UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549










FORM 10-K










| | x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ------------------------------------------------------------------------------------



For the Year Ended December 31, 2012



| |  ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ----------------------------------------------------------------------------------------



Commission File Number: 814-00899



TCP CAPITAL CORP.

(Exact Name of Registrant as Specified in
Charter)



|Delaware                                      |  |  |  | 56-2594706                      
|--------------------------------------------- |  |  |  | --------------------------------
|(State or Other Jurisdictionof Incorporation) |  |  |  | (IRS EmployerIdentification No.)



|2951 28th Street, Suite 1000
        Santa Monica, California |  | 90405     
|------------------------------------------------------------- |  | ----------
|(Address of Principal Executive Offices)                      |  | (Zip Code)



Registrant’s telephone number, including
area code (310) 566-1000



Securities registered pursuant to Section
12(b) of the Act:



|Common Stock, par value $0.001 per share |  | NASDAQ Global Select Market             
|---------------------------------------- |  | ----------------------------------------
|(Title of each class)                    |  | (Name of each exchange where registered)



Securities registered pursuant to Section
12(g) of the Act: None



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 and (2) has been subject to such filing requirements for the past 90 days: Yes xNo  ̈





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
whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):



| | Large accelerated filer  ̈ |  | Accelerated filer                ̈
| | ------------------------- |  | ---------------------------------
| |                           |  |                                  
| | Non-accelerated filer   x |  | Smaller Reporting company  ̈      



Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ̈No x



The aggregate market
value of the Registrant’s common stock held by non-affiliates of the Registrant at June 29, 2012 (the last business day of
the Registrant’s most recently completed second quarter) was $56.0 million 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.



The number of shares
of the Registrant’s common stock, $0.001 par value, outstanding as of March 6, 2013 was 21,477,628.



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.


















Table of Contents

TCP CAPITAL CORP.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31,
2012



TABLE OF CONTENTS



|        |                                                                                                              | Page
|------- | ------------------------------------------------------------------------------------------------------------ | ----
|        |                                                                                                              |     
|        | PART I                                                                                                       |     
|Item 1. | Business                                                                                                     | 2   
|        |                                                                                                              |     
|Item1A. | Risk Factors                                                                                                 | 19  
|        |                                                                                                              |     
|Item1B. | Unresolved Staff Comments                                                                                    | 33  
|        |                                                                                                              |     
|Item 2. | Properties                                                                                                   | 33  
|        |                                                                                                              |     
|Item 3. | Legal Proceedings                                                                                            | 34  
|Item 4. | Mine Safety Disclosures                                                                                      | 34  
|        |                                                                                                              |     
|        | PART II                                                                                                      |     
|Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 35  
|Item 6. | Selected Financial Data                                                                                      | 37  
|Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 39  
|Item7A. | Quantitative and Qualitative Disclosures about Market Risk                                                   | 49  
|Item 8. | Financial Statements and Supplementary Data                                                                  | 51  
|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         | 94  
|Item9A. | Controls and Procedures                                                                                      | 94  
|Item9B. | Other Information                                                                                            | 95  
|        |                                                                                                              |     
|        | PART III                                                                                                     |     
|Item10. | Directors, Executive Officers and Corporate Governance                                                       | 95  
|        |                                                                                                              |     
|Item11. | Executive Compensation                                                                                       | 95  
|Item12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 95  
|        |                                                                                                              |     
|Item13. | Certain Relationships and Related Transactions, and Director Independence                                    | 95  
|Item14. | Principal Accountant Fees and Services                                                                       | 95  
|        |                                                                                                              |     
|        | PART IV                                                                                                      |     
|Item15. | Exhibits and Financial Statement Schedules                                                                   | 96  
|        |                                                                                                              |     
|        | Signatures                                                                                                   | 97  



1







Part I



In this annual report in Form 10-K,
except as otherwise indicated, the terms:



“Holding Company” refers
to Special Value Continuation Fund, LLC, a Delaware limited liability company, for the periods prior to the consummation of the
Conversion described elsewhere in this report and to TCP Capital Corp. for the periods after the consummation of the Conversion;



“Operating Company” refers
to Special Value Continuation Partners, LP, a Delaware limited partnership;



The “Advisor” refers
to Tennenbaum Capital Partners, LLC, a Delaware limited liability company and the investment manager; and



“General Partner” and
“Administrator” refer to SVOF/MM, LLC, a Delaware limited liability company, the general partner of the Operating Company
and an affiliate of the Advisor and administrator of the Holding Company and the Operating Company.



For simplicity, this
report uses the terms “Company,” “we,” “us” and “our” to include the Holding Company
and, where appropriate in the context, the Operating Company, on a consolidated basis.



Item 1. Business



The Holding Company is
a Delaware corporation formed on April 2, 2012 and is an externally managed, closed-end, non-diversified management investment
company. We have elected to be treated as a business development company (“BDC”) under the Investment Company Act of
1940, as amended (the “1940 Act”). Our investment objective is to achieve high total returns through current income
and capital appreciation, with an emphasis on principal protection. We seek to achieve our investment objective primarily through
investments in debt securities of middle-market companies, which we typically define as those with enterprise values between $100
million and $1.5 billion. While we intend to primarily focus on privately negotiated investments in debt of middle-market companies,
we may make investments of all kinds and at all levels of the capital structure, including in equity interests such as preferred
or common stock and warrants or options received in connection with our debt investments. Our investment activities will benefit
from what we believe are the competitive advantages of our Advisor, including its diverse in-house skills, proprietary deal flow,
and consistent and rigorous investment process focused on established, middle-market companies. We expect to generate returns through
a combination of the receipt of contractual interest payments on debt investments and origination and similar fees, and, to a lesser
extent, equity appreciation through options, warrants, conversion rights or direct equity investments.



Investment operations
are conducted in the Operating Company, of which the Holding Company owns 100% of the common limited partner interests. The Operating
Company has also elected to be treated as a BDC under the 1940 Act. The General Partner of the Operating Company is SVOF/MM, LLC
(“SVOF/MM”), which also serves as the administrator (the “Administrator”) of the Holding Company and the
Operating Company. The managing member of SVOF/MM is Tennenbaum Capital Partners, LLC (the “Advisor”), which serves
as the investment manager to both the Holding Company and the Operating Company. Most of the equity interests in the General Partner
are owned directly or indirectly by the Advisor and its employees.



The Holding Company has
elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, we
will not be taxed on our income to the extent that we distribute such income each year and satisfy other applicable income tax
requirements. The Operating Company has elected to be treated as a partnership for U.S. federal income tax purposes.



On April 2, 2012, the
Holding Company converted from a limited liability company to a corporation (the “Conversion”). At the time of the
Conversion, all limited liability company interests of Special Value Continuation Fund, LLC (“SVCF”) were exchanged
for 15,725,635 shares of common stock in TCP Capital Corp. As a result of the Conversion, the books and records of SVCF have become
the books and records of the surviving entity.



On April 3, 2012, the
Holding Company priced its initial public offering (the “Offering”), selling 5,750,000 shares of its common stock at
a public offering price of $14.75 per share.



To qualify as a RIC, we
must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders
generally at least 90% of our investment company taxable income, as defined by the Internal Revenue Code of 1986, as amended (the
“Code”), for each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income
that we distribute to our stockholders provided that we satisfy those requirements.



2







Tennenbaum Capital Partners, LLC



Our investment activities are managed by
the Advisor. The Advisor is a leading investment manager (including specialty lending to middle-market companies). The Advisor
is a Delaware limited liability company and is registered as an investment advisor under the Investment Advisers Act of 1940. As
of December 31, 2012, the Advisor had in excess of $4.5 billion in committed capital under management, approximately 12% of which
consists of the Holding Company’s committed capital, and a team of over 70 people including investment professionals and
other personnel that focus on operations, finance, legal and compliance, accounting and reporting, investor relations, information
technology, and administration. The Advisor was founded in 1999 by Michael E. Tennenbaum, Mark K. Holdsworth and Howard M. Levkowitz,
and its predecessor entity, formed by the same individuals, commenced operations in 1996. The three founders along with David Adler,
David A. Hollander, Michael E. Leitner, Philip M. Tseng and Rajneesh Vig constitute the Advisor’s active partners (the “Advisor
Partners”). The Advisor Partners have significant industry experience, including experience investing in middle-market companies.
Together, the Advisor Partners have invested over $11.0 billion in more than 250 companies since the Advisor’s inception,
through multiple business and credit cycles, across all segments of the capital structure and through a broad set of credit-oriented
strategies including leveraged loan origination, secondary investments of discounted debt securities, and distressed and control
opportunities. We refer to the products that employ these strategies within the Advisor platform as the Opportunity Funds. We believe
the Advisor Partners’ investment perspectives, complementary skills, and collective investment experience provide the Advisor
with a strategic and competitive advantage in middle-market investing.



As our investment advisor, the Advisor is
responsible for sourcing potential investments, conducting research, analyzing investment opportunities and structuring our investments
and monitoring our portfolio companies on an ongoing basis. We believe that the Advisor has a proven long-term track record of
positive performance, notwithstanding some periods during which losses were incurred, of sourcing deals, originating loans and
successfully investing in middle-market companies and that the relationships of its investment professionals are integral to the
Advisor’s success. The Advisor’s investment professionals have long-term working relationships with key sources of
investment opportunities and industry expertise, including investment bankers, financial advisors, attorneys, private equity sponsors,
other senior lenders, high-yield bond specialists, research analysts, accountants, and senior management teams. Additionally, the
Advisor’s structure includes both a board of advisors and a group of Senior Executive Advisors, a team comprised of approximately
20 current and former executives from a variety of industries, which extends the reach of the Advisor’s relationships through
a group of seasoned industry leaders and that can enhance our deal sourcing and due diligence activities.



We also benefit from the existing infrastructure
and administrative capabilities of an established investment manager. The General Partner, an affiliate of the Advisor, serves
as our Administrator and provides us with office space, equipment and office services. The tasks of our Administrator include overseeing
our financial records, preparing reports to our stockholders and reports filed with the SEC and generally monitoring the payment
of our expenses and the performance of administrative and professional services rendered to us by others.



Since the beginning of 2011, the Advisor
executed in its Opportunity Funds over $980 million in direct origination leveraged loans primarily to middle-market companies,
of which over $313 million was for our account. There can be no assurance that similar deal flow or terms will be available in
the future for loans in which we may invest.



Operating and Regulatory Tax Structure



The Holding Company elected to be treated
for U.S. federal income tax purposes as a RIC under the Code. As a RIC, the Holding Company generally does not have to pay corporate-level
federal income taxes on any net ordinary income or capital gain that we distribute to our stockholders as dividends if we meet
certain source-of-income, distribution and asset diversification requirements. The Operating Company is not a RIC nor will it seek
RIC status and instead is intended to be treated as a partnership for tax purposes. The Holding Company and the Operating Company
have elected to be treated as BDCs under the 1940 Act. As a BDC we are required to invest at least 70% of our total assets primarily
in securities of private and certain U.S. public companies (other than certain financial institutions), cash, cash equivalents,
U.S. Government securities, and other high-quality debt investments that mature in one year or less and to comply with other regulatory
requirements, including limitations on our use of debt. Because the Holding Company and the Operating Company are each BDCs, their
assets, liabilities and results of operations will be consolidated for purposes of this 70% requirement.



3







Investment Strategy



To achieve our investment objectives, we
intend to focus on a subset of the broader investment strategies historically pursued by the Advisor. Our primary investment focus
is the ongoing origination of and investments in leveraged loans of performing middle-market companies, building on the Advisor’s
established track record of origination and participation in the original syndication of approximately $4.3 billion of leveraged
loans to 85 companies since 1999, of which we invested over $830 million in 53 companies. For the purposes of this filing, the
term “leveraged loans” refers to senior debt investments that rank ahead of subordinated debt and that generally have
the benefit of security interests in the assets of the borrower. Our investments generally range from $10 million to $35 million
per company, the size of which may grow over time in proportion with our capital base. We expect to generate current returns through
a combination of the receipt of contractual interest payments on debt investments and origination and similar fees, and, to a lesser
extent, equity appreciation through options, warrants, conversion rights or direct equity investments. We often receive equity
interests such as preferred or common stock and warrants or options in connection with our debt investments. From time to time
we may also use other investment strategies, which are not our primary focus, to attempt to enhance the overall return of our portfolio.
These investment strategies may include, but are not limited to, the purchase of discounted debt, opportunistic investments, and
financial instruments to hedge currency or interest rate risk associated with our portfolio.



Our typical investments are in performing
middle-market companies. We believe that middle-market companies are generally less able to secure financing than larger companies
and thus offer better return opportunities for those able to conduct the necessary diligence to appropriately evaluate these companies.
We focus primarily on U.S. companies where we believe our Advisor’s perspective, complementary skills and investment experience
provides us with a competitive advantage and in industries where our Advisor sees an attractive risk reward profile due to macroeconomic
trends and existing the Advisor industry expertise.



Investment Portfolio



At December 31, 2012, our existing investment
portfolio consisted of debt and equity positions in 54 portfolio companies valued at approximately $517.7 million. Debt positions
represented approximately 93% of the total portfolio fair value and had a weighted-average effective yield and yield to maturity
of approximately 11.3% and 11.6%, respectively. For purposes of this report, references to “yield to maturity” assume
that debt investments in our portfolio as of a certain date are purchased at fair value on that date and held until their respective
maturities with no prepayments or losses and are exited at par upon maturity. At December 31, 2012, the weighted-average remaining
term of our debt investments was approximately 4.7 years. At December 31, 2012, the average investment size in our existing portfolio
by issuer was $9.6 million.



The following charts summarize our portfolio
mix by industry and type based on the fair value of our investments as of December 31, 2012.



|Investment by Industry | Investment by Asset Type
|---------------------- | ------------------------
|                       |                         
|                       |                         



4







Investment Process



The Advisor’s investment process is
designed to maximize its strategic advantages: a strong brand name as a specialty lender to the middle-market, and diverse in-house
expertise and skills. The Advisor seeks out opportunities by conducting a rigorous and disciplined investment process that combines
the following characteristics:



Deal Sourcing



As a leading middle-market corporate debt
investment manager with a 15-year history and in excess of $4.7 billion in committed capital as of December 31, 2012, approximately
12% of which consists of the Holding Company’s committed capital, the Advisor is active in new deal financing opportunities
in the middle-market segment. However, we believe that the Advisor’s real deal flow advantage comes from the proprietary
network of established relationships of its investment professionals and synergies among its professionals and portfolio companies.
Members of the Advisor’s Investment Committee for the Company ( the “Investment Committee”) have long-term relationships
with deal sources including investment bankers, restructuring professionals, bankruptcy attorneys, senior lenders, high yield bond
specialists, research analysts, accountants, fund management teams, the Advisor’s Advisory Board, Senior Executive Advisors,
board members of former clients, former colleagues and other operating professionals to facilitate deal flow. The Investment Committee
is currently comprised of six voting members. In total, the Investment Committee consists of approximately 25 members from the
Advisor, of which approximately 19 are non-voting members. The number of voting and non-voting members of the Investment Committee
is subject to increase or decrease in the sole discretion of the Advisor. All members of the Investment Committee attend investment
meetings and are encouraged to participate in discussions. In addition, members of the Investment Committee have relationships
with other investors, including insurance companies, bond funds, mezzanine funds, private equity funds, hedge funds and other funds
which invest in similar assets. Further, the Advisor regularly calls on both active and recently retired senior executives from
the relevant industries to assist with the due diligence of potential investments. Historically, these relationships with retired
senior executives have also been a valuable source of transactions and information. The Advisor anticipates that they will continue
to provide future opportunities. We believe the Advisor’s strong relationships with its portfolio companies facilitate positive
word-of-mouth recommendations to other companies seeking the Advisor’s expertise. The Advisor’s relationships often
result in the ability to access investment opportunities earlier than many of its competitors and in some cases on an exclusive
basis.



Due Diligence Process



The foundation of the Advisor’s investment
process is intensive investment research and analysis by its experienced staff of investment professionals. The Advisor’s
senior professionals have worked together for numerous years and we believe that they have a superior level of credit investing
knowledge relative to other credit investors. The Advisor supplements its in-house knowledge with industry experts, including CEO/CFO-level
executives, with direct management experience in the industries under consideration. The Advisor prefers these industry experts
to consultants because of the practical business advice that comes from having managed businesses. The Advisor rigorously and comprehensively
analyzes issuers of securities of interest. The process includes a quantitative and qualitative assessment of the issuer’s
business, an evaluation of its management, an analysis of the business strategy and industry trends, and an in-depth examination
of the company’s capital structure, financial results and projections. The Advisor’s due diligence process includes:



| | · | an assessment of the outlook for the industry and general macroeconomic trends;
| | - | -------------------------------------------------------------------------------



| | · | discussions with issuer management and other industry executives, including the assessment of management/board strengths and
weaknesses;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | an analysis of the fundamental asset values and the enterprise value of the issuer;
| | - | -----------------------------------------------------------------------------------



| | · | review of the issuer’s key assets, core competencies, competitive advantages, historical and projected financial statements,
capitalization, financial flexibility, debt amortization requirements, and tax, environmental, legal and regulatory contingencies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | review of the issuer’s existing credit documents, including credit agreements, indentures, intercreditor agreements,
and security agreements; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | review of documents governing the issuer, including charter, by-laws, and key contracts.
| | - | ----------------------------------------------------------------------------------------



5







Structuring Originations



As an early non-bank participant in the
leveraged loan market, we believe that loan origination is a core competency of the Advisor. Supplementing industry deal teams’
experience and competency, the Advisor has seven professionals (including investment professionals) with legal experience, two
of whom have a quarter-century each of relevant experience in secured credit. Deal teams work with the Advisor’s in-house
legal specialists and outside counsel to structure over-collateralized loans with what we believe to be strong creditor protections
and contractual controls over borrower operations. In many cases, the Advisor works to obtain contractual governance rights and
board seats to protect principal and maximize post-investment returns. Deals usually include upfront fees and/or equity participations
through warrants or direct equity stakes.



Trading and Secondary Market Purchases



A key element in maximizing investment returns
in secondary purchases is buying and selling investments at the best available prices. The Advisor has a dedicated trading staff
for both the highly specialized traded loan market and for high-yield bonds. Through its trading operations, the Advisor maintains
its established relationships with a network of broker-dealers in the debt securities markets. These relationships provide the
Advisor with access to the trading dynamics of existing or potential investments and assist it in effectively executing transactions.
These relationships may also lead to the early identification of potential investment opportunities for the Company.



Portfolio Management & Monitoring



The Advisor actively monitors the financial
performance of its portfolio companies and market developments. This constant monitoring permits the Advisor to update position
risk assessments, seek to address potential problems early, refine exit plans, and make follow-on investment decisions quickly.
We view active portfolio monitoring as a vital part of our investment process.



We consider board observation and information
rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to be critical
to our performance. We have developed a monitoring template that seeks to ensure compliance with these standards and that is used
as a tool by the Investment Committee to assess investment performance relative to plan.



| | · | Deal teams maintain contact with portfolio company management through regularly scheduled and ad hoc conference calls
and onsite visits.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | Deal teams review portfolio company progress relative to plan and pre-determined performance benchmarks.
| | - | --------------------------------------------------------------------------------------------------------



| | · | Adverse or unexpected developments, as well as consequential routine updates, are reported to the Investment Committee and
thoroughly discussed at regularly scheduled weekly meetings. If merited, the Investment Committee will hold ad hoc meetings as
necessary to address urgent issues.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Deal teams, with Investment Committee approval, encourage portfolio company managers to catalyze events to monetize holdings
for greater return, or where needed, corrective actions to address shortfalls to plan or benchmarks.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | All existing portfolio holdings are formally reviewed in detail by the entire Investment Committee once per quarter at the
Advisor’s quarterly portfolio review.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Investment Committee and Decision Process



The Advisor’s investment process is
organized around the Investment Committee that provides for a centralized, repeatable decision process. The Investment Committee
meets weekly and, with respect to each fund the Advisor advises, certain members of the Investment Committee are voting members.
The Investment Committee has six voting members: Todd R. Gerch, Mark K. Holdsworth, Michael E. Leitner, Howard M. Levkowitz, Michael
E. Tennenbaum and Rajneesh Vig. Approval by a simple majority vote of the voting members of the Investment Committee for each respective
fund is required for the purchase or sale of any investment, with certain de-minimis exceptions. No voting member has veto power.
The Advisor’s investment process is designed to maximize risk-adjusted returns and preserve downside protection.



Regulation



We have filed
an election to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions
between BDCs and their affiliates (including any investment advisors or co-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 approved by “a majority of our outstanding voting securities”,
which is defined in the 1940 Act as the lesser of a majority of the outstanding voting securities or 67% or more of the securities
voting if a quorum of a majority of the outstanding voting securities is present.



6







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 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 more than one investment company. With regard to that
portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might
indirectly subject our stockholders to additional expenses as they will indirectly be responsible for the costs and expenses of
such companies. None of our investment policies are fundamental and any may be changed without stockholder approval. Pursuant to
the 1940 Act, our investment in the Operating Company is not subject to these limits because, among other reasons, (i) the Operating
Company is our sole investment and (ii) we “pass-through” our votes on Operating Company matters to our stockholders
and vote all of our interests in the Operating Company in the same proportion and manner as our stockholders vote their common
stock on such matters.



Qualifying assets



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



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



| | · | is organized under the laws of, and has its principal place of business in, the United States;
| | - | ----------------------------------------------------------------------------------------------



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



| | · | satisfies either of the following:
| | - | ----------------------------------



| | · | has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities
exchange; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the
management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director
of the eligible portfolio company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Securities of any eligible portfolio company which we control.
| | - | --------------------------------------------------------------



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



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



| | · | Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise
of warrants or rights relating to such securities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time
of investment.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



7







Managerial assistance to portfolio companies



A BDC must have been organized and have
its principal place of business in the United States and must be operated for the purpose of making investments in the types of
securities described in “Qualifying assets” above. However, in order to count portfolio securities as qualifying assets
for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the
issuer of the securities significant managerial assistance. Where the BDC purchases such securities in conjunction with one or
more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such
managerial assistance, although reliance on other investors may not be the sole method by which the BDC satisfies the requirement
to make available managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby
the BDC, through its investment manager, directors, officers or employees, offers to provide, and, if accepted, does so provide,
significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.



Taxation of the company



We have elected to be taxed as a RIC under
Subchapter M of the Code. To continue to qualify as a RIC, we must, among other things, (a) derive in each taxable year at least
90 percent of our gross income from dividends, interest (including tax-exempt interest), payments with respect to certain securities
loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income (including but not limited
to gain from options, futures and forward contracts) derived with respect to our business of investing in stock, securities or
currencies, or net income derived from an interest in a “qualified publicly traded partnership” (a “QPTP”);
and (b) diversify our holdings so that, at the end of each quarter of each taxable year (i) at least 50 percent of the market value
of our total assets is represented by cash and cash items, U.S. Government securities, the securities of other RICs and other securities,
with other securities limited, in respect of any one issuer, to an amount not greater than five percent of the value of our total
assets and not more than 10 percent of the outstanding voting securities of such issuer (subject to the exception described below),
and (ii) not more than 25 percent of the market value of our total assets is invested in the securities (other than U.S. Government
securities and the securities of other regulated investment companies) (A) of any issuer, (B) of any two or more issuers that we
control and that are determined to be engaged in the same business or similar or related trades or businesses, or (C) of one or
more QPTPs. The Code provides for certain exceptions to the foregoing diversification requirements. We may generate certain income
that might not qualify as good income for purposes of the 90% annual gross income requirement described above. We monitor our transactions
to endeavor to prevent our disqualification as a RIC.



If we fail to satisfy the 90% annual gross
income requirement or the asset diversification requirements discussed above in any taxable year, we may be eligible for relief
provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each
failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the asset diversification
requirements where we correct the failure within a specified period. If the applicable relief provisions are not available or cannot
be met, all of our income would be subject to corporate-level U.S. federal income tax as described below. We cannot provide assurance
that we would qualify for any such relief should we fail the 90% annual gross income requirement or the asset diversification requirements
discussed above.



As a RIC, in any taxable year with respect
to which we timely distribute at least 90% of the sum of our (i) investment company taxable income (which includes, among other
items, dividends, interest and the excess of any net short-term capital gain over net long-term capital loss and other taxable
income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends
and distributions paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over
certain disallowed deductions) (the “Annual Distribution Requirement”), we (but not our stockholders) generally will
not be subject to U.S. federal income tax on investment company taxable income and net capital gain (generally, net long-term capital
gain in excess of short-term capital loss) that we distribute to our stockholders. We intend to distribute annually all or substantially
all of such income on a timely basis. To the extent that we retain our net capital gain for investment or any investment company
taxable income, we will be subject to U.S. federal income tax at the regular corporate income tax rates. We may choose to retain
our net capital gains for investment or any investment company taxable income, and pay the associated federal corporate income
tax, including the federal excise tax described below.



Certain amounts not distributed during a calendar year are subject to a nondeductible four percent U.S. federal excise tax payable by us. To avoid this tax, we would
need to distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:



| | (1) | at least 98 percent of our ordinary income (not taking into account any capital gains or losses) for the calendar year;
| | --- | -----------------------------------------------------------------------------------------------------------------------



| | (2) | at least 98.2 percent of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses)
for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable
year); and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8







| | (3) | certain undistributed amounts from previous years on which we paid no U.S. federal income tax.
| | --- | ----------------------------------------------------------------------------------------------



While we intend to distribute any income
and capital gains in the manner necessary to minimize imposition of the four percent federal excise tax, sufficient amounts of
our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will
be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.



If, in any particular taxable year, we do
not satisfy the Annual Distribution Requirement or otherwise were to fail to qualify as a RIC (for example, because we fail the
90% annual gross income requirement described above), and relief is not available as discussed above, all of our taxable income
(including our net capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to
stockholders, and distributions generally will be taxable to the stockholders as ordinary dividends to the extent of our current
and accumulated earnings and profits.



We may decide to be taxed as a regular corporation
even if we would otherwise qualify as a RIC if we determine that treatment as a corporation for a particular year would be in our
best interests.



As a RIC, we are permitted to carry forward
a net capital loss realized in a taxable year beginning before December 23, 2010 to offset our capital gain, if any, realized during
the eight years following the year of the loss. A capital loss carryforward realized in a taxable year beginning before December
23, 2010 is treated as a short-term capital loss in the year to which it is carried. We are permitted to carry forward a net capital
loss realized in taxable years beginning on or after December 23, 2010 to offset capital gain indefinitely. For net capital losses
realized in taxable years beginning on or after December 23, 2010, the excess of our net short-term capital loss over our net long-term
capital gain is treated as a short-term capital loss arising on the first day of our next taxable year and the excess of our net
long-term capital loss over our net short-term capital gain is treated as a long-term capital loss arising on the first day of
our next taxable year. If future capital gain is offset by carried forward capital losses, such future capital gain is not subject
to fund-level U.S. federal income tax, regardless of whether they are distributed to stockholders. Accordingly, we do not expect
to distribute any such offsetting capital gain. A RIC cannot carry back or carry forward any net operating losses.



Investment Structure



Once we determine that a prospective portfolio
company is suitable for a direct investment, we work with the management of that company and its other capital providers, including
senior and junior lenders, and equity holders, to structure an investment. We negotiate among these parties to agree on how our
investment is expected to be structured relative to the other capital in the portfolio company’s capital structure.



Leveraged Loans



We structure our investments primarily as
secured leveraged loans. Leveraged loans are generally senior debt instruments that rank ahead of subordinated debt of the portfolio
company. Leveraged loans generally have the benefit of security interests on the assets of the portfolio company, which may rank
ahead of, or be junior to, other security interests.



High-Yield Securities



The Company’s portfolio currently
includes high-yield securities and the Company may invest in high-yield securities in the future. High-yield securities have historically
experienced greater default rates than has been the case for investment grade securities and are generally rated below investment
grade by one or more nationally recognized statistical rating organizations or will be unrated but of comparable credit quality
to obligations rated below investment grade, and have greater credit and liquidity risk than more highly rated obligations. High-yield
securities are generally unsecured and may be subordinate to other obligations of the obligor and are often issued in connection
with leveraged acquisitions or recapitalizations in which the issuers incur a substantially higher amount of indebtedness than
the level at which they had previously operated. The Company’s portfolio also includes mezzanine investments which are generally
unsecured and rated below investment grade. Mezzanine investments of the type in which the Company invests in are primarily privately
negotiated subordinated debt securities often issued in connection with leveraged transactions, such as management buyouts, acquisitions,
re-financings, recapitalizations and later stage growth capital financings, and are generally accompanied by related equity participation
features such as options, warrants, preferred and common stock. In some cases, our debt investments may provide for a portion of
the interest payable to be paid-in-kind interest. To the extent interest is paid-in-kind, it will be payable through the increase
of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such
obligation.



9







Warrants, Options and Minority Equity



In some cases, we will also receive nominally
priced warrants or options to buy a minority equity interest in the portfolio company in connection with a loan. As a result, if
a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure
such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right
to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain
registration rights in connection with these equity interests, which may include demand and “piggyback” registration
rights.



Distressed Debt



The Company’s portfolio currently
includes distressed debt investments and the Company is authorized to continue to invest in the securities and other obligations
of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. As of December 31, 2012,
none of the Operating Company’s debt investments were in non-accrual status. The Company does not anticipate distressed debt
to be a significant part of its ongoing investment strategy. Such investments generally trade significantly below par and are considered
speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid
only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Typically
such workout or bankruptcy proceedings result in only partial recovery of cash payments or an exchange of the defaulted obligation
for other debt or equity securities of the issuer or its affiliates, which may in turn be illiquid or speculative.



Opportunistic Investments



Opportunistic investments may include, but
are not limited to, investments in debt securities of all kinds and at all levels of the capital structure and may include equity
securities of public companies that are thinly traded, emerging market debt, structured finance vehicles such as CLO funds and
debt of middle-market companies located outside the United States. We do not intend such investments to be our primary focus.



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



| | · | requiring a total return on our investments (including both interest and potential equity appreciation) that we believe will
compensate us appropriately for credit risk;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing
their businesses as possible, consistent with 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 rights
to a seat on the board of directors under some circumstances; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | selecting investments that we believe have a very low probability of loss.
| | - | --------------------------------------------------------------------------



We expect to hold most of our investments
to maturity or repayment, but we may sell some of our investments earlier if a liquidity event occurs, such as a sale, recapitalization
or worsening of the credit quality of the portfolio company.



Code of Ethics



We and the Advisor have each adopted a
code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Investment Advisers Act of 1940 (the “Advisers
Act”), respectively, that establishes procedures for personal investments and restricts certain transactions by our personnel.
Our codes of ethics generally do not permit investments by our employees in securities that may be purchased or held by us. You
may read and copy these codes of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information
on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. In addition, each code of ethics is available
on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may also obtain copies of the codes of ethics,
after paying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov, or by writing the SEC’s
Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.



Compliance Policies and Procedures



We and the Advisor have adopted and implemented
written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws. We are required
to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and
to designate a chief compliance officer to be responsible for their administration. Elizabeth Greenwood currently serves as our
chief compliance officer.



10







Proxy Voting Policies and Procedures



We have delegated our proxy voting responsibility
to our investment adviser. A summary of the Proxy Voting Policies and Procedures of the Advisor are set forth below. The guidelines
are reviewed periodically by the adviser and our non-interested directors, and, accordingly, are subject to change.



The Advisor is registered under the Investment
Advisers Act of 1940 and has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes
that it must vote securities held by its clients in a timely manner free of conflicts of interest. These policies and procedures
for voting proxies for investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers
Act.



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



The proxy voting decisions of the Advisor
are made by the senior officers who are responsible for monitoring each of our investments. To ensure that our vote is not the
product of a conflict of interest, it requires that: (i) anyone involved in the decision making process disclose to the managing
member any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding
a proxy vote; and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how
we intend to vote on a proposal in order to reduce any attempted influence from interested parties.



You may obtain information about how we
voted proxies by making a written request for proxy voting information to: Tennenbaum Capital Partners, LLC, 2951 28th
Street, Suite 1000, Santa Monica, CA 90405.



Privacy Principles



We are committed to maintaining the privacy
of our stockholders and to safeguarding their non-public 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 non-public
personal information relating to our stockholders, although certain non-public personal information of our stockholders may become
available to us. We do not disclose any non-public 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 non-public personal
information about our stockholders to employees of the Advisor and its affiliates with a legitimate business need for the information.
We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.



Investment Management Agreements



The Holding Company and the Operating Company
have entered into separate but substantially identical investment management agreements with the Advisor, under which the Advisor, subject to the overall supervision of our respective boards of directors, manages the day-to-day operations and provides investment
advisory services to the Holding Company and the Operating Company. In addition, pursuant to the Amended and Restated Limited Partnership
Agreement, the General Partner directs and executes the day-to-day operational activities of the Operating Company. For providing
these services, the Advisor receives a base management fee and, in addition, the Advisor or the General Partner may receive incentive
compensation.



The base management fee is currently paid
by the Operating Company to the Advisor and the incentive compensation, if any, is paid by the Operating Company to the General
Partner or the Advisor. The Holding Company, therefore, indirectly bears these amounts, which are reflected in our consolidated
financial statements. If the Operating Company is terminated or for any other reasons incentive compensation is not paid by the
Operating Company, such amounts will be paid directly by the Holding Company to the Advisor pursuant to its investment management
agreement with the Advisor.



Under the terms of our investment management
agreements, the Advisor:



11







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



| | · | identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective
portfolio companies); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.
| | - | -----------------------------------------------------------------------------------------------------------------



The Advisor’s services under the
investment management agreements are not exclusive, and it is free to furnish similar services to other entities so long as its
services to us are not impaired.



Pursuant to our investment management agreements,
we pay the Advisor compensation for investment advisory and management services consisting of base management compensation and
a two-part incentive compensation.



Management Fee. The base management
fee is calculated at an annual rate of 1.5% of the Holding Company’s total assets (excluding cash and cash equivalents) payable
quarterly in arrears. For purposes of calculating the base management fee, “total assets” is determined without deduction
for any borrowings or other liabilities. The base management fee is calculated based on the value of our total assets (excluding
cash and cash equivalents) at the end of the most recently completed calendar quarter. The base management fee for any partial
quarter is appropriately pro-rated.



Incentive Compensation. We also pay
incentive compensation to the Advisor or the General Partner. Under the investment management agreements and the Amended and Restated
Limited Partnership Agreement, no incentive compensation was incurred until after January 1, 2013.



Beginning January 1, 2013, the
incentive compensation equals the sum of (1) 20% of all ordinary income since that date and (2) 20% of all net realized
capital gains (net of any net unrealized capital depreciation) since that date, with each component being subject to a total
return requirement of 8% of contributed common equity annually. The incentive compensation initially is an equity allocation to the
General Partner under the Amended and Restated Limited Partnership Agreement. If the Operating Company is terminated or for
any other reasons incentive compensation is not distributed by the Operating Company, it would be paid pursuant to the
investment management agreement between the Holding Company and the Advisor.



The incentive compensation has two components,
ordinary income and capital gains. Each component will be payable or distributable quarterly in arrears (or upon termination of
the Advisor as the investment manager or the General Partner as the general partner of the Operating Company, as of the termination
date) beginning January 1, 2013 and calculated as follows:



Each of the two components of incentive
compensation is separately subject to a total return limitation. Thus, notwithstanding the following provisions, we are not be
obligated to pay or distribute any ordinary income incentive compensation or any capital gains incentive compensation if our cumulative
total return does not exceed an 8% annual return on daily weighted average contributed common equity. If our cumulative annual total return is above 8%, the total cumulative
incentive compensation we pay will not be more than 20% of our cumulative total return, or, if lower, the amount of our cumulative
total return that exceeds the 8% annual rate.



