with the 1940 Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.

The Control Share Acquisition Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of our shares of stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future. However, we will amend our bylaws to be subject to the Control Share Acquisition Act only if the board of directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Control Share Acquisition Act does not conflict with the 1940 Act.

Business Combinations

Under Maryland law, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder, which we refer to as the Business Combination Act. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

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any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or

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an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under this statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

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The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our board of directors has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the board of directors, including a majority of the directors who are not interested persons as defined in the 1940 Act. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or the board of directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Additional Provisions of Maryland Law

Maryland law provides that a Maryland corporation that is subject to the Exchange Act and has at least three outside directors can elect by resolution of the board of directors to be subject to some corporate governance provisions that may be inconsistent with the corporation’s charter and bylaws. Under the applicable statute, a board of directors may classify itself without the vote of stockholders. A board of directors classified in that manner cannot be altered by amendment to the charter of the corporation. Further, the board of directors may, by electing into applicable statutory provisions and notwithstanding the charter or bylaws:

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provide that a special meeting of stockholders will be called only at the request of stockholders entitled to cast at least a majority of the votes entitled to be cast at the meeting;

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reserve for itself the right to fix the number of directors;

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provide that a director may be removed only by the vote of the holders of two-thirds of the stock entitled to vote;

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retain for itself sole authority to fill vacancies created by the death, removal or resignation of a director; and

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provide that all vacancies on the board of directors may be filled only by the affirmative vote of a majority of the remaining directors, in office, even if the remaining directors do not constitute a quorum.

In addition, if the board is classified, a director elected to fill a vacancy under this provision will serve for the balance of the unexpired term instead of until the next annual meeting of stockholders. A board of directors may implement all or any of these provisions without amending the charter or bylaws and without stockholder approval. A corporation may be prohibited by its charter or by resolution of its board of directors from electing any of the provisions of the statute. We are not prohibited from implementing any or all of the statute.

Pursuant to our charter, we have elected to be subject to a specific provision of the statute such that, at all times that we are eligible to make that election, all vacancies on the board of directors resulting from an increase in the size of the board or the death, resignation or removal of a director may be filled only by the affirmative vote of a majority of the remaining directors, even if the remaining directors do not constitute a quorum. That election by our board is subject to applicable requirements of the 1940 Act and subject to any provisions of a class or series of preferred stock established by the board, and provided that independent directors shall nominate replacements for any vacancies among the independent directors’ positions. While certain other of the provisions available for election under the statute are already contemplated by our charter and bylaws, the law would permit our board of directors to override further changes to the charter or bylaws.

Conflict with 1940 Act

Our bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, including the Control Share Acquisition Act (if we amend our bylaws to be subject to such Act) and the Business Combination Act, or any provision of our charter or bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.

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Reports to Stockholders

Within 60 days after each fiscal quarter, we will distribute our quarterly report on Form 10-Q to all stockholders of record. In addition, we will distribute our annual report on Form 10-K to all stockholders within 120 days after the end of each fiscal year. These reports will also be available on our website at www.fsinvestmentcorp.com and on the SEC’s website at www.sec.gov. These reports should not be considered a part of or as incorporated by reference in the prospectus, or the registration statement of which the prospectus is a part.

Promptly following the payment of distributions to all stockholders of record residing in Maryland, we will send information to stockholders regarding the source of such distributions.

Subject to availability, you may authorize us to provide prospectuses, prospectus supplements, annual reports and other information, or documents, electronically by so indicating on your subscription agreement, or by sending us instructions in writing in a form acceptable to us to receive such documents electronically. Unless you elect in writing to receive documents electronically, all documents will be provided in paper form by mail. You must have internet access to use electronic delivery. While we impose no additional charge for this service, there may be potential costs associated with electronic delivery, such as on-line charges. Documents will be available on our website. You may access and print all documents provided through this service. As documents become available, we will notify you of this by sending you an e-mail message that will include instructions on how to retrieve the document. If our e-mail notification is returned to us as “undeliverable,” we will contact you to obtain your updated e-mail address. If we are unable to obtain a valid e-mail address for you, we will resume sending a paper copy by regular U.S. mail to your address of record. You may revoke your consent for electronic delivery at any time and we will resume sending you a paper copy of all required documents. However, in order for us to be properly notified, your revocation must be given to us a reasonable time before electronic delivery has commenced. We will provide you with paper copies at any time upon request. Such request will not constitute revocation of your consent to receive required documents electronically.

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, we have not described tax consequences that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, and financial institutions. This summary assumes that investors hold our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this prospectus and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service, or IRS, regarding this offering. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.

A “U.S. stockholder” generally is a beneficial owner of shares of our common stock who is for U.S. federal income tax purposes:

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A citizen or individual resident of the United States;

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A corporation or other entity treated as a corporation, for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision thereof;

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A trust, if a court in the United States has primary supervision over its administration and one or more U.S. persons have the authority to control all decisions of the trust, or the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

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An estate, the income of which is subject to U.S. federal income taxation regardless of its source.

A “Non-U.S. stockholder” generally is a beneficial owner of shares of our common stock that is not a U.S. stockholder.

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective stockholder that is a partner in a partnership holding shares of our common stock should consult his, her or its tax advisers with respect to the purchase, ownership and disposition of shares of our common stock.

Tax matters are very complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax advisers regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Election to be Taxed as a RIC

We have elected, effective as of the date of our formation, to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any income that we distribute to our stockholders from our tax earnings and profits. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to maintain 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 net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, or the Annual Distribution Requirement.

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Taxation as a Regulated Investment Company

If we:

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maintain our qualification as a RIC; and

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satisfy the Annual Distribution Requirement,

then we will not be subject to 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 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 and on which we paid no federal income tax, or the Excise Tax Avoidance Requirement. We generally will endeavor in each taxable year to avoid any U.S. federal excise tax on our earnings.

In order to maintain our qualification as a RIC for federal income tax purposes, we must, among other things:

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

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derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, 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, or the 90% Income Test; and

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

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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

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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,” or the Diversification Tests.

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amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. 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 forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Regulation—Senior Securities.” 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.

The remainder of this discussion assumes that we maintain our qualification as a RIC and have satisfied the Annual Distribution Requirement.

Taxation of U.S. Stockholders

Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (which is, generally, our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. For taxable years beginning on or prior to December 31, 2012, to the extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions, or Qualifying Dividends, may be eligible for a maximum tax rate of 15%. In this regard, it is anticipated that distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the 15% maximum rate applicable to Qualifying Dividends. Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as “capital gain dividends” will be taxable to a U.S. stockholder as long-term capital gains that are currently taxable at a maximum rate of 15% in the case of individuals, trusts or estates, regardless of the U.S. stockholder’s holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder.

For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of distributions paid for that year, we may, under certain circumstances, elect to treat a distribution that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the distribution in the taxable year in which the distribution is made. However, any distribution declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by our U.S. stockholders on December 31 of the year in which the distribution was declared.

If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment.

A stockholder generally will recognize taxable gain or loss if the stockholder sells or otherwise disposes of his, her or its shares of our common stock. The amount of gain or loss will be measured by the difference

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between such stockholder’s adjusted tax basis in the common stock sold and the amount of the proceeds received in exchange. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the stockholder has held his, her or its shares for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition.

In general, individual U.S. stockholders currently are subject to a maximum federal income tax rate of 15% on their net capital gain (i.e., the excess of realized net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. In addition, for taxable years beginning after December 31, 2012, individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes net income from interest, dividends, annuities, royalties and rents, and net capital gains (other than certain amounts earned from trades or businesses). Corporate U.S. stockholders currently are subject to federal income tax on net capital gain at the maximum 35% rate also applied to ordinary income. Non-corporate stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses for a year, but may carry back such losses for three years or carry forward such losses for five years.

We will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each year’s distributions generally will be reported to the IRS (including the amount of distributions, if any, eligible for the 15% maximum rate). Distributions paid by us generally will not be eligible for the dividends-received deduction or the preferential tax rate applicable to Qualifying Dividends because our income generally will not consist of dividends. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder’s particular situation.

We may be required to withhold federal income tax, or backup withholding, currently at a rate of 28%, from all distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder’s federal income tax liability, provided that proper information is provided to the IRS.

Taxation of Non-U.S. Stockholders

Whether an investment in our shares is appropriate for a Non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in our shares by a Non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisers before investing in our common stock.

Distributions of our investment company taxable income to Non-U.S. stockholders (including interest income and realized net short-term capital gains in excess of realized long-term capital losses, which generally

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would be free of withholding if paid to Non-U.S. stockholders directly) will be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current and accumulated earnings and profits unless an applicable exception applies. If the distributions are effectively connected with a U.S. trade or business of the Non-U.S. stockholder, and, if an income tax treaty applies, attributable to a permanent establishment in the United States, we will not be required to withhold federal tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements, although the distributions will be subject to federal income tax at the rates applicable to U.S. persons. (Special certification requirements apply to a Non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.)

In addition, with respect to certain distributions made to Non-U.S. stockholders in our taxable years beginning before January 1, 2012, no withholding is required and the distributions generally are not subject to federal income tax if (i) the distributions are properly designated in a notice timely delivered to our stockholders as “interest-related dividends” or “short-term capital gain dividends,” (ii) the distributions are derived from sources specified in the Code for such dividends and (iii) certain other requirements are satisfied. No assurance can be given as to whether legislation will be enacted to extend the application of this provision to taxable years beginning on or after January 1, 2012. Currently, we do not anticipate that any significant amount of our distributions would be designated as eligible for this exemption from withholding even if such exemption were extended.

Actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains realized by a Non-U.S. stockholder upon the sale of our common stock, will not be subject to federal withholding tax and generally will not be subject to federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States.

If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a federal income tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a federal income tax return. For a corporate Non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our common stock that are effectively connected to a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable treaty). Accordingly, investment in the shares may not be appropriate for a Non-U.S. stockholder.

Recently enacted legislation that becomes effective after December 31, 2012 generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions that fail to enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners). The types of income subject to the tax include U.S. source interest and dividends and the gross proceeds from the sale of any property that could produce U.S. source interest or dividends. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% withholding on payments to foreign entities that are not financial institutions unless the foreign entity certifies that it does not have a 10% or greater U.S. owner or provides the withholding agent with identifying information on each 10% or greater U.S. owner. When these provisions become effective, depending on the status of a Non-U.S. stockholder and the status of the intermediaries through which they hold their shares, Non-U.S. stockholders could be subject to this 30% withholding tax with respect to distributions on their shares and proceeds from the sale of their shares. Under certain circumstances, a Non-U.S. stockholder might be eligible for refunds or credits of such taxes.

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A Non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of federal tax, may be subject to information reporting and backup withholding of federal income tax on dividends unless the Non-U.S. stockholder provides us or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. stockholder or otherwise establishes an exemption from backup withholding.

Non-U.S. persons should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares.

Failure to Maintain Our Qualification as a RIC

If we were unable to maintain our qualification as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates, regardless of whether we make any distributions to our stockholders. Distributions would not be required, and any distributions would be taxable to our stockholders as ordinary dividend income. To the extent such distributions are paid with respect to a tax year beginning prior to December 31, 2012, and subject to certain additional limitations in the Code, such distributions would be eligible for the 15% maximum rate to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.

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REGULATION

We have elected to be regulated as a business development company under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies 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 business development company 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) 50% of our voting securities.

We will generally not be able to issue and sell our common stock at a price below net asset value per share. See “Risk Factors—Risks Related to Business Development Companies—Regulations governing our operation as a business development company and RIC will 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.” We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.

As a business development company, we are not permitted to invest in any portfolio company in which any fund or other client managed by FB Advisor, GDFM or any of their respective affiliates currently has an investment or to make any co-investments with any fund or other client managed by FB Advisor, GDFM or any of their respective affiliates without an exemptive order from the SEC. We are seeking an exemptive order. However, there is no assurance that we will obtain such relief. As a result, we could be limited in our ability to invest in certain portfolio companies in which any fund or other client managed by FB Advisor, GDFM or any of their respective affiliates is investing or is invested.

Qualifying Assets

Under the 1940 Act, a business development company 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:

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:

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

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

satisfies any of the following:

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;

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iii.

is controlled by a business development company or a group of companies including a business development company and the business development company 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 $4.0 million and capital and surplus of not less than $2.0 million.

Securities of any eligible portfolio company that we control.

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.

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.

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.

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 business development company must have been organized and have its principal place of business in the United States and 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

In order to count portfolio securities as qualifying assets for the purpose of the 70% test, we must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the business development company, through its directors, officers or employees, 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 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 federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. FB Advisor will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

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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 must make provisions to prohibit any distribution to our stockholders or the repurchase of 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 Related to Business Development Companies—Regulations governing our operation as a business development company and RIC will 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 that establishes procedures for personal investments and restricts 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. We have attached our code of ethics as an exhibit to the registration statement of which this prospectus is a part. You may also read and copy the code of ethics at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 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 code of ethics is available on the EDGAR Database on the SEC’s Internet site at www.sec.gov.

Compliance Policies and Procedures

We and FB Advisor 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 FB Advisor. The proxy voting policies and procedures of FB Advisor are set forth below. The guidelines are reviewed periodically by FB Advisor and our non-interested directors, and, accordingly, are subject to change.

Introduction

As an investment adviser registered under the Advisers Act, FB Advisor 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 FB Advisor are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy Policies

FB Advisor will vote proxies relating to our securities in the best interest of its clients’ 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 its clients. Although FB Advisor will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so.

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The proxy voting decisions of FB Advisor are made by the senior officers who are responsible for monitoring each of its clients’ investments. To ensure that its vote is not the product of a conflict of interest, it 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 FB Advisor 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, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104.

Other

We will be periodically examined 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 business development company, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misconduct, 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, which imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. 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.

The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and take actions necessary to ensure that we are in compliance therewith. In addition, we have voluntarily elected to comply with Section 404(b) of the Sarbanes-Oxley Act, and have engaged our independent registered public accounting firm to audit our internal control over financial reporting.

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PLAN OF DISTRIBUTION

General

This is a continuous offering of our shares as permitted by the federal securities laws. We have filed and will continue to file post-effective amendments to the registration statement of which this prospectus is a part, that are subject to SEC review, to allow us to continue this offering for three years. The dealer manager is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell the shares offered. The minimum permitted purchase is $5,000 in shares of our common stock. In January 2009, we raised in excess of $2.5 million from purchasers not affiliated with us or FB Advisor, which satisfied the minimum offering requirement and allowed the offering proceeds to be released from an escrow account in order for us to commence operations.

Prior to April 1, 2010, we accepted subscriptions once a month on the first business day of each month. On April 1, 2010, we began accepting subscriptions on a semi-monthly basis. The dates on which we will accept subscriptions will be the first business day of each month and the first business day following the 15^th day of each month. Shares issued pursuant to our distribution reinvestment plan will typically be issued on the same date that we hold our first of two semi-monthly closings. In addition, in months in which we repurchase shares, we expect to conduct repurchases on the same date that we hold our first of two semi-monthly closings for the sale of shares in this offering.

We are offering our shares on a continuous basis at a current offering price of $10.75 per share; however, to the extent that our net asset value increases, we will sell at a price necessary to ensure that shares are not sold at a price per share, after deduction of selling commissions and dealer manager fees, that is below our net asset value per share. In addition, a decline in our net asset value per share to an amount more than 5% below our current offering price, net of selling commissions and dealer manager fees, creates a rebuttable presumption that there has been a material change in the value of our assets such that a reduction in the offering price per share is warranted. This presumption may only be rebutted if our board of directors, in consultation with our management, reasonably and in good faith determines that the decline in net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, rather than a more fundamental shift in the valuation of our portfolio. In the event that (i) net asset value per share decreases to more than 5% below our current net offering price and (ii) our board of directors believes that such decrease in the net asset value per share is the result of a non-temporary movement in the credit markets or the value of our assets, our board of directors will undertake to establish a new net offering price that is not more than 5% above our net asset value per share. If our board of directors determines that the decline in our net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, investors will purchase shares at an offering price per share, net of selling commissions and dealer manager fees, which represents a premium to the net asset value per share of greater than 5%.

Promptly following any such adjustment to the net offering price per share, we will file a prospectus supplement with the SEC disclosing the adjusted net offering price, and we will also post the updated information on our website at www.fsinvestmentcorp.com. If our board of directors determines that the decline in net asset value per share is the result of a temporary movement in the credit markets or the value of our assets, rather than a more fundamental shift in the valuation of our portfolio, and, as a result, does not adjust our net offering price per share, we will notify investors by issuing a press release and filing it with the SEC as part of a Form 8-K. Prior to February 16, 2011, our offering price was $10.70 per share; prior to February 1, 2011, our offering price was $10.65 per share; prior to January 3, 2011, our offering price was $10.50 per share; prior to November 1, 2010, our offering price was $10.40 per share; and prior to October 1, 2009, our offering price was $10.00 per share.

To purchase shares in this offering, you must complete and sign a subscription agreement (in the form attached to this prospectus as Appendix A) for a specific dollar amount equal to or greater then $5,000 and pay such amount at the time of subscription. You should make your check payable to “UMB Bank, N.A., as agent for FS Investment Corporation.” Subscriptions will be effective only upon our acceptance, and we reserve the right

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to reject any subscription in whole or in part. Pending acceptance of your subscription, proceeds will be deposited into an account for your benefit. See “How to Subscribe.”

About the Dealer Manager

The dealer manager is FS² Capital Partners, LLC. The dealer manager was formed in December 2007 and has a limited prior operating history. The dealer manager registered as a broker-dealer with the SEC and the Financial Industry Regulatory Authority, or FINRA, in December 2007. The dealer manager is an affiliate of FB Advisor. The dealer manager receives compensation for services relating to this offering and provides certain sales, promotional and marketing services to us in connection with the distribution of the shares of common stock offered pursuant to this prospectus. Other than serving as dealer manager for this offering, the dealer manager has no experience acting as a dealer manager for an offering. For additional information about the dealer manager, including information related to its affiliation with us and our adviser, see “Certain Relationships and Related Party Transactions.”

Biographical information regarding P. Cosmo Smith, the president of the dealer manager, is set forth below.

P. Cosmo Smith serves as president of FS² Capital Partners, leading the sales and distribution efforts for this offering. Prior to joining FS² Capital Partners in February 2010, Mr. Smith founded United Advisors, a leading merchant banking and strategy consulting firm where he remains chairman. Mr. Smith served as the Chief Executive Officer of United Advisors from its founding in September 2003 until February 2010. From October 1999 to September 2003, he was Asset International’s principal strategist and led U.S., European and Japanese investor groups in the recapitalization and founding of several businesses which became primary data and information resources for the institutional investment, banking and financial communities. In addition, Mr. Smith has held business development and investment posts with Skandia, CIGNA and J.P. Morgan. He received both his M.B.A. and his B.S. in Business Administration from the University of Connecticut.

Compensation of Dealer Manager and Selected Broker-Dealers

Except as provided below, the dealer manager receives selling commissions of 7.0% of the gross proceeds of shares sold in the offering. The dealer manager also receives a dealer manager fee of 3.0% of the gross offering proceeds as compensation for acting as the dealer manager.

The dealer manager authorizes other broker-dealers that are members of FINRA, which we refer to as selected broker-dealers, to sell our shares. The dealer manager may reallow all of its selling commissions attributable to a selected broker-dealer.

The dealer manager, in its sole discretion, may reallow to any selected broker-dealer a portion of its dealer manager fee for reimbursement of marketing expenses. The amount of the reallowance will be based on such factors as the number of shares sold by the selected broker-dealer, the assistance of the broker-dealer in marketing the offering and due diligence expenses incurred. The maximum aggregate amount of the reallowances of the 3.0% dealer manager fee will be 1.5% of the gross proceeds from shares sold in the offering.

In addition to the payment of selling commissions and the dealer manager fee, we reimburse the dealer manager and selected broker-dealers for bona fide accountable due diligence expenses. We expect to reimburse approximately 0.5% of the gross offering proceeds for accountable due diligence expenses.

We will not pay selling commissions or dealer manager fees on shares sold under our distribution reinvestment plan. The amount that would have been paid as selling commissions and dealer-manager fees if the shares sold under our distribution reinvestment plan had been sold pursuant to this public offering of shares will be retained and used by us. Therefore, the net proceeds to us for sales under our distribution reinvestment plan will be greater than the net proceeds to us for sales pursuant to this prospectus.

Under the rules of FINRA, the maximum compensation payable to members of FINRA participating in this offering may not exceed 10% of our gross offering proceeds. If, upon the termination of the offering, the total

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amount of underwriting compensation paid in connection with the offering exceeds 10% of our gross offering proceeds (excluding proceeds from the sale of shares under our distribution reinvestment plan), then the dealer manager will pay to us an amount equal to the underwriting compensation in excess of 10%.

We have agreed to indemnify the participating broker-dealers, including the dealer manager, against certain liabilities arising under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement. The broker-dealers participating in the offering of shares of our common stock are not obligated to obtain any subscriptions on our behalf, and we cannot assure you that any shares of common stock will be sold.

Our executive officers and directors and their immediate family members, as well as officers and employees of FB Advisor and its affiliates and their immediate family members and other individuals designated by management, and, if approved by our board of directors, joint venture partners, consultants and other service providers, may purchase shares of our common stock in this offering and may be charged a reduced rate for certain fees and expenses in respect of such purchases. Except for certain share ownership and transfer restrictions contained in our charter, there is no limit on the number of shares of our common stock that may be sold to such persons. In addition, the selling commission and the dealer manager fee may be reduced or waived in connection with certain categories of sales, including but not limited to sales for which a volume discount applies, sales to certain institutional investors, sales to employees of selected broker-dealers, sales made by certain selected dealers at the discretion of the dealer manager, sales made to investors whose contract for investment advisory and related brokerage services includes a fixed or “wrap” fee or other asset-based fee arrangement, unless that contract is with a federally registered investment adviser that is dually registered as a broker-dealer and provides financial planning services, sales through banks acting as trustees or fiduciaries and sales to our affiliates. We may also make certain sales directly to these groups designated by management without a broker-dealer intermediary. For such direct sales, all selling commissions and dealer manager fees will be waived. The amount of net proceeds to us will not be affected by reducing or eliminating the selling commissions or the dealer manager fee payable in connection with sales to such institutional investors and affiliates. FB Advisor and its affiliates will be expected to hold their shares of our common stock purchased as stockholders for investment and not with a view towards distribution.

To the extent permitted by law and our charter, we will indemnify the selected broker-dealers and the dealer manager against some civil liabilities, including certain liabilities under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement.

We are offering volume discounts to investors who purchase more than $500,000 worth of our shares through the same selected broker-dealer in our offering. The net proceeds to us from a sale eligible for a volume discount will be the same, but the selling commissions payable to the selected broker-dealer will be reduced. The following table shows the discounted price per share and the reduced selling commissions payable for volume sales of our shares:


Dollar Amount of Shares Purchased	Purchase Price per Incremental Unit in Volume Discount Range⁽¹⁾		Reduced Commission Rate
$ 1 – $ 500,000	$	10.75		7.0	%
$ 500,001 – $ 750,000	$	10.64		6.0	%
$ 750,001 – $1,000,000	$	10.54		5.0	%
$1,000,001 – $2,500,000	$	10.43		4.0	%
$2,500,001 – $5,000,000	$	10.32		3.0	%
$5,000,001 and up	$	10.21		2.0	%

(1)	Assumes a $10.75 per share offering price. Discounts will be adjusted appropriately for changes in the offering price.

