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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-K





(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2011

OR



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

For the transition period from
 to

Commission file number 001-33559





BlackRock
Kelso Capital Corporation

(Exact Name of Registrant as Specified in Its Charter)







|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 20-2725151                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|40 East 52nd Street, New York, New York                       |  | 10022                              
|(Address of Principal Executive Offices)                      |  | (Zip Code)                         

Registrants Telephone Number, Including Area Code: 212-810-5800





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



|                                       |  |                                          
|-------------------------------------- |  | -----------------------------------------
|Title of Each Class                    |  | Name of Each Exchange on Which Registered
|Common Stock, par value$.001 per share |  | The NASDAQ Global Select Market          

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

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

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

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

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer as defined in
Rule 12b-2 of the Exchange Act.

Large Accelerated
Filer   ̈                    Accelerated
Filer  þ                    Non-Accelerated Filer   ̈

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934).    Yes   ̈    No  þ

The aggregate market value of the Registrants common stock held by non-affiliates of the Registrant at June 30, 2011 (the last
business day of the Registrants most recently completed second quarter) was $463,966,171 based upon the last sales price reported for such date on The NASDAQ Global Select Market. For purposes of this disclosure, shares of common stock
beneficially owned by persons who own 5% or more of the outstanding shares of common stock and shares beneficially owned by executive officers and directors of the Registrant and members of their families have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes. The Registrant has no non-voting common stock.

There were 73,424,682 shares of the Registrants common stock outstanding at February 29, 2012.

Documents Incorporated by Reference:  Portions of the Registrants Proxy Statement relating to the Registrants 2012 Annual Meeting of Stockholders to be filed not later than 120 days
after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Report.









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BLACKROCK KELSO CAPITAL CORPORATION

2011 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS



| |  |            |  |                                                                                                              |  |     
| |  | ---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
| |  |            |  |                                                                                                              |  | PAGE
| |  |           
| |  | Part I     |  | 3                                                                                                           
| |  |            | 
| |  | Item 1.    |  | Business                                                                                                     |  | 3   
| |  |            | 
| |  | Item 1A.   |  | Risk Factors                                                                                                 |  | 19  
| |  |            | 
| |  | Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 40  
| |  |            | 
| |  | Item 2.    |  | Properties                                                                                                   |  | 40  
| |  |            | 
| |  | Item 3.    |  | Legal Proceedings                                                                                            |  | 40  
| |  |            | 
| |  | Item 4.    |  | [Reserved]                                                                                                   |  | 40  
| |  |           
| |  | Part II    |  | 41                                                                                                          
| |  |            | 
| |  | Item 5.    |  | Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 41  
| |  |            | 
| |  | Item 6.    |  | Selected Financial Data                                                                                      |  | 44  
| |  |            | 
| |  | Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 46  
| |  |            | 
| |  | Item 7A.   |  | Quantitative and Qualitative Disclosure About Market Risk                                                    |  | 58  
| |  |            | 
| |  | Item 8.    |  | Consolidated Financial Statements and Supplementary Data                                                     |  | 58  
| |  |            | 
| |  | Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 58  
| |  |            | 
| |  | Item 9A.   |  | Controls and Procedures                                                                                      |  | 59  
| |  |            | 
| |  | Item 9B.   |  | Other Information                                                                                            |  | 61  
| |  |           
| |  | Part III   |  | 62                                                                                                          
| |  |            | 
| |  | Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 62  
| |  |            | 
| |  | Item 11.   |  | Executive Compensation                                                                                       |  | 62  
| |  |            | 
| |  | Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters              |  | 62  
| |  |            | 
| |  | Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 62  
| |  |            | 
| |  | Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 62  
| |  |            | 
| |  | Part IV    |  |                                                                                                              |  | 63  
| |  |            | 
| |  | Item 15.   |  | Exhibits and Consolidated Financial Statement Schedules                                                      |  | 63  
| |  |            | 
| |  | Signatures |  |                                                                                                              |  | S-1 



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PART I



|ITEM 1. | BUSINESS
|------- | --------

General

BlackRock Kelso Capital Corporation (BlackRock Kelso, the Company or the Registrant, which may also be
referred to as we, us or our) provides middle-market companies with flexible financing solutions, including senior and junior secured, unsecured and subordinated debt securities and loans, and equity securities.
Our strategy is to provide capital to meet our clients current and future needs across this spectrum, creating long-term partnerships with growing middle-market companies.

We are organized as an externally-managed, non-diversified closed-end management investment company. We have elected to be regulated as a
business development company, or BDC, under the Investment Company Act of 1940, which we refer to as the 1940 Act. In addition, for tax purposes we intend to continue to qualify as a regulated investment company, or RIC, under the Internal Revenue
Code of 1986, which we refer to as the Code.

Our investment objective is to generate both current income and capital
appreciation through our debt and equity investments. We invest primarily in middle-market companies and target investments throughout the capital structure that we believe provide an attractive risk-adjusted return. The term
middle-market refers to companies with annual revenues typically between $50 million and $1 billion. Our targeted investment typically ranges between $10 million and $50 million, although the investment sizes may be more or less than the
targeted range and the size of our investments may grow with our capital availability. We generally seek to invest in companies that operate in a broad variety of industries and that generate positive cash flows.

Although most of our investments are in senior and junior secured, unsecured and subordinated loans to U.S. private and certain public
middle-market companies, we invest throughout the capital structure, which may include common and preferred equity, options and warrants, credit derivatives, high-yield bonds, distressed debt and other structured securities. We may from time to time
invest up to 30% of our assets opportunistically in other types of investments, including securities of other public companies and foreign securities.

The senior and junior secured loans in which we invest generally have stated terms of three to ten years and the subordinated debt investments we make generally have stated terms of up to ten years, but
the expected average life of such senior and junior secured loans and subordinated debt is generally between three and seven years. However, we may invest in securities of any maturity or duration. The debt that we invest in typically is not
initially rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than Baa3 by Moodys Investors Service, lower than BBB- by Fitch Ratings or
lower than BBB- by Standard & Poors). We may invest without limit in debt of any rating, as well as debt that has not been rated by any nationally recognized statistical rating organization.

We were incorporated on April 13, 2005, commenced operations with private funding on July 25, 2005, and completed our initial
public offering on July 2, 2007. Since the commencement of our operations, the team of investment professionals of BlackRock Kelso Capital Advisors LLC (the Advisor or BlackRock Kelso Capital Advisors), including our
senior management, has evaluated more than 2,100 investment opportunities and completed 128 investments, aggregating over $2.5 billion in capital provided to middle-market companies through December 31, 2011.

During the year ended December 31, 2011, we invested approximately $401.5 million across twelve new and several existing portfolio
companies. This compares to $406.0 million across eight new and several existing portfolio companies for the year ended December 31, 2010. Sales, repayments and other exits of investment principal totaled $249.1 million during the year ended
December 31, 2011, versus $395.3 million during the year ended December 31, 2010.



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At December 31, 2011, our net portfolio consisted of 54 portfolio companies and was
invested 62% in senior secured loans, 16% in unsecured or subordinated debt securities, 11% in equity investments, 11% in senior secured notes and less than 1% in cash and cash equivalents. This compares to our portfolio of 50 portfolio companies
which was invested 50% in senior secured loans, 26% in unsecured or subordinated debt securities, 14% in equity investments, 10% in senior secured notes and less than 1% in cash and cash equivalents at December 31, 2010. Our average portfolio
company investment at amortized cost was approximately $20.3 million at December 31, 2011, versus $19.7 million at December 31, 2010.

The weighted average yield of the debt and income producing equity securities in our portfolio at fair value was 12.7% at December 31, 2011 and 12.4% at December 31, 2010. The weighted average
yields on our senior secured loans and other debt securities at fair value were 12.2% and 13.5%, respectively, at December 31, 2011, versus 11.3% and 14.3% at December 31, 2010. The weighted average yield of the debt and income producing
equity securities in our portfolio at their current cost basis was 11.9% at December 31, 2011 and 10.9% at December 31, 2010. The weighted average yields on our senior secured loans and other debt securities at their current cost basis
were 12.0% and 11.4%, respectively, at December 31, 2011, versus 10.1% and 12.1% at December 31, 2010.

BlackRock Kelso Capital
Advisors

Our investment activities are managed by the Advisor. The Advisor is responsible for sourcing potential
investments, conducting research on prospective investments, analyzing investment opportunities, structuring our investments, and monitoring our investments and portfolio companies on an ongoing basis. The Advisor is led by James R. Maher, Chairman
and Chief Executive Officer of the Company and the Advisor, and Michael B. Lazar, Chief Operating Officer of the Company and the Advisor. They are supported by the Advisors team of employees, including 18 investment professionals who have
extensive experience in commercial and mezzanine lending, investment banking, accounting, corporate law and private equity investing.

The Advisor has an investment committee comprised of Messrs. Maher and Lazar, several executives of BlackRock, Inc. (BlackRock) and several of the principals of Kelso & Company, L.P.
(the Kelso Principals). We benefit from the extensive and varied relevant experience of the BlackRock executives and the Kelso Principals serving on the investment committee. Although the BlackRock executives and Kelso Principals who
serve on the investment committee bring the benefit of expertise they have gained at BlackRock, Kelso & Company, L.P. (Kelso) and elsewhere, neither of those organizations provides us with investment advice. Nevertheless, we
benefit from the business and specific industry knowledge and transaction expertise of BlackRock. The Kelso Principals who serve on the investment committee bring the benefit of the expertise they gained at Kelso and elsewhere, including providing
access to a broad network of contacts.

BlackRock is a leader in investment management, risk management
and advisory services for institutional and retail clients worldwide. At December 31, 2011, BlackRocks assets under management were $3.513 trillion. BlackRock offers products that span the risk spectrum to meet clients needs,
including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad
base of institutional investors through BlackRock Solutions®.

Kelso is a leading private equity firm and since 1980 has raised over $10 billion of committed private equity capital, investing in
companies across a broad range of industries and through different economic and interest rate environments. Kelso was organized in 1971 and has since made investments in over 110 companies with aggregate initial capitalization of over $38 billion.
The firm typically makes investments in companies where key managers make significant investments and works in partnership with management teams to create value for investors. Through our relationship with the Kelso Principals, we have access to
these management teams who



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can provide unique insight into the industries in which they operate. Although the Kelso Principals who serve on the investment committee bring the benefit of the expertise they have gained at
Kelso and elsewhere, Kelso as an organization does not participate in the activities of the Advisor or advise us.

Our
executive officers and directors and the employees of the Advisor and members of its investment committee serve or may serve as investment advisors, officers, directors or principals of entities or investment funds that operate in the same or a
related line of business as we do and/or investment funds managed by our affiliates. We note that any affiliated investment vehicle currently formed or formed in the future and managed by the Advisor or its affiliates may have overlapping investment
objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, the Advisor and/or its affiliates may face conflicts in allocating investment opportunities between us and such other entities.
Accordingly, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisors affiliated with the Advisor. However, the Advisor and its affiliates will endeavor to allocate investment
opportunities in a fair and equitable manner and consistent with applicable allocation procedures. In any such case, if the Advisor forms other affiliates in the future, we may co-invest on a concurrent basis with such other affiliates, subject to
compliance with applicable regulations and regulatory guidance, as well as applicable allocation procedures. In certain circumstances, negotiated co-investments may be made only if we receive an order from the United States Securities and Exchange
Commission, or the SEC, permitting us to do so.

Administration

BlackRock, through its subsidiary, BlackRock Financial Management, Inc. (the Administrator), serves as our administrator and
provides us with office space, equipment and office services. The Administrator processes our financial records, assists in the preparation of reports to our stockholders and reports filed with the SEC, and generally monitors the payment of our
expenses.

Market opportunities

We believe there are abundant opportunities for investments in middle-market companies with attractive risk-adjusted returns for several reasons, including:

The current market environment may mean more favorable terms for investments in middle-market companies. We believe the tight
supply of credit due to deleveraging by banks, hedge funds and structured investment vehicles, such as collateralized loan obligation (CLO) funds, will continue and that this situation provides a promising environment in which to originate
investments in middle-market companies. We believe we are able to structure investments with lower leverage multiples, higher current returns, greater opportunity for equity appreciation, better prepayment protection, and more meaningful financial
covenants than were typical in the past.

Middle-market companies have faced increasing difficulty in accessing the capital
markets. While many middle-market companies were able to raise funds by raising debt in the capital markets in the past, we believe this approach to financing has become more difficult, as transactions have increased in size to address
investors demands for greater liquidity in securities such as high yield bonds. In addition, we believe that many senior lenders have, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending
to large corporate clients and managing large, liquid capital markets transactions.

There is a large pool of uninvested
private equity capital likely to seek additional capital to support private investments. We believe there is a large pool of uninvested private equity capital available to middle-market companies. We expect that private equity firms will be
active investors in middle-market companies and that these private equity firms will seek to supplement their equity investments with senior secured and junior loans and equity co-investments from other sources, such as us. Since our commencement of
operations in July 2005, the Advisor has invested in transactions involving more than 80 private equity firms in 128 different portfolio companies. We believe that our extensive relationships with private equity firms and other deal sourcing
contacts is a competitive advantage and a source for future investment opportunities.



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Middle-market companies are increasingly seeking private sources for debt and equity
capital. We believe that many middle-market companies prefer to execute transactions with private capital providers such as us, rather than execute high-yield bond or equity transactions in the public markets, which may necessitate increased
financial and regulatory compliance and reporting obligations.

Consolidation among commercial banks has reduced the focus
on middle-market business. We believe that many senior lenders have de-emphasized their service and product offerings to middle-market companies in favor of lending to large corporate clients, managing capital markets transactions and
providing other non-credit services to their customers.

Competitive advantages

We believe we possess the following competitive advantages over many other capital providers to middle-market companies:

Demonstrated ability to invest in middle-market companies. Since our inception, the Advisor has invested in excess of $2.5
billion across 128 portfolio companies with 80 financial sponsors. We have a portfolio yield at fair value of approximately 12.7% at December 31, 2011. In 2011, we invested approximately $401.5 million of gross assets across twelve new and
several existing portfolio companies.

Proven transaction sourcing strategy. Since the Advisors inception of
operations, it has sourced and reviewed more than 2,100 potential investments and has a proven process through which it has invested in excess of $2.5 billion through December 31, 2011. The Advisor identifies potential investments through its
dynamic transaction origination efforts. The origination efforts include calling on financial institutions such as investment banks, commercial banks, specialty finance companies and private equity firms; as well as on advisory firms, trade
associations and the owners and managers of middle-market companies with whom its investment professionals and investment committee members have relationships. We expect that our ability to leverage these relationships will continue to result in the
referral of investment opportunities to us and provide us with a competitive advantage.

Highly experienced investment
team.Our investment activities are carried out by BlackRock Kelso Capital Advisors and led by James R. Maher and Michael B. Lazar with guidance from the Advisors investment committee. The Advisors investment
professionals have significant experience investing across market cycles and possess a broad range of transaction, financial, managerial and investment skills. Collectively, their involvement in our investment process provides us with substantial
market insight and valuable access to investment opportunities. This insight and judgment enables us to achieve favorable risk-adjusted rates of return on the capital we deploy. The teams extensive experience in originating, structuring and
negotiating investments in the middle-market have contributed to our strong reputation in the marketplace.

Access to
BlackRock and Kelso Principals broad investing capabilities. Our Advisors relationship with BlackRock and the Kelso Principals provides access to extensive expertise across asset classes. The Advisors investment committee,
includes the management of BlackRock Kelso Capital Advisors, as well as members representing BlackRock and the Kelso Principals, and its team of dedicated investment professionals have had extensive experience in fixed-income, public equity and
private equity investing. Collectively, members of the investment committee and the investment professionals of the Advisor have had experience investing in nearly every industry group in small, middle and large capitalization companies and at every
level of the capital structure.

Disciplined investment process with focus on preservation of capital. In making
investment decisions, the Advisor employs a disciplined and selective review process that focuses on, among other things, a thorough analysis of the underlying issuers business and the performance drivers of that business, as well as an
assessment of the legal and economic features of each particular investment. As part of its review process, the



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Advisor draws on the industry expertise of its investment professionals, as well as on that of senior members of BlackRock and Kelso Principals and BlackRocks credit research analysts.
Though each transaction involves a somewhat different approach, the Advisor undertakes a thorough due diligence analysis that includes, for example, assessing business and industry prospects, conducting competitive analysis and meeting with
management teams to get an insiders view of the business or industry. This enables the Advisor to consider the total return on investment when evaluating each prospective portfolio company, seeking to minimize the risk of capital loss without
forgoing potential for capital appreciation.

Cost-effective and high quality infrastructure.We benefit from the
existing infrastructure and administrative capabilities of BlackRock. BlackRock, through its subsidiary, BlackRock Financial Management, Inc., serves as our administrator and provides us with office space, equipment and office services. The
Administrator processes our financial records, assists in the preparation of reports to our stockholders and reports filed with the SEC, and generally monitors the payment of our expenses.

Operating and regulatory structure

Our investment activities are managed
by the Advisor and supervised by our Board of Directors, a majority of whom are independent of the Advisor, BlackRock, the Kelso Principals and their respective affiliates. The Advisor is registered under the Investment Advisers Act of 1940, or the
Advisers Act. Under our investment management agreement, we have agreed to pay the Advisor an annual base management fee based on our total assets, as well as an incentive management fee based on our performance. The investment management agreement
also provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for office space rental, office equipment and utilities allocable to the Advisor under that agreement, as well as any costs and expenses incurred by the
Advisor relating to any non-investment advisory, administrative or operating services provided by the Advisor to us.

Also,
while we may borrow funds to make investments, our ability to use debt is limited in certain significant respects. As a BDC and a RIC for tax purposes, we are dependent on our ability to raise capital through the issuance of our common stock. RICs
generally must distribute substantially all of their earnings to stockholders as dividends in order to achieve pass-through tax treatment, which prevents us from using those earnings to support operations, which may include new investments
(including investments into existing portfolio companies). Further, BDCs must maintain an asset coverage ratio (the ratio of total assets less total liabilities other than indebtedness to total indebtedness) of not less than 200% in order to incur
debt or issue senior securities, meaning generally that for every dollar of debt incurred or senior securities issued, we must have two dollars of assets. Our existing debt arrangements also require that we maintain an asset coverage ratio of not
less than 200%, among other things.

Portfolio composition

We have built an investment portfolio that includes primarily senior and junior secured, senior and junior unsecured and subordinated loans to U.S. private middle-market companies. We invest a range of
$10 million to $50 million of capital, on average, per transaction, although the investment sizes may be more or less and are expected to grow with our capital availability. Although most of our investments are in senior and junior secured, senior
and junior unsecured and subordinated loans to U.S. private and certain public middle-market companies, we invest throughout the capital structure of these companies in other securities, which may include common and preferred equity, options and
warrants, credit derivatives, high-yield bonds, distressed debt and other structured securities. We generally seek to invest in companies that operate in a broad variety of industries and that generate positive cash flows. While our focus is to
generate current income through these investments, we also seek capital appreciation.

At December 31, 2011, our net
portfolio of 54 portfolio companies was invested 62% in senior secured loans, 16% in unsecured or subordinated debt securities, 11% in equity investments, 11% in senior secured notes and less than 1% in cash and cash equivalents.



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The industry composition of our portfolio at December 31, 2011 and 2010 was as follows:



|                               |  |              |        |  |      |  |        | 
|------------------------------ |  | ------------ | ------ |  | ---- |  | ------ | 
|                               |  | December 31, |       
|Industry                       |  | 2011         |        |  | 2010 | 
|Personal and Other Services    |  |              | 13.1%  |  |      |  | 13.8%  | 
|Healthcare                     |  |              | 12.9   |  |      |  | 10.6   | 
|Business Services              |  |              | 9.9    |  |      |  | 11.8   | 
|Financial Services             |  |              | 8.3    |  |      |  | 4.9    | 
|Printing, Publishing and Media |  |              | 8.1    |  |      |  | 8.5    | 
|Manufacturing                  |  |              | 7.6    |  |      |  | 7.1    | 
|Retail                         |  |              | 5.2    |  |      |  | 4.0    | 
|Distribution                   |  |              | 5.1    |  |      |  | 6.3    | 
|Consumer Products              |  |              | 4.8    |  |      |  | 7.6    | 
|Chemicals                      |  |              | 4.4    |  |      |  | 4.4    | 
|Building and Real Estate       |  |              | 4.3    |  |      |  | 5.2    | 
|Electronics                    |  |              | 4.1    |  |      |  | 6.1    | 
|Automotive                     |  |              | 3.6    |  |      |  | 4.5    | 
|Beverage, Food and Tobacco     |  |              | 3.6    |  |      |  | 0.8    | 
|Containers and Packaging       |  |              | 2.7    |  |      |  | 3.2    | 
|Telecommunications             |  |              | 1.4    |  |      |  |       | 
|Transportation                 |  |              | 0.5    |  |      |  | 0.4    | 
|Entertainment and Leisure      |  |              | 0.4    |  |      |  | 0.8    | 
|                               |  |              |        |  |      |  |        | 
|Total                          |  |              | 100.0% |  |      |  | 100.0% | 
|                               |  |              |        |  |      |  |        | 

The geographic composition of the portfolio at fair value at December 31, 2011 was United States
96.0% and Canada 4.0%, and at December 31, 2010 was United States 94.7% and Canada 5.3%. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

We generally are not permitted to invest in any private company in which any of our affiliates holds an existing investment, except to
the extent permitted by the 1940 Act. We may, however, co-invest on a concurrent basis with our affiliates, subject to compliance with applicable regulations and regulatory guidance, as well as applicable allocation procedures. We may invest, to the
extent permitted by law, in the securities and instruments of other investment companies, including private funds.

Investment selection
criteria

The Advisor chooses investments and constructs our portfolio based on the investment experience of its
professionals and a detailed investment analysis for each investment opportunity. In analyzing each prospective portfolio company, the Advisor has identified several criteria it believes are important in identifying and investing in prospective
portfolio companies. These criteria provide general guidelines for the Advisors investment decisions on our behalf, although each prospective portfolio company may fail to meet one or more of these criteria. Generally, the Advisor seeks to
utilize its access to information generated by its investment professionals and investment committee members to identify investment candidates and to structure investments quickly and effectively.

Value Orientation/Positive Cash Flow. The Advisors investment philosophy places a premium on fundamental analysis from
an investors perspective and has a distinct value orientation. The Advisor focuses on companies in which it can invest at relatively low multiples of operating cash flow and that are profitable at the time of investment on an operating cash
flow basis. Typically, the Advisor does not invest in start-up companies or companies having speculative business plans.



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Experienced Management. The Advisor generally requires that portfolio companies
have an experienced management team. The Advisor also generally requires portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors, which may include having
significant equity interests.

Strong Competitive Position in Industry. The Advisor seeks to invest in companies
that have strong market positions within their respective markets or market niches and are well positioned to capitalize on growth opportunities. The Advisor seeks companies that demonstrate significant competitive advantages versus their
competitors, which it believes should help to protect their market position and profitability.

Exit Strategy. The
Advisor seeks to invest in companies that it believes will provide a steady stream of cash flow to repay loans and/or build equity value. With respect to loans and debt securities, the Advisor expects that such internally generated cash flow,
leading to the payment of interest on, and the repayment of the principal of, our investments will be a key means by which we exit these investments over time. In addition, the Advisor also seeks to invest in companies whose business models and
expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common
stock or another capital market transaction. With respect to our equity investments, the Advisor will look to exit such investments via repurchases by the portfolio company, public offerings and sales pursuant to merger and acquisition transactions.

Liquidation Value of Assets. The prospective liquidation value of the assets, if any, collateralizing loans in
which we invest is an important factor in the Advisors credit analysis. The Advisor emphasizes both tangible assets, such as accounts receivable, inventory, equipment and real estate, and intangible assets, such as intellectual property,
customer lists, networks and databases.

Generally, the Advisor utilizes access to information generated by its investment
professionals to identify investment candidates and to structure investments quickly and effectively. Furthermore, the Advisor seeks to identify those companies exhibiting superior fundamental risk-reward profiles and strong defensible business
franchises while focusing on the relative value of the security in the companys capital structure.

Investment selection process

The Advisor selectively narrows prospective investment opportunities through a process designed to identify the most
attractive opportunities. If the senior investment professionals responsible for the transaction and the Advisors senior management determine that an investment opportunity merits pursuit, the Advisor engages in an intensive due diligence
process. This process involves extensive research into the target company, its management, its industry, its growth prospects and its ability to withstand adverse conditions.

In conducting their due diligence, the Advisors investment professionals use publicly available information as well as information from their extensive relationships with former and current
management teams, consultants, competitors and investment bankers, among others. Though each transaction involves a somewhat different approach, the Advisor often undertakes the following due diligence steps. Initially, the investment team involved
in the transaction may meet with management to get an insiders view of the business and probe for potential weaknesses in business prospects. They may also visit headquarters and company operations, meeting top- and middle-level executives.
Independently from the company, the investment team may check managements backgrounds and references. With information provided by the company, the investment team performs a detailed review of historical financial performance and the quality
of earnings. To assess both business prospects and standard practices, they may contact customers and vendors and conduct a competitive analysis, comparing the company to its main competitors on an operating, financial, market share and valuation
basis. The investment team also researches the industry for historic growth trends and future prospects utilizing industry analysts at BlackRock, third party research, industry association literature and general news. Furthermore, they assess asset
value and the ability of physical infrastructure and information systems to handle anticipated growth and



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investigate any legal risks and the viability of current financial and accounting systems. Attorneys and independent accountants as well as outside advisors, as appropriate, may conduct
additional due diligence on behalf of the Advisor.

After the Advisor has identified an investment opportunity and completed
due diligence, the investment team involved in the transaction prepares a written investment analysis. Senior investment professionals involved in the transaction review the analysis, and if they are in favor of making the potential investment,
present it first to Messrs. Maher and Lazar and then, if approved by Messrs. Maher and Lazar, to the Advisors investment committee for guidance. The investment committee is comprised of Messrs. Maher and Lazar and several executives of
BlackRock and several of the Kelso Principals. Investment committee members have an average of over 20 years of investment experience in the fixed income and private equity markets.

Investment structure

Once the Advisor determines that a prospective
portfolio company is a suitable investment, it works with the management of that company, any intermediaries and other capital providers, including senior and junior debt security investors and equity capital providers, to structure an investment
quickly and effectively.

We invest in portfolio companies primarily in the form of senior and junior secured loans and
unsecured and subordinated loans. The senior and junior secured loans generally have terms of three to ten years. We obtain security interests in the assets of our portfolio companies that serve as collateral in support of the repayment of the
senior and junior secured loans. The collateral may take the form of first or second priority liens on the assets of a portfolio company.

The Advisor structures unsecured and subordinated debt securities and loans to have relatively high floating or fixed interest rates that provide us with current investment income. These debt securities
and loans generally have terms of up to ten years. Such unsecured and subordinated debt securities and loans may have interest-only payments in the early years, with amortization of principal deferred to the later years of the loan. Also, some of
these loans will be collateralized by a subordinate lien on some or all of the assets of the company.

In some cases, our debt
investments may provide for a portion of the interest payable to be payment-in-kind, or PIK, interest. To the extent interest is PIK, it will be payable through the increase of the principal amount of the loan by the amount of the interest due on
the then-outstanding principal amount of the loan. We must recognize PIK interest, a non-cash source of income, as taxable income, increasing the amounts we are required to distribute to stockholders to qualify for the federal income tax benefits
applicable to RICs.

In the case of the senior secured and junior loans, the Advisor tailors the terms of the investment to
the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that aims to protect our rights and manage our risk while creating incentives for the portfolio company to achieve its business plan and
improve its profitability. For example, in addition to seeking a senior position in the capital structure of our portfolio companies, the Advisor seeks to limit the downside potential of our investments. The Advisor may accomplish this through
requiring a total return on our investment (including both interest and potential equity appreciation) that compensates us for credit risk or through incorporating call protection into the investment structure. The Advisor may also negotiate
covenants in connection with our investments that protect the preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including
either observation or participation rights.

In general, our debt investments include financial covenants and terms that
require the portfolio company to reduce leverage over time, thereby enhancing its credit quality. These methods may include, among others: maintenance leverage covenants requiring a decreasing ratio of debt to cash flow; maintenance cash flow
covenants requiring an increasing ratio of cash flow to interest expense and possibly other cash expenses such as



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capital expenditures, cash taxes and mandatory principal payments; and debt incurrence prohibitions, limiting a companys ability to relever its balance sheet. In addition, limitations on
asset sales and capital expenditures prevent a company from changing the nature of its business or capitalization without our consent.

Structurally, subordinated loans usually rank junior in priority of payment to senior debt, such as senior bank debt, and are often unsecured. As such, other creditors may rank senior to us in the event
of an insolvency. However, subordinated loans rank senior to common and preferred equity in a borrowers capital structure. Due to their higher risk profile and often less restrictive covenants as compared to senior loans, subordinated loans
generally earn higher interest yields than senior secured loans. We believe that subordinated loans offer an attractive alternative investment opportunity. In many cases investors in subordinated loans receive opportunities to invest directly in the
equity securities of borrowers, and from time to time also may receive warrants to purchase equity securities.

Our debt
investments may include equity features, such as warrants or options to buy a minority interest in the portfolio company. Warrants we receive with our debt may require only a nominal cost to exercise, and thus, as a portfolio company appreciates in
value, we may achieve additional investment return from this equity interest. We generally seek to structure the warrants to provide provisions protecting our rights as a minority-interest holder, and we generally seek to structure puts or rights to
sell such securities back to the company upon the occurrence of specified events.

Our equity investments may consist of
preferred equity that pays dividends on a current basis or preferred equity that does not pay current dividends. Preferred equity generally has a preference over common equity as to distributions on liquidations and dividends. In some cases, we may
acquire common equity. Our equity investments frequently are not control-oriented investments, and in many cases, we acquire equity securities as part of a group of private equity investors in which we are not the lead investor. We may also receive
equity though portfolio company restructurings. Our preferred and common equity investments typically are made in conjunction with loans to these companies.

Ongoing relationship with portfolio companies

The Advisor monitors our
portfolio companies on an ongoing basis. The Advisor monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company.

The Advisor has several methods of evaluating and monitoring the performance and fair values of our investments, which may include the
following and other methods:



| |  |  | assessment of success of the portfolio company in adhering to its business plan and compliance with covenants;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position,
requirements and accomplishments;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | comparisons to other companies in the industry;
| | - |  | -----------------------------------------------



| |  |  | attendance at and participation in board meetings;
| | - |  | --------------------------------------------------



| |  |  | review of interim and annual financial statements and financial projections for portfolio companies; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | retention of third-party valuation firms to assist in determination of fair value.
| | - |  | ----------------------------------------------------------------------------------



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Managerial assistance

As a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could involve, among other things, participating in board and management meetings,
consulting with and advising officers of portfolio companies and providing other organizational and financial guidance or exercising strategic or managerial influence over such companies. We may receive fees for these services. The Advisor will
provide managerial assistance on our behalf to those portfolio companies that request this assistance. Employees of the Advisor have experience providing managerial assistance to private operating companies like our portfolio companies, and such
assistance has tended to be related to board representation and to strategic and financing transactions. The Advisor generally will not receive any direct compensation from our portfolio companies for providing managerial assistance although it may
do so from time to time.

Investment rating system

The Advisor employs a grading system for our entire portfolio. The Advisor grades all loans on a scale of 1 to 4. This system is intended to reflect the performance of the borrowers business,
the collateral coverage of the loans and other factors considered relevant. Generally, the Advisor assigns only one loan grade to each portfolio company for all loan investments in that portfolio company; however, the Advisor will assign multiple
ratings when appropriate for different investments in one portfolio company. The following is a description of the conditions associated with each investment rating:

Grade 1: Investments in portfolio companies whose performance is substantially within the Advisors expectations and whose risk factors are neutral to favorable to those at the time of the
original investment.

Grade 2: Investments in portfolio companies whose performance is below the Advisors
expectations and that require closer monitoring; however, no loss of investment return (interest and/or dividends) or principal is expected.

Grade 3: Investments in portfolio companies whose performance is below the Advisors expectations and for which risk has increased materially since origination. Some loss of investment return
is expected, but no loss of principal is expected. Companies graded 3 generally will be out of compliance with debt covenants and will be unlikely to make debt repayments on their original schedule.

Grade 4: Investments in portfolio companies whose performance is materially below the Advisors expectations where business
trends have deteriorated and risk factors have increased substantially since the original investment. Investments graded 4 are those for which some loss of principal is expected.

The Advisor monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection
with our valuation process, the Advisor and Board of Directors review these investment ratings on a quarterly basis. Our average investment rating was 1.20 at December 31, 2011 and 1.32 at December 31, 2010. The following is a distribution
of the investment ratings of our portfolio companies at December 31, 2011 and December 31, 2010:



|                  |  |                   |               |  |                   |   |             | 
|----------------- |  | ----------------- | ------------- |  | ----------------- | - | ----------- | 
|                  |  | December 31, 2011 |               |  | December 31, 2010 |  
|Grade 1           |  | $                 | 872,465,840   |  |                   | $ | 640,463,981 | 
|Grade 2           |  |                   | 156,359,268   |  |                   |   | 211,899,165 | 
|Grade 3           |  |                   | 9,000,116     |  |                   |   | 9,631,767   | 
|Grade 4           |  |                   | 11,035,005    |  |                   |   | 18,090,753  | 
|Not Rated         |  |                   | 92,213        |  |                   |   |            | 
|                  |  |                   |               |  |                   |   |             | 
|Total investments |  | $                 | 1,048,952,442 |  |                   | $ | 880,085,666 | 
|                  |  |                   |               |  |                   |   |             | 

The investment rating process begins with each portfolio company or investment being initially evaluated
by the transaction team, led by a senior investment professional who is responsible for the portfolio company relationship. This evaluation generally is completed no less frequently than quarterly. At the Advisors weekly



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investment professionals meeting, the transaction team presents an update on the activities of any company rated below Grade 1. Each quarter, all investment professionals attend a separate
investment rating meeting. At these quarterly meetings, the transaction team responsible for each portfolio investment reviews each portfolio company and suggests a rating for each investment for discussion among the investment professionals. At the
conclusion of discussion, and subject to the approval of the Advisors chief executive officer and chief operating officer, the Advisors chief financial officer records the internal investment ratings for review by the Board of Directors
quarterly.

Investment management agreement

We have entered into an investment management agreement, which we refer to as the management agreement, with the Advisor, under which the Advisor, subject to the overall supervision of our Board of
Directors, manages our day-to-day operations and provides us with investment advisory services. For providing these services, the Advisor receives a base management fee from us at an annual rate of 2.0% of our total assets, including any assets
acquired with the proceeds of leverage, payable quarterly in arrears.

The investment management agreement became
effective on June 22, 2008 and its initial term expired on June 22, 2010. Since then, our Board of Directors has approved the agreement for successive one year terms with the most recently approved term scheduled to expire on
June 22, 2012, unless an additional one year term is approved by the Board.

For the years ended December 31, 2011,
2010 and 2009, the Advisor earned $19,841,258, $16,877,854 and $18,498,189, respectively, in base management fees under the management agreement.

The management agreement provides that the Advisor or its affiliates may be entitled to an incentive management fee, which we refer to as the Incentive Fee, under certain circumstances. The determination
of the Incentive Fee, as described in more detail below, will result in the Advisor or its affiliates receiving no Incentive Fee payments if returns to our stockholders do not meet an 8.0% annualized rate of return during the applicable fee
measurement period and will result in the Advisor or its affiliates receiving less than the full amount of the Incentive Fee percentage until returns to our stockholders exceed an approximate 13.3% annualized rate of return during such period.
Annualized rate of return in this context is computed by reference to our net asset value and does not take into account changes in the market price of our common stock.

The Advisor will be entitled to receive the Incentive Fee from us if our performance exceeds a hurdle rate during different measurement periods; trailing four quarters periods (which
applies only to the portion of the Incentive Fee based on income); and annual periods (which applies only to the portion of the Incentive Fee based on capital gains).



| |  |  | The income portion of the Incentive Fee payable for the quarter was determined by reference to the current calendar quarter and the three preceding
calendar quarters.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  |  | The term annual period means the period beginning on July 1 of each calendar year and ending on June 30 of the next calendar
year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

The hurdle rate for each quarterly portion of a measurement period is 2.0% multiplied by our net
asset values at the beginning of each calendar quarter during the measurement period, calculated after giving effect to any distribution that occurred during the measurement period. A portion of the Incentive Fee is based on our income and a portion
is based on capital gains. Each portion of the Incentive Fee is described below.

Quarterly Incentive Fee Based on Income.For each trailing four quarters period, we pay the Advisor an Incentive Fee based on the amount by which (A) aggregate distributions and amounts distributable out of taxable net income (excluding any capital gain and loss) during the
period less the amount, if any, by which net



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unrealized capital depreciation exceeds net realized capital gains during the period exceeds (B) the hurdle rate for the period. The amount of the excess of (A) over (B) described
in this paragraph for each period is referred to as the excess income amount.

The portion of the Incentive Fee based on
income for each period will equal 50% of the periods excess income amount, until the cumulative Incentive Fee payments for the period equal 20% of the periods income amount distributed or distributable to stockholders as described in
clause (A) of the preceding paragraph. Thereafter, the portion of the Incentive Fee based on income for the period equals 20% of the periods remaining excess income amount.

Annual Incentive Fee Based on Capital Gains. The portion of the Incentive Fee based on capital gains is calculated on an annual
basis. For each annual period, we pay the Advisor an Incentive Fee based on the amount by which (A) net realized capital gains, if any, to the extent they exceed gross unrealized capital depreciation, if any, occurring during the period exceeds
(B) the amount, if any, by which the periods hurdle rate exceeds the amount of income used in the determination of the Incentive Fee based on income for the period. The amount of the excess of (A) over (B) described in this
paragraph is referred to as the excess gain amount.

The portion of the Incentive Fee based on capital gains for each period
will equal 50% of the periods excess gain amount, until such payments equal 20% of the periods capital gain amount distributed or distributable to our stockholders. Thereafter, the portion of the Incentive Fee based on capital gains for
the period equals an amount such that the portion of the Incentive Fee payments to the Advisor based on capital gains for the period equals 20% of the periods remaining excess gain amount. The result of this formula is that, if the portion of
the Incentive Fee based on income for the period exceeds the periods hurdle, then the portion of the Incentive Fee based on capital gains will be capped at 20% of the capital gain amount.

In calculating whether the portion of the Incentive Fee based on capital gains is payable with respect to any period, we account for our
assets on a security-by-security basis. In addition, we use the period-to-period method pursuant to which the portion of the Incentive Fee based on capital gains for any period is based on realized capital gains for the period reduced by
realized capital losses and gross unrealized capital depreciation for the period. Based on current interpretations of Section 205(b)(3) of the Investment Advisers Act of 1940 by the SEC and its staff, the calculation of unrealized depreciation
for each portfolio security over a period is based on the fair value of the security at the end of the period compared to the fair value at the beginning of the period. Incentive Fees earned in any of the periods described above are not subject to
modification or repayment based upon performance in a subsequent period.

For the years ended December 31, 2011, 2010 and
2009, the Advisor earned $11,878,159, $15,108,049 and $16,818,602, respectively, in Incentive Fees from the Company.

Expenses

All investment professionals and staff of the Advisor, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such
personnel allocable to such services, will be provided and paid for by the Advisor. We will bear all other costs and expenses of our operations and transactions, including those relating to:



| |  |  | our organization;
| | - |  | -----------------



| |  |  | calculating our net asset value (including the cost and expenses of any independent valuation firms);
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | expenses incurred by the Advisor payable to third parties in monitoring our investments and performing due diligence on prospective portfolio
companies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | interest payable on debt, if any, incurred to finance our investments;
| | - |  | ----------------------------------------------------------------------



| |  |  | the costs of future offerings of common shares and other securities, if any;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the base management fee and any incentive management fee;
| | - |  | ---------------------------------------------------------



| |  |  | dividends and distributions on our preferred shares, if any, and common shares;
| | - |  | -------------------------------------------------------------------------------



| |  |  | administration fees payable under the administration agreement;
| | - |  | ---------------------------------------------------------------



| |  |  | fees payable to third parties relating to, or associated with, making investments;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | transfer agent and custodial fees;
| | - |  | ----------------------------------



| |  |  | registration fees;
| | - |  | ------------------



| |  |  | listing fees;
| | - |  | -------------



| |  |  | taxes;
| | - |  | ------



| |  |  | independent director fees and expenses;
| | - |  | ---------------------------------------



| |  |  | costs of preparing and filing reports or other documents with the SEC;
| | - |  | ----------------------------------------------------------------------



| |  |  | the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | our fidelity bond;
| | - |  | ------------------



| |  |  | a portion of our directors and officers/errors and omissions liability insurance, and any other insurance premiums;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | indemnification payments;
| | - |  | -------------------------



| |  |  | direct costs and expenses of administration, including audit and legal costs; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | all other expenses reasonably incurred by us or the Administrator in connection with administering our business, such as the allocable portion of
overhead under the administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We will reimburse the Advisor for costs and expenses incurred by the Advisor for office space rental, office equipment and utilities allocable to the Advisor under the management agreement, as well as any
costs and expenses incurred by the Advisor relating to any non-investment advisory, administrative or operating services provided by the Advisor to us. For the years ended December 31, 2011, 2010 and 2009, we incurred $1,779,734, $1,622,957 and
$1,466,563, respectively, for such investment advisor expenses under the management agreement.