Subject to the above limitation, the ordinary
income component is the amount, if positive, equal to 20% of the cumulative ordinary income before incentive compensation, less
cumulative ordinary income incentive compensation previously paid or distributed.



Subject to the above limitation, the capital
gains component is the amount, if positive, equal to 20% of the cumulative realized capital gains (computed net of cumulative realized
losses and cumulative net unrealized capital depreciation), less cumulative capital gains incentive compensation previously paid
or distributed. For assets held on January 1, 2013, capital gain, loss and depreciation will be measured on an asset by asset basis
against the value thereof as of December 31, 2012. The capital gains component will be paid or distributed in full prior to payment
or distribution of the ordinary income component.



For purposes of the foregoing computations
and the total return limitation, the following definitions apply:



| | · | “cumulative” means amounts for the period commencing January 1, 2013 and ending as of the applicable calculation
date.
| | - | ----------------------------------------------------------------------------------------------------------------------



12







| | · | “contributed common equity” means the value of net assets attributable to our common stock as of December 31, 2012
plus the proceeds to us of all issuances of common stock less (A) offering costs of any of our securities or leverage facilities,
(B) all distributions by us representing a return of capital and (C) the total cost of all repurchases of our common stock by us,
in each case after December 31, 2012 and through the end of the preceding calendar quarter in question, in each case as determined
on an accrual and consolidated basis.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “ordinary income before incentive compensation” means our interest income, dividend income and any other income
(including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or
other fees that we receive from portfolio companies) during the period, (i) minus our operating expenses during the period (including
the base management fee, expenses payable under the administration agreement, any interest expense and any dividends paid on any
issued and outstanding preferred stock), (ii) plus increases and minus decreases in net assets not treated as components of income,
operating expense, gain, loss, appreciation or depreciation and not treated as contributions or distributions in respect of common
equity, and (iii) without reduction for any incentive compensation and any organization or offering costs, in each case determined
on an accrual and consolidated basis.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “total return” means the amount equal to the combination of ordinary income before incentive compensation, realized
capital gains and losses and unrealized capital appreciation and depreciation of the Company for the period, in each case determined
on an accrual and consolidated basis.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If our total return does not exceed the
total return limitation, the limitation will not have the effect of eliminating the possibility of paying such incentive compensation,
but rather will postpone any incentive compensation until our cumulative annual total return exceeds the 8% threshold. The nature
of the total return limitation may also make it easier for the Advisor to earn incentive compensation in higher interest rate environments
or if our net asset value has increased.



Total Return Limitation
(based on cumulative annual total return)







Percentage of ordinary income and net
realized capital gain
separately payable at various levels of total return.



The financial highlights in the notes to
our financial statements include a calculation of total return based on the change in the market value of our shares. The financial
highlights in the notes to our financial statements may also include a calculation of total return based on the change in our net
asset value from period to period. The total return limitation for purposes of the incentive compensation calculations is based
on the stated elements of return: ordinary income before incentive compensation, realized capital gain and loss and unrealized
capital appreciation and depreciation. It differs from the total return based on the market value or net asset value of our shares
in that it is a cumulative measurement that is compared to our daily weighted-average contributed common equity rather than a periodic
measurement that is compared to our net asset value or market value, and in that it excludes incentive compensation.



Examples of Incentive Compensation
Calculation



Example 1: Income Portion of Incentive
Compensation:



Assumptions



| | · | Total return limitation(1) = 8%
| | - | -------------------------------



| | · | Management fee(2) = 1.5%
| | - | ------------------------



| | · | Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 1%
| | - | ---------------------------------------------------------------------------



13







Alternative 1



Additional
Assumptions



| | · | cumulative gross ordinary income (including interest, dividends, fees, etc.) = 11.5%
| | - | ------------------------------------------------------------------------------------



| | · | cumulative ordinary income before incentive compensation (gross ordinary
income-(management fee + other expenses)) = 9%
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | cumulative annual total return = 7%
| | - | -----------------------------------



| | · | prior ordinary income incentive compensation = 0%
| | - | -------------------------------------------------



Cumulative total return does not
exceed total return limitation, therefore there is no income incentive compensation.








| | (1) | Represents 8.0% annualized total return limitation.
| | --- | ---------------------------------------------------



| | (2) | Represents 1.5% annualized management fee, assuming no liabilities.
| | --- | -------------------------------------------------------------------



| | (3) | Excludes organizational and offering costs.
| | --- | -------------------------------------------



Alternative 2



Additional Assumptions



| | · | cumulative gross ordinary income (including interest, dividends, fees, etc.) = 11%
| | - | ----------------------------------------------------------------------------------



| | · | cumulative ordinary income before incentive compensation (gross ordinary
income–(management fee + other expenses)) = 8.5%
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | cumulative annual total return = 9.5%
| | - | -------------------------------------



| | · | prior ordinary income incentive compensation = 0%
| | - | -------------------------------------------------



Cumulative ordinary income before incentive compensation
is positive and the cumulative total return exceeds the total return limitation, therefore there is income incentive compensation.



Income incentive compensation = ((20% x ordinary
income before incentive compensation) but not more than ((100% x (cumulative total return up to 10%–8% total return limitation))
+ (20% x cumulative total return above 10%)))



= ((20% x 8.5%) or, if less, ((100%
x (9.5%–8%) + (20% x 0%)))



= 1.7% or, if less, 1.5%



= 1.5%



Alternative 3



Additional Assumptions



| | · | cumulative gross ordinary income (including interest, dividends, fees, etc.) = 15.5%
| | - | ------------------------------------------------------------------------------------



| | · | cumulative ordinary income before incentive compensation (gross ordinary income–(management fee + other expenses)) =
13%
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | cumulative annual total return = 18%
| | - | ------------------------------------



| | · | prior ordinary income incentive compensation = 1%
| | - | -------------------------------------------------



Cumulative ordinary income before incentive compensation
is positive and cumulative total return exceeds the total return limitation, therefore there is income incentive compensation.



14







Income incentive compensation = ((20% x ordinary
income before incentive compensation) but not more than ((100% x (cumulative total return up to 10%–8% total return limitation))
+ (20% x cumulative total return above 10%))), less income incentive compensation previously paid



= ((20% x 13%) or, if less, ((100%
x (10%–8%) + (20% x (18%–10%)))–1%



= (2.6% or, if less, ((2% + (20% x
8%)))–1%



= (2.6% or, if less, (2% + 1.6%))–1%



= (2.6% or, if less, 3.6%)–1%



= 1.6%



Note that due to the priority of capital gains compensation
over ordinary income compensation, had the 5%(4) of cumulative unrealized capital gains been realized, the capital gains incentive
compensation would have been 1% (i.e. 20% x 5%) and would have reduced ordinary income compensation from 1.6% to 0.6%. Further,
if there had been 1.6% or more of prior capital gains compensation, the ordinary income compensation payment would have been zero.



|
|




| | (4) | 5% of cumulative unrealized capital gains = 18% cumulative annual total return — 13% cumulative ordinary income before
incentive compensation
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



Example 2: Capital Gains Portion of Incentive
Compensation:



Alternative 1:



Assumptions



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



| | · | Year 2: Investment A sold for $50 million and fair market value, or FMV, of Investment B determined to be $32 million. Cumulative
annual total return of 40%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year 3: FMV of Investment B determined to be $25 million. Cumulative annual total return of 15%.
| | - | ------------------------------------------------------------------------------------------------



| | · | Year 4: Investment B sold for $31 million. Cumulative annual total return of 10%.
| | - | ---------------------------------------------------------------------------------



The capital gains portion of the incentive
compensation would be:



| | · | Year 1: None
| | - | ------------



| | · | Year 2: Capital gains incentive compensation of $6 million ($6 million = $30 million realized capital gains on sale of Investment
A multiplied by 20% and total return limitation satisfied)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year 3: None; no realized capital gains.
| | - | ----------------------------------------



| | · | Year 4: Capital gains incentive compensation of $0.2 million ($31 million cumulative realized capital gains multiplied by 20%,
less $6 million of capital gains incentive compensation paid in year 2 and total return limitation satisfied)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Alternative 2



Assumptions



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



| | · | Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined
to be $25 million. Cumulative annual total return of 15%.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







| | · | Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million. Cumulative annual total return
of 7%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | Year 4: FMV of Investment B determined to be $35 million. Cumulative annual total return of 20%.
| | - | ------------------------------------------------------------------------------------------------



| | · | Year 5: Investment B sold for $40 million. Cumulative annual total return of 20%.
| | - | ---------------------------------------------------------------------------------



The capital gains portion of the incentive
compensation would be:



| | · | Year 1: None
| | - | ------------



| | · | Year 2: Capital gains incentive compensation of $5 million; 20% multiplied by $25 million ($30 million realized capital gains
on Investment A less $5 million unrealized capital depreciation on Investment B, and the total return limitation is satisfied)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year 3: None as the total return limitation is not satisfied
| | - | ------------------------------------------------------------



| | · | Year 4: Capital gains incentive compensation of $2 million ($35 million cumulative realized capital gains (including $5 million
of realized capital gains from year 3 at a time when the total return limitation was not satisfied and no cumulative unrealized
capital depreciation) multiplied by 20%, less $5 million capital gains incentive compensation paid in year 2, and the total return
limitation is satisfied).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year 5: Capital gains incentive compensation of $2 million ($45 million cumulative realized capital gains multiplied by 20%,
less $7 million in capital gains incentive compensation paid in years 2 and 4, and the total return limitation is satisfied).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Payment of our 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 (including health insurance, 401(k) plan benefits, payroll
taxes and other compensation related matters), are provided and paid for by the Advisor. We bear all other costs and expenses of
our operations and transactions, including those relating to:



| | · | our organization;
| | - | -----------------



| | · | calculating our net asset value and net asset value per share (including the cost and expenses of any independent valuation
firm);
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | expenses, including travel expense, incurred by the Advisor or payable to third parties in performing due diligence on prospective
portfolio companies, monitoring our investments and, if necessary, enforcing our rights;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | · | the costs of all future offerings of common stock and other securities, if any;
| | - | -------------------------------------------------------------------------------



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



| | · | distributions on our shares;
| | - | ----------------------------



| | · | administration fees payable under our administration agreement;
| | - | ---------------------------------------------------------------



| | · | transfer agent and custody fees and expenses;
| | - | ---------------------------------------------



| | · | the allocated costs incurred by the General Partner as our Administrator in providing managerial assistance to those portfolio
companies that request it;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | brokerage fees and commissions;
| | - | -------------------------------



| | · | registration fees;
| | - | ------------------



16







| | · | listing fees;
| | - | -------------



| | · | taxes;
| | - | ------



| | · | 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;
| | - | ----------------------------------------------------------------------------------------------------------



| | · | costs of holding stockholder meetings;
| | - | --------------------------------------



| | · | our fidelity bond;
| | - | ------------------



| | · | directors and officers/errors and omissions liability insurance, and any other insurance premiums;
| | - | --------------------------------------------------------------------------------------------------



| | · | litigation, indemnification and other non-recurring or extraordinary expenses;
| | - | ------------------------------------------------------------------------------



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



| | · | dues, fees and charges of any trade association of which we are a member; 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 our administration agreement, including rent and other allocable portions of the cost of certain
of our officers and their respective staffs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



Limitation of liability and indemnification



The investment management agreements provide
that the Advisor and its officers, directors, employees and affiliates are 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, except that the foregoing exculpation does not extend to any act or omission constituting willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations under the investment management agreement. The investment
management agreements also provide for indemnification by us of the Advisor’s members, directors, officers, employees, agents
and control persons for liabilities incurred by it in connection with their services to us, subject to the same limitations and
to certain conditions.



Board and shareholder approval of the
investment management agreements



Our board of directors held an in-person
meeting on December 17, 2010, in order to consider and approve our investment management agreements. In its consideration of the
investment management agreement, the board of directors focused on information it had received relating to, among other things:
(a) the nature, quality and extent of the advisory and other services to be provided to us by our investment advisor, the Advisor; (b) comparative data with respect to advisory fees or similar expenses paid by other business development companies with similar
investment objectives; (c) our projected operating expenses and expense ratio compared to business development companies with similar
investment objectives; (d) any existing and potential sources of indirect income to the Advisor from its relationships with us
and the profitability of those relationships; (e) information about the services to be performed and the personnel performing such
services under the investment management agreements; (f) the organizational capability and financial condition of the Advisor and
its affiliates; (g) the Advisor’s practices regarding the selection and compensation of brokers that may execute our portfolio
transactions and the brokers’ provision of brokerage and research services to our investment advisor; and (h) the possibility
of obtaining similar services from other third party service providers or through an internally managed structure.



Based on the information reviewed and the
discussions, the board of directors, including a majority of the non-interested directors, concluded that the investment management
fee rates are reasonable in relation to the services to be provided.



A majority of our currently existing shareholders
approved the new investment management agreement. A discussion regarding the basis for our board of directors’ approval of
the investment management agreements is available in our consent solicitation statement filed with the SEC on April 8, 2011.



17







Duration and termination



The investment management agreements were
most recently re-approved by our board of directors on April 27, 2012 and will remain in effect from year to year if approved annually by our board of directors or by the affirmative vote
of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our
directors who are not interested persons. The investment management agreements will automatically terminate in the event of
its assignment. The investment management agreements may be terminated by either party without penalty upon not less than 60
days written notice to the other. Any termination by us must be authorized either by our board of directors or by vote of our
stockholders. See “Risk Factors — Risks related to our business — We are dependent upon senior management
personnel of the Advisor for our future success, and if the Advisor is unable to retain qualified personnel or if the
Advisor loses any member of its senior management team, our ability to achieve our investment objective could be
significantly harmed.”



Administration Agreement



We have entered into administration
agreements with the Administrator, which we refer to as the administration agreement, under which the Administrator provides
administrative services to us. The Administrator provides services including, but not limited to, the arrangement for the
services of, and the overseeing of, custodians, depositories, transfer agents, dividend disbursing agents, other stockholder
servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks,
stockholders and such other persons in any such other capacity deemed to be necessary or desirable. The Administrator also
makes reports to the board of its performance of obligations under the administration agreement and furnishes advice and
recommendations with respect to such other aspects of our business and affairs that we determine to be desirable. The
Administrator is responsible for our financial and other records that are required to be maintained and prepares all reports
and other materials required by any agreement or to be filed with the Securities and Exchange Commission or any other
regulatory authority, including reports on Forms 8-K, 10-Q and periodic reports to stockholders, determining the amounts
available for distribution as dividends and distributions to be paid by us to our stockholders, reviewing and implementing
any share purchase programs authorized by the board, maintaining or overseeing the maintenance of our books and records as
required under the 1940 Act, and maintaining (or overseeing maintenance by other persons) such other books and
records required by law or for our proper operation. For providing these services, facilities and personnel, we reimburse the
Administrator for expenses incurred by the Administrator in performing its obligations under the administration agreement,
including our allocable portion of overhead under the administration agreement and the cost of certain of our officers and
the Administrator’s administrative staff and providing, at our request and on our behalf, significant managerial
assistance to our portfolio companies to which we are required to provide such assistance. From time to time, the
Administrator may pay amounts owed by us to third-party providers of goods or services. We subsequently reimburse the
Administrator for such amounts paid on our behalf.



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. Many of these requirements affect us. For example:



| | · | Pursuant to Rule 13a-14 of the 1934 Act, our Chief Executive Officer and Chief Financial Officer must certify the accuracy
of the financial statements contained in our periodic reports;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure
controls and procedures;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pursuant to Rule 13a-15 of the 1934 Act, our management must prepare a report regarding its assessment of our internal control
over financial reporting; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the 1934 Act, our periodic reports must disclose whether there were
significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Sarbanes-Oxley Act requires us to review
our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated
thereunder. We 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.



18







Item
1A.	Risk Factors



An investment in our
securities involves certain risks relating to our structure and investment objectives. The risks set forth below are not the only
risks we face, and we face other risks which we have not yet identified, which we do not currently deem material or which are not
yet predictable. If any of the following risks 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.



Risks related to our business



We may not replicate the Company’s
historical performance or the historical performance of other entities managed or supported by the Advisor.



We may not be able to replicate the Company’s
historical performance or the historical performance of the Advisor’s investments, and our investment returns may be substantially
lower than the returns achieved by the Company in the past. 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 had in the past.



We may suffer credit losses.



Investment in middle-market companies is
highly speculative and involves a high degree of risk of credit loss, and therefore our securities may not be suitable for someone
with a low tolerance for risk. These risks are likely to increase during an economic recession, such as the United States and many
other economies experienced over the past several years.



Our use of borrowed funds and preferred
securities, including under the Leverage Program, to make investments exposes us to risks typically associated with leverage.



The Operating Company borrows money and
has the Preferred Interests outstanding through the Leverage Program. As a result:



| | · | our common stock is exposed to incremental risk of loss and a decrease in the value of our investments would have a greater
negative impact on the value of our common stock 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;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | we, and indirectly our common stockholders, bear the entire cost of issuing and paying interest or dividends on any borrowed
funds or preferred securities issued by us or the Operating Company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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 would not be available for such dividends; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to amend the Operating Company organizational documents or investment management agreements may be restricted if
such amendment could have a material adverse impact on the lenders under our Leverage Program.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Preferred Interests have similar risks
to our common stockholders as borrowings. The Preferred Interests rank “senior” to common stock in our capital structure,
resulting in the Preferred Interests having certain separate voting rights, dividend and liquidation rights, and possibly other
rights, preferences or privileges more favorable than those granted to holders of our common stock. For example, payment of dividends
and repayment of the liquidation preference of the Preferred Interests takes preference over any dividends or other payments to
our common stockholders, and preferred holders are not subject to any of our expenses or losses. Furthermore, our Preferred Interests
and the issuance of any additional preferred securities could delay, defer or prevent a transaction or a change of control that
might involve a premium price for our common stockholders or otherwise be in your best interest.



The use of leverage creates increased risk
of loss and is considered a speculative investment technique. The use of leverage magnifies the potential gains and losses from
an investment and increases the risk of loss of capital. To the extent that income derived by us from investments purchased with
borrowed funds or the issuances of preferred stock is greater than the cost of borrowing or issuing and servicing the preferred
stock, our net income will be greater than if borrowing had not been used. Conversely, if the income from investments purchased
from these sources is not sufficient to cover the cost of the leverage, our net investment income will be less than if leverage
had not been used, and the amount available for ultimate distribution to the holders of common stock will be reduced. The extent
to which the gains and losses associated with leveraged investing are increased will generally depend on the degree of leverage
employed. We may, under some circumstances, be required to dispose of investments under unfavorable market conditions in order
to maintain our leverage, thus causing us to recognize a loss that might not otherwise have occurred. In the event of a sale of
investments upon default under our borrowing arrangements, secured creditors will be contractually entitled to direct such sales
and may be expected to do so in their interest, rather than in the interests of the holders of common stock. Holders of common
stock will incur losses if the proceeds from a sale in any of the foregoing circumstances are insufficient, after payment in full
of amounts due and payable on leverage, including administrative expenses, to repay such holders investments in our common stock.
As a result, you could experience a total loss of your investment. 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.
The ability to service any debt or the Preferred Interests that we have or may have outstanding depends largely on our financial
performance and is subject to prevailing economic conditions and competitive pressures. There is no limitation on the percentage
of portfolio investments that can be pledged to secure borrowings. The amount of leverage that we employ at any particular time
will depend on our Advisor’s and our board of director’s assessments of market and other factors at the time of any
proposed borrowing.



19







In addition to regulatory restrictions
that restrict our ability to raise capital, the Leverage Program contains various covenants which, if not complied with, could
accelerate repayment under the Revolving Facility or require redemption of the Preferred Interests, thereby materially and adversely
affecting our liquidity, financial condition and results of operations.



Under the Leverage Program, we must comply
with certain financial and operational covenants. These covenants include:



| | · | restrictions on the level of indebtedness that we are permitted to incur and the number of Preferred Interests we are permitted
to have outstanding in relation to the value of our assets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | restrictions on our ability to make distributions and other restricted payments under certain circumstances;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | restrictions on extraordinary events, such as mergers, consolidation and sales of assets;
| | - | -----------------------------------------------------------------------------------------



| | · | restrictions on our ability to incur liens and incur indebtedness; and
| | - | ----------------------------------------------------------------------



| | · | maintenance of a minimum level of stockholders’ equity.
| | - | -------------------------------------------------------



In addition, by limiting the circumstances
in which borrowings may occur under the Revolving Facility, the credit agreement related to the Revolving Facility, or the Credit
Agreement, in effect provides for various asset coverage, credit quality and diversification limitations on our investments. Such
limitations may cause us to be unable to make or retain certain potentially attractive investments or to be forced to sell investments
at an inappropriate time and consequently impair our profitability or increase losses or result in adverse tax consequences. As
of March 6, 2013, we were in compliance with these covenants. 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 the Credit Agreement. Failure to comply with these covenants would result in a default under the Credit Agreement
which, if we were unable to obtain a waiver from the lenders thereunder, could result in an acceleration of repayments under the
Credit Agreement. In addition, a default under the Credit Agreement will, in certain circumstances, require the Preferred Interests
to be redeemed. As such, failure to comply with these covenants could have a material adverse impact on our business, financial
condition and results of operations.



The Revolving Facility also has certain
“key man” provisions. For example, it is an event of default if any of Michael E. Tennenbaum, Howard M. Levkowitz or
Mark K. Holdsworth ceases to be actively involved in the management of the Advisor and is not replaced with someone with comparable
skills within 180 days. Further, if any two of the individuals cease to be actively involved in management of the Advisor, the
administrative agent under the Credit Agreement may veto a proposed replacement for one of such individuals and may veto any of
the Operating Company’s portfolio transactions that are in excess of 15% of its total assets until a replacement has been
appointed to fill one of such positions.



The Revolving Facility matures in July
2014 and the Preferred Interests will be subject to mandatory redemption in July 2016. Any inability to renew, extend or replace
the Revolving Facility or replace the Preferred Interests could adversely impact our liquidity and ability to find new investments
or maintain distributions to our stockholders.



The Revolving Facility matures July 31,
2014, subject to extension by the lenders at our request for one 12-month period. Advances under the Revolving Facility generally
bear interest at LIBOR plus 0.44%, subject to certain limitations. The Preferred Interests will be subject to mandatory redemption
on July 31, 2016. We do not currently know whether we will renew, extend or replace the Revolving Facility upon its maturity or
replace the Preferred Interests, or if we do either or both, whether we will be able to do so on terms that are as favorable as
the Revolving Facility or Preferred Interests, respectively.



20













Upon the termination of the Revolving Facility,
there can be no assurance that we will be able to enter into a replacement facility on terms that are as favorable to us, if at
all. We expect that any facility we enter into will likely be on terms less favorable than currently contained in the Revolving
Facility. Our ability to replace the Revolving Facility may be constrained by then-current economic conditions affecting the credit
markets. In the event that we are not able to replace the Revolving 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.



The creditors under the Revolving Facility
have a first claim on all of the Company’s assets included in the collateral for the Revolving Facility.



Lenders have fixed dollar claims on our
assets that are superior to the claims of our common stockholders or any preferred holders. Substantially all of our current assets
have been pledged as collateral under the Revolving Facility. If an event of default occurs under the Revolving Facility, the lenders
would be permitted to accelerate amounts due under the Revolving Facility and liquidate our assets to pay off amounts owed under
the Revolving Facility and limitations would be imposed on us with respect to the purchase or sale of investments. Such limitations
may cause us to be unable to make or retain certain potentially attractive investments or to be forced to sell investments at an
inappropriate time and consequently impair our profitability or increase our losses or result in adverse tax consequences.



In the event of the dissolution of the Operating
Company or otherwise, if the proceeds of the Operating Company’s assets (after payment in full of obligations to any such
debtors and of any liquidation preference to any holders of preferred stock) are insufficient to repay capital invested in us by
the holders of the common stock, no other assets will be available for the payment of any deficiency. None of our board of directors,
the Advisor, the General Partner or any of their respective affiliates, have any liability for the repayment of capital contributions
made to the Company by the holders of common stock. Holders of common stock could experience a total loss of their investment in
the Company.



Lenders under the Revolving Facility
may have a veto power over the Company’s investment policies.



If a default has occurred under the Revolving
Facility, the lenders under the Revolving Facility may veto changes in investment policies. The Revolving Facility also has certain
limitations on unusual types of investments such as commodities, real estate and speculative derivatives, which are not part of
the Company’s investment strategy or policies in any event.



If we incur additional leverage, it
will increase the risk of investing in shares of our common stock.



The Company has indebtedness and the Preferred
Interests outstanding pursuant to the Leverage Program and expects, in the future, to borrow additional amounts under the Revolving
Facility and may increase the size of the Revolving Facility or enter into other borrowing arrangements.



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
and preferred dividends. 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 leverage at December 31, 2012, which represented borrowings and preferred
stock equal to 37.9% of our total assets. On such date, we also had $549.2 million in total assets; an average cost of funds of
0.92%; $208.0 million aggregate principal amount of debt and liquidation preference of the Preferred Interests outstanding; and
$316.0 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
investment portfolio at December 31, 2012 to obtain an assumed return to us. From this amount, the interest expense and preferred
dividends calculated by multiplying the interest rate and dividends of 0.92% by the $208.0 million debt and preferred stock 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, 2012 to determine the “Corresponding Return to Common Stockholders.” Actual
interest payments and preferred dividends may be different.



|Assumed Return on Portfolio (Net of Expenses Other than Interest and Preferred Dividends) |  |  | -10 | % |  |  | -5 | % |  |  | 0  | % |  |  | 5 | % |  |  | 10 | %
|----------------------------------------------------------------------------------------- |  |  | --- | - |  |  | -- | - |  |  | -- | - |  |  | - | - |  |  | -- | -
|Corresponding Return to Common Stockholders                                               |  |  | -17 | % |  |  | -9 | % |  |  | -1 | % |  |  | 8 | % |  |  | 16 | %



21







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.



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



Our investments generally are made and will
continue to be made in private companies. Substantially all of these securities will be subject to legal and other restrictions
on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult
for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio
quickly, we may realize significantly less than the value at which we had previously recorded our investments. Further, we may
face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or an affiliated
manager has material non-public information regarding such portfolio company.



A substantial portion of our portfolio
investments may be recorded at fair value as determined in good faith by or under the direction of our board of directors and,
as a result, there may be uncertainty regarding the value of our portfolio investments.



The debt and equity investments that we
make for which market quotations are not readily available will be valued at fair value as determined in good faith by or under
the direction of our board of directors. Due to the inherent uncertainty 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 the differences could be material. Our net asset
value could be adversely affected if determinations regarding the fair value of these investments were materially higher than the
values ultimately realized upon the disposal of such investments.



We are exposed to risks associated
with changes in interest rates.



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 that 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 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 Advisor may face conflicts in
allocating investment opportunities between us and certain other entities that could adversely impact our investment returns.



The Advisor and its affiliates,
employees and associates currently do and in the future may manage other funds and accounts, including for other accounts in
which certain holders of our common stock have investments, which we refer to as Other Advisor Accounts. Other Advisor
Accounts invest in assets that are also eligible for purchase by us. Our investment policies, fee arrangements and other
circumstances may vary from those of Other Advisor Accounts. Accordingly, conflicts may arise regarding the allocation of
investments or opportunities among us and Other Advisor Accounts. In general, the Advisor and its affiliates will allocate
investment opportunities pro rata among us and Other Advisor Accounts (assuming the investment satisfies the objectives of
each) based on the amount of committed capital each then has available. The allocation of certain investment opportunities in
private placements is subject to independent director approval pursuant to the terms of the co-investment exemptive order
applicable to us and described below. In certain cases, investment opportunities may be made other than on a pro rata basis.
For example, we may desire to retain an asset at the same time that one or more Other Advisor Accounts desire to sell it or
we may not have additional capital to invest at a time Other Advisor Accounts do. When our investment allocations are made on
a basis other than pro rata our investment performance may be less favorable when compared to the investment performance of
Other Advisor Accounts with respect to those investments. The Advisor and its affiliates intend to allocate investment
opportunities to us and Other Advisor Accounts in a manner that they believe in their judgment and based upon their fiduciary
duties to be appropriate given the investment objectives, size of transaction, investable assets, alternative investments
potentially available, prior allocations, liquidity, maturity, expected holding period, diversification, lender covenants and
other limitations of ours and the Other Advisor Accounts. See “— Risks related to our operations as a BDC —
While our ability to enter into transactions with our affiliates are restricted under the 1940 Act, we have received an
exemptive order from the SEC permitting certain affiliated investments subject to certain conditions. As a result, the
Advisor may face conflicts of interests and investments made pursuant to the exemptive order conditions could in certain
circumstances affect adversely the price paid or received by us or the availability or size of the position
purchased or sold by us.”



22







There may be situations in which Other Advisor
Accounts and the Company might invest in different securities issued by the same portfolio company. It is possible that if the
portfolio company’s financial performance and condition deteriorates such that one or both investments are or could be impaired,
the Advisor might face a conflict of interest given the difference in seniority of the respective investments. In such situations,
the Advisor would review the conflict on a case-by-case basis and implement procedures consistent with its fiduciary duty to enable
it to act fairly to the Other Advisor Accounts and the Company in the circumstances. Any steps by the Advisor will take into consideration
the interests of each of the affected clients, the circumstances giving rise to the conflict, the procedural efficacy of various
methods of addressing the conflict and applicable legal requirements.



Moreover, the Advisor’s investment
professionals, its Investment Committee (as defined below), its senior management and employees serve or may serve as officers,
directors or principals of entities that operate in the same or a related line of business. 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, certain of the personnel employed by the Advisor or focused on our business may change
in ways that are detrimental to our business.



We have limited operating history as
a BDC and, if the Advisor is unable to manage our investments effectively, we may be unable to achieve our investment objective.



Our ability to achieve our investment objective
will depend on our ability to manage our business, which will depend, in turn, on the ability of the Advisor to identify, invest
in and monitor companies that meet our investment criteria. Accomplishing this result largely will be a function of the Advisor’s
investment process. Although the Advisor manages closed-end funds with similar restrictions, the 1940 Act imposes numerous constraints
on the operations of BDCs. The Advisor’s limited experience in operating under these constraints may hinder the Advisor’s
ability to help us take advantage of attractive investment opportunities and to achieve our investment objectives. For example,
BDCs are prohibited from making any nonqualifying investment unless at least 70% of their total assets are primarily in qualifying
investments, which are primarily securities of private or thinly-traded U.S. companies (excluding certain financial companies),
cash, cash equivalents, U.S. Government securities and other high quality debt investments that mature in one year or less. The
Advisor has limited experience investing under these constraints. In addition, the General Partner has limited experience administering
a BDC.



Our Advisor and its partners, officers,
directors, stockholders, members, managers, employees, affiliates and agents may be subject to certain potential or actual conflicts
of interest in connection with the activities of, and investments by, us.



The Advisor and its affiliates may spend
substantial time on other business activities, including investment management and advisory activities for entities with the same
or overlapping investment objectives, investing for their own account, financial advisory services (including services for entities
in which we invest), and acting as directors, officers, creditor committee members or in similar capacities. Subject to the requirements
of the 1940 Act and other applicable laws, the Advisor and its affiliates and associates intend to engage in such activities and
may receive compensation from third parties for their services. Subject to the same requirements, such compensation may be payable
by entities in which we invest in connection with actual or contemplated investments, and the Advisor may receive fees and other
compensation in connection with structuring investments which they will share.



The Advisor’s management fee is based
on a percentage of our total assets (other than cash or cash equivalents) and the Advisor may have conflicts of interest in connection
with decisions that could affect our total assets, such as decisions as to whether to incur additional debt to increase management
fees paid.



Our incentive compensation may induce
our Advisor to make certain investments, including speculative investments.



The incentive compensation payable by us
to the Advisor and the General Partner may create an incentive for the Advisor to make investments on our behalf that are risky
or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive compensation
payable to the Advisor is determined may encourage the Advisor to increase the use of leverage or take additional risk to increase
the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would
disfavor the holders of our common stock, or of securities convertible into our common stock or warrants representing rights to
purchase our common stock or securities convertible into our common stock. A rise in the general level of interest rates can be
expected to lead to higher interest rates applicable to certain of our debt investments and may accordingly result in a substantial
increase in the amount of incentive compensation payable to the Advisor with respect to our cumulative investment income. Although
the incentive compensation payable to the General Partner or the Advisor is subject to a total return limitation, the Advisor may
have some ability to accelerate the realization of gains to obtain incentive compensation earlier than it otherwise would when
it may be in our best interests to not yet realize gains. Our directors monitor our use of leverage and the Advisor’s management
of our investment program in the best interests of our common stockholders.



23







We may invest, to the extent permitted by
law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest,
we will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will
also remain obligated to pay management and incentive compensation to the Advisor with respect to the assets invested in the securities
and instruments of other investment companies. With respect to each of these investments, each of our common stockholders will
bear his or her share of our management and incentive compensation as well as indirectly bear the management and performance fees
and other expenses of any investment companies in which we invest.



We may be obligated to pay the
Advisor incentive compensation payments in excess of the amounts we would have paid if such
compensation was subject to clawback arrangements.



The Advisor or the General Partner is entitled
to incentive compensation for each fiscal quarter after January 1, 2013 in an amount equal to a percentage of our ordinary income
(before deducting incentive compensation) since that date and, separately, a percentage of our realized capital gains (net of realized
capital losses and unrealized depreciation) since that date, in each case subject to a cumulative total return requirement. If
we pay incentive compensation and thereafter experience additional realized capital losses or unrealized capital depreciation such
that we would no longer have been required to provide incentive compensation, we will not be able to recover any portion of the
incentive compensation previously paid or distributed because our incentive compensation arrangements do not contain any clawback
provisions. As a result, the incentive compensation could exceed 20% of our cumulative total return, depending on the timing of
unrealized appreciation, net unrealized depreciation and net realized capital losses. For example, part of the incentive compensation
payable or distributable by us that relates to our ordinary income is computed on income that may include interest that has been
accrued but not yet received in cash. If a portfolio company defaults on a loan, it is possible that accrued interest previously
used in the calculation of the incentive compensation will become uncollectible. Similarly, the income component is measured against
a total return limitation that includes unrealized gains. Such gains may not be realized or may be realized at a lower amount.
Consequently, we may have paid incentive compensation on income in circumstances where we otherwise would not have done so and
with respect to which we do not have a clawback right against the Advisor or the General Partner.



The General Partner may have certain
interests that conflict with the interests of the board of directors in the governance of the Operating Company.



The General Partner, an affiliate of our
Advisor, is responsible for the day-to-day operations of the Operating Company subject to the general supervision of the board
of directors including various significant matters such as the issuance of additional classes of securities of the Operating Company
and the determination of the timing and amounts of distributions payable by the Operating Company. The decisions of the General
Partner with respect to these and other matters may be subject to various conflicts of interest arising out of its relationship
with us and its affiliates. The General Partner could be confronted with decisions where it will, directly or indirectly, have
an economic incentive to place its interests or the interests of its affiliates above ours.



The procedures for the appointment and
removal of directors from the board of directors of the Operating Company differ from those of the Holding Company, which may result
in the boards of directors of the Operating Company and the Holding Company consisting of different members.



The procedures for the appointment and removal
of directors from the board of directors of the Operating Company differ from those of the Holding Company, which may result in
the boards of directors of the Operating Company and the Holding Company consisting of different members. If the boards of directors
of the Operating Company and the Holding Company consist of different members, the objectives of the boards of directors may differ
and decisions regarding the management of the Operating Company may adversely affect the Holding Company.



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



The success of the Company is highly dependent
on the financial and managerial expertise of the Advisor. The loss of one or more of the voting members of the Investment Committee
could have a material adverse effect on the performance of the Company. Although the Advisor and the voting members of the Investment
Committee devote a significant amount of their respective efforts to the Company, they actively manage investments for other clients
and are not required to (and will not) devote all of their time to the Company’s affairs.