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We will apply the reduced selling price per share and selling commissions to the incremental shares within the indicated range only. Thus, for example, assuming a price per share of $10.75, a purchase of $1,250,000 would result in a weighted average purchase price of $10.62 per share as shown below:

•

$500,000 at $10.75 per share (total: 46,511.628 shares) and a 7.0% commission;

•

$250,000 at $10.64 per share (total: 23,489.618 shares) and a 6.0% commission;

•

$250,000 at $10.54 per share (total: 23,730.422 shares) and a 5.0% commission; and

•

$250,000 at $10.43 per share (total: 23,973.916 shares) and a 4.0% commission.

To qualify for a volume discount as a result of multiple purchases of our shares you must use the same selected broker-dealer and you must mark the “Additional Investment” space on the subscription agreement. We are not responsible for failing to combine purchases if you fail to mark the “Additional Investment” space. Once you qualify for a volume discount, you will be eligible to receive the benefit of such discount for subsequent purchases of shares in our offering through the same selected broker-dealer.

To the extent purchased through the same selected broker-dealer, the following persons may combine their purchases as a “single purchaser” for the purpose of qualifying for a volume discount:

•

an individual, his or her spouse, their children under the age of 21 and all pension or trust funds established by each such individual;

•

a corporation, partnership, association, joint-stock company, trust fund or any organized group of persons, whether incorporated or not;

•

an employees’ trust, pension, profit-sharing or other employee benefit plan qualified under Section 401(a) of the Code; and

•

all commingled trust funds maintained by a given bank.

In the event a person wishes to have his or her order combined with others as a “single purchaser,” that person must request such treatment in writing at the time of subscription setting forth the basis for the discount and identifying the orders to be combined. Any request will be subject to our verification that the orders to be combined are made by a single purchaser. If the subscription agreements for the combined orders of a single purchaser are submitted at the same time, then the commissions payable and discounted share price will be allocated pro rata among the combined orders on the basis of the respective amounts being combined. Otherwise, the volume discount provisions will apply only to the order that qualifies the single purchaser for the volume discount and the subsequent orders of that single purchaser.

Only shares purchased in our offering pursuant to this prospectus are eligible for volume discounts. Shares purchased through our distribution reinvestment plan will not be eligible for a volume discount nor will such shares count toward the threshold limits listed above that qualify you for the different discount levels.

Other Discounts

The dealer manager may, at its sole discretion, enter into an agreement with a selected broker-dealer whereby such selected broker-dealer may aggregate subscriptions on part of a combined order for the purpose of offering investors reduced aggregate selling commissions and/or dealer manager fees. The specific terms of any such arrangement will be subject to negotiation between the dealer manager and the selected broker-dealer and will not reduce the amount of net proceeds available to us from the sale of our shares. Any reduction in the selling commissions and dealer manager fees would be prorated among the separate subscribers.

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Transfer on death designation

You have the option of placing a transfer on death, or “TOD,” designation on your shares purchased in this offering. A TOD designation transfers ownership of your shares to your designated beneficiary upon your death. This designation may only be made by individuals, not entities, who are the sole or joint owners with right of survivorship of the shares. However, this option is not available to residents of the states of Louisiana or North Carolina. If you would like to place a TOD designation on your shares, you must check the TOD box on the subscription agreement and you must complete and return the transfer on death form available upon request to us in order to effect the designation.

Supplemental Sales Material

In addition to this prospectus, we intend to use supplemental sales material in connection with the offering of our shares, although only when accompanied by or preceded by the delivery of the prospectus, as supplemented. We will file all supplemental sales material with the SEC prior to distributing such material. The supplemental sales material does not contain all of the information material to an investment decision and should only be reviewed after reading the prospectus. The sales material expected to be used in permitted jurisdictions includes:

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investor sales promotion brochures;

•

cover letters transmitting the prospectus;

•

brochures containing a summary description of the offering;

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fact sheets describing the general nature of FS Investment Corporation and our investment objectives;

•

asset flyers describing our recent investments;

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broker updates;

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online investor presentations;

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third-party article reprints;

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website material;

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electronic media presentations; and

•

client seminars and seminar advertisements and invitations.

All of the foregoing material will be prepared by FB Advisor or its affiliates with the exception of the third-party article reprints, if any. In certain jurisdictions, some or all of such sales material may not be available. In addition, the sales material may contain certain quotes from various publications without obtaining the consent of the author or the publication for use of the quoted material in the sales material.

We are offering shares in this offering only by means of this prospectus. Although the information contained in our supplemental sales materials will not conflict with any of the information contained in the prospectus, as amended or supplemented, the supplemental materials do not purport to be complete and should not be considered a part of or as incorporated by reference in the prospectus, or the registration statement of which the prospectus is a part.

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SUITABILITY STANDARDS

The following are our suitability standards for investors which are required by the Omnibus Guidelines published by the North American Securities Administrators Association in connection with our continuous offering of common shares under the registration statement of which this prospectus is a part.

Pursuant to applicable state securities laws, shares of common stock offered through this prospectus are suitable only as a long-term investment for persons of adequate financial means who have no need for liquidity in this investment. Initially, there is not expected to be any public market for the shares, which means that it may be difficult to sell shares. As a result, we have established suitability standards which require investors to have either (i) a net worth (not including home, furnishings, and personal automobiles) of at least $70,000 and an annual gross income of at least $70,000, or (ii) a net worth (not including home, furnishings, and personal automobiles) of at least $250,000. Our suitability standards also require that a potential investor (1) can reasonably benefit from an investment in us based on such investor’s overall investment objectives and portfolio structuring; (2) is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation; and (3) has apparent understanding of (a) the fundamental risks of the investment, (b) the risk that such investor may lose his or her entire investment, (c) the lack of liquidity of the shares, (d) the background and qualifications of FB Advisor and GDFM, and (e) the tax consequences of the investment.

In addition, we will not sell shares to investors in the states named below unless they meet special suitability standards.

Alabama—Investors must have a net worth of at least 10 times their investment in us and other similar programs.

Arizona—The term of this offering shall be effective for a period of one year with the ability to renew for additional periods of one year.

Iowa—Investors who reside in the state of Iowa must have either (i) a liquid net worth of $85,000 and annual gross income of $85,000 or (ii) a liquid net worth of $300,000. Additionally, an Iowa investor’s total investment in us shall not exceed 10% of his or her net worth.

Kansas—The Office of the Kansas Securities Commissioner recommends that you should limit your aggregate investment in our shares and other similar investments to not more than 10% of your liquid net worth. Liquid net worth is that portion of your total net worth (assets minus liabilities) that is comprised of cash, cash equivalents and readily marketable securities.

Kentucky—Investors who reside in the state of Kentucky must have either (i) a liquid net worth of $85,000 and annual gross income of $85,000 or (ii) a liquid net worth of $300,000. Additionally, a Kentucky investor’s total investment in us shall not exceed 10% of his or her liquid net worth.

Massachusetts—In addition to the suitability standards above, the Commonwealth of Massachusetts requires that each Massachusetts investor will limit his or her aggregate investment in our common stock and other similar investments to a maximum of 10% of his or her liquid net worth. Liquid net worth is that position of an investor’s total net worth (assets minus liabilities) that is composed of cash, cash equivalents and readily marketable securities.

Michigan—In addition to the suitability standards above, the State of Michigan requires that each Michigan investor will limit his or her investment in our common stock to a maximum of 10% of his or her net worth.

Nebraska—We must sell a minimum of 500,000 shares before accepting any subscriptions from residents of Nebraska.

Ohio—In addition to the suitability standards above, the state of Ohio requires that each Ohio investor will limit his or her investment in non-traded business development companies, including his or her investment in our common stock and in our affiliates, to a maximum of 10% of his or her net worth.

Oregon—In addition to the suitability standards above, the state of Oregon requires that each Oregon investor will limit his or her investment in our common stock to a maximum of 10% of his or her net worth.

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The minimum purchase amount is $5,000 in shares of our common stock. To satisfy the minimum purchase requirements for retirement plans, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate individual retirement accounts, or IRAs, provided that each such contribution is made in increments of $500. You should note that an investment in shares of our common stock will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Code.

If you have satisfied the applicable minimum purchase requirement, any additional purchase must be in amounts of at least $500. The investment minimum for subsequent purchases does not apply to shares purchased pursuant to our distribution reinvestment plan.

In the case of sales to fiduciary accounts, these suitability standards must be met by the person who directly or indirectly supplied the funds for the purchase of the shares of our stock or by the beneficiary of the account. These suitability standards are intended to help ensure that, given the long-term nature of an investment in shares of our stock, our investment objectives and the relative illiquidity of our stock, shares of our stock are an appropriate investment for those of you who become stockholders. Those selling shares on our behalf must make every reasonable effort to determine that the purchase of shares of our stock is a suitable and appropriate investment for each stockholder based on information provided by the stockholder in the subscription agreement. Each selected broker-dealer is required to maintain for six years records of the information used to determine that an investment in shares of our stock is suitable and appropriate for a stockholder.

In purchasing shares, custodians or trustees of employee pension benefit plans or IRAs may be subject to the fiduciary duties imposed by ERISA or other applicable laws and to the prohibited transaction rules prescribed by ERISA and related provisions of the Code. In addition, prior to purchasing shares, the trustee or custodian of an employee pension benefit plan or an IRA should determine that such an investment would be permissible under the governing instruments of such plan or account and applicable law.

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LIQUIDITY STRATEGY

We intend to seek to complete a liquidity event for our stockholders within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors. We will view our offering stage as complete as of the termination date of our most recent public equity offering if we have not conducted a public offering in any continuous two-year period. We may determine not to pursue a liquidity event if we believe that then-current market conditions are not favorable for a liquidity event, and that such conditions will improve in the future. A liquidity event could include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, (2) a listing of our shares on a national securities exchange or (3) a merger or another transaction approved by our board of directors in which our stockholders will receive cash or shares of a publicly traded company. We refer to the above scenarios as “liquidity events.” While our intention is to seek to complete a liquidity event within five to seven years following the completion of our offering stage or at such earlier time as our board of directors may determine, taking into consideration market conditions and other factors, there can be no assurance that a suitable transaction will be available or that market conditions for a liquidity event will be favorable during that timeframe. In making a determination of what type of liquidity event is in the best interest of our stockholders, our board of directors, including our independent directors, may consider a variety of criteria, including, but not limited to, portfolio diversification, portfolio performance, our financial condition, potential access to capital as a listed company, market conditions for the sale of our assets or listing of our securities, internal management considerations and the potential for stockholder liquidity. If we determine to pursue a listing of our securities on a national securities exchange in the future, at that time we may consider either an internal or an external management structure.

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SHARE REPURCHASE PROGRAM

We do not currently intend to list our securities on any securities exchange and do not expect a public market for them to develop in the foreseeable future. Therefore, stockholders should not expect to be able to sell their shares promptly or at a desired price. No stockholder will have the right to require us to repurchase his or her shares or any portion thereof. Because no public market will exist for our shares, and none is expected to develop, stockholders will not be able to liquidate their investment prior to our liquidation or other liquidity event, other than through our share repurchase program, or, in limited circumstances, as a result of transfers of shares to other eligible investors.


For the Three Months Ended	Repurchase Date	Shares Repurchased		Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares (in thousands)

March 31, 2010	April 1, 2010		11,142	$	9.360	$	104
June 30, 2010	July 1, 2010		108,904		9.360		1,019
September 30, 2010	October 1, 2010		108,904		9.360		1,019
December 31, 2010	January 3, 2011		99,633		9.590		955
March 31, 2011	April 1, 2011		158,258		9.675		1,531

Our quarterly repurchases will be conducted on such terms as may be determined by our board of directors in its complete and absolute discretion unless, in the judgment of the independent directors of our board of directors, such repurchases would not be in the best interests of our stockholders or would violate applicable law. Under the Maryland General Corporation Law, a Maryland corporation may not make a distribution to stockholders, including pursuant to our repurchase program, if, after giving effect to the distribution, (i) the corporation would not be able to pay its indebtedness in the ordinary course or (ii) the corporation’s total assets would be less than its total liabilities plus preferential amounts payable on dissolution with respect to preferred stock. We will conduct such repurchase offers in accordance with the requirements of Rule 13e-4 of the Exchange Act and the 1940 Act. In months in which we repurchase shares, we will conduct repurchases on the same date that we hold our first semi-monthly closing for the sale of shares in this offering. The offer to repurchase shares is conducted solely through tender offer materials mailed to each stockholder and is not being made through this prospectus.

The board also will consider the following factors, among others, in making its determination regarding whether to cause us to offer to repurchase shares and under what terms:

•

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

•

the liquidity of our assets (including fees and costs associated with disposing of assets);

•

our investment plans and working capital requirements;

•

the relative economies of scale with respect to our size;

•

our history in repurchasing shares or portions thereof; and

•

the condition of the securities markets.

169

distribution reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares. In addition, we will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter. We will offer to repurchase such shares on each date of repurchase at a price equal to 90% of the current offering price in effect on each date of repurchase.

If you wish to tender your shares to be repurchased you must either tender at least 25% of the shares you purchased in the offering or all of the shares that you own. If you choose to tender only a portion of your shares, you must maintain a minimum balance of $5,000 worth of shares of common stock following a tender of shares for repurchase. If the amount of repurchase requests exceeds the number of shares we seek to repurchase, we will repurchase shares on a pro-rata basis. As a result, we may repurchase less than the full amount of shares that you request to have repurchased. If we do not repurchase the full amount of your shares that you have requested to be repurchased, or we determine not to make repurchases of our shares, you may not be able to dispose of your shares. Any periodic repurchase offers will be subject in part to our available cash and compliance with the RIC qualification and diversification rules promulgated under the Code and the 1940 Act.

The board of directors will require that we repurchase shares or portions thereof from you pursuant to written tenders only on terms they determine to be fair to us and to all of our stockholders. Repurchases of your shares by us will be paid in cash. Repurchases will be effective after receipt and acceptance by us of all eligible written tenders of shares from our stockholders.

When the board of directors determines that we will offer to repurchase shares or fractions thereof, tender offer materials will be provided to you describing the terms thereof, and containing information you should consider in deciding whether and how to participate in such repurchase opportunity.

Any tender offer presented to our stockholders will remain open for a minimum of 20 business days following the commencement of the tender offer. In the materials that we will send to our stockholders, we will include the date that the tender offer will expire. All tenders for repurchase requests must be received prior to the expiration of the tender offer in order to be valid. If there are any material revisions to the tender offer materials (not including the price at which shares may be tendered) sent to our stockholders, we will send revised materials reflecting such changes and will extend the tender offer period by a minimum of an additional five business days. If the price at which shares may be tendered is changed, we will extend the tender offer period by a minimum of an additional ten business days.

In order to submit shares to be tendered, stockholders will be required to complete a letter of transmittal, which will be included in the materials sent to our stockholders, as well as any other documents required by the letter of transmittal. At any time prior to the expiration of the tender offer, stockholders may withdraw their tenders by submitting a notice of withdrawal to us. If shares have not been accepted for payment by us, tenders may be withdrawn any time prior to 40 business days following the expiration of the tender offer.

We will not repurchase shares, or fractions thereof, if such repurchase will cause us to be in violation of the securities or other laws of the United States, Maryland or any other relevant jurisdiction.

In the event that FB Advisor or any of its affiliates holds shares in the capacity of a stockholder, any such affiliates may tender shares for repurchase in connection with any repurchase offer we make on the same basis as any other stockholder, except for the initial capital contributions of Messrs. Forman and Adelman. Messrs. Forman and Adelman will not tender such shares for repurchase as long as FB Advisor remains our investment adviser.

We have received exemptive relief from Regulation M under the Exchange Act from the Division of Trading and Markets of the SEC in connection with our share repurchase program.

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CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR

Our securities are held under a custody agreement by PFPC Trust Company. The address of the custodian is: 8800 Tinicum Boulevard, Philadelphia, Pennsylvania 19153. DST Systems, Inc. will act as our transfer agent, distribution paying agent and registrar. The principal business address of our transfer agent is 1055 Broadway, Ninth Floor, Kansas City, Missouri 64105-1594, telephone number: (816) 435-8474.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Since we intend to generally acquire and dispose of our investments in privately negotiated transactions, we expect to infrequently use brokers in the normal course of our business. Subject to policies established by our board of directors, FB Advisor is primarily responsible for the execution of the publicly-traded securities portion of our portfolio transactions and the allocation of brokerage commissions. FB Advisor does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. While FB Advisor will generally seek reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, FB Advisor may select a broker based partly upon brokerage or research services provided to it and us and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if FB Advisor determines in good faith that such commission is reasonable in relation to the services provided.

LEGAL MATTERS

Certain legal matters regarding the shares of common stock offered hereby have been passed upon for us by Sutherland Asbill & Brennan LLP, Washington, D.C., and certain matters with respect to Maryland law have been passed upon by Miles & Stockbridge P.C., Baltimore, Maryland.

EXPERTS

McGladrey & Pullen, LLP, an independent registered public accounting firm located at 2133 Arch Street, Suite 400, Philadelphia, PA 19103, has audited our financial statements as of December 31, 2010, 2009, 2008 and 2007.

AVAILABLE INFORMATION

We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus.

We are required to file with or submit to the SEC annual, quarterly and current reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information

171

filed electronically by us with the SEC, which are available on the SEC’s website at www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.

PRIVACY NOTICE

We are committed to protecting your privacy. This privacy notice explains the privacy policies of FS Investment Corporation and its affiliated companies. This notice supersedes any other privacy notice you may have received from FS Investment Corporation.

We will safeguard, according to strict standards of security and confidentiality, all information we receive about you. The only information we collect from you is your name, address, number of shares you hold and your social security number. This information is used only so that we can send you annual reports and other information about us, and send you proxy statements or other information required by law.

We do not share this information with any non-affiliated third party except as described below.

•

Authorized Employees of FB Advisor. It is our policy that only authorized employees of FB Advisor who need to know your personal information will have access to it.

•

Service Providers. We may disclose your personal information to companies that provide services on our behalf, such as record keeping, processing your trades, and mailing you information. These companies are required to protect your information and use it solely for the purpose for which they received it.

•

Courts and Government Officials. If required by law, we may disclose your personal information in accordance with a court order or at the request of government regulators. Only that information required by law, subpoena, or court order will be disclosed.

172

INDEX TO FINANCIAL STATEMENTS


	Page
Management’s Report on Internal Control over Financial Reporting		F-2
Report of Independent Registered Public Accounting Firm		F-3
Report of Independent Registered Public Accounting Firm		F-4
Consolidated Balance Sheets as of December 31, 2010 and 2009		F-5
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008		F-6
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2010, 2009 and 2008		F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008		F-8
Consolidated Schedule of Investments as of December 31, 2010 and 2009		F-9
Notes to Consolidated Financial Statements		F-14

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. In connection with the preparation of our annual financial statements, management has conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, we have concluded that, as of December 31, 2010, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

FS Investment Corporation

Philadelphia, Pennsylvania

We have audited FS Investment Corporation’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. FS Investment Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) 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 (c) 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.

In our opinion, FS Investment Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FS Investment Corporation, including the consolidated schedules of investments as of December 31, 2010 and 2009, the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2010 and our report dated March 24, 2011 expressed an unqualified opinion.

/s/ McGladrey & Pullen, LLP

Blue Bell, Pennsylvania

March 24, 2011

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

FS Investment Corporation

Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheets of FS Investment Corporation, including the consolidated schedules of investments, as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010 by correspondence with the custodians, or by other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FS Investment Corporation as of December 31, 2010 and 2009 and the results of its consolidated operations, changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FS Investment Corporation’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 24, 2011 expressed an unqualified opinion on the effectiveness of FS Investment Corporation’s internal control over financial reporting.

/s/ McGladrey & Pullen, LLP

Blue Bell, Pennsylvania

March 24, 2011

F-4

FS Investment Corporation

Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	December 31,
	2010			2009
Assets
Investments, at fair value (amortized cost—$715,514 and $92,317, respectively)	$	733,580		$	100,592
Cash		38,790			9,035
Receivable for investments sold and repaid		5,162			15
Interest receivable		3,632			402
Deferred financing costs		835			14
Prepaid expenses and other assets		6			10

Total assets	$	782,005		$	110,068

Liabilities
Payable for investments purchased	$	81,800		$	15,366
Credit facility payable		297,201			—
Stockholder distributions payable		2,556			616
Management fees payable		3,298			437
Capital gains incentive fee payable⁽¹⁾		5,459			173
Administrative services fees payable		310			96
Reimbursements payable		641			—
Interest payable		883			—
Other accrued expenses and liabilities		625			183

Total liabilities		392,773			16,871

Stockholders’ equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.001 par value, 450,000,000 shares authorized, 41,332,661 and 10,241,544 shares issued and outstanding, respectively⁽²⁾		41			10
Capital in excess of par value		374,637			85,508
Accumulated undistributed net realized gains on investments		1,290			53
Accumulated distributions in excess of net investment income⁽³⁾		(4,802	)		(649	)
Net unrealized appreciation on investments and loss on foreign currency		18,066			8,275

Total stockholders’ equity		389,232			93,197

Total liabilities and stockholders’ equity	$	782,005		$	110,068

Net asset value per common share at period end	$	9.42		$	9.10

(1)	See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee.

(2)	As discussed in Note 5, between March 31, 2009 and January 31, 2010, the Company issued eight stock distributions. The outstanding shares and net asset value per common share reflect these stock distributions on a retroactive basis.

(3)	See Note 5 for a discussion of the source of distributions paid by the Company.

See notes to consolidated financial statements.

F-5

FS Investment Corporation

Consolidated Statements of Operations

(in thousands, except share and per share amounts)


	Year Ended December 31,
	2010			2009			2008
Investment income
Interest income	$	30,670		$	4,420		$	25
Operating expenses
Management fees		7,900			829			—
Capital gains incentive fees⁽¹⁾		5,459			173			—
Administrative services expenses		924			261			—
Stock transfer agent fees		890			265			—
Accounting and administrative fees		568			326			—
Interest expense		3,881			—			—
Other general and administrative expenses		1,656			655			605

Total expenses		21,278			2,509			605
Less: Expense reimbursement from sponsor (Note 4)		—			(240	)		—

Net expenses		21,278			2,269			605

Net investment income (loss)		9,392			2,151			(580	)

Realized and unrealized gain
Net realized gain on investments		9,081			1,030			—
Net change in unrealized appreciation on investments		9,809			8,275			—
Net change in unrealized loss on foreign currency		(18	)		—			—

Total net realized and unrealized gain on investments		18,872			9,305			—

Net increase (decrease) in net assets resulting from operations	$	28,264		$	11,456		$	(580	)

Per share information—basic and diluted
Net increase (decrease) in net assets resulting from operations	$	1.21		$	2.57		$	(4.72	)

Weighted average shares outstanding⁽²⁾		23,283,593			4,465,071			122,850

(1)	See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee.

(2)

As discussed in Note 5, between March 31, 2009 and January 31, 2010, the Company issued eight stock distributions. The weighted average shares used in the per share computation of the net increase (decrease) in net assets resulting from operations reflect these stock distributions on a retroactive basis.

See notes to consolidated financial statements.

F-6

FS Investment Corporation

Consolidated Statements of Changes in Net Assets

(in thousands)


	Year Ended December 31,
	2010			2009			2008
Operations
Net investment income	$	9,392		$	2,151		$	(580	)
Net realized gain on investments		9,081			1,030			—
Net change in unrealized appreciation on investments		9,809			8,275			—
Net change in unrealized loss on foreign currency		(18	)		—			—

Net increase (decrease) in net assets resulting from operations		28,264			11,456			(580	)

Stockholder distributions⁽¹⁾
Distributions from net investment income		(13,545	)		(2,157	)		(25	)
Distributions from net realized gain on investments		(7,844	)		(977	)		—

Net decrease in net assets resulting from stockholder distributions		(21,389	)		(3,134	)		(25	)

Capital share transactions
Issuance of common stock		285,916			84,787			1,000
Reinvestment of stockholder distributions		8,252			490			—
Repurchases of common stock		(2,143	)		—			—
Offering costs		(1,671	)		(387	)		(1,310	)
Reimbursement of investment adviser (Note 4)		(2,319	)		(1,418	)		—
Capital contributions of investment adviser		1,125			404			1,914

Net increase in net assets resulting from capital share transactions		289,160			83,876			1,604

Total increase in net assets		296,035			92,198			999
Net assets at beginning of year		93,197			999			—

Net assets at end of year	$	389,232		$	93,197		$	999

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

See notes to consolidated financial statements.