From time to time, the Advisor
may pay amounts owed by us to third party providers of goods or services. We will subsequently reimburse the Advisor for such amounts paid on our behalf. Reimbursements to the Advisor for the years ended December 31, 2011, 2010 and 2009 were
$3,046,228, $3,240,732 and $1,978,629, respectively.

Indemnification

The management agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Advisor is not liable to us or any of our stockholders for any act or omission by it or its employees in the supervision or management of our investment activities or for any loss sustained by us or our stockholders, and
provides for indemnification by us of its members, directors, officers, employees, agents and control persons for liabilities incurred by it in connection with their services to us, subject to certain limitations and conditions.



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Board and stockholder approval of the management agreement

The investment management agreement became effective on June 22, 2008 and its initial term expired on June 22,
2010. Since then, our Board of Directors has approved the agreement for successive one year terms with the most recently approved term scheduled to expire on June 22, 2012, unless an additional one year term is approved by the Board.

Duration and termination

The management agreement will continue in effect until June 22, 2012, and if not sooner terminated, will continue in effect for successive periods of twelve months thereafter, provided that each
continuance is specifically approved at least annually by both (1) the vote of a majority of our Board of Directors or the vote of a majority of our outstanding voting securities and (2) the vote of a majority of the Board of Directors who
are not parties to the management agreement or interested persons (as such term is defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. We may terminate the management agreement
as a whole at any time, without the payment of any penalty, upon the vote of a majority of our Board of Directors or a majority of our outstanding voting securities or by the Advisor, on 60 days written notice by either party to the other
which can be waived by the non-terminating party. The management agreement will terminate automatically in the event of its assignment.

Organization of the Advisor

The Advisor is organized as a Delaware limited liability company. The Advisor is registered as an investment advisor with the SEC under the Advisers Act. Its principal executive offices are located at 40
East 52ndStreet, New York, New York.
James R. Maher and Michael B. Lazar, the managing members of the Advisor, are the control persons of the Advisor.

Administration
agreement

We have entered into an administration agreement with the Administrator, a subsidiary of BlackRock, under which
the Administrator provides administrative services to us. In payment for these services, facilities and personnel, we reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing
its obligations under the administration agreement, including rent and our allocable portion of the cost of certain of our officers and their respective staffs.

For the years ended December 31, 2011, 2010 and 2009, we incurred $968,721, $587,469 and $642,993, respectively, for administrative services expenses payable to the Administrator under the
administration agreement.

License agreements

We have entered into a license agreement with BlackRock and the Advisor pursuant to which BlackRock has agreed to grant to the Advisor, and the Advisor has agreed to grant to us, a non-exclusive,
royalty-free license to use the name BlackRock. In addition, we have entered into a license agreement with Michael B. Lazar, our Chief Operating Officer, and the Advisor pursuant to which Mr. Lazar has agreed to grant to the
Advisor, and the Advisor has agreed to grant to us, a non-exclusive, royalty-free license to use the name Kelso. Mr. Lazar obtained this limited right to license the name Kelso under an agreement with Kelso.

Competition

A number of
entities compete with us to make the types of investments that we make. We compete with other BDCs, public and private funds, commercial and investment banks, CLO funds, commercial financing



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companies, insurance companies, high yield investors and, to the extent they provide an alternative form of financing, private equity funds. Additionally, because competition for investment
opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to invest in areas they have not traditionally invested in, including investments in middle-market companies. As a result of
these new entrants, competition for investment opportunities at middle-market companies has intensified. Many of our existing and potential 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 funds and access to funding sources that are not available to us. In addition, some competitors may have higher risk tolerances or different risk assessments, which could
allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the restrictions that the
Code imposes on us as a RIC.

Leverage

We maintain a multi-currency $375 million senior secured credit facility with a group of lenders, under which we had approximately $168 million of indebtedness outstanding at December 31, 2011.
Availability under the facility, which we refer to as our Credit Facility, consists of $275 million in revolving loan commitments and $100 million in term loan commitments. The term loan commitments have been fully drawn and may not be reborrowed
once repaid. The Credit Facility has an accordion feature that allows the Company, under certain circumstances, to increase the size of the Credit Facility by up to an additional $275 million of revolving loan commitments and $250
million of term loan commitments. The Credit Facility has a stated maturity date of December 6, 2013 and the interest rate applicable to borrowings thereunder is generally LIBOR plus an applicable spread of either 3.00% or 3.25% for revolving
loans, based on a pricing grid depending on the Companys credit rating, and LIBOR plus 3.00% for term loans. The Credit Facility contains customary affirmative and negative covenants, including the maintenance of a minimum stockholders
equity, the maintenance of a ratio of not less than 200% of total assets (less total liabilities other than indebtedness) to total indebtedness, and restrictions on certain payments and issuance of debt. In addition, borrowings under the Credit
Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Companys portfolio. At December 31, 2011, we were in
compliance with all financial and operational covenants required by the Credit Facility.

In January 2011, we closed a private
placement issuance of $158 million in aggregate principal amount of five-year, senior secured notes with a fixed interest rate of 6.50% and a maturity date of January 18, 2016 and $17 million in aggregate principal amount of seven-year, senior
secured notes with a fixed interest rate of 6.60% and a maturity date of January 18, 2018 (collectively, the Senior Secured Notes). The Senior Secured Notes were sold to certain institutional accredited investors pursuant to an
exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on January 18 and July 18, commencing on July 18, 2011. The proceeds from the issuance of the Senior
Secured Notes were used to fund new portfolio investments, reduce outstanding borrowings under the Credit Facility and for general corporate purposes.

Staffing

Services necessary for our business are provided by individuals
who are employees of the Advisor or the Administrator and its affiliates, pursuant to the terms of the management agreement and the administration agreement. Each of our executive officers is an employee of the Advisor or the Administrator and its
affiliates. Our executive officers are also executive officers of the Advisor. Our day-to-day investment operations are managed by the Advisor. The Advisor currently has 18 investment professionals who focus on origination and transaction
development and monitoring of our investments. We reimburse the Advisor for costs and expenses incurred by the Advisor for office space rental, office equipment and utilities allocable to the Advisor under the management agreement, as well as any
costs and expenses incurred by the Advisor relating to any non-investment advisory, administrative or operating services provided by the Advisor to us. In addition, we



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reimburse the Administrator for our allocable portion of expenses it incurs in performing its obligations under the administration agreement, including rent and our allocable portion of the cost
of certain of our officers and their respective staffs.

Regulation

We are a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their
affiliates (including any investment advisors or sub-advisors), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than interested persons, as that
term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless that change is approved by a majority of our outstanding voting
securities.

We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated
transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an underwriter as that term is defined in the Securities Act of 1933, or the Securities Act. We may purchase or otherwise receive warrants
to purchase the common stock of our portfolio companies in connection with acquisition financing or other investment. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their
affiliates to repurchase them under certain circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds we
generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the
securities of investment companies in the aggregate. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses.
None of these are fundamental policies and they may be changed without stockholder approval.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. We have
adopted procedures to comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. The Sarbanes-Oxley Act requires us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and such
regulations. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

The NASDAQ Global Select Market corporate governance regulations

The NASDAQ Global Select Market has adopted corporate governance regulations with which listed companies must comply. We believe we are in compliance with such corporate governance listing standards. We
will continue to monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in compliance therewith.

Privacy principles

We are committed to maintaining the privacy of
stockholders and to safeguarding our nonpublic personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share
information with select other parties.

Generally, we do not receive any nonpublic personal information relating to our
stockholders, although certain nonpublic personal information of our stockholders may become available to us. We do not disclose any



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nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a
transfer agent or third party administrator).

We restrict access to nonpublic personal information about our stockholders to
our investment advisors employees with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.

Available information

Our internet address is www.blackrockkelso.com. We make available free of charge on our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated
by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K.



|Item 1A. | Risk Factors
|-------- | ------------

You
should carefully consider these risk factors, together with all of the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes thereto, before making a decision to purchase
our common stock. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could
decline, and you may lose all or part of your investment in the Company.

Risks Related to Our Business

We may be unable to achieve our investment objective if we are unable to manage our investments effectively.

Our ability to achieve our investment objective depends on our ability to manage our business, which depends, in turn, on the ability of
the Advisor to identify, invest in and monitor companies that meet our investment criteria. Accomplishing this result is largely a function of the Advisors investment process and, in conjunction with the Administrator, its ability to provide
competent, attentive and efficient services to us. Our executive officers and many of the members of the Advisors investment committee have substantial responsibilities to other clients in addition to their activities and responsibilities on
our behalf. The investment professionals dedicated to us may also be required to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow our rate of investment. Any failure to manage our
business effectively could have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive market for investment opportunities.

A number of entities compete with us to make the types of investments that we make. We compete with other BDCs, public and private funds,
commercial and investment banks, CLO funds, commercial financing companies, insurance companies, high yield investors, hedge funds and, to the extent they provide an alternative form of financing, private equity funds. Many of our competitors are
substantially larger and have considerably greater financial, technical and marketing resources than we do. Some competitors may have a lower cost of funds 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, which could allow them to consider a wider variety of



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investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC and that the
Code imposes on us as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be
able to pursue attractive investment opportunities from time to time.

We are dependent upon senior management personnel
of our investment advisor for our future success, and if our investment advisor is unable to hire and retain qualified personnel or if our investment advisor loses any member of its senior management team, our ability to achieve our investment
objective could be significantly harmed.

We depend on the members of senior management of the Advisor, particularly
its Chairman and Chief Executive Officer, James R. Maher, and its Chief Operating Officer, Michael B. Lazar, as well as other key personnel for the identification, final selection, structuring, closing and monitoring of our investments. These
employees of the Advisor have critical industry experience and relationships that we rely on to implement our business plan. Our future success depends on the continued service of our Advisors senior management team. The departure of any of
the members of our Advisors senior management or a significant number of the members of its investment team could have a material adverse effect on our ability to achieve our investment objective. As a result, we may not be able to operate our
business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. In addition, we can offer no assurance that BlackRock Kelso Capital Advisors LLC will remain our investment advisor, that BlackRock
Financial Management, Inc. will remain our administrator or that we will continue to have access to BlackRocks investment professionals or the Kelso Principals.

Our investment adviser has the right to resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could
adversely affect our business, financial condition and results of operations.

Our investment adviser has the right,
under our investment management agreement, to resign at any time upon not less than 60 days written notice, whether we have found a replacement or not. If our investment adviser resigns, we may not be able to find a new investment adviser or
hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our
business, financial condition and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and
investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates. Even if we are able to retain
comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial
condition and results of operations.

Capital markets have experienced a period of disruption and instability. These
market conditions have materially and adversely affected debt and equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations.

The global capital markets have experienced a period of disruption as evidenced by a lack of liquidity in the debt capital markets,
write-offs in the financial services sector, the re-pricing of credit risk and the failure of certain major financial institutions. Despite actions of the United States federal government and foreign governments, these events contributed to
worsening general economic conditions that have materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.
While the adverse effects of these conditions have abated to a degree, global financial markets have experienced significant volatility following the



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downgrade by Standard & Poors on August 5, 2011 of the long-term credit rating of U.S. Treasury debt from AAA to AA+. During such market disruptions, we may have
difficulty raising debt or equity capital especially as a result of regulatory constraints.

Market conditions may in the
future make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse effect on our business. The illiquidity of our investments may make it difficult for us to sell such
investments if required. As a result, we may realize significantly less than the value at which we have recorded our investments. In addition, significant changes in the capital markets, including the disruption and volatility, have had, and may in
the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a
material adverse impact on our business, financial condition and results of operations.

Price declines and illiquidity
in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.

As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in
good faith by or under the direction of our Board of Directors. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation, which reduces our net asset value. Depending on market conditions, we
could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations.

The recent downgrade of the U.S. credit rating and uncertainty about the financial stability of several countries in the European
Union (EU) could have a significant adverse effect on our business, results of operations and financial condition.

Due
to the current federal budget deficit concerns, S&P downgraded the federal governments credit rating from AAA to AA+ for the first time in history on August 5, 2011. This downgrade could lead to subsequent downgrades by S&P, as
well as to downgrades by the other two major credit rating agencies, Moodys and Fitch Ratings. These developments, and the governments credit concerns in general, could cause interest rates and borrowing costs to rise, which may
negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. In addition, a decreased credit rating could create broader financial turmoil and uncertainty,
which may weigh heavily on our stock price and our financial performance.

In 2010, a financial crisis emerged in Europe,
triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these EU peripheral nations to continue to service their
sovereign debt obligations. Despite assistance packages to Greece, Ireland and Portugal, the creation of a joint EU-IMF European Financial Stability Facility in May 2010, and a recently announced plan to expand financial assistance to Greece,
uncertainty over the outcome of the EU governments financial support programs and worries about sovereign finances persist. Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic
recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions. Market and economic disruptions have affected, and may continue to affect, consumer confidence levels and spending,
personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and
financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. To the extent
uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely affected.



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In addition to regulatory restrictions that restrict our ability to raise capital,
our debt arrangements contain various covenants which, if not complied with, could accelerate repayment of our debt, thereby materially and adversely affecting our liquidity, financial condition and results of operations.

The agreements governing our Credit Facility and Senior Secured Notes require us to comply with certain financial and operational
covenants. These covenants include:



| |  |  | restrictions on the level of indebtedness that we are permitted to incur in relation to the value of our assets;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | restrictions on our ability to incur liens; and
| | - |  | -----------------------------------------------



| |  |  | maintenance of a minimum level of stockholders equity.
| | - |  | -------------------------------------------------------

As of December 31, 2011, we were in compliance with all applicable covenants for our outstanding borrowings. However, our
continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, there are no assurances that we will continue to comply with the covenants in our debt arrangements. Failure to comply with
these covenants would result in a default under these arrangements which, if we were unable to obtain a waiver from the lenders thereunder, could result in an acceleration of repayments on our debt and thereby have a material adverse impact on our
business, financial condition and results of operations.

The disposition of our investments may result in contingent
liabilities.

Most of our investments will involve private securities. In connection with the disposition of an
investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the
purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations
that must be satisfied through our return of certain distributions previously made to us. There are no such contingent liabilities in place at December 31, 2011.

Substantially all of our assets are subject to security interests under our borrowings and if we default on our obligations, we may suffer adverse consequences, including the lenders foreclosing on
our assets.

As of December 31, 2011, substantially all of our assets were pledged as collateral under our Credit
Facility. If we default on our obligations, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests. In such event, we may be forced to sell our investments to raise funds
to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of our company could significantly impair our ability to
effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we pay to our stockholders.

In addition, if the lenders exercise their right to sell the assets pledged under our borrowings, such sales may be completed at
distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding.

Our Credit Facility matures in December 2013 and any inability to renew, extend or replace our Credit Facility could adversely impact our liquidity and ability to find new investments or maintain
distributions to our stockholders.

We maintain a multi-currency $375 million senior secured credit facility with a
group of lenders, under which we had approximately $168 million of indebtedness outstanding at December 31, 2011. Availability under our Credit Facility consists of $275 million in revolving loan commitments and $100 million in term loan



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commitments. The Credit Facility has a stated maturity date of December 6, 2013. There can be no assurance that we will be able to renew, extend or replace the Credit Facility upon its
maturity on terms that are favorable to us, if at all. Our ability to renew, extend or replace the Credit Facility will be constrained by then-current economic conditions affecting the credit markets. In the event that we are not able to renew,
extend or replace the Credit Facility at the time of its maturity, this could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders and our ability to qualify as a
RIC.

Our five-year Senior Secured Notes mature in January 2016 and our seven-year Senior Secured Notes mature in
January 2018, and any inability to replace or repay our Senior Secured Notes could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders.

In January 2011, we closed a private placement issuance of $158 million in aggregate principal amount of five-year, senior secured
notes with a fixed interest rate of 6.50% and a maturity date of January 18, 2016 and $17 million in aggregate principal amount of seven-year senior secured notes with a fixed interest rate of 6.60% and a maturity date of January 18, 2018.
There can be no assurance that we will be able to replace the Senior Secured Notes upon their maturity on terms that are favorable to us, if at all. Our ability to replace the Senior Secured Notes will be constrained by then-current economic
conditions affecting the credit markets. In the event that we are not able to replace or repay the Senior Secured Notes at the time of their maturity, this could have a material adverse effect on our liquidity and ability to fund new investments,
our ability to make distributions to our stockholders and our ability to qualify as a RIC.

If we incur additional debt,
it could increase the risk of investing in our common stock.

We have indebtedness outstanding pursuant to our Credit
Facility and expect, in the future, to borrow additional amounts under our Credit Facility and may increase the size of our Credit Facility. In January 2011, we closed a private placement of $175 million of our Senior Secured Notes. Lenders under
our Credit Facility and Senior Secured Notes have fixed dollar claims on our assets that are superior to the claims of our common stockholders or any preferred stockholders, and we have granted a security interest in our assets in connection with
our borrowings. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. In addition, borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase
the risks associated with investing in our common stock. Leverage is generally considered a speculative investment technique. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to
increase more than it otherwise would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause the net asset value attributable to our common stock to decline more than it otherwise would have had we not
leveraged. Similarly, any increase in our revenue in excess of interest expense on our borrowed funds would cause our net income to increase more than it would without the leverage. Any decrease in our revenue would cause our net income to decline
more than it would have had we not borrowed funds and could negatively affect our ability to make distributions on our common stock. Our ability to service any debt that we incur depends largely on our financial performance and is subject to
prevailing economic conditions and competitive pressures.

As a BDC, we generally are required to meet a coverage ratio of
total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. If this ratio declines below 200%, we may not be able to incur additional debt
and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to make distributions.

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 is based on our level of borrowing at December 31, 2011, which represented borrowings equal to 31% of our total assets. On such
date, we also had $1,091 million in total assets; an average cost of funds of 5.06%; $343 million in debt



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outstanding; and $701 million of total net assets. In order to compute the Corresponding Return to Common Stockholders, the Assumed Return on Portfolio (Net of Expenses Other
than Interest) is multiplied by the total value of our assets at December 31, 2011 to obtain an assumed return to us. From this amount, the interest expense calculated by multiplying the interest rate of 5.06% by the $343 million debt is
subtracted to determine the return available to stockholders. The return available to stockholders is then divided by the total value of our net assets at December 31, 2011 to determine the Corresponding Return to Common
Stockholders. Actual interest payments may be different.



|                                                                     |  |        |  |        |  |       |  |      |  |      
|-------------------------------------------------------------------- |  | ------ |  | ------ |  | ----- |  | ---- |  | -----
|Assumed Return on Portfolio (Net of Expenses Other than Interest)(1) |  | -10%   |  | -5%    |  | 0%    |  | 5%   |  | 10%  
|Corresponding Return to Common Stockholders                          |  | -18.0% |  | -10.3% |  | -2.5% |  | 5.3% |  | 13.1%



|(1) | The assumed portfolio return in the table is based on SEC regulations and is not a prediction of, and does not represent, our projected or actual performance. The table
also assumes that we will maintain a constant level of leverage. The amount of leverage that we use will vary from time to time.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our use of borrowed funds to make investments exposes us to risks typically associated with leverage.

We borrow money and may issue additional debt securities or preferred stock to leverage our capital structure. As a result:



| |  |  | shares of our common stock are exposed to incremental risk of loss; therefore, a decrease in the value of our investments would have a greater negative
impact on the value of our common shares than if we did not use leverage;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to pay dividends on our common stock will be restricted if our asset coverage ratio is not at least 200% and any amounts used to service
indebtedness or preferred stock may not be available for such dividends;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | such securities are governed by an indenture or other instrument containing covenants restricting our operating flexibility;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | we, and indirectly our stockholders, bear the cost of issuing and paying interest or dividends on such securities; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common stock.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

There is a risk that we may not make distributions and consequently will be subject to
corporate-level income tax.

We intend to make distributions on a quarterly basis to our stockholders out of assets
legally available for distribution. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset
coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. Also, restrictions and provisions in our existing and any future debt arrangements may limit our ability to make distributions. If we do not distribute
a certain percentage of our income annually, we could fail to qualify for tax treatment as a RIC, and we would be subject to corporate-level federal income tax. We cannot assure you that you will receive distributions at a particular level or at
all.



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

In accordance with U.S. generally accepted accounting
principles, or GAAP, and tax regulations, we include in income certain amounts that we have not yet received in cash, such as payment-in-kind, or PIK, interest, which represents contractual interest added to the loan balance and due at the end of
the loan term. The increases in loan balances as a result of contracted payment-in-kind arrangements are included in income for the period in which such PIK interest was received, which is often in advance of receiving cash payment. We also may be
required to include in income certain other amounts that we will not receive in cash. Any warrants that we receive in connection with our debt investments are generally valued as part of the negotiation process with the particular portfolio company.
As a result, a portion of the aggregate purchase price for the debt investments and warrants are allocated to the warrants that we receive. This will generally result in original issue discount for tax purposes, which we must recognize
as ordinary income, increasing the amounts we are required to distribute to qualify for the federal income tax benefits applicable to RICs. Because such original issue discount income would not be accompanied by cash, we would need to obtain cash
from other sources to satisfy such distribution requirements. If we are unable to obtain cash from other sources to satisfy such distribution requirements, we may fail to qualify for favorable tax treatment as a RIC and, thus, could become subject
to a corporate-level income tax on all of our income. Other features of the debt instruments that we hold may also cause such instruments to generate original issue discount, resulting in a dividend distribution requirement in excess of current cash
received. Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to 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. If we are unable to meet these distribution requirements, we will not qualify for favorable tax treatment as a RIC or, even if such distribution requirements are satisfied, we
may be subject to tax on the amount that is undistributed. Accordingly, we may have to sell some of our assets, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements and avoid tax.

Because we are required to distribute substantially all of our net investment income and net realized capital gains to
our stockholders, we will continue to need additional capital to finance our growth.

We have elected to be treated for
federal income tax purposes as a RIC under Subchapter M of the Code. If we can meet certain requirements, including source of income, asset diversification and distribution requirements, and if we continue to qualify as a BDC, we will continue to
qualify to be a RIC under the Code and will not have to pay corporate-level taxes on income we distribute to our stockholders as dividends, allowing us to substantially reduce or eliminate our corporate-level tax liability. As a BDC, we are
generally required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow.
Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt
and equity financing will be available to us on favorable terms, if at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are generally not permitted to issue equity securities
priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our net asset value and profitability could decline.

Any unrealized losses we experience on our investment portfolio may be an indication of future realized losses, which
could reduce our income available for distribution.

Decreases in the market values or fair values of our investments
will be recorded as unrealized depreciation. Any unrealized losses in our investment portfolio could be an indication of a portfolio companys inability to meet its repayment obligations to us with respect to the affected investments. This
could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.



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Our investment advisor and its affiliates, officers and employees have certain
conflicts of interest.

The Advisor, its officers and employees and members of its investment committee serve or may
serve as investment advisors, officers, directors or principals of entities or investment funds that operate in the same or a related line of business as us and/or of investment funds managed by our affiliates. Accordingly, these individuals may
have obligations to investors in those entities or funds, the fulfillment of which might not be in our best interests or the best interests of our stockholders. In addition, we note that any affiliated investment vehicle currently formed or formed
in the future and managed by the Advisor or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, the Advisor and/or its affiliates may face
conflicts in allocating investment opportunities between us and such other entities. Although the Advisor and its affiliates will endeavor to allocate investment opportunities in a fair and equitable manner and consistent with applicable allocation
procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by the Advisor or its affiliates. In any such case, if the Advisor forms other affiliates in the
future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with applicable regulations and regulatory guidance, as well as applicable allocation procedures. In certain circumstances, negotiated co-investments
may be made only if we receive an order from the SEC permitting us to do so. There can be no assurance when any such order would be obtained or that one will be obtained at all.

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

Our base management fee is calculated on the basis of our total assets, including assets acquired with the proceeds of leverage. This may
encourage the Advisor to use leverage to increase the aggregate amount of and the return on our investments, even when it may not be appropriate to do so, and to refrain from delevering when it would otherwise be appropriate to do so. Under certain
circumstances, the use of increased leverage may increase the likelihood of default, which would impair the value of our common stock. Given the subjective nature of the investment decisions made by our investment adviser on our behalf, we will not
be able to monitor this conflict of interest.

Our incentive fee structure and the formula for calculating the incentive
fee may incentivize our investment advisor to pursue speculative investments.

The incentive fee payable by us to the
Advisor may create an incentive for the Advisor to pursue investments on our behalf that are riskier or more speculative than would otherwise be the case in the absence of such compensation arrangement. The incentive fee payable to the Advisor is
calculated based on a percentage of distributions on our common stock. The incentive fee payable by us to the Advisor also may induce the Advisor to invest on our behalf in instruments that have a deferred interest feature, even if such deferred
payments would not provide cash necessary to enable us to pay current distributions to our stockholders. Under these investments, we would accrue interest over the life of the investment but would not receive the cash income from the investment
until the end of the term, if at all. Our net investment income used to calculate the income portion of our incentive fee, however, will include accrued interest. Thus, a portion of this incentive fee would be based on income that we have not yet
received in cash and may never receive in cash if the portfolio company is unable to satisfy such interest payment obligation to us. The foregoing risks could be increased because the Advisor is not obligated to reimburse us for any incentive fee
received even if we subsequently incur losses or never receive in cash income that was previously accrued.

We may not
replicate the success of BlackRock or Kelso.

We are not managed by either BlackRock or Kelso. Our investment
strategies differ from those of BlackRock, the Kelso Principals or their respective affiliates. We can provide no assurance that we will replicate the historical or future performance of BlackRocks or Kelsos investments and our
investment returns may be substantially lower than the returns achieved by those firms. As a BDC, we are subject to certain investment



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restrictions that do not apply to BlackRock or Kelso. In addition, recent market conditions and the current stage of the economic cycle present significant challenges to us that have not been
present in the past. Accordingly, we can offer no assurance that the Advisor will be able to continue to implement our investment objective with the same degree of success as it has in the past or that shares of our common stock will trade at or
above the current level.

Substantially all of our portfolio investments are recorded at fair value as determined in
good faith by or under the direction of our Board of Directors and, as a result, there is uncertainty regarding the value of our portfolio investments.

There is not a readily available market value for substantially all of the investments in our portfolio. We value these investments quarterly at fair value as determined in good faith under the direction
of our Board of Directors using a consistently applied valuation process in accordance with a documented valuation policy that has been reviewed and approved by our Board of Directors. Our Board of Directors utilizes the services of one or more
independent valuation firms to aid in determining the fair value of these investments. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of
our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the amounts we realize on any dispositions of such investments. In
addition, the impact of changes in the market environment and other events on the fair values of our investments that have no readily available market values may differ from the impact of such changes on the readily available market values for our
other investments. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments.

We may in the future determine to fund a portion of our investments by issuing preferred stock, which would magnify the potential
gains or losses and the risks of investing in us in the same manner as our borrowings.

Preferred stock, which is
another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on any preferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred
stock must take preference over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses, and are not entitled to participate in any income or appreciation in excess of
their stated preference.

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

Our Board of Directors has the authority to modify or waive certain of
our operating policies and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw
our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results or value of our common stock. Nevertheless, the effects could adversely affect our
business and impact our ability to make distributions.

We may experience fluctuations in our periodic results.

We could experience fluctuations in our periodic results due to a number of factors, some of which are beyond our
control, including our ability to make investments in companies that meet our investment criteria, the interest rates payable on the debt investments we make, the default rate on such investments, the level of our expenses (including the interest
rates payable on our borrowings and the dividend rates on any preferred stock we may issue), 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 period should not be relied upon as being indicative of performance in future periods.



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

General interest rate fluctuations may have a substantial negative impact on our investments, the value of our common
stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net investment income. An increase in interest rates
could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high-yield bonds, and also could increase our interest expense,
thereby decreasing our net investment income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our
common stock.

The effect of global climate change may impact the operations of our portfolio companies.

There may be evidence of global climate change. Climate change creates physical and financial risk and some of our
portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate
change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products or services
is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding
to costs, and can contribute to increased system stresses, including service interruptions.

Risks Related to Our Investments

Our investments are risky and highly speculative, and we could lose all or part of our investment.

Investing in private middle-market companies involves a high degree of risk and our financial results may be affected
adversely if one or more of our significant portfolio investments defaults on its loans or fails to perform as we expect. We invest primarily in middle-market companies in the form of senior and junior secured and unsecured debt securities and
loans, each of which may include an equity component, and by making direct preferred, common and other equity investments in such companies.

Investing in private middle-market companies involves a number of significant risks, including:



| |  |  | these companies 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | these companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to
render them more vulnerable to competitors actions and market conditions, as well as general economic downturns;
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| |  |  | these companies 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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

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

Our investments in lower credit
quality obligations are risky and highly speculative, and we could lose all or part of our investment.

Most of our
debt investments are likely to be in lower grade obligations. The lower grade investments in which we invest may be rated below investment grade by one or more nationally-recognized statistical rating agencies at the time of investment or may be
unrated but determined by the Advisor to be of comparable quality. Debt securities rated below investment grade are commonly referred to as junk bonds and are considered speculative with respect to the issuers capacity to pay
interest and repay principal. The debt that we invest in typically is not initially rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than Baa3 by
Moodys Investors Service, lower than BBB- by Fitch Ratings or lower than BBB- by Standard & Poors). We may invest without limit in debt of any rating, as well as debt that has not been rated by any
nationally recognized statistical rating organization.

Investment in lower grade investments involves a substantial risk of
loss. Lower grade securities or comparable unrated securities are considered predominantly speculative with respect to the issuers ability to pay interest and principal and are susceptible to default or decline in market value due to adverse
economic and business developments. The market values for lower grade debt tend to be very volatile and are less liquid than investment grade securities. For these reasons, your investment in our company is subject to the following specific risks:
increased price sensitivity to a deteriorating economic environment; greater risk of loss due to default or declining credit quality; adverse company specific events are more likely to render the issuer unable to make interest and/or principal
payments; and if a negative perception of the lower grade debt market develops, the price and liquidity of lower grade securities may be depressed. This negative perception could last for a significant period of time.

Any investments in distressed debt obligations may not produce income and may require us to bear large expenses in order to protect
and recover our investment.

At times, distressed debt obligations may not produce income and may require us to bear
certain extraordinary expenses (including legal, accounting, valuation and transaction expenses) in order to protect and recover our investment. Therefore, to the extent we invest in distressed debt, our ability to achieve current income for our
stockholders may be diminished. We also will be subject to significant uncertainty as to when and in what manner and for what value the distressed debt we invest in will eventually be satisfied (e.g., through liquidation of the obligors
assets, an exchange offer or plan of reorganization involving the distressed debt securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is



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made or plan of reorganization is adopted with respect to distressed debt we hold, there can be no assurance that the securities or other assets received by us in connection with such exchange
offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by us upon completion of an exchange offer or plan of reorganization may
be restricted as to resale. As a result of our participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed debt, we may be restricted from disposing of such securities.

If we invest in preferred stock, we may incur additional risks.

To the extent we invest in preferred securities, we may incur particular risks, including:



| |  |  | Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse
consequences to the issuer. If we own a preferred security that is deferring its distributions, we may be required to report income for tax purposes before we receive such distributions. Preferred securities are subordinated to bonds and other debt
instruments in a companys capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Generally, preferred security holders have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a
specified number of periods, at which time the preferred security holders may elect a number of directors to the issuers board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights.
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Our equity investments may decline in value.

The equity securities in which we invest may not appreciate or may decline in value. We may thus not be able to realize gains from our
equity securities, and any gains that we do realize on the disposition of any equity securities may not be sufficient to offset any other losses we experience. As a result, the equity securities in which we invest may decline in value, which may
negatively impact our ability to pay distributions and cause you to lose all or part of your investment.

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

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

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



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Economic recessions or downturns could impair our portfolio companies and harm our
operating results.

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be
unable to repay our loans during these periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record the values of our investments. Adverse economic
conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and
assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm
our operating results.

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

Our portfolio companies usually will have, or may be permitted to incur, other debt that ranks equally
with, or senior to, debt securities in which we invest. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments.
Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in
full before we receive any distribution in respect of our investment. After repaying such senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligations to us. In the case of debt ranking equally with
debt securities 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. In addition, we may not be in a position to control any portfolio company by investing in its debt securities. 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.

Because we generally do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise
control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

We generally do not hold controlling equity positions in our portfolio companies. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and
that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt and equity investments that we typically hold in our portfolio
companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments.

Concentration of our assets in an issuer, industry or sector may present more risks than if we were more broadly diversified over
numerous issuers, industries and sectors of the economy.

We are classified as a non-diversified investment company
within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in the securities
of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the markets assessment of the issuer. We may also be more
susceptible to any single economic or regulatory occurrence than a diversified investment company.

In addition, we may, from
time to time, invest a substantial portion of our assets in the securities of issuers in any single industry or sector of the economy or in only a few issuers. We cannot predict the industries or sectors in which our investment strategy may cause us
to concentrate and cannot predict the level of our diversification among issuers to ensure that we satisfy diversification requirements for qualification as a RIC for



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U.S. federal income tax purposes. A downturn in an industry or sector in which we are concentrated would have a larger impact on us than on a company that does not concentrate in that particular
industry or sector. Furthermore, the Advisor has not made and does not intend to make any determination as to the allocation of assets among different classes of securities. At any point in time we may be highly concentrated in a single type of
asset, such as junior unsecured loans or distressed debt. Consequently, events which affect a particular asset class disproportionately could have an equally disproportionate effect on us.

Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as
follow-on investments in order to: (i) increase or maintain in whole or in part our equity ownership percentage; (ii) exercise warrants, options or convertible securities that were acquired in the original or any subsequent
financing; or (iii) attempt to preserve or enhance the value of our investments. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. We will have the discretion to make any follow-on
investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed
opportunity for us to maintain or increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase
our concentration of risk, either because we prefer other opportunities or because we are subject to BDC requirements that would prevent such follow-on investments or the desire to maintain our RIC status.

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies.
Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of
foreign taxes (potentially at confiscatory levels), less liquid markets and less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed
bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

Although most of our investments are denominated in U.S. dollars, our investments that are denominated in a foreign currency are subject to the risk that the value of a particular currency may change in
relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities
for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be
effective.

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

Our investments in the healthcare sector are subject to substantial risks. The laws and rules governing
the business of healthcare companies and interpretations of those laws and rules are subject to frequent change. Broad latitude is given to the agencies administering those regulations. Existing or future laws and rules could force our portfolio
companies engaged in healthcare to change how they do business, restrict revenue, increase costs, change reserve levels, change business practices and increase liability in federal and state courts. Healthcare companies often must obtain and
maintain regulatory approvals to market many of their products, change prices for certain regulated products and to consummate some of their acquisitions and divestitures.



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Delays in obtaining or failure to obtain or maintain these approvals could reduce revenue or increase costs. Policy changes on the local, state and federal level, such as the expansion of the
governments role in the health care arena and alternative assessments and tax increases specific to the healthcare industry or healthcare products as part of federal health care reform initiatives, could fundamentally change the dynamics of
the healthcare industry.

Risks Related to Our Operations as a BDC

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

We are prohibited under the 1940 Act from knowingly participating in certain transactions with certain of our affiliates without the prior
approval of our independent directors and, in some cases, of 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 are generally prohibited
from buying or selling any security (other than our securities) from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain joint transactions with certain of our affiliates,
which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or
to any person who owns more than 25% of our voting securities or certain of that persons affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC through an exemptive order (other than
in certain limited situations pursuant to current regulatory guidance). The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing. Similar restrictions
limit our ability to transact business with our officers or directors or their affiliates.

We have applied for an exemptive
order from the SEC that would permit us and certain of our affiliates, including investment funds managed by our affiliates, to co-invest. Any such order will be subject to certain terms and conditions and there can be no assurance that such order
will be granted by the SEC. Accordingly, we cannot assure you that we or our affiliates, including investment funds managed by our affiliates, will be permitted to co-invest, other than in the limited circumstances currently permitted by regulatory
guidance or in the absence of a joint transaction.

Regulations governing our operation as a BDC affect our ability to,
and the way in which we, raise additional capital.

Our business requires a substantial amount of capital. We may
acquire additional capital from the issuance of senior securities or other indebtedness, the issuance of additional shares of our common stock or from securitization transactions. However, we may not be able to raise additional capital in the future
on favorable terms or at all. We may issue debt securities or preferred securities, which we refer to collectively as senior securities, and we may borrow money from banks or other financial institutions, up to the maximum amount
permitted by the 1940 Act. The 1940 Act permits us to issue senior securities or incur indebtedness only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such issuance or incurrence. Our ability to pay
dividends or issue additional senior securities would be restricted if our asset coverage ratio were not at least 200%. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to liquidate a
portion of our investments and repay a portion of our indebtedness at a time when such sales may be disadvantageous.



| |  |  | Senior Securities. As a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an
increased risk of loss. If we issue preferred securities they would rank senior to common stock in our capital structure, preferred stockholders would have separate voting rights and may have rights, preferences or privileges more
favorable than those of our common stockholders. Furthermore, the issuance of preferred securities could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for our common
stockholders or otherwise be in the best interests of our common stockholders.
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| |  |  | Additional Common Stock. Our Board of Directors may decide to issue common stock to finance our operations rather than issuing debt or other
senior securities. As a BDC, we are generally not able to issue our common stock at a price below net asset value, or issue securities convertible into common stock, without first obtaining the required approvals from our stockholders and our
independent directors. We may also make rights offerings to our stockholders. If we raise additional capital by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our
common stockholders at that time would decrease, and our common stockholders may experience dilution.
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| |  |  | Securitization. In addition to issuing securities to raise capital as described above, we anticipate that in the future we may securitize our
loans to generate cash for funding new investments. To securitize loans, we may create a wholly-owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who
we would expect would be willing to accept a substantially lower interest rate than the loans earn. We would retain all or a portion of the equity in the securitized pool of loans. Our retained equity would be exposed to any losses on the portfolio
of loans before any of the debt securities would be exposed to such losses. An inability to successfully securitize our loan portfolio could limit our ability to grow our business and fully execute our business strategy and adversely affect our
earnings, if any. Moreover, the successful securitization of our loan portfolio might expose us to losses as the residual loans in which we do not sell interests will tend to be those that are riskier and more apt to generate losses.
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Stockholders will likely incur dilution if we sell or otherwise issue shares of our common stock at
prices below the then current net asset value per share of our common stock.

We obtained approval at our 2011 Annual
Meeting of Stockholders to allow us the flexibility, with the approval of our Board of Directors, to sell or otherwise issue shares of our common stock at a price below its then current net asset value per share during the twelve month period
following stockholders approval at the 2011 Annual Meeting, subject to the policy of our Board of Directors that the Company shall not sell or otherwise issue more than 25% of the Companys then outstanding shares of common stock (immediately
prior to such sale or issuance) at a price below its then current net asset value per share. Since we obtained this approval from stockholders, we may issue shares of our common stock at a price below its then current net asset value per share,
subject to the foregoing conditions and the determination by our Board of Directors that such issuance and sale is in our and our stockholders best interests.

In addition, we may also issue shares in certain limited circumstances under our dividend reinvestment plan and under interpretive advice issued by the Internal Revenue Service. Any sale or other issuance
of shares of our common stock at a price below net asset value per share would result in an immediate dilution to the net asset value per share. This dilution would occur as a result of a proportionately greater decrease in a stockholders
interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known,
the actual dilutive effect cannot be predicted. We caution you that such effects may be material, and we undertake to describe material risks and dilutive effects of any offering that we make at a price below our then current net asset value in the
future in a prospectus supplement issued in connection with any such offering. We cannot predict whether shares of our common stock will trade above, at or below our net asset value.

Changes in the laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our
portfolio companies to comply with these laws or regulations, could negatively affect the profitability of our operations or of our portfolio companies.

We are subject to changing rules and regulations of federal and state governments, as well as the stock exchange on which our common stock is listed. These entities, including the Public Company
Accounting



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Oversight Board, the SEC and The NASDAQ Global Select Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several
years and continue to develop additional regulations. In particular, changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our
operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates,
fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into
jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not
comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon our business, financial
condition and results of operations.

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 Dodd-Frank Wall Street Reform and Consumer Protection Act became effective on July 21, 2010; although many
provisions of the Dodd-Frank Reform Act have delayed effectiveness or will not become effective until the relevant federal agencies issue new rules to implement the Dodd-Frank Reform Act. Nevertheless, the Dodd-Frank Reform Act may have a material
adverse impact on the financial services industry as a whole and on our business, financial condition and results of operations. Accordingly, we cannot predict the effect the Dodd-Frank Reform Act or its implementing regulations will have on our
business, financial condition and results of operations.

Any failure on our part to maintain our status as a BDC would
reduce our operating flexibility.

The 1940 Act imposes numerous constraints on the operations of BDCs. Any failure to
comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to
withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we may be subject to the substantially greater regulation under the 1940 Act as a closed-end
investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business.

If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.

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. We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in
what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act
provisions applicable to BDCs, which would have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies
(which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. 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.