24







The Advisor or its affiliates may, from
time to time, possess material non-public information, limiting our investment discretion.



The Advisor’s investment professionals,
Investment Committee or their respective affiliates may serve as directors of, or in a similar capacity with, companies in which
we invest. In the event that material non-public information is obtained with respect to such companies, or we became subject to
trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we
could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may
have an adverse effect on us and, consequently, your interests as a stockholder.



Our Advisor can 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 financial condition, business and results of operations.



Our Advisor has the right, under our investment
management agreement, to resign at any time upon not more than 60 days’ written notice, whether we have found a replacement
or not. If our Advisor resigns, we may not be able to find a new investment advisor 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 financial condition, business 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 Advisor 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
financial condition, business and results of operations.



We may experience fluctuations in our
periodic operating results.



We could experience fluctuations in our
periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire,
the default rate on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend
rates payable on preferred stock we 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.



If we fail to maintain our status as
a business development company, our business and operating flexibility could be significantly reduced.



We qualify as business development companies
under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of business development companies. For example,
BDCs are prohibited from making any unqualifying investments unless at least 70% of their total assets are invested in qualifying
investments which are primarily securities of private or thinly-traded U.S. companies, cash, cash equivalents, U.S. government
securities and other high quality debt investments that mature in one year or less. Failure to comply with the requirements imposed
on business development companies 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, any such failure could cause an event of default under the Leverage Program, which
could have a materially adverse effect on our business, financial conditions or results of operations.



Because we intend to distribute substantially
all of our income to our stockholders to maintain our status as a RIC, we will continue to need additional capital to finance growth.
If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired.



In order for the Company to qualify for
the tax benefits available to RICs and to avoid payment of excise taxes, we intend to distribute to our stockholders substantially
all of our annual taxable income, except that we may retain certain net capital gains for reinvestment in common interests of the
Operating Company, and treat such amounts as deemed distributions to its stockholders. If we elect to treat any amounts as deemed
distributions, we must pay income taxes at the corporate rate on such deemed distributions on behalf of our stockholders and our
stockholders will receive a tax credit for such amounts and an increase in basis. A stockholder that is not subject to U.S. federal
income tax or otherwise is not required to file a U.S. federal income tax return would be required to file a U.S. federal income
tax return on the appropriate form in order to claim a refund for the taxes we paid. As a result of these requirements, we will
likely need to raise capital from other sources to grow our business. Unfavorable economic or capital market conditions may increase
our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend credit to us.
An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business
strategy and could decrease our earnings, if any.



25







As a BDC, we are not able to issue senior
securities unless after giving effect thereto we meet a coverage ratio of total assets, less liabilities and indebtedness not represented
by senior securities, to total senior securities, which includes all of our borrowings and any outstanding preferred interests,
of at least 200%. These requirements limit the amount that we may borrow. Because we will continue to need capital to grow our
investment portfolio, these limitations may prevent us from incurring debt and require us to raise additional equity at a time
when it may be disadvantageous to do so. While we expect we will be able to borrow and to issue additional debt securities and
expect that we will be able to issue additional equity securities, we cannot assure you that debt and equity financing will be
available to us on favorable terms, or at all. In addition, as a business development company, we generally will not be 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 investment activities and our net asset value or common stock price could decline.



The highly competitive market in which
we operate may limit our 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,
commercial financing companies, 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 now invest in areas in which they have not traditionally invested. As a result of these new entrants, competition
for investment opportunities intensified in recent years and may intensify further in the future. Some 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 of our 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 and valuation requirements that the 1940 Act imposes on us as a BDC. 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 existing and potentially increasing competition, we may not be able to take advantage of attractive investment opportunities
from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with
our investment objective.



We do not seek to compete primarily based
on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable
to or lower than the rates we offer.



We may lose investment opportunities if
we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure,
we may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive
environment, we may make investments that are on better terms to our portfolio companies than what we may have originally anticipated,
which may impact our return on these investments.



Our board of directors may change our
operating policies and strategies without prior notice or stockholder approval.



Our board of directors has the authority
to modify or waive our operating policies and strategies without prior notice and without stockholder approval. 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 stock. Nevertheless, the effects could adversely affect our business and impact our ability to make distributions and cause
you to lose all or part of your investment.



Risks related to our investments



Our investments may be risky, and you
could lose all or part of your investment.



We invest generally in middle-market companies
primarily through leveraged loans.



Risks Associated with middle-market 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | they 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



26







| | · | they 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 the portfolio company and, in
turn, on us;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | they 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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | · | our executive officers, directors and the Advisor may, in the ordinary course of business, be named as defendants in litigation
arising from our investments in the portfolio companies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in laws and regulations, as well as their interpretations, may adversely affect their respective businesses, financial
structures or prospects; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | they may have difficulty accessing the capital markets to meet future capital needs.
| | - | ------------------------------------------------------------------------------------





Little public information exists about private
middle-market companies, and we expect to rely on the Advisor’s investment professionals to obtain adequate information to
evaluate the potential returns from investing in these companies. These companies and their financial information are not subject
to the Sarbanes-Oxley Act of 2002 and other rules that govern disclosures and financial controls of 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 investment.



Lower Credit Quality Obligations.
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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Adverse changes in economic conditions are
more likely to lead to a weakened capacity of a lower grade issuer to make principal payments and interest payments than an investment
grade issuer. The principal amount of lower grade securities outstanding has proliferated in the past decade as an increasing number
of issuers have used lower grade securities for corporate financing. An economic downturn could severely affect the ability of
highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. Similarly, downturns in
profitability in specific industries could adversely affect the ability of lower grade issuers in that industry to meet their obligations.
The market values of lower grade debt tend to reflect individual developments of the issuer to a greater extent than do higher
quality investments, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact
on the market value of lower grade debt may have an adverse effect on our net asset value and the market value of our common stock.
In addition, we may incur additional expenses to the extent we are required to seek recovery upon a default in payment of principal
of or interest on our portfolio holdings. In certain circumstances, we may be required to foreclose on an issuer’s assets
and take possession of its property or operations. In such circumstances, we would incur additional costs in disposing of such
assets and potential liabilities from operating any business acquired.



The secondary market for lower grade debt
is unlikely to be as liquid as the secondary market for more highly rated debt, a factor which may have an adverse effect on our
ability to dispose of a particular instrument. There are fewer dealers in the market for lower grade securities than investment
grade obligations. The prices quoted by different dealers may vary significantly and the spread between the bid and asked price
is generally larger than for higher quality instruments. Under adverse market or economic conditions, the secondary market for
lower grade debt could contract further, independent of any specific adverse changes in the condition of a particular issuer, and
these instruments may become highly illiquid. As a result, we could find it more difficult to sell these instruments or may be
able to sell the securities only at prices lower than if such instruments were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating our net asset
value.



27







Since investors generally perceive that
there are greater risks associated with lower grade debt of the type in which we may invest a portion of our assets, the yields
and prices of such debt may tend to fluctuate more than those for higher rated instruments. In the lower quality segments of the
fixed income markets, changes in perceptions of issuers’ creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the income securities market, resulting in greater yield and price volatility.



Distressed Debt Securities Risk.
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, our ability to
achieve current income for our stockholders may be diminished. We also will be subject to significant uncertainty as to when and
in what manner and for what value the distressed debt we invest in will eventually be satisfied (e.g., through a liquidation of
the obligor’s assets, an exchange offer or plan of reorganization involving the distressed debt securities or a payment of
some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or plan of reorganization is adopted
with respect to distressed debt 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.



Payment-in-kind Interest Risk. Our
loans may contain a payment-in-kind, or PIK, interest provision. PIK investments carry additional risk as holders of these types
of securities receive no cash until the cash payment date unless a portion of such securities is sold. If the issuer defaults the
Company may obtain no return on its investment. The PIK interest, computed at the contractual rate specified in each loan agreement,
is added to the principal balance of the loan and recorded as interest income. To avoid the imposition of corporate-level tax on
us, this non-cash source of income needs to be paid out to stockholders in cash distributions or, in the event that we determine
to do so and in certain cases, in shares of our common stock, even though we have not yet collected and may never collect the cash
relating to the PIK interest. As a result, if we distribute taxable dividends in the form of our common stock, we may have to distribute
a stock dividend to account for PIK interest even though we have not yet collected the cash.



Preferred Stock Risk. To the extent
we invest in preferred securities, there are special risks, including:



Deferral. 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 although we have not yet received such income.



Subordination. 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.



Liquidity. Preferred securities
may be substantially less liquid than many other securities, such as common stocks or U.S. Government securities.



Limited Voting Rights.
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.



Equity Security Risk. We may have
exposure to equity securities. Although equity securities have historically generated higher average total returns than fixed-income
securities over the long term, equity securities also have experienced significantly more volatility in those returns. The equity
securities that we acquire may fail to appreciate and may decline in value or become worthless.



Hedging Transactions. We may employ
hedging techniques to minimize currency exchange rate risks or interest rate risks, but we can offer no assurance that such strategies
will be effective. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. Hedging
against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of
such positions or prevent losses if the values of such positions decline. Moreover, it may not be possible to hedge against an
exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction
at an acceptable price. Additionally, engaging in certain hedging transactions could result in adverse tax consequences, e.g. giving
rise to income that does not qualify for the 90% annual gross income requirement applicable to RICs.



28







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



Over the past several years, the
U.S. has been in a prolonged recessionary period followed by slower than historical rates of GDP growth and may return to
a recessionary period or continue to a period of slow growth. Many other economies are currently in a prolonged
recessionary period. Although these conditions have ameliorated to some degree, they could continue for a
prolonged period of time or worsen in the future. In addition, several EU countries, continue to face budget issues, some of
which may have negative long-term effects for the economies of those countries and other EU countries. 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.



A portfolio company’s failure to satisfy
financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans
and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s
ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery
upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were
to go bankrupt, even though we or one of our affiliates may have structured our interest in such portfolio company as senior debt,
depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio
company, a bankruptcy court might re-characterize our debt holding as equity and subordinate all or a portion of our claim to claims
of other creditors.



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 do not generally intend to take controlling
equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company,
we are subject to the risk that such portfolio company may make business decisions with which we disagree, and the stockholders
and management of such portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the
lack of liquidity for 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.



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.



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



The portfolio companies we invest in usually
have, or may be permitted to incur, other debt that ranks equally with, or senior to, the 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 in respect of the debt securities in which we invest. Also, in the
event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments
ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive
any distribution in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining
assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we
would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency,
liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.



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



29







The rights we may have with respect to the
collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the
terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement,
at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that
may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority
liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct
of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past
defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely
affected.



We may also make unsecured loans to portfolio
companies, meaning that such loans will not benefit from any interest in collateral of such companies. Liens on such portfolio
companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and
may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The
holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from,
any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the
event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be
no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations
after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan
obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against
the portfolio company’s remaining assets, if any.



Our portfolio companies may prepay loans,
which prepayment may reduce stated yields in the future if capital returned cannot be invested in transactions with equal or greater
expected yields.



Certain of the loans we make are prepayable
at any time, some of them of them at no premium to par. We cannot predict when such loans may be prepaid. Whether a loan is prepaid
will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market
conditions that permit such company to replace existing financing with less expensive capital. As market conditions change frequently,
it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan
prepaid early may reduce the achievable yield for the Company in the future below the current yield disclosed for our portfolio
if the capital returned cannot be invested in transactions with equal or greater expected yields.



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: (1) increase
or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that
were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our initial investment.



We may elect not to make follow-on investments
or otherwise lack sufficient funds to make those investments. Our 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 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 such follow-on investment because we may not want to increase our concentration of risk, because we prefer
other opportunities, because we are inhibited by compliance with BDC requirements or because we desire to maintain our tax 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 in order to provide diversification or to complement our
U.S. investments, although we are required generally to invest at least 70% of our assets in companies organized and having their
principal place of business within the U.S. and its possessions. 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, less liquid markets and less available information than is
generally the case in the United States, 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. These risks may be more pronounced for portfolio companies located or operating primarily in emerging
markets, whose economies, markets and legal systems may be less developed.



30







Although it is anticipated that most of
our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject
to the risk that the value of a particular currency may change in relation to the U.S. dollar. 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. As a result, a change in currency exchange rates may adversely affect our profitability.



Risks related to our operations as a
BDC



While our ability to enter into transactions
with our affiliates is restricted under the 1940 Act, we have received an exemptive order from the SEC permitting certain affiliated
investments subject to certain conditions. As a result, our Advisor may face conflict of interests and investments made pursuant
to the exemptive order conditions could in certain circumstances adversely affect the price paid or received by us or the availability
or size of the position purchased or sold by us.



We are prohibited under the 1940 Act from
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 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 and from or to certain of that person’s
affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions
limit our ability to transact business with our officers or directors or their affiliates.



The Advisor and the funds managed by the
Advisor have received an exemption from certain SEC regulations prohibiting transactions with affiliates. The exemptive order requires
that certain procedures be followed prior to making an investment subject to the order and such procedures could in certain circumstances
adversely affect the price paid or received by us or the availability or size of the position purchased or sold by us. In addition,
the Advisor may face conflicts of interests in making investments pursuant to the exemptive order.



Regulations governing our operation
as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact
on our liquidity, financial condition and results of operations.



Our business may in the future require a
substantial amount of capital. We may acquire additional capital from the issuance of additional shares of our common stock or
from the additional issuance of senior securities (including debt and preferred stock). However, we may not be able to raise additional
capital in the future on favorable terms or at all.



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 without first obtaining required approvals from our stockholders and
our independent directors. If our common stock trades at a discount to net asset value, those restrictions could adversely affect
our ability to raise equity capital. Except in connection with the exercise of warrants or the conversion of convertible securities,
in any such case the price at which our securities are to be issued and sold may not be less than a price, that in the determination
of our board of directors, closely approximates the market value of such securities at the relevant time. We may also make rights
offerings to our stockholders at prices per share less than the net asset value per share, subject to the requirements of the 1940
Act. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our
common stock, the percentage ownership of our stockholders at that time would decrease, and such stockholders may experience dilution.



We may only issue senior securities up to
the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities only in amounts such that our
asset coverage, as defined in the 1940 Act, equals at least 200% after such issuance or incurrence. If our assets decline in value
and we fail to satisfy this test or any stricter test under the terms of our leverage instruments, we may be required to liquidate
a portion of our investments and repay a portion of our indebtedness at a time when such sales or repayment may be disadvantageous,
which could have a material adverse impact on our liquidity, financial condition and results of operations.





31







Changes in the laws or regulations governing
our business or the business of our portfolio companies, or changes in the interpretations thereof or newly enacted legislation
and regulations, and any failure by us or our portfolio companies to comply with these laws or regulations, could have a material
adverse effect on our business, results of operations or financial condition of us or our portfolio companies.



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



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 may be subject to civil fines and criminal penalties.



On July 21, 2010, President Obama signed
into law the Dodd-Frank Act. Many of the provisions of the Dodd-Frank Act have extended implementation periods and delayed effective
dates and will require extensive rulemaking by regulatory authorities. While the impact of the Dodd-Frank Act on us and our portfolio
companies may not be known for an extended period of time, the Dodd-Frank Act, including future rules implementing its provisions
and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services
industry or affecting taxation that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows
or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies, intensify the
regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio
companies.



If we do not invest a sufficient portion
of our assets in qualifying assets, we could be precluded from investing in certain assets or could be required to dispose of certain
assets, which could have a material adverse effect on our business, financial condition and results of operations.



As a BDC, we are prohibited from acquiring
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. As of December 31, 2012, approximately $45.8 million, or approximately 8.4%, of
our total assets were not “qualifying assets.” If we do not invest a sufficient portion of our assets in qualifying
assets, we will be prohibited from investing in additional non-qualifying assets, which could 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 inopportune times in order to come into compliance with the 1940 Act. If we need to dispose of these investments quickly, it
may be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and,
even if a buyer is found, we may have to sell the investments at a substantial loss.



We will be subject to corporate-level
U.S. federal income tax on all of our income if we are unable to qualify as a RIC under Subchapter M of the Code, which would have
a material adverse effect on our financial performance.



Although we are currently qualified as a
RIC, no assurance can be given that we will be able to maintain RIC status. To obtain and maintain RIC status and be relieved of
U.S. federal income taxes on income and gains distributed to its stockholders, we generally must meet the annual distribution,
source-of-income and asset diversification requirements described below. In addition, our Leverage Program prohibits us from making
distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or the Leverage Program.



To qualify as a RIC under the Code, we generally
must meet certain source-of-income, asset diversification and annual distribution requirements. The annual distribution requirement
for a RIC is satisfied if we distribute at least 90% of our ordinary income and net short-term capital gain in excess of net long-term
capital loss, if any, to our stockholders on an annual basis. Since we use debt financing and have Preferred Interests outstanding,
we are subject to certain asset coverage ratio requirements and other financial covenants under the terms of the Leverage Program,
and we are, in some circumstances, also subject to similar requirements under the 1940 Act. The requirements could, under certain
circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other
sources, we may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax. To qualify as a RIC, we generally
must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may
result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because we anticipate
that most of our investments will be in private companies, any such dispositions could be made at disadvantageous prices and may
result in substantial losses.



32







If we fail to qualify as a RIC for any reason
and become subject to corporate-level income tax, the resulting corporate-level income taxes could substantially reduce our net
assets, the amount of income available for distribution and the amount of our distributions.



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



For U.S. federal income tax purposes, we
may 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 in the future, often only at the end of the loan. Such original issue discount,
which could be significant relative to our overall investment activities, or increases in loan balances as a result of PIK arrangements
are generally included in our taxable income before we receive any corresponding cash payments. We also may be required to include
in income certain other amounts that we do not receive in cash.



Since we may recognize taxable income before
or without receiving cash representing such income, if we invest to a substantial extent in non-cash paying debt instruments we
may have difficulty meeting the tax requirement to distribute at least 90% of our ordinary income and net short-term capital gain
in excess of net long-term capital loss, if any, 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.



There is a risk that you may not receive
distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital.



We intend to make distributions on a quarterly
basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment
results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our
ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this filing.
Due to the asset coverage test applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions.



Efforts to comply with Section 404 of
the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely
affect us and the market price of our common stock.



Under current SEC rules, we are required
to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and related rules
and regulations of the SEC. We are required to review on an annual basis our internal control over financial reporting, and on
a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we
are incurring additional expenses that may negatively impact our financial performance and our ability to make distributions. This
process results in a diversion of management’s time and attention. We cannot be certain as to the timing of completion of
our evaluation, testing and remediation actions or the impact of the same on our operations, and we may not be able to ensure that
the process is effective or that our internal control over financial reporting is or will be effective in a timely manner. In the
event that we are unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, we and
the market price of our common stock may be adversely affected.



|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 executive offices are located at 2951 28th
Street Suite 1000, Santa Monica, CA 90405, and are provided by the Advisor in accordance with the terms of the Administration Agreement.
We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.



33







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



We and the Advisor are
not currently subject to any material pending legal proceedings threatened against us. From time to time, we 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 the outcome of these legal proceedings cannot be predicted with certainty, we do not expect
that these proceedings will have a material effect upon our business, financial condition or results of operations.



|Item 4. | Mine Safety Disclosures
|------- | -----------------------



Not applicable.



34







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 began trading on April
5, 2012 and is currently traded on The Nasdaq Global Select Market under the symbol “TCPC.” The following table lists
the high and low closing sale price for our common stock, the closing sale price as a percentage of net asset value, or NAV, and
quarterly distributions per share since shares of our common stock began being regularly quoted on The Nasdaq Global Select Market.
Our common stock historically has traded at prices both above and below its net asset value. There can be no assurance, however,
that such premium or discount, as applicable, to net asset value will be maintained.



|                                    |  |        |       |  | Stock Price |   |       | Premium/ (Discount) of High Sales Price |  |   | Premium/ (Discount) of Low Sales Price to |  |  | Declared |    
|----------------------------------- |  | ------ | ----- |  | ----------- | - | ----- | --------------------------------------- |  | - | ----------------------------------------- |  |  | -------- | ---
|                                    |  | NAV(1) |       |  | High(2)     |   |       | Low(2)                                  |  |   | to NAV(3)                                 |  |  | NAV(3)   |    
|Fiscal year ended December 31, 2012 |  |        |       |  |             |   |       |                                         |  |   |                                           |  |  |          |    
|Second Quarter(4)                   |  | $      | 14.70 |  |             | $ | 14.75 |                                         |  | $ | 13.80                                     |  |  |          | 0.3
|                                    |  |        |       |  |             |   |       |                                         |  |   |                                           |  |  |          |    
|Third Quarter                       |  | $      | 14.79 |  |             | $ | 15.96 |                                         |  | $ | 14.23                                     |  |  |          | 7.9
|                                    |  |        |       |  |             |   |       |                                         |  |   |                                           |  |  |          |    
|Fourth Quarter                      |  | $      | 14.71 |  |             | $ | 15.80 |                                         |  | $ | 14.66                                     |  |  |          | 7.4



| | (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 each period.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The High/Low Stock Price is calculated as of the closing price on a given day in the applicable quarter.
| | --- | --------------------------------------------------------------------------------------------------------



| | (3) | Calculated as of the respective High/Low Stock Price divided by the quarter end NAV.
| | --- | ------------------------------------------------------------------------------------



| | (4) | From April 5, 2012 (initial public offering) to June 30, 2012.
| | --- | --------------------------------------------------------------



| | (5) | Includes a special dividend of $0.05 per share.
| | --- | -----------------------------------------------



As of March 6,
2013 we had 47 stockholders of record, and we had approximately   4,700 beneficial owners whose shares are held in the names
of brokers, dealers and clearing agencies.



Distributions



Our quarterly dividends
and distributions to common stockholders are recorded on the ex-dividend date and are determined under guidelines established by
our board of directors. Distributions 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 do not
have a policy to pay distributions at a specific level and expect to continue to distribute substantially all of our taxable income.
Changes in investment focus, expense levels and other factors may have an effect on the amount of distributions we pay in the future.
We cannot assure stockholders that they will receive any distributions or distributions at a particular level.



35







The following table
summarizes the Company’s dividends declared for the year ended December 31, 2012:



|Date Declared    |  | Record Date        |  | Payment Date       |  | Amount Per Share |      |    | Total Amount |  
|---------------- |  | ------------------ |  | ------------------ |  | ---------------- | ---- | -- | ------------ | -
|March 9, 2012    |  | March 9, 2012      |  | April 3, 2012      |  | $                | 0.34 | *  |              | $
|April 3, 2012    |  | June 15, 2012      |  | June 29, 2012      |  | $                | 0.34 |    |              | $
|August 9, 2012   |  | September 14, 2012 |  | September 28, 2012 |  | $                | 0.35 |    |              | $
|November 7, 2012 |  | December 17, 2012  |  | December 31, 2012  |  | $                | 0.40 | ** |              | $



*Based on 15,725,635 pro-forma converted
shares before the initial public offering.

** Includes a special dividend of $0.05.



Tax characteristics of all dividends are
reported to stockholders on Form 1099-DIV or Form 1042-S 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. 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 (not taking into account any capital gains or losses) for the calendar year;
| | - | -------------------------------------------------------------------------------------------------------



| | · | 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for the one-year
period generally ending on October 31 of the calendar year; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | certain undistributed amounts from previous years on which we paid no U.S. federal income tax.
| | - | ----------------------------------------------------------------------------------------------



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.



We have adopted an “opt in”
dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend or other distribution payable in
cash, each stockholder that has not “opted in” to our dividend reinvestment plan will receive such dividends in cash,
rather than having their dividends automatically reinvested in additional shares of our common stock.



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 credit facilities.
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.



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 dividends paid on or
before December 31, 2012 with respect to any taxable year ending on or before December 31, 2011) and certain requirements are met,
the entire distribution would be treated as a dividend for U.S. federal income tax purposes.



36







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



The selected consolidated financial and
other data below reflects the consolidated historical operations of the Holding Company and the Operating Company.



The selected consolidated financial data
below for the years ended December 31, 2012, 2011, 2010, 2009, and 2008 has been derived from the consolidated financial statements
that were audited by our independent registered public accounting firm. This selected financial data should be read in conjunction
with our financial statements and related notes thereto.



37







|                                                   |  | For the Year Ended December 31, |            
|-------------------------------------------------- |  | ------------------------------- | -----------
|                                                   |  | 2012                            |            
|                                                   |  |                                 |            
|Performance Data:                                  |  |                                 |            
|Interest income                                    |  | $                               | 47,478,426 
|Dividend income                                    |  |                                 | 1,811,189  
|Other income                                       |  |                                 | 2,903,144  
|Total investment income                            |  |                                 | 52,192,759 
|Interest and credit agreement expenses             |  |                                 | 857,757    
|Investment advisory expense                        |  |                                 | 6,908,942  
|Other expenses                                     |  |                                 | 4,105,700  
|Total expenses                                     |  |                                 | 11,872,399 
|Net investment income                              |  |                                 | 40,320,360 
|Realized and unrealized gains (losses)             |  |                                 | (12,784,251
|Dividends to preferred interest holders            |  |                                 | (1,602,799 
|Minority Interest                                  |  |                                 | —          
|Net increase in net assets from operations         |  | $                               | 25,933,310 
|Per Share Data (at the end of the period):*        |  |                                 |            
|Net increase in net assets from operations         |  | $                               | 1.21       
|Distributions declared per share                   |  |                                 | (1.43      
|Average weighted shares outstanding for the period |  |                                 | 21,475,847 
|Assets and Liabilities Data:                       |  |                                 |            
|Investments                                        |  | $                               | 517,683,087
|Other assets                                       |  |                                 | 31,559,015 
|Total assets                                       |  |                                 | 549,242,102
|Amount drawn on credit                             |  |                                 | 74,000,000 
|facility                                           |  |                                 |            
|Other liabilities                                  |  |                                 | 24,728,267 
|Total liabilities                                  |  |                                 | 98,728,267 
|                                                   |  |                                 |            
|Preferred stock                                    |  |                                 | —          
|Preferred limited partnership interest             |  |                                 | 134,526,285
|Minority Interest                                  |  |                                 | —          
|Net assets                                         |  | $                               | 315,987,550
|Investment Activity Data:                          |  |                                 |            
|No. of portfolio companies at period end           |  |                                 | 54         
|Acquisitions                                       |  | $                               | 359,020,926
|Sales, repayments, and other disposals             |  | $                               | 211,216,033
|Weighted-Average Yield at end of period            |  |                                 | 11.3       



| |  |  |  | * | Per share amounts prior to 2012, were calculated based
on 418,986 pre-Conversion shares outstanding. Per share amounts for 2012 are calculated on 21,475,847 weighted-average post-Conversion
shares outstanding.
| |  |  |  | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38







|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 our unaudited consolidated financial statements and related notes thereto appearing
elsewhere in this annual report on Form 10-K. For periods prior to April 2, 2012, the consolidated financial statements and related
footnotes reflect the performance of Special Value Continuation Fund, LLC which was formed on July 17, 2006. In addition, some
of the statements in this report (including in the following discussion) constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which relate to future events or the future performance or financial condition
of TCP Capital Corp. (the “Holding Company,” “we,” “us,” or “our”). The forward-looking
statements contained in this report involve a number of risks and uncertainties, including statements concerning:



| | • | our, or our portfolio companies’, future business, operations, operating results or prospects;
| | - | ----------------------------------------------------------------------------------------------



| | • | the return or impact of current and future investments;
| | - | -------------------------------------------------------



| | • | the impact of a protracted decline in the liquidity of credit markets on our business;
| | - | --------------------------------------------------------------------------------------



| | • | the impact of fluctuations in interest rates on our business;
| | - | -------------------------------------------------------------



| | • | the impact of changes in laws or regulations governing our operations or the operations of our portfolio
companies;
| | - | -------------------------------------------------------------------------------------------------------------------



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



| | • | the general economy and its impact on the industries in which we invest;
| | - | ------------------------------------------------------------------------



| | • | the financial condition of and ability of our current and prospective portfolio companies to achieve
their objectives;
| | - | ----------------------------------------------------------------------------------------------------------------------



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



| | • | the adequacy of our financing resources and working capital;
| | - | ------------------------------------------------------------



| | • | the ability of our investment adviser to locate suitable investments for us and to monitor and administer
our investments;
| | - | --------------------------------------------------------------------------------------------------------------------------



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



| | • | the timing, form and amount of any dividend distributions; and
| | - | --------------------------------------------------------------



| | • | our ability to maintain our qualification as a regulated investment company and as a business development
company.
| | - | ------------------------------------------------------------------------------------------------------------------



We use words such as “anticipate,”
“believe,” “expect,” “intend,” “will,” “should,” “could,”
“may,” “plan” and similar words to identify forward-looking statements. The forward looking statements contained
in this quarterly report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed
in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in this report
and included in our amended registration statement on Form N-2 filed with the Securities and Exchange Commission on December 7,
2012.



We have based the forward-looking
statements included in this report on information available to us on the date of this report, and we assume no obligation to update
any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether
as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make
directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form
10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.



39







Overview



The Holding Company is
a Delaware corporation formed on April 2, 2012 and is an externally managed, closed-end, non-diversified management investment
company. The Holding Company elected to be treated as a business development company (“BDC”) under the Investment Company
Act of 1940, as amended (the “1940 Act”). The Holding Company’s investment objective is to achieve high total
returns while minimizing losses. The Company invests primarily in the debt of middle-market companies, including senior secured
loans, junior loans, mezzanine debt and bonds. Such investments may include an equity component, and, to a lesser extent, the Company
may make equity investments directly. Investment operations are conducted in Special Value Continuation Partners, LP, a Delaware
Limited Partnership (the “Operating Company”), of which the Company owns 100% of the common limited partner interests.
The Partnership has also elected to be treated as a BDC under the 1940 Act. The General Partner of the Partnership is SVOF/MM,
LLC (“SVOF/MM”), which also serves as the administrator (“Administrator”) of the Company and the Partnership.
The managing member of SVOF/MM is Tennenbaum Capital Partners, LLC (the “Advisor”), which serves as the investment
manager to both the Company and the Operating Company. Most of the equity interests in the General Partner are owned directly or
indirectly by the Advisor and its employees.



The Holding Company has
elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the
Holding Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable
income tax requirements. The Operating Company has elected to be treated as a partnership for U.S. federal income tax purposes.



On April 2, 2012, Special
Value Continuation Fund, LLC (“SVCF”) converted from a limited liability company to a corporation, leaving the Holding
Company as the surviving entity (the “Conversion”). At the time of the Conversion, all limited liability company interests
were exchanged for 15,725,635 shares of common stock in the Holding Company. As a result of the Conversion, the books and records
of SVCF have become the books and records of the surviving entity and the Operating Company became a wholly owned subsidiary of
the Holding Company.



On April 3, 2012, the
Holding Company priced its initial public offering (the “Offering”), selling 5,750,000 shares of its common stock at
a public offering price of $14.75 per share.



To qualify as a RIC, we
must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders
generally at least 90% of our investment company taxable income, as defined by the Internal Revenue Code of 1986, as amended, for
each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income that we distribute
to our stockholders provided that we satisfy those requirements.



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 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 and indebtedness of private U.S. companies, public U.S. operating companies whose securities
are not listed on a national securities exchange or registered under the Securities Exchange Act of 1934, as amended, public domestic
operating companies having a market capitalization of less than $250 million, cash, cash equivalents, U.S. government securities
and high-quality debt investments that mature in one year or less. We are also permitted to make 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. We also generate revenue from dividends on our equity interests and capital gains
on the sale of warrants and other debt or equity interests that we acquire. Our investments in fixed income instruments generally
have an expected maturity of three to five years, although we have no lower or upper constraint on maturity. Interest on our debt
investments 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 investments
and preferred stock investments may defer payments of cash interest or dividends or PIK. Any outstanding principal amount of our
debt investments 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, structuring or due diligence fees, fees for providing significant
managerial assistance, consulting fees and other investment related income.



40







Expenses



Our primary operating
expenses include the payment of a base management fee and, depending on our operating results, incentive compensation, expenses
reimbursable under the management agreement, administration fees and the allocable portion of overhead under the administration
agreement. The base management fee and incentive compensation remunerates the Advisor for work in identifying, evaluating, negotiating,
closing and monitoring our investments. Our administration agreement with SVOF/MM, LLC (the “Administrator”) provides
that the Administrator may be reimbursed for costs and expenses incurred by the Administrator for office space rental, office equipment
and utilities allocable to us under the administration agreement, as well as any costs and expenses incurred by the Administrator
or its affiliates relating to any non-investment advisory, administrative or operating services provided by the Administrator or
its affiliates to us. We also bear all other costs and expenses of our operations and transactions (and TCPC’s common stockholders
indirectly bear all of the costs and expenses of the Holding Company and the Operating Company), which may include those relating
to:



| | • | our organization;
| | - | -----------------



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



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



| | • | costs of future offerings of our common stock and other securities, if any;
| | - | ---------------------------------------------------------------------------



| | • | the base management fee and any incentive compensation;
| | - | -------------------------------------------------------



| | • | 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;
| | - | ------



| | • | director fees and expenses;
| | - | ---------------------------



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



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



| | • | our fidelity bond;
| | - | ------------------



| | • | 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 and 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The investment management
agreement provides that the base management fee be calculated at an annual rate of 1.5% of our total assets (excluding cash and
cash equivalents) payable quarterly in arrears. For purposes of calculating the base management fee, “total assets”
is determined without deduction for any borrowings or other liabilities. For the first calendar quarter (or portion thereof) of
our operations as a BDC, the base management fee was calculated based on the initial value of our total assets (excluding cash
and cash equivalents) as of a date as close as practicable to the Conversion. Beginning with our second calendar quarter of operations
as a BDC, the base management fee is calculated based on the value of our total assets (excluding cash and cash equivalents) at
the end of the most recently completed calendar quarter.



Additionally, the investment
management agreement and the Amended and Restated Limited Partnership Agreement provide that the Advisor or its affiliates may
be entitled to incentive compensation under certain circumstances. No incentive compensation was incurred prior to January 1,
2013. Beginning January 1, 2013, the incentive compensation equals the sum of (1) 20% of all ordinary income since that
date and (2) 20% of all net realized capital gains (net of any net unrealized capital depreciation) since that date, with
each component being subject to a total return requirement of 8% of contributed common equity annually. The incentive compensation
initially is payable to the General Partner by the Partnership pursuant to the Amended and Restated Limited Partnership Agreement.
If the Operating Company is terminated or for any other reason incentive compensation is not paid by the Operating Company, it
would be paid pursuant to the investment management agreement between us and the Advisor. The determination of incentive compensation
is subject to limitations under the 1940 Act and the Advisers Act.



41







Critical accounting policies



Our discussion and analysis
of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance
with GAAP. The preparation of these 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 financial statements. In addition to the discussion below, our critical accounting
policies are further described in the notes to our financial statements.



Valuation
of portfolio investments



We value our portfolio
investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our board of directors.
Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants
at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset
that (i) are independent of us, (ii) are knowledgeable, having a reasonable understanding about the asset based on all
available information (including information that might be obtained through due diligence efforts that are usual and customary),
(iii) are able to transact for the asset, and (iv) are willing to transact for the asset or liability (that is, they
are motivated but not forced or otherwise compelled to do so).



Investments for which
market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent
fair value. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services
or one or more broker-dealers or market makers. However, short term debt investments with remaining maturities within 90 days are
generally valued at amortized cost, which approximates fair value. 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 our board of directors. Because a readily available market value for many of the investments in our portfolio
is often not available, we value many of our portfolio investments at fair value as determined in good faith by 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 we believe 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.