F-7

FS Investment Corporation

Consolidated Statements of Cash Flows

(in thousands)


	Year Ended December 31,
	2010			2009			2008
Cash flows from operating activities
Net increase in net assets resulting from operations	$	28,264		$	11,456		$	(580	)
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchases of investments		(849,242	)		(106,098	)		—
Payment-in-kind interest		(103	)		(133	)		—
Proceeds from sales and repayments of investments		240,054			16,717			—
Net change in unrealized appreciation on investments		(9,809	)		(8,275	)		—
Net change in unrealized loss on foreign currency		18			—			—
Net realized gain on investments		(9,081	)		(1,030	)		—
Accretion of discount		(4,825	)		(1,774	)		—
Amortization of deferred financing costs		506			—			—
Increase in interest receivable		(3,230	)		(402	)		—
(Increase) Decrease in prepaid expenses and other assets		4			(24	)		—
Increase in payable for investments purchased		66,434			15,366			—
Increase in receivable for investments sold and repaid		(5,147	)		(15	)		—
Increase in management fees payable		2,861			437			—
Increase in capital gains incentive fee payable		5,286			173			—
Increase in interest payable		883			—			—
Increase in administrative services fees payable		214			96			—
Increase in other accrued expenses and liabilities		442			183			1

Net cash used in operating activities		(536,471	)		(73,323	)		(579	)

Cash flows from financing activities
Issuance of common stock		285,916			84,787			1,000
Reinvestment of stockholder distributions		8,252			490			—
Repurchases of common stock		(2,143	)		—			—
Offering costs		(1,671	)		(387	)		(1,310	)
Payments to investment adviser for offering and organization costs (Note 4)		(1,678	)		(1,418	)		—
Capital contributions of investment adviser		1,125			404			1,914
Stockholder distributions		(19,449	)		(2,518	)		(25	)
Borrowings under credit facility		297,201			—			—
Deferred financing costs paid		(1,327	)		—			—

Net cash provided by financing activities		566,226			81,358			1,579

Total increase in cash		29,755			8,035			1,000
Cash at beginning of year		9,035			1,000			—

Cash at end of year	$	38,790		$	9,035		$	1,000

Non-cash financing activities
Payable to investment adviser for offering and organization costs (Note 4)	$	641		$	—		$	—

See notes to consolidated financial statements.

F-8

FS Investment Corporation

Consolidated Schedule of Investments

As of December 31, 2010

(in thousands)


Portfolio Company^(a)	Industry	Principal Amount^(b)		Amortized Cost		Fair Value^(c)
Senior Secured Loans—First Lien—124.4%
1-800 Contacts, Inc., L+395, 3.8% LIBOR Floor, 3/4/15	Healthcare	$	5,508	$	5,233	$	5,494
Advance Pierre Foods, Inc., L+525, 1.8% LIBOR Floor, 9/29/16^(d)	Consumer Staples		4,924		4,829		4,934
Airvana Network Solutions Inc., L+900, 2.0% LIBOR Floor, 8/27/14	Telecommunication Services		2,367		2,356		2,378
Alaska Communications Systems Holdings, Inc., L+400, 1.5% LIBOR Floor, 10/21/16^(f)	Telecommunication Services		3,683		3,647		3,701
Alliant Holdings LLC, L+500, 1.8% LIBOR Floor, 8/16/14^(d)(e)	Financials		2,000		2,020		2,015
Altegrity, Inc., L+600, 1.8% LIBOR Floor, 2/21/15^(d)	Industrials		7,363		7,260		7,455
Amscan Holdings, Inc., L+525, 1.5% LIBOR Floor, 12/2/17^(d)	Consumer Discretionary		6,923		6,869		6,942
AmWINS Group, Inc., L+250, 6/8/13^(d)	Financials		949		797		902
Anchor Glass Container Corp., L+400, 2.0% LIBOR Floor, 3/1/16^(d)	Industrials		3,416		3,386		3,430
Ardent Health Services LLC, L+500, 1.5% LIBOR Floor, 9/15/15^(d)	Healthcare		7,302		7,229		7,321
Armstrong World Industries, Inc., L+350, 1.5% LIBOR Floor, 5/23/17^(d)(f)	Industrials		1,687		1,678		1,702
Aspect Software, Inc., L+450, 1.8% LIBOR Floor, 5/7/16^(d)	Information Technology		1,985		1,967		2,000
Atlantic Broadband Finance, LLC, L+350, 1.5% LIBOR Floor, 11/29/15^(d)	Telecommunication Services		1,338		1,331		1,350
Avaya Inc., L+350, 0.8% LIBOR Floor, 10/24/14^(d)	Information Technology		9,925		9,170		9,598
BBHI Acquisition LLC, L+300, 1.5% LIBOR Floor, 12/14/17^(d)	Telecommunication Services		2,064		2,043		2,078
Bentley Systems Inc., L+425, 1.5% LIBOR Floor, 11/24/16^(e)	Information Technology		1,789		1,771		1,804
Burger King Corp., L+450, 1.8% LIBOR Floor, 10/19/16^(d)	Consumer Staples		6,529		6,547		6,638
Calumet Lubricants Co., LP, L+400, 1/3/15^(d)(f)	Energy		2,819		2,630		2,727
Canwest LP, L+700, 2.0% LIBOR Floor, 7/23/16^(d)(e)(f)	Consumer Discretionary		7,828		7,754		7,960
CCC Information Services Inc., L+400, 1.5% LIBOR Floor, 11/11/15^(d)	Information Technology		1,578		1,562		1,593
CDW Corp., L+500, 7/10/17^(d)	Information Technology		5,584		4,978		5,551
Cedar Fair, LP, L+400, 1.5% LIBOR Floor, 12/15/16^(d)(f)	Consumer Discretionary		2,954		2,927		2,989
Cenveo Corp., L+475, 1.5% LIBOR Floor, 12/21/16^(d)(f)	Consumer Discretionary		6,667		6,600		6,728
Ceridian Corp., L+300, 11/9/14^(d)	Industrials		7,456		6,780		7,115
Citgo Petroleum Corp., L+700, 2.0% LIBOR Floor, 6/24/17^(d)(f)	Energy		6,965		6,878		7,289
Clopay Ames True Temper Holding Corp., L+600, 1.8% LIBOR Floor, 9/30/16^(d)(e)(f)	Consumer Discretionary		7,941		7,903		8,021
CMP Susquehanna Corp., L+200, 5/5/13^(d)(e)	Telecommunication Services		6,980		6,267		6,319
Contec LLC, L+475, 3.0% LIBOR Floor, 7/28/14^(d)	Telecommunication Services		1,942		1,656		1,767
ConvaTec Inc., L+425, 1.5% LIBOR Floor, 12/22/16^(d)	Healthcare		2,314		2,303		2,342
Corel Corp., L+400, 5/2/12^(f)	Information Technology		1,434		1,313		1,369
Cumulus Media Inc., L+375, 6/11/14^(d)	Telecommunication Services		4,060		3,748		3,787
Custom Building Products, Inc., L+400, 1.8% LIBOR Floor, 3/1/15^(d)	Materials		2,830		2,806		2,851
Data Device Corp., L+550, 1.8% LIBOR Floor, 12/23/16	Industrials		9,231		9,092		9,144
DEI Sales, Inc., L+550, 2.0% LIBOR Floor, 9/22/13	Consumer Discretionary		2,348		2,201		2,160
DineEquity, Inc., L+450, 1.5% LIBOR Floor, 10/7/17^(d)(f)	Consumer Staples		2,436		2,412		2,476
Dunkin’ Brands, Inc., L+425, 1.5% LIBOR Floor, 11/23/17^(d)	Consumer Staples		2,500		2,488		2,534
Fairmount Minerals, Ltd., L+450, 1.8% LIBOR Floor, 8/5/16^(d)	Materials		6,759		6,701		6,885
Fifth Third Processing Solutions LLC, L+400, 1.5% LIBOR Floor, 11/3/16^(d)	Financials		3,731		3,695		3,769
First Data Corp., L+275, 9/24/14^(d)	Information Technology		7,621		6,622		7,063
First Reserve Crestwood Holdings LLC, L+850, 2.0% LIBOR Floor, 10/3/16	Energy		4,500		4,413		4,596
Freescale Semiconductor, Inc., L+425, 12/1/16^(d)	Industrials		7,437		7,076		7,224
General Chemical Corp., L+500, 1.8% LIBOR Floor, 10/6/15^(d)(e)	Materials		7,527		7,557		7,637
Getty Images, Inc., L+375, 1.5% LIBOR Floor, 11/7/16^(d)	Consumer Discretionary		2,441		2,418		2,466
Global Tel Link Corp., L+550, 1.8% LIBOR Floor, 11/10/16^(d)	Telecommunication Services		8,304		8,151		8,206
Goodman Global, Inc., L+400, 1.8% LIBOR Floor, 10/28/16^(d)	Consumer Discretionary		1,814		1,796		1,826
Green Mountain Coffee Roasters, Inc., L+400, 1.5% LIBOR Floor, 12/16/16^(d)(f)	Consumer Staples		1,754		1,737		1,757
Green Tree Credit Solutions LLC, L+575, 2.3% LIBOR Floor, 12/18/15^(d)	Financials		4,466		4,303		4,459
Grifols, SA , L+425, 1.8% LIBOR Floor, 6/4/16^(d)(e)(f)	Healthcare		4,336		4,295		4,392
Hanger Orthopedic Group, Inc., L+375, 1.5% LIBOR Floor, 12/1/16^(d)(f)	Healthcare		1,944		1,935		1,962
Harbor Freight Tools USA, Inc., L+500, 1.5% LIBOR Floor, 12/22/17^(d)	Consumer Discretionary		9,929		9,830		9,931
HarbourVest Partners LP, L+475, 1.5% LIBOR Floor, 12/17/16^(d)	Financials		11,642		11,526		11,671
Harland Clarke Holdings Corp., L+250, 6/30/14^(d)(f)	Industrials		2,448		2,121		2,223
iHealth Technologies, Inc., L+600, 1.8% LIBOR Floor, 12/28/16^(e)	Healthcare		3,636		3,564		3,618
Infogroup, Inc., L+450, 1.8% LIBOR Floor, 7/1/16^(d)	Consumer Discretionary		4,647		4,563		4,695
Intelsat Jackson Holdings SA, L+375, 1.5% LIBOR Floor, 4/2/18^(d)(e)(f)	Telecommunication Services		5,638		5,609		5,702
Interactive Data Corp., L+500, 1.8% LIBOR Floor, 1/29/17^(d)(e)(f)	Financials		6,716		6,651		6,813
Intralinks, Inc.,L+425, 1.5% LIBOR Floor, 6/15/14	Information Technology		1,451		1,169		1,437
KIK Custom Products Inc., L+225, 5/31/14^(d)(f)	Consumer Staples		4,949		4,394		4,248
Knology, Inc., L+400, 1.5% LIBOR Floor, 10/15/16^(d)(f)	Consumer Discretionary		1,950		1,931		1,964
Lantiq Deutschland GmbH, L+700, 2.0% LIBOR Floor, 11/16/15^(d)(f)	Information Technology		5,993		5,879		6,008
MDA Info Products Ltd., L+550, 1.5% LIBOR Floor, 1/4/17^(e)	Information Technology		5,000		4,925		4,950
MedAssets, Inc., L+375, 1.5% LIBOR Floor, 11/22/16^(d)(f)	Healthcare		1,667		1,650		1,677
Michael Foods Group, Inc., L+450, 1.8% LIBOR Floor, 6/29/16^(d)	Consumer Staples		2,536		2,490		2,575

See notes to consolidated financial statements.

F-9

FS Investment Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2010

(in thousands)


Portfolio Company^(a)	Industry	Principal Amount^(b)		Amortized Cost		Fair Value^(c)
Mosaic US Holdings Inc., L+275, 4/3/13	Consumer Discretionary	$	882	$	666	$	789
NBTY, Inc., L+450, 1.8% LIBOR Floor, 10/1/17^(d)	Consumer Staples		2,212		2,191		2,248
NCO Group, Inc., L+500, 2.5% LIBOR Floor, 5/15/13^(d)	Information Technology		3,303		3,283		3,270
New Development Holdings, LLC (Calpine), L+550, 1.5% LIBOR Floor, 7/3/17^(d)(f)	Utilities		5,558		5,486		5,662
OSI Restaurant Partners, LLC, L+225, 6/14/14^(d)	Consumer Discretionary		5,638		4,968		5,397
Ozburn Hessey Holding Co., LLC, L+550, 2.0% LIBOR Floor, 4/8/16^(d)	Industrials		6,230		6,198		6,316
Petco Animal Supplies, Inc., L+450, 1.5% LIBOR Floor, 11/24/17^(d)	Consumer Discretionary		2,930		2,901		2,958
Protection One, Inc., L+425, 1.8% LIBOR Floor, 6/4/16^(d)	Consumer Discretionary		4,402		4,375		4,424
RBS Worldpay, Inc., L+450, 1.8% LIBOR Floor, 10/15/17^(e)	Financials		1,538		1,523		1,551
Remy International, Inc., L+450, 1.8% LIBOR Floor, 12/17/13^(d)(e)	Consumer Discretionary		2,083		2,063		2,099
RepconStrickland, Inc., L+525, 3.3% LIBOR Floor, 2/19/13	Energy		3,925		3,595		3,572
Res-Care, Inc., L+550, 1.8% LIBOR Floor, 12/22/16^(e)(f)	Consumer Discretionary		5,000		4,900		4,925
Revlon Consumer Products Corp., L+400, 2.0% LIBOR Floor, 3/11/15^(d)(f)	Consumer Discretionary		6,357		6,263		6,393
Reynolds & Reynolds Co., L+350, 1.8% LIBOR Floor, 4/21/17^(d)	Information Technology		4,969		4,936		5,011
Reynolds Group Holdings Inc., L+446, 1.8% LIBOR Floor, 5/5/16^(d)(f)	Industrials		7,950		7,934		8,043
Rural/Metro Corp., L+425, 1.8% LIBOR Floor, 11/24/16^(d)(f)	Industrials		1,474		1,466		1,491
Sagittarius Restaurants LLC, L+550, 2.0% LIBOR Floor, 5/18/15	Consumer Discretionary		3,084		3,052		3,090
Savvis, Inc., L+500, 1.8% LIBOR Floor, 8/4/16^(d)(f)	Information Technology		7,382		7,230		7,513
SemGroup Corp., L+700, 1.5% LIBOR Floor, 11/30/12^(d)(f)	Energy		3,492		3,458		3,457
Sheridan Production Co., LLC, L+550, 2.0% LIBOR Floor, 4/20/17^(d)	Energy		7,948		7,824		8,021
Sitel, LLC, L+550, 1/30/14^(d)	Telecommunication Services		5,966		5,614		5,707
Six Flags Theme Parks, Inc., L+400, 1.5% LIBOR Floor, 6/30/16^(d)(f)	Consumer Discretionary		2,737		2,724		2,765
Smile Brands Group Inc., L+525, 1.8% LIBOR Floor, 12/21/17^(d)(e)	Healthcare		5,966		5,877		5,932
Smurfit-Stone Container Enterprises, Inc., L+475, 2.0% LIBOR Floor, 2/10/16^(f)	Industrials		6,965		6,905		7,093
Spansion, LLC, L+550, 2.0% LIBOR Floor, 2/9/15^(d)(f)	Information Technology		5,903		5,942		5,991
Sports Authority, Inc., L+600, 1.5% LIBOR Floor, 11/16/17^(d)	Consumer Discretionary		8,000		7,783		8,020
Styron Sarl, L+575, 1.8% LIBOR Floor, 6/14/16^(d)	Materials		7,897		7,812		8,027
Summit Materials Companies I, LLC, L+500, 1.5% LIBOR Floor, 12/31/15^(d)	Materials		4,000		4,000		4,002
Swift Transportation Co., Inc., L+450, 1.5% LIBOR Floor, 12/21/16^(d)(e)(f)	Industrials		4,545		4,500		4,568
Syniverse Holdings, Inc., L+375, 1.5% LIBOR Floor, 9/8/14^(d)(e)(f)	Telecommunication Services		2,029		2,009		2,055
Targus Information Corp., L+525, 1.8% LIBOR Floor, 12/28/16^(e)	Information Technology		5,000		4,900		4,950
Telcordia Technologies Inc., L+500, 1.8% LIBOR Floor, 4/30/16^(d)	Telecommunication Services		8,004		8,024		8,018
Texas Competitive Electric Holdings Co. LLC, L+350, 10/10/14^(d)	Utilities		9,384		7,737		7,278
The Gymboree Corp., L+400, 1.5% LIBOR Floor, 11/23/17^(d)	Consumer Discretionary		2,139		2,128		2,154
TNS, Inc., L+400, 2.0% LIBOR Floor, 11/18/15^(d)(f)	Telecommunication Services		1,317		1,317		1,324
Toys“R”Us, Inc., L+450, 1.5% LIBOR Floor, 8/17/16^(d)	Consumer Discretionary		6,733		6,696		6,806
Trident Exploration Corp., L+950, 3.0% LIBOR Floor, 6/10/14^(d)(f)	Energy		8,960		8,904		9,464
Univar Inc., L+450, 1.8% LIBOR Floor, 6/30/17^(d)	Materials		6,642		6,589		6,640
Universal Health Services, Inc., L+400, 1.5% LIBOR Floor, 11/15/16^(f)	Healthcare		5,000		4,930		5,079
Vertafore, Inc., L+500, 1.8% LIBOR Floor, 7/29/16^(d)	Information Technology		6,910		6,827		6,969
WCP Exposition Services Operating Co. LLC, L+600, 3.0% LIBOR Floor, 8/29/11	Consumer Discretionary		539		244		436
Yell Group Plc, L+300, 7/31/14^(f)	Consumer Discretionary		804		675		379

Total Senior Secured Loans—First Lien					473,881		484,105

Senior Secured Loans—Second Lien—34.9%
Advance Pierre Foods, Inc., L+950, 1.8% LIBOR Floor, 9/29/17	Consumer Staples		5,000		4,864		5,072
Advantage Sales & Marketing Inc., L+775, 1.5% LIBOR Floor, 6/17/18^(d)	Industrials		10,000		9,850		10,083
AMN Healthcare Services, Inc., L+1000, 1.8% LIBOR Floor, 9/1/16	Healthcare		10,000		9,716		9,750
AmWINS Group, Inc., L+550, 6/8/14	Financials		1,992		1,672		1,712
Attachmate Corp., L+675, 10/13/13^(d)	Information Technology		5,000		4,358		4,951
Awesome Acquisition Co., L+500, 6/4/14	Consumer Discretionary		2,940		2,343		2,616
BNY ConvergEx Group, LLC, L+700, 1.8% LIBOR Floor, 12/17/17^(d)(e)	Information Technology		6,000		5,925		6,158
Carestream Health, Inc., L+525, 10/30/13^(d)	Healthcare		8,000		7,723		7,892
Central Parking Systems, Inc., L+450, 11/22/14	Industrials		250		199		180
Datatel, Inc., L+825, 2.0% LIBOR Floor, 12/10/16	Information Technology		5,000		4,915		5,070
Dresser, Inc., L+575, 5/4/15^(d)	Energy		7,405		6,980		7,411
Edwards Ltd., L+575, 11/30/14^(d)(f)	Industrials		2,305		2,062		2,201
FR Brand Acquisition Corp., L+625, 2/7/15^(d)	Industrials		8,000		6,948		7,256
Goodman Global, Inc., L+700, 2.0% LIBOR Floor, 10/27/17^(d)	Consumer Discretionary		7,000		6,863		7,230
Kronos Inc., L+575, 6/11/15^(d)	Industrials		3,000		2,919		2,941
Roundy’s Supermarkets, Inc., L+800, 2.0% LIBOR Floor, 4/16/16^(d)	Consumer Staples		10,000		10,106		10,169
Sedgwick CMS Holdings, L+750, 1.5% LIBOR Floor, 5/30/17	Industrials		500		500		500
Southern Pacific Resource Co., L+850, 2.0% LIBOR Floor, 12/22/15^(e)(f)	Energy		10,000		9,700		9,850
TPF Generation Holdings (Tenaska Power Fund), LLC, L+425, 12/15/14^(d)	Energy		9,170		8,329		8,442

See notes to consolidated financial statements.

F-10

FS Investment Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2010

(in thousands)


Portfolio Company^(a)	Industry	Principal Amount^(b)		Amortized Cost		Fair Value^(c)
Vertafore, Inc., L+825, 1.5% LIBOR Floor, 10/19/17^(d)	Information Technology	$	10,000	$	9,902	$	10,131
Wm. Bolthouse Farms, Inc., L+750, 2.0% LIBOR Floor, 8/11/16^(d)	Consumer Staples		8,384		8,385		8,497
Xerium Technologies, Inc., L+625, 2.0% LIBOR Floor, 5/25/15^(d)(e)	Materials		7,960		7,701		7,850

Total Senior Secured Loans—Second Lien					131,960		135,962

Senior Secured Bonds—8.1%
Allen Systems Group, Inc., 10.5%, 11/15/16	Information Technology		7,348		7,383		7,458
First Data Corp., 8.9%, 8/15/20^(d)	Information Technology		4,300		4,232		4,517
Logan’s Roadhouse, Inc., 10.8%, 10/15/17	Consumer Discretionary		4,000		4,000		4,322
Nexstar Broadcasting Group, Inc., 8.9%, 4/15/17^(d)	Telecommunication Services		5,000		4,971		5,318
Paetec Holding Corp., 8.9%, 6/30/17^(d)	Telecommunication Services		4,680		4,809		5,008
Roofing Supply Group LLC, 8.6%, 12/1/17^(d)	Industrials		800		800		817
Stallion Oilfield Services Ltd., 10.5%, 2/15/15	Energy		4,000		4,070		4,219

Total Senior Secured Bonds					30,265		31,659

Mezzanine Debt/Other—21.0%
Apidos CDO IV Class E, L+360, 10/27/18^(f)	Financials		2,000		1,051		1,375
Ares 2007 CLO 11A Class E, L+600, 10/11/21^(f)	Financials		4,775		3,028		3,565
Ares 2007 CLO 12X Class E, L+575, 11/25/20^(f)	Financials		2,252		1,743		1,633
Aspect Software, Inc., 10.6%, 5/15/17^(d)	Information Technology		4,000		4,000		4,137
ATI Enterprises Inc., L+1100, 2.3% LIBOR Floor, 12/30/16	Consumer Discretionary		8,000		7,908		7,253
Aurora Diagnostics, LLC, 10.8%, 1/15/18	Healthcare		8,000		8,000		8,001
Base CLO I Class E, EURIBOR+500, 10/17/18^(f)	Financials	€	1,500		960		1,207
Blue Mountain CLO III Class E, L+355, 3/17/21	Financials	$	2,000		869		1,195
Bresnan Broadband Holdings LLC, 8.0%, 12/15/18^(d)(f)	Telecommunication Services		5,000		5,000		5,175
Cincinnati Bell Inc., 8.4%, 10/15/20^(d)(f)	Telecommunication Services		8,000		8,000		7,682
Franklin CLO 6A Class E, L+425, 8/9/19^(f)	Financials		1,919		1,133		1,219
Hughes Network Systems, LLC, 9.5%, 4/15/14^(f)	Telecommunication Services		2,000		2,072		2,070
Lightpoint CLO 2006 V Class D, L+365, 8/5/19^(f)	Financials		6,500		3,012		3,920
Lightpoint CLO 2007 VII Class D, L+400, 5/15/21^(f)	Financials		4,000		2,182		2,390
Mediacom Broadband LLC, 8.5%, 10/15/15^(f)	Consumer Discretionary		2,000		2,029		2,011
Mountain View CLO II Class Pref, 17.4%, 1/12/21^(e)(f)	Financials		8,975		7,272		7,135
N.E.W. Customer Service Cos., Inc., L+750, 2.0% LIBOR Floor, 3/22/17^(d)	Industrials		7,000		6,867		6,980
NBTY, Inc., 9.0%, 10/1/18	Consumer Staples		4,700		4,700		5,036
Octagon CDO 2007 1A Class Income, 38.1%, 8/25/21^(f)	Financials		4,000		2,774		2,900
Paetec Holding Corp., 9.9%, 12/1/18^(f)	Telecommunication Services		4,000		3,868		4,030
Univar Inc., 12.0%, 6/30/18	Materials		3,000		2,940		2,940

Total Mezzanine Debt					79,408		81,854

TOTAL INVESTMENTS—188.4%				$	715,514		733,580

LIABILITIES IN EXCESS OF OTHER ASSETS—(88.4%)							(344,348	)

NET ASSETS—100.0%						$	389,232

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

(b)	Denominated in U.S. Dollars unless otherwise noted.