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Loss of status as a RIC would reduce our net asset value and distributable income.

We currently qualify as a RIC under the Code and intend to continue to qualify each year as a RIC. As a RIC we do not
have to pay federal income taxes on our income (including realized gains) that is distributed to our stockholders, provided that we satisfy certain distribution requirements. Accordingly, we are not permitted under accounting rules to establish
reserves for taxes on our unrealized capital gains. If we fail to qualify for RIC status in any year, to the extent that we had unrealized gains, we would have to establish reserves for taxes, which would reduce our net asset value. In addition, if
we, as a RIC, were to decide to make a deemed distribution of net realized capital gains and retain the net realized capital gains, we would have to establish appropriate reserves for taxes that we would have to pay on behalf of stockholders. It is
possible that establishing reserves for taxes could have a material adverse effect on the value of our common stock.

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 do not satisfy the annual distribution requirement.

To maintain RIC status and be relieved of federal taxes on income and gains distributed to our stockholders, we must meet the following
annual distribution, income source and asset diversification requirements.



| |  |  | The annual distribution requirement for a RIC 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 we may be subject
to certain financial covenants under our debt arrangements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could
fail to qualify for RIC tax treatment and thus become subject to corporate-level 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 qualify for or maintain RIC status for any reason and are subject to corporate-level income tax, the resulting
corporate-level taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. The recently
enacted Regulated Investment Company Modernization Act of 2010, which is effective for 2011 and later tax years, provides some relief from RIC disqualification due to failures of the income source and asset diversification requirements,
although there may be additional taxes due in such cases. We cannot assure you that we would qualify for any such relief should we fail the income source or asset diversification requirements.



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

For U.S. federal income tax purposes,
we include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the making of a loan or possibly in other circumstances, or PIK interest, which
represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount or increases in loan balances are included in income before we receive any corresponding cash payments. We also may be
required to include in income certain other amounts that we will not receive in cash, including, for example, deferred payment securities or foreign currency transactions. Since, in certain cases, we may recognize income before or without receiving
cash representing such income, we may have difficulty meeting the U.S. federal income tax requirement to distribute generally an amount equal to at least 90% of our investment company taxable income to maintain our status as a RIC. Accordingly, we
may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other
sources, we may fail to qualify as a RIC and thus be subject to additional corporate-level taxes.

Risks Relating to an Investment in Our
Common Stock

Our shares of common stock have traded at a discount from net asset value and may do so again in the
future, which could limit our ability to raise additional equity capital.

Shares of closed-end investment companies,
including business development companies, may trade at a market discount from net asset value. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our net asset value
per share may decline. In the past, the stocks of BDCs as an industry, including shares of our common stock, have traded below net asset value and at historic lows as a result of concerns over liquidity, leverage restrictions and distribution
requirements. When our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common stock at its market price without first obtaining approval for such issuance from our
stockholders and our independent directors. At our 2011 Annual Meeting of Stockholders, subject to certain conditions and Board of Directors determinations, our stockholders approved our ability to sell or otherwise issue shares of our common stock
at a price below its then current net asset value per share for a twelve month period expiring on the anniversary of the date of stockholder approval.

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

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

The price of our common stock may fluctuate significantly.

As with
any company, the price of our common stock will fluctuate with market conditions and other factors. The market price and liquidity of the market for our common stock may from time to time be affected by a number of factors, which include, but are
not limited to, the following:



| |  |  | volatility in the market price and trading volume of common stocks of BDCs or other financial services companies, which are not necessarily related to
the operating performance of these companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | investors general perception of our company, the economy and general market conditions;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | our quarterly results of operations;
| | - |  | ------------------------------------



| |  |  | our origination activity, including the pace of, and competition for, new investment opportunities;
| | - |  | ---------------------------------------------------------------------------------------------------



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| |  |  | the financial performance of the specific industries in which we invest on a recurring basis, including without limitation, our investments in the
business services and healthcare industries;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of strategic developments, acquisitions and other material events by us or our competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | loss of RIC status;
| | - |  | -------------------



| |  |  | changes in earnings or variations in operating results;
| | - |  | -------------------------------------------------------



| |  |  | changes in the value of our portfolio of investments;
| | - |  | -----------------------------------------------------



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



| |  |  | departure of key personnel from the Advisor;
| | - |  | --------------------------------------------



| |  |  | operating performance of companies comparable to us;
| | - |  | ----------------------------------------------------



| |  |  | general economic trends and other external factors, including price and volume fluctuations in the overall stock market; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | loss of a major funding source.
| | - |  | -------------------------------

Our shares may trade at discounts from net asset value or at premiums that are unsustainable over the long term.

Shares of BDCs may trade at a market price that is less than the net asset value that is attributable to those shares. Our shares have traded above and below our net asset value. The possibility that our
shares of common stock will trade at a discount from net asset value or at a premium that is unsustainable over the long term is separate and distinct from the risk that our net asset value will decrease. It is not possible to predict whether our
shares will trade at, above or below net asset value in the future.

Our principal stockholders have substantial
ownership in us, and this concentration of ownership could limit your ability to influence the outcome of key transactions, including a change of control.

As a result of their substantial ownership in us, our principal stockholders may be able to exert influence over our management and policies. This concentration of ownership may have the effect of
delaying, preventing or deterring a change of control of our company, depriving our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and ultimately affecting the market price of our common
stock.

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

The shares of our common stock beneficially owned by our principal stockholders are
generally available for resale, subject to the provisions of Rule 144 promulgated under the Securities Act. Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing
market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

Our capital-raising activities may have an adverse effect on the market price of our common stock.

When we issue securities or incur debt, we generally obtain cash or cash equivalents. Any increase in our holdings of cash or cash
equivalents could adversely affect the prevailing market prices for our common stock, especially if we are unable to timely deploy the capital in suitable investments. The adverse impact on the prevailing market prices for our common stock
could be greater if we issue debt securities or other securities requiring the payment of interest and are unable to timely deploy the capital in suitable investments.



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

We intend to make distributions on a quarterly basis to our stockholders
out of assets legally available for distribution. There can be no assurance 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. If we declare a
dividend and if more stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to sell some of our investments in order to make cash dividend payments. In addition, due to the asset
coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for
distribution.

We may in the future choose to pay dividends in our own stock, in which case our stockholders may be
required to pay tax in excess of the cash they receive, and which may adversely affect the market price of our common stock.

We may distribute taxable dividends that are payable in part in our stock. Under a recently issued IRS Revenue Procedure, up to 90% of any such taxable dividend for taxable years ending prior to 2012
could be payable in our stock. The IRS has also issued (and where Revenue Procedure 2009-15 or 2010-12 is not currently applicable, the IRS continues to issue) private letter rulings on cash/stock dividends paid by regulated investment companies and
real estate investment trusts using a 20% cash standard (instead of the 10% cash standard of Revenue Procedures 2009-15 and 2010-12) if certain requirements are satisfied. Taxable stockholders receiving such dividends will be required to include the
full amount of the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States
federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this
tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to
withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay
taxes owed on dividends, it may put downward pressure on the trading price of our stock.

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

We cannot assure that the issuance
of preferred stock would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock would likely cause the net asset value and market value of our common stock to become more volatile. If the dividend rate
on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of
return on our portfolio, the leverage would result in a lower rate of return to the holders of common stock than if we had not issued preferred stock. Any decline in the net asset value of our investment would be borne entirely by the holders of our
common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of our common stock than if we were not leveraged through the issuance of preferred
stock. This greater net asset value decrease would also tend to cause a greater decline in the market price of our common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings
on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to
fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher
incentive fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.



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Holders of any preferred stock we might issue would have the right to elect members of
our Board of Directors and class voting rights on certain matters.

Holders of any preferred stock we might issue,
voting separately as a single class, would have the right to elect two members of our Board of Directors at all times and in the event dividends become two full years in arrears would have the right to elect a majority of the directors until such
arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly can veto any changes.
Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair our ability to
maintain our qualification as a RIC for federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be
no assurance that such actions could be effected in time to meet the tax requirements.

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

The Delaware General Corporation Law, our amended certificate of incorporation and our amended and restated bylaws contain provisions that
may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize
a premium over the market price of our common stock. We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our amended certificate of incorporation and amended and restated
bylaws dividing our board of directors in three classes serving staggered three-year terms, requiring the affirmative vote of the holders of 75% of the then outstanding shares of our capital stock entitled to vote to remove a director for
cause, and, subject to the rights of any holders of preferred stock, filling any vacancy on our Board of Directors only by a vote of a majority of the directors then in office. The classification of our Board of Directors and the limitations on
removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire us, or of discouraging a third party from acquiring us. Our certificate of incorporation and bylaws also provide that
special meetings of the stockholders may only be called by our Board of Directors, Chairman, Chief Executive Officer or Secretary. These provisions, as well as other provisions of our amended certificate of incorporation and our amended and restated
bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|Item 2. | Properties
|------- | ----------

We do not own any real estate or other physical properties materially important to our operation. Our administrative and principal executive offices are located at 40 East 52ndStreet, New York, NY 10022. We believe that our office facilities
are suitable and adequate for our business as it is contemplated to be conducted.



|Item 3. | Legal Proceedings
|------- | -----------------

From
time to time, we and the Advisor may be a party to certain legal proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. While we cannot predict the outcome
of these legal proceedings with certainty, we do not expect that these proceedings will have a material effect on our consolidated financial statements.



|Item 4. | [Reserved]
|------- | ----------



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PART II



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

Price range of common stock

Our common stock is quoted on The NASDAQ Global Select Market under the symbol BKCC. The following table lists the high and low closing sales price for our common stock, the closing sales
price as a percentage of NAV, and quarterly dividends per share for the years ended December 31, 2011 and 2010.



|                            |  |        |  |                     |  |        |  |                    |  |                                                   |  |                                                  |  |                               |  |                    
|--------------------------- |  | ------ |  | ------------------- |  | ------ |  | ------------------ |  | ------------------------------------------------- |  | ------------------------------------------------ |  | ----------------------------- |  | -------------------
|                            |  |        |  | Closing Sales Price |  |        |  |                    |  |                                                   |  |                                                 
|                            |  | NAV(1) |  | High                |  | Low    |  | Quarter  End Price |  | Premium/  Discount of High  Sales Price toNAV (3) |  | Premium/  Discount of Low  Sales Price toNAV (3) |  | Quarter End  Price to NAV (2) |  | Declared  Dividends
|Year EndedDecember 31, 2011 |  |        |  |                     |  |        |  |                    |  |                                                   |  |                                                  |  |                               |  |                    
|First Quarter               |  | $9.56  |  | $12.75              |  | $9.48  |  | $10.12             |  | 133%                                              |  | 99%                                              |  | 106%                          |  | $0.32              
|Second Quarter              |  | $9.83  |  | $10.52              |  | $8.95  |  | $8.97              |  | 107%                                              |  | 91%                                              |  | 91%                           |  | $0.26              
|Third Quarter               |  | $9.75  |  | $9.43               |  | $7.30  |  | $7.30              |  | 97%                                               |  | 75%                                              |  | 75%                           |  | $0.26              
|Fourth Quarter              |  | $9.58  |  | $8.95               |  | $7.03  |  | $8.16              |  | 93%                                               |  | 73%                                              |  | 85%                           |  | $0.26              
|Year EndedDecember 31, 2010 |  |        |  |                     |  |        |  |                    |  |                                                   |  |                                                  |  |                               |  |                    
|First Quarter               |  | $9.77  |  | $10.10              |  | $8.52  |  | $9.96              |  | 103%                                              |  | 87%                                              |  | 102%                          |  | $0.32              
|Second Quarter              |  | $9.83  |  | $11.58              |  | $9.70  |  | $9.87              |  | 118%                                              |  | 99%                                              |  | 100%                          |  | $0.32              
|Third Quarter               |  | $9.76  |  | $11.97              |  | $9.58  |  | $11.50             |  | 123%                                              |  | 98%                                              |  | 118%                          |  | $0.32              
|Fourth Quarter              |  | $9.62  |  | $12.69              |  | $10.95 |  | $11.06             |  | 132%                                              |  | 114%                                             |  | 115%                          |  | $0.32              



|(1) | NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The
NAVs shown are based on outstanding shares at the end of the relevant quarter.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Calculated as quarter end price divided by NAV.
|--- | -----------------------------------------------

|(3) | Calculated as of the respective high or low closing sales price divided by NAV.
|--- | -------------------------------------------------------------------------------

Holders

At February 29, 2012, there were approximately 343 holders of
record of our common stock. Such number of stockholders includes institutional or omnibus accounts that hold common stock for multiple underlying investors.



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Dividends

Our quarterly dividends, if any, are determined by our Board of Directors. Dividends are declared considering our estimate of annual taxable income available for distribution to stockholders and the
amount of taxable income carried over from the prior year for distribution in the current year. We cannot assure stockholders that they will receive any dividends and distributions or dividends and distributions at a particular level. Dividends
declared by the Company since July 25, 2005 (inception of operations) have been as follows:



|                                                     |  |                    |  |                   
|---------------------------------------------------- |  | ------------------ |  | ------------------
|Dividend Amount
Per
Share                Outstanding |  | Record Date        |  | Payment Date      
|$0.20                                                |  | December 31, 2005  |  | January 31, 2006  
|$0.20                                                |  | March 15, 2006     |  | March 31, 2006    
|$0.23                                                |  | June 15, 2006      |  | June 30, 2006     
|$0.30                                                |  | September 15, 2006 |  | September 29, 2006
|$0.42                                                |  | December 31, 2006  |  | January 31, 2007  
|$0.42                                                |  | March 15, 2007     |  | March 30, 2007    
|$0.42                                                |  | May 15, 2007       |  | May 31, 2007      
|$0.42                                                |  | September 14, 2007 |  | September 28, 2007
|$0.43                                                |  | December 14, 2007  |  | December 31, 2007 
|$0.43                                                |  | March 17, 2008     |  | March 31, 2008    
|$0.43                                                |  | June 16, 2008      |  | June 30, 2008     
|$0.43                                                |  | September 15, 2008 |  | September 30, 2008
|$0.43                                                |  | December 15, 2008  |  | December 31, 2008 
|$0.16                                                |  | March 20, 2009     |  | April 3, 2009     
|$0.16                                                |  | June 19, 2009      |  | July 2, 2009      
|$0.16                                                |  | September 18, 2009 |  | October 2, 2009   
|$0.32                                                |  | December 21, 2009  |  | January 4, 2010   
|$0.32                                                |  | March 22, 2010     |  | April 5, 2010     
|$0.32                                                |  | May 17, 2010       |  | July 2, 2010      
|$0.32                                                |  | September 17, 2010 |  | October 1, 2010   
|$0.32                                                |  | December 20, 2010  |  | January 3, 2011   
|$0.32                                                |  | March 18, 2011     |  | April 1, 2011     
|$0.26                                                |  | June 17, 2011      |  | July 1, 2011      
|$0.26                                                |  | September 19, 2011 |  | October 3, 2011   
|$0.26                                                |  | December 21, 2011  |  | January 4, 2012   
|$0.26                                                |  | March 20, 2012     |  | April 3, 2012     

Tax characteristics of all dividends are reported to stockholders on Form 1099 after the end of the calendar year.

We have elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain favorable RIC tax treatment, we
must distribute annually to our stockholders 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, out of the assets legally available for distribution. Under the
Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Company after December 31, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the years preceding
enactment. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of:





| |  |  | 98% of our ordinary income for the calendar year;
| | - |  | -------------------------------------------------



| |  |  | 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31st; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | any ordinary income and net capital gains for preceding years that were not distributed during such years.
| | - |  | ----------------------------------------------------------------------------------------------------------



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We may, at our discretion, carry forward taxable income in excess of calendar year
distributions and pay a 4% excise tax on this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amounts available to be distributed to our stockholders. We will accrue excise tax on estimated
taxable income as required. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available
for such distributions, we may in the future decide to retain such capital gains for investment. There was no provision for federal excise taxes recorded for the year ended December 31, 2011. For the years ended December 31, 2010 and 2009,
we recorded a provision for federal excise taxes of $298,322 and $1,012,791, respectively. There was no undistributed taxable income carried forward from 2011.

We maintain an opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, stockholders cash dividends will be automatically reinvested in
additional shares of our common stock, unless they specifically opt out of the dividend reinvestment plan so as to receive cash dividends. With respect to our dividends and distributions paid to stockholders during the years ended
December 31, 2011, 2010 and 2009, dividends reinvested pursuant to our dividend reinvestment plan totaled $8,021,087, $5,468,133 and $9,083,849, respectively.

Under the terms of an amendment to our dividend reinvestment plan adopted on March 4, 2009, dividends may be paid in newly issued or treasury shares of our common stock at a price equal to 95% of the
market price on the dividend payment date. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience
dilution.

We may not be able to achieve operating results that will allow us to make dividends and distributions at a
specific level or to increase the amount of these dividends and distributions from time to time. Also, we may be limited in our ability to make dividends and distributions due to the asset coverage test applicable to us as a BDC under the 1940 Act
and due to provisions in our existing and future debt arrangements. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of favorable RIC tax treatment. In addition, in
accordance with U.S. generally accepted accounting principles and tax regulations, we include in income certain amounts that we have not yet received in cash, such as PIK interest, which represents contractual interest added to the loan balance that
becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at
least 90% of our investment company taxable income to obtain tax benefits as a RIC and may be subject to an excise tax.

With
respect to dividends paid to stockholders, certain income we receive from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies may cause our taxable income to exceed our GAAP income
although the differences are expected to be temporary in nature.

In order to satisfy the annual distribution requirement
applicable to RICs, we have the ability to declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion can be as low as 10% for our taxable years ending
prior to 2012) and certain requirements are met, the entire distribution would be treated as a dividend for U.S. federal income tax purposes.



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Stock performance graph

The following graph compares the return on our common stock with that of the Standard & Poors 500 Stock Index and the Russell 2000 Index for the period June 27, 2007 (the date our
common stock began to trade on The NASDAQ Global Select Market in connection with our initial public offering) through December 31, 2011. The graph assumes that, on June 27, 2007, a person invested $100 in each of our common stock
(BKCC in the graph), the S&P 500 Index (S&P 500), and the Russell 2000 Index (Russell 2000). The graph measures total shareholder return, which takes into account both changes in stock price and dividends.
It assumes that dividends paid are invested in like securities.



LOGO

The graph and other information furnished under this part II Item 5 of this Form 10-K shall not
be deemed to be soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, or the Exchange Act. The stock price
performance included in the above graph is not necessarily indicative of future stock performance.



|Item 6. | Selected Financial Data
|------- | -----------------------

The unaudited Consolidated Statement of Operations Data, Consolidated Per Share Data and Consolidated Balance Sheet Data for each of the
five years in the period ended December 31, 2011 are derived from our consolidated financial statements which have been audited by Deloitte & Touche LLP, our independent registered public accounting firm. This selected financial data
should be read in conjunction with our consolidated financial statements and related notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report.



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|                                                                |  |                                               |           |  |                            |   |         |                            |  |   |                            |   |  |                            |          |   |  |   |           |  
|--------------------------------------------------------------- |  | --------------------------------------------- | --------- |  | -------------------------- | - | ------- | -------------------------- |  | - | -------------------------- | - |  | -------------------------- | -------- | - |  | - | --------- | -
|                                                                |  | Year
endedDecember 31,2011                    |           |  | Year
endedDecember 31,2010 |   |         | Year
endedDecember 31,2009 |  |   | Year
endedDecember 31,2008 |   |  | Year endedDecember 31,2007 |         
|                                                                |  | (Dollars in thousands, except per share data) |          
|Consolidated Statement of Operations Data:                      |  |                                               |           |  |                            |   |         |                            |  |   |                            |   |  |                            |          |   |  |   |           |  
|Total Investment Income                                         |  | $                                             | 131,503   |  |                            | $ | 105,871 |                            |  | $ | 124,884                    |   |  | $                          | 143,196  |   |  | $ | 127,776   |  
|Net Expenses (including excise taxes):                          |  |                                               |           |  |                            |   |         |                            |  |   |                            |   |  |                            |          |   |  |   |           |  
|Before Base Management Fee Waiver                               |  |                                               | 58,624    |  |                            |   | 46,020  |                            |  |   | 48,831                     |   |  |                            | 48,093   |   |  |   | 53,987    |  
|After Base Management Fee Waiver(1)                             |  |                                               | 58,624    |  |                            |   | 46,020  |                            |  |   | 48,831                     |   |  |                            | 48,093   |   |  |   | 51,930    |  
|Net Investment Income                                           |  |                                               | 72,879    |  |                            |   | 59,851  |                            |  |   | 76,053                     |   |  |                            | 95,103   |   |  |   | 75,846    |  
|Net Realized and Unrealized Gain (Loss)                         |  |                                               | 4,042     |  |                            |   | 11,699  |                            |  |   | (8,813                     | ) |  |                            | (245,610 | ) |  |   | (59,626   | )
|Net Increase (Decrease) in Net Assets Resulting from Operations |  |                                               | 76,921    |  |                            |   | 71,550  |                            |  |   | 67,240                     |   |  |                            | (150,507 | ) |  |   | 16,219    |  
|Consolidated Per Share Data:                                    |  |                                               |           |  |                            |   |         |                            |  |   |                            |   |  |                            |          |   |  |   |           |  
|Net Asset Value Per Common Share at Year End                    |  | $                                             | 9.58      |  |                            | $ | 9.62    |                            |  | $ | 9.55                       |   |  | $                          | 9.23     |   |  | $ | 13.78     |  
|Market Price at Year End(2)                                     |  |                                               | 8.16      |  |                            |   | 11.06   |                            |  |   | 8.52                       |   |  |                            | 9.86     |   |  |   | 15.28     |  
|Net Investment Income                                           |  |                                               | 1.00      |  |                            |   | 0.96    |                            |  |   | 1.36                       |   |  |                            | 1.76     |   |  |   | 1.66      |  
|Net Realized and Unrealized Gain (Loss)                         |  |                                               | 0.05      |  |                            |   | 0.18    |                            |  |   | (0.16                      | ) |  |                            | (4.54    | ) |  |   | (1.31     | )
|Net Increase (Decrease) in Net Assets Resulting from Operations |  |                                               | 1.05      |  |                            |   | 1.14    |                            |  |   | 1.20                       |   |  |                            | (2.78    | ) |  |   | 0.35      |  
|Dividends Declared                                              |  |                                               | 1.10      |  |                            |   | 1.28    |                            |  |   | 0.80                       |   |  |                            | 1.72     |   |  |   | 1.69      |  
|Consolidated Balance Sheet Data at Year End:                    |  |                                               |           |  |                            |   |         |                            |  |   |                            |   |  |                            |          |   |  |   |           |  
|Total Assets                                                    |  | $                                             | 1,091,175 |  |                            | $ | 915,608 |                            |  | $ | 879,526                    |   |  | $                          | 966,192  |   |  | $ | 1,121,942 |  
|Borrowings Outstanding                                          |  |                                               | 343,000   |  |                            |   | 170,000 |                            |  |   | 296,000                    |   |  |                            | 426,000  |   |  |   | 381,300   |  
|Total Net Assets                                                |  |                                               | 701,009   |  |                            |   | 698,480 |                            |  |   | 539,563                    |   |  |                            | 510,296  |   |  |   | 728,192   |  
|Other Data:                                                     |  |                                               |           |  |                            |   |         |                            |  |   |                            |   |  |                            |          |   |  |   |           |  
|Total Return(3)                                                 |  |                                               | (16.0)%   |  |                            |   | 48.4%   |                            |  |   | (5.9)%                     |   |  |                            | (23.9)%  |   |  |   | 3.4%      |  
|Number of Portfolio Companies at Year End                       |  |                                               | 54        |  |                            |   | 50      |                            |  |   | 57                         |   |  |                            | 63       |   |  |   | 60        |  
|Value of Investments at Year End                                |  | $                                             | 1,048,952 |  |                            | $ | 880,086 |                            |  | $ | 846,742                    |   |  | $                          | 926,845  |   |  | $ | 1,098,261 |  
|Yield on Investments at Year End(4)                             |  |                                               | 11.9%     |  |                            |   | 10.9%   |                            |  |   | 11.2%                      |   |  |                            | 11.0%    |   |  |   | 12.4%     |  



Figures may not foot due to rounding

| | (1) | The base management fee waiver terminated on June 30, 2007.
| | --- | -----------------------------------------------------------

| | (2) | Our common stock commenced trading on The NASDAQ Global Select Market on June 27, 2007. There was no established public trading market for the stock prior to that date.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | For the years ended December 31, 2011, 2010, 2009 and 2008, total return is based on the change in market price during the respective years. For the year ended
December 31, 2007, total return is based on the change in net asset value per common share during the year. The total return for the period June 26, 2007 through December 31, 2007 based on the change in market price per common
share during such period was 1.2%. Total return calculations take into account dividends and distributions, if any, reinvested in accordance with our dividend reinvestment plan and do not reflect brokerage commissions. Total return is not
annualized.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Yield on investments at year end represents the weighted average yield on the debt and income producing equity securities in our portfolio at their current cost basis.
Yields are computed using interest rates and dividend yields at year end and include amortization of loan origination and commitment fees, original issue discount and market premium or discount. Yields exclude common equity investments, preferred
equity investments with no stated dividend rate, short-term investments, and cash and cash equivalents.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The information contained in this section should be read in conjunction with the Selected Financial Data and our consolidated financial statements and notes thereto appearing elsewhere in this
Annual Report.

Forward-looking statements

This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements
are typically identified by words or phrases such as trend, opportunity, pipeline, believe, comfortable, expect, anticipate, current,
intention, estimate, position, assume, potential, outlook, continue, remain, maintain, sustain, seek,
achieve and similar expressions, or future or conditional verbs such as will, would, should, could, may or similar expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking
statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results
could differ materially from historical performance.

In addition to factors previously disclosed in our SEC reports and those
identified elsewhere in this report, including the Risk Factors section, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:



| |  |  | our future operating results;
| | - |  | -----------------------------



| |  |  | our business prospects and the prospects of our portfolio companies;
| | - |  | --------------------------------------------------------------------



| |  |  | the impact of investments that we expect to make;
| | - |  | -------------------------------------------------



| |  |  | our contractual arrangements and relationships with third parties;
| | - |  | ------------------------------------------------------------------



| |  |  | the dependence of our future success on the general economy and its impact on the industries in which we invest;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our portfolio companies to achieve their objectives;
| | - |  | -------------------------------------------------------------------



| |  |  | our expected financings and investments;
| | - |  | ----------------------------------------



| |  |  | the adequacy of our cash resources and working capital, including our ability to obtain continued financing on favorable terms;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of cash flows, if any, from the operations of our portfolio companies;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the impact of increased competition;
| | - |  | ------------------------------------



| |  |  | the ability of the Advisor to locate suitable investments for us and to monitor and administer our investments;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | potential conflicts of interest in the allocation of opportunities between us and other investment funds managed by the Advisor or its affiliates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of the Advisor to attract and retain highly talented professionals;
| | - |  | -------------------------------------------------------------------------------



| |  |  | fluctuations in foreign currency exchange rates; and
| | - |  | ----------------------------------------------------



| |  |  | the impact of changes to tax legislation and, generally, our tax position.
| | - |  | --------------------------------------------------------------------------



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Overview

We were incorporated in Delaware on April 13, 2005 and were initially funded on July 25, 2005. Our investment objective is to provide a combination of current income and capital appreciation. We
intend to invest primarily in debt and equity securities of private and certain public U.S. middle-market companies.

We are
externally managed and have elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in qualifying
assets, including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less.

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the
level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.

As a BDC, we must not acquire any assets other than qualifying assets specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying
assets (with certain limited exceptions). Qualifying assets include investments in eligible portfolio companies. Under the relevant SEC rules, the term eligible portfolio company includes all private companies and companies
whose securities are not listed on a national securities exchange, as well as certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. These rules also
permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition.

Revenues

We generate revenues primarily in the form of interest on the debt we hold, dividends on our equity interests and capital gains on the sale of warrants and other debt or equity interests that we acquire
in portfolio companies. Our investments in fixed income instruments generally have an expected maturity of three to ten years, although we have no lower or upper constraint on maturity, and typically bear interest at a fixed or floating rate.
Interest on our debt securities is generally payable quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some
cases, our debt instruments and preferred stock investments may defer payments of cash interest or dividends or pay interest or dividends in-kind. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will
generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment, origination, capital structuring or due diligence fees, fees for providing significant managerial assistance and consulting
fees. With respect to dividends paid to stockholders, certain income we receive from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies may cause our taxable income to exceed our
GAAP income although the differences are expected to be temporary in nature.

Expenses

Our primary operating expenses include the payment of a base management fee and, depending on our operating results, an incentive
management fee, expenses reimbursable under the management agreement, administration fees and the allocable portion of overhead under the administration agreement. The base management fee and incentive management fee compensate the Advisor for work
in identifying, evaluating, negotiating, closing and monitoring our investments. Our management agreement with the Advisor provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for office space rental, office



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equipment and utilities allocable to the Advisor under the management agreement, as well as any costs and expenses incurred by the Advisor relating to any non-investment advisory, administrative
or operating services provided by the Advisor to us. We bear all other costs and expenses of our operations and transactions, including those relating to:



| |  |  | our organization;
| | - |  | -----------------



| |  |  | calculating our net asset value (including the cost and expenses of any independent valuation firms);
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | expenses incurred by the Advisor payable to third parties in monitoring our investments and performing due diligence on prospective portfolio
companies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interest payable on debt, if any, incurred to finance our investments;
| | - |  | ----------------------------------------------------------------------



| |  |  | the costs of future offerings of common shares and other securities, if any;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the base management fee and any incentive management fee;
| | - |  | ---------------------------------------------------------



| |  |  | dividends and distributions on our preferred shares, if any, and common shares;
| | - |  | -------------------------------------------------------------------------------



| |  |  | administration fees payable under the administration agreement;
| | - |  | ---------------------------------------------------------------



| |  |  | fees payable to third parties relating to, or associated with, making investments;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | transfer agent and custodial fees;
| | - |  | ----------------------------------



| |  |  | registration fees;
| | - |  | ------------------



| |  |  | listing fees;
| | - |  | -------------



| |  |  | taxes;
| | - |  | ------



| |  |  | independent director fees and expenses;
| | - |  | ---------------------------------------



| |  |  | costs of preparing and filing reports or other documents with the SEC;
| | - |  | ----------------------------------------------------------------------



| |  |  | the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | our fidelity bond;
| | - |  | ------------------



| |  |  | our allocable portion of directors and officers/errors and omissions liability insurance, and any other insurance premiums;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | indemnification payments;
| | - |  | -------------------------



| |  |  | direct costs and expenses of administration, including audit and legal costs; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | all other expenses reasonably incurred by us or the Administrator in connection with administering our business, such as the allocable portion of
overhead under the administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additionally, the management agreement provides that the Advisor or its affiliates may be entitled to the Incentive Fee under certain circumstances. The determination of the Incentive Fee will result in
the Advisor or its affiliates receiving no Incentive Fee payments if returns to our stockholders do not meet an 8.0% annualized rate of return and will result in the Advisor or its affiliates receiving less than the full amount of the Incentive Fee
percentage until returns to stockholders exceed an approximate 13.3% annualized rate of return. Annualized rate of return in this context is computed by reference to our net asset value and does not take into account changes in the market price of
our common stock. The determination of the Incentive Fee is subject to any applicable limitations under the 1940 Act and the Advisers Act.

Critical accounting policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of
these



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consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic
environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. Management considers the following critical accounting policies important to understanding the consolidated financial
statements. In addition to the discussion below, our critical accounting policies are further described in the notes to the consolidated financial statements. See Note 2 to the consolidated financial statements for a description of significant
accounting policies and of recently issued accounting pronouncements.

Valuation of portfolio investments

Investments for which market quotations are readily available are valued at such market quotations unless they are
deemed not to represent fair value. We obtain market quotations, when available, from an independent pricing service or one or more broker-dealers or market makers and utilize the average of the range of bid and ask quotations. Debt and equity
securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by or under the direction of our Board of Directors. Because
we expect that there will not be a readily available market for substantially all of the investments in our portfolio, we expect to value substantially all of our portfolio investments at fair value as determined in good faith under the direction of
our Board of Directors using a consistently applied valuation process in accordance with a documented valuation policy that has been reviewed and approved by our Board of Directors. Due to the inherent uncertainty and subjectivity of determining the
fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and
may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of our investments than on the fair values
of our investments for which market quotations are not readily available. Market quotations may be deemed not to represent fair value in certain circumstances where the Advisor believes that facts and circumstances applicable to an issuer, a seller
or purchaser or the market for a particular security cause current market quotations to not reflect the fair value of the security. Examples of these events could include cases where a security trades infrequently causing a quoted purchase or sale
price to become stale, where there is a forced sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid-ask spread.

With respect to investments for which market quotations are not readily available or for which market quotations are deemed
not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below:



| |  |  | our quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals of
the Advisor responsible for the portfolio investment;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment professionals provide recent portfolio company financial statements and other reporting materials to independent valuation firms engaged
by our Board of Directors, such firms conduct independent appraisals each quarter and their preliminary valuation conclusions are documented and discussed with senior management of the Advisor;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the audit committee of our Board of Directors reviews the preliminary valuations prepared by the independent valuation firms; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the
Advisor, the respective independent valuation firms and the audit committee.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Those investments for which
market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both



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approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a
business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about
those future amounts. In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant
and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio companys
ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the
reporting entity) and enterprise values.

Until the end of the second calendar quarter following its acquisition, each
unquoted investment in a new portfolio company generally is valued at cost, which the Advisor believes approximates fair value under the circumstances. As of that date, an independent valuation firm conducts an initial independent appraisal of the
investment.

Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures
(ASC 820-10), defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. ASC 820-10 defines fair value as the price that a 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. ASC 820-10 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 us. Unobservable inputs are inputs that reflect our assumptions about the
assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

ASC 820-10 establishes a hierarchy that classifies these inputs into the three broad levels listed below:

Level 1  Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that a company has the ability to access.

Level 2  Valuations based on unadjusted quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly.

Level 3  Valuations based on inputs that are unobservable and significant to
the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation.

Transfers between levels, if any, represent the value as of the beginning of the period of any investment where a change in the pricing level occurred from the beginning to the end of the period.

Our valuation policy and fair value disclosures are consistent with ASC 820-10. We evaluate the source of inputs, including
any markets in which our investments are trading, in determining fair value and categorize each investment within the fair value hierarchy pursuant to ASC 820-10.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such
valuations, and any change in such valuations, on the consolidated financial statements.



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Revenue recognition

We record interest income, adjusted for amortization of premium and accretion of discount, and dividend income on an accrual basis to the
extent that we expect to collect such amounts. For loans and securities with payment-in-kind (PIK) income, which represents contractual interest or dividends accrued and added to the principal balance and generally due at maturity, such
income is accrued only to the extent that the Advisor believes that the PIK income is likely to be collected. We may not accrue PIK income if the Advisor believes that the PIK income is not collectible.

In accordance with ASC 605-10-25-1, Revenue Recognition (ASC 605-10), which establishes the considerations with
respect to recognition of revenue and gains, structuring service fees, origination, closing, commitment and other upfront fees are recognized as revenue when earned. For GAAP purposes these fees may be recognized upfront or may be amortized. For tax
purposes these fees are generally recognized upfront. This may result in income being recorded as GAAP income over the life of a portfolio investment and as taxable income when received.

For the years ended December 31, 2011, 2010 and 2009, as reported under GAAP, investment income included capital structuring fees
and related amortization of $11,061,213, $4,399,545 and $1,884,376. For the years ended December 31, 2011, 2010 and 2009 taxable income included capital structuring fee income generated from new investments, of $6,747,000, $10,806,849 and zero.
In addition, included in GAAP and taxable income are fees generated from partially and fully exited portfolio investments of $12,208,744, $5,823,515 and $877,033 for the years ended December 31, 2011, 2010 and 2009.

Net realized gains or losses and net change in unrealized appreciation or depreciation

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 upfront fees and prepayment fees. Realized gains and losses are computed using the specific identification method. Net change in
unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Federal income taxes

We have elected to be taxed as a RIC under Subchapter M of the Code and currently qualify, and intend to continue to qualify each year, as a RIC under the Code. In order to qualify as a RIC, we are
required to distribute annually at least 90% of investment company taxable income, as defined by the Code, to our stockholders. To avoid federal excise taxes, we must distribute annually at least 98% of our ordinary income and 98.2% of our net
capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on
this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to our stockholders. There was no provision for federal excise taxes recorded for the year ended
December 31, 2011. For the years ended December 31, 2010 and 2009, we recorded a provision for federal excise taxes of $298,322 and $1,012,791, respectively. There was no undistributed taxable income carried forward from 2011.

Financial and operating highlights

At
December 31, 2011:

Investment Portfolio: $1,056.7 million

Net Assets: $701.0 million

Indebtedness (borrowings under Credit Facility and Senior Secured Notes): $343.0 million

Net Asset Value per share: $9.58



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Portfolio Activity for the Year Ended December 31, 2011:

Cost of investments during period: $401.5 million

Sales, repayments and other exits during period: $249.1 million

Number of
portfolio companies at end of period: 54

Operating Results for the Year Ended December 31, 2011:

Net investment income per share: $1.00

Dividends declared per share: $1.10

Earnings per share: $1.05

Net investment income: $72.9 million

Net realized and unrealized gains: $4.0 million

Net increase in net assets from
operations: $76.9 million

Portfolio and investment activity

During the year ended December 31, 2011, we invested approximately $401.5 million across twelve new and several existing portfolio companies. The new investments consisted primarily of senior loans
secured by first liens ($93.5 million, or 23% of the total) or second liens ($267.6 million, or 67%), senior secured notes ($40.9 million, or 10%) and unsecured or subordinated debt securities and equity securities ($(0.5) million or less than 1%)
representing the cancelation of an unsettled prior period equity purchase. Additionally, we received proceeds from sales, repayments and other exits of investment principal of approximately $249.1 million during the year ended December 31,
2011.

At December 31, 2011, our portfolio of $1,056.7 million (at fair value) consisted of 54 portfolio companies and
was invested 62% in senior secured loans, 16% in unsecured or subordinated debt securities, 11% in equity investments, 11% in senior secured notes and less than 1% in cash and cash equivalents. Our average portfolio company investment at amortized
cost was approximately $20.3 million. Our largest portfolio company investment by value was approximately $50.0 million and our five largest portfolio company investments by value comprised approximately 21% of our portfolio at December 31,
2011. At December 31, 2010, our net portfolio of $882 million (at fair value) consisted of 50 portfolio companies and was invested 50% in senior secured loans, 26% in unsecured or subordinated debt securities, 14% in equity investments, 10% in
senior secured notes and less than 1% in cash and cash equivalents. Our average portfolio company investment at amortized cost was approximately $19.7 million. Our largest portfolio company investment by value was approximately $53.1 million and our
five largest portfolio company investments by value comprised approximately 26% of our portfolio at December 31, 2010.

The weighted average yield of the debt and income producing equity securities in our portfolio at fair value was 12.7% at
December 31, 2011 and 12.4% at December 31, 2010. The weighted average yields on our senior secured loans and other debt securities at fair value were 12.2% and 13.5%, respectively, at December 31, 2011, versus 11.3% and 14.3% at
December 31, 2010. The weighted average yield of the debt and income producing equity securities in our portfolio at their current cost basis was 11.9% at December 31, 2011 and 10.9% at December 31, 2010. The weighted average yields
on our senior secured loans and other debt securities at their current cost basis were 12.0% and 11.4%, respectively, at December 31, 2011, versus 10.1% and 12.1% at December 31, 2010. Yields are computed using interest rates and dividend
yields as of the balance sheet date and include amortization of loan origination and commitment fees, original issue discount and market premium or discount. Yields exclude common equity investments, preferred equity investments with no stated
dividend rate, short-term investments, and cash and cash equivalents.

At December 31, 2011, 51% of our debt investments
bore interest based on floating rates, such as LIBOR, the Federal Funds Rate or the Prime Rate, and 49% bore interest at fixed rates. The percentage of our total debt investments that bore floating rate interest subject to an interest rate floor was
44% at December 31, 2011. At December 31, 2010, 45% of our debt investments bore interest based on floating rates, such as LIBOR, the Federal Funds Rate or the Prime Rate, and 55% bore interest at fixed rates. The percentage of our total
debt investments that bore floating rate interest subject to an interest rate floor was 25% at December 31, 2010.



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Results of operations

Results comparisons are for the years ended December 31, 2011, 2010 and 2009.

Investment income

Investment income totaled $131,502,538,
$105,870,837 and $124,884,057, respectively, for the years ended December 31, 2011, 2010 and 2009, of which $73,521,854, $57,321,456 and $68,096,154 were attributable to interest and fees on senior secured loans, $52,922,002, $44,042,992 and
$54,112,822 to interest earned on other debt securities, $4,056,403, $4,385,525, and $2,590,001 to dividends from equity securities, $26,562, $8,610 and $11,509 to interest earned on short-term investments and cash equivalents, and $975,717,
$112,254 and $73,571 to other income, respectively. The increase in investment income compared to the prior year reflects interest and one time fees collected from the early repayment of one of our largest portfolio company investments during the
second quarter as well as the consistent growth of our portfolio throughout the year as a result of the deployment of debt capital under our Credit Facility. Total investments at their current cost basis were $1,097,870,669 at December 31,
2011, compared to $985,677,505 at December 31, 2010.