The valuation process
adopted by our board of directors with respect to investments for which market quotations are not readily available or for which
market quotations are deemed not to represent fair value is as follows:



| | • | The investment professionals of the Advisor provide recent portfolio company financial statements
and other reporting materials to independent valuation firms approved by our board of directors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Such firms evaluate this information along with relevant observable market data to conduct independent
appraisals each quarter, and their preliminary valuation conclusions are documented and discussed with senior management of the
Advisor.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The board of directors discusses the 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
of the board of directors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



However, smaller investments
aggregating less than 5% of our total capitalization may be valued at fair value as determined in good faith by the board of directors
based on valuations provided by the Advisor without the employment of an independent valuation firm.



42











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 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, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.



When valuing all of our
investments, we strive to maximize the use of observable inputs and minimize the use of unobservable inputs. Inputs refer broadly
to the assumptions that market participants would use in pricing an asset, 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.



Our investments may be
categorized based on the types of inputs used in their valuation. The level in the GAAP valuation hierarchy in which an investment
falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Investments are
classified by GAAP into the three broad levels as follows:



Level 1 —
Investments valued using unadjusted quoted prices in active markets for identical assets.



Level 2 —
Investments valued using other unadjusted observable market inputs, e.g. quoted prices in markets that are not active or
quotes for comparable instruments.



Level 3 —
Investments that are valued using quotes and other observable market data to the extent available, but which also take into consideration
one or more unobservable inputs that are significant to the valuation taken as a whole.



As of December 31, 2012,
0.2% of our investments were categorized as Level 1, 19.1% were categorized as Level 2, 79.0% were Level 3 investments
valued based on valuations by independent third party sources, and 1.7% were Level 3 investments valued based on valuations
by the Advisor.



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



Revenue
recognition



Interest and dividend
income, including income paid in kind, is recorded on an accrual basis to the extent that such amounts are determined to be collectible.
Origination, structuring, closing, commitment and other upfront fees earned with respect to capital commitments are generally
amortized or accreted into interest income over the life of the respective debt investment. Other fees, including certain amendment
fees, prepayment fees and commitment fees on broken deals, are recognized as earned. Prepayment fees and similar income received
upon the early repayment of a loan or debt security are included in interest income.



Certain of our debt investments
are purchased at a considerable discount to par as a result of the underlying credit risks and financial results of the issuer,
as well as general market factors that influence the financial markets as a whole. GAAP generally requires that discounts on the
acquisition of corporate bonds, municipal bonds and treasury bonds be amortized using the effective-interest or constant-yield
method. GAAP also requires that we consider the collectability of interest when making accruals. Accordingly, when accounting
for purchase discounts, we recognize discount accretion income when it is probable that such amounts will be collected.



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. 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.



43







Portfolio and investment activity



During the year ended
December 31, 2012, we invested approximately $359.0 million across 28 new and 14 existing portfolio companies. Of these investments,
98% were senior secured debt comprised of senior loans ($312.6 million, or 87% of the total) and senior secured notes ($40.3 million,
or 11% of the total). The remaining $6.1 million (2% of the total) of new investments were in unsecured debt and equity securities.
Additionally, we received approximately $211.2 million in proceeds from sales or repayments of investments during year ended
December 31, 2012 respectively.



At December 31, 2012,
our investment portfolio of $517.7 million (at fair value) consisted of 54 portfolio companies and was invested 93% in debt
investments, of which 96% was in senior secured debt and 4% in unsecured or subordinated debt. In aggregate, our investment portfolio
was invested 77% in senior secured loans, 12% in senior secured notes, 4% in unsecured or subordinated debt, and 7% in equity
investments. Our average portfolio company investment at fair value was approximately $9.6 million. Our largest portfolio
company investment by value was approximately $19.4 million and our five largest portfolio company investments by value comprised
approximately 17% of our portfolio at December 31, 2012. At December 31, 2011, our investment portfolio of $379.0 million
(at fair value) consisted of 41 portfolio companies and was invested 48% in senior secured loans, 24% in senior secured notes,
9% in unsecured or subordinated debt, and 19% in equity investments. Our average portfolio company investment at amortized cost
was approximately $11.6 million. Our largest portfolio company investment by value was approximately $48.3 million and
our five largest portfolio company investments by value comprised approximately 33% of our portfolio at December 31, 2011.



The industry composition
of our portfolio at fair value at December 31, 2012 was as follows:



|                                                               |  | Percent of Total |      
|-------------------------------------------------------------- |  | ---------------- | -----
|Industry                                                       |  | Investments      |      
|Software Publishers                                            |  |                  | 8.8  
|Gaming Industries                                              |  |                  | 5.8  
|Scheduled Air Transportation                                   |  |                  | 5.1  
|Radio and Television Broadcasting                              |  |                  | 4.8  
|Wired Telecommunications Carriers                              |  |                  | 4.2  
|Business Support Services                                      |  |                  | 3.8  
|Full-Service Restaurants                                       |  |                  | 3.5  
|Electric Power Generation, Transmission and Distribution       |  |                  | 3.5  
|Equipment Rental and Leasing                                   |  |                  | 3.4  
|Accounting, Tax Preparation, Bookkeeping, and Payroll Services |  |                  | 3.3  
|Other Electrical Equipment and Component Manufacturing         |  |                  | 3.1  
|Nonferrous Metal Production and Processing                     |  |                  | 3.0  
|Scientific Research and Development Services                   |  |                  | 3.0  
|Motion Picture and Video Industries                            |  |                  | 2.9  
|Grocery Stores                                                 |  |                  | 2.7  
|Semiconductor and Other Electronic Component Manufacturing     |  |                  | 2.7  
|Metal and Mineral (except Petroleum) Merchant Wholesalers      |  |                  | 2.6  
|Architectural, Engineering, and Related Services               |  |                  | 2.5  
|Motor Vehicle Parts Manufacturing                              |  |                  | 2.5  
|Electronic Shopping                                            |  |                  | 2.4  
|Other Professional, Scientific, and Technical Services         |  |                  | 2.3  
|Other Amusement and Recreation Industries                      |  |                  | 2.2  
|Promoters of Performing Arts, Sports, and Similar Events       |  |                  | 2.1  
|Wireless Telecommunications                                    |  |                  | 2.6  
|Retail                                                         |  |                  | 2.0  
|Nondepository Credit Intermediation                            |  |                  | 1.9  
|Computer Equipment Manufacturing                               |  |                  | 1.8  
|Artificial Synthetic Fibers and Filaments Manufacturing        |  |                  | 1.8  
|Data Processing, Hosting, and Related Services                 |  |                  | 1.6  
|Petroleum and Coal Products Manufacturing                      |  |                  | 1.6  
|Pharmaceutical and Medicine Manufacturing                      |  |                  | 1.6  
|Iron and Steel Mills and Ferroalloy Manufacturing              |  |                  | 1.3  
|Other                                                          |  |                  | 3.6  
|Total                                                          |  |                  | 100.0



44







The weighted average
effective yield of the debt securities in our portfolio was 11.3% at December 31, 2012 and 11.9% at December 31, 2011. The weighted
effective yields on our senior debt and other debt investments were 11.4% and 9.9%, respectively, at December 31, 2012, versus
11.6% and 15.9% at December 31, 2011.



At December 31, 2012,
63.8% of our debt investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime
Rate, and 36.2% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on
an interest rate floor was 95.6% at December 31, 2012. At December 31, 2011, 33% of our debt investments bore interest based on
floating rates and 67% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based
on an interest rate floor was 60% at December 31, 2011.



Results of operations



Results of operations
for the year ended December 31, 2012 are not directly comparable to the year ended December 31, 2011, since 2011 reflects a portfolio
prior to the Conversion with different investment objectives.



Investment income



Investment income totaled
$52.2 million and $54.9 million, respectively, for the years ended December 31, 2012 and 2011, of which $49.3 million
and $42.1 million were attributable to interest and fees on our debt investments, $1.8 million and $10.6 million
to dividends from equity securities and $1.1 million and $2.1 million to other income, respectively. The decrease in
investment income in the year ended December 30, 2012 compared to the year ended December 31, 2011 reflects significant dividends
received from two equity positions in the year ended December 31, 2011 totaling $10.6 million compared to receipt of $1.8 million
in dividends from one equity investment in the year ended December 31, 2012, partially offset by an increase in interest income
due to the larger investment portfolio and the higher percentage of the portfolio in income-producing assets in the year ended
December 31, 2012 compared to the year ended December 31, 2011.



Expenses



Net expenses for the
years ended December 31, 2012 and 2011 were $10.4 million and $9.2 million, respectively, which consisted of $6.9 million
and $6.8 million in base management fees, $1.2 million and $0.3 million in legal and professional fees, $0.2 million
and $0.3 million in interest expense and fees related to the Revolving Facility, $0.4 million and $0.4 million
in amortization of debt issuance costs, and $1.7 million and $1.4 million in other expenses, respectively. No incentive
compensation was paid during the years ended December 31, 2012 and 2011. The increase in expenses in the year ended December 31,
2012 compared to the year ended December 31, 2011 primarily reflects $0.4 million in professional fees relating to the Conversion
and an overall increase in ongoing professional fees subsequent to the Conversion.



Net investment
income



Net investment income
was $40.3 million and $45.6 million respectively, for the years ended December 31, 2012 and 2011. The decrease in in
net investment income in the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily reflects the
decrease in dividend income, the increase in professional fees and other expenses, and the excise tax expense, partially offset
by the increase in interest and other income in the year ended December 31, 2012.



Net realized and
unrealized gain or loss



Net realized gains (losses)
for the years ended December 31, 2012 and 2011 were $(16.0) million and $18.1 million, respectively. The net realized
losses during the year ended December 31, 2012 were due a charge of $33.8 million on the Bulgaria Telecom restructuring, $29.3
million of which were previously included in unrealized losses and a reorganization charge on one other debt investment of $(5.5)
million, partially offset by a gain of $17.0 million from the sale of International Wire Group Holdings, Inc. equity, and net
gains of $6.3 million primarily from three debt investments,. For the years ended December 31, 2012 and 2011, the change in net
unrealized appreciation or depreciation was $3.2 million and $(57.0) million, respectively.



Income tax expense,
including excise tax



The Company has elected
to be treated as a RIC under Subchapter M of the Internal Revenue Code (“the Code”) and operates in a manner so as
to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute
to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. The
Company has made and intends to continue to make the requisite distributions to its stockholders which will generally relieve
the Company from U.S. federal income taxes.



45







Depending on the level
of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions
from such current year taxable income into the next tax year and pay a 4% excise tax on such income. For the year ended December
31, 2012, an expense of $1.5 million was recorded for U.S. federal excise tax. There was no U.S. federal
excise tax recorded for the year ended December 31, 2011.



Dividends to preferred
equity holders



Dividends on the Preferred
Interests for the years ended December 31, 2012 and 2011 were $1.6 million and $1.5 million, respectively, as average
LIBOR rates for the two periods were similar.



Net increase or
decrease in net assets resulting from operations



The net increase in net
assets resulting from operations was $25.9 million and $5.2 million for the years ended December 31, 2012 and 2011,
respectively. The increased amount in the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily
reflects a lower net realized and unrealized loss, partially offset by the decrease in dividend income.



Liquidity and capital resources



Since our inception,
our liquidity and capital resources have been generated primarily through the initial private placement of common shares of SVCF
(the predecessor entity) which were subsequently converted to common stock of TCPC, net proceeds from the Offering, our preferred
equity facility and our revolving credit facility (together, the “Leverage Program”), and cash flows from operations,
including investments sales and repayments and income earned from investments and cash equivalents. The primary uses of cash have
been investments in portfolio companies, cash distributions to our equity holders, payments to service our Leverage Program and
other general corporate purposes.



Net cash used in operating
activities during the year ended December 31, 2012 was $88.4 million. Our primary use of cash in operating activities during
this period consisted of settlements of investment acquisitions (net of dispositions) of $145.0 million, partially offset
by net investment income (net of non-cash income) of approximately $56.6 million.



Net cash provided by
financing activities was $95.6 million during the year ended December 31, 2012, consisting primarily of $81.0 million of
net proceeds from our initial public offering, reduced by $28.8 million of dividends on common equity, $1.5 million
of dividends on our preferred equity facility (the “Preferred Interests”), and $45.0 million of net draws under
our revolving credit facility (the “Revolving Facility”).



At December 31, 2012,
we had $18.0 million in cash and cash equivalents.



The Revolving Facility
is secured by substantially all of the assets in our portfolio, including cash and cash equivalents. At December 31, 2012, we
had $74.0 million drawn and outstanding under the Revolving Facility, with an additional $42.0 million available to
us, subject to compliance with customary affirmative and negative covenants, including the maintenance of a minimum shareholders’
equity, the maintenance of ratios of not less than 300% of total assets (less total liabilities other than indebtedness) to total
indebtedness and not less than 200% of total assets (less total liabilities other than indebtedness) to the sum of total preferred
equity and indebtedness, and restrictions on certain payments and issuance of debt. Economic conditions, like those that began
in 2007 and which have continued, may result in a decrease in the value of our investments, which would affect both the asset
coverage ratios and the value of the collateral securing the Revolving Facility, and may therefore impact our ability to borrow
under the Revolving Facility. In addition to regulatory restrictions that restrict our ability to raise capital, the Leverage
Program contains various covenants which, if not complied with, could accelerate repayment under the Revolving Facility or require
redemption of the Preferred Interests, thereby materially and adversely affecting our liquidity, financial condition and results
of operations. At December 31, 2012, we were in compliance with all financial and operational covenants required by the Revolving
Facility.



Economic conditions,
like those that began in 2007 and which have continued, while creating attractive opportunities for us, may decrease liquidity
and raise the cost of capital generally, which could limit our ability to renew, extend or replace the Leverage Program on terms
as favorable as are currently included therein. If we are unable to renew, extend or replace the Leverage Program upon its maturity,
we expect to have sufficient funds to repay the outstanding balance in full from our net investment income and sales of, and repayments
of principal from, our portfolio company investments, as well as from anticipated debt and equity capital raises, among other
sources. Economic conditions, like those that began in 2007 and which have continued, may limit our ability to raise capital or
the ability of the companies in which we invest to repay our loans or engage in a liquidity event, such as a sale, recapitalization
or initial public offering. The Revolving Facility matures in July 2014 and the Preferred Interests will be subject to mandatory
redemption in July 2016. Any inability to renew, extend or replace the Revolving Facility or replace the Preferred Interests could
adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders.



46







Challenges in the market
are intensified for us by certain regulatory limitations under the Code and the 1940 Act. To maintain our qualification as a RIC,
we must satisfy, among other requirements, an annual distribution requirement to pay out at least 90% of our ordinary income and
short-term capital gains to our stockholders. Because we are required to distribute our income in this manner, and because the
illiquidity of many of our investments may make it difficult for us to finance new investments through the sale of current investments,
our ability to make new investments is highly dependent upon external financing. While we anticipate being able to continue to
satisfy all covenants and repay the outstanding balance under the Leverage Program when due, there can be no assurance that we
will be able to do so, which could lead to an event of default. In addition to regulatory restrictions that restrict our ability
to raise capital, the Leverage Program contains various covenants which, if not complied with, could accelerate repayment under
the Revolving Facility or require redemption of the Preferred Interests, thereby materially and adversely affecting our liquidity,
financial condition and results of operations.



Contractual obligations



Our Revolving Facility
is a senior secured revolving credit facility with certain lenders pursuant to which amounts may be drawn up to $116 million.
The Revolving Facility matures on July 31, 2014, and may be extended at our option for one 12-month period. At December 31,
2012, $74 million in advances were outstanding under the Revolving Facility, all of which were short-term draws of less than
one year.



We have also 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
will be equal to a percentage of the value of our gross assets (excluding cash and cash equivalents) and an incentive compensation,
plus reimbursement of certain expenses incurred by the Advisor. Under our administration agreement, the Administrator provides
us with administrative services, 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, and may include rent
and our allocable portion of the cost of certain of our officers and their respective staffs. We are responsible for reimbursing
the Advisor for due diligence and negotiation expenses, fees and expenses of custodians, administrators, transfer and distribution
agents, counsel and directors, insurance, filings and registrations, proxy expenses, expenses of communications to investors,
compliance expenses, interest, taxes, portfolio transaction expenses, costs of responding to regulatory inquiries and reporting
to regulatory authorities, costs and expenses of preparing and maintaining our books and records, indemnification, litigation
and other extraordinary expenses and such other expenses as are approved by the directors as being reasonably related to the organization,
offering, capitalization, operation or administration of the Company and any portfolio investments, as applicable. The Advisor
is not responsible for any of the foregoing expenses and such services are not investment advisory services under the 1940 Act.
Either party may terminate each of the investment management agreement and administration agreement without penalty upon not less
than 60 days’ written notice to the other.



Distributions



Our quarterly dividends
and distributions to common stockholders are recorded on the ex-dividend date and are determined under guidelines established
by our board of directors. Distributions 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 do
not have a policy to pay distributions at a specific level and expect to continue to distribute substantially all of our taxable
income. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.



On November 7, 2012,
our board of directors declared a quarterly dividend of $0.35 per share and a special dividend of $0.05 per share payable on December
31, 2012 to holders of record as of December 17, 2012. On December 31, 2012, we paid a cash dividend of $8.6 million.



The following table summarizes
the Company’s dividends declared for the year ended December 31, 2012:



|Date Declared    |  | Record Date        |  | Payment Date       |  | Amount Per Share |      |    | Total Amount |  
|---------------- |  | ------------------ |  | ------------------ |  | ---------------- | ---- | -- | ------------ | -
|March 9, 2012    |  | March 9, 2012      |  | April 3, 2012      |  | $                | 0.34 | *  |              | $
|April 3, 2012    |  | June 15, 2012      |  | June 29, 2012      |  | $                | 0.34 |    |              | $
|August 9, 2012   |  | September 14, 2012 |  | September 28, 2012 |  | $                | 0.35 |    |              | $
|November 7, 2012 |  | December 17, 2012  |  | December 31, 2012  |  | $                | 0.40 | ** |              | $



*Based on 15,725,635 pro-forma converted
shares before the initial public offering.

** Includes a special dividend of $0.05.



47







The following table summarizes
the total shares issued and proceeds received in the Offering net of underwriting discounts and offering costs as well as shares
issued in connection with our dividend reinvestment plan for the period ended December 31, 2012:



|                                              |  | Shares Issued |           |  | Price Per Share |   |       | Proceeds Net of Underwriting and
    Offering Costs | 
|--------------------------------------------- |  | ------------- | --------- |  | --------------- | - | ----- | --------------------------------------------------- | 
|April 3, 2012 initial public offering         |  |               | 5,750,000 |  |                 | $ | 14.75 |                                                     | 
|Shares issued from dividend reinvestment plan |  |               | 1,993     |  |                 | $ | 15.25 |                                                     | 



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. 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 (not
                                                                   taking into account any capital gains or losses) for the calendar
                                                                   year;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 98.2% of the amount by which our
                                                                   capital gains exceed our capital losses (adjusted for certain
                                                                   ordinary losses) for the one-year period generally ending on
                                                                   October 31 of the calendar year; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | certain undistributed amounts
                                                                   from previous years on which we paid no U.S. federal income
                                                                   tax.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



We have adopted an “opt
in” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend or other distribution
payable in cash, each stockholder that has not “opted in” to our dividend reinvestment plan will receive such dividends
in cash, rather than having their dividends automatically reinvested in additional shares of our common stock.



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 credit
facilities. 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.



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 and certain requirements are met, the
entire distribution would be treated as a dividend for U.S. federal income tax purposes.



Related Parties



We have entered into
a number of business relationships with affiliated or related parties, including the following:



| | • | Each of the Holding Company and
                                                                   the Operating Company has entered into an investment management
                                                                   agreement with the Advisor.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Administrator provides us
                                                                   with administrative services necessary to conduct our day-to-day
                                                                   operations. For providing these services, facilities and personnel,
                                                                   the Administrator may be reimbursed by us for expenses incurred
                                                                   by the Administrator in performing its obligations under the
                                                                   administration agreement, including our allocable portion of
                                                                   the cost of certain of our officers and the Administrator’s
                                                                   administrative staff and providing, at our request and on our
                                                                   behalf, significant managerial assistance to our portfolio
                                                                   companies to which we are required to provide such assistance.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48







| | • | We have entered into a royalty-free
                                                                   license agreement with the Advisor , pursuant to which the
                                                                   Advisor has agreed to grant us a non-exclusive, royalty-free
                                                                   license to use the name “TCP.”
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Pursuant to its limited partnership
                                                                   agreement, the general partner of the Partnership is SVOF/MM, LLC.
                                                                   SVOF/MM, LLC is an affiliate of the Advisor and the general
                                                                   partners or managing member of certain other funds managed
                                                                   by the Advisor.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Advisor and its affiliates,
employees and associates currently do and in the future may manage other funds and accounts. The Advisor and its affiliates may
determine that an investment is appropriate for us and for one or more of those other funds or accounts. Accordingly, conflicts
may arise regarding the allocation of investments or opportunities among us and those accounts. In general, the Advisor will allocate
investment opportunities pro rata among us and the other funds and accounts (assuming the investment satisfies the objectives
of each) based on the amount of committed capital each then has available. The allocation of certain investment opportunities
in private placements is subject to independent director approval pursuant to the terms of the co-investment exemptive order applicable
to us. In certain cases, investment opportunities may be made other than on a pro rata basis. For example, we may desire to retain
an asset at the same time that one or more other funds or accounts desire to sell it or we may not have additional capital to
invest at a time the other funds or accounts do. If the Advisor is unable to manage our investments effectively, we may be unable
to achieve our investment objective. In addition, the Advisor may face conflicts in allocating investment opportunities between
us and certain other entities that could impact our investment returns. While our ability to enter into transactions with our
affiliates will be restricted under the 1940 Act, we have received an exemptive order from the SEC permitting certain affiliated
investments subject to certain conditions. As a result, we may face conflict of interests and investments made pursuant to the
exemptive order conditions which could in certain circumstances affect adversely the price paid or received by us or the availability
or size of the position purchased or sold by us.



Recent Developments



From January 1, 2013
through February 28, 2013, the Company has invested approximately $32.3 million in   four loans with an effective yield
of approximately 10.7%.



On March 7, 2013,
the Company’s board of directors declared a first quarter cash dividend of $0.35 per share and a special dividend of $0.05
per share, both payable on March 29, 2013 to stockholders of record as of the close of business on March 18, 2013.



Item 7A: Quantitative and qualitative
disclosure about market risk



We are subject to financial
market risks, including changes in interest rates. At December 31, 2012, 63.8% of our debt investments bore interest based on
floating rates, such as LIBOR, EURIBOR, 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, 2012, the percentage of our floating rate
debt investments that bore interest based on an interest rate floor was 95.6%. 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.



Interest rate sensitivity
refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our
investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the
rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have
a material adverse effect on our net investment income.



Based on our December
31, 2012 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering
interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:



|Basis Point Change    |  | Interest income |           |   | Interest Expense |   |            | Net Income | 
|--------------------- |  | --------------- | --------- | - | ---------------- | - | ---------- | ---------- | 
|Up 300 basis points   |  | $               | 6,043,091 |   |                  | $ | (6,240,000 | )          | 
|Up 200 basis points   |  | $               | 2,904,624 |   |                  | $ | (4,160,000 | )          | 
|Up 100 basis points   |  | $               | 324,264   |   |                  | $ | (2,080,000 | )          | 
|Down 100 basis points |  | $               | (52,239   | ) |                  | $ | 1,464,600  |            | 
|Down 200 basis points |  | $               | (52,239   | ) |                  | $ | 1,464,600  |            | 
|Down 300 basis points |  | $               | (52,239   | ) |                  | $ | 1,464,600  |            | 



49







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



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                             | Page
|------------------------------------------------------------------------------------------------------------ | ----
|                                                                                                             |     
|Report of Independent
    Registered Public Accounting Firm                                                  | 51  
|Consolidated Statements
    of Assets and Liabilities as of December 31, 2012 and 2011                       | 52  
|Consolidated Statements
    of Investments as of December 31, 2012 and 2011                                  | 53  
|Consolidated Statements
    of Operations for the years ended December 31, 2012, 2011 and 2010               | 65  
|Consolidated Statements
    of Changes in Net Assets for the years ended December 31, 2012, 2011 and 2010    | 66  
|Consolidated Statements
    of Cash Flows for the years ended December 31, 2012, 2011 and 2010               | 67  
|Notes to Consolidated
    Financial Statements                                                               | 68  
|Consolidated Schedules
    of Changes in Investments in Affiliates as of December 31, 2012 and 2011          | 86  
|Consolidated Schedules
    of Restricted Securities of Unaffiliated Issuers as of December 31, 2012 and 2011 | 88  
|Consolidating Statements
    of Assets and Liabilities as of December 31, 2012 and 2011                      | 89  
|Consolidating Statements
    of Operations for the years ended December 31, 2012, 2011 and 2010              | 91  





50











Report of Independent Registered Public
Accounting Firm





The Shareholders and Board of Directors of

TCP Capital Corp.



We have audited the accompanying consolidated
statements of assets and liabilities of TCP Capital Corp. (formerly Special Value Continuation Fund, LLC) (the Company), including
the consolidated statements of investments, as of December 31, 2012 and 2011, 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, 2012, and the consolidated financial
highlights for the year ended December 31, 2012. Our audits also included the financial statement schedules listed in the Index
at Item 15(a). These financial statements and 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.
We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2012, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the financial statements
and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of TCP
Capital Corp. (formerly Special Value Continuation Fund, LLC) as of December 31, 2012 and 2011, the consolidated results of its
operations, its changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2012
and the consolidated financial highlights for the year then ended in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set forth therein.



Our audits were conducted for the purpose
of forming an opinion on the consolidated financial statements taken as a whole. The consolidating details appearing with
the consolidated financial statements are presented for purposes of additional analysis and are not a required part of the financial
statements. Such information has been subjected to the auditing procedures applied in our audits of the financial statements
and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as whole.





/s/ Ernst & Young LLP

Los Angeles, California

March 7, 2013





51







TCP Capital
Corp.



Consolidated
Statements of Assets and Liabilities



|                                                                                                                                                                                         |  | December 31, 2012 |             |   | December 31, 2011 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Assets                                                                                                                                                                                   |  |                   |             |   |                   |  
|Investments, at fair value:                                                                                                                                                              |  |                   |             |   |                   |  
|Unaffiliated issuers (cost of $508,302,758
    and $380,905,101, respectively)                                                                                                           |  | $                 | 440,772,190 |   |                   | $
|Controlled companies (cost of $44,964,189 and $26,711,048
    respectively)                                                                                                              |  |                   | 22,489,208  |   |                   |  
|Other affiliates (cost of $55,803,421
    and $66,175,217, respectively)                                                                                                                 |  |                   | 54,421,689  |   |                   |  
|Total investments (cost of $609,070,368 and $473,791,366,
    respectively)                                                                                                              |  |                   | 517,683,087 |   |                   |  
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Cash and cash equivalents                                                                                                                                                                |  |                   | 18,035,189  |   |                   |  
|Accrued interest income:                                                                                                                                                                 |  |                   |             |   |                   |  
|Unaffiliated issuers                                                                                                                                                                     |  |                   | 4,039,149   |   |                   |  
|Controlled companies                                                                                                                                                                     |  |                   | 53,524      |   |                   |  
|Other affiliates                                                                                                                                                                         |  |                   | 482,634     |   |                   |  
|Receivable for investments sold                                                                                                                                                          |  |                   | 7,727,415   |   |                   |  
|Deferred debt issuance costs                                                                                                                                                             |  |                   | 696,018     |   |                   |  
|Unrealized appreciation on swaps                                                                                                                                                         |  |                   | 179,364     |   |                   |  
|Prepaid expenses and other assets                                                                                                                                                        |  |                   | 345,722     |   |                   |  
|Total assets                                                                                                                                                                             |  | $                 | 549,242,102 |   |                   | $
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Liabilities                                                                                                                                                                              |  |                   |             |   |                   |  
|Credit facility payable                                                                                                                                                                  |  |                   | 74,000,000  |   |                   |  
|Payable for investments purchased                                                                                                                                                        |  |                   | 21,814,819  |   |                   |  
|Payable to the Investment Manager                                                                                                                                                        |  |                   | 109,200     |   |                   |  
|Management and advisory fees payable                                                                                                                                                     |  |                   | -           |   |                   |  
|Interest payable                                                                                                                                                                         |  |                   | 119,233     |   |                   |  
|Accrued expenses and other liabilities                                                                                                                                                   |  |                   | 2,685,015   |   |                   |  
|Total liabilities                                                                                                                                                                        |  |                   | 98,728,267  |   |                   |  
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Preferred equity facility                                                                                                                                                                |  |                   |             |   |                   |  
|Series A preferred limited partner interests in Special
    Value Continuation Partners, LP; $20,000/interest liquidation preference; 6,700 interests authorized, issued and outstanding |  |                   | 134,000,000 |   |                   |  
|Accumulated dividends on Series
    A preferred equity facility                                                                                                                          |  |                   | 526,285     |   |                   |  
|Total preferred limited partner
    interests                                                                                                                                            |  |                   | 134,526,285 |   |                   |  
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Net assets
    applicable to common shareholders                                                                                                                                         |  | $                 | 315,987,550 |   |                   | $
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Composition of net assets applicable
    to common shareholders                                                                                                                          |  |                   |             |   |                   |  
|Common interests, $0.001 par value; unlimited interests
    authorized, 418,955.777 interests issued and outstanding as of December 31, 2011                                             |  | $                 | -           |   |                   | $
|Common stock, $0.001 par value; 200,000,000 shares
    authorized, 21,477,628 shares issued and outstanding as of December 31, 2012                                                      |  |                   | 21,478      |   |                   |  
|Paid-in capital in excess of par                                                                                                                                                         |  |                   | 444,234,060 |   |                   |  
|Accumulated net investment income                                                                                                                                                        |  |                   | 22,526,179  |   |                   |  
|Accumulated net realized losses                                                                                                                                                          |  |                   | (59,023,861 | ) |                   |  
|Accumulated net unrealized depreciation                                                                                                                                                  |  |                   | (91,770,306 | ) |                   |  
|Net assets applicable to common
    shareholders                                                                                                                                         |  | $                 | 315,987,550 |   |                   | $
|                                                                                                                                                                                         |  |                   |             |   |                   |  
|Net assets per share                                                                                                                                                                     |  | $                 | 14.71       |   |                   |  



See accompanying notes.



52







TCP Capital
Corp.



Consolidated
Statement of Investments



December
31, 2012



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   | Percent of  | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                                                                                  |  | Principal |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                                                                        |  | Amount    |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Debt
    Investments (90.12%)                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Bank
    Debt (75.60%) (1)                                                                                                        |  |           |            |  |      |   |            |       |  |   |             | 
|Accounting,
    Tax Preparation, Bookkeeping, and Payroll Services (3.16%)                                                        |  |           |            |  |      |   |            |       |  |   |             | 
|Expert Global
    Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 6.75%, 1.25% LIBOR Floor, due 4/2/18               |  | $         | 1,916,252  |  |      | $ | 1,882,302  |       |  | $ | 1,925,239   | 
|Expert
    Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/2/18                  |  | $         | 14,976,011 |  |      |   | 14,493,414 |       |  |   | 14,953,547  | 
|Total
    Accounting, Tax Preparation, Bookkeeping, and Payroll Services                                                          |  |           |            |  |      |   | 16,375,716 |       |  |   | 16,878,786  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Business
    Support Services (3.58%)                                                                                             |  |           |            |  |      |   |            |       |  |   |             | 
|STG-Fairway Acquisitions,
    Inc., Senior Secured 2nd Lien Term Loan, 12.5%, due 12/29/15                                        |  | $         | 19,878,935 |  |      |   | 18,821,586 |       |  |   | 19,193,112  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Computer
    Equipment Manufacturing (1.78%)                                                                                      |  |           |            |  |      |   |            |       |  |   |             | 
|ELO Touch Solutions, Inc.,
    Senior Secured 2nd Lien Term Loan, LIBOR + 10.5%, 1.5% LIBOR Floor, due 12/4/18                    |  | $         | 10,000,000 |  |      |   | 9,621,530  |       |  |   | 9,550,000   | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Electric
    Power Generation, Transmission and Distribution (3.41%)                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Panda Sherman Power, LLC,
    Senior Secured 1st Lien Term Loan, LIBOR + 7.5%,1.5% LIBOR Floor, due 9/14/18                       |  | $         | 11,070,172 |  |      |   | 10,910,286 |       |  |   | 11,263,900  | 
|Astoria
    Generating Company Acquisitions, LLC, Senior Secured 1st Lien Term Loan,LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15 |  | $         | 7,000,000  |  |      |   | 6,727,929  |       |  |   | 7,040,845   | 
|Total
    Electric Power Generation, Transmission and Distribution                                                                |  |           |            |  |      |   | 17,638,215 |       |  |   | 18,304,745  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Electronic
    Shopping (2.13%)                                                                                                   |  |           |            |  |      |   |            |       |  |   |             | 
|Shopzilla, Inc., Senior
    Secured 2nd Lien Term Loan, 13%, due 6/1/14                                                           |  | $         | 11,382,687 |  |      |   | 10,869,637 |       |  |   | 11,422,526  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Equipment
    Rental and Leasing (3.28%)                                                                                          |  |           |            |  |      |   |            |       |  |   |             | 
|Sky Funding AMR Lease
    Portfolio, Senior Subordinated 1st Lien Term Loan, 10%, due 9/6/16 - (Ireland)                          |  | $         | 17,000,000 |  |      |   | 16,412,490 |       |  |   | 17,595,000  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Financial
    Investment Activities (0.02%)                                                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Marsico Capital Management,
    Senior Secured 1st Lien Term Loan, LIBOR + 5%, due 12/31/22                                       |  | $         | 11,281,905 |  |      |   | 14,205,420 |       |  |   | 5,753,772   | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Full-Service
    Restaurants (3.20%)                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|RM OpCo, LLC, Senior Secured
    1st Lien Term Loan Tranche A, 11%, due 3/19/16 (2)                                               |  | $         | 3,759,156  |  |      |   | 3,759,156  |       |  |   | 3,759,156   | 
|RM OpCo, LLC, Senior Secured
    1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16 (2)                                 |  | $         | 6,258,122  |  |      |   | 6,258,122  |       |  |   | 6,258,122   | 
|RM Holdco, LLC, Subordinated
    Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)                                                |  | $         | 5,106,805  |  |      |   | 5,106,805  |       |  |   | 5,106,805   | 
|RM
    OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK,due 3/19/16 (2)                                |  | $         | 1,976,470  |  |      |   | 1,922,118  |       |  |   | 1,976,470   | 
|Total
    Full-Service Restaurants                                                                                                |  |           |            |  |      |   | 17,046,201 |       |  |   | 17,100,553  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Gaming
    Industries (5.61%)                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Golden Gaming, Inc., Senior
    Secured 1st Lien Term Loan, LIBOR + 7% Cash + 1% PIK, 2% LIBOR Floor, due 4/15/16                 |  | $         | 15,975,628 |  |      |   | 15,600,947 |       |  |   | 15,735,993  | 
|AGS LLC, 1st Lien Term
    Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16                                                       |  | $         | 13,269,231 |  |      |   | 12,781,083 |       |  |   | 13,395,288  | 
|AGS
    LLC, DDTL 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16                                                  |  | $         | 865,385    |  |      |   | 796,154    |       |  |   | 881,827     | 
|Total
    Gaming Industries                                                                                                       |  |           |            |  |      |   | 29,178,184 |       |  |   | 30,013,108  | 
|                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Grocery
    Stores (2.58%)                                                                                                        |  |           |            |  |      |   |            |       |  |   |             | 
|Bashas, Inc., Senior Secured
    1st Lien FILO Term Loan, LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15                           |  | $         | 13,461,182 |  |      |   | 13,461,182 |       |  |   | 13,797,711  | 