(c)	Fair value determined by the Company’s Board of Directors (see Note 7).

(d)	Security or portion thereof held within Broad Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank AG, New York Branch (see Notes 9 and 10).

(e)	Position or portion thereof unsettled as of December 31, 2010.

(f)	The investment is not a qualifying asset under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets.

See notes to consolidated financial statements.

F-11

FS Investment Corporation

Schedule of Investments

As of December 31, 2009

(in thousands)


Portfolio Company^(a)	Industry		Principal Amount		Amortized Cost		Fair Value^(b)
Senior Secured Loans—First Lien—49.1%
1-800 Contacts, Inc., L+395, 3.8% LIBOR Floor, 3/4/15		Healthcare	$	3,079	$	2,733	$	2,987
AmWINS Group, Inc., L+250, 6/8/13		Financials		975		762		829
Apptis (DE), Inc., L+325, 12/20/12		Information Technology		879		684		835
CamelBak Products, Prime+475, 8/4/11		Consumer Discretionary		1,966		1,817		1,857
Caritor, Inc. (Keane Inc.), L+225, 6/4/13		Information Technology		1,988		1,571		1,827
Columbian Chemicals Co., L+600, 3/16/13		Materials		1,214		816		1,068
Contec LLC, L+475, 3.0% LIBOR Floor, 7/28/14		Telecommunication Services		1,984		1,618		1,711
Corel Corp., L+400, 5/2/12		Information Technology		1,569		1,346		1,386
Data Transmission Network Corp., L+500, 3/10/13		Information Technology		483		433		464
Edwards Ltd., L+200, 5/31/14		Industrials		1,950		1,272		1,553
First Data Corp., L+ 275, 9/24/14		Information Technology		2,982		2,348		2,654
Global Tel Link Corp., L+600, 3.0% LIBOR Floor, 2/14/13		Telecommunication Services		401		362		398
Green Tree Credit Solutions LLC, L+575, 2.3% LIBOR Floor, 12/18/15		Financials		3,000		2,851		2,895
Harland Clarke Holdings Corp., L+250, 6/30/14^(c)		Industrials		2,483		1,818		2,082
InfrastruX Group, Inc., L+500, 2.5% LIBOR Floor, 0.5% PIK, 11/3/12		Industrials		724		670		656
Intralinks, Inc., L+275, 6/15/14		Information Technology		1,480		1,120		1,391
Kenan Advantage Group, Inc., L+275, 12/16/11		Industrials		990		807		950
King Pharmaceuticals, Inc., L+500, 4/19/12		Healthcare		117		97		100
Mosaic US Holdings Inc., L+275, 4/3/13		Consumer Discretionary		889		592		689
National Processing Co. Group, Inc., L+500, 2.5% LIBOR Floor, 10/31/13		Information Technology		1,196		1,136		1,144
NCO Group, Inc., L+500, 2.5% LIBOR Floor, 5/15/13^(c)		Information Technology		2,955		2,601		2,859
Pierre Foods, Inc., L+600, 2.5% LIBOR Floor, 9/30/14		Consumer Staples		2,850		2,768		2,871
Quantum Corp., L+350, 7/12/14		Information Technology		897		762		833
SafeNet, Inc., L+250, 4/12/14		Information Technology		495		358		467
SemGroup Corp., L+700, 1.5% LIBOR Floor, 11/30/12		Energy		4,000		3,804		3,940
Sitel, LLC, L+550, 1/30/14		Telecommunication Services		2,000		1,498		1,777
Texas Competitive Electric Holdings Co. LLC, L+350, 10/10/14		Utilities		4,473		3,431		3,641
Vertellus Specialties, Inc., L+425, 12/10/12		Materials		487		416		472
WCP Exposition Services Operating Co. LLC, L+600, 3.0% LIBOR Floor, 8/29/11		Consumer Discretionary		544		246		320
West Corp., L+500, 3.5% LIBOR Floor, 10/24/13		Telecommunication Services		495		442		498
Yell Group Plc, L+300, 7/31/14		Consumer Discretionary		845		656		626

Total Senior Secured Loans—First Lien						41,835		45,780

Senior Secured Loans—Second Lien—48.8%
Allen Systems Group, Inc., L+800, 3.0% LIBOR Floor, 2.0% PIK, 4/19/14		Information Technology		4,016		3,812		3,906
American Safety Razor, L+625, 1/30/14		Consumer Staples		2,500		1,864		1,744
AmWINS Group, Inc., L+550, 6/8/14		Financials		300		184		247
Aspect Software, Inc., L+700, 7/11/12		Information Technology		3,500		2,187		3,229
Asurion Corp., L+650, 7/3/15^(c)		Financials		3,000		2,600		2,905
Attachmate Corp., L+675, 10/13/13		Information Technology		3,000		2,433		2,460
Awesome Acquisition Co., L+500, 6/4/14		Consumer Discretionary		2,940		2,195		2,322
Bresnan Communications LLC, L+450, 3/29/14		Telecommunication Services		1,000		765		953
Building Materials Corp. of America, L+575, 10/6/14		Materials		2,000		1,654		1,825
Custom Building Products, L+800, 2.8% LIBOR Floor, 4/20/12		Materials		2,500		2,347		2,397
Datatel, Inc., L+825, 2.0% LIBOR Floor, 12/10/16		Information Technology		5,000		4,901		5,075
Dresser, Inc., L+575, 5/4/15^(c)		Energy		4,000		3,116		3,723
FR Brand Acquisition Corp., L+600, 2/7/15		Industrials		2,000		1,306		1,682
Harrington Holdings, Inc., L+600, 7/11/14		Healthcare		1,000		680		840
ILC Holdings, Inc., 11.5%, 6/30/14		Industrials		4,000		4,000		4,020
Intergraph Corp., L+600, 11/28/14		Information Technology		1,000		868		950
Sirius Computer Solutions, Inc., L+600, 5/30/13		Information Technology		3,000		2,152		2,550
Sorenson Communications, Inc., L+700, 2/16/14		Telecommunication Services		3,008		2,584		2,968
TPF Generation Holdings (Tenaska Power Fund), L+425, 12/15/14^(c)		Energy		2,000		1,703		1,725

Total Senior Secured Loans—Second Lien						41,351		45,521

See notes to consolidated financial statements.

F-12

FS Investment Corporation

Schedule of Investments (continued)

As of December 31, 2009

(in thousands)


Portfolio Company^(a)	Industry		Principal Amount		Amortized Cost		Fair Value^(b)
Mezzanine Debt—10.0%
ATI Enterprises, Inc., L+1100, 2.3% LIBOR Floor, 12/30/16^(c)		Consumer Discretionary	$	5,000	$	4,901	$	4,925
Sorenson Holdings, Inc., L+1200 PIK, 8/16/14^(c)		Telecommunication Services		4,616		4,230		4,366

Total Mezzanine Debt						9,131		9,291

TOTAL INVESTMENTS—107.9%					$	92,317		100,592

LIABILITIES IN EXCESS OF OTHER ASSETS—(7.9%)								(7,395	)

NET ASSETS—100.0%							$	93,197

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

(b)	Fair value determined by the Company’s Board of Directors (see Note 7).

(c)	Position or portion thereof unsettled as of December 31, 2009.

See notes to consolidated financial statements.

F-13

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 1. Principal Business and Organization

FS Investment Corporation, or the Company, was incorporated under the general corporation laws of the State of Maryland on December 21, 2007 and formally commenced operations on January 2, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be treated for federal income tax purposes as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of December 31, 2010, the Company had one wholly-owned financing subsidiary, Broad Street Funding LLC, or Broad Street, which was established on February 2, 2010. On March 1, 2011, the Company formed a second wholly-owned financing subsidiary, Arch Street Funding LLC, or Arch Street. See “Note 12. Subsequent Events.” The consolidated financial statements include both the Company’s accounts and the accounts of Broad Street. The consolidated financial statements do not include the accounts of Arch Street, as Arch Street was not in existence during the periods covered by the consolidated financial statements. All significant intercompany transactions have been eliminated in consolidation.

Since commencing its initial public offering and through March 15, 2011, the Company has sold 56,357,510 shares (as adjusted for stock distributions) of common stock for gross proceeds of $576,396. As of March 15, 2011, the Company had raised total gross proceeds of $577,396, including approximately $1,000 contributed by the principals of the Company’s investment adviser in February 2008. During the years ended December 31, 2010 and 2009, the Company sold 31,320,067 and 10,105,293 shares for gross proceeds of $324,420 and $93,464 at an average price per share of $10.36 and $9.25, respectively. The gross proceeds received during the years ended December 31, 2010 and 2009 include reinvested stockholder distributions of $8,252 and $490, respectively. During the period from January 1, 2011 to March 15, 2011, the Company sold 14,932,150 shares of common stock for gross proceeds of $158,512 at an average price per share of $10.62.

The proceeds from the issuance of common stock as presented on the Company’s consolidated statements of changes in net assets and consolidated statements of cash flows are presented net of selling commissions of $30,252 and $8,187 for the years ended December 31, 2010 and 2009, respectively.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying audited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles. The Company has evaluated the impact of subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

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

Cash and Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. All cash balances are maintained with high credit quality financial institutions, which are members of the FDIC.

F-14

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Valuation of Portfolio Investments: The Company determines the net asset value of its investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by the Company’s board of directors. In connection with that determination, the Company’s investment adviser, FB Income Advisor, LLC or FB Advisor, prepares portfolio company valuations using relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.

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

•

the quarterly valuation process begins with each portfolio company or investment being initially valued by FB Advisor’s management team, with such valuation potentially taking into account information received from the Company’s sub-adviser or an independent valuation firm, if applicable;

•

preliminary valuation conclusions are then documented and discussed with the Company’s valuation committee;

•

the valuation committee reviews the preliminary valuation and FB Advisor’s management team, together with the Company’s independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the valuation committee; and

•

the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on various statistical and other factors, including the input and recommendation of FB Advisor, the valuation committee and any third-party valuation firm, if applicable.

Determination of fair value involves subjective judgments and estimates. Accordingly, these notes to the Company’s financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations on the Company’s financial statements. Below is a description of factors that the board of directors may consider when valuing the Company’s debt and equity investments.

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

F-15

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments.

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

The Company’s board of directors may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Company’s board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. Generally, the value of the Company’s equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

The fair values of the Company’s investments are determined in good faith by its board of directors. The Company’s board of directors is solely responsible for the valuation of the Company’s portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and consistently applied valuation process. The Company’s investments as of December 31, 2010 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. The Company valued its collateralized loan and debt obligations and its mezzanine debt investments by obtaining bid and ask prices from independent dealers. The Company valued all of its other investments, including its senior secured bond investments, by using an independent third-party pricing service, which provided prevailing bid and ask prices that were screened for validity by the service from dealers on the date of the relevant period end. The Company’s investments as of December 31, 2009 consisted entirely of debt securities that are traded on a private over-the-counter market for institutional investors. The Company valued one of its second lien investments and one of its mezzanine debt investments by obtaining bid and ask prices from independent dealers. The Company valued all of its other investments by using an independent third-party pricing service, which provided prevailing bid and ask prices that were screened for validity by the service from dealers on the date of the relevant period end. The Company periodically benchmarks the bid and ask prices received from the service against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the Company’s experience in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods to determine fair value for securities for which the Company cannot obtain prevailing bid and ask prices through its third-party pricing service. The Company’s valuation committee and board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation process.

Revenue Recognition: Security transactions are accounted for on the trade date. The Company records interest income on an accrual basis to the extent that it expects to collect such amounts. The Company does not

F-16

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

accrue as a receivable interest or dividends on loans and securities if it has reason to doubt the ability to collect such income. Loan origination fees, original issue discount, and market discount are capitalized and such amounts are amortized as interest income over the respective term of the loan. Upon the prepayment of a loan or security, any unamortized loan origination fees are recorded as interest income. The Company records prepayment premiums on loans and securities as interest income when it receives such amounts.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign Currency: Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized. Net change in unrealized gains or losses on foreign currency reflects the change in portfolio investment values during the reporting period due to the impact of foreign currency fluctuations.

Capital Gains Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement the Company entered into with FB Advisor, the incentive fee on capital gains earned on liquidated investments of the Company’s portfolio during operations prior to a liquidation of the Company will be determined and payable in arrears as of the end of each calendar year. Such fee will equal 20.0% of the Company’s incentive fee capital gains (i.e., the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While the investment advisory and administrative services agreement with FB Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, commencing during the quarter ended December 31, 2010, the Company has changed its methodology for accruing for this incentive fee to include unrealized gains in the calculation of the capital gains incentive fee expense and related capital gains incentive fee payable. This accrual reflects the incentive fees that would be payable to FB Advisor as if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though FB Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized. During the year ended December 31, 2010, the Company accrued a capital gains incentive fee of $5,459 based on the performance of its portfolio, of which only $1,396 was based on realized gains and is payable to FB Advisor.

Organization Costs: Organization costs include, among other things, the cost of incorporation including the cost of legal services pertaining to the organization and incorporation of the business and incorporation fees. These costs are expensed as incurred and are included in other general and administrative expenses. For the year ended December 31, 2008, the Company incurred organization costs of $605, which were paid on behalf of the Company by an affiliate and have been recorded as a capital contribution (Note 4). There were no organization costs for the years ended December 31, 2010 and 2009.

Offering Costs: The Company’s offering costs include, among other things, legal fees and other costs pertaining to the preparation of the Company’s Registration Statement on Form N-2 pertaining to the public offering of its shares of common stock, or the Registration Statement. The Company has charged offering costs

F-17

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

against capital in excess of par on the balance sheet. During the years ended December 31, 2010, 2009 and 2008, the Company had offering costs of $1,671, $387 and $1,310, respectively, of which $1,125, $387 and $1,310, respectively, were paid on behalf of the Company by an affiliate and have been recorded as a contribution to capital (Note 4).

Income Taxes: The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. To maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. As a RIC, the Company will not have to pay corporate-level federal income taxes on any income that it distributes to its stockholders. The Company intends to make sufficient distributions to its stockholders to maintain its RIC status each year and to not pay any federal income taxes on income so distributed. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes.

Uncertainty in Income Taxes: The Company evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the Statements of Operations. During the years ended December 31, 2010, 2009 and 2008, the Company did not incur any interest or penalties.

The Company has analyzed the tax positions taken on federal and state income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Company’s financial statements. The Company’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Distributions: Distributions to stockholders are recorded as of the record date. The amount of distributions was determined by the Company’s board of directors on a monthly basis. Net realized capital gains, if any, are distributed or deemed distributed at least annually.

Reclassifications: Certain amounts in the consolidated financial statements for the year ended December 31, 2009 have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2010. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations or cash flows as previously reported.

Note 3. Recently Issued Accounting Standards

F-18

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

disclosure requirements on the level of disaggregation and disclosures regarding inputs and valuation techniques. The guidance applies to all entities required to make disclosures about recurring and nonrecurring fair value measurements. The effective date of this guidance is the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. Except for the gross presentation of Level 3 roll forward information, the Company adopted this guidance during 2010, and such adoption did not have a significant impact on the Company’s consolidated financial statements or disclosures. The Company is currently evaluating the impact that the gross presentation of Level 3 roll forward information will have on its consolidated financial statement disclosures when adopted. See “Note 7. Fair Value of Financial Instruments” for a discussion of the three-level fair value hierarchy employed by the Company under existing accounting guidance.

Note 4. Related Party Transactions

The Company has entered into an investment advisory and administrative services agreement with FB Advisor. Pursuant to the investment advisory and administrative services agreement, FB Advisor is entitled to an annual base management fee of 2.0% of the average value of the Company’s gross assets and an incentive fee based on the Company’s performance. The incentive fee consists of three parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears and equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subordinated to a preferred return on adjusted capital, as defined in the Company’s investment advisory and administrative services agreement, equal to 2.0% per quarter, or an annualized rate of 8.0%. The second part of the incentive fee, which is referred to as the incentive fee on capital gains during operations, is an incentive fee on capital gains earned on liquidated investments from the Company’s portfolio during operations prior to a liquidation of the Company and is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar 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. The third part of the incentive fee, which is referred to as the subordinated liquidation incentive fee, equals 20.0% of the net proceeds from a liquidation of the Company in excess of adjusted capital, as calculated immediately prior to liquidation.

The Company commenced accruing fees under the investment advisory and administrative services agreement on January 2, 2009, upon the commencement of the Company’s operations. During the years ended December 31, 2010 and 2009, FB Advisor earned $7,900 and $829, respectively, in base management fees. Management fees are paid on a quarterly basis in arrears. The Company paid $5,039 and $392, respectively, of these fees during the years ended December 31, 2010 and 2009.

The Company accrues for the capital gains incentive fee, which, if earned, is paid annually. The Company accrues the incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FB Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. During the year ended December 31, 2010, the Company accrued a capital gains incentive fee of $5,459 based on the performance of the Company’s portfolio, of which only $1,396 was based on realized gains and is payable to FB Advisor. During the year ended December 31, 2010, the Company paid FB Advisor $173 in capital gains incentive fees earned during the year ended December 31, 2009.

F-19

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

The Company also reimburses FB Advisor for expenses necessary for its performance of services related to administering and operating the Company, provided that such reimbursement shall be the lower of FB Advisor’s actual costs or the amount that the Company would be required to pay for comparable services in the same geographic location, and provided further that such costs will be reasonably allocated to the Company on the basis of assets, revenues, time records or other reasonable methods. During the years ended December 31, 2010 and 2009, the Company incurred administrative services charges of $924 and $261, respectively, attributable to FB Advisor. Of these charges, $908 and $257, respectively, related to the allocation of costs of administrative personnel for services provided to the Company by employees of FB Advisor and the remainder related to other reimbursable expenses. The Company paid FB Advisor $710 and $165, respectively, for the services incurred under this arrangement during the years ended December 31, 2010 and 2009.

Franklin Square Holdings, L.P., or Franklin Square Holdings, the Company’s sponsor and an affiliate of FB Advisor, funded offering costs and other expenses in the amount of $1,125, $404 and $1,914 for the years ended December 31, 2010, 2009 and 2008, respectively. These costs have been recorded by the Company as a contribution to capital. The offering costs were offset against capital in excess of par on the financial statements and the other expenses were charged to expense as incurred by the Company. The Company incurred organization costs of $605 during the year ended December 31, 2008. No such costs were incurred during the years ended December 31, 2010 and 2009.

The dealer manager for the Company’s public offering is FS²Capital Partners, LLC, or FS², which is one of the Company’s affiliates. During the years ended December 31, 2010, and 2009, FS²retained $5,435 and $1,295, respectively, for selling commissions and dealer manager fees in connection with the sale of the Company’s common stock.

Under the terms of the investment advisory and administrative services agreement, when the Company’s Registration Statement was declared effective by the SEC and the Company was successful in raising gross proceeds from unrelated outside investors of at least $2.5 million, or the minimum offering requirement, FB Advisor became entitled to receive 1.5% of gross proceeds raised until all offering costs and organization costs funded by FB Advisor or its affiliates (including Franklin Square Holdings) have been recovered. On January 2, 2009, the Company exceeded the minimum offering requirement. The Company paid total reimbursements of $1,678 and $1,418, respectively, to FB Advisor and its affiliates during the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, $641 is payable to FB Advisor and its affiliates under this arrangement. The reimbursements are recorded as a reduction of capital.

Members of FB Advisor’s senior management team provide investment advisory services to both the Company and FB Capital Partners, L.P. FB Capital Partners, L.P., which is owned by Mr. Forman, the Company’s chief executive officer, was organized for the purpose of sourcing and managing income-oriented investments for institutions and high net worth individuals. While neither FB Capital Partners, L.P. nor FB Advisor is making private corporate debt investments for clients other than the Company currently, FB Advisor intends to allocate investment opportunities in a fair and equitable manner consistent with the Company’s investment objectives and strategies, if necessary, so that the Company will not be disadvantaged in relation to any other client of FB Advisor or its management team.

Beginning on February 26, 2009, Franklin Square Holdings agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that, for tax purposes, the Company’s net investment income and net capital gains are equal to or greater than the cumulative distributions paid to the Company’s stockholders in each quarter. This arrangement is designed to ensure that no portion of the Company’s distributions will represent a

F-20

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

return of capital for the Company’s stockholders. Franklin Square Holdings has no obligation to reimburse any portion of the Company’s expenses. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. During the year ended December 31, 2010, the Company received no reimbursements from Franklin Square Holdings. During the year ended December 31, 2009, the reimbursements from Franklin Square Holdings totaled $240. The Company does not expect that conditions will require Franklin Square Holdings to provide reimbursements in the future. To the extent reimbursements may be needed in the future, there can be no assurance that Franklin Square Holdings will provide any such reimbursements. Franklin Square Holdings is controlled by the Company’s chief executive officer, Michael Forman, and its director, David Adelman.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company has declared and paid on its common stock during the years ended December 31, 2008, 2009 and 2010:


	Distribution
For the Year Ended	Per Share^(1)(2)(3)		Amount
2008	$	0.1835	$	25
2009		0.6717		3,134
2010		0.8728		21,389

(1)	The amount of each per share distribution has been retroactively adjusted to reflect the stock distributions declared throughout 2009 and 2010 as discussed below.

(2)	In addition to regular semi-monthly cash distributions during such period, cash distributions declared and paid on the Company’s common stock during the year ended December 31, 2010 include approximately $3,851, or approximately $0.12 per share, in special cash distributions.

(3)

On October 13, 2010, the Company’s board of directors determined to increase the amount of semi-monthly distributions payable to stockholders of record from $0.03125 per share to $0.03185 per share, effective October 1, 2010. On October 29, 2010, the Company’s board of directors determined to increase the amount of semi-monthly distributions payable to stockholders of record from $0.03185 per share to $0.032156 per share, effective November 1, 2010.

On January 13, 2011, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.032156 per share each, which were paid on January 31, 2011 to stockholders of record on January 14, 2011 and January 28, 2011, respectively. On February 14, 2011, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.032156 per share each, which were paid on February 28, 2011 to stockholders of record on February 14, 2011 and February 25, 2011, respectively. On March 14, 2011, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.032156 per share each, which will be paid on March 31, 2011 to stockholders of record on March 14, 2011 and March 30, 2011, respectively. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a distribution, its stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock.