Expenses

Total expenses for the years ended December 31, 2011, 2010 and 2009 were $58,623,747, $45,721,726 and $47,818,496, respectively,
which consisted of $19,841,258, $16,877,854 and $18,498,189 in base management fees, $16,561,095, $6,233,689 and $6,416,888 in interest expense and fees related to the Credit Facility and Senior Secured Notes, $11,878,159, $15,108,049 and
$16,818,602 in incentive management fees owed to the Advisor, $2,499,742, $2,136,038 and $683,552 in amortization of debt issuance costs, $1,905,782, $877,930 and $1,126,665 in professional fees, $1,779,734, $1,622,957, and $1,466,563 in Advisor
expenses, $1,173,754, $763,876 and $807,837 in administrative services, $486,759, $581,428 and $569,201 in insurance expenses, $417,564, $385,750 and $360,095 in director fees and $2,079,900, $1,134,155 and $1,070,904 in other expenses,
respectively. In addition, we recorded a provision for federal excise taxes of zero, $298,322 and $1,012,791 for the years ended December 31, 2011, 2010 and 2009, respectively. The increase in base management fees reflects the overall growth
and appreciation in the value of our portfolio as well as the deployment of debt capital under our Credit Facility. The decrease in incentive management fees primarily reflects the increase in the hurdle amount as a result of the increase in net
asset value as compared to prior year. The increase in interest expense and fees related to the debt primarily reflects the issuance of our Senior Secured Notes in January 2011.

Net investment income

Net investment income was $72,878,791, $59,850,789 and $76,052,770 respectively, for the years ended December 31, 2011, 2010 and 2009. The increase for the 2011 period is primarily a result of an
increase in interest income and other fees partially offset by an increase in interest and debt related expenses.

Net
realized gain or loss

Net realized loss of $(49,893,376) for the year ended December 31, 2011 was the result of
$(51,102,184) in net losses realized from the disposition or restructuring of our investments and $1,208,808 in net gain realized on foreign currency transactions. Net realized loss on investments for the year ended December 31, 2011 resulted
primarily from the restructuring or disposition of our investments in Facet Technologies, LLC, Mattress Giant Corporation and Fitness Together Holdings, Inc. Foreign currency gains mainly represent gains on forward currency contracts used to
mitigate the impact that changes in foreign exchange rates would have on our investments denominated in foreign currencies. For the year ended December 31, 2010, net realized loss was $(90,236,723) as a result of $(89,301,764) in net losses
realized from the disposition or restructuring of our investments and $(934,959) in net loss realized on foreign currency transactions. For the year ended December 31, 2009, net realized loss was $(110,238,068) as a result of $(106,531,541) in
net losses realized from the disposition or restructuring of investments and $(3,706,527) in net loss realized on foreign currency transactions.



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Net unrealized appreciation or depreciation

For the years ended December 31, 2011, 2010 and 2009, the change in net unrealized appreciation or depreciation was a decrease in net
unrealized depreciation of $53,935,094, $101,935,495 and $101,425,021, respectively. The decrease in net unrealized depreciation for the year ended December 31, 2011 was comprised of a decrease in net unrealized depreciation on investments of
$54,695,534 and a net foreign currency translation loss of $(760,440). The valuations of our investments were favorably impacted by market-wide decreases in interest yields, as well as increases in multiples used to estimate the fair value of some
of our investments. Market-wide movements and trading multiples are not necessarily indicative of any fundamental change in the condition or prospects of our portfolio companies. The decrease in net unrealized depreciation for the year ended
December 31, 2010 was comprised of a decrease in net unrealized depreciation on investments of $102,486,118 and net foreign currency translation loss of $(550,623). The decrease in net unrealized depreciation for the year ended
December 31, 2009 was comprised of a decrease in net unrealized depreciation on investments of $100,908,828 and a net foreign currency translation gain of $516,193.

Net increase in net assets resulting from operations

The net
increase in net assets resulting from operations was $76,920,509, $71,549,561 and $67,239,723 for the years ended December 31, 2011, 2010 and 2009, respectively. As compared to the prior periods, the increase primarily reflects the
increase in net investment income as well as the decrease in net unrealized depreciation on investments, net of realized gains and losses, for the year ended December 31, 2011.

Financial condition, liquidity and capital resources

During the year ended
December 31, 2011, we generated operating cash flows primarily from interest earned and fees received on senior secured loans and other debt securities, as well as from sales of selected portfolio company investments or repayments of principal.

Net cash used in operating activities for the year ended December 31, 2011 was $87,099,594. Our primary sources of cash
from operating activities during the period consisted of a net increase in net assets from operations of $76,920,509 and sales/repayments of investments of $249,139,391, net of purchases of investments of $401,530,203.

Net cash provided by financing activities for the year ended December 31, 2011 was $92,736,149. Our primary source of cash from
financing activities was $175,000,000 in proceeds from the issuance of our Senior Secured Notes in January. Our primary use of cash for financing activities was $76,522,495 of dividend distributions.

Our senior secured, multi-currency Credit Facility provides us with $375,000,000 in total availability, consisting of $275,000,000 of
revolving loan commitments and $100,000,000 of term loan commitments. The Credit Facility is secured by substantially all of the assets in the Companys portfolio, including cash and cash equivalents. The Credit Facility has a stated maturity
date of December 6, 2013 and the interest rate applicable to borrowings thereunder is generally LIBOR plus an applicable spread of either 3.00% or 3.25% for revolving loans, based on a pricing grid depending on the Companys credit rating,
and LIBOR plus 3.00% for term loans. The Credit Facility does not contain a LIBOR floor requirement. At December 31, 2011, the effective LIBOR spread under the Credit Facility was 3.01%. Term loan commitments under the Credit Facility have been
fully drawn and, once repaid, may not be reborrowed. The Credit Facility also includes an accordion feature that allows the Company, under certain circumstances, to increase the size of the Credit Facility by up to an additional
$275,000,000 of revolving loan commitments and $250,000,000 of term loan commitments. The Credit Facility is used to supplement the Companys equity capital to make additional portfolio investments and for other general corporate purposes. At
December 31, 2011, we had $168,000,000 drawn and outstanding under the Credit Facility, with $207,000,000 available to us, subject to compliance with customary affirmative and negative covenants, including the maintenance of a minimum
stockholders equity, the maintenance of a ratio of not less than 200% of total assets (less total liabilities other than indebtedness) to total indebtedness, and restrictions on certain payments and issuance of debt. At December 31, 2011, the
Company was in compliance



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with regulatory coverage requirements with an asset coverage ratio of approximately 301% and was in compliance with all financial covenants under our debt agreements. In addition, borrowings
under the Credit Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Companys portfolio.

On January 18, 2011, the Company closed a private placement issuance of $158,000,000 in aggregate principal amount of Senior Secured
Notes with a fixed interest rate of 6.50% and a maturity date of January 18, 2016 and $17,000,000 million in aggregate principal amount of Senior Secured Notes with a fixed interest rate of 6.60% and a maturity date of January 18, 2018.
Interest on the Senior Secured Notes is due semi-annually on January 18 and July 18, commencing on July 18, 2011. The proceeds from the issuance of the Senior Secured Notes were used to fund new portfolio investments, reduce
outstanding borrowings under the Credit Facility and for general corporate purposes. The Senior Secured Notes contain customary affirmative and negative covenants substantially similar to those in our Credit Facility. At December 31, 2011, we were
in compliance with all financial and operational covenants required by the Credit Facility and Senior Secured Notes.

The
primary use of existing funds is expected to be purchases of investments in portfolio companies, cash distributions to our stockholders, repayment of indebtedness and other general corporate purposes.

As a closed-end investment company regulated as a BDC under the 1940 Act, we are prohibited from selling shares of our common stock at a
price below the current net asset value of the stock, or NAV, unless our stockholders approve such a sale and our Board of Directors makes certain determinations. On February 8, 2010, subject to certain Board of Director determinations, our
stockholders approved our ability to sell or otherwise issue shares of our common stock at a price below its then current net asset value per share for a twelve month period expiring on the anniversary of the date of stockholder approval. In any
such case, the price at which our common stock would be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such common stock. Any sale of the Companys
common stock at a price below NAV would have a dilutive effect on our NAV.

Contractual obligations

A summary of our significant contractual payment obligations for the repayment of outstanding borrowings at December 31, 2011 is as
follows:



|                             |  |                                              |       |  |                  |      |           |   |       |           |  |   |               |  |  |   |      | 
|---------------------------- |  | -------------------------------------------- | ----- |  | ---------------- | ---- | --------- | - | ----- | --------- |  | - | ------------- |  |  | - | ---- | 
|                             |  | Payments Due By Period (dollars in millions) |      
|                             |  | Total                                        |       |  | Less than 1 year |      | 1-3 years |   |       | 3-5 years |  |   | After 5 years | 
|Credit Facility(1)           |  | $                                            | 168.0 |  |                  | $   |           | $ | 168.0 |           |  | $ |              |  |  | $ |     | 
|Senior Secured Notes         |  |                                              | 175.0 |  |                  |     |           |   |      |           |  |   | 158.0         |  |  |   | 17.0 | 
|Interest Payable             |  |                                              | 5.6   |  |                  | 5.6  |           |   |      |           |  |   |              |  |  |   |     | 
|Credit Facility Fees Payable |  |                                              | 0.3   |  |                  | 0.3  |           |   |      |           |  |   |              |  |  |   |     | 



| | (1) | At December 31, 2011, $207.0 million remained unused under our Credit Facility.
| | --- | -------------------------------------------------------------------------------



We have entered into several contracts under which we have future
commitments. Pursuant to an investment management agreement, the Advisor manages our day-to-day operations and provides investment advisory services to us. Payments under the investment management agreement are equal to a percentage of the value of
our gross investment assets and an incentive management fee, plus reimbursement of certain expenses incurred by the Advisor. Under our administration agreement, the Administrator provides us with administrative services,



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facilities and personnel. Payments under the administration agreement are equal to an allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations
to us, including rent and our allocable portion of the cost of certain of our officers and their respective staffs. Pursuant to various other agreements, subsidiaries of The Bank of New York Mellon Corporation provide custodian services,
administrative and accounting services, transfer agency and compliance support services to us. Payments under such agreements are generally equal to a percentage of our average net assets plus reimbursement of reasonable expenses, and a base fee.
Either party may terminate each of the investment management agreement, administration agreement and such other agreements without penalty upon not less than 60 days written notice to the other.

Off-balance sheet financing

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the Company would be required to make payments to third parties if the
portfolio companies were to default on their related payment obligations. The Companys only such guarantee outstanding at December 31, 2010 was terminated on January 17, 2011 with no payments having been made thereunder. There were
no such guarantees outstanding at December 31, 2011.

Dividends

Our quarterly dividends, if any, are determined by our Board of Directors. Dividends are declared considering our estimate of annual
taxable income available for distribution to stockholders and the amount of taxable income carried over from the prior year for distribution in the current year. We cannot assure stockholders that they will receive any dividends and distributions or
dividends and distributions at a particular level. Dividends declared by the Company since July 25, 2005 (inception of operations) have been as follows:



|                                                     |  |                    |  |                   
|---------------------------------------------------- |  | ------------------ |  | ------------------
|Dividend Amount
Per
Share                Outstanding |  | Record Date        |  | Payment Date      
|$0.20                                                |  | December 31, 2005  |  | January 31, 2006  
|$0.20                                                |  | March 15, 2006     |  | March 31, 2006    
|$0.23                                                |  | June 15, 2006      |  | June 30, 2006     
|$0.30                                                |  | September 15, 2006 |  | September 29, 2006
|$0.42                                                |  | December 31, 2006  |  | January 31, 2007  
|$0.42                                                |  | March 15, 2007     |  | March 30, 2007    
|$0.42                                                |  | May 15, 2007       |  | May 31, 2007      
|$0.42                                                |  | September 14, 2007 |  | September 28, 2007
|$0.43                                                |  | December 14, 2007  |  | December 31, 2007 
|$0.43                                                |  | March 17, 2008     |  | March 31, 2008    
|$0.43                                                |  | June 16, 2008      |  | June 30, 2008     
|$0.43                                                |  | September 15, 2008 |  | September 30, 2008
|$0.43                                                |  | December 15, 2008  |  | December 31, 2008 
|$0.16                                                |  | March 20, 2009     |  | April 3, 2009     
|$0.16                                                |  | June 19, 2009      |  | July 2, 2009      
|$0.16                                                |  | September 18, 2009 |  | October 2, 2009   
|$0.32                                                |  | December 21, 2009  |  | January 4, 2010   
|$0.32                                                |  | March 22, 2010     |  | April 5, 2010     
|$0.32                                                |  | May 17, 2010       |  | July 2, 2010      
|$0.32                                                |  | September 17, 2010 |  | October 1, 2010   
|$0.32                                                |  | December 20, 2010  |  | January 3, 2011   
|$0.32                                                |  | March 18, 2011     |  | April 1, 2011     
|$0.26                                                |  | June 17, 2011      |  | July 1, 2011      
|$0.26                                                |  | September 19, 2011 |  | October 3, 2011   
|$0.26                                                |  | December 21, 2011  |  | January 4, 2012   
|$0.26                                                |  | March 20, 2012     |  | April 3, 2012     



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Tax characteristics of all dividends are reported to stockholders on Form 1099 after the end of the calendar
year.

We have elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain favorable RIC tax treatment,
we must distribute annually to our stockholders 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, out of the assets legally available for distribution. Under the
Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Company after December 31, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the years preceding
enactment. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of:



| |  |  | 98% of our ordinary income for the calendar year;
| | - |  | -------------------------------------------------



| |  |  | 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31st; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | any ordinary income and net capital gains for preceding years that were not distributed during such years.
| | - |  | ----------------------------------------------------------------------------------------------------------

We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income.
If we choose to do so, all other things being equal, this would increase expenses and reduce the amounts available to be distributed to our stockholders. We accrue excise tax on estimated taxable income as required. In addition, although we
currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide
to retain such capital gains for investment. There was no provision for federal excise taxes recorded for the year ended December 31, 2011. For the years ended December 31, 2010 and 2009, we recorded a provision for federal excise taxes of
$298,322 and $1,012,791, respectively. There was no undistributed taxable income carried forward from 2011.

We maintain an
opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, stockholders cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically
opt out of the dividend reinvestment plan so as to receive cash dividends. With respect to our dividends and distributions paid to stockholders during the years ended December 31, 2011, 2010 and 2009, dividends reinvested pursuant
to our dividend reinvestment plan totaled $8,021,087, $5,468,133 and $9,083,849, respectively.

Under the terms of an
amendment to our dividend reinvestment plan adopted on March 4, 2009, dividends may be paid in newly issued or treasury shares of our common stock at a price equal to 95% of the market price on the dividend payment date. This feature of the
plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

We may not be able to achieve operating results that will allow us to make dividends and distributions at a specific level or to increase
the amount of these dividends and distributions from time to time. Also, we may be limited in our ability to make dividends and distributions due to the asset coverage test applicable to us as a BDC under the 1940 Act and due to provisions in our
existing and future debt arrangements. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of favorable RIC tax treatment. In addition, in accordance with U.S.
generally accepted accounting principles and tax regulations, we include in income certain amounts that we have not yet received in cash, such as payment-in-kind interest, which represents contractual interest added to the loan balance that becomes
due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90%
of our investment company taxable income to obtain tax benefits as a RIC and may be subject to an excise tax. In order to satisfy the annual distribution requirement applicable to RICs, we have the ability to declare a large portion of a dividend in
shares of our common stock instead of in cash. As long as a portion of



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such dividend is paid in cash (which portion can be as low as 10% for our taxable years ending prior to 2012) and certain requirements are met, the entire distribution would be treated as a
dividend for U.S. federal income tax purposes.

With respect to dividends paid to stockholders, certain income we receive from
origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies may cause our taxable income to exceed our GAAP income although the differences are expected to be temporary in nature.

Recent developments

On February 29, 2012, our Board of Directors declared a dividend of $0.26 per share, payable on April 3, 2012 to stockholders of record at the close of business on March 20, 2012.

Notice is hereby given in accordance with Section 23(c) of the 1940 Act that from time to time the Company may purchase
shares of its common stock in the open market at prevailing market prices.



|Item 7A. | Quantitative and Qualitative Disclosure About Market Risk
|-------- | ---------------------------------------------------------

We are subject to financial market risks, including changes in interest rates. At December 31, 2011, 51% of our debt investments bore interest based on floating rates, such as LIBOR, the Federal
Funds Rate or the Prime Rate. The interest rates on such investments generally reset by reference to the current market index after one to six months. At December 31, 2011, the percentage of our total debt investments that bore floating rate
interest subject to an interest rate floor was 44%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to six months only if the index exceeds the floor.

To illustrate the potential impact of changes in interest rates, we have performed the following analysis based on our December 31,
2011 balance sheet and assuming no changes in our investment structure. Net asset value is analyzed using the assumptions that interest rates, as defined by the LIBOR and U.S. Treasury yield curves, increase or decrease and that the yield curves of
the rate shocks will be parallel to each other. Under this analysis, an instantaneous 100 basis point increase in LIBOR and U.S. Treasury yields would cause a decline of approximately $10,700,000, or $0.15 per share, in the value of our net assets
at December 31, 2011 and a corresponding 100 basis point decrease in LIBOR and U.S. Treasury yields would cause an increase of approximately $10,300,000, or $0.14 per share, in the value of our net assets on that date.

While hedging activities may help to insulate us against adverse changes in interest rates, they also may limit our ability to
participate in the benefits of lower interest rates with respect to our portfolio of investments. During the years ended December 31, 2011, 2010 and 2009, we did not engage in any interest rate hedging activity.



|Item 8. | Consolidated Financial Statements and Supplementary Data
|------- | --------------------------------------------------------

See the Index to Consolidated Financial Statements on page F-1.



|Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None.



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|Item 9A. | Controls and Procedures
|-------- | -----------------------

(a)
Evaluation of Disclosure Controls and Procedures.The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were effective, as of December 31, 2011, to provide assurance that information that is required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the SECs rules and forms. Disclosure controls and procedures, include without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial
Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)
Managements Report on Internal Control Over Financial Reporting.The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Companys
internal control over financial reporting based on the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Companys
evaluation under the framework in Internal ControlIntegrated Framework, management concluded that the Companys internal control over financial reporting was effective as of December 31, 2011. The Companys internal
control over financial reporting as of December 31, 2011 has been audited by our independent registered public accounting firm, Deloitte & Touche LLP, as stated in its report titled Report of Independent Registered Public
Accounting Firm on the following page.

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.

(c) Attestation Report of the Registered Public Accounting Firm.Our independent
registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Companys internal control over financial reporting, which is set forth on the following page.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

BlackRock Kelso Capital Corporation:

We have audited the internal control over financial reporting of BlackRock Kelso Capital Corporation and subsidiaries (the Company) as of December 31, 2011, based on criteria established
in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company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 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, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and 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 by, or under the supervision of, the companys
principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the 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, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2011, based on the 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
statement of assets and liabilities, including the consolidated schedule of investments, as of December 31, 2011, and the related consolidated statements of operations, changes in net assets, cash flows and financial highlights for the year
then ended of the Company and our report dated March 1, 2012 expressed an unqualified opinion on those consolidated financial statements.

/s/ Deloitte & Touche LLP

New York,
New York

March 1, 2012



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(d) Changes in Internal Control Over Financial Reporting.There have been no changes in our
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

None



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PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

The information required by this item is contained in the Registrants definitive Proxy Statement for its 2012 Annual Stockholders Meeting to be filed with the Securities and Exchange Commission
within 120 days after December 31, 2011 and is incorporated herein by reference.



|Item 11. | Executive Compensation
|-------- | ----------------------

The information required by this item is contained in the Registrants definitive Proxy Statement for its 2012 Annual Stockholders
Meeting to be filed with the Securities and Exchange Commission within 120 days after December 31, 2011 and is incorporated herein by reference.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
|-------- | -----------------------------------------------------------------------------------------------

The information required by this item is contained in the Registrants definitive Proxy Statement for its 2012 Annual Stockholders
Meeting to be filed with the Securities and Exchange Commission within 120 days after December 31, 2011 and is incorporated herein by reference.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

The information required by this item is contained in the Registrants definitive Proxy Statement for its 2012 Annual Stockholders Meeting to be filed with the Securities and Exchange Commission
within 120 days after December 31, 2011 and is incorporated herein by reference.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The information required by this item is contained in the Registrants definitive Proxy Statement for its 2012 Annual Stockholders Meeting to be filed with the Securities and Exchange Commission
within 120 days after December 31, 2011 and is incorporated herein by reference.



62



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##### Table of Contents

PART IV



|Item 15. | Exhibits and Consolidated Financial Statement Schedules
|-------- | -------------------------------------------------------

The following documents are filed as part of this Annual Report:



| | (1) | Consolidated Financial StatementsSee the Index to Consolidated Financial Statements on page F-1.
| | --- | -------------------------------------------------------------------------------------------------



| | (2) | Consolidated Financial Statement SchedulesNone. We have omitted financial statements schedules because they are not required or are not applicable, or the
required information is shown in the consolidated financial statements or notes to the consolidated financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | ExhibitsPlease note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to
provide any other factual or disclosure information about BlackRock Kelso Capital Corporation or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have
been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|       |  |                                                                                                                                                                                                                          
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                              
|       | 
|3.1    |  | Certificate of Incorporation of the Registrant (1)                                                                                                                                                                       
|       | 
|3.2    |  | Certificate of Amendment to the Certificate of Incorporation of the Registrant (2)                                                                                                                                       
|       | 
|3.3    |  | Amended and Restated By-laws of the Registrant (3)                                                                                                                                                                       
|       | 
|4.1    |  | Form of Stock Certificate of the Registrant (4)                                                                                                                                                                          
|       | 
|10.1   |  | Investment Management Agreement between the Registrant and BlackRock Kelso Capital Advisors LLC (4)                                                                                                                      
|       | 
|10.2   |  | Administration Agreement between the Registrant and BlackRock Financial Management, Inc. (5)                                                                                                                             
|       | 
|10.3   |  | Amended and Restated Dividend Reinvestment Plan (6)                                                                                                                                                                      
|       | 
|10.4   |  | Custodian Services Agreement between PFPC Trust Company and the Registrant (5)                                                                                                                                           
|       | 
|10.5   |  | Foreign Custody Manager Agreement among Citibank, N.A., PFPC Trust Company and the Registrant (4)                                                                                                                        
|       | 
|10.6   |  | Transfer Agency Services Agreement between PNC Global Investment Servicing Inc. and the Registrant (5)                                                                                                                   
|       | 
|10.7   |  | Sub-Administration and Accounting Services Agreement by and among the Registrant, PNC Global Investment Servicing Inc. and BlackRock Financial Management, Inc. (5)                                                      
|       | 
|10.8   |  | Waiver Reliance Letter between the Registrant and BlackRock Kelso Capital Advisors LLC (5)                                                                                                                               
|       | 
|10.9   |  | Amended and Restated Senior Secured Credit Agreement, dated as of December 28, 2007, among the Registrant, the lenders party thereto and Citibank, N.A., as Administrative Agent
(7)                                     
|       | 
|10.10  |  | Amendment No. 1 to Amended and Restated Senior Secured Credit Agreement, dated as of April 20, 2010, among the Registrant, the lenders and assuming lenders party thereto and
Citibank, N.A., as Administrative Agent (8)
|       | 
|10.11  |  | Note Purchase Agreement, dated as of January 18, 2011, among the Registrant and the purchasers party thereto (9)                                                                                                         
|       | 
|14.1   |  | Code of Ethics of the Registrant (10)                                                                                                                                                                                    



63



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##### Table of Contents

|       |  |                                                                                                                                                  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                      
|       | 
|14.2   |  | Code of Ethics and Business Conduct of the Registrant (11)                                                                                       
|       | 
|14.3   |  | Code of Ethics of the Advisor (5)                                                                                                                
|       | 
|21.1*  |  | Subsidiaries of the Registrant                                                                                                                   
|       | 
|31.1*  |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934                                    
|       | 
|31.2*  |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934                                    
|       | 
|32.1*  |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350)



|* | Filed herewith.
|- | ---------------

|(1) | Previously filed with the Registrants Registration Statement on Form 10 (Commission File No. 000-51327), as amended, originally filed on May 24, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Filed with the Registrants Form 8-K dated as of June 7, 2010.
|--- | --------------------------------------------------------------

|(3) | Filed with the Registrants Form 8-K dated as of November 9, 2009.
|--- | ------------------------------------------------------------------

|(4) | Previously filed with the Registrants Registration Statement on Form N-2 (Commission File No. 333-141090), as amended, originally filed on March 6, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Previously filed with the Registrants Form 10-K for the year ended December 31, 2005.
|--- | --------------------------------------------------------------------------------------

|(6) | Previously filed with the Registrants Form 8-K dated as of March 4, 2009.
|--- | --------------------------------------------------------------------------

|(7) | Previously filed with the Registrants Form 8-K dated as of January 2, 2008.
|--- | ----------------------------------------------------------------------------

|(8) | Previously filed with the Registrants Form 8-K dated as of April 20, 2010.
|--- | ---------------------------------------------------------------------------

|(9) | Previously filed with the Registrants Form 8-K dated as of January 18, 2011.
|--- | -----------------------------------------------------------------------------

|(10) | Previously filed with the Registrants Form 10-K for the year ended December 31, 2009.
|---- | --------------------------------------------------------------------------------------

|(11) | Previously filed with the Registrants Form 10-K for the year ended December 31, 2008.
|---- | --------------------------------------------------------------------------------------



64



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##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                        |  |  |      | 
|------------------------------------------------------- |  |  | ---- | 
|                                                        | 
|Report of Independent Registered Public Accounting Firm |  |  | F-2  | 
|                                                        | 
|Consolidated Statements of Assets and Liabilities       |  |  | F-3  | 
|                                                        | 
|Consolidated Statements of Operations                   |  |  | F-4  | 
|                                                        | 
|Consolidated Statements of Changes in Net Assets        |  |  | F-5  | 
|                                                        | 
|Consolidated Statements of Cash Flows                   |  |  | F-6  | 
|                                                        | 
|Consolidated Schedules of Investments                   |  |  | F-7  | 
|                                                        | 
|Notes to Consolidated Financial Statements              |  |  | F-24 | 



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

BlackRock Kelso Capital Corporation:

We have audited the accompanying
consolidated statements of assets and liabilities of BlackRock Kelso Capital Corporation and subsidiaries (the Company), including the consolidated schedules of investments, as of December 31, 2011 and 2010, 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, 2011 and the consolidated financial highlights for each of the five years in the period then ended.
These consolidated financial statements and consolidated financial highlights are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights 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 investments as of December 31, 2011 and 2010, by correspondence with the custodian, loan agent or borrower; where replies were not received, we performed other auditing procedures. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements
and financial highlights referred to above present fairly, in all material respects, the financial position of BlackRock Kelso Capital Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of its operations, changes in
its net assets, and its cash flows for each of the three years in the period ended December 31, 2011 and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2011, based on the criteria established inInternal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2012 expressed an unqualified opinion on the Companys internal control over financial reporting.

/s/ Deloitte & Touche LLP

New York, New York

March 1, 2012



F-2



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Statements of Assets and Liabilities



|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------------- |  | ---------------- | - | ------------- | 
|                                                                                                                                                          |  | December 31,2011 |               |  | December 31,2010 |  
|Assets:                                                                                                                                                   |  |                  |               |  |                  |   |               | 
|Investments at fair value:                                                                                                                                |  |                  |               |  |                  |   |               | 
|Non-controlled, non-affiliated investments (amortized cost of $959,635,127 and $822,763,237)                                                              |  | $                | 890,691,404   |  |                  | $ | 707,262,774   | 
|Non-controlled, affiliated investments (amortized cost of $59,633,913 and $80,424,668)                                                                    |  |                  | 71,035,799    |  |                  |   | 77,376,201    | 
|Controlled investments (amortized cost of $78,601,629 and $82,489,600)                                                                                    |  |                  | 87,225,239    |  |                  |   | 95,446,691    | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Total investments at fair value (amortized cost of $1,097,870,669 and $985,677,505)                                                                       |  |                  | 1,048,952,442 |  |                  |   | 880,085,666   | 
|Cash and cash equivalents                                                                                                                                 |  |                  | 7,478,904     |  |                  |   | 1,344,159     | 
|Cash denominated in foreign currencies (cost of $300,380 and $798,560)                                                                                    |  |                  | 300,089       |  |                  |   | 816,712       | 
|Receivable for investments sold                                                                                                                           |  |                  | 2,734,705     |  |                  |   | 5,316,189     | 
|Interest receivable                                                                                                                                       |  |                  | 16,474,871    |  |                  |   | 10,763,333    | 
|Dividends receivable                                                                                                                                      |  |                  | 8,493,799     |  |                  |   | 9,849,927     | 
|Prepaid expenses and other assets                                                                                                                         |  |                  | 6,740,517     |  |                  |   | 7,431,688     | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Total Assets                                                                                                                                              |  | $                | 1,091,175,327 |  |                  | $ | 915,607,674   | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Liabilities:                                                                                                                                              |  |                  |               |  |                  |   |               | 
|Payable for investments purchased                                                                                                                         |  | $                | 421,597       |  |                  | $ | 2,726,437     | 
|Unrealized depreciation on forward foreign currency contracts                                                                                             |  |                  | 1,106,241     |  |                  |   | 368,445       | 
|Debt                                                                                                                                                      |  |                  | 343,000,000   |  |                  |   | 170,000,000   | 
|Interest payable                                                                                                                                          |  |                  | 5,592,184     |  |                  |   | 256,084       | 
|Dividend distributions payable                                                                                                                            |  |                  | 19,040,586    |  |                  |   | 23,222,287    | 
|Base management fees payable                                                                                                                              |  |                  | 5,293,755     |  |                  |   | 4,355,021     | 
|Incentive management fees payable                                                                                                                         |  |                  | 11,878,159    |  |                  |   | 14,614,098    | 
|Accrued administrative services                                                                                                                           |  |                  | 144,625       |  |                  |   | 80,164        | 
|Other accrued expenses and payables                                                                                                                       |  |                  | 3,689,331     |  |                  |   | 1,505,214     | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Total Liabilities                                                                                                                                         |  |                  | 390,166,478   |  |                  |   | 217,127,750   | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Net Assets:                                                                                                                                               |  |                  |               |  |                  |   |               | 
|Common stock, par value $.001 per share, 200,000,000 common shares authorized, 74,636,091 and 73,531,317 issued and 73,210,584
and 72,569,638 outstanding |  |                  | 74,636        |  |                  |   | 73,531        | 
|Paid-in capital in excess of par                                                                                                                          |  |                  | 983,082,373   |  |                  |   | 994,200,522   | 
|Distributions in excess of net investment income                                                                                                          |  |                  | (26,165,703)  |  |                  |   | (4,029,341)   | 
|Accumulated net realized loss                                                                                                                             |  |                  | (194,505,823) |  |                  |   | (180,403,836) | 
|Net unrealized depreciation                                                                                                                               |  |                  | (51,999,958)  |  |                  |   | (105,935,052) | 
|Treasury stock at cost, 1,425,507 and 961,679 shares held                                                                                                 |  |                  | (9,476,676)   |  |                  |   | (5,425,900)   | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Total Net Assets                                                                                                                                          |  |                  | 701,008,849   |  |                  |   | 698,479,924   | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Total Liabilities and Net Assets                                                                                                                          |  | $                | 1,091,175,327 |  |                  | $ | 915,607,674   | 
|                                                                                                                                                          |  |                  |               |  |                  |   |               | 
|Net Asset Value Per Share                                                                                                                                 |  | $                | 9.58          |  |                  | $ | 9.62          | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-3



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Statements of Operations



|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|--------------------------------------------------------- |  | -------------------------- | ------------ |  | -------------------------- | - | ------------ | -------------------------- |  | - | ------------- | 
|                                                          |  | Year endedDecember 31,2011 |              |  | Year endedDecember 31,2010 |   |              | Year endedDecember 31,2009 | 
|Investment Income:                                        |  |                            |              |  |                            |   |              |                            |  |   |               | 
|From non-controlled, non-affiliated investments:          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Interest                                                  |  | $                          | 112,416,047  |  |                            | $ | 92,169,396   |                            |  | $ | 119,051,462   | 
|Dividends                                                 |  |                            | 2,928,196    |  |                            |   | 3,101,377    |                            |  |   | 1,479,116     | 
|Other income                                              |  |                            | 776,677      |  |                            |   | 62,254       |                            |  |   | 23,571        | 
|From non-controlled, affiliated investments:              |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Interest                                                  |  |                            | 5,735,682    |  |                            |   | 6,403,192    |                            |  |   | 2,255,171     | 
|Dividends                                                 |  |                            | 1,128,207    |  |                            |   | 1,284,148    |                            |  |   | 1,110,885     | 
|Other income                                              |  |                            | 149,040      |  |                            |   |             |                            |  |   |              | 
|From controlled investments:                              |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Interest                                                  |  |                            | 8,318,689    |  |                            |   | 2,800,470    |                            |  |   | 913,852       | 
|Other income                                              |  |                            | 50,000       |  |                            |   | 50,000       |                            |  |   | 50,000        | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Total investment income                                   |  |                            | 131,502,538  |  |                            |   | 105,870,837  |                            |  |   | 124,884,057   | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Expenses:                                                 |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Base management fees                                      |  |                            | 19,841,258   |  |                            |   | 16,877,854   |                            |  |   | 18,498,189    | 
|Interest and credit facility fees                         |  |                            | 16,561,095   |  |                            |   | 6,233,689    |                            |  |   | 6,416,888     | 
|Incentive management fees                                 |  |                            | 11,878,159   |  |                            |   | 15,108,049   |                            |  |   | 16,818,602    | 
|Amortization of debt issuance costs                       |  |                            | 2,499,742    |  |                            |   | 2,136,038    |                            |  |   | 683,552       | 
|Professional fees                                         |  |                            | 1,905,782    |  |                            |   | 877,930      |                            |  |   | 1,126,665     | 
|Investment advisor expenses                               |  |                            | 1,779,734    |  |                            |   | 1,622,957    |                            |  |   | 1,466,563     | 
|Administrative services                                   |  |                            | 1,173,754    |  |                            |   | 763,876      |                            |  |   | 807,837       | 
|Insurance                                                 |  |                            | 486,759      |  |                            |   | 581,428      |                            |  |   | 569,201       | 
|Director fees                                             |  |                            | 417,564      |  |                            |   | 385,750      |                            |  |   | 360,095       | 
|Other                                                     |  |                            | 2,079,900    |  |                            |   | 1,134,155    |                            |  |   | 1,070,904     | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Total expenses                                            |  |                            | 58,623,747   |  |                            |   | 45,721,726   |                            |  |   | 47,818,496    | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net investment income before excise taxes                 |  |                            | 72,878,791   |  |                            |   | 60,149,111   |                            |  |   | 77,065,561    | 
|Excise tax expense                                        |  |                            |             |  |                            |   | (298,322)    |                            |  |   | (1,012,791)   | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net Investment Income                                     |  |                            | 72,878,791   |  |                            |   | 59,850,789   |                            |  |   | 76,052,770    | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Realized and Unrealized Gain (Loss):                      |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net realized gain (loss):                                 |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Non-controlled, non-affiliated investments                |  |                            | (38,314,683) |  |                            |   | (53,083,081) |                            |  |   | (63,987,289)  | 
|Non-controlled, affiliated investments                    |  |                            | (4,886,347)  |  |                            |   | (36,221,198) |                            |  |   | 12,240        | 
|Controlled investments                                    |  |                            | (7,901,154)  |  |                            |   | 2,515        |                            |  |   | (42,556,492)  | 
|Foreign currency                                          |  |                            | 1,208,808    |  |                            |   | (934,959)    |                            |  |   | (3,706,527)   | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net realized gain (loss)                                  |  |                            | (49,893,376) |  |                            |   | (90,236,723) |                            |  |   | (110,238,068) | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net change in unrealized appreciation or depreciation on: |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Non-controlled, non-affiliated investments                |  |                            | 44,577,066   |  |                            |   | 32,535,681   |                            |  |   | 86,293,709    | 
|Non-controlled, affiliated investments                    |  |                            | 15,033,972   |  |                            |   | 39,491,418   |                            |  |   | (22,969,287)  | 
|Controlled investments                                    |  |                            | (4,915,504)  |  |                            |   | 30,459,019   |                            |  |   | 37,584,406    | 
|Foreign currency translation                              |  |                            | (760,440)    |  |                            |   | (550,623)    |                            |  |   | 516,193       | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net change in unrealized appreciation or depreciation     |  |                            | 53,935,094   |  |                            |   | 101,935,495  |                            |  |   | 101,425,021   | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net realized and unrealized gain (loss)                   |  |                            | 4,041,718    |  |                            |   | 11,698,772   |                            |  |   | (8,813,047)   | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net Increase in Net Assets Resulting from Operations      |  | $                          | 76,920,509   |  |                            | $ | 71,549,561   |                            |  | $ | 67,239,723    | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net Investment Income Per Share                           |  | $                          | 1.00         |  |                            | $ | 0.96         |                            |  | $ | 1.36          | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Earnings Per Share                                        |  | $                          | 1.05         |  |                            | $ | 1.14         |                            |  | $ | 1.20          | 
|                                                          |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Basic and Diluted Weighted-Average Shares Outstanding     |  |                            | 73,037,357   |  |                            |   | 62,663,002   |                            |  |   | 55,923,757    | 
|Dividends Declared Per Share                              |  | $                          | 1.10         |  |                            | $ | 1.28         |                            |  | $ | 0.80          | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-4



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Statements of Changes in Net Assets



|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|------------------------------------------------------------------------------- |  | -------------------------- | ------------ |  | -------------------------- | - | ------------ | -------------------------- |  | - | ------------- | 
|                                                                                |  | Year
endedDecember 31,2011 |              |  | Year
endedDecember 31,2010 |   |              | Year
endedDecember 31,2009 | 
|Net Increase in Net Assets Resulting from Operations:                           |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net investment income                                                           |  | $                          | 72,878,791   |  |                            | $ | 59,850,789   |                            |  | $ | 76,052,770    | 
|Net realized loss                                                               |  |                            | (49,893,376) |  |                            |   | (90,236,723) |                            |  |   | (110,238,068) | 
|Net change in unrealized appreciation or depreciation                           |  |                            | 53,935,094   |  |                            |   | 101,935,495  |                            |  |   | 101,425,021   | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net increase in net assets resulting from operations                            |  |                            | 76,920,509   |  |                            |   | 71,549,561   |                            |  |   | 67,239,723    | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Dividend Distributions to Stockholders from:                                    |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net investment income                                                           |  |                            | (59,230,030) |  |                            |   | (80,455,656) |                            |  |   | (44,582,894)  | 
|Tax return of capital                                                           |  |                            | (21,131,865) |  |                            |   |             |                            |  |   |              | 
|Net realized gains                                                              |  |                            |             |  |                            |   |             |                            |  |   | (238,525)     | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Total dividend distributions                                                    |  |                            | (80,361,895) |  |                            |   | (80,455,656) |                            |  |   | (44,821,419)  | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Capital Share Transactions:                                                     |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Proceeds from shares sold                                                       |  |                            | 2,000,000    |  |                            |   | 170,861,250  |                            |  |   |              | 
|Less offering costs                                                             |  |                            |             |  |                            |   | (8,506,126)  |                            |  |   |              | 
|Reinvestment of dividends                                                       |  |                            | 8,021,087    |  |                            |   | 5,468,133    |                            |  |   | 9,083,849     | 
|Purchases of treasury stock                                                     |  |                            | (4,050,776)  |  |                            |   |             |                            |  |   | (2,234,892)   | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net increase in net assets resulting from capital share transactions            |  |                            | 5,970,311    |  |                            |   | 167,823,257  |                            |  |   | 6,848,957     | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Total Increase in Net Assets                                                    |  |                            | 2,528,925    |  |                            |   | 158,917,162  |                            |  |   | 29,267,261    | 
|Net assets at beginning of year                                                 |  |                            | 698,479,924  |  |                            |   | 539,562,762  |                            |  |   | 510,295,501   | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Net assets at end of year                                                       |  | $                          | 701,008,849  |  |                            | $ | 698,479,924  |                            |  | $ | 539,562,762   | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Capital Share Activity:                                                         |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Shares issued from subscriptions                                                |  |                            | 200,000      |  |                            |   | 15,525,000   |                            |  |   |              | 
|Shares issued from reinvestment of dividends                                    |  |                            | 904,774      |  |                            |   | 569,442      |                            |  |   | 1,766,281     | 
|Purchases of treasury stock                                                     |  |                            | (463,828)    |  |                            |   |             |                            |  |   | (583,572)     | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Total increase in shares                                                        |  |                            | 640,946      |  |                            |   | 16,094,442   |                            |  |   | 1,182,709     | 
|                                                                                |  |                            |              |  |                            |   |              |                            |  |   |               | 
|Undistributed (distributions in excess of) net investment income at end of year |  | $                          | (26,165,703) |  |                            | $ | (4,029,341)  |                            |  | $ | 19,463,949    | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-5