53







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2012



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                                         |  |           |            |  |      |   |            |       |  |   | Percent of  | 
|------------------------------------------------------------------------------------------------------------------------ |  | --------- | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                                                                         |  | Principal |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                                                               |  | Amount    |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Debt
    Investments (continued)                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Insurance
    Related Activities (1.04%)                                                                                 |  |           |            |  |      |   |            |       |  |   |             | 
|Confie Seguros
    Holding II Co., 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR Floor, due 7/26/19                        |  | $         | 5,600,000  |  |      | $ | 5,490,103  |       |  | $ | 5,590,676   | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Iron
    and Steel Mills and Ferroalloy Manufacturing (1.22%)                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|Essar Steel Algoma, Inc.,
    Senior Secured Term Loan, LIBOR + 7.5%,1.25% LIBOR Floor, due 9/20/14                      |  | $         | 6,581,231  |  |      |   | 6,464,979  |       |  |   | 6,537,367   | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Motion
    Picture and Video Industries (2.83%)                                                                          |  |           |            |  |      |   |            |       |  |   |             | 
|CORE Entertainment, Inc.,
    Senior Secured 1st Lien Term Loan, 9%, due 6/21/17                                         |  | $         | 9,462,231  |  |      |   | 9,362,125  |       |  |   | 8,220,313   | 
|CORE
    Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18                                      |  | $         | 7,569,785  |  |      |   | 7,488,038  |       |  |   | 6,964,202   | 
|Total
    Motion Picture and Video Industries                                                                            |  |           |            |  |      |   | 16,850,163 |       |  |   | 15,184,515  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Motor
    Vehicle Parts Manufacturing (2.41%)                                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|DMI SMW Holding Corporation,
    Term Loan, LIBOR + 7.75%, 1.5% LIBOR Floor, due 12/21/17                                |  | $         | 12,935,000 |  |      |   | 12,938,292 |       |  |   | 12,902,663  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Other
    Amusement and Recreation Industries (2.14%)                                                                    |  |           |            |  |      |   |            |       |  |   |             | 
|Intrawest Cayman L.P.,
    1st Lien Term Loan, LIBOR + 5.75%, 1.25% LIBOR Floor, due 12/4/17 - (Cayman Islands)          |  | $         | 1,250,000  |  |      |   | 1,231,250  |       |  |   | 1,257,813   | 
|Intrawest
    Cayman L.P., 2nd Lien Term Loan, LIBOR + 9.5%, 1.25% LIBOR Floor, due 12/4/18 - (Cayman Islands)           |  | $         | 10,250,000 |  |      |   | 9,993,750  |       |  |   | 10,250,000  | 
|Total
    Other Amusement and Recreation Industries                                                                      |  |           |            |  |      |   | 11,225,000 |       |  |   | 11,507,813  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Other
    Electrical Equipment and Component Manufacturing (3.03%)                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Palladium Energy, Inc.,
    Term Loan, LIBOR + 9%, 1% LIBOR Floor, due 12/21/17                                          |  | $         | 16,500,317 |  |      |   | 16,170,991 |       |  |   | 16,219,812  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Other
    Professional, Scientific, and Technical Services (2.27%)                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Connolly, LLC, Senior
    Secured 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 7/26/19                      |  | $         | 12,000,000 |  |      |   | 11,808,454 |       |  |   | 12,157,500  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Petroleum
    and Coal Products Manufacturing (1.57%)                                                                    |  |           |            |  |      |   |            |       |  |   |             | 
|Boomerang Tube, LLC, 2nd
    Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/2/17                                 |  | $         | 8,522,741  |  |      |   | 8,277,159  |       |  |   | 8,416,206   | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Pharmaceutical
    and Medicine Manufacturing (1.51%)                                                                    |  |           |            |  |      |   |            |       |  |   |             | 
|Pharmaceutical Research
    Associates, Inc., 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 6/10/19          |  | $         | 8,000,000  |  |      |   | 7,840,000  |       |  |   | 8,085,000   | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Promoters
    of Perfoming Arts, Sports, and Similar Events (2.06%)                                                      |  |           |            |  |      |   |            |       |  |   |             | 
|Stadium Management Group,
    Senior Secured 2nd Lien Term Loan, LIBOR + 9.50%, 1.25% LIBOR Floor, due 12/7/18           |  | $         | 11,000,000 |  |      |   | 10,792,091 |       |  |   | 11,055,000  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Radio
    and Television Broadcasting (4.58%)                                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|Encompass Digital Media,
    Inc., 1st Lien Term Loan, LIBOR + 6.5%, 1.5% LIBOR Floor, due 8/10/17                       |  | $         | 7,940,000  |  |      |   | 7,802,595  |       |  |   | 8,039,250   | 
|Granite Broadcasting Corporation,
    Senior Secured 1st Lien Term Loan B, LIBOR + 7.25%, 1.25% LIBOR Floor, due 5/23/18 |  | $         | 9,950,000  |  |      |   | 9,719,719  |       |  |   | 9,974,875   | 
|SiTV,
    Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6% Cash + 4% PIK, 2% LIBOR Floor, due 8/3/16                  |  | $         | 6,806,343  |  |      |   | 6,421,282  |       |  |   | 6,523,880   | 
|Total
    Radio and Television Broadcasting                                                                              |  |           |            |  |      |   | 23,943,596 |       |  |   | 24,538,005  | 
|                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Retail
    (1.90%)                                                                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Kenneth Cole Productions,
    Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 10.60%, 1% LIBOR Floor, due 9/25/17  |  | $         | 10,000,000 |  |      |   | 9,717,763  |       |  |   | 10,200,000  | 



54







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2012



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                               |   |           |            |  |      |           |            |       |  |           | Percent of  | 
|-------------------------------------------------------------------------------------------------------------- | - | --------- | ---------- |  | ---- | --------- | ---------- | ----- |  | --------- | ----------- | 
|                                                                                                               |   | Principal |            |  |      |           |            | Fair  |  |           | Cash and    | 
|Investment                                                                                                     |   | Amount    |            |  | Cost |           |            | Value |  |           | Investments | 
|                                                                                                               |   |           |            |  |      |           |            |       |  |           |             | 
|Debt
    Investments (continued)                                                                               |   |           |            |  |      |           |            |       |  |           |             | 
|Scheduled
    Air Transportation (3.11%)                                                                       |   |           |            |  |      |           |            |       |  |           |             | 
|Delta Air
    Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18 (6)                             |   | $         | 366,557    |  |      | $         | 366,557    |       |  | $         | 367,370     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18 (6)                             |   | $         | 456,613    |  |      |           | 456,613    |       |  |           | 454,580     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19 (6)                             |   | $         | 593,200    |  |      |           | 593,200    |       |  |           | 597,720     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19 (6)                             |   | $         | 609,107    |  |      |           | 609,107    |       |  |           | 612,000     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19 (6)                             |   | $         | 609,360    |  |      |           | 609,360    |       |  |           | 612,850     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19 (6)                             |   | $         | 614,434    |  |      |           | 614,434    |       |  |           | 617,440     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19 (6)                             |   | $         | 619,468    |  |      |           | 619,468    |       |  |           | 622,030     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19 (6)                             |   | $         | 639,631    |  |      |           | 639,631    |       |  |           | 640,730     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19(6)                              |   | $         | 635,009    |  |      |           | 635,009    |       |  |           | 636,990     | 
|Delta Air Lines, Inc.,
    Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18 (6)                             |   | $         | 474,007    |  |      |           | 474,007    |       |  |           | 473,280     | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)                           |   | $         | 410,410    |  |      |           | 410,410    |       |  |           | 548,340     | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)                          |   | $         | 414,343    |  |      |           | 414,343    |       |  |           | 556,225     | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)                           |   | $         | 251,941    |  |      |           | 251,941    |       |  |           | 277,780     | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)                           |   | $         | 377,925    |  |      |           | 377,925    |       |  |           | 436,810     | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)                          |   | $         | 486,501    |  |      |           | 486,501    |       |  |           | 653,220     | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (6)                           |   | $         | 3,707,430  |  |      |           | 3,707,430  |       |  |           | 4,264,148   | 
|United
    Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (6)                            |   | $         | 3,849,284  |  |      |           | 3,849,284  |       |  |           | 4,351,424   | 
|                                                                                                               |   |           |            |  |      |           | 15,115,220 |       |  |           | 16,722,937  | 
|Semiconductor
    and Other Electronic Component Manufacturing (2.61%)                                         |   |           |            |  |      |           |            |       |  |           |             | 
|Isola
    USA Corporation, 1st Lien Term Loan, LIBOR + 8%, 2% LIBOR Floor,due 9/29/15                          |   | $         | 14,000,000 |  |      |           | 13,975,000 |       |  |           | 14,000,000  | 
|                                                                                                               |   |           |            |  |      |           |            |       |  |           |             | 
|Software
    Publishers (8.47%)                                                                                |   |           |            |  |      |           |            |       |  |           |             | 
|Blackboard, Inc., Senior
    Secured 1st Lien Term Loan, LIBOR + 6%, 1.5% LIBOR Floor, due 10/4/18             |   | $         | 2,671,613  |  |      |           | 2,457,884  |       |  |           | 2,705,008   | 
|Deltek, Inc., Senior Secured
    2nd Lien Term Loan, LIBOR + 8.75%, 1.25% LIBOR Floor, due 10/10/19            |   | $         | 15,000,000 |  |      |           | 14,781,719 |       |  |           | 15,275,025  | 
|Edmentum, Inc., Senior
    Secured 2nd Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor due 5/8/19              |   | $         | 15,000,000 |  |      |           | 14,717,168 |       |  |           | 14,831,250  | 
|SumTotal Systems, LLC,
    Senior Secured 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR Floor, due 5/13/19       |   | $         | 7,600,000  |  |      |           | 7,449,234  |       |  |           | 7,524,000   | 
|The
    TriZetto Group, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1.25% LIBOR Floor, due 3/28/19 |   | $         | 5,000,000  |  |      |           | 4,927,523  |       |  |           | 4,979,175   | 
|Total
    Software Publishers                                                                                  |   |           |            |  |      |           | 44,333,528 |       |  |           | 45,314,458  | 
|                                                                                                               |   |           |            |  |      |           |            |       |  |           |             | 
|Support
    Activities for Mining (0.06%)                                                                      |   |           |            |  |      |           |            |       |  |           |             | 
|Trico Shipping AS, 1st
    Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)            |   | $         | 228,803    |  |      |           | 228,803    |       |  |           | 228,803     | 
|Trico
    Shipping AS, 1st Lien Term Loan B, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)            |   | $         | 80,543     |  |      |           | 80,543     |       |  |           | 80,543      | 
|Total
    Support Activities for Mining                                                                        |   |           |            |  |      |           | 309,346    |       |  |           | 309,346     | 
|                                                                                                               |   |           |            |  |      |           |            |       |  |           |             | 
|Wired
    Telecommunications Carriers (2.52%)                                                                  |   |           |            |  |      |           |            |       |  |           |             | 
|Bulgaria Telecom Company
    AD, 1st Lien Facility 1A Term Loan, EURIBOR + 5.5%, due 11/9/17 - (Bulgaria) (4)  |   | €         | 3,262,515  |  |      |           | 3,525,355  |       |  |           | 3,744,685   | 
|Integra Telecom Holdings,
    Inc., 1st Lien Term Loan, LIBOR + 7.25%, 2% LIBOR Floor, due 4/15/15             |   | $         | 8,477,489  |  |      |           | 8,070,172  |       |  |           | 8,518,096   | 
|Viva
Telecom Bulgaria EAD, 1st Lien Facility 1B Term Loan, EURIBOR + 5.5%, due 11/9/17 -(Luxembourg)(4)        | € | 980,713   |            |  |      | 1,059,723 |            |       |  | 1,125,653 |             | 
|Total
    Wired Telecommunications Carriers                                                                    |   |           |            |  |      |           | 12,655,250 |       |  |           | 13,388,434  | 



55







TCP
Capital Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2012



Showing Percentage of Total
Cash and Investments of the Company



|                                                                                                                 |  |           |            |  |      |   |             |       |  |   | Percent of  | 
|---------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ---- | - | ----------- | ----- |  | - | ----------- | 
|                                                                                                                 |  | Principal |            |  |      |   |             | Fair  |  |   | Cash and    | 
|Investment                                                                                                       |  | Amount    |            |  | Cost |   |             | Value |  |   | Investments | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Debt
    Investments (continued)                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Wireless
    Telecommunications Carriers (0.56%)                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Globalive
    Wireless Management Corp., Senior Secured 1st Lien Term Loan, LIBOR + 8.9%, due 10/9/12 - (Canada) |  | $         | 3,037,292  |  |      | $ | 2,933,872   |       |  | $ | 3,000,845   | 
|Gogo,
    LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor,due 6/21/17                    |  | $         | 10,168,765 |  |      |   | 9,762,014   |       |  |   | 10,270,452  | 
|Total
    Wireless Telecommunications                                                                            |  |           |            |  |      |   | 12,695,886  |       |  |   | 13,271,297  | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Total
    Bank Debt                                                                                              |  |           |            |  |      |   | 404,232,982 |       |  |   | 405,010,342 | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Other
    Corporate Debt Securities (14.51%)                                                                     |  |           |            |  |      |   |             |       |  |   |             | 
|Architectural,
    Engineering, and Related Services (1.33%)                                                     |  |           |            |  |      |   |             |       |  |   |             | 
|ESP Holdings, Inc., Junior
    Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19 (2), (5) |  | $         | 7,209,840  |  |      |   | 7,209,840   |       |  |   | 7,134,137   | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Artificial
    Synthetic Fibers and Filaments Manufacturing (1.72%)                                              |  |           |            |  |      |   |             |       |  |   |             | 
|AGY Holding Corporation,
    Senior Secured 2nd Lien Notes, 11%, due 11/15/14                                    |  | $         | 18,536,000 |  |      |   | 15,172,634  |       |  |   | 9,221,660   | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Data
    Processing, Hosting, and Related Services (1.34%)                                                       |  |           |            |  |      |   |             |       |  |   |             | 
|The Telx Group, Inc.,
    Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)                             |  | $         | 6,958,697  |  |      |   | 6,820,215   |       |  |   | 7,167,458   | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Metal
    and Mineral (except Petroleum) Merchant Wholesalers (2.48%)                                            |  |           |            |  |      |   |             |       |  |   |             | 
|Constellation Enterprises,
    LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)                       |  | $         | 12,500,000 |  |      |   | 12,322,875  |       |  |   | 13,296,875  | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Nondepository
    Credit Intermediation (1.87%)                                                                  |  |           |            |  |      |   |             |       |  |   |             | 
|Caribbean Financial Group,
    Senior Secured Notes, 11.5%, due 11/15/19 (5)                                     |  | $         | 10,000,000 |  |      |   | 9,803,494   |       |  |   | 10,037,500  | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Nonferrous
    Metal Production and Processing (2.88%)                                                           |  |           |            |  |      |   |             |       |  |   |             | 
|International Wire Group
    Holdings, Inc., Senior Secured Notes, 8.5%, due 10/15/17 (2), (5)                   |  | $         | 15,000,000 |  |      |   | 15,000,000  |       |  |   | 15,450,000  | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Scientific
    Research and Development Services (2.89%)                                                         |  |           |            |  |      |   |             |       |  |   |             | 
|BPA
    Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)                                         |  | $         | 17,110,000 |  |      |   | 16,446,295  |       |  |   | 15,484,550  | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Total
    Other Corporate Debt Securities                                                                        |  |           |            |  |      |   | 82,775,353  |       |  |   | 77,792,180  | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Total
    Debt Investments                                                                                       |  |           |            |  |      |   | 487,008,335 |       |  |   | 482,802,522 | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Equity
    Securities (6.51%)                                                                                    |  |           |            |  |      |   |             |       |  |   |             | 
|Other
    Amusement and Recreation Industries (0.01%)                                                            |  |           |            |  |      |   |             |       |  |   |             | 
|Bally Total Fitness Holding
    Corporation, Common Stock (3), (5)                                               |  |           | 6,058      |  |      |   | 45,186,963  |       |  |   | 27,746      | 
|Bally
    Total Fitness Holding Corporation, Warrants (3), (5)                                                   |  |           | 10,924     |  |      |   | -           |       |  |   | 1           | 
|Total
    Other Amusement and Recreation Industries                                                              |  |           |            |  |      |   | 45,186,963  |       |  |   | 27,747      | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Architectural,
    Engineering, and Related Services (1.10%)                                                     |  |           |            |  |      |   |             |       |  |   |             | 
|ESP Holdings, Inc., Cumulative
    Preferred 15% (2), (3), (5)                                                   |  |           | 20,297     |  |      |   | 2,249,930   |       |  |   | 3,643,088   | 
|ESP
    Holdings, Inc., Common Stock (2), (3), (5)                                                               |  |           | 88,670     |  |      |   | 9,311,782   |       |  |   | 2,263,124   | 
|Total
    Architectural, Engineering, and Related Services                                                       |  |           |            |  |      |   | 11,561,712  |       |  |   | 5,906,212   | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Business
    Support Services (0.05%)                                                                            |  |           |            |  |      |   |             |       |  |   |             | 
|STG-Fairway Holdings,
    LLC, Class A Units (3), (5)                                                            |  |           | 80,396     |  |      |   | 1,100,348   |       |  |   | 241,188     | 
|                                                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Data
    Processing, Hosting, and Related Services (0.23%)                                                       |  |           |            |  |      |   |             |       |  |   |             | 
|Anacomp, Inc., Class A
    Common Stock (3), (5), (6)                                                            |  |           | 1,255,527  |  |      |   | 26,711,048  |       |  |   | 1,255,527   | 



56







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2012



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                   |  |        |            |  |      |   |            |       |  |   | Percent of  | 
|---------------------------------------------------------------------------------- |  | ------ | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                                   |  |        |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                         |  | Shares |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Equity Securities
    (continued)                                                  |  |        |            |  |      |   |            |       |  |   |             | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Depository Credit Intermediation (0.15%)                                           |  |        |            |  |      |   |            |       |  |   |             | 
|Doral Financial Corporation, Common Stock (3)                                      |  |        | 1,077,795  |  |      | $ | 11,699,417 |       |  | $ | 780,431     | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Electric Power Generation, Transmission and Distribution
    (0.01%)               |  |        |            |  |      |   |            |       |  |   |             | 
|La Paloma Residual Bank Debt Claim (3), (5)                                        |  |        | 1,830,453  |  |      |   | 1,574,284  |       |  |   | 51,253      | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Electronic Shopping (0.21%)                                                        |  |        |            |  |      |   |            |       |  |   |             | 
|Shop Holding, LLC, Class A Units (3), (5)                                          |  |        | 490,037    |  |      |   | 462,576    |       |  |   | 915,198     | 
|Shop Holding, LLC, Warrants to Purchase Class
    A Units (3), (5)                 |  |        | 326,691    |  |      |   | -          |       |  |   | 283,346     | 
|Total Electronic Shopping                                                          |  |        |            |  |      |   | 462,576    |       |  |   | 1,198,544   | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Financial Investment Activities (0.02%)                                            |  |        |            |  |      |   |            |       |  |   |             | 
|Marsico Holdings, LLC, Common Interest Units (3), (5)                              |  |        | 168,698    |  |      |   | 172,694    |       |  |   | 84,349      | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Full-Service Restaurants (0.16%)                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|RM Holdco, LLC, Membership Units (2), (3), (5)                                     |  |        | 13,161,000 |  |      |   | 2,010,777  |       |  |   | 849,478     | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Machine Shops; Turned Product; and Screw, Nut,
    and Bolt Manufacturing (0.00%)  |  |        |            |  |      |   |            |       |  |   |             | 
|Precision Holdings, LLC, Class C Membership Interests (3),
    (5)                 |  |        | 33         |  |      |   | 1,396      |       |  |   | 21,317      | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Nonmetallic Mineral Mining and Quarrying (0.51%)                                   |  |        |            |  |      |   |            |       |  |   |             | 
|EPMC HoldCo, LLC, Membership Units (2), (5)                                        |  |        | 1,312,720  |  |      |   | -          |       |  |   | 2,730,458   | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Radio and Television Broadcasting (0.06%)                                          |  |        |            |  |      |   |            |       |  |   |             | 
|SiTV, Inc., Warrants to Purchase Common Stock(3), (5)                              |  |        | 233,470    |  |      |   | 300,322    |       |  |   | 336,197     | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Scheduled Air Transportation (1.83%)                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL)
    (5), (6)  |  |        | 466        |  |      |   | 113,899    |       |  |   | 111,520     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL)
    (5), (6)  |  |        | 433        |  |      |   | 130,664    |       |  |   | 120,530     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL)
    (5), (6)  |  |        | 421        |  |      |   | 161,952    |       |  |   | 113,390     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL)
    (5), (6)  |  |        | 417        |  |      |   | 164,481    |       |  |   | 160,650     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL)
    (5), (6)  |  |        | 418        |  |      |   | 164,726    |       |  |   | 163,200     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL)
    (5), (6)  |  |        | 417        |  |      |   | 165,755    |       |  |   | 163,880     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL)
    (5), (6)  |  |        | 416        |  |      |   | 166,778    |       |  |   | 164,390     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL)
    (5), (6)  |  |        | 412        |  |      |   | 171,075    |       |  |   | 169,660     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL)
    (5), (6)  |  |        | 415        |  |      |   | 170,315    |       |  |   | 171,360     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL)
    (5), (6)  |  |        | 442        |  |      |   | 136,326    |       |  |   | 83,300      | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)
    (2), (5) |  |        | 43         |  |      |   | 151,759    |       |  |   | 479,682     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)
    (2), (5) |  |        | 43         |  |      |   | 148,561    |       |  |   | 473,761     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)
    (2), (5) |  |        | 62         |  |      |   | 298,394    |       |  |   | 624,746     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)
    (2), (5) |  |        | 52         |  |      |   | 267,249    |       |  |   | 616,897     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)
    (2), (5) |  |        | 43         |  |      |   | 167,806    |       |  |   | 583,391     | 
|United N659UA-767, LLC (N659UA) (5), (6)                                           |  |        | 312        |  |      |   | 1,773,072  |       |  |   | 2,771,428   | 
|United N661UA-767, LLC (N661UA) (5), (6)                                           |  |        | 303        |  |      |   | 1,759,997  |       |  |   | 2,789,809   | 
|Total Scheduled Air Transportation                                                 |  |        |            |  |      |   | 6,112,809  |       |  |   | 9,761,594   | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Semiconductor and Other Electronic Component
    Manufacturing (0.01%)             |  |        |            |  |      |   |            |       |  |   |             | 
|AIP/IS Holdings, LLC, Membership Units (3), (5)                                    |  |        | 352        |  |      |   | -          |       |  |   | 68,922      | 
|                                                                                   |  |        |            |  |      |   |            |       |  |   |             | 
|Support Activities for Mining (0.61%)                                              |  |        |            |  |      |   |            |       |  |   |             | 
|DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)                       |  |        | 145,824    |  |      |   | 3,477,627  |       |  |   | 3,255,535   | 



57







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2012



Showing Percentage of Total Cash and Investments
of the Company



|                                                                           |  |        |           |  |      |   |             |       |  |   | Percent of  | 
|-------------------------------------------------------------------------- |  | ------ | --------- |  | ---- | - | ----------- | ----- |  | - | ----------- | 
|                                                                           |  |        |           |  |      |   |             | Fair  |  |   | Cash and    | 
|Investment                                                                 |  | Shares |           |  | Cost |   |             | Value |  |   | Investments | 
|                                                                           |  |        |           |  |      |   |             |       |  |   |             | 
|Equity Securities
    (continued)                                          |  |        |           |  |      |   |             |       |  |   |             | 
|                                                                           |  |        |           |  |      |   |             |       |  |   |             | 
|Wired Telecommunications Carriers (1.55%)                                  |  |        |           |  |      |   |             |       |  |   |             | 
|Integra Telecom, Inc., Common Stock (3), (5)                               |  |        | 1,274,522 |  |      | $ | 8,433,884   |       |  | $ | 5,038,718   | 
|Integra Telecom, Inc., Warrants (3), (5)                                   |  |        | 346,939   |  |      |   | 19,920      |       |  |   | -           | 
|V Telecom Investment S.C.A, Common Shares -
    (Luxembourg) (3), (4), (5) |  |        | 1,393     |  |      |   | 3,236,256   |       |  |   | 3,273,095   | 
|Total Wired Telecommunications
    Carriers                                |  |        |           |  |      |   | 11,690,060  |       |  |   | 8,311,813   | 
|                                                                           |  |        |           |  |      |   |             |       |  |   |             | 
|Total Equity Securities                                                    |  |        |           |  |      |   | 122,062,033 |       |  |   | 34,880,565  | 
|                                                                           |  |        |           |  |      |   |             |       |  |   |             | 
|Total Investments (7)                                                      |  |        |           |  |      |   | 609,070,368 |       |  |   | 517,683,087 | 
|                                                                           |  |        |           |  |      |   |             |       |  |   |             | 
|Cash and Cash Equivalents                                                  |  |        |           |  |      |   |             |       |  |   | 18,035,189  | 
|                                                                           |  |        |           |  |      |   |             |       |  |   |             | 
|Total Cash and Investments                                                 |  |        |           |  |      |   |             |       |  | $ | 535,718,276 | 








Notes to Statement of Investments:



| | (1) | Investments in bank debt generally
                                                                       are bought and sold among institutional investors in transactions
                                                                       not subject to registration under the Securities Act of
                                                                       1933. Such transactions are generally subject to contractual
                                                                       restrictions, such as approval of the agent or borrower.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Non-controlled affiliate –
                                                                       as defined under the Investment Company Act of 1940 (ownership
                                                                       of between 5% and 25% of the outstanding voting securities
                                                                       of this issuer).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Non-income producing security.
| | --- | ------------------------------

| | (4) | Principal amount denominated
                                                                       in foreign currency. Amortized cost and fair value converted
                                                                       from foreign currency to US dollars. (See Note 2)
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Restricted security. (See
                                                                       Note 2)
| | --- | --------------------------------------------------------------------------------------------------------

| | (6) | Controlled issuer –
                                                                       as defined under the Investment Company Act of 1940 (ownership
                                                                       of 25% or more of the outstanding voting securities of
                                                                       this issuer).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Includes investments with
                                                                       an aggregate market value of $1,382,875 that have been
                                                                       segregated to collateralize certain unfunded commitments.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Aggregate acquisitions and aggregate dispositions
of investments, other than government securities, totaled $359,020,926 and $211,216,033, respectively for the year ended December
31, 2012. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal
paydowns on and maturities of debt investments. The total value of restricted securities and bank debt as of December 31, 2012
was $507,680,996, or 94.8% of total cash and investments of the Company.



Swaps at December 31, 2012 were as follows:



|Investment                                                                       |  | Notional Amount |           |  | Fair Value |  
|-------------------------------------------------------------------------------- |  | --------------- | --------- |  | ---------- | -
|                                                                                 |  |                 |           |  |            |  
|Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14 |  | $               | 6,040,944 |  |            | $



See accompanying notes.



58









TCP
Capital Corp.



Consolidated
Statement of Investments



December
31, 2011



Showing Percentage of Total Cash
and Investments of the Company



|                                                                                                              |  |           |            |  |       |   |            | Percent of  | 
|------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ---------- | ----------- | 
|                                                                                                              |  | Principal |            |  | Fair  |   |            | Cash and    | 
|Investment                                                                                                    |  | Amount    |            |  | Value |   |            | Investments | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Debt Investments
    (78.77%)                                                                                 |  |           |            |  |       |   |            |             | 
|Bank Debt (47.16%)
    (1)                                                                                    |  |           |            |  |       |   |            |             | 
|Accounting, Tax Preparation, Bookkeeping, and
    Payroll Services (0.18%)                                    |  |           |            |  |       |   |            |             | 
|NCO Group,
    Inc., Senior Secured 1st Lien Term Loan, LIBOR + 5.5%, 2.5% LIBOR Floor, due 11/15/13          |  | $         | 705,163    |  |       | $ | 695,761    |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Business Support Services (4.91%)                                                                             |  |           |            |  |       |   |            |             | 
|STG-Fairway Acquisitions,
    Inc., Senior Secured 2nd Lien Term Loan, 12.5%, due 12/29/15                    |  | $         | 18,820,923 |  |       |   | 19,169,110 |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Commercial and Industrial Machinery and Equipment
    Rental and Leasing (2.67%)                              |  |           |            |  |       |   |            |             | 
|AerCap Holdings N.V.,
    Secured 1st Lien Term Loan, 10.25%, due 12/3/15 - (Netherlands)                     |  | $         | 10,411,593 |  |       |   | 10,411,591 |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Communications Equipment Manufacturing (2.37%)                                                                |  |           |            |  |       |   |            |             | 
|Mitel US Holdings, Inc.,
    2nd Lien Term Loan, LIBOR + 7%, due 8/16/15                                      |  | $         | 9,951,762  |  |       |   | 9,230,260  |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Data Processing, Hosting, and Related Services
    (1.92%)                                                    |  |           |            |  |       |   |            |             | 
|The Telx Group, Inc.,
    Senior Secured 1st Lien Term Loan, LIBOR + 6.5%, 1.25% LIBOR Floor, due 9/22/17     |  | $         | 7,481,250  |  |       |   | 7,481,250  |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Electric Power Generation, Transmission and Distribution
    (0.01%)                                          |  |           |            |  |       |   |            |             | 
|La Paloma Generating Company,
    Residual Bank Debt Claim (3)                                                |  | $         | 1,830,453  |  |       |   | 51,436     |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Electronic Shopping and Mail-Order Houses (3.59%)                                                             |  |           |            |  |       |   |            |             | 
|Shopzilla, Inc., Senior
    Secured 2nd Lien Term Loan, 13%, due 6/1/14                                       |  | $         | 13,723,983 |  |       |   | 14,002,946 |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Grocery Stores (3.92%)                                                                                        |  |           |            |  |       |   |            |             | 
|Bashas, Inc., Senior Secured
    1st Lien FILO Term Loan, LIBOR + 7.5%, 1.5% LIBOR Floor, due 10/1/13         |  | $         | 15,000,000 |  |       |   | 15,262,500 |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Machine Shops; Turned Product; and Screw, Nut,
    and Bolt Manufacturing (1.23%)                             |  |           |            |  |       |   |            |             | 
|Precision Partners Holdings,
    1st Lien Delayed Draw Term Loan, Prime + 6.5%, 4.5% Prime Floor, due 10/1/13 |  | $         | 289,734    |  |       |   | 283,940    |             | 
|Precision
    Partners Holdings, 1st Lien Term Loan, Prime + 6.5%, 4.5% Prime Floor, due 10/1/13              |  | $         | 4,600,740  |  |       |   | 4,508,724  |             | 
|Total Machine Shops; Turned Product; and Screw,
    Nut, and Bolt Manufacturing                               |  |           |            |  |       |   | 4,792,664  |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Motion Picture and Video Industries (4.26%)                                                                   |  |           |            |  |       |   |            |             | 
|CKX Entertainment, Inc.,
    Senior Secured 1st Lien Term Loan, 9%, due 6/21/17                               |  | $         | 9,462,231  |  |       |   | 9,239,869  |             | 
|CKX
    Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18                            |  | $         | 7,569,785  |  |       |   | 7,384,325  |             | 
|Total Motion Picture and Video Industries                                                                     |  |           |            |  |       |   | 16,624,194 |             | 
|                                                                                                              |  |           |            |  |       |   |            |             | 
|Motor Vehicle Parts Manufacturing (2.82%)                                                                     |  |           |            |  |       |   |            |             | 
|Diversified Machine, Inc.,
    Senior Secured 1st Lien Term Loan, LIBOR + 7.75%,1.5% LIBOR Floor, due 12/1/16 |  | $         | 11,000,000 |  |       |   | 11,000,000 |             | 



59







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2011



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                                                 |  |           |            |  |       |   |            | Percent of  | 
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ---------- | ----------- | 
|                                                                                                                                 |  | Principal |            |  | Fair  |   |            | Cash and    | 
|Investment                                                                                                                       |  | Amount    |            |  | Value |   |            | Investments | 
|                                                                                                                                 |  |           |            |  |       |   |            |             | 
|Debt Investments
    (continued)                                                                                                 |  |           |            |  |       |   |            |             | 
|Other Financial Investment Activities (1.60%)                                                                                    |  |           |            |  |       |   |            |             | 
|Marsico Capital
    Management, Senior Secured 1st Lien Term Loan, LIBOR + 5%, due 12/14/14                                      |  | $         | 19,338,970 |  |       | $ | 6,252,927  |             | 
|                                                                                                                                 |  |           |            |  |       |   |            |             | 
|Radio and Television Broadcasting (5.09%)                                                                                        |  |           |            |  |       |   |            |             | 
|Encompass Digital Media,
    Inc., 1st Lien Term Loan, LIBOR + 6%, 1.75% LIBOR Floor, due 2/28/16                                |  | $         | 2,713,867  |  |       |   | 2,648,734  |             | 
|Encompass Digital Media,
    Inc., 2nd Lien Term Loan, 16.5%, due 8/28/16                                                        |  | $         | 16,453,486 |  |       |   | 16,700,288 |             | 
|Hubbard
    Radio, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1.5% LIBOR Floor, due 4/11/18                          |  | $         | 500,000    |  |       |   | 497,500    |             | 
|Total Radio and Television Broadcasting                                                                                          |  |           |            |  |       |   | 19,846,522 |             | 
|                                                                                                                                 |  |           |            |  |       |   |            |             | 
|Resin, Synthetic Rubber, and Artificial Synthetic
    Fibers and Filaments                                                       |  |           |            |  |       |   |            |             | 
|Manufacturing (3.86%)                                                                                                            |  |           |            |  |       |   |            |             | 
|Gundle/SLT Environmental,
    Inc., Senior Secured 2nd Lien Term Loan,LIBOR + 9.5% Cash + 2% PIK, 1.5% LIBOR Floor, due 11/27/16 |  | $         | 15,110,056 |  |       |   | 15,034,505 |             | 
|                                                                                                                                 |  |           |            |  |       |   |            |             | 
|Scheduled Air Transportation (3.38%)                                                                                             |  |           |            |  |       |   |            |             | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)                                             |  | $         | 477,297    |  |       |   | 624,066    |             | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)                                            |  | $         | 479,793    |  |       |   | 630,208    |             | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)                                             |  | $         | 374,009    |  |       |   | 414,963    |             | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)                                             |  | $         | 487,311    |  |       |   | 563,575    |             | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)                                            |  | $         | 563,348    |  |       |   | 739,958    |             | 
|United Air Lines, Inc.,
    Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (2)                                             |  | $         | 4,594,240  |  |       |   | 5,014,613  |             | 
|United
    Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (2)                                              |  | $         | 4,709,310  |  |       |   | 5,192,014  |             | 
|Total Scheduled Air Transportation                                                                                               |  |           |            |  |       |   | 13,179,397 |             | 
|                                                                                                                                 |  |           |            |  |       |   |            |             | 
|Software Publishers (2.44%)                                                                                                      |  |           |            |  |       |   |            |             | 
|Blackboard, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6%,
    1.5% LIBOR Floor, due 9/23/18                               |  | $         | 10,000,000 |  |       |   | 9,525,000  |             | 
|                                                                                                                                 |  |           |            |  |       |   |            |             | 
|Support Activities for Mining (0.06%)                                                                                            |  |           |            |  |       |   |            |             | 
|Trico Shipping
    AS, 1st Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)                              |  | $         | 228,803    |  |       |   | 228,803    |             | 
|Trico
    Shipping AS, 1st Lien Term Loan B, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)                              |  | $         | 402,714    |  |       |   | -          |             | 
|Total Support Activities for Mining                                                                                              |  |           |            |  |       |   | 228,803    |             | 