F-21

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and expense reimbursements from Franklin Square Holdings. The following table reflects, for tax purposes, the sources of the cash distributions that the Company has paid on its common stock during the years ended December 31, 2010, 2009 and 2008:


	Year ended December 31,
	2010					2009					2008
Source of Distribution	Distribution Amount		Percentage			Distribution Amount		Percentage			Distribution Amount		Percentage
Offering proceeds	$	—		—		$	—		—		$	—		—
Borrowings		—		—			—		—			—		—
Net investment income⁽¹⁾		13,545		63	%		1,917		61	%		25		100	%
Capital gains proceeds from the sale of assets		7,844		37	%		977		31	%		—		—
Non-capital gains proceeds from the sale of assets		—		—			—		—			—		—
Expense reimbursement from sponsor		—		—			240		8	%		—		—

Total	$	21,389		100	%	$	3,134		100	%	$	25		100	%

(1)	During the years ended December 31, 2010 and 2009, 84% and 57%, respectively, of the Company’s gross investment income was attributable to cash interest earned and 16% and 43%, respectively, was attributable to non-cash accretion of discount and PIK interest.

The aggregate cost of the Company’s investments for federal income tax purposes totaled $715,695 and $92,366 as of December 31, 2010 and 2009, respectively. The aggregate net unrealized appreciation on a tax basis was $17,885 and $8,226 as of December 31, 2010 and 2009, respectively. The Company’s net investment income on a tax basis for the years ended December 31, 2010 and 2009 was $13,545 and $2,157, respectively. The Company distributed all of its net investment income earned as of December 31, 2010 and 2009.

The difference between the Company’s GAAP-basis net investment income and its tax-basis net investment income is due to the tax-basis amortization of organization and start-up costs incurred prior to the commencement of the Company’s operations, interest income earned on a tax basis due to the required accretion of discount on a non-performing loan, and the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company. See “Note 2. Summary of Significant Accounting Policies—Capital Gains Incentive Fee.” The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the years ended December 31, 2010 and 2009:


	Year ended December 31,
	2010			2009
GAAP basis net investment income	$	9,392		$	2,151
Amortization of organizational costs		(43	)		(43	)
Tax accretion of discount on investment		133			49
Reversal of incentive fee accrual on unrealized gains		4,063			—

Tax basis net investment income	$	13,545		$	2,157

F-22

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

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

The following table reflects the stock distributions per share that the Company declared on its common stock to date:


Date Declared	Record Date		Payment Date		Distribution Percentage			Shares Issued
Fiscal 2009
March 31, 2009		March 31, 2009		March 31, 2009		1.4	%		13,818
April 30, 2009		April 30, 2009		April 30, 2009		3.0	%		42,661
May 29, 2009		May 29, 2009		May 29, 2009		3.7	%		79,125
June 30, 2009		June 30, 2009		June 30, 2009		3.5	%		96,976
July 30, 2009		July 31, 2009		July 31, 2009		3.1	%		117,219
August 31, 2009		August 31, 2009		August 31, 2009		3.0	%		148,072
December 31, 2009		December 31, 2009		December 31, 2009		0.5	%		49,710
Fiscal 2010
January 28, 2010		January 31, 2010		January 31, 2010		2.5	%		283,068

The purpose of these special distributions was to maintain a net asset value per share that was below the then-current net offering price, as required by the 1940 Act, subject to certain limited exceptions. The Company’s board of directors determined that its portfolio performance sufficiently warranted taking these actions.

The stock distributions increased the number of shares outstanding, thereby reducing the Company’s net asset value per share. However, because the stock distributions were issued to all stockholders in proportion to their current holdings, the reduction in net asset value per share as a result of the stock distributions was offset exactly by the increase in the number of shares owned by each investor. As overall value to an investor was not reduced as a result of the special stock distributions, the Company’s board of directors determined that these issuances would not be dilutive to existing stockholders. As the stock distributions did not change any stockholder’s proportionate interest in the Company, they are not expected to represent taxable distributions. Specific tax characteristics of all distributions are reported to stockholders annually on Form 1099-DIV.

As of December 31, 2010 and 2009, the components of accumulated earnings on a tax basis were as follows:


	As of December 31,
	2010			2009
Distributable ordinary income	$	1,290		$	53
Incentive fee accrual on unrealized gains		(4,063	)		—
Unamortized organizational costs		(558	)		(600	)
Unrealized appreciation on investments⁽¹⁾		17,885			8,226

	$	14,554		$	7,679

(1)	As of December 31, 2010 and 2009, the gross unrealized appreciation on the Company’s investments was $20,136 and $8,390, respectively. As of December 31, 2010 and 2009, the gross unrealized depreciation on the Company’s investments was $2,251 and $164, respectively.

F-23

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 6. Investment Portfolio

The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of December 31, 2010 and 2009:


	Year Ended December 31,
	2010							2009
	Cost⁽¹⁾		Fair Value		Percentage of Portfolio			Cost⁽¹⁾		Fair Value		Percentage of Portfolio
Senior Secured Loans—First Lien	$	473,881	$	484,105		66	%	$	41,835	$	45,780		46	%
Senior Secured Loans—Second Lien		131,960		135,962		19	%		41,351		45,521		45	%
Senior Secured Bonds		30,265		31,659		4	%		—		—		—
Mezzanine Debt/Other		79,408		81,854		11	%		9,131		9,291		9	%

	$	715,514	$	733,580		100	%	$	92,317	$	100,592		100	%

(1)	Cost represents the original cost adjusted for the accretion of discounts on debt investments.

The Company does not “control” and is not an “affiliate” of any of its portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if it owned 5% or more of its voting securities.

The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of December 31, 2010, the Company had three such investments, all of which have been fully funded.

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of December 31, 2010 and 2009:


	Year Ended December 31,
	2010					2009
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Consumer Discretionary	$	129,749		17.6	%	$	10,739		10.7	%
Consumer Staples		56,184		7.7	%		4,615		4.6	%
Energy		69,048		9.4	%		9,388		9.3	%
Financials		59,431		8.1	%		6,876		6.8	%
Healthcare		63,460		8.7	%		3,927		3.9	%
Industrials		96,762		13.2	%		10,943		10.9	%
Information Technology		117,499		16.0	%		32,030		31.8	%
Materials		46,832		6.4	%		5,762		5.7	%
Telecommunication Services		81,675		11.1	%		12,671		12.7	%
Utilities		12,940		1.8	%		3,641		3.6	%

Total	$	733,580		100.0	%	$	100,592		100.0	%

F-24

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments

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

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

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

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

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

As of December 31, 2010 and 2009, the Company’s investments were categorized as follows in the fair value hierarchy:


	Year Ended December 31,
Valuation Inputs	2010		2009
Level 1—Price quotations in active markets	$	—	$	—
Level 2—Significant other observable inputs		—		—
Level 3—Significant unobservable inputs		733,580		100,592

	$	733,580	$	100,592

The Company’s investments as of December 31, 2010 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. The Company valued its collateralized loan and debt obligations and its mezzanine debt investments by obtaining bid and ask prices from independent dealers. The Company valued all of its other investments, including its senior secured bond investments, by using an independent third-party pricing service, which provided prevailing bid and ask prices that were screened for validity by the service from dealers on the date of the relevant period end. The Company’s investments as of December 31, 2009 consisted entirely of debt securities that are traded on a private over-the-counter market for institutional investors. The Company valued one of its second lien investments and one of its mezzanine debt investments by obtaining bid and ask prices from independent dealers. The Company valued all of its other investments by using an independent third-party pricing service, which provided prevailing bid and ask prices that were screened for validity by the service from dealers on the date of the relevant period end. The Company periodically benchmarks the bid and ask prices received from the service against the actual prices at which it purchases and sells its investments. Based on the results of the benchmark analysis and the Company’s experience in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the

F-25

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

fair value hierarchy. The Company may also use other methods to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through the third-party pricing service. The Company’s valuation committee and board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation process.

The following is a reconciliation for the years ended December 31, 2010 and 2009 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:


	For the Year Ended December 31, 2010
	Senior Secured Loans - First Lien			Senior Secured Loans - Second Lien			Senior Secured Bonds			Mezzanine Debt/Other			Total
Fair value at beginning of period	$	45,780		$	45,521		$	—		$	9,291		$	100,592
Accretion of discount		2,933			1,656			(8	)		244			4,825
Net realized gain (loss)		4,378			4,788			(890	)		805			9,081
Net change in unrealized appreciation (depreciation)		6,279			(167	)		1,394			2,285			9,791
Purchases		555,405			153,442			55,282			85,113			849,242
Paid-in-kind interest		—			61			—			42			103
Sales and redemptions		(130,670	)		(69,339	)		(24,119	)		(15,926	)		(240,054	)
Net transfers in or out of Level 3		—			—			—			—			—

Fair value at end of period	$	484,105		$	135,962		$	31,659		$	81,854		$	733,580

The amount of total gains for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	4,696		$	(2,942	)	$	1,394		$	2,150		$	5,298


	For the Year Ended December 31, 2009
	Senior Secured Loans - First Lien			Senior Secured Loans - Second Lien			Senior Secured Bonds			Mezzanine Debt/Other			Total
Fair value at beginning of period	$	—		$	—		$	—		$	—		$	—
Accretion of discount		963			793			—			6			1,762
Net realized gain		694			—			—			107			801
Net change in unrealized appreciation		3,945			4,170			—			160			8,275
Purchases		52,302			40,542			—			11,904			104,748
Paid-in-kind interest		1			16						116			133
Sales and redemptions		(12,125	)		—			—			(3,002	)		(15,127	)
Net transfers in or out of Level 3		—			—			—			—			—

Fair value at end of period	$	45,780		$	45,521		$	—		$	9,291		$	100,592

The amount of total gains for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	3,945		$	4,170		$	—		$	160		$	8,275

F-26

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 8. Share Repurchase Program

The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The first such tender offer commenced in March 2010 and the repurchase occurred in connection with the Company’s April 1, 2010 closing. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:

•

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

•

the liquidity of its assets (including fees and costs associated with disposing of assets);

•

the Company’s investment plans and working capital requirements;

•

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

•

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

•

the condition of the securities markets.

The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the sale of shares under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares. In addition, the Company will not repurchase shares in any calendar year in excess of 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter. The Company will offer to repurchase such shares on each date of repurchase at a price equal to 90% of the current offering price in effect on each date of repurchase. The Company’s board of directors may amend, suspend or terminate the repurchase program at any time upon 30 days’ notice. During the year ended December 31, 2010, the Company repurchased 228,950 shares at $9.36 per share for aggregate consideration totaling $2,143. On January 3, 2011, the Company repurchased 99,633 shares at $9.59 per share for aggregate consideration totaling $955.

Note 9. Revolving Credit Facility

On January 28, 2011, Broad Street and Deutsche Bank AG, New York Branch, or Deutsche Bank, entered into an amended and restated multi-lender, syndicated revolving credit facility, or the credit facility, which amended and restated the revolving credit facility Broad Street originally entered into with Deutsche Bank on March 10, 2010 and the amendments thereto, or the original credit facility. Deutsche Bank is a lender and serves as administrative agent under the credit facility.

F-27

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Tranche B Commitment that was provided under the original credit facility by Deutsche Bank to Broad Street on an uncommitted basis was converted into a $100,000 Tranche C Commitment provided by a new lender on a committed basis.

In connection with entering into the original credit facility, and from time to time thereafter, the Company has transferred debt securities to Broad Street as a contribution to capital and retains a residual interest in the contributed debt securities through the Company’s ownership of Broad Street. The Company may contribute additional debt securities to Broad Street from time to time and Broad Street may purchase additional debt securities from various sources. Broad Street has appointed the Company to manage its portfolio of debt securities pursuant to the terms of an investment management agreement. Broad Street’s obligations to the lenders under the credit facility are secured by a first priority security interest in substantially all of the assets of Broad Street, including its portfolio of debt securities.

As of December 31, 2010, $297,201 was outstanding under the credit facility. The carrying amount of the amount outstanding under the credit facility approximates its fair value. The Company incurred costs of $1,341 in connection with obtaining and amending the credit facility, which the Company has recorded as deferred financing costs on its consolidated balance sheet and amortizes to interest expense over the life of the credit facility. As of December 31, 2010, $835 of such deferred financing costs have yet to be amortized to interest expense.

The effective interest rate under the credit facility was 2.38% on December 31, 2010. Interest is paid quarterly in arrears, and commenced August 20, 2010. The Company recorded interest expense of $3,881 for the year ended December 31, 2010, of which $506 related to the amortization of deferred financing costs. The Company paid $2,492 in interest expense for the year ended December 31, 2010. The average borrowings under the credit facility for the year ended December 31, 2010 were $170,161, with a weighted average interest rate of 2.6%.

Borrowings under the credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Broad Street varies depending upon the types of assets in Broad Street’s portfolio. The occurrence of certain events described as “Super-Collateralization Events” in the credit agreement that governs the credit facility, or a decline in the Company’s net asset value below a specified threshold, results in a lowering of the amount of funds that will be advanced against such assets. Super-Collateralization Events include, without limitation, (i) certain key employees ceasing to be directors, principals, officers or investment managers of GSO / Blackstone Debt Funds Management LLC, or GDFM, the sub-adviser to FB Advisor; (ii) the bankruptcy or insolvency of GDFM or FB Advisor; (iii) GDFM ceasing to act as the Company’s sub-adviser or FB Advisor ceasing to act as the Company’s investment adviser; (iv) the Company ceasing to act as Broad Street’s investment manager, becoming bankrupt or insolvent, defaulting on certain material agreements or failing to maintain a net asset value at least equal to $50,000; and (v) the Company or GDFM or FB Advisor committing fraud or other illicit acts in its or their investment advisory capacities.

In connection with the credit facility, Broad Street has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. In addition to customary events of default included in financing transactions, the credit facility contains the following events of default: (a) the failure to make principal payments when due or interest payments within three business days of when due, (b) borrowings under the credit facility exceeding the applicable advance rates, (c) the purchase by Broad Street of certain ineligible assets, (d) the insolvency or bankruptcy of Broad Street or the Company, (e) the Company ceases to act as investment manager of Broad Street’s assets, (f) the decline of

F-28

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

the Company’s net asset value below $50,000 and (g) fraud or other illicit acts by the Company, FB Advisor or GDFM in its or their investment advisory capacities. During the continuation of an event of default, Broad Street must pay interest at a default rate.

Borrowings of Broad Street will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to business development companies.

Note 10. Broad Street Funding LLC

The financial statements of Broad Street are maintained separate from those of the Company. The assets of Broad Street are pledged as collateral supporting the amounts outstanding under the credit facility and as such are not available to pay the debts of the Company. The following is the balance sheet of Broad Street as of December 31, 2010:


Assets
Investments, at fair value (amortized cost—$527,964)	$	540,186
Cash		9,534
Receivable for investments sold and repaid		5,162
Interest receivable		2,360
Deferred financing costs		835

Total assets	$	558,077


Liabilities
Payable for investments purchased	$	48,947
Credit facility payable		297,201
Due to FS Investment Corporation		992
Interest payable		883
Other accrued expenses		43

Total liabilities		348,066

Member’s equity		210,011

Total liabilities and member’s equity	$	558,077

F-29

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 11. Financial Highlights

The following is a schedule of financial highlights for the years ended December 31, 2010, 2009 and 2008:


	Year Ended December 31,
	2010			2009			2008
Per Share Data⁽¹⁾:
Net asset value, beginning of period	$	9.10		$	7.33		$	—
Results of operations⁽²⁾
Net investment income		0.40			0.48			(4.72	)
Net realized and unrealized appreciation on investments and unrealized loss on foreign currency		0.81			2.09			—

Net increase (decrease) in net assets resulting from operations		1.21			2.57			(4.72	)

Stockholder distributions⁽³⁾
Distributions from net investment income		(0.55	)		(0.46	)		(0.18	)
Distributions from net realized gain on investments		(0.32	)		(0.21	)		—

Net decrease in net assets resulting from stockholder distributions		(0.87	)		(0.67	)		(0.18	)

Capital share transactions
Issuance of common stock⁽⁴⁾		0.10			0.19			7.32
Repurchases of common stock⁽⁵⁾		—			—			—
Offering costs⁽²⁾		(0.07	)		(0.09	)		(10.67	)
Reimbursement to investment adviser⁽²⁾		(0.10	)		(0.32	)		—
Capital contributions of investment adviser⁽²⁾		0.05			0.09			15.58

Net increase (decrease) in net assets resulting from capital share transactions		(0.02	)		(0.13	)		12.23

Net asset value, end of period	$	9.42		$	9.10		$	7.33

Shares outstanding, end of period		41,332,661			10,241,544			136,251

Total return⁽⁶⁾		13.08	%		33.33	%		2.40	%

Ratio/Supplemental Data:
Net assets, end of period	$	389,232		$	93,197		$	999

Ratio of net investment income to average net assets⁽⁷⁾		4.37	%		5.60	%		(116.12	%)

Ratio of operating expenses to average net assets⁽⁷⁾		9.89	%		6.53	%		121.20	%
Ratio of expenses reimbursed to average net assets⁽⁷⁾		0.00	%		(0.62	%)		0.00	%

Ratio of total operating expenses to average net assets⁽⁷⁾		9.89	%		5.91	%		121.20	%

Portfolio turnover		67.48	%		46.45	%		0.00	%

(1)	The share information utilized to determine per share data has been retroactively adjusted to reflect the stock distributions discussed in Note 5.

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

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

F-30

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

(4)	The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous offering.

(5)	The per share impact for the Company’s repurchases of common stock is a reduction to net asset value of $0.0026 per share.

(6)

The 2008 total return is based on an initial investment at $7.32 per share, which represents the initial offering price per share, net of commissions and discounts, after taking into account the stock distributions to stockholders described in Note 5. The Company’s net loss in 2008 did not reduce net asset value as all expenses were funded by a third-party affiliate. The 2009 total return was calculated by taking the net asset value per share as of December 31, 2009, adding the cash distributions per share which were declared during the calendar year and dividing the total by the net asset value per share on December 31, 2008. The 2010 total return was calculated by taking the net asset value per share as of December 31, 2010, adding the cash distributions per share which were declared during the calendar year and dividing the total by the net asset value per share on December 31, 2009. The total return does not consider the effect of the sales load from the sale of the Company’s common stock.

(7)	Average monthly net assets are used for this calculation.

Note 12. Subsequent Events

On March 18, 2011, Arch Street, the Company’s newly-formed, wholly-owned financing subsidiary, entered into a total return swap, or TRS, for senior secured floating rate loans with Citibank, N.A., or Citibank.

The obligations of Arch Street under the TRS are non-recourse to the Company and the Company’s exposure under the TRS is limited to the value of the Company’s investment in Arch Street, which generally will equal the value of cash collateral provided by Arch Street under the TRS. Pursuant to the terms of the TRS, Arch Street may select a portfolio of loans with a maximum market value of $200,000. Arch Street is required to initially cash collateralize a specified percentage of each loan (generally between 20% and 25% of the market value of such loan) included under the TRS in accordance with margin requirements described in the agreements governing the TRS.

Generally, pursuant to a TRS, one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS is typically used to obtain exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. A TRS may effectively add leverage to the Company’s portfolio because, in addition to the Company’s total net assets, the Company would be subject to investment exposure on the amount of securities subject to the TRS.

The TRS with Citibank enables the Company, through its ownership of Arch Street, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citibank. As such, the TRS is analogous to Arch Street borrowing funds to acquire loans and incurring interest expense to a lender.

F-31

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Pursuant to the terms of an investment management agreement that the Company has entered into with Arch Street, the Company acts as the manager of the rights and obligations of Arch Street under the TRS, including selecting the specific loans to be included in the portfolio of loans subject to the TRS. The terms of the TRS are governed by a set of agreements between Arch Street and Citibank, which collectively establish the TRS, and are collectively referred to herein as the TRS Agreement.

F-32

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

Note 13. Selected Quarterly Financial Data (Unaudited)

The following is the quarterly results of operations for the years ended December 31, 2010 and 2009. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.


	Quarter Ended
	December 31, 2010		September 30, 2010			June 30, 2010			March 31, 2010
Investment income	$	12,798	$	8,678		$	6,060		$	3,134
Operating expenses
Total expenses⁽²⁾		11,215		5,119			2,925			2,019

Net expenses		11,215		5,119			2,925			2,019

Net investment income		1,583		3,559			3,135			1,115
Realized and unrealized gain (loss)		13,681		8,289			(6,852	)		3,754

Net increase (decrease) in net assets resulting from operations	$	15,264	$	11,848		$	(3,717	)	$	4,869

Per share information—basic and diluted
Net investment income	$	0.05	$	0.14		$	0.16		$	0.08

Net increase (decrease) in net assets resulting from operations	$	0.43	$	0.47		$	(0.19	)	$	0.37

Weighted average shares outstanding⁽¹⁾		35,142,181		25,426,504			19,178,168			13,121,990


	Quarter Ended
	December 31, 2009		September 30, 2009			June 30, 2009			March 31, 2009
Investment income	$	2,339	$	1,353		$	570		$	158
Operating expenses
Total expenses		994		785			462			268
Less: Expense reimbursement from sponsor		—		(64	)		(52	)		(124	)

Net expenses		994		721			410			144

Net investment income		1,345		632			160			14
Realized and unrealized gain		2,124		4,650			2,252			279

Net increase in net assets resulting from operations	$	3,469	$	5,282		$	2,412		$	293

Per share information—basic and diluted
Net investment income	$	0.15	$	0.12		$	0.07		$	0.02

Net increase in net assets resulting from operations	$	0.38	$	0.99		$	0.98		$	0.33

Weighted average shares outstanding⁽¹⁾		9,069,349		5,337,073			2,456,465			898,022

(1)	The weighted average share information has been retroactively adjusted to reflect the stock distributions discussed in Note 5.

F-33

FS Investment Corporation

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

(2)

Commencing during the quarter ended December 31, 2010, the Company has changed its methodology for accruing for incentive fees to include unrealized gains in the calculation of the capital gains incentive fee expense. As a result, the Company recorded an additional $4,063 in capital gains incentive fees during this quarter.

The sum of quarterly per share amounts does not equal per share amounts reported for the years ended December 31, 2010 and 2009. This is due to changes in the number of weighted-average shares outstanding and the effects of rounding for each period.

F-34

LOGO

The undersigned hereby tenders this subscription and applies for the purchase of the dollar amount of shares of common stock (the “Shares”) of FS Investment Corporation, a Maryland corporation (sometimes referred to herein as the “Company”), set forth below.


1. INVESTMENT
		¨ Initial Investment - OR -

Amount Of Subscription: $		¨ Additional Investment in this Offering (minimum of $500)

(minimum initial investment is $5,000)		¨ Shares are being Purchased net of commissions (purchase pursuant to a wrap fee arrangement or by a registered representative on his/her own behalf)



2. TYPE OF OWNERSHIP (select only one)

¨ Individual (one signature required)	¨ Custodial Arrangement (owner and custodian signature required)

¨ Joint Tenants with Right of Survivorship (all parties must sign)		¨ IRA	¨ Roth IRA	¨ SEP	¨ KEOGH

¨ Community Property (all parties must sign)		¨ OTHER

¨ Tenants in Common (all parties must sign)	Name of Custodian

¨ Uniform Gift to Minors Act State of (custodian signature required)	Mailing Address

¨ Uniform Transfer to Minors Act State of (custodian signature required)	City			State	Zip

¨ Qualified Pension or Profit Sharing Plan (include Plan Documents)	Custodian Information (to be completed by custodian above)

¨ Trust (include title and signature pages)	Custodian Tax ID #

¨ Corporation (include Corporate Resolution; authorized signature required)	Custodian Account #

¨ Partnership (include Partnership Agreement; authorized signature required)	Custodian Phone #

¨ Other (specify and include title and signature pages)


3. INVESTOR INFORMATION (You must include a permanent street address even if your mailing address is a P.O. Box.)
Individual/Beneficial Owner *(Please print name(s) to whom Shares are to be registered)*
First Name	Middle Name		Last Name
Social Security Number				Date of Birth
Street Address		City		State	Zip Code
If Not a US Citizen, Specify Country of Citizenship				Daytime Phone Number

Joint Owner/Minor
First Name	Middle Name		Last Name
Social Security Number				Date of Birth
Street Address and/or PO Box		City		State	Zip Code
If Not a US Citizen, Specify Country of Citizenship				Daytime Phone Number

A-1

3. INVESTOR INFORMATION (continued)

Trust

Name of Trust

Date of Trust

Name(s) of Trustee(s)

Taxpayer Identification Number

Name of Beneficial Owner(s)

Beneficial Owner(s) Street Address

City

State

Zip Code

Social Security Number

Date of Birth

Occupation

Corporation/Partnership/Other

Entity Name

Tax ID Number

Date of Entity Formation

Entity Type (corporation, partnership, etc.)