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Statements of Cash Flows



|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------------- |  | -------------------------- | - | ------------- | -------------------------- |  | - | ------------- | 
|                                                                                                                                    |  | Year endedDecember 31,2011 |               |  | Year endedDecember 31,2010 |   |               | Year endedDecember 31,2009 | 
|Operating Activities:                                                                                                               |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Net change in net assets resulting from operations                                                                                  |  | $                          | 76,920,509    |  |                            | $ | 71,549,561    |                            |  | $ | 67,239,723    | 
|Adjustments to reconcile net change in net assets resulting from operations to net cash provided by (used in) operating
activities: |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Proceeds from dispositions of short-term investmentsnet                                                                            |  |                            |              |  |                            |   | 358,276       |                            |  |   |              | 
|Purchases of investments                                                                                                            |  |                            | (401,530,203) |  |                            |   | (405,956,515) |                            |  |   | (46,757,709)  | 
|Sales (purchases) of foreign currencynet                                                                                           |  |                            | 1,204,593     |  |                            |   | (931,542)     |                            |  |   | (5,182,402)   | 
|Proceeds from sales/repayments of investments                                                                                       |  |                            | 249,139,391   |  |                            |   | 395,269,097   |                            |  |   | 128,224,448   | 
|Net change in unrealized appreciation or depreciation on investments                                                                |  |                            | (54,695,534)  |  |                            |   | (102,486,118) |                            |  |   | (100,908,828) | 
|Net change in unrealized appreciation or depreciation on foreign currency translations                                              |  |                            | 760,440       |  |                            |   | 550,623       |                            |  |   | (516,193)     | 
|Net realized loss (gain) on investments                                                                                             |  |                            | 51,102,184    |  |                            |   | 89,301,764    |                            |  |   | 106,531,541   | 
|Net realized loss (gain) on foreign currency                                                                                        |  |                            | (1,208,808)   |  |                            |   | 934,959       |                            |  |   | 3,706,527     | 
|Amortization of premium/discountnet                                                                                                |  |                            | (10,904,536)  |  |                            |   | (9,829,869)   |                            |  |   | (5,537,815)   | 
|Amortization of debt issuance costs                                                                                                 |  |                            | 2,499,742     |  |                            |   | 2,136,038     |                            |  |   | 683,552       | 
|Decrease (increase) in receivable for investments sold                                                                              |  |                            | 2,581,484     |  |                            |   | (5,316,189)   |                            |  |   |              | 
|Decrease (increase) in interest receivable                                                                                          |  |                            | (5,711,538)   |  |                            |   | 7,678,194     |                            |  |   | (2,140,990)   | 
|Decrease (increase) in dividends receivable                                                                                         |  |                            | 1,356,128     |  |                            |   | (3,229,024)   |                            |  |   | (2,459,657)   | 
|Decrease (increase) in prepaid expenses and other assets                                                                            |  |                            | (124,111)     |  |                            |   | 163,375       |                            |  |   | (12,669)      | 
|Increase (decrease) in payable for investments purchased                                                                            |  |                            | (2,304,840)   |  |                            |   | 2,168,954     |                            |  |   | (447,618)     | 
|Increase (decrease) in interest payable                                                                                             |  |                            | 5,336,100     |  |                            |   | (703,374)     |                            |  |   | 123,967       | 
|Increase (decrease) in base management fees payable                                                                                 |  |                            | 938,734       |  |                            |   | (192,108)     |                            |  |   | (1,177,900)   | 
|Increase (decrease) in incentive management fees payable                                                                            |  |                            | (2,735,939)   |  |                            |   | (2,204,504)   |                            |  |   | 16,818,602    | 
|Increase (decrease) in accrued administrative services payable                                                                      |  |                            | 64,461        |  |                            |   | (121,564)     |                            |  |   | 31,283        | 
|Increase (decrease) in other accrued expenses and payables                                                                          |  |                            | 206,039       |  |                            |   | (1,302,040)   |                            |  |   | 1,164,212     | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Net cash provided by (used in) operating activities                                                                                 |  |                            | (87,099,594)  |  |                            |   | 37,837,994    |                            |  |   | 159,382,074   | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Financing Activities:                                                                                                               |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Proceeds from issuance of common stocknet of offering costs                                                                        |  |                            | 2,000,000     |  |                            |   | 162,355,124   |                            |  |   |              | 
|Dividend distributions paid                                                                                                         |  |                            | (76,522,495)  |  |                            |   | (69,837,299)  |                            |  |   | (37,128,672)  | 
|Proceeds from debt                                                                                                                  |  |                            | 407,250,000   |  |                            |   | 314,700,000   |                            |  |   | 72,400,000    | 
|Repayments of debt                                                                                                                  |  |                            | (234,250,000) |  |                            |   | (440,700,000) |                            |  |   | (202,400,000) | 
|Increase in deferred debt issuance costs                                                                                            |  |                            | (1,684,460)   |  |                            |   | (8,020,996)   |                            |  |   |              | 
|Purchases of treasury stock                                                                                                         |  |                            | (4,050,776)   |  |                            |   |              |                            |  |   | (2,234,891)   | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Net cash provided by (used in) financing activities                                                                                 |  |                            | 92,736,149    |  |                            |   | (41,503,171)  |                            |  |   | (169,363,563) | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Effect of exchange rate changes on cash and cash equivalents                                                                        |  |                            | (18,443)      |  |                            |   | 18,147        |                            |  |   | 3,119         | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Net increase (decrease) in cash                                                                                                     |  |                            | 5,618,122     |  |                            |   | (3,647,030)   |                            |  |   | (9,978,370)   | 
|Cash and cash equivalents, beginning of year                                                                                        |  |                            | 2,160,871     |  |                            |   | 5,807,901     |                            |  |   | 15,786,271    | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Cash and cash equivalents, end of year                                                                                              |  | $                          | 7,778,993     |  |                            | $ | 2,160,871     |                            |  | $ | 5,807,901     | 
|                                                                                                                                    |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Supplemental disclosure of cash flow information and non-cash financing activities:                                                 |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Cash paid during year for:                                                                                                          |  |                            |               |  |                            |   |               |                            |  |   |               | 
|Interest                                                                                                                            |  | $                          | 9,904,927     |  |                            | $ | 5,653,301     |                            |  | $ | 5,967,197     | 
|Taxes                                                                                                                               |  | $                          | 916,419       |  |                            | $ | 1,111,018     |                            |  | $ | 515,351       | 
|Dividend distributions reinvested                                                                                                   |  | $                          | 8,021,087     |  |                            | $ | 5,468,133     |                            |  | $ | 9,083,849     | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-6



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments

December 31, 2011



|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|--------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------------------------------------- | ---------- |  | ------- | - | ----------- | ------------- |  | - | ----------- | 
|Portfolio Company                                                                             |  | Industry(a)               |  | PrincipalAmount orNumber ofShares/Units |            |  | Cost(b) |   |             | Fair Value(c) | 
|Senior Secured Notes16.2%                                                                    |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|AGY Holding Corp., Second Lien, 11.00%, 11/15/14(q)                                           |  | Glass Yarns/Fibers        |  | $                                       | 16,200,000 |  |         | $ | 15,958,040  |               |  | $ | 13,737,600  | 
|American Residential Services L.L.C. et al., Second Lien, 12.00%, 4/15/15, acquired 4/9/10(d) |  | HVAC/Plumbing
Services    |  |                                         | 40,000,000 |  |         |   | 39,865,081  |               |  |   | 40,400,000  | 
|Sizzling Platter LLC et al., First Lien, 12.25%, 4/15/16, acquired 4/14/11(d)                 |  | Restaurants               |  |                                         | 30,000,000 |  |         |   | 29,078,717  |               |  |   | 30,000,000  | 
|TriMark USA, Inc., Second Lien, 11.50% (LIBOR + 1.75% cash, 2.00% PIK), 11/30/13(f)(q)        |  | Food ServiceEquipment     |  |                                         | 32,782,166 |  |         |   | 32,782,166  |               |  |   | 29,733,425  | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|Total Senior Secured Notes                                                                    |  |                           |  |                                         |            |  |         |   | 117,684,004 |               |  |   | 113,871,025 | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|Unsecured Debt0.7%                                                                           |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|Big Dumpster Acquisition, Inc., 13.50% PIK, 7/5/15                                            |  | Waste ManagementEquipment |  |                                         | 56,177,438 |  |         |   | 45,226,690  |               |  |   |            | 
|Maple Hill Acquisition LLC, 13.50%, 10/1/15                                                   |  | RigidPackaging            |  |                                         | 5,000,000  |  |         |   | 4,882,791   |               |  |   | 5,000,000   | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|Total Unsecured Debt                                                                          |  |                           |  |                                         |            |  |         |   | 50,109,481  |               |  |   | 5,000,000   | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|Subordinated Debt23.3%                                                                       |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|A & A Manufacturing Co., Inc., 14.00%, 5/16/16                                                |  | ProtectiveEnclosures      |  |                                         | 27,403,430 |  |         |   | 27,147,191  |               |  |   | 27,403,430  | 
|Conney Safety Products, LLC, 16.00%, 10/1/14(e)                                               |  | SafetyProducts            |  |                                         | 25,582,734 |  |         |   | 24,847,025  |               |  |   | 25,582,734  | 
|MediMedia USA, Inc., 11.38%, 11/15/14, acquired multiple dates(d)(q)                          |  | InformationServices       |  |                                         | 19,950,000 |  |         |   | 18,903,945  |               |  |   | 19,171,950  | 
|MedQuist Inc. et al., 13.00%, 10/15/16(q)                                                     |  | MedicalTranscription      |  |                                         | 43,000,000 |  |         |   | 41,971,176  |               |  |   | 43,559,000  | 
|The Pay-O-Matic Corp., 14.00% (12.00% cash, 2.00% PIK), 1/15/15                               |  | FinancialServices         |  |                                         | 15,366,867 |  |         |   | 15,269,195  |               |  |   | 15,366,867  | 
|PGA Holdings, Inc., 12.50%, 3/12/16                                                           |  | HealthcareServices        |  |                                         | 5,000,000  |  |         |   | 4,947,850   |               |  |   | 5,000,000   | 
|Sarnova HC, LLC et al., 14.00% (12.00% cash, 2.00% PIK), 4/6/16                               |  | HealthcareProducts        |  |                                         | 25,762,284 |  |         |   | 25,238,707  |               |  |   | 25,762,284  | 
|Wastequip, Inc., 14.50% PIK, 2/5/15                                                           |  | Waste ManagementEquipment |  |                                         | 10,194,216 |  |         |   | 8,611,497   |               |  |   | 1,192,724   | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 
|Total Subordinated Debt                                                                       |  |                           |  |                                         |            |  |         |   | 166,936,586 |               |  |   | 163,038,989 | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |               |  |   |             | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-7



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2011



|                                                                                                                      |  |                       |  |                                         |            |     |         |   |            |              |  |   |            | 
|--------------------------------------------------------------------------------------------------------------------- |  | --------------------- |  | --------------------------------------- | ---------- | --- | ------- | - | ---------- | ------------ |  | - | ---------- | 
|Portfolio Company                                                                                                     |  | Industry(a)           |  | PrincipalAmount orNumber ofShares/Units |            |     | Cost(b) |   |            | FairValue(c) | 
|Senior Secured Loans93.5%(f)                                                                                         |  |                       |  |                                         |            |     |         |   |            |              |  |   |            | 
|Advantage Sales & Marketing Inc., Second Lien, 9.25% (LIBOR + 7.75%), 6/17/18                                         |  | MarketingServices     |  | $                                       | 10,000,000 |     |         | $ | 9,870,527  |              |  | $ | 9,790,000  | 
|Airvana Network Solutions Inc., First Lien, 10.00% (LIBOR + 8.00%), 3/25/15                                           |  | Software              |  |                                         | 14,895,238 |     |         |   | 14,653,843 |              |  |   | 14,895,238 | 
|Alpha Media Group Inc., First Lien, 12.00% PIK, 7/15/13                                                               |  | Publishing            |  |                                         | 4,938,535  |     |         |   | 3,812,217  |              |  |   | 908,691    | 
|American SportWorks LLC, Second Lien, 13.00%, 6/16/15(g)                                                              |  | UtilityVehicles       |  |                                         | 8,000,000  |     |         |   | 8,000,000  |              |  |   | 3,550,900  | 
|AmQuip Crane Rental LLC, Second Lien, 12.00%, 12/19/17                                                                |  | ConstructionEquipment |  |                                         | 43,600,000 |     |         |   | 43,600,000 |              |  |   | 43,600,000 | 
|Arclin US Holdings Inc., Second Lien, 7.75% (LIBOR + 6.00%), 1/15/15(e)(h)(q)                                         |  | Chemicals             |  |                                         | 3,523,337  |     |         |   | 2,982,481  |              |  |   | 3,523,337  | 
|Ascend Learning, LLC, Second Lien, 11.50% (LIBOR + 10.00%), 12/6/17                                                   |  | Education             |  |                                         | 20,000,000 |     |         |   | 19,488,347 |              |  |   | 20,000,000 | 
|Ashton Woods USA L.L.C., Second Lien, 11.75%, 7/6/15                                                                  |  | Homebuilding          |  |                                         | 37,500,000 |     |         |   | 37,236,720 |              |  |   | 37,500,000 | 
|Attachmate Corporation et al., Second Lien, 9.50% (LIBOR + 8.00%), 10/27/17                                           |  | Software              |  |                                         | 5,000,000  |     |         |   | 4,933,770  |              |  |   | 4,775,000  | 
|Bankruptcy Management Solutions, Inc., Term Loan A, First Lien, 7.50% (LIBOR + 6.00%), 8/20/14(g)                     |  | FinancialServices     |  |                                         | 2,000,000  |     |         |   | 1,585,115  |              |  |   | 1,948,000  | 
|Bankruptcy Management Solutions, Inc., Term Loan B, First Lien, 7.50% (LIBOR + 5.00% cash, 1.00% PIK),
8/20/14(g)(q)  |  | FinancialServices     |  |                                         | 18,689,755 |     |         |   | 10,494,843 |              |  |   | 15,512,497 | 
|Bankruptcy Management Solutions, Inc., Term Loan A, Second Lien, 8.37% (LIBOR + 1.00% cash, 7.00% PIK),
8/20/15(g)(q) |  | FinancialServices     |  |                                         | 30,418,676 |     |         |   | 22,278,353 |              |  |   | 21,992,701 | 
|The Bargain! Shop Holdings Inc., Term Loan A, First Lien, 15.00%, 6/29/12(h)(q)                                       |  | DiscountStores        |  |                                         | 10,425,886 | (i) |         |   | 10,228,949 |              |  |   | 10,255,642 | 
|The Bargain! Shop Holdings Inc., Term Loan B, First Lien, 15.00%, 7/1/12(h)(q)                                        |  | DiscountStores        |  |                                         | 14,331,114 | (i) |         |   | 13,478,415 |              |  |   | 14,097,102 | 
|Berlin Packaging L.L.C., Second Lien, 6.81% (LIBOR + 6.50%), 8/17/15                                                  |  | RigidPackaging        |  |                                         | 24,000,000 |     |         |   | 23,673,086 |              |  |   | 23,184,000 | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-8



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2011



|                                                                                                                           |  |                          |  |                                         |            |  |         |   |            |              |  |   |            | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ |  | --------------------------------------- | ---------- |  | ------- | - | ---------- | ------------ |  | - | ---------- | 
|Portfolio Company                                                                                                          |  | Industry(a)              |  | PrincipalAmount orNumber ofShares/Units |            |  | Cost(b) |   |            | FairValue(c) | 
|Dial Global, Inc. et. al., Second Lien, 13.00% (LIBOR + 11.50%), 7/21/17                                                   |  | Media &Entertainment     |  | $                                       | 42,500,000 |  |         | $ | 41,916,962 |              |  | $ | 41,916,962 | 
|Fitness Together Franchise Corporation, First Lien, 11.50% (9.50% cash, 2.00% PIK), 11/10/13                               |  | PersonalFitness          |  |                                         | 7,275,283  |  |         |   | 7,275,283  |              |  |   | 6,693,260  | 
|Grocery Outlet Inc., First Lien, 10.50% (LIBOR + 9.00%), 12/15/17                                                          |  | GroceryRetail            |  |                                         | 25,000,000 |  |         |   | 25,000,000 |              |  |   | 25,000,000 | 
|Heartland Automotive Services II, Inc. et al., Term Loan A, First Lien, 7.25% (Base Rate + 4.00%), 1/30/14                 |  | AutomobileRepair         |  |                                         | 3,170,391  |  |         |   | 3,169,702  |              |  |   | 2,986,508  | 
|Heartland Automotive Services II, Inc. et al., Term Loan B, First Lien, 9.25% (Base Rate + 4.00% cash, 2.00% PIK),
1/30/14 |  | AutomobileRepair         |  |                                         | 2,352,269  |  |         |   | 2,352,179  |              |  |   | 2,145,270  | 
|Henniges Automotive Holdings, Inc., First Lien, 12.00% (LIBOR + 10.00%), 11/30/16                                          |  | Automotive               |  |                                         | 37,777,778 |  |         |   | 36,849,706 |              |  |   | 37,777,778 | 
|InterMedia Outdoors, Inc., Second Lien, 7.33% (LIBOR + 6.75%), 1/31/14                                                     |  | Printing/Publishing      |  |                                         | 10,000,000 |  |         |   | 10,000,000 |              |  |   | 8,750,000  | 
|MCCI Group Holdings, LLC, Second Lien, 10.75% (LIBOR + 9.00%), 1/29/18                                                     |  | HealthcareServices       |  |                                         | 40,000,000 |  |         |   | 40,000,000 |              |  |   | 40,000,000 | 
|Navilyst Medical, Inc., Second Lien, 13.00%, 8/14/15                                                                       |  | HealthcareServices       |  |                                         | 15,000,000 |  |         |   | 14,873,074 |              |  |   | 14,490,000 | 
|Penton Media, Inc. et al., First Lien, 5.00% (LIBOR + 3.00% cash, 1.00% PIK), 8/1/14(e)(q)                                 |  | InformationServices      |  |                                         | 11,426,611 |  |         |   | 9,102,901  |              |  |   | 8,067,187  | 
|Physiotherapy Associates, Inc. et al., Second Lien, 12.00% (Base Rate + 8.75%), 12/31/13                                   |  | RehabilitationCenters    |  |                                         | 17,000,000 |  |         |   | 17,000,000 |              |  |   | 17,000,000 | 
|Potters Holdings II, L.P., Term Loan B, Second Lien, 10.25%, (LIBOR + 8.50%), 11/6/17                                      |  | EngineeredGlass Beads    |  |                                         | 15,000,000 |  |         |   | 14,797,215 |              |  |   | 15,000,000 | 
|Pre-Paid Legal Services, Inc., Term Loan B, First Lien, 11.00% (LIBOR + 9.50%), 12/31/16                                   |  | LegalServices            |  |                                         | 15,000,000 |  |         |   | 14,591,397 |              |  |   | 15,000,000 | 
|Progress Financial Corporation, Second Lien, 12.00%, 7/26/16                                                               |  | FinancialServices        |  |                                         | 30,000,000 |  |         |   | 29,541,114 |              |  |   | 30,000,000 | 
|Renaissance Learning, Inc., Second Lien, 12.00% (LIBOR + 10.50%), 10/19/18                                                 |  | EducationSoftware        |  |                                         | 20,000,000 |  |         |   | 19,221,325 |              |  |   | 19,221,325 | 
|SOURCEHOV LLC, Second Lien, 10.50% (LIBOR + 9.25%), 4/29/18                                                                |  | ProcessOutsourcing       |  |                                         | 25,000,000 |  |         |   | 22,108,488 |              |  |   | 22,700,000 | 
|Sur La Table, Inc., Second Lien, 12.00%, 7/28/17                                                                           |  | ConsumerProducts         |  |                                         | 50,000,000 |  |         |   | 50,000,000 |              |  |   | 50,000,000 | 
|United Subcontractors, Inc., First Lien, 4.58% PIK (LIBOR + 4.00%), 6/30/15(e)(q)                                          |  | Building andConstruction |  |                                         | 2,172,719  |  |         |   | 2,063,501  |              |  |   | 1,809,875  | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-9



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2011



|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------------------------------------- | ---------- |  | ------- | - | ----------- | ------------ |  | - | ----------- | 
|Portfolio Company                                                                                 |  | Industry(a)               |  | PrincipalAmount orNumber ofShares/Units |            |  | Cost(b) |   |             | FairValue(c) | 
|Volume Services America, Inc. et al., Term Loan B, First Lien, 10.50% (LIBOR + 8.50%), 9/16/16    |  | ConcessionServices        |  | $                                       | 44,550,000 |  |         | $ | 43,146,593  |              |  | $ | 44,550,000  | 
|WBS Group LLC et al., Second Lien, 10.50% (LIBOR + 9.00%), 6/7/13                                 |  | Software                  |  |                                         | 20,000,000 |  |         |   | 19,898,550  |              |  |   | 18,700,000  | 
|Westward Dough Operating Company, LLC, Term Loan A, First Lien, 4.30% (LIBOR + 4.00%), 3/31/12    |  | Restaurants               |  |                                         | 6,850,000  |  |         |   | 6,846,261   |              |  |   | 3,347,907   | 
|Westward Dough Operating Company, LLC, Term Loan B, First Lien, 7.30% (LIBOR + 7.00%), 3/31/12(j) |  | Restaurants               |  |                                         | 8,334,656  |  |         |   | 8,330,290   |              |  |   | 4,905,633   | 
|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Senior Secured Loans                                                                        |  |                           |  |                                         |            |  |         |   | 664,401,207 |              |  |   | 655,594,813 | 
|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Preferred Stock0.0%                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Alpha Media Group Holdings Inc., Series A-2(k)                                                    |  | Publishing                |  |                                         | 5,000      |  |         |   |            |              |  |   |            | 
|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Preferred Stock                                                                             |  |                           |  |                                         |            |  |         |   |            |              |  |   |            | 
|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Common Stock9.4%(k)                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Alpha Media Group Holdings Inc., Class B                                                          |  | Publishing                |  |                                         | 12,500     |  |         |   |            |              |  |   |            | 
|Arclin Cayman Holdings Ltd.(e)(h)(q)                                                              |  | Chemicals                 |  |                                         | 450,532    |  |         |   | 9,722,203   |              |  |   | 8,299,998   | 
|Bankruptcy Management Solutions, Inc.(g)(q)                                                       |  | Financial Services        |  |                                         | 325,415    |  |         |   | 9,600,072   |              |  |   | 1,772,470   | 
|ECI Holdco, Inc., Class A-1 (Electrical Components)(g)                                            |  | Electronics               |  |                                         | 18,848,836 |  |         |   | 18,848,836  |              |  |   | 42,444,480  | 
|M & M Tradition Holdings Corp.(e)                                                                 |  | Sheet MetalFabrication    |  |                                         | 500,000    |  |         |   | 5,000,000   |              |  |   | 7,250,000   | 
|MGHC Holding Corporation (Mattress Giant)(e)                                                      |  | BeddingRetail            |  |                                         | 109,336    |  |         |   | 1,093,360   |              |  |   | 224,200     | 
|USI Senior Holdings, Inc. (United Subcontractors)(e)(q)                                           |  | Building andConstruction  |  |                                         | 109,750    |  |         |   | 7,388,570   |              |  |   | 5,994,457   | 
|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Common Stock                                                                                |  |                           |  |                                         |            |  |         |   | 51,653,041  |              |  |   | 65,985,605  | 
|                                                                                                  |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Limited Partnership/Limited Liability Company Interests5.6%                                      |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|ARS Investment Holdings, LLC(k)(l)                                                                |  | HVAC/PlumbingServices     |  |                                         | 102,601    |  |         |   |            |              |  |   | 1,110,000   | 
|ASW International LLC(g)(k)(m)                                                                    |  | UtilityVehicles           |  |                                         | 12,800     |  |         |   | 7,428,827   |              |  |   |            | 
|Big Dumpster Coinvestment, LLC(k)                                                                 |  | Waste ManagementEquipment |  |                                         |           |  |         |   | 5,333,333   |              |  |   |            | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-10



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2011



|                                                                    |  |                                    |  |                                         |         |  |         |   |            |              |  |   |            | 
|------------------------------------------------------------------- |  | ---------------------------------- |  | --------------------------------------- | ------- |  | ------- | - | ---------- | ------------ |  | - | ---------- | 
|Portfolio Company                                                   |  | Industry(a)                        |  | PrincipalAmount orNumber ofShares/Units |         |  | Cost(b) |   |            | FairValue(c) | 
|Conney Prime Holdings LLC(e)(k)(n)                                  |  | Safety Products                    |  |                                         | 95,226  |  |         | $ | 952,259    |              |  | $ | 1,785,488  | 
|DynaVox Systems Holdings, LLC(k)(o)                                 |  | AugmentativeCommunication
Products |  |                                         | 272,369 |  |         |   | 758,069    |              |  |   | 991,784    | 
|Marquette Transportation Company Holdings, LLC(k)(p)                |  | Transportation                     |  |                                         | 25,000  |  |         |   | 5,000,000  |              |  |   | 5,286,000  | 
|Marsico Holdings, LLC, acquired 11/12/10(d)(k)                      |  | FinancialServices                  |  |                                         | 91,445  |  |         |   | 1,848,077  |              |  |   | 248,730    | 
|Penton Business Media Holdings LLC(e)(k)                            |  | Information Services               |  |                                         |        |  |         |   | 9,050,000  |              |  |   | 20,321,858 | 
|PG Holdco, LLC (Press Ganey), 15.00% PIK                            |  | Healthcare Services                |  |                                         | 333     |  |         |   | 280,739    |              |  |   | 280,730    | 
|PG Holdco, LLC (Press Ganey), Class A(k)                            |  | Healthcare Services                |  |                                         | 16,667  |  |         |   | 166,667    |              |  |   | 345,833    | 
|Sentry Security Systems Holdings, LLC(k)                            |  | Security Services                  |  |                                         | 147,271 |  |         |   | 147,271    |              |  |   | 4,127      | 
|Sentry Security Systems Holdings, LLC, 8.00% PIK                    |  | Security Services                  |  |                                         | 602,729 |  |         |   | 602,729    |              |  |   | 602,729    | 
|VSS-AHC Holdings LLC (Advanstar)(k)                                 |  | Printing/Publishing                |  |                                         | 352,941 |  |         |   | 4,199,161  |              |  |   | 4,479,337  | 
|WBS Group Holdings, LLC, Class B-1, 16.00% PIK                      |  | Software                           |  |                                         | 8,000   |  |         |   | 8,000,000  |              |  |   | 3,714,116  | 
|                                                                    |  |                                    |  |                                         |         |  |         |   |            |              |  |   |            | 
|Total Limited Partnership/Limited Liability Company Interests       |  |                                    |  |                                         |         |  |         |   | 43,767,132 |              |  |   | 39,170,742 | 
|                                                                    |  |                                    |  |                                         |         |  |         |   |            |              |  |   |            | 
|Equity Warrants/Options0.9%(k)                                     |  |                                    |  |                                         |         |  |         |   |            |              |  |   |            | 
|Arclin Cayman Holdings Ltd., Tranche 1, expire 1/15/14(e)(h)(q)     |  | Chemicals                          |  |                                         | 230,159 |  |         |   | 403,815    |              |  |   | 1,433,846  | 
|Arclin Cayman Holdings Ltd., Tranche 2, expire 1/15/15(e)(h)(q)     |  | Chemicals                          |  |                                         | 230,159 |  |         |   | 323,052    |              |  |   | 1,618,076  | 
|Arclin Cayman Holdings Ltd., Tranche 3, expire 1/15/14(e)(h)(q)     |  | Chemicals                          |  |                                         | 230,159 |  |         |   | 484,578    |              |  |   | 1,167,002  | 
|Arclin Cayman Holdings Ltd., Tranche 4, expire 1/15/15(e)(h)(q)     |  | Chemicals                          |  |                                         | 230,159 |  |         |   | 403,815    |              |  |   | 1,379,772  | 
|Bankruptcy Management Solutions, Inc., expire 10/1/17(g)(q)         |  | FinancialServices                  |  |                                         | 23,046  |  |         |   | 365,584    |              |  |   | 4,190      | 
|Facet Investment, Inc., expire 1/18/21                              |  | MedicalDevices                     |  |                                         | 1,978   |  |         |   | 250,000    |              |  |   | 88,213     | 
|Marsico Superholdco SPV, LLC, expire 12/14/19, acquired 11/28/07(d) |  | FinancialServices                  |  |                                         | 455     |  |         |   | 444,450    |              |  |   |           | 
|MGHC Holding Corporation, expire 1/31/12(e)                         |  | BeddingRetail                     |  |                                         | 75,928  |  |         |   | 136,297    |              |  |   |           | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-11



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2011



|                                                                             |  |                   |  |                                         |         |  |         |   |               |              |  |   |               | 
|---------------------------------------------------------------------------- |  | ----------------- |  | --------------------------------------- | ------- |  | ------- | - | ------------- | ------------ |  | - | ------------- | 
|Portfolio Company                                                            |  | Industry(a)       |  | PrincipalAmount orNumber ofShares/Units |         |  | Cost(b) |   |               | FairValue(c) | 
|Progress Financial Corporation, expire 7/26/18                               |  | FinancialServices |  |                                         | 429,596 |  |         | $ | 502,627       |              |  | $ | 596,169       | 
|Twin River Worldwide Holdings, Inc., Contingent Value Rights, expire 11/5/17 |  | Gaming            |  |                                         | 1,000   |  |         |   | 5,000         |              |  |   | 4,000         | 
|                                                                             |  |                   |  |                                         |         |  |         |   |               |              |  |   |               | 
|Total Equity Warrants/Options                                                |  |                   |  |                                         |         |  |         |   | 3,319,218     |              |  |   | 6,291,268     | 
|                                                                             |  |                   |  |                                         |         |  |         |   |               |              |  |   |               | 
|TOTAL INVESTMENTS149.6%                                                     |  |                   |  |                                         |         |  |         | $ | 1,097,870,669 |              |  |   | 1,048,952,442 | 
|                                                                             |  |                   |  |                                         |         |  |         |   |               |              |  |   |               | 
|OTHER ASSETS & LIABILITIES (NET)(49.6)%                                     |  |                   |  |                                         |         |  |         |   |               |              |  |   | (347,943,593) | 
|                                                                             |  |                   |  |                                         |         |  |         |   |               |              |  |   |               | 
|NET ASSETS100.0%                                                            |  |                   |  |                                         |         |  |         |   |               |              |  | $ | 701,008,849   | 
|                                                                             |  |                   |  |                                         |         |  |         |   |               |              |  |   |               | 



| | (a) | Unaudited
| | --- | ---------

| | (b) | Represents amortized cost for fixed income securities and cost for preferred and common stock, limited partnership/limited liability company interests and equity
warrants/options.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Fair value is determined by or under the direction of the Companys Board of Directors (see Note 2).
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold in transactions that are exempt from registration,
normally to qualified institutional buyers. In the aggregate, these securities represent 12.8% of the Companys net assets at December 31, 2011.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Transaction and other information for non-controlled, affiliated investments under the Investment Company Act of 1940, whereby the Company owns 5% or more
(but not more than 25%) of the portfolio companys outstanding voting securities.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | Approximately 68% of the senior secured loans to the Companys portfolio companies bear interest at a floating rate that may be determined by reference to the
London Interbank Offered Rate (LIBOR) or other base rate (commonly the Federal Funds Rate or the Prime Rate), at the borrowers option. In addition, approximately 58% of such senior secured loans have floors of 1.00% to 3.25%. The borrower
under a senior secured loan generally has the option to select from interest reset periods of one, two, three or six months and may alter that selection at the end of any reset period. The stated interest rate represents the weighted average
interest rate at December 31, 2011 of all contracts within the specified loan facility.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Transaction and other information for controlled investments under the Investment Company Act of 1940, whereby the Company owns more than 25% of the
portfolio companys outstanding voting securities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Non-U.S. company or principal place of business outside the U.S.
| | --- | ----------------------------------------------------------------

| | (i) | Principal amount is denominated in Canadian dollars.
| | --- | ----------------------------------------------------

| | (j) | Non-accrual status (in default) at December 31, 2011 and therefore non-income producing. At December 31, 2011, the aggregate fair value and amortized cost of
the Companys debt investments on non-accrual status represents 0.5% and 0.8% of total debt investments at fair value and amortized cost, respectively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
accompanying notes are an integral part of these consolidated financial statements.



F-12



---

##### Table of Contents



|                                       |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|-------------------------------------- |  | ----------------------------- | ---------- |  | --------------------- | - | ---------- | ----------------------- |  | - | ------------------------ | - |  | ----------------------------- | ---------- | - | ------------------------ | - | ---------- | ----------------- |  | - | ----------------- | - |  | - | --------- |  |  | - | --------- | 
|Non-controlled,
Affiliated Investments |  | Fair Value atDecember 31,2010 |            |  | GrossAdditions(Cost)* |   |            | GrossReductions(Cost)** |  |   | NetUnrealizedGain (Loss) |   |  | Fair Value atDecember 31,2011 |            |   | NetRealizedGain(Loss)*** |   |            | InterestIncome*** |  |   | DividendIncome*** |  
|Arclin Cayman Holdings Ltd.:           |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Common Stock                           |  | $                             | 8,370,000  |  |                       | $ |           |                         |  | $ | (8,507,789               | ) |  | $                             | 137,789    |   |                          | $ |           |                  |  | $ |                  |   |  | $ |          |  |  | $ |          | 
|Warrants                               |  |                               | 5,453,023  |  |                       |   |           |                         |  |   | (4,419,495               | ) |  |                               | (1,033,528 | ) |                          |   |           |                  |  |   |                  |   |  |   |          |  |  |   |          | 
|Arclin US Holdings Inc.                |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Senior Secured Loan                    |  |                               | 3,459,541  |  |                       |   | 44,416     |                         |  |   | (3,547,259               | ) |  |                               | 43,302     |   |                          |   |           |                  |  |   | 1,288             |   |  |   | 113,406   |  |  |   |          | 
|Conney Safety Products LLC             |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Subordinated Debt                      |  |                               | 29,665,252 |  |                       |   | 293,386    |                         |  |   | (4,829,858               | ) |  |                               | 453,954    |   |                          |   | 25,582,734 |                   |  |   | 170,143           |   |  |   | 4,954,546 |  |  |   |          | 
|Conney Prime Holdings LLC              |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Limited Liability Co. Interest         |  |                               | 1,062,247  |  |                       |   | 63,359     |                         |  |   |                         |   |  |                               | 659,882    |   |                          |   | 1,785,488  |                   |  |   |                  |   |  |   |          |  |  |   |          | 
|M&M Tradition Holdings Corp.:          |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Preferred Stock                        |  |                               | 5,117,040  |  |                       |   |           |                         |  |   | (4,968,000               | ) |  |                               | (149,040   | ) |                          |   |           |                 |  |   |                  |   |  |   |          |  |  |   | 1,128,207 | 
|Common Stock                           |  |                               | 5,000,000  |  |                       |   |           |                         |  |   |                         |   |  |                               | 2,250,000  |   |                          |   | 7,250,000  |                   |  |   |                  |   |  |   |          |  |  |   |          | 
|Mattress Giant Corporation             |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Subordinated Debt                      |  |                               | 1,229,657  |  |                       |   | 102,434    |                         |  |   | (4,014,328               | ) |  |                               | 2,682,237  |   |                          |   |           |                 |  |   | (2,784,672        | ) |  |   | 94,327    |  |  |   |          | 
|MGHC Holding Corporation:              |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Common Stock                           |  |                               |           |  |                       |   |           |                         |  |   | (2,285,815               | ) |  |                               | 2,285,815  |   |                          |   |           |                 |  |   | (2,285,815        | ) |  |   |          |  |  |   |          | 
|Common Stock                           |  |                               |           |  |                       |   | 1,093,360  |                         |  |   |                         |   |  |                               | (869,160   | ) |                          |   | 224,200    |                   |  |   |                  |   |  |   |          |  |  |   |          | 
|Warrants                               |  |                               |           |  |                       |   | 136,297    |                         |  |   |                         |   |  |                               | (136,297   | ) |                          |   |           |                   |  |   |                  |   |  |   |          |  |  |   |          | 
|Penton Business Media Holdings LLC     |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Limited Liability Co. Interest         |  |                               | 9,050,000  |  |                       |   |           |                         |  |   |                         |   |  |                               | 11,271,858 |   |                          |   | 20,321,858 |                   |  |   |                  |   |  |   | 110,624   |  |  |   |          | 
|Penton Media, Inc. et al.              |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Senior Secured Loan                    |  |                               |           |  |                       |   | 9,126,321  |                         |  |   | (23,420                  | ) |  |                               | (1,035,714 | ) |                          |   | 8,067,187  |                   |  |   | 12,709            |   |  |   | 394,918   |  |  |   |          | 
|United Subcontractors, Inc.            |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Senior Secured Loan                    |  |                               | 1,589,952  |  |                       |   | 282,513    |                         |  |   |                         |   |  |                               | (62,590    | ) |                          |   | 1,809,875  |                   |  |   |                  |   |  |   | 67,861    |  |  |   |          | 
|USI Senior Holdings, Inc.              |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |  |  |   |           | 
|Common Stock                           |  |                               | 7,379,489  |  |                       |   | 79,504     |                         |  |   |                         |   |  |                               | (1,464,536 | ) |                          |   | 5,994,457  |                   |  |   |                  |   |  |   |          |  |  |   |          | 
|                                       |  |                               |            | 
|Totals                                 |  | $                             | 77,376,201 |  |                       | $ | 11,221,590 |                         |  | $ | (32,595,964              | ) |  | $                             | 15,033,972 |   |                          | $ | 71,035,799 |                   |  | $ | (4,886,347        | ) |  | $ | 5,735,682 |  |  | $ | 1,128,207 | 
|                                       |  |                               |            | 



| | * | Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind interest or dividends, the amortization of
unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one
or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *** | For the year ended December 31, 2011.
| | --- | -------------------------------------

| |  | Investment moved out of the non-controlled, affiliated category into the non-controlled, non-affiliated category during the period.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

| |  | Investment no longer held at December 31, 2011.
| | -- | -----------------------------------------------

The aggregate fair value of non-controlled, affiliated investments at December 31, 2011 represents 10.1% of the Companys net assets.

| | (k) | Non-income producing equity securities at December 31, 2011.
| | --- | ------------------------------------------------------------

| | (l) | The Company is the sole stockholder of BKC ARS Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of American
Residential Services L.L.C. and thus a non-controlled, non-affiliated investment.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (m) | The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of more than 25% of the voting securities of American
SportWorks LLC and thus a controlled investment.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (n) | The Company is the sole stockholder of BKC CSP Blocker, Inc., a consolidated subsidiary, which is the beneficiary of more than 5% (but less than 25%) of the voting
securities of Conney Prime Holdings, LLC and thus a non-controlled, affiliated investment.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part of these consolidated financial statements.