60







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2011



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                               |  |           |            |  |       |   |             | Percent of  | 
|-------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ----------- | ----------- | 
|                                                                                                               |  | Principal |            |  | Fair  |   |             | Cash and    | 
|Investment                                                                                                     |  | Amount    |            |  | Value |   |             | Investments | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Debt Investments
    (continued)                                                                               |  |           |            |  |       |   |             |             | 
|Wired Telecommunications Carriers (2.84%)                                                                      |  |           |            |  |       |   |             |             | 
|Bulgaria Telecom
    Company AD, 1st Lien Tranche B Term Loan, EURIBOR + 2.75%, due 8/9/15 - (Bulgaria) (4)    |  | €         | 2,084,507  |  |       | $ | 1,864,193   |             | 
|Integra
    Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%, 2% LIBOR Floor, due 4/15/15             |  | $         | 1,564,438  |  |       |   | 1,332,380   |             | 
|NEF Telecom Company BV,
    1st Lien Tranche C Term Loan,                                                      |  |           |            |  |       |   |             |             | 
|EURIBOR + 3.5%, due 8/9/16
    - (Netherlands) (4)                                                             |  | €         | 4,927,730  |  |       |   | 4,167,407   |             | 
|NEF
    Telecom Company BV, 2nd Lien Tranche D Term Loan, EURIBOR + 5.5%, due 2/16/17 - (Netherlands) (3), (4) |  | €         | 4,736,002  |  |       |   | 3,686,069   |             | 
|Total Wired Telecommunications
    Carriers                                                                    |  |           |            |  |       |   | 11,050,049  |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Total Bank Debt (Cost $185,948,729)                                                                            |  |           |            |  |       |   | 183,838,915 |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Other Corporate Debt Securities
    (31.61%)                                                                   |  |           |            |  |       |   |             |             | 
|Accounting, Tax Preparation, Bookkeeping, and
    Payroll Services (4.25%)                                     |  |           |            |  |       |   |             |             | 
|NCO Group, Inc., Senior
    Subordinated Notes, 11.875%, due 11/15/14                                          |  | $         | 9,655,000  |  |       |   | 9,172,250   |             | 
|NCO Group, Inc., Senior
    Unsecured Floating Rate Notes, LIBOR + 4.875%, due 11/15/13                        |  | $         | 7,824,000  |  |       |   | 7,394,932   |             | 
|Total Accounting, Tax Preparation, Bookkeeping,
    and Payroll Services                                       |  |           |            |  |       |   | 16,567,182  |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Aerospace Product and Parts Manufacturing (0.36%)                                                              |  |           |            |  |       |   |             |             | 
|Hawker Beechcraft, Inc., Senior Unsecured Notes, 8.5%, due 4/1/15                                              |  | $         | 7,448,000  |  |       |   | 1,402,706   |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Architectural, Engineering, and Related Services
    (2.69%)                                                   |  |           |            |  |       |   |             |             | 
|Alion Science & Technology
    Corporation, Senior Secured Notes, 10% Cash + 2% PIK, due 11/1/14               |  | $         | 4,687,736  |  |       |   | 4,267,762   |             | 
|ESP
    Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK, due 3/31/15 (2), (5)          |  | $         | 6,209,347  |  |       |   | 6,240,393   |             | 
|Total Architectural, Engineering, and Related
    Services                                                     |  |           |            |  |       |   | 10,508,155  |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Data Processing, Hosting, and Related Services
    (2.19%)                                                     |  |           |            |  |       |   |             |             | 
|GXS Worldwide, Inc., Fixed
    Notes, 9.75%, due 6/15/15                                                       |  | $         | 1,170,000  |  |       |   | 1,094,874   |             | 
|The
    Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)                           |  | $         | 7,539,583  |  |       |   | 7,464,188   |             | 
|Total Data Processing, Hosting, and Related Services                                                           |  |           |            |  |       |   | 8,559,062   |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Full-Service Restaurants (3.18%)                                                                               |  |           |            |  |       |   |             |             | 
|Real Mex Restaurants, Inc., Senior Secured Notes, 14%, due 1/1/13
    (3)                                      |  | $         | 13,161,000 |  |       |   | 12,410,823  |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Gambling Industries (1.44%)                                                                                    |  |           |            |  |       |   |             |             | 
|Harrah's Operating Company, Inc., 2nd Priority Secured Notes, 10%,
    due 12/15/18                            |  | $         | 8,169,000  |  |       |   | 5,595,765   |             | 
|                                                                                                               |  |           |            |  |       |   |             |             | 
|Metal and Mineral (except Petroleum) Merchant
    Wholesalers (6.02%)                                          |  |           |            |  |       |   |             |             | 
|Constellation Enterprises,
    LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)                     |  | $         | 12,500,000 |  |       |   | 11,823,750  |             | 
|Edgen
    Murray Corporation, Senior Secured Notes, 12.25%, due 1/15/15                                        |  | $         | 13,076,000 |  |       |   | 11,637,640  |             | 
|Total Metal and Mineral (except Petroleum) Merchant
    Wholesalers                                            |  |           |            |  |       |   | 23,461,390  |             | 



61







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2011



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                          |  | Principal     |            |  |       |   |             | Percent of  | 
|--------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- |  | ----- | - | ----------- | ----------- | 
|                                                                                                          |  | Amount        |            |  | Fair  |   |             | Cash and    | 
|Investment                                                                                                |  | or
    Shares |            |  | Value |   |             | Investments | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Debt Investments
    (continued)                                                                          |  |               |            |  |       |   |             |             | 
|Nonferrous Metal (except Aluminum) Production
    and Processing (4.66%)                                  |  |               |            |  |       |   |             |             | 
|International
    Wire Group Holdings, Inc., Senior Notes, 11.5% Cash or 12.25% PIK, due 4/15/15 (2), (5) |  | $             | 18,000,000 |  |       | $ | 18,180,000  |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Oil and Gas Extraction (1.27%)                                                                            |  |               |            |  |       |   |             |             | 
|Geokinetics Holdings,
    Inc., Senior Secured Notes, 9.75%, due 12/15/14                                 |  | $             | 1,342,000  |  |       |   | 853,848     |             | 
|Saratoga
    Resources, Inc., Senior Secured Notes, 12.5%, due 7/1/16                                     |  | $             | 4,000,000  |  |       |   | 4,080,000   |             | 
|Total Oil and Gas Extraction                                                                              |  |               |            |  |       |   | 4,933,848   |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Resin, Synthetic Rubber, and Artificial Synthetic
    Fibers and Filaments Manufacturing (2.86%)          |  |               |            |  |       |   |             |             | 
|AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due
    11/15/14                             |  | $             | 18,536,000 |  |       |   | 11,134,946  |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Wired Telecommunications Carriers (2.69%)                                                                 |  |               |            |  |       |   |             |             | 
|ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16 (5)                                           |  | $             | 8,945,000  |  |       |   | 9,168,625   |             | 
|NEF Telecom Company BV, Mezzanine Term Loan,                                                              |  |               |            |  |       |   |             |             | 
|EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17
    - (Netherlands) (3), (4), (5)                             |  | €             | 20,523,306 |  |       |   | 1,330,013   |             | 
|Total Wired Telecommunications
    Carriers                                                               |  |               |            |  |       |   | 10,498,638  |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Total Other Corporate Debt
    Securities (Cost $155,179,568)                                             |  |               |            |  |       |   | 123,252,515 |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Total Debt Investments (Cost
    $341,128,297)                                                            |  |               |            |  |       |   | 307,091,430 |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Equity Securities
    (18.45%)                                                                            |  |               |            |  |       |   |             |             | 
|Architectural, Engineering, and Related Services
    (2.80%)                                              |  |               |            |  |       |   |             |             | 
|Alion Science & Technology Corporation, Warrants (3)                                                      |  |               | 3,625      |  |       |   | 147,574     |             | 
|ESP Holdings, Inc., 15% PIK, Preferred Stock (2), (5), (6)                                                |  |               | 20,297     |  |       |   | 3,287,872   |             | 
|ESP Holdings, Inc., Common Stock (2),
    (3), (5), (6)                                                   |  |               | 88,670     |  |       |   | 7,473,887   |             | 
|Total Architectural, Engineering, and Related
    Services                                                |  |               |            |  |       |   | 10,909,333  |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Business Support Services (0.43%)                                                                         |  |               |            |  |       |   |             |             | 
|STG-Fairway Holdings, LLC, Class A Units (3), (5)                                                         |  |               | 80,396     |  |       |   | 1,669,278   |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Data Processing, Hosting, and Related Services
    (0.19%)                                                |  |               |            |  |       |   |             |             | 
|Anacomp, Inc., Class A Common Stock (2), (3), (5), (7)                                                    |  |               | 1,255,527  |  |       |   | 740,761     |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Depository Credit Intermediation (0.26%)                                                                  |  |               |            |  |       |   |             |             | 
|Doral Financial Corporation, Common Stock (3)                                                             |  |               | 1,077,795  |  |       |   | 1,030,372   |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Electronic Shopping and Mail-Order Houses (0.31%)                                                         |  |               |            |  |       |   |             |             | 
|Shop Holding, LLC, Class A Units (3), (5)                                                                 |  |               | 490,037    |  |       |   | 922,471     |             | 
|Shop Holding, LLC, Warrants to Purchase Class
    A Units (3), (5)                                        |  |               | 326,691    |  |       |   | 288,328     |             | 
|Total Electronic Shopping and Mail-Order Houses                                                           |  |               |            |  |       |   | 1,210,799   |             | 
|                                                                                                          |  |               |            |  |       |   |             |             | 
|Industrial Machinery Manufacturing (0.38%)                                                                |  |               |            |  |       |   |             |             | 
|GSI Group, Inc., Common Stock (3), (5)                                                                    |  |               | 143,869    |  |       |   | 1,471,780   |             | 



62







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2011



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                        |  |        |           |  |       |   |             | Percent of  | 
|--------------------------------------------------------------------------------------- |  | ------ | --------- |  | ----- | - | ----------- | ----------- | 
|                                                                                        |  |        |           |  | Fair  |   |             | Cash and    | 
|Investment                                                                              |  | Shares |           |  | Value |   |             | Investments | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Equity Securities
    (continued)                                                       |  |        |           |  |       |   |             |             | 
|Machine Shops; Turned Product; and Screw, Nut,
    and Bolt Manufacturing (0.00%)       |  |        |           |  |       |   |             |             | 
|Precision Holdings, LLC, Class C Membership Interests
    (3), (5)                      |  |        | 33        |  |       | $ | 15,704      |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Nonferrous Metal (except Aluminum) Production
    and Processing (7.72%)                |  |        |           |  |       |   |             |             | 
|International Wire Group Holdings, Inc., Common Stock (2),
    (5), (6)                 |  |        | 1,979,441 |  |       |   | 30,077,606  |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Nonmetallic Mineral Mining and Quarrying (1.35%)                                        |  |        |           |  |       |   |             |             | 
|EPMC HoldCo, LLC, Membership Units (2), (5), (6)                                        |  |        | 1,312,720 |  |       |   | 5,264,007   |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Other Amusement and Recreation Industries (0.03%)                                       |  |        |           |  |       |   |             |             | 
|Bally Total Fitness Holding Corporation, Common Stock (3),
    (5)                      |  |        | 6,058     |  |       |   | 66,032      |             | 
|Bally Total Fitness Holding Corporation, Warrants
    (3), (5)                          |  |        | 10,924    |  |       |   | 52,435      |             | 
|Total Other Amusement and Recreation Industries                                         |  |        |           |  |       |   | 118,467     |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Radio and Television Broadcasting (0.88%)                                               |  |        |           |  |       |   |             |             | 
|Encompass Digital Media Group, Inc., Common Stock (3), (5)                              |  |        | 183,824   |  |       |   | 3,437,509   |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Scheduled Air Transportation (1.86%)                                                    |  |        |           |  |       |   |             |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)
    (2), (5), (6) |  |        | 35        |  |       |   | 467,137     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)
    (2), (5), (6) |  |        | 35        |  |       |   | 458,665     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)
    (2), (5), (6) |  |        | 46        |  |       |   | 686,303     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)
    (2), (5), (6) |  |        | 40        |  |       |   | 612,589     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)
    (2), (5), (6) |  |        | 35        |  |       |   | 498,602     |             | 
|United N659UA-767, LLC (N659UA) (2), (5), (6)                                           |  |        | 224       |  |       |   | 2,274,815   |             | 
|United N661UA-767, LLC (N661UA) (2), (5),
    (6)                                       |  |        | 217       |  |       |   | 2,205,523   |             | 
|Total Scheduled Air Transportation                                                      |  |        |           |  |       |   | 7,203,634   |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Semiconductor and Other Electronic Component
    Manufacturing (0.06%)                  |  |        |           |  |       |   |             |             | 
|AIP/IS Holdings, LLC, Membership Units (3), (5)                                         |  |        | 352       |  |       |   | 229,684     |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Support Activities for Mining (0.79%)                                                   |  |        |           |  |       |   |             |             | 
|DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)                            |  |        | 145,824   |  |       |   | 3,093,638   |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Wired Telecommunications Carriers (1.39%)                                               |  |        |           |  |       |   |             |             | 
|Integra Telecom, Inc., Common Stock (3), (5)                                            |  |        | 1,274,522 |  |       |   | 5,364,708   |             | 
|Integra Telecom, Inc., Warrants (3), (5)                                                |  |        | 346,939   |  |       |   | -           |             | 
|NEF Kamchia Co-Investment Fund, LP Interest
    - (Cayman Islands) (3), (4), (5)        |  |        | 2,455,500 |  |       |   | 31,826      |             | 
|Total Wired Telecommunications Carriers                                                 |  |        |           |  |       |   | 5,396,534   |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Total Equity Securities
    (Cost $132,663,069)                                         |  |        |           |  |       |   | 71,869,106  |             | 
|                                                                                        |  |        |           |  |       |   |             |             | 
|Total Investments (Cost
    $473,791,366) (8)                                           |  |        |           |  |       |   | 378,960,536 |             | 



63







TCP Capital
Corp.



Consolidated
Statement of Investments (Continued)



December
31, 2011



Showing Percentage of Total Cash and Investments
of the Company



|                                                                                                     |  |           |           |  |       |   |             | Percent of  | 
|---------------------------------------------------------------------------------------------------- |  | --------- | --------- |  | ----- | - | ----------- | ----------- | 
|                                                                                                     |  | Principal |           |  | Fair  |   |             | Cash and    | 
|Investment                                                                                           |  | Amount    |           |  | Value |   |             | Investments | 
|                                                                                                     |  |           |           |  |       |   |             |             | 
|Cash and Cash Equivalents
    (2.78%)                                                                |  |           |           |  |       |   |             |             | 
|Wells Fargo
    & Company, Overnight Repurchase Agreement, 0.02%, Collateralized by Freddie Mac UNNT |  | $         | 3,343,399 |  |       | $ | 3,343,399   |             | 
|Cash Denominated in Foreign Currencies                                                               |  | CAD       | 15,078    |  |       |   | 14,764      |             | 
|Cash Denominated in Foreign Currencies                                                               |  | €         | 3,357,119 |  |       |   | 4,351,161   |             | 
|Cash Denominated in Foreign Currencies                                                               |  | £         | 35,597    |  |       |   | 55,329      |             | 
|Cash Held on Account at Various Institutions                                                         |  | $         | 3,067,025 |  |       |   | 3,067,025   |             | 
|Total Cash and Cash Equivalents                                                                      |  |           |           |  |       |   | 10,831,678  |             | 
|                                                                                                     |  |           |           |  |       |   |             |             | 
|Total Cash and Investments                                                                           |  |           |           |  |       | $ | 389,792,214 |             | 



Notes to Statement of Investments:



| | (1) | Investments in bank debt generally are bought and sold among institutional investors in transactions
not subject to registration under the Securities
Act of 1933. Such transactions are generally subject to contractual restrictions, such as approval of the agent or borrower.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Affiliated issuer - as defined under the Investment Company Act of 1940 (ownership of 5% or more of
the outstanding voting securities of this issuer).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Non-income producing security.
| | --- | ------------------------------



| | (4) | Principal amount denominated in foreign currency. Amortized cost and fair value converted from foreign
currency to US dollars.
| | --- | ------------------------------------------------------------------------------------------------------------------------------



| | (5) | Restricted security.
| | --- | --------------------



| | (6) | Investment is not a controlling position.
| | --- | -----------------------------------------



| | (7) | Issuer is a controlled company.
| | --- | -------------------------------



| | (8) | Includes investments with an aggregate market value of $1,178,213 that have been segregated to collateralize
certain unfunded commitments.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



Aggregate purchases and aggregate sales of
investments, other than government securities, totaled $177,185,947 and $216,916,444, respectively.

Aggregate purchases includes investment
assets received as payment in kind. Aggregate sales includes principal paydowns on debt investments.
The total value of
restricted securities and bank debt as of December 31, 2011 was $308,737,044, or 79.21% of total cash and investments of the
Company.



Swaps at December 31, 2011 were as follows:



|Investment                                                                       |  | Notional Amount |           |  | Fair Value |  
|-------------------------------------------------------------------------------- |  | --------------- | --------- |  | ---------- | -
|                                                                                 |  |                 |           |  |            |  
|Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14 |  | $               | 6,040,944 |  |            | $



See accompanying notes.



64







TCP
Capital Corp.



Consolidated
Statements of Operations



|                                                                                       |  | Year Ended December 31, |            
|-------------------------------------------------------------------------------------- |  | ----------------------- | -----------
|                                                                                       |  | 2012                    |            
|Investment income                                                                      |  |                         |            
|Interest income:                                                                       |  |                         |            
|Unaffiliated issuers                                                                   |  | $                       | 42,139,023 
|Controlled companies                                                                   |  |                         | 1,253,915  
|Other affiliates                                                                       |  |                         | 5,850,394  
|Dividend income:                                                                       |  |                         |            
|Unaffiliated issuers                                                                   |  |                         | -          
|Other affiliates                                                                       |  |                         | 1,811,189  
|Other income:                                                                          |  |                         |            
|Unaffiliated issuers                                                                   |  |                         | 289,073    
|Controlled companies                                                                   |  |                         | 490,066    
|Other affiliates                                                                       |  |                         | 359,099    
|Total investment income                                                                |  |                         | 52,192,759 
|                                                                                       |  |                         |            
|Operating expenses                                                                     |  |                         |            
|Management and advisory fees                                                           |  |                         | 6,908,942  
|Professional fees relating to the Conversion                                           |  |                         | 411,523    
|Amortization of deferred debt issuance costs                                           |  |                         | 441,495    
|Legal fees, professional fees and due diligence expenses                               |  |                         | 1,165,318  
|Commitment fees                                                                        |  |                         | 225,560    
|Director fees                                                                          |  |                         | 199,333    
|Interest expense                                                                       |  |                         | 190,702    
|Insurance expense                                                                      |  |                         | 130,140    
|Custody fees                                                                           |  |                         | 99,947     
|Other operating expenses                                                               |  |                         | 619,461    
|Total operating expenses                                                               |  |                         | 10,392,421 
|                                                                                       |  |                         |            
|Net investment income before income taxes                                              |  |                         | 41,800,338 
|                                                                                       |  |                         |            
|Excise tax expense                                                                     |  |                         | 1,479,978  
|Net investment income                                                                  |  |                         | 40,320,360 
|                                                                                       |  |                         |            
|Net realized and unrealized gain (loss) on investments and foreign currency            |  |                         |            
|Net realized gain (loss):                                                              |  |                         |            
|Investments in unaffiliated issuers                                                    |  |                         | (29,574,293
|Investments in non-controlled affiliates                                               |  |                         | 13,584,105 
|Net realized gain (loss)                                                               |  |                         | (15,990,188
|                                                                                       |  |                         |            
|Net change in net unrealized appreciation/depreciation                                 |  |                         | 3,205,937  
|Net realized and unrealized gain (loss)                                                |  |                         | (12,784,251
|                                                                                       |  |                         |            
|Dividends paid on Series A preferred equity facility                                   |  |                         | (1,542,932 
|Net change in accumulated dividends on Series A preferred equity facility              |  |                         | (59,867    
|Dividends paid to Series Z preferred shareholders                                      |  |                         | -          
|Net change in reserve for dividends to Series Z preferred shareholders                 |  |                         | -          
|                                                                                       |  |                         |            
|Net increase in net assets applicable to common shareholders resulting from operations |  | $                       | 25,933,310 
|                                                                                       |  |                         |            
|Basic and diluted earnings per common share                                            |  | $                       | 1.21       
|Basic and diluted weighted average common shares outstanding                           |  |                         | 21,475,847 



See accompanying notes.



| | (1) | 2011 and 2010 Consolidated Statements of Operations reflect portfolios that were prior to the Conversion and had different
objectives.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------





65











TCP
Capital Corp.



Consolidated
Statements of Changes in Net Assets



|                                                                                                             |  | Common Stock |            |   | Paid in Capital |   |        | Accumulated
    Net Investment |  |   | Accumulated
Net Realized |   |  | Accumulated Net
    Unrealized |             |   | Total Net    |  
|------------------------------------------------------------------------------------------------------------ |  | ------------ | ---------- | - | --------------- | - | ------ | ------------------------------ |  | - | ------------------------ | - |  | ------------------------------ | ----------- | - | ------------ | -
|                                                                                                             |  | Shares       |            |   | Par Amount      |   |        | in Excess of Par               |  |   | Income                   |   |  | Losses                         |             |   | Depreciation |  
|                                                                                                             |  |              |            |   |                 |   |        |                                |  |   |                          |   |  |                                |             |   |              |  
|Balance at
    December 31, 2009                                                                             |  |              | 418,956    |   |                 | $ | 419    |                                |  | $ | 364,764,708              |   |  | $                              | 1,156,140   |   |              | $
|                                                                                                             |  |              |            |   |                 |   |        |                                |  |   |                          |   |  |                                |             |   |              |  
|Net increase in net assets
    applicable to common shareholders resulting from operations                   |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | 37,386,774  |   |              |  
|Dividends paid to common
    shareholders                                                                    |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | (37,700,000 | ) |              |  
|Tax
    reclassification of stockholders' equity in accordance with generally accepted accounting principles |  |              | -          |   |                 |   | -      |                                |  |   | (21,751                  | ) |  |                                | (535,675    | ) |              |  
|Balance
    at December 31, 2010                                                                             |  |              | 418,956    |   |                 | $ | 419    |                                |  | $ | 364,742,957              |   |  | $                              | 307,239     |   |              | $
|                                                                                                             |  |              |            |   |                 |   |        |                                |  |   |                          |   |  |                                |             |   |              |  
|Net increase in net assets
    applicable to common shareholders resulting from operations                   |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | 44,062,171  |   |              |  
|Dividends paid to common
    shareholders                                                                    |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | (31,500,000 | ) |              |  
|Tax
    reclassification of stockholders' equity in accordance with generally accepted accounting principles |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | 645,829     |   |              |  
|Balance
    at December 31, 2011                                                                             |  |              | 418,956    |   |                 | $ | 419    |                                |  | $ | 364,742,957              |   |  | $                              | 13,515,239  |   |              | $
|                                                                                                             |  |              |            |   |                 |   |        |                                |  |   |                          |   |  |                                |             |   |              |  
|Retirement of old common
    stock in the Conversion                                                         |  |              | (418,956   | ) |                 |   | (419   | )                              |  |   | 419                      |   |  |                                | -           |   |              |  
|Issuance of common stock
    in the Conversion                                                               |  |              | 15,725,635 |   |                 |   | 15,726 |                                |  |   | (15,726                  | ) |  |                                | -           |   |              |  
|Issuance of common stock
    in public offering                                                              |  |              | 5,750,000  |   |                 |   | 5,750  |                                |  |   | 80,956,005               |   |  |                                | -           |   |              |  
|Issuance of common stock
    from dividend reinvestment plan                                                 |  |              | 1,993      |   |                 |   | 2      |                                |  |   | 30,383                   |   |  |                                | -           |   |              |  
|Net increase in net assets
    applicable to common shareholders resulting from operations                   |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | 38,717,561  |   |              |  
|Dividends paid to common
    shareholders                                                                    |  |              | -          |   |                 |   | -      |                                |  |   | -                        |   |  |                                | (28,808,774 | ) |              |  
|Tax
    reclassification of stockholders' equity in accordance with generally accepted accounting principles |  |              |            |   |                 |   |        |                                |  |   | (1,479,978               | ) |  |                                | (897,847    | ) |              |  
|Balance
    at December 31, 2012                                                                             |  |              | 21,477,628 |   |                 | $ | 21,478 |                                |  | $ | 444,234,060              |   |  | $                              | 22,526,179  |   |              | $



See accompanying notes.



66







TCP Capital
Corp.



Consolidated
Statements of Cash Flows







|                                                                                                                                                              |  | Year ended December 31, |             
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------------
|                                                                                                                                                              |  |                         | 2012        
|Operating activities                                                                                                                                          |  |                         |             
|Net increase in net assets applicable to common shareholders resulting from operations                                                                        |  | $                       | 25,933,310  
|Adjustments to reconcile net increase in net assets applicable to common shareholders resulting from operations to net cash provided by operating activities: |  |                         |             
|Net realized loss (gain)                                                                                                                                      |  |                         | 15,990,188  
|Net change in unrealized appreciation/depreciation of investments                                                                                             |  |                         | (3,450,486  
|Dividends paid on Series A preferred equity facility                                                                                                          |  |                         | 1,542,932   
|Dividends paid to Series Z preferred shareholders                                                                                                             |  |                         | -           
|Net change in accumulated dividends on Series A preferred equity facility                                                                                     |  |                         | 59,867      
|Net change in reserve for dividends to Series Z preferred shareholders                                                                                        |  |                         | -           
|Accretion of original issue discount                                                                                                                          |  |                         | (1,176,644  
|Net accretion of market discount/premium                                                                                                                      |  |                         | (2,287,656  
|Interest and dividend income paid in kind                                                                                                                     |  |                         | (2,769,478  
|Amortization of deferred debt issuance costs                                                                                                                  |  |                         | 441,495     
|Changes in assets and liabilities:                                                                                                                            |  |                         |             
|Purchases of investment securities                                                                                                                            |  |                         | (356,251,448
|Proceeds from sales, maturities and paydowns of investments                                                                                                   |  |                         | 211,216,033 
|Decrease (increase) in accrued interest income - unaffiliated issuers                                                                                         |  |                         | 1,466,278   
|Increase in accrued interest income - controlled companies                                                                                                    |  |                         | (53,524     
|Decrease (increase) in accrued interest income – other affiliates                                                                                             |  |                         | 300,741     
|Decrease (increase) in receivable for investments sold                                                                                                        |  |                         | (3,430,145  
|Decrease (increase) in prepaid expenses and other assets                                                                                                      |  |                         | 1,419,558   
|Increase (decrease) in payable for investments purchased                                                                                                      |  |                         | 21,546,908  
|Increase (decrease) in payable to the Investment Manager                                                                                                      |  |                         | (116,900    
|Decrease in management and advisory fees payable                                                                                                              |  |                         | (565,599    
|Increase (decrease) in interest payable                                                                                                                       |  |                         | 43,565      
|Increase in accrued expenses and other liabilities                                                                                                            |  |                         | 1,704,082   
|Net cash (used in) provided by operating activities                                                                                                           |  |                         | (88,436,923 
|                                                                                                                                                              |  |                         |             
|Financing activities                                                                                                                                          |  |                         |             
|Proceeds from draws on credit facility                                                                                                                        |  |                         | 184,000,000 
|Principal repayments on credit facility                                                                                                                       |  |                         | (139,000,000
|Dividends paid on Series A preferred equity facility                                                                                                          |  |                         | (1,542,932  
|Dividends paid to common shareholders                                                                                                                         |  |                         | (28,808,774 
|Proceeds from shares issued in connection with dividend reinvestment plan                                                                                     |  |                         | 30,385      
|Proceeds from common shares sold, net of underwriting and offering costs                                                                                      |  |                         | 80,961,755  
|Final redemption of Series Z preferred equity                                                                                                                 |  |                         | -           
|Dividends paid to Series Z preferred shareholders                                                                                                             |  |                         | -           
|Net cash provided by (used in) financing activities                                                                                                           |  |                         | 95,640,434  
|                                                                                                                                                              |  |                         |             
|Net increase in cash and cash equivalents                                                                                                                     |  |                         | 7,203,511   
|Cash and cash equivalents at beginning of period                                                                                                              |  |                         | 10,831,678  
|Cash and cash equivalents at end of period                                                                                                                    |  | $                       | 18,035,189  
|                                                                                                                                                              |  |                         |             
|Non-cash financing activities                                                                                                                                 |  |                         |             
|Conversion of 418,955.777 common interests with a market value of $235,884,525 into 15,725,635 shares of common stock converted at $15 per share.             |  | $                       | 235,884,525 
|                                                                                                                                                              |  |                         |             
|Supplemental cash flow information                                                                                                                            |  |                         |             
|Interest payments                                                                                                                                             |  |                         | 147,137     
|Tax payments                                                                                                                                                  |  |                         | 502,978     







See accompanying notes.



67







TCP Capital
Corp.



Notes to
Consolidated Financial Statements



December 31, 2012



1. Organization and Nature of Operations



TCP Capital Corp. (the “Company”)
is a Delaware corporation formed on April 2, 2012 as an externally managed, closed-end, non-diversified management investment
company. The Company elected to be treated as a business development company (“BDC”) under the Investment Company
Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to achieve high total returns
through current income and capital appreciation, with an emphasis on principal protection. The Company invests primarily in the
debt of middle-market companies, including senior secured loans, junior loans, mezzanine debt and bonds. Such investments may
include an equity component, and, to a lesser extent, the Company may make equity investments directly. Investment operations
are conducted in Special Value Continuation Partners, LP, a Delaware limited partnership (the “Partnership”), of which
the Company owns 100% of the common limited partner interests. The Partnership has also elected to be treated as a BDC under the
1940 Act. These consolidated financial statements include the accounts of the Company and the Partnership. All significant intercompany
transactions and balances have been eliminated in the consolidation.



The Company was formed
through the conversion on April 2, 2012 of the Company’s predecessor, Special Value Continuation Fund, LLC (“SVCF”),
from a limited liability company to a corporation in a non-taxable transaction, leaving the Company as the surviving entity (the
“Conversion”). At the time of the Conversion, all limited liability company interests were exchanged for 15,725,635
shares of common stock in the Company. As a result of the Conversion, the books and records of SVCF have become the books and
records of the surviving entity. For periods prior to April 2, 2012, the consolidated financial statements and related footnotes
reflect the performance of SVCF. Per share amounts prior to the conversion are not considered useful and have been marked as “N/A”
in the consolidated financial statements.



On April 3, 2012, the
Company priced its initial public offering (the “Offering”), selling 5,750,000 shares of its common stock at a public
offering price of $14.75 per share.



The Company has elected to be treated
as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the Company will not be
taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements.
The Partnership has elected to be treated as a partnership for U.S. federal income tax purposes. The General Partner of the Partnership
is SVOF/MM, LLC (“SVOF/MM”), which also serves as the administrator of the Company and the Partnership. The managing
member of SVOF/MM is Tennenbaum Capital Partners, LLC (“TCP”), which serves as the Investment Manager to both the
Company and the Partnership. Most of the equity interests in the General Partner are owned directly or indirectly by the
Advisor and its employees.



68







TCP Capital
Corp.



Notes to
Consolidated Financial Statements (Continued)



December 31, 2012



1. Organization and Nature of Operations
(continued)



Company management consists of the Investment
Manager and the Board of Directors. Partnership management consists of the General Partner and the Board of Directors. The Investment
Manager and the General Partner direct and execute the day-to-day operations of the Company and the Partnership, respectively,
subject to oversight from the respective Board of Directors, which sets the broad policies of the Company and performs certain
functions required by the 1940 Act in the case of the Partnership. The Board of Directors of the Partnership has delegated investment
management of the Partnership’s assets to the Investment Manager. Each Board of Directors consists of four persons, three
of whom are independent. If the Company or the Partnership has preferred equity interests outstanding, as the Partnership currently
does, the holders of the preferred interests voting separately as a class are entitled to elect two of the Directors. The remaining
directors will be subject to election by holders of the common shares and preferred interests voting together as a single class.



Preferred Equity



At December 31, 2012, the Partnership
had 6,700 Series A preferred limited partner interests (the “Preferred Interests”) issued and outstanding with a liquidation
preference of $20,000 per preferred limited interest. The Preferred Interests are redeemable at the option of the Partnership,
subject to certain conditions. Additionally, under certain conditions, the Partnership may be required to either redeem certain
of the Preferred Interests or repay indebtedness, at the Partnership’s option. Such conditions would include a failure by
the Partnership to maintain adequate collateral as required by its credit facility agreement or by the Statement of Preferences
of the Preferred Interests or a failure by the Partnership to maintain sufficient asset coverage as required by the 1940 Act.
As of December 31, 2012, the Partnership was in full compliance with such requirements.



The Preferred Interests accrue dividends
at an annual rate equal to LIBOR plus 0.85% or, in the case of any holders of Preferred Interests that are CP Conduits (as defined
in the leveraging documents), the higher of (i) LIBOR plus 0.85% or (ii) the CP Conduit’s cost of funds rate plus 0.85%,
subject to certain limitations and adjustments.



2. Summary of Significant Accounting
Policies



Basis of Presentation



The consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
The following is a summary of the significant accounting policies of the Company and the Partnership.



Use of Estimates



The preparation of the financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Although management believes these estimates and assumptions to be reasonable, actual results
could differ from those estimates.



69







TCP Capital
Corp.



Notes to
Consolidated Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting
Policies (continued)



Investment Valuation



The Company’s investments are generally
held by the Partnership. Management values investments held by the Partnership at fair value based upon the principles and methods
of valuation set forth in policies adopted by the Partnership’s Board of Directors and in conformity with procedures set
forth in the Senior Facility, as defined in Note 4, below, and the Statement of Preferences for the Preferred Interests. Fair
value is generally defined as the amount for which an investment would be sold in an orderly transaction between market participants
at the measurement date.



All investments are valued at least quarterly
based on affirmative pricing or quotations from independent third-party sources, with the exception of investments priced directly
by the Investment Manager which together comprise, in total, less than 5% of the capitalization of the Partnership. Investments
listed on a recognized exchange or market quotation system, whether U.S. or foreign, are valued for financial reporting purposes
as of the last business day of the reporting period using the closing price on the date of valuation. Liquid investments not listed
on a recognized exchange or market quotation system are valued using prices provided by a nationally recognized pricing service
or by using quotations from broker-dealers. Investments not priced by a pricing service or for which market quotations are either
not readily available or are determined to be unreliable are valued using affirmative valuations performed by independent valuation
services or, for investments aggregating less than 5% of the total capitalization of the Partnership, directly by the Investment
Manager.



Fair valuations of investments are determined
under guidelines adopted by the Partnership’s Board of Directors, and are subject to their approval. Generally, to increase
objectivity in valuing the Partnership’s investments, the Investment Manager will utilize external measures of value, such
as public markets or third-party transactions, whenever possible. The Investment Manager’s valuation is not based on long-term
work-out value, immediate liquidation value, nor incremental value for potential changes that may take place in the future. The
values assigned to investments that are valued by the Investment Manager are based on available information and do not necessarily
represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot reasonably be
determined until the individual investments are actually liquidated.The
foregoing policies apply to all investments, including those in companies and groups of affiliated companies aggregating more
than 5% of the Company’s assets.



70







TCP Capital
Corp.



Notes to
Consolidated Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting
Policies (continued)



Fair valuations of investments in
each asset class are determined using one or more methodologies including the market approach, income approach, or, in the
case of recent investments, the cost approach, as appropriate.  The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable assets.  The income approach uses
valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value 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 may be taken into account include, as relevant: 
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 and enterprise values, among other factors.