If corporation (circle one) C Corp. S Corp.

Name(s) of Officer(s), General Partner or other Authorized Person(s)


4. DISTRIBUTIONS
I hereby subscribe for Shares of FS Investment Corporation and elect the distribution option indicated below: (IRA accounts may not direct distributions without the custodian’s approval)
¨ I choose to participate in FS Investment Corporation’s Distribution Reinvestment Plan.*	¨ I choose to have distributions deposited in a checking, savings or brokerage account.**	¨ I choose to have distributions mailed to me at the address listed in Section 3.	¨ I choose to have distributions mailed to me at the following address:



* Each investor that elects to have his or her distributions reinvested in the FS Investment Corporation’s Distribution Reinvestment Plan agrees to notify the Company and the broker-dealer named in this Subscription Agreement in writing at any time there is a material change in his or her financial condition, including failure to meet the minimum income and net worth standards as imposed by the state in which he or she resides.
** Please attach a pre-printed, voided check.

I authorize FS Investment Corporation or its agent to deposit my distribution to the account indicated below. This authority will remain in force until I notify FS Investment Corporation in writing to cancel it. In the event that FS Investment Corporation deposits funds erroneously into my account, the Company is authorized to debit my account for the amount of the erroneous deposit. I also hereby acknowledge that funds and/or Shares in my account may be subject to applicable abandoned property, escheat or similar laws and may be transferred to the appropriate governmental authority in accordance with such laws, including as a result of account inactivity for the period of time specified in such laws or otherwise. None of the Company, its affiliates, its agents or any other person shall be liable for any property delivered in good faith to a governmental authority pursuant to applicable abandoned property, escheat or similar laws.

Name of Financial Institution

Mailing Address

City

State

Zip Code

Your Bank’s ABA Routing Number

Your Account Number

Account Type

¨ Checking

¨ Savings

¨ Brokerage

The deposit services above cannot be established without a pre-printed, voided check. For Electronic Funds Transfers, the signatures of the bank account owner(s) must appear exactly as they appear on the bank registration. If the registration at the bank differs from that on this Subscription Agreement, all parties must sign below.

Signature of Individual/Trustee/Beneficial Owner

Signature of Joint Owner/Co-Trustee

A-2

5. ELECTRONIC DELIVERY OF DOCUMENTS

¨ In lieu of receiving documents by mail, I authorize FS Investment Corporation to make available on its website at www.fsinvestmentcorp.com its quarterly reports, annual reports, proxy statements, prospectus supplements or other reports required to be delivered to me, as well as any investment or marketing updates, and to notify me via e-mail when such reports or updates are available. (Any investor who elects this option must provide an e-mail address below.)

E-Mail Address:

6. SUBSCRIBER SIGNATURES

Please carefully read and separately initial each of the representations below. In the case of joint investors, each investor must initial. Except in the case of fiduciary accounts, you may not grant any person power of attorney to make such representations on your behalf. In order to induce the fund to accept this subscription, I (we) hereby represent and warrant that:


	Owner		Joint Owner
(a) I (we) have received a Prospectus for the Company relating to the Shares, wherein the terms and conditions of the offering are described and agree to be bound by the terms and conditions therein.		Initials		Initials

(b) I (we) certify that I (we) have (1) a net worth (exclusive of home, home furnishings and automobiles) of $250,000 or more; or (2) a net worth (exclusive of home, home furnishings and automobiles) of at least $70,000 and had during the last tax year or estimate that I (we) will have during the current tax year a minimum of $70,000 annual gross income, or that I (we) meet the higher suitability requirements imposed by my state of primary residence as set forth in the Prospectus under “Suitability Standards.”		Initials		Initials

(c) I am (we are) purchasing Shares for my (our) own account.		Initials		Initials

(d) I (we) acknowledge that the Shares are not liquid, there is no public market for the Shares, and I (we) may not be able to sell the Shares.		Initials		Initials

(e) If I am (we are) a resident of Alabama, I (we) certify that I (we) have a net worth of at least 10 times my (our) investment in the Company and other similar programs.		Initials		Initials

(f) If I am (we are) a resident of Iowa, I (we) certify that I (we) have either (1) a liquid net worth of $85,000 and annual gross income of $85,000; or (2) a liquid net worth of $300,000. I (we) further certify that my (our) total investment in the Company does not exceed 10% of my (our) net worth.		Initials		Initials

(g) If I am (we are) a resident of Kansas, I (we) certify that my (our) aggregate investment in the Company and other similar investments do not exceed 10% of my (our) liquid net worth.		Initials		Initials

(h) If I am (we are) a resident of Kentucky, I (we) certify that I (we) have either (1) a liquid net worth of $85,000 and annual gross income of $85,000; or (2) a liquid net worth of $300,000. I (we) further certify that my (our) total investment in the Company does not exceed 10% of my (our) liquid net worth.		Initials		Initials

(i) If I am (we are) a resident of Massachusetts, I (we) certify that my (our) aggregate investment in the Company and other similar investments do not exceed 10% of my (our) liquid net worth.		Initials		Initials

(j) If I am (we are) a resident of Michigan, I (we) certify that my (our) investment in the Company does not exceed 10% of my (our) net worth.		Initials		Initials

(k) If I am (we are) a resident of Ohio, I (we) certify that my (our) investment in non-traded business development companies, including my (our) investment in the Company and any of the Company’s affiliates, does not exceed 10% of my (our) net worth.		Initials		Initials

(l) If I am (we are) a resident of Oregon, I (we) certify that my (our) investment in the Company does not exceed 10% of my (our) net worth.		Initials		Initials

Substitute IRS Form W-9 Certification:

I (we) declare that the information supplied in this subscription agreement is true and correct and may be relied upon by the Company in connection with my (our) investment in the Company. Under penalties of perjury, each investor signing below certifies that (1) the number shown in the Investor Social Security Number/Taxpayer Identification Number field in Section 3 of this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and (3) I am a U.S. person (including a non-resident alien). NOTE: You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return.

A-3

The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.

By signing below, you hereby acknowledge receipt of the Prospectus of the Company dated April [ ], 2011 not less than five (5) business days prior to the signing of this Subscription Agreement. You agree that if this subscription is accepted, it will be held, together with the accompanying payment, on the terms described in the Prospectus. You agree that subscriptions may be rejected in whole or in part by the Company in its sole and absolute discretion.

You understand that you will receive a confirmation of your purchase, subject to acceptance by the Company, within 15 days from the date your subscription is received, and that the sale of Shares pursuant to this subscription agreement will not be effective until at least five business days after the date you have received a final Prospectus. Residents of the States of Maine, Massachusetts, Minnesota, Missouri, Nebraska and Ohio who first received the Prospectus only at the time of subscription may receive a refund of the subscription amount upon request to the Company within five business days of the date of subscription.

By signing below, you also acknowledge that you have been advised that the assignability and transferability of the Shares is restricted and governed by the terms of the Prospectus; there are risks associated with an investment in the Shares and you should rely only on the information contained in the Prospectus and not on any other information or representations from other sources; and you should not invest in the Shares unless you have an adequate means of providing for your current needs and personal contingencies and have no need for liquidity in this investment.

The Company is required by law to obtain, verify and record certain personal information from you or persons on your behalf in order to establish the account. Required information includes name, date of birth, permanent residential address and social security/taxpayer identification number. We may also ask to see other identifying documents. If you do not provide the information, the Company may not be able to open your account. By signing the Subscription Agreement, you agree to provide this information and confirm that this information is true and correct. You further agree that the Company may discuss your personal information and your investment in the Shares at any time with your then current financial advisor. If we are unable to verify your identity, or that of another person(s) authorized to act on your behalf, or if we believe we have identified potentially criminal activity, we reserve the right to take action as we deem appropriate which may include closing your account.

By signing below, you also acknowledge that the Company does not intend to list its Shares on any securities exchange during the offering period, and it does not expect a secondary market in the Shares to develop. As a result, you should not expect to be able to resell your Shares regardless of how the Company performs. If you are able to sell your Shares, you will likely receive less than your purchase price. The Company has implemented a share repurchase program, but only a limited number of Shares are eligible for repurchase by the Company. Accordingly, you should consider that you may not have access to the money you invest for at least five years, or until the Company completes a liquidity event, which it intends to seek to complete within five to seven years following the completion of its offering stage or at such earlier time as the Company’s board of directors may determine, taking into consideration market conditions and other factors. There is no assurance that the Company will complete a liquidity event within such timeframe or at all. As a result of the foregoing, an investment in the Company’s Shares is not suitable if you require short-term liquidity.


Printed Name of Owner or Authorized Person		Printed Name of Joint Owner or Authorized Person

Signature of Owner or Authorized Person		Signature of Joint Owner or Authorized Person

Date / /		Date / /

A-4


7. FINANCIAL ADVISOR (Please read and complete the following)

The undersigned confirm on behalf of the Broker-Dealer that they (i) are registered in the state in which the sale of the Shares to the investor executing this Subscription Agreement has been made and that the offering of the Shares is registered for sale in such state; (ii) have reasonable grounds to believe that the information and representations concerning the investor identified herein are true, correct and complete in all respects; (iii) have discussed such investor’s prospective purchase of Shares with such investor; (iv) have advised such investor of all pertinent facts with regard to the fundamental risks of the investment, including the lack of liquidity and marketability of the Shares; (v) have delivered a current Prospectus and related supplements, if any, to such investor; (vi) have reasonable grounds to believe that the investor is purchasing these Shares for his or her own account; and (vii) have reasonable grounds to believe that the purchase of Shares is a suitable investment for such investor, that the undersigned will obtain and retain records relating to such investor’s suitability for a period of six years, that such investor meets the suitability standards applicable to such investor set forth in the Prospectus and related supplements, if any, that such investor is in a financial position to enable such investor to realize the benefits of such an investment and to suffer any loss that may occur with respect thereto and that such investor has an understanding of the fundamental risks of the investment, the background and qualifications of the persons managing FS Investment Corporation and the tax consequences of purchasing and owning Shares. The undersigned Financial Advisor further represents and certifies that, in connection with this subscription for Shares, he has complied with and has followed all applicable policies and procedures under his firm’s existing Anti-Money Laundering Program and Customer Identification Program.
Broker-Dealer		Financial Advisor Name
Advisor Street/P.O. Box
City	State	Zip Code
Advisor Number	Branch Number	Telephone Number
Email Address		Fax Number
Financial Advisor Signature			Date
Principal Signature (if required by Broker/Dealer)			Date


8. INVESTMENT INSTRUCTIONS
¨ By Mail – Checks should be made payable to “UMB Bank, N.A., as agent for FS Investment Corporation”.
¨ By Wire Transfer – UMB Bank, N.A., ABA Routing #101000695, FS Investment Corporation, Account #9871737365. Forward this subscription agreement to the address listed below.
¨ By Asset Transfer
¨ Custodial Accounts – Forward this Subscription Agreement directly to the custodian.
Mailing Instructions FS Investment Services c/o DST Systems Inc. (877) 628-8575
Regular Mail P.O. Box 219095 Kansas City, MO 64121-9095		Express/Overnight Delivery 430 W. 7^th Street Kansas City, MO 64105

A-5

APPENDIX A TO SUBSCRIPTION AGREEMENT

NOTICE TO STOCKHOLDER OF ISSUANCE OF

UNCERTIFICATED SHARES OF COMMON STOCK

Containing the Information Required by Section 2-211 of the

Maryland General Corporation Law

To:	Stockholder

From: FS Investment Corporation

Shares of Common Stock, $0.001 par value per share

FS Investment Corporation, a Maryland corporation (the “Corporation”), is issuing to you, subject to acceptance by the Corporation, the number of shares of its common stock (the “Shares”) that correspond to the dollar amount of your subscription as set forth in your subscription agreement with the Corporation. The Shares do not have physical certificates. Instead, the Shares are recorded on the books and records of the Corporation, and this notice is given to you of certain information relating to the Shares. All capitalized terms not defined herein have the meanings set forth in the Corporation’s Charter, as the same may be amended from time to time, a copy of which, including the restrictions on transfer and ownership, will be furnished to each holder of Shares of the Corporation on request and without charge. Requests for such a copy may be directed to the Secretary of the Corporation at its principal office.

The Corporation has the authority to issue shares of stock of more than one class. Upon the request of any stockholder, and without charge, the Corporation will furnish a full statement of the information required by Section 2-211 of the Maryland General Corporation Law with respect to certain restrictions on ownership and transferability, the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, terms and conditions of redemption of the shares of each class of stock which the Corporation has authority to issue, the differences in the relative rights and preferences between the shares of each series to the extent set, and the authority of the Board of Directors to set such rights and preferences of subsequent series. Such requests must be made to the Secretary of the Corporation at its principal office.

A-6

You should rely only on the information contained in this prospectus. No dealer, salesperson or other individual has been authorized to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, you should not rely upon such information or representation. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. This prospectus speaks as of the date set forth below. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus.

Up to 150,000,000 Shares

Common Stock

PROSPECTUS

April [ ], 2011

PART C

Other Information

Item 25. Financial Statements and Exhibits

(1) Financial Statements

The following financial statements of FS Investment Corporation (the “Registrant” or the “Company”) are included in Part A of this Registration Statement:


	Page
Management’s Report on Internal Control over Financial Reporting		F-2
Report of Independent Registered Public Accounting Firm		F-3
Report of Independent Registered Public Accounting Firm		F-4
Consolidated Balance Sheets as of December 31, 2010 and 2009		F-5
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008		F-6
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2010, 2009 and 2008		F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008		F-8
Consolidated Schedule of Investments as of December 31, 2010 and 2009		F-9
Notes to Consolidated Financial Statements		F-14

(2) Exhibits


(a)		Articles of Incorporation of the Registrant**
(a)(2)		Articles of Amendment and Restatement of the Registrant****
(b)		Bylaws of the Registrant***
(b)(1)		Amended and Restated Bylaws of the Registrant****
(d)		Form of Subscription Agreement (included in the Prospectus as Appendix A and incorporated herein by reference)*
(e)		Amended and Restated Distribution Reinvestment Plan****
(g)		Investment Advisory and Administrative Services Agreement by and between the Registrant and FB Income Advisor, LLC**
(g)(1)		First Amendment to the Investment Advisory and Administrative Services Agreement by and between the Registrant and FB Income Advisor, LLC****
(g)(2)		Investment Sub-Advisory Agreement by and between FB Income Advisor, LLC and GSO / Blackstone Debt Funds Management LLC***
(h)(1)		Form of Dealer Manager Agreement by and between the Registrant and FS² Capital Partners, LLC****
(h)(2)		Form of Selected Dealer Agreement (Included as Appendix A to the Form of Dealer Manager Agreement)****
(j)		Custodian Agreement by and between the Registrant and PFPC Trust Company*****
(k)		Form of Escrow Agreement by and between the Registrant and UMB Bank, N.A.****
(k)(1)		Amended and Restated Credit Agreement, dated as of January 28, 2011, by and among Broad Street Funding LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto******
(k)(2)		Asset Contribution Agreement, dated March 10, 2010, by and between the Registrant and Broad Street Funding LLC*******
(k)(3)		First Amendment to Asset Contribution Agreement, dated as of July 13, 2010, by and between the Registrant and Broad Street Funding LLC********
(k)(4)		Investment Management Agreement, dated March 10, 2010, by and between the Registrant and Broad Street Funding LLC*******

C-1


(k)(5)		Amended and Restated Security Agreement, dated as of January 28, 2011, by and between Broad Street Funding LLC and Deutsche Bank AG, New York Branch******
(k)(6)		ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of March 18, 2011, by and between Arch Street Funding LLC and Citibank, N.A. *********
(k)(7)		Confirmation Letter Agreement, dated as of March 18, 2011, by and between Arch Street Funding LLC and Citibank, N.A. *********
(k)(8)		Investment Management Agreement, dated as of March 18, 2011, by and between the Registrant and Arch Street Funding LLC*********
(l)		Opinion of Miles & Stockbridge P.C.****
(n)(1)		Consent of Miles & Stockbridge P.C. (incorporated by reference to exhibit l hereto)****
(n)(2)		Consent of McGladrey & Pullen, LLP*
(r)		Code of Ethics*

*	Filed herewith.

**	Filed as part of initial registration statement on February 25, 2008.

***	Filed as part of Amendment No. 2 to the registration statement on Form N-2, filed on June 19, 2008.

****	Filed as part of Amendment No. 3 to the registration statement on Form N-2, filed on September 17, 2008.

*****

Filed as part of Post-Effective Amendment No. 1 to the registration statement on Form N-2, filed on November 13, 2008.

******

Filed as part of the Registrant’s Current Report on Form 8-K, filed on February 1, 2011 (Items 1.01, 2.03 and 9.01).

*******

Filed as part of the Registrant’s Current Report on Form 8-K, filed on March 16, 2010.

********

Filed as part of the Registrant’s Current Report on Form 8-K, filed on July 19, 2010.

*********

Filed as part of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on March 24, 2011.

Item 26. Marketing Arrangements

The information contained under the heading “Plan of Distribution” in this Registration Statement is incorporated herein by reference.

Item 27. Other Expenses of Issuance and Distribution



SEC registration fee	$	58,950
FINRA filing fee	$	75,500
Blue Sky expenses	$	200,000
Advertising and sales literature	$	2,100,000
Accounting fees and expenses	$	2,175,000
Legal fees and expenses	$	3,825,000
Printing and engraving	$	4,200,000
Seminars	$	5,600,000
Miscellaneous fees and expenses	$	5,953,050
Total	$	24,187,500

C-2

The amounts set forth above, except for the SEC and FINRA fees, are in each case estimated and assume that we sell all of the shares being registered by this registration statement. All of the expenses set forth above shall be borne by the Registrant.

Item 28. Persons Controlled by or Under Common Control

Not applicable.

Item 29. Number of Holders of Securities

The following table sets forth the number of record holders of the Registrant’s capital stock at March 31, 2011:


Title of Class	Number of Record Holders
Common stock, $0.001 par value		16,239

Item 30. Indemnification

Limitation on Liability

Our charter limits the personal liability of our directors and officers to the corporation or its stockholders for monetary damages. Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from:

(a)

actual receipt of an improper benefit or profit in money, property or services; or

(b)

active and deliberate dishonesty established by a final judgment and which is material to the cause of action.

Our charter contains a provision which limits directors’ and officers’ liability, although not to the maximum extent permitted by Maryland law, and subject to the requirements of the 1940 Act. In addition, we intend to obtain director’s and officer’s liability insurance.

Indemnification

Under the Maryland General Corporation Law, a Maryland corporation may indemnify its directors, officers and certain other parties against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service to the corporation or at its request, unless it is established that the act or omission of the indemnified party was material to the matter giving rise to the proceeding and (i) the act or omission was committed in bad faith or was the result of active and deliberate dishonesty, or (ii) in the case of any criminal proceeding, the indemnified party had reasonable cause to believe that the act or omission was unlawful. Maryland law does not permit indemnification in respect of any proceeding in which the party seeking indemnification shall have been adjudged to be liable to the corporation. Further, a party may not be indemnified for a proceeding brought by that party against the corporation, except (i) for a proceeding brought to enforce indemnification or (ii) if the charter or bylaws, a resolution of the board of directors or an agreement approved by the board of directors to which the corporation is a party expressly provides otherwise.

Pursuant to our charter and bylaws, we are obligated to indemnify any present or former director or officer, and certain other individuals, from and against any claim or liability to which that person may become subject or

C-3

which, that person may incur by reason of his or her status as a present or former director or officer or other role on our behalf, only if all of the following conditions are met:

(a)

we have determined, in good faith, that the course of conduct which caused the loss or liability was in the Company’s best interest;

(b)

the indemnitee was acting on behalf of or performing services for the Company;

(c)

the indemnitee’s liability or loss was not the result of the indemnitee’s negligence or misconduct, in the case of directors and officers who are affiliates of FB Advisor, and gross negligence or willful misconduct for independent directors of the Company; and

(d)

such indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from that of a stockholder.

Furthermore, under our charter and bylaws, any director, officer, or any other individual, shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless one or more of the following conditions are met:

(a)

there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee;

(b)

such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or

(c)

a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made, and the court of law considering the request for indemnification has been advised of the position of the Securities an Exchange Commission and the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

Under our charter and bylaws, the Company may not incur the cost of that portion of liability insurance which insures the indemnitee for any liability as to which the indemnitee is prohibited from being indemnified under our charter and bylaws.

Under our charter and bylaws, the advancement of Company funds to an indemnitee or its affiliates for legal expenses and other costs incurred as a result of any legal action for which the indemnification is being sought is permissible only if all the following conditions are satisfied:

(a)

the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company;

(b)

the legal action is initiated by a third party who is not a stockholder, or the legal action is initiated by a stockholder and a court of competent jurisdiction specifically approves of such advancement; and

(c)

the indemnitee or its affiliates undertake to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which such indemnitee is found not to be entitled to indemnification.

Indemnification may reduce the legal remedies available to us and our stockholders against the indemnified individuals. The aforementioned charter and bylaw provisions do not reduce the exposure of directors and officers to liability under federal or state securities laws, nor do they limit a stockholder’s ability to obtain injunctive relief or other equitable remedies for a violation of a director’s or an officer’s duties to us or our stockholders, although the equitable remedies may not be an effective remedy in some circumstances.

C-4

Item 31. Business and Other Connections of Investment Advisers

A description of any other business, profession, vocation, or employment of a substantial nature in which FB Advisor, and each director or executive officer of FB Advisor, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the sections entitled “Management—Board of Directors,” and “Executive Officers” and “Investment Advisory and Administrative Services Agreement.” Additional information regarding FB Advisor and its officers and directors is set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-69111), and is incorporated herein by reference.

A description of any other business, profession, vocation, or employment of a substantial nature in which GDFM, and each director or executive officer of GDFM who performs a policy-making function for GDFM in connection with the performance of its services under the Investment Sub-Advisory Agreement between GDFM and FB Advisor, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the sections entitled “Portfolio Management” and “Investment Advisory and Administrative Services Agreement.” Additional information regarding GDFM and its officers and directors is set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-68243), and is incorporated herein by reference.

Item 32. Location of Accounts and Records

All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules thereunder are maintained at the offices of:

(1)	the Registrant, FS Investment Corporation, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104;

(2)	the Transfer Agent, DST Systems, Inc., 1055 Broadway, Ninth Floor, Kansas City, Missouri 64105-1594;

(3)	the Custodian, PFPC Trust Company, 8800 Tinicum Boulevard, Philadelphia, Pennsylvania 19153;

(4)	the investment adviser, FB Income Advisor, LLC, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104; and

(5)	the administrator, FB Income Advisor, LLC, Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, Pennsylvania 19104.

Item 33. Management Services

Not Applicable.

Item 34.