F-13



---

##### Table of Contents



|                                          |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|----------------------------------------- |  | ----------------------------- | ---------- |  | --------------------- | - | ---------- | ----------------------- |  | - | ------------------------ | - |  | ----------------------------- | ---------- | - | --------------------------- | - | ---------- | ----------------------- |  | - | ---------- | - |  | - | --------- | 
|Controlled Investments                    |  | Fair Value atDecember 31,2010 |            |  | GrossAdditions(Cost)* |   |            | GrossReductions(Cost)** |  |   | NetUnrealizedGain (Loss) |   |  | Fair Value atDecember 31,2011 |            |   | Net
Realized
Gain
(Loss)*** |   |            | Interest/OtherIncome*** | 
|Al Solutions, Inc.                        |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Senior Secured Loan                       |  | $                             | 115,000    |  |                       | $ |           |                         |  | $ | (115,000                 | ) |  | $                             |           |   |                             | $ |           |                        |  | $ |           |   |  | $ | 6,738     | 
|American SportWorks LLC                   |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Senior Secured Loan                       |  |                               | 7,200,000  |  |                       |   |           |                         |  |   |                         |   |  |                               | (3,649,100 | ) |                             |   | 3,550,900  |                         |  |   |           |   |  |   | 1,104,445 | 
|ASW Investment Holdings, LLC              |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Limited Liability Co. Interest            |  |                               |           |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                             |   |           |                         |  |   |           |   |  |   |          | 
|Bankruptcy Management Solutions, Inc.:    |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Senior Secured Loan, First Lien, A        |  |                               | 1,427,700  |  |                       |   | 157,414    |                         |  |   |                         |   |  |                               | 362,886    |   |                             |   | 1,948,000  |                         |  |   |           |   |  |   | 309,498   | 
|Senior Secured Loan, First Lien, B        |  |                               |           |  |                       |   | 10,524,207 |                         |  |   | (29,363                  | ) |  |                               | 5,017,653  |   |                             |   | 15,512,497 |                         |  |   | 39,727     |   |  |   | 1,685,875 | 
|Senior Secured Loan, Second Lien          |  |                               | 21,342,029 |  |                       |   | 3,762,586  |                         |  |   |                         |   |  |                               | (3,111,913 | ) |                             |   | 21,992,702 |                         |  |   |           |   |  |   | 4,405,452 | 
|Common Stock                              |  |                               | 4,516,560  |  |                       |   | 60,832     |                         |  |   |                         |   |  |                               | (2,804,922 | ) |                             |   | 1,772,470  |                         |  |   |           |   |  |   |          | 
|Warrants                                  |  |                               | 125,880    |  |                       |   |           |                         |  |   |                         |   |  |                               | (121,690   | ) |                             |   | 4,190      |                         |  |   |           |   |  |   |          | 
|ECI Holdco, Inc.                          |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Common Stock                              |  |                               | 51,480,000 |  |                       |   |           |                         |  |   |                         |   |  |                               | (9,035,520 | ) |                             |   | 42,444,480 |                         |  |   |           |   |  |   |          | 
|Electrical Components International, Inc. |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Senior Secured Loan                       |  |                               | 1,641,718  |  |                       |   |           |                         |  |   | (1,641,718               | ) |  |                               |           |   |                             |   |           |                        |  |   |           |   |  |   | 14,730    | 
|Fitness Together Franchise Corporation    |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Senior Secured Loan                       |  |                               | 6,119,804  |  |                       |   | 628,104    |                         |  |   | (518,868                 | ) |  |                               | 464,220    |   |                             |   |           |                       |  |   |           |   |  |   | 841,951   | 
|Fitness Together Holdings, Inc.:          |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                             |   |            |                         |  |   |            |   |  |   |           | 
|Preferred Stock Series A                  |  |                               |           |  |                       |   |           |                         |  |   | (173,326                 | ) |  |                               | 173,326    |   |                             |   |           |                        |  |   | (156,062   | ) |  |   |          | 
|Preferred Stock Series A-1                |  |                               |           |  |                       |   |           |                         |  |   | (49,056                  | ) |  |                               | 49,056     |   |                             |   |           |                        |  |   | (44,539    | ) |  |   |          | 
|Preferred Stock Series B Convertible      |  |                               | 1,478,000  |  |                       |   |           |                         |  |   | (9,100,000               | ) |  |                               | 7,622,000  |   |                             |   |           |                        |  |   | (7,637,759 | ) |  |   |          | 
|Common Stock                              |  |                               |           |  |                       |   |           |                         |  |   | (118,500                 | ) |  |                               | 118,500    |   |                             |   |           |                        |  |   | (102,521   | ) |  |   |          | 
|                                          |  |                               |            | 
|Totals                                    |  | $                             | 95,446,691 |  |                       | $ | 15,133,143 |                         |  | $ | (11,745,831              | ) |  | $                             | (4,915,504 | ) |                             | $ | 87,225,239 |                         |  | $ | (7,901,154 | ) |  | $ | 8,368,689 | 
|                                          |  |                               |            | 



| | * | Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind interest or dividends, the amortization of
unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one
or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *** | For the year ended December 31, 2011. There was no dividend income from these securities during the period.
| | --- | -----------------------------------------------------------------------------------------------------------

| |  | Investment no longer held at December 31, 2011.
| | - | -----------------------------------------------

| |  | Investment moved out of controlled category at December 31, 2011.
| | -- | -----------------------------------------------------------------

The aggregate fair value of controlled investments at December 31, 2011 represents 12.4% of the Companys net assets.

| | (o) | The Company is the sole stockholder of BKC DVSH Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of DynaVox
Systems Holdings LLC and thus a non-controlled, non-affiliated investment.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (p) | The Company is the sole stockholder of BKC MTCH Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of Marquette
Transportation Company Holdings, LLC and thus a non-controlled, non-affiliated investment.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (q) | BDCs are required to invest at least 70% of their total assets primarily in securities of private or thinly traded U.S. public companies, cash, cash equivalents, U.S.
Government securities and other high quality debt investments that mature in one year or less. The securities referenced represent either fully or partially non-qualified assets for purposes of this requirement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PIK Payment-in-kind



The accompanying notes are an integral part of these consolidated financial statements.



F-14



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments

December 31, 2010



|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|--------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------------------------------------- | ---------- |  | ------- | - | ----------- | ------------ |  | - | ----------- | 
|Portfolio Company                                                                             |  | Industry(a)               |  | PrincipalAmount orNumber ofShares/Units |            |  | Cost(b) |   |             | FairValue(c) | 
|Senior Secured Notes12.6%                                                                    |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|AGY Holding Corp., Second Lien, 11.00%, 11/15/14                                              |  | Glass Yarns/Fibers        |  | $                                       | 23,500,000 |  |         | $ | 23,191,282  |              |  | $ | 21,385,000  | 
|American Residential Services L.L.C. et al., Second Lien, 12.00%, 4/15/15, acquired 4/9/10(d) |  | HVAC/Plumbing
Services    |  |                                         | 40,000,000 |  |         |   | 39,836,651  |              |  |   | 40,400,000  | 
|TriMark USA, Inc., Second Lien, 11.50% (LIBOR + 1.75% cash, 2.00% PIK), 11/30/13              |  | Food ServiceEquipment     |  |                                         | 32,136,228 |  |         |   | 32,136,228  |              |  |   | 26,480,252  | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Senior Secured Notes                                                                    |  |                           |  |                                         |            |  |         |   | 95,164,161  |              |  |   | 88,265,252  | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Unsecured Debt1.0%                                                                           |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Big Dumpster Acquisition, Inc., 13.50% PIK, 7/5/15                                            |  | WasteManagementEquipment  |  |                                         | 49,067,970 |  |         |   | 44,935,199  |              |  |   | 2,046,844   | 
|Maple Hill Acquisition LLC, 13.50%, 10/1/15                                                   |  | RigidPackaging            |  |                                         | 5,000,000  |  |         |   | 4,851,541   |              |  |   | 4,851,541   | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Unsecured Debt                                                                          |  |                           |  |                                         |            |  |         |   | 49,786,740  |              |  |   | 6,898,385   | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Subordinated Debt31.7%                                                                       |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|A & A Manufacturing Co., Inc., 14.00%, 5/16/16                                                |  | ProtectiveEnclosures      |  |                                         | 27,403,430 |  |         |   | 27,088,627  |              |  |   | 27,088,627  | 
|Aspen Marketing Holdings, Inc., 13.00%, 8/12/16                                               |  | MarketingServices         |  |                                         | 50,000,000 |  |         |   | 48,830,976  |              |  |   | 48,830,976  | 
|Conney Safety Products, LLC, 16.00%, 10/1/14(e)                                               |  | SafetyProducts            |  |                                         | 30,582,734 |  |         |   | 29,383,496  |              |  |   | 29,665,252  | 
|Mattress Giant Corporation, 11.00% PIK, 12/31/12(e)                                           |  | BeddingRetail            |  |                                         | 6,404,461  |  |         |   | 3,911,894   |              |  |   | 1,229,657   | 
|MediMedia USA, Inc., 11.38%, 11/15/14, acquired multiple dates(d)                             |  | InformationServices       |  |                                         | 8,000,000  |  |         |   | 8,048,532   |              |  |   | 7,528,000   | 
|MedQuist Inc. et al., 13.00%, 10/15/16                                                        |  | MedicalTranscription      |  |                                         | 43,000,000 |  |         |   | 41,756,471  |              |  |   | 41,756,471  | 
|The Pay-O-Matic Corp., 14.00% (12.00% cash, 2.00% PIK), 1/15/15                               |  | FinancialServices         |  |                                         | 15,366,867 |  |         |   | 15,237,076  |              |  |   | 15,390,745  | 
|PGA Holdings, Inc., 12.50%, 3/12/16                                                           |  | HealthcareServices        |  |                                         | 5,000,000  |  |         |   | 4,935,425   |              |  |   | 5,000,000   | 
|Sarnova HC, LLC et al., 14.00% (12.00% cash, 2.00% PIK), 4/6/16                               |  | HealthcareProducts        |  |                                         | 25,375,474 |  |         |   | 24,729,156  |              |  |   | 24,729,156  | 
|Sentry Security Systems, LLC, 16.00% (14.00% cash, 2.00% PIK), 8/7/12                         |  | SecurityServices          |  |                                         | 11,056,053 |  |         |   | 10,997,828  |              |  |   | 10,997,828  | 
|U.S. Security Holdings, Inc., 13.00% (11.00% cash, 2.00% PIK), 5/8/14, acquired 5/10/06(d)    |  | SecurityServices          |  |                                         | 7,000,000  |  |         |   | 7,000,000   |              |  |   | 7,000,000   | 
|Wastequip, Inc., 13.00% (10.00% cash, 3.00% PIK), 2/5/15                                      |  | WasteManagement
Equipment |  |                                         | 8,510,274  |  |         |   | 8,163,533   |              |  |   | 2,153,099   | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Subordinated Debt                                                                       |  |                           |  |                                         |            |  |         |   | 230,083,014 |              |  |   | 221,369,811 | 
|                                                                                              |  |                           |  |                                         |            |  |         |   |             |              |  |   |             | 



The accompanying notes are an
integral part of these consolidated financial statements.



F-15



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2010



|                                                                                                      |  |                       |  |                                         |               |  |         |   |            |              |  |   |            | 
|----------------------------------------------------------------------------------------------------- |  | --------------------- |  | --------------------------------------- | ------------- |  | ------- | - | ---------- | ------------ |  | - | ---------- | 
|Portfolio Company                                                                                     |  | Industry(a)           |  | PrincipalAmount orNumber ofShares/Units |               |  | Cost(b) |   |            | FairValue(c) | 
|Senior Secured Loans63.7%(f)                                                                         |  |                       |  |                                         |               |  |         |   |            |              |  |   |            | 
|Advantage Sales & Marketing Inc., Second Lien, 9.25% (LIBOR + 7.75%), 6/17/18                         |  | MarketingServices     |  | $                                       | 10,000,000    |  |         | $ | 9,850,494  |              |  | $ | 10,000,000 | 
|Alpha Media Group Inc., First Lien, 12.00% PIK, 7/15/13                                               |  | Publishing            |  |                                         | 4,468,967     |  |         |   | 3,325,429  |              |  |   | 1,625,395  | 
|Al Solutions, Inc., First Lien, 10.00%, 6/28/13(g)                                                    |  | Metals                |  |                                         | 115,000       |  |         |   | 115,000    |              |  |   | 115,000    | 
|American SportWorks LLC, Second Lien, 13.00%, 6/16/15(g)                                              |  | UtilityVehicles       |  |                                         | 8,000,000     |  |         |   | 8,000,000  |              |  |   | 7,200,000  | 
|AmQuip Crane Rental LLC, Second Lien, 6.04% (LIBOR + 5.75%), 6/29/14                                  |  | ConstructionEquipment |  |                                         | 24,017,329    |  |         |   | 22,622,302 |              |  |   | 20,871,059 | 
|Arclin US Holdings Inc., Second Lien, 7.75% (LIBOR + 6.00%), 1/15/15(e)(h)                            |  | Chemicals             |  |                                         | 3,559,198     |  |         |   | 2,831,246  |              |  |   | 3,459,541  | 
|Ascend Learning, LLC, Second Lien, 12.25% (Base Rate + 9.00%), 12/6/17                                |  | Education             |  |                                         | 20,000,000    |  |         |   | 19,402,126 |              |  |   | 19,402,126 | 
|Ashton Woods USA L.L.C., Second Lien, 11.75%, 7/6/15                                                  |  | Homebuilding          |  |                                         | 37,500,000    |  |         |   | 37,161,761 |              |  |   | 37,161,761 | 
|Bankruptcy Management Solutions, Inc., Term Loan A, First Lien, 7.50% (LIBOR + 6.00%), 8/20/14(g)     |  | FinancialServices     |  |                                         | 2,000,000     |  |         |   | 1,427,700  |              |  |   | 1,427,700  | 
|Bankruptcy Management Solutions, Inc., Second Lien, 8.26% (LIBOR + 1.00% cash, 7.00% PIK), 8/20/15(g) |  | FinancialServices     |  |                                         | 27,221,976    |  |         |   | 18,515,769 |              |  |   | 21,342,029 | 
|The Bargain! Shop Holdings Inc., Term Loan A, First Lien, 16.00%, 6/29/12(h)                          |  | DiscountStores        |  |                                         | 12,381,187(i) |  |         |   | 12,084,951 |              |  |   | 12,460,310 | 
|The Bargain! Shop Holdings Inc., Term Loan B, First Lien, 16.00%, 7/1/12(h)                           |  | DiscountStores        |  |                                         | 17,018,813(i) |  |         |   | 15,971,842 |              |  |   | 17,127,573 | 
|Berlin Packaging L.L.C., Second Lien, 6.78% (LIBOR + 6.50%), 8/17/15                                  |  | RigidPackaging        |  |                                         | 24,000,000    |  |         |   | 23,582,963 |              |  |   | 23,400,000 | 
|Electrical Components International, Inc., Tranche B, First Lien, 9.50% (LIBOR + 6.50%), 5/14/15(g)   |  | Electronics           |  |                                         | 1,641,718     |  |         |   | 1,641,718  |              |  |   | 1,641,718  | 
|Event Rentals, Inc., Acquisition Loan, First Lien, 7.75% (LIBOR + 4.25% cash, 2.00% PIK), 12/19/13    |  | PartyRentals          |  |                                         | 3,123,427     |  |         |   | 3,123,427  |              |  |   | 2,529,976  | 
|Facet Technologies, LLC, Second Lien, 17.50% PIK, 7/26/12                                             |  | MedicalDevices        |  |                                         | 40,828,460    |  |         |   | 36,865,344 |              |  |   |           | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-16



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2010



|                                                                                                                           |  |                            |  |                                         |            |  |         |   |            |              |  |   |            | 
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | --------------------------------------- | ---------- |  | ------- | - | ---------- | ------------ |  | - | ---------- | 
|Portfolio Company                                                                                                          |  | Industry(a)                |  | PrincipalAmount orNumber ofShares/Units |            |  | Cost(b) |   |            | FairValue(c) | 
|Facet Technologies, LLC, Guaranty(j)                                                                                       |  | MedicalDevices             |  | $                                       |           |  |         | $ |           |              |  | $ |           | 
|Fitness Together Franchise Corporation, First Lien, 11.50% (9.50% cash, 2.00% PIK), 11/10/13(g)(k)                         |  | PersonalFitness            |  |                                         | 7,166,047  |  |         |   | 7,166,047  |              |  |   | 6,119,804  | 
|Heartland Automotive Services II, Inc. et al., Term Loan A, First Lien, 7.25% (Base Rate + 4.00%), 1/30/14                 |  | AutomobileRepair           |  |                                         | 3,263,070  |  |         |   | 3,262,020  |              |  | $ | 3,073,812  | 
|Heartland Automotive Services II, Inc. et al., Term Loan B, First Lien, 9.25% (Base Rate + 4.00% cash, 2.00% PIK),
1/30/14 |  | AutomobileRepair           |  |                                         | 2,305,090  |  |         |   | 2,304,957  |              |  |   | 2,076,887  | 
|Henniges Automotive Holdings, Inc., First Lien, 12.00% (LIBOR + 10.00%), 11/30/16                                          |  | Automotive                 |  |                                         | 40,000,000 |  |         |   | 38,817,518 |              |  |   | 38,817,518 | 
|Hoffmaster Group, Inc., First Lien, 7.00% (LIBOR + 5.00%), 6/2/16                                                          |  | ConsumerProducts           |  |                                         | 4,791,367  |  |         |   | 4,617,622  |              |  |   | 4,617,622  | 
|Hoffmaster Group, Inc., Second Lien, 13.50%, 6/2/17                                                                        |  | ConsumerProducts           |  |                                         | 33,000,000 |  |         |   | 32,243,723 |              |  |   | 32,243,723 | 
|InterMedia Outdoors, Inc., Second Lien, 7.05% (LIBOR + 6.75%), 1/31/14                                                     |  | Printing/Publishing        |  |                                         | 10,000,000 |  |         |   | 10,000,000 |              |  |   | 8,630,000  | 
|MCCI Group Holdings, LLC, Second Lien, 7.51% (LIBOR + 7.25%), 6/21/13                                                      |  | Healthcare Services        |  |                                         | 29,000,000 |  |         |   | 28,972,454 |              |  |   | 29,000,000 | 
|Navilyst Medical, Inc., Second Lien, 13.00%, 8/14/15                                                                       |  | Healthcare Services        |  |                                         | 15,000,000 |  |         |   | 14,838,003 |              |  |   | 14,865,000 | 
|Physiotherapy Associates, Inc. et al., Second Lien, 12.00% (Base Rate + 8.75%), 12/31/13                                   |  | RehabilitationCenters      |  |                                         | 17,000,000 |  |         |   | 17,000,000 |              |  |   | 17,000,000 | 
|Total Safety U.S., Inc., Second Lien, 6.79% (LIBOR + 6.50%), 12/8/13                                                       |  | Industrial SafetyEquipment |  |                                         | 9,000,000  |  |         |   | 9,000,000  |              |  |   | 8,829,000  | 
|United Subcontractors, Inc., First Lien, 1.80% (LIBOR + 1.50%), 6/30/15(e)                                                 |  | Building andConstruction   |  |                                         | 1,842,354  |  |         |   | 1,780,989  |              |  |   | 1,589,952  | 
|Volume Services America, Inc. et al., Term Loan B, First Lien, 10.50% (LIBOR + 8.50%), 9/16/16                             |  | ConcessionServices         |  |                                         | 44,887,500 |  |         |   | 43,173,389 |              |  |   | 43,173,389 | 
|Water Pik, Inc., Second Lien, 5.76% (LIBOR + 5.50%), 6/15/14                                                               |  | ConsumerProducts           |  |                                         | 30,000,000 |  |         |   | 30,000,000 |              |  |   | 30,000,000 | 
|WBS Group LLC et al., Second Lien, 10.50% (LIBOR + 9.00%), 6/7/13                                                          |  | Software                   |  |                                         | 20,000,000 |  |         |   | 19,827,750 |              |  |   | 17,827,750 | 
|Westward Dough Operating Company, LLC, Term Loan A, First Lien, 4.31% (LIBOR + 4.00%), 3/30/11                             |  | Restaurants                |  |                                         | 6,850,000  |  |         |   | 6,843,398  |              |  |   | 2,822,448  | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-17



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2010



|                                                                                                  |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|------------------------------------------------------------------------------------------------- |  | --------------------------------- |  | --------------------------------------- | ---------- |  | ------- | - | ----------- | ------------ |  | - | ----------- | 
|Portfolio Company                                                                                 |  | Industry(a)                       |  | PrincipalAmount orNumber ofShares/Units |            |  | Cost(b) |   |             | FairValue(c) | 
|Westward Dough Operating Company, LLC, Term Loan B, First Lien, 7.31% (LIBOR + 7.00%), 3/30/11(k) |  | Restaurants                       |  | $                                       | 8,334,656  |  |         | $ | 8,326,946   |              |  | $ | 4,372,183   | 
|                                                                                                  |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Senior Secured Loans                                                                        |  |                                   |  |                                         |            |  |         |   | 494,696,888 |              |  |   | 444,823,276 | 
|                                                                                                  |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|Preferred Stock0.9%                                                                              |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|Alpha Media Group Holdings Inc., Series A-2(l)                                                    |  | Publishing                        |  |                                         | 5,000      |  |         |   |            |              |  |   |            | 
|Facet Holdings Corp., Class A, 12.00% PIK(k)                                                      |  | MedicalDevices                    |  |                                         | 900        |  |         |   | 900,000     |              |  |   |            | 
|Fitness Together Holdings, Inc., Series A(g)(l)                                                   |  | PersonalFitness                   |  |                                         | 187,500    |  |         |   | 173,326     |              |  |   |            | 
|Fitness Together Holdings, Inc., Series A-1(g)(l)                                                 |  | PersonalFitness                   |  |                                         | 49,056     |  |         |   | 49,056      |              |  |   |            | 
|Fitness Together Holdings, Inc., Series B Convertible(g)(l)                                       |  | PersonalFitness                   |  |                                         | 15,881,325 |  |         |   | 9,100,000   |              |  |   | 1,478,000   | 
|M & M Tradition Holdings Corp., Series A Convertible, 16.00% PIK(e)                               |  | Sheet MetalFabrication            |  |                                         | 4,968      |  |         |   | 4,968,000   |              |  |   | 5,117,040   | 
|                                                                                                  |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|Total Preferred Stock                                                                             |  |                                   |  |                                         |            |  |         |   | 15,190,382  |              |  |   | 6,595,040   | 
|                                                                                                  |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|Common Stock11.9%(l)                                                                             |  |                                   |  |                                         |            |  |         |   |             |              |  |   |             | 
|Alpha Media Group Holdings Inc., Class B                                                          |  | Publishing                        |  |                                         | 12,500     |  |         |   |            |              |  |   |            | 
|Arclin Cayman Holdings Ltd.(e)(h)                                                                 |  | Chemicals                         |  |                                         | 572,553    |  |         |   | 11,399,992  |              |  |   | 8,370,000   | 
|Bankruptcy Management Solutions, Inc.(g)                                                          |  | FinancialServices                 |  |                                         | 259,229    |  |         |   | 9,539,238   |              |  |   | 4,516,560   | 
|BKC ARS Blocker, Inc. (American Residential)(m)                                                   |  | HVAC/Plumbing Services            |  |                                         | 1,000      |  |         |   | 20,798      |              |  |   | 1,118,000   | 
|BKC ASW Blocker, Inc. (American SportWorks)(g)(n)                                                 |  | UtilityVehicles                   |  |                                         | 1,000      |  |         |   | 7,428,827   |              |  |   |            | 
|BKC CSP Blocker, Inc. (Conney Safety)(e)(o)                                                       |  | Safety Products                   |  |                                         | 100        |  |         |   | 888,910     |              |  |   | 1,062,247   | 
|BKC DVSH Blocker, Inc. (DynaVox Systems)(p)                                                       |  | AugmentativeCommunicationProducts |  |                                         | 100        |  |         |   | 758,068     |              |  |   | 723,813     | 
|BKC MTCH Blocker, Inc. (Marquette Transportation)(q)                                              |  | Transportation                    |  |                                         | 1,000      |  |         |   | 5,000,000   |              |  |   | 3,511,963   | 
|ECI Holdco, Inc., Class A-1 (Electrical Components)(g)                                            |  | Electronics                       |  |                                         | 18,848,836 |  |         |   | 18,848,836  |              |  |   | 51,480,000  | 
|Facet Holdings Corp                                                                               |  | MedicalDevices                    |  |                                         | 10,000     |  |         |   | 100,000     |              |  |   |            | 
|Fitness Together Holdings, Inc.(g)                                                                |  | Personal Fitness                  |  |                                         | 173,547    |  |         |   | 118,500     |              |  |   |            | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-18



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2010



|                                                                      |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|--------------------------------------------------------------------- |  | ------------------------- |  | --------------------------------------- | --------- |  | ------- | - | ---------- | ------------ |  | - | ---------- | 
|Portfolio Company                                                     |  | Industry(a)               |  | PrincipalAmount orNumber ofShares/Units |           |  | Cost(b) |   |            | FairValue(c) | 
|M & M Tradition Holdings Corp.(e)                                     |  | Sheet MetalFabrication    |  |                                         | 500,000   |  |         | $ | 5,000,000  |              |  | $ | 5,000,000  | 
|MGHC Holding Corporation (Mattress Giant)(e)                          |  | BeddingRetail            |  |                                         | 2,285,815 |  |         |   | 2,285,815  |              |  |   |           | 
|USI Senior Holdings, Inc. (United Subcontractors)(e)                  |  | Building andConstruction  |  |                                         | 97,519    |  |         |   | 7,309,066  |              |  |   | 7,379,489  | 
|                                                                      |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|Total Common Stock                                                    |  |                           |  |                                         |           |  |         |   | 68,698,050 |              |  |   | 83,162,072 | 
|                                                                      |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|Limited Partnership/Limited Liability Company Interests3.3%          |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|Big Dumpster Coinvestment, LLC(l)                                     |  | Waste ManagementEquipment |  |                                         |          |  |         |   | 5,333,333  |              |  |   |           | 
|Marsico Holdings, LLC, acquired 11/12/10(d)(l)                        |  | FinancialServices         |  |                                         | 91,445    |  |         |   | 1,848,077  |              |  |   | 424,305    | 
|Penton Business Media Holdings LLC(e)(l)                              |  | InformationServices       |  |                                         |          |  |         |   | 9,050,000  |              |  |   | 9,050,000  | 
|PG Holdco, LLC (Press Ganey), 15.00% PIK                              |  | Healthcare Services       |  |                                         | 333       |  |         |   | 280,739    |              |  |   | 280,739    | 
|PG Holdco, LLC (Press Ganey), Class A(l)                              |  | Healthcare Services       |  |                                         | 16,667    |  |         |   | 166,667    |              |  |   | 300,000    | 
|Sentry Security Systems Holdings, LLC(l)                              |  | Security Services         |  |                                         | 147,271   |  |         |   | 147,271    |              |  |   | 3,830      | 
|Sentry Security Systems Holdings, LLC, 8.00% PIK                      |  | Security Services         |  |                                         | 602,729   |  |         |   | 602,729    |              |  |   | 602,729    | 
|VSS-AHC Holdings LLC (Advanstar)(l)                                   |  | Printing/Publishing       |  |                                         | 352,941   |  |         |   | 4,199,161  |              |  |   | 6,390,228  | 
|WBS Group Holdings, LLC, Class B-1, 16.00% PIK                        |  | Software                  |  |                                         | 8,000     |  |         |   | 8,000,000  |              |  |   | 6,336,096  | 
|                                                                      |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|Total Limited Partnership/Limited Liability Company Interests         |  |                           |  |                                         |           |  |         |   | 29,627,977 |              |  |   | 23,387,927 | 
|                                                                      |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|Equity Warrants/Options0.8%(l)                                       |  |                           |  |                                         |           |  |         |   |            |              |  |   |            | 
|Arclin Cayman Holdings Ltd., Tranche 1, expire 1/15/14(e)(h)          |  | Chemicals                 |  |                                         | 230,159   |  |         |   | 403,815    |              |  |   | 1,378,850  | 
|Arclin Cayman Holdings Ltd., Tranche 2, expire 1/15/15(e)(h)          |  | Chemicals                 |  |                                         | 230,159   |  |         |   | 323,052    |              |  |   | 1,553,288  | 
|Arclin Cayman Holdings Ltd., Tranche 3, expire 1/15/14(e)(h)          |  | Chemicals                 |  |                                         | 230,159   |  |         |   | 484,578    |              |  |   | 1,164,424  | 
|Arclin Cayman Holdings Ltd., Tranche 4, expire 1/15/15(e)(h)          |  | Chemicals                 |  |                                         | 230,159   |  |         |   | 403,815    |              |  |   | 1,356,461  | 
|Bankruptcy Management Solutions, Inc., expire 10/1/17(g)              |  | FinancialServices         |  |                                         | 22,544    |  |         |   | 365,583    |              |  |   | 125,880    | 
|BLB Worldwide Holdings, Inc., Contingent Value Rights, expire 11/5/17 |  | Gaming                    |  |                                         | 1,000     |  |         |   | 5,000      |              |  |   | 5,000      | 



The
accompanying notes are an integral part of these consolidated financial statements.



F-19



---

##### Table of Contents

BlackRock Kelso Capital Corporation

Consolidated Schedules of Investments(Continued)

December 31, 2010



|                                                                    |  |                   |  |                                         |     |  |         |   |             |              |  |   |               | 
|------------------------------------------------------------------- |  | ----------------- |  | --------------------------------------- | --- |  | ------- | - | ----------- | ------------ |  | - | ------------- | 
|Portfolio Company                                                   |  | Industry(a)       |  | PrincipalAmount orNumber ofShares/Units |     |  | Cost(b) |   |             | FairValue(c) | 
|Marsico Superholdco SPV, LLC, expire 12/14/19, acquired 11/28/07(d) |  | FinancialServices |  |                                         | 455 |  |         | $ | 444,450     |              |  | $ |              | 
|                                                                    |  |                   |  |                                         |     |  |         |   |             |              |  |   |               | 
|Total Equity Warrants/Options                                       |  |                   |  |                                         |     |  |         |   | 2,430,293   |              |  |   | 5,583,903     | 
|                                                                    |  |                   |  |                                         |     |  |         |   |             |              |  |   |               | 
|TOTAL INVESTMENTS126.0%                                            |  |                   |  |                                         |     |  |         | $ | 985,677,505 |              |  |   | 880,085,666   | 
|                                                                    |  |                   |  |                                         |     |  |         |   |             |              |  |   |               | 
|OTHER ASSETS & LIABILITIES (NET) (26.0)%                           |  |                   |  |                                         |     |  |         |   |             |              |  |   | (181,605,742) | 
|                                                                    |  |                   |  |                                         |     |  |         |   |             |              |  |   |               | 
|NET ASSETS100.0%                                                   |  |                   |  |                                         |     |  |         |   |             |              |  | $ | 698,479,924   | 
|                                                                    |  |                   |  |                                         |     |  |         |   |             |              |  |   |               | 



Note regarding change in presentation: The Company revised the consolidated schedules of Investments from the presentation in its Annual Report on Form 10-K for the year ended December 31, 2010 to
incorporate the unearned income into the cost and fair value of the associated portfolio company investments. The previously reported Consolidated Schedules of Investments included a separate line item reporting total unearned income. The amount of
total unearned income is $9,392,954 at December 31, 2010. This change in presentation did not impact total investment cost or fair value as reported on the Companys Consolidated Statements of Assets and Liabilities.



| | (a) | Unaudited
| | --- | ---------

| | (b) | Represents amortized cost for fixed income securities and cost for preferred and common stock, limited partnership/limited liability company interests and equity
warrants/options.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Fair value is determined by or under the direction of the Companys Board of Directors (see Note 2).
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold in transactions that are exempt from registration,
normally to qualified institutional buyers. In the aggregate, these securities represent 7.9% of the Companys net assets at December 31, 2010.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
accompanying notes are an integral part of these consolidated financial statements.



F-20



---

##### Table of Contents



|                                       |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|-------------------------------------- |  | ----------------------------- | ---------- |  | --------------------- | - | ---------- | ----------------------- |  | - | ------------------------ | - |  | ----------------------------- | ---------- | - | ------------------------ | - | ---------- | ----------------- |  | - | ----------------- | - |  | - | --------- | - |  | - | --------- | 
|Non-controlled,
Affiliated Investments |  | Fair Value atDecember 31,2009 |            |  | GrossAdditions(Cost)* |   |            | GrossReductions(Cost)** |  |   | NetUnrealizedGain
(Loss) |   |  | Fair Value atDecember 31,2010 |            |   | NetRealizedGain(Loss)*** |   |            | InterestIncome*** |  |   | DividendIncome*** |  
|Arclin Cayman Holdings Ltd.:           |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Common Stock                           |  | $                             |           |  |                       | $ | 7,087,791  |                         |  | $ |                         |   |  | $                             | 1,282,209  |   |                          | $ | 8,370,000  |                   |  | $ |                  |   |  | $ |          |   |  | $ |          | 
|Warrants                               |  |                               |           |  |                       |   | 3,955,050  |                         |  |   |                         |   |  |                               | 1,497,973  |   |                          |   | 5,453,023  |                   |  |   |                  |   |  |   |          |   |  |   |          | 
|Arclin US Holdings Inc.                |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Senior Secured Loan                    |  |                               |           |  |                       |   | 3,437,181  |                         |  |   | (8,298                   | ) |  |                               | 30,658     |   |                          |   | 3,459,541  |                   |  |   | 667               |   |  |   | 39,137    |   |  |   |          | 
|BKC CSP Blocker, Inc.                  |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Common Stock                           |  |                               |           |  |                       |   | 888,910    |                         |  |   |                         |   |  |                               | 173,337    |   |                          |   | 1,062,247  |                   |  |   |                  |   |  |   |          |   |  |   |          | 
|Conney Safety Products, LLC            |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Subordinated Debt                      |  |                               |           |  |                       |   | 25,366,592 |                         |  |   |                         |   |  |                               | 4,298,660  |   |                          |   | 29,665,252 |                   |  |   |                  |   |  |   | 4,966,138 |   |  |   |          | 
|M&M Tradition Holdings Corp.:          |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Preferred Stock                        |  |                               | 5,117,040  |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                          |   | 5,117,040  |                   |  |   |                  |   |  |   |          |   |  |   | 1,284,148 | 
|Common Stock                           |  |                               | 5,000,000  |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                          |   | 5,000,000  |                   |  |   |                  |   |  |   |          |   |  |   |          | 
|Mattress Giant Corporation             |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Subordinated Debt                      |  |                               | 3,521,162  |  |                       |   | 1,390,692  |                         |  |   |                         |   |  |                               | (3,682,197 | ) |                          |   | 1,229,657  |                   |  |   |                  |   |  |   | 1,390,894 |   |  |   |          | 
|MGHC Holding Corporation               |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Common Stock                           |  |                               |           |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                          |   |           |                   |  |   |                  |   |  |   |          |   |  |   |          | 
|Penton Business Media Holdings LLC     |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Limited Liability Co. Interest         |  |                               | 515,870    |  |                       |   | 9,050,000  |                         |  |   | (14,943,201              | ) |  |                               | 14,427,331 |   |                          |   | 9,050,000  |                   |  |   | (14,426,995       | ) |  |   |          |   |  |   |          | 
|Penton Media, Inc.                     |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Senior Secured Loan                    |  |                               | 4,290,000  |  |                       |   | 14,571     |                         |  |   | (25,694,870              | ) |  |                               | 21,390,299 |   |                          |   |           |                  |  |   | (21,794,870       | ) |  |   | (25,073   | ) |  |   |          | 
|United Subcontractors, Inc.            |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Senior Secured Loan                    |  |                               | 1,447,864  |  |                       |   | 163,319    |                         |  |   |                         |   |  |                               | (21,231    | ) |                          |   | 1,589,952  |                   |  |   |                  |   |  |   | 32,096    |   |  |   |          | 
|USI Senior Holdings, Inc.              |  |                               |            |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                          |   |            |                   |  |   |                   |   |  |   |           |   |  |   |           | 
|Common Stock                           |  |                               | 6,902,053  |  |                       |   | 383,057    |                         |  |   |                         |   |  |                               | 94,379     |   |                          |   | 7,379,489  |                   |  |   |                  |   |  |   |          |   |  |   |          | 
|                                       |  |                               |            | 
|Totals                                 |  | $                             | 26,793,989 |  |                       | $ | 51,737,163 |                         |  | $ | (40,646,369              | ) |  | $                             | 39,491,418 |   |                          | $ | 77,376,201 |                   |  | $ | (36,221,198       | ) |  | $ | 6,403,192 |   |  | $ | 1,284,148 | 
|                                       |  |                               |            | 



| | * | Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind interest or dividends, the amortization of
unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one
or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *** | For the year ended December 31, 2010.
| | --- | -------------------------------------

| |  | Investment no longer held at December 31, 2010.
| | - | -----------------------------------------------

The aggregate fair value of non-controlled, affiliated investments at December 31, 2010 represents 11.1% of the Companys net assets.

| | (e) | Transaction and other information for non-controlled, affiliated investments under the Investment Company Act of 1940, whereby the Company owns 5% or more
(but not more than 25%) of the portfolio companys outstanding voting securities, is as follows:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | Approximately 71% of the senior secured loans to the Companys portfolio companies bear interest at a floating rate that may be determined by reference to the
London Interbank Offered Rate (LIBOR) or other base rate (commonly the Federal Funds Rate or the Prime Rate), at the borrowers option. In addition, approximately 35% of such senior secured loans have floors of 1.50% to 3.25% on the LIBOR base
rate. The borrower under a senior secured loan generally has the option to select from interest reset periods of one, two, three or six months and may alter that selection at the end of any reset period. The stated interest rate represents the
weighted average interest rate at December 31, 2010 of all contracts within the specified loan facility.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part of these consolidated financial statements.



F-21



---

##### Table of Contents



|                                           |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|------------------------------------------ |  | ----------------------------- | --------- |  | --------------------- | - | ---------- | ----------------------- |  | - | ------------------------ | - |  | ----------------------------- | ---------- | - | -------------------------- | - | ---------- | ----------------------- |  | - | ----- |  |  | - | --------- | 
|Controlled Investments                     |  | Fair Value atDecember 31,2009 |           |  | GrossAdditions(Cost)* |   |            | GrossReductions(Cost)** |  |   | NetUnrealizedGain (Loss) |   |  | Fair Value atDecember 31,2010 |            |   | Net RealizedGain (Loss)*** |   |            | Interest/OtherIncome*** | 
|Al Solutions, Inc.                         |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Senior Secured Loan                        |  | $                             | 150,000   |  |                       | $ | 221        |                         |  | $ | (32,638                  | ) |  | $                             | (2,583     | ) |                            | $ | 115,000    |                         |  | $ | 2,362 |  |  | $ | 14,207    | 
|American SportWorks LLC                    |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Senior Secured Loan                        |  |                               | 3,012,331 |  |                       |   | 1,726,037  |                         |  |   | (6,879,382               | ) |  |                               | 9,341,014  |   |                            |   | 7,200,000  |                         |  |   | 153   |  |  |   | 650,218   | 
|Bankruptcy Management Solutions, Inc.:     |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Senior Secured Loan                        |  |                               |          |  |                       |   | 3,368,715  |                         |  |   | (1,941,015               | ) |  |                               |           |   |                            |   | 1,427,700  |                         |  |   |      |  |  |   | 148,011   | 
|Senior Secured Loan                        |  |                               |          |  |                       |   | 18,515,769 |                         |  |   |                         |   |  |                               | 2,826,260  |   |                            |   | 21,342,029 |                         |  |   |      |  |  |   | 675,666   | 
|Common Stock                               |  |                               |          |  |                       |   | 9,539,238  |                         |  |   |                         |   |  |                               | (5,022,678 | ) |                            |   | 4,516,560  |                         |  |   |      |  |  |   |          | 
|Warrant                                    |  |                               |          |  |                       |   | 365,583    |                         |  |   |                         |   |  |                               | (239,703   | ) |                            |   | 125,880    |                         |  |   |      |  |  |   |          | 
|BKC ASW Blocker, Inc.                      |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Common Stock                               |  |                               | 163,289   |  |                       |   | 7,353,826  |                         |  |   | (175,000                 | ) |  |                               | (7,342,115 | ) |                            |   |           |                         |  |   |      |  |  |   |          | 
|ECI Holdco, Inc.                           |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Common Stock                               |  |                               |          |  |                       |   | 18,848,836 |                         |  |   |                         |   |  |                               | 32,631,164 |   |                            |   | 51,480,000 |                         |  |   |      |  |  |   |          | 
|Electrical Components International, Inc.: |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Senior Secured Loan                        |  |                               |          |  |                       |   | 1,649,968  |                         |  |   | (8,250                   | ) |  |                               |           |   |                            |   | 1,641,718  |                         |  |   |      |  |  |   | 100,913   | 
|Senior Secured Loan                        |  |                               |          |  |                       |   | 12,000,000 |                         |  |   | (12,000,000              | ) |  |                               |           |   |                            |   |           |                        |  |   |      |  |  |   | 218,183   | 
|Senior Secured Loan                        |  |                               |          |  |                       |   | 12,000,000 |                         |  |   | (12,000,000              | ) |  |                               |           |   |                            |   |           |                        |  |   |      |  |  |   | 218,168   | 
|Fitness Together Franchise Corporation     |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Senior Secured Loan                        |  |                               | 5,807,656 |  |                       |   | 143,488    |                         |  |   |                         |   |  |                               | 168,660    |   |                            |   | 6,119,804  |                         |  |   |      |  |  |   | 825,104   | 
|Fitness Together Holdings, Inc.:           |  |                               |           |  |                       |   |            |                         |  |   |                          |   |  |                               |            |   |                            |   |            |                         |  |   |       |  |  |   |           | 
|Preferred Stock Series A                   |  |                               |          |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                            |   |           |                         |  |   |      |  |  |   |          | 
|Preferred Stock Series A-1                 |  |                               |          |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                            |   |           |                         |  |   |      |  |  |   |          | 
|Preferred Stock Series B Convertible       |  |                               | 779,000   |  |                       |   | 2,600,000  |                         |  |   |                         |   |  |                               | (1,901,000 | ) |                            |   | 1,478,000  |                         |  |   |      |  |  |   |          | 
|Common Stock                               |  |                               |          |  |                       |   |           |                         |  |   |                         |   |  |                               |           |   |                            |   |           |                         |  |   |      |  |  |   |          | 
|                                           |  |                               |           | 
|Totals                                     |  | $                             | 9,912,276 |  |                       | $ | 88,111,681 |                         |  | $ | (33,036,285              | ) |  | $                             | 30,459,019 |   |                            | $ | 95,446,691 |                         |  | $ | 2,515 |  |  | $ | 2,850,470 | 
|                                           |  |                               |           | 



| | * | Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind interest or dividends, the amortization of
unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one
or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *** | For the year ended December 31, 2010. There was no dividend income from these securities during the period.
| | --- | -----------------------------------------------------------------------------------------------------------

| |  | Investment no longer held at December 31, 2010.
| | - | -----------------------------------------------

The aggregate fair value of controlled investments at December 31, 2010 represents 13.7% of the Companys net assets.



| | (g) | Transaction and other information for controlled investments under the Investment Company Act of 1940, whereby the Company owns more than 25% of the
portfolio companys outstanding voting securities, is as follows:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Non-U.S. company or principal place of business outside the U.S.
| | --- | ----------------------------------------------------------------

| | (i) | Principal amount is denominated in Canadian dollars.
| | --- | ----------------------------------------------------

| | (j) | Guaranty by the Company on behalf of portfolio company Facet Technologies, LLC. This guaranty was terminated on January 17, 2011 with no payments having been made
thereunder.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (k) | Non-accrual status (in default) at December 31, 2010 and therefore non-income producing. At December 31, 2010, the aggregate fair value and amortized cost of
the Companys debt investments on non-accrual status represents 1.4% and 1.8% of total debt investments at fair value and amortized cost, respectively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (l) | Non-income producing equity securities at December 31, 2010.
| | --- | ------------------------------------------------------------

| | (m) | The Company is the sole stockholder of BKC ARS Blocker, Inc., which is the beneficiary of less than 5% of the voting securities of American Residential Services L.L.C.
and thus a non-controlled, non-affiliated investment.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part of these consolidated financial statements.