Unobservable inputs used in the fair value
measurement of the Company’s Level 3 investments as of December 31, 2012 included the following:



|Asset Type     |  | Fair Value |             | Valuation Techniques |                             | Unobservable Input |                           | Range (Weighted Average) | 
|-------------- |  | ---------- | ----------- | -------------------- | --------------------------- | ------------------ | ------------------------- | ------------------------ | 
|Bank Debt      |  | $          | 359,343,326 |                      | Market rate approach        |                    | Market yields             |                          | 
|               |  |            |             |                      | Market quotations           |                    | Indicative bid/ask quotes |                          | 
|               |  |            |             |                      | Market comparable companies |                    | Revenue multiples         |                          | 
|               |  |            |             |                      | Market comparable companies |                    | EBITDA multiples          |                          | 
|Corporate Debt |  | $          | 24,339,095  |                      | Market rate approach        |                    | Market yields             |                          | 
|               |  |            |             |                      | Market comparable companies |                    | EBITDA multiples          |                          | 
|Equity         |  | $          | 34,100,134  |                      | Market rate approach        |                    | Market yields             |                          | 
|               |  |            |             |                      | Market quotations           |                    | Indicative bid/ask quotes |                          | 
|               |  |            |             |                      | Market comparable companies |                    | Revenue multiples         |                          | 
|               |  |            |             |                      | Market comparable companies |                    | EBITDA multiples          |                          | 



Generally, a change in an unobservable
input may result in a change to the value of an investment as follows:



|Input             |  | Impact to Value if
        Input Increases |  | Impact to Value if
        Input Decreases
|----------------- |  | ------------------------------------------ |  | ------------------------------------------
|Market yields     |  | Decrease                                   |  | Increase                                  
|Revenue multiples |  | Increase                                   |  | Decrease                                  
|EBITDA multiples  |  | Increase                                   |  | Decrease                                  



Investments of the Partnership may be
categorized based on the types of inputs used in valuing such investments. The level in the GAAP valuation hierarchy in which
an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety.
Transfers between levels are recognized as of the beginning of the reporting period.



71







TCP Capital
Corp.



Notes to
Consolidated Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting Policies
(continued)



At December 31, 2012, the investments
of the Partnership were categorized as follows:



| | Level |  | Basis for Determining Fair Value                                                        |  | Bank Debt |             |  | Other Corporate Debt |   |            | Equity Securities | 
| | ----- |  | --------------------------------------------------------------------------------------- |  | --------- | ----------- |  | -------------------- | - | ---------- | ----------------- | 
| | 1     |  | Quoted prices in active markets for identical
    assets                                |  | $         | -           |  |                      | $ | -          |                   | 
| | 2     |  | Other observable market inputs*                                                         |  |           | 45,667,016  |  |                      |   | 53,453,085 |                   | 
| | 3     |  | Independent third-party pricing sources that employ
    significant unobservable inputs |  |           | 359,343,326 |  |                      |   | 17,171,637 |                   | 
| | 3     |  | Investment Manager valuations
    with significant unobservable inputs                  |  |           | -           |  |                      |   | 7,167,458  |                   | 
| | Total |  |                                                                                         |  | $         | 405,010,342 |  |                      | $ | 77,792,180 |                   | 



* For example, quoted prices in inactive
markets or quotes for comparable investments.



Changes in investments categorized as
Level 3 during the year ended December 31, 2012 were as follows:



|                                                                                                                                                                          |  | Independent Third-Party Valuation |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | -----------
|                                                                                                                                                                          |  | Bank Debt                         |            
|Beginning balance                                                                                                                                                         |  | $                                 | 159,949,811
|Net realized and unrealized losses                                                                                                                                        |  |                                   | (8,709,385 
|Acquisitions                                                                                                                                                              |  |                                   | 288,929,785
|Dispositions                                                                                                                                                              |  |                                   | (84,994,292
|Transfers out of Level 3†                                                                                                                                                 |  |                                   | -          
|Transfers into Level 3††                                                                                                                                                  |  |                                   | 4,167,407  
|Ending balance                                                                                                                                                            |  | $                                 | 359,343,326
|                                                                                                                                                                          |  |                                   |            
|Net change in unrealized appreciation/ depreciation during the period on investments still held
    at period end (included in net realized and unrealized losses, above) |  | $                                 | (5,856,277 



† Comprised of one investment
that transferred to Level 2 due to increased trading volumes.

†† Comprised
of one investment that transferred from Level 2 due to reduced trading volumes.



72







TCP Capital
Corp.



Notes to
Consolidated Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting
Policies (continued)



|                                                                                                                                                                                |  | Investment Manager Valuation |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------
|                                                                                                                                                                                |  | Bank Debt                    |        
|Beginning balance                                                                                                                                                               |  | $                            | 51,436 
|Net realized and unrealized gains (losses)                                                                                                                                      |  |                              | -      
|Acquisitions                                                                                                                                                                    |  |                              | -      
|Dispositions                                                                                                                                                                    |  |                              | -      
|Transfers out of Level 3#                                                                                                                                                       |  |                              | -      
|Reclassifications within Level 3##                                                                                                                                              |  |                              | (51,436
|Ending balance                                                                                                                                                                  |  | $                            | -      
|                                                                                                                                                                                |  |                              |        
|Net change in unrealized appreciation/ depreciation during the period on investments still held
    at period end (included in net realized and unrealized gains/losses, above) |  | $                            | -      



# Comprised of one investment
that transferred to Level 2 due to increased trading volumes.

## Comprised of claims in the
liquidation of a portfolio company that were reclassified as equity.



There were no transfers between Level
1 and 2 during the year ended December 31, 2012.



At December 31, 2011, the investments
of the Partnership were categorized as follows:



| | Level |  | Basis for Determining Fair Value                                                        |  | Bank Debt |             |  | Other Corporate Debt |   |             | Equity Securities | 
| | ----- |  | --------------------------------------------------------------------------------------- |  | --------- | ----------- |  | -------------------- | - | ----------- | ----------------- | 
| | 1     |  | Quoted prices in active markets for identical
    assets                                |  | $         | -           |  |                      | $ | 5,595,765   |                   | 
| | 2     |  | Other observable market inputs*                                                         |  |           | 23,837,668  |  |                      |   | 86,131,333  |                   | 
| | 3     |  | Independent third-party pricing sources that employ
    significant unobservable inputs |  |           | 159,949,811 |  |                      |   | 24,061,229  |                   | 
| | 3     |  | Investment Manager valuations
    with significant unobservable inputs                  |  |           | 51,436      |  |                      |   | 7,464,188   |                   | 
| | Total |  |                                                                                         |  | $         | 183,838,915 |  |                      | $ | 123,252,515 |                   | 



* For example, quoted prices in inactive
markets or quotes for comparable instruments.



73











|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



2. Summary of Significant Accounting
Policies (continued)



Changes in investments categorized as Level
3 during the year ended December 31, 2011 were as follows:



|                                                                                                                                                                            |  | Independent Third-Party Valuation |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | -----------
|                                                                                                                                                                            |  | Bank Debt                         |            
|Beginning balance                                                                                                                                                           |  | $                                 | 113,346,599
|Net realized and unrealized gains (losses)                                                                                                                                  |  |                                   | 1,827,187  
|Acquisitions                                                                                                                                                                |  |                                   | 133,199,048
|Dispositions                                                                                                                                                                |  |                                   | (86,909,992
|Transfers into Level 3**                                                                                                                                                    |  |                                   | -          
|Transfers out of Level 3†                                                                                                                                                   |  |                                   | (13,378,400
|Reclassifications within Level 3‡                                                                                                                                           |  |                                   | 11,865,369 
|Ending balance                                                                                                                                                              |  | $                                 | 159,949,811
|                                                                                                                                                                            |  |                                   |            
|Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above) |  | $                                 | 2,661,964  





** Comprised
of one investment that transferred from Level 2 due to decreased trading volumes.

† Comprised of one investment
that transferred to Level 2 due to increased trading volumes.

‡ Comprised of one investment
with a beginning-of-period fair value of $11,865,369 that was reclassified as bank debt and one investment with a beginning-of-period
fair value of $1,086,031 that transferred to Investment Manager Valuation.



|                                                                                                                                                                            |  | Investment Manager Valuation |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------
|                                                                                                                                                                            |  | Bank Debt                    |        
|Beginning balance                                                                                                                                                           |  | $                            | 63,163 
|Net realized and unrealized gains (losses)                                                                                                                                  |  |                              | 4,096  
|Acquisitions                                                                                                                                                                |  |                              | -      
|Dispositions                                                                                                                                                                |  |                              | (15,823
|Reclassifications within Level 3#                                                                                                                                           |  |                              | -      
|Ending balance                                                                                                                                                              |  | $                            | 51,436 
|                                                                                                                                                                            |  |                              |        
|Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above) |  | $                            | 4,096  



# Comprised of one investment
that transferred from Independent Third Party Valuation.



74







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



2. Summary of Significant Accounting
Policies (continued)



During the year ended December 31, 2011,
one investment with a beginning-of-period fair value of $3,477,314 transferred from Level 2 to Level 1 following commencement of
active trading on a national exchange.



Investment Transactions



The Partnership records investment transactions
on the trade date, except for private transactions that have conditions to closing, which are recorded on the closing date. The
cost of investments purchased is based upon the purchase price plus those professional fees which are specifically identifiable
to the investment transaction. Realized gains and losses on investments are recorded based on the specific identification method,
which typically allocates the highest cost inventory to the basis of investments sold.



Cash and Cash Equivalents



Cash consists of amounts held in accounts
with brokerage firms and the custodian bank. Cash equivalents consist of highly liquid investments with an original maturity of
three months or less.



Repurchase Agreements



In connection with transactions in repurchase
agreements, it is the Partnership’s policy that its custodian take possession of the underlying collateral, the fair value
of which is required to exceed the principal amount of the repurchase transaction, including accrued interest, at all times. If
the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Partnership may be delayed
or limited.



Restricted Investments



The Partnership may invest without limitation
in instruments that are subject to legal or contractual restrictions on resale. These instruments generally may be resold to institutional
investors in transactions exempt from registration or to the public if the securities are registered. Disposal of these investments
may involve time-consuming negotiations and additional expense, and prompt sale at an acceptable price may be difficult. Information
regarding restricted investments is included at the end of the Consolidated Statement of Investments. Restricted investments, including
any restricted investments in affiliates, are valued in accordance with the investment valuation policies discussed above.



75







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



2. Summary of Significant Accounting
Policies (continued)



Foreign Investments



The Partnership may invest in instruments
traded in foreign countries and denominated in foreign currencies. At December 31, 2012, the Partnership held foreign currency
denominated investments comprising approximately 1.6% of the Partnership’s total investments. Such positions were converted
at the closing rate in effect at December 31, 2012 and reported in U.S. dollars. Purchases and sales of investments and income
and expense items denominated in foreign currencies, when they occur, are translated into U.S. dollars on the respective dates
of such transactions.  The portion of gains and losses on foreign investments resulting from fluctuations in foreign currencies
is included in net realized and unrealized gain or loss from investments.



Investments in foreign companies and securities
of foreign governments may involve special risks and considerations not typically associated with investing in U.S. companies and
securities of the U.S. government. These risks include, among other things, revaluation of currencies, less reliable information
about issuers, different transactions clearance and settlement practices, and potential future adverse political and economic developments.
Moreover, investments in foreign companies and securities of foreign governments and their markets may be less liquid and their
prices more volatile than those of comparable U.S. companies and the U.S. government.



Derivatives



In order to mitigate certain currency exchange
and interest rate risks, the Partnership has entered into several swap, forward currency and option transactions. All derivatives
are recognized as either assets or liabilities in the Statement of Assets and Liabilities. The transactions entered into are accounted
for using the mark-to-market method with the resulting change in fair value recognized in earnings for the current period. Risks
may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts
and from unanticipated movements in interest rates and the value of foreign currency relative to the U.S. dollar.



The Partnership did not enter into any
new derivative transactions during the year ended December 31, 2012. As of December 31, 2012, the Partnership holds a cross currency
basis swap with a notional amount of $6,040,944. Gains and losses from derivatives during the year ended December 31, 2012 were
included in net realized and unrealized loss on investments in the Statement of Operations as follows:



|Instrument                 |  | Realized |   |  | Unrealized |  
|-------------------------- |  | -------- | - |  | ---------- | -
|Cross currency basis swaps |  | $        | - |  |            | $



Valuations of swaps held at December 31,
2012 were determined using observable market inputs other than quoted prices in active markets for identical assets and, accordingly,
are classified as Level 2 in the GAAP valuation hierarchy.



76







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



2. Summary of Significant Accounting Policies
(continued)



Debt Issuance Costs



Costs of approximately $3.5 million were
incurred during 2006 in connection with placing the Partnership’s Senior Facility. These costs were deferred and are being
amortized on a straight-line basis over eight years, the estimated life of the Senior Facility. The impact of utilizing the straight-line
amortization method versus the effective-interest method is not material to the operations of the Company or the Partnership.



Revenue Recognition



Interest and dividend income, including
income paid in kind, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees earned
with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt
investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as
earned. Prepayment fees and similar income received upon the early repayment of a loan or debt security are included in interest
income.



Certain of the Partnership’s debt
investments are purchased at aconsiderable discount to par as a result of the underlying credit risks and financial results
of the issuer, as well as general market factors that influence the financial markets as a whole. GAAP generally requires that
discounts on the acquisition of corporate bonds, municipal bonds and treasury bonds be amortized using the effective-interest or
constant-yield method. GAAP also requires the Partnership to consider the collectability of interest when making accruals. Accordingly,
when accounting for purchase discounts, the Partnership recognizes discount accretion income when it is probable that such amounts
will be collected, generally at disposition. When the Partnership receives principal payments on a loan in an amount in excess
of the loan’s amortized cost, it records the excess principal payments as interest income.



Income Taxes



The Company intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all federal income taxes.Accordingly, no provision for income taxes is required in theconsolidatedfinancial statements. The Partnership’s
income or loss is reported in the partners’ income tax returns. In accordance with ASC Topic 740 – Income Taxes,
the Company recognizes in its consolidated financial statements the effect of a tax position when it is determined that such position
is more likely than not, based on the technical merits, to be sustained upon examination. As of December 31, 2012, all tax years
of the Company and the Partnership since January 1, 2009 remain subject to examination by federal tax authorities. No such examinations
are currently pending.



During the year ended December 31, 2012,
the Company paid $502,978 in excise taxes related to income earned in 2011. As of December 31, 2012, the Company also accrued $977,000
in excise taxes related to income earned in 2012.



77







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



2. Summary of Significant Accounting
Policies (continued)



Income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from GAAP. Capital accounts within the financial statements
are adjusted at year end for permanent book and tax differences. At December 31, 2012, the Company reclassified $2,377,825 in foreign
currency losses from accumulated net realized losses to accumulated net investment income and $1,479,978 in excise tax expenses
from accumulated net investment income to paid-in capital. Temporary differences are primarily attributable to differing book and
tax treatments for the timing of the recognition of gains and losses on certain investment transactions and the timing of the deductibility
of certain expenses, and will reverse in subsequent periods.



As of December 31, 2012, the tax-basis
components of distributable earnings (accumulated deficit) applicable to the common shareholders of the Company and unrealized
appreciation (depreciation) and cost of investments (including derivatives) were as follows:



|Undistributed ordinary income        |  | $ | 25,065,740   |  
|------------------------------------ |  | - | ------------ | -
|Capital loss carryforwards           |  |   | (37,747,057  | )
|Post-October capital loss deferrals  |  |   | (20,957,203  | )
|Post-October currency loss deferrals |  |   | (2,548,930   | )
|                                     |  |   |              |  
|Unrealized appreciation              |  | $ | 27,845,827   |  
|Unrealized depreciation              |  |   | (119,053,743 | )
|Net unrealized depreciation          |  |   | (91,207,916  | )
|                                     |  |   |              |  
|Cost                                 |  | $ | 609,070,367  |  



The Company’s capital loss carryforwards
will be used to offset capital gains in succeeding taxable years. Of the carryforwards, $2,987,224 and $34,759,833 will expire
after 2017 and 2018, respectively. Distributions to holders of the Series A Preferred are treated, on an accrual basis, as distributions
ofordinary income for federal tax purposes.



New Accounting Guidance



In May 2011, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). 
ASU 2011-04 was issued to converge guidance from the FASB and the International Accounting Standards Board on measuring fair value
and for disclosing information about fair value measurements.  The changes include a consistent definition of the term “fair
value” and enhanced disclosure requirements for investments that do not have readily determinable fair values, such as additional
quantitative information about significant unobservable inputs and a qualitative discussion about the sensitivity of the fair value
measurement to changes in the unobservable inputs.  The provisions of ASU 2011-04 were effective for the Company on January
1, 2012.  The Company’s adoption of ASU 2011-04 resulted in increased disclosures around fair value but did not impact
the measurement of fair value of the Company’s investments.



78







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



3. Management and Advisory Fees and
Other Expenses



Following the Conversion, the Company’s
management fee is calculated at an annual rate of 1.5% of total assets (excluding cash and cash equivalents) on a consolidated
basis as of the beginning of each quarter and is payable to the Investment Manager quarterly in arrears.



The Company will not incur any incentive
compensation until after January 1, 2013. Thereafter, the incentive compensation will equal 20% of net investment income (reduced
by preferred dividends) and realized gains (net of any realized and unrealized losses). However, incentive compensation will only
be paid to the extent the total performance of the Company exceeds a cumulative 8% annual return since January 1, 2013. The incentive
compensation will be payable to the General Partner quarterly in arrears and will be calculated as the difference between cumulative
incentive compensation earned since January 1, 2013 and cumulative incentive compensation paid since January 1, 2013.



Prior to the Conversion, the Investment
Manager received an annual management and advisory fee, payable monthly in arrears, equal to 1.0% of committed capital, defined
as the sum of the maximum amount of the Preferred Interests, the maximum amount available under the Senior Facility, the initial
value of the contributed general partnership equity and the initial value of the contributed common equity, subject to reduction
by the amount of the Senior Facility commitment when the Senior Facility is no longer outstanding, and by the amount of the Preferred
Interests when less than $1 million in liquidation preference of preferred securities remains outstanding. In addition to the management
fee, the General Partner was entitled to a performance allocation equal to 20% of all cumulative income and gain distributions,
subject to an 8% hurdle on undistributed contributed equity with a catch up for the General Partner.



The Company and the Partnership pay all
respective expenses incurred in connection with the business of the Company and the Partnership, including fees and expenses of
outside contracted services, such as custodian, administrative, legal, audit and tax preparation fees, costs of valuing investments,
insurance costs, brokers’ and finders’ fees relating to investments, and any other transaction costs associated with
the purchase and sale of investments of the Partnership.



4. Senior Secured Revolving Credit Facility



The Partnership has entered into a credit
agreement with certain lenders, which provides for a senior secured revolving credit facility (the “Senior Facility”),
pursuant to which amounts may be drawn up to $116 million subject to certain collateral and other restrictions. The Senior Facility
matures July 31, 2014, subject to extension by the lenders at the request of the Partnership for one 12-month period. Most
of the cash and cash investments of the Partnership are included in the collateral for the Senior Facility.



79







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



4. Senior Secured Revolving Credit Facility
(continued)



Advances under the Senior Facility bear
interest at LIBOR plus 0.44% per annum, except in the case of loans from CP Conduits, which bear interest at the higher of LIBOR
plus 0.44% or the CP Conduit’s cost of funds plus 0.44%, subject to certain limitations.The weighted-average interest rate on outstanding borrowings at December 31, 2012 was 0.65%. In addition to amounts
due on outstanding debt, the Senior Facility accrues commitment fees of 0.20% per annum on the unused portion of the Senior Facility,
or 0.25% per annum when less than $46.4 million in borrowings are outstanding. The Senior Facility may be terminated, and any outstanding
amounts thereunder may become due and payable, should the Partnership fail to satisfy certain financial or other covenants. 
As of December 31, 2012, the Partnership was in full compliance with such covenants.



5. Commitments, Concentration of Credit
Risk and Off-Balance Sheet Risk



The Partnership conducts business with
brokers and dealers that are primarily headquartered in New York and Los Angeles and are members of the major securities exchanges.
Banking activities are conducted with a firm headquartered in the New York area.



In the normal course of business, the Partnership’s
investment activities involve executions, settlement and financing of various transactions resulting in receivables from, and payables
to, brokers, dealers and the Partnership’s custodian. These activities may expose the Company and the Partnership to risk
in the event that such parties are unable to fulfill contractual obligations. Management does not anticipate any material losses
from counterparties with whom it conducts business. Consistent with standard business practice, the Company and the Partnership
enter into contracts that contain a variety of indemnifications, and are engaged from time to time in various legal actions. The
maximum exposure of the Company and the Partnership under these arrangements and activities is unknown. However, the Company and
the Partnership expect the risk of material loss to be remote.



The Consolidated Statement of Investments
includes certain revolving loan facilities held by the Partnership with aggregate unfunded balances of $1,187,555 at
December 31, 2012.



6. Related Parties



The Company, the Partnership, the Investment
Manager, the General Partner and their members and affiliates may be considered related parties.  From time to time, the Partnership
advances payments to third parties on behalf of the Company which are reimbursable through deductions from distributions to the
Company.  At December 31, 2012, no such amounts were outstanding. From time to time, the Investment Manager advances payments
to third parties on behalf of the Company and the Partnership and receives reimbursement from the Company and the Partnership. 
At December 31, 2012, amounts reimbursable to the Investment Manager totaled $109,200, as reflected in the Consolidated Statement
of Assets and Liabilities.



80







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



7.  Stockholders’ Equity
and Dividends



The following table summarizes the total
shares issued and proceeds received in the public offering of the Company’s common stock net of underwriting discounts and
offering costs as well as shares issued in connection with the Company’s dividend reinvestment plan for the year ended December
31, 2012.



|                                              |  | Shares Issued |           |  | Price Per Share |   |       | Proceeds Net of Underwriting and Offering Costs | 
|--------------------------------------------- |  | ------------- | --------- |  | --------------- | - | ----- | ----------------------------------------------- | 
|April 3, 2012 initial public offering         |  |               | 5,750,000 |  |                 | $ | 14.75 |                                                 | 
|Shares issued from dividend reinvestment plan |  |               | 1,993     |  |                 | $ | 15.25 |                                                 | 



The Company used the net proceeds from
the above share issuances to repay outstanding indebtedness and for other general corporate purposes, including funding investments.



The Company’s dividends are recorded
on the record date. The following table summarizes the Company’s dividends declared for the year ended December 31, 2012:



|Date Declared    |  | Record Date        |  | Payment Date       |  | Amount Per Share |      |    | Total Amount |  
|---------------- |  | ------------------ |  | ------------------ |  | ---------------- | ---- | -- | ------------ | -
|March 9, 2012    |  | March 9, 2012      |  | April 3, 2012      |  | $                | 0.34 | *  |              | $
|April 3, 2012    |  | June 15, 2012      |  | June 29, 2012      |  | $                | 0.34 |    |              | $
|August 9, 2012   |  | September 14, 2012 |  | September 28, 2012 |  | $                | 0.35 |    |              | $
|November 7, 2012 |  | December 17, 2012  |  | December 31, 2012  |  | $                | 0.40 | ** |              | $



*Based on 15,725,635 pro-forma converted
shares before the initial public offering.

** Includes a special dividend of $0.05.



81







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



8.  Earnings Per Share



The following information sets forth the
computation of the net increase in net assets per share resulting from operations for the year ended December 31, 2012:



|                                                                                       |  | Year Ended December 31, 2012 |           
|-------------------------------------------------------------------------------------- |  | ---------------------------- | ----------
|Net increase in net assets applicable to common shareholders resulting from operations |  | $                            | 25,933,310
|Weighted average shares outstanding†                                                   |  |                              | 21,475,847
|Earnings per share                                                                     |  | $                            | 1.21      



† The weighted average
number of shares are based on the assumption that the number of common shares issued in the Conversion on April 2, 2012 and those
sold in the initial public offering on April 3, 2012 had been issued as of the beginning of the year.



9.  Subsequent Events



On March 7, 2013, the Board of
Directors of the Company declared a first quarter cash dividend of $0.35 per share and a special dividend of $0.05 per share,
both payable on March 29, 2013 to stockholders of record as of the close of business on March 18, 2013.



82







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



10. Financial Highlights



The financial highlights below show
the Company's results of operations for the year ended December 31, 2012. Per share amounts are calculated assuming the common
shares issued in the Conversion on April 2, 2012 and those sold in the initial public offering on April 3, 2012 had been issued
as of the beginning of the year.



|                                                                          |  | Year Ended        |           
|------------------------------------------------------------------------- |  | ----------------- | ----------
|                                                                          |  | December 31, 2012 |           
|                                                                          |  |                   |           
|Per Common Share                                                          |  |                   |           
|Per share NAV post IPO on April 3, 2012                                   |  | $                 | 14.76     
|                                                                          |  |                   |           
|Per share NAV at beginning of year (1)                                    |  | $                 | 14.84     
|                                                                          |  |                   |           
|Investment operations:                                                    |  |                   |           
|Net investment income before income taxes                                 |  |                   | 1.95      
|Excise taxes                                                              |  |                   | (0.07     
|Net investment income                                                     |  |                   | 1.88      
|Net realized and unrealized gain (loss)                                   |  |                   | (0.60     
|Dividends on Series A preferred equity facility                           |  |                   | (0.07     
|Net change in accumulated dividends on Series A preferred equity facility |  |                   | -         
|                                                                          |  |                   |           
|Total from investment operations                                          |  |                   | 1.21      
|                                                                          |  |                   |           
|Distributions to common shareholders from:                                |  |                   |           
|Net investment income                                                     |  |                   | (1.34     
|Total distributions to common shareholders                                |  |                   | (1.34     
|Per share NAV at end of year                                              |  | $                 | 14.71     
|                                                                          |  |                   |           
|Per share market price at end of year                                     |  | $                 | 14.74     
|                                                                          |  |                   |           
|Total return based on market value (1), (2)                               |  |                   | 9.0       
|Total return based on net asset value (1)                                 |  |                   | 8.2       
|                                                                          |  |                   |           
|Shares outstanding at end of year                                         |  |                   | 21,477,628



83







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



10. Financial Highlights (continued)



|                                             |  | Year Ended        |             |   | Year Ended        |  
|-------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|                                             |  | December 31, 2012 |             |   | December 31, 2011 |  
|Ratios to average common equity: (3)         |  |                   |             |   |                   |  
|Net investment income                        |  |                   | 13.6        | % |                   |  
|Expenses (4)                                 |  |                   | 3.5         | % |                   |  
|                                             |  |                   |             |   |                   |  
|Ending common shareholder equity             |  | $                 | 315,987,550 |   |                   | $
|Portfolio turnover rate                      |  |                   | 48.3        | % |                   |  
|Weighted-average debt outstanding            |  | $                 | 25,374,317  |   |                   | $
|Weighted-average interest rate on debt       |  |                   | 0.7         | % |                   |  
|Weighted-average number of common shares (1) |  |                   | 21,475,847  |   |                   |  
|Average debt per share (1)                   |  | $                 | 1.18        |   |                   |  












| | (1) | Calculated assuming the Conversion and the offering occurred on January 1, 2012.
| | --- | --------------------------------------------------------------------------------

| | (2) | Total return based on an offering price of $14.75.
| | --- | --------------------------------------------------

| | (3) | These ratios include interest expense but do not reflect the effect of dividends on the preferred
equity facility.
| | --- | ------------------------------------------------------------------------------------------------------------------

| | (4) | Excludes excise taxes.
| | --- | ----------------------



84







|TCP Capital Corp.                                     
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (Continued)
|                                                      
|December 31, 2012                                     



11. Select Quarterly Data (Unaudited)



|                                                     |  | 2012 |           
|---------------------------------------------------- |  | ---- | ----------
|                                                     |  | Q4   |           
|                                                     |  |      |           
|Total investment income                              |  | $    | 17,181,003
|Net investment income before income taxes            |  |      | 14,037,545
|Excise taxes                                         |  |      | (977,000  
|Net investment income                                |  |      | 13,060,545
|Net realized and unrealized gain (loss)              |  |      | (5,743,587
|Preferred dividends                                  |  |      | (391,402  
|Net increase in net assets resulting from operations |  | $    | 6,925,556 
|Basic and diluted earnings per common share          |  | $    | 0.32      



|                                                     |  | 2011 (1) |           
|---------------------------------------------------- |  | -------- | ----------
|                                                     |  | Q4       |           
|                                                     |  |          |           
|Total investment income                              |  | $        | 9,103,299 
|Net investment income before income taxes            |  |          | 6,295,451 
|Excise taxes                                         |  |          | -         
|Net investment income                                |  |          | 6,295,451 
|Net realized and unrealized loss                     |  |          | (2,980,033
|Preferred dividends                                  |  |          | (389,857  
|Net increase in net assets resulting from operations |  | $        | 2,925,561 
|Basic and diluted earnings per common share          |  |          | N/A       





(1)Periods prior to the Conversion
reflect portfolios that had different investment objectives.



85





TCP Capital
Corp.



Consolidated
Schedule of Changes in Investments in Affiliates (1)



Year Ended December 31, 2012



|Security                                                                      |  | Value, Beginning of Period |            |  | Acquisitions |   |            | Dispositions (2) |  |   | Value, End of Period |  
|----------------------------------------------------------------------------- |  | -------------------------- | ---------- |  | ------------ | - | ---------- | ---------------- |  | - | -------------------- | -
|                                                                              |  |                            |            |  |              |   |            |                  |  |   |                      |  
|Anacomp, Inc., Class A Common Stock                                           |  | $                          | 740,761    |  |              | $ | -          |                  |  | $ | -                    |  
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18    |  |                            | -          |  |              |   | 403,947    |                  |  |   | (37,389              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18    |  |                            | -          |  |              |   | 490,003    |                  |  |   | (33,390              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 631,014    |                  |  |   | (37,814              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 645,523    |                  |  |   | (36,417              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 646,372    |                  |  |   | (37,011              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 651,170    |                  |  |   | (36,735              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 655,930    |                  |  |   | (36,462              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 675,587    |                  |  |   | (35,956              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19    |  |                            | -          |  |              |   | 671,812    |                  |  |   | (36,803              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18    |  |                            | -          |  |              |   | 512,643    |                  |  |   | (38,636              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL)          |  |                            | -          |  |              |   | 145,176    |                  |  |   | (31,277              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL)          |  |                            | -          |  |              |   | 162,691    |                  |  |   | (32,027              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL)          |  |                            | -          |  |              |   | 202,368    |                  |  |   | (40,415              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL)          |  |                            | -          |  |              |   | 204,598    |                  |  |   | (40,116              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL)          |  |                            | -          |  |              |   | 205,404    |                  |  |   | (40,679              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL)          |  |                            | -          |  |              |   | 206,328    |                  |  |   | (40,572              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL)          |  |                            | -          |  |              |   | 207,244    |                  |  |   | (40,467              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL)          |  |                            | -          |  |              |   | 211,653    |                  |  |   | (40,578              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL)          |  |                            | -          |  |              |   | 211,555    |                  |  |   | (41,241              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL)          |  |                            | -          |  |              |   | 173,597    |                  |  |   | (37,271              | )
|EPMC HoldCo, LLC, Membership Units                                            |  |                            | 5,264,007  |  |              |   | -          |                  |  |   | (1,276,226           | )
|ESP Holdings, Inc., Cumulative Preferred 15%                                  |  |                            | 3,287,872  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Common Stock                                              |  |                            | 7,473,887  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,           |  |                            |            |  |              |   |            |                  |  |   |                      |  
|6% Cash + 10% PIK, due 12/31/19                                               |  |                            | 6,240,393  |  |              |   | 1,000,494  |                  |  |   | -                    |  
|International Wire Group Holdings, Inc., Common Stock                         |  |                            | 30,077,606 |  |              |   | -          |                  |  |   | (31,940,733          | )
|International Wire Group Holdings, Inc., Senior Notes,                        |  |                            |            |  |              |   |            |                  |  |   |                      |  
|11.5% Cash or 12.25% PIK, due 4/15/15                                         |  |                            | 18,180,000 |  |              |   | -          |                  |  |   | (18,000,000          | )
|International Wire Group Holdings, Inc., Senior Secured Notes,                |  |                            |            |  |              |   |            |                  |  |   |                      |  
|8.5%, due 10/15/17                                                            |  |                            | -          |  |              |   | 15,000,000 |                  |  |   | -                    |  
|Real Mex Restaurants, Inc. Senior Secured Notes, 14%, due 1/1/13              |  |                            | 12,410,823 |  |              |   | -          |                  |  |   | (6,627,711           | )
|RM Holdco, LLC, Membership Units                                              |  |                            | -          |  |              |   | 2,010,777  |                  |  |   | -                    |  
|RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18    |  |                            | -          |  |              |   | 5,106,805  |                  |  |   | -                    |  
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   |  |                            | -          |  |              |   | 3,759,156  |                  |  |   | -                    |  
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B,                    |  |                            |            |  |              |   |            |                  |  |   |                      |  
|12% Cash + 7% PIK, due 3/19/16                                                |  |                            | -          |  |              |   | 6,258,122  |                  |  |   | -                    |  
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1,                  |  |                            |            |  |              |   |            |                  |  |   |                      |  
|12% Cash + 7% PIK, due 3/19/16                                                |  |                            |            |  |              |   | 1,922,118  |                  |  |   | -                    |  
|United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16  |  |                            | 624,066    |  |              |   | -          |                  |  |   | (66,886              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 |  |                            | 630,208    |  |              |   | -          |                  |  |   | (65,449              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14  |  |                            | 414,963    |  |              |   | -          |                  |  |   | (122,068             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15  |  |                            | 563,575    |  |              |   | -          |                  |  |   | (109,385             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 |  |                            | 739,958    |  |              |   | -          |                  |  |   | (76,848              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16  |  |                            | 5,014,613  |  |              |   | -          |                  |  |   | (886,810             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16   |  |                            | 5,192,014  |  |              |   | -          |                  |  |   | (860,025             | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)         |  |                            | 467,137    |  |              |   | 66,886     |                  |  |   | (35,913              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)         |  |                            | 458,665    |  |              |   | 65,449     |                  |  |   | (35,325              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)         |  |                            | 686,303    |  |              |   | 122,068    |                  |  |   | (45,201              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)         |  |                            | 612,589    |  |              |   | 109,256    |                  |  |   | (47,505              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)         |  |                            | 498,602    |  |              |   | 76,848     |                  |  |   | (46,776              | )
|United N659UA-767, LLC (N659UA)                                               |  |                            | 2,274,815  |  |              |   | 886,810    |                  |  |   | (674,712             | )
|United N661UA-767, LLC (N661UA)                                               |  |                            | 2,205,523  |  |              |   | 860,025    |                  |  |   | (663,033             | )



Note to Consolidated Schedule of Changes
in Investments in Affiliates:



| | (1) | The issuers of the securities listed on this schedule
are considered affiliates under the Investment Company Act of 1940 due to the ownership by the Company of 5% or more of the issuers'
voting securities.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Dispositions include sales, paydowns, mortgage amortizations,
and aircraft depreciation.
| | --- | ----------------------------------------------------------------------------------------



86







TCP Capital
Corp.