Undertakings

We hereby undertake:

(1)

to suspend the offering of shares until the prospectus is amended if (i) subsequent to the effective date of this registration statement, our net asset value declines more than ten percent from our net asset value as of the effective date of this registration statement, or (ii) our net asset value increases to an amount greater than our net proceeds as stated in the prospectus;

(2)

to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement

(i)

to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

C-5

(ii)

to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and

(iii)

to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(3)

that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof;

(4)

to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;

(5)

that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Registrant is subject to Rule 430C [17 CFR 230.430C]: Each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the Securities Act of 1933 [17 CFR 230.497(b), (c), (d) or (e)] as part of a registration statement relating to an offering, other than prospectuses filed in reliance on Rule 430A under the Securities Act of 1933 [17 CFR 230.430A], shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use; and

(6)

that for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities, the undersigned Registrant undertakes that in an offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:

(i)

any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the Securities Act of 1933 [17 CFR 230.497];

(ii)

the portion of any advertisement pursuant to Rule 482 under the Securities Act of 1933 [17 CFR 230.482] relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

(iii)

any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

C-6

Signatures

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Post-Effective Amendment No. 8 to this Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on April 7, 2011.


FS Investment Corporation

BY:		/S/ MICHAEL C. FORMAN
Name:		Michael C. Forman
Title:		President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 8 to this Registration Statement on Form N-2 has been signed below by the following persons in the capacities and on the dates indicated:


Signature	Title	Date
/S/ MICHAEL C. FORMAN Michael C. Forman	President and Chief Executive Officer and Director (Principal executive officer)	April 7, 2011

/S/ WILLIAM GOEBEL William Goebel	Chief Financial Officer (Principal financial and accounting officer)	April 7, 2011

* David J. Adelman	Director	April 7, 2011

* Gregory P. Chandler	Director	April 7, 2011

* Barry H. Frank	Director	April 7, 2011

* Thomas J. Gravina	Director	April 7, 2011

* Jeffrey K. Harrow	Director	April 7, 2011

* Michael Heller	Director	April 7, 2011

* Paul Mendelson	Director	April 7, 2011



*By:		/S/ MICHAEL C. FORMAN
		Attorney-in-Fact

Consent of McGladrey & Pullen, LLP

Exhibit (n)(2)

Consent of Independent Registered Public Accounting Firm

We consent to use in this Post-Effective Amendment No. 8 to Registration Statement (No. 333-149374) on Form N-2 of FS Investment Corporation of our report dated March 24, 2011, relating to our audit of the consolidated financial statements and internal control over financial reporting, appearing in the Prospectus, which is a part of such Registration Statement, and to the reference to our firm under the caption “Experts” in such Prospectus.

/s/ McGladrey & Pullen, LLP

Philadelphia, Pennsylvania

April 7, 2011

Code of Ethics

Exhibit (r)

FS INVESTMENT CORPORATION

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER

TRADING

March 14, 2011

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

TABLE OF CONTENTS


		Page

Introduction			1

Purpose of the Code			1

Principles of Business Conduct			3
-	Conflicts of Interest		3
-	Corporate Opportunities		3
-	Confidentiality		3
-	Fair Dealing		4
-	Protection and Proper Use of Company Assets		4
-	Compliance with Applicable Laws, Rules and Regulations		4
-	Equal Opportunity, Harassment		4
-	Gifts		5
-	Accuracy of Company Records		5
-	Retaining Business Communications		5
-	Outside Employment		6
-	Service as a Director		6
-	Political Contributions		6
-	Media Relations		7
-	Intellectual Property Information		7
-	Internet and E-mail Policy		7
-	Reporting Violations and Complaint Handling		7

Code of Ethics			9
-	Scope of the Code of Ethics		9
-	Definitions		9
-	Standards of Conduct		11
-	Prohibited Transactions		11
-	Management of the Restricted List		13
-	Procedures to Implement the Code of Ethics		13
-	Reporting Requirements		14
-	Pre-Clearance Reports		14
-	Initial Holdings Reports		14
-	Quarterly Transaction Reports		15
-	Annual Holdings Reports		15
-	Annual Certification of Compliance		16

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING


Statement on the Prohibition of Insider Trading		17
-	Summary of FSIC’s Business	17
-	Background	17
-	Policy	18
-	Who is an Insider?	19
-	What is Material Information?	19
-	What is Non-public Information?	19
-	Bases for Liability	20
-	Penalties for Insider Information	20
-	Controlling the Flow of Sensitive Information	21

Administration of the Code		23

Sanctions for Code Violations		23

Application/Waivers		23

Records		24

Revisions and Amendments		24

Appendices

Code Acknowledgment Form		A-1

Pre-Clearance Form		B-1

Initial Holdings Form		C-1

Quarterly Pre-Clearance Form		D-1

Annual Holdings Form		E-1

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

INTRODUCTION

Ethics are important to FS Investment Corporation (“FSIC”, “our”, “us”, or “we”) and to its management. FSIC is committed to the highest ethical standards and to conducting its business with the highest level of integrity.

All officers, directors and employees of FSIC and its investment adviser, FB Income Advisor, LLC (the “investment adviser”), are responsible for maintaining this level of integrity and for complying with the policies contained in this Code. If you have a question or concern about what is proper conduct for you or anyone else, please raise these concerns with FSIC’s Chief Compliance Officer or any member of FSIC’s management, or follow the procedures outlined in applicable sections of this Code.

This Code of Business Conduct, Ethics and Statement on the Prohibition on Insider Trading (collectively, the “Code”) has been adopted by the Board of Directors of FSIC in accordance with Rule 17j-l(c) under the Investment Company Act of 1940 (the “1940 Act”) and the May 9, 1994 Report of the Advisory Group on Personal Investing by the Investment Company Institute (the “Report”). Rule 17j-l generally describes fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by business development companies if effected by access persons of such companies.

PURPOSE OF THE CODE

This Code is intended to:

•

help you recognize ethical issues and take the appropriate steps to resolve these issues;

•

deter ethical violations to avoid any abuse of position of trust and responsibility;

•

maintain confidentiality of our business activities;

•

assist you in complying with applicable securities laws;

•

assist you in reporting any unethical or illegal conduct; and

•

reaffirm and promote our commitment to a corporate culture that values honesty, integrity and accountability.

Further, it is the policy of FSIC that no affiliated person of our organization shall, in connection with the purchase or sale, directly or indirectly, by such person of any security held or to be acquired by FSIC:

•

employ any device, scheme or artifice to defraud us;

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

•

make any untrue statement of a material fact or omit to state to us a material fact in order to make the statement made, in light of the circumstances under which it is made, not misleading;

•

engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon us; or

•

engage in any manipulative practices with respect to our business activities.

All employees, as a condition of employment or continued employment, will acknowledge annually, in writing, that they have received a copy of this Code, read it, and understand that the Code contains our expectations regarding their conduct.

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

PRINCIPLES OF BUSINESS CONDUCT

All employees will be subject to the following guidelines covering business conduct:

Conflicts of Interest

You must avoid any conflict, or the appearance of a conflict, between your personal interests and our interests. A conflict exists when your personal interests in any way interfere with our interests, or when you take any action or have any interests that may make it difficult for you to perform your job objectively and effectively. For example, a conflict of interest probably exists if:

•

you cause us or the investment adviser to enter into business relationships with you or a member of your family, or invest in companies affiliated with you or a member of your family;

•

you use any non-public information about us or the investment adviser, our customers or our other business partners for your personal gain, or the gain of a member of your family; or

•

you use or communicate confidential information obtained in the course of your work for your or another’s personal benefit.

Corporate Opportunities

Each of us has a duty to advance the legitimate interests of FSIC when the opportunity to do so presents itself. Therefore, you may not:

•

take for yourself personally opportunities, including investment opportunities, discovered through the use of your position with us or the investment adviser, or through the use of either’s property or information;

•

use our or the investment adviser’s property, information, or position for your personal gain or the gain of a family member; or

•

compete, or prepare to compete, with us or the investment adviser.

Confidentiality

You must not disclose confidential information regarding us, the investment adviser, our affiliates, our lenders, our clients, or our other business partners, unless disclosure is authorized or required by law. Confidential information includes all non-public information that might be harmful to, or useful to the competitors of, FSIC, our affiliates, our lenders, our clients, or our other business partners. This obligation continues even after you leave FSIC, until the information becomes publicly available.

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

Fair Dealing

You must endeavor to deal fairly with our customers, suppliers and business partners, or any other companies or individuals with whom we do business or come into contact with, including fellow employees and our competitors. You must not take unfair advantage of these or other parties by means of:

•

manipulation;

•

concealment;

•

abuse of privileged information;

•

misrepresentation of material facts; or

•

any other unfair-dealing practice.

Protection and Proper Use of Company Assets

Our assets are to be used only for legitimate business purposes. You should protect our assets and ensure that they are used efficiently.

Incidental personal use of telephones, fax machines, copy machines, personal computers and similar equipment is generally allowed if there is no significant added cost to us, it does not interfere with your work duties, and is not related to an illegal activity or to any outside business.

Compliance with Applicable Laws, Rules and Regulations

Each of us has a duty to comply with all laws, rules and regulations that apply to our business. Please talk to our Chief Compliance Officer if you have any questions about how to comply with the above regulations and other laws, rules and regulations.

In addition, we expect you to comply with all our policies and procedures that apply to you. We may modify or update our policies and procedures in the future, and may adopt new company policies and procedures from time to time. You are also expected to observe the terms of any confidentiality agreement, employment agreement or other similar agreement that applies to you.

Equal Opportunity, Harassment

We are committed to providing equal opportunity in all of our employment practices including selection, hiring, promotion, transfer, and compensation of all qualified applicants and employees without regard to race, color, sex or gender, sexual orientation, religion, age, national origin, handicap, disability, citizenship status, or any other status protected by law. With this in mind, there are certain behaviors that will not be tolerated. These include harassment, violence, intimidation, and discrimination of any kind involving race, color, sex or gender, sexual

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

orientation, religion, age, national origin, handicap, disability, citizenship status, marital status, or any other status protected by law.

Gifts

Gifts can appear to compromise the integrity and honesty of our personnel. On the other hand, business colleagues often wish to provide small gifts to others as a way of demonstrating appreciation or interest. We have attempted to balance these considerations in the policy which follows.

No person employed by FSIC shall accept a gift or other thing of more than de minimis value ($100 or less) from any person or entity that does business with, or is soliciting business from, FSIC. Gifts exceeding that amount per person must be returned and the gift, its approximate value and its disposition reported to the Chief Compliance Officer. FSIC personnel may accept gifts in the form of customary business entertainment (meals, tickets to sporting or other entertainment events) so long as the giver will be present at the entertainment. Gifts to the firm as a whole or to an entire department (for example, accounting, analysts, etc.) may exceed the $100 limitation, but such gifts must be approved by the Compliance Officer.

All gifts shall be reflected in a gift log, containing a basic description of the gift, a good faith estimate of the value of the gift, and a description of its disposition, i.e., accepted, rejected, returned to sender, etc.

Solicitation of gifts is strictly prohibited.

Standards for giving gifts are identical to those governing the acceptance of gifts (that is they should be restricted to items worth $100 or less). On the whole, good taste and judgment must be exercised in both the receipt and giving of gifts. Every person subject to this code must avoid gifts or entertainment that would compromise FSIC’s standing or reputation. If you are offered or receive any gift which is either prohibited or questionable, you must inform the Chief Compliance Officer immediately.

Accuracy of Company Records

We require honest and accurate recording and reporting of information in order to make responsible business decisions. This includes such data as quality, safety, and personnel records, as well as financial records.

All financial books, records and accounts must accurately reflect transactions and events, and conform both to required accounting principles and to our system of internal controls.

Retaining Business Communications

The law requires us to maintain certain types of corporate records, usually for specified periods of time. Failure to retain those records for those minimum periods could subject us to

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

penalties and fines, cause the loss of rights, obstruct justice, place us in contempt of court, or seriously disadvantage us in litigation.

From time to time we establish retention or destruction policies in order to ensure legal compliance. We expect you to fully comply with any published records retention or destruction policies, provided that you should note the following exception: If you believe, or we inform you, that our records are relevant to any litigation or governmental action, or any potential litigation or action, then you must preserve those records until we determine the records are no longer needed. This exception supersedes any previously or subsequently established destruction policies for those records. If you believe that this exception may apply, or have any questions regarding the possible applicability of that exception, please contact our Chief Compliance Officer.

Outside Employment

Without the written consent of the Chief Executive Officer of FSIC, no person is permitted to:

•

be engaged in any other financial services business for profit;

•

be employed or compensated by any other business for work performed; or

•

have a significant (more than 5% equity) interest in any other financial services business including, but not limited to, banks, brokerages, investment advisers, insurance companies or any other similar business.

Requests for outside employment waivers should be made in writing to the Chief Executive Officer with a copy to the Chief Compliance Officer.

Service as a Director

No person shall serve as a director or officer of any organization, other than a charitable organization, without prior written authorization from the Chief Compliance Officer. Any request to serve on the Board of such an organization must include the name of the entity and its business, the names of the other Board members, and a general reason for the request. The Chief Compliance Officer shall consult with the Chief Executive Officer in connection with such request.

Political Contributions

Persons associated with FSIC or any of its affiliated organizations may direct personal funds as contributions to political action committees or political candidates, however, any amount contributed in excess of $150 (regardless of whether one may vote for the candidate) must be pre-approved by the Chairman or Chief Compliance Officer, or their designee. Persons associated with FSIC will be required to disclose any political contributions made no less frequently than annually. Outside directors are not subject to the pre-clearance or annual disclosure requirements.

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

Media Relations

We must speak with a unified voice in all dealings with the press and other media. As a result, our Chief Executive Officer, or his designee, is the sole contact for media seeking information about FSIC. Any requests from the media must be referred to our Chief Executive Officer, or his designee.

Intellectual Property Information

Information generated in our business is a valuable asset. Protecting this information plays an important role in our growth and ability to compete. Such information includes business and research plans; objectives and strategies; trade secrets; unpublished financial information; salary and benefits data; lender and other business partner lists. Employees who have access to our intellectual property information are obligated to safeguard it from unauthorized access and:

•

Not disclose this information to persons outside of FSIC;

•

Not use this information for personal benefit or the benefit of persons outside of FSIC; and

•

Not share this information with other employees except on a legitimate “need to know” basis.

Internet and E-Mail Policy

We provide an e-mail system and Internet access to certain of our employees to help them do their work. You may use the e-mail system and the Internet only for legitimate business purposes in the course of your duties. Incidental and occasional personal use is permitted, but never for personal gain or any improper or illegal use. Further, you are prohibited from discussing or posting information regarding FSIC in any external electronic forum, including Internet chat rooms, electronic bulletin boards or social media sites.

Reporting Violations and Complaint Handling

You are responsible for compliance with the rules, standards and principles described in this Code. In addition, you should be alert to possible violations of the Code by FSIC’s or the investment adviser’s employees, officers and directors, and you are expected to report a violation promptly. Normally, reports should be made to one’s immediate supervisor. Under some circumstances, it may be impractical or you may feel uncomfortable raising a matter with your supervisor. In those instances, you are encouraged to contact our Chief Compliance Officer who will investigate and report the matter to our Chief Executive Officer and/or Board of Directors, as the circumstance dictates. You will also be expected to cooperate in an investigation of a violation.

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

Anyone who has a concern about our conduct, the conduct of an officer of FSIC or its investment adviser or our accounting, internal accounting controls or auditing matters, may communicate that concern to the Audit Committee of the Board of Directors by direct communication with our Chief Compliance Officer or by email or in writing. All reported concerns shall be forwarded to the Audit Committee and will be simultaneously addressed by our Chief Compliance Officer in the same way that other concerns are addressed by us. The status of all outstanding concerns forwarded to the Audit Committee will be reported on a quarterly basis by our Chief Compliance Officer. The Audit Committee may direct that certain matters be presented to the full board and may also direct special treatment, including the retention of outside advisors or counsel, for any concern reported to it.

All reports will be investigated and whenever possible, requests for confidentiality shall be honored. And, while anonymous reports will be accepted, please understand that anonymity may hinder or impede the investigation of a report. All cases of questionable activity or improper actions will be reviewed for appropriate action, discipline or corrective actions. Whenever possible, we will keep confidential the identity of employees, officers or directors who are accused of violations, unless or until it has been determined that a violation has occurred.

There will be no reprisal, retaliation or adverse action taken against any employee who, in good faith, reports or assists in the investigation of, a violation or suspected violation, or who makes an inquiry about the appropriateness of an anticipated or actual course of action.

For reporting concerns about FSIC’s or its investment adviser’s conduct, the conduct of an officer of FSIC or its investment adviser, or about FSIC’s or its investment adviser’s accounting, internal accounting controls or auditing matters, you may use the following means of communication:

ADDRESS:

FS Investment Corporation

Cira Centre

2929 Arch Street, Suite 675

Philadelphia, PA 19104

In the case of a confidential, anonymous submission, employees should set forth their concerns in writing and forward them in a sealed envelope to the Chairperson of the Audit Committee, in care of our Chief Compliance Officer, such envelope to be labeled with a legend such as: “To be opened by the Audit Committee only.”

CODE OF BUSINESS CONDUCT, ETHICS AND

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

CODE OF ETHICS

The employees specified in the following discussion will be subject to the provisions of the Code of Ethics (“CofE”).

Scope of the Code of Ethics

In order to prevent FSIC’s Access Persons, as defined below, from engaging in any of these prohibited acts, practices or courses of business, the Board of Directors of FSIC has adopted this CofE.

Definitions

Access Person. “Access Person” means any director, officer, partner, employee or Advisory Person of FSIC; provided, however, that the term “Access Person” will not include a “Disinterested Director” (as defined below).

Advisory Person. “Advisory Person” of FSIC means: (i) any director, officer or employee of FSIC or of any company in a control relationship to FSIC, who, in connection with his or her regular duties, makes, participates in, or obtains information regarding the purchase or sale of a Covered Security by FSIC, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to FSIC who obtains information concerning recommendations made to FSIC with regard to the purchase or sale of a Covered Security. An “Advisory Person” shall not include a “Disinterested Director” (as defined below).

Automatic Investment Plan. “Automatic Investment Plan” refers to any program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation, including a dividend reinvestment plan.

Beneficial Interest. “Beneficial Interest” includes any entity, person, trust, or account with respect to which an Access Person exercises investment discretion or provides investment advice. A beneficial interest shall be presumed to include all accounts in the name of or for the benefit of the Access Person, his or her spouse, dependent children, or any person living with him or her or to whom he or she contributed economic support.

Beneficial Ownership. “Beneficial Ownership” shall be determined in accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (the “Exchange Act”), except that the determination of direct or indirect Beneficial Ownership shall apply to all securities, and not just equity securities, that an Access Person has or acquires. Rule 16a-1(a)(2) provides that the term “beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares a direct or indirect pecuniary interest in any equity security. Therefore, an Access Person may be deemed to have Beneficial Ownership of securities held by members of his or her immediate family sharing the same household, or by certain partnerships, trusts, corporations, or other arrangements.

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Blackout Period. “Blackout Period” shall mean that timeframe in which FSIC or an Access Person, or Disinterested Director with knowledge of FSIC’s trading activity, may not engage in trading in an issue, or its related securities, appearing on the FSIC Restricted List as described below.

Control. “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act.

Covered Security. “Covered Security” means a security as defined in Section 2(a)(36) of the 1940 Act except that it does not include: (i) direct obligations of the government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments including repurchase agreements; and (iii) shares issued by registered open-end investment companies (i.e., mutual funds); however, exchange traded funds structured as unit investment trusts or open-end funds are considered “Covered Securities”.

Disinterested Director. “Disinterested Director” means a director of FSIC who is not an “interested person” of FSIC within the meaning of Section 2(a)(19) of the 1940 Act.

Initial Public Offering. “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933 (the “Securities Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act.

Limited Offering. “Limited Offering” means an offering that is exempt from registration under the Securities Act pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under the Securities Act.

Purchase or Sale of a Covered Security. “Purchase or Sale of a Covered Security” is broad and includes, among other things, the writing of an option to purchase or sell a covered security, or the use of a derivative product to take a position in a Covered Security.

Restricted List. The Restricted List identifies those securities which FSIC or its Access Persons may not trade due to some restriction under the securities laws whereby FSIC or its Access Persons may be deemed to possess material non-public information (as it is described within the following “Statement on the Prohibition of Insider Trading”) about the issuer of such securities.

Supervised Person. A “Supervised Person” means any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of any entity that provides investment advice on behalf of FSIC and is subject to the supervision and control of FSIC; provided, however, that the term “Supervised Person” shall not include a “Disinterested Director” (as defined above).

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Standards of Conduct

1. No Access Person, Supervised Person or Disinterested Director shall engage, directly or indirectly, in any business transaction or arrangement for personal profit that is not in the best interests of FSIC or its shareholders; nor shall he or she make use of any confidential information gained by reason of his or her employment by or affiliation with FSIC, or any of its affiliates, in order to derive a personal profit for himself or herself or for any Beneficial Interest, in violation of the fiduciary duty owed to FSIC and its shareholders.

2. Any Access Person recommending or authorizing the purchase or sale of a Covered Security by FSIC shall, at the time of such recommendation or authorization, disclose any Beneficial Interest in, or Beneficial Ownership of, such Covered Security or the issuer thereof.

3. No Access Person, Supervised Person or Disinterested Director shall dispense any information concerning securities holdings or securities transactions of FSIC to anyone outside FSIC without obtaining prior written approval from our Chief Compliance Officer, or such person or persons as these individuals may designate to act on their behalf. Notwithstanding the preceding sentence, such Access Person may dispense such information without obtaining prior written approval:

•

when there is a public report containing the same information;

•

when such information is dispensed in accordance with compliance procedures established to prevent conflicts of interest between FSIC and its affiliates;

•

when such information is reported to directors of FSIC; or

•

in the ordinary course of his or her duties on behalf of FSIC.

4. All personal securities transactions should be conducted consistent with this CofE and in such manner as to avoid actual or potential conflicts of interest, the appearance of a conflict of interest, or any abuse of an individual’s position of trust and responsibility within FSIC.

Prohibited Transactions

1. General Prohibition. No Access Person shall purchase or sell, directly or indirectly, any Covered Security (including any security issued by the issuer of such Covered Security) in which he or she has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership and which such Access Person knows or should have known at the time of such purchase or sale is being considered for purchase or sale by FSIC, or is held in the FSIC portfolio unless such Access Person shall have obtained prior written approval for such purpose from our Chief Compliance Officer.

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•

An Access Person who becomes aware that FSIC is considering the purchase or sale of any Covered Security must immediately notify our Chief Compliance Officer of any interest that such Access Person may have in any outstanding Covered Security (including any security issued by the issuer of such Covered Security).

•

An Access Person shall similarly notify our Chief Compliance Officer of any other interest or connection that such Access Person might have in or with such issuer.

•

Once an Access Person becomes aware that FSIC is considering the purchase or sale of a Covered Security in its portfolio, such Access Person may not engage in any transaction in such Covered Security (including any security issued by the issuer of such Covered Security).

•

The foregoing notifications or permission may be provided verbally, but should be confirmed in writing as soon and with as much detail as possible.

2. Securities Appearing on the Portfolio and Pipeline Reports and Restricted List. The holdings of the FSIC portfolio are detailed in the Portfolio Report that will be distributed daily to all Access Persons. Access Persons will also receive, as frequently as necessary, the names of those entities that are being considered for investment by the FSIC portfolio in the Pipeline Report. Access Persons are required to review these reports and the Restricted List prior to engaging in any securities transactions.

3. Initial Public Offerings and Limited Offerings. Access Persons of FSIC must obtain approval from FSIC before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering.