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| | (n) | The Company is the sole stockholder of BKC ASW Blocker, Inc., which is the beneficiary of more than 25% of the voting securities of American SportWorks LLC and thus a
controlled investment.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (o) | The Company is the sole stockholder of BKC CSP Blocker, Inc., which is the beneficiary of more than 5% (but less than 25%) of the voting securities of Conney Prime
Holdings, LLC and thus a non-controlled, affiliated investment.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (p) | The Company is the sole stockholder of BKC DVSH Blocker, Inc., which is the beneficiary of less than 5% of the voting securities of DynaVox Systems Holdings LLC and
thus a non-controlled, non-affiliated investment.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (q) | The Company is the sole stockholder of BKC MTCH Blocker, Inc., which is the beneficiary of less than 5% of the voting securities of Marquette Transportation Company
Holdings, LLC and thus a non-controlled, non-affiliated investment.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PIK Payment-in-kind.



The accompanying notes are an integral part of these
consolidated financial statements.



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BlackRock Kelso Capital Corporation

Notes to Consolidated Financial Statements

1. Organization

BlackRock Kelso Capital Corporation and subsidiaries (the
Company) was organized as a Delaware corporation on April 13, 2005 and was initially funded on July 25, 2005. The Company has elected to be regulated as a business development company (BDC) under the Investment
Company Act of 1940 (the 1940 Act). In addition, for tax purposes the Company has qualified and has elected to be treated as a regulated investment company (RIC) under the Internal Revenue Code of 1986 (the Code).
The Companys investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in middle-market companies in the form of senior and junior secured and unsecured
debt securities and loans, each of which may include an equity component, and by making direct preferred, common and other equity investments in such companies.

On July 25, 2005, the Company completed a private placement of 35,366,589 shares of its common stock at a price of $15.00 per share receiving net proceeds of approximately $529 million. On
July 2, 2007, the Company completed an initial public offering through which it sold an additional 10,000,000 shares of its common stock at a price of $16.00 per share and listed its shares on The NASDAQ Global Select Market.

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP).

2. Significant accounting policies

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results to differ and such differences could be material.

The significant accounting policies consistently followed by the Company are as follows:



|(a) | Investments for which market quotations are readily available are valued at such market quotations unless they are deemed not
to represent fair value. The Company obtains market quotations, when available, from an independent pricing service or one or more broker-dealers or market makers and utilizes the average of the range of bid and ask quotations. Debt and equity
securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by or under the direction of the Companys Board of
Directors. Because the Company expects that there will not be a readily available market for substantially all of the investments in its portfolio, the Company expects to value substantially all of its portfolio investments at fair value as
determined in good faith by or under the direction of the Board of Directors using a consistently applied valuation process in accordance with a documented valuation policy that has been reviewed and approved by the Board of Directors. Due to the
inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of the Companys investments may differ significantly from the values that would have been used
had a readily available market value existed for such investments and may differ materially from the values that the Company may ultimately realize. In addition, changes in the market environment and other events may have differing impacts on the
market quotations used to value some of the Companys investments than on the fair values of the Companys investments for which market quotations are not readily available. Market quotations may be deemed not to represent fair value in
certain circumstances where BlackRock Kelso Capital Advisors LLC, the Companys investment advisor (the Advisor), believes that facts and circumstances applicable to an
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | issuer, a seller or purchaser or the market for a particular security cause current market quotations to not reflect the fair value of the security. Examples of these events could include cases
where a security trades infrequently causing a quoted purchase or sale price to become stale, where there is a forced sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide
bid-ask spread or significant increase in the bid-ask spread.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With respect to the Companys
investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value, the Board of Directors has approved a multi-step valuation process each quarter, as described below:



| | (i) | The quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment
professionals of the Advisor responsible for the portfolio investment;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The investment professionals provide recent portfolio company financial statements and other reporting materials to independent valuation firms
engaged by the Board of Directors, such firms conduct independent appraisals each quarter and their preliminary valuation conclusions are documented and discussed with senior management of the Advisor;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The audit committee of the Board of Directors reviews the preliminary valuations prepared by the independent valuation firms; and
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------



| | (iv) | The Board of Directors discusses valuations and determines the fair value of each investment in the portfolio in good faith based on the input
of the Advisor, the respective independent valuation firms and the audit committee.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Those
investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market
approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for
example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company
may take into account in determining the fair value of its investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market
yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio companys ability to make payments, its earnings and discounted cash flows, the markets
in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, the Companys principal market (as the reporting entity) and enterprise values.

Until the end of the second calendar quarter following its acquisition, each unquoted investment in a new portfolio
company generally is valued at cost, which the Advisor believes approximates fair value under the circumstances. As of that date, an independent valuation firm conducts an initial independent appraisal of the investment.

Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures (ASC
820-10), issued by the Financial Accounting Standards Board (FASB), defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. ASC 820-10 defines fair value 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. ASC 820-10 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



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sources independent of the Company. Unobservable inputs are inputs that reflect the Companys assumptions about the assumptions market participants would use in pricing an asset or liability
developed based on the best information available in the circumstances.

Level 1  Valuations based on
unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2  Valuations based on unadjusted quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3  Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The
inputs into the determination of fair value may require significant management judgment or estimation.

Transfers between levels, if any, represent the value as of the beginning of the period of any investment where a change
in the pricing level occurred from the beginning to the end of the period.

The Companys valuation policy
and fair value disclosures are consistent with ASC 820-10. The Company evaluates the source of inputs, including any markets in which its investments are trading, in determining fair value and categorizes each investment within the fair value
hierarchy pursuant to ASC 820-10.



|(b) | Cash equivalents include short-term liquid investments in a money market fund.
|--- | ------------------------------------------------------------------------------



|(c) | Security transactions are accounted for on the trade date unless there are substantial conditions to the purchase.
|--- | ------------------------------------------------------------------------------------------------------------------



|(d) | Gains or losses on the disposition of investments are calculated using the specific identification method.
|--- | ----------------------------------------------------------------------------------------------------------



|(e) | Interest income is recorded on an accrual basis and includes amortization of premiums and accretion of discounts.
Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security. Premiums and discounts are determined based on the cash flows expected to be received for a particular
investment upon maturity.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividend income is recorded on an accrual basis to the extent that the
Company expects to collect such amounts. For loans and securities with payment-in-kind (PIK) income, which represents contractual interest or dividends accrued and added to the principal balance and generally due at maturity, PIK income
is accrued only to the extent that the Advisor believes that the PIK income is likely to be collected.

Structuring service fees, origination, closing, commitment and other upfront fees are generally non-recurring and are
recognized as revenue when earned. In instances where the Company does not perform significant services in connection with the related investment, fees paid to the Company in these situations may be deferred and amortized over the estimated life of
the loan.

Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan
origination, structuring, closing, commitment and other upfront fees are recorded as interest income.

Expenses
are recorded on an accrual basis.



|(f) | The Company has elected to be taxed as a RIC under Subchapter M of the Code and operates in a manner so as to qualify
for the tax treatment applicable to RICs.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

In order to qualify for favorable tax treatment as a
RIC, the Company is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, we must distribute annually at least 98% of our ordinary income and
98.2% of net capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay
a 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated excess
taxable income as required.



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In accordance with GAAP, book and tax basis differences relating to
distributions to stockholders and other permanent book and tax differences are reclassified to capital in excess of par. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that
may differ from GAAP.



|(g) | Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a
dividend is determined by the Board of Directors. Net realized capital gains, if any, generally are distributed at least annually, although the Company may decide to retain such capital gains for investment.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has adopted a dividend reinvestment plan that provides for reinvestment of distributions on behalf of
stockholders, unless a stockholder elects to receive cash. As a result, if the Board of Directors authorizes, and the Company declares, a cash dividend, then stockholders who have not opted out of the dividend reinvestment plan will have
their cash dividends automatically reinvested in additional shares of Common Stock, rather than receiving the cash dividends.



|(h) | Foreign currency amounts are translated into United States dollars on the following basis:
|--- | ------------------------------------------------------------------------------------------



| | (i) | market value of investment securities, other assets and liabilitiesat the spot exchange rate on the last business day of the period; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | purchases and sales of investment securities, income and expensesat the rates of exchange prevailing on the respective dates of such
transactions, income or expenses.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although net assets and fair values are presented based on the
applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of
investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated
movements in the value of the foreign currency relative to the U.S. dollar.



|(i) | Debt issuance costs are amortized over the term of the related debt using the straight line method.
|--- | ---------------------------------------------------------------------------------------------------



|(j) | The Company records registration expenses related to its shelf registration statement and related SEC filings as prepaid
assets. These expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946, Financial ServicesInvestment Companies.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(k) | Loans or debt securities are placed on non-accrual status, as a general matter, when principal or interest payments are
past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual
loans or debt securities may be recognized as income or applied to principal depending upon managements judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in
managements judgment, are likely to remain current. The Company may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(l) | The Company discloses subsequent events in accordance with ASC 855-10, Subsequent Events (ASC
855-10), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before consolidated financial statements are issued or are available to be issued and ASU
2010-09, Amendments to Certain Recognition and Disclosure Requirements, which amends ASC 855-10 to clarify that an SEC filer is not required to disclose the date through which subsequent events have been evaluated in the consolidated
financial statements. See Note 14.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(m) | The accompanying consolidated financial statements include the accounts of the Company and its
subsidiaries, which were established to hold certain investments of the Company. The Company owns 100%
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | of each subsidiary and, as such, the subsidiaries are consolidated into the Companys consolidated financial statements. The subsidiaries hold investments which are treated as pass through
entities for tax purposes. By investing through these 100% owned subsidiaries the Company is able to elect corporate tax treatment for these entities and thereby create a tax structure that is more advantageous with respect to the RIC status of the
Company. Transactions between subsidiaries, to the extent they occur, are eliminated in consolidation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(n) | Recently Issued Accounting Pronouncements:
|--- | ------------------------------------------

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRSs(ASU 2011-04), which amends the existing fair value guidance within ASC 820-10. The amendments include: (1) application of the concepts of highest and best use and valuation
premise only to measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities), (2) an exception to fair value measurement principles for financial assets and financial liabilities (and
derivatives) with offsetting positions in market risks or counterparty credit risk, which allows an entity to measure the fair value of the net risk position, when several criteria are met, (3) extension of the prohibition of a blockage factor
application to all fair value measurements, (4) a model for the fair value measurement of instruments classified within an entitys shareholders equity which is consistent with the guidance of measuring the fair value for
liabilities, (5) additional disclosures for fair value measurements categorized in Level 3 of the fair value hierarchy: (i) quantitative information about unobservable inputs used, (ii) a description of the valuation processes used by
the entity and (iii) a qualitative discussion about the sensitivity of the measurements, (6) disclosure of the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed and
(7) disclosure of any transfers between Levels 1 and 2 of the fair value hierarchy, not just significant transfers. The provisions of ASU 2011-04 will be effective for the Company on January 1, 2012. Management is evaluating the impact of
ASU 2011-04 on the consolidated financial statements.

In December 2011, FASB issued ASU No. 2011-11
Disclosures about Offsetting Assets and Liabilities. These common disclosure requirements are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a
portfolios financial position. They also improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In addition, ASU No. 2011-11 facilitates comparison between
those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU No. 2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset in the financial position; and disclose instruments and transactions subject to an agreement similar to a master netting agreement. ASU No. 2011-11 is effective for fiscal years beginning on or after
January 1, 2012, and interim periods within those annual periods. Management is currently evaluating the implications of ASU No. 2011-11 and its impact on financial statement disclosures.

3. Agreements and related party transactions

The Company has entered into
an Investment Management Agreement (the Management Agreement) with the Advisor, under which the Advisor, subject to the overall supervision of the Companys Board of Directors, manages the day-to-day operations of, and provides
investment advisory services to, the Company. For providing these services, the Advisor receives a base management fee (the Management Fee) from the Company quarterly in arrears at an annual rate of 2.0% of the Companys total
assets, including any assets acquired with the proceeds of leverage.

For the years ended December 31, 2011, 2010 and
2009, the Advisor earned $19,841,258, $16,877,854 and $18,498,189, respectively, in base management fees under the management agreement.

The Management Agreement provides that the Advisor or its affiliates may be entitled to an incentive management fee (the Incentive Fee) under certain circumstances. The determination of the
Incentive Fee, as described in more detail below, will result in the Advisor or its affiliates receiving no Incentive Fee payments if returns to Company stockholders do not meet an 8.0% annualized rate of return during the applicable fee



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measurement period and will result in the Advisor or its affiliates receiving less than the full amount of the Incentive Fee percentage until returns to stockholders exceed an approximate 13.3%
annualized rate of return during such period. Annualized rate of return in this context is computed by reference to the Companys net asset value and does not take into account changes in the market price of the Companys common stock.

The Advisor will be entitled to receive the Incentive Fee from us if our performance exceeds a hurdle rate during
different measurement periods; trailing four quarters periods (which applies only to the portion of the Incentive Fee based on income); and annual periods (which applies only to the portion of the Incentive Fee based on capital gains).



| |  |  | The income portion of the Incentive Fee payable for the quarter was determined by reference to the current calendar quarter and the three preceding
calendar quarters.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  |  | The term annual period means the period beginning on July 1 of each calendar year and ending on June 30 of the next calendar
year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

The hurdle rate for each measurement period is 2.0% multiplied by the Companys net asset values
at the beginning of each calendar quarter during the measurement period, calculated after giving effect to any distributions that occurred during the measurement period. Each portion of the Incentive Fee is described below.

Quarterly Incentive Fee Based on Income.The Company pays the Advisor an Incentive Fee based on the amount by which
(A) aggregate distributions and amounts distributable out of taxable net income (excluding any capital gain and loss) during the period less the amount, if any, by which net unrealized capital depreciation exceeds net realized capital gains
during the period exceeds (B) the hurdle rate for the period. The amount of the excess of (A) over (B) described in this paragraph for each period is referred to as the excess income amount.

The portion of the Incentive Fee based on income for each period will equal 50% of the periods excess income amount, until the
cumulative Incentive Fee payments for the period equal 20% of the periods income amount distributed or distributable to stockholders as described in clause (A) of the preceding paragraph. Thereafter, the portion of the Incentive Fee based
on income for the period will equal 20% of the periods remaining excess income amount.

Annual Incentive Fee Based on
Capital Gains. The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each annual period, the Company pays the Advisor an Incentive Fee based on the amount by which (A) net realized capital gains, if
any, to the extent they exceed gross unrealized capital depreciation, if any, occurring during the period exceeds (B) the amount, if any, by which the periods hurdle rate exceeds the amount of income used in the determination of the
Incentive Fee based on income for the period. The amount of the excess of (A) over (B) described in this paragraph is referred to as the excess gain amount.

The portion of the Incentive Fee based on capital gains for each period will equal 50% of the periods excess gain amount, until such payments equal 20% of the periods capital gain amount
distributed or distributable to stockholders. Thereafter, the portion of the Incentive Fee based on capital gains for the period equals an amount such that the portion of the Incentive Fee payments to the Advisor based on capital gains for the
period equals 20% of the periods remaining excess gain amount. The result of this formula is that, if the portion of the Incentive Fee based on income for the period exceeds the periods hurdle, then the portion of the Incentive Fee based
on capital gains will be capped at 20% of the capital gain amount.

In calculating whether the portion of the Incentive Fee
based on capital gains is payable with respect to any period, the Company accounts for its assets on a security-by-security basis. In addition, the Company uses the period-to-period method pursuant to which the portion of the Incentive
Fee based on capital gains for any period is based on realized capital gains for the period reduced by realized capital losses and gross unrealized capital depreciation for the period. Based on current interpretations of Section 205(b)(3) of
the Investment Advisers Act of 1940 by the SEC and its staff, the calculation of unrealized depreciation for each portfolio security over a period is based on the fair value of the security at the end of the period compared to the fair value at the
beginning of the period. Incentive Fees earned in any of the periods described above are not subject to modification or repayment based upon performance in a subsequent period.



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For the years ended December 31, 2011, 2010 and 2009, the Advisor earned $11,878,159,
$15,108,049 and $16,818,602, respectively, in Incentive Fees from the Company.

The Management Agreement provides that the
Company will reimburse the Advisor for costs and expenses incurred by the Advisor for office space rental, office equipment and utilities allocable to the Advisor under the Management Agreement, as well as any costs and expenses incurred by the
Advisor relating to any non-investment advisory, administrative or operating services provided by the Advisor to the Company. For the years ended December 31, 2011, 2010 and 2009, the Company incurred $1,779,734, $1,622,957 and $1,466,563,
respectively, for such investment advisor expenses under the Management Agreement.

From time to time, the Advisor may pay
amounts owed by the Company to third party providers of goods or services. The Company will subsequently reimburse the Advisor for such amounts paid on its behalf. Reimbursements to the Advisor for the years ended December 31, 2011, 2010 and
2009 were $3,046,228, $3,240,732 and $1,978,629, respectively.

No person who is an officer, director or employee of the
Advisor and who serves as a Director of the Company receives any compensation from the Company for such services. Directors who are not affiliated with the Advisor receive compensation for their services and reimbursement of expenses incurred to
attend meetings.

The Company also has entered into an administration agreement with BlackRock Financial Management, Inc. (the
Administrator) under which the Administrator provides administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Companys allocable portion of
overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including rent and the Companys allocable portion of the cost of certain of the Companys officers and their
respective staffs. For the years ended December 31, 2011, 2010 and 2009, the Company incurred $968,721, $587,469 and $642,993, respectively, for administrative services expenses payable to the Administrator under the administration agreement.

At December 31, 2011 and 2010, cash equivalents of $7,478,904 and $1,344,159 consisted of short-term liquid investments
in a money market fund managed by an affiliate of the Administrator.

In 2007, the Companys Board of Directors
authorized the purchase by the Advisor from time to time in the open market of an indeterminate number of shares of the Companys common stock, in the Advisors discretion, subject to compliance with the Companys and the
Advisors applicable policies and requirements of law. Pursuant to this authorization, during the year ended December 31, 2009, the Advisor purchased 80,867 shares of the Companys common stock in the open market for $312,322, including
brokerage commissions. There were no such purchases during the years ended December 31, 2011 and 2010.

In March 2011, the
Companys Board of Directors authorized the purchase in a private placement of up to 1,000,000 shares of the Companys common stock, by the Advisor in its discretion, subject to compliance with the Companys and the Advisors
applicable policies and requirements of law. Pursuant to this authorization, on March 16, 2011, the Company issued and sold to the Advisor in a private placement 200,000 shares of common stock for $2,000,000 or $10.00 per share, which was the
closing price of the Companys common stock on The NASDAQ Global Select Market on that date.

At December 31, 2011
and 2010, the Advisor owned and had the right to vote approximately 259,000 and 47,000 shares, respectively, of the Companys common stock, representing less than 1.0% of the total shares outstanding. On such dates, under compensation
arrangements for its officers and employees the Advisor owned of record, but did not have the right to vote an additional 275,000 and 426,000 shares, respectively, of the Companys common stock. At December 31, 2011 and 2010, other
entities affiliated with the Administrator beneficially owned approximately 6,019,000 and 4,181,000 shares, respectively, of the Companys common stock, representing approximately 8.2% and 5.8% of the total shares outstanding. An entity
affiliated with the Administrator has ownership and financial interests in the Advisor.



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4. Earnings (loss) per share

The following information sets forth the computation of basic and diluted net increase in net assets per share (earnings per share) resulting from operations for the years ended December 31, 2011,
2010 and 2009.



|                                                                             |  |                            |            |  |                            |   |            |                            |  |   |            | 
|---------------------------------------------------------------------------- |  | -------------------------- | ---------- |  | -------------------------- | - | ---------- | -------------------------- |  | - | ---------- | 
|                                                                             |  | Year endedDecember 31,2011 |            |  | Year endedDecember 31,2010 |   |            | Year endedDecember 31,2009 | 
|Numerator for basic and diluted net increase in net assets per share         |  | $                          | 76,920,509 |  |                            | $ | 71,549,561 |                            |  | $ | 67,239,723 | 
|Denominator for basic and diluted net increase in net assets per share       |  |                            | 73,037,357 |  |                            |   | 62,663,002 |                            |  |   | 55,923,757 | 
|Basic/diluted net increase in net assets per share resulting from operations |  | $                          | 1.05       |  |                            | $ | 1.14       |                            |  | $ | 1.20       | 

Diluted net increase in net assets per share resulting from operations equals basic net increase in net
assets per share resulting from operations for each year because there were no common stock equivalents outstanding during the above years.

5. Investments

Purchases of investments for the years ended December 31, 2011, 2010 and 2009 totaled $401,530,203, $405,956,515 and $46,757,709,
respectively. Proceeds from sales, repayments and other exits of investments for the years ended December 31, 2011, 2010 and 2009 totaled $249,139,391, $395,269,097 and $128,224,448, respectively.

Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio
companys outstanding voting securities as investments in affiliated companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio companys
outstanding voting securities as investments in controlled companies. Detailed information with respect to the Companys non-controlled affiliated and controlled investments is contained in the accompanying consolidated schedule of
investments and other consolidated financial statements. The information in the tables below is presented on an aggregated portfolio basis, without segregating the non-controlled non-affiliated, non-controlled affiliated and controlled investment
categories.

At December 31, 2011, investments consisted of the following:



|                                                        |  |      |               |  |            |   |               | 
|------------------------------------------------------- |  | ---- | ------------- |  | ---------- | - | ------------- | 
|                                                        |  | Cost |               |  | Fair Value |  
|                                                        |  |      |               |  |            |   |               | 
|Senior secured notes                                    |  | $    | 117,684,004   |  |            | $ | 113,871,025   | 
|Unsecured debt                                          |  |      | 50,109,481    |  |            |   | 5,000,000     | 
|Subordinated debt                                       |  |      | 166,936,586   |  |            |   | 163,038,989   | 
|Senior secured loans:                                   |  |      |               |  |            |   |               | 
|First lien                                              |  |      | 212,981,195   |  |            |   | 209,900,588   | 
|Second/other priority lien                              |  |      | 451,420,012   |  |            |   | 445,694,225   | 
|                                                        |  |      |               |  |            |   |               | 
|Total senior secured loans                              |  |      | 664,401,207   |  |            |   | 655,594,813   | 
|                                                        |  |      |               |  |            |   |               | 
|Common stock                                            |  |      | 51,653,041    |  |            |   | 65,985,605    | 
|Limited partnership/limited liability company interests |  |      | 43,767,132    |  |            |   | 39,170,742    | 
|Equity warrants/options                                 |  |      | 3,319,218     |  |            |   | 6,291,268     | 
|                                                        |  |      |               |  |            |   |               | 
|Total investments                                       |  | $    | 1,097,870,669 |  |            | $ | 1,048,952,442 | 
|                                                        |  |      |               |  |            |   |               | 



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At December 31, 2010, investments consisted of the following:



|                                                        |  |       |             |  |             |   |             | 
|------------------------------------------------------- |  | ----- | ----------- |  | ----------- | - | ----------- | 
|                                                        |  | Cost* |             |  | Fair Value* |  
|                                                        |  |       |             |  |             |   |             | 
|Senior secured notes                                    |  | $     | 95,164,161  |  |             | $ | 88,265,252  | 
|Unsecured debt                                          |  |       | 49,786,740  |  |             |   | 6,898,385   | 
|Subordinated debt                                       |  |       | 230,083,014 |  |             |   | 221,369,811 | 
|Senior secured loans:                                   |  |       |             |  |             |   |             | 
|First lien                                              |  |       | 153,982,953 |  |             |   | 143,591,287 | 
|Second/other priority lien                              |  |       | 340,713,935 |  |             |   | 301,231,989 | 
|                                                        |  |       |             |  |             |   |             | 
|Total senior secured loans                              |  |       | 494,696,888 |  |             |   | 444,823,276 | 
|                                                        |  |       |             |  |             |   |             | 
|Preferred stock                                         |  |       | 15,190,382  |  |             |   | 6,595,040   | 
|Common stock                                            |  |       | 68,698,050  |  |             |   | 83,162,072  | 
|Limited partnership/limited liability company interests |  |       | 29,627,977  |  |             |   | 23,387,927  | 
|Equity warrants/options                                 |  |       | 2,430,293   |  |             |   | 5,583,903   | 
|                                                        |  |       |             |  |             |   |             | 
|Total investments                                       |  | $     | 985,677,505 |  |             | $ | 880,085,666 | 
|                                                        |  |       |             |  |             |   |             | 



|* | As indicated in the accompanying schedules of investments, the Company revised its previous presentation of its schedule of investments to incorporate the unearned
income into the cost and fair value of the associated portfolio company investments.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The industry composition
of the portfolio at fair value at December 31, 2011 and 2010 was as follows:



|                               |  |              |        |  |      |  |        | 
|------------------------------ |  | ------------ | ------ |  | ---- |  | ------ | 
|                               |  | December 31, |       
|Industry                       |  | 2011         |        |  | 2010 | 
|Personal and Other Services    |  |              | 13.1%  |  |      |  | 13.8%  | 
|Healthcare                     |  |              | 12.9   |  |      |  | 10.6   | 
|Business Services              |  |              | 9.9    |  |      |  | 11.8   | 
|Financial Services             |  |              | 8.3    |  |      |  | 4.9    | 
|Printing, Publishing and Media |  |              | 8.1    |  |      |  | 8.5    | 
|Manufacturing                  |  |              | 7.6    |  |      |  | 7.1    | 
|Retail                         |  |              | 5.2    |  |      |  | 4.0    | 
|Distribution                   |  |              | 5.1    |  |      |  | 6.3    | 
|Consumer Products              |  |              | 4.8    |  |      |  | 7.6    | 
|Chemicals                      |  |              | 4.4    |  |      |  | 4.4    | 
|Building and Real Estate       |  |              | 4.3    |  |      |  | 5.2    | 
|Electronics                    |  |              | 4.1    |  |      |  | 6.1    | 
|Automotive                     |  |              | 3.6    |  |      |  | 4.5    | 
|Beverage, Food and Tobacco     |  |              | 3.6    |  |      |  | 0.8    | 
|Containers and Packaging       |  |              | 2.7    |  |      |  | 3.2    | 
|Telecommunications             |  |              | 1.4    |  |      |  |       | 
|Transportation                 |  |              | 0.5    |  |      |  | 0.4    | 
|Entertainment and Leisure      |  |              | 0.4    |  |      |  | 0.8    | 
|                               |  |              |        |  |      |  |        | 
|Total                          |  |              | 100.0% |  |      |  | 100.0% | 
|                               |  |              |        |  |      |  |        | 

The geographic composition of the portfolio at fair value at December 31, 2011 was United States
96.0% and Canada 4.0%, and at December 31, 2010 was United States 94.7% and Canada 5.3%. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.



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In the normal course of business, the Company invests in securities and enters into
transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Company may decline in response to certain
events, including those directly involving the issuers whose securities are owned by the Company; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and
interest rate and price fluctuations. Similar to issuer credit risk, the Company may be exposed to counterparty credit risk, or the risk that an entity with which the Company has unsettled or open transactions may fail to or be unable to perform on
its commitments. The Company manages counterparty risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those
counterparties. Financial assets, which potentially expose the Company to market, issuer and counterparty credit risks, consist principally of investments in portfolio companies. The extent of the Companys exposure to market, issuer and
counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the consolidated statements of assets and liabilities. The Company is also exposed to credit risk related to maintaining all
of its cash at a major financial institution.

The Company has investments in lower rated and comparable quality unrated
senior and junior secured, unsecured and subordinated debt securities and loans, which are subject to a greater degree of credit risk than more highly rated investments. The risk of loss due to default by the issuer is significantly greater for
holders of such securities and loans, particularly in cases where the investment is unsecured or subordinated to other creditors of the issuer.

6. Derivatives

The
Company may enter into forward foreign currency contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies or to help mitigate the impact that an adverse change in foreign exchange
rates would have on the value of the Companys investments denominated in foreign currencies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date (usually the security transaction
settlement date) at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are
recognized when contracts are settled. The Companys forward foreign currency contracts generally have terms of approximately three months. The volume of open contracts at the end of each year is reflective of the typical volume of transactions
during each calendar quarter. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit this risk by dealing with creditworthy counterparties.

At December 31, 2011, details of open forward foreign currency contracts were as follows:



|                 |  |                  |  |                       |  |                               |            |  |                               |   |            |                                      |  |   |             | 
|---------------- |  | ---------------- |  | --------------------- |  | ----------------------------- | ---------- |  | ----------------------------- | - | ---------- | ------------------------------------ |  | - | ----------- | 
|Foreign Currency |  | Settlement Date  |  | Amount andTransaction |  | US$ Value at  Settlement Date |            |  | US$ Value atDecember 31, 2011 |   |            | UnrealizedAppreciation(Depreciation) | 
|Canadian dollar  |  | January 18, 2012 |  | 295,000 Purchased     |  | $                             | (289,385)  |  |                               | $ | (290,124)  |                                      |  | $ | 739         | 
|Canadian dollar  |  | January 18, 2012 |  | 593,819 Purchased     |  |                               | (587,012)  |  |                               |   | (584,004)  |                                      |  |   | (3,008)     | 
|Canadian dollar  |  | January 18, 2012 |  | 24,982,000 Sold       |  |                               | 23,465,055 |  |                               |   | 24,569,027 |                                      |  |   | (1,103,972) | 
|                 |  |                  |  |                       |  |                               |            |  |                               |   |            |                                      |  |   |             | 
|Total            |  |                  |  |                       |  | $                             | 22,588,658 |  |                               | $ | 23,694,899 |                                      |  | $ | (1,106,241) | 
|                 |  |                  |  |                       |  |                               |            |  |                               |   |            |                                      |  |   |             | 



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##### Table of Contents

At December 31, 2010, details of open forward foreign currency contracts were as
follows:



|                 |  |                  |  |                        |  |                               |            |  |                               |   |            |                                      |  |   |           | 
|---------------- |  | ---------------- |  | ---------------------- |  | ----------------------------- | ---------- |  | ----------------------------- | - | ---------- | ------------------------------------ |  | - | --------- | 
|Foreign Currency |  | Settlement Date  |  | Amount and
Transaction |  | US$ Value at  Settlement Date |            |  | US$ Value atDecember 31, 2010 |   |            | UnrealizedAppreciation(Depreciation) | 
|Canadian dollar  |  | January 19, 2011 |  | 29,400,000 Sold        |  | $                             | 29,166,667 |  |                               | $ | 29,535,112 |                                      |  | $ | (368,445) | 

All realized and unrealized gains and losses on forward foreign currency contracts are included in
earnings (changes in net assets) and are reported as separate line items within the Companys consolidated statements of operations. Unrealized gains and losses on forward foreign currency contracts are also reported as separate line items
within the Companys consolidated statements of assets and liabilities.

The Company holds warrants and options in
certain portfolio companies in an effort to achieve additional investment return. In purchasing warrants and options, the Company bears the risk of an unfavorable change in the value of the underlying equity interest. The aggregate fair value of
warrants and options at December 31, 2011 and 2010 represents 0.9% and 0.8%, respectively, of the Companys net assets.

The Company may enter into other derivative instruments and incur other exposures with other counterparties in the future.

7. Debt

Under the terms of the Companys amended and restated Senior
Secured, Multi-Currency Credit Agreement (the Credit Facility), as amended on April 20, 2010, certain lenders agreed to extend credit to the Company in an aggregate principal amount not to exceed $375,000,000 outstanding, at any one
time, consisting of $275,000,000 of revolving loan commitments and $100,000,000 of term loan commitments. The Credit Facility is secured by substantially all of the assets in the Companys portfolio, including cash and cash equivalents. Subject
to certain exceptions, pricing for outstanding borrowings is at LIBOR plus an applicable spread of either 3.00% or 3.25% for revolving loans, based on a pricing grid using the Companys credit rating, and LIBOR plus 3.00% for term loans. The
Credit Facility does not contain a LIBOR floor requirement. At December 31, 2011, the effective LIBOR spread under the Credit Facility was 3.01%. Term loan commitments under the Credit Facility have been fully drawn and, once repaid, may not be
reborrowed. The Credit Facility also includes an accordion feature that allows the Company, under certain circumstances, to increase the size of the Credit Facility by up to an additional $275,000,000 of revolving loan commitments and
$250,000,000 of term loan commitments. The Credit Facility is used to supplement the Companys equity capital to make additional portfolio investments and for other general corporate purposes.

At December 31, 2011, the Company had $168,000,000 drawn on the Credit Facility versus $170,000,000 at December 31, 2010.
Subject to compliance with applicable covenants and borrowing base limitations, the remaining amount available under the Credit Facility was $207,000,000 at December 31, 2011.

On January 18, 2011, the Company closed a private placement issuance of $158,000,000 in aggregate principal amount of five-year,
senior secured notes with a fixed interest rate of 6.50% and a maturity date of January 18, 2016 and $17,000,000 million in aggregate principal amount of seven-year, senior secured notes with a fixed interest rate of 6.60% and a maturity date
of January 18, 2018 (collectively, the Senior Secured Notes). The Senior Secured Notes were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended.
Interest on the Senior Secured Notes is due semi-annually on January 18 and July 18, commencing on July 18, 2011.

The average debt outstanding during the years ended December 31, 2011, 2010 and 2009 was $291,353,425, $205,151,507 and $397,464,757, respectively. The maximum amounts borrowed during the years ended
December 31, 2011, 2010 and 2009 were $402,000,000, $314,000,000 and $434,000,000, respectively.



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##### Table of Contents

The weighted average annual interest cost for the years ended December 31, 2011, 2010
and 2009 was 5.23%, 2.41% and 1.53%, respectively, exclusive of commitment fees and of other prepaid expenses related to establishing the Credit Facility and the Senior Secured Notes. With respect to any unused portion of the commitments under the
Credit Facility and the Senior Secured Notes, the Company incurs an annual commitment fee of 0.50%. Commitment fees incurred for the years ended December 31, 2011, 2010 and 2009 were $1,261,681, $1,223,193 and $265,385, respectively.

At December 31, 2011, the Company was in compliance with all covenants required under the Credit Facility and the Senior
Secured Notes.

8. Capital stock

The following table summarizes the total shares issued and proceeds the Company received net of underwriter and offering costs for offerings closed during year ended December 31, 2010. There were no
share offerings during the years ended December 31, 2011 and 2009.



|                                           |  |               |            |  |                         |   |       |                                               |  |   |             | 
|------------------------------------------ |  | ------------- | ---------- |  | ----------------------- | - | ----- | --------------------------------------------- |  | - | ----------- | 
|                                           |  | Shares issued |            |  | Offering priceper share |   |       | Proceeds net ofunderwriting andoffering costs | 
|June 2010 public offering                  |  |               | 8,625,000  |  |                         | $ | 10.25 |                                               |  | $ | 83,892,007  | 
|October 2010 public offering               |  |               | 6,900,000  |  |                         |   | 11.95 |                                               |  |   | 78,463,117  | 
|                                           |  |               |            |  |                         |   |       |                                               |  |   |             | 
|Total for the year ended December 31, 2010 |  |               | 15,525,000 |  |                         |   |       |                                               |  | $ | 162,355,124 | 
|                                           |  |               |            |  |                         |   |       |                                               |  |   |             | 

In 2008, the Companys Board of Directors approved a share repurchase plan under which the Company
may repurchase up to 2.5 percent of its outstanding shares of common stock from time to time in open market or privately negotiated transactions. In 2009, the Board of Directors approved an extension and increase to the plan which authorized the
Company to repurchase up to an additional 2.5 percent of its outstanding shares of common stock. In May 2011, the repurchase plan was further extended through the earlier of June 30, 2012 or until the approved number of shares has been
repurchased. During the years ended December 31, 2011 and 2009, the Company purchased a total of 463,828 and 583,572 shares of its common stock on the open market for $4,050,776 and $2,234,892, respectively, including brokerage commissions.
There were no such purchases during the year ended December 31, 2010. At December 31, 2011, the total number of remaining shares authorized for repurchase was 1,331,143. The Company currently holds the shares it repurchased in treasury.

For the years ended December 31, 2011, 2010 and 2009, dividends and distributions paid to common stockholders were
$80,361,895, $80,455,656 and $44,821,419, respectively. For the years ended December 31, 2011, 2010 and 2009, dividends and distributions reinvested pursuant to the Companys dividend reinvestment plan were $8,021,087, $5,468,133 and
$9,083,849, respectively.

In June 2010, the Companys stockholders approved an amendment to the Companys
Certificate of Incorporation to increase the number of authorized shares of the Companys common stock from 100,000,000 to 200,000,000. The amendment was effective on that date.



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##### Table of Contents

9. Guarantees and contingencies

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the
Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. The Company has no such guarantees outstanding at December 31, 2011. The Companys only such
guarantee outstanding at December 31, 2010 was terminated on January 17, 2011 with no payments having been made thereunder.

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of
individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Companys individual maximum exposure under these arrangements is unknown, as this would involve future claims that
may be made against the Company that have not yet occurred. However, based on managements experience, the Company expects the risk of loss to be remote.

From time to time, the Company may be a party to certain legal proceedings incidental to the normal course of its business, including the enforcement of the Companys rights under contracts with its
portfolio companies. While the Company cannot predict the outcome of these legal proceedings with certainty, it does not expect that these proceedings will have a material effect on its consolidated financial statements.

10. Fair value of financial instruments

The carrying values of the Companys financial instruments approximate fair value. The carrying values of receivables, other assets, accounts payable and accrued expenses approximate fair value due
to their short maturities. The carrying and fair values of the Companys Credit Facility payable were $168,000,000 and $157,080,000 at December 31, 2011 and $170,000,000 and $169,150,000 at December 31, 2010, respectively. The
carrying and fair values of the Companys Secured Senior Notes were $175,000,000 and $180,815,000 at December 31, 2011, respectively. The carrying and fair values of the Companys total debt outstanding were therefore $343,000,000 and
337,895,000 at December 31, 2011, respectively.