Consolidated
Schedule of Changes in Investments in Affiliates (1)



Year Ended December 31, 2011



|Security                                                                      |  | Value, Beginning of Period |            |  | Acquisitions |   |            | Dispositions (2) |  |   | Value, End of Period |  
|----------------------------------------------------------------------------- |  | -------------------------- | ---------- |  | ------------ | - | ---------- | ---------------- |  | - | -------------------- | -
|                                                                              |  |                            |            |  |              |   |            |                  |  |   |                      |  
|Anacomp, Inc., Class A Common Stock                                           |  | $                          | 1,086,031  |  |              | $ | -          |                  |  | $ | -                    |  
|EPMC HoldCo, LLC, Membership Units                                            |  |                            | 40,727,138 |  |              |   | -          |                  |  |   | (24,308,286          | )
|ESP Holdings, Inc., 15% PIK, Preferred Stock                                  |  |                            | 3,005,832  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Common Stock                                              |  |                            | 7,565,535  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,           |  |                            |            |  |              |   |            |                  |  |   |                      |  
|18% PIK, due 3/31/15                                                          |  |                            | 5,321,627  |  |              |   | 887,719    |                  |  |   | -                    |  
|International Wire Group, Inc., Senior Secured Notes, 9.75%, due 4/15/15      |  |                            | 4,040,000  |  |              |   | -          |                  |  |   | (4,200,000           | )
|International Wire Group Holdings, Inc., Common Stock                         |  |                            | 43,468,524 |  |              |   | -          |                  |  |   | (14,111,830          | )
|International Wire Group Holdings, Inc., Senior Notes,                        |  |                            |            |  |              |   |            |                  |  |   |                      |  
|11.5% Cash or 12.25% PIK, due 4/15/15                                         |  |                            | -          |  |              |   | 20,000,000 |                  |  |   | (2,000,000           | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16  |  |                            | 719,200    |  |              |   | -          |                  |  |   | (54,853              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 |  |                            | 723,647    |  |              |   | -          |                  |  |   | (53,676              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14  |  |                            | 558,944    |  |              |   | -          |                  |  |   | (104,129             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15  |  |                            | 695,004    |  |              |   | -          |                  |  |   | (93,311              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 |  |                            | 849,983    |  |              |   | -          |                  |  |   | (63,020              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16  |  |                            | -          |  |              |   | 5,329,739  |                  |  |   | (735,499             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16   |  |                            | -          |  |              |   | 5,351,577  |                  |  |   | (642,268             | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)         |  |                            | 311,102    |  |              |   | 54,853     |                  |  |   | (59,882              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)         |  |                            | 307,754    |  |              |   | 53,676     |                  |  |   | (59,735              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)         |  |                            | 375,796    |  |              |   | 104,129    |                  |  |   | (60,360              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)         |  |                            | 357,648    |  |              |   | 93,311     |                  |  |   | (68,854              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)         |  |                            | 338,830    |  |              |   | 63,020     |                  |  |   | (71,463              | )
|United N659UA-767, LLC (N659UA)                                               |  |                            | -          |  |              |   | 2,235,686  |                  |  |   | (674,712             | )
|United N661UA-767, LLC (N661UA)                                               |  |                            | -          |  |              |   | 2,170,785  |                  |  |   | (607,783             | )



Notes to Consolidated Schedule of Changes
in Investments in Affiliates:



| | (1) | The issuers of the securities listed on this schedule
are considered affiliates under the Investment Company Act of 1940 due to the ownership by the Company of 5% or more of the issuers'
voting securities.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Dispositions include sales, paydowns, mortgage amortizations,
and aircraft depreciation.
| | --- | ----------------------------------------------------------------------------------------



87







TCP Capital
Corp.



Consolidated
Schedule of Restricted Securities of Unaffiliated Issuers



December 31, 2012



|Investment                                                                         |  | Acquisition Date |  | Cost |           
|---------------------------------------------------------------------------------- |  | ---------------- |  | ---- | ----------
|                                                                                   |  |                  |  |      |           
|AIP/IS Holdings, LLC, Membership Units                                             |  | Var. 2009 & 2010 |  | $    | -         
|Bally Total Fitness Holding Corporation, Common Stock                              |  | 4/30/10          |  |      | 45,186,963
|Bally Total Fitness Holding Corporation, Warrants                                  |  | 4/30/10          |  |      | -         
|BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17                   |  | 3/5/12           |  |      | 16,446,295
|Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19               |  | 10/19/12         |  |      | 9,803,494 
|Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 |  | 1/20/11          |  |      | 12,322,875
|DeepOcean Group Holding AS, Common Stock                                           |  | 5/13/11          |  |      | 3,477,627 
|Integra Telecom, Inc., Common Stock                                                |  | 11/19/09         |  |      | 8,433,884 
|Integra Telecom, Inc., Warrants                                                    |  | 11/19/09         |  |      | 19,920    
|La Paloma Generating Company, Residual Claim                                       |  | 2/2/05           |  |      | 1,574,284 
|Marsico Holdings, LLC Common Interest Units                                        |  | 9/10/12          |  |      | 172,694   
|Precision Holdings, LLC, Class C Membership Interests                              |  | Var. 2010 & 2011 |  |      | 1,396     
|Shop Holding, LLC, Class A Units                                                   |  | 6/2/11           |  |      | 462,576   
|Shop Holding, LLC, Warrants to Purchase Class A Units                              |  | 6/2/11           |  |      | -         
|SiTV, Inc., Warrants to Purchase Common Stock                                      |  | 8/3/12           |  |      | 300,322   
|STG-Fairway Holdings, LLC, Class A Units                                           |  | 12/30/10         |  |      | 1,100,348 
|The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19       |  | 9/26/11          |  |      | 6,820,215 





December 31, 2011



|Investment                                                                               |  | Acquisition Date |  | Cost |           
|---------------------------------------------------------------------------------------- |  | ---------------- |  | ---- | ----------
|                                                                                         |  |                  |  |      |           
|AIP/IS Holdings, LLC, Membership Units                                                   |  | Var. 2009 & 2010 |  | $    | -         
|Bally Total Fitness Holding Corporation, Common Stock                                    |  | 4/30/10          |  |      | 45,186,963
|Bally Total Fitness Holding Corporation, Warrants                                        |  | 4/30/10          |  |      | -         
|Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16       |  | 1/20/2011        |  |      | 12,322,875
|DeepOcean Group Holding AS, Common Stock                                                 |  | 5/13/2011        |  |      | 3,477,627 
|Encompass Digital Media Group, Inc., Common Stock                                        |  | 1/15/2010        |  |      | 883,196   
|GSI Group, Inc., Common Stock                                                            |  | 8/20/2008        |  |      | 753,225   
|Integra Telecom, Inc., Common Stock                                                      |  | 11/19/2009       |  |      | 8,433,884 
|Integra Telecom, Inc., Warrants                                                          |  | 11/19/2009       |  |      | 19,920    
|ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16                              |  | 4/9/2010         |  |      | 8,753,309 
|NEF Kamchia Co-Investment Fund, LP Interest                                              |  | 7/31/2007        |  |      | 3,367,227 
|NEF Telecom Company BV, Mezzanine Term Loan, EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17 |  | 8/29/2007        |  |      | 26,162,416
|Precision Holdings, LLC, Class C Membership Interests                                    |  | Var. 2010 & 2011 |  |      | 1,396     
|Shop Holding, LLC, Class A Units                                                         |  | 6/2/2011         |  |      | 462,576   
|Shop Holdings, LLC, Warrants to Purchase Class A Units                                   |  | 6/2/2011         |  |      | -         
|STG-Fairway Holdings, LLC, Class A Units                                                 |  | 12/30/2010       |  |      | 1,100,348 
|The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19             |  | 9/26/2011        |  |      | 7,389,583 



88







|TCP
        Capital Corp.
        
        Consolidating
        Statement of Assets and Liabilities
        
        December 31, 2012
|---------------------------------------------------------------------------------------------------------------------------------------



|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|----------------------------------------------------------- |  | ------------- | ------------ | - | ------------- | - | ------------ | ------------ |  | - | ------------- | -
|                                                            |  | TCP           |              |   | Special Value |   |              |              |  |   | TCP           |  
|                                                            |  | Capital Corp. |              |   | Continuation  |   |              |              |  |   | Capital Corp. |  
|                                                            |  | Standalone    |              |   | Partners, LP  |   |              | Eliminations |  |   | Consolidated  |  
|Assets                                                      |  |               |              |   |               |   |              |              |  |   |               |  
|Investments:                                                |  |               |              |   |               |   |              |              |  |   |               |  
|Unaffiliated issuers                                        |  | $             | -            |   |               | $ | 440,772,190  |              |  | $ | -             |  
|Investment in subsidiary                                    |  |               | 317,209,574  |   |               |   | -            |              |  |   | (317,209,574  | )
|Controlled companies                                        |  |               | -            |   |               |   | 22,489,208   |              |  |   | -             |  
|Other affiliates                                            |  |               | -            |   |               |   | 54,421,689   |              |  |   | -             |  
|Total investments                                           |  |               | 317,209,574  |   |               |   | 517,683,087  |              |  |   | (317,209,574  | )
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Cash and cash equivalents                                   |  |               | -            |   |               |   | 18,035,189   |              |  |   | -             |  
|Accrued interest income                                     |  |               | -            |   |               |   | 4,575,307    |              |  |   | -             |  
|Receivable for investment securities sold                   |  |               | -            |   |               |   | 7,727,415    |              |  |   | -             |  
|Deferred debt issuance costs                                |  |               | -            |   |               |   | 696,018      |              |  |   | -             |  
|Unrealized appreciation on swaps                            |  |               | -            |   |               |   | 179,364      |              |  |   | -             |  
|Prepaid expenses and other assets                           |  |               | 20,606       |   |               |   | 325,116      |              |  |   | -             |  
|Total assets                                                |  |               | 317,230,180  |   |               |   | 549,221,496  |              |  |   | (317,209,574  | )
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Liabilities                                                 |  |               |              |   |               |   |              |              |  |   |               |  
|Credit facility payable                                     |  |               | -            |   |               |   | 74,000,000   |              |  |   | -             |  
|Payable for investment securities purchased                 |  |               | -            |   |               |   | 21,814,819   |              |  |   | -             |  
|Payable to the Investment Manager                           |  |               | 61,051       |   |               |   | 48,149       |              |  |   | -             |  
|Interest payable                                            |  |               | -            |   |               |   | 119,233      |              |  |   | -             |  
|Payable to subsidiary                                       |  |               | -            |   |               |   | -            |              |  |   | -             |  
|Accrued expenses and other liabilities                      |  |               | 1,181,579    |   |               |   | 1,503,436    |              |  |   | -             |  
|Total liabilities                                           |  |               | 1,242,630    |   |               |   | 97,485,637   |              |  |   | -             |  
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Preferred equity facility                                   |  |               |              |   |               |   |              |              |  |   |               |  
|Series A preferred limited partner interests                |  |               | -            |   |               |   | 134,000,000  |              |  |   | -             |  
|Accumulated dividends on Series A preferred equity facility |  |               | -            |   |               |   | 526,285      |              |  |   | -             |  
|Total preferred limited partner interests                   |  |               | -            |   |               |   | 134,526,285  |              |  |   | -             |  
|Net assets                                                  |  | $             | 315,987,550  |   |               | $ | 317,209,574  |              |  | $ | (317,209,574  | )
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Composition of net assets                                   |  |               |              |   |               |   |              |              |  |   |               |  
|Common stock                                                |  | $             | 21,478       |   |               | $ | -            |              |  | $ | -             |  
|Additional paid-in capital                                  |  |               | 444,234,060  |   |               |   | 441,328,969  |              |  |   | (441,328,969  | )
|Accumulated deficit                                         |  |               | (128,267,988 | ) |               |   | (124,119,395 | )            |  |   | 124,119,395   |  
|Net assets                                                  |  | $             | 315,987,550  |   |               | $ | 317,209,574  |              |  | $ | (317,209,574  | )



89







TCP Capital
Corp.



Consolidating
Statement of Assets and Liabilities



December 31, 2011



|                                                            |  | Special Value |              |   |               |   |              |              |  |   | Special Value |  
|----------------------------------------------------------- |  | ------------- | ------------ | - | ------------- | - | ------------ | ------------ |  | - | ------------- | -
|                                                            |  | Continuation  |              |   | Special Value |   |              |              |  |   | Continuation  |  
|                                                            |  | Fund, LLC     |              |   | Continuation  |   |              |              |  |   | Fund, LLC     |  
|                                                            |  | Standalone    |              |   | Partners, LP  |   |              | Eliminations |  |   | Consolidated  |  
|Assets                                                      |  |               |              |   |               |   |              |              |  |   |               |  
|Investments:                                                |  |               |              |   |               |   |              |              |  |   |               |  
|Unaffiliated issuers                                        |  | $             | -            |   |               | $ | 287,312,979  |              |  | $ | -             |  
|Investment in subsidiary                                    |  |               | 237,606,302  |   |               |   | -            |              |  |   | (237,606,302  | )
|Controlled companies                                        |  |               | -            |   |               |   | 740,761      |              |  |   | -             |  
|Other affiliates                                            |  |               | -            |   |               |   | 90,906,796   |              |  |   | -             |  
|Total investments                                           |  |               | 237,606,302  |   |               |   | 378,960,536  |              |  |   | (237,606,302  | )
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Cash and cash equivalents                                   |  |               | -            |   |               |   | 10,831,678   |              |  |   | -             |  
|Accrued interest income                                     |  |               | -            |   |               |   | 6,288,802    |              |  |   | -             |  
|Receivable for investment securities sold                   |  |               | -            |   |               |   | 4,297,270    |              |  |   | -             |  
|Deferred debt issuance costs                                |  |               | -            |   |               |   | 1,137,513    |              |  |   | -             |  
|Unrealized appreciation on swaps                            |  |               | -            |   |               |   | 172,424      |              |  |   | -             |  
|Prepaid expenses and other assets                           |  |               | 400,322      |   |               |   | 1,364,958    |              |  |   | -             |  
|Total assets                                                |  |               | 238,006,624  |   |               |   | 403,053,181  |              |  |   | (237,606,302  | )
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Liabilities                                                 |  |               |              |   |               |   |              |              |  |   |               |  
|Credit facility payable                                     |  |               | -            |   |               |   | 29,000,000   |              |  |   | -             |  
|Management and advisory fees payable                        |  |               | -            |   |               |   | 565,599      |              |  |   | -             |  
|Payable for investment securities purchased                 |  |               | -            |   |               |   | 267,911      |              |  |   | -             |  
|Payable to the Investment Manager                           |  |               | 50,171       |   |               |   | 175,929      |              |  |   | -             |  
|Interest payable                                            |  |               | -            |   |               |   | 75,668       |              |  |   | -             |  
|Accrued expenses and other liabilities                      |  |               | 85,579       |   |               |   | 895,354      |              |  |   | -             |  
|Total liabilities                                           |  |               | 135,750      |   |               |   | 30,980,461   |              |  |   | -             |  
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Preferred equity facility                                   |  |               |              |   |               |   |              |              |  |   |               |  
|Series A preferred limited partner interests                |  |               | -            |   |               |   | 134,000,000  |              |  |   | -             |  
|Accumulated dividends on Series A preferred equity facility |  |               | -            |   |               |   | 466,418      |              |  |   | -             |  
|Total preferred limited partner interests                   |  |               | -            |   |               |   | 134,466,418  |              |  |   | -             |  
|Net assets                                                  |  | $             | 237,870,874  |   |               | $ | 237,606,302  |              |  | $ | (237,606,302  | )
|                                                            |  |               |              |   |               |   |              |              |  |   |               |  
|Composition of net assets                                   |  |               |              |   |               |   |              |              |  |   |               |  
|Common stock                                                |  | $             | 419          |   |               | $ | -            |              |  | $ | -             |  
|Additional paid-in capital                                  |  |               | 364,742,957  |   |               |   | 358,636,781  |              |  |   | (358,636,781  | )
|Accumulated deficit                                         |  |               | (126,872,502 | ) |               |   | (121,030,479 | )            |  |   | 121,030,479   |  
|Net assets                                                  |  | $             | 237,870,874  |   |               | $ | 237,606,302  |              |  | $ | (237,606,302  | )



90







TCP Capital
Corp.



Consolidating
Statement of Operations



Year Ended December 31, 2012





|                                                                                |  | TCP           |            |   | Special Value |   |             |              |  |   | TCP           |  
|------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ----------- | ------------ |  | - | ------------- | -
|                                                                                |  | Capital Corp. |            |   | Continuation  |   |             |              |  |   | Capital Corp. |  
|                                                                                |  | Standalone    |            |   | Partners, LP  |   |             | Eliminations |  |   | Consolidated  |  
|Investment income                                                               |  |               |            |   |               |   |             |              |  |   |               |  
|Interest income:                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Unaffiliated issuers                                                            |  |               | -          |   |               | $ | 42,139,023  |              |  |   | -             |  
|Controlled companies                                                            |  |               | -          |   |               |   | 1,253,915   |              |  |   | -             |  
|Other affiliates                                                                |  |               | -          |   |               |   | 5,850,394   |              |  |   | -             |  
|Dividend income:                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Affiliates                                                                      |  |               | -          |   |               |   | 1,811,189   |              |  |   | -             |  
|Other income:                                                                   |  |               |            |   |               |   |             |              |  |   |               |  
|Unaffiliated issuers                                                            |  |               | -          |   |               |   | 289,073     |              |  |   | -             |  
|Controlled companies                                                            |  |               | -          |   |               |   | 490,066     |              |  |   | -             |  
|Other affiliates                                                                |  |               | -          |   |               |   | 359,099     |              |  |   | -             |  
|Total interest and related investment income                                    |  |               | -          |   |               |   | 52,192,759  |              |  |   | -             |  
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Operating expenses                                                              |  |               |            |   |               |   |             |              |  |   |               |  
|Management and advisory fees                                                    |  |               | 1,292      |   |               |   | 6,907,650   |              |  |   | -             |  
|Professional fees relating to the Conversion                                    |  |               | -          |   |               |   | 411,523     |              |  |   | -             |  
|Amortization of deferred debt issuance costs                                    |  |               | -          |   |               |   | 441,495     |              |  |   | -             |  
|Legal fees, professional fees and due diligence expenses                        |  |               | 376,309    |   |               |   | 789,009     |              |  |   | -             |  
|Commitment fees                                                                 |  |               | -          |   |               |   | 225,560     |              |  |   | -             |  
|Director fees                                                                   |  |               | 66,444     |   |               |   | 132,889     |              |  |   | -             |  
|Interest expense                                                                |  |               | -          |   |               |   | 190,702     |              |  |   | -             |  
|Insurance expense                                                               |  |               | 43,279     |   |               |   | 86,861      |              |  |   | -             |  
|Custody fees                                                                    |  |               | 3,500      |   |               |   | 96,447      |              |  |   | -             |  
|Other operating expenses                                                        |  |               | 181,971    |   |               |   | 437,490     |              |  |   | -             |  
|Total operating expenses                                                        |  |               | 672,795    |   |               |   | 9,719,626   |              |  |   | -             |  
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Net investment income (loss) before income taxes                                |  |               | (672,795   | ) |               |   | 42,473,133  |              |  |   | -             |  
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Excise tax expense                                                              |  |               | 1,479,978  |   |               |   | -           |              |  |   | -             |  
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Net investment income (loss)                                                    |  |               | (2,152,772 | ) |               |   | 42,473,133  |              |  |   | -             |  
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Net realized and unrealized gain
    (loss) on investments and foreign currency |  |               |            |   |               |   |             |              |  |   |               |  
|Net realized gain (loss):                                                       |  |               |            |   |               |   |             |              |  |   |               |  
|Investments in unaffiliated issuers                                             |  |               | -          |   |               |   | (29,574,293 | )            |  |   | -             |  
|Investments in affiliates                                                       |  |               | -          |   |               |   | 13,584,105  |              |  |   | -             |  
|Net realized loss                                                               |  |               | -          |   |               |   | (15,990,188 | )            |  |   | -             |  
|Net change in unrealized appreciation/depreciation                              |  |               | 28,086,083 |   |               |   | 3,205,937   |              |  |   | (28,086,083   | )
|Net realized and unrealized gain (loss)                                         |  |               | 28,086,083 |   |               |   | (12,784,251 | )            |  |   | (28,086,083   | )
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Dividends paid on Series A preferred equity facility                            |  |               | -          |   |               |   | (1,542,932  | )            |  |   | -             |  
|Net change in accumulated dividends on Series A preferred equity facility       |  |               | -          |   |               |   | (59,867     | )            |  |   | -             |  
|                                                                                |  |               |            |   |               |   |             |              |  |   |               |  
|Net increase in net assets resulting from operations                            |  | $             | 25,933,310 |   |               | $ | 28,086,083  |              |  | $ | (28,086,083   | )



91







TCP Capital
Corp.



Consolidating
Statement of Operations



Year Ended December 31, 2011



|                                                                                |  | Special Value |           |   |               |   |             |              |  |   | Special Value |  
|------------------------------------------------------------------------------- |  | ------------- | --------- | - | ------------- | - | ----------- | ------------ |  | - | ------------- | -
|                                                                                |  | Continuation  |           |   | Special Value |   |             |              |  |   | Continuation  |  
|                                                                                |  | Fund, LLC     |           |   | Continuation  |   |             |              |  |   | Fund, LLC     |  
|                                                                                |  | Standalone    |           |   | Partners, LP  |   |             | Eliminations |  |   | Consolidated  |  
|Investment income                                                               |  |               |           |   |               |   |             |              |  |   |               |  
|Interest income:                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Unaffiliated issuers                                                            |  | $             | -         |   |               | $ | 38,290,363  |              |  | $ | -             |  
|Other affiliates                                                                |  |               | -         |   |               |   | 3,822,995   |              |  |   | -             |  
|Dividend income:                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Other affiliates                                                                |  |               | -         |   |               |   | 10,610,159  |              |  |   | -             |  
|Other income:                                                                   |  |               |           |   |               |   |             |              |  |   |               |  
|Unaffiliated issuers                                                            |  |               | -         |   |               |   | 1,068,872   |              |  |   | -             |  
|Other affiliates                                                                |  |               | -         |   |               |   | 1,065,287   |              |  |   | -             |  
|Total interest and related investment income                                    |  |               | -         |   |               |   | 54,857,676  |              |  |   | -             |  
|                                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Operating expenses                                                              |  |               |           |   |               |   |             |              |  |   |               |  
|Management and advisory fees                                                    |  |               | -         |   |               |   | 6,787,188   |              |  |   | -             |  
|Amortization of deferred debt issuance costs                                    |  |               | -         |   |               |   | 440,289     |              |  |   | -             |  
|Legal fees, professional fees and due diligence expenses                        |  |               | 97,661    |   |               |   | 233,928     |              |  |   | -             |  
|Interest expense                                                                |  |               | -         |   |               |   | 321,532     |              |  |   | -             |  
|Director fees                                                                   |  |               | 60,320    |   |               |   | 120,640     |              |  |   | -             |  
|Commitment fees                                                                 |  |               | -         |   |               |   | 180,467     |              |  |   | -             |  
|Insurance expense                                                               |  |               | 36,289    |   |               |   | 78,157      |              |  |   | -             |  
|Custody fees                                                                    |  |               | 3,500     |   |               |   | 88,386      |              |  |   | -             |  
|Other operating expenses                                                        |  |               | 29,839    |   |               |   | 771,754     |              |  |   | -             |  
|Total operating expenses                                                        |  |               | 227,609   |   |               |   | 9,022,341   |              |  |   | -             |  
|                                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Net investment income                                                           |  |               | (227,609  | ) |               |   | 45,835,335  |              |  |   | -             |  
|                                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Net realized and unrealized gain
    (loss) on investments and foreign currency |  |               |           |   |               |   |             |              |  |   |               |  
|Net realized gain:                                                              |  |               |           |   |               |   |             |              |  |   |               |  
|Investments in unaffiliated issuers                                             |  |               | -         |   |               |   | 17,818,481  |              |  |   | -             |  
|Investments in affiliates                                                       |  |               | -         |   |               |   | 261,308     |              |  |   | -             |  
|Net realized gain                                                               |  |               | -         |   |               |   | 18,079,789  |              |  |   | -             |  
|Net change in unrealized appreciation/depreciation                              |  |               | 5,411,624 |   |               |   | (56,958,670 | )            |  |   | (5,411,624    | )
|Net realized and unrealized gain (loss)                                         |  |               | 5,411,624 |   |               |   | (38,878,881 | )            |  |   | (5,411,624    | )
|                                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Dividends paid on Series A preferred equity facility                            |  |               | -         |   |               |   | (1,456,281  | )            |  |   | -             |  
|Net change in accumulated dividends on Series A preferred equity facility       |  |               | -         |   |               |   | (88,549     | )            |  |   | -             |  
|Dividends paid to Series Z preferred shareholders                               |  |               | (752      | ) |               |   | -           |              |  |   | -             |  
|Net change in reserve for
    dividends to Series Z preferred shareholders      |  |               | 27        |   |               |   | -           |              |  |   | -             |  
|                                                                                |  |               |           |   |               |   |             |              |  |   |               |  
|Net increase in net assets resulting from operations                            |  | $             | 5,183,290 |   |               | $ | 5,411,624   |              |  | $ | (5,411,624    | )



92







TCP Capital
Corp.



Consolidating
Statement of Operations



Year Ended December 31, 2010



|                                                                              |  | Special Value |            |   |               |   |            |              |  |   | Special Value |  
|----------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | ------------ |  | - | ------------- | -
|                                                                              |  | Continuation  |            |   | Special Value |   |            |              |  |   | Continuation  |  
|                                                                              |  | Fund, LLC     |            |   | Continuation  |   |            |              |  |   | Fund, LLC     |  
|                                                                              |  | Standalone    |            |   | Partners, LP  |   |            | Eliminations |  |   | Consolidated  |  
|Investment income                                                             |  |               |            |   |               |   |            |              |  |   |               |  
|Interest income:                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Unaffiliated issuers                                                          |  | $             | -          |   |               | $ | 29,158,784 |              |  | $ | -             |  
|Controlled companies                                                          |  |               | -          |   |               |   | 1,051,064  |              |  |   | -             |  
|Other affiliates                                                              |  |               | -          |   |               |   | 2,200,971  |              |  |   | -             |  
|Dividend income:                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Unaffiliated issuers                                                          |  |               | -          |   |               |   | 280,139    |              |  |   | -             |  
|Other affiliates                                                              |  |               | -          |   |               |   | 13,267,785 |              |  |   | -             |  
|Other income:                                                                 |  |               |            |   |               |   |            |              |  |   |               |  
|Unaffiliated issuers                                                          |  |               | -          |   |               |   | 1,809,024  |              |  |   | -             |  
|Other affiliates                                                              |  |               | -          |   |               |   | 33,445     |              |  |   | -             |  
|Total interest and related investment income                                  |  |               | -          |   |               |   | 47,801,212 |              |  |   | -             |  
|                                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Operating expenses                                                            |  |               |            |   |               |   |            |              |  |   |               |  
|Management and advisory fees                                                  |  |               | -          |   |               |   | 6,787,188  |              |  |   | -             |  
|Legal fees, professional fees and due diligence expenses                      |  |               | 102,140    |   |               |   | 377,886    |              |  |   | -             |  
|Amortization of deferred debt issuance costs                                  |  |               | -          |   |               |   | 440,289    |              |  |   | -             |  
|Interest expense                                                              |  |               | -          |   |               |   | 234,582    |              |  |   | -             |  
|Commitment fees                                                               |  |               | -          |   |               |   | 218,935    |              |  |   | -             |  
|Director fees                                                                 |  |               | 66,644     |   |               |   | 115,051    |              |  |   | -             |  
|Insurance expense                                                             |  |               | 45,377     |   |               |   | 90,989     |              |  |   | -             |  
|Custody fees                                                                  |  |               | 3,500      |   |               |   | 81,886     |              |  |   | -             |  
|Other operating expenses                                                      |  |               | 43,785     |   |               |   | 286,427    |              |  |   | -             |  
|Total operating expenses                                                      |  |               | 261,446    |   |               |   | 8,633,233  |              |  |   | -             |  
|                                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Net investment income                                                         |  |               | (261,446   | ) |               |   | 39,167,979 |              |  |   | -             |  
|                                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Net realized and unrealized gain on
    investments and foreign currency      |  |               |            |   |               |   |            |              |  |   |               |  
|Net realized gain:                                                            |  |               |            |   |               |   |            |              |  |   |               |  
|Investments in affiliates                                                     |  |               | -          |   |               |   | 10,527,629 |              |  |   | -             |  
|Investments in unaffiliated issuers                                           |  |               | -          |   |               |   | 8,147,980  |              |  |   | -             |  
|Net realized gain                                                             |  |               | -          |   |               |   | 18,675,609 |              |  |   | -             |  
|Net change in unrealized appreciation/depreciation                            |  |               | 69,271,125 |   |               |   | 12,945,410 |              |  |   | (69,271,125   | )
|Net realized and unrealized gain                                              |  |               | 69,271,125 |   |               |   | 31,621,019 |              |  |   | (69,271,125   | )
|                                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Net change in undistributed earnings of minority interestholder               |  |               | -          |   |               |   | -          |              |  |   | -             |  
|Dividends paid on Series A preferred equity facility                          |  |               | -          |   |               |   | (1,508,341 | )            |  |   | -             |  
|Net change in accumulated dividends on Series A
    preferred equity facility |  |               | -          |   |               |   | (9,532     | )            |  |   | -             |  
|Dividends paid to Series Z preferred shareholders                             |  |               | (3,750     | ) |               |   | -          |              |  |   | -             |  
|Net change in reserve for dividends to Series Z
    preferred shareholders    |  |               | 1,864      |   |               |   | -          |              |  |   | -             |  
|                                                                              |  |               |            |   |               |   |            |              |  |   |               |  
|Net increase in net assets resulting from operations                          |  | $             | 69,007,793 |   |               | $ | 69,271,125 |              |  | $ | (69,271,125   | )



93







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



None



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



| | (a) | Evaluation of Disclosure Controls and Procedures
| | --- | ------------------------------------------------



As of December 31, 2012 (the
end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act).
Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our
disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in
our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of such possible controls and procedures.



| | (b) | Management’s Report on Internal Control Over Financial Reporting
| | --- | ----------------------------------------------------------------



Management is responsible for
establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness
of internal control over financial reporting as of December 31, 2012. Internal control over financial reporting is a process designed
by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions,
and effected by our 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. Our internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only
in accordance with authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management
performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012 based upon
the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on our assessment, management determined that our internal control over financial
reporting was effective as of December 31, 2012.



| | (c) | 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.



94







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



None



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 2013 Annual Stockholders Meeting to be filed
with the Securities and Exchange Commission within 120 days after December 31, 2012 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 2013 Annual Stockholders Meeting to be filed
with the Securities and Exchange Commission within 120 days after December 31, 2012 and is incorporated herein by reference.



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



The information required
by this item is contained in the Registrant’s definitive Proxy Statement for its 2013 Annual Stockholders Meeting to be filed
with the Securities and Exchange Commission within 120 days after December 31, 2012 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 2013 Annual Stockholders Meeting to be filed
with the Securities and Exchange Commission within 120 days after December 31, 2013 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 2013 Annual Stockholders Meeting to be filed
with the Securities and Exchange Commission within 120 days after December 31, 2012 and is incorporated herein by reference.



95







PART IV



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



| | a. | Documents Filed as Part of this Report
| | -- | --------------------------------------



The following reports and consolidated financial
statements are set forth in Item 8:





|                                                                                                         | Page
|-------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm                                                  |     
|Consolidated Statements of Assets and Liabilities as of December 31, 2012 and 2011                       | 51  
|Consolidated Statements of Investments as of December 31, 2012 and 2011                                  | 52  
|Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010               | 65  
|Consolidated Statements of Changes in Net Assets for the years ended December 31, 2012, 2011 and 2010    | 66  
|Consolidated
    Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010           | 67  
|Notes to Consolidated Financial Statements                                                               | 68  
|Consolidated Schedules of Changes in Investments in Affiliatesas as of December 31, 2012 and 2011        | 86  
|Consolidated Schedules of Restricted Securities of Unaffiliated Issuers as of December 31, 2012 and 2011 | 88  
|Consolidating Statements of Assets and Liabilities as of December 31, 2012 and 2011                      | 89  
|Consolidating
    Statements of Operations for the years ended December 31, 2012, 2011 and 2010          | 91  





| | b. | Exhibits
| | -- | --------



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





|Number | Description                                                                                                                                       
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    | Articles of Incorporation of the Registrant (1)                                                                                                   
|3.2    | Bylaws of the Registrant (2)                                                                                                                      
|10.1   | Form of Investment Management Agreement By and Between Registrant and Tennenbaum Capital Partners, LLC (3)                                        
|10.2   | Form of Administration Agreement of the Registrant (4)                                                                                            
|10.3   | Custodial Agreement dated as of July 31, 2006 (5)                                                                                                 
|10.4   | Form of Transfer Agency and Registrar Services Agreement (6)                                                                                      
|10.5   | Form of License Agreement (7)                                                                                                                     
|10.6   | Credit Agreement dated July 31, 2006 (8)                                                                                                          
|10.7   | First Amendment to Credit Agreement dated February 28, 2011 (9)                                                                                   
|10.8   | Form of Amended and Restated Partnership Agreement of Special Value Continuation Partners, LP (10)                                                
|10.9   | Form of Administration Agreement of Special Value Continuation Partners, LP (11)                                                                  
|14.1   | Consolidated Code of Ethics of the Registrant and the Advisor (12)                                                                                
|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) | Incorporated by reference to the Exhibit (a)(2) to the Registrant's Registration Statement under the Securities Act of 1933
(File No. 333-172669), on Form N-2, filed on May 13, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference to the Exhibit (b)(2) to the Registrant's Registration Statement under the Securities Act of 1933
(File No. 333-172669), on Form N-2, filed on May 13, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated by reference to Exhibit (g) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on May 13, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Incorporated by reference to Exhibit (k)(1) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on May 13, 2011.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Incorporated by reference to Exhibit 10.2 to Form 10-12G of Special Value Continuation Partners, LP (File No. 000-54393), filed
May 6, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Incorporated by reference to Exhibit (k)(2) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on March 5, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Incorporated by reference to Exhibit (k)(3) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on March 5, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Incorporated by reference to Exhibit 10.5 to Form 10-12G of Special Value Continuation Partners, LP (File No. 000-54393), filed
May 6, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Incorporated by reference to Exhibit 10.6 to Form 10-12G of Special Value Continuation Partners, LP (File No. 000-54393), filed
May 6, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Incorporated by reference to Exhibit (k)(8) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on May 13, 2011.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (11) | Incorporated by reference to Exhibit (k)(9) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on May 13, 2011.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (12) | Incorporated by reference to Exhibit (r)(1) to the Registrant's Registration Statement under the Securities Act of 1933 (File
No. 333-172669), on Form N-2, filed on March 5, 2012.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









96











SIGNATURES



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



TCP Capital Corp.



|By:                                                 |  |  |  | 
|--------------------------------------------------- |  |  |  | 
|/s/ Howard
        M. Levkowitz                     |  | 
|Howard M. Levkowitz
        Chief Executive Officer | 
|                                                    |  | 

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the
dates indicated.



|              |  |                                                             |  |                                                                                          
|------------- |  | ----------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|Date          |  | Signature                                                   |  | Title                                                                                    
|              |  |                                                            
|March 7, 2013 |  | /s/ Howard
        M. Levkowitz
        Howard M. Levkowitz |  | Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer)
|              |  |                                                            
|March 7, 2013 |  | /s/ Eric
        J. Draut
        Eric J. Draut             |  | Director                                                                                 
|              |  |                                                            
|March 7, 2013 |  | /s/ Franklin
        R. Johnson
        Franklin R. Johnson |  | Director                                                                                 
|              |  |                                                            
|March 7, 2013 |  | /s/ Peter
        E. Schwab
        Peter E. Schwab         |  | Director                                                                                 
|              |  |                                                            
|March 7, 2013 |  | /s/ Rajneesh
        Vig
        Rajneesh Vig               |  | President                                                                                
|              |  |                                                            
|March 7, 2013 |  | /s/ Paul
        L. Davis
        Paul L. Davis             |  | Chief Financial Officer (Principal Financial Officer)                                    









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