4. Securities under Review. No Access Persons shall execute a securities transaction in any security issued by an entity that FSIC owns in its portfolio or is considering for purchase or sale unless such Access Person shall have obtained prior written approval for such purpose from our Chief Compliance Officer.

5. Blackout Period. No Access Person may trade in the securities of any issuer appearing on the Restricted List until notified that the entity name no longer appears on the Restricted List. Access Persons are also prohibited from trading in the names appearing on the Pipeline and Portfolio Reports (as discussed above).

6. Company Acquisition of Shares in Companies that Access Persons Hold Through Limited Offerings. Access Persons who have been authorized to acquire securities in a Limited Offering must disclose that investment to our Chief Compliance Officer when they are involved in FSIC’s subsequent consideration of an investment in the issuer, and FSIC’s decision

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to purchase such securities must be independently reviewed by Investment Personnel with no personal interest in that issuer.

Management of the Restricted List

Our Chief Compliance Officer will manage placing and removing names from the Restricted List. Should an Access Person learn of material non-public information concerning the issuer of any security that information must be provided to our Chief Compliance Officer so that the issuer can be included on the Restricted List. The Chief Compliance Officer will note the nature of the information learned, the time the information was learned and the other persons in possession of this information. The Chief Compliance Officer will maintain this information in a log. Upon the receipt of such information, our Chief Compliance Officer will revise and circulate the Restricted List to all Access Persons.

Any sub-advisers to FSIC or the investment advisor, or affiliated investment advisers, will be directed to advise FSIC when they have obtained information that causes them to be restricted from trading in the securities of any of the names appearing in the FSIC portfolio. This information will be provided to our Chief Compliance Officer who will add the name(s) to the Restricted List and electronically circulate the revised list to Access Persons. Sub-advisors, or affiliated investment advisors, will also be required to notify FSIC’s Chief Compliance Officer if they are restricted from trading in the securities of any of the issuers discussed with FSIC for possible inclusion in the FSIC portfolio.

The contents of the Restricted List are highly confidential and must not be disclosed to any person or entity outside of FSIC absent approval of our Chief Compliance Officer or the Chief Executive Officer.

Procedures to Implement the Code of Ethics

The following reporting procedures have been established to assist Access Persons in avoiding a violation of this CofE, and to assist FSIC in preventing, detecting and imposing sanctions for violations of this CofE. Every Access Person must follow these procedures. Questions regarding these procedures should be directed to our Chief Compliance Officer.

All Access Persons are subject to the reporting requirements set forth in the next section except:

•

with respect to transactions effected for, and Covered Security (including any security issued by the issuer of such Covered Security) held in, any account over which the Access Person has no direct or indirect influence or control; or

•

Those transactions effected pursuant to an Automatic Investment Plan.

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Reporting Requirements

FSIC shall appoint a Chief Compliance Officer who shall furnish each employee with a copy of this CofE along with the other sections of the Code, and any amendments, upon commencement of employment and annually thereafter.

Each Supervised Person is required to certify, through a written acknowledgment, within 10 days of commencement of employment, that he or she has received, read and understands all aspects of the Code and recognizes that he or she is subject to the provisions and principles detailed therein. In addition, our Chief Compliance Officer shall notify each Access Person of his or her obligation to file an initial holdings report, quarterly transaction reports, and annual holdings reports, as described below.

Pre-Clearance Reports

Access Persons of FSIC must obtain approval from our Chief Compliance Officer prior to entering into a transaction in a Limited Offering or an Initial Public Offering. Pre-clearance of trades in securities issued by companies whose names appear on the Pipeline and Portfolio Reports is also required of Access Persons. The pre-clearance form shall include the name of the Access Person, the date, the name of the broker who will execute the transaction, the name of the security, quantity, whether the transaction is a purchase or sale, total anticipated dollar value and any pertinent instructions, i.e., GTC, limit, etc. There will also be a line for approval or disapproval along with space for comments and the date.

If our Chief Compliance Officer does not approve the transaction the reason for denial must be provided on the pre-clearance form.

Initial Holdings Reports

Each Access Person must, no later than 10 days after the person becomes an Access Person, submit to our Chief Compliance Officer or other designated person a report of the Access Person’s current securities holdings. The information provided must be current as of a date no more than 45 days prior to the date the person becomes an Access Person. The report must include the following:

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the title and type of the security and, as applicable, the exchange ticker symbol or CUSIP number, the number of shares held for each security, and the principal amount;

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the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and

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the date the Access Person submits the report.

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Quarterly Transaction Reports

Each Access Person must, no later than 30 days after the end of each calendar quarter, submit to our Chief Compliance Officer or other designated person a report of the Access Person’s transactions involving a Covered Security (including any security issued by the issuer of such Covered Security) in which the Access Person had, or as a result of the transaction acquired, any direct or indirect Beneficial Ownership. The report must cover all transactions occurring during the calendar quarter most recently ending. The report must contain the following information:

•

the date of the transaction;

•

the title and, as applicable, the exchange ticker symbol or CUSIP number, of each reportable security involved, the interest rate and maturity date of each reportable security involved, the number of shares of each reportable security involved, and the principal amount of each reportable security involved;

•

the nature of the transaction (i.e., purchase, sale or other type of acquisition or disposition);

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the price of the security at which the transaction was effected;

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the name of the broker, dealer or bank with or through which the transaction was effected; and

•

the date the Access Person submits the report.

Annual Holdings Reports

Each Access Person must submit, to our Chief Compliance Officer or other designated person, an annual holdings report reflecting holdings as of a date no more than 45 days before the report is submitted. The Annual Holdings Report must be submitted at least once every 12 month period, on a date to be designated by FSIC. Our Chief Compliance Officer will notify every Access Person of the date. Each report must include:

•

the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and

•

the date the Access Person submits the report.

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Annual Certification of Compliance

All Access Person must annually certify, through a written acknowledgment, to the Chief Compliance Officer that (1) they have read, understood and agree to abide by this CofE; (2) they have complied with all applicable requirements of this CofE; and (3) they have reported all transactions and holdings that they are required to report under this CofE.

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Failure by you to recognize the importance of safeguarding information and using information appropriately is greatly detrimental both to your future and to FSIC’s. The information provided below should provide a useful guide about what constitutes insider trading and material inside information.

Summary of FSIC’s Business Activities

FSIC is a non-traded Business Development Company registered with the U.S. Securities and Exchange Commission and regulated under the Investment Company Act of 1940. FSIC offers individual investors access to private debt with a focus on first lien secured loans, second lien secured loans, and, to a lesser extent, subordinated loans or mezzanine debt. Generally, these loans are held with private companies that have not issued any public securities. In rare instances, however, there may be securities available in the marketplace for issuers in which FSIC holds a loan position.

It is not expected that in the course of its loan trading activities that FSIC will receive access to information that is not already in the public domain. However, certain data sources may make information available to FSIC that has not been fully disseminated in the marketplace. If this situation arises and FSIC has an opportunity to opt to receive the information, the Access Person that encounters this situation will raise the situation with their supervisors and our Chief Compliance Officer to decide whether to opt to receive the information or decline to receive the information. If the decision is made to receive the information, our Chief Compliance Officer will update the Restricted List as it is discussed in the CofE.

In the unlikely event that you come into possession of information that is not publically available, either through your work with us or outside of the workplace, you will be required to adhere to the Statement on the Prohibition of Insider Trading (the “Statement”) as described in the following pages. You will also be subject to certain reporting requirements in connection with complying with FSIC’s Cof E beginning with the requirement to notify our Chief Compliance Officer.

Background

The securities laws and the rules and regulations of the self-regulatory organizations are designed to assure that the securities markets are fair and honest, that material information regarding a company is publicly available, and that a security’s price and volume are determined by the free interplay of economic forces. The anti-fraud rules of the federal securities laws prohibit, in connection with the purchase or sale of a security:

•

making an untrue statement of a material fact;

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omitting to state a material fact necessary to make the statements made not misleading;

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engaging in acts, practices or courses of business which would be fraudulent or deceptive.

Violation of these provisions is a crime that may result in imprisonment and can have other very serious repercussions for both the Firm and the employee. Violators may be censured by the government or self-regulatory organizations, suspended, barred from the securities business or fined. In addition, violations may result in liability under the Federal Securities Laws, including the Insider Trading Sanctions Act of 1984 (“ITSA”) and the Insider Trading and Securities Fraud Enforcement Act of 1988 (“ITSFEA”). FSIC’s actions with respect to any violations will be swift and forceful, since it is the victim of any such abuse.

In this connection, a violation of the FSIC’s policies and procedures regarding confidential information, disclosure and the use of confidential information may result in dismissal, suspension without pay, loss of pay or bonus, loss of severance benefits, demotion or other sanctions, whether or not the violation of Firm policy or procedure also constituted a violation of law. Trading while in possession of or tipping on the basis of non-public information could also result in civil or criminal liability which could lead to imprisonment, fines and/or a requirement of disgorgement of any profits realized, and as a result of the violation, to an injunction prohibiting the violator from being employed in the securities industry. The Firm may initiate or cooperate in proceedings resulting in such penalties.

Policy

No person to whom the Statement applies, including officers, directors or employees of FSIC, may trade, either personally or on behalf of others, while in possession of material non-public information, nor may any officer, director or employee communicate material non-public information to others in violation of the law. This conduct is referred to as “insider information”. Any questions regarding this policy and procedure should be directed to our Chief Compliance Officer.

While the law concerning insider trading is not rigid, it generally is understood to prohibit:

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trading by an insider, while in possession of material non-public information;

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trading by a non-insider while in possession of material non-public information where the information either was disclosed to the non-insider in violation of an insider’s duty to keep it confidential or was misappropriated; or

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communicating material non-public information to others.

The elements of a claim for insider trading and the penalties for unlawful conduct are described below.

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Who is an Insider?

The concept of an “insider” is broad. It includes officers, directors and employees of a company. In addition, a person can be a “temporary insider” if he or she enters into a special confidential relationship in the conduct of a company’s affairs and as a result is given access to information solely for the company’s purposes. A temporary insider can include, by way of example, attorneys, accountants, consultants, bank lending officers and employees of such organizations. According to the Supreme Court, a company must expect the outsider to keep the disclosed non-public information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider.

What is Material Information?

Trading on information is not a basis for liability unless the information is material. Information generally is considered “material” if there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision, or if the information is reasonably certain to have a substantial effect on the price of a company’s securities. Information that should be considered material includes, but is not limited to: dividend changes, earnings estimates not previously disseminated, material changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems and extraordinary management developments.

Material information does not have to relate to a company’s business. For example, Carpenter v. United States 108 S. Ct. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal and whether or not those reports would be favorable.

Any questions that you may have as to whether information is material must be addressed with our Chief Compliance Officer before acting in any way on such information.

What is Non-public Information?

Information is non-public until it has been effectively communicated to the market place. One must be able to point to some fact to show that the information is public. For example, information found in a report filed with the SEC, or appearing in Reuters, Bloomberg or a Dow Jones publication or in any other publication of general circulation would, generally, be considered public. In certain instances, information disseminated to certain segments of the investment community may be deemed “public”. For example, research communicated through institutional information dissemination services such as First Call. The amount of time since the information was first disseminated ordinarily is a factor regarding whether information is considered public.

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Bases for Liability

Described below are circumstances under which a person or entity may be deemed to have traded on inside information, and prohibitions applicable, in particular to investment advisors.

1. Fiduciary Duty Theory. In 1980 the Supreme Court found that there is no general duty to disclose before trading on material non-public information, but that such a duty arises where there is a fiduciary relationship between the parties to the transaction. In such case, one party as a right to expect that the other party will not disclose any material non-public information and will refrain from trading. Chiarella v. U.S. 445 U.S. 22 (1980).

Insiders such as employees of an issuer are ordinarily considered to have a fiduciary duty to the issuer and its shareholders. In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternative theories by which such fiduciary duties are imposed on non-insiders: they can enter into a confidential relationship with the company such as, among others, attorneys and accountants (“temporary insiders”) or they can acquire a fiduciary duty to the company’s shareholders as “tippees” if they are aware or should have been aware that they have been given confidential information by an insider or temporary insider who has violated his fiduciary duty to the company’s shareholders.

In the “tippee” situation, a breach of duty occurs only if the insider or temporary insider personally benefits, directly or indirectly, from the disclosure. The benefit does not have to be of a financial nature, but can be a gift, a reputational benefit that will translate into future earnings, or even evidence of a relationship that suggests a quid pro quo.

2. Misappropriation Theory. Another basis for insider trading liability is the “misappropriation” theory, where liability is established when trading occurs on material non-public information that was stolen or misappropriated from another person. In Carpenter v. United States, the Court found that a columnist defrauded The Wall Street Journal by communicating information prior to its publication to another person who used the information to trade in the securities markets. It should be noted that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory.

Penalties for Insider Trading

Penalties for trading on or communicating material non-public information are severe, both for individuals involved in such conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include the following:

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jail sentences;

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civil injunction;

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treble damages;

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disgorgement of profits;

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fines for the person who committed the violation of up to three times the profit gained or loss avoided, whether or not the person actually benefited; and

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fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided.

Controlling the Flow of Sensitive Information

The following procedures have been established to assist the officers, directors and employees of FSIC in controlling the flow of sensitive information so as to avoid the possibility of trading on material non-public information either on behalf of FSIC or for themselves and to assist FSIC and its supervisory personnel in surveilling for, and otherwise preventing and detecting, insider trading. Every officer, director and employee of FSIC must follow these procedures or risk serious sanctions by one or more regulatory authorities and/or FSIC, including dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures you should consult our Chief Compliance Officer.

1. Identifying Inside Information. Before trading for yourself or others in the securities of a company about which you have what you believe to be inside information, ask yourself the following questions:

•

Is the information non-public? To whom has this information been provided? Has the information been effectively communicated to the marketplace? To what extent, for how long, and by what means has the information been disseminated? If information is public, it normally may not be used in connection with effecting securities transactions; however, if you have any doubts whatsoever as to whether the information is public, you must ask our Chief Compliance Officer prior to trading on, or communicating (except in accordance with the procedures and requirements herein) such information.

•

Is the information material? Is this information that an investor would consider important in making his or her investment decision? Is this information that would substantially affect the market price of the securities if generally disclosed?

If, after consideration of the above, you believe that the information may be material and non-public, or if you have questions in that regard, you should take the following steps:

•

Report the matter immediately to our Chief Compliance Officer.

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•

Do not purchase or sell the securities on behalf of yourself or others.

•

Do not communicate the information inside or outside of FSIC, other than to our Chief Compliance Officer.

•

After our Chief Compliance Officer has reviewed the issue, you will be instructed to continue the prohibitions against trading and communication, or you will be allowed to communicate the information and then trade.

2. Restricting Access to Material Non-public Information. Information in your possession that you identify as material and non-public may not be communicated to anyone, except as provided in paragraph 1 above. In addition, care should be taken so that such information is secure. For example, files containing material non-public information should be sealed; access to computer files containing material non-public information should be restricted.

3. Personal Security Trading. All officers, directors and employees must trade in accordance with the provisions of the CofE as well as the Statement in order to assist FSIC with monitoring for violations of the law.

4. Restricted List. As defined in the CofE, FSIC’s Chief Compliance Officer will maintain a Restricted List. Disclosure outside of FSIC as to what issuers and/or securities are on the Restricted List could therefore constitute tipping and is strictly prohibited.

5. Supervision/Investigation. Should our Chief Compliance Officer learn, through regular review of personal trading documents, or from some other source, that a violation of this Code is suspected, our Chief Compliance Officer shall alert the Chief Executive Officer of FSIC. Together these parties will determine who should conduct further investigation, if they determine one is necessary.

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ADMINISTRATION OF THE CODE

Our Chief Compliance Officer has overall responsibility for administering the Code and reporting on the administration of and compliance with the Code and related matters to our Board of Directors.

Our Chief Compliance Officer shall review all reports to determine whether any transactions recorded therein constitute violations of the Code. Before making any determination that a violation has been committed by person subject to the Code, such person shall be given an opportunity to supply additional explanatory material. Our Chief Compliance Officer shall maintain copies of the reports as required by Rule 17j-1(f) under the 1940 Act.

No less frequently than annually our Chief Compliance Officer must furnish to the Board, and the Board must consider, a written report that describes any issues arising under the Code or its procedures since the last report to the Board, including but not limited to, information about material violations of the Code or its procedures and any sanctions imposed in response to material violations. This report should also certify that FSIC has adopted procedures reasonably designed to prevent persons subject to the Code from violating the Code.

SANCTIONS FOR CODE VIOLATIONS

All violations of the Code will result in appropriate corrective action, up to and including dismissal. If the violation involves potentially criminal activity, the individual or individuals in question will be reported, as warranted, to the appropriate authorities.

APPLICATION/WAIVERS

All the directors, officers and employees of FSIC and its investment adviser are subject to this Code.

Insofar as other policies or procedures of FSIC or its investment adviser govern or purport to govern the behavior or activities of all persons who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code.

Any amendment or waiver of the Code for an executive officer or member of our Board of Directors must be made by our Board of Directors and disclosed on a Form 8-K filed with the Securities and Exchange Commission within four business days following such amendment or waiver.

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RECORDS

FSIC shall maintain records with respect to this Code in the manner and to the extent set forth below, which records may be maintained on microfilm or electronic storage media under the conditions described in Rule 31a-2(f) under the 1940 Act and shall be available for examination by representatives of the Securities and Exchange Commission (the “SEC”):

1. A copy of this Code and any other code of ethics of FSIC that is, or at any time within the past five years has been, in effect shall be maintained in an easily accessible place;

2. A record of any violation of this Code and of any action taken as a result of such violation shall be maintained in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs;

3. A copy of each report made by an Access Person or duplicate account statement received pursuant to the Code, shall be maintained for a period of not less than five years from the end of the fiscal year in which it is made or the information is provided, the first two years in an easily accessible place;

4. A record of all persons who are, or within the past five years have been, required to make reports pursuant to this Code, or who are or were responsible for reviewing these reports, shall be maintained in an easily accessible place;

5. A copy of each report made to the FSIC Board shall be maintained for at least give years after the end of the fiscal year in which it is made, the first two years in an easily accessible place; and

6. A record of any decision, and the reasons supporting the decision, to approve the direct or indirect acquisition by an Access Person of Beneficial Ownership in any securities in an Initial Public Offering or a Limited Offering shall be maintained for at least five years after the end of the fiscal year in which the approval is granted.

REVISIONS AND AMENDMENTS

This Code may be revised, changed or amended at any time by our Board of Directors. Following any material revisions or updates, an updated version of this Code will be distributed to you, and will supersede the prior version of this Code effective upon distribution. We may ask you to sign an acknowledgement confirming that you have read and understood the revised version of the Code, and that you agree to comply with the provisions.

APPENDIX A

FS Investment Corporation

FB Income Advisor, LLC

(collectively, the “Company”)

Acknowledgment Regarding

Code of Business Conduct, Ethics and Statement on the Prohibition of Insider Trading

This acknowledgment is to be signed and returned to our Chief Compliance Officer and will be retained as part of your permanent personnel file.

I have received a copy of the Company’s Code of Business Conduct, Ethics and Statement on the Prohibition of Insider Trading (the “Code”), read it, and understand that the Code contains the expectations of the Company regarding employee conduct, ethical behavior and the prohibition of trading on insider information. I agree to observe the policies and procedures contained in the Code and have been advised that, if I have any questions or concerns relating to such policies or procedures, I understand that I have an obligation to report to the Audit Committee, the Chief Compliance Officer or other such designated officer, any suspected violations of the Code of which I am aware. I also understand that the Code is issued for informational purposes and that it is not intended to create, nor does it represent, a contract of employment.

Employee’s Name (Printed)

Employee’s Signature

Date

The failure to read and/or sign this acknowledgment in no way relieves you of your responsibility to comply with the Company’s Code of Business Conduct, Ethics and Statement on the Prohibition of Insider Trading.

APPENDIX B

FS Investment Corporation

FB Income Advisor, LLC

(collectively, the “Company”)

PRE-CLEARANCE FORM

Use this form to request pre-clearance of a transaction to purchase a Limited Offering, Initial Public Offering or to purchase or sell a security issued by an issuer appearing on the Portfolio or Pipeline Reports. Please submit this form, together with a copy of the Limited Offering documentation to the Chief Compliance Officer at least five (5) business days before the planned investment.


Employee Name:		Date:

Issuer/Investment Name:

Terms of Purchase (price, purchaser – individual, joint, entity, etc.):

Proposed Transaction Date:

How did you learn about this opportunity?

Related to a Portfolio or Pipeline security?

Approved:		Date:

Not Approved:		Date:

Comments:

APPENDIX C

FS Investment Corporation

FB Income Advisor, LLC

(collectively, the “Company”)

INITIAL HOLDINGS REPORT

As of

To:	Chief Compliance Officer

A. Securities Holdings. I have listed below (or attached hereto a listing) all of my Securities Holdings held by me or Beneficial Owners as defined by the Company’s Code of Ethics.

Title of

Security

CUSIP

Number

Interest Rate
and Maturity
Date (If
Applicable)

Date of
Transaction

Number of
Shares or
Principal
Amount

Dollar

Amount of
Transaction

Nature of

Transaction
(Purchase, Sale,

Other)

Price

Broker/Dealer or
Bank Through
Whom

Effected

B. Brokerage Accounts. I , or a Beneficial Owner, have established the following accounts in which securities for my direct or indirect benefit:

Name of Broker, Dealer or Bank


Date:						Signature:

						Print Name:

APPENDIX D

FS Investment Corporation

FB Income Advisor, LLC

(collectively, the “Company”)

QUARTERLY TRANSACTION REPORT

For the Calendar Quarter Ended:

To:	Chief Compliance Officer

A. Securities Transactions. During the quarter referred to above, the following transactions were effected in securities of which I had, or by reason of such transactions acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to the Code of Ethics of the Company:

Title of

Security

CUSIP

Number

Interest Rate and
Maturity Date (If
Applicable)

Date of
Transaction

Number of
Shares or
Principal
Amount

Dollar

Amount of
Transaction

Nature of

Transaction
(Purchase, Sale,

Other)

Price

Broker/Dealer or
Bank Through
Whom

Effected

B. New Brokerage Accounts. During the quarter referred to above, I established the following accounts in which securities were held during the quarter for my direct or indirect benefit:


Name of Broker, Dealer or Bank		Date Account Was Established

C. Other Matters. This report (i) excludes transactions with respect to which I had no direct or indirect influence or control, (ii) excludes other transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.


Date:						Signature:

						Print Name:

APPENDIX E

FS Investment Corporation

FB Income Advisor, LLC

(collectively, the “Company”)

ANNUAL HOLDINGS REPORT

As of December 31, 20

To:	Chief Compliance Officer

As of December 31, 20 , I had direct or beneficial ownership interest in the securities listed below which are required to be reported pursuant to Rule 17j-1 under the Investment Company Act of 1940:

A. Securities Holdings. I have listed below (or attached hereto a listing) all of my Securities Holdings held by me or Beneficial Owners as defined by the Company’s Code of Ethics.

Title of

Security

CUSIP

Number

Number of

Shares or

Principal

Amount

B. As of December 31, 20 , I maintained accounts with brokers, dealers, and banks listed below in which securities were held for my direct or indirect benefit:

Brokerage Accounts. I , or a Beneficial Owner, have established the following accounts in which securities for my direct or indirect benefit:


	Name of Broker, Dealer or Bank	Date Account was Established *
1.
2.
3.

This report (i) excludes securities and accounts over which I had no direct or indirect influence or control;(ii) excludes securities not required to be reported (for example, direct obligations of the U.S. Government, shares of registered investment companies etc.); and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities accounts listed above.


Date:						Signature:

						Print Name:

*	Note: If account was established before 20 , you can state that it was established before 20 .