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##### Table of Contents

The following tables summarize the fair values of the Companys investments, forward
foreign currency contracts and cash and cash equivalents based on the inputs used at December 31, 2011 and 2010 in determining such fair values:



|                                                        |  |                               |               |  |                                        |   |           |                                             |  |   |                                          |  |  |   |               | 
|------------------------------------------------------- |  | ----------------------------- | ------------- |  | -------------------------------------- | - | --------- | ------------------------------------------- |  | - | ---------------------------------------- |  |  | - | ------------- | 
|                                                        |  |                               |               |  | Fair Value Inputs at December 31, 2011 |  
|                                                        |  | Fair Value
atDecember 31,2011 |               |  | PriceQuotations(Level 1)               |   |           | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservable 
Inputs(Level 3) | 
|Senior secured notes                                    |  | $                             | 113,871,025   |  |                                        | $ |          |                                             |  | $ |                                         |  |  | $ | 113,871,025   | 
|Unsecured debt                                          |  |                               | 5,000,000     |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 5,000,000     | 
|Subordinated debt                                       |  |                               | 163,038,989   |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 163,038,989   | 
|Senior secured loans                                    |  |                               | 655,594,813   |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 655,594,813   | 
|Common stock                                            |  |                               | 65,985,605    |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 65,985,605    | 
|Limited partnership/limited liability company
interests |  |                               | 39,170,742    |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 39,170,742    | 
|Equity warrants/options                                 |  |                               | 6,291,268     |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 6,291,268     | 
|                                                        |  |                               |               |  |                                        |   |           |                                             |  |   |                                          |  |  |   |               | 
|Total investments                                       |  |                               | 1,048,952,442 |  |                                        |   |          |                                             |  |   |                                         |  |  |   | 1,048,952,442 | 
|Forward foreign currency contracts                      |  |                               | (1,106,241)   |  |                                        |   |          |                                             |  |   | (1,106,241)                              |  |  |   |              | 
|Cash and cash equivalents                               |  |                               | 7,778,993     |  |                                        |   | 7,778,993 |                                             |  |   |                                         |  |  |   |              | 
|                                                        |  |                               |               |  |                                        |   |           |                                             |  |   |                                          |  |  |   |               | 
|Total                                                   |  | $                             | 1,055,625,194 |  |                                        | $ | 7,778,993 |                                             |  | $ | (1,106,241)                              |  |  | $ | 1,048,952,442 | 
|                                                        |  |                               |               |  |                                        |   |           |                                             |  |   |                                          |  |  |   |               | 



|                                                        |  |                               |             |  |                                        |   |           |                                             |  |   |                                         |  |  |   |             | 
|------------------------------------------------------- |  | ----------------------------- | ----------- |  | -------------------------------------- | - | --------- | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | ----------- | 
|                                                        |  |                               |             |  | Fair Value Inputs at December 31, 2010 |  
|                                                        |  | Fair Value
atDecember 31,2010 |             |  | Price Quotations(Level
1)              |   |           | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Senior secured notes                                    |  | $                             | 88,265,252  |  |                                        | $ |          |                                             |  | $ |                                        |  |  | $ | 88,265,252  | 
|Unsecured debt                                          |  |                               | 6,898,385   |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 6,898,385   | 
|Subordinated debt                                       |  |                               | 221,369,811 |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 221,369,811 | 
|Senior secured loans                                    |  |                               | 444,823,276 |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 444,823,276 | 
|Preferred stock                                         |  |                               | 6,595,040   |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 6,595,040   | 
|Common stock                                            |  |                               | 83,162,072  |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 83,162,072  | 
|Limited partnership/limited liability company interests |  |                               | 23,387,927  |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 23,387,927  | 
|Equity warrants/options                                 |  |                               | 5,583,903   |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 5,583,903   | 
|                                                        |  |                               |             |  |                                        |   |           |                                             |  |   |                                         |  |  |   |             | 
|Total investments                                       |  |                               | 880,085,666 |  |                                        |   |          |                                             |  |   |                                        |  |  |   | 880,085,666 | 
|Forward foreign currency contracts                      |  |                               | (368,445)   |  |                                        |   |          |                                             |  |   | (368,445)                               |  |  |   |            | 
|Cash and cash equivalents                               |  |                               | 2,160,871   |  |                                        |   | 2,160,871 |                                             |  |   |                                        |  |  |   |            | 
|                                                        |  |                               |             |  |                                        |   |           |                                             |  |   |                                         |  |  |   |             | 
|Total                                                   |  | $                             | 881,878,092 |  |                                        | $ | 2,160,871 |                                             |  | $ | (368,445)                               |  |  | $ | 880,085,666 | 
|                                                        |  |                               |             |  |                                        |   |           |                                             |  |   |                                         |  |  |   |             | 



F-37



---

##### Table of Contents

In determining the fair values of the Companys forward foreign currency contracts at
December 31, 2011 and 2010, the Company used unadjusted indicative price quotations for similar assets (Level 2). The following tables summarize the valuation techniques used at December 31, 2011 and 2010 in determining the fair values of
the Companys investments for which significant unobservable inputs (Level 3) were used:



|                                                        |  |                               |               |  |                                              |   |           |                                                                               |  |   |               | 
|------------------------------------------------------- |  | ----------------------------- | ------------- |  | -------------------------------------------- | - | --------- | ----------------------------------------------------------------------------- |  | - | ------------- | 
|                                                        |  |                               |               |  | Valuation Techniques
atDecember 31, 2011     |  
|                                                        |  | Fair Value
atDecember 31,2011 |               |  | Broker Quote(s)forIdentical orSimilar Assets |   |           | Market Approach,Income Approach orBoth, Utilizing Third-Party Valuation
Firms | 
|Senior secured notes                                    |  | $                             | 113,871,025   |  |                                              | $ |          |                                                                               |  | $ | 113,871,025   | 
|Unsecured debt                                          |  |                               | 5,000,000     |  |                                              |   |          |                                                                               |  |   | 5,000,000     | 
|Subordinated debt                                       |  |                               | 163,038,989   |  |                                              |   |          |                                                                               |  |   | 163,038,989   | 
|Senior secured loans                                    |  |                               | 655,594,813   |  |                                              |   | 4,775,000 |                                                                               |  |   | 650,819,813   | 
|Common stock                                            |  |                               | 65,985,605    |  |                                              |   | 991,784   |                                                                               |  |   | 64,993,821    | 
|Limited partnership/limited liability company interests |  |                               | 39,170,742    |  |                                              |   |          |                                                                               |  |   | 39,170,742    | 
|Equity warrants/options                                 |  |                               | 6,291,268     |  |                                              |   | 4,000     |                                                                               |  |   | 6,287,268     | 
|                                                        |  |                               |               |  |                                              |   |           |                                                                               |  |   |               | 
|Total investments                                       |  | $                             | 1,048,952,442 |  |                                              | $ | 5,770,784 |                                                                               |  | $ | 1,043,181,658 | 
|                                                        |  |                               |               |  |                                              |   |           |                                                                               |  |   |               | 



|                                                        |  |                               |             |  |                                              |   |           |                                                                             |  |   |             | 
|------------------------------------------------------- |  | ----------------------------- | ----------- |  | -------------------------------------------- | - | --------- | --------------------------------------------------------------------------- |  | - | ----------- | 
|                                                        |  |                               |             |  | Valuation Techniques
atDecember 31, 2010     |  
|                                                        |  | Fair Value
atDecember 31,2010 |             |  | Broker Quote(s)forIdentical orSimilar Assets |   |           | Market Approach,Income Approach orBoth, UtilizingThird-PartyValuation
Firms | 
|Senior secured notes                                    |  | $                             | 88,265,252  |  |                                              | $ |          |                                                                             |  | $ | 88,265,252  | 
|Unsecured debt                                          |  |                               | 6,898,385   |  |                                              |   |          |                                                                             |  |   | 6,898,385   | 
|Subordinated debt                                       |  |                               | 221,369,811 |  |                                              |   |          |                                                                             |  |   | 221,369,811 | 
|Senior secured loans                                    |  |                               | 444,823,276 |  |                                              |   | 2,529,976 |                                                                             |  |   | 442,293,300 | 
|Preferred stock                                         |  |                               | 6,595,040   |  |                                              |   |          |                                                                             |  |   | 6,595,040   | 
|Common stock                                            |  |                               | 83,162,072  |  |                                              |   |          |                                                                             |  |   | 83,162,072  | 
|Limited partnership/limited liability company interests |  |                               | 23,387,927  |  |                                              |   |          |                                                                             |  |   | 23,387,927  | 
|Equity warrants/options                                 |  |                               | 5,583,903   |  |                                              |   | 5,000     |                                                                             |  |   | 5,578,903   | 
|                                                        |  |                               |             |  |                                              |   |           |                                                                             |  |   |             | 
|Total investments                                       |  | $                             | 880,085,666 |  |                                              | $ | 2,534,976 |                                                                             |  | $ | 877,550,690 | 
|                                                        |  |                               |             |  |                                              |   |           |                                                                             |  |   |             | 

The following is a reconciliation for the year ended December 31, 2011 of investments for which
Level 3 inputs were used in determining fair value:



|                                                        |  |                               |             |  |                                       |   |           |                        |  |   |                                                    |  |  |           |             |  |                     |   |             |                                      |  |   |                               |  |  |   |             |  |  |   |               | 
|------------------------------------------------------- |  | ----------------------------- | ----------- |  | ------------------------------------- | - | --------- | ---------------------- |  | - | -------------------------------------------------- |  |  | --------- | ----------- |  | ------------------- | - | ----------- | ------------------------------------ |  | - | ----------------------------- |  |  | - | ----------- |  |  | - | ------------- | 
|                                                        |  | Fair Value atDecember 31,2010 |             |  | Amortization ofPremium/Discount - Net |   |           | NetRealizedGain (Loss) |  |   | Net Change inUnrealizedAppreciation orDepreciation |  |  | Purchases |             |  | Sales orRedemptions |   |             | Net Transfersin
and/or out ofLevel 3 |  |   | Fair Value
atDecember 31,2011 | 
|Senior secured notes                                    |  | $                             | 88,265,252  |  |                                       | $ | 245,204   |                        |  | $ | (237,750)                                          |  |  | $         | 3,085,931   |  |                     | $ | 29,574,638  |                                      |  | $ | (7,062,250)                   |  |  | $ |            |  |  | $ | 113,871,025   | 
|Unsecured debt                                          |  |                               | 6,898,385   |  |                                       |   | 69,413    |                        |  |   |                                                   |  |  |           | (2,221,126) |  |                     |   | 253,328     |                                      |  |   |                              |  |  |   |            |  |  |   | 5,000,000     | 
|Subordinated debt                                       |  |                               | 221,369,811 |  |                                       |   | 2,113,101 |                        |  |   | (2,578,239)                                        |  |  |           | 4,815,608   |  |                     |   | 11,715,872  |                                      |  |   | (74,397,164)                  |  |  |   |            |  |  |   | 163,038,989   | 
|Senior secured loans                                    |  |                               | 444,823,276 |  |                                       |   | 5,869,387 |                        |  |   | (34,331,734)                                       |  |  |           | 41,067,212  |  |                     |   | 360,957,841 |                                      |  |   | (162,791,169)                 |  |  |   |            |  |  |   | 655,594,813   | 
|Preferred stock                                         |  |                               | 6,595,040   |  |                                       |   |          |                        |  |   | (8,738,355)                                        |  |  |           | 8,595,342   |  |                     |   |            |                                      |  |   | (6,452,027)                   |  |  |   |            |  |  |   |              | 
|Common stock                                            |  |                               | 83,162,072  |  |                                       |   |          |                        |  |   | (2,488,277)                                        |  |  |           | (7,730,347) |  |                     |   | (380,742)   |                                      |  |   | (36,838)                      |  |  |   | (6,540,263) |  |  |   | 65,985,605    | 
|Limited partnership/limited liability company interests |  |                               | 23,387,927  |  |                                       |   |          |                        |  |   |                                                   |  |  |           | 9,242,552   |  |                     |   |            |                                      |  |   |                              |  |  |   | 6,540,263   |  |  |   | 39,170,742    | 
|Equity warrants/options                                 |  |                               | 5,583,903   |  |                                       |   |          |                        |  |   | 5,000                                              |  |  |           | (181,560)   |  |                     |   | 888,925     |                                      |  |   | (5,000)                       |  |  |   |            |  |  |   | 6,291,268     | 
|                                                        |  |                               |             |  |                                       |   |           |                        |  |   |                                                    |  |  |           |             |  |                     |   |             |                                      |  |   |                               |  |  |   |             |  |  |   |               | 
|Total investments*                                      |  | $                             | 880,085,666 |  |                                       | $ | 8,297,105 |                        |  | $ | (48,369,355)                                       |  |  | $         | 56,673,612  |  |                     | $ | 403,009,862 |                                      |  | $ | (250,744,448)                 |  |  | $ |            |  |  | $ | 1,048,952,442 | 
|                                                        |  |                               |             |  |                                       |   |           |                        |  |   |                                                    |  |  |           |             |  |                     |   |             |                                      |  |   |                               |  |  |   |             |  |  |   |               | 





F-38



---

##### Table of Contents

The following is a reconciliation for the year ended December 31, 2010 of investments
for which Level 3 inputs were used in determining fair value:



|                                                        |  |                               |             |  |                                      |   |           |                        |  |   |                                                   |  |  |                                  |             |  |                                    |   |               |                               |  |   |   |  |  |   |             | 
|------------------------------------------------------- |  | ----------------------------- | ----------- |  | ------------------------------------ | - | --------- | ---------------------- |  | - | ------------------------------------------------- |  |  | -------------------------------- | ----------- |  | ---------------------------------- | - | ------------- | ----------------------------- |  | - | - |  |  | - | ----------- | 
|                                                        |  | Fair Value atDecember 31,2009 |             |  | Amortizationof Premium/Discount -Net |   |           | Net RealizedGain(Loss) |  |   | Net Change inUnrealizedAppreciationorDepreciation |  |  | NetPurchases,Sales orRedemptions |             |  | NetTransfersin and/orout
ofLevel 3 |   |               | Fair Value
atDecember 31,2010 | 
|Senior secured notes                                    |  | $                             | 48,407,746  |  |                                      | $ | 79,596    |                        |  | $ | 111,657                                           |  |  | $                                | (671,701)   |  |                                    | $ | 40,337,954    |                               |  | $ |  |  |  | $ | 88,265,252  | 
|Unsecured debt                                          |  |                               | 126,312,042 |  |                                      |   | 1,065,681 |                        |  |   | (17,892,200)                                      |  |  |                                  | 1,434,948   |  |                                    |   | (104,022,086) |                               |  |   |  |  |  |   | 6,898,385   | 
|Subordinated debt                                       |  |                               | 131,337,094 |  |                                      |   | 2,626,870 |                        |  |   | 358                                               |  |  |                                  | 4,570,831   |  |                                    |   | 82,834,658    |                               |  |   |  |  |  |   | 221,369,811 | 
|Senior secured loans                                    |  |                               | 501,811,506 |  |                                      |   | 5,697,722 |                        |  |   | (61,219,811)                                      |  |  |                                  | 63,351,182  |  |                                    |   | (64,817,323)  |                               |  |   |  |  |  |   | 444,823,276 | 
|Preferred stock                                         |  |                               | 5,896,040   |  |                                      |   |          |                        |  |   |                                                  |  |  |                                  | (1,901,000) |  |                                    |   | 2,600,000     |                               |  |   |  |  |  |   | 6,595,040   | 
|Common stock                                            |  |                               | 18,870,342  |  |                                      |   |          |                        |  |   | 1,061,929                                         |  |  |                                  | 16,466,423  |  |                                    |   | 46,763,378    |                               |  |   |  |  |  |   | 83,162,072  | 
|Limited partnership/limited liability company interests |  |                               | 13,082,528  |  |                                      |   |          |                        |  |   | (16,077,000)                                      |  |  |                                  | 16,053,122  |  |                                    |   | 10,329,277    |                               |  |   |  |  |  |   | 23,387,927  | 
|Equity warrants/options                                 |  |                               | 1,024,747   |  |                                      |   |          |                        |  |   | 4,707,189                                         |  |  |                                  | 3,182,313   |  |                                    |   | (3,330,346)   |                               |  |   |  |  |  |   | 5,583,903   | 
|                                                        |  |                               |             |  |                                      |   |           |                        |  |   |                                                   |  |  |                                  |             |  |                                    |   |               |                               |  |   |   |  |  |   |             | 
|Total investments*                                      |  | $                             | 846,742,045 |  |                                      | $ | 9,469,869 |                        |  | $ | (89,307,878)                                      |  |  | $                                | 102,486,118 |  |                                    | $ | 10,695,512    |                               |  | $ |  |  |  | $ | 880,085,666 | 
|                                                        |  |                               |             |  |                                      |   |           |                        |  |   |                                                   |  |  |                                  |             |  |                                    |   |               |                               |  |   |   |  |  |   |             | 

There were no transfers between Levels for the years ended December 31, 2011 and 2010. All realized
and unrealized gains and losses are included in earnings (changes in net assets) and are reported as separate line items within the Companys consolidated statements of operations.



F-39



---

##### Table of Contents

The following table contains information with respect to net unrealized appreciation or
depreciation on investments for which Level 3 inputs were used in determining fair value that are still held by the Company at December 31, 2011.



|                                                        |  |                                                                                                                                |             |  |                                                                                  |   |              | 
|------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ | ----------- |  | -------------------------------------------------------------------------------- | - | ------------ | 
|                                                        |  | Net Change in UnrealizedAppreciation or Depreciationfor the Year EndedDecember 31, 2011on
Investments Held atDecember 31, 2011 |             |  | Net
UnrealizedAppreciation or Depreciationon InvestmentsHeld atDecember 31, 2011 |  
|Senior secured notes                                    |  | $                                                                                                                              | 1,717,232   |  |                                                                                  | $ | (3,812,979)  | 
|Unsecured debt                                          |  |                                                                                                                                | 3,992,976   |  |                                                                                  |   | (45,109,481) | 
|Subordinated debt                                       |  |                                                                                                                                | 4,146,273   |  |                                                                                  |   | (3,897,597)  | 
|Senior secured loans                                    |  |                                                                                                                                | (727,095)   |  |                                                                                  |   | (8,806,394)  | 
|Preferred stock                                         |  |                                                                                                                                |            |  |                                                                                  |   |             | 
|Common stock                                            |  |                                                                                                                                | (9,579,210) |  |                                                                                  |   | 14,332,564   | 
|Limited partnership/limited liability company interests |  |                                                                                                                                | 9,324,240   |  |                                                                                  |   | (4,596,390)  | 
|Equity warrants/options                                 |  |                                                                                                                                | (176,222)   |  |                                                                                  |   | 2,972,050    | 
|                                                        |  |                                                                                                                                |             |  |                                                                                  |   |              | 
|Total investments*                                      |  | $                                                                                                                              | 8,698,194   |  |                                                                                  | $ | (48,918,227) | 
|                                                        |  |                                                                                                                                |             |  |                                                                                  |   |              | 

The following table contains information with respect to net unrealized appreciation or depreciation on
investments for which Level 3 inputs were used in determining fair value that are still held by the Company at December 31, 2010.



|                                                        |  |                                                                                                                                |              |  |                                                                                  |   |               | 
|------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ | ------------ |  | -------------------------------------------------------------------------------- | - | ------------- | 
|                                                        |  | Net Change in UnrealizedAppreciation or Depreciationfor the Year EndedDecember 31, 2010on Investments Held
atDecember 31, 2010 |              |  | Net
UnrealizedAppreciation or Depreciationon InvestmentsHeld atDecember 31, 2010 |  
|Senior secured notes                                    |  | $                                                                                                                              | (671,701)    |  |                                                                                  | $ | (6,898,909)   | 
|Unsecured debt                                          |  |                                                                                                                                | (14,023,826) |  |                                                                                  |   | (42,888,355)  | 
|Subordinated debt                                       |  |                                                                                                                                | 672,711      |  |                                                                                  |   | (8,713,203)   | 
|Senior secured loans                                    |  |                                                                                                                                | (11,282,854) |  |                                                                                  |   | (49,873,612)  | 
|Preferred stock                                         |  |                                                                                                                                | (1,900,999)  |  |                                                                                  |   | (8,595,342)   | 
|Common stock                                            |  |                                                                                                                                | 16,466,422   |  |                                                                                  |   | 14,464,022    | 
|Limited partnership/limited liability company interests |  |                                                                                                                                | (24,214)     |  |                                                                                  |   | (6,240,050)   | 
|Equity warrants/options                                 |  |                                                                                                                                | 3,598,061    |  |                                                                                  |   | 3,153,610     | 
|                                                        |  |                                                                                                                                |              |  |                                                                                  |   |               | 
|Total investments*                                      |  | $                                                                                                                              | (7,166,400)  |  |                                                                                  | $ | (105,591,839) | 
|                                                        |  |                                                                                                                                |              |  |                                                                                  |   |               | 



F-40



---

##### Table of Contents

11. Consolidated financial highlights

The following per share data and ratios have been derived from information provided in the consolidated financial statements. The
following is a schedule of consolidated financial highlights for a common share outstanding for each of the five years in the period ended December 31, 2011.



|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|--------------------------------------------------------------- |  | -------------------------- | ----------- |  | -------------------------- | - | ----------- | -------------------------- |  | - | -------------------------- |  |  | -------------------------- | ----------- |  |  | - | ----------- | 
|                                                                |  | Year
endedDecember 31,2011 |             |  | Year
endedDecember 31,2010 |   |             | Year
endedDecember 31,2009 |  |   | Year
endedDecember 31,2008 |  |  | Year
endedDecember 31,2007 |            
|Per Share Data:                                                 |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Net asset value, beginning of year                              |  | $                          | 9.62        |  |                            | $ | 9.55        |                            |  | $ | 9.23                       |  |  | $                          | 13.78       |  |  | $ | 14.93       | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Net investment income                                           |  |                            | 1.00        |  |                            |   | 0.96        |                            |  |   | 1.36                       |  |  |                            | 1.76        |  |  |   | 1.66        | 
|Net realized and unrealized gain (loss)                         |  |                            | 0.05        |  |                            |   | 0.18        |                            |  |   | (0.16)                     |  |  |                            | (4.54)      |  |  |   | (1.31)      | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Total from investment operations                                |  |                            | 1.05        |  |                            |   | 1.14        |                            |  |   | 1.20                       |  |  |                            | (2.78)      |  |  |   | 0.35        | 
|Dividend distributions to stockholders from:                    |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Net investment income                                           |  |                            | (0.81)      |  |                            |   | (1.28)      |                            |  |   | (0.80)                     |  |  |                            | (1.71)      |  |  |   | (1.68)      | 
|Net realized gains                                              |  |                            |            |  |                            |   |            |                            |  |   |                           |  |  |                            | (0.01)      |  |  |   | (0.01)      | 
|Tax return of capital                                           |  |                            | (0.29)      |  |                            |   |            |                            |  |   |                           |  |  |                            |            |  |  |   |            | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Total dividend distributions                                    |  |                            | (1.10)      |  |                            |   | (1.28)      |                            |  |   | (0.80)                     |  |  |                            | (1.72)      |  |  |   | (1.69)      | 
|Issuance of stock at prices above (below) net asset value       |  |                            | 0.01        |  |                            |   | 0.35        |                            |  |   | (0.13)                     |  |  |                            | (0.11)      |  |  |   | 0.38        | 
|Offering costs                                                  |  |                            |            |  |                            |   | (0.14)      |                            |  |   |                           |  |  |                            |            |  |  |   | (0.19)      | 
|Purchases of treasury stock at prices below net asset value.    |  |                            |            |  |                            |   |            |                            |  |   | 0.05                       |  |  |                            | 0.06        |  |  |   |            | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Net increase (decrease) in net assets                           |  |                            | (0.04)      |  |                            |   | 0.07        |                            |  |   | 0.32                       |  |  |                            | (4.55)      |  |  |   | (1.15)      | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Net asset value, end of year                                    |  | $                          | 9.58        |  |                            | $ | 9.62        |                            |  | $ | 9.55                       |  |  | $                          | 9.23        |  |  | $ | 13.78       | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Market price, end of year(1)                                    |  | $                          | 8.16        |  |                            | $ | 11.06       |                            |  | $ | 8.52                       |  |  | $                          | 9.86        |  |  | $ | 15.28       | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Total return(2)                                                 |  |                            | (16.03)%    |  |                            |   | 48.40%      |                            |  |   | (5.86)%                    |  |  |                            | (23.88)%    |  |  |   | 3.41%       | 
|Ratios / Supplemental Data:                                     |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Ratio of operating expenses to average net assets(3)            |  |                            | 5.55%       |  |                            |   | 6.05%       |                            |  |   | 7.94%                      |  |  |                            | 4.41%       |  |  |   | 4.60%       | 
|Ratio of credit facility related expenses to average net assets |  |                            | 2.67%       |  |                            |   | 1.35%       |                            |  |   | 1.35%                      |  |  |                            | 2.96%       |  |  |   | 3.04%       | 
|                                                                |  |                            |             |  |                            |   |             |                            |  |   |                            |  |  |                            |             |  |  |   |             | 
|Ratio of total expenses to average net assets(3)                |  |                            | 8.22%       |  |                            |   | 7.40%       |                            |  |   | 9.29%                      |  |  |                            | 7.37%       |  |  |   | 7.64%       | 
|Ratio of net investment income to average net assets            |  |                            | 10.22%      |  |                            |   | 9.68%       |                            |  |   | 14.47%                     |  |  |                            | 14.56%      |  |  |   | 11.16%      | 
|Net assets, end of year                                         |  | $                          | 701,008,849 |  |                            | $ | 698,479,924 |                            |  | $ | 539,562,762                |  |  | $                          | 510,295,501 |  |  | $ | 728,191,869 | 
|Average debt outstanding                                        |  | $                          | 291,353,425 |  |                            | $ | 205,151,507 |                            |  | $ | 397,464,757                |  |  | $                          | 453,241,284 |  |  | $ | 313,057,645 | 
|Weighted average shares outstanding                             |  |                            | 73,037,357  |  |                            |   | 62,663,002  |                            |  |   | 55,923,757                 |  |  |                            | 54,043,069  |  |  |   | 45,714,141  | 
|Average debt per share(4)                                       |  | $                          | 3.99        |  |                            | $ | 3.27        |                            |  | $ | 7.11                       |  |  | $                          | 8.39        |  |  | $ | 6.85        | 
|Portfolio turnover                                              |  |                            | 26%         |  |                            |   | 49%         |                            |  |   | 14%                        |  |  |                            | 11%         |  |  |   | 31%         | 





| | Figures may not foot due to rounding.
| | -------------------------------------

|(1) | The Companys common stock commenced trading on The NASDAQ Global Select Market on June 27, 2007. There was no established public trading market for the stock
prior to that date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | For the years ended December 31, 2011, 2010, 2009 and 2008, total return is based on the change in market price during the respective years. For the year ended
December 31, 2007, total return is based on the change in net asset value per common share during the year. The total return for the period June 26, 2007 through December 31, 2007 based on the change in market price per common
share during such period was 1.18%. Total return calculations take into account dividends and distributions, if any, reinvested in accordance with the Companys dividend reinvestment plan and do not reflect brokerage commissions. Total
return is not annualized.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Through June 30, 2007, certain base management fee waivers were in effect. For the year ended December 31, 2007, the ratio of operating expenses before
management fee waiver to average net assets was 4.90%, and the ratio of total expenses before management fee waiver to average net assets was 7.94%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Average debt per share is calculated as average debt outstanding divided by the weighted average shares outstanding during the applicable period.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

12. Federal tax information

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined
in accordance with GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain (loss), as appropriate,
in the period that the differences arise. The following temporary and permanent differences at December 31, 2011 and 2010 primarily attributable to differences in the tax treatment of certain loans, the tax characterization of income from
partnership investments, foreign currency transactions, non-deductible expenses and differences in accounting for upfront fees (which are treated as taxable income when received and may be accreted over the life of the respective investment for
financial reporting purposes), were reclassified for tax purposes as follows:



|                                                                                                                                                |  |                  |              |  |                  |   |               | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------------ |  | ---------------- | - | ------------- | 
|                                                                                                                                                |  | December 31,2011 |              |  | December 31,2010 |  
|Paid-in capital in excess of par                                                                                                                |  | $                | (6,266)      |  |                  | $ | (224,036)     | 
|Undistributed (distributions in excess of) net investment income                                                                                |  | $                | (35,785,123) |  |                  | $ | (2,888,423)   | 
|Accumulated net realized loss                                                                                                                   |  | $                | 35,791,389   |  |                  | $ | 3,112,459     | 
|The following reconciles net
increase in net assets resulting from operations to taxable income for the years ended December 31, 2011 and 2010: | 
|                                                                                                                                                |  | December 31,2011 |              |  | December 31,2010 |  
|Net increase in net assets resulting from operations                                                                                            |  | $                | 76,920,509   |  |                  | $ | 71,549,561    | 
|Net unrealized appreciation not taxable                                                                                                         |  |                  | (53,935,094) |  |                  |   | (101,935,495) | 
|Deferral of late year capital loss                                                                                                              |  |                  | 10,280,211   |  |                  |   | 23,613,827    | 
|Reversal of prior year post-October capital loss                                                                                                |  |                  | (38,046,992) |  |                  |   | (28,594,710)  | 
|Deferral of late year ordinary loss                                                                                                             |  |                  |             |  |                  |   | 733,702       | 
|Reversal of prior year post-October ordinary loss                                                                                               |  |                  | (733,702)    |  |                  |   | (1,008,793)   | 
|Section 1256 currency contracts mark-to-market                                                                                                  |  |                  | (1,106,241)  |  |                  |   | (368,445)     | 
|Reversal of prior year Section 1256 currency contracts mark-to-market                                                                           |  |                  | 368,445      |  |                  |   | (203,998)     | 
|Current year net capital losses                                                                                                                 |  |                  | 54,717,578   |  |                  |   | 95,856,015    | 
|Taxable interest income on non-accrual loans                                                                                                    |  |                  |             |  |                  |   | (1,046,547)   | 
|Taxable upfront fees reported, net of book amortization                                                                                         |  |                  | (4,314,213)  |  |                  |   | 5,985,578     | 
|Losses not currently taxable                                                                                                                    |  |                  | 2,330        |  |                  |   | (78,363)      | 
|Losses recognized on prior year exchange                                                                                                        |  |                  | (12,460,285) |  |                  |   |              | 
|Other book/tax differences                                                                                                                      |  |                  | (217,100)    |  |                  |   | (1,062,826)   | 
|Non-deductible excise and other taxes                                                                                                           |  |                  | 6,190        |  |                  |   | 298,322       | 
|Amortization of organizational costs                                                                                                            |  |                  | (3,804)      |  |                  |   | (3,804)       | 
|                                                                                                                                                |  |                  |              |  |                  |   |               | 
|Taxable income before deductions for distributions                                                                                              |  | $                | 31,477,832   |  |                  | $ | 63,734,024    | 
|                                                                                                                                                |  |                  |              |  |                  |   |               | 



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Taxable income generally differs from the change in net assets resulting from operations for
financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they
are realized.

At December 31, 2011, the cost of investments for tax purposes was $1,130,655,822 resulting in net
unrealized depreciation of $(81,703,380), which was comprised of gross unrealized appreciation and depreciation of $64,399,117 and $(146,102,497), respectively. At December 31, 2010, the cost of investments for tax purposes was $1,050,058,918,
resulting in net unrealized depreciation of $(169,973,252), which was comprised of gross unrealized appreciation and depreciation of $48,185,710 and $(218,158,962), respectively.

At December 31, 2011 and 2010, the components of accumulated net losses on a tax basis and reconciliation to accumulated net losses
on a book basis were as follows:



|                                                     |  |                            |               |  |                            |   |               | 
|---------------------------------------------------- |  | -------------------------- | ------------- |  | -------------------------- | - | ------------- | 
|                                                     |  | Year
endedDecember 31,2011 |               |  | Year
endedDecember 31,2010 |  
|Undistributed ordinary incomenet                    |  |                            |              |  |                            | $ | 8,885,367     | 
|Net unrealized depreciation                          |  |                            | (51,999,958)  |  |                            |   | (105,935,052) | 
|Deferred late year capital loss                      |  |                            | (10,280,211)  |  |                            |   | (23,613,827)  | 
|Section 1256 currency contracts mark-to-market       |  |                            | 1,106,241     |  |                            |   | 368,445       | 
|Deferred late year ordinary loss                     |  |                            |              |  |                            |   | (733,702)     | 
|Differences between book and tax loss on investments |  |                            | (40,475,352)  |  |                            |   | (53,518,710)  | 
|Dividends payable                                    |  |                            | (19,040,586)  |  |                            |   |              | 
|Capital loss carry forward                           |  |                            | (159,639,490) |  |                            |   | (104,921,912) | 
|Upfront fees adjustments                             |  |                            | (8,199,031)   |  |                            |   | (12,513,316)  | 
|Wash sales on investments                            |  |                            | (2,330)       |  |                            |   |              | 
|Expenses not currently deductible                    |  |                            | (32,335)      |  |                            |   | (36,135)      | 
|Net income from limited liability companies          |  |                            | 15,891,560    |  |                            |   | 1,650,613     | 
|                                                     |  |                            |               |  |                            |   |               | 
|Total accumulated lossesnet, book basis             |  | $                          | (272,671,484) |  |                            | $ | (290,368,229) | 
|                                                     |  |                            |               |  |                            |   |               | 

For the tax year ended December 31, 2011, the Company had a net capital loss carry forward of
$159,639,490, which can be used to offset future capital gains. If not utilized against future gains, $9,065,897 expires in 2017 and $95,856,015 expires in 2018. The remaining $54,717,578 of this capital loss carry forward will not be subject to
expiration and must be utilized prior to the losses subject to expiration.

As a RIC, the Company is subject to a
non-deductible federal excise tax of 4% if it does not distribute at least 98% of its ordinary income, excluding net short-term capital gains, in any calendar year; 98.2% of its capital gains in excess of capital losses for each one-year period
ended October 31; and any ordinary income and net capital gains for preceding years that were not distributed during such years. For the calendar year ended December 31, 2010, the Company did not distribute at least 98% of its ordinary
income and capital gains and paid the 4% excise tax. Accordingly, for the years ended December 31, 2011 and 2010, a provision was recorded for federal excise taxes of zero and $298,322, respectively.



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For income tax purposes, distributions paid to stockholders are reported as ordinary income,
non-taxable (return of capital), capital gains, or a combination thereof. The tax character of distributions paid or declared during the years ended December 31, 2011, 2010 and 2009, respectively, was as follows:



|                  |  |                |            |  |                 |   |      |                       |  |   |                 |  |  |                  |      |  |                 |   |            |                    |  |   |                 |  |  |                    |            |  |                       |   |      |  |  |   |            |  |  |   |      | 
|----------------- |  | -------------- | ---------- |  | --------------- | - | ---- | --------------------- |  | - | --------------- |  |  | ---------------- | ---- |  | --------------- | - | ---------- | ------------------ |  | - | --------------- |  |  | ------------------ | ---------- |  | --------------------- | - | ---- |  |  | - | ---------- |  |  | - | ---- | 
|Year ended        |  | Ordinaryincome |            |  | Amountpershare* |   |      | Long-termcapital gain |  |   | Amountpershare* |  |  | Return ofCapital |      |  | Amountpershare* |   |            | DeferredDividend** |  |   | Amountpershare* |  |  | Totaldistributions |            |  | Totalamount pershare* |  
|December 31, 2011 |  | $              | 40,189,444 |  |                 | $ | 0.55 |                       |  | $ |                |  |  | $                |     |  |                 | $ | 21,131,865 |                    |  | $ | 0.29            |  |  | $                  | 19,040,586 |  |                       | $ | 0.26 |  |  | $ | 80,361,895 |  |  | $ | 1.10 | 
|December 31, 2010 |  | $              | 80,455,656 |  |                 | $ | 1.28 |                       |  | $ |                |  |  | $                |     |  |                 | $ |           |                    |  | $ |                |  |  | $                  |           |  |                       | $ |     |  |  | $ | 80,455,656 |  |  | $ | 1.28 | 
|December 31, 2009 |  | $              | 44,714,904 |  |                 | $ | 0.80 |                       |  | $ | 106,515         |  |  | $                | 0.00 |  |                 | $ |           |                    |  | $ |                |  |  | $                  |           |  |                       | $ |     |  |  | $ | 44,821,419 |  |  | $ | 0.80 | 

|* | Rounded to the nearest $0.01.
|- | -----------------------------

|** | Deferred to the subsequent taxable year.
|-- | ----------------------------------------

ASC 740-10, Income Taxes (ASC 740-10) clarifies the accounting for income taxes by prescribing the minimum recognition threshold an uncertain tax position is required to meet before tax
benefits associated with such uncertain tax position are recognized in the consolidated financial statements. Based on its analysis of its tax position, the Company has concluded that it does not have any uncertain tax positions that met the
recognition or measurement criteria of ASC 740-10.

The Company files U.S. federal and various state and local tax returns. No
income tax returns are currently under examination. The statute of limitations on the Companys U.S. federal income tax returns remains open for each of the four years ended December 31, 2011. The statute of limitations on the
Companys state and local tax returns may remain open for an additional year depending upon the jurisdiction.

13. Selected quarterly
financial data (unaudited)



|                   |  |                                               |        |  |                     |   |        |                                        |  |   |                                                              |   |  |                                                 |        |   |                                                 |   |       |   |  |   |      | 
|------------------ |  | --------------------------------------------- | ------ |  | ------------------- | - | ------ | -------------------------------------- |  | - | ------------------------------------------------------------ | - |  | ----------------------------------------------- | ------ | - | ----------------------------------------------- | - | ----- | - |  | - | ---- | 
|Quarter Ended      |  | TotalInvestmentIncome                         |        |  | NetInvestmentIncome |   |        | Net Realizedand 
UnrealizedGain (Loss) |  |   | Net Increase(Decrease) in NetAssets Resultingfrom Operations |   |  | Basic andDiluted Earnings(Loss) perCommon Share |        |   | Net Asset Valueper CommonShare at End ofQuarter |  
|                   |  | (Dollars in thousands, except per share data) |       
|December 31, 2011  |  | $                                             | 35,989 |  |                     | $ | 11,298 |                                        |  | $ | (4,249                                                       | ) |  | $                                               | 7,050  |   |                                                 | $ | 0.10  |   |  | $ | 9.58 | 
|September 30, 2011 |  |                                               | 33,247 |  |                     |   | 20,965 |                                        |  |   | (8,027                                                       | ) |  |                                                 | 12,937 |   |                                                 |   | 0.18  |   |  |   | 9.75 | 
|June 30, 2011      |  |                                               | 37,107 |  |                     |   | 25,739 |                                        |  |   | 13,179                                                       |   |  |                                                 | 38,918 |   |                                                 |   | 0.53  |   |  |   | 9.83 | 
|March 31, 2011     |  |                                               | 25,160 |  |                     |   | 14,877 |                                        |  |   | 3,138                                                        |   |  |                                                 | 18,015 |   |                                                 |   | 0.25  |   |  |   | 9.56 | 
|                   |  |                                               |        |  |                     |  
|December 31, 2010  |  | $                                             | 25,043 |  |                     | $ | 2,354  |                                        |  | $ | 63                                                           |   |  | $                                               | 2,416  |   |                                                 | $ | 0.03  |   |  | $ | 9.62 | 
|September 30, 2010 |  |                                               | 24,818 |  |                     |   | 16,811 |                                        |  |   | (496                                                         | ) |  |                                                 | 16,316 |   |                                                 |   | 0.25  |   |  |   | 9.76 | 
|June 30, 2010      |  |                                               | 28,211 |  |                     |   | 20,421 |                                        |  |   | 1,914                                                        |   |  |                                                 | 22,335 |   |                                                 |   | 0.39  |   |  |   | 9.83 | 
|March 31, 2010     |  |                                               | 27,799 |  |                     |   | 20,265 |                                        |  |   | 10,218                                                       |   |  |                                                 | 30,483 |   |                                                 |   | 0.54  |   |  |   | 9.77 | 
|                   |  |                                               |        |  |                     |  
|December 31, 2009  |  | $                                             | 30,274 |  |                     | $ | 4,985  |                                        |  | $ | 11,355                                                       |   |  | $                                               | 16,339 |   |                                                 | $ | 0.29  |   |  | $ | 9.55 | 
|September 30, 2009 |  |                                               | 29,359 |  |                     |   | 21,782 |                                        |  |   | 9,364                                                        |   |  |                                                 | 31,146 |   |                                                 |   | 0.55  |   |  |   | 9.59 | 
|June 30, 2009      |  |                                               | 33,440 |  |                     |   | 25,535 |                                        |  |   | (1,714                                                       | ) |  |                                                 | 23,822 |   |                                                 |   | 0.43  |   |  |   | 9.24 | 
|March 31, 2009     |  |                                               | 31,811 |  |                     |   | 23,751 |                                        |  |   | (27,818                                                      | ) |  |                                                 | (4,067 | ) |                                                 |   | (0.07 | ) |  |   | 9.04 | 

14. Subsequent events

The Company has reviewed subsequent events occurring through the date that these consolidated financial statements were issued, and determined that no subsequent events occurred requiring accrual or
disclosure, except as disclosed below and elsewhere in these Notes to Consolidated Financial Statements.

On February 29,
2012, the Companys Board of Directors declared a dividend of $0.26 per share, payable on April 3, 2012 to stockholders of record at the close of business on March 20, 2012.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.



| |  |  |  |                                     |  |                                                                 
| |  |  |  | ----------------------------------- |  | ----------------------------------------------------------------
| |  |  |  | BLACKROCK KELSO CAPITAL CORPORATION
| |  |  | 
| |  |  |  | By:                                 |  | /s/    James R. Maher                                           
| |  |  |  |                                     |  | James R. Maher                                                  
| |  |  |  |                                     |  | Chairman of the Board and Chief Executive Officer
 March 1, 2012

Each of the officers and directors of BlackRock Kelso Capital Corporation whose signature appears below,
in so signing, also makes, constitutes and appoints each of James R. Maher and Corinne Pankovcin, or either of them, each acting alone, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to
execute and cause to be filed with the Securities and Exchange Commission any and all amendments to the Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order
to file such documents, and hereby ratifies and confirms all that said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



|                                                         |  |                                                                                    |  |              
|-------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | -------------
|SIGNATURE                                                |  | TITLE                                                                              |  | DATE         
|                                                         |  |                                                                                   
|/S/    JAMES R.
MAHER James R. Maher                     |  | Chairman of the Board
and Chief Executive Officer
(principal executive officer)    |  | March 1, 2012
|                                                         |  |                                                                                   
|/S/    CORINNE
PANKOVCIN Corinne Pankovcin               |  | Chief Financial Officer and
Treasurer
(principal financial and accounting
officer) |  | March 1, 2012
|                                                         |  |                                                                                   
|/S/    JERROLD B.
HARRIS Jerrold B. Harris               |  | Director                                                                           |  | March 1, 2012
|                                                         |  |                                                                                   
|/S/    WILLIAM E.
MAYER William E. Mayer                 |  | Director                                                                           |  | March 1, 2012
|                                                         |  |                                                                                   
|/S/    FRANÇOIS
DE SAINT PHALLE François
de Saint Phalle |  | Director                                                                           |  | March 1, 2012
|                                                         |  |                                                                                   
|/S/    MAUREEN K.
USIFER Maureen K. Usifer               |  | Director                                                                           |  | March 1, 2012



S